Information about what to expect as an inventor working with OTL can be found in:
Our immediate past executive director, Katharine Ku, talks about our mission and the basics of licensing in a video for the University's Entrepreneurship Corner.
OTL's Standard Operating Procedure
Stanford OTL was established over 45 years ago. Since then we have reviewed over 10,000 invention disclosures, completed over 3,500 license agreements, and generated over $1.5 billion return to the University and Stanford inventors. OTL’s track record of success would not be possible without the ingenuity of those inventors. The process all starts when they disclose their new ideas and continues as they collaborate with us throughout the life cycle of the technology. Below we outline the inventors’ role during some of the key steps of our process.
1. Disclosure. During disclosure, the inventors provide a description of the technology and an explanation of the critical solution it could provide to benefit society by submitting an Invention and Technology Disclosure Form to OTL. Submitting this information creates a record of the invention (descriptive information), the inventor(s) involved, who sponsored the work, and public disclosures and publications. (See America Invents Act). For inventions coming out of a particular principal investigator's (PI) laboratory, the PI's authorization is required even if the PI is not an inventor.
2. Associate Assignment. Disclosures received by OTL are logged in, assigned a docket number, and assigned to a specific associate for management. This associate is responsible for all actions relating to the docket going forward. The associate is usually paired in a team with a licensing liaison/assistant who will assist in managing the invention.
3. Evaluation. The associate will meet with the inventor(s). Together they will discuss the invention and make a preliminary evaluation of manufacturing feasibility, patentability, novelty, potential applications, and possible markets. Because patenting an invention is expensive, sometimes the associate decides not to pursue the commercialization of an invention. If the invention is pursued, a preliminary licensing strategy will be developed.
At this stage, the inventors may assist in the evaluation by participating with a prior art search. OTL also welcomes the inventors’ suggestions for the best strategy for licensing the technology (e.g. exclusive vs. non-exclusive).
Different inventions require different licensing strategies. For example, a basic new scientific tool that is likely to be widely used is typically licensed on a non-exclusive basis. In contrast, an invention which requires significant investment of resources by a company is typically licensed on an exclusive basis. The exclusive license provides the licensee with an incentive to undertake the risky capital investments and commit the resources required for product development.
4. Patent Application. OTL does not file patent applications for all invention disclosures it receives. The associate assigned to the invention must consider the chances that a technology can be successfully patented or licensed before investing in the cost of obtaining patent protection (approximately $30,000 – $45,000 in the U.S. alone). For example, a prior publication or insufficient data may make an invention difficult to patent; a small potential market or high potential development costs may make an invention difficult to license. If a patent is warranted after taking this into account, the OTL associate may consult with the inventors to select a patent attorney or agent.
The inventor’s expertise is crucial during patent filing and prosecution. The patent attorney will be familiar with the field of the invention, but he/she is unlikely to be an expert at the level of detail that makes the invention novel, useful, and non-obvious. You, the inventor, by providing feedback, will make an important difference and are indispensable for obtaining meaningful patent protection.
The patent attorney will work with you to write and review patent applications and responses to the patent office (see Instructions for Reviewing Your Patent Applications, from Fenwick and West). The attorney will also ask the people named on the disclosure about his/her contribution to the conception of the invention to determine the correct inventors on a particular patent application (see OTL brochure "Who is an Inventor?").
For more information about patents, go to the Intellectual Property page.
5. Marketing. Part of developing a license strategy involves seeking information and feedback on market risk from various sources. One of the ways OTL collects more information is by marketing the technology to companies who might be interested in dedicating money, people, and resources to develop it for broader use. Through marketing, OTL works with the inventors to prepare a non-confidential abstract that is made available through OTL’s website and sent directly to targeted companies. At this point, OTL appreciates the inventors’ insight regarding technical and market feasibility of the invention as well as leads for specific companies to contact. In fact, studies have shown that the best licensing leads often come from the inventors. For more information, see Why OTL Markets.
If a company responds to the marketing and requests additional technical information, OTL usually asks the inventors to provide that. This can be done under a confidentiality agreement if necessary.
6. Negotiations. If marketing is successful and a company shows a strong interest, then the associate will begin license negotiations with the potential licensee. This starts with a license proposal (from either the associate or the company) followed by negotiations which may require flexibility and creativity by both parties in order to arrive at a mutually satisfactory agreement. The terms of license agreements will vary depending on the specific technology, market, and company. For example, startup companies typically cannot afford large initial payments but are able to compensate with equity in the company and/or payments once products are on the market.
At this stage, the inventor’s role is limited. The associate will generally inform the inventors when they are in the process of negotiating a license agreement. He or she may also ask the inventors to help evaluate a company’s capacity to develop licensed products. In addition, if an inventor has a potential conflict of interest (COI), he or she will need to participate in a COI review.
Note that only 20-25% of invention disclosures are licensed due to the early nature of most Stanford inventions.
7. Monitoring Progress. Signing a License Agreement is the beginning of a long term relationship between Stanford and the company. The associate monitors the licensee's performance for the duration of the license. Usually this is done through periodic financial or development reports that are required under most license agreements. Both the license terms and the company’s progress reports are generally considered confidential business information.
8. Royalty Sharing (Cash). All royalty payments are collected by OTL. After the conclusion of Stanford's fiscal year (Aug. 31), cash royalties received are distributed according to Stanford policy as follows:
After deductions to support OTL's operation and reimburse any direct expenses (such as patent costs that are not paid by the licensees), the Net Royalties are then divided three ways:
1/3 to the inventor(s);
1/3 to the inventor's Department; and
1/3 to the inventor's School.
Department and School royalties must be used for research or educational purposes only and represent an important additional source of unrestricted funds for these entities.
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 (often with input from the licensee) and allocates royalties among the various technologies.
9. Equity Sharing. At times OTL accepts equity in lieu of cash as part of the license issue fees. This equity is also shared under Stanford policy. After OTL has taken 15%, the equity is shared between the Inventors (1/3) and the OTL Research and Fellowship Fund (2/3) which is administered by the Vice Provost and Dean of Research. Stanford’s share of the equity is managed by the Stanford Management Company until it is liquidated.
10. Amending Licenses. As technologies, companies and markets evolve over time, it is often necessary to re-evaluate a licensing relationship to adapt to changed circumstances. Either party can request an amendment to the Agreement at any time during its life. These amendments are negotiated by the associate.