The sublicensing provisions are a very important part of exclusive license agreements, particularly those with start-up or small companies, who often need to enter a partnership with a large company to fund late-stage clinical / field trials, to build manufacturing capacity and to achieve global distribution. The value of the technology will likely have substantially increased, and the university needs to share in this increase. In contrast, the licensee will want to do everything it can to pay as little to the university as possible.
Typically, a sublicense occurs many years after the original license was signed. Those who negotiated the initial license cannot predict what the sublicense deal will look like, how it will be structured and how valuable the technology will be at the time of the sublicense—furthermore, they will be long gone by the time any sublicenses are developed.
Any goodwill present at the outset of the first licensing deal will be replaced by a resentment on the licensee’s part at having to pay a “tax” to the university on their hard-earned revenues from the sublicense. They will have forgotten that the university’s technology is the foundation of their success.
Universities have spent great effort to manage the sublicensing process. Three models for revenue / income sharing have been developed.
Here is a presentation on sublicense revenue / income sharing and an article based on a major dispute between UCLA and Medivation over sublicense income provisions. Both resources discuss specific language recommendations:
Universities used to require the licensee to seek the university’s approval for any sublicense. DO NOT DO THIS. This requires the licensee to have to get the university’s permission on a major deal after working long and hard to close it—they will resent this extra delay and effort imposed on them. If the TTO trusts their licensee to control their technology and develop it, they should trust them to do a sublicense correctly.