Acquiring University IP? A primer on negotiating tech transfer
Recently, Tom Hockaday, technology transfer specialist and former CEO of Oxford University Innovation, published a guide to existing guides on spin-outs (or spin-offs), in which he sought to hear more entrepreneurial voices about their experiences in dealing with Universities. Here is our hot take:
1. Know each parties’ objectives and expectations
Easier said than done, but understanding each parties’ goals and expectations, including those of the inventors and funders (VC, PE, etc.), is important before actually sitting down for the negotiation. Often the University is also representing the inventors and needs to ensure that they benefit from the partnership.
2. Building “trust” and a “win-win-win” (or a 3X win) situation
For any acquisition of University IP to be successful, there needs to be trust, both early-on and post-transaction. Believe it or not, the parties will most likely need to interact with one another post-signature of the agreements, and continue advancing certain research projects. In addition, some of the terms in the agreement may need to be renegotiated and it will be much more difficult to have these discussions if there is a lack of trust between the parties;
Universities are willing to engage in “win-win-win” (3X) situations for all the parties, including: (i) the researcher, (ii) industry (i.e., the spin-out), and (iii) itself. They want the spin-out to flourish, and not see IP shelved. As such, certain compromises can be made on contractual terms of the agreement(s) as long as all parties approach the negotiations with the goal of being fair while ensuring a return for everyone; and
Universities may also provide follow-on funding when the spin-out is seeking additional financing.
3. Understand the Universities’ constraints (or challenges)
Universities are, first and foremost, teaching and research institutions, and are bound to numerous rules and regulations (i.e., legislation), charters, bylaws, policies (i.e., IP and other), duties (i.e., fiduciary and governance issues) as well as agreements, such as: collaboration and partnership industry agreements, collective bargaining agreements, funding agreements, etc. These contractual obligations must be taken into account;
As teaching and research institutions, they may want to:
(i) retain the right to publish articles (i.e., research publications, newsletters, etc.) on the the project;
(ii) retain the right to continue researching the technology, including in collaboration with other academic institutions;
(iii) retain the right to improvements (per patent-lese) on the invention;
(iv) seek significant limitations of liability, i.e., a total exoneration of liability, amongst others.
Universities are usually unable to:
(i) make representations and warranties, for instance with respect to the quality of the IP, for example if it non-infringing;
(ii) provide indemnifications in favor (or favour) of the spin-out (or spin-off) or the University IP acquirer, for example, with respect to infringement or other instances (or torts or faults, depending on the jurisdiction); and
(iii) be involved in a significant way with respect to the marketing of projects and spin-outs/spin-offs.
4. Which comes first? Licensing or Assignment of IP rights: Use of a first milestones approach?
Entrepreneurs/inventors will most likely want to own the IP rights in the invention outright. Universities may see otherwise. Why? Simply put, they want to make sure that the IP rights are in “good hands” and that the technology has the best chance of being successfully commercialized. That said, adopting a milestones approach may be a good way in securing and acquiring the target IP rights, and addressing expectations.
Though it might be a question of negotiation, from an entrepreneurial perspective, entrepreneurs are inclined to seek the totality of the IP rights, as it will give them the freedom to do as they like with the technology they seek to commercialize the product. Note that such freedom cannot come without compensation back to the University; there is, as the expression goes, "no free lunch" here!
5. Discussing equity with the University: a second milestones approach
As the expression goes, it may be a "nice to have, but not necessary" for the University. This means that the spin-out/spin-off may not have to give any equity to the University. However, Universities do expect to be appropriately compensated for their investment in securing intellectual property rights and to receive compensation in the form of royalties, milestone payments, etc. Understanding that spin-outs/spin-offs are usually illiquid at the beginning of their business activities, Universities may be willing to delay the reimbursement of commercialization expenses in exchange for a small equity portion in the spin-out/spinoff.
6. Patience and a "longer” deal cycle
Considering the size of Universities and internal “checks and balances”, entrepreneurs (or IP acquirers) must be willing to be patient in dealing with Universities.
For more information on the technology transfer, contact us and check out these other resources:
WIPO - Technology Transfer Agreements,
Andrea Caputo, David Charles & Raffaele Fiorentino (2022) University spin-offs: entrepreneurship, growth and regional development, Studies in Higher Education, 47:10, 1999-2006, DOI: 10.1080/03075079.2022.2122655, available at: https://www.tandfonline.com/doi/full/10.1080/03075079.2022.2122655?src=recsys
Michael Amponsah Odei & Petr Novak (2023) Determinants of universities’ spin-off creations, Economic Research-Ekonomska Istraživanja, 36:1, 1279-1298, DOI: 10.1080/1331677X.2022.2086148, available at: https://www.tandfonline.com/doi/full/10.1080/1331677X.2022.2086148?src=recsys