License agreements have both financial and non-financial terms. These vary based on the particular set of facts for each agreement – for example, type of technology, the stage of development, the field of use, and the commercialization risks are all taken into consideration. Typical terms consist of:
• Negotiated financial terms may include upfront and annual fees, payments when technical milestones are achieved, royalties on product sales, sublicense income, and an assignment fee. Exclusive licensees are generally expected to pay patent expenses. Financial terms may also include a small, minority share of equity in the company.
• Field of use restrictions, since a start-up company often does not have the resources to develop all the applications of an invention.
• Diligence terms to ensure reasonable progress in the growing the company and commercializing the invention. Many entrepreneurs are concerned that the financial terms are overly onerous and unreasonable. OCR has completed hundreds of agreements with startups and understands the constraints they have. OCR’s goal is to negotiate an agreement that is fair and reasonable based on our experience, on the industry and on how the Yale technology fits into the ultimate product.
Because the University needs to maintain an arms-length relationship in all its business transactions, license negotiations and the final license agreement for Yale-associated companies must fall within the normal range of terms and conditions of similar licenses to any other company (taking into consideration the unique circumstances of each technology and transaction).
There are several documents on OCR’s website that provide further information about valuations and provisions found in standard license agreements.