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OTL and the Inventor: Roles in Technology Transfer

Stanford's Office of Technology Licensing (OTL) has a mission to promote the transfer of Stanford University technology for society's use and benefit while generating unrestricted income to support research and education. This mission statement guides OTL’s decisions for how to best transfer technology to benefit the public and the University.

Stanford has a long, successful history in technology licensing marked by collaborative relationships with inventors and by flexibility in negotiations. OTL is committed to helping faculty, staff, and students navigate the processes of patenting and licensing with the goal of transferring their research to industry in order to benefit society. Stanford University has an extensive and robust set of approaches and policies that support good stewardship of University intellectual property assets while encouraging innovation, entrepreneurship, and strong relationships with inventors and companies of all sizes.

OTL is responsible for managing the intellectual property assets of Stanford for the public good and we assume the risk and expense of licensing on behalf of the University. OTL appreciates the inventors’ input throughout the process and carefully considers various interests before ultimately making licensing decisions that it believes will effectively transfer the technology for society’s benefit. An essential element of OTL’s approach is that financial interests are not the primary consideration when making licensing decisions. OTL exercises professional judgment to promote the efficient and effective transfer of technology while conforming to University guidelines and policies. Royalties come when the technology transfer is successful.


How OTL works with inventors

Stanford OTL was established over 45 years ago. Since then we have reviewed over 10,000 invention disclosures, completed over 3,500 license agreements, and generated over $1.5 billion return to the University and Stanford inventors. OTL’s track record of success would not be possible without the ingenuity of those inventors. The process all starts when they disclose their new ideas and continues as they collaborate with us throughout the life cycle of the technology. OTL carefully considers inventor feedback and strives to keep them informed along the way. Below we outline the inventors’ role during some of the key steps of the process.

Disclosure.       The inventors provide a description of the technology and an explanation of the critical solution it could provide to benefit society. At this stage, OTL welcomes the inventors’ suggestions for the best strategy for licensing the technology (e.g. exclusive vs. non-exclusive). For inventions coming out of a particular principal investigator's (PI) laboratory, the PI's signature is required even if the PI is not an inventor. The PI should know what disclosures are submitted so that he or she can confirm which sponsored project (if any) supported the research. In addition, the PI should be aware of invention and licensing activity from the laboratory since these may impact future research activities or conflicts of interest.

Patenting.       If a patent is warranted, the OTL licensing professional may consult with the inventors to select a patent attorney or agent. Then we rely on the inventors to review patent applications to ensure that they accurately capture the invention.

Marketing.       In order to assess the value of an invention, one of Stanford’s long time practices is to market the technology to companies who might be interested in dedicating money, people, and resources to develop it for broader use. This takes the form of a non-confidential marketing abstract that is prepared with the inventors’ input and made available through OTL’s website. Marketing provides information about an invention directly to many kinds of companies who either currently work with Stanford, or would be interested in funding or knowing more about research at Stanford. At this point, OTL appreciates the inventors’ insight regarding technical and market feasibility of the invention as well as leads for specific companies to contact. In fact, studies have shown that the best licensing leads come from the inventors. Finally, if a potential licensee requests additional technical information, OTL asks the inventors to respond to the company.

Negotiations.       At this stage, the inventor’s role is limited. The OTL licensing professional will generally inform the inventors when they are in the process of negotiating a license agreement. He or she may also ask the inventors to help evaluate a company’s capacity to develop licensed products. However, in the case of an inventor start-up, the inventors do not participate in the actual negotiation of license agreements with potential licensees. This approach is based on the principle that Stanford faculty/employees cannot represent the company and the university at the same time. Therefore, the inventor’s role should not include representing the potential licensee or negotiating directly with OTL. In addition, if an inventor has a potential conflict of interest (COI), he or she will need to participate in a COI review (described below under Managing Conflicts of Interest).

After Negotiations.       After an agreement is signed, both the license terms and the company’s progress reports are generally considered confidential business information. In most cases, an inventor may have access to this information if he or she has signed a Non-disclosure Agreement. However, if a potential COI exists, OTL may decide to keep the terms of the license confidential in order to protect the interests of the licensee.

OTL’s approach to start-ups

Stanford has a deep-rooted culture that supports entrepreneurial activity. Over the years, OTL has licensed technologies to hundreds of inventor start-ups. This has given us extensive experience with the issues facing embryonic companies founded with Stanford intellectual property and by Stanford faculty and students. OTL professionals are excited to work with nascent companies and we embrace the possibilities and potential for each new company that we have an opportunity to assist.

Inventors who would like to form a start-up company may have reservations about Stanford’s practice of marketing technologies before entering into any exclusive license. This policy is in place because the University is committed to fair and open access to all companies and to finding the best licensee to develop a technology. Thoughtful marketing can achieve these goals and, furthermore, it is in the best interest of the invention, the inventor, and the University. Marketing allows OTL to better assess the value of an invention, negotiate a reasonable deal, and provide fair and open access to avoid preferential treatment to certain parties.

Sometimes entrepreneurial inventors have concerns about marketing. OTL understands their apprehension and keeps inventors informed throughout the process. We will only make confidential information available to an interested company under a confidentiality agreement after obtaining the inventor’s input and permission. In addition, OTL professionals have encountered many cases where the inventors benefit from the fresh perspective marketing provides on the commercialization prospects for the technology. It can refine their concept for the best path for their invention. For example, it may help the inventors develop a stronger business plan or it may furnish them with valuable information for making an informed decision about whether another entity can effectively bring the technology forward.

Inventor start-ups are often in the best position to bring the technology to commercial fruition because of the inventor’s passion and expertise, but Stanford cannot offer inventors preferential treatment. An entrepreneurial inventor can always have, at a minimum, a non-exclusive license to the invention without marketing. Even after marketing, inventor start-ups have almost always been chosen as the most appropriate licensee and have received an exclusive license when requested. This is because the start-up usually has a deep understanding of the technology and the passionate commitment required to develop it.

The University is obligated to maintain an arms-length relationship in all business transactions. Therefore, license negotiations and agreements with inventor start-ups must fall within the normal range of terms and conditions of similar licenses to non-inventor-associated companies. Since University royalties often become the main source of financial return for inventions, a fairly-negotiated deal benefits inventors over the long run.

(More information: “Best Practices” for Faculty Start-Ups and “Best Practices” for Student Start-Ups.)


Managing Conflicts of Interest

Stanford has policies and procedures in place to manage conflicts of interest (COI) in situations where researchers have a personal financial interest related to their institutional responsibilities. In the case of licensing, this means that OTL follows COI procedures for inventors who are affiliated with a potential licensee, such as when an inventor is a founder, consultant, stockholder, board member, or recipient of sponsored research funding. Marketing inventions is an important way that Stanford OTL helps the University to mitigate conflicts of interest since marketing allows outside parties to learn about and possibly negotiate a license for new technologies from Stanford.

In these cases, OTL recognizes that conflicts may arise from an inventor’s multiple roles and relationships. These conflicts are a result of the situation and not the character or actions of an individual. An inventor’s diverse responsibilities underscore the need for OTL to make decisions about the best path for transferring the technology. The Dean of the relevant School and the Dean of Research must review and approve plans to manage any conflicts of interest before OTL can enter into any license agreement.

If OTL determines that a faculty-affiliated company is the best licensee of the technology, we would recommend this to the Deans and provide them with background information describing our marketing efforts and rationale for selecting the proposed licensee. OTL’s role is to identify the licensee who will best develop the technology irrespective of the company’s relationship with the inventors. A license from Stanford is independent from an inventor's relationship with the licensee and, for conflict of interest reasons, OTL’s recommendation is not determined by the mere fact that the potential licensee is a start-up involving the inventors.

(More information about Why OTL Markets)


When inventors disagree with OTL about licensing

OTL notifies inventors when we are in the process of concluding an agreement with a specific company prior to signing an exclusive license agreement. If an inventor believes the prospective licensee is inappropriate as an exclusive licensee, then he or she may appeal to the Dean of Research. To do so, the inventor should explain in writing in detail why he or she believes the license should not be signed. Generally, the Dean does not accept appeals of the financial terms of the license agreement. After consultation with OTL, the Dean of Research will decide the appropriate course of action.


Royalties, equity, and royalty sharing

Only about 20-25% of Stanford inventions are licensed and generate royalty income. Because OTL is an organization within a university, we can never be (nor do we strive to be) a pure business entity that focuses entirely on maximizing profits. Nonetheless, we aim to be as business-like and business-oriented as we can within the university context. We believe that license agreements mark the beginning of a long-term relationship for Stanford and thus strive for fairness, reasonableness, and consistency in our dealings with industry. We seek to generate the greatest possible royalty revenue for Stanford without negatively impacting its research and education mission.

OTL’s licenses with start-ups typically include upfront consideration from the company in the form of both cash and equity. Likewise, start-ups or small companies with tight cash flow often prefer to compensate Stanford in part with equity. These components of the license reflect the value of the license to the start-up’s ability to obtain financing. However, taking equity represents a risk because in most cases it turns out to be worth little or nothing. OTL is willing to take that chance because, if the company is successful, the benefit to Stanford should indicate the contribution the intellectual property made to the gestation of the company. When equity is part of the consideration, OTL focuses on obtaining the best overall financial package in the license agreement. Negotiations are not influenced by how the resulting cash royalties and proceeds from equity will be divided among the interested parties.

When OTL accepts equity as payment, Stanford’s licensing policy (http://stanford.io/iplicensingpolicy) determines how that equity is distributed. After OTL has taken its administrative fee, the equity is shared between the Inventors (1/3) and the OTL Research and Fellowship Fund (2/3) which is administered by the Vice Provost and Dean of Research.

This policy also determines the distribution of cash royalties (i.e. licensing income that is not equity). In this case, Stanford’s Net Royalties are divided 1/3 to the Inventor, 1/3 to the Inventor's department, and 1/3 to the Inventor's school. Inventors should indicate the department that supported the development of the invention on the Invention Disclosure Form. This determines which department and school will receive a share of royalties (unless OTL is notified otherwise). In the case of multiple inventors, OTL will divide the inventors' share equally unless all the inventors have agreed to a different allocation. In the case of multiple technologies licensed as a portfolio, OTL makes a good faith, reasonable determination of the relative value of each technology (often with input from the licensee) and allocates royalties among the various technologies.


OTL: good stewardship of Stanford intellectual property

OTL has signature authority on behalf of the University for license agreements, material transfer agreements, industrial contracts, and other agreements that pertain to intellectual property. University faculty and other inventors are not authorized to sign agreements that obligate the University to assign or license intellectual property rights to another entity.

OTL and OTL personnel have no financial stake in University licenses. If the administrative overhead portion of licensing revenue exceeds OTL’s budget, the remaining funds are allocated to the OTL Research Incentive Fund under the control of the Dean of Research, for the support of research and education across the University. As a result, we believe OTL functions effectively as an unbiased agent serving the goals and interests of the University, as well as those of inventors and others. Inventors have many vital and valued roles during the licensing process, while final decisions are made by OTL.

The management of University intellectual property is complex because many different interests must be considered. OTL works at the interface of science, business, and law within an intersection of academia, industry, and government. We know that the key to our success is our ability to work well with our diverse constituencies -- inventors, departments, schools, industry, the U.S. Government, and the University.

Questions may be addressed to:

Katharine Ku, Executive Director
Office of Technology Licensing
3000 El Camino Real, Bldg 5, Ste 300
Palo Alto, CA 94306-1106

Phone: (650) 723-0651
Fax: (650) 725-7295

kathy.ku@stanford.edu