University startups & IP
⚡TL;DR
- IP created while working at university (as a PhD or Post-Doc researcher) is usually owned by the university.
- To use in a spin-off company, you must be granted a license by the university.
- These licenses are granted by the tech transfer office of each relevant university.
- Universities usually negotiate to be paid royalties on future sales and be granted equity in the spin-off.
The ownership of technology created at a university depends on multiple parameters:
- What is the role of the creator? Whether the creator is a student, a PhD researcher, or a professor changes the applicable rules.
- Where is the university located? While all systems are rather similar, different legal frameworks apply. Universities apply their respective cantonal laws, and the ETHZ/EPFL apply a federal law only applicable to these two schools. The location of the university is also relevant to determining with which entity the founders will have to negotiate the license (see below).
- Was the technology created while working on a university project or not? Timing is important to determine which rules apply.
Generally speaking:
- Any IP created by a person employed by the university (typically a PhD or Post Doc researcher) is owned by the university.
- Any IP created by a student is generally owned by the student. However, please note that it is always worth to check the applicable cantonal university law.
- If the IP is developed while carrying out a project within a company, the ownership depends on the agreement signed between the student, the company, and the university.
- It is not uncommon that the IP was created with a contribution from a professor during, e.g., a master's thesis. In that context, the IP is owned by the student and the professor.
Best practices
License: It is assessed whether a license on the IP must obtained from the university, and the license is obtained if necessary.
Scope: The scope of the license is carefully examined in light of the company's business model (e.g., the possibility to sub-license is granted.
In order to be able to use the IP developed at university in a subsequent startup, you must, as a founder, negotiate an IP licensing agreement with the technology transfer office of your research institute.
This licensing agreement, which is also referred to as a tech transfer, grants companies the right to exploit and commercialize the IP rights owned by the university as they were developed by the founders during their employment with the university.
In exchange for the license, the company will have to pay the university some royalties and might also grant the university some equity in the company.
Royalties are paid on each sale made by your company incorporating the licensed IP. The amount varies based on the sector, the product margins, the maturity of the technology, and the expected time-to-market.
- Generally, the royalties are rather low when the expected product margins are small; the idea is to give the company sufficient resources to keep growing, or when the product is not mature yet and requires significant investment and time to be marketable.
- In the software sector, the range is very wide. For example, EPPL guidelines mention a range between 1% and 25%. In comparison, it's usually between 1% and 5% in other sectors. This is related to the high-scaling opportunity of software.
Equity is usually organized as options for the university to be freely granted company shares before an exit or an IPO. Usually, the university simply wants a financial return and does not take an active shareholder role.
LEXR Tips
Decide whether you would rather grant equity or agree to higher royalties. Both options can be good for founders, and each option can be used against the other one in the negotiation.
When granting equity, negotiate whether the university can or cannot be diluted when future investors enter the cap table.
Do not focus only on the financial aspects, and examine other terms carefully. One key aspect is the possibility for you to sub-license the licensed IP. The possibility to sub-license may be linked to additional royalties or only possible after a given timeframe.
The license is usually granted once the spin-off is incorporated. However, it is important to start negotiating before the incorporation.
Tech transfer process | Related contractual documents | Timing |
|---|---|---|
Preparatory phase | NDA | When you consider creating a spin-off |
Negotiation phase | Term sheet | From the moment you decided to create a spin-off |
Valuation phase | Licensing agreement | After the incorporation |
The purpose of the term sheet is to agree on the main terms of the future licensing agreement. Usually, a term sheet is non-binding but is simply a way to lay out the terms and negotiate with a common understanding.
Once the licensing agreement is signed, always keep its terms in mind when doing business. You might notably not be able to sub-license the licensed IP.
If you don't use the licensed technology, consider terminating the agreement or finding alternative solutions.
LEXR Tips
During the preparatory phase, get ready. Check out if your university has guidelines. These guidelines can indicate what type of deal the university will try to get. For context, you can find the EPFL guidelines here.
During the negotiation phase:
Get support: Reach out to other founders from the same university, potential investors, and legal experts. Book a free call here to discuss.
Know the market: Make a market analysis and know product margins etc.
Know your business plan: Have a business plan with revenue, cost productions, etc.
During the valuation phase, let the technology speak. Explain how it will be used, the business case, what margins are realistic, etc.
Always keep in mind that you can terminate the licensing agreement (and therefore free yourself of the royalties) if you don't use the technology anymore.
Research institutions usually have their own tech transfer office. These offices can provide guidance and support throughout the process. Additionally, some guidelines may be available.
Book a free call with us to understand how we can help you prepare for this process with our tailored workshop based on your term sheet and how we can assist you during the negotiations.