The University as a Venture Investor

• Author: Elizabeth Rodriguez - Sean Solberg
• Pages: 249-265

Christopher F. Wright and Louis P. Berneman1

With the Bayh-Dole Act

2

over 30 years old, cash-licensing practices by universities

3

are now

well established. Although new issues and trends do arise in cash licensing—for example,

the MedImmune, Inc. v. Genentech, Inc.4 case and express licensing5—the innovations in

cash-licensing practices are only incremental at this stage. While equity licensing—when

an equity interest in the licensee is granted to the licensor as partial or complete consid-

eration for the license of intellectual property—has now also been around for many years,

1. Christopher F. Wright is a shareholder of McCausland Keen & Buckman in Radnor, Pennsylvania, and a

member of the law rm’s corporate department. Louis P. Berneman is a founding partner of Osage University

Partners, a specialty venture fund that invests in university startups; an advisor to HealthCare Royalty Partners, a

private equity fund investing in healthcare products; and the managing director of Texelerate, LLC, a technology

transfer consultancy. This chapter reects the personal views and thoughts of Wright and Berneman and is not

to be construed as representing in any way the views or advice of their clients or any other party. The content

is solely for purposes of discussion and illustration and is not to be considered legal advice. Special thanks to

Michael B. Lutz, associate at McCausland Keen & Buckman, for his research assistance; to Christine A. Reuther,

partner at McCausland Keen & Buckman, for her tax insights; and to Kathleen A. Denis, Associate Vice Presi-

dent of the Rockefeller University and our collaborator on so many advanced equity sessions at Association of

University Technology Managers annual meetings, where much of the content for this chapter was developed.

2. Bayh-Dole Act of 1980, Pub. L. No. 96-517 (Dec. 12, 1980) (codied at 35 U.S.C. §§ 200-212).

3. Throughout this chapter, the term “universities” is intended to be used in its broadest sense to include

degree-granting academic institutions, not-for-prot research organizations, teaching hospitals, federal labo-

ratories, and the like.

4. See MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 777 (2007); see also Bryan C. Diner & Ali I. Ahmed,

In the Aftermath of MedImmune v. Genentech, Is It All Doom and Gloom for Licensors or Are There Rays of

Hope in the Future?, BNA I’ P  B A (Apr. 2007); Ronald A. Bleeker & Michael V.

O’Shaughnessy, One Year After MedImmune—The Impact on Patent Licensing & Negotiation, 17 F. C.

B.J.  (Oct. 2008).

5. For trends on express licensing agreements, see Ready-to-Sign Licensing Boosts Deal Flow, Saves Time, and

Gets Dormant IP off the Shelf, 7 T. T T 129, 132 (2013).

249

Chapter 13

The University as a Venture Investor

Models and Challenges for Equity Licensing,

Direct Investment, and Partnering Methods

the focus by universities on licensing to start-ups has only become pervasive recently, with

start-up volume doubling in the last ten years.6

Equity licensing practice for universities continues to evolve, in part because equity

license deals are inherently more complex than cash licenses, but also because many insti-

tutions are less experienced in structuring, negotiating, and monitoring equity license

transactions. Moreover, new models for equity participation by universities are emerging

that do not involve any transfer of intellectual property as consideration for the issuance

of equity. One such model is direct cash investing in early-stage licensees by either the uni-

versity or a specially created af liate entity. Often this direct investment is either coupled

6. In  scal years 2011 and 2012, universities took back equity in 655 of the 1,358 startups initiated by univer-

sities in the United States. Licensing Surveys Fiscal Years 1994 through 2012, Ass’n of Tech. Mgrs., http:// www

.autm .net /AM /Template .cfm ?Section=Licensing _Surveys _AUTM &Template= /TaggedPage /TaggedPageDisplay

.cfm &TPLID=6 &ContentID=2409. For a discussion of university participation in equity licensing, see Equity

and the Technology Transfer Strategies of American Research Universities, M. S. (Jan. 2002), http:// www

.cs .jhu .edu /~mfeldman /abb637f360 _article .pdf; Martin Lehr, University Equity Structures in Start-ups, O

U. P B (Jan. 30, 2012), http:// www .blogoup .com /blog /2012 /1 /30 / university-equity-structures-

in-start-ups.html; and Herve Lebret, How Much Equity Universities Take in Start-ups from IP Licensing?,

S- (Nov. 5, 2013), http:// www .startup-book .com /2013 /11 /05 /how-much-equity-universities-take-in-sta

rt-ups-from-ip-licensing /. See also 35 U.S.C. § 202 (Bayh-Dole Act requirements regarding preference for licens-

ing early-stage companies).

CHRISTOPHER F. WRIGHT AND LOUIS P. BERNEMAN 250

FIGURE 13-1