The University as a Venture Investor

AuthorElizabeth Rodriguez - Sean Solberg
Christopher F. Wright and Louis P. Berneman1
With the Bayh-Dole Act
over 30 years old, cash-licensing practices by universities
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).
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).

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