Module III: Managing Intellectual Property

"Technology Transfer" is a phrase that evokes different meanings for different people, as demonstrated by a definitions exercise led by Rosemary Wolson to start this session. It can be interpreted broadly or narrowly; it can imply transfer of technology from the developed world to developing countries, or a two-way transfer between South and North; it can mean a transition of technology between the public and private sectors; it can have socioeconomic dimensions involving changing the balance between the "haves" and "have-nots." Even the definition of technology can be slippery, with some people limiting it to equipment and others including techniques, processes, and know-how. One form of technology transfer that still does not commonly spring to mind for many people involves a flow of research innovations from the academic to the commercial sector. This type of transfer, while in itself not necessarily new, is increasingly becoming formalized through the establishment of university technology transfer offices.

A university technology transfer office (TTO) is responsible for coordinating all activities relating to commercial interest in university research, including licensing technologies, negotiating and approving contracts, soliciting partnerships, setting and reviewing milestones, supporting and advising campus entrepreneurs on start-up companies, and protecting and exploiting IPR as appropriate. The presentations and discussions in this section were focused on universities, but the concept may also be applicable to public research institutions. The main point is that, given an enabling legal and policy environment, there are emerging opportunities to generate income streams from university research activities, e.g., by licensing university-developed technologies to the private sector.

University interest in technology transfer occurs in the context of a changing environment for research and development (R&D), including an increasing emphasis on the importance of intellectual property rights, a greater role for agricultural biotechnology, and a decrease in the level of government funding for research in many countries. Government, university, and industry partnerships have become fairly common, as for example in the private sector either licensing technology developed at universities with government funding, or funding university research directly. At the same time, in many places there has been an increase in individually based contract research, i.e., individual university researchers signing contracts with private firms independently of any official university participation. In such cases, universities have not received benefits, although university resources may have contributed to the innovations in question. TTOs were developed in response to all these considerations.

Many of the West African countries represented at the workshop had some mechanism for dealing with technology transfer at the university level, but did not have a fully dedicated TTO. At most there might be a small consultancy unit within the university, with some capacity for income generation. Several participants noted that universities commonly transfer agricultural innovations to farmers (e.g., seeds, new methods, plant varieties), more as a social service than a strategy for income generation. Some West African governments have mechanisms to support small businesses, providing seed money and insuring against losses, and these functions may be adaptable to university use. In Ghana a technology transfer "service model" exists, with little emphasis on income generation, but with some commercial research application development supported by grants. The University of Science and Technology in Kumasi is making efforts to link to industry through by transferring technology to small- and medium-scale enterprises. In almost every country, there are good examples with the potential for expansion.

A key development that enhanced the ability of universities and their individual researchers to reap the rewards of federally funded innovations in the United States was the Bayh-Dole Act of 1980, which allowed universities and small businesses to retain intellectual property rights (e.g., receive patent protection and grant licenses) on innovations deriving from federally funded research. The result has been to increase commercialization of federally funded inventions, with universities and researchers receiving greater benefits from their inventions and transferring technology more quickly from the lab to the marketplace. South Africa and other countries have looked to the US Bayh-Dole Act as a potential model for similar legislation.

Faculty underscored the importance of institutional culture when considering establishing a technology transfer office at a universities. Is the university ready, in a philosophical sense, for entrepreneurship? Is this path ultimately a desirable way for universities to go? In discussions, the point was raised that the trend is controversial. Some participants noted the danger that universities might become increasingly co-opted by industry for use as private development labs, potentially at the expense of the universities’ broader educational mission and basic research functions. Too much emphasis on entrepreneurship may detract from researchers’ teaching duties as well as from vital research in areas where opportunities for commercialization are not readily apparent. If the focus at universities becomes purely one of seeking near-term gains by shortening the transition from laboratory to market, more basic research--and its potential to generate longer term but revolutionary discoveries--may be sacrificed. In addition, there is a fundamental difference between the private sector emphasis on intellectual property rights protection and the traditional university emphasis on openly publishing research results for the general good. In short, the line between the social functions of universities and the private sector is in danger of becoming blurred, to the detriment of the traditional university functions.

While these kinds of concerns are certainly important and valid, a consensus was reached that greater participation in technology transfer activities at the university may be a necessity in an environment of decreasing government support for research. The important point becomes the careful management of the enterprise, seeking the optimal balance between commercialization of innovations, on the one hand, and basic research and teaching, on the other. In this regard, close attention must be paid to how incentives are structured and how benefits are shared.

One participant also made the point that the culture of universities is radically different from the culture of for-profit companies in the private sector, and that therefore a great deal of sensitization and training will also be necessary if universities intend to shift more towards commercialization of research results. There has traditionally been little if any focus on commercialization at universities. If this direction is undertaken, great effort must be expended in creating the enabling environment, including "transforming the minds" of researchers to prepare them for a new and different culture. Another responded that this "cultural gap" is probably more pronounced among the more senior faculty members, and that the younger researchers, brought up in a changing environment, may be far more ready to make such a transition smoothly. Even so, university administrators must be aware that the endeavor will involve more than opening a TTO and hiring some staff. The effort will require close coordination among research, finance, human resources, and other administrative units of the university.

There are several basic technology transfer models from which to choose, including the "service" model, the income generation model, and the economic development model.

Service model: In the service model, each university researcher is supported equally, regardless of the amount of money involved in their innovations, even at the expense of greater income generators; profits are a lower priority than equity, but the approach probably will require constant university subsidies.

Income Generation Model: The income generation model is about maximizing income streams and requires the university to be very business-minded in its approach. The goal is for research to become self-supporting, selecting only profitable projects and neglecting researchers working in less commercially promising areas.

Economic Development Model: In this model, the focus is on creating or encouraging start-up companies, possibly foregoing licensing agreements on better terms with large, established firms, in order to stimulate local economic development.

These various approaches can of course also be mixed, with some large and lucrative licenses established, creating wealth that can then be spread around the university and in support of local economic development. One of the key challenges for the university is to develop benefit-sharing formulas that encourage and reward individual researchers for their innovations, yet share enough of the benefits with the rest of the university community to avoid a destabilizing "have and have-not" scenario within the institution. Therefore it is vital for the university to engage in sensitization and training, get allies on board within the institution, and work closely with finance and human resources on pay equity issues and distribution policies for income generated.

Operating a TTO

A TTO needs certain things immediately in order to function: office space, an adequate budget, and competent staff (plus access to additional expertise). Ideally, the office space will be convenient and easily accessible, both to university constituents and to potential private sector partners. The budget will play a key role in determining the quality of the staff, and should include provision for market research, promotional materials, obtaining patents, access to databases and other information resources, Internet access and a dedicated website, attorney and consultant fees, and office equipment. Staff will probably require training. The ideal technology transfer officer has a combination science, legal, and business skills; he or she will have some technical expertise, some business sense, marketing and negotiating skills, political and conflict management skills, and an understanding of essential legal concepts. Additional expertise may need to be hired occasionally on a consultancy basis, although it may also be possible to rely on internal skills and talents, including business students.

The success of a TTO depends upon maintaining a good relationship with researchers; close communication with administrative support personnel; access to and support from key university decisionmakers; the free flow of information among all stakeholders; an ongoing education and training effort; and clear, coherent policies that are flexible, yet consistent, and not in conflict with external policies and legislation.

Faculty noted that an excellent resource for universities seeking help in starting or maintaining a TTO is the Association of University Technology Managers (AUTM), a US-based collegial association that has proven to be open, accessible, and helpful. The AUTM website (www.autm.net) is the best starting point for further information and contacting representatives for advice and assistance.

Intellectual Property Issues

A university TTO is likely to deal with patents, copyrights, trademarks, trade secrets, and tangible research property in the course of fulfilling its functions. Intellectual property policies should be clearly established in one or more university documents, as appropriate.

One of the first issues to be decided is who will hold the property rights--the university, the individual researcher, or possibly even the private sector partner. In the South African example, IPR is held by the university in most cases, with occasional exceptions. If the individual researchers are not awarded IPR, they must be compensated in some other way, such as by sharing royalties with either the individuals or their research accounts, or both. Often, a maximum cap is placed on the amount of royalties that can be received by an individual, with any excess shared in some way with the rest of the university.

It is helpful to have standard contracts on file representing a desirable starting point for negotiations. In general it is advisable to keep agreements as fair and as simple as possible, while covering essential elements such as confidentiality agreements regarding disclosure of inventions and assignment of rights and responsibilities. Types of agreements include sponsored research agreements, sub-contracts with third parties, material transfer agreements, exclusive and non-exclusive licenses, and non-disclosure agreements (e.g., for a specified time period). Universities should be aware that it can be problematic when students become involved in "secret" research subject to non-disclosure agreements, since they may wish to file their results as part of their theses or course work. Some universities allow secret theses, others do not; students may simply be excluded from certain types of research.

Marketing Intellectual Property

A university that wishes to market its research innovations faces the challenge of how to find the best licensee for particular purposes. As noted above, the university may wish to serve local economic development goals by partnering with small local firms or spinning off start-up ventures of its own; conversely, it may seek stability and maximum profits by partnering with large, established firms. In either case, an understanding of the relevant industry is indispensable; good personal contacts are also vital.

One caveat faculty noted is that the licensing process--even before a deal is actually made--reveals confidential information and provides access to university researchers. Just having serious conversations with firms about the possibility of entering into a licensing agreement may involve some risk. Ideas can be stolen and key people can be lured away from the university. Therefore it is important to take steps to protect information and ensure mutual commitment. Letters of intent prior to any disclosure are helpful, and some agreement about how to handle confidentiality. Both parties to the agreement will want some measure of confidentiality, so there will be a common interest in trying to accommodate each other. It is useful, for example, to find out the extent of the firm’s existing knowledge in the particular research area in question. Disclosure statements for this purpose can be useful for both parties. It is advisable to seek legal counsel in this area before proceeding.

Negotiating is an art, and the tactics used will depend largely upon the kind of partners and research involved. Licensing to nonprofit organizations will involve different concerns than licensing to for-profit firms. When dealing with nonprofit organizations, for example, the university typically will want to track usage of its research materials using material transfer agreements; prohibit or limit release to third parties; limit liability for applications; ensure access to results; and receive acknowledgement of the university role in the innovation. For-profit agreements are usually somewhat more complicated, depending on the intended use of the research results. The university may specifically wish not to be acknowledged in relationship to the end product (to avoid public relations and legal liability risks of the "university approved" label, for example). In addition, the university may want to be more careful about limiting the field of use of the research results and to institute some sort of policing mechanism, e.g., to protect against potential negative social or environmental effects.

Negotiation Exercise

The challenges of negotiation were highlighted in a group-breakout exercise in which participants were divided into small groups, each comprising a private sector licensee committee and a university licensor committee, pitted against each other with the mandate to negotiate a mutually acceptable licensing agreement. The technology in question was the "Money Tree," developed by the university. Both licensee and licensor groups were given their own proprietary information regarding goals, requirements, rules, resources, and restrictions; in addition, some information was known to both groups. Some of the proprietary information held by the two groups was designed to create intractable roadblocks preventing the successful conclusion of the negotiations, i.e., an agreement could not be reached if both groups adhered strictly to the rules they had been given. The rules of the exercise are presented below.

The Technology: Money Tree

1. It produces green fruits after three years of growth.
2. Fruit contains large amounts of antioxidants and antioxidants have great medical importance.
3. Fruit is good as a basic food and provides excellent nutrition.
4. Composed leaves make excellent fertilizer.
5. Wood is furniture quality.
6. Additional research is needed to learn of all the additional products that can be obtained from the Money Tree.

The Licensor: University of Ibadan

1. This is its first invention of any value.
2. Licensing Office staff wants to license the Money Tree.
3. Administration wants money from a Money Tree license.
4. Researchers need additional support for continuing Money Tree research.

The Licensee: West African Forestry Resources Ltd. (WAFeR)

1. Has number of successful products in the marketplace.
2. Markets its products in a number of countries.
3. Does not carry out in-house research.
4. Has large cash reserves.

Summary of Terms of Draft License Agreement

1. Exclusive license for Nigeria only
2. Two-year term
3. Right to sublicense
4. Initial fee of 500,000 Naira
5. Royalty rate of 15 percent
6. Sublicensee royalty rate of 55 percent
7. Minimum royalties of 600,000 Naira
8. Monthly reports required
9. Licensor pays for intellectual property rights protection everywhere
10. Licensor can terminate with 10 day notice
11. Licensee can terminate with 240 day notice

To be negotiated:

1. Exclusive or non-exclusive license
2. Term of license
3. Right to sublicense?
4. Up-front payment
5. Running royalties
6. Sublicensee royalty rate
7. Minimum royalties
8. Which party responsible for IP protection, enforcement, etc.
9. Termination
10. Any other terms

All of the above information was known to both parties at the beginning of the exercise. In addition, each party received its own secret "fax" after the negotiations were well underway, as follows:

Proprietary Information for WAFeR (licensee):

1. WAFeR has just been taken over by Ghana Agroforestry Products Incorporated (GAP), from Accra, Ghana.
2. You must get a license to the Money Tree--orders from the new owners
   a) The license must be for at least 15 years
   b) The front-end payment must be as low as possible and should not exceed 300,000 Naira
   c) The license must be exclusive for the world; sublicensing is not important
   d) Royalty rates should not exceed 5 percent and should only cover the tree, not its products
3. Failure in reaching an agreement as close as possible to the parameters set above could result in the loss of your jobs as well as your co-workers’ jobs.
4. If you succeed, you and your team will be rewarded with significant salary increases and bonuses.

Proprietary Information for University of Ibadan (licensor)

1. The Vice-Chancellor of the University has said you and your team must license the Money Tree. Reasons include: publicity for the university, government questions about relevance of university research, plus the fact that the Vice Chancellor is getting impatient at the lack of results of the Licensing Office
2. You must license the Money Tree:
   a) The license term is not important
   b) The front-end payment should be as high as possible; it should exceed 500,000 Naira
   c) The license should not cover more than West Africa
   d) Royalty rates should be at least 5 percent and should cover the tree and its products
   e) Continued research support is very important, should get a minimum royalty of one million Naira per year
3. Failure in reaching an agreement within the parameters set above could result in the closure of the brand new License office
4. If you succeed, you and your team will be rewarded with two extra days of vacation this year

The main points of contradiction therefore are the amount of the up-front payment (with one side demanding a minimum of 500,000 Naira and the other side setting a 300,000 Naira limit); the geographic scope (with one side wanting to limit scope to West Africa and the other side demanding worldwide exclusivity); and the product scope (with one side wanting royalties on the tree and all derivative products and the other side wanting to limit coverage to the tree itself). In practice, most of the breakout groups also experienced negotiating difficulties over the royalty rate itself and the guaranteed annual minimum payment.

The various breakout groups arrived at a range of different solutions to the negotiation puzzle, with up-front payment amounts ranging from a low of $250,000 to a high of $600,000; royalty rates ranging from 5 to 10 percent; license term ranging from 2 years to unlimited; a variety of exclusivity and non-exclusivity solutions; etc. One negotiating lesson that was underscored was the importance of appealing to a higher authority in case of an impasse. Just as in the exercise, in real life negotiators may be limited as to what they can agree to on their own; the higher up the authority chain one goes, the greater the amount of flexibility one generally finds.