If you are a faculty member at an American university, you will get a lot of twisted advice from your university technology transfer office about intellectual property, Bayh-Dole, and patent policy. The advice (and descriptions about technology transfer) is mostly wrong or ill-conceived but it might sound plausible if you don’t know practice, and to contest it will cost you somewhere over $200,000 in attorney fees. You may win, in a pyrrhic way, but even then you won’t be better off for it. They will just double down, change their policy to try to cover for whatever you forced them to admit, and continue on. It will cost the next person another $200,000 five or ten years on when the next opportunity arises.
Anyhows, there are ways to navigate university technology transfer without the big fight. Here are some thoughts on strategy. Your situation may be different. Your circumstances may be different. You may not have the interest or connections or time. But maybe these thoughts give you some ideas about how to work the system to your advantage, and to that of the stuff you create, make, collect, discover, invent, realize, cultivate, and compose.
Most university IP policies now demand that all inventions must be assigned to the university. Invention is defined broadly to mean all patentable and non-patentable inventions, software, know-how, improvements (what are those?), and anything that might have “commercial value.” What’s a non-patentable invention? Anything that a university administrator calls an invention. Essentially, anything that doesn’t have an ownership theory in patent law. So, if you make something or think something or realize something, you are at risk that a university administrator will call it an invention and bring it under their policy of demanding to own it. There’s really nothing you can do once you report it to them.
Practice tip–don’t go out of your way to think that something you’ve done is inventive. Make them try to persuade you. It’s a good mindset to have anyway, because despite that thrill of feeling like you are on to something, 1) you probably aren’t–what’s new to you likely isn’t new to the world and 2) even if it is new to the world, there are reasons why no one has bothered to be where you have ended up and it won’t be something anyone needs or wants for another fifty years–much longer than the term of any patent. So, make them persuade you not only that what you have done is inventive (it’s not patentable if the folks doing it do not recognize it as inventive, especially as new and non-obvious to one with ordinary skill in the “art” of making such things–that does not get around the “non-patentable” bit of university IP policies, but it does take a lot of air out of the bullshitting sails of the IP folk).
But let’s say you have got something patentable, and you do think it is important, and you do recognize an obligation to report it to the university. You will end up assigning it to them. The policy deal you will get is a share of royalties they might make–usually around 25% to 33%, sometimes from gross income, sometimes from net after the licensing office takes its costs, sometimes scaling down as the money gets significant.
If your university has this sort of policy, then you need to work with multiple disclosures. Consider: if you are to get 100% of the first $20,000 in licensing income and 50% from there to $50,000 and 25% thereafter, then it makes sense to file multiple related disclosures rather than one disclosure that gets broken out into multiple patent applications, what with divisionals (multiple inventions in first application) and continuations (rewrite the claims to beat up competitors) and continuations in part (adding new material but not having an earlier application count as prior art).
Given that most university inventions that do get licensed (and then only maybe at best 20% do) never get to product and so don’t generate royalties from sales, the likely only income will be an initial licensing fee. Licensing one invention (even with multiple patents) for $50,000 up front plus royalties gets an inventor $20,000 and $15,000 more (less patenting costs and whatnot), so $35,000. But if there were two disclosures–two invention cases–then you are looking at $45,o00–100% of the first $20,000 for two inventions, plus another 50% of that last $10K of the $50,000 upfront fee. So, two disclosures of related inventions is worth $10K if anything is ever halfway licensed. This is how it has to be done for any IP policy that has a reduction in the share percentage as the licensing income grows. I’ve had inventors file ten or twenty disclosures around a single inventive “technology.” A university engineering lab working at an industry pace ought to produce twenty to thirty invention disclosures per year. Get used to it. That’s the incentive built into the policy. Go for it. It is way more likely (in that odd sense of somewhat more likely than no chance at all) that the university will get your invention licensed than that it will become product getting sold, so disclose the least disclosable thing, and repeat. If you want to be subtle about it, stick with two or three disclosures in a cluster, at any one time. Yeah, like that.)
Now that the university has got ownership of your inventions, you will find that you are expected to assist the licensing office. You will be dealing with the attorney writing the patent application, reviewing the text, making corrections, chasing down references from the papers you have piled somewhere, and the like. You also may be asked to report all the industry people that you have had any contact with, and any companies that you think might have an interest in being shaken down for a patent license. Meanwhile the university will run up a patenting bill and they will pay, telling senior administration that they will recover the costs from a licensee. But you will be excluded from having any say on the licensing strategy. You will be told to go sit in a corner if you want your invention licensed non-exclusively royalty free (pity about that software code your “inventive” algorithm is buried in) or if you want the invention contributed to a standard. Especially public universities make the claim that since you have a financial interest in licensing income under the university’s policy, then you cannot be involved in anything to do with license contracting–not who the the university licenses to, and not under what terms. Of course, if you want the invention licensed royalty-free, then you wouldn’t have a financial interest but the university folks are clever and they will argue that ah, you do have a financial interest because if the invention were licensed royalty-free then you in theory could make money consulting for companies that acquired the invention, and that’s a plausible reason why you want the university to license royalty-free, so you can’t win going this route.
The problem with university control over licensing is that things are (1) out of your hands even though (2) you are the one that knows the invention, its limitations, how to design around it, how to do something, maybe lots of things, even better but will take some time and (3) some companies are better than others at the technical stuff, and a licensing office might not be able to recognize that. What to do? Wring hands and hope. That’s certainly well tried. But think about being proactive. Remember, this is an invention you care about. So, show it, really care by taking action.
One good route here is to go ahead and start a company. You don’t need to imagine anything at first with actual operations or employees. Paperwork creates a company. Merely talking about paperwork to create a company means you become an entrepreneur, a protected class of faculty, highly desired by the university. More importantly, having a company (on paper, an LLC or an S Corp to start, even) means that you can set up to have the university license your inventions (you did file at least two disclosure forms, yes?) to your company. You won’t be allowed to negotiate the deal, so you have to find a stand in–an attorney whose firm does not represent the university (or wish to) in any other business, or a business-minded person willing to stand in for you as the acting president or CEO. You will be the head of the technical advisory board, and can hold as much equity as you want. It is, Bob Ross style, your company.
The university will have a crap template license to stuff at you. There’s not much hope to negotiate most of it. You will be asked to pay an upfront license fee, the university’s patenting expenses (20% or more higher than if you found your own patent attorney), milestone fees, equity, insurance premiums (for your company, but naming the university as co-insured, providing proof of insurance, providing on-going documentation of continuing to pay the insurance premiums), plus indemnifying the university for any acts of embezzlement that university employees may take against you in the normal course of their duties for anything that might happen, even if caused by the university. You can’t fully resist this stuff, but you can shift it around, delay it, and make it empty. Here’s how.
First, aim to limit the cash outlay. Accept that there will be an upfront licensing fee. The university will try to make you waive an interest in it–after all, if you get 100% of the first $20,000, and the upfront fee is $20,000, well there you are, paying yourself. But hey, you didn’t write their stupid IP policy (did you?). One way to limit your exposure is to agree to a bigger upfront fee but structure it–pay $5,000 on signing and defer the remaining $45,000 to some future milestone, such as a series Or, pay $1,000 on signing, and another $2,000 at six month intervals for the first $5,000. You get the idea. The rest comes do when you have the money received by the company to pay it. A round of funding at $1M or more, say, or annual sales of over $1M. You may never need to get to a series A round of funding or ever sell anything, but if you do, you’ll have the $45,000 to pay off the university, so no big deal.
Your company will also have to pay the university’s patenting expenses. Again, here, you can structure the payments. The university has to receive the billing from their law firm, and has to remove any charges that are not specific to the patenting work on your inventions, and then has to invoice the company for payment. So there’s a few months of delay built into the university system. The university can pay the first patenting charges from the $5,000 up front fee. And, hey, they are already rigged to pay all the patenting costs–unless you pushed them to file patent applications only because you were starting a company and wanted an exclusive license. Yes, you end up paying for the patent work, but there is a cost in navigating the bureaucracy. Own it. Get the university to defer further payments for patent work, say, six months or a year. Better, defer payments for patenting until the university gets notice of allowance (about three years into patenting)–if there’s no patent, then there’s no basis for the license, and there’s no basis for your company paying for the license.
There’s a way to take the sting off such delays. Offer the university an interest in company equity. Don’t issue shares to the university or even warrants. That gets into all sorts of securities issues, and some public universities worry that they are “technically” not permitted to hold stock in companies. But there’s a better way. Offer the university a milestone payment indexed to the cash value of a set number of shares at a defined threshold event. So, say, the cash value of 50,000 shares of common stock at the first to occur of (i) a Series A round of funding at $1M or more; (ii) acquisition of the company; (iii) an IPO. If a share could be worth $10, well, that’s a could be offer to pay $500,000. If you start you company with 5,000,000 shares, then the cash value of 50,000 shares is workable. There’s plenty more complexity here, such as fuss over “dilution,” but in general a milestone payment indexed to a share price is easier to manage than dealing the university in as an owner of the company.
You can take even more sting off by offering a fabulous royalty rate on sales of product covered by the university’s patents. Most university patent royalty rates are sub 6%, and in biotech can be sub 2%. There’s a stupid rule of thumb that circulates in university licensing offices that one should go for a royalty rate + equity share that adds to 10. There’s another rule of thumb (or maybe middle finger) that the university should ask for a business plan with detailed financials for the first three years and then (the middle finger part) incorporate that plan into the license as a contractual obligation and take as royalty 25% of pre-tax sales. Let them have whatever they ask–but ask for a “re-opener” that permits a renegotiation of the royalty rate (and more importantly, the royalty base) upon any threshold event (round of funding, sale of company, IPO, and the like). Again, postpone the final deal with conditionals.
With the prospect of a nice return on equity and everything they want in a royalty rate, you likely can get a delay in paying the university’s patenting costs beyond the first $5,000. (Expect university costs to be $15,000 to $20,000 per patent application, more for filing PCTs, and way more–never allow your company to be obligated outright for this–for going national phase in other countries.) I have worked with law firms on fixed cost contracts that can prepare and file for under $10,000, and even less where inventors or their ChatGPT AI buddies are adept at writing great specifications. Universities tend not to bother. As one major university manager of patenting told me–we don’t care how much it costs, really, since licensees will have to reimburse us. (Well, mostly there aren’t licensees, and when there are, they may challenge patent bills that are too high, and all sorts of fuss ensues.)
Now here’s how you work this system. First, you have delayed or made conditional almost every from of cash payment. The delays are acceptable because of the prospect of big payouts from equity and royalties on sales. You be generous, they be generous. Now deal with the conditionals. First thing you do in the company is design around your university inventions. This is not bad behavior. It is necessary behavior. If you have patent applications filed, and anyone else finds out–and they will in 18 months when your applications are published–then they will try to design around your patent claims. In a first-t0-file world, you need to be there first with the design arounds, and you want those design-arounds to be owned by your company, not by the university. One good engineer or technician, willing to moonlight and work for mostly equity can do this. If you need funding, aim for SBIR or STTR funding from the government or seed funding from state economic development programs. Or find an angel investor group for seed funding. Just enough to design around, and file patent applications. Yes, you will need to pay an attorney, and pay to file at least provisional patent applications–but this is just what you would be doing if the university made no demand to own your inventive work. And you can do the work at much less cost by picking the right attorneys and paying a lot more attention to what you need to claim.
Now you are set up. The university has in essence handed you back your inventions for $5,000 and some conditionals. You now can manage the licensing of your inventions to industry, and from a much better base than either yourself personally (“hey, buddy, wanna buy a patent”) or from the university (“nice company ya got there, pity if somethin’ was to happen to it”). The best way to manage the licensing is to sell the company. For that, aim for a few years of operations, with your SBIR or seed funding. Your job is to meet folks in companies that buy small companies for their technology. Maybe not the tech or pharma bigs–unless your startup involves AI or CRISPR or mRNA or whatever happens to be trendy). But here’s the thing, your IP, tucked into a company, has more value than your IP held personally, or held by a university. We are talking maybe a 10x premium. I could explain, but it’s a long thing about how naked IP other than as troll material is not nearly the value (especially if held by someone not experienced in trolling) that a going concern has with IP embedded in it. If you sell your company, the company can pay off the university. Look at that deal.
If you let the university do the licensing, if ever, maybe they don’t bungle the terms, then you get, for a biggish deal, 25% of royalties at whatever–say 5% of sales (won’t be–will be a lot less by the time the acquirer re-opens the license and renegotiates). But if you do the deal, you get 99% of the transaction (which you share out with the folks you’ve paid with equity) and the university gets the cash value of 1% of the company, which even if they refuse to share 25% with you, you are way, way ahead. For $5,000 and 1% of future income from technology transfer, you buy out most the university interest in your invention and get the right to choose your licensing strategy and working partners to exploit your inventions and develop them. That’s very much a good deal compared to suing them over their stupid policies and spending $200,000, wasting time over being right.
Even if your company gets bought for a piddly $500,000, you are still way up. The university gets $5,000 and patenting costs, you and your buddies get $450,000 or more (or less, with any outstanding operating debts to pay). And if you have done a good job designing around the university patents, then the company that buys the startup doesn’t have to worry about the royalty rate–it is not going to use the university patents and can for all that leave them out of the acquisition. In effect, the university is left to terminate the license–and still be obligated to try to find a new licensee for your old inventions, even if you don’t care about them. (Never say you don’t care–always find a way to care, for their sake.) Almost all the university startups I’ve been involved with have designed around the university licensed patents. If they can do it, so can you. Really. That patents are not the big thing you may have been led to think they are. They are a tiny tool in a much bigger kit of things that makes what a company does worth anything to anyone else. You, as an inventor, as a faculty inventor, have much more to offer around any given invention than the bits that are claimed in a patent application. By stripping out the patentable bits from the rest of your expertise, awareness, connections, and desire to do things, a university actually dramatically reduces the value and attractiveness of any license. By taking ownership of just the patent right, they make licensing the invention so much less attractive and unlikely. They say licensing is hard but they are the ones too thick to see that their own IP policy and IP practices are a big maker of that hardicity.
From your startup, you can also grant sublicenses to your invention–or better, to the design around inventions. In your university license, you want to make sure there’s no poison pills for sublicensing. You pay a royalty on sublicensing, but not a cash value of a sublicense if it is royalty-free or under whatever the university thinks is a “market” rate. You don’t have to set up as a troll because you have desirable expertise that runs with any license. You can participate in a standard, or a technology platform, or create a user consortium or commons. You can give away permission to make and use, and sell consulting and technical assistance and data services to anyone who wants to acquire. Real technology transfer. Doesn’t have to involve “commercialization.” Can be just a research tool, or internal productivity improvement, or just something folks want to mess with, with some assistance, so they can design around it later–get over it, that’s what technology people do–help them pay you while they do it. The best defense for design around is lots of users as soon as possible. Past a critical mass, the technology becomes a base (used by enough that changes are better shared by the “art” than fragmented to hold out on everyone else) rather than an obstacle (patent).
However, you do it, for $5,000 you get back control over licensing, even if you grant just one exclusive sublicense rather than selling your company (say, you find something else to work on with your company, and want to finance that work with income from the sublicense–which essentially moves the university-owned inventions to a company of your choice, on your terms–not the university’s choice or terms. And you are more likely to do the deal, and for more value, and with a better return to you and your co-workers for spending the time and effort.
By moving your IP from the university to a company, even if a pro-forma paper startup, you recombine your IP with your expertise, which then also becomes associated with the company. Assuming competence here, your CEO negotiating peer to peer with folks in other companies is a way better situation than a university licensing officer trying to get a deal. Some university licensing officers are very, very good at what they do. But they cannot get past the fact that they mostly come off as no-name, low-status underlings in the university trying to deal with the decision-making leaders at companies.
Now, keep in mind we are dealing with low-likelihood outcomes to start with. It’s an unlikely thing that a university will license anything to anyone. It’s also an unlikely thing that you starting a company will get you to a licensing program or sale of the company to anyone. But it will be true that you will get back control of your invention, will have greatly increased its potential value, and if you do get to a deal (exclusive sublicense, non-exclusive licensing with services, company acquisition, or even series A financing) you will have a whole lot greater share of that deal than if you sit on your hands in the corner waiting for the university to get around to your inventions (you did file two invention disclosures, right?)
To summarize then.
If you have inventions that matter to you, get back control over them. It will cost you, but it would cost you anyway if the university didn’t demand ownership. Disclose your invention, submitting at least two related disclosures if your patent policy cuts the royalty share for greater licensing income. Assign the inventions and let the university start the patenting process. They will serve as the patenting bank. What they spend amounts to a loan to your future company.
Now start a company. Keep it simple. Doesn’t have to have operations or employees. Just a pot to receive back rights to your inventions. Get someone to front the company. You be the head of the technical advisory board, and majority shareholder.
Have the company negotiate a license. Probably exclusive. Reasons to structure this, but not getting into that now. Limit upfront cash payment. Structure the payment, too, and delay or make conditional the bulk of it. Sweeten by accepting a royalty rate with a re-opener at a threshold event and offering a milestone payment indexed to the cash value of a given number of shares at a threshold event like round of funding or acquisition of the company.
Now design around the invention, keeping the new IP in the company. If you develop product, develop especially under the new IP. Now you are in control of your inventions.
You can sell the company to transfer them, or grant an exclusive sublicense, or sublicense non-exclusively and make money on sale of services, or sell product with competitive practice of the inventions (especially the design around inventions) by others–having choice is a huge advantage in speeding up sales to buyers other than the crazy technologists and visionaries who will grab anything.
Anything you do this way is likely to be a much better deal for you, since you care about your inventions. Better choice of business partners, better terms, more value, more control of your inventions, easier to get further inventing out of the university before trying to transfer it. And a way better deal financially than if you rely on university licensing and royalty sharing. You don’t have to spend much more than you would if you did all the patenting yourself. You learn a lot more, meet really interesting people (some good, some sketchy–but mostly interesting sketchiness), and get to call the shots until you realize that you’ve called enough and it’s time to let the butterfly go.
Consult an attorney for legal advice. Don’t be greedy, don’t be a fool, stay involved, always wear a smile, don’t respond immediately to things that you don’t like or look really wonderful, even if you know what and why, ask questions around issues instead and express genuine interest in the responses. Follow the university’s numbing protocols and use your standing as an entrepreneur. Avoid any appearance of conflict of interest. Don’t bring company work onto campus. Don’t put supervised grad students into the company. Don’t appropriate your colleagues’ work. Use the company to direct your own technology transfer efforts. Exclusive sublicense, non-exclusive licenses with services, acquisition of company. Don’t run up debts where you don’t need to and don’t have company financing to pay. SBIR if nothing else. Remember, do this only for inventions that you really care about. Treat it as part of your commitment to academic excellence, as a test of your claim about the importance of your work. If the first iteration doesn’t work out–likely–you are way better set up to try it again. It could all be done more directly but for crappy university IP policies. But we must live in the world we have got. Hope this helps.