A number of general principles are followed by academic institutions when licensing technology to a third party:
- Universities are nonprofit institutions whose mission is to serve the public, educate, and conduct research. It is important to acknowledge the foremost objective for an institution in licensing negotiation is to ensure the university's technology reaches the marketplace in a timely manner for the benefit of the public. Achieving a fair return on the university's investment is also an important objective.
- Universities own their technology. The Bayh-Dole Act of 1980 provide universities with the right to maintain ownership of inventions made by their employees using federal funds. The vast majority of US universities also have policies providing for ownership of all inventions made by their employees except for a historical exclusion of scholarly works of authorship, such as text books. Generally universities will maintain ownership of technology and provide license rights while controlling the protection and maintenance of patents or copyrights. This strategy ensures that the university maintains ownership of the technology should the license be terminated.
- Reimbursement of patent costs. While universities are often willing to take the upfront financial risk to obtain patent or copyright protection for their technology, financial risk will be taken from the university once a third party elects to commercialize the technology.
- Obligations to the government. Government funding carries a number of obligations that must be met by the university. First, the university must report to the government all inventions, patent applications, and licenses of federally funded technologies. Patent applications and subsequent issued patents must recognize the government funding in writing. Additionally, the university must give the federal government a royalty-free non-exclusive license to federally funded technologies. This government license will be referred to in the license agreement.
- Diligence. Universities have a duty to ensure technologies reach the public. As such, the university requires that licensees provide a commercial development plan and meet specific diligence milestones. (milestones may include development of a first prototype, first commercial sale, financing, etc.).
- Fair Return. A license agreement should provide for a fair return to the university if the product is successful in the marketplace. When the technology is licensed to a start-up company, most universities are willing to participate in the early risk by taking equity to reduce early cash payments. However, once the licensee is obtaining revenues on the product, the university will expect a portion of these revenues. Typically, revenues back to the university are provided as royalties on sales and the negotiated percentage based on a number of factors, including: relative profit margin, investment, competing technologies, strength of patent and copyright protection, and type of license rights.
- Product liability, insurance, indemnification, and warranties. The licensee will indemnify the university, its employees, regents, trustees, etc. against all claims, proceedings, demands and liabilities of any kind whatsoever. Universities will also require that the licensee obtain appropriate amounts of product liability insurance prior to commercial sale or use of a product. The university will not make any warranties as to the fitness, merchantability, validity of patent rights, etc. The licensee assumes all risk associated with the licensed technology.