The Licensing Process

The University of Michigan’s licensing process is designed to negotiate and formalize a fair exchange of access to technology and legal rights for reasonable consideration, while simultaneously accommodating the unique needs of both parties.

Technology development today takes place in a complex environment, with competing requirements from the funding agencies sponsoring the research, federal and state law, university policies, the professional goals of the inventors, and the specific needs of the potential licensees. We strive to bridge these gaps by creating win-win scenarios where all parties benefit from the transfer of technology.

Upon your company’s initial contact with the licensing representative, we can provide links to or copies of the publicly available materials describing the invention for your preliminary review. If you believe that the technology might pose a solution to your company’s needs, then we move to put your company’s technical experts in contact with our inventors to confirm the many specific details surrounding the implementation of the invention in the corporate environment. Often we will ask for your company to sign a Non-Disclosure Agreement ‎(NDA) to protect any of the University’s proprietary information that may either reside in a still unpublished patent application or may not be contained in the patent papers. With an NDA in place, the technical teams can meet and discuss the technology.

Sometimes even after these technical discussions, uncertainties remain about the technology (will it scale up to industrial production levels? Can it interface with existing company tooling? Can the company’s staff reproduce the inventor’s work?) and a brief period of further testing or evaluation may be desired. We offer Option Agreements to reserve to the company the exclusive right to obtain a license agreement. If these Options are to last for more than a short time (3 – 6 months) we include developmental milestones to be completed by the company before it may exercise the option to obtain a license. Financial consideration for holding this exclusive Option usually includes the company’s reimbursement of the University’s patent costs incurred during the Option Period, as well as an Option Fee.

In many cases, no further testing is necessary and the negotiation of an exclusive or nonexclusive License Agreement can begin. For those companies who have completed licensing transactions with other major research universities, you will find few surprises in our agreements. For companies who are doing such deals for the first time, we recommend reading the following section, Points to Consider When Negotiating a License (see below).

Just as every technology is different, so too is every deal – we usually start with a term sheet covering definitions, diligence, and financial terms, but we are ready to discuss adjusting any of the terms that we are empowered to change. These changes would reflect the unique needs of both parties and the economic and practical realities that define the market opportunity being addressed. As such, we can’t promise that terms in any two licenses will be equal, but they will be fair for that situation. See the License Agreement Terms section below for more information on standard Option and License Agreements.

Points to Consider When Negotiating a License

The University of Michigan, along with many university tech transfer offices, has endorsed the Association of University Technology Manager’s (AUTM) list of points to consider as companies license inventions from a university .

AUTM’s Points to Consider:

  • Universities should reserve the right to practice licensed inventions and to allow other non-profit and governmental organizations to do so
  • Exclusive licenses should be structured in a manner that encourages technology development and use
  • Strive to minimize the licensing of “future improvements”
  • Universities should anticipate and help to manage technology transfer related conflicts of interest
  • Ensure broad access to research tools
  • Enforcement action should be carefully considered
  • Be mindful of export regulations
  • Be mindful of the implications of working with patent aggregators
  • Consider including provisions that address unmet needs, such as those of neglected patient populations or geographic areas, giving particular attention to improved therapeutics, diagnostics and agricultural technologies for the developing world

What We Look for in a Licensee

The decision to license to a prospective licensee is shared by the U-M Innovation Partnerships professional and the inventor(s), whose proactive cooperation is often essential for success .

We look for:

  • knowledge and access to the addressed applications and markets
  • financial and other resources
  • a plan and demonstrated commitment to have our technology reach the marketplace

Certainty at Michigan

In response to industry and to researcher feedback that new models would catalyze research partnerships, Innovation Partnerships created the Certainty at Michigan Program to institute various new licensing models that will provide greater certainty on IP outcomes and expedite the execution of sponsored research agreements.

How it Works

In the early stages of a sponsored research project, a sponsor of an eligible project selects from three pre-negotiated IP options within the Certainty at Michigan Program. These pre-negotiated IP terms are then inserted into the funding agreement. Upon signature, the sponsor pays the award amount and the associated technology fee based on the pre-negotiation IP selection. During the course of the project, U-M will notify the sponsor of any resulting project IP. A sponsor can direct U-M to file patents at the sponsor’s expense. Project IP is included in the sponsor’s previously elected license type. Depending on the election, a success fee may be applicable.

Learn more

Interest in Continuing Research at U-M

The evaluation and technical development of an invention may require additional research. You may wish to find a corporate research sponsor to support the development of the project.

Our Corporate Research Alliances team specializes in supporting these types of arrangements and will work with you and your licensing professional to develop a corporate sponsored research agreement.

Corporate Research Alliances is the university’s first stop for corporate partners seeking research collaborations.

Negotiating Financial Terms and Equity

The University obtains financial compensation through: license fees, royalties, milestone payments, minimum royalties, and, in some cases, equity .

No two technologies are alike and thus agreement terms are developed on a case by case basis. The licensing staff is committed to working out an arrangement that is both advantageous to your company and that provides a fair return for the university.

  • Royalties are “usage-based payments” made by the licensee to the intellectual property holder (the University of Michigan) for each item sold. Royalties typically are based on a percentage of net sales or a fixed price per unit sold.
  • Fees are lump sum payments that can be constructed so that payments can be made upfront, at milestones, or at a set point in time.
  • Patent Reimbursement. An exclusive Licensee typically is expected to reimburse the University’s costs associated with obtaining and maintaining patent and copyright protection.
  • Equity is compensating the university with ownership in the licensee (through stock.) The equity stake in the company is negotiated based on the value of the University’s technology. If a faculty/staff member or graduate student has an equity stake in a licensee or optionee, the agreement must be reviewed by one of the University’s Conflict of Interest Committees and be approved by the Regents of the University of Michigan.

Faculty, Staff, or Graduate Student Involvement in Companies

In cases where faculty/staff members hold a financial stake in the company (including, but not limited to, equity, employment, or a consulting arrangement) or if a graduate student is involved, there may be a perceived conflict of interest .

This risk needs to be disclosed and managed through one of the University’s Conflict of Interest Committees and approved by the Regents of the University of Michigan before the technology can be licensed. The Innovation Partnerships office initiates the review process and can assist you during the process.

General License Agreement Terms

Licenses with universities generally will include the following sections .


    Of particular importance will be the definition of the technology/patent rights being licensed, field of use that the licensee can sell the technology, and the geographic scope of the license rights. Additional definitions can include net sales, sublicensee, etc.

Grant of License

  • Exclusive vs. nonexclusive
  • Field of use (eg., diagnostics, therapeutic, veterinary, etc.)
  • Territory (worldwide vs. U.S., etc.)
  • Sublicense rights (eg., can the licensee sublicense the technology)
  • Reservation to the university that it can use the technology for research and academic purposes
  • If relevant, reservation of rights to the government


  • License fee
  • Equity for liquidation payment at exit if licensee is a start-up
  • Royalty on sales by licensee and its sublicensee (most common, but sometimes a set royalty amount per product sold)
  • Percentage of non-sales based sublicense income (such as sublicense fees)
  • Minimum royalties or annual maintenance fees
  • Milestone/diligence payments

Patent Prosecution and Payment

    Typically the university will control patent prosecution and provide the licensee the opportunity to make comments, decisions about the prosecution strategy, which countries to file in, etc. In an exclusive license, the licensee reimburses the university for all its costs associated with preparing, filing, prosecuting and maintaining the licensed patents.


    Typically the university requires quarterly or semi-annual reporting, such reports include: royalties due, sublicense agreements and payments, and other revenues.

Diligence Terms

    The license will provide for certain diligence milestones to be met by the licensee to ensure that the technology is being diligently developed and commercialized. For pharmaceuticals, these often are clinical trials milestones, for other products diligence terms might include first prototype, first sale, etc. Sometimes diligence terms or milestone terms include financing milestones (typically with startup companies) or issuance of first patent, etc.

Sublicense Provisions

    Licenses that provide for exclusive rights typically also allow the licensee to sublicense the licensed technology to third parties. The university will require that all sublicense agreements contain some of the same language as the original license such as: use of the university name, disclaimer of warranties, maintenance of university rights, product liability, confidentiality, and termination.


    Generally an exclusive licensee has the first right to enforce the licensed patents. The university can join the suit usually upon reimbursement of its expenses by the licensee. If the licensee elects not to pursue enforcement, the university may elect to enforce on its own. This section will also provide for distribution of any damages between the licensee and the university after expenses are paid.

No warranties; limitation of liability

    The university will not make any warranties as to the fitness, merchantability, validity of patent rights, etc. The licensee assumes all risk associated with the licensed technology.


    The licensee will indemnify the university, its employees, regents, trustees, etc against all claims, proceedings, demands and liabilities of any kind whatsoever. Universities may also require that the licensee obtain certain amounts of product liability insurance prior to commercial sale or use of a product.

Term and Termination

    This section provides for the term of the agreement (typically the life of the licensed patents or for other technologies a defined period of time) and for both parties to terminate the agreement. Generally the licensee can terminate the license by providing the university some period of advance notice, while the university can terminate for breach (eg., non-payment of royalties or patent expenses, milestone payments or not meeting diligence requirements). Upon termination, typically sublicenses also terminate although sublicensees may obtain a direct license with the university under substantially the same terms.


    A listing of contact information for both parties and any requirement for communication (overnight mail, fax, etc.)

Miscellaneous Provisions

  • Provisions for Michigan law governing the agreement
  • Agreement to mark products sold in the United States with all applicable United States patent numbers. For sales in other countries, an agreement to comply with the patent laws and practice of the country of manufacture or sale.
  • Prohibitions on using the university’s name in any publicity or advertising without its written consent
  • Agreement that the licensee will comply with all applicable laws and regulations, including for example US law relating to the transfer and export of certain commodities and technical data
  • Provision that the license may not be assigned without the written consent of the University
  • Force majeure
  • No agency relationship
  • Assignment provisions

Agreement Types

Non-disclosure Agreements (NDAs) are often used to protect the confidentiality of an invention as it is being evaluated by potential licensees . . .

NDAs (sometimes called confidentiality agreements or CDAs) also protect proprietary information of third parties that University researchers need to review in order to conduct research or evaluate research opportunities. U-M Innovation Partnerships enters into NDAs for University proprietary information shared with someone outside of the University or two way NDAs to enable both partners to share information. The Office of Research & Sponsored Projects (ORSP) manages incoming NDAs as they are related to research contracts.

Option Agreements, or option clauses within research agreements, describe the conditions under which the University preserves the opportunity for a third party to negotiate a license for Intellectual Property. Option clauses are often provided in a Sponsored Research Agreement to corporate research sponsors or are entered into with third parties wishing to evaluate the technology prior to entering into a license agreement.

License Agreements describe the rights and responsibilities of a party related to the use and exploitation of Intellectual Property developed at the University. University license agreements stipulate that the licensee should diligently seek to bring the intellectual property into commercial use for the public good and provide a reasonable return to the University. To assist you in understanding the principles behind the structure of most university technology licenses, refer to our Licensing Principles.

Material Transfer Agreements (MTAs) used for incoming and outgoing materials at the University, are administered by U-M Innovation Partnerships, and describe the terms under which University researchers and outside researchers can share materials, typically for research or evaluation purposes. Intellectual property rights can be endangered if materials are used without a proper MTA. For additional information visit the MTA details page.

Inter-Institutional Agreements describe the terms under which two or more institutions (e.g., between two universities) collaborate to assess, protect, market, license and share in the revenues received from licensing jointly owned Intellectual Property.

Research Agreements describe the terms under which sponsors provide research support to the University. These are negotiated by the Office of Research and Sponsored Projects.