Conflicts of Interest & Intellectual Property
Licensing, Commercialization, and Faculty Startups (Part Three of a Three-Part Series)
In prior articles, discussions were presented on Conflicts of Interest (April 2019) and Intellectual Property (May 2019). In this final article, the topics of licensing, commercialization, and faculty startups are introduced.
Licensing 101
There are two general licensing pathways – to a non-UH person/entity or to a UH-related person/entity.
Non-UH Licensing
If licensing to a non-UH person/entity is contemplated, the Office of Technology Transfer and Innovation (OTTI) will seek to identify suitable licensing partners. They will engage closely with the inventors in order to help in the identification of potential licensees and to define the market for the IP in the context of the patent landscape.
A SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis will be performed in order to help build the case for licensing. The OTTI or the inventor will reach out to the potential licensing partner and, if interested, a negotiation will ensue to establish a cooperative research agreement and/or a license.
It is common for the licensee to desire continued involvement of the inventor(s) which may require a specialized agreement. It should be noted that it is expected and beneficial for the inventor(s) to continue to develop the IP in order to reduce to practice, prototype, and/or continue to build utility and value.
If and when licensing royalties are realized, the inventor(s) can benefit financially as well as the University, College(s), and Department(s)/Center(s). See the discussion later in this article concerning Net Income Distribution.
UH-Spinoff Licensing
The UH faculty inventor(s) may have the desire to start a company in order to commercialize the IP. In this case, the inventor(s) can negotiate with the OTTI in order to try to establish feasibility and terms/conditions for a license.
It is strongly advised that such inventors engage legal and financial counsel in the formation of the company and for the license negotiation. Faculty inventors rarely have the needed experience or training in business, law, and/or finance in order to carry these activities out appropriately. Further, a faculty inventor has to learn to separate their roles as university employee and private business entrepreneur. At minimum, the new faculty entrepreneur should seek out more experienced entrepreneurs to get their thoughts.
Typically, a licensee will want an exclusive worldwide license, but non-exclusive licenses are possible (at lower ‘cost’). Exclusive licenses provide all commercialization rights to the license holder for a defined period of time and under certain terms/conditions. There may or may not be upfront and/or annual licensing payments, or conditions after which payments/fees are due. UH generally requires the licensee to pay for the incurred and future patent costs, but this can be negotiated to occur after certain conditions are met. A set of milestones will be agreed upon and annual reporting on progress will be required. Licenses can sometimes be renegotiated if the initial license prohibits success in commercialization. UH typically takes approximately 10% interest (i.e., ownership) in the spinoff company.
Besides the excitement of trying to commercialize your own IP, there can be a much larger up side upon success.
Be careful and conservative when deciding on relative ownership stakes in your company. Require that ownership vest over time so that there is ongoing motivation to stay engaged with the company. Commercialization is very different than academic research – you have to learn the difference quickly.
Net Income Distribution from Licensing Royalties
Net income is the income from the license after expenses are paid (e.g., patent costs). If intellectual property on which you are an inventor is licensed and generates net income, the formula below is used for distribution. The formula, description, and definition of terms can be found in UH System Board of Regents Policy 21.08.6.
- 40% goes to the University
- 40% is split among the inventors according to the % credits given on the invention disclosure form
- 13% is split among the inventors’ department(s)/center(s)
- 7% is split among the inventors’ college(s)
Faculty Startups
The University of Houston has facilitated the launching of more than 28 faculty startups in the last couple of decades in addition to hundreds of student businesses. UH has many outstanding programs and facilities that aid in this process.
- UH Small Business Development Center
- The UH Wolff Center for Entrepreneurship
- The UH Innovation Center
- Texas Medical Center Innovation (TMCx)
- UH Red Labs
- UH/NSF I-Corps
An excellent guide for entrepreneurship and start-ups is entitled “Disciplined Entrepreneurship” by Bill Aulet. The book takes the reader through a 24-step process that will help the new entrepreneur evaluate their product/service, market, customers, business model, and a lot more.
You may think that your invention is just what the market/customer needs, but that is most likely not true. Barriers to entry into the market exist with the biggest one being inertia – getting the customer to do something (instead of nothing) or to do something different no matter how good is your product/service.
It can be exciting to attempt to commercialize your invention. Pay close attention to conflicts of interest and commitment. Get legal and financial help. Engage with current and former faculty entrepreneurs and get domain-specific advisors.