Survey on Industry Sponsored Research Practices

1. Survey on Industry Sponsored Research Practices David Glass, D. Glass Associates, Inc. Bill Rosenberg, Exec. Director, CVIP, Univ. Mass. MATTO Presentation 11/8/06

2. Background • Study initiated by UMass to provide “real data” for internal debate of role of IP policy in industry-university relations • Survey put together by Bill Rosenberg with input from David Glass, General Counsel and Consultants doing a study on industry-university relationship • Designed to be completed easily and within weeks • Survey was successful with meaningful results

3. The Survey • Objective: to better understand generally accepted practices of research institutions for determining rights to intellectual property developed during industry-sponsored research. • Selected 26 US universities, consisting of both public and private institutions, including those with small ($100-249M), medium ($250-499M) and large (greater than $500M) total annual research expenditures. • Conducted by email.

4. Key Issues Addressed • What license rights are typically granted to industrial sponsors under Sponsored Research Agreements (SRAs)? • Do universities routinely grant non-exclusive royalty-free licenses (NERFs), and under what conditions? • Who has responsibility for these decisions? • To what extent are financial terms of future licenses negotiated in SRAs? • Are universities experiencing greater pressure from companies in negotiations?

5. Boston University Columbia University Georgetown University Georgia Institute of Technology Harvard University Mass. Institute of Technology New York University Stanford University Tufts University University of California, San Diego University of Colorado University of Georgia University of Minnesota University of North Carolina University of Vermont University of Washington University of Wisconsin Wayne State University Two others (names withheld) Participating Universities26 universities contacted, 20 responded

6. Q1. Negotiating/Signature Authority Q1. Is your technology licensing office responsible for negotiating terms relating to intellectual property from inventions that may result from industry sponsored research? If not, who has the responsibility? Q1a. Does your office have decision and signature authority for IP termsrelated to industry sponsored research? If not, who does?

7. R1. Negotiating Authority • 13 TLOs had negotiation responsibility. • 5 OSRs had responsibility, but in two of these cases responsibility is shared by OSR and the Legal Office. • 2 TLOs share responsibility with the sponsored research office.

8. R1. Decision/Signature Authority • 7 TLOs have both decision and signature authority. • 5 TLOs had decision (approval) authority but not signature authority. • 8 reported that “this authority” resided in OSR (presumably both decision and signature authority).

9. Q1b. Decision/Signature Authority Q1b. If you are part of public university system, do any of the individual campuses have decision and signatory authority for IP terms relating to industry sponsored research?

10. R1b. Decision/Signature Authority • 10 public universities responded. • For 4 systems, campuses did have decision and signatory authority. • For 5 systems, the campuses did not (one of these said that the branch campuses did not conduct much research). • 1 institution reported shared authority with campus OSR.

11. Q2. Overhead Rates Q2. Is industry typically charged the same overhead as Federal overheads? Q2a. If not, what is the typical industry vs. Federal overhead rate?

12. R2. Overhead Rates • At 16 universities, industry pays the same overhead: most said “always”, while some said “typically” or that “exceptions are sometimes made”. • At 1 of the 16, “industry pays higher in some cases because some federal agencies cap the rate”. • Of the other 4, two said that industry usually pays lower overhead.

13. R2a. Comments on Overhead Rates Responses from those charging different rates: • “Industry rate varies from 25% to 62% depending on department and situation”. • “Industry can range from 18% to 47% (our federal rate)”. • “Industry rate 30% vs. federal rate 51%”. • “Industry rate 42% vs. federal rate ~62%”. • “Our federal rate is 56%. For clinical trials the rate is 25%.Other industry rates vary between [these figures]”.

14. Q3. Options on Licenses Q3. Do you offer the company sponsoring research at your institution an option to a license to the technology resulting from the sponsored research? Q3a. If yes, will you commit to license terms in the option prior to the discovery of the invention?

15. R3. Options on Licenses • 19 routinely or “often” offer industry sponsors either an option or a “first right to negotiate” for inventions arising in the sponsored research. • One institution offered an option or a license “in some instances”.

16. R3a. Options on Licenses • 19 respondents do not routinely offer license terms in advance. • All indicated that where this is done, it is rare: • 7 institutions responded with a flat “no”. • 4 said “almost never”. • 4 said “usually no”. • 4 implied that it was sometimes done.

17. Q4. NERFs Q4. Do you offer the sponsoring company an option to a non-exclusive royalty free license (NERF) to inventions resulting from their sponsored research? Q4a. Are there particular circumstances under which a NERF will be offered (e.g. low probability of IP, minimum research contract dollar size)?

18. R4. NERFs • 4 institutions offered NERFs. • 3 said “no” • 7 said “sometimes” (or the equivalent). One of these said “we don’t offer it upfront but almost always agree when asked”. • 5 universities grant NERFs for research purposes only. • 1 university has a standing exception to grant NERFs in certain fields.

19. R4a. NERFs • Most universities offer NERFs on a case-by-case basis. • 2 universities do not offer NERFs. • 2 as a standard policy grant a NERF (along with an option on an exclusive license). • 1 grants NERFs “for internal research only”.

20. R4a. NERFs • Other responses listed several factors taken into account in deciding whether to grant a NERF: • The size of the grant and/or the importance of the research. • Whether the company is bringing in relevant IP, or is supplying a proprietary compound or material. • The (low) likelihood of IP arising in the sponsored research.

21. Q4b/c. NERFs Q4b. If yes, is this applicable to particular fields (e.g. life sciences, non life sciences fields)? Q4c. If you do offer NERFs, are there any other financial or other due diligence requirements (annual fees, reporting, patent expenses) with the license?

22. R4b. NERF Fields • Most of the institutions did not respond to the question about fields of use. 4 respondents said no field preference, 2 said “any field” or “all fields”, and one said “we will occasionally limit by field”. • 5 of the other respondents reported that this was more common outside life sciences (e.g., in computer or information technology fields). • 1 respondent offers NERFs “mostly in life sciences”. • 1 offers NERFs in life sciences as well as “engineering, chemical and auto [industries]”.

23. R4c. NERF Financial Terms • Of the universities imposing financial requirements on NERFS: • 6 universities usually get, or try to get, payment of patent costs. • 1 tries to get annual minimum royalties. • 1 institution said “just what we would have in a typical non-exclusive license”.

24. Q5. Royalty-Free Exclusives Q5. Does your university offer royalty free exclusive licenses to inventions resulting from industry sponsored research ? Q5a. If so under what circumstances? Q5b. Is this applicable to a particular field (life sciences, non life science fields)? Q5c. If so, are there financial or other due diligence requirements associated with the exclusive license?

25. R5. Royalty-Free Exclusives • 20 institutions said this was never or rarely done, but 6 indicated that exceptions were made in rare or exceptional circumstances. • Examples of exceptions: • “Sometimes, if it is their material we are using”. • In clinical trial agreements where intellectual property is expected to be “purely incidental”.

26. R5a. Royalty-Free Exclusives • Only 6 responses addressing circumstances where royalty-free exclusives were given. Responses included: • Clinical trials or “product testing agreements” using company compounds or devices. • When the research used materials covered by existing company IP and the outcome is strictly improvements. • If the sponsor has a patent portfolio in the area and the invention that resulted would infringe one of their patents.

27. Q6. Decision-making Q6. Who in your organization makes the final decision as to whether to offer to a royalty free license option (head of the TLO, chief research administrator, etc.)?

28. R6. Decision-making • At 10 universities, the head of the TLO made the decision. • The other responses were mixed, some indicating shared authority with Legal Office or OSR.

29. Q7. Research Support as Compensation Q7. Will your institution accept sponsored research funding as part of the financial consideration for a license?

30. R7. Research Support as Compensation • 10 institutions said “no” to SRA being considered as financial consideration. • 7 institutions said “yes”, and 3 said it is sometimes done. • Of the 10 institutions not accepting sponsored research as part of financial consideration, 4 would accept it as a due diligence measure, or if the development of the technology required it.

31. Q8. Industry Pressure for NERFs Q8. Is your institution experiencing greater pressure from industry in the last few years to offer options to royalty-free licenses from the outcome of research they sponsor? Q8a. If yes, how have you responded to the pressure?

32. R8. Industry Pressure for NERFs • Responses were mixed. • 7 said “yes” • 9 said “no” • 2 said “some pressure” or “there has always been pressure”.

33. R8a. Industry Pressure for NERFs • Strategies for responding to pressure included: • Case by case on the merits. • “We have generally resisted, except where it concerns company product, in which case we have sometimes had to accept it.” • “We tell industry that this is prohibited by policy.” • “Trying to hold the line – negotiating hard.”   • “We seek to have the faculty understand the implications, so they are better informed as to what the "cost" of accepting industry money can be.” • “We try to offer alternatives that work for both parties.” • “Thoughtfully” (!)

34. Q9. Policy Changes Q9. Has your institution made any significant changes to policies or practices to increase industry related activities (licensing, sponsored research) and if so, what are they?

35. R9. Policy Changes • 11 universities responded “no”. • Responses from some who reported making changes: • “We have tried, in certain cases, to see if a free license would still fit within the safe-harbor for "bad" money in a tax-free bond supported facilities.” • “The campus created the Office of Corporate Relations three years ago to serve as the "front door" for business and industry to access the resources of the campus.” • “We negotiate more master agreements with partners who do regular and recurring research with us.” • “No longer give the option to share royalties if all license rights are given up.  Fear of tax-free bond and other IRS issues.” • “We have created a program to sometimes start industrial relationships with unfunded, informal, research collaborations.  These frequently lead on to SRAs, licenses, etc.”

36. Summary • Most TLOs are involved in granting NERFs • 75% of universities charge companies their federal overhead rates • Nearly all universities offer options to license to inventions from SRAs • At least half of the universities offer NERFs, few ERFs • Mixed result on pressure and policy responses Thanks for your attention!