OTL and the Inventor:
Roles in Technology Transfer

The mission of Stanford's Office of Technology Licensing is to promote the transfer of Stanford University technology for society's use and benefit while generating unrestricted income to support research and education. This mission statement serves as the basis for the guiding principles upon which OTL makes its decisions on how to best transfer University technology to benefit the public and the University.

OTL is responsible for managing the intellectual property assets of the University for the public good. On behalf of the University, OTL is responsible for the expense and risk of licensing; when we are successful, the cash rewards are shared among the University and the inventors, departments and schools. Although we take into consideration the interests of the inventors, departments and schools, ultimately OTL's licensing decisions are made on behalf of the University. Thus, notwithstanding the financial interest of inventors, departments and schools in the outcome of licensing decisions, OTL makes decisions that, in the exercise of its professional judgment, best serve the efficient and effective transfer of the technology in conformance with our guidelines and policies.

Although OTL's budget is derived from the licensing royalties we generate, neither OTL nor OTL personnel has a financial stake per se in University licenses. OTL's budget is not based upon the amount of licensing revenue generated; rather, money in excess of our budget is placed in the OTL Research Incentive Fund under the control of the Dean of Research for the support of research and education across the University. As a consequence, we believe OTL functions effectively as an unbiased agent serving the goals and interests of the University, as well as those of inventors and others.

OTL's relationship with inventors is complex. Inventors are the source of our inventions and copyrighted works; they are producers of the "product" OTL is trying to "sell." We work closely with our inventors because we need their input and participation in the patenting and marketing process. We encourage inventor input -- as a source of leads for potential licensees, for giving us a professional assessment of the technical and market feasibility of the invention and for suggestions on how to license the technology best. Inventors do not, however, participate in the actual negotiation of license agreements with potential licensees. Although we give careful consideration to their input and strive to keep them informed throughout the process, it is our belief that the conflicts that may arise from an inventor's multiple potential roles and relationships -- University researcher, royalty recipient, company consultant, company board member -- make such participation unwise.

For inventors who are faculty, we will notify the faculty-inventor that we are in the process of concluding an agreement with a specific company prior to signing an exclusive license agreement. If the faculty-inventor believes the prospective licensee is inappropriate as an exclusive licensee, the faculty-inventor may appeal to the Dean of Research. Appeals of the financial terms of the license agreement will not generally be accepted. In a written letter, the faculty-inventor should explain in detail why he/she believes the license should not be signed. After consultation with OTL, the Dean of Research will decide the appropriate course of action.

For inventors who are affiliated with a potential licensee, either as a consultant, stockholder, board member, founder or otherwise, OTL must be particularly conscious of conflict of interest issue. (See "Particular COI Issues.") Stanford faculty/employees cannot represent the company and the university at the same time; thus in general, inventors should not represent the potential licensee and negotiate directly with OTL. The Dean of the relevant School and the Dean of Research must review any actions that present a potential conflict of interest prior to OTL entering into any license agreement. If OTL determines that a faculty-affiliated company is the best licensee of the technology, our general practice is to write an independent memorandum describing our marketing efforts and rationale for recommending that the Deans approve the transaction. (It should be noted that OTL/ the University is looking for the licensee who will best develop the technology, whether or not the company is associated with the inventors.) The license from the University is independent from an inventor's relationship with the licensee and, for conflict of interest reasons, they must not be made contingent on one another.

For inventions coming out of a particular principal investigator's (PI) laboratory, the Invention Disclosure submitted to OTL requires the PI's signature even if the PI is not an inventor. The PI should know what Disclosures are being submitted from his/her laboratory so that the PI can confirm to sponsors what inventions have been generated under particular sponsored projects, if any. In addition, the PI should be aware of the invention/licensing activity within his/her laboratory since such transactions may have impact on conflict of interest or future research activities.

As license terms and conditions are generally considered confidential business information, an inventor may generally have access to this information if the inventor has signed a Non-disclosure Agreement. If, however, a potential conflict of interest exists, OTL may decide to maintain the terms of the license confidential in order to protect the interests of the licensee.

At times, OTL may conclude that the cost of pursuing a patent application is not justified by the expected return, and on that basis may decline to file a patent application on a particular technology. The most common reasons for such a decision include: extensive prior art exists, any resulting patent protection would be narrow, enforcement would be difficult or the applicable industry is unlikely to be receptive. In such cases, rights to sponsored inventions are handled according to the provisions of the sponsored agreement; e.g., in the case of government sponsored inventions, rights are returned to the government. Alternatively, if the inventor is interested in developing and commercializing the technology, OTL may choose to grant a license to the inventor on reasonable terms and conditions, subject to a conflict of interest review if appropriate.

One of OTL's goals is to generate royalty income. Because we are a university, service-oriented organization, we can never be (nor do we strive to be) a pure business entity that focuses entirely on maximizing profits. Nonetheless, we strive to be as business-like and business-oriented as we can within the University context. We believe that license agreements are the beginning of long-term relationships for the University and thus strive for fairness, reasonableness and consistency in our dealings with industry. We seek to generate the greatest possible royalty revenue for Stanford without negatively impacting its research and education mission.

While we generally prefer to receive cash payments rather than equity (because cash has immediate value and equity may not have future value), equity is sometimes accepted as partial consideration for a license. In the case of start-up or small companies where cash flow is tight, equity may be the preferred means of compensation from the company's standpoint. From OTL's standpoint, taking equity represents greater risk, as the equity may turn out to be worth little or nothing, while other times it can become very valuable. At times, we are willing to take the risks associated with equity, particularly when we would not be able to negotiate a sufficient cash royalty or when it is unlikely that we will receive earned royalties. When equity is part of the consideration, OTL focuses on obtaining the best overall financial package rather than upon how the resulting cash royalties and proceeds from equity will be divided among the interested parties. Inventors will receive a 1/3 share of equity, after OTL has taken 15%. For conflict of interest reasons, the University has established a policy that the proceeds from the remaining 2/3 share of equity are divided equally between the OTL Research and Graduate Fellowship Fund and the Vice Provost for Graduate Education.

Pursuant to Stanford's present policy on royalty sharing, net royalties (which do not include equity) are divided 1/3 to the Inventor, 1/3 to the Inventor's department and 1/3 to the Inventor's school. The Invention Disclosure Form requests that the Inventor indicate the department that supported the development of the invention. Unless OTL is notified otherwise, the indicated department and its school will receive the department and school's share of royalty. In the case of multiple inventors, OTL will divide the inventors' share equally unless all the inventors have agreed to a different allocation. In the case of multiple technologies licensed as a portfolio, OTL makes a good faith, reasonable determination of the relative value of each technology and allocates royalties among the various technologies.

Occasionally, OTL will use a third party to license technology if the third party has a special expertise or resource for the particular situation. In such cases, the third party may be allocated a share of the royalty income, if any. The Stanford share of royalties will be distributed pursuant to the normal royalty-sharing policy.

Industrial sponsors sometimes wish to sponsor research related to existing University inventions and patents. Occasionally, faculty/inventors hope to use intellectual property rights to encourage research funding or industrial affiliate memberships. While OTL takes into consideration such linkages, license agreements are separate and distinct from sponsored research or membership arrangements. Sponsored research funds are not royalties and are not shared with inventors. In all cases, we strive to receive a fair return for the licensed intellectual property rights.

OTL has signature authority on behalf of the University for license agreements, material transfer agreements, industrial contracts and other agreements that pertain to intellectual property. University faculty and other inventors are not authorized to sign agreements that obligate the University to assign or license intellectual property rights to another entity.

The management of University intellectual property is complex because there are often many conflicting interests. We work at the interface of science, business and law within the multiple contexts of University, industry and government. We know that the key to our success is our ability to work well with our diverse constituencies -- inventors, departments, schools, industry, the U.S. Government and the University.

Questions may be addressed to:

Katharine Ku, Director
Office of Technology Licensing
1705 El Camino Real
Palo Alto, CA 94306-1106
Phone: (650) 723-0651
Fax: (650) 725-7295
kathy.ku@stanford.edu

7/25/99, updated 8/6/03