University of North Carolina to Issue "Standard" Licensing Agreement

The University of North Carolina (UNC) will now offer standard licensing agreements for startups rather than requiring them to negotiate the terms of these agreements to commercialize UNC's discoveries.  This decision presumably comes from a desire to avoid costly and time-consuming negotiations.  The Ewing Marion Kauffman Foundation applauds UNC's efforts, asserting that this new licensing process will support university startups, promote new company formation and enable long-term economic growth.  The Carolina Express Licensing Agreement was created in an effort to move UNC's inventions quickly from the lab to the market and was drafted by a committee of UNC faculty entrepreneurs, venture capitals, attorneys and UNC's Office of Technology Development.  While this new license is not mandatory for startups, it is an option they can select to avoid the costs associated with negotiations.  

The standard license diverges from the Association of American Universities' (AAU) guidelines on the licensing process.  Because AAU believes that all inventions and technological development "arise under unique circumstances," each license requires a customized negotiation and evaluation process.  AAU has denounced "cookie cutter" solutions and instead encourages technology transfer offices to analyze each licensing opportunity individually.

A few items of interest from the Carolina Express Licensing Agreement include:

Section 2.2 reserves a research exemption for UNC and other nonprofit institutions.  Under this provision, UNC reserves the right to practice under the patent rights granted, for its own research and teaching purposes without payment of royalties.  In addition, UNC retains the rights to provide the licensed products to other academic and nonprofit research institutions, also for research and teaching purposes.  While this clause is certainly important to have because it allows UNC and, potentially, other academic institutions to use the licensed product in research, the Carolina Express agreement does not provide the same research exemption for any for-profit organizations.  Also, it is up to UNC to determine whether to provide other universities the opportunity to license such products rather than providing a blanket research exception upfront.

Article 6.7 does provide the possibility of Global Access Licensing, although the provision does not appear particularly strong.  This section states that "Upon reasonable request by University, Licensee shall meet with University and discuss in good faith an agreement to grant a third party a license to make, use and sell Licensed Product solely for use in the developing world (as defined by the World Bank); however, Licensee retains discretion regarding whether to grant any such license." Article 6.7 is also an important clause in terms of access to medicines as it could encourage the licensee to grant a third-party license to produce medicines for developing nations which would not be able to afford the prices set by the licensee.  However, the language of this section does not appear strong as the licensee is only required to discuss such arrangements with the University.  The company licensee retains full discretion as to whether to allow such an arrangement and there s no way to predict the success of Article 6.7.  If companies consistently choose not to allow the product to be licensed to another party for use in developing countries, access to UNC developed medicines and technologies could be seriously hindered in the developing world, rendering Article 6.7 ineffective.  

In fact, it is quite possible that a situation similar to Bristol-Myers Squibb's initial refusal to allow a generic version of Yale's HIV drug stavudine to be produced for people in Africa.  There, Yale argued that because it had licensed its patent rights to Bristol-Myers, the university could not force its licensee to make the drug available to Africa.  The decision was ultimately in the hands of Bristol-Myers.  Due to enormous pressure, Bristol-Myers and Yale did eventually agree to allow for a generic version of stavudine.  One professor noted that Yale's selling of its freedom of action to Bristol-Myers had been a mistake and "There is the question of what Yale can do now, and the question of what Yale should have done at the time, and why we shouldn't tie our hands in the future."  UNC can learn from Yale's stavudine mistake - under this license UNC is taking a small positive step but is likely selling away its freedom of action by allowing the licensee to be the final decision-maker as to whether to allow for generic production of the product for global health purposes.  

Other key provisions cover royalties and revenues: a 1% royalty on products requiring FDA approval based on human clinical trials and a 2% royalty on other products.  Additionally, UNC is entitled to a cash payout that amounts to 0.75% of the company's fair market value if the company is involved in merger, stock sale, asset sale, or initial public offering.  UNC also requires the licensee to pay an Annual License Maintenance fee to the university beginning in the third complete calendar year following the agreement.

While UAEM recognizes the unique approach to each license, a standard agreement with strong terms allowing for broad research exemptions and global access provisions would be ideal.  The language of the UNC's standard license falls short, though, of providing the strong terms needed. 

It will be extremely interesting to see whether UNC expands this one-size-fits-all licensing model to apply to all startups, whether it will eventually extend beyond startups and whether any other universities follow suit.  Could standard licensing agreements be the future for technology transfer offices?  Before other universities follow suit, they should fully address global access concerns.