Is it difficult to do deals with universities?

Like many things in life, it’s always easy to criticize the other side. So, what is true?

Stephen Albainy-Jenei
The San Francisco Business Journal recently ran a feature suggesting that pharmaceutical and biotech companies are running into too many hurdles in putting together deals with universities. The article implies that the main problem is that it simply takes too long to get a deal done—that agreements took months rather than weeks to complete. One executive interviewed by the Journal stated that "most of us would prefer not to work with [the UC System]."

Another issue is (at least the perception) that universities are too risk-adverse. That is, any deals with universities must pass scrutiny by many outsiders. In other words, lawyers want to be sure no one—the media, in particular—can accuse them of giving away too much value.

Since I used to direct patents and licensing at a major university technology transfer office and now work in private practice helping biotech companies deal with universities, I have seen the view from both sides of the fence. And, like many things in life, it's always easy to criticize the other side. So, what is true?

Universities are risk-adverse. True. Now get over it.

Trying to get a nonprofit research institution—especially a public-funded university subject to state laws and regulations, union agreements, freedom of information act requests, and general, all-around status as public punching bag—to strive to take business risks in the hopes of a big payoff is just not going to happen.

The distinctive mission of a university is to serve society as a center of higher education—not to be entrepreneurial.  In addition, they often have an environment where no one gets fired if the deal doesn't happen. You get fired when the deal causes a big liability. In some public universities, there are even state laws that prevent the university from taking on any unfunded liabilities.

All this aside, there is always a fear of being at the center of an i-Team investigation for having given away valuable university assets to a for-profit company—a loss at taxpayers' expense. There are some newspapers that take particular pride in the sport of skewering public officials and employees.

Universities take too long to get deals done. Half-true. Now get over that, too.

There are generally two causes of this effect: procedures and staff.  First, universities are risk adverse (see point 1 above) and hence, agreements have to be signed-off on by all the various stakeholders. This is where universities' and private companies' interest and expectations most diverge. At a company, you have one stakeholder, the company (shareholders). At a university, there are many. For starters, any royalty received in a licensing deal is split between the inventor(s) and the university. In terms of the university's portion, that revenue is generally split among the university, the college and the department. Hence, all of those parties are (usually) asked to initial their acceptance of the terms.

Second, but perhaps more importantly, universities are typically not over-staffed. This has to do with mission priorities (see point 1 above) and with budget constraints. University budget surpluses, like unicorns, sound nice, but I haven't seen one yet. This means the personnel that must draft, review, negotiate and manage university licenses and contracts have an overflowing in-box. Many universities are improving and putting more resources into licensing and technology transfer, but I would expect hiring to continue to lag need.

There are ways to speed up the process. Mainly, it helps to recognize university restraints and not try to negotiate points they won't (or, more likely, can't) negotiate such as indemnification, disclaimer of warranties, retention of ownership, governing law, waiver of liability, and oh, did I mention indemnifications? Trying to argue for a change to these types of provisions is, like cursing the darkness.

The parties often have unrealistic expectations. True. Now let's fix it.

Keeping the above points in mind, it is critical that companies and universities come into the process knowing the limitations of a university and work with the system, not against it. If you know it takes longer to get the deal done, start earlier. The number one offense I see regularly? Parties waiting until the last minute to get a deal done. Don't stop in on Friday afternoon saying you need this done before the weekend.

Also, don't come in expecting to get everything and give nothing. Too often, complaints about tech transfer offices come down to "Hey, they won't give me everything I want! That's so unfair!" That's not to say this is always the case. I've come across TTOs demanding terms that were completely unreasonable. But, taking too long is often the result of too many back and forth negotiations as the parties try to get their way.

Of course, unrealistic expectations are a perennial problem with universities, too. There are still some universities that think every invention is worth a fortune ("Why else would you be interested in it?"). Furthermore, tech transfer personnel are notoriously bad at understanding the realities of product research and development and the fact that a lead on an eventual therapeutic is not the total value of the end product.

University inventions are often early stage, undercooked ideas that more often than not fail to deliver. Even when a drug compound is successful, they often need a remarkable amount of further development and still fail to deliver a big hit. Universities often do not appreciate the tremendous costs and risks involved with taking on a raw, undeveloped idea and trying to turn it into a viable product on the marketplace. 

There is still a lot of money to be made, so I think it's in everyone's best interest to work well together. I find the best deals are forged when the university and the company approach the deal as a partnership where both share some of the risk and then, if and when the technology is successful, both parties share in the reward.

Stephen Albainy-Jenei is a patent attorney at Frost Brown Todd LLC, serving up chat at PatentBaristas.com. Feel free to write him with comments or questions at stephen@patentbaristas.com.
 

Stephen Albainy-Jenei

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