Licensing
at Rice University

A license is a permission granted by the owner of intellectual property that allows another party to act under all or some of the owner’s rights, usually under a written license agreement.A license agreement is a written contract that describes the rights and responsibilities related to the use and exploitation of intellectual property. Rice’s main goals in any license agreement are to ensure that the technology will be developed by the licensee for public benefit, complying with federal and Rice policies, and, if successful, provide a reasonable financial return to Rice and the inventors of the technology.

The OTT at Rice markets the invention to potential licensees by utilizing marketing materials created using any publicly available information about the technology. When any interest is received from a potential licensee, the inventor is the best person to describe the details of the invention and its technical advantages. The OTT assists in this process by putting in place non-disclosure agreements and mediating discussions between the inventors and potentials licensees. All licensing negotiations are handled directly between the OTT and a non-inventor representative of the company in order to avoid potential conflicts of interest.

A licensee is chosen based on its ability to commercialize the technology for the benefit of the general public. Licensees range from established businesses with experience in similar technologies to startup companies focused on, and built around a single technology.

An option agreement is sometimes used to enable a third party to evaluate the technology and its market potential for a limited time before licensing. An option agreement provides companies with a non-commercial, internal-use license for a fee. The option holder is responsible for payment of ongoing patent costs during the option period.

The standard license agreement typically consists of negotiated financial terms such as annual fees, milestone fees, a royalty on product sales, and reimbursement of patent costs. A minority share of equity is also included if the licensee is a startup.

The license agreement also includes certain non-financial terms such as degree of exclusivity, reservation of rights for the Federal government, for Rice and for other organizations for research and educational activities and diligence requirements for assurance that the company has resources to develop the technology and is committed to doing so.

Upfront fee: An upfront fee is included in most licenses. The fee is included as partial compensation for the value of the intellectual property being licensed and for the benefits that the licensee receives when seeking resources to develop the technology through its association with the university.

Milestone fees: These payments are a mechanism to make multiple, lower payments as the technology is de-risked as opposed to a large upfront payment. Milestone payments can also be used to decrease risk to the company by allowing payments for the innovation to be spread over time and to be made only as the innovation proves to be valuable, rather than paying for the technology in the upfront fee. It is a popular mechanism for sharing value when technologies are early stage and still carry significant risk.

Maintenance fees: Maintenance fees often occur prior to first sale of a product, and are designed to ensure that the company continues to develop a product based on the licensed technology. The license includes diligence milestone dates that are generally several years apart, and maintenance fees encourage companies to actively consider their plans in the interim as the fee becomes due

Royalties: When a product is developed based on technology licensed from Rice, the company generally pays a percentage of each sale, or a dollar amount for each sale, to the university as part of the payments under the license. Royalties are the most common mechanism to share success between a licensee and licensor. Royalties are the most effective way to reach a fair balance of value to each of the licensor and licensee given the early stage of university innovations when licensed.

Sublicensing Consideration: Sublicensing consideration is the revenue received by the licensee from licensing the Rice’s intellectual property to another party to develop, rather than developing, marketing, and selling a product themselves. The Sublicensing Consideration paid to the University is a percentage of the total non-royalty income received by the company in return for the sublicense of University intellectual property.

Startups from Rice benefit from its reputation, which adds value and credibility to the new company. In addition to the direct financial costs associated with patent prosecution, Rice’s researchers from its reputation, broad research base, faculty and graduate students while developing their innovative technologies. It is difficult to predict how a startup will achieve its success, and equity preserves Rice’s potential benefit as the startup grows.

Licenses typically include performance milestones that, if unmet, result in termination of the license. This allows for subsequent licensing to another entity.