Tech Transfer At A Glance For Startups

The technology transfer process at Yale can be conceptualized as a continuous cycle wherein discoveries in the laboratory are developed into licensed products in the marketplace that then help fund the next generation of research and innovation. For the most part, the steps of the cycle are similar whether the company commercializing the technology is a new venture or an established one.

Here we’ve highlighted some of the steps that may be particularly relevant to entrepreneurs starting a new venture based on Yale intellectual property.

Observations and experiments during research activities often lead to discoveries and inventions or the development of software and other copyrighted works. An invention is any useful process, machine, composition of matter (e.g., a chemical or biological compound), or any new or useful improvement of the same. Often, multiple researchers—including trainees and research staff—contribute to an invention and may be inventors.

If you’ve got a new discovery or technology it’s best to first reach out to someone at OCR or YEI for advice about next steps. You can do that by calling the OCR office at 203-436-8096 or by signing up for Office Hours with one of our Entrepreneurs in Residence. In your initial meeting we’ll explore questions such as: project goals, objectives for advancing the idea and any research or understanding of the market need required to move the idea forward.  Experts at OCR and YEI will also provide guidance on options for additional engagement and available resources.

A technology disclosure is critical if research will be published or presented in a public forum outside of Yale.  It is important that OCR has sufficient advance notice (usually a couple of months) in order to establish protection for intellectual property.  In addition, many developments require that intellectual property rights be established to protect the idea and to be the basis for a new company and/or license. That being said, there are many ways that ideas can be protected –for example, patents, copyrights, or know how based on the expertise of the individual.  The need for protections and patents will be assessed based on this information. The Invention Disclosure is a confidential document, and should fully describe the new aspects of the invention, including the critical solution it provides and its advantages and benefits over current technologies. Invention disclosures can be submitted through OCR’s website here.

(if appropriate, necessary, or warranted) Patent protection, a common legal protection method, begins with the filing of a patent application with the U.S. Patent and Trademark Office and, when appropriate, foreign patent offices. Once a patent application has been filed, it requires several years and up to one hundred thousand dollars or even more to obtain an issued patent. Other common forms of IP protection include copyright and know-how. Unique biological materials and software can often be successfully licensed without formal IP protection.

Often, there is only one party or none at all interested in licensing. If there are several parties interested in a license, OCR may grant non-exclusive or field-of-use licenses. If it is not possible to accommodate all interested parties, OCR will license the company most committed and able to bring the technology to the marketplace. To choose the best licensee OCR evaluates, in consultation with the inventors, which company is in the best position to develop the technology and bring it to the marketplace. A well-established company typically has resources, business networks and product development experience but can lack commitment to the technology. A small company often has the singular focus and passion of a technology champion, the drive and “fire in the belly” to bring the technology forward and see that it succeeds – but insufficient experience or resources to make sure it can happen.

To assess the commitment of potential licensees, OCR asks companies for a development plan with details about how they intend to develop and market the technology. This plan should make the case that the company and its leadership are the best choice for commercializing the invention. It is important to note that inventors may not serve a management role in the startup company unless they plan to leave Yale (either permanently or on a leave of absence).

To ensure fair and open access to potential licensees, OCR markets many Yale technologies, including those of interest to startups. Broad marketing helps the University find companies who may be interested in developing the technology, which may help to avoid the conflicts of interest if the technology is licensed to a startup.

OCR negotiates and executes a license or option agreements. These agreements are contracts between the University and a company in which certain University rights to a technology are granted to a company in return for financial and other benefits. Most startups request an exclusive license because they believe it is required to raise funding for the company. Typical terms for an exclusive license with a startup company include but are not limited to equity, royalties diligence milestones and fees.

YALE STARTUP LICENSE

Yale strongly encourages innovators with non-therapeutic discoveries looking to start companies to take advantage of our pre-negotiated Startup License (See “Yale Therapeutic Licenses” below for more information on this distinction). This license is intended to greatly speed up and streamline the licensing process. The Startup License is based on transparency and fairness, offering the exact same, very favorable terms to all Yale startups.  It has been designed in consultation with attorneys that represent startups, seasoned entrepreneurs, and investors to be a “no negotiation” license that any of them can encourage Yale entrepreneurs to sign without reservation.  By reducing the time and legal expense to get a license done, entrepreneurs can focus their efforts on developing their businesses.  Further, by reducing all uncertainty as to the terms of the license, startups can comfortably take an option to license the technology, thus deferring the need to sign the license until such time that they feel ready to assume the responsibilities of a licensee.

While Yale’s primary mission in licensing technology to startups is to promote the development of products or services that benefit society based upon Yale research, Yale does seek a reasonable financial return from its licensees so that it can reinvest in its education and research missions.  Understanding that startups need to carefully ration their precious equity and cash in its early phases, Yale has adopted a new approach: the typical upfront “payment” for the license has been replaced with a “liquidity event” payment, due only if, and when, the company achieves an IPO or becomes acquired.   No cash or equity is due to the university upon signing the license.  The “liquidity event” payment is 1% of the company’s value upon sale or IPO, but can be significantly reduced if companies have paid patent expenses and other bills on time.  

STARTUP LICENSE PROCESS

For Yale entrepreneurs demonstrating a diligent effort to start a company based on Yale technology that includes one or more Principal Investigators as founders of the company, the process of getting a Startup license is very simple. Entrepreneurs receive an option to the technology while they develop their ideas for a business. The option is a promise by Yale not to license the technology to anyone else for a period of time. The entrepreneur or team is required to work through an OCR/YEI program to develop a mutually agreed upon business plan. The business plan development and review process is intended to partially substitute for the more rigorous commercial due diligence obligations in typical license agreements.  The process also provides entrepreneurs with the opportunity to access assistance from YEI and one of the many other entrepreneurial initiatives on campus. Throughout this process, the team will receive access to YEI resources such as the Corporate Partners, Venture Mentor Network, Entrepreneurs in Residence, Venture Creation Consultants and Advisors to support the development of the new venture. Once a mutually agreed upon plan is in place, the option will be updated to include a promise to provide the license under the Startup License terms. Entrepreneurs may then execute the Startup License immediately, or, if still in the formative stage, extend their option as they seek to raise financing or other sources of cash that will allow them to make the payments required once the license is executed.
 
Benefits to Startups and to Yale Community:
•    Reduces the time and legal expense to get a license done, freeing time and resources to focus on developing business
•    Offers predictable, consistent, and fair license terms to all startups
•    Raises visibility and attractiveness of partnering with Yale researchers to entrepreneurs and investors
•    Frees OCR staff time to spend even more time supporting Yale researchers developing inventions
•    Provides reasonable chance for Yale to recoup its investment in patents and generate revenue to reinvest in Yale’s educational and research missions

More information on the Yale’s Startup License can be found here.

YALE THERAPEUTICS LICENSES

Therapeutic startups are not eligible for the Yale Startup License. To ensure that Yale discoveries for new medicines get to patients in need, Yale requires that licensees to therapeutic technologies commit to significant financial and non-financial milestones that are highly tailored to the drug discovery and clinical development programs required. These typically require the commitment of tens of millions of dollars to very high-risk ventures, and our licenses are tailored to meet both the investors and Yale’s needs. Yale, like any university offering such a license, reserves the right to terminate licenses for failure to make progress towards these development milestones.  But rather than letting an adversarial situation develop after years of startup underperformance, OCR works hard to be strong partners to the startups, providing significant support and assistance over a period of months to years to get biotech companies launched.

NIH-funded research in the biosciences represents the bulk of funded research at Yale, and as a consequence, almost all of the most significant startups with licenses from Yale are for drug discovery technologies and/or for therapeutic agents themselves.  The entire licensing staff at OCR has significant prior experience in the pharmaceutical and biotechnology industries, as well as significant experience assisting Yale faculty in every aspect of developing plans and launching biotech startups. The staff arranges for hundreds of introductions every year between faculty seeking to start companies and prospective startup business executives and venture investors. In addition to these meetings, we also actively seek meetings with pharmaceutical companies that may be interested in licensing technologies directly. Rather than view large companies as lesser-preferred alternatives to a startup, many of our startups have been launched with the participation of pharmaceutical companies, either with license to a very limited field, research collaboration or sponsorship, and/or investment from their corporate venture group.

Finally, when Yale inventors are involved in a startup company, licensing to that company raises concerns about conflicts of commitment and interest. The University needs to maintain an arms-length relationship in all its business transactions (including license negotiations). The final license agreement must fall within the normal range of terms and conditions of similar licenses to non-inventor-associated companies (taking into consideration the unique circumstances of each technology and transaction).

Inventors must disclose their financial interest in any outside entities to the University’s Conflict of Interest office.  Additional information about negotiations and conflict issues can be found in the FAQs and Yale Policies sections of this guide.

Most University inventions are very early stage and require further research and development efforts. The licensee typically makes significant business investments of time and funding to commercialize the product or service. These steps may entail regulatory approvals, sales and marketing, support, training, and other activities. The licensee will be expected to meet commercialization milestones described in the license. It is fairly common for licensees, particularly early stage ventures, to evolve their strategy and development plans as the company grows, faces technical challenges, and recognizes new market opportunities. OCR can work with licensees to amend and renegotiate license agreements in response to these changes if the request and reasons to renegotiate are reasonable.

Revenues received by the University from licensees are distributed annually to inventors according to Yale policy. Revenues include both cash and equity received from licensees in consideration for granting the license. The inventors, including those who are involved in the startup, will receive their share under the Yale policy. The Inventor’s Distribution Agreement outlines the distribution of royalties for an invention. The patent policy specifies that royalties derived from a Yale invention are shared between Yale and the inventors according to the following table:

Yale/Inventor(s) Royalty Split

Cumulative Royalty Income

<$100,000

>$100,000
<$200,000

>$200,000

Yale/Inventors

50% / 50%

60% / 40%

70% / 30%

Royalties from inventions which Yale has returned to the inventors are shared 30% to Yale and 70% to the inventors. Royalties on copyrights owned by Yale are treated the same way as patent royalties.

Revenues to the University are re-invested in research to collectively foster the creation of the next generation of research and innovation.