With the establishment of Bayh Dole Act in 1983, US universities started establishing “Technology Transfer Offices”, whose main job was to evaluate inventions coming out of their laboratories. This helped universities to protect their intellectual property (IP) and license it out to startups or established companies. Technology transfer begins as soon as inventors disclose their technology to technology transfer offices. A technology transfer officer then wears different hats- an inventor’s, an attorney’s, an entrepreneur’s, an industrialist’s or a consumer’s to weigh various aspects of the technology before he/she consents to file a patent. As simple as it sounds, it requires a sound knowledge of the science involved and the rules and laws of patent prosecution. It also requires the business acumen needed to license a technology after filing a patent. Let us go through these steps one by one:
Determining prior art: The first and the most important hat worn by a technology manager is that of a patent agent. He/she asks the most important questions on the disclosed technology that a patent office will also ask: Does the technology have “utility” in the real world? Is the technology “novel”? Given all the previous knowledge or literature in the field, is the technology described by the inventor “obvious”? A patent will be granted by a patent office only if the answer to the first two questions is affirmative, and the answer to the third question is negative. Based on literature and patent database searches for the disclosed technology and judgment from experience, technology transfer officers decide whether to proceed forward with the technology and file a patent.
Freedom to operate (FTO): Wearing an attorney’s hat, the tech transfer officer asks another crucial question: Assuming that a patent is issued for the disclosed technology, can the owner or licensee of the patent practice the invention without infringing upon other patents? In other words, how much “freedom to operate” does the patent actually confer to its inventor/owner/licensee when compared with other patents that have been granted in the same area. A patent that cannot be practiced is as good as not having the patent. It is like investing in a dead technology. No business will buy or license out the technology. Patent prosecution being a very expensive process, a technology transfer officer evaluates the FTO very carefully to decide whether or not to invest university’s money to protect the technology. In my future blog, I will discuss FTO in detail.
Market: The next hat that a technology transfer officer wears is that of a marketing analyst. A tech transfer officer is not only involved in protecting the IP but is also instrumental in supporting the development of the technology. The whole idea of protecting the technology is to incentivize the companies to license out the technology from the university to make it useful to the society. To attract industries to invest in the technology many important questions are asked in advance: 1. What is the current market for the technology? 2. What is the market landscape (what other companies are involved in the technology space?) 3. If the technology enters the market, how much market penetrance will it get? In other words, will the industry see the return of investment if they license the technology from the university? Stage of development: A crucial factor in marketing university-owned technologies is to gauge the stage of development of the technology. Most of the university-based technologies are very embryonic or in other words, very early-stage technologies. Such technologies, especially in biotechnology, need a lot of investment from companies who are licensing it, both in terms of money and product development. Remember, an issued patent has a term of 20 years from the date of filing in
Stage of development: A crucial factor in marketing university-owned technologies is to gauge the stage of development of the technology. Most of the university-based technologies are very embryonic or in other words, very early-stage technologies. Such technologies, especially in biotechnology, need a lot of investment from companies who are licensing it, both in terms of capital and time investment. Remember, an issued patent has a term of 20 years from the date of filing in USA. A technology that requires a long incubation time will eat up the patent term (number of years of the patent rights). Losing the patent term means losing the competitive advantage. Therefore, the technology transfer officer needs to ascertain that there will be sufficient patent term remaining for the company, to recover its invested dollars and generate a considerable return of investment on the product.
Tradeoff analysis: One of the primary objectives of technology transfer offices, as I have already mentioned, is to see the university technology get developed into a product that is directly useful to the society. Therefore, the tech transfer officer evaluates pipeline products of companies, their business and development plans, their market share and capital as well as their past performance in developing the licensed technologies. The question whether the technology is suitable for a startup or an established companies is very crucial. A startup will have a vested interest in developing a technology. Therefore, it will have a focused approach towards the development of the product. In the case of established companies, they will have several products in their pipelines. Therefore, their focus, and hence, the development plan my change with changing priorities that is heavily shaped by the market. At the same time, startups are risky, and their product development pipelines are not as well charted out as an established enterprise. Therefore, an important challenge for tech transfer officers is to do a tradeoff analysis to narrow down the companies that will provide the best opportunity for the technology to get developed into a viable product.
Technology valuation: This is perhaps the most difficult part of the technology transfer process in the universities for which there are no easy answers. In general, the technology transfer officers rely on past deals (also known as comparable deals) for similar technologies and market analysis to come up with a value. There are complex quantitative ways to estimate the cost of the product 5-10 years from the present day for a thorough evaluation. One can easily imagine the difficulty in predicting the market a decade in advance. The two most important aspects of valuation are license issue fee and royalty. The latter is most important for universities, as it is their return of investment for their innovation. It is through royalties that universities can pump back money into the basic research and infrastructure. They can also incentivize inventors by giving them a part of the royalty.
Salesman: A tech transfer officer also needs to be an excellent salesman. Like a prudent salesman the officer has to win the best possible deal (in terms of royalty from the sale of the technology (also known as consideration) and due diligence (DD) terms for the technology development) for the universities. This is the most challenging hat worn by a tech transfer officer. It starts when a company shows interest to license a technology for making, using and selling it as a product. The tug-of-war involved in coming to a perfect term for a licensing deal is a thesis on its own. It will be sufficient to stress that this step requires the wizardry of a technology transfer officer to win a profitable deal for the university to support everything that a tech transfer office stands for. During the negotiation process, the officer always makes sure that the interest of the university and its IP is given the supreme interest. Once, the negotiation is done, the deal is formalized in a license agreement and is then bound by the law of the state.
Police Officer: Following license agreements, tech transfer officers monitor the strict DD terms. DD is very crucial for technology transfer officers, because it acts as an instrument to make sure that the technology gets developed in a timely manner. Breaching DD leads to termination of the license agreement.
The final goal is to see that the technology gets developed and is transferred to the masses for their consumption, thereby advancing the society through cutting-edge science and technology.