Licensing to Faculty Start-Ups

Over the last decade, the U.Va. Patent Foundation has served as a primary driver in the development of faculty entrepreneurism at U.Va. Now seen as an ordinary part of academic life, faculty efforts to advance their research through technology start-up companies are supported and encouraged throughout the University. These innovative young companies are the foundation of a vibrant technology business community in Charlottesville, serving to complement U.Va.'s great strengths in academic research.

• Licensing Preference
  The Patent Foundation takes a proactive approach to University start-ups by asking each U.Va. inventor if he or she is interested in creating a start-up company. If U.Va. inventors are interested in forming a start-up around their technology, the Patent Foundation offers them a 90-day exclusive period in which to evaluate that possibility and license the technology.


• Flexible Licensing Terms
  The Patent Foundation understands the challenges most young technologies companies often face and thus tailors the terms of its license agreements with those challenges in mind. For instance, license agreements with start-up companies, including faculty start-ups, often include:
  
  
  • Equity Licensing Fee
    The Patent Foundation acknowledges that start-ups cannot always afford the significant up-front licensing fee traditionally required as part of a licensing agreement, so a modest amount of equity is often negotiated instead.
  • Affordable Milestone and Minimum Royalty Payments
    The annual minimum payments and downstream milestone payments the Patent Foundation negotiates with start-ups take into consideration the resources the company is likely to have when such payments become due.
  • Flexibility in Adding Future Inventions
    Come across another invention your start-up would like to license? No problem. The Patent Foundation is generally willing to add new inventions to an existing license, on very reasonable terms.
  • Modest Royalties
    Patent Foundation staff understand that a start-up will need to raise a good deal of money before any products can be sold and produce royalties — and that royalties will be a cost item in the company's financial projections. The royalty rates negotiated with start-ups are calibrated to be objectively reasonable for the company's industry and the type of product to be sold.
  • Openness to Renegotiation
    Patent Foundation staff recognize that, in certain circumstances, it may become difficult for a start-up company to fulfill the original terms of a license. In certain cases, Patent Foundation licensing professionals are willing to renegotiate a contract, making concessions on some points in exchange for comparable concessions on the company's part. Such renegotiations may take place in order to accommodate the start-up company's needs while preserving the value in the deal for the University and the inventors.
• Personal, Top-Level Interactions
  The executive director of the Patent Foundation personally participates in all deals involving faculty start-up companies, often meeting in person with the faculty entrepreneur, the company's attorney or another representative to complete the agreement. The director is available to explain the complexities of such contracts, which may be foreign to the company's negotiators.

UVAPF Guidelines on Licensing to Faculty Start-Ups

1. U.Va., the Patent Foundation, the Company, the equity-holding inventors/authors and the non-equity holding inventors/authors are all Stakeholders in the License.
2. The License should be fundamentally fair for all of the Stakeholders.
3. At the outset and during the course of negotiations, the Stakeholders may disagree about what is fair.
4. Disagreement over License terms should not be construed to mean that any of the Stakeholders is trying to be unfair.
5. The License should not be so burdensome that it would dissuade reasonable investors from investing in the Company.
6. In order for the Stakeholders to understand and evaluate the License's fairness, it will be necessary for them all to be open and candid about the facts.
7. The Company's confidential information should be protected through the use of non-disclosure agreements.
8. The License should follow principles and contain terms that are generally used in university licensing involving technologies of the type at issue. The Patent Foundation should be willing to document such general use on request.
9. The Stakeholders should use logic and factual analysis to persuade others to accept their point of view. Political pressure or personal criticism of others should not be used by any of the Stakeholders to influence the deal.
10. As a start-up, the Company can be expected to have little or no cash, and only preliminary plans and expectations.
11. The Company should have a written business plan. Although it may be preliminary in nature, it should not be wholly speculative.
12. The Company should be willing to share the business plan, on a confidential basis, with the other Stakeholders, so that they will have enough information to evaluate fairness.
13. The University can only be expected to support licensing to the Company inasmuch as the Company's plans and expectations, and the involvement of faculty and staff, would be expected to add to, rather than detract from, the University's academic mission.
14. If the License provides for Patent Foundation ownership of equity in the Company, this may considerably diminish up-front payment and royalty expectations.
15. Any Patent Foundation equity ownership of the Company will be passive — the Patent Foundation has no interest in managing the Company, through a board seat or otherwise.