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Journal of Investigative Medicine:
doi: 10.231/JIM.0b013e318216ad33
Symposium and Meeting Reports

Patent and License Pearls and Pitfalls for Taking an Idea to the Marketplace

Mukharji, Indrani PhD

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Author Information

From the Northwestern University, Evanston, IL.

Received December 16, 2010, and in revised form February 18, 2011.

Accepted for publication February 20, 2011.

Reprints: Indrani Mukharji, PhD, Northwestern University, Evanston, IL. E-mail: indrani@northwestern.edu.

This presentation was part of the AFMR-Translational Medical Research Development Workshop and was supported by a grant (5R13RR023236) from the National Center for Research Resources (NCRR), a component of the National Institutes of Health (NIH). However, the contents of the presentation are solely the responsibility of the author and do not necessarily represent the official view of NCRR/NIH, the AFMR or Northwestern University.

For additional information on patents, see US Patent and Trademark Office (http://www.uspto.gov/), European Patent Organisation (http://www.epo.org/), and World Intellectual Property Organization (http://www.wipo.int/pctdb/en/).

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Abstract

Technology transfer is the process by which novel ideas at academic institutions emanating from research supported by public and private funds are transferred to the private sector for developing marketable products for public use and benefit. Because the primary mission of universities is education and research, technology transfer in an academic environment introduces many challenges. This field is new to most faculty members and is seldom a core mission of their academic careers. The process is also new and unfamiliar to most university administrators. However, universities are increasingly challenged to demonstrate how their research with public funds translates into public benefit. Technology transfer by universities has taken on a new dimension with a focus first on protecting the intellectual property emanating from academic research, then finding means to develop and commercialize such intellectual property for launching new products in the market for public use and benefit. The Bayh-Dole Act enacted in 1980 (Public Law 96-517) allowed universities to elect to retain title to inventions arising from their federally funded research and to grant licenses to the patents, copyrights, or trademarks deriving from these inventions. Universities are allowed to retain the royalties and to share them with the inventors. This article presents the perspectives of technology transfer professionals, specifically, what technology transfer offices do or can do to assist researchers with commercialization of the novel ideas in biomedical research. It also provides a list of successful therapeutics that stemmed from academic research. In conclusion, reference is made to some of the challenges of technology transfer.

The responsibility of the technology transfer office at an academic institution is to facilitate the commercialization of novel ideas from the university to the marketplace for public use and benefit. This is achieved by implementing the university's patent, copyright, or trademark policies. The Bayh-Dole Act of 1980 mandates that universities take on the responsibility to transfer the novel technologies that arise from federally sponsored research. The objectives are to introduce new products in the market for public benefit and to enhance entrepreneurship. As noted in the earlier articles in this series, there is now a different trend afoot whereby the traditional licensing of patents to large corporations has lessened as these companies become risk averse. Instead, more spin-off companies (from academic institutions) are founded to develop and commercialize the novel academic technologies for the market. In doing this, universities are trying to create more of an entrepreneurial milieu on campus that leads to new businesses and sustains the innovative culture. When these spin-off companies are successful, new products not only are introduced in the market for public benefit but also bring a handsome source of new income for the universities and the inventors as well, and that is not a trivial matter. Another factor to consider is local "absorptivity" when the parts come together, forming the infrastructure to create a functional ecosystem for those not in the Silicon Valley or in Boston/Cambridge.

How can universities facilitate technology transfer and commercialization? To begin, novelty determination and market evaluation are done to make the initial decision on intellectual property (IP) protection and market need. The timing of the protection and the decision on the type of protection, that is, whether a patent, copyright, or trademark renders the best protection, are critical. Next attracting a commercial partner is where the real effort is expended. Only a small percentage of all the disclosures received by technology transfer offices attract interest from the private sector.

Universities also provide business development services to faculty and student inventors for launching their new spin-off companies, in addition to introducing suitable entrepreneurs and investors to them. Business development services may include delineating potential products, assessment of the market, identifying the commercial players in the field and the competition, writing an executive summary and business plan, and assistance with power point business presentation designed for potential investors. Most technology transfer offices are responsible for structuring the commercial deals, as well as negotiating and signing the licenses with the companies.

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THE CUMULATIVE PORTFOLIO UNDER TECHNOLOGY TRANSFER MANAGEMENT

The portfolio under management of technology transfer offices at any given time is not trivial. Whether universities receive 200 or 500 new invention disclosures annually, at the end of the year, these disclosed inventions have not all been managed, fully dealt with, and brought to closure. Inventions, for which protection has been sought or where licensing opportunities look promising, may carry on under active management for many years. Thus, at any given time, for example, there may be as many as 750 to 2500 inventions under active management because of the cumulative factor. As soon as the patenting clock has begun for an invention, it is likely going to be active for the life of the patent unless it is abandoned during patent prosecution for some reason or the issued patent is not maintained. Licensed inventions will remain active for as long as the license is active. Therefore, universities need to make available adequate resources for technology transfer offices.

Another point worth mentioning is that disclosures come in various forms; the disclosures may include grant applications, manuscripts ready for submission or submitted, abstracts written and sent to conference proceedings, a mere concept without any data or roadmap, a hand-drawn rough sketch without specifications, or perhaps just a title with an intent to do the research. When information is scant and data are nonexistent, the disclosures are difficult to evaluate or their value is difficult to assess. It is not unusual to have multiple disclosures over several years to make the invention attractive to potential partners for further development. Another challenge is that market assessments do not always add useful information when the technology is ahead of the market. Most inventions are high risk because they are at a very early stage, and it is not easy to predict which ones will be highly successful.

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PATENT CRITERIA AND PATENT CLAIMS

How can one get a patent? Three main criteria need to be fulfilled to obtain a patent: The idea or technology has to be novel and enabling, it must have some usefulness, and it must be nonobvious to one skilled in the art. Many technology transfer professionals can readily determine the novelty and the utility. The nonobviousness issue is left for the patent attorneys to determine and often leads to many back-and-forth arguments with patent examiners. Universities generally distribute the legal work to prepare, file, prosecute, and maintain patents among several private law firms.

Patents are written with the claims directed to composition (new molecule or new biologic), new process, or novel method of use. Two of the most powerful process patents from academic research were from Columbia University (Axel cotransformation) and Stanford University-University of California San Francisco (Cohen-Boyer recombinant DNA). Finally, there are design patents that are somewhat restrictive on the specific design, hence render limited protection.

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WHEN TO FILE PATENT APPLICATIONS

When to file a patent application is a critical decision. It is important because, if it is not done in a timely manner, the opportunity to seek patent protection may be lost forever. Also, inventors' prior research publications may negate the novelty of the future work. In seeking worldwide protection, filing must be done before any kind of public disclosure is made. Public disclosure may include oral or PowerPoint presentation, poster presentation, a journal article online or in print, a printed abstract with sufficient detail and data before the conference, or public demonstration of a prototype. Any such public disclosure before filing patent application negates patenting outside United States. In the United States, there is a 12-month grace period from the first public disclosure during which a patent application must be filed to obtain protection.

In 1995, US patent law changed. Since June 1995, patents are active for 20 years from the date of first filing. Before June 1995, US patents were active for 17 years from the date of patent issuance. The provisional patent application, introduced in June 1995, has greatly helped academia. Provisional patent applications can be filed quickly, if for example an inventor is giving a talk in 24 to 48 hours. Provisional applications are less expensive to file, they are not examined by the patent office, and they are not published. They render only 12-month protection and must be converted to formal or utility patent applications before the expiration of the 12-month period. Utility applications generally get published within a year, but the applicant can request nonpublication to keep it concealed from competitors. Utility applications are examined at the patent office. Once the examination begins, there is a back-and-forth argument between the patent attorney and the patent examiner, which is termed patent prosecution. This may last 3 to 4 years or as long as 10 to 12 years because the US patent office is so backed up. Successful prosecution leads to issuance of patents. The longer the patent prosecution, generally the more expensive is the patent. Patenting is an expensive proposition.

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PATENT EXPENSES

Some estimates of patent expenses are provided. For example, a provisional patent application may cost anywhere from $1500 to $7000. The cost depends on the lawyer and how complicated the technology seems to be. For conversion to a utility application, an additional $8000 to $15,000 is likely to be expended. Again, the amount depends on the length of time it takes to grasp the essence of the technology, the lawyer's hourly rates, and how many claims are written in the patent application.

For protection in European countries, the same utility application may be filed through a Patent Cooperation Treaty for an additional $4000. One may also choose to file in other individual countries like Korea, Japan, Canada, Australia, Israel, Brazil, and others. There will be additional costs for the filing in each of these countries. Thus, for approximately $25,000 to $30,000, worldwide protection can be secured for 30 months.

After that period, the application has to be nationalized for European countries through the European Patent Office. Within 2 to 3 years, the expenses escalate to $250,000 to $350,000. Translation costs add significantly to the total. More and more universities are supporting the nationalization of the patents only when they have commercial partners to cover all the costs. If no commercial partner has been identified or no license has been signed, universities often are maintaining patent protection in United States only. In the United States, prosecution cost is likely to be an additional $15,000 to $25,000. When one patent application evolves into multiple patents owing to restriction of the claims in the parent application into discreet groups, the total expenses are higher. Once patents issue with designated patent numbers, and are printed, the requisite maintenance fees have to be paid timely to keep the patents active. In the United States, there are 3 maintenance payments to keep the issued patents active for the lifetime. Payments are approximately 4 years apart and the total cost is approximately $5000 for universities for the maintenance of each issued patent. However, annuities in countries outside the United States must be paid each year beginning from the third year after patent applications are filed. Those annuity costs are quite substantial depending on the country.

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WHAT MAY NOT BE PATENTED

In light of the cost, some of the disclosures do not necessitate worldwide patent protection or even US patent protection. With some exception, patenting targets, such as genes, RNA, proteins, and receptors identified and linked to a disease model are fine when there is novel composition of the ligand or a new use associated with it. In other words, if the inventor who identified the target and how it is linked to the disease state also has plans through collaboration to identify the ligand(s) by screening a compound library or synthesizing new compounds, then it is reasonable to patent the whole gamut. But if one has only a target and no plans of identifying the ligand, a patent covering the target alone would have little value. Targets were widely patented in the 1980s and 1990s, and many institutions continue to do so even now. But these are essentially $50,000 publications. Next, consider the case for new use, for example, new uses of acetaminophen. For this readily available (off patent) compound, it makes little sense to incur $30 to 40,000 toward patent expenses. Neither does it make much sense to patent when there is no freedom to operate. An example is a new use of third-party patented molecules where the patent owner has no interest in developing the new use for the market and may not grant a license to have the new use utilized. In that case, the patent holder of the new use will not be able to practice the new use if the patent owner of the molecules itself is unwilling to grant a license to the composition.

In the case of research tools, such as animal models, cell lines, plasmids, and others, patenting such proprietary biological materials generally creates more hindrance to research and innovation. However, arguments have been made by emerging businesses or spin-off companies to justify the need to protect such tools for the sake of competitive advantage. Research tools are licensable without any patent protection, and universities have licensed such tools nonexclusively to companies.

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WHO ARE PATENT INVENTOR(S)?

Inventorship in patents is another important factor. Inventorship is different from journal authorship. Inventors are those who conceive the idea and intellectually contribute to the reduction to practice. Inventorship may not always be easy for an academic group to determine. It is best to consult with the patent attorneys who are writing the patent application and with the technology transfer office because incorrect inventorship can lead to patent invalidation.

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JOINT PATENTS AND INTERINSTITUTIONAL AGREEMENTS

Owing to increased researcher mobility, a question that comes up often is, "what happens to my IP when I move to another university or to industry?" If the IP was created at the first university, that institution would own the IP, which may include the dominating patents. If research is continued in the same project at the second university, additional patent applications may be filed by the second university, and they may be jointly owned by the 2 institutions or owned solely by the second university. The strategy used by the second university is likely to depend on the specifics of the filings by the first university in protecting its IP. As discussed above, it would be important to determine whether the second university has the freedom to operate in the context of the first university's filing. In these circumstances, the 2 universities' technology transfer offices would engage in conversations to assess suitable ways to protect the IP for potential licensing. Generally, a plan elaborating on the protection of future IP from ongoing research, how the IP should be bundled for marketing and licensing, and its management going forward is put in place. Such plans are called interinstitutional agreements.

If instead a researcher moves to industry and the company wants to license the university IP, a license agreement can be drawn up and negotiated between the company and the university. If industry has no interest, the IP can reside with the former institution. However, the inventor may also request that the institution release the IP rights to the inventor, if the institution is not actively marketing the technology or is not interested in pursuing patent protection. Thus, inventors can exercise the freedom to manage their own IP.

There are abundant interuniversity collaborations resulting from the multimillion-dollar mega-grants awarded by various federal agencies. It is a good idea to have an agreement between the participating universities, which the technology transfer offices can put in place, so that all collaborators are on the same page regarding the first public disclosure of their collaborative research. If one researcher makes a public disclosure of the research discoveries without patent protection and without the knowledge of the others, it may cause irreparable damage. Inventors from each institution should report inventions to their own technology transfer office. Interinstitutional agreements delineating the responsibilities for IP management for joint inventions between universities are common. They outline the responsibilities for patent prosecution, the marketing to identify a commercial partner, license negotiations, tracking the entire process, and the sharing of the cost and revenue between the universities.

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LICENSING

The ownership of the IP or patents reside with the university. Thus, granting of a license is necessary for the transfer of the rights to an existing company or to a new spin-off company incorporated by a faculty member, in order for the company to commercialize the university-owned technology. The university will be the one to grant the license, a contractual agreement, to a private entity that may then develop the technology to create products for the market. It is not uncommon for companies to enter into numerous license agreements with several universities to develop a single product. A license can be exclusive or nonexclusive. For therapeutics, an exclusive license is necessary to secure the hundreds of millions of dollar investments to bring the drug to market. In contrast, most of the process patents are nonexclusively licensed to use them widely for maximum value.

Licenses are structured in many different ways, depending on the partner, the technology, the potential products, the market size, the time to reach the market, and so forth. It is best to remain flexible and reasonable because there is no one formula that fits all. Every deal is different. One university may get a 6% royalty for a therapeutic, but another may kill a potential deal by insisting on a 6% royalty. Many variables come into play. Universities may take equity in their spin-off companies and liquidate their shares when there is an acquisition or an initial public offering. It is best to seek a partner or licensee based on common interest, commitment, and compatibility because the inventors, the university, and the researchers at the company will be working together, side by side, for a long time.

Regarding the license revenue, the university, as the licensor and owner of the patents, receives these monies. The revenue is distributed to the inventors, their departments, and schools according to the formula in the university's patent policy. The precise formula is different for different universities, but all universities are required to distribute license revenue to inventors. In some cases, noninventor colleagues may be included in the revenue distribution. In the event the university policy disallows such distribution to noninventors, the inventor has the right to do so from his or her share of the revenue.

Certain terms are deal breakers for academic technology transfer. Generally, academic institutions do not accept any restriction or ban on publication of research. Publication delays of up to 90 and 120 days on rare occasion may be acceptable. Of note, the Bayh-Dole Act allows universities to retain nonexclusive rights to the patents to continue the research on campus and for teaching. Some companies may object to this provision, and in such cases, it becomes a deal breaker, especially if the research that led to the invention was federally funded. Most universities do not assign the patents or sell the patents to companies, but there are exceptions. Finally, accepting any restriction in agreements on research that may lead to future competitive technologies is not a good idea.

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TRENDS IN TECHNOLOGY TRANSFER

During the last decade, large corporations have become risk averse. They are less likely to invest money and resources in the embryonic ideas coming out of academia. They prefer to collaborate with academia by providing research funding to selected faculty research groups or to multidisciplinary centers that draw in many complementary expertise. However, those sponsored research agreements generally have a clause that gives the sponsor all the rights to the results, data, and IP, in a perpetual, royalty-free, exclusive, or nonexclusive manner. This reduces the possibility of royalty-bearing licenses for the university in the future.

There is also an increasing trend toward spinning out new companies and licensing the IP rights to such start-up companies for technology development. This also increases the entrepreneurial culture within university campuses and leads to real interest among students and faculty to learn about the process in depth.

In forming spin-off companies, the entrepreneur and financiers have to be matched with the IP asset relatively quickly because the patent clock has started ticking and it is good for 20 years from the date of first filing. Multiple overlapping patent applications may be filed to extend the patent term. Financing is very important for the biomedical technologies. A variety of government funding is available in the initial stages. The options may also include investments from angel or venture funds, investments via corporate partnership, or going public to raise capital. These spin-off companies often provide additional sponsored research funds to the faculty-inventor's research within the university to continue the basic research in parallel with the development work at the company. Effective transfer of technology and know-how from the inventor's laboratory to the new company is achieved when graduating students and research fellows join the new company. The exit strategies for these new companies involve an acquisition by a corporation or an initial public offering.

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SUCCESSES

What has been achieved so far? Figure 1 shows only a partial list of successful therapeutics in the market.1 The market launch of the drugs on this list occurred in the 1990s and 2000s. This is a significant achievement in the treatment of acquired immunodeficiency syndrome, rheumatoid arthritis, epilepsy, pain, fibromyalgia, glaucoma, macular degeneration, various cancers, and many other diseases. The benefit to public has been enormous. The inventors and the universities associated with the inventions received sizeable license revenue.

Figure 1
Figure 1
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In addition, there have been market launch of many new products in diagnostics, medical devices, software, and IT arising from university inventions. The successes of these products in the market are reflected in the license revenue to the universities. The Association of University Technology Managers runs a licensing survey annually.1 In 2006, 5 universities reportedly made more than $50 million in annual license revenue. The following year, in 2007, that number doubled to 10 universities reporting $50 million in license revenue. This is not trivial. For some of these universities, the license revenue is half or more than half of their research expenditure in the same year.

The 1980 Act with the 1984 amendment and 1986 augmentation is a very important piece of legislation that provided an opportunity for the academic discoveries, made with taxpayer's money, to be commercialized into novel products that included, but are not limited to, new therapeutics and diagnostics for public benefit.2,3

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CONCLUSIONS

Technology commercialization remains a highly intricate and expensive process, and there are many challenges associated with academic technology commercialization. Basic, seminal research, which is the core of academic research, is not always based on short-term market need. There is an urgency to publish and that starts the patent clock. Universities do not have the capability or resources to develop all research results. Managing conflicts of interest, which will be covered in the next presentation, is a significant matter, especially in biomedical research. Such undertakings require oversight by administrative authorities responsible for detecting and managing potential conflicts of interests. In addition, managing expectations is another big part of technology transfer. The expectations of the state legislature, the university board of trustees, the inventors, and the media have to be managed. Finally, public opinion of academic technology transfer is another very important and complicated matter because there are many myths, and the facts are not always well understood or appreciated.

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REFERENCES

1. Association of University Technology Managers (2006, 2007, 2008). AUTM Licensing Survey. Association of University Technology Managers, Norwalk, CT.

2. Bayh-Dole Act. Statutes and regulations. 37 CFR 401. Rights to inventions made by nonprofit organizations and small business firms under government grants, contracts, and cooperative agreements.

3. Bayh-Dole Act. Statutes and regulations. 35 USC 200-212 ch 18. Patent rights in inventions made with federal assistance.

Keywords:

patent; invention; license revenue; conflict; technology transfer

© 2011 American Federation for Medical Research

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