Technology Licensing at Stanford University OTL Overview June 2007 Technology Licensing at Stanford University

Overview Background and Policies OTL Facts and Figures OTL Overview Overview June 2007 Background and Policies OTL Facts and Figures OTL Process: Invention to License

University-Industry Technology Transfer OTL Overview June 2007 Research results from lab Start-up companies and large corporations New products in marketplace Mechanisms Graduated students Publications Seminars, conferences, etc. Faculty consulting Industry sponsored research Industrial affiliate programs Intellectual property licensing Intellectual Property Licensing

University-Government Interactions OTL Overview University-Government Interactions June 2007 University Government Bayh-Dole Act Created uniform patent policy regarding inventions made under federally-funded research programs Encouraged universities to participate in technology transfer activities

Bayh-Dole Act (U.S. Public Law 96-517) OTL Overview Bayh-Dole Act (U.S. Public Law 96-517) June 2007 University may elect to retain title to inventions developed under federally-funded research programs University grants royalty-free nonexclusive license to government Any company holding an exclusive license must substantially manufacture the product in the U.S. In marketing of an invention, University must give preference to small business firms (< 500 employees) University must share with the inventor(s) a portion of any revenue received from licensing (Sources: COGR Publication “The Bayh-Dole Act: A Guide to the Law and Implementing Regulations”, 37 CFR Part 401, 35 USC 200-212)

Stanford Facts for 2008 7 Schools 1,829 Faculty members OTL Overview Stanford Facts for 2008 June 2007 7 Schools Business, Earth Sciences, Education, Engineering, Humanities and Sciences, Law, and Medicine 1,829 Faculty members Students (6,759 undergraduate and 8,186 graduate) Finances (FY 2007-2008) $3.4 billion budget $1.06 billion in sponsored research, including SLAC (87% by federal government sponsors) additional $132.1 million in part through 55 industrial affiliate programs $17.2 billion endowment (http://www.stanford.edu/home/stanford/facts/)

Office of Technology Licensing (OTL) OTL Overview Office of Technology Licensing (OTL) June 2007 Mission To promote the transfer of Stanford technology for society’s use and benefit while generating unrestricted income to support research and education. Technology Transfer Portfolio Patents Copyrightable Material Software Biological Material Semiconductor Maskworks

Licensing: Inventions to New Products OTL Overview June 2007 OTL decides IP protection for invention and markets invention broadly Federal & industry research money Additional research funding OTL licenses invention to Company Company pays royalties to University

Stanford’s Intellectual Property Policy OTL Overview Stanford’s Intellectual Property Policy June 2007 Patentable Technology University takes title to all inventions created with more than incidental use of University resources www.stanford.edu/dept/DoR/rph/5-1.html Copyrighted Works University takes title to copyrightable works created with significant University resources www.stanford.edu/dept/DoR/rph/5-2.html SU-18 Patent and Copyright Agreement www.stanford.edu/dept/DoR/rph/su18.html

Stanford’s Royalty Distribution Policy OTL Overview Stanford’s Royalty Distribution Policy June 2007 Cash Royalties from Issue, Minimums, Earneds Net Royalties = Cash Royalties minus 15% for administrative expenses minus out-of-pocket expenses (e.g. patent costs)

OTL: Notable Stanford Inventions OTL Overview OTL: Notable Stanford Inventions June 2007 1970 – OTL Established 1971 – FM Sound Synthesis ($22.9M) 1974 – Recombinant DNA ($255M) 1981 – Phycobiliproteins ($46.4M), Fiber Optic Amplifier ($40M), MINOS ($3.8M) 1982 – Amplification of Genes ($30M) 1984 – Functional Antibodies ($191M) 1986 – CHEF Electrophoresis ($2.25M) 1990-1992 – Discrete Multi-tone technologies for DSL ($29M) 1996 – Improved Hypertext Searching - GoogleTM ($337M) 2009 – the next big thing ???

OTL: Disclosure and Licensing History OTL Overview OTL: Disclosure and Licensing History June 2007 Disclosures Licenses* Royalty Income Staff * Majority of disclosures are never licensed; many disclosures have one license; some disclosures have multiple licenses 1970 28 3 $50,000 2 2008 430 107 $62.5 M 30 Cumulative 7500 2800 $1.2 B Active ~3000 ~1000

OTL: The Upside In FY07-08, $62.5 million in royalties OTL Overview OTL: The Upside June 2007 In FY07-08, $62.5 million in royalties From 1970 through 2008, ~$1.2 billion cumulative royalties Typically, 10 to 15 years may elapse between initial invention disclosure and any significant royalties

OTL: Looking Closely at Royalties OTL Overview OTL: Looking Closely at Royalties June 2007 In FY07-08, $62.5 million from 546 disclosures 33 out of 546 disclosures generated over $100,000 each 3 out of 33 generated over $1 million each From 1970 through 2008 58 inventions generated $1 million or more 3 out of 7500 is BIG WINNER Royalties from large portfolio of inventions

OTL: Conversion Numbers OTL Overview OTL: Conversion Numbers June 2007 ~8 disclosures received per week ~ 50% of disclosures are filed as patent applications some disclosures potentially licensable as copyright or biological materials 20 - 25% of disclosures, including those patented, are licensed

OTL: Revenue vs. Expenses OTL Overview OTL: Revenue vs. Expenses June 2007 OTL is self-supporting 15% of revenue > operating expenses Operating budget of ~$4.8 million/year Patent expenses of ~$8.1 million/year OTL has given ~$43.5 million to Research Incentive Fund administered by Dean of Research

OTL: Equity from Licenses OTL Overview OTL: Equity from Licenses June 2007 Stanford’s philosophy Equity is one component of a whole financial package Historically, most income is generated from earned royalties (~$836 M vs. ~$364 M) Equity is liquidated soon after IPO We can’t hold equity if licensee conducts clinical trials here Equity from licenses ~171 companies cumulative ~90 companies currently Equity liquidated to date ~$364 million

Equity Cash-Out at Stanford* OTL Overview Equity Cash-Out at Stanford* June 2007 Equity distribution 15% to OTL 1/3 of net equity to inventors 2/3 of net equity to OTL Research and Fellowship Fund Equity liquidated to date ~$364 million Amati (Texas Instruments) $8.0 million Abrizio (PMC-Sierra) $9.7 million Google™ $336 million *Graph does not include liquidation of GoogleTM equity in FY04-05

OTL: Invention to License OTL Overview OTL: Invention to License June 2007 Steps Disclosure Evaluation Licensing Strategy File patent? Market to potential licensees The License Maintaining the Relationship 7 “Licensing Associate & Licensing Liaison” teams Technical degrees and marketing focus Responsibility for inventions from cradle-to-grave

Evaluation Discuss with inventors Discuss with others at OTL OTL Overview June 2007 Discuss with inventors Inventor provides technical expertise Inventor may also provide industry contacts Discuss with others at OTL Contact industry experts Typical criteria Invention development status Inventor profile Intellectual property position Commercial potential Licensing potential The Main Question Does it have the potential to create meaningful income for the University?

Licensing Strategy OTL Overview June 2007 A license is a legal document regarding intellectual property rights in exchange for good and valuable consideration. Different inventions require different licensing strategies “ basic new scientific tool” vs. “invention requiring extensive development” electronics industry vs. biotech industry IP rights Licensor Licensee royalties

Patenting Decision Can we license as tangible research property (TRP)? OTL Overview Patenting Decision June 2007 Can we license as tangible research property (TRP)? Can we license as it as copyright? Is it patentable and enforceable? Has it been publicly disclosed?

Patent Prosecution Licensing professional manages outside counsel OTL Overview Patent Prosecution June 2007 Licensing professional manages outside counsel Technology expertise Patent agent vs. Patent attorney Patent costs Typically $25,000 to $35,000 over life of U.S. patent USPTO fees if invention is not licensed, pay small entity fees Patent attorney/agent costs Higher patent costs for foreign coverage PCT application preserves foreign rights while delaying costs National phase entry if licensee reimburses costs

Marketing Strategy When do we start? Individual vs. Portfolio OTL Overview Marketing Strategy June 2007 When do we start? Waiting for publication Waiting for data Individual vs. Portfolio Contact companies and provide information Shotgun vs. Rifle approach Sources of leads Steps Create marketing content Create list of potential licensees Contact potential licensees Follow-up

Types of License Agreements OTL Overview Types of License Agreements June 2007 Option agreement Non-exclusive agreement Exclusive agreement Limited by Field of Use Limited Period of Time (e.g. earlier of 8 years from Effective Date or 5 years from first commercial sale)

Key License Terms Financial terms Non-financial terms OTL Overview Key License Terms June 2007 Financial terms License issue fee Annual minimum payments Earned royalties % of Net Sales $ per product sold Reimbursement of patent costs Equity in start-up companies Non-financial terms Definitions Grant Development milestones & diligence provisions Prototype First Commercial Sale Warranties and indemnities Infringement actions Dispute resolution

Licensing: Inventions to New Products OTL Overview June 2007 OTL decides IP protection for invention and markets invention broadly Federal & industry research money Additional research funding OTL licenses invention to Company Company pays royalties to University