On Exclusive Licenses For Research Technology

Here’s a response I wrote for a research team that is working through issues regarding the licensing of their inventive technology. The team is spread across multiple institutions in multiple countries, working on an enabling technology in medical engineering.

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The question of exclusive licenses is important and challenging. There’s a great lure in hoping for a single company to show up, take an exclusive license, and pay good money for it. That money will be real money, and inventors can expect to share about 1/3 of it, depending on university royalty policies. If a share of money from such a deal is the immediate goal, or at least a goal that’s “good enough,” then an exclusive license is a satisfying outcome.

But exclusive licenses have other effects, as well. Once you have an exclusive license with one company, then other companies have little reason to work with you. In fact, they may have good reason to work against your further research, to undermine what you have done, to avoid it, to make it worthless. If the exclusive license crosses the line and becomes an assignment (and many universities ignore the line altogether, or deny there even is one, despite the case law), then you and your exclusive licensee, by contract, may have created a pact to “go after” competitors who attempt to use your licensed inventions–that is, sue to prevent the use of your research. What, then, do you expect these competitors to do, but to work against your interests in return?

Exclusive licenses foreclose broad research funding–one is limited to indifferent donations, government funds, and the exclusive licensee. Exclusive licenses foreclose collaborations–each university picks their favorite company, and then scientists who would otherwise be collaborators must align with the exclusive licenses. Exclusive licenses preclude the creation of standards, commons, and open technology. Most university exclusive licenses prohibit such things as cross-licensing or donation to a standard–or at least make such typical actions difficult to do or prohibitively expensive. Exclusive licenses prevent the formation of consortia and limit the ability of an exclusive licensee to join a consortium.

If one has a limited invention that requires no other IP and can be produced rapidly and has its primary application in the form of a product that can be made broadly available, then consider an exclusive license. If one is working with the only company in the field (such as a new market), then it might be advisable to grant an exclusive license–but even then, for a limited term (such as eight years–enough time to see whether the market develops and how your exclusive licensee is performing).

The scope of exclusivity also matters. If your inventive work is made broadly available for research use non-exclusively, and for use by anyone who can apply the invention directly, without the need for a product version (as is the case with many algorithms), then an exclusive license might be directed specifically at a given product and not cover all possible uses or applications of an invention. If there’s no specific product ready to be developed, and a company is looking only to aggregate rights (for instance, to make itself more attractive to investors), then perhaps all the company needs is a non-exclusive license–freedom from suit by research universities and freedom from the possibility that these research universities might be willing to be bought out and grant an exclusive license that’s really an assignment to a competitor who might have reasons to sue, and now with the concurrence of those research universities.

Put it this way–if no one else wants access to an invention you have developed, then a non-exclusive license is equivalent in effect to an exclusive license. So grant the non-exclusive license. Charge less for it. Form a simple, clear relationship. But if others do want access to that invention, then what is the reason to prevent that access and choose only one company to partner with? This question becomes all the more important when collaborators are distributed across different countries, at different institutions, with different major company players potentially involved.

Regardless of whether a university decides to grant an exclusive license, assignment, or non-exclusive license, it owes the inventors (and the principal investigators, and the research staff who aren’t inventors) an opportunity to discuss the situation and the goals of the research, and choose an approach that makes sense for those goals. It is all too easy to abandon research goals and go for the immediate prospect of money from an exclusive license (or to rationalize that the research really was about finding a single company partner). I’ve seen significant money come from exclusive licenses. But I have also seen every bit as much money come from non-exclusive licenses. And in my experience (twenty or so years of licensing), researchers in the non-exclusive projects had way more collaborators, have built longer-lasting research endeavors, and have got along a whole lot better. And they have made good money–really good money–from royalty income.

License exclusively and you are necessarily isolated. If the company taking the exclusive license doesn’t develop your invention, you are lost. As one dejected faculty member at a major research university told me (I paraphrase), “The university licensed my core invention exclusively to a company that hasn’t done a thing with it. I’ve had to say no to any number of companies that wanted to partner with me because that company won’t release the invention and the university won’t intervene. So I’m basically dead in the water on my research.” Universities advertise the apparent success of their licensing programs (the university had put out multiple press releases about the potential of the invention they licensed to the company), but universities are not at all ready to report, as well, how often things go bad. So you read a lot of spin, develop thinking that wants that spin for oneself, and, well, might find with experience what happens for real when you step through that imagined door.

Most university diagrams for the “technology transfer process” end with granting a license, not with broad use of the invention and/or a product on the market with benefits available to the public on reasonable terms (and often, their goal is just that, a single license, and monopoly pricing means more royalty income and that must be a good thing, no?). The university gets a bolus of cash and maybe some equity, they share somewhat with inventors, they declare success, and they move on. Your line of research then becomes dependent on that licensee. If it does create a product, good for you. The odds are about 1 in 200 at major research universities. Are those odds worth the short-term money of an exclusive license? If you are going to get a payment in excess of $100M up front, perhaps you go for it. Otherwise, you’ve sold your research future for what, a new car?

Despite the lure of exclusive licenses, non-exclusive strategies are much more aligned with academic research, with serving an industry broadly even as it works to adopt new technology, and with the purposes of federal government research funding. If one is going to do an exclusive license, at least limit its scope to sale of product and don’t allow it to cover research uses or internal/private uses, and limit the term of exclusivity, or make that term conditional on the exclusive licensee accomplishing what you need to have happen to make your research efforts meaningful, successful.

Most university licensing shops default to exclusive licensing. If you as research collaborators want something other than that (with all its lure and pitfalls), you will have to work together with great communication to make sure you don’t end up breaking apart your efforts and taking what looks like easy money when it is offered for you to defect, as it were, from the bigger agenda and your erstwhile collaborators. Staying on your shared research goals, in the presence of money and opportunity for personal advantage, takes a great deal of resolve and confidence in your collaborators.

As collaboration grows, so does the personal value of any single defection. Universities as institutions have way more incentive to defect than do research collaborators, and so each licensing shop, unless it is loaded with personal integrity that respects other universities and companies, will see all of them as competitors for a share of royalties and research funding and will cut them out of any deal they can. I’ve seen that happen multiple times. It’s easy to claim that one’s responsibility is to do the best deal (financially) for one’s own university, without regard for the research, other collaborators, contributed ideas and technology that’s not documented in the form of patented inventions.

Your research has a chance to lay the groundwork for a common platform of technology, which can then produce both open standards and competitive products. The digital computer started just this way, as did the internet. You can, of course, opt to attempt a monopoly and cut out other players, who must work against you with their own academic alliances. That’s the story of television, for instance.

If you don’t discuss your options together, as an affiliation of collaborators, then your university licensing shops will make decisions for you, and the likely outcome will be exclusive licensing that in fact is an assignment. You may get some money for it, but you will feel the consequences for your collaboration the moment you have to turn down other industry money because your core work is committed exclusively to a competitor–or you find yourself working to undermine your own prior work!

That’s a bit of an essay on the matter. I hope it helps your thinking as you work through these issues.

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