Academic institutions are taking new approaches to transferring intellectual property rights of university research in a bid to help spinouts attract investors.
At the Technical University of Darmstadt in Germany members of the technology transfer office did research on why the country lags behind on the successful commercialisation and scaling of startups.
It asked founders and investors what barriers were preventing the country’s world-class university research from being turned into commercialised companies. A big issue that came up was the difficulty in transferring intellectual property (IP) rights from the university to the founders of the spinouts.
“It was assessed as slow, as non-transparent, as unfair. It does not meet the requirements of the startups and investors,” says Harald Holzer, head of HIGHEST, the innovation and startup centre at the Technical University of Darmstadt.
Two years ago, the university changed its process for transferring IP rights to spinouts emerging from its university research. Previously, founders had to buy the IP from the university, a common step that spinouts need to take as investors will not invest in companies whose IP is owned by the university.
But this was a barrier for founders who often don’t have the money to pay the university. The Technical University of Darmstadt decided to give founders the option of exchanging IP for virtual or real shares in their company in the case of an exit.
So far, four of its spinouts have contracts with the new ‘IP for Shares’ model. The companies are Focused Energy, a laser fusion power startup; Illutherm, an energy efficient technology for firing ceramics; InnoShifting, an inventor of next generation electric multispeed transmissions; and Cerasleeve, a developer of fully recyclable wet-strength and water repellent paper.
The new IP model is more in keeping with the university’s aim of making companies successful, says Holzer. “We feel now that we are sitting in the same boat: We will be part of your success. We don’t want an upfront payment or want to have a lot of money from you – only if you’re successful, and then it’s fair.”
The Technical University of Darmstadt’s move towards more investor-friendly spinout terms is part of a broader movement across universities in Europe and elsewhere to ease the journey of commercialisation of their spinouts. But there is still a lack of standardisation for contract terms that hampers companies from attracting venture capital.
Gregor Haidl, principal at High-Tech Gründerfonds, a German public-private venture capital fund that has corporate limited partners, says it can take several months or even a year to get spinout terms sorted at certain universities.
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“The difficulties that arise are in my opinion not necessarily university but also case specific,” says Haidl. “As soon as a chair/professor/university sees very attractive commercialisation potential and/or the past investments in the technology were very high, the negotiations can get tougher and slower.”
Haidl welcomes new contract models, which he views as “a step in the right direction to standardise and facilitate IP transfer.”
Holzer is part of a working group of other German universities and SPRIN-D, Germany’s Federal Agency for Disruptive Innovation, to set up a standard contract for transferring IP rights.
“If we have these standards, we are much faster. We are transparent and fair. We started two years ago with our model, and now we are reaching the next level with other companies and the agency to have a standard in the German market,” says Holzer.
The Office for Research and Innovation at the Technical University of Munich is another academic institution that has sought to fast track the IP negotiation process. Its new model aims to have a contract for the transfer of IP completed within 12 weeks.
Around half of universities in Germany support the move towards standardising IP terms, says Holzer. But the more conservative universities are hesitant to adopt new models.
A lack of standardisation for IP transfer also exists in the UK where each university has its own approach. David Varney, partner at law firm Burges Salmon, says IP ownership is “always a key area of concern for any investors.”
Another key document that spinouts should have is evidence that IP ownership is transferred from the founder to the company. These so-called founder invention assignment agreements are legal documents that stipulate the transfer of IP rights from the creator of the technology to the company. Founders often forget about this document until investors require that they have one, says Varney.
“That’s a key point: making sure that the company actually owns the IP, making sure they haven’t given it away, as well as the issues around the university owning or having some interest in their IP.”
It is often the case that the commercial terms set by universities are too restrictive, he says. For example, some universities take an interest or a percentage of the commercialisation of the IP, which can reduce the value of the company.
A more standard approach by universities towards IP rights would be useful, says Varney. He adds founders should keep an up-to-date IP register that shows who owns what and what rights have been granted to the university if the technology is commercialised.
