Agreements are critical in Tech Transfer. Without a signed agreement, conflict can occur later. TTOs in Europe and the United States have developed many standard forms of agreement over many years, often based on bitter experience from mistakes that proved very costly and / or led to litigation.
A suite of model agreements is presented below for use and adaptation. They are in a uniform style and use the same defined terms so they can be used in combination for deals that contain multiple components. They are based on U.S. law and will need to be modified to bring them into conformity with national laws; however, the key business issues that they address are the same around the globe.
The following sections each have a clean copy of the agreement and an annotated version in which comment boxes explain the key issues that various clauses address and their importance.
As a general proposition, a TTP should always write the first draft of any agreement, using its standard form—it’s the university’s technology after all. Additionally, the TTP’s standard form will include all the necessary elements in the legal document. A licensee-drafted agreement requires careful review to determine what terms they are proposing and what requirements might be missing.
There will then be a series of revisions between the university and the licensee in which the licensee seeks changes. A redline copy, in which all changes made to the document are shown within the text, should always be attached, or if not attached, the university should generate its own redline to see what the licensee has changed.
2.11.1 Term Sheet
A term sheet is a document that captures the key elements that two parties have agreed will be included in a deal. The deal is usually negotiated by a series of exchanged drafts of a term sheet. Although it is good practice to have both sides sign the term sheet when agreement has been reached, term sheets are generally explicitly stated to be non-binding.
Available below is a blank / template term sheet and an annotated version of the same term sheet:
2.11.2 Confidential Disclosure Agreement (CDA)
A Confidential Disclosure Agreement (CDA) is also known as a Confidentiality Agreement or Non-Disclosure Agreement (NDA). It allows for the exchange of confidential information between the licensor and potential licensees while ensuring information remains private.
Unethical companies can still pretend to be interested in licensing the technology and then steal the information, but a signed CDA will provide a solid basis to sue them and be awarded damages.
CDAs/NDAs come in two types:
- One-way, in which only one party is disclosing confidential information to the other;
- Two-way, in which each party is disclosing confidential information to the other.
A CDA is an essential step in the process of developing a license agreement. Initial communications with the prospective licensee, like the tech brief, will be non-confidential. The next steps may be non-confidential too—providing the prospective licensee with scientific papers describing the technology, or a patent application as long as the application has been published.
At some point, the prospective licensee will want to start to see confidential materials, such as an unpublished patent application or unpublished scientific results—and to have in-person discussions. Only then should the TTP suggest that a CDA is necessary. Never demand a CDA and then only send published materials.
Available below are a blank / template one-way CDA and an annotated version of the same CDA:
2.11.3 Material Transfer Agreement (MTA)
A Material Transfer Agreement (MTA) is used in the transfer of tangible property in the same way as a CDA is used in the transfer of IP. This use was discussed in Topic 3: The Full Spectrum of IP Protection Tools, Section 2.3.7 on Bioproperty.
An MTA specifies what the receiving party can do with the material and what on-going obligations they have to the provider. An MTA is a common step in the pathway from initial interest to signed license. The prospective licensee will generally, sooner rather than later, want to receive biological materials or samples of novel materials to replicate the work and test it in their intended application.
Scientists trade information between themselves without asking for CDAs. That is not true for MTAs. Even academic-to-academic transfers of biological materials should be done under an MTA. See a discussion of the Uniform Biological Material Transfer Agreement (UBMTA), an expedited method of transferring biological materials between academic institutions that was developed by the NIH. It is essentially a “treaty” which sets uniform terms and conditions for materials that are transferred between participating academic institutions. AUTM administers the UBMTA on behalf of NIH. AUTM also provides access to various simple letter agreements for transfer of biological materials between academic institutions.
Available below are a blank / template of an MTA and an annotated version of the same MTA:
2.11.4 Option Agreement
An option agreement is another common stop on the road from initial contact to signed license. It grants someone a certain period to evaluate a technology with the certainty that if their evaluation is positive, the rights will still be available to them.
An option agreement frequently has a term sheet attached which contains agreed-upon terms for a subsequent license if the evaluation is positive. This avoids conflict when the prospective licensee has made a considerable investment in evaluating the technology only to discover that the two sides are far apart on valuation.
Available below are a blank template of an option agreement and an annotated version of the same option agreement:
2.11.5 License Agreement
A license agreement retains the ownership of the licensed IP to the licensor, the university, while granting the licensee the rights to exploit the IP.
This short article provides an overview of the issues involved in licensing inventions from universities.
Licenses divide into two broad types:
- Exclusive
- Non-exclusive
In an exclusive license, only one company will get the rights to use the technology in a given field and territory. In a non-exclusive license, an indefinite number of companies can receive a license. When companies grant an exclusive license, they frequently say it is “exclusive even as to licensor,” which means that the licensor can no longer make, use or sell the licensed technology. Universities, on the other hand, always reserve the right for their inventors to continue to do academic research in the field. The quid pro quo is that the licensee will want rights to improvements that the professor makes in the field.
There are very different business and legal issues that apply to exclusive and non-exclusive licenses.
Related resources:
- Here’s a short presentation on licensing strategy; and
- A presentation on licensing theory and practice, which describes the importance of all various clauses in these agreements.
Available below are a blank / template of an exclusive license form and non-exclusive license:
2.11.6 Assignment
A license is like renting an apartment: the owner still owns it but the renter has the right to live in it, whereas an assignment is like buying the apartment.
Most American universities only license their technologies. This is due to the Bayh-Dole Act, which essentially created academic Tech Transfer in the United States. That act specified that universities could only license inventions made with federal funding. To assign an invention, they had to request the permission of the funding agency, and to date, funding agencies have not typically granted assignments, with their view being that exclusive licenses should be sufficient for corporate partners to gain the full benefits of an invention.
Although universities can assign inventions made with private funding, federal organizations typically fund 70% of their research funding, so universities’ policies and practices are normally based on federally funded inventions and licensing.
Outside the United States, this legal protection doesn’t exist, and universities frequently come under heavy pressure to assign their inventions. The practical difference between an assignment and a license, paradoxically, is when the relationship starts to go bad. If an invention is licensed to someone, the licensor can terminate the license for the reasons specified in the license (typically bankruptcy of the licensee or a material breach of the terms of the license by the licensee) by giving the licensee whatever notice the license specifies. The licensee may go to court to try to get a judge to stop the licensor from terminating, but control rests with the licensor. If, on the other hand, the patentee has assigned the patent to an assignee for them to develop and the assignee commits a material breach of the assignment agreement, the assignor (the original patentee) will need the assignee to physically assign the patent back to it. Control rests with the assignee.
2.11.7 Sponsored Research Agreements (SRA)
Sponsored Research Agreements (SRAs) allow companies to pay a university to do research for the company. The company will generally want to negotiate rights to the resulting IP (generally called the “Foreground IP”). The SRA may be an add-on to a license to the background IP, or the company may get a license to the background IP as part of the SRA. As a rule, TTP’s should resist giving anything more than a fully paid-up non-exclusive license to make and use—but not to sell (i.e., a research use license)—the background IP as part of an SRA. If they want more, do a separate license.
The type of research to be performed under an SRA can range from basic, curiosity-driven research (where the university sets the research agenda), to contract research (where the company dictates the technical activities of the university). Clinical trials are a common form of contract research that universities do for companies—the company sets the protocol and the university has to follow it precisely.
The IP provisions that are appropriate are very different along this spectrum.
The best treatment of contractual forms and IP provisions comes from the United Kingdom. In the early 2000’s, the British Government asked Richard Lambert, a former editor of the Financial Times to carry out a study of business-university collaboration in the United Kingdom. (Read the report published in December 2003).
At the time, universities were often seen as unwilling to interact with companies on their terms, however Lambert found that British industry lacked the capacity to absorb all the universities’ innovation. A key outcome from Lambert’s report was a toolkit of guidelines and templates for contractual research relationships between universities and companies. It includes:
- A decision guide;
- Seven forms suitable for one-on-one relationships; and
- Four forms for multi-party consortiums.
The toolkit has been so useful to British companies and universities that the British Government has kept updating and improving on it. Available here is the current toolkit, last updated in 2017.
As a rule, universities do their research at cost. The sponsored research office will ask the Principal Investigator (PI) to create a direct cost budget: staff time, reagent costs, core facility costs, animal costs, etc., and then will add indirect costs via a percentage surcharge. These costs are real costs of doing research that cannot be allocated to individual labs or projects such as: utilities, waste disposal, security, sponsored programs office animal care and use committee, etc. This results in the fully loaded costs of doing the research. But it’s still just the cost of the research—there’s no profit built in. Companies will frequently refuse to pay what they call “overhead.” Thus, it’s important to always refer to indirect costs (IDC) and not call that percentage an overhead.
Companies may not want to let universities retain ownership of IP so that they must license rights to it if they subsequently want to use it. Their argument is often that they paid for the research and shouldn’t have to pay even more to use the results. TTPs must then explain that (a) they must have needed the university’s expertise to do the work, otherwise they’d have done it in-house and (b) the research is being done at cost, and licensing any IP that comes out of it is the university’s only opportunity for profit. Ask them if they sell their products at cost. The answer is, of course, “no”—they want to make a profit.
In the United States, the rules surrounding charitable tax-exempt organizations put severe constraints on universities’ abilities to set royalty rates for access to the results of SRAs in advance. Thus, the standard royalty terms of an SRA in the United States is an exclusive option to an exclusive license on terms to be agreed in good faith, exercisable up to six months after the end of the SRA. This can make companies highly suspicious, however there’s no easy answer to this. TTPs can always offer to jointly hire a consultant to do a comparable analysis.
A few universities—notably the University of Minnesota and the Pennsylvania State University—have programs where the sponsor of the SRA can pay a surcharge of 10% of the fully loaded costs (i.e., including full IDC) and get a fully paid-up license to any IP that comes out of the SRA. See details of the U. of Minnesota program and details of the Penn State program.