IP: University-industry transactions becoming more prominent

Legal departments should understand how university deals may differ from relationships between industry partners

The significance of a relationship between a university and an industry partner has never been more important for both academia and industry. Universities have seen cuts in government funding and increasingly look to corporations for funding. The bioscience industry increasingly looks to universities for new technologies. It is therefore important to understand how university deals may differ from relationships between industry partners. The following provides a basis for understanding these arrangements.

1. The university has more than one goal in the transaction

A deal with industry isn’t all about money to a university. The average major research university has an operating budget of more than $1 billion. Licensing dollars are increasingly significant, but in the overall scheme of things hardly worth a university doing something that is going to impact its reputation and adversely affect state or federal funding sources, corporate research sponsorships or donations. Also, universities are increasingly looked to by state funding sources for impacts on the community and jobs as a return on the state’s education dollars, and these impacts can also exceed licensing revenue.

2. The university does not always speak with one mind

A major university has been described as a fiefdom—where control is in significant part decentralized and various VPs, deans, department chairs and the principal investigators (PIs) may all have influence over a deal, in addition to the technology transfer professionals who are negotiating it. New proposals or retractions from previous terms are sometimes the result. At the same time, going around or over the technology transfer office to get to these individuals directly is usually not fruitful and can damage the relationship with the technology transfer office, so a better approach is to ask first and to offer to meet these other players in the presence of the technology transfer professional who is negotiating the deal.

3. The university will value research sponsorship

Most research universities greatly value their responsibility to teach and do research. Given that government funding sources have been shrinking, the university (and especially the PI who made the invention) will value research dollars that will fund the PI’s lab. The company can get research sometimes for a fraction of what it would cost the company to do the research itself, and with the involvement of the person most familiar with the technology—the PI/inventor. In a difficult negotiation over licensing terms, milestone payments or royalty rates, the company may wish to offer some form of sponsorship in return for some concessions by the university on these issues.

4. The university will generally not want to take on significant risks

The university will try to minimize risk, and while business also does so, the university threshold is much lower. The use of public and donated funds, the academic standing and reputation of the university, the need to keep a sometimes diverse set of players at the university comfortable with the deal, and perhaps also to some extent the academic mindset of many of the players weigh against the assumption of risk to the extent possible. The “we’re in this together” argument for the assumption of significant risk by the university just doesn’t work in many cases. Some universities are now more willing to take on equity, but such deals are given much scrutiny before and after signing and financial risk is sometimes not the primary risk of concern.

University and industry have had a long and successful relationship that is increasingly looked upon as a key ingredient of global economic success. Like all deals, understanding and appreciating where the other side is coming from can foster such successful relationships.


Contributing Author

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Gregory Nelson


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