Last month saw the publication of WIPO’s new bi-annual IP report, entitled “The Direction of Innovation”. The report is packed with insights, bringing a combination of powerful observations that really hit home backed by data-driven analysis that look deeply into how and why innovation flows.

A key perspective of the report points to the split of economic benefits which go to society (social benefit) vs. returns to private sector investment (private benefit). Spoiler warning: a clear example is the lightning-paced work occurring from the time Chinese scientists sequenced and released the mapping of the SARS-CoV-2 virus in January 2020, to Covid-19 public vaccinations – barely a year later. While many may point to big pharma’s eye-popping profits, the WIPO report shows that the quantifiable portion of the economic benefits to society are roughly 900x those of the revenue earned by the private sector!

The best laid plans… how global crises affect innovation ecosystem participants

On 7 April 2022, WIPO’s IP and Innovation Ecosystems Sector (IES), hosted a short conference to present summary findings of the report, accompanied by a lively panel discussion. Marco Alemán, head of WIPO’s IES, introduced the key concept of how dependent major innovation outcomes are on the influence of each participant in the ecosystem: nations, institutional scientific and engineering research, and private sector investment. However, major events beyond the control of public policy makers shape outcomes, usually via crises, such as war, pandemic and natural disaster. Those crises have enormous impact on research and innovation outcomes. Look at how penicillin development rose in direct response to battlefield infections.

Reflecting academia, industry & government, panel’s views on setting of the direction of innovation

In introductory remarks and presentation of the panelists, Dr. Carsten Fink, head of the IES Department of Economics and Data Analysis, provided illustrations of the change in pace and focus of innovation since the industrial age. As society made its lunge forward in technology in the 20^th century, it did so in recognizable big waves, i.e., engine/transport > pharma > ICT > digitalization, today.

And some funny things happened on the way to the IP forum. A most recent example is digital-related innovation: it has grown 172% faster than all patents over preceding five years.

Lively panel discussion

Introducing themselves and their work, each panelist drove home the reality of innovation acceleration. The panelists included Victor Aguilar, Procter & Gamble’s Chief R&D and Innovation Officer, Dr. Xiaolan Fu, Professor and Founding Director of Oxford University’s Technology & Management Centre for Development, David Kappos, Partner at Cravath, Swaine & Moore, and former Director of the USPTO, and Caroline Ylitalo, Division Scientist at 3M. Here a few items that resonated with me:

Views from academia, industry and public sector

• Dr. Fu highlighted the case of under-the-radar innovation taking place in developing economies, and how digitalization is changing adoption patterns into and out of LDCs. But it’s not only permeability and diffusion that are changing, it’s also about the impact on labor and the growth in services from disembodying know-how and delivering expertise digitally.
• From the corporate side, 3M’s Caroline Ylitalo spoke of major challenges and trends we face as society. She highlighted the impact of crisis and the opportunities they may arise from it, shown in the surge in demand for N95 masks, and visible also in the utility gains from the digital world’s access to masses of technical information, along with the advent of ideation tools and collaboration platforms.
• P&G’s Victor Aguilar drove home the point of digitalization’s impact for P&G’s goal of improving life, ranging from AI’s contribution to retailing optimization, to its role in designing smart toothbrushes, and to the increasing importance of identifying relevant innovation arising outside P&G.
• Cravath’s David Kappos highlighted how dependent the realization of huge economic output and the delivery of the benefit to society are on making sure ecosystems’ participants do what they do best (per their respective missions)
  • Private sector develops suitable commercially defensible applications,
  • Inventors and their institutions need access to the tools – including collaborative networks – to help convert their innovative insights into invention disclosure and products
  • Governments alone needs to provide money and structure of well-reasoned incentives to grow and make accessible the bounty of fundamental research;the private sector’s need to provide returns to owners makes investment in basic research prohibitive.

Public and private motivations: even if not aligned, good neighbors enable a productive existence

The role of government policy and its ability to create a fertile bed of fundamental research is a topic receiving significant attention. And well it should. Thoughtful and economically supportive public policy for fundamental research can produce huge big social benefits. Once they’re convinced of the business potential prospects, the private sector gets busy converting discoveries from a trove of basic research into commercialized inventions. That’s not all, as “de-risked” innovations come into focus, industry dramatically increases its share of development expense.

Beginning in the 1950s, the space race led to the creation of NASA in the US and its enormous role in driving aerospace research and creating in the process a rich network of public-private collaboration. Sponsored research was involved of course, but government purchases of innovation-based products from the private sector – there was no other buyer – were also a critical factor in clearing a path to commercialization of those space-age inventions.

Enormous productivity flowed from that inventive output which created social benefits many times those of the gains for the private sector in a broad array of fields, such as energy storage, photovoltaics and nuclear energy.

The grand challenges facing us and the need to pay attention to the direction of innovation

As the world faces climate change, ongoing food insecurity, the need for higher levels of education and the preservation of privacy rights, to name some big ones, government can play an important role. While the public sector can’t do a great job of predicting private sector winners, it can do things to even out the playing field through incentives, such as by purchasing from innovative smaller firms willing to take the risk of developing emerging technology.

There is so much inside this report, I am moved to invoke lyrics from OMC’s 1995 hit single, How Bizarre, but with a twist: you don’t need to “buy the rights”, WIPO grants you a free readership license, so download their great Intellectual Property Report 2022: The Direction of Innovation – and enjoy its valuable insights.

BTW, keep an eye out for a future SeedSprint blogpost where we’ll get more into the weeds on a topic WIPO cares a lot about: increasing the efficiency of the critical interplay between innovation-seeking large enterprise on one side, and technology providers on the other, i.e., institutional intermediaries such as TTOs, along with risk-taking micro and SMEs (MSMEs) in the private sector.

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1. Is the technology a fit for my organization?

Finding the answer to this question is complicated and time-consuming, due to the technical complexity of most technologies. Tech scouts have to work through multiple scientific and engineering claims while working with the researcher to determine know-how requirements and more. Its not uncommon for a scout to put a lot of time into something that looks like a fit, later to find out it isn’t.

Bear in mind that while many scouts think they want the path with the fastest green light, an early red light is just as valuable, and can help them avoid misspent time and money. Alertness for “false fits” is critical to scouting efficiency – being able to say confidently, “Nope, despite the theoretical fit, it’s not for us.”

What are the key questions a tech scout must determine for fit?

• Is the research ongoing? This is a big deal for effective transfer.  The patent’s author brings critical know-how to the partnership, which is helpful for everything from getting the project off the ground to optimizing it at later stages. 
• What are the next steps of this research? Is there a meaningful summary that can be provided to me?
• Has the researcher clearly summarized what they want from the partnership? This can be difficult for a few reasons—focus, disclosure sensitivity, timing, prior practice, and so forth.
• Does this university display venture creation?

Unless non-market-based incentives distort startup formation, activity in creating spinouts and in licensing to startups are clear and positive signs that other research is likely to have not just academic significance, but commercial potential.

2. Are startups riskier as licensees?

The issue for the tech scout is – are the people with the technical insights putting their time and money into work with commercial goals? Looking at a patent description is helpful, but startups connect the dots: here’s a technology that a smart team is actively trying to commercialize.

Tech scouts view it as a great sign when the researcher is motivated by market-based solutions, not just by peer recognition of scientific leadership. So, even with a flawed process – industry insights can bring a lot.

Remember, investigators hitched to a startup aren’t just making a theoretical connection between research and marketplace: they’re betting on it. As a tech scout, I’m far more interested in getting to know a new institution with vigorous startup-stage licensing/new ventures because it shows that they have investigators interested in real products for the market.

3. License, acquire, or something else?

This question provides varied answers and they typically don’t show until you get into the deal. For example, we can really like the research, but aren’t satisfied with published IP – say, because the patent wasn’t written to protect what we needed – this happens a lot. Even with smart and successful TTOs guiding the process, patent applications can easily get written “academically” and not meet industrial licensee needs.

Do you want to take the first step and show corporate technology scouts that your research is ready?

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1. Patents… for Dummies

Have you ever seen the …for Dummies books? They do a great job of taking subjects that have the potential to be difficult to understand [like technology, sports, finance, politics, etc] and writing them in such a way that is easy to understand regardless of prior knowledge.  The “For Dummies” books are a great model for how you should think about writing your patent description; you must assume that whoever is reading it does not have any previous knowledge or background and therefore it is critical to write your description so that the reader can follow regardless. This also affords you the opportunity to tell a story and set the stage for what is to follow, potentially strengthening your patent application. Take this tactic when it comes to describing the patent in its entirety: the structure, how it is connected, how different components interact, and what materials you are using, etc.

2. Describe every version of your emerging technology.

It is often very easy for inventors to describe the best outcome of their technology; after all, they are often solving a problem.  The ability to describe this is called the “preferred outcome.” However, what really hurts an invention is the failure to outline the “alternative embodiments of the invention” or, in non-legal terms, the manner in which an invention can be made, used, practiced or expressed. This means that there could be less significant outcomes of an invention such as lower quality, performance, the same outcome with lesser components, the list goes on.  In short, to protect yourself and reduce the likelihood of someone else being able to patent a similar technology to yours, you must not patent narrowly. Put on your wide-screen lens and describe the alternatives.

3. A picture is worth 1,000 words.

For example, if your patent includes any terms that could be deemed industry-specific or ambiguous – consider leveraging an illustration to clarify your point. For your actual invention, make sure to include multiple illustrations that show the invention, the individual parts, and the structure. The more you can detail the better for the reader. Between illustrations and written descriptions, there should not be any ambiguity to what you are proposing.

Aside from patenting, it is important to always be protecting your IP. Should you decide to enter any conversations that contain sensitive information, protect yourself with an NDA. Click below for a free sample NDA.

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To understand patent best practices for startups in the United States under AIA, it’s important to understand the concepts of ‘first to invent’ versus ‘first to file.’

‘First to file’

In the past, when a US-based innovator applied for a patent, he or she had to prove they were the first to invent. The AIA changed this. The new ‘first to file’ system guarantees that the first person to file a patent is able stake a claim on the innovation – regardless of any evidence contesting that person’s leadership on the claimed invention.

Understandably, AIA made a splash in the university research and startup community. Under ‘first to file’, inventors worried they might lose control of their technology if they spoke in public about an invention before filing a patent. The risk increases with time, which is a problem if the inventor still needs to fundraise in order to finance the patent filing process.

Timing Patents for Startups and Inventors

The natural question that stems from this is, what are patent best practices for startups and inventors?

Experts were originally concerned about two potential impacts of ‘first to file’. One concern was that, due to AIA, inventors would wait a long time to file a patent, often, until after they had raised money from investors. This would open inventors up to risk as more and more people learned about their invention before they had gained exclusive rights to it.

Additionally, delays in filing would make it challenging for innovators to communicate with potential strategic partners about their new technologies, without fear of repercussions.

Is there an alternative to this heightened risk? There is: moving quickly.

According to Jonathan Withrow, a partner at intellectual property law firm Rankin, Hill & Clark, many innovators are more likely to rush to file patents than wait, as ‘first to file’ increases the pressure to file a patent application.

Yet rushing to file a patent can cause problems, too. It takes time for university researchers and startup founders to decide how to optimize the development and commercialization of new technology. If a patent is filed before a technology has found its proper market fit, this can lead to problems down the road.

With these two scenarios in mind, an inventor might ask: when is the right time to apply for a patent?

Patent Filing Best Practice for Startups: Don’t Delay

Despite the risks of poor market fit, there is consensus among intellectual property attorneys and startup advisors: it’s better to file for a patent sooner rather than later.

Investing in an attorney early on and being proactive about the process is better than risking your idea altogether. Experts encourage innovators to file for a patent even before the inventor has fully researched the future product’s market viability. Waiting too long is just too big a risk to take.

UC Berkeley intellectual property law professor Robert Barr cautions that filing a patent too soon can be a financial burden and an uncertain bet. Nonetheless, he encourages inventors to file early rather than risk losing the rights to their idea.

A recent study out of Harvard Business School paints an even starker picture. For each year that a startup delays in filing a patent, the study found that employment and sales growth falls by 21-28%.

With these findings in mind, inventors must consider the roadmap for technology transfer and commercialization before filing. However, they must also recognize that it is possible to lose out on opportunities by delaying a patent.

The Future of ‘First to File’

Given how common it is worldwide, it’s very likely that ‘first to file’ is here to stay. The world’s major economies had already adopted this system by the time AIA came into force in the United States.

Are you developing a technology that has commercial applications? Think the resources of an industry partner might help speed it up? The SeedSprint platform is a free, secure tool to help researchers, licensing professionals, and entrepreneurs bring their inventions to market through industry collaboration. Check us out and connect with a corporate partner today!

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A 2013 Brookings Institute study showed that most universities aren’t benefitting financially from their patents and licensing – and the situation hasn’t really improved today. According to Leopold Demiddeleer, our resident tech scout, many universities are not able to turn their research into significant sources of income through industrial licensing. He says that sometimes when his team found a technology interesting enough to warrant a deep-dive, “we’d really like the research, but weren’t satisfied with the published IP – say, because the patent wasn’t written to protect what we needed – it happens a lot. Even with a smart and successful TTO associate guiding the process, patent applications can easily get written ‘academically’ and not meet industrial licensee needs.”

Any corporation hoping to buy the license to an invention or discovery, whether held by a university spin-out or the university TTO, will need that invention to be properly patented and licensed. The 4 criteria for an invention to be patentable, is that is must be (1) comprised of patent-eligible subject matter; (2) useful; (3) novel; (4) non-obvious – but making a patent commercially viable goes beyond these basic criteria.

Many researchers, however, feel the pressure to publish quickly and often, with an emphasis on producing ideas rather than commercially viable products and services. But, for a patent to be viable, it needs to be developable and marketable. Researchers and university patent offices must balance a focus on commercial viability and market needs with an emphasis on an invention’s novelty to prevent others from working around the idea and competing with any company that chooses to use their work. 

So what does this mean in practical terms? It means that when you are filing your patent, you should articulate alternative inventions and features, figuring out how others might work around the patent, and patenting those inventions, too. The goal is to anticipate and protect anything a corporate partner might do with the discovery so that, when those businesses invest in you, you don’t immediately face competition. Remember, patents aren’t guarantees of the rights to use an invention, but instead, prevent others from doing so without permission. 

Writing patents with industrial licensing needs in mind can help you more effectively capitalize on your innovation, which can benefit you (the inventor), your company, and your university! Are you a scientist-entrepreneur who’s spun your research into a startup? Check out our previous post on what you need to know about licensing university patents as a startup!

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Fortunately, inventors and research institutions have technology transfer staff to help guide them.

Inventors at universities and other institutions need to know the basics about intellectual property management in order to work with technology transfer staff and protect their inventions.

The Basics: Intellectual Property and Research Institutions

1.  Invention disclosures

Research institutions encourage faculty and students to share new discoveries via an “invention disclosure” form. Researchers are asked to summarize the invention, and often to suggest potential commercial applications. In the United States, the norms for this process were established after the passage of the Bayh-Dole Act.

The process for submitting invention disclosures varies by institution. The document is held in confidence by the technology transfer professional who receives it.

Technology transfer staff use invention disclosures to assess whether the discovery had commercial potential, and to inform patent prosecution.

2. Patent prosecution

If an invention has market potential, the next step may be to begin pursuing a patent. A technology transfer office typically guides this process, which can be complex. A patent is a set of exclusive rights that patent owners are granted, based on the sharing of information about an invention.

Ownership of intellectual property varies case by case and depends on the employment status of the researcher, use of the institution’s resources in the research, prior agreements, the source of funding for the research, and other factors.

The technology’s licensee will often contribute monetary resources to help secure patents.

Interested in viewing large enterprise partners that are seeking patented technologies? Sign up for a free seedsprint account.

3. Copyright registration

Certain types of inventions, especially software, may be eligible for copyrights rather than patents. Books, video, and software code are all candidates for copyright protection.

4. Licensing

Technology developed at research institutions is usually transferred to a third party using a licensing agreement. The third party may be granted exclusive or non-exclusive rights to a technology. The most common licensees for university technologies are established companies or new startups.

Sometimes, researchers will make arrangements to leave their institutions or adjust their workload in order to become a founder of a new startup based on the technology they invented.

5. Commercialization

Commercialization is the journey that a technology takes from the lab (or garage) to the market. The process often involves assessing real-world applications, brainstorming products and potential paths to market, designing products, conducting pilots and tests, and securing sales and distribution channels. The licensee may wish to work with the inventor to assist with the commercialization process.

Interested in licensing technology or exploring market applications for your technology? Learn more about the free seedsprint community.

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• What commercialization strategies are available for my intellectual property?
• How do the IP strategies compare?
• Who is the most suitable partner for my innovation?

Today, they have allowed us to share their article [original post here] on how you can use financial models to inform your IP decisions:

The benefits of financial modelling for IP monetization

Financial modelling allows you to project and visualize potential returns you can generate from your intellectual property. Financial modelling lets you create a present-day assessment of the potential value of your intangible assets based on multiple IP monetization strategies. Model visualizations, such as the graph below, allow for an in-depth study of your year-to-year projected returns based on multiple scenarios. These graphs are supplemented by key model metrics which allow comparisons between different valuation models.

These outputs can be used for a variety of purposes including understanding the potential future value of your intangible assets and supporting strategic decisions concerning your IP, particularly if you are considering an IP asset transaction. However, the value of a financial model does not have to be constrained to a single valuation. It can be more powerful than that. A dynamic model can be used as a tool during licensing and/or sale negotiations. Having a financial modelling tool is highly desirable when exploring monetization strategies and understanding potential outcomes.

For example, in a licensing negotiation if you know the sensitivity of the royalty rate on your cash flow, the impact of milestones on your revenue, and when you can expect to pay back your investment, you will be in an advantageous position. You will have an idea of the preferred deal structure, have better-defined goals and know where concessions can be made and where you must hold your ground. Ultimately, this could lead to a better financial outcome for your company.

Employing financial modelling to guide intellectual property licensing and sales negotiations

(TAKE A LOOK AT THE ORIGINAL ARTICLE HERE FOR THE INTERACTIVE GRAPHIC – DIFFERENT POTENTIAL LICENSEES CAN BE TURNED ON OR OFF BY TICKING OR UNTICKING THE BOXES)

Above is a sample output from a ClearViewIP interactive licensing model. The plot shows the cumulative projected cash flow from a company’s IP. Most variables in the model are specified with a single number. However, a small number of variables, including the royalty rate, are modelled with high and low values to represent the best- and worst-case scenarios respectively. Modelling all scenarios results in upper and lower bounds for the projected revenue. This is illustrated as a shaded, bounded region in the chart. Provided a licensing agreement is signed, the potential revenue should lie in this region. The dashed line is the most likely ‘expected’ scenario. This chart is based on a model which is dynamic, as is the case for the models delivered by ClearViewIP. As such, different licensing partners can be turned on or off by ticking or unticking the boxes above in the graph. In doing so, you can see what effect negotiating licenses to licensees A, B and C has on the projected revenue.

Below the graph, a table with the cumulative cash flow and the risk-adjusted cash flow are shown. Each strategy has an accompanying risk associated with it. For instance, in this case it is perceived to be more likely that one or two licensees sign an agreement in comparison to all three licensees. For each case, the perceived risks translate into a success factor which suppresses the cash flow, giving the “risk-adjusted net cash flow” shown. This value is used as a comparator between licensing deals and between different strategies.

When would you use a financial model in your IP strategy?

There are a number of triggers to prompt a company to consider obtaining a valuation of their IP. The following scenarios are just a few examples of when and why a company would seek a financial modelling report for their IP:

• If a company wishes to exploit their IP through licensing or sale, thus generating an additional revenue stream
• If a company is in need of quantitative analysis of their IP to support their decision making to choose the route offering them the highest potential return
• To calculate the damages of IP infringement
• If a company requires a third party with valuation modelling experience to assess and/or support proposed licensing terms, damages calculations and more
• For internal investment calculations and decisions
• If a company seeks lending from a bank while providing its IP as security
• Other possibilities include when a company files for bankruptcy or when a company wishes to insure its IP assets

Financial modelling in practice – an IP valuation case study

ClearViewIP is often asked to assess the commercialization options for our clients. For this example, the client had a patented invention and wished to know how to exploit their IP to maximize their return on investment.

In collaboration with the client, ClearViewIP investigated three options: an exclusive global license strategy, the sale of the company’s IP and a joint venture.

An IP valuation model was created for each strategy. The models were customized to match the client’s requirements and preferences. Information was collated from the company’s employees and supplemented by market data from other sources. Variables in the models were assigned values on the basis of that information. ClearViewIP directors and consultants also contributed their knowledge of comparable deals in the industry to better define parameters such as the royalty rates and milestone payments.

The models were used to inform the company which strategy could potentially result in the highest return. ClearViewIP provided a detailed step-by-step implementation plan for the strategy. Having received ClearViewIP’s advice, the company decided to pursue the recommended strategy and recognized the potential of the dynamic model that was supplied to them going forward.

What is the IP valuation modelling service delivering?

Based on the questions you’re trying to answer, ClearViewIP provides custom-built, dynamic, IP valuation models to help get you closer to understanding the licensing scenarios available to you. This maximizes the usefulness of the deliverable for you and ensures the valuation is as accurate as possible. These are the types of questions that can be answered with the help of ClearViewIP’s financial modelling service.

• What commercialization strategies are available for my intellectual property?
• How do the IP strategies compare?
• Who is the most suitable partner for my innovation?
• How much revenue can I expect to achieve in 10 years’ time if I license my IP?
• How much will I need to invest in my IP?
• When can I expect to recoup my investment?
• My IP is being infringed. What are the damages I am owed?

THE SERVICE IS CONDUCTED OVER THREE STAGES:

1. Data gathering – through various processes of information gathering, ClearViewIP will assess the current situation in terms of your company’s investments, IP position and your objectives as well as conduct supplementary research for additional market data
2. IP commercialization strategy brainstorming – ClearViewIP’s highly experienced team will create a shortlist of potential strategies specifically for your company
3. Financial modelling – a dynamic model is created for each strategy to qualitatively assess each option.

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If you are affiliated with a university, you can work with your Technology Transfer or Sponsored Research office to choose the best type of agreement for your emerging technology. Read on for five of the most common technology transfer agreements.

1. Patent Licenses

One common practice is for institutions to license patents to companies. There are options for both exclusive and non-exclusive agreements. Patent agreements are negotiable, and there is not a standard across universities.

The agreement will also outline development milestones that correlate with royalty payments.

Milestones for commercialization may include:

• Receiving a baseline level of funding
• Submitting a product for regulatory review
• Conducting alpha or beta testing
• Making a product generally commercially available
• Reaching a sales threshold

2. Technology Licenses

Similar to patent licenses, technology licenses deal with innovations such as software or designs that can be licensed to a company. While they are similar, technologies have separate agreements than patent licenses.

3. Options to Grant Licenses

An “option to grant” license (often referred to as an “option”) is an agreement that provides a company a time limited right to obtain the license. Options are done for a fee and are common in sponsored research agreements. Because university research is often within the realm of basic research, this provides potential industry partners the opportunity to validate technology before taking on the full risk of a patent or technology license.

Depending on the technology – and other factors – options last between six and twelve months. A key difference between options and license agreements is that options do not allow for the commercialization and selling of the technology.

4. Sponsored Research Agreements

Your technology may need additional research or funding to get to the next phase of discovery. At a university, the Office of Sponsored Research Agreements is responsible for sponsored research. These types of agreements are formed when a company provides either funding or resources to a university research project. The sponsoring partner will typically receive preference to licenses and IP that from result the project.

Additionally, sponsored research agreements often give a private company the option to non-exclusively license any institution-owned, background intellectual property used in the research activities, because they may be necessary for commercialization efforts.

5. Materials Transfer Agreements

Material transfer agreements (MTAs) are used to manage sharing research materials between the university and industry partners. A materials transfer agreement is very similar to a non-disclosure agreement, but covers the limited use of physical materials rather than (or in addition to) information.

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Are you thinking of approaching a technology transfer office at a university like those profiled on seedsprint?  Before you do, make sure you that understand norms for licensing university patents, and that you are ready to present a strong business case for your startup.

The University’s Perspective

According to a webinar hosted by the commercialization organization ONAMI, forging a licensing agreement and partnership isn’t always easy – especially if the entrepreneur is not affiliated with the university.

A startup licensee must bring a compelling business case to the table, and must also try to understand the unique nature of a university license. Flexibility and willingness to negotiate on the terms of the license is vital. It is expensive for universities to file patents, and they want to ensure that they see returns.

Scholars Goldfarb et al (2011) offer a useful framework for understanding the concerns that universities have in mind when issuing a license.

“(1) The [licensee] firm exhausts its resources before successful commercialization occurs, (2) the firm itself fails or exits, and (3) the firm lacks sufficient incentives to commercialize the technology.” See: BD Goldfarb et al (2011)

Startups typically have a strong incentive to commercialize the technology they license, making option #3 less likely.

However, options 2 and 3 are quite common, and so universities try to ensure the startup has a strong understanding of the market to help it avoid failure.

It is expensive for universities to file patents, and they want to ensure that they see returns.

Finally, the university must try forging a strong license agreement that ensures both sides benefit fairly. The startup or entrepreneur should be able to empathize with the university’s negotiating position and come to a mutually beneficial agreement on license terms.

How can a startup negotiate successfully for university patents?

1. Seek information about the license terms that universities typically expect.

Licensing terms are always subject to negotiation, but it’s important to understand your negotiating position. Read about the typical terms and look at sample licenses, such as this sample license provided by Yale’s TTO.

Some universities, such as Oregon State University, have an entrepreneur-in-residence program where participants act as a line of communication between the university and entrepreneurs seeking to license technology.

2. Offer your path to commercialization.

It’s essential to know about the marketing you are targeting, from typical royalty rates in the industry to the competitor landscape. Universities may expect you to bring a business plan to the table when you negotiate a license.

If you are an alumni or student at the university you are licensing from, university resources can help with this. For example, MIT’s TTO suggests suggests working with student entrepreneurship clubs, university seed funding organizations, or the university incubator.

3. Reach out to other startups that have experience with the university.

Each university will have slightly different expectation of a licensee. Some may request a ten page business plan, while others won’t need that level of detail. Some universities might have specific procedures or licensing terms that you aren’t expecting. Reaching out to startups already licensing from the university can help you learn what’s normal for the university.

The University of Florida generated 1,238 patents between 1992 and 2012. See: Van Norman et all (2017)

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ADDRESSABLE MARKETS

Total addressable market (TAM) is bigger than served addressable market (SAM).

The total addressable market is the potential sales revenue that would come from satisfying 100% of the market demand for a product or service. In most cases it’s not that hard to think about and work out, i.e., the combined revenue of all firms selling solutions into that market. However, there are exceptions for very disruptive innovation:

1. The market can expand significantly, and in the extreme;
2. The market itself is created.

Uber is a great example of significantly expanding the market, where the TAM was greater than the value of taxi rides because the app also fosters usage where a taxi would not be in the running. Sony’s Walkman product is a case of the latter point of disruptive innovation. Introduced in the late 70s, the Walkman did not replace an existing portable device of pre-selected music, so TAM was not defined or constrained by existing products. This concept also goes the other way: TAMs shrink when innovation causes product or service to be included in another solution e.g., standalone, hand held GPS devices.

SAM, served addressable market, is the amount of revenue actually being earned by one or more defined suppliers. The SOM, or share of market, is the amount in revenue or percentage of the total, help by a supplier or set of suppliers. Instead of thinking about other players, focus on the business you are trying to plan, your SAM and SOM.

CALCULATING YOUR MARKETS

Try to calculate TAM from the bottom up, i.e., count values of the participants to come up with the total, and check from top down, with some other market estimate. For example, if you plan to sell a solution that enables vaccine to survive without refrigeration, count up vaccine sales by manufacturer. Sometimes this is in one and the same document, such as in an equity analyst’s report. Here is a checklist from an excellent report that Credit Suisse did on TAM. [link to CS TAM p.26]

For a much more in-depth review of TAM, covering base rates, Bass models, ecosystems and diffusion rates, try this report from Credit Suisse [link to CS TAM report]

Figuring out how much of the SAM you can serve is dependent on your capacity to produce, deliver and displace existing products due to your value proposition.

Even if you have the world’s most airtight patent, you still need to produce what you want to sell and get it to customers. While you could spend an unlimited amount produce and distribute your product, you would not do so as a business unless you expected to reach a point when your costs left some margin. This means that there are constraints and the constraints here can include: productive capacity, distribution, technology diffusion rates, and relative value proposition of your offering.

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