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University Tech Transfer Process: Invention Commercialization
The 4th Annual Conference on TechnologyCommercialization
“Technology Transfer (R&D and IP Commercialization,Policies, and Investment)”
Amman, Jordan (12 Nov 2008)
Michael J. MartinPresident, TechTransfer Associates
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Industry/University: Bridging Two Cultures
UNIVERSITY INDUSTRY
“To Create and Disseminate Knowledge”
To Maximize the Investment of Shareholders
ORGANIZATION
RESEARCH DISCOVERY DISCLOSURE FEASILBITY
PATENT APPLICATIONS APPLIED r&D MARKET TEST
LICENSES COMMERCIAL OPERATTION.
SOLUTIONS PROBLEMS
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Why IP: Bridging Two Cultures
University Industry
“To Create and Disseminate Knowledge”
To Maximize the Investment of Shareholders
ORGANIZATION
SOLUTION PROBLEM
• Different Missions, Measure Success Differently• IP: Dissemination for University, Competitive
Advantage for Business
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Why Manage IP in Universities• Disseminate Knowledge – “Public Good”
• Outreach mission (Economic Development): From Morrill Act to Bayh Dole Act – 1980
• Retain/Attract Faculty
• “Home Run” – Additional Source of Funds
• Results– $40 billion in economic activity that supported more than 270,000 jobs – 432 Start-ups and 4955 licenses in FY 2003
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University IP Policy/Practice
COI/COC
PatentCopyright
Law
Bayh-DoleLaw
InternalRevenue
Code
StateCode SCHE
Guidelines
University Tech Transfer Policy/Practice
Research ContractNegotiations
Ownership of Intellectual
Property
Commercialization of
IntellectualProperty
University Culture
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
TECH TRANSFER: COMPLEX SYSTEM
Products
BusinessSpin offs
Research Investment
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Evaluation then Valuation of Intellectual Property
• Commercialization Decision– Technical Merit– Commercial Opportunity– Protectable
• Licensing Negotiations– Cost Approach– Market Approach– Income Approach– Relief from Royalty
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Assessment of Early Stage Discovery Technical Merit
• Stage of Development
• Translate Science into Function into Benefit
• “Robust Solution” to “Important Problem”
• Implementation Barriers
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Assessment of Early Stage Discovery Commercial Opportunity
• Market Size and Growth
• Identified Niche and Innovators
• Market Entry Strategy: Product, Price, Promotion, Position
• Competitive Advantage
• Management Team
Case 4 Discount Rate 20% Royalty Rate 1.0%
($4,000,000)
($3,000,000)
($2,000,000)
($1,000,000)
$0
$1,000,000
$2,000,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NPV of net inc
cum NPV of net
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Assessment of Early Stage Discovery Protectability
• Appropriate Protection: Trade Secret, Patent, Copyright, Know How, Trademark
• Broad v. Narrow• Freedom to Operate• Prior Art; esp. of inventor• Registration Requirements
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Evaluation: Inventor - Degree of Interest, Attitude and Motivation
• Interest: IP is another publication or method to impact society.
• Attitude: No time or willing to do what it takes
• Motivation: $ or move invention from lab to marketplace
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
TECH TRANSFER: COMPLEX SYSTEM
Products
BusinessSpin offs
Research Investment
Inventor/Additional Develop
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Invention Disclosures: Solicitation and Information
• Walk the halls– Identify Areas of Market Interest– Attend Department Meetings
• Industry Forums, Invite Speakers• Create Events for Interaction
– Workshops on IP and Research, etc.– Patent Award or Invention Recognition Ceremonies
• Manage Expectations
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
TECH TRANSFER: COMPLEX SYSTEM
Products
BusinessSpin offs
Research Investment
Inventor/Additional Develop
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Intellectual Property Protection
• Appropriate Protection: Trade Secret, Patent, Copyright, Know How, Trademark
• Timing: Status of Publications• If Patent:
– Select Appropriate Counsel– Docket Management System– TTO is facilitator not legal resource
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
TECH TRANSFER: COMPLEX SYSTEM
Products
BusinessSpin offs
Research Investment
Inventor/Additional Develop
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Marketing
• Analysis – Expand Evaluation
• Potential Licensees – Qualification
• Contact – Prepare Story, Personnel
• Confidential Disclosures – Expand Interest
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Develop Contacts•Inventor network
•Business network
•Internet Listings, Web Site
•Industry and Professional Associations
•Trade Shows
•Patent Citations
•Technology Management Firms
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Start-ups: Culture and Support
• Where is Leadership: Creative Destruction, Permission to Fail
• Conflict of Interest: State Law, University Policy, and Shareholder Value:
• Access to: Patient Risk Capital; Business Start-up Services; Appropriate Risk Management.
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$ needed at the stage of Business Development
Pre-Seed
Invention/RawTechnology
Technologist /founder/business development
<$500K
Identifying technology via relationships
Determining commercial viability
Accessing rights Dev. business
strategy
Seed Early Stage Mid-Stage Exit
Description
Team
$ Needed
Keys to Success
Prototype/ Product-in-development
Plus first senior mgmt team member
$250K to $1M
Finding development partners
Developing business strategy
Recruiting BOD & SAB
Recruiting CEO
Product at beta clients
Senior mgmt team formation
$1M to $5M
Growing the sales pipeline
BOD and SAB in place
Full customer pipeline
Senior mgmt team in place
$2M to $20M
Managing growth
Achieving profitable
Identifying exits
Business Expansion
Public Markets
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Access to Capital:Technology Policy Framework
Friends and Family SBIR/STTR Corporate Funding Bootstrapping Angel Investors Venture Capital
The ValleyThe ValleyOfOf
DeathDeath
Availa
bili
ty o
f C
apit
al
Availa
bili
ty o
f C
apit
al
BasicBasicResearchResearch
Development &Scale-up
CommercialOperation
Source: Richard Palmer, Business Specialist Advanced Technology Program National Institute of Standards and Technology.
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Friends and Family
• Easiest to approach
• Need to advise risk
• Have plan prepared
• Can distract from business
Sources of Capital (Study of INC 500 by Babson College)
Friends and Family Other
Bank Loans Venture Capital
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Is SBIR the Way to Go?
Plus Side• “Free” R&D• Income on the P&L• Leverages other investment• Potential customer in funding
agency
Minus Side•Doesn’t advance Business Development•Government accounting•Can be distracting•Can get HOOKED!
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Corporate Opportunities in the Valley of Death
• Reduce Risk to Corporation by Leveraging University Equity/Gap Fund Screen
• Potential Relationships– Equity Investment– Strategic Partnership: Corporation brings
Manufacturing and Marketing Expertise– Potential Customer
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Bootstrapping
• Belief is that income can fund growth• Have customers identified, even orders• Seek line of credit to provide working capital• Manage accounts receivable, Use the customers
cash • Be willing and able to turn down business
Angel Investor Basics
• Accredited investor defined by Regulation D under the Securities Act of 1933 or SEC Rule 501
• Must have a net worth in excess of $1M or annual salary in excess of $200,000 the past two years
• Typically considered an expert in a particular market
Investment Profile for Angel Investors
• Technology based (as opposed to service)• Strong barriers to entry for competition• High growth prospects (multiple million dollar market or
higher)• Strong management team or entrepreneur’s track
record• Viable exit opportunity for investors (acquisition or IPO)
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THINK LIKE A VC
• Skimming the cream, not playing the margins• First dollars in will want to own 40-60% of the company• The perils of common shares and cram downs• Perspectives on “investor hierarchy”• Faculty role and grad student role in start-up• When and what is the exit scenario?• Technology is 5% of the start-up
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Example: New Nanotechnology Material
• High VC Buzz Factor• Impact all markets• Basic Science is of High
Interest• Virginia Tech
– Improved Yield– Inventor Published– Attract Grants
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LUNA nanoMaterials
Acquisition & IPO
Universities
IndustryGovernment
Private & Industrial
$
Ideas & Funding
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
TECH TRANSFER: COMPLEX SYSTEM
Products
BusinessSpin offs
Research Investment
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Negotiation - Style
• Prepare your position/Understand theirs• Request an offer• Listen Actively… and carefully• Probe their rationale and yours• Create options/make counter offers• Confirm agreement and benefits to each side• Close firmly, amicably, and define the next step.
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Negotiation - Valuation• Cost Approach - Cost to create and develop or to replace
the assets • Market Approach - Based on comparable transactions
between unrelated parties • Income Approach - Based on the present value of the
future income streams expected from the asset• Relief from Royalty - Measured by what the owner of the
property would pay in royalties
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Valuation – Cost Approach• Cost to create and develop or to replace the assets
• No party would pay more to use than to replace the asset in an arm's-length transaction
• Historical costs or the projected cost to develop an asset of similar value at similar level
• Appropriate– Embryonic, basic technology for which market applications
cannot yet be defined. – Technology is narrow in scope and easy to replicate or
"design around
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Valuation – Market Approach • Based on comparable transactions
between unrelated parties
• Factors to consider– Nature of the assets transferred, – Industry and products involved, – Agreement terms, and other factors
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Valuation – Income Approach• Based on the present value of the future
income streams expected from the asset• Forecasting the useful life of the property
– the service life of the asset– the legal life of the asset– the economic life of the asset – the functional or technological life
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Valuation – Income ApproachRisk Assessment for the Discount Rate
– Technical Risk: Stage of Development, $, Time, Obsolescence
– Market Barriers: Concentration, Distribution, Diffuse
– Management Team: Fit, Expertise, Core Competencies
– Protection: Type, Breadth, Strength, Blocking
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Valuation - Relief from Royalty• Measured by what the owner of the property would pay
in royalties • Assumes:
– Stage of Development: products could be produced within a reasonable period of time.
– Sufficient data to develop reasonable estimates of the royalty base (i.e., projected revenues).
– Data to support the determination of a reasonable royalty rate.
– Accounts for market conditions, the economic life of the Technologies and the risk associated with receiving future economic benefits.
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Royalty Rates for In-Licensing by IndustryRose Ann Dabek
Procter & Gamble
Industry 0-2% 2-5% 5-10% 10 -15% 15-20% 20-25% >25%
Aerospace 50% 50%
Automotive 52.5% 45% 2.5%
Chemical 16.5% 58.1% 24.3% 0.8% 0.4%
Computer 62.5% 31.3% 6.3%
Electronics 50% 25% 25%
Energy 66.7% 33.3%
Food/Consumer 100%
General MFG. 45% 28.6% 12.1% 14.3%
Gov't/University 25% 25% 50%
Health Care 3.3% 51.7% 45%
Pharmaceuticals 23.6% 32.1% 29.3% 12.5v 1.1v 0.7% 0.7%
Telecommunications 40% 37.3% 23.6%
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License Agreements
• Start with your boilerplate.• Focus on Definitions, Grant, and Consideration
- Make sure they are clear• Read and Think about ALL of the Clauses
- Pay attention to the “little clauses”
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Conclusions• Always Keep in Mind the Mission of the University vs. the
Company• Companies
– Remember Boundaries of Law and Policy– Understand How Success is Measured
• Universities– Remember why interested in industry– Appreciate the goals of business and measures of success.
• Maintain Good Lines of Communications• Try to Build Long-Term Relationships
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Invention
PatentingPatent Atty
DisclosureEvaluation
Marketing
Licensing
Protect if Publication is Imm
inent
Questions ?????
Products
BusinessSpin offs
Research Investment
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