New Models for Technology Licensing

Overview

In The Engine Working Group on Technology Licensing, we examined how to facilitate the generation and flow of MIT intellectual property to startups and how to coordinate with programs at MIT that will be symbiotic with The Engine. We also looked at how to promote new structures for industry engagement that would enhance technology transition to startups.

Our group expects that The Engine will create new value propositions for MIT’s current and future industry partners. Although we are looking at these issues through an MIT lens, our broader goal is to articulate models that can be adopted by other institutions in our region. If the Institute communicates clear expectations, reduces negotiation times, and establishes standard practices that all parties accept as fair and reasonable, we believe that members of the MIT community will reap benefits and efficiencies in working with The Engine and other external entities.

Where We Are Today

MIT is renowned for the number and value of the enterprises created by members of the Institute community. Despite this track record, MIT-based “tough-tech” startups still face key challenges with respect to technology licensing and corporate sponsorship.

Complex Negotiations Are a Burden

In the early stages of a startup, complex IP negotiations can have negative consequences for all parties. This problem is particularly acute when an early-stage company does not yet understand the limits of its technology, the critical claims it needs to make to protect its position, or how to define its market focus.

Patent Costs Need Reimbursement

Although invention disclosures at MIT are at an all-time high, patent activity is constrained by unpaid patent costs. These expenses cut into the total distributions the TLO makes to departments and the Office of the Provost. By preventing the accumulation of large unpaid patent costs, MIT and the TLO can create a more sustainable model for startups and potentially increase licensing activity.

Federal Research Funding Is Unlikely to Rise

In the near term, industry-sponsored research will likely play a greater role in supporting innovation and entrepreneurship at MIT. The Institute must increase its cultivation of industry and private funding. By demonstrating greater efficiency in bringing the outcomes of those investments to market, MIT will increase its value proposition for industry and private funders.

Corporate Research Often Produces Non-Exclusive Licenses

MIT’s existing collective corporate portfolio typically results in non-exclusive licenses for freedom to operate as opposed to ongoing investments that help bring new technologies to market. This outcome can vary significantly by market sector, however. In biotechnology, for example, corporations tend to favor exclusive licenses. The particular goals of individual corporations sponsoring research at MIT also may be a factor, especially when the research is focused on longer-range goals that are not part of their present businesses.

When corporate-sponsored research creates IP with commercial potential outside a company’s ongoing businesses, the best option may be to develop the technology via a startup model in partnership with MIT. New models for such corporate engagements may also align well with MIT’s mission of translating innovations to serve humankind.

What We Need

New standard agreements and processes that streamline initial licensing and IP options are crucial to promoting more successful tough-tech startup activity. We recommend that MIT and its TLO focus on reducing costs to startups and balancing risks with potential returns for sponsoring partners.

Generate Standard License and Option Agreements

Faculty, students, and affiliates could all benefit from approved templates for initial limited non-commercial licenses and options to IP. Ideally, these standard agreements could be completed in short order and at low cost—a procedure that could be completed in days rather than weeks.

This process could set a new standard for the initial granting of rights and be shared with other institutions to promote standardization. Entrepreneurs would be able to secure options at relatively low cost and work to understand the market and their future IP needs during the option period. This would allow for a more informed and focused negotiation of subsequent commercial licenses. The requirements to obtain an option or limited license also could be aligned with the requirements for entry into The Engine, thus minimizing redundant contract negotiations.

Anticipate Patent Costs and Consider Payment Plans

Projecting and communicating patent costs is crucial to new enterprises. MIT’s TLO should play a key role in assisting startups with planning strategies that avert large unpaid patent costs. By creating new mechanisms and practices for anticipating these costs, the TLO can educate startups about their responsibilities. The TLO should also consider offering patent cost payment plans when appropriate.

Develop New Corporate-Sponsored Research Agreements

In the spirit of promoting enhanced opportunities for collaborative innovation between MIT and industry, the Institute should explore an increased menu of corporate sponsorship agreements that capitalize on the potential gains of a truly open innovation model. Such agreements could leverage the proximity of the Institute to The Engine by encouraging companies to sponsor research at MIT with the intent of creating a startup.

New model agreements could incentivize corporate sponsors to make minority investments in the startups they support. Any such agreements must address the real and perceived risks for sponsors in letting technologies generated through corporate sponsorship transition into startups (e.g., agreements must define what happens if the startup is acquired by a competitor).

How We Get There from Here

If new standard option agreements offer greater flexibility, they will require increased oversight by MIT’s TLO. We also envision a greater role for MIT’s Industrial Liaison Program in market testing new corporate agreements with trusted corporate partners.

Build Flexibility and Oversight into New Standard Agreements

Although simplicity is the goal, new standard limited license and option agreements must accommodate some variability—especially when it comes to appropriate applications of technology, fields of use, and number of patents being sought. We recommend that MIT offer flexibility to startups by allowing an initial option for a broad field of use, for example.

In tandem with this flexibility, the Institute must articulate clear guidelines for licensing that require a narrowing of the field of use through diligence requirements in the commercial license. These guidelines will help the parties manage expectations and ensure that technologies can be developed to their full potentials. In cases where startups need to extend the option periods in their agreements, the TLO should retain the ability to assess reasonable additional fees.

Provide Periodic Appraisals of Accumulating Patent Costs

The TLO must work closely with MIT-generated startups to provide information on costs due and projections of future costs and fees. This will keep startups engaged with critical patent claims and territories, and aware of the costs of protection. It also will help them complete critical evaluations of markets and technology limitations in advance of key decisions, such as arranging coverage in foreign countries or determining how aggressively to pursue particular patent claims.

Solicit Feedback from Current and Prospective Corporate Sponsors 

MIT should market test any proposed standard corporate-sponsored agreements for open innovation with existing and potential corporate partners. We recommend that the Industrial Liaison Program play a role in this process and use the opportunity to expand corporations’ investments in MIT. Ideally, the Institute’s existing corporate sponsors will be able to continue their strategies for scoping longer-range technologies while pursuing fresh, nearer-term opportunities using MIT’s new pro-startup agreements.

Open Questions

Corporate venture funds are an untapped resource for the MIT innovation ecosystem. With new agreements and procedures for licensing in place, we see the potential for greater engagement between such funds and Institute-based startups. Although most large corporations have venture funds, few pursue deals with emerging startups (with the exception of the biotechnology sector).

• Should MIT consider using its significant convening power to connect a broader range of corporate venture funds to early-stage startup activity in the Boston area? Given the Institute’s proximity to The Engine, MIT could encourage corporations to view sponsorship as a window on emerging regional innovations. This perspective may encourage MIT’s partners to increase their engagements with and support of translational research that has the potential to seed new startups. The biopharma sector, for example, has expressed strong interest in participating in this process.