Licensing University Patents as a Startup

For entrepreneurs that are interested in licensing university inventions, the process of licensing a patent might seem intimidating.  It is complex from a legal standpoint. Universities are under numerous unique legal constraints that complicate the licensing process.

Are you thinking of approaching a technology transfer office at a university like those profiled on seedsprint?  Before you do, make sure you that understand norms for licensing university patents, and that you are ready to present a strong business case for your startup.

The University’s Perspective

According to a webinar hosted by the commercialization organization ONAMI, forging a licensing agreement and partnership isn’t always easy – especially if the entrepreneur is not affiliated with the university.

A startup licensee must bring a compelling business case to the table, and must also try to understand the unique nature of a university license. Flexibility and willingness to negotiate on the terms of the license is vital. It is expensive for universities to file patents, and they want to ensure that they see returns.

Scholars Goldfarb et al (2011) offer a useful framework for understanding the concerns that universities have in mind when issuing a license.

“(1) The [licensee] firm exhausts its resources before successful commercialization occurs, (2) the firm itself fails or exits, and (3) the firm lacks sufficient incentives to commercialize the technology.” See: BD Goldfarb et al (2011)

Startups typically have a strong incentive to commercialize the technology they license, making option #3 less likely.

However, options 2 and 3 are quite common, and so universities try to ensure the startup has a strong understanding of the market to help it avoid failure.

It is expensive for universities to file patents, and they want to ensure that they see returns.

Finally, the university must try forging a strong license agreement that ensures both sides benefit fairly. The startup or entrepreneur should be able to empathize with the university’s negotiating position and come to a mutually beneficial agreement on license terms.

How can a startup negotiate successfully for university patents?

1. Seek information about the license terms that universities typically expect.

Licensing terms are always subject to negotiation, but it’s important to understand your negotiating position. Read about the typical terms and look at sample licenses, such as this sample license provided by Yale’s TTO.

Some universities, such as Oregon State University, have an entrepreneur-in-residence program where participants act as a line of communication between the university and entrepreneurs seeking to license technology.

2. Offer your path to commercialization.

It’s essential to know about the marketing you are targeting, from typical royalty rates in the industry to the competitor landscape. Universities may expect you to bring a business plan to the table when you negotiate a license.

If you are an alumni or student at the university you are licensing from, university resources can help with this. For example, MIT’s TTO suggests suggests working with student entrepreneurship clubs, university seed funding organizations, or the university incubator.

3. Reach out to other startups that have experience with the university.

Each university will have slightly different expectation of a licensee. Some may request a ten page business plan, while others won’t need that level of detail. Some universities might have specific procedures or licensing terms that you aren’t expecting. Reaching out to startups already licensing from the university can help you learn what’s normal for the university.

The University of Florida generated 1,238 patents between 1992 and 2012. See: Van Norman et all (2017)

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