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Discovery Discovery February 2001
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PATENTS CORNER by Becky Mahurin

In the last two issues of Discovery, I covered several topics related to start-up companies derived from university research. In this column--the final in a series--I discuss the use of university-owned facilities and the licensing of technologies to spin-off companies.

Use of Facilities and Equipment

Many times start-up companies lack the facilities and equipment which they need to accomplish the immediate work at hand. MSU does lease facilities and equipment to outside companies on a case-by-case situation. Such a request can usually be accommodated if such a use can be accomplished by not compromising the department/program where the equipment resides; if the company can provide adequate assurance of waste disposal, insurance and employee training; and if the company agrees that it will only use equipment at scheduled times and for approved uses. If, however, the equipment is in the university lab of the faculty/company founder, it becomes difficult to monitor and charge for use. A Memorandum of Agreement must be signed by the faculty/founder to outline the agreement between the parties. Otherwise, we have university equipment used to provide unfair competitive advantage to one company.

Licensing to Spin-Off Companies

Licensing university technology to spin-off companies is certainly the preferred route. This approach has many advantages. For one, if the company goes out of business, the technology is returned to the university for other licensing opportunities. All inventors are treated fairly under licensing arrangements. The university is provided with compensation for the technology, either through equity or royalties or a combination of the two.

But even in licensing arrangements with spin-offs, there can be issues. One of those is that we cannot license technology that is not yet invented. If we do so, we put at risk our federal tax-free bonding on buildings. The IRS states that if we license technology prospectively, then we appear as a for-profit, contracted-services provider, not as a not-for-profit academic institution.

Others issues that must be dealt with during licensing negotiations are background and foreground technologies. The company will likely want rights to background technologies. This must be carefully determined, as such technologies/know-how may have other strings attached. It is best to not promise all background technologies in a license, but to list them separately and thus research each separately. This can help to avoid multiple ownership.

Additionally, companies may want rights to future technologies in this area. MSU and other research universities usually provide a right to license such technologies created under sponsorship from the company. We cannot provide an open-ended promise to license all technologies "in the area" to a company. This will almost certainly lead to multiple claims of ownership and conflict among the parties involved.

Finally, we must develop agreements which clearly outline the rights of all parties in a spin-off license. Unfortunately, one of the issues we must consider is "divorce." If the faculty/founder and the company decide to part ways down the road, then the university must have a clear outline of what technologies and what rights the company (independent of the faculty/founder) has. Of course, we hope that this situation does not arise. But, realistically, it sometimes does. Again, it is better for the faculty/founder if a technology is assigned to the university for licensing, rather than a perpetual promise of all technologies to the company.

Spinning companies out of the university is a desirable aspect of technology transfer and of economic development. It is a complicated process and one with inherent risks for all parties, but in the end, it is worth the effort. MSU has worked to keep the process flexible and as responsive as possible to the situation. We welcome comments and ideas on how to best accomplish this goal. Feel free to contact me at 994-7868 or by e-mail at

Becky Mahurin
Director of the Technology Transfer Office at MSU



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