Understanding licence agreements

A licence agreement is the essential tool in commercialising research results, giving commercial organisations the right to use Edinburgh’s intellectual property to develop new products.

Terms and conditions

EI negotiates appropriate terms and conditions in our licence agreements to protect the rights of the inventor(s) and the University.

Many of them are fairly generic, but some of the key points we must address when preparing any licence agreement include:

• What rights are we licensing (evaluation, production, sale, sub-licensing)?
• Retention of a research licence for the University and the inventors
• Should the licence be exclusive, sole or non-exclusive?
• What applications/fields of use are involved?
• What payments will we receive (upfront fees, milestone payments, running royalties on sales or combinations of)?
• How and when will payments be made?
• How is the performance of the licensee measured?
• Under what circumstances can the licence be terminated?

Exclusive or Non-exclusive

The decision to license “exclusively” or “non-exclusively” is decided on a case-by-case basis and the chosen route should encourage maximum commercialisation and uptake of the technology.

Exclusive licences

Exclusive licences sometimes generate higher price premiums and are appropriate when substantial investment in the technology is required.

Non-exclusive licences

For technology with multiple uses, the University tries where possible to secure non-exclusive licences.

When exclusivity isn’t important to licensees, and it is possible to offer standard terms, technologies can be offered through EI’s Click-thru Licensing System, which has the capability of enabling instant agreement of terms and payments.

Licence revenues

Every licence is different and therefore every deal is different but generally revenues can have three components:

Upfront signing fee

An upfront payment on the signing of a licence agreement reflecting the value of the initial opportunity to the licensee company and the commitment of the licensee company to development of the opportunity.

If the University is to be involved in future development of the technology then these costs will also be supported by the licensee.

Licensing royalties

In addition to a signing fee, we would expect a royalty, preferably based on net sale price of an end product. Royalty rates are very variable and depend on how developed the technology is and the contribution of the licensed technology to the final product purchased by customers.

Performance-related fees

We will generally seek a minimum royalty level per annum to ensure that licensees use their best endeavours to commercialise an invention and discouraging a licensee from "sitting” on a technology to monopolise the field for their own products or simply forgetting about it due to competing priorities.

Alternatively, or in conjunction, we may also include “non-performance” clauses to allow us to cancel the licence agreement if the company failed to exploit the technology. This could include a timeframe within which products must be made available.