Start-up companies emerging from university research centers hold patents on revolutionary
technologies, but they often lack the funds to enforce them.
Without an investor willing to assume the monetary burden of a long and costly legal proceeding, the startup, despite having a strong, enforceable patent portfolio, has no recourse against an infringer in the marketplace. Thus, startups can only hope to outperform infringers. The reality faced by technology startups, particularly those emerging from university research centers, is that patent protection is absolutely necessary to secure venture funding, but amounts to little more than a paper tiger without the financial ability to enforce them.
The Basic Problem
University technology transfer managers understand this basic problem, but they face challenges unique to the professional intellectual property (IP) world. Often, they are unable to offer any viable solutions to the startup regarding how best to commercially exploit the ideas developed within the schools. They are also faced with meeting the expectations of a strong commitment to the public good by transferring new technology outside of the university and into the public sphere. All must be done within the technology transfer office’s budgetary constraints.
This basic challenge is most pronounced when forming and executing a university patent licensing strategy. Universities struggle to satisfy two opposing and compelling forces. On one hand, as public institutions, universities have a public duty to move knowledge and technology out of its cloistered halls and into the public square sphere to disseminate learning as widely as possible. The public purpose of the university compels licensing agents to be generous in their contract terms and forgiving of infringement. Licensing agents tend to shy away from the aggressive, commercial tactics often used in the diligent IP management of others. Many university technology transfer offices are genuinely reluctant to pursue known patent infringers out of earnest deference to the public mission of the university.
On the other hand, IP licensing is increasingly seen as an attractive revenue stream, potentially funding expanded operations of the university technology transfer office. More importantly, a consistent outflow of technology startups originating within the university creates an incredibly important regional economic engine. Some observers even view university licensing revenue and the number of new startups as a proxy indicator of a healthy return-on-investment for publically funded research. Within the academic community, a successful technology transfer program strengthens the prestige of the university.
What This Means
The confluence of self interest, public interest, and small budgets puts technology transfer offices and university startups in a difficult position. The peculiar hodge podge of IP incentives, restrictions, and limitations often creates a misalignment of expectations between university IP owners and startups.
To a small university startup with limited funds, the inability to bear the legal costs of a vigorous IP enforcement effort is an operational liability and an unmanaged risk. Because of the unique circumstances of the university technology transfer environment, licensees have little hope of mitigating these risks by routine contractual means alone. Unfortunately, potential investors do not overlook the ease with which large, well-funded firms can out-compete a small startup with “eerily similar” technology. The simple fact remains that neither university technology transfer offices nor university startups are likely to have the ability to pursue infringers in federal court.
IP insurance gives the university technology transfer offices, their startups and their investors the ability to effectively leverage their IP rights
against potential infringers. IP enforcement insurance is a unique plaintiff’s policy which reimburses the litigation expenses to enforce IP rights against alleged infringers. The policy remedies an investor’s concerns because it provides a source of funds for legal expenses and the litigation management expertise required to effectively utilize those funds.
Without an enforcement policy in place, startups and investors have limited options if they wish to pursue an infringer. The options may be to seek additional funds from investors, finance the lawsuit, or find an attorney to take the case on contingency. These generally are not viable options for startups because:
1.Investors are often reluctant to part with cash for reasons which do not directly contribute to their return.
2.Finding a lending institution willing to loan unsecured funds at terms which are acceptable to the startup may be difficult.
3.Only a small fraction of competent IP litigators are willing to take a case on contingency terms. Usually they want to know the outcome of the case will be a “sure thing” and that the damages to be collected are very high.
An enforcement policy changes the economic environment and assumptions of the infringer. IP litigation is an expensive and risky endeavor. Well-financed infringers rely on the fact that they have the ability to outlast a startup in court. They know that the small company may risk bankruptcy just enforcing their IP rights. Having an IP enforcement policy in place levels the litigation playing field and enhances the likelihood of success for these startup entities.
University technology startups operate with an entirely different set of concerns, limitations, and incentives than their larger corporate counterparts. These differences are neither subtle nor inconsequential. They create a licensing environment that, while attractive for its sheer volume of innovative technology, lacks the basic risk mitigation tools traditionally found in commercial licensing practice, specifically, indemnification of liability and pursuit of infringers. Here exists a superb opportunity for an IP insurance product to fill the risk management
void left by the unique circumstances of university technology startups.
The undeniable fact is that in the coming years, university licensing will continue to expand and become a more important source of commercialized technology. The speed with which universities can turn laboratory ideas into commercialized goods and services will advance the prestige of the university and strengthen the economic growth of the region it serves. Effectively managing IP risk through IP insurance supports the growth and viability of vulnerable startups while helping meet both the public and self-interest goals of the universities.
Simply stated, IP insurance levels the playing field and enhances the likelihood
of success for these startup entities. IP insurance will continue to be a vital component for the future of university technology licensing.