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Overview of Risk Management in

University Technology Transfer

David N. Allen, Ph.D. Associate Vice President for Technology Transfer

University of Colorado Systemdavid.allen@CU.edu

303 735 1688

September, 2007

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The Presentation Today

• Overview of technology transfer• Elements of risk in technology

transfer• Risk management issues and

approaches• Conclusions and take home points

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The Technology Transfer ProcessResearch (creation of the idea)

Invention disclosure (submitted to TTO)Intellectual Property (IP) assessment (protection,

technical and commercial feasibility) IP protection (initially a provisional patent application

and then further prosecution) Marketing and Proof of Concept

Option then License (to an Existing Company or Start-Up Company)Product and Market Development

Commercial Sales (by Licensee/Sublicensee)Revenue to CU (royalty, milestone payments, equity

liquidations) Revenue distribution (inventors, their labs, Campus

and System)

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Technology Transfer Performance Metrics: CU as an Example

Fiscal Year 02-3 03-4 04-5 05-6 06-7

Invention disclosures 124 147 177 198 254Patent apps filed 82 100 139 125 140Options and licenses 34 47 59 57 75 Exclusive option/licenses 13 19 22 36 35Revenue in $MM* 3.1 5.8 21.7 20.6 24.0Start-up companies 6 9 9 10 10

* does not include revenue derived from legal settlements which in FY2003-4 amounted to $28.1M,

in FY2004-5 $6.7M, in FY 2005-6 $.7M and $.5M in 2006-7

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The Role of Technology Transfer Offices?

• Work with investigators to identify and assess IP• Work with investigators to secure IP rights

through research contracts, Material Transfer Agreements and related agreements

• Decide to protect, license, release to public or return IP to inventor

• Supervise obtaining legal protection, negotiate, execute and manage licenses and distribute net receipts [inventor(s) named on a patent receive X% of the revenue derived from the patent]

• Conduct government compliance

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Universities Claim to IP Ownership

• Key Provision of 1980 Bayh-Dole Act – university receives title to inventions created from research supported by federal funding

• Every university has an IP policy; typical covered individuals:– Employees of university who create inventions– Inventions derived fro a grant or contract obligation– Inventions derived from substantial use of university

resources– Students often exempted (except as part of above)

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What Do Universities Want from Licensees?

• A true commitment to further develop and eventually commercialize the technology.

• An understanding of university values and constraints, e.g., publication and Bayh-Dole.

• A fair price, uncomplicated royalty terms and an opportunity to share in the upside.

• Reasonable terms for acquiring new IP.• A role for the faculty inventor.• To retrieve the IP if licensee doesn’t

produce.• Reasonable mitigation of risks.

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Elements of Legal Risk in a License Agreement

• The basic proposition – an arms length transaction exchanging rights for economic consideration

• Key elements of risk in a a license contract:– Issues with the grant of rights: previous contractual

obligations, exclusivity/non-exclusivity, field of use, patent rights, know-how, future rights

– Retained rights for government and research– Payments: earned royalties and sublicense royalties,

annual and milestone fees,– Patent administration and enforcement

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Elements of Government Regulatory Risk in Tech Transfer

• The basic proposition – government empowerment of IP comes with obligations to the government

• Key elements of regulatory risk:– Bayh-Dole reporting and other obligations– Conflict of Interest (hens and fox analogy)– Export control laws– Open records laws– Animal experimentation– Human clinical trials

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Elements of Research Risk Impacting Tech Transfer

• The basic proposition – research compliance is an academic affairs issue but impacts technology transfer

• The research environment risk: – Improper use of others IP (material transferred from

industry)– Inappropriate IP terms in Sponsored Research,

Material Transfer and Confidentiality Agreements– Agreements signed by faculty who do not have

delegated authority – Improper use of confidential and/or proprietary data– Expropriation of IP (by employees and by

companies)

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Elements of Intellectual Property Risk Impacting Tech Transfer

• The basic proposition – it takes five plus tears to be awarded a patent, by then the technology is often “cold”

• The IP risk environment: – Public disclosure of inventions– Incorrect inventorship– Complicated royalty distribution issues such as

with different software creators over different versions of software

– Embedded third party software in university developed software

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Elements of Financial Risk in Tech Transfer

• The basic proposition – payment for right to make, use, and sell IP

• Key elements of financial risk:– Patent infringement litigation– Incomplete payment by licensee– Timely and accurate office processing– Form of equity and liquidation terms– Payment for all inventors– Funds to support litigation

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Risk Management Issues

• Basic legal protection – inability of an injured party to pierce the license “iron curtain liability” between user and university

• The opportunity cost risk of missed technology commercialization

• The balance between transferring risk (control) to the licensee and accepting risk (control)

• The special risks of working with start-ups and small businesses

• Risk of working with known litigious companies

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Risk Management Features of a License

• Indemnification by licensee and not by university

• Very limited warranties and reps by university• Commercial diligence defined• Examination of licensee financial records

(audit)• Licensee insurance requirement• License assignment approval• Compliance with the law and choice of law• Dispute resolution arrangements• Contract termination

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Other Risk Management Approaches

• Fiscal responsibility reporting and assurances by TTO principal officer

• Fiscal control procedures• Audits of large “unusual” transactions and

yearly audits of affiliated entities• Best practice monitoring and training to

those practices• Transparency of performance metric

reporting and budgeting

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Conclusions and Take-home Points• The relationship between the license and

university is as important as the contract• Competent tech transfer staff and best

practice procedures are essential• The relationship between the tech transfer

office and university legal counsel must be positive

• Administration wants a proactive tech transfer function, which should be coupled with proactive academic compliance procedures

• The tech transfer office should not perform research compliance; responsibility is disclosure

• There is no such thing as a prefect, risk free license