U-M’s Technology Transfer Policy (the “IP Policy”) provides for the sharing with Inventors of a portion of revenues received from commercialization of intellectual property owned by U-M as a way to recognize and incentivize employee participation in innovation and technology commercialization activities. As required by Section VII.A of the IP Policy, this policy sets rules for determining the Inventor share of Net Revenues, as well as apportioning those amounts among Inventors. Where this policy does not specifically address a situation or there may be ambiguity under the facts, Innovation Partnerships has the authority to resolve the situation within the spirit of these rules and the IP Policy. This policy is subject to revision, the applicability of which may be retroactive. Inventors and members of the University community should promptly raise any questions about this policy, or the application of this policy, with Innovation Partnerships. This policy is subject to amendments, which may apply retroactively, so long as consistent with the IP Policy.
All capitalized terms in this policy have the meaning defined in the IP Policy (see, especially Section XI of the IP Policy) or successor policies, unless otherwise noted or required by other U-M policy.
“Gross Revenue” generally means amounts received by Innovation Partnerships as the result of license agreements, but this term is further defined in the IP Policy. As used in this policy, revenues to be distributed from the Inventor Pool excludes unreimbursed Patent Expenses or other expenses that exist or are anticipated, as well as amounts that should, in U-M’s judgment, be withheld to protect against potential liabilities related to the applicable or related agreement(s). More details are provided below.
“Intellectual Property” means inventions, processes, compositions, life forms, computer software, copyrighted works, mask works, research tools and data, certain defined trade and service marks, Tangible Materials, and legal rights to the same (e.g., rights of priority to patent applications).
“Inventor Pool” means the total amount of Net Revenues to be shared with Inventors under the IP Policy and as described in this policy. (This term sometimes may alternatively be referred to as “Inventor Distribution” or “Inventor Distribution Shares” in other Innovation Partnership documentation.) The Inventor Pool is further apportioned among the Inventors as described in this policy.
“Lead Inventor(s)” is/are Innovation Partnerships’ primary contact(s) for an Invention Report (“IR”), and is/are typically, but not but always, the individual(s) that make the submission of the Invention Report to Innovation Partnerships (e.g., it could be a frequent contact). “Invention Report” may sometimes be shortened to “Invention” in some Innovation Partnerships documentation.
“License” or “license agreement” refers to any revenue-generating technology commercialization agreement (which, for example, includes option agreements and revenue-generating materials agreements under the IP Policy) under the jurisdiction of Innovation Partnerships. This term excludes research agreements, and this policy does not apply to revenues received for research.
III. Review of IP Policy
The IP Policyprovides that licensing revenue is to be distributed among Inventors, Inventor departments, schools and colleges, and central University administration; it is also to be used for certain expenses. This policy provides specific rules for sharing a portion of revenues with and among Inventors. Some departments and schools/colleges may share a portion of their share of revenues with the laboratories of Inventors and others; this policy is not relevant to the sharing of such revenues by or with those units.
As used in this policy, the term “Inventor” means those Inventors as defined in the IP Policy that (a) are properly identified as Inventor of an Invention Report submitted to Innovation Partnerships, and (b) have assigned their relevant Intellectual Property rights to U-M. It is critical, as required by the IP Policy, that individuals involved in an invention raise inventorship issues (and provide related information with Innovation Partnerships), so that inventorship can be addressed at an early stage and through appropriate processes. For example, the IP Policy states, “Employees shall use their best efforts to disclose the names of all Inventors and persons that might have contributed to the making of Intellectual Property. Employees and persons having knowledge of facts concerning inventorship issues, problems, or questions (even if they do not know the full implication of such facts) shall have a duty to raise such matters with Innovation Partnerships immediately upon knowledge of the same and facilitate resolution of the same.” For clarity, an individual is only eligible for royalty sharing as an Inventor with respect to amounts due under a license agreement after the date on which that individual properly assigns their relevant Intellectual Property rights to U-M.
With respect to non-patent Intellectual Property, Inventors are those that have taken part in the conception (or otherwise have met the standards under the IP Policy) of such Intellectual Property that (a) is identified with clarity in the relevant Invention Report, and (b) can be tied to the generation of specific revenue from the license agreement.
An Inventor’s acceptance of any portion of the Inventor Pool constitutes that Inventor’s written agreement (a) that the Inventor thereby assigns to the Regents of the University of Michigan the Inventor’s Intellectual Property rights (as defined under the IP Policy, Bylaw 3.10, and/or associated with an Invention Report, as well as rights of priority related thereto); and (b) that the Inventor agrees the updated policies of the University related to intellectual property (including, but not limited to, Bylaw 3.10, updated February 2023) apply to the Inventor at all times.
B. Calculation of the Inventor Pool of Revenues
As further background, Section V of the IP Policy describes the general method for calculating the amount of licensing revenue to be distributed in total to Inventors as a whole (i.e., calculating the Inventor Pool). To paraphrase the IP Policy, U-M first deducts expenses from Gross Revenue (e.g., Patent Expenses and other U-M expenses such as unreimbursed or expected patenting, legal, collection, or other relevant expenses for the licensed Intellectual Property), as well as a 7% Administrative Fee under the IP Policy. In the case of non-patent Intellectual Property, a variety of expenses can be included here, and could include, for example, production and shipping costs for biological materials subject to MTAs and materials licenses, as referenced in the second sentence of Section V(B) of the IP Policy.
Where the relevant license agreement covers Intellectual Property jointly owned with other institutions, Innovation Partnerships typically will have entered into an “inter-institutional agreement” (“IIA”) that establishes a lead institution responsible for licensing and the allocation of license revenues between or among U-M and the other institution(s). In such cases, Innovation Partnerships will also deduct from license revenue any payments required to be made under the IIA, as well as any administrative fees provided for in the IIA.
This calculation provides an amount referred to as “Net Revenues” in the IP Policy. The percentages applicable based on Section V(B)(a) and Section V(B)(b) of the IP Policy are then applied in order to calculate the total revenue distributable to Inventors, referred to in this policy as the “Inventor Pool.” For clarity, the $200,000 threshold in Section V(B) of the IP Policy is applied on an agreement-by-agreement basis (i.e., once $200,000 of Net Revenues is received from a given license agreement, the percentage is altered as recited in the IP Policy as to all Inventors, even those included by adding Intellectual Property through an amendment).
Importantly, the Inventor Pool is not subject to deduction of the “University Patent Expenses” referred to in Section VI of the IP Policy. (University Patent Expenses discussed in Section VI of the IP Policy are expenses that are not associated with the Invention Report(s) in the applicable license agreement that generated the Inventor Pool.) As explained in the IP Policy, those University Patent Expenses are only recoverable from University Shares (i.e., the revenues to be shared with departments, schools/colleges, and central University administration), and not the Inventor Pool.
IV. Revenue Distribution Plans
A Revenue Distribution Plan (“RDP”) documents the methodology for calculating the proportion of the Inventor Pool that is to be shared with each eligible Inventor (i.e., how the Inventor Pool is to be allocated or divided among eligible Inventors). A license agreement that includes the Intellectual Property of only a single Inventor rarely would require an RDP, since the single Inventor would generally be entitled to the entire Inventor Pool. Innovation Partnerships could distribute to that sole Inventor whether or not an RDP or draft RDP is discussed or circulated in advance; but Innovation Partnerships could optionally proceed with the RDP process described below.
However, where a license agreement includes Intellectual Property made by multiple Inventors, establishing an RDP is essential for at least the following reasons:
Inventor-to-Inventor Percent. Where there are multiple Inventors on any single IR, the percentage of the Inventor Pool of revenue that shall be attributed to each Inventor for the IR must be set in order to make relevant allocations within the IR.
IR-to-IR Percent. Where multiple IRs are included in the same agreement, the percentage of the Inventor Pool of revenue that shall be attributed to each IR for the agreement must be set in order to make relevant allocations among IRs.
V. Process for Determining a Revenue Distribution Plan
The following describes the process for effecting a definitive or conclusive RDP that will be used to calculate allocations among inventors (referred to below as the “Final RDP”). Initially, after the execution of a revenue-generating agreement or other relevant event, Innovation Partnerships will prepare a draft RDP (referred to below as the “Draft RDP”) according to the following method.
A. Creation of a Draft RDP
Generally, the Draft RDP will comprise a document showing an array of all the Inventors and all the IRs in the agreement. Except as otherwise provided, in the Draft RDP: (1) within each IR, each Inventor at the time the payment is due will be weighted equally, and (2) each IR in the license agreement at the time the payment is due will be weighted equally as to each other IR. Notwithstanding subpart (1) of the prior sentence, if the Inventors of an IR had previously agreed to unequal contribution shares in writing (e.g., the contribution shares are provided with an Invention Report), those fractions instead would be used in the Draft RDP, so long as Innovation Partnerships is aware of it. (For clarity, such statements do not override the requirement that Inventors must later be confirmed to be correct under applicable policy and practice. For example, outside patent counsel must make patent inventorship determinations, and if a group of three putative Inventors on an Invention Report suggested unequal shares on IR documentation, but one of the three is subsequently determined not to be an Inventor, then the remaining two inventors will be shown in the Draft RDP as each to receive 50% of the Inventor Pool for the relevant IR.)
During the creation of the Draft RDP (or at any other point, e.g., after creation of an initial version of a Draft RDP), Innovation Partnerships may obtain input from the Lead Inventor(s) or otherwise discuss the process with the Lead Inventor(s). The Lead Inventor(s) may propose different contribution shares to produce the Draft RDP. Such steps are not required, but if the Lead Inventor(s) do create a revised Draft RDP through this process, the other elements of the process that follows are not limited. (In a minority of situations Innovation Partnerships may be aware that certain Invention Reports appear to provide a lower or higher value to a license agreement (e.g., when an IR is included only for a small amount of content or know-how), and therefore should be weighted lower or higher than other Invention Reports included in that license agreement. In that situation, Innovation Partnerships optionally may propose an unequal weighting between/among IRs in a license agreement as part of the Draft RDP. Innovation Partnerships further has the option of providing additional information or alternatives to supplement the Draft RDP prepared as described in the prior sentences (e.g., one or more draft RDPs prepared by the other processes described in this policy).)
B. Sharing of a Draft RDP
Innovation Partnerships will next share the Draft RDP with all Inventors for which it has reasonable contact information. (It could be envisioned in some cases, for example, that (1) a street address in this or another country may not be workable for the type of sharing and discussion required for this type of exchange (which will require a dialogue for which often a street address alone will not be practical for communication); and/or (2) if an Inventor does not respond to an email with or about a Draft RDP, depending upon the circumstances, Innovation Partnerships has the authority to assume that the email address is not correct and/or that the Inventor does not wish to participate in the discussion.
Inventors and potential Inventors should be aware and remain aware of their obligation to keep Innovation Partnerships apprised of all contact information, especially an email address that is checked frequently and regularly, and the advantages to each Inventor of doing so based on the discussions and notices mentioned in this policy.
Each Inventor is expected to review the Draft RDP and promptly determine and report if the Inventor approves of it, has any questions for Innovation Partnerships or other Inventors, or would like any discussion. Participation in this process does not affect whether the Inventor is to receive a share of the Inventor Pool. Innovation Partnerships can provide a specific deadline for responding to the Draft RDP in a manner described below.
During the period for response, the Inventors have the right to (1) agree to the Draft RDP (making it the Final RDP, if properly approved by all Inventors), or (2) discuss and agree to an Alternative RDP that will become the Final RDP used in the revenue distribution process (more detail below).
VI. Inventor Consideration of Draft RDP; Alternative RDPs; Final RDPs
A. Discussion of the Draft RDP
U-M expects Inventors to diligently and professionally discuss a Draft RDP, including by speaking by video conference or in person if there are any difficulties in arriving at an agreement as to a reasonable draft RDP, as long as the number of inventors and/or availability of Inventors does not make this unreasonable. When the Inventors discuss an Alternative RDP, they may take into account any factors that they wish, as long as they have some relevance to the research, technology, or patents. Innovation Partnerships may facilitate the process of determining the Final RDP (as by providing information, data, and examples), but Innovation Partnerships will not participate substantively in the Inventors’ determination, other than to answer questions and provide information.
B. Approval of the Draft RDP
If an Inventor approves of the Draft RDP (i.e., agrees for it to become the Final RDP), the Inventor should sign the documentation provided by Innovation Partnerships using the provided instructions. Innovation Partnerships may provide further instructions in addition to those provided in this policy. An Inventor that responds with approval of a Draft RDP prior to another Inventor’s proposal of an Alternative RDP is still expected to take part in the following steps described in this policy.
C. Alternative RDPs
Any Inventor may propose an RDP that is an alternative to the Draft RDP (an “Alternative RDP”). (As used in this policy, an “Alternative RDP” is an RDP that has been proposed, not one that has yet been adopted.) An Alternative RDP need not take any particular form, and can be made informally, such as by email or telephone (but where there are three or more Inventors, an Alternative RDP should be proposed in writing for the sake of clarity (though an initial proposal or discussion can, of course, be verbal, but note the further rules on memorializing agreements among inventors)). However, an Alternative RDP and Final RDP must be clear, logical, and understandable. An Alternative RDP may differ from the Draft RDP in either of the two primary factors identified above.
In the “Inventor-to-Inventor Percent.” Each Invention Report must be separately addressed. Where Inventors ultimately agree to alter this Draft RDP in this regard, they enter into an “Inventor Royalty Sharing Agreement” (“IRSA”), where the Inventors must attribute a percent of revenue to each Inventor compared to the other Inventor(s), with the total of 100% for the IR. Innovation Partnerships can provide a template.
In the “IR-to-IR Percent.” Where Inventors ultimately agree to alter this Draft RDP in this regard, they enter into a “Royalty Sharing & Distribution Agreement” (“RSDA”), where the Inventors must attribute a percent of revenue to each IR compared to the other IR(s), with the total of 100% for the license agreement. Innovation Partnerships can provide a template.
If Inventors alter the Draft RDP in both respects, they are able to do so in a single agreement, but they should seek guidance of Innovation Partnerships. Though Innovation Partnerships will provide information and assistance requested of it, since an Alternative RDP is an agreement between or among Inventors to alter the Draft RDP, if there is to be an Alternative RDP, it is the responsibility of the Inventors to pursue any such RDP through completion, in accordance with the requirements of enforceable Inventor agreements, as described below.If the Inventors appropriately agree in writing to an Alternative RDP, then this will be the Final RDP that Innovation Partnerships will use for distributions. Importantly, however, Innovation Partnerships will not apply a Final RDP based on any Alternative RDP that negatively affects future Inventors that may be added to the Inventor group; for example, an initial set of inventors cannot agree that they may not be diluted by more than a certain percent by later inventors added to an agreement. Any agreement that attempts to do so will either not be approved or (even if approved) will not be enforceable.
D. Lack of Full Agreement to a Proposed Alternative RDP Results in Assumption of the Draft RDP as the Final RDP
If an Inventor does not respond (or refuses to respond) to the Draft RDP, or if Innovation Partnerships does not have reliable contact information, then Innovation Partnerships may make attempts to contact that individual. Due to a lack of contact information, there may be instances when Innovation Partnerships may be unable to notify an Inventor of the Draft RDP and/or the Final RDP, or any of the other documents referred to in this policy.
As stated, Innovation Partnerships will typically set a reasonable period for the Inventors to discuss the Draft RDP and ask any questions of Innovation Partnerships. If Innovation Partnerships does not set a deadline for resolving the RDP, then after a reasonable period of time, Innovation Partnerships can assume that the Inventors have had an opportunity to discuss the Draft RDP and/or any Alternative RDP. Specifically, if by a deadline set by Innovation Partnerships (or otherwise within a reasonable period of time), (a) the Inventors specifically affirmatively agree to the Draft RDP, (b) any Inventor fails to (or refuses to) respond with an affirmative agreement to any proposed RDP (whether initial Draft RDP or Alternative RDP), and/or (c) the Inventors cannot all be found, then the Draft RDP will become the Final RDP that Innovation Partnerships will use for revenue distributions.
E. The Final RDP Applies to All Future Distributions
The Final RDP will apply to all future distributions of Inventor Pool for license agreements (existing or in the future) having the same composition of IRs (assuming inventorship hasn’t been changed/corrected) (for example, where there is a non-exclusive licensing program or a portfolio is re-licensed after a first license had been terminated). However, Inventors are able to take action to create and agree to an Alternative RDP for new license agreements or amounts due in the future (but not amounts already received or due), subject to the rules on Inventor agreements.
VII. Requirements of Enforceable Inventor Agreements to Implement Alternative RDPs
As described above, if the Inventors properly agree to an Alternative RDP, then the Alternative RDP will become the Final RDP that Innovation Partnerships will use for distributions of the Inventor Pool. Any agreement among Inventors, including Alternative RDPs becoming Final RDPs, described in this policy will be treated in the same way as a contract. These and other agreements mentioned in this policy (1) must be in writing and signed by every Inventor and Innovation Partnerships; (2) must be written in a clear, logical, and understandable fashion; (3) must be irrevocable; and (4) approved by Innovation Partnerships. Requirements for formatting of the agreement (e.g., electronic or paper) and signatures (e.g., electronic or wet signature) will be as stated by Innovation Partnerships. Innovation Partnerships may, for example, require Alternative RDPs and other agreements and acknowledgments related to this policy to be executed through an electronic signature service, such as SignNow, a cloud-based electronic signature service, or other such service. Inventors considering agreeing to an Alternative RDP should ask any questions of Innovation Partnerships, since Inventors are expected to understand the implication of such agreements.
If a purported Inventor agreement does not meet these requirements, then the agreement will not have effect, and, for example, in the case of an Alternative RDP, the Draft RDP would become the Final RDP used by Innovation Partnerships in the absence of the establishment of an agreement in compliance with this policy. Innovation Partnerships and its staff cannot be responsible for agreements that do not meet these standards, and cannot require or demand any Inventor to enter into any agreement, no matter how logical the agreement might possibly be. Innovation Partnerships and Office of the General Counsel may be available to answer questions about how generally to comply with these requirements.
B. Appeals, Etc.
Disagreements as to the application of this and other applicable U-M policy by Innovation Partnerships may be appealable under Section IX of the IP Policy unless otherwise prohibited or exhausted. Innovation Partnerships may also initiate the appeal process, e.g., if there are disagreements or disputes among Inventors. For clarity, any appeal under this policy (no matter the timing of its pursuit), is subject to the qualification that if any Inventor Pool has been distributed and the appeal successfully results in an alteration to an RDP, the result of the appeal will only apply to the distribution of revenues after the date that the appeal is filed. (For clarity, (1) Innovation Partnerships has the right to temporarily suspend relevant distributions pending the resolution of an appeal, and (2) Innovation Partnerships and U-M administration may take the position that appeals must be requested promptly in order for U-M to be required to provide the appeal process.) In general, no appeal will require the redistribution of funds previously distributed to Inventors.
Because (1) Innovation Partnerships handles a tremendous number of communications with Inventors each year regarding RDPs and (2) any missing information or concerns should be resolved early in the process prior to distribution of funds, Innovation Partnerships relies upon Inventors to promptly notify Innovation Partnerships if an Inventor believes the Inventor has not received information that is discussed in this policy, is confused about information related to this policy, and/or disagrees with information or positions taken by Innovation Partnerships or other Inventors related to this policy. An Inventor must promptly pursue any appeal permitted under Section IX of the IP Policy or other policy.
VIII. When a Draft RDP Need Not Be Circulated
This policy describes a process by which Innovation Partnerships shares a Draft RDP with all Inventors for which it has reasonable contact information for their review, approval, and/or discussion. Innovation Partnerships will not be obligated to undertake the steps described above with respect to the circulation of the Draft RDP in situations where establishing contact with all the Inventors is expected to be futile. Such situations include, for example, where one or more Inventors is/are deceased; Innovation Partnerships has unsuccessfully recently attempted to contact one or more Inventors for other reasons; and/or there are a large number of Inventors and Innovation Partnerships does not have contact information for multiple Inventors. The triggering of this exception does not affect whether or not the Inventor (or a successor permitted under this policy or related U-M policy) is to receive a share of the Inventor Pool.
IX. Calculating Each Inventor’s Share; Applying the Final RDP
Innovation Partnerships will use the percentages provided in the Final RDP (sometimes referred to simply as “the RDP” in Innovation Partnerships documentation) in the remaining process steps to calculate amounts to be paid to each Inventor from the Inventor Pool of Revenue, except as otherwise provided by policy.
The Inventor Pool will be divided among the group of Inventors in a single license agreement by applying percentages appearing in the Final RDP to each of the three categories of licensing revenue into which all licensing revenue falls, as described in the following, unless a different distribution structure has been appropriately agreed to (e.g., the Inventors have agreed to an Alternative RDP that details use of different percentages or processes).
“Basic Licensing Revenue” is the component of the Inventor Pool that is not the result of particular products, for example, such as license issue fees, option fees, flat fees, annual or other periodic fees, minimum royalties and fees, license or option maintenance fees, and/or milestone fees untied to a licensed product.Minimum royalties and fees are treated as simple periodic (e.g., annual) fees, even though they may be creditable against running royalties (or vice versa). Such minimum payments may be referred to as “Annual Fees” in this policy. With respect to royalties and minimum royalties, if a licensee pays U-M (even if in more than one payment) for a given royalty period (a) an Annual Fee component and (b) an amount that is equal to royalties reduced by the Annual Fee (the “remainder”), then the Annual Fee is treated within category A, and the “remainder” will be considered to be within category B below. (As another example, royalties paid by a licensee to U-M over a given year are treated within this category A until they exceed the minimum annual fee (“Annual Fee,” as stated above) recited in the license agreement, and further payments that year will be considered as being within category B below,)In the absence of an inventor agreement (Alternative RDP) to the contrary, Basic Licensing Revenue will be allocated (a) to each Inventor equally within each IR in the agreement at the time the payment is due; and (b) to each IR equally as to each other IR in the agreement at the time the payment is due.
“Product-Tied Revenue” is the component of the Inventor Pool that is, or is as the result of, a particular product identified or described in the license agreement. For example, this includes where a licensee owes amounts to U-M with respect to sales of a product defined under the license (e.g., one covered by a particular patent or patents, such as a “Licensed Product” defined in a license agreement) that are either (a) royalties based on those sales or (b) a milestone payment related to those sales. (When multiple Intellectual Properties cover a product, U-M will attribute the revenue equally to all the IRs associated with the applicable Intellectual Properties, except where a Final RDP resulted from an Alternative RDP that clearly provides otherwise and the unequal allocations can be readily and practically applied (e.g., the RDP attributes percentages unequally among the relevant IRs). For clarity, ordinarily the computation and attribution is made with the IR, not the Intellectual Property.) With regard to the examples in the prior paragraph: (a) if the license agreement calls for minimum annual royalties, then running royalties exceeding the minimum annual royalties will be considered to be the paid royalties under this category B; and (b) milestone payments that relate to a specific IR(s) (for example, a clinical milestone for a specific drug that is the subject of a distinct set of licensed patents and/or discrete set of licensed IRs), will be treated in this category B. (Milestone payments that are not clearly attributable to a distinct IR are treated as stated in category A.) In the absence of an inventor agreement (Alternative RDP) (or other policy or rule) to the contrary, Product-Tied Revenue will be allocated to the Invention Report(s) that give rise to the relevant product, specifically allocating (a) to each Inventor equally within each such IR; and (b) to each IR equally as to each such other IR.
“Equity and Equity-Like Revenue” is the component of the Inventor Pool that is the result of (a) the liquidation of equity in the licensee, for example stock or membership interests in an LLC (especially an Innovation Partnerships “start-up”); or (b) a so-called “change-in-control” or “liquidation” fee, which generally is a fee paid upon either the acquisition of the licensee by another company or an initial public offering of stock. (For clarity, (a) U-M will manage, to the extent it has the ability to do so, the timing and terms of any transaction related to this type of license consideration, for example the liquidation of stock or other equity; and (b) this policy refers only to equity received directly from and within the license agreement, and specifically excludes any equity received as the result of or through an investment.)In the absence of an inventor agreement (an Alternative RDP) to the contrary, Equity and Equity-Like Revenue will be allocated (a) to each Inventor equally within each IR that was included in the license agreement over the course of the lifetime of the license agreement through the date of liquidation of the equity; and (b) to each IR equally as to each other IR in the agreement over the course of the license through the date of liquidation of the equity. (If the Equity or Equity-Like Revenue was clearly received only as the result of adding new Intellectual Property in an amendment, then the following section of this policy calls for the triggering of a revised RDP; and typically the Draft RDP in that process would generally result in two pools of Equity or Equity-Like Revenue: (1) one for the equity originally received (and the associated IRs) and (2) a second for the equity received in the amendment (and the associated IRs).)
While there are many types and variations of license structures, licensing revenue generally falls into the categories discussed above. If there is other revenue that is not described by those general categories, Innovation Partnerships will use reasonable discretion to place the revenue into the category where it most reasonably fits. For example, if U-M sells all or a portion of a royalty stream under a license agreement to a third party, Innovation Partnerships will reasonably attribute amounts received from such third party to the proper categories described above. In general, where revenue cannot be attributed to particular Invention Report(s), it will be allocated across all then-licensed IRs, except as specifically provided.
The rationales for these rules include the following (1) Basic Licensing Revenue is typically found to be the result of all of the IRs and Intellectual Property in a license agreement; (2) Product-Tied Revenue is the result of the success of a small number of Invention Reports; and (3) Equity and Equity-Like Revenue is typically found to have been affected by all of the intellectual property that has been part of the agreement over its lifetime and the overall relationship with the company.
X. Changes to License or Inventorship Causing Revisions to a Final RDP
A Final RDP generally will apply through the lifetime of a license agreement. A Final RDP will generally only be revised if one or more of the circumstances identified below arises, and in such cases the revision would only apply to distributions of licensing revenue due after the date of such revision. Other changes will not result in the revisiting or revision of a Final RDP absent unusual circumstances.
An Invention Report not previously included in the Intellectual Property in the licensed portfolio is added, for example, when Innovation Partnerships adds new patent rights or copyrights to the agreement by formal amendment.
A new individual is added as an Inventor to a revenue-generating Intellectual Property in an Invention Report in the licensed portfolio.
All the inventors agree of their own accord in writing to an Alternative RDP, subject to the rules identified in this policy.
Each Inventor must promptly alert Innovation Partnerships if they believe any of the above circumstances has arisen that may require a revision to the Final RDP.
When one or more IR(s) is/are eliminated from a license agreement (e.g., through abandonment or expiration of all patent rights associated with an Invention Report) and the RDP is not revisited, the percentage(s) for such eliminated IRs will be allocated to the remaining Invention Reports according to their same relative percentages. For clarity, when one or more IRs are eliminated, the eliminated IRs will typically no longer be revenue eligible for revenue sharing with respect to either Category A revenue (Basic Licensing Revenue) or Category B revenue (Product-Tied Revenue).
When one or more Inventor(s) is/are eliminated from an Invention Report (e.g., through abandonment or expiration of all patent rights associated with an Invention Report or a change in inventorship), the percentage(s) for such eliminated Inventor(s) will be allocated to the remaining Inventors according to their same relative percentages.
Even when the revisiting or revision of a Final RDP is not required by these rules, Innovation Partnerships has the option of generating a Draft RDP. In some cases, Innovation Partnerships may simply notify the Inventors of the change, but in others, it may simply alter the RDP in accordance with these rules and proceed to make the appropriate distribution of the Inventor Pool.
Where the rules stated above trigger the re-evaluation or revision of the RDP, only aspects of the RDP that have been directly affected by the change in situation must be addressed. The original process described above will generally be triggered to generate a Draft RDP, applying the percentages or intent of the Final RDP to the extent possible; provided, however, that if an Inventor cannot be found or an agreement on a revised Alternative RDP is not reached, then Innovation Partnerships will proceed using the original Final RDP altered as reasonable to include new Inventors. For example, the inventor-to-inventor percentages within the prior IRs will not be opened for discussion.
In the course of this process U-M generally expects there to be deference to the percentages in the prior RDP, but also with an understanding that new Inventors not present at the time of the first RDP did not participate in the discussion of first RDP. (For clarity, later added Inventors are not entitled to a share of licensing revenues due prior to their addition to the license.) Innovation Partnerships may establish and consult a faculty or other university committee in any such process.
XI. Additional Rules Regarding Inventors and Revenue Sharing
The default meaning of the term “Inventor” is provided above, but Inventors may agree to include additional U-M employees who made important contributions to the existing licensed Intellectual Property as nominal “Inventors” entitled to receive a share of the Inventor Pool, so long as all Inventors enter into a written agreement specifically indicating the percent allocation for all Inventors that meets the requirements for Inventor agreements stated in this policy. Inventors are not permitted to use this process to compensate individuals for reasons other than for having developed the invention reflected in the applicable Invention Report. Innovation Partnerships can use its judgment on these issues to approve or disapprove of including additional U-M employees as nominal Inventors to receive direct revenue from U-M.
If an individual is identified as an Inventor with respect to an IR and receives a share of revenue, and subsequently is found to not be an Inventor, U-M will not seek reimbursement of the amount paid, so long as that individual (a) complied with all duties under this an other U-M policy, (b) operated in good faith at all times, and (c) had reason to belief that the individual was entitled to such share of revenue (and any other Inventors will not be entitled to such amounts). Similarly, if an individual that was not initially identified as an Inventor, but later is found to be an applicable Inventor, that individual is not entitled to a share of revenue under the IP Policy until the individual was identified as an applicable Inventor. If future revenues are such that Innovation Partnerships can equitably rebalance distributions to correct for such misidentification, then Innovation Partnerships has the ability to do so, if reasonable.
Further, as described above, “Product-Tied Revenue” is shared with individuals that are properly named as Inventors in the Invention Report(s) that give rise to the relevant product. If Product-Tied Revenue is initially associated with a first Invention Report (such as through information from a licensee), but is subsequently identified as being more properly associated with a second Invention Report, then (1) U-M will not require the Inventors of the first IR to reimburse U-M for such revenues already shared, so long as those inventors (a) complied with all duties under this an other U-M policy, (b) operated in good faith at all times, and (c) had reason to belief that the individual was entitled to such share of revenue; and (2) Innovation Partnerships will thereafter pay any amounts to the Inventor(s) of the second IR (but the Inventors of the second IR generally will not be entitled to amounts distributed prior to those amounts being identified and recognized as being associated with the second IR). However, if future revenues are such that Innovation Partnerships can equitably rebalance distributions to correct for such misidentification, then Innovation Partnerships has the ability to do so, if reasonable. (The same principles apply if either is a set of IRs instead of a single IR.)
Further, if Innovation Partnerships reasonably determines that accounting for Product-Tied Revenue in the manner described above is not reasonably possible (for example, due to incomplete information from a licensee, or information from a licensee that may be later determined to be inaccurate), then Innovation Partnerships has the right to treat such revenue as Basic Licensing Revenue.
If an Inventor dies, that Inventor’s share of the Inventor Pool will continue to be paid to the Inventor’s estate until it passes to the person(s) lawfully entitled to receive it. The estate’s court-appointed personal representative should present U-M with their letters of appointment to make arrangements for disposition of the personal share during the estate settlement period. U-M will transfer future entitlement to the Inventor’s personal share to the lawful recipient(s) once U-M receives proof of entitlement, usually in the form of a court order. This, like the rest of this policy, is subject to change.
If all the Intellectual Property associated with an IR expires (and U-M is no longer receiving revenue) or is eliminated from a license agreement, then subsequently the IR will not be used in the computation of either (a) the “Basic Licensing Revenue” portion of revenue sharing (b) “Product-Tied Revenue” portion of revenue sharing. (For clarity, expiration means loss of rights by U-M; rights in know-how and materials can typically last indefinitely, but can be limited to a certain time period in the agreement.) Though often Innovation Partnerships will notify all the Inventors of such a change in status, it will not be required to specifically do so.
From time-to-time, U-M has entered into sponsored research agreements in which the sponsor pays a specified fee for IP rights. This is sometimes referred to as a “Tech Fee” or “Technology Fee.” The portion of such a fee that is treated as the Inventor Pool will be shared with Inventors. In cases where the sponsored research project does not result in an invention submitted to U-M for patent or copyright consideration, a project final report can suffice in its place, provided it includes the names of all U-M individuals who performed work under the award.
Any changes to an RDP or corrections to amounts distributed under an existing RDP will only be applied to amounts due after such date.
Innovation Partnerships has the ability to institute or follow other reasonable policies in unusual circumstances.
XII. Inventors Leaving U-M or Changing Departmental Appointment, or Having Joint Appointment at Another Institution
A. Inventors Leaving U-M
Faculty Inventors whose employment at U-M ends will continue to receive their personal Inventor’s share of the Inventor Pool, subject to any other applicable policy or law. This share of the Inventor Pool is not property of the Inventor’s new institution, and while the Inventor is free to seek advice from whomever the Inventor wishes, U-M is not required to seek approval for any U-M actions by the new institution or other employer. Inventors receiving revenue must pursue any appeals or disputes with U-M prior to leaving the University.
B. Change of Inventor’s Department Affiliation
Inventors who change their appointment to a new U-M department (or leave U-M) will not affect the department, school or college distribution, which will continue to be distributed in accordance with the original affiliations at the time of invention disclosure.
C. Inventors Having Joint Appointment at Another Institution
U-M has agreements with affiliated institutions such as the Department of Veterans Affairs or Howard Hughes Medical Institute that may provide for an inter-institution allocation of license revenues for inventors with a joint appointment at U-M and the other institution. In most (but not all) cases, the allocation to the other institution of a share of the net receipts attributable to the joint appointee inventor will depend on the existence of some support from the other institution for the research that resulted in the invention. Inventors are encouraged to indicate any joint appointment relationships on the invention disclosure form to enable Innovation Partnerships to determine what obligations (if any) might exist with respect to the other institution.
In situations where the license covers inventions that are jointly owned with other institutions, Innovation Partnerships will typically enter into an inter-institutional agreement (an “IIA”) that establishes the lead institution responsible for licensing and the allocation of license revenues between or among U-M and the other institution(s). In such cases, Innovation Partnerships will also first deduct from license revenue any payments required to be made under the IIA as well as any administrative fees provided for in the IIA. In cases where multiple inventions are licensed, but only a subset are co-owned, the co-owner’s share is calculated based on the revenue allocated to the joint invention(s) and deducted only from the revenue being distributed on the joint files.
XIII. Inventors Not Wishing to Receive A Share of Royalties or Wishing To Redirect Their Share of Royalties
An Inventor is able to decide to not accept a share of the Inventor Pool to which that Inventor would otherwise be entitled, subject to the following. Innovation Partnerships can assist with documenting the Inventor’s desire to not receive any share of the Inventor Pool. However, Inventors are responsible for tax consequences of redirecting royalties to a U-M unit (or any third party) or not accepting any share of the Inventor Pool, and the structuring and documentation thereof, so Inventors should obtain advice (preferably through a professional tax advisor) before doing so.
An Inventor generally may permanently redirect that Inventor’s share of royalties to an account within U-M over which that Inventor exercises no control without incurring any tax consequences. However, that Inventor must (a) execute an Agreement for the Redirection of Royalty Distributions and (b) not thereafter gain control over those funds. Shares of the Inventor Pool generally cannot be redirected to third parties, as stated elsewhere.
More information may be available on the Innovation Partnerships website (e.g., under “Tax Considerations”).
If an Inventor (1) agrees to not accept a share of the Inventor Pool without redirection instructions as discussed in this policy, or (2) redirects that Inventor’s share of royalties to a U-M account over which that Inventor does not exercise control but subsequently that account later becomes within control of that Inventor, then in either situation that Inventor’s share generally will be transferred to the department of that Inventor; provided, however, that since these are internal U-M funds, U-M reserves the right to use or transfer the funds as it sees fit (including to Inventors), provided U-M will attempt to avoid negative tax consequences for the Inventor.
If an Inventor indicates to Innovation Partnerships that (a) the Inventor does not wish to receive their share of the Inventor Pool (sometimes colloquially referred to as “waiving” that Inventor’s revenues), but (b) wishes that amount to be provided to another Inventor or Inventors, then the first-mentioned Inventor still may nevertheless have tax liability for that amount. Such a direction does not meet the general requirements stated above, so it is not automatically permitted under this policy, so such a direction would require University approvals). Nevertheless, if U-M were to permit the revenue to be handled in this way, the first-mentioned Inventor could, while not receiving a share of the Inventor Pool, still be issued a Form 1099 for the income, and/or such Inventor would still be required by law to claim the amount as income, even though no such cash was ever actually received. As stated above, the Inventor is responsible for obtaining their own tax advice.
XIV. Information from Inventors; Participation as a Lead Inventor
Innovation Partnerships (a) depends on Inventors and potential Inventors to keep Innovation Partnerships updated as to their contact information (such as email address, mobile phone number, and street address) so that they may be contacted for inventorship determinations, RDP processes described in this policy, and revenue distributions, etc.; and (b) reminds Inventors and potential Inventors of their obligations under the IP Policy to use their best efforts to provide to Innovation Partnerships the names of all Inventors and persons that might have contributed to the making of Intellectual Property, even if it is expected that such a person may not be an Inventor under the IP Policy.
Lead Inventor is defined at the beginning of this policy. Generally, a Lead Inventor is Innovation Partnerships’ primary contact for an Invention Report, and is typically, but not but always, the individual(s) that submit(s) the Invention Report. In short, for each Invention Report, it is one or more individuals that has/have taken on the uncompensated role of leading the communications on patenting and licensing matters. If an Inventor wishes to be a Lead Inventor, that individual should notify Innovation Partnerships and the Principal Investigator on the relevant research project so that the best contact information and processes can be worked out.
XV. Innovation Partnerships Procedures for Distributing Payments to Inventors
A. Processing of Distributions
Innovation Partnerships will endeavor to promptly process the initial distribution of license revenue (e.g., within 120 days after receipt). Certain circumstances or expenses may delay or prevent distribution of licensing revenue. These circumstances may include, but are not limited to: delays associated with the RDP process, the filing of appeals under Section VII(B) (or other disputes), missing Inventor contact Information, staffing or database issues, potential or pending legal action, questions, processing or complications of third party billing, insolvency or bankruptcy of the licensee, disagreements with the licensee, expected or potential expenses or liabilities associated with the agreement. Innovation Partnerships may use revenues for reimbursement of past expenses (as stated in the IP Policy), and Innovation Partnerships is expected to retain (not distribute) licensing fees where future unreimbursed expenses are anticipated. Examples include where a company pays an option or other fees, and patent expenses are expected prior to the execution of a license agreement under which U-M would be able to seek reimbursement from the company.
Because of the inherent cost of distributing funds, Innovation Partnerships may hold revenue until the accumulated total reaches a reasonable threshold, which may vary over time (e.g., $5,000). As mentioned above, Innovation Partnerships may hold distribution of Annual Fees (as defined above in Section IX) until certain thresholds are met.
B. Distributing Payments to Department, School/College and U-M Administration
U-M entities receive net license revenue distributions via an internal funds transfer executed by Innovation Partnerships during the first quarter of the fiscal year following receipt of revenue. This is a matter of internal U-M practice and policy, and not an undertaking to the Inventor(s).