Licensing and Income Distribution

The process of transferring knowledge, ideas, discoveries and innovations from the university to the public is called technology transfer. Once new innovations are identified, they are assessed to identify customer/market fit and determine development hurdles. Establishing intellectual property protection is another necessary element to maximize benefit for interested business partners to develop new products, services and businesses. As an innovation matures, it is desirable that the innovation be licensed.

Partnerships to develop a product may take the form of a license agreement, in which the parties agree on key terms which grant rights in the invention to the licensee in exchange for some form of consideration to the university. Though the terms may vary from case to case, the university always retains the right to continue its research and other scholarly activities on the invention and to collaborate with other institutions.

Faculty Startups

In some instances, inventors may wish to start their own company for the purpose of commercializing their invention. Faculty startup companies are endorsed and encouraged by many research institutions, but the process is complex and time consuming, so it requires a firm commitment from all parties. Prior to entering into negotiations for a license agreement with a startup company, a business model must be developed and reviewed by ECU. Given that most academic inventors are not experienced in new business development, it may be useful to take advantage of resources that are available for entrepreneurs, such as the North Carolina Small Business Technology Development Center (SBTDC). Disclosure of the new business venture is a requirement of ECU’s Conflict of Interest and Conflicts of Commitment policies. A conflict of interest relates to situations in which financial or other personal considerations, circumstances, or relationships may compromise, involve the potential for compromising, or have the appearance of compromising an employee’s objectivity in fulfilling university duties or responsibilities. These duties may include research, service, teaching activities, and administrative duties. University employees are required to disclose and manage such conflicts to ethically and responsibly preserve academic freedom and public trust. Examples of conflicts of interest that are readily managed include equity or stock ownership in a company that sponsors one’s research, and service on a scientific advisory board of an entity that sponsors university research. Instances when a student wishes to be engaged in a faculty startup will require additional disclosure and management.

Licensing Process

Parties interested in licensing an innovation from ECU should first contact the Office of Licensing and Commercialization to inquire about the technology and licensing process. If the technology is available, a confidential disclosure agreement may be put in place between the parties allowing additional information to be shared. If the Licensee and ECU agree to move forward, the Licensee can request to option the technology for a brief period of time (3-6 months) or request a formal license. To start the licensing process, each licensee must provide ECU with a business development plan.

The development plan should contain the following:

• Strategy on how to advance the innovation including development strategy prior to product launch, commercial strategy once the product is launched, target market, including size and customer profile, market potential, timeline, exit strategy, potential valuation of the company at exit, strategic partnerships, and competition.
• Overview of the management/ownership team, including any advisors.
  • What is the role(s) of each individual in the company?
  • Who will apply for grants or engage investors?
  • If you plan to add management/ownership when would this occur and have you identified any candidates to fill this position?
  • Does the team have any weaknesses, and if so, how do you plan to strengthen the team?
• What partners will the licensee plan to work with in order to help advance the technology? (Technical, Branding, Marketing, Strategic Partners, etc.)
• Expectations of ECU in terms of resources, personnel, grant funding applications, etc..
• Obstacles, challenges, and/or risks associated with developing the technology.
• Time per week that will be devoted by the licensee to driving the technology towards commercialization.
• Funding Strategy (dilutive, non-dilutive, loans, etc.).
  • If a non-dilutive route does not yield results, what other options or paths will the licensee plan to pursue?
  • What current funding does the licensee have to advance this project?

Additional information may be requested after review of the development plan by L&C staff.

If the development plan is deemed acceptable and a reasonable business approach, a term sheet will be developed by ECU and sent to the Licensee. Terms will be based on the development plan, comparables of similar licensing deals, innovations in the marketplace, and historical trends. Once a term sheet is agreed upon, the terms will be placed in the larger license agreement and sent to the Licensee for review. L&C believes that if the Licensee is successful, ECU will be successful, and therefore we try to work towards licensing terms that will be beneficial to both the Licensee and ECU. Upon execution of the license, the Licensee will be expected to provide reports to ECU on the status of progress, and to meet with L&C staff if questions should arrive.

License Agreements in Detail

License terms vary with each invention, partner, and product. In particular, financial terms vary according to the target market, industry, stage of development, and financial capabilities of the licensee. However, certain terms are universal to most license agreements to assure that the licensee will practice the invention with diligence and good faith.

Typical license terms defined:

• Exclusivity, whether the license is exclusive, non-exclusive or restricted in some other manner;
• Conveyance of intellectual property rights to the licensee;
• Financial terms, which may include license fees, milestone payments, annual fees, royalties; minimum annual royalties, and/or shares of stock;
• Diligence milestones to assure that the licensee is actively developing the product for commercialization.
• Milestones generally require the licensee to achieve an outcome by a pre-defined date.
• Payment of fees may also be associated with diligence milestones; and
• Reporting requirements to assure that the licensee is meeting the requirements of the license agreement.

In addition to the above, license agreements typically reserve the right for the inventor to perform continuing research in their field.

Types of Licenses

Exclusive License: An exclusive license allows the university to grant exclusive rights to the licensee to make, have made, use, sell, have sold, or import an invention to a single commercialization partner. Exclusive licenses are granted in exchange for financial (i.e. royalties) or other benefits.

Non-Exclusive License: A non-exclusive license allows the university to grant rights to make, have made, use, sell, or have sold to multiple parties.

Field of Use License: A field-of-use license grants rights in the invention only for specific uses or fields. For instance, it is possible to provide an exclusive field-of-use license to one educational company whose market interest is primary schools, while granting a separate exclusive field-of-use license to another company whose market interest is higher education. This effectively allows the university to grant a license to several companies, each in a different niche market, thus expanding the public benefit to a larger audience.

Know-How License: A know-how license grants a non-exclusive right to practice unpublished knowledge and expertise that is known by the inventor. For example, the university may license an unpatented monoclonal antibody for sale in a research reagent catalog, but the knowledge required to make the antibody is typically conveyed separately under a know-how agreement.

Other Agreements

To facilitate development of partnerships that may lead to a research partnership or a license, other forms of agreements may be utilized. These include:

Confidential Disclosure Agreements (CDAs) or Non-Disclosure Agreements (NDAs) are used to exchange sensitive information between parties. This may include information about the invention, pre-publication manuscripts or data. Maintaining confidentiality is essential especially before a patent application is filed in order to retain the statutory requirements of patentable subject matter.

Material Transfer Agreements (MTAs) allow for the exchange or sharing of tangible research material between parties, typically for research purposes. On occasion this material is shared with commercial entities for evaluation purposes. Agreement terms include ownership and use of the material, publication considerations, and commercialization restrictions.

Option Agreements provide a committed industry partner a period of exclusivity solely for the purpose of considering a license opportunity. Option agreements are time limited and restricted to a given invention.

Industry-Sponsored Research Agreements (SRAs) are established between an industry partner and the university in support of a prescribed research project. Discoveries that result from the research are disclosed to the sponsor and the sponsor is provided a period of time in which to decide whether to take a license to such discovery. Following expiration of the option period, the university is typically free to entertain other license opportunities, provided that any terms of confidentiality are maintained.

Inter-Institutional Agreements (IIAs) are agreements between two or more academic or research institutions where the institutions agree to terms for managing financial, administrative and other responsibilities of jointly developed inventions.

Income Distribution

It is the policy of ECU to distribute any Net Revenue received from commercialization of Inventions among the Inventor, the Inventor’s College and Department/Unit, and the Invention Management Fund. Revenue that is generated through ECU owned innovations are distributed according to the ECU Patent Policy. Net Revenue received shall be distributed as follows:

• First $1,000 in Net Revenue:
  • 100% to Inventor(s)
• After First $1,000 in Net Revenue:
  • 50% to Inventor(s)
  • 50% to ECU
    • 15% to Department(s),
    • 5% to School / College(s),
    • 25% to Invention Management Fund; and
    • 5% to Division of Research, Economic Development and Engagement

L&C is responsible for managing the Invention Management Funds. “Net Revenue” means Gross Revenue arising from license activities, minus all direct out-of-pocket costs associated with University’s ownership and/or administration of Inventions. Such costs may include costs of (1) evaluating Invention disclosures, (2) patentability or trademark searches, (3) drafting and prosecuting intellectual property applications, (4) preparing and recording assignments, (5) maintaining patents or other intellectual property, (6) marketing and licensing of Inventions, and (7) litigation for the enforcement or protection of intellectual property, for royalty collection, or for any other claim filed by or against University and related to University’s administration of intellectual property, including prosecution or defense of same, attorneys’ fees, court costs, expert fees, compromise, settlement, and judgment satisfaction. Net Revenue does not include funds received as gifts or for the support of sponsored research.