What motivates universities in tech transfer deals?

David Ai of Chinese University of Hong Kong and Jeffrey McLean of Deacons

In a session at the Business of IP Asia (BIP Asia) conference last Friday in Hong Kong, David Ai, director of the knowledge transfer office at the City University of Hong Kong (CUHK), suggests that money is not the primary motivation for universities when entering into tech transfer agreements with companies. Instead, universities must take into consideration the interests of its various constituencies, including the researchers and scientists themselves and often taxpayers who fund grants that are critical to research. Wider adoption of the technology, rather than maximising profits, may be of greater importance, though money is of course part of the equation.

His comments came up in the context of a discussion with fellow panellists set up as a hypothetical with a company looking to market a painless micro-needle device for drawing blood. The university has patents that would be applicable to this device. The company would like to market the device under the trade mark Vamp and market it for use with young patients.

In the session’s hypothetical case study, the company (and likely many companies in similar scenarios) would like to purchase the patents outright. However, Ai explains that universities are often adverse to do this due to concerns that the company may, for one reason or another, fail to make the technology widely available, even where a hefty price is being offered

“Most research universities are very reluctant to sell their patents or intellectual property rights, not because they see industry players as evil, but because they see it that they owe it first to the general public, the obligation to see to it that the technology is as widely used by that general public as efficiently as possible,” he says.

This is not an insurmountable issue, however. Ai suggests that the university can offer the company an exclusive licence to the patents rather than an outright sale. Furthermore, the university and the company can come up with performance targets that must be met in order to continue the licence, such as units sold by a certain date or a development timetable, in order to help ensure that the technology is being disseminated.

Ai also says that flexibility during negotiations and the willingness to take each particular party’s situation are key. From his experience in the tech transfer offices of both CUHK and Stanford University, he says potential licensees commonly look at the earned royalty rates that the university had charged in the past and say that they should be offered the same rate. However, Ai says that each deal is different, because there are multiple aspects to any agreement and the deal must take into the specific situation of the different parties.

“Different licensees tend to focus on different parts of the deal, and therefore our objective is to make the deal happen, and we want make sure that the deal can support the licensee’s operations, with reasonable income coming to the university,” he explains.

Just as companies have to be aware of the motivations of universities, they must also be cognisant of unique issues that may arise when conducting due diligence for a technology transfer deal. According to Jeffrey McLean of Deacons in Hong Kong, these can be roughly categorised as procedural, ownership and substantive issues.

For example, one of the procedural issues that McLean highlights is the status of all the various deadlines for the patents and patent applications involved in the deal. The status of extensions, office actions that may require responses and oppositions can have a big effect on the status and value of the patents in the deal.

“It’s not unknown for universities to not docket their deadlines particularly well,” he warns.

Whether the university actually owns the intellectual property in question is another key part of due diligence. Again, while this is an important issue in deals that don’t involve academic institutions, there are some unique challenges that arise from the university environment. For example, inventions that stem from the research of part-time faculty requires careful analysis of the employment agreement and policies regarding assignment of intellectual property. Inventions involving graduate students or post-docs raise similar concerns.

Along the same lines, McLean says that it is not uncommon for universities to name either too many or too few inventors on their patents. For example, some research labs may include all the lab technicians as inventors, while others may only include the principal investigator. Looking into and clarifying these issues is important to ensure that the university in fact has clear ownership of the patents that you are seeking to buy or license.

In addition to these issues, McLean also warns that there may be other intellectual property pitfalls to look out for. For example, in the case of the hypothetical painless blood drawing product, the design devised by the product actually came from a student contest held by the university’s design school. Issues such as whether any registered designs are actually suffering from lack of novelty due to the design being presented in the contest itself have to be explored.

Though the potential pitfalls and differing motivations may make such deals seem daunting, Ai says that universities are often keen to work with licensees to structure deals that are fair and accommodating to both parties. Along the same lines, moderator Justin Davidson of Norton Rose Fulbright suggests that parties be patient and not be discouraged by negotiations that seem to take overly long.

“A licensing agreement can be cut in so many ways and no licence is like another, and one common misconception that clients seem to have is that because [the other parties came to terms on another licence previously,] you can come get the same terms in a week,” he says. “In my experience, licences take time and you have to go through several rounds, and these negotiations themselves will raise further things to discuss.”

Davidson, McLean, Ai and Peggy Cheung of Jones Day spoke at BIP Asia on December 5.