A license agreement involves an exchange of promises made between the owner of a technology (the “licensor”) and the entity desiring to commercialize the licensed technology (the “licensee”). While UC Merced negotiates, executes and manages the licenses, the licensor is actually the UC Regents as, per policy, it owns title to the inventions made by UC Merced employees.
In a typical exclusive patent license agreement, the UC Regents promises to give the licensee rights to the UC Regents’ interest in the technology. The UC Regents also agree to manage the prosecution of any patent applications through the patent office and to maintain the patents once they are issued, at the licensee’s expense. Importantly, UC Merced also ensures the license agreement adheres to any obligations required by the sponsors that funded the licensed technology; for example, the Bayh-Dole Act imposes on the funded institution certain obligations (development diligence, reservation of rights to the U.S. Government, U.S. manufacturing requirement, etc.) when licensing a federally funded invention.
In exchange for such promise by the UC Regents, the licensee agrees to fulfill certain obligations, including achieving certain development milestones and making various payments. The development milestones typically include reaching a series of required development stages (e.g., raise a certain amount of capital for development, obtain FDA approval from a regulatory agency, sell a first product, etc.) by a specified date. The payment obligations often consist of a combination of: a fee upon execution, a recurring fee on an annual basis, reimbursement of patenting expenses, payments when certain diligence milestones are met, a royalty on each product sold, and a percentage of any consideration the licensee receives if it passes on its rights to another entity (referred to as a “sublicensee”).
Of particular note to the inventors, UC Merced at all times ensures that the license agreement reserves the right for the inventors and other academic researchers to continue to conduct academic research involving the technology, including creating improvements to such technology. In addition, unless specifically agreed to by the applicable inventors, the license agreement will not commit any of the inventors to collaborate or assist the licensee in its commercialization of the technology. In fact, many license agreements have led to the licensee sponsoring research in the inventors’ labs and/or retaining the inventors as consultants.
UC Merced enthusiastically welcomes the input and advice from the inventors. In fact, often UC Merced’s potential licensee leads come from the inventors themselves. While inventors are never required to provide assistance in the commercialization of their technologies, UC Merced welcomes such involvement and is increasingly identifying and encouraging opportunities for licensees to sponsor research in the inventors’ labs to accelerate the development of the technology, which benefits both the licensee and the inventors.
Yes, faculty inventors can license the technology they create into a startup company they found. That said, there are a few caveats.
If an inventor wishes to enter into a Letter of Intent for either a 3 or 6 month duration prior to company formation, OTIIR has an Express Letter of Intent (LOI). This Express LOI can be signed by the inventor as long as there are no changes to the template form.
If the inventor wishes to add a term sheet or customize the LOI, then they would need to form a company.
Next, please note the faculty member is not permitted to negotiate the terms of the license or an option – there would need to be a “representative” for the company, which could be a (non-UC employee) business lead or an attorney.
Also, the company need not execute a license immediately if it is not in the position to commence commercialization of the invention.
OTIIR attempts to make the licensing process feasible for startup companies by back loading the consideration received and also by letting companies start with LOIs, convert to longer term option agreements and then when ready, enter a license agreement. The license agreements are back loaded but still have an upfront cash payment and other fees as the technology develops and royalties on the ultimate sale of a licensed product.
The company is expected to pay for patent expenses incurred during the term of an option or license agreement.
Per UC policy, inventors receive a percentage (which varies depending on which policy applies) of the revenues UC Merced receives from licensing fees, royalties and equity attributed to their invention – this is often referred to as the “inventor share.”
The UC Regents is currently working under two patent policies as reflected by the chart below. While the Current (1997) Policy is in effect, some long term UC employees can choose whether to have their inventions administered under either the Old (1963/85) Policy or the Current Policy.
For inventions disclosed on or after October 1, 1997, the invention disclosure date and the inventor hire date will determine which policy is applicable.
If an invention is disclosed on or after October 1, 1997, but the inventor was hired before April 16, 1990, the inventor can choose (provided such decision is irrevocable) between the two policies.
If an invention is disclosed on or after October 1, 1997 and the inventor was hired after April 16, 1990, the invention will be administered under the Current Policy.
The invention may be jointly owned by UC Merced and the other institution or company. Each inventor must disclose the invention to his or her home institution. OTIIR will work with the other institution or company to create an agreement that will determine who will take the lead in managing the invention.
Yes. All UC Merced employees sign a Patent Acknowledgement Agreement that requires them to disclose any potentially patentable inventions, whether or not UC resources are utilized. If, however, the invention is created in your spare time, without using UC resources, and is outside of the scope of your employment, UC Merced may relinquish rights to the invention.
Yes. If there is a person that you feel has contributed towards the development of an invention (but whose contribution does not rise to the level of inventorship) and you would like to reward them, you can designate a percentage of your royalties to be given to them. We have a letter agreement that the parties sign to memorialize this understanding.
Absolutely. Our goal is to file patents broadly and aggressively to protect UC Merced inventions and maximize the possibility that these inventions will eventually be commercialized. UC Merced will often make the investment to convert a provisional application to a full patent application before a licensee has been identified, especially when the technology appears promising as outlined below.
A provisional patent application is a very useful step in the patent process that has many benefits. Because a provisional application has fewer formal filing requirements than a non-provisional application, a provisional application allows an inventor to more quickly and easily obtain an effective filing date, while retaining the opportunity to supplement the provisional application over the year that follows with additional data that further supports the invention. A provisional application also has significantly reduced filing fees, when compared with a non-provisional application. Lastly, a provisional application does not start the clock in calculating the 20-year term of any issuing patent (the clock begins when the subsequent non-provisional is ultimately filed, effectively extending the patent term by an additional year).
Studies have shown that 70% of licensees were known to the inventors. Thus research and consulting relationships that the inventors have are often a valuable source of potential licensees and we strongly encourage you to let us know about your industry contacts. Licensees are also identified through existing relationships within OTIIR. We continually attempt to broaden these relationships through various forms of networking and market research.
If a company is interested in obtaining more details about your invention for further evaluation, we can execute a Non-Confidential Disclosure Agreement (NDA) to ensure that proprietary information remains confidential and that any information disclosed is not deemed to be a public disclosure for the purposes of patenting. To avoid risking your patent rights, always contact OTIIR before having any discussions with individuals outside of the UC Merced community where you plan to disclose your invention.
Your active involvement can dramatically improve the chances of finding a licensee. Once interested companies are identified, the inventor is the best person to describe the details of the invention and its technical advantages. Typically companies are most interested in licensing technology where the inventor is invested in moving the technology toward commercialization.
A Letter of Intent (LOI) is a simple agreement giving the licensee a time-limited exclusive right to negotiate an option or license agreement.
An option agreement provides a company the right to make and use (but not offer for sale or sell) the technology purely for internal research and evaluation purposes, with an option to enter into negotiations for a license for a fixed period of time.
A bailment agreement is the transfer of tangible materials (for example a mouse model) for commercial purposes. Companies often pay fees or royalties for these materials.
Yes, an invention can be licensed to multiple licensees, either non- exclusively to several companies, co-exclusively to a defined and limited number of companies, or exclusively to several companies, with each having a unique field-of-use or geography.
License terms are tailored to the specifics of the technology, market and business plans of the licensee. General terms found in most licenses include an upfront license fee (cash or cash and equity), royalties, diligence terms, milestone/maintenance fees, indemnification, insurance and reimbursement of historical and ongoing patent costs.
