Monday, December 24, 2012

The development and commercialization plan requirement in a license agreement

Many technology-centric start-ups are based on the technologies generated from universities or from government funded projects (in places such as national labs, projects in non-profit institutes, or even small companies).   As an entrepreneur, if you want to start a technology based company, one place to look for the opportunities is the technology portfolios managed by the technology transfer offices in universities and government agencies.  For example, the Department of Energy (DOE) is running a program, “America’s Next Top Energy Innovator,” which allows startup companies to license groundbreaking technologies developed by DOE’s 17 national laboratories for $1,000 and build successful businesses.  See, http://energy.gov/articles/secretary-chu-announces-second-round-america-s-next-top-energy-innovator-one-year 

Negotiating a licensing agreement from a university or a national lab can be tricky.  The top commercialization priority for universities and the government is to make its research and knowledge available for the benefit of the general public.  This is contrary to the commercialization priorities of other IP holders, which often prioritize financial benefit and competitive advantage over the benefit to the general public.  Therefore, in a license agreement, a university or the government often requires a “development and commercialization plan.”  The key motivation behind such requirement is to ensure that the technology will not be shelved by the licensee of the technology. 

The development and commercialization plan varies greatly from deal to deal.  Sometimes, a general plan to develop and commercialize the technology is enough.  The plan may be part of the business plan on developing the technology based product or service.  Sometimes, the plan may call for a detailed schedule with built-in performance milestone.  For example, a development and commercialization schedule for a pharmaceutical compound may include the following milestones.  The milestones are often pegged with a timeline.  The achievement of each milestone may trigger a payment to the university or government licensor. 

·        Identification of lead compound(s)

·        Completion of preclinical investigation of the lead compound

·        Filing of Investigational New Drug (IND) Application with the FDA

·        Completion of Phase I clinical trials

·        Completion of Phase II clinical trials

·        Completion of Phase III clinical trials

·        Filing of New Drug Application (NDA)

·        FDA’s approval of the New Drug Application (NDA)

A development and commercialization plan should incorporate relatively “firm” milestones.  Ambiguous milestones can cause future disagreement over whether a milestone performance is satisfactory and therefore triggers a payment to the licensor.  Usually, commencement of a next phase milestone should be deemed as the “satisfactory completion” of a previous milestone and such definition should be included in the license agreement.   

Failure to “hit” the milestones (nonperformance) usually triggers some kind of “penalty.”  The severity of the penalty can vary from loss of an option, loss of exclusivity, to termination of the license.   Because of the unpredictability of the technology development, sever penalty such as termination of the license is usually tied with the right to cure including a grace period to cure the non-performance.

In general, if you are interested in obtaining a technology from a university or the government, be aware of the development and commercialization requirement.  Before the negotiation, think through how you would use the technology, how you would incorporate the technology into a product or service, and what it would take to bring the lab-based technology into the commercial product/service your envisioned.  You may want to start with a business plan.  Then, you may be able to distill your business plan into a development and commercialization plan for the license agreement.  In addition, be creative with the rewards or penalties triggered by performance milestones to minimize severity of a penalty. 

Thanks for reading.

Connie



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