A Guide to Intellectual Property and Commercialization at UGA
Product to Market
During commercialization, most licensees continue to develop an invention to enhance the technology, reduce risk, prove reliability and satisfy the market requirements for adoption by customers. This can involve additional testing, prototyping for manufacturability, durability and integrity and further development to improve the performance and other characteristics. Documentation for training, installation and marketing is often created during this phase. Benchmarking tests are often required to demonstrate the product/service advantages and to position the product in the market.
Your role varies depending on your interest and involvement, in the interest of the licensee in utilizing your services for various assignments, and any contractual obligations related to the license or any personal agreements.
Most licenses have licensing fees that can be very modest (for startups or situations in which the value of the license is deemed to warrant a modest license fee) or can reach hundreds of thousands of dollars. Additional revenues from annual minimums and payments upon achievement of certain milestones may also result prior to actual sales of the licensed product. Royalties on the eventual sales of the licensed products can generate revenues, although this can take years to occur and depends upon the type of technology. Equity, if included in a license, can yield returns but only if a successful equity liquidation event occurs. Most licenses do not yield substantial revenues. In the most recent AUTM annual survey of U.S. Universities (2014), less than 1% of all licenses yield over $1 million annually. The rewards of an invention reaching the market are often more significant than the financial considerations alone.
Licenses typically include financial payments and performance milestones that, if unmet, can result in termination of the license. This termination allows for subsequent licensing to another business.
In general, all net income generated from licensing of patents or proprietary information is divided among the inventor, the sponsoring academic department and UGARF. After licensing, legal, administrative and other expenses are subtracted from the gross income, net income is distributed on a quarterly basis as follows:
- First $10,000 to the inventor,
- Then 25% to the inventor,
- 10% to the inventor’s research program,
- 10% to the department/unit,
- 55% to UGARF.
The revenues which come to UGARF are reinvested in research and education, creating new research and commercialization opportunities.
The inventor’s share of net revenue is be divided equally among joint inventors of jointly developed intellectual property, unless a written statement signed by all joint inventors that provides for a different distribution is filed with UGARF prior to the distribution of shared net revenue.
If IP is licensed to the inventor, the inventor waives the right to receive the inventor’s share of royalties. The inventor also waives the right to receive the inventor’s share of royalties if the inventor owns or controls 25% or more of the entity that licenses the IP. Any revenue generated from license may be subject to IRS Form 1099 reporting.
UGARF can accept equity from a company as part of the financial terms of a license. Equity could be substituted for other cash considerations that are often difficult for startups. It is also a way for UGARF to share some of the risk associated with startups. A decision to take equity must make sense for both UGARF and for the company.
In the event the terms of the license of the intellectual property provide UGARF with equity or an option to acquire equity in the entity which licenses the Intellectual Property, the share of equity due to researchers will be distributed to the researchers when equity is transferable or convertible to cash.