5 reasons companies are sometimes wary of partnering with universities

Perhaps universities can help bridge the divide by implementing tools commonly utilized in private sector
K. Lance Anderson
K. Lance Anderson

Universities have a lot going on. Not only are they conducting research that is for the betterment of humankind, there are market forces at work that—over the past 30 years—have created great opportunities for collaborations with private sector. However, universities have collectively benchmarked themselves into a potential negative force in the eyes of the for-profit enterprise.

This unfortunate development is not intentional—it is certainly borne from a need to protect the integrity and purity of the institution’s mission. However, the protections have (d)evolved into a disclosure issue in private sector deals and M&A, often resulting in a red flag. Issues range from out-of-market protections (or lack thereof) and rights-taking positions while uncertainty exists with regard to accountability—including whether a university can even be brought into court.

Below are five reasons many companies can be wary of university deals.

1. Reliance on license models.

License agreements are often deemed a last resort by private sector, while they are considered the best practice for universities. Often the university’s insistence on ownership of any intellectual contribution, with an option to license, gets away from more traditional contributions of rights based on the joint venture models and the like. Further, universities tend to focus on exclusive rights with royalty, audit and performance requirements, rather than simply providing fully paid, non-exclusive rights. These features equate to risk of losing rights.

2. Reserved rights—noncommercial uses

What may seem a harmless right to reserve the right to intellectual property for non-commercial, research purposes is actually a huge concern for companies, particularly when the university is known for a particular expertise. Often the risk cannot be tracked, and universities will rarely agree to any notice requirements. The result is that these noncommercial research efforts can result in developments or publications that are directly related to the private sector efforts or made in collaboration with competitive interests.

3. Due diligence requirements

Borne from the Bayh-Dole Act, requirements for due diligence create pitfalls for maintaining rights. Sure, it reasons that public policy warrants actually using the innovation, but things change. If a licensee of rights risks losing those rights for missing a deadline, these become disclosure issues in numerous situations. The risk is sometimes not worth the reward, so care should be taken in structuring these, such as to allow for a payment to supplant a default.

4. Assignment obligations/improvements

In a world designed to have ownership go with the commissioning party, the obligation that universities must always own their inventions and related improvements carries controversy. Some universities are promoting simple intellectual property arrangements (giving up ownership) for non-federally funded research to help counter this trend. But the word is out, and from the very start of a collaboration, this ownership issue has a way of hindering things.

5. Uncertain enforcement rights

The final issue may prove the most problematic. Case law has emerged that allows universities to own and license intellectual property, but if the rights are not clearly spelled out, there may be an inability to joint that university into an enforcement proceeding if it doesn’t want to be brought in.

This is playing out in the courts—see Gensetix, Inc. v. Bd. of Regents of Univ. of Texas Sys., 966 F.3d 1316 (Fed. Cir. 2020)—but it creates nuanced negotiations in order to avoid the pitfalls. Private enterprise bristles at the potential loss of control here, and the motivations of the licensor and licensee in these situations can be extremely disjointed.

Ultimately, private sector businesses have accountability to stakeholders, and these include disclosures and prudent management of risk. Without the ability to have representations, warranties, and guarantees of certain intellectual property rights and the right to have absolute control of their disposition and use, these risks can become too great for many situations, including a future exit.

Perhaps universities can help bridge the divide by implementing tools commonly utilized in private sector— stakeholder protections, joint venture models, IP holding companies, and the like, in order to fit the part.

K. Lance Anderson is a registered patent attorney at Dickinson Wright PLLC, in Austin, Texas, focusing on complex intellectual property and technology transactions. He was previously the director of the Texas Tech University System’s technology transfer office.

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