The success of licensing depends on the industry sector, interest by companies and plain luck!
Stanford and OTL would love for your invention to generate royalties for you, your department and school but, in general, you should not count on your invention making a lot of money.
Although Stanford has had a long history of licensing Stanford technology and OTL is considered to be one of the more active university licensing offices, the success or failure of a licensed technology is largely out of our hands. A licensee company needs to invest significant resources to develop the typical early stage university invention which has both technical risks as well as the market risks. Historical statistics are sobering.
As of FY2008:
It's not that your invention isn't good.
There are many factors that contribute to the successful commercialization of a university invention, most of which are not in Stanford's -- or your -- control. Our biggest challenge is finding a committed and interested licensee.
In order for your technology to be commercialized, companies must be willing to license the technology and invest time and resources to develop the usually early-stage invention. In addition, the patent system and the court system must support innovation. Unfortunately, companies are often not interested in early stage technology and would rather develop their own proprietary technology rather than look outside of their company for new ideas.
Although we broadly market technology to potentially interested companies so that we can find the theoretical best licensee, most companies do not respond to such solicitations. It is actually unusual if there are several companies vying for an exclusive license. Even if we find a company who is interested in developing the technology, the company typically wants to pay as little as possible for the license because of the high risk and cost of development associated with early stage inventions.
The chances of licensing your invention very much depends on the industry sector and company size: Life science inventions are easier to license than physical science inventions. Small companies are easier to license than large companies.
At a very high level, simplistic licensing overview of industry, we often segment companies into Life Sciences and Physical science categories, and Large and Small companies.
Life Sciences: Life Science companies generally use patents to protect their business interests. Since pharmaceutical products often take a long development time, patent protection (and respect for patents) is essential to protect a company's investment in a product. The biotechnology and the pharmaceutical industries license university technology extensively, both as tools and as potential products. Most of their products are covered by a discrete (perhaps less than 20) number of patents.
Small start-up and biotechnology companies often exclusively license technology, develop them for several years and then partner with larger pharmaceutical companies. Small companies typically want exclusive licenses but often do not have financial resources to pay significant cash payments.
Large pharmaceutical companies often license research tools nonexclusively. In general, large companies license potential products from biotechnology companies rather than from universities, often preferring acquiring later stage products from other companies rather than early-stage university inventions.
In general, it is well understood by universities and industry that universities are more successful licensing companies in the Life Sciences industries.
Physical Sciences: Physical science companies vary greatly in their attitudes toward patents. Start-up and small companies often look to university technology for their product pipeline and are interested in exclusive licenses, needing patent protection to protect their investments.
Large multinational physical science companies generally do not look to universities for technology licensing for many understandable reasons:
- They often produce products where thousands of patents impact the products. For example, it has been claimed that close to 50,000 patents may cover a computer product. Even a portfolio of 10-20 patents from a university does not often attract a company's attention.
- These companies also rely on market presence and a constant flow of new features and new products -- rather than patent protection -- for competition.
- These companies want freedom of action and do not want to be constrained by patents. Therefore, many of them cross license each other so that they will have patent peace. University licenses are viewed as a constraint on their freedom of action.
- Multinational companies often consider a nonexclusive license as a tax on their product. The downward price pressures for most high tech products affects their gross margin, which can be quite low for high volume, low profit products.
- The allocation of the value of a basic patent is difficult when so many patents impact a product.
For all these reasons, large multinational physical sciences companies are often not interested in licensing university patents.
Start-ups and Investors.
At Stanford, about 10% of the licenses we conclude each year are with start-up companies. Investors are generally looking for the latest "hot markets" or platform technology which can be the basis for many products. Start-ups require an entrepreneurial champion to have the passion and commitment to grow the company and business, as well as develop the technology. An inventor initiated and founded start up is often the only way that a technology will be commercialized because the inventor is the champion of the technology, and the one who has the long vision. From a university stand-point, the biggest issue is managing conflicts of interest, if they exist. In such cases, a conflict of interest review must take place before a license is signed.
The Courts have made it harder to defend and license patents.
A changing landscape
The licensing and patenting landscape has changed dramatically since December 2006. Three important court cases have affected the licensing landscape:
These three cases affect licensing in two fundamental ways: the value of untested patents is less certain and the risk of litigation has increased dramatically.
Congress may make it harder and more expensive to get patents: Patent Reform
Based on the National Academy of Sciences report entitled "A Patent System for the 21st Century," Congress has introduced legislation to reform the patent system. The major change will likely be a harmonization with most of the rest of the world's patent system, which is on a first-to-file system compared to the current US first-to-invent system. The impact of this change will be that universities will have to file before publication, or at a minimum, as soon as possible.
The second biggest change would be a possible second window for patent challenge. This particular provision is being debated extensively in Congress. The impact on university licensing is to increase the likelihood of court challenge if a patent impacts a company's business.
Patent prosecution and the costs of obtaining a patent
Patent prosecution has gotten more difficult in general, as the U.S. Patent Office is trying to reduce their backlog by establishing regulations that limit the number of claims and applications that may be filed on one invention. The trend is to grant patents that reflect the actual scope of the invention as invented, rather than to grant broad, sometimes speculative, patents.
A U.S. patent costs $25,000-50,000 over the life of a patent. Broad foreign coverage costs more than $100,000 per patent. OTL spends more than $7M in patent expenses a year; we spent approximately $11M on our current portfolio of patents which have not yet been licensed. The sobering reality is that many patents are never licensed. So, OTL must make a risk decision each time we decide to file or not file for a patent. Particularly in this period of tremendous change in the Intellectual Property landscape with the patent law and court cases, more than ever, we have to weigh the likelihood of licensing a technology vs. the expense of patenting.
The licensing landscape is changing rapidly in a bit of an unpredictable way at the present. University licensing has always been a challenge and will probably become more challenging as the business and legal environments change.
So -- "Why disclose?" you might ask! Because you may have a revolutionary invention that may change the world. Or because you may have an invention that can make a difference to someone or some business. There are always exceptions to the rule and the past does not always predict the future. We believe in possibilities, which is why we do what we do. We look forward to working with you to try to realize those possibilities!