There’s some press chatter around about “express” licenses. Here and here and here.
We were using this sort of approach a decade ago to manage non-exclusive licensing programs for specific projects. The idea is, for a given technology base, use a stable agreement so everyone gets reasonable, non-discriminatory access to what you have. Open source licenses such as the BSD and GPL are obvious examples. Our variations allowed recipients to negotiate from the standard agreement 1) to meet their local conditions 2) to offer something back to the project and 3) to improve the standard relationship for everyone. A take-it-or-leave-it approach doesn’t do this, and is only more efficient in that you don’t care about anticipating early relationships and only will deal with folks willing to take what you are offering.
The recent efforts, however, concern a take-it-or-leave-it approach to exclusive licensing, in the context of start up ventures, and appear to be directed at ventures started by faculty inventors as founders. The virtue that’s claimed is that one license will serve the needs of all, and that this is more efficient than forming a mutually negotiated arrangement. This is billed in press releases as a major advance. For the life of me, I can’t see how.
If university affiliated start ups were all the same, with the same technology needs, funding requirements, operating models, and markets, then perhaps one would consider standardizing an exclusive licensing relationship. Even then, why would one make a template standard into a non-negotiable? One way to try to do this is to make the deal so bland, so devoid of obligation, that most anyone will take it. I don’t think even this is possible.
It is as if the technology transfer folks construe company formation as their production activity, and inventions are some generic commodity that is shoveled out in lump quantities. The only issue is price and that’s set as a low-ball royalty rate.
Put another way. The criticism of university management of patents is that their programs are overall not living up to their claims and are generally unproductive. I am not saying that’s a legitimate criticism (for another time). The claim is, it takes too long to get a license. So rather than put more resources at licensing relationships, apparently the response to the criticism is to withdraw to a standard license, as if eliminating negotiation is the same thing as speeding up coming to agreement. Then, make a virtue of it.
An exclusive patent license forms a significant relationship. That relationship is more than a thing of commodity price, like buying a refrigerator, or even a car. One must have the mind of a bureaucrat to think of one’s invention portfolio management as a production activity, where the primary effort is to take costs out of the system–even when the problem is that one for the most part has no productivity. “Hey, we are not producing–let’s take some costs out of the system and see if we can step up our efficiency of not producing!” What might that say about how such organizations view as their responsibilities with regard to research inventions?
When one looks at exclusive licenses to start companies, there a plenty of things to consider. It isn’t something simplistic. Among other things, one needs to look at the bundle of rights (not just patent rights), background rights, know how, rights to future inventions, the role of faculty inventors in the company, supervision of graduate students, stock subscription arrangements, control of patent prosecution, company diligence, scope of rights, handling of infringement, remedies for breach, insurance and risk mitigation, publication review, confidential information, management of any Bayh-Dole obligations, company operating model and flexibility, reservation of rights for education and research. Is the problem of slow university spin out formation really making fixed terms for each of these matters (and more), and then asking everyone to accept them? Or is it having the smarts, focus, and review to anticipate and work through these expeditiously? That is, is an express license a decision not to provide adequate resources, or is it a great advance in forming spin out relationships?
Let’s look at it another way. These express licenses are directed at a university’s own inventors who wish to start a company. Apparently they are not offered to others. But there is an easy work around–just have the inventors start the company, take the express license, and transfer the company to the entrepreneurs and companies that may want it. If the express agreement prevents this transfer, or forces a negotiation, then it’s a poison pill. All it is doing is postponing the substantive negotiation, presumably to a point where the company has greater dependency on the licensed rights. A university might be thinking, if we can get the faculty inventors hooked on a seemingly favorable standard license, then we can bully things up when the inventors realize they need some responsiveness to some of all those other matters that are set in stone in the express deal.
Take it further. Faculty start ups often don’t have significant investment out of the gate. They have seed funding, perhaps, but the series A financing is yet to come. That’s where investors take a hard look at what a company has, and how their investment is going to work. If there’s a license for core technology, the investors have to look at how that license operates, and whether it is worth getting involved. The license may represent an asset (a relationship with a solid university partner) or a liability (an uncertain or risky or unworkable set of terms). Should one renegotiate the license? Design around the technology? Or find something better to invest in? The university expectation must be that the license is perfect for all time, and the investors in series A, like the faculty inventor-founders, should take it or leave it.
After all, if there is no negotiation before the license deal, why should there be after it is signed? And if there can be negotiation after the deal is signed, why not before? Perhaps you get the picture now, if it wasn’t obvious from the outset.
The upshot of this bit of excitement about express licensing is that it’s apparent at least some universities construe patent licensing as a production activity. They see their job to take costs out of the system. To flip it around, they see forming a negotiated relationship as a waste of time. For them, this may indeed be true. It’s just a question of whether that’s what where one wants to be.
There are ways to rationalize an express license approach. That by setting the terms up front, all university inventors get the same deal. That by making a standard deal, all terms are always public. That by having a set of terms up front, investors can decide on the value without having to ask. That by making the terms so sweet and bland, no one really cares to object.
Let’s look at fairness. Treating everyone the same makes sense if all university inventors have the same technology, in the same industry, at the same point in time, with the same operating model. But they in general don’t. So the moment there are substantive differences, a uniform set of terms creates disparities. The deals then are not consistent in impact or support or responsiveness. They are only administratively the same. They are administratively convenient. The deals are fair as long as the next start up situation looks like the last one. It’s just not going to be fair in general.
Let’s differentiate express licensing from other approaches. An express license is not merely publishing a preferred template for exclusive licensing to start ups. Nor is it starting with a template and versioning it for each start up as it presents. Nor is it the same thing as setting up a public auction open to all. Nor is it having multiple templates from which an inventor-entrepreneur may choose. Nor is it establishing a core set of terms from which negotiation can vary, or not, depending on the situation.
Rather, an express license is a adhesion contract–take it without negotiation. It assumes that the term that matters is the royalty rate, and if that’s low enough, all the other matters can be endured. If all an exclusive patent license to a start up means to a university is price, then an express license says, “we don’t even care about that.” Of course, even a pre-set royalty rate by itself is meaningless–since it is the royalty base that matters, as well as the incentives for the company to bring its activity within this base. It is the full relationship that provides those incentives, not simply a % of sales, if there even would be sales as the primary use to which the start up puts a licensed invention.
Here is a positive point. An express license acts as a backdoor university inventor choice policy. The inventors can start a company and take the deal, or leave the invention with the tech transfer office to try to license to industry. May as well put that in policy. What the express license says is: we will file a patent, pay the costs, so long as you take this deal and repay those costs along with taking these other standard, as bland as we can make them obligations.
If the university is not going to file the patent, or is not going to offer the express license to all faculty inventor-founders, then it’s not really much of an express license. It’s just the deal for those that are willing to take it. That’s who you offer it to. Everyone else, if they wouldn’t take the deal, but want something else, you don’t offer it to. That’s pretty much what one program says about their express license. Just a different form of selectivity. So everyone gets the same deal, but only if it is offered to them. But if the deal is offered to all faculty inventor-founders, then it does represent something of a commitment to file patent applications.
Why claim an invention and then not file? Most university patent policies say, at that point, you have to hand the rights back to the inventors, or in the case of Bayh-Dole, to the government. One might think, what an express license does is shift where the unfairness to the faculty inventor-founders might come into play.
One might think of other ways of making relationships between a university and a start up work better. This, just by way of context. One way might be to not claim the invention from the faculty inventors in the first place. Another might be to let the faculty inventors propose the deal, as that will reflect on their commitment to their colleagues rather than their resistance to university administrator self-interest. A third might be to have standard template agreements with a number of invention management firms, so that if a university inventor-founder chooses to work with one of those firms, the university part of the deal is largely in place. But in such circumstances, no one would have to force the inventor-founder to use such a firm, and no one need force the firm to take the template without negotiation. That is, then it’s not an express license. It’s just building relationships before you need them.
Think of that–rather than trying to do a deal fast each time as if it is a deal with unknowns who will take your offer, why not build relationships with organizations that you anticipate will work with you in the future–companies, foundations, venture funds, incubators, and the like? For that matter, why not with one’s own faculty? Why should those relationships be dictated by policy rather than negotiation? And why should the negotiation always trail the opportunity? And why then should it be a virtue to trail the negotiation, but with a take-it-or-leave-it deal to try to make that trailing not be so dramatic?
One might also consider committing the resources necessary to do a great job of managing start up dynamics. That is not trivial. It is not something to simply factor in among a bunch of other things you hold a tech transfer program to. Oh, also do start ups. It takes a ton of work, hiring folks with some pretty special skills, paying for it, staying attentive to progress, and being patient on the results. Signing a bunch of deals with start ups doesn’t the start ups prosper or that the university-side work is done when the ink is dry.
One may also go further (back, actually, in time) and get the start up activity out of the university altogether. This is particularly important for public universities. Their regulatory and review systems are generally not set up for start ups. There’s not much point in trying to navigate all the bureaucracy that’s available to be misapplied and distorted and delayed and gamed politically. An express license must find a pre-negotiated path through the bureaucracy. It’s not so much about pre-negotiating with the *start up* but rather with all the review thumbs in the pie that otherwise create uncertainty about how quickly a deal can move, and what kind of jerking around of terms and conditions might show up when things come back from legal counsel or risk management or senior administration.
So one might make an express license be the *assignment* of the patent position (university’s or inventor’s) to an outboard organization, like a research foundation or other invention management firm, and let the foundation negotiate the terms with the start up, outside of the regulatory misfit within the university. There one would have a simple university deal–this patent right to the foundation (or other management firm) in exchange for this sharing of proceeds, after deduction of costs, with this kind of diligence. Those sorts of arrangements have been in place for years. The faculty inventor-founders in those cases negotiate with someone other than their employer, or with the state. Whether it makes sense for a research foundation to make a standard, can’t negotiate offer to university faculty-founders returns us to whether a standard offer reflects common conditions or is just a convenience for not having to think, anticipate, and support.
For all that, one could split licensed rights into reserved and commercial rights. For internal use rights (make/have made/use), the university could offer a general public non-exclusive license to all users in the state at no charge. For some nominal fee, like $1000, companies could register their interest in obtaining rights to sell. That would mean *no formalities* to get going. If a start up then wanted the right to sell, or the exclusive right to sell, that would be the focus of any negotiation. But the company could be operational any time it wanted. Since most university start ups are not going to be selling product right away, and frequently when they do, the product they create does not benefit from the rights originally licensed, the approach means anyone can start up based on research discoveries, and if they don’t need to sell, never have to negotiate a license.
All this means for the university is that it doesn’t have a way to extract substantial licensing payments from the company. But then, the express licensing advocates justify their approach by saying it’s not about the money. So why should it matter how it is not about the money?
There are reasons to get on with improving university involvement in technology transfer. Improving licensing capability is part of it. Express licensing for non-exclusive situations is part of it.
However, express meaning take-it-or-leave-it for university faculty inventor-founder companies isn’t going to hold up generally. In practice, it will narrow to a particular class of start ups (like biotech ones aiming to sell out later) with a particular set of investors (who see the deal as known and sweet) and not with others. At that point, what was claimed as general purpose will in practice be more along the lines of sweetheart transactions for one’s friends, and something else for those who aren’t. That is, repeating deals that one has done in the past by working with partners who know those deals and are willing to repeat them.
So let’s see how it goes, as faculty inventor-founders taking the express deal look for funding, and whether their companies have to renegotiate the license later, or design around what was licensed, or use their inventions inside the company and sell something else, outside the take-it-or-leave-it royalty base. The way I see it, express exclusive licenses will have to be offered to everyone, not just faculty, and for all that, will have to permit negotiation ahead of the deal and after it, and at that point, we are back to where we are now.