Rather than wrangling over royalty rates and ownership stakes with professors and investors who want to form start-up companies built around academic inventions, the University of North Carolina at Chapel Hill has decided the best kind of negotiation is no negotiation at all.
Under a new policy it is announcing on Thursday, dubbed the Carolina Express License Agreement, the institution has decided to offer a take-it-or-leave-it package deal for start-ups that promises the same simple—and generous—royalty terms to anyone who opts to use it.
Breaking with a practice common at other institutions, Chapel Hill has also decided that for professors and others who choose the new express license, it will no longer take an ownership stake in a company. Instead, the owners of a start-up must agree to simply pay the university an amount equal to 0.75 percent of the company’s fair-market value once it has gone public or merged with another company.
The royalty requirements—2 percent of sales price for products that require approval by the Food and Drug Administration and 1 percent for all others—are also lower than those most universities demand.
“We’re giving up quite a bit,” Catherine Innes, director of the Office of Technology Development, said in an interview with The Chronicle. In return, “we’re hoping to have more companies and more viable companies. Our objective is not to maximize the return to the university.”
Ms. Innes said the new approach is a response to criticism from many in the business world—at times overstated, say universities—that “it takes forever to get a license done” with an academic institution. Simple, straightforward terms should help speed that process, she said, because parties will no longer have to spend time negotiating over royalty percentages. She said she hopes the express license will also help eliminate any distrust among faculty members considering start-ups by assuring them that they “are getting the same deal as everybody else.”
(The express deal also requires the spin-off company to make its licensed product available at affordable prices in the developing world; activist groups have been urging universities to include such “humanitarian licensing” provisions in their deals.)
The express license was developed with advice from professors, as well as area venture capitalists and lawyers who typically negotiate with Chapel Hill over licensing.
Ashley J. Stevens, who directs technology transfer at Boston University and is a leader of the Association of University Technology Managers, said in a written statement that the Chapel Hill approach could eliminate some of the “enormous transactional friction” that now slows many university deals.
At Chapel Hill, which receives more than $700-million annually in research funds and collects licensing royalties of about $3-million a year, the number of faculty members interested in forming companies based on their research is growing. Ms. Innes said 19 potential companies are now in the formative stage, many of them in biotechnology. Several expect to use the new license.
Ms. Innes said the institution recognizes that its decision to forgo equity in companies formed with the express license means Chapel Hill will probably miss out some bonanzas. (Stanford University, for one, made tens of millions, at least, from a license giving it an equity stake in Google.) But she says the 0.75-percent provision does guarantee that the university won’t miss out altogether on a windfall if a start-up company hits it big, and it saves the university a lot of the time and energy it might otherwise expend in negotiating the size of that stake during a company’s early years.
She said Chapel Hill settled on the 0.75-percent figure and the proposed royalty rates after finding that they were ultimately comparable to the terms of its previous deals.
