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Commercialization of University Technology
Innovation, Technology Transfer and Licensing
Jack Turner, Associate DirectorM.I.T. Technology Licensing Office
17 December 2009
M.I.T. - October, 2008
Students — 10,2994,153 undergraduates6,146 graduate students
Faculty and staff — 5,0001008 Professors696 Additional teaching staff
Nobel laureates – 73 total; 7 current
M.I.T. Financial (FY 2008)
Operating Expenditures — $2.3 billionEndowment — $10 billionResearch sponsorship — $1,319 million
$676 million on campus (18% from industry)$693 million at Lincoln Lab (99+% government)
Tuition — $36,3900Plus ~$13,710 living & other expensesFinancial aid provided to 62% of undergrads
M.I.T. Admission 2008
Undergraduate13,396 applicants for freshman class1,586 offered admission (11.8%)1,051 enrolled (66%)
Graduate school17,271 applicants3,680 offered admission (21%)2,300 enrolled (63%)
M.I.T. Academic Organization
5 SchoolsArchitecture & PlanningEngineeringHumanities, Arts & Social SciencesManagement Science
27 Departments100+ Laboratories & Research Centers
Bayh-Dole Act
Basic “Technology Transfer” LegislationUniversity takes title to inventions made through federally funded researchMay issue exclusive licenses
University is obligated to commercializeSmall business preference Job creation & economic development focusRevenue received
Share portion with inventorsRemainder goes into research
M.I.T. TLO (“Technology Licensing Office”)
25 years in operation 32 employees
10 Licensing officers (scientists/engineers with extensive business experience)7 Licensing associates (junior professional staff)15 support and finance staff
Reports to the M.I.T. VP for Research
M.I.T. TLO 2009 Statistics
501 Inventions disclosed to the TLO131 Applications for U.S. patents filed153 U.S. Patents issued 85 Licenses and options negotiated21 Start-up companies licensed
$66 million in licensing revenue ~$16 million patent & litigation expense~$ 4 million other operating expense
$16 million to inventors$ 8 million to other institutions$32 million to MIT departments
M.I.T. TLO Role
Interface between industry and academiaBusiness experienceUnderstand science
Commercialization responsibilityUniversity “owns” the technologyNurture & marketing mission
Monitor potential “conflicts of interest”Financial conflictsMission conflicts
M.I.T. TLO Emphasis
Service to inventors rather than a goal of maximizing revenueWork with inventors to help them realize their entrepreneurial ambitionsStrategy of closing a lot of deals rather than getting the “best” dealsProtect M.I.T.’s interests; get “fair”return
Patenting Decisions at MIT
Inventor discloses inventions At their own discretionSelf-selection for commercial and/or entrepreneurial interest
TLO Licensing Officer decides to file patent application:
In consultation with inventorInformal market analysisUtility patent applications filed for ~⅓ of all invention disclosures
Choosing a Licensee
Small & start-up company biasLicensing “leads” come from:
50% inventors 30% companies approach TLO20% TLO Licensing Officer marketing
TLO actions & responsibilities:Licensing Officers propose terms and can commit M.I.T. at negotiationsLicense agreements are reviewed and signed at the TLO
Start-Up opportunities
Not yet “ready for prime time” (i.e. large companies not yet interested)Basic and broad technology to spawn a whole business…not just a productSome short-term potential but with extremely high longer-term potentialEnthusiastic (and realistic) inventor able to transfer the technology
Why is IP Important?
Increases the market opportunity Provides justification for higher company equity market valuationAttracts founders, funders and friendsProvides freedom of action, protection and potentially high margin
Commercialization Objectives
Primary objective:“… transfer the results of our research into new products for the public and into the economic development of our community.”
Susan HockfieldPresident
Massachusetts Institute of Technology
M.I.T. Licensing Office Mission
Foster commercial investment in development of inventions and discoveriesThrough these investments – and the economic development and products that follow – provide direct benefit to publicGenerate goodwill: faculty, sponsors, licenseesFinancial benefit to M.I.T. and inventors
Myths
Royalties are a significant source of revenue for the University Expect a quick return of technology transfer investment Companies are eager to accept new technology from universities You should broadcast availability of technology for licensing The technology transfer office finds the licensee
Reality
With the exception of the occasional "blockbuster," licensing revenue is small. Don't expect product royalties for 8 -10 years Most companies want quick time-to-market Publishing lists of available technology is not effective The inventor is the best source for leads
M.I.T. Approach
Primary objective is technology transfer, not to maximize incomeLeverage intellectual propertyLicense exclusively when appropriateDon’t let greed obstruct license agreementModest royalties geared to product success
Success Factors
Quality technologyEnthusiastic and cooperative inventorsExperienced, technically trained, business-oriented staff with industrial experienceClear policy, straightforward procedures –rapid and efficientFlexible licensing termsWillingness to adapt to changing circumstances
Environmental Factors
Financial – seed, angel, venture capitalContract services – design, prototype, manufactureSupportive culture – entrepreneur network, venture capital network, start-up clinicsLegal services – discounted fees, mentoring
Marketing Factors
Targeted marketingFocus on the few companies for which the technology is relevantBuild relationships with inventors, licensees, entrepreneurs, venture capitalistsFollow-up inquiriesAnswer the telephone
License Agreement Factors
Given a potential licensee, tailor terms to fitShared riskLow initial feesEquity in partial-lieu of up-front feesModest royalty ratesDiligence provisions
Investment, personnel, milestones (development and sales), sublicensing requirements
Elements of a License Agreement
Definitions, especially field of useExample: “…automotive safety applications related to occupant sensing.”
Grant of rightsTo make, have made, use, sell, lease and importTo sublicense
Retained rightsFor M.I.T. and other non-profits for research, teaching and educational purposesFor governmentFor industrial sponsor
ExclusivityFor specific field of useLimited term, if appropriate – depends on the time necessary for development and magnitude of the required investment.
License Agreement (continued)
DiligenceBusiness planObtain $xx million capitalizationFund $yy million in research (internal or at M.I.T.)Perform against product development planWorking model by <date>Cumulative product sales (units and/or $$) by <dates>
Failure to perform as specified may result in loss of license!Royalties
License issue feeEquity (only for start-ups)License maintenance fee, creditable to royaltiesRoyalty on product sales, generally a % of salesShare of sublicense income
Patent cost reimbursement
Typical Terms
ExclusiveField of Use: LimitedLicense Issue Fee: $25K - $100KRoyalty: 3-5%Minimum annual royalty: escalates over timeEquity: 5% after significant fundingPatent expense reimbursement
University Factors
Strong support for technology transfer officeClear definition of mission and policies
“Impact, not income”Ability to hire experienced staffFinancial support for office infrastructureLong-term investment in patentsWillingness to stand behind aggressive enforcement of patent rights
Valuation
Embryonic technologyLarge risk to companyDifficult to convince company to investIP is essentialExclusivity
University Valuation Perspective(Accurate valuation not very important)
Minimal investment (patent costs)If licensed at all, university will recover patent costsLicense issue fee provides early return on investmentModest royalty provides handsome reward if commercially successful; proportional to sales
Industry Valuation Perspective(Accurate valuation is very important)
Patent cost plus license issue feesLarge research and product development costMarket and sales expensePatent may not issue or be substantially weakerCompeting productsPerceived market demand may erode
MIT Policy
MIT owns the patent or copyrightFederally funded research – Bayh-Dole ActIndustrially sponsored research
Industrial sponsor license rightsNon-exclusive, royalty-free, pays patent costsRoyalty-bearing, limited term exclusive, pays patent costs
Royalty Distribution (after expenses)⅓ to inventors⅔ inventor’s Department and MIT General Fund
MIT Innovation Pipeline
Basic+AppliedResearch
Commercial Promise & Viability
UniversitySpin-Off
Emerging Growth
Established Company
Support / Alum Offices:
Academic / Research
Offices
Student / Informal
Organizations
This slide © Joost Bonsen 2005 and used with his permission.
MIT Innovation Ecosystem
Entrepreneurship Center100K Business Plan ContestStudent Venture clubsEnterprise ForumDeshpande CenterVenture Mentoring ServiceIndustrial Liaison ProgramTechnology Licensing Office
Entrepreneurship Center
At the MIT Sloan School of ManagementCoordinates and teaches some of the entrepreneurship courses at the Sloan School (MBA and others)Short Courses on Entrepreneurship and InnovationHouses the $100K contest
$100K Business Plan Contest
Run by students (who also raise the prize money)Judges from the local business community and the InstituteUp to 100 entries each year (from all parts of MIT, frequently with MBA students part of team)A dozen or more get angel and/or venture funding each year
Enterprise Forum
Founded (and run) by volunteers from the business communityFormally reports to Alumni Association, but MIT connection not required; open to allCompany presentations monthly
Concept Clinic (embryonic companies)Startup Clinic10-250 (companies in growth phase)
Two annual conferencesExcellent networking opportunities
Deshpande Center
Reports to School of Engineering but open to projects from all parts of MITResearch projects on technologies close to spinning out as companies“Catalysts” advise companiesEducational events for potential student and faculty entrepreneursCommunity receptions
Venture Mentoring Service
Reports to ProvostVolunteer mentors from business community advise budding companies and potential entrepreneursInterviews mentors; matches mentors with companiesOpen to all companies/entrepreneurs with MIT connection (including alums)Mentors need not have MIT connection
Industrial Liaison Program
Promotes MIT/Industry collaborationCompanies pay fee to become “Members”Identifies synergies between MIT research and corporate R&D initiatives Facilitates meetings between faculty and company research staffObtains funding to expand research capabilities
Constituents in Tech Transfer
The senior administrationThe faculty/researchersPotential licenseesCurrent licenseesInvestorsThe business community at large
…and not to forget:National governmentLocal governmentScholars studying tech transfer, etc.
Lessons Learned
Important for Tech Transfer Professionals, but also important for our constituents to hear and understand
Most important lesson:Technology Transfer is a Contact Sport!
Senior Administration
Objectives:Understand and agree on the mission and priorities of the TLOThey understand that we understand and support the policies/priorities of the universityThey get to know us and get confidence that we know what you are doing, so that…We can call for help, when needed, and…They back us up when we need it!
Faculty/Researchers
The Bad News:Seminars don’t work (they don’t show up)“Broadcast” emails don’t work (they delete them before reading)Mass mailing letters and brochures don’t work (they throw them out before reading)Web pages work only when THEY know they need information—not when we want to reach them
What does work?
ACCESSIBILITY!We fought to locate our office near to their labs Personal contact is important!Answer the phone! Get a receptionist and avoid voicemail if you can possibly afford it.
And if you must have voicemail, return your calls PROMPTLY
Answer email promptly The more the message worries you, the sooner you should respond to it!
Other things that work with faculty
Showing you understand their problems: interview them on their inventionsLecturing in their classes
They listen along with the students
Showing up at networking eventsBeing helpful to their studentsBEST OF ALL: Doing a great job for the professor in the next lab (word of mouth)
Finding Licensees
Technology Transfer is a Contact Sport!
Most licensees/venture investors knew us or the researcher before they knew about the invention!The “lead” for completed deals comes directly or indirectly from the inventor more than 50% of the time!
Finding Licensees: What does not work for us
Web Listing of Inventions (We do it, but…)Almost never generates useful leadsConsumes a lot of staff time if you have many inventions (unless you manage it well)May discourage visitors who would otherwise come personally and make better contact
Mass mailing (or e-mailing) of invention lettersLost in the flurry of everyone else’s untargeted mass mailingsAnnoys the company with “junk mail”
Finding Licensees:What does work for us
Interviewing the faculty member for leadsHaving companies/investors come to us to ask “what do you have”?
We spend a LOT of time simply “interviewing”companies/investors—and having them interview us.
Contacting people at companies/investors whom we already knowOccasionally doing very targeted cold calls
Remember: The inventor is the best sales person!
Try for an early introduction of the inventor to the RIGHT person in the company or the RIGHT investor
Sell the Vision—not just the patent application!If the inventor won’t meet with the potential licensee, abandon the patent!
But don’t send “junk candidates” to the inventor!
Keeping in touch with current licensees
Require annual reportsMonitor past-due financial accounts monthly; follow up with phone calls if significant amounts overdue.Require self-audits and do formal audits periodically (particularly the larger accounts)We should (but often do not) notify licensees when their Licensing Officer changes
Communicating with the Community
Show up at networking events—until people remember youImprove public speaking skillsVolunteer for (or manage to get invited on) panelsAttend local government events concerned with economic developmentVolunteer for committees that mix business, government and academiaPublish thoughtful articles (but DO NOT make your publications a high priority; you’re not aiming for tenure!)
M.I.T.’s “Virtual Incubator”
MIT TLO does not provide start-ups with:Money, office space or laboratoriesManagement or business plan writingFormal guidance (no Board seats)
MIT TLO does provide start-ups with:Advice, hand-holding & encouragementIntroductions to VCs & angel investorsIP options while company is formingLicense agreement when needed
Start-ups
MIT agreements in 200967 license agreements
21 start-ups
18 option agreementsMIT licensee start-ups since 1984
300+ companiesOf those started 1997 & later, >80% still going
167 of 205
M.I.T. Licenses to Start-ups
24
30
26
23
17
20 2023
24
2021
0
5
10
15
20
25
30
Com
pani
es
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fiscal Year
MIT Licensing Office 2009
Staff 32Licensing Professionals 17Finance & Support 15
Invention Disclosures 501Patents (US utility) filed 131Patents (US all types) issued 153Licenses and Options 85
Licenses (start-ups) 67 (21)Options 18
Active agreements 850
MIT Licensing Office 2009
Royalty income $66.0 million(Cash from equity sold = $0.7 million)
Operating expense $ 4.1 millionPatent expense $16.0 million
(Reimbursement = $9 million)
Inventors $15.5 millionOther institutions $ 8.8 millionMIT departments $32.7 million
Conclusions
Innovation must be pervasive at the UniversityTechnology transfer is a service which facilitates innovation, entrepreneurship and economic development; it should not be viewed primarily as a source of revenue.Targeted marketing of inventions is essentialFavorable license terms induce investmentUniversity technology can be a powerful engine for economic development
