Royalty Payments and Tax Treatment

Stanford’s Patent Policy provides for payments to inventors based on net royalties received by Stanford from licensing inventions to which Stanford has elected to take title.

Under Section 1235 of the Internal Revenue Code of 1986, as amended (the “Code”), inventors may, in many cases, receive capital gains treatment for income derived from the patent right if he/she transferred substantially all rights to the patent to a third party e.g., when an inventor assigns ownership of the patent to Stanford.

To facilitate capital gains treatment for inventors, where appropriate, starting with calendar year 2002, the University will report payments relating to patents as "Other Income” in Box 3 of Form 1099-MISC. Stanford does not offer tax advice on the reporting of such amounts on any relevant tax filings; therefore, we encourage you to consult a tax advisor.

Except when a work is created by a Stanford employee as a “Work for Hire”, all payments for intellectual property will be reported as “Other Income” although capital gains treatment may not be available. In the case of “Work for Hire”, all compensation, including amounts derived from the proceeds of the licensing of academic property, will be reported on a W-2.

Special rules apply to nonresident aliens that may require a different form of reporting, or even tax withholding, depending on their country of origin.