After WARF receives clearance from its Board of Trustees, you and your licensing manager will finalize the license and, if applicable, equity agreements between WARF and your company.
These discussions typically center on a few key financial and non-financial terms. Financial terms include the license fee (which can possibly be waived in lieu of equity - see description of the equity agreement below), the royalty rate paid on product sales, and reimbursement of patent costs.
An important non-financial term is the "field of use" restriction, which defines the specific technological applications your company has the right to develop. WARF restricts your company's use of a technology to only those applications it will actively develop so that other businesses can license and develop the technology for other non-competing applications and markets.
The licensing process typically begins with WARF presenting to your company a set of draft license terms. WARF's licensing staff analyzes the value of the technology in the marketplace and looks at the terms of license deals completed on comparable technologies in the recent past, in order to make an offer that is as fair as possible to all parties.
If your company is willing to accept the terms as they are presented, a license agreement can be quickly executed. If your company instead wants to make changes to the offer, WARF is happy to work with you until a mutually acceptable agreement is reached; however, each round of back-and-forth discussions will extend the length of time it takes to execute the final agreement.
WARF's Standard Agreements
Below are short descriptions of the three main agreements that WARF enters into with companies.
The Option Agreement
This agreement is basically a standstill agreement with two significant differences. First, if a start-up company gives solid justification for why it does not want to proceed immediately with a license agreement, the option agreement can be used for potentially longer periods of time (i.e., one to two years) than a standstill. Secondly, WARF normally requires some financial consideration for an option.
Although it is available, WARF generally doesn't use the option agreement when licensing technology to a start-up company; such an agreement would require extraordinary circumstances.
The License Agreement
This agreement is the method WARF uses to convey to a company the rights to use and develop a technology. In the case of faculty start-up companies, the license agreement often goes hand-in-hand with an equity agreement, under which WARF agrees to waive the usual cash license fees in exchange for an equity stake in the company (see below).
The common features of WARF's standard license agreement are:
- Term: the life of the patent(s).
- Equity in lieu of cash license fees.
- Royalty rate on product sales.
- Patent reimbursement.
- Due diligence clauses, including assembly of a qualified management team and acquisition of a certain level of financing and capital.
The Equity Agreement
In lieu of a cash license fee for a technology, WARF has occasionally either required or accepted (depending on the circumstances) an equity relationship with start-up companies. The equity agreement relieves a business of having to make a large cash payment right at company launch, allowing it instead to preserve its cash assets for critical research and development efforts. Whether WARF will take equity in a start-up company is determined on a case-by-case basis and will be discussed with you in detail when you begin license discussions with WARF.
View WARF's equity agreement (pdf format)
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