Hamburger Evron & Co.

  • 30.01.2015, The weight of academic institutions in the commercialization of intellectual property, Mashabim

The term "intellectual property" is a generic name used for a group of rights in intangible assets which are the outcome of a man-made intellectual-creative development. In each of the various legal systems, a fabric of detailed legal arrangement was developed, to regulate the entitlement to ownership of intellectual property, the scope of the right, the protection thereof and the remaining procedural issues.

Beginning in the last trimester of the 20th century, intellectual property had become one of the important growth engines for modern economies, while breaking the barrier of territoriality and becoming global. Consequently, the regulation thereof often requires a multi-faceted handling and balancing of various territorial arrangements (e.g. the registration of patents in several countries).

One of the main sources for intellectual property is academic institutions, where basic science research is carried, aiming at the research and development of areas in science, mainly in the various life sciences: physics, chemistry, mathematics, biology, bio-chemistry, medicine and more. The next stage of commercialization is the cooperation between the academy and the business segment, within which the academic institution grants the commercial body certain usage rights in the intellectual property which was developed within an academic research, in return for financial or other rights.

For the purpose of commercializing academic intellectual property, academic institutions established corporations, whose mission is to execute and regulate the process. These executing corporations are registered as owners of the academic intellectual property and form the arm which engages with the commercial body in a commercial agreement. Furthermore, each academic institution has internal regulations to regulate the economic rights of the researcher, the academic institution and the executing corporation in all aspects pertaining to the consideration received from the commercial body.

Along the years, business models were developed for the engagement between the executing corporation and the commercial body, consisting mainly of: licensing of technology and knowhow – licensing and sub-licensing agreements; carrying an academy-industry joint research; registration of patents and sale of usage rights; commercialization of rights – a right of first refusal, a right of first review; and financing academic research.

In most cases, in consideration for the license to academic intellectual property, the business models include the following undertakings by the licensee:

(a) Payment of royalties on the sales of products and services based on the said intellectual property, and one-time payments against milestones (completion of a phase in an experiment, receipt of regulatory approvals, commercial agreement with a third party etc.).

(b) Allocation of a certain amount of shares of the licensee, or the entity established for the purpose of developing the commercialization of the technology, including placement of protection mechanisms against dilution of holdings, representation in boards of directors and veto rights.

(c) Financing a continued research in the academic institution.

(d) Bearing all costs of the registration of patents and the maintenance thereof.

In an attempt to review the interests of the parties to the transaction – the academic institution and the commercial body – we find that the parties don't always share the same starting point, and there may by situations in which the differences will lead to disputes and conflicting interests between the parties. In such a transaction, the academic institution would want to ensure the increase of research resources from external sources; independently manage the research's ongoing budget; prevent brain drain through a compensation mechanism; accumulate experience in transferring knowledge which holds an implementation/technological potential for the industry and in materializing its commercial value. On the other hand, the commercial body would want to secure direct access to scientific research and development; reduce independent R&D costs; and secure exclusivity in the technology and the market for the product/service resulting therefrom. All of these issues need to be legally arranged in order to provide an optimal outcome for each of the parties, and maximum benefit for all.

As aforesaid, practically all of the intellectual property created in academic institutions is basic science which enfolds great value for future technological developments, and enjoys the advantage of being free and clear of commercial considerations. However, for such science to become available and accessible, the intervention of a commercial body is needed, to hoist this science, invest in the continuation of its development and its conversion into a product which can be used in the public sphere. The intersection between academy and industry serves as a melting pot for the conversion of basic science into science which is available and accessible to the public, however, this intersection concurrently forms an arena for wrestling and conflicting interests, resulting from different, and even antipodal, positions. The licensing agreement should be a measure of mediation between these antipodes, and a golden path wherein both academy and industry can cooperate and benefit.

This article does not constitute any legal opinion, but is rather an expression of opinion by the author thereof. It is recommended to seek appropriate and individual legal advice for each and every instance.

The author is a partner of "Hamburger, Evron & Co" Law Offices, Head of the Technology and Cyber Security departments.