The following questions and answers, based on information prepared by the Council on Governmental Relations for US universities, are general and provide a useful perspective on commercialisation and technology transfer practices at ECU and other Australian universities.
It should not be interpreted as ECU policy.
1. What is an invention?
An invention is a new and useful method or product that has unique features and real advantages for an end user. Some times the most mundane advances have significant value; similarly, the most elegant and creative work that signals an advance in a field my not have practical applications.
2. Why can't I just publish my work?
Scholarly publication and commercial development do not preclude one another. Both advance the University's mission. In some cases, commercial dissemination is the only way a discovery will reach a great number of people. It normally takes years - and large investments - to refine and develop a promising idea into a useful product. Patenting an invention and licensing it with some exclusivity creates an incentive for making these investments. Once a discovery is in the public domain - in a journal, for example - you may not be able to patent it, and its potential may never be developed.
3. Why can't I just commercialise it myself?
The University has the right under its statutes to retain ownership of its intellectual property which includes inventions and discoveries.
4. What should I do?
As a University employee, you have a responsibility to disclose your inventions to the University. The Research Commercialisation Office can give you quick, free advice on the patentability of your invention, and whether it has commercial value. We're here to protect your interests and those of the University.
Students also have an obligation to disclose inventions to the University. There are established processes for deciding whether or not University resources contributed substantially to an invention. The Commercialisation can help you in this regard, and ensure that the value of your invention is protected.
5. When should I call the Research Commercialisation Office?
As early as possible and before it is in the public domain. Once you have presented your ideas at a conference or published them, you may lose substantial rights to patent those ideas. We'll work around your schedule, but ideally it takes four to eight weeks to file for patent protection. So before you submit an abstract for a conference or prepare a manuscript for a journal, call us too.
6. How does Research Commercialisation work?
Key steps in technology transfer are: disclosure of inventions > evaluation > patent protection > identifying the commercialisation strategy > marketing the technology negotiation and drafting of license agreements/ forming the spin-out company > and management of active licences/company
The Invention Disclosure Form contains information about the invention, the inventors, the funding sources, anticipated bars and patenting (such as publications), and other data (such as likely candidates for licensing). The disclosure is reviewed by the Research Commercialisation Office who makes a preliminary decision about ownership and the invention's potential commercial value and patentability. The Office takes action to insure that the newly disclosed intellectual property will be handled in compliance with ECU policies.
The Research Commercialisation Office will seek an opinion from patent attorneys on the patentability of the invention. The most appropriate Commercialisation strategy is identified (contract research, licensing, spinout company formation) after which the Office then markets the invention to industry. A non confidential summary is sent to companies that are likely to be interested. If a company expresses interest, it will be asked to sign a non disclosure agreement (to protect secret information and patent rights) prior to receiving confidential information from ECU. If the company continues to be interested after reviewing the confidential information, an agreement with the company is negotiated. This can be an option; or a license. The other option is to form a spin-out company.
In conjunction with any one of these options, a research agreement may be negotiated to continue to work on the invention at the university. Most university inventions are embryonic and require further research and development before they are ready for the market place. The Commercialisation Office has many different stakeholders each with different objectives:
- Inventors have expectations of research opportunities, promotion and recognition, and income
- Private companies have expectations of securing commercially viable technology at a fair price
- Taxpayers will expect the University to manage public resources properly
- Sponsors will insist that agreements are honoured
- The Research Commercialisation Office wants to offer an efficient and effective service to all stakeholders, to ensure ECU policies are followed and that ECU's reputation is protected. It has the critical task of insuring that the mission of the university is not compromised by the business interest emerging from the technology licensing function.
7. How are fees and royalties determined?
They are determined by arm's length negotiations between the licensor and licensee. Licence fees and royalties are rarely large because most of the technology is in early stages and risky, thus requiring considerable investment to transform it into a marketable product. There are, however, a few technologies that have clear commercial applications and have large potential markets. In such cases, the university can negotiate larger fees and higher royalty rates. The deciding factors are: the type of technology, its stage of development, the size of the potential market, the profit margin for the anticipated product, the valuation of the technology, the amount of perceived risk, the strength of the patents and the projected cost of bringing a product to market.
8. How is the value of technology determined?
The marketing process itself sets the value of technology - how interested are the prospective licensees. Other factors that play a role are the estimated dollar value of the research which led to the discovery; the projected cost of development needed to complete the product; the scope of the license can be exclusive or non exclusive, the territory can be state or country or worldwide to mention but a few, it can have narrow or multiple fields of use, etc. and what royalty rates for similar products are.
Beyond such general considerations, many universities seek to accomplish several basic goals in development of the package of considerations:
- the license should fund the patent application either through an up-front fee for reimbursement of costs already incurred by the university or through a requirement to reimbursement of ongoing expenses of the university
- the license agreement should include ongoing considerations to the university (a royalty)
- required minimum annual royalties after a specified period of time regardless of actual sales
- performance milestones to assure that the university's technology enters the market.
The "formula" hopefully assures that the technology is developed to completion and put in the stream of commerce, assures a fair return to the university, and assures that the technology is returned to the university should the licensee not pay the minimums or achieve the specified performance milestones.
9. What factors influence university decisions to license patents either exclusively or non-exclusively?
University decisions on whether to license a patent only to one company or to a number of companies are based on several factors the two main being what kind of licensing:
- is likely to lead to rapid commercialisation
- is in the public interest
Patents that are broad and can be used in multiple industries or are so basic that they form the building blocks for new technologies are most likely to be licensed non-exclusively, or by fields of use. An exclusive, "field-of-use" license is a way to protect a market for a company while enabling the university to identify more than one license to assure public utilization of the technology in all markets.
Non-exclusive licensing is preferred by universities when the technology can be used to foster product development in many fields of use. for example, if a technology will be of greatest benefit to the public if it becomes an industry standard, the university will make it readily accessible to all interested parties.
Universities most frequently will grant exclusive licenses to patents that require significant private investment to reach the marketplace or are so embryonic that exclusivity is necessary to induce the investment needed to determine utility. Frequently, these are new drugs requiring time-intensive and capital-intensive development or they are technologies that have only a tenuous link between the workbench and production. As such, they require a company willing to dedicate financial backing and the creativity of its own scientists on a long-range basis.
At the final call, the decision to license on an exclusive or non-exclusive basis is inevitably driven by market interest. Not only does the interest relate to the value of the invention, but also to the investment required to develop new products and the risk associated with that technology.
10. Whom do universities license and what role does the start-up company play in technology transfer?
Universities license technology to a broad spectrum of organisations, ranging from a large corporation to a small non-profit research institution. For example, a license may be given to a multi-national pharmaceutical company for a new application of a known drug because that company may hold the patent on the compound. A non-exclusive license may be granted to a number of computer hardware and software firms to incrementally improve product lines. A royalty-fee license may be granted to another non-profit research institute to enable a researcher to practice the invention for research purposes. Included in these examples must also be a license to an early stage firm whose founding purpose was to commercialize the technology. While these kinds of licenses are probably riskiest in terms of eventual commercialization and subsequent payoff, those licensee companies are sometimes the most effective at transferring the technology for the public good.
Universities search for the licensee most capable of commercialising the technology. Examples of criteria used in identifying the licensee are: financial and technological resources; "fit" within the company business plans; previous experience, and marketing capabilities. Desire of the licensee to commercialise the technology and the relationship of the inventor to the licensee are also important. Commercialisation of technology is not dependent only on intellectual property rights such as patents, but also on the ideas and know-how of the inventor. Therefore, the ability of the inventor to relate to the licensee is often a key factor in a license transaction.
When an entrepreneurial inventor is involved, the licenses may be an early stage company formed around the technology. These entrepreneurial ventures may bring with them a myriad of potential conflict of interest issues which must be resolved before a license is consummated. Nevertheless, they often are the most desirable because they have several of the key licensing components: desire by the licensee to make the product/technology a success, and involvement by the inventor in assuring success. One other factor in licensing to early stage companies is that these companies must compete for resources with other development projects.
11. Why is it not feasible to select licensees through a competitive bidding process?
University developed technology is "sold" not "bought" meaning that considerable investment is required to present, persuade, and tailor specific arrangements to the needs of the licensee. Usually, the task is to find at least one capable and interested company, rather than choosing among several candidates. It is generally impossible to bring the interest of several prospects to a head at the same time, as would be required for a meaningful competitive bidding process. Also, tailoring to specific industry needs makes the competitive bidding useless. Yet, such tailoring is especially necessary in the case of small business firms to which universities are required to give preference for technology developed with federal funding.
Additionally, many universities are unable to afford the full expense of the patent application process. They therefore seek prospective licenses to cover such patenting expenses as part of a licensing agreement. The confidentiality required to prevent loss of rights in pre-filing negotiations makes competitive bidding difficult, especially when loss of patent rights through publication is imminent.
Normally universities contact several prospective licensees and pursue the most promising ones. Should there be more than one, universities will decide in favour of the one best able and diligent to develop the technology, not necessarily the one who will pay the most. Where time and circumstances permit, universities may showcase technology available for licensing, through publications, databases, and technology shows. More satisfactory results probably would not be achieved through a formal competitive bidding process. Because of the extra time and effort required in bidding, together with the inevitable reduction in flexibility, the result almost certainly would be fewer licenses and thus fewer university technologies being productively commercialized.
12. Why do universities license overseas companies?
When universities seek potential licensees, they begin at home but only if the potential licensee's field of technology is world class and related to the new technology. The licensee company often needs to have access to the inventor as a consultant to assist in the development process which is easier if long travelling is not required. Although a developed economy Australia is relatively small and many companies which are world leaders in their fields, and thus potential licensees, are not located here.
The choice of licensee is best made on the basis of whether a company has the capability and resources to develop the technology and bring it to the market effectively. Since university technology is not a fully developed product, it is less a question of choosing among various qualified companies than finding any company willing and able to take the license. Thus if a foreign company makes a reasonable proposal and is capable of developing and marketing products based on the invention, the university will generally grant that company a license.
13. What is the relationship between patents and publications?
To obtain a patent, the inventor must fully disclose the invention. Publishing details of an invention prior to filing a patent application can result in the loss of patent rights in most countries. The U.S. is an exception since it permits an inventor to obtain a patent if a patent application is filed within one year of the date of publication which first disclosed the invention.
Some academics are concerned at the delay obtaining patent protection causes to publishing there work. The delay, if it does occur, is usually for less than three months. If an academic starts the patent filing process at the same time as submitting a manuscript for publication, it is likely that the patent application will be filed (in three months) long before the manuscript is published (in six months).
Publishing your work before obtaining a patent can damage your wealth
14. Why is it important to patent public funded inventions?
Some argue that inventions paid from public funds should be owned by the public and by publishing the details of the invention in literature available to the public. The problem with this argument is that the public could only reap benefit of the invention if they had the resources, technical skills and the personal interest in practicing the invention. This argument would require inventions that are ready to go to production stage which is rarely the case when universities are ready to license it. Such development is often time consuming and costly.
The public do benefit from inventions by having access to a broad range of products developed by a predominantly competitive marketplace. New drugs are a prime example. If the invention has been dedicated to the public through publication, no commercial firm would devote extensive resources to developing the first commercial application, knowing that any of their competitors can step in and reap the profits of commercial exploitation once the invention has been proven. Patents give inventors a twenty year monopoly which is necessary for successful commercialisation.
15. What potential conflicts of commitment, misuse of resources and conflicts of interest could arise at universities involving technology transfer, and what steps have universities taken to deal with them?
- Conflicts of commitment - a university inventor is an employee and subject to its policies and procedures. It is too easy to over comment to a company to the detriment of teaching and research. Most universities have regulations regarding staff time obligations to the university. Before committing to a company it is advisable to obtain approval and guidance from the Head of School. When committing time it is advisable to commit a number of hours up to say a maximum of 7.5 hours. It is not advisable to commit to a percentage of time such as 50% because a definition of 50% can easily be construed as longer than 2.5 working days. The issue is also controlled by regular reporting of consulting and other outside commitments.
- Misuse of resources - an inventor can easily forget university resources are for university use and not supplying work for a company. University resources include facilities, equipment, supplies and involvement of graduate students and other paid researchers. University policies should make it clear that work done at the university must be publishable in the open literature and that any intellectual property such as data, patents and software, developed with university resources belongs to the university. In addition, periodic reports to research sponsors assure that grant money is used for legitimate research ends. Periodic performance review by academic administration and an "appeal path" for employees further controls the process.
- Who owns the intellectual property - Ownership of IP could be disputed unless there are clear university policies and definitions within research agreements of sponsor's rights. University policies commonly state that the university owns all patents and software developed using university facilities or developed under a sponsored research agreement. Industrial sponsors are commonly granted first options to license patents arising from research.
- There may be a conflict of interest where an inventor holds an equity position in a company, which the university has licensed to market and distribute the invention. Most universities believe that bringing such financial holdings into the sunlight, through public disclosure, is preferable to a hard and fast rule prohibiting the taking of equity together.
- Universities also understand the potential unethical conduct may arise from an inventor's financial interest in a company. Universities have separate rules in place to prevent, discovery or sanction fraudulent activities. Scientific misconduct, however, is not to be equated of confused with conflicts of interest.
16. Why is there sometimes joint federal and industrial participation in university research projects?
The Australian and State Governments encourage the development of collaborative relationships between government, industry, and universities.
Federally funded projects can benefit from the practical industrial perspective. The research can be enhanced by industry's interest in the application of the research to solving practical problems and creating new or better products. Industry scientists have substantial expertise in many federally funded research areas. Thus, collaboration between research at the university and development at the company facilitates the transfer of new technologies to the commercial sector.
In certain programs, federal agencies require applicants to present a technology transfer plan as part of their funding proposal. In these cases, universities seek potential licensees while the research is in progress. Gaining company participation at the early stage increases the likelihood that the company will grasp the commercial potential of the research and will help move inventions to the marketplace.
Universities increasingly try to foster ties with industry. This can be a win-win situation: industry extends the scope of its R&D, and university investigators extend their limited research dollars and gain access to the expertise of industrial scientists. Bringing industry interests into university projects also contributes to placement of university graduates in industrial settings where their education and training is effectively used.
17. Do universities apply different policies and procedures to inventions assisted by industry funds that to those assisted by federal funds?
Universities generally apply the same policies and procedures to all inventions, whatever the source of funding.
When an invention results from industrially funded research, the sponsoring company is often granted the first opportunity to obtain a license to commercialise the invention. If joint government and industrial funding is involved, the company's rights are subject to the University's obligations to the federal or state government. Whether or not the federal funds are involved, the university insists on license terms that require the company to be diligent in developing the invention. If the company does not comply, the university generally reserves the right to terminate the license or to grant licenses to other companies. In this way, a company can be prevented from "shelving" an invention that might replace or compete with one of its existing products.
18. What percentage of income is derived by universities from licensing federally assisted inventions, and how is that money used?
Licensing income is small in comparison to the total university budget or even in comparison the university's sponsored research budget. Even at the schools with the most licensing income those percentages rarely exceed 2%.
Income from licenses flows back into research and teaching. Universities almost always share licensing income with the inventors. The balance of income can be used to cover the costs of the technology transfer program and to support teaching and research at the university. While the specified percentages vary from institution to institution, the typical royalty sharing policy provides, after expenses, about 1/3 net income to the inventor 1/3 of the net income to the inventors department, and the university's general research fund service the final 1/3.
19. How do universities measure success in technology transfer?
Measures include the:
- number of inventions disclosed
- number of patent applications filed, patents issued, and licenses consummated
- amount of licensing income, royalties and the number of commercial products produced and sold.
Significant intangible measures include;
- capability to retain entrepreneurial staff and attract outstanding graduate students
- enhancement of research and reputation for innovation
- promoting the university through its inventions and innovation in the marketplace
- university commercial products recognised by the public are a tangible outgrowth of its support of basic research. An example is ECU's Friendly Schools & Families products that are becoming well know to teachers and schools in Australia.
20. Why do universities retain title to inventions?
Universities are the cumulative product of decades of social and public investment. Australian universities are incorporated under State Law and funded by the Federal Government. Land and other assets may have been granted or gifted by state governments or individuals. Their activities are supported by a mix of state, federal and private investment. Universities are accountable to the public as a public resource and for the use of public funds which imposes an obligation to ensure that the public receives benefit for its investment. Other factors also play a role:
- Research Excellence is the life blood of a good university. Ensuring continued use of world breaking technologies in the classroom is vital to maintaining the quality of the research university. By maintaining control of its patents, a university allows both commercial and academic use of these technologies.
- Academics and students freely interact with one another. Cross-fertilization of ideas may result in multiple inventions with obligations to different funding sources. By retaining title to patents, universities are in a position to equitably apportion the right to use patents among the contributing organizations.
- The link between the product inventor and product developer is crucial for successful commercialisation. The product developer most often does not have the knowledge to work with the basic inventions that result from university research. By retaining patent title and licensing those patents to industry, universities establish a partnering relationship that allows ongoing interaction between the source of the idea and those with the expertise to bring it to the marketplace.
- By retaining title to patents, universities can require licensees to make diligent efforts toward commercialising those patents. Patents not used must be surrendered to the university so that an alternative licensee may be found. Universities can ensure that new product opportunities are not wasted by companies without the resources, resolve or capability to achieve commercialisation.
- Incentive to invent is as important to the university scientist as it is to the industrial scientist. A technology transfer program structured around royalty-bearing licenses, rather than patent title assignment, helps motivate university scientists to pursue break-through discoveries.
21. Why are universities a vital link in the chain from creation of knowledge to development of products?
Universities provide a rich diversity bringing together multiple disciplines, with a broader focus than product specified manufacturers. They train and nurture the next generation of scientists and engineers which will carry with them to industry the ability to link creative knowledge with product development. They provide the environment - academic teachers, resources and students - to nurture the pursuit of knowledge.
That knowledge often needs further work even to begin to determine its usefulness as a contribution to a product of service. Industry is reluctant to support research which is not directed toward immediate financial return. The university provides a proving ground on which to take next steps toward commercialisation.
The majority of university research is sponsored by government agencies and is not targeted to specific commercial markets or end products--it is, by definition, basic research. However, since it is the nature of research to identify and test new ideas, its results often lead to the expansion of scientific knowledge as well as to the development of new technologies and products which benefit the public.
22. Why is it important to encourage university investors to participate in the patenting process and how are they motivated?
Universities make a considerable investment each time they decide to patent an invention, resources including the inventor's time and energy, and the patent application process. Commitment and support from the school and university is essential for successful technology transfer. Following the granting of a patent, the path to final product and commercialisation is long and expensive. During this period, the knowledge of the inventor needs to feed into the process, to assure smooth and continued progress.
As well as generating income, academic recognition by peers is important. This investment in time and money will not be made without incentives. Beyond the gratification of bringing technology to public use, the University needs to recover its investment. The inventor hopes to generate research funding in the short term and possibly receive license fees to use for future research support. It is important to recognize that without such incentives, many inventions may not get carried through the necessary steps and a commercial opportunity will be wasted. This wasting of ideas is a drain on the economy, irrespective of whether it was public or private funding which led to the initial invention.
Many researchers were not exposed to the concepts of intellectual property, patents, copyrights, trademarks, etc., during their early academic careers. They may have misconceptions and apprehension about the patenting process. One common misconception is that the public benefits only when research is rapidly published and provided equally to all interested parties. Another is that patents should be obtained only by industrial researchers.
Many universities provide outreach programs to potential university inventors to dispel these misconceptions and to allow inventors and their laboratories to benefit from their ideas. Encouraging faculty to participate in the process of patenting may increase their understanding of the benefits of protecting the valuable technology. Involving inventors in the process of marketing the technology is helpful in broadening their outside interests. In this manner, the inventor gains an insight into new potential sources of research funding as well as the benefits of commercialization.
Not all schools will agree that their involvement in commercialisation activities is appropriate. Some contend that commercialisation taints the university and detracts from its mission. They believe that technology transfer should be accomplished through more traditional methods, such as the education and training of students and the broadest dissemination of knowledge through publications.
Change is inevitable and change will be effective by success of the commercialisation efforts. Yet, participation in such activities should always remain an option, and should remain consistent and focused on the mission of academia.