Speaker 1  0:20  
Don Hello and welcome to today's autumn webinar, tech startup licensing issues. My name is donbio Young. I'm a member of Autumn's educate team and today's staff host. All lines have been muted to ensure a high quality audio, and today's session is being recorded. If you have a question for the presenter, we encourage you to use the Q and A feature on your zoom toolbar. Should you need closed captioning during today's session, the Zoom live transcript feature is turned on and available on your toolbar. Before we begin, I would like to acknowledge and thank Autumn's online professional development sponsor. March Marshall Gerstein, we appreciate your ongoing support. I would now like to welcome today's speaker Jeffrey Peterson,

Speaker 2  1:15  
good afternoon or good morning, depending on where you are in the country. My name is Jeff Peterson. I'm an attorney with the law firm of Michael best. I lead our licensing and technology agreements group. Today's topic is tech startup licensing issues. I kind of deal with that on on two fronts, one on behalf of my university and institutional clients, and two, working with a lot of technology startups that license technologies out of university. So I got a little bit of a flavor of working on both sides of this that hopefully we can discuss and bring some insight, at least in my experiences with it today, as we move forward, obviously tech startup licensing issues, we could be here all week discussing them all. And of course, we're not going to hit all the issues and all the details that are involved in that. The way I've structured it today is just to pick out sort of 10 consideration areas. There are many more than 10, but for the purposes of trying to get it in in an hour, that's kind of how I structured it, and then discuss some of the foundational or fundamental issues and concerns in each one of those areas, around the structuring, negotiating and parameters of an educational tech transfer license to a technology startup company, and kind of how to consider that in both of what the tech startup is likely to ask In certain of these areas in different ways. The university can think about structuring to protect their interests, and kind of working with the licensee to get the appropriate scope and terms in the agreement. Probably the biggest area we won't spend a lot of time in that that, just because you can get into so many details, is around equity, getting equity in the technology startup. So just as a heads up, when you say, why didn't we spend time talking about it? It was just another rabbit hole, I think, with with a 50 minute or hour presentation to get into that we're not going to get into those details, there's great resources through autumn to get into a little bit more of those issues. I'll give you my plug for the autumn central meeting coming up here in July, 15 to the 17th in Louisville. I've been an autumn member for 20 years. This is actually going to be the first autumn central I'm going to miss in about 15 years. Got another obligation, but it's a great meeting. They'll be covering a bunch of areas like this there both and then after that, in the eastern and western meetings, and then annual again, next week, February. So if you're a regular attendee of these autumn events and you don't hear what you want to hear today, I guarantee someone is going to bring value to you in another autumn webinar or conference. So on with the show as it is. So what are the areas we're going to be discussing today? We'll talk a little bit about, you know, issues and thinking about both the licensing objectives of the institution and of your licensee. How to think about doing an evaluation of your licensee when you're talking about a technology transfer technology startup company, rather thinking about, you know, what rights are being licensed to that tech startup? How is that going to affect the rest of the structure of the agreement, thinking about the scope of rights granted, both in what the institution wants to give and what the tech startup wants to get from the university, talking a little bit about some of the royalty and payment structure issues when you're dealing with a technology startup, thinking about obligations of commercialization, which is A large issue when you're talking about startup, and then sort of patent prosecution and maintenance issues, infringement and enforcement issues, management and risk issues, and then thinking a little bit about termination, and then rights and wrap ups after termination, and how you structure that in a license when you're dealing with a technology. Startup. So first consideration area, you know, identifying the licensing objectives and some of these for your educational institution are roughly the same as it would be for a startup, as it would be for if you're licensing it to a Pfizer, a Google, a Microsoft and Abbott Labs, you know, and usually for the institution, is, hey, we want to get this technology out of the institution. We want to get it developed. We want to get it commercialized. We want to get this out for the benefit of the public. We want some revenue generation. We want fees to come back to the institution help us, you know, sponsor and support other developments and activities at the university. And that's also an obligation under Bayh Dole, that we get these things developed and moved forward, if it's a federally funded invention, we need to have an understanding at the institution of how this licensed technology relates to other institution technologies. Is this going to be an entire platform we're looking at licensing to the technology? Are there other technologies out there where we have other obligations or objectives to get certain things, you know, in a certain technology area out there, to the public. How does this fit into the rest of it? What's our relationship to the PI of the licensed technology? Is that pi going to be part of the startup? Is this a faculty startup that we're looking at licensing? Is that one of the drivers of you know why we're entering into this agreement, because the PI is a valued faculty member, and this is part of our retention efforts and development efforts, is to kind of keep the PI happy and try to get the appropriate deal done that he's a person of does that pi have a relationship with a startup. Is it a true faculty startup where he's going to be part of it, or is the PI just they brought in a party, they have some sort of relationship with them, but they're not actually going to be running or part of the startup entity. Also important consideration is, if we're not licensing it to a startup that the PI either has brought in or as part of do they have plans for their own, for the technology did they want to do their own faculty startup? I ran into this recently where I was working on behalf of a technology startup that did not have any sort of relationship with the PI and the PI, it turns out, wanted to do develop his own company, but really just didn't have the resources or the management or the other pieces around to do that, and my client was more positioned to do that, but it was very challenging to get that license through the university, where the PI kind of wanted to do their own thing on the side, and the university really felt like the technology startup They were licensed get to have the best bet to get that through and get it developed and get it commercialized. But that is a challenge, excuse me. You know it may be if the PI's own activities or own plans might not be in line with how the university wants to license and commercialize it.

Speaker 2  7:59  
Look at the objectives. As far as you know, the university's other relationship, potentially, with the technology startup, if it's not the PI is a member of the startup, another faculty member at the University. Does that licensee have connections, either to the university or other connections locally or in the state? You know, many times there's there's drive to license to technology startups that are local for local or state economic development activities, or it's part of a specific local or state drive to develop economic activities. Is that one of the objectives that universities trying to meet? And how does that relate to the various terms, objectives, commercialization obligations that are going to be in this ultimate license, if that's one of the drivers that the institution is trying to meet. And then an evaluation of other, excuse me, other inter institutional considerations is this, you know, a co owned technology from other universities. Do we have an IIA that we have to take a look at and see how that drives, how we license it, what the objectives of that IIA or development is, and how we commercialize it, and is the license to this technology startup in line with those objectives and parameters, when we're looking at the identification of the licensing objectives for the licensee, this is a very foundational and critical aspect, especially when you're talking about a technology startup, because how this fits into the drive and objectives of that technology startup really drives The remainder of the parameters of the licensing arrangement, from the commercialization timeline to the commercialization milestones, to the royalty structures to the enforcement milestones, everything's kind of driven on. Well, what do they really want to do with this technology and how does it fit in with the business of the startup? For many startups. Is the licensing of the University Technology. It's the core drive of the startup. They're starting the company to develop and commercialize a new technology platform that's based on the licensed technology. You know, if that's the case, we need to identify that. We need to identify whether there is a viable business at all without the university's license technology, is this really going to be the foundation and core platform of what they're doing that, combined with some of the scope issues that we'll talk about later, is important and kind of setting the stage of what we need to negotiate, how we need to structure various aspects of the deal. Now, if the licensed technology is not going to be essentially the core for the development commercialization, but really an improvement aspect to the functionality of either current products or planned products, either their manufacturing processes or other methods or other components that the startup is planning on doing. We need to have a full understanding of how our license technology, the license technology the University, University, is going to fit into this ultimate license product or service. Is this going to be, for instance, a component feature of software that has, you know, 10 other projects and or components to it, where they may license the software with either the services without our component, or services with our component. How does that look like when we're looking at a royalty structure? How does that look like on behalf of the tech startup, of either what IP rights it owns itself or IP rights of third parties that it needs to commercialize. So understanding kind of what the purpose is. Why are they taking this? Is this technology a nice to have for them? Which is, hey, we think this is going to be really valuable, but we have a viable business without it that can change. You know, some of the objectives that you want to structure the agreement around, you know, looking, you know, at a commercialization timeline as well, it may go a little bit faster if they don't have to do a full blown development and commercialization of a new, you know, novel platform. But rather, this is going to get plugged in to some existing technology that commercialization timeline and route to revenue may be much faster than if it's a de novo, new platform of new technology. So understanding their objectives, how this fits in is very important. Is this license technology being used to expand the business of the startup? So not so much. Is this just going to be another plugin to an existing product, but do they have existing and separate business lines and business considerations outside of how they're going to commercialize our licensed technology. How will this affect commercialization and timeline decisions? Certainly, if you're licensing to a larger entity like a Microsoft, a Google, Pfizer and Abbott, of course, they have other business lines and considerations, but they're also much more well funded. They've got a depth of talent, the depth of business people to help them meet those goals. When you're talking about a smaller entity or a startup, just the amount of resources, the amount of time, the amount of expertise, expertise is all very, very condensed. So if they've got other business considerations, and this is going to be a separate line or a separate development, you need to think about, okay, well, what resources are they going to be able to bring to bear on the development and commercialization of the University Technology, versus some of their of their other business considerations and developments that they have going outside of that? You know? How do we understand that? What questions do we need to ask of the licensee to understand their objectives, of where this fits in, of really where they want to go as a business development so outside of consideration of the objectives, the other aspect to really start thinking about is the valuation of the licensee, and occasionally, at least in some of the deals I've been involved in, I've been surprised. Some universities are really good about really doing a deep dive into due diligence on their licensees. Others, I'm surprised don't go that far down the rabbit hole, and they could have found problems that if they dug a little bit deeper, they would have known before they got into the deal. So understand the role and status of the key individuals of that small tech startup. You know, there's usually a handful of people that are driving this forward. Who are they? You know, if it's a faculty member, what role are they going to play? Are they mostly going to be scientific development are they going to be taking on the business development role? If it's not them, who is going to be taking on those business development roles, usually there's a handful of people at the beginning, you can do a little bit of due diligence on, you know, who, who are the people ask the right questions? Who's going to be doing the business development, who's going to be doing the regulatory work, who's going to be doing the scientific development. All that kind of lends into what type of potentially can. Commercialization milestones and guidelines, fence posts, land mines, call it whatever you want to that you have to navigate around to try to make sure the license is structured appropriately to protect the interests of the university. What's the financial status of licensee? Who are the investors, the potential investors, or VCs, that are involved in it? Are they in a pre seed round? A seed round a Series A what kind of cash do they have on hand? What are their fundraising plans? What are their timelines for fundraising? And again, who the VCs and investors are oftentimes that as we get into commercialization plans later on, you're going to want to build that in as maybe obligations that, hey, look, we need to have an obligation that you have to raise a certain amount of funds by a certain amount of timeline to make sure you're adequately capitalized. For you to either keep the license or keep various fields of use, territories, exclusivities under the license, to make sure you're moving the ball forward. And getting this technology again, being University objective, getting it out, getting it out to the public, starting to generate some revenue. What are the track records of some of these key individuals, once we identified them? Does it look like they've got the background and experience based on what the objectives of the licensee are to kind of take this to commercialization, to get this done? Do they have a current or past relationship with the institution, either good or bad that you need to consider. What kind of due diligence have we done? Do we know if they've been involved in future or previous startups? Did they succeed or fail? Now, a lot of startups don't succeed, so it's not necessarily a death knell if they were involved in the startup that wasn't successful, but you know the parameters of how that went is important. Those are questions you can ask. You could do simple public record search. Have they been sued? Have they gone through bankruptcy? Have they been involved in law, you know, patent lawsuits or other lawsuits, you know, simply looking at LinkedIn to get a sense of, you know, what past businesses they're involved in, doing a little bit of research on that. You know, did it work out? Did it not work out? Have they had a lot of experience in the industry that'll either give you comfort that they've got the right people are on track, or you could start thinking about, do we need other milestones in this of, hey, we really need you to bring on an experienced CEO in the next 12 to 14 months, and we may make that a milestone in the agreement, or, excuse me, an obligation, commercialization obligation under the agreement that you need to hit, that you need to have the right regulatory person. You know, it's great, you know, faculty startup member, you've got the scientific chops, but you do need to bring in some business people, and that's part of your developmental obligations, to keep this license in place, doing a little bit of due diligence on those key individuals, especially with a startup where it's so critical that you have the right people in place, is very important.

Speaker 2  17:51  
Affiliate and subsidiaries are of the licensees. Are there any affiliates or subsidiaries of the startup? Are they thinking about it? Now, most startups don't necessarily have an affiliate or subsidiary out of the gate, but many have it right on their plants, or many start them very quickly where they may have, hey, we're going to have a diagnostic arm and a therapeutic arm, or we may have one arm here in the United States, but we're thinking about having an affiliate or subsidiary that we're going to set up in China to do certain manufacturing over there. So not only what affiliates or subsidiaries do they have right now, but what are their plans in the future? Certainly, you know large corporations, you know they've got they've got businesses and affiliates all over the place. They're fairly well defined. We can think about that. Oftentimes, universities don't think about that when they're thinking about a startup, they're thinking about the individual startup. They know there's no affiliates or subsidiaries from the get go, but sooner or later, something pops up, and now they've got to deal with it. And as we all know, anybody's done any licensing work, how you deal with affiliates and subsidiaries in the licensed agreement is really important. What rights do our licensee have? What rights their affiliates and subsidiaries have, what rights maybe to sub license them. Do they have or to sell products or services to them? And how does that relate to how we've structured the royalties or the grants of rights? All of that's important, even for a startup, you have to consider those issues and really have questions to your licensee. What are you thinking about in these areas? You know, another issue, again, is really critical right now, in general, for universities, but certainly for startups as well. As you know, what are the jurisdictional issues that are coming up with the licensee? We've got a handful of people that are founding it. What's the citizen, citizenship of the principles of this licensee? Now that we're dealing with maybe four or five core people here, you know, if they're going to a citizen of China, they're going to be going back and forth and bringing the technology back in there, or tried to sell it and commercialize over there. What issues does that raise, both in foreign control issues and export control issues, or certainly in oftentimes, a startup, if they're not very savvy, might not even understand this. I. Under by dole obligations. Do they understand the obligations, if it's a federally funded invention, to, you know, substantially manufacture some of this technology in the United States, that it's not simply the right to kind of take this technology to another jurisdiction. Haven't manufactured there, that could be part of their business plan, and they haven't thought through these issues. And so certainly larger entities usually have a better sense of this. Oftentimes, I find up startups are a little naive on kind of what some of these foreign control, export control issues, and actually, the university has more experience than they do on sort of the mine fields that you need to navigate around these things. So you may have a little bit of education to do depending on the the the experience with the people at your startup, and how to get through these issues. So again, it's one of those foundational things you really just have to think through as you're moving forward. What's the stage of the technology development and the licensees ability to develop that? Again, it goes back to the experiences the people that you're working with. Do you have a sense of how much development you really need to take this thing to market? Does it look like we've got the right people in place and the right funding, at least, or plan for funding in place to kind of make this happen, and what would the timeline look like to get us there again, also understanding the people you're dealing with, what kind of support training know how or access to confidential information. Are they going to need from the institution? You know, usually, if you're dealing with a much larger licensee, like a Microsoft or a Google or a Pfizer, you know, they got their own people that they got their own, you know, resources. Once you license it over, they're ready to run with it. If you're dealing with a small technology and startup, are they going to come back to the well, do they want access to the PI because they don't have other people to go to if the PI is not part of the company, are they looking for other updates or improvements that are coming out of the PI's lab? How are we addressing that in the agreement? We'll talk a little bit about different ways to address that as we move on right now, just sort of thinking about and identifying, are these issues likely to come up given our knowledge of the licensee, and how do we kind of earmark that as an issue? So consideration number three, identification of kind of the rights, either the patent rights to be licensed or other rights to be licensed, thinking about kind of exactly what's going to the licensee is always important, whether it's a startup license or a broader institutional license. But again, when you're dealing with startups that haven't thought through maybe some of these issues themselves, it's really incumbent upon the the institution to really kind of think through these issues. Think about, you know, what patent rights are we giving them? Are they compositional method of use? Patents? What are the patents? How does that relate to the commercial product. Does the does the startup even necessarily know? They may not know the full scope of their commercial product, if it's really nascent. Most tech startups come in understandably so they want the ultimate right to pivot as much as they can, because they want investment. They're going to want, you know, exclusive, all fields of use, worldwide rights. And they're just like, look, we're gonna we can go a lot of different ways with the technology. We've got maybe one plan of how we're gonna get there, but we want the right to be able to pivot. So we want all these rights. That's fine, but you need to understand, you know, how does that work with the scope of the patents that we have? How does that align with where we think they are going currently, also, what remainder of term do we have on the patents, if the patents going to sunset relatively quickly, but the development and commercialization obligation is very, very long. How does that work? And how, again, how does the scope affect the product or service? And we'll talk a little bit about changing the scope of the grant around that, but understanding kind of those fundamental things, especially with a startup, if they're going to pivot, if they're going to need to go in another direction, you know, how does that affect given exactly what we're licensing them, scope of other IP again, you know, are we licensing something outside of the patents? And we'll talk about how that works with, you know, sun setting royalties later. But are we giving them? Know, how copyrights? Is it a software where we're getting a patent plus copyrights the code? Is it a trademark to be licensed? Maybe we're licensing them a plant varietal with a trademark around the varietal that the university has protected, where we got a little bit of both, you know, understand exactly what we're giving them, how that's going to affect the royalty terms, and again, if we're giving them a lot of different broad rights, what does that look like based on what their specific business plans are and how they may pivot as a startup going forward? Certainly, if the institution has other interests in IP that they're not licensing, we need to kind of identify that as well. If there's other third party rights that we need to identify, or that need to be identified, to be converted for the licensee to commercialize the technology, to the extent that we can identify that, it's something to take a look at. Are we aware of? Their IP rights that are needed or helpful to commercialize the technology. Is the licensee aware of that? I'm often surprised that some of the startups aren't as savvy as you would think of, aware of blocking or other issues that are out there. Oftentimes, the institution knows it before they do, because they've been involved with the up to date patent prosecution, they're aware of prior art that was cited, issues that may need to come around if you've got an pending patent and you're that you're licensing and not an issue patent that may even identify other potential problematic IP that's out there. You may need to share that or make sure they're aware of these issues, because it's certainly in all of your interest to have a full understanding of what the barriers are to take this technology, develop it and get it licensed that will also have an effect on Hey, are they going to need to take other licenses? Are we going to have royalty stacking issues to manage that issue, or are we going to have adjustment of what the royalty rate is going to be to manage these other issues so the load on the commercialization, on behalf of the licensee is not so crippling that they just don't have a viable business if the royalty stack gets too high. So, you know, you know, have these questions with your licensee. Are you aware of what these issues are? Again, usually, a lot of large organizations, they've looked at these issues themselves. They're familiar with it. They've got the staff to deal with it. When you're talking about a startup, you're talking about a handful of individuals, they may or not, may or may not, have either experience in looking at this area, or even the resources where they've done the legwork to kind of look at these issues. So to the extent that you have some information that you gain from the prosecution of the patents, that may be something you need to have conversations with your startups on saying, hey, you know, what are your plans to deal with these issues?

Speaker 2  26:47  
Also understand what the licensees planned plan is for their own IP development that relate to the license technology. What are areas they think they are going to develop on their own and own IP rights separately from the licensed technology. This, even if it would be, maybe it's an improvement that they own and the university doesn't own, or different lines. How does that affect? Maybe licenses that the IP that the university is granted to the same IP in a different field of use as they're potentially problematic issues where they're going to be using some license, know how that we give them to develop something or develop new lines that may be blocking our other licensees. Is this an issue of that? This is not a foundational right that they need to have to practice, but a nice thing to have. And their plans are to essentially design around our license. Hey, we're going to develop this technology. And you know, really, you know, your license technology is phase one for our product, but phase two is not going to use the university's license technology at all. Can we glean that information? I mean, they're not going to just tell you that. But you know, you know, what are your plans licensee for developing your own IP? Do we have a sense? Okay, what is this new IP that's going to be out there related to this technology. University may not have an interest in what does that have an effect? We'll talk a little bit later about maybe rights we want as a grant back, not just for non academic research, which is common, but maybe, if they go bankrupt or end up on the scrap heap because the the startup failed, do we not only want all our rights back, but maybe we want and can negotiate to get license or ownership rights back to the related improvements that they create around it, so we can take that whole new package off to another potential licensee again. Another one, which doesn't come up a lot, is identifying prior and pending and threatened litigation, usually you're at this stage. There's not prior or pending litigation, but there could potentially be threatened litigation. This comes up a little bit more on the software field, where maybe part of their commercialization plan is, hey, we think there's people out there. We're going to use the software we're licensing from you University. We've got some sort of value add stuff. We're going to add with our own IP, and we think we can go out there as people practicing this technology right there. And part of our commercialization plan is to get all these people to take license and basically tell them they have to take a license or they're infringing if that's their model, and they know that's their commercialization model from the get go. You know, we need to think through that both and how that affects the enforcement rights under the license agreement. Is that something the university you know wants to be a part of, or the likely infringers they're going to go after? Are they potential other licensees separately of the university, and is the startup even funded or positioned to go through a model like that? And so again, you know, don't discount the issue. Think through again, really carefully. What's that commercialization plan of the startup? Now we get into kind of, okay, we've identified these issues. How does this work and how we structure some of these things? Well, how do we draft the appropriate scope of the license grant based on some of those issues and objectives we've identified already? So. So you know, one of the things, whether it's a startup or others, that I always kind of is my big drafting Bugaboo is when the grant of rights doesn't align with the type of IP that we're licensing. If we're licensing patents that you need, you need the patent rights to make use, sell, import. If we're licensing copyright code or software code or other copyrights that's copy, distribute, display derivative works. It's not make use or sell. It's a different set of rights you're getting with the copyright rights. So understand that the scope of grant matches up with the IP that you're licensing, and that's important, because we need to keep an eye on that, especially if we're licensing software, we give them the right to make a derivative work, if the university doesn't own that derivative work, we need to think, Well, if the license ends and they can't make any more new derivative works under the core license, but they continue to, they can continue to practice the derivative works that they have created under the license, if they own that, can they commercialize it Without us at that point, and what does that mean to our royalty base, or the know how licenses or other license we've given so think about that a little bit more, especially with startups being a little bit more prone to going under and not being funded or ending up, what rights are going to be left on the table at the end of them, if We don't capture that correctly on scope, territorial extent. Again, we talked about this before. As we go through all these scopes, if I'm representing a startup, or any startup that's going forward, they want the maximum amount of rights that they can get, which is understandable. They want to attack they want to attract investment. Sometimes they've got, you know, a an initial commercial plan of how they want to approach it, but they oftentimes have to pivot. Hey, turns out this works better. Turns out we want to go into this mark. So they have a plan. But as as Mike Tyson said, Everybody's got a plan till they get punched in the face. So when you're when you're working as a licensee or a startup, you're always thinking about, Do I have the full flexibility that I can pivot my plan. Now that's always a problematic for the university, because if they give these broad scope of rights to a startup which have lesser funds to develop in in a broad scope of rights, lesser experience to develop in all scope of rights, you know, that leaves, you know, some potential, you know, under development on behalf of the university, where they could find, potentially a better licensee in other territories, in other fields of use, or outside of that exclusivity, to help, again, meet the objectives of the university, getting the technology out there, generating that revenue. So how do you kind of adjust these two tensions? Well, oftentimes you would put, you know, what I see, more and more are sort of commercial objectives around some of the scope of grants. So territorial extent, maybe you grant a worldwide license, but if they don't meet certain commercialization or development guidelines by certain deadlines, you can start carving back on that territory. So, hey, you get worldwide. But if you don't go into Europe by this amount of time, or have a plan to go into Europe by this amount of time, you either lose Europe from the license, or you lose Europe as the exclusivity in the license, and it's now non exclusive. You know, if you haven't developed in certain places by a certain period of time, and we have another licensee. Maybe we come back to you with the concept, sort of a right of first refusal. Hey, you haven't developed in Europe. We think we've got somebody in Europe. You give us your concrete plan with with development obligations of when you're going to go in there, and we'll give you a right to kind of match that, or show us that you're ready to go there. And then you can keep it, even if you haven't gone into Europe, but some sort of either, you know, bright line you need to do this. Or, hey, if you don't do this, you know, you've gotta give us a plan showing how you're going to do this. Or we, the university, have the right to either remove that territory or remove that exclusivity. Just because you're not moving the ball forward. We need to have the right to do that. You can do the same thing with exclusivity as territorial extent. You know, if there has been insufficient working or they're not working on certain fields of use, do you lose the field of use altogether? Or do you lose the exclusivity if there's a public need, if we've got a therapeutic you know, we can really have, instead of relying on sort of the by doll marching rights, which are all the rage, and discussion of, you know, is there tightening up or looking that it's going to be a little bit more exercise, seeing as how it's never been exercised today. You know, do we want our own sort of public need outside of the marching rights in the agreement that says, hey, if it looks like there's a therapeutic need, can the university step in and kind of make and ask you to give a license, or to have us have the right to give a license under certain terms to meet certain needs. Do we need to think about that? You know, if it's a therapeutic and we're already licensing, it's one of the big boys where they're really in the best position to kind of move this thing forward a Pfizer and. An abbot. You know, it's really different than working with a startup where, you know, if they're under capitalized, again, don't have all the expertise and all the all the money and a public health needs a ride. They may not be the best party to be able to get that very critical therapeutic to market as quickly as possible. Do we as an educational institution need to have a plan for that if those things pop up and do we need to start thinking about how we would bake that into a license screen,

Speaker 2  35:25  
field of use, again, similar to the other things we've just been discussing with territorial and exclusivity, the licensee tech startup is going to ask for all the fields of use as quite frankly, most licensees will, but even more so in the tech startup, because they want that flexibility. They've got a plan, but they want that right to pivot, because everything's kind of fluid when you're going through that initial development. And this is kind of all the different routes you may want to go as a business. So again, understand that, are we really going to give them all fields of use? Are we going to give them all fields of use with the ability for the university to kind of strip those back if they don't develop certain things by certain timelines, are we going to give them a narrower field of use, but a right of first refusal if we want to develop in other areas that? Hey, we'll come back to you first before we take this to other people in other fields of views, but you've got to give us a definitive plan, a definitive commercialization plan, with definitive guidelines, if you want this additional field of use. Otherwise you can't match that, we can give it to anybody else. So think about, you know, the flexibilities that you may want to have. They're going to look want for everything, which is understandable. Think about kind of ways you can kind of meet in the middle or make them earn it or lose it if they don't commercialize it appropriately. Sub licensing, again, is always another tricky one of how we're going to deal with it. Are you going to give them the right to sub license? Will it be non exclusive? Exclusive again, this gets back to what are their objectives? How are they planning to commercialize this technology? Will sub licensing be required for them really to meet their business plans? To do it again? They'll all ask for all the rights of sub license through multiple tiers, you know, because they want that ultimate flexibility. The question is, can you kind of meet them in the middle? Does it first? The question is, does it align with their business plan? If it does, then you can think about, how do we have the appropriate controls and protections for the universities? When we look at it, maybe we give them more latitude if they can bring a substantial sub licensing partner. Hey, if you are licensing it to maybe a larger company, so companies got a market capitalization of a billion or or some sort of other level, then maybe you get, you know, the flexibility to do this, and we won't withhold our approval, or you don't need our approval if it's that large of a sub licensee. You know, if we're providing an exclusive license where exclusivity can be lost, you know, what does that sub license look like? If they would lose the license agreement, are we on the hook to kind of continue this license with one of their sub licensees? You know, maybe we're okay with that. Maybe we want the option to either say yes or no. Again, some of these sub licensing issues are universal, whether it's a tech startup or a larger entity. But again, you really need to think about very clearly, because oftentimes this tech startup really doesn't know all the different ways they may do this. Some of this may be new to them too. Think through these issues and having the appropriate controls certainly saying you can't sub license without our approval. You know, that's great if we can get it, but that's very difficult if this is within their business plan. That's the way they need to commercialize it. The tech start is really going to push back on that. So look, we're not going to get investment. We're not going to get the players involved here, if it looks like we don't have the rights to even do this, and the sub licensing is really required for us to meet our planned commercialization objectives of this technology. Copies of sub licenses again. You know, often we want to see sub licensee the sub licenses itself. You know, if they push back on that, maybe you allow them to redact things outside of the core items, but always push to get a copy of the sub licenses. You need to know who they're sub licensing to what the parameters are, sub licensing versus sub contracting. This is another one of the I would recommend doing with, not only with a tech startup or any of them, if you give your licensees the right to have made or have used, basically where, look we're going to go to a contract manufacturer. We the tech startup to have this made for them, because we don't have the capacity to make this for ourselves. Technically, that contract manufacturer would be a sub licensee, but if they're just manufacturing for the licensee itself, maybe you can have different parameters around that than the same sort of controls that you have over a sub licensee. IE, we need to approve it. We need to do this. Maybe you give them the right to, hey, you can have this made for you. But rather than just giving you a grant that says you have the right to have made, I'm going to give you a separate thing, which is, I'm going to say, Look, you have got the right to subcontract to manufacture four. You, but the terms of that may be different than the terms that we're going to ask them, say, on a commercial sub license, where you're licensing the rights to somebody else to make this therapeutic for them and to sell through the sub licensee. And so, you know, having those subcontracting terms, rather than using the have made, have sold, type language you would see in a grant language is probably better way to kind of manage that, because this comes up a lot with tech startups, because they simply just don't have the capacity to do certain work. So having subcontract manufacturing, maybe having distributors or other things is important right out of the gate of how they're going to commercialize. Again, we need to understand their business plans and make sure the agreement is in line with kind of how they're going to do that. Objectives, some of those issues, again, might not come up with a larger licensee. They'll definitely come up with a tech startup. Again, improvements. Think through this. You know, how are the options to improvements going to go? Are we? Are they? Are they envisioning that they, of course, all the licensees are going to want, hey, we want all the improvements that that come out of the University on this technology. We just want them wrapped into the license. You know, normally we're not going to do that. You don't know what the scope or what those improvements may look like. Maybe we give them an option of things that come out of the PI's lab. Maybe for the first two years of the agreement. It would be very unusual to give them an open option to anything that comes out of the university. But certainly that may be something you could think of say, but we'll give you a little bit of latitude anything new that comes out of the PI's lab in the next two years, you get an option. We'll negotiate maybe a new license, once we understand what that improvement looks like. Do we want to try to own improvements that they're going to develop on their own? That's a pretty heavy lift. Big. Ask for even the educational institution, the startups are going to want to be able to develop their own IP if we can get it, that's great, but that's a difficult thing to ask for. Certainly, we want grant backs for non academic and research use to the improvements if they go insolvent or bankrupt. We may even want to have a provision where we get, if not ownership, a full non exclusive royalty back to all of the improvements, anything that they created, sort of based on our know how that are covered, you know, our improvements under the fundamental patents that we gave them. So we can take that technology and bring it to the next licensee. Maybe we don't get it, if it's simply a breach and termination, certainly, maybe you can ask for it, if they actually go and solve it and stop operating as a business. Say, Hey, we would we, as the institution, really like that back. We'd like to be able to bring that to the next licensee again, to meet our objective of getting all of this technology out into the public. Consider, consideration five. We'll go through some of this, because this would fairly quickly, because this could be its own, uh week long seminars. Royalty structure. Understand, you know that you know separate royalty structure, if we're having a hybrid license, where we're licensing patents, copyrights, know how, understand how those interplay. What is the royalty going to look like after the patents go away, where we have to do a step down royalty? Are we still going to get royalties on know? How are we still going to get royalties on copyrights? The biggest one is really understanding the combination products, if these things are going to be combined with other technology, how is, how is our licensee going to be calculating that royalty rate? What are the issues involved with that? Again, a fully understanding of their objectives, how they're going to be commercializing it. They're going to be looking, hey, if, if we're going to line item out, your technology is worth X value, and the rest of it, which is our own IP is worth y value? Are we really getting the right value of how that royalty calculation is going forward, saying, Look, you know, we really should be getting our 5% on the entire product, not having you sort of line item out our contribution at x, and selling everything else at a higher y outside of our product. It really gets back to the scope, you know, is this a foundational patent? Does it cover everything? How does this fit in the overall scheme of it? You know, they will really push very hard to have a combination product definition that works to the benefit of the startup. They, you know, they just don't want a broad license of any product that's covered by the patent. I'm going to pay you 5% if, in fact, they know they're going to have a lot of either their own IP or third party IP as part of that larger product. They're going to try to kind of parse out the value of that. If you can get the broad grant, that's great, but think through very carefully about how that combination product is going to work. The challenge with a startup again versus a larger

Speaker 2  44:50  
licensee is those larger institutions have a pretty good idea right out of the gate of what their license product is going to be with when you're working with a tech startup, especially at the nascent development. Stage, they might not even have a full sense of what that final license product is going to look like. So they're going to want the most flexibility the broadest terms, and they might not even know today kind of what that combination product may look like. So they're going to push very hard to have a lot of of of parameters around that. And so the challenge for the university is really kind of drill down with them and make them kind of show what your plan is. If we're going to allow you to parse out royalty rates for combination products, what do you think that product's really going to look like? What are the parameters around that? And maybe you just put in a placeholder. Hey, if we can't calculate this now, we're just going to have to revisit and have a good faith negotiation. Once you have a determination of the licensed product, is how we're going to do this, because we just can't identify it right now, because so much development work has to be done. And maybe that's the balance you strike when you're licensing and putting together that provision, you know, understand those developmental milestone payments, any sort of intercompany and sub licensed dispositions that we talked about earlier, if there's going to be affiliates, if there's going to be sub licensees or subsidiaries. How is that going to work? Do we have this still comes up because me, day to day, I'm dealing with one now, later this afternoon, where they didn't deal with it, and the licensee is selling to an affiliate, and that's a royalty bearing milestone at a lower rate, and how does that work? And now we've got a royalty dispute on our hands. So think through that. Think through the stacking issues I won't get you know, into that much, into stacking reach, through monitoring equity. You guys all kind of are aware of dealing with these issues. It's always just a reminder to think through each one. How does this affect, given what their objective is, what their financial ability is as the startup, what development hurdles do they have based on where they are to get to the end? Are we dealing with that directly? I apologize for kind of treating these very important issues, kind of giving it short shrift, but given the hour, if you have any questions, we can talk or answer questions in more detail later. Obligations for commercialization, again, most of this is all going to get set by all the other issues we talked about before. What are the barriers we have in front of us? How are we setting this up? If you have an exclusive license, obviously we need a lot of very robust and restrictive obligations for commercialization that allow us reasonability on behalf of the tech startup. So they've got that flexibility to move forward, but protection for the institution. So if things aren't moving forward, or they're not moving the they're not getting that technology through the hurdles that we have a right either to take the license back or take away elements of the scope of what they have, whether that's exclusivity or different territories or fields of use. So you're going to have minimum expenditures, maybe for development or marketing. We may have efforts in getting, again, the right people in the right capacity of the company. We want certain amount of leadership, or new CEOs or different people in place by a certain timeline. We may want a certain amount of investment by a certain timeline, or certainly a launch of a product by a certain timeline. We're certainly going to have minimal manual royalties, you know, especially during COVID and otherwise, you know, startups need to pivot. They need to come back, maybe, and adjust milestones based on some issues that they find that they didn't adequately predict. Usually, most institutions are pretty good with that. I think since COVID, where everybody came back to renegotiate, it seemed like their milestones to the institutions, and rightfully so. What you see a little bit more is maybe we have a commercial plan in place for that, which is a if you're going to come back and ask for an adjustment, you could maybe do that twice, and we're going to charge you a fee to do that, because certainly there's an administrative cost for us to go back and open up that license. So maybe you can essentially buy an extension for 1015, 20, $30,000 if you need to extend or readjust your timelines, and maybe give you a right to do that twice, but the third time, it's at our discretion. And you know, we're not going to just always go back, or have an obligation to always go back and readjust these, these commercialization milestones. Maybe we'll, we'll say we're willing to do that the first two times for a payment, but with certain parameters. But after that, we have the right to say, hey, look, this just isn't working. Or you could just leave that out all together and say, Look, we're not making any promises. We're going to adjust it. But that's difficult. Sometimes. Giving them that clear right to extend is helpful. It gives them and their investors a little bit of comfort that, okay, we understand if we had a couple bumps in the road, the entire license is at risk. We've got some built in obligations, yes, with the fee or rights to renegotiate some of these milestones, I find that's very helpful on behalf of the startups that I'm representing, certainly for their investors, and also provides a certain amount of protection for the university. Because they know they're going to get some revenue to cover that administrative cost, and they and it's kind of baked in to the license. You know, have more than just looking at their development reports. Have check ins and evaluations periods. You know, I'm always surprised. Sometimes you know that development report comes in or it doesn't come in, and they don't follow up the licensee, hey, we didn't get the development plan. Sometimes University members to follow up. Sometimes they don't, or sometimes they don't really drill in, you know, spend time with them if things aren't moving forward, understanding what's going on. Understand, you know, if you've got equity and you're you're getting board observation rights, or you're really involved with them, maybe you've got great insight. If you don't have great insight on what's going on with the with the tech startup, because things move kind of so quickly and there's so many barriers, don't just rely on the development report. If you've got time, spend time with them. Sit down really understand what's going on. That will help a great deal in kind of meeting their making sure they're meeting their obligations of commercialization, patent prosecution and maintenance, again, kind of understand, you know, what rights or roles do they have? Usually, the university wants to stay in control of that, and for the most part, most startups are fine with that. If it's going to be a foundational where this they're building their whole business around that they're going to push a little bit harder to have, certainly, rights to participate in prosecution, to, if not control, certainly provide guidance on kind of where that's going think about, you know, certainly the university is going to ask for both payment of prosecution Going forward and reimbursement for past prosecution expenses. Obviously, with any startup, the big problem is they're cash poor at the beginning, which is usually, usually why they're they're given the university equity, is they just don't have enough money to pay any sort of upfront licensing fees. So asking them to pay a 60, $80,000 existing patent bill is very difficult for a startup. Oftentimes, you'll have either a payment plan where they'll start paying, you know, after the first commercial sale, or their pay so much upfront, so much afterwards, and then pay for ongoing prosecution on an ongoing basis. You know, think about maybe you have an interest bearing balance, and think of it as a note that, yeah, you don't have to pay it off all at once, but you have to start making payments, you know, on on the first commercial sale. But we're going to start, you know, kind of bearing interest on that. If we can structure it that way from the beginning, once we have executed the deal on that balance, the faster they pay it off, the better deal they'll get. So think about that. Think about how you may be creative in structuring that payment of past patent expenses when you're dealing with a startup entity that really just does not have the capitalization on the front end to pay off that expense, and certainly, their investors want to see, you know, any money that they put in the company going to the development commercialization, not simply paying off an expense on the on the patent prosecution that that's hard for the investors to write. If that check is significantly large, a check for that amount

Speaker 2  53:11  
infringement and enforcement. Again, this also gets back to kind of where the business plan is for the startup. Certainly, you know, most startups, they do not have the funds to have any sort of enforcement operation, to field any sort of of lawsuit. And certainly, you know they're not, if they're an exclusive licensee, only in a field of use, they're not going to have standing to sue. The university is going to have to step in most university tech licenses. You all know you don't want to be drawn in a corner where you have to participate in a lawsuit, or have to certainly have to sue on behalf of your licensees. Usually there's a there's a fair amount of discretion on behalf of the institution to say, hey, we can join. But if we don't want to join, we don't have to join, and we certainly don't have to sue on your behalf licensee. The challenge for the licensee and its investors as they grow is that could affect, essentially, have the university block their exclusivity if in fact, they want to sue. There are a lot of creative ways to deal with this. Sometimes you have, hey, you know, you know, may have an agreement, there would be a royalty adjustment if we think there's truly a good faith infringement going on, and we, the university, won't step in and get used to adding to sue, will we reduce the royalties for a period of time? Certainly, that's one way. I've seen tech startups come back and ask for that. That's still a pretty big ask on the tech startup side. Usually it's enough that the university has, hey, we we're all on the same page here. If we think there's good faith infringement, we want to have that stop as well, because that's a way to kind of get, you know, the revenue in the door. But you will see a lot of creative asks by your technology. Startups around this point, I'm seeing that more and more as VCs are pushing for it, rather than just give the university complete discretion. So thinking about maybe there are parameters where we could maybe, as an institution, adjust the royalty rates that they've really proven their case there's there's an infringement, but there's just some reason why the university doesn't want to be involved in a lawsuit with that party, that we can give some sort of adjustment to that issue to the technology startup, you know, you could think through about settlement or damage awards allocations depending on who's suing. You know, if we're going to take the bulk of, the bulk of the the the risk on this. How do we want to deal with that? I'm sorry, I'm running out of time, so I'm going a little bit quicker here. Management of risk, regardless of the contractual provisions that we put through on management of risk, you need to understand, when we're dealing with a technology startup, you know, they just simply, especially at the early stage, have limited fundings, so we can have all the terms we want on indemnification or other issues. That doesn't mean they really have the ability to stand behind those contractual provisions. So certainly, the university is going to ask for its standard reps and warranties, disclaimers of liability, limitations of liability on the institution. You know, we need to think about, you know, what's going to happen if that license technology infringes third party IP, or if there's any sort of other issues that could potentially blow back on the university, while unlikely, it's certainly a possibility. It's pretty standard for every university to ask for any sort of indemnity on both product or third party IP infringement caused by the licensee to the extent the claim comes back to the university, we're looking for the licensee to indemnify us on those issues, as well as standard product liability, everything else that we're talking about. And it's most of the time I haven't seen you know, most startups will agree to these because they just know, if they really get into that situation where they have to indemnify us on this, you can't get blood from a stone. There's just no money there. And so they can agree to it, and it's great. So as in contract that we're going to get all this, but there's just no money in some of these startups to really stand behind that if, in fact, that trigger would ever get pulled. Usually we've got insurance requirements, especially if they're selling a product eventually, maybe to backstop some of these indemnity obligations, but startups usually have little to no insurance coverage at at the beginning, I would strongly consider thinking about building in expansive requirements of insurance as the commercialization grows. So maybe they don't need to get any certain amount of coverage to begin with, but we are expecting that they're going to have a certain amount of coverage as it expands, so as their commercialization grows. Do we have clauses in the agreement that says, hey, we're going to ask for a higher level of insurance as you move past these commercialization milestones? Because we're no we're not dealing with a Pfizer or an avid or Google, we're dealing with a startup. So we don't expect you to have maybe $5 million of cyber liability to begin with, but we're expecting that you're going to build up on some of these issues as you move forward. Final area to think about, think about, you know, again, term, standard, obviously, if it's a patent, you're looking at, more than likely the life of the patent. If it's a hybrid, what does that look like if there's, know, how or copyrights afterwards, where you have a much longer term? Do we want these things to go along? What does that look like for the life cycle of a startup, if they're looking at an exit event, you know, maybe we're okay with having a certain term for the startup. But if they, if they get acquired, you know, what are those? What is that term or royalty obligation look like if this goes on for a long period of time? Know How? You know copyright royalties things that could last much longer than maybe what the remainder of the term is on the patents that you're licensing. You need to start thinking about the likelihood that this may not be the same licensee you're going to have when you execute this deal to where you get it at the end of the agreement, if there's an exit event somewhere within that window as it flips over from patent to copyright. Just to know how you know, what do those royalty obligations look like again, as it steps down as other IP rights change, if it's an IP obligation, or do we want those royalty obligations potentially to change or get renegotiated, if there is an exit event, if that our licensee now, turns out, you know, small, small startup is now bought by big pharma. Are we expecting those royalty obligations to be the same? Are there going to be adjustments we need to think through? Do we need to approve any sort of change of control and sale, and that would be part of maybe how we would negotiate that change of control or sale. If those things would turn would change at that period of time. What's the effect of termination? For instance, if we're going to have, you know, improvements going back. After a,

Speaker 2  1:00:02  
you know, after maybe a startup fails or goes into insolvency. Do we need any rights? Do we need data back from them on? Do we need regulatory rights, maybe, or other things that we need to come back from them if it doesn't go out and then, sort of the standard things we'd have to look through all of these sell off rights, destruction requirements, bankruptcy, etc. Think through, you know, what the effect would have with a much smaller entity, if these things would trip? Where do we need to be? And I apologize I'm kind of going quickly, but we hit the hour, so I'm going to kind of leave it there, but I did get one question in that I'd like to address. It says, can you speak to considerations for including, not including language around improvements. For example, what is university owned versus what is jointly owned or company owned, explicitly defining in that agreement option to license those improvements, etc. Okay, well, if you just stay silent in the agreement as a whole, you don't say anything about improvements. You know, the standard, you know, if you're operating in the United States, the standard thing is going to apply, aiding the university creates the university is going to own anything the licensee, the licensee is going to own. And there really would be nothing in the agreement addressing that. So if the licensee needed something back on an improvement of the university, they'd simply have to go back and renegotiate for that technology for the university. That's the fear of the startup. They're going to want an option. Maybe to come back and say, hey, if something's created, you got to let me know that they created. And I want the right to to exclusively negotiate for that new right. Certainly the licensee is going to express the startup licensee is that, hey, if I create something on my own, I want to own that outright. Maybe the University says, Look, if we're licensing, you know how, maybe we've got, you know, some quasi type trade secret, or we're licensing you a copyright, some code, if you create derivative works into that code, we want to own the derivative works. We want that all to go back to the university, you need to kind of spell that out. My recommendation, certainly, if you're licensing copyrights that you do spell that out, and the institution does own the derivative works, but we kind of want that back. If there's true joint development, usually there's something going on outside of the license agreement, like a sponsored research agreement or some sort of other collaborative activity that that both parties are working on, on developing, you know, a joint technology. And usually under that arrangement, you may have the standard sort of SRA terms, where the licensee would either get an option to get the universities right, and any joint, jointly owned IP that may be created, the parties agree on joint ownership. And that option would either either feed directly into the license that you're negotiating, or be a whole separate license that you would get out of that. But that would be one structure that you could kind of define in that usually, if there is an option for improvements on the university side, my recommendation is especially about long term, the agreement, you know, 20 years or 15 years, not to give them an option for the entire term. Again, start thinking of, okay, maybe you get an option in the first five years or two years, and it's not for anything that's created at the university. It's coming out of that specific PIs or inventors developments there that they get an option for that. Certainly that gets a little bit more interesting. If the pi is going to be part of the faculty startup, then you got to get a sense of, you know, whose hat is he wearing as he develops new things. Maybe you want to clarify that in this license agreement, that as long as he's working by the university and doing this stuff, which is probably usually what his employment obligation is. It all belongs to the university and and if he wants an perpetual option to his own creations, maybe we give him a little bit more than two three years if he's going to be part of that startup. But what if he's no longer part of that startup? Is the issue, which is why you put those terms, maybe he won't always be part of the company that's beyond our control, but they will still be the licensee. So that's a good reason why you'd kind of want some sort of parameters on those options that I hope that answered the first question, the second one is from Margaret, how frequently are you seeing change of control, consideration for startup licensing agreements, and what range, the frequency I'm seeing of change of control consideration for startups, and the range of that depends greatly on whether there's an equity interest by the university, in the light In the tech startup, and the level of that investment, the more equity that you have in your technology startup, licensee, the number and value if you if you get that provision at all of getting separate consideration for a change of control goes down because it. Looks like double dipping, because you're getting you're getting the value of an equity shareholder in that change of control, plus you're asking for money on top of that. So if you're asking for a larger equity piece, you know that that either getting that provision or getting that value high, or that that higher value proposition changes substantially. If you're asking for very little or no equity, then it's very common to see those change of control provisions that you're looking for an actual payment by way of your licensee to get that change of control. That can be a substantial number. I mean, what that number is vastly depends on what the technology is. The level of it again, is it? Is it the core technology for this licensee? There is no company without this technology. Or is this just an add on piece? If it's an add on piece, you're not going to get that type of provision. And so, you know as to what the value range is, you know, it's all over the place. I've seen, you know, $50,000 I've seen a million dollars, it just kind of all over, depending on what the nature of it is and the equity rights that you have in them. I hope that was helpful. Are there any other questions? Looks like things are in the chat and the question area? Let me see that? No, I must have missed it. I think that's it. Then. Well, I realized that was a bit of a forced march today, so I appreciate that. Like I said, this was just kind of going over some high level considerations you should always think about when you're dealing with tech startups in a university. There are a lot of other issues. There's a lot more minutia, especially on royalties and equity and all the stuff that we we kind of glossed over today. Um, if anybody has any questions or would love to carry on the conversation, please feel free to reach out to me. I've got my email on the presentation. I'll make the slide show available so you can get access to it, and I'm happy to discuss and hopefully I'll see you at the upcoming autumn conferences and and love to see you there. Thanks very much.

Speaker 1  1:07:07  
Thank you, Jeffrey. On behalf of autumn, I would like to thank you for the informative presentation today, and thank you again to our sponsor, Marshall Gerstein. A recording of this webinar will be available for viewing in the autumn Learning Center within a week of this event and is included in your registration. Please complete the webinar evaluation, which will open immediately when you sign off this session, and thank you for being a part of today's presentation. Have a great afternoon. Everyone. You.

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