Establishing a start-up based on technology from the University of North Carolina just got easier, compliments of the University of North Carolina Express Licensing Agreement. Cathy Innes, Director of the Office of Technology Development (OTD), says, "We believe we've come up with a set of terms that will work for all UNC startup licenses that is fair and reasonable to all stakeholders and can be put in place without negotiation. I don't know of any other universities who have tried this approach."
The concept came out of a committee formed by Tony Waldrop, UNC's Vice Chancellor for Research and Economic Development. Waldrop selected Joseph DeSimone, UNC Chapel Hill Chancellor's Eminent Professor of Chemistry, Professor of Chemical Engineering at NC State and founder of Liquida Technologies, a UNC based start-up to chair the committee. Chartered with finding new ways to improve licensing procedures and expedite university startups, UNC looked to the committee to increase the number of companies launched from UNC research and number of licenses executed rather than focusing on financial returns. Other members of the committee included a representative from the OTD, advisors from the local venture capital community and entrepreneurial faculty members.
Committee chair DeSimone said, "The bottom line for the committee was to find new and innovative ways to enable UNC to increase deal flow, protect the University's and the inventor's upside in new ventures, and allow companies to rapidly get launched and funded."
A key facet of the Express Licensing Agreement is that the same financial terms are offered to all start-ups and represent the very best terms UNC can offer. While the Express Licensing Agreement optional, UNC is optimistic that emerging start-ups will choose the alternative. Financial terms of the express agreement include royalties of 2% on most products, with the exception of 1% on products that require FDA approval for human based clinical trials. Additionally, in cases of a merger, stock sale, asset sale or IPO, a .75% cash payout equivalent to the start-ups fair market value will be due to UNC. Other features of the Express License are that it encourages broad commercialization of the technology licensed including availability for humanitarian use in developing nations.
Interesting too is what the license terms do not include. Where most universities expect either an equity position in the start-up or an upfront cash fee, UNC analyzed past licensing terminations, exits and liquidations, to determine financial terms for the Express License that are good for the start-up and feasible for university.
DeSimone observed, "We learned during the process that equity is actually difficult for the University to manage and by the time a liquidation event occurs, the University position is not significant."
Drafting the Express License was more challenging than establishing the financial terms. The agreement had to be agreeable to UNC, acceptable to start-ups and their attorneys without negotiation and robust enough to satisfy savvy investors. To accomplish this, local firms were consulted who frequently represent UNC start-ups. Several of the attorneys consulted worked closely with the committee to draft an Express License agreement they plan to recommend to their clients. Attorney Jason Wood, who participated in the process, said, "We think the Carolina Express License will put UNC at the forefront of tech transfer practice by making the process easier, faster, and more cost-efficient for UNC, scientific founders, entrepreneurs, and investors, and that it will benefit…North Carolina through increased - and potentially more successful - start-up activity."
OTD is optimistic that eliminating negotiation will relieve start-ups from burdensome legal costs and ramp down the time required to launch businesses based on UNC technology. For its part, OTD hopes for a shift in its efforts away from negotiations and instead creating value by helping start-ups get off the ground.
Committee Chair DeSimone invested much effort to get buy-in from faculty, most of which were not part of the committee, in hopes that this would create a favorable outlook on the new licensing process. "I think the Carolina Express License will change the culture on campus towards how deals can be done. Sometimes faculty can be dynamic and exotic thinkers and are hesitant to accept a set of terms because they feel that there is a better deal or they need to make it more complex," DeSimone continued, "This Express License deal is a simple, fair, and speedy alternative and I think we'll see a lot of faculty taking this path towards starting a new venture."
President of AUTM and Executive Director of Technology Transfer at Boston University Dr. Ashley Stevens recognized UNC's initiative saying, "U.S. universities have been active in technology transfer for almost 30 years, yet there is still enormous transactional friction in the system. Whenever we do a license or collaboration - whether with a new start-up or an existing company - it feels as if we're transferring an academic innovation to the private sector for the first time. The same issues come up each time and we've failed to capture the body of accumulated experience and translate it into a better starting point for new deals." He continued, "It's become fashionable to blame technology transfer offices for this failure, but it's a collective failure - technology transfer offices, law firms, venture capitalists and corporate attorneys all share the blame. I therefore applaud UNC for this initiative and hope that others will follow their lead and develop similar template agreements that work in their communities. However, the terms UNC is offering companies to induce them to accept these standard terms are highly concessionary, and I suspect that many universities will not be prepared to accept such a diminished share of the rewards of future success in order to streamline the licensing process."
The UNC take on the process is groundbreaking and intended to encourage more entrepreneurial activities and a spirit of cooperation between the OTD and faculty, students and staff who want to form a start-up. Waldrop said recently, "We are committed to continual improvement in our processes and we believe this is a significant step for OTD and UNC."
OTD's Innes concurs, "We hope the Carolina Express License Agreement will make UNC-based spinouts very attractive to venture backed investors and other commercialization partners, ultimately amplifying the impact that Carolina will have in economic development and improving the health and well-being of society."
Also read The Kauffman Foundation’s paper regarding new licensing standards and agreements that keep our nation competitive. Facilitating the Commercialization of University Innovation: The Carolina Express License Agreement.