Frequently Asked Questions
A close relationship between inventors and OCR is critical when inventors want to start a company. Inventors are the source of Yale’s inventions and copyrighted works. In a sense, they produce the “product” OCR is trying to “sell.” OCR works closely with our inventors because we rely on their participation in the patenting and marketing process. OCR encourages inventor input: for leads on potential licensees; for informed assessments of the technical and market feasibility of the invention; and for suggestions on which licensing strategy would best commercialize the technology.
However, inventors do not participate in the actual negotiation of license agreements with potential licensees. OCR gives careful consideration to inventors’ input and strives to keep them informed throughout the process. But, the conflicts that may arise from an inventor’s multiple potential roles and relationships – University researcher, royalty recipient, company consultant, company board member – make such participation unwise at best.
Direct involvement in negotiation places a faculty inventor in a management role for the new company, which is not permitted by Yale policy.
Unlike some universities, Yale does make a special effort to support inventors with a preference to try a startup. OCR and the University recognize the importance of the inventor’s role in helping to transfer technology and in evaluating the ability of a potential licensee to develop licensed products.
Inventors who are interested in starting a company or who have a strong preference for a particular company may be wary of Yale’s efforts in marketing their inventions to other companies. Sometimes inventors worry that their “baby” will be given away to a stranger. However, Yale feels strongly that marketing is one way of being a good steward of the technology and managing institutional conflicts of interest. Also, because of its non-profit status, the University must avoid the appearance of privileged access to its intellectual property (IP).
Marketing mitigates allegations of no bid contracts and allows all interested parties to have an opportunity to learn about new technologies from Yale and to negotiate a license. In a fair and open process, the best licensee can be chosen.
Inventors should cooperate in good faith with OCR’s marketing efforts. Inventors should share information with potential licensees to help them determine if they are interested in investing resources to develop the technology. Inventors often benefit from such interaction by learning more about the commercialization processes and the type of information that a company needs to evaluate a technology. Even if Yale ultimately grants a license to the inventor startup, inventors often get a better sense of the marketplace, or even find potential partners, from Yale marketing the technology.
With a transparent process, the University can be confident that, in the unbiased professional judgment of OCR, the best licensee is developing the technology.
After broadly marketing the invention, if the startup is the best choice for commercializing the technology, OCR will negotiate with a representative of the company to grant a license to the new company. Yale markets its inventions because it is committed to looking for the best licensees to transfer technology from Yale to the marketplace for the public benefit.
Also, under the Bayh-Dole Act, the University has an obligation to ensure that inventions funded by the Federal government are effectively commercialized. Under Yale policy, faculty, staff and students cannot represent the company in negotiations due to conflicts of interest.
This is a chicken and egg scenario. Investors usually want to be sure the entrepreneur has an option or license to the technology before investing in the company but the entrepreneur often does not know what kind of license (field of use, financials, etc.) the investor requires. One solution is for an entrepreneur to take an option to a license, with the terms of the license to be negotiated later. The negotiations for an option/license and investment funding agreement will often occur in parallel.
An option agreement is nothing more than a promise from Yale not to license the technology to another party. It is often used to reserve a “right” to license an invention while a company evaluates the technology, explores funding opportunities and raises the capital needed to fully license the rights in question. Startups that are eligible for the Startup License can receive a “no cost” option to the technology, provided they are engaged in one of the many business development programs at YEI.
For therapeutic companies, option agreements often include financial consideration to Yale in order to reserve those rights, particularly if the startup seeks Yale’s commitment to a set of negotiated terms. Startup companies sometimes prefer this route and OCR may grant options for any time period up to one year in duration, most often in 6-month increments.
The time it takes to license an invention varies. After the technology is disclosed to OCR it could take up to a couple of months to review the invention and then apply for a patent application (if OCR feels filing an application is appropriate). During this time, the entrepreneur(s) could begin to develop other aspects of the new venture to better position the start-up as a potential licensee (e.g. develop a business plan, research entrepreneur resources, begin seeking investors) but there is no guarantee that the new venture will get the exact license they want. If OCR decides that the startup company is the best possible licensee, negotiations with OCR for a license could take several weeks to several months. However, some negotiations may only take a few days if both parties can agree to terms easily.
In addition, licensing to startup companies usually presents and conflict of interest (COI) issues that must be disclosed by inventors and managed by the University (see Yale Policies & Procedures). If faculty, staff or students propose to have a management role in the startup company, approvals for leaves of absence must be obtained. OCR cannot conclude any agreements until the appropriate COI reviews and approvals have been completed. This review can take place in parallel to license negotiations and can begin once the basic parameters of the license are decided and the faculty member submits the required ad hoc COI disclosure to the appropriate Yale administrators.
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.
Sometimes, Yale may accept a small equity share as part of the financial terms of the license. Because most startup companies have limited cash, equity is sometimes substituted for some of the cash consideration.
Equity is also a way for the University to share some of the risk associated with the startups. A decision to take equity must make sense for both the University and the company. In addition, when OCR enters into an exclusive license agreement with a privately-held company (such as a startup), the standard contract allows Yale (or its designee) to participate as a co-investor to purchase additional equity in the company’s private financing rounds prior to initial public offering (IPO).
The distribution of equity follows the same sharing formula as distribution of cash royalties. Unlike cash, however, Yale typically waits until equity can be sold for cash before distributing to inventors, sparing inventors the need to pay income tax prior to any liquidity event.
The University generally liquidates equity as soon as a public market exists. If Yale holds equity in a company that conducts a clinical trial at Yale, the University may need to divest itself of the equity for institutional conflict of interest reasons.
On occasion, Yale takes an active role in providing direct ongoing support to the company the by serving on the Board of Directors or as an Observer to the Board of Directors. Faculty are generally not permitted to serve on the Board of Directors of their own startups or other corporations, although on rare occasions exceptions have been made by the Provost of the University. In the absence of such permission, Yale’s involvement on the Board of a startup can help ensure, in part, the opinions and concerns of faculty founders are fully and properly represented.
No, Yale does not assign or transfer IP rights. When appropriate, Yale may grant an exclusive license after deciding that the startup is the best candidate to commercialize the invention.
It depends on who owns the follow-on patents. Typically, Yale will have filed the initial patent application that is exclusively licensed; the exclusive licensee provides input for the prosecution of this original patent. Follow-on inventions conceived by the licensee without Yale involvement usually belong to the licensee. These patents must be filed by a different law firm than the original patent (to avoid the conflict of interest caused by the attorney representing both Yale and the licensee). Follow-on inventions based on work at Yale will be owned by Yale and the licensing of the new invention will be handled by OCR as if it were a new disclosure. In other words, the existing licensee will not be automatically granted a license to the follow-on invention.
The startup must legally be incorporated to execute a license agreement Prior to that, if a prospective startup would be eligible for the Startup License, the founding faculty member can get an option to the technology without incorporation. For all other agreements, OCR must sign an agreement with a legal entity, not with individual inventor. Yale employees may not sign an agreement on behalf of the company nor have positions/titles at the company that imply a management role.
Typically, OCR enters into an Inter-Institutional Agreement whereby one of the institutions will take the lead. This way a company can negotiate a single agreement with an exclusive license to both parties’ IP rights.
Under most circumstances the company will need to negotiate separately with the other institution for a license. However, schools do sometimes package their technologies together in a single license agreement. For complicated technologies, the company will need to conduct a freedom to operate (FTO) analysis and confirm that the company has a path to acquire all the necessary IP components the start-up will need to make its proposed products.
Yes, a copyright license is required if the software falls under Yale’s ownership policy (see Yale University Copyright Policy).
Yale always reserves the right to practice its own inventions for research purposes. However, researchers may not be permitted to continue to develop technology at Yale for the benefit of a start-up in which the researcher has a financial interest unless Conflicts of Interest are appropriately managed. See the next section (Yale Policies and Conflict of Interest) for further details.