Standard Licensing Would Expedite Startups, Says U North Carolina Chapel Hill

• By Dian Schaffhauser
• 04/20/10

A standardized "express" technology transfer license developed at the University of North Carolina at Chapel Hill could expand the number of start-up companies formed from university research and help maintain American competitiveness. That's the conclusion of a report put out by the university and a foundation that promotes entrepreneurism.

According to "Facilitating the Commercialization of University Innovation: The Carolina Express License Agreement," typical startup arrangements involving technology transfers are often counterproductive. Among the complaints: the demand for "excessive equity for intellectual property, in some cases exceeding 15 percent; requiring royalties to exceed total cash flows; expecting external financing; and, imposing unpredictable or unreasonable financing terms."

The paper's authors, Joseph DeSimone, a professor of chemistry at U North Carolina at Chapel Hill, and Lesa Mitchell, a vice president in charge of advancing innovation at the Ewing Marion Kauffman Foundation, suggested that by adopting a standardized license, universities can reduce lag time in harvesting new knowledge uncovered by institutional researchers.

This recommendation departs from current commercialization guidelines issued by the Association of American Universities (AAU), which states that all technologies arise under unique circumstances and therefore require a customized licensing process. Calling "cookie cutter solutions insufficient," the AAU in a 2007 best practices whitepaper stated, "... It is our aim in releasing this paper to encourage our colleagues in the academic technology transfer profession to analyze each licensing opportunity individually in a manner that reflects the business needs and values of their institution...."

The Carolina Express License Agreement was developed by a university committee that included faculty members, participants from the Office of Technology Development (OTD), venture capitalists, and attorneys from firms that have represented university startups.

Key provisions in the agreement include a 1 percent royalty on products requiring FDA approval based upon human clinical trials, a 2 percent royalty on all other products, and cash payout equal to 0.75 percent of the company's fair market value in the event that the company is involved in a merger, stock sale, asset sale, or IPO. The license includes provisions that encourage broad commercialization of the licensed technology, including making products available for humanitarian purposes in developing countries.

"This new standard licensing agreement streamlines negotiations between universities and researchers during the startup phase," said co-author Joseph DeSimone, professor of chemistry and one of the architects of the new license. "The Carolina Express License Agreement maintains universities' intellectual property rights while recognizing that technologies, innovations and IP are only a tiny fraction of what is required to create a company."

The Carolina Express License Agreement documents, including the license agreement and a user guide, are posted on the UNC Web site.