Entrepreneurship built this country. Small business create 64% of new jobs, hire 40% of all tech workers, and produce 13 times more patents per employee than large businesses. Moreover, every large business began as a small one, and many small businesses spun out of universities orgovernment labs.
Since the Bayh-Dole act of 1980, licensing of technology from government labs and universities has been very successful in allowing companies to commercialize a new idea. The Obama administration has enhanced this focus on helping small companies innovate through licensing. As an entrepreneur, however, I have to ask myself, “Can we do it better?”
In order to answer this question, we need to first understand why intellectual property is licensed. A lab or university could have many reasons for wanting to license out their IP.
1) Commercialize the invention. When Bandgap Engineering licensed IP from Los Alamos National Laboratory, the main concern of the tech transfer division was that the technology would be commercialized. We were therefore required to present a full business plan, and demonstrate our ability to raise capital to implement our plan.
2) Make money. Many universities and government laboratories see licensing as a way to bring in revenue for the university. In some cases, the focus on revenue has overshadowed other goals, and led to intense conflicts.
3) Support the activities of professors and technical staff outside the institute. I have heard several tech transfer departments proclaim that their main goal is to support professors who often pursue career opportunities and research through non-university channels.
4) Create a culture of entrepreneurship. A culture of entrepreneurship generates many tangible and intangible benefits for universities and research institutions. It improves research quality, enhances collaboration, improves reputation and prestige, helps recruit talented staff, improves job placement of students, and broadens an institution’s network.
Making a Good System Great
Keeping the above objectives in mind, what can a university do to improve the chances of a company licensing their IP and successfully commercializing it? Here are some ideas:
1) Defer payment
Pre-revenue companies have a huge discount rate on money. In other words, money now is worth quite a bit more than money in a few years, when a successful companywill have access to more funds. Therefore, the more payment is deferred (even if the amount of the license fee increases somewhat), the more likely a company will be able to pay it.
2) Don’t be greedy
Make sure you aren’t asking so much that you kill the company. Recognize that invention is only one step of many to commercialization. Successful commercialization of technology involves money, people, resources, blood, luck, and sweat. Furthermore, sponsored research is a much larger portion of universities revenue than license. For example MIT spends 600 million/year on research and of this only 60 million is from licensing IP. So if a greedy license that lowers sponsored research is not good for the university.
3) Be flexible
For example, in fields such as solar cell manufacturing, where margins are small, having even a small revenue claim in a license could make the company uncompetitive in the future. Be quick to adjust the deal if it no longer makes sense to the company. Recognize that if the company doesn’t succeed, the flow of money stops!
4) Cultivate the relationship between the licensor and licensee
A close relationship can enhance the value of a patent. For example, it can result in follow-on IP that broadens or deepens patent claims. Early collaboration can even allow superior crafting of initial claims to ensure they cover the most lucrative applications. Too many academic patents fail to encompass the full value of an invention.
I was lucky to have had a good experience licensing from LANL, but have heard many stories where others were not as lucky. Let’s make the process even better so that American can continue to do what she does great – innovate.
Energy Leaders Forum Responses
Bilal Zuberi, General Catalyst Partners
I could not agree more with Marcie’ views on IP licensing, esp out of universities. It is unfortunate that despite efforts by many including university professionals, there is still a lack of clarity, ease of process, and a sense of fairness in many such initial discussions. We have seen many startups face a hard time raising capital because of poor behavior and negotiations with licensing offices. Infact I have also seen VCs swear to never try to license something out of certain universities because of the headache and pain involved. It is a system that should not be broke, but partly is. That said, I don’t believe the problem exists because technology licensing officers are out to make life difficult for professors, students, entrepreneurs and early stage investors. I believe there is a communication and learning issue which can easily be overcome. For example approximately 4 years ago we co-founded the annual University Research and Entrepreneurship Symposium in Boston to start to bridge that gap and have technology licensing offices, early stages investors, successful entrepreneurs and faculty work closely on showcasing technologies for commercialization by new startups. More communication not only helps build trust, but it also allows knowledge to be shared more broadly and utilized in future deal-making.
