Negotiating a licence with the University
What to expect when negotiating a license with the University of Melbourne.
The University of Melbourne is committed to working with its industry partners to change the world for the better through the commercialisation of new technologies, products, and services. However, universities have different drivers and constraints from many other organisations. Here are some points to consider if your company is intending to negotiate a license with the University of Melbourne.
Research and teaching rights
All universities need the right for their researchers and students to conduct and publish research, as this is the core business of a university.
In this spirit, the University of Melbourne will ask companies that license its IP for the right to use the IP, and associated information and data, for ongoing non-commercial research and teaching. This might include the transfer of research materials – biological materials, chemical compounds, software, databases and know how – to other research organisations for collaborative non-commercial research. It might also include the right to publish research related to the IP.
In making this request, the University will take into account the licensee’s commercial requirements. As such, licensees are typically provided rights to review publications prior to it being published.
For technologies that require extensive and costly development by the licensee before they reach the market, it might be appropriate to grant exclusive licences to protect the licensee’s investment. However, if the University grants your company an exclusive license to commercially exploit its IP, the University does not have the option to offer the same rights to any other company. As long as the company maintains exclusive rights, the University only has one option to achieve its impact and public good goals.
For this reason, the University will usually offer licenses that are limited in field and scope of use, and/or in territory. Licenses are also usually granted for a defined period of time, to be extended if the licensee is achieving the desired impact. Typically, when an exclusive license is granted, your company must commit to execute its commercialisation and business plans, and achieve agreed milestones and minimum revenue targets on an agreed schedule in order to maintain its license rights. This gives the University the option to reduce or terminate the license rights, and explore other commercialisation options if progress towards impact is not made. It is very important for both the University and the company that the milestones and targets specified in the licence are clearly defined and unambiguously measurable.
Exclusive licensees may also receive rights to sub-license their rights to use the technology to third parties, with the University’s permission, under the same terms.
Options for the University to be compensated for supporting the development of its IP, and to share in any financial success resulting from its commercialisation, include:
- License fee – a cash payment by your company to the University of an agreed amount for license rights. Such fees are typically paid upfront and/or when your company achieves certain agreed milestones (e.g. financing, regulatory approvals, product sales).
- Royalty – payment by your company to the University of an agreed percentage of returns from commercialising the IP. This return might come from the sale of products or services, or from sub-licensing your company's rights to another party. The license agreement may also specify minimum annual royalty payments.
- Equity – in exchange for rights to use its IP, the University takes ownership of an agreed percentage of your company. This is particularly relevant for start-up companies, whereby the University effectively becomes an investor in your start-up, rather than a cost to it. In such an arrangement, the University only achieves a financial return from equity when your company is acquired or listed on the stock market. An equity agreement might also include governance rights for the University, i.e. membership of your start-up’s board of directors, and thus a say in your company’s strategy.
- Exit fee – this is an alternative to equity that is becoming popular with many universities licensing their IP to a start-up. In exchange for rights to use its IP, the University is promised a small share (typically a few percent) of the proceeds from the sale (acquisition) or public offering of the start-up. Like equity, the University acts as an investor in your start-up, but the exit fee mechanism does not usually give the University governance rights.
The University might also consider other forms of compensation, such as research contracts from your company back to the University, and rights to use your company’s product for other applications. Many University license agreements include a combination of some or all of the above.
In order to ensure that the University is meeting its impact goals as discussed under Exclusive licenses, the University's licence agreements will specify that licencees have an obligation to submit to the University either quarterly, half-yearly or annual reports, which include information such as:
- Royalties due
- Sub-licence agreements and payments
- Other revenues
- Key activities undertaken in the preceding period in connection with the licenced technology, including progress versus agreed milestones.
Licensing of improvements
Licensees often request control or ownership of all future developments or improvements to the University's technology. However, such licences have a negative impact on university laboratories as it restricts their ability to receive research funding, and limit their ability to collaborate with other universities or commercial organisations. Subsequently, this would severely restrict and hamper other researchers' efforts who did not benefit from the original license.
Future improvements may be very significant, and have the potential to deliver significant impact. The University would understandably want a fair share of the value of such improvements. In addition, it is often difficult to monitor the creation of improvements within a large university environment. For this reason, exclusive licences with the University typically do not include improvements or follow-on inventions. Instead, licences typically focus on existing patents or patent applications, and on claims that are necessary for the commercialisation enabled by the licence. Significant future improvements would typically form the subject of a new discussion.
Enforcement of patents and prosecution of infringements
The University oversees patent prosecution and generally consults with the licensee on which territories patent applications will be filed. Under an exclusive licence, the licensee will be responsible for reimbursing the University for all costs in relation to the preparation, filing, prosecution and maintainence of the licenced patents.
Universities primarily use patents to enable the promotion of their discoveries to benefit society. This often differs from the commercial aims of a licensee. If the University’s patent is infringed, for example by a licensee’s competitor, the University will typically seek a resolution that achieves the licensee’s commercial goals and promotes continued development of the technology. For this reason, licence agreements with the Universities will typically specify a consultative approach to any proposed infringement or enforcement action.
Warranties, liabilities and indemnities
The University generally accepts the risk for activities over which it has control, but its ability to accept other risk is limited. As a result, the University typically does not guarantee the capability and/or merchantability of any licenced technology or the validity of patent rights, and will not accept any responsibility or liability for any indirect or economic loss suffered by any party in connection with the licence. The licensee typically assumes all risk and liability associated with the licensed technology and the commercialisation activities it undertakes in connection with it.
In addition, the licensee is usually asked to indemnify the University and its employees against a broad range of claims and liabilities. The University also often requires that licensees obtain and maintain public and product liability insurance as a condition of its grant of the licence.
Conflicts of interest
Conflicts of interest may arise in technology transfer, for example when a member of University staff is a director of a company that wishes to contract the University to undertake research in the staff member’s laboratory. In encouraging entrepreneurial and commercial practices, it is also very important to the University that its research is carried out in an impartial and independent manner. Identification and management by the University of potential conflicts of interest is part of the University’s process for approving licensing transactions.
The Australian Government regulates the export of some goods from Australia, including those incorporating advanced technologies. Types of controls include an absolute prohibition, where no export of the goods is allowed in any circumstances; or a restriction, where written permission from the Government is required to export the goods. Technology licence transactions must comply with these regulations. It is usually the responsibility of the licensee to ensure this compliance and obtain any necessary export permission.
Other licence requirements
Other terms generally found in the University's licence agreements include:
- Provisions for resolving any dispute that might arise between the University and the licensee in connection with the licence
- Provisions for Victorian law governing the agreement, and requirement for compliance by the licensee with all applicable laws and regulations
- Requirement for the licensee to obtain the University’s written consent before use of the University’s name in any publicity or advertising
- Requirement for the licensee to obtain the University’s written consent before assigning or varying a licence
- Provisions for force majeure
- Provisions against an agency relationship