The License Process

AUTM’s Points to Consider:

• Universities should reserve the right to practice licensed inventions and to allow other nonprofit 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

We look for:

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

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.

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 or management position 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.

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 can assist you during the process.

Definitions
Of particular importance will be the definition of the technology/patent rights being licensed, the 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, education, and academic purposes
• If relevant, reservation of rights to the government

Consideration

• License fee
• Equity, or liquidation payment at exit, if licensee is a startup
• 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 about the patent application, prosecution strategy, and 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.

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

Diligence Terms
Because our mission is to give U-M research discoveries their best opportunity to solve the world’s challenges, it is important that our licensees actively work to develop an invention licensed from U-M. Therefore, 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 are often 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.

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.

Infringement
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.

Indemnification
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.

Notices
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
• No agency relationship

Option Agreements, and 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 signed by the Office of Research and Sponsored Projects.