Challenges and Opportunities for Innovation in the Public Works ...

2. Licensing of Discoveries Through an Outside Entity.
While direct licensing is an attractive approach, it requires a commitment of
significant resources, not only in terms of the negotiation of the licenses but also in the
screening of discoveries, the identification of potential licensees and the supervision of the
royalty process. To avoid this burden, a number of organizations have turned to the use
of an outside licensing entity. Such an organization is typically granted a right of first
refusal, allowing it to examine each discovery and to seek to license those in which it has
determined there exists a commercial opportunity. The outside entity identifies potential
licensees and attempts to negotiate a license. If a license is issued, the outside entity and
the institution share in the royalties, and the outside entity is typically responsible for
oversight of the royalty process.
This approach has the following attributes:
Value for capital formation: Low.
Commercialization flexibility: Low.
Benefit to the institution: Varies, but lower than direct license, since the licensing
firm must share in revenues.
Benefit to the investigator: Varies from very low to moderate, but tends to be lower
than direct license for the same reason.
Administrative burden: Low.
Institutional risk control: High.
Institutional exposure to fiduciary liability: Low.
Institutional exposure to product liability: Moderate.
3. Licensing Through a Related Entity.
To overcome the disadvantages of a direct licensing program while not surrendering
control to an outside entity, a growing number of agencies and institutions have
established various forms of related entities, most commonly a tax-exempt university
foundation, that carries out the licensing function for the institution in the same manner
as an unrelated third party.
In some cases, the related entity is assigned the rights to all or specified
discoveries, either, in the case of some public institutions, through a statutory enactment,
or by contractual agreement between the organization and the related entity. In other
situations, the related entity either has a right of first refusal to all discoveries or may
request transfer of a specific discovery. In the latter case, the agency or institution or the
184