University of Washington Policy Directory

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*Formerly part of the University Handbook
Administrative Policy Statement
59.4.5


Technology Transfer

(Approved by the Provost and Executive Vice President by authority of Executive Order No. 4)



5.  License Revenue

  a. Allocation of Costs and Division of Royalties, Equity, and License Fees
    1) Allocation of Costs—Direct costs incurred by the University in the protection and licensing of intellectual property must be recovered before distribution of income begins. The Vice Provost for Intellectual Property and Technology Transfer may also retain amounts necessary to recover reasonably anticipated direct costs.

Direct costs include legal expenses incurred by the University and associated with either:

  • Obtaining and maintaining patent or other legal protection for an invention or copyright; or

  • Negotiating, managing, and enforcing assignments, waivers, licenses, and other contracts associated with acquiring and transferring intellectual property.

Direct costs also include the University's out-of-pocket expenses associated with a given transfer which includes but is not limited to travel, market research, and costs associated with the management and liquidation of an equity security (as subsequently defined in this policy statement).

Colleges, departments, and other units will occasionally direct discretionary funds toward the further development of specific technologies. In certain cases these expenditures may be treated as direct costs and may be reimbursed. All such reimbursements shall be subject to approval from the Vice Provost for Intellectual Property and Technology Transfer. They will be made only after recovery of the OIPTT administrative fee and recovery of any direct costs incurred by the OIPTT and the Treasury Office. The expenditures and reimbursements will be governed by a memorandum of understanding among the participants and subject to the following restrictions:

  • Expenditures made by units prior to disclosure to the OIPTT will not be considered.

  • No reimbursements may be made for salaries for faculty hired prior to the disclosure.

  • Post-disclosure expenditures (usually for prototype development or software development costs) up to $100,000 may be reimbursed from licensing income only when all those who are eligible for a share of the licensing income (inventors, school/college, Office of Research, OIPTT) give written approval. This approval must be in advance of any expenditure.
Total gross revenue is the total cash consideration (including royalties, equity, and licensing fees) received by the University pursuant to a contract pertaining to particular intellectual property. Licensee-paid cost recoveries are direct costs incurred by the University and paid by a licensee. Adjusted gross revenue is the total gross revenue less licensee-paid cost recoveries.

The OIPTT shall retain licensee-paid cost recoveries, and shall deduct an administrative fee of 20% from adjusted gross revenue. From the remainder, the OIPTT and the Treasury Office (in cases of distribution of equity or equity proceeds) shall deduct amounts necessary to cover incurred and reasonably anticipated direct costs.
    2) Division of Net License Revenue—Net royalties, equity and equity proceeds, and licensing fees (collectively, "net License Revenue") derived from the licensing of intellectual property in which the University holds an interest will be distributed as shown in the table below, after:
      #1 Deducting the OIPTT administrative fee;
      #2 Deducting and reserving expenses as provided in Section 5.a.1; and
      #3 Deducting the amount of any grant from the Technology Gap Innovation Fund (TGIF) program, if the license revenue was generated from a technology developed using TGIF funding, and reimbursing such amount to the TGIF program.
     
Net Royalties, Equity, and License Fees Inventors, Authors Inventor's/ Author's Dept/College University Research Funds
1/3 1/3 1/3

Distributions will be made annually according to a calendar schedule published by the OIPTT.

The share for University Research Funds (including the Graduate School Fund and Royalty Research Fund) is used to promote research across the whole institution. The college/departmental share is allocated to the dean of the college for distribution. It is expected that at least 75% of this share will go to the inventor's or author's department (or other unit) for promotion of research according to departmental (or other unit) and college goals.

For purposes of applying the distribution schedule, income from improvements and updates of inventions (e.g., computer software updates) is considered as an addition to the net income on the initial technology. Special arrangements may be approved by the OIPTT when such updates are done by the employee on an outside consulting basis.

This revenue distribution schedule will be used to distribute revenue received by the University on technologies disclosed on or after July 1, 2003. This revenue distribution schedule will also be used for revenue from licenses that combine disclosures made before and after this date. No adjustments of prior distributions will be made. With regard to license revenue resulting from disclosures prior to July 1, 2003, the determination whether a distribution is appropriate and the amount, if any, to distribute shall be governed by Subsection 5.c.3, item #1 below (in the case of revenue from sale of equity) and by the policy in place at the time of the disclosure (in the case of cash royalties and license fees.) Agreements with development agencies made prior to 1969 and reconfirmed in writing thereafter will continue with the royalty arrangements specified therein.
    3) Waiver/Match Policy— A University employee may prospectively waive the receipt of a portion or all of his or her share of annual revenue received by the University under a license. The following conditions apply:
      #1 The employee, at the time of the waiver, may designate his or her laboratory or research program, department, or other University unit as the recipient of the waived amount. The waived funds will be regarded as regular University funds subject to all of the usual and customary legal and administrative requirements of the University.
      #2 In order to ensure that the use of the funds is consistent with the broad mission of the University, or to avoid financial imbalances or hardships within or among University units, the Office of the Provost, in consultation with the dean or deans of the involved units, must approve a plan for the designation of funds submitted by the employee, and, thereafter, may review the use of the funds at any time. It is expected that the waiver plan will be approved only with the concurrence of the dean of the receiving unit.
      #3 The waiver must be irrevocable and executed prior to the end of the fiscal year in which the revenue was generated.
      #4 Funds directed to the employee's research laboratory or program may only be used to support research and educational expenses associated with the employee's research laboratory or program. Such funds cannot be used for the employee's travel (including transportation, lodging, meals, and attendant costs), salary for the employee or a family member, or other similar purpose.
      #5 The funds waived by the employee may be matched by the University subject to the following conditions:
  • The match will be on a 1:1 dollar basis.

  • Responsibility for the match by units of the University will be proportionate to the revenue distribution formula. For example, if the formula allocates equal shares of net revenue to the college/school/department and to University Research Funds, each will match equally under this plan.

  • The combined match from all units of the University is not required to exceed $100,000 per employee per year, regardless of how many inventions or other intellectual properties are involved. It shall not exceed $300,000 per year from a single license.

  • It is expected that the college/school/department share of a match will be approved only with the concurrence of the dean of the unit in which the invention or other intellectual property was created.
  b. Equity in Business Ventures

The University may take an equity position in a company whether or not license fees or royalties are paid to the University as part of a negotiated agreement. A typical circumstance under which the University might receive equity would be as part of an agreement licensing a University-developed innovation to a start-up or developing business venture. Another example might occur when an employee of the University utilizes the expertise and/or innovation he or she has developed in the course of University employment and assists a business venture in the commercialization of an idea. (A business venture includes corporations, partnerships, or other commercial enterprises.)

To ensure a balance of interests for the business venture as well as for the University, the University will generally require that it receive an equity position in such circumstances. This equity interest is managed and disposed of by the University in accordance with investment guidelines prescribed by the Board of Regents and the policies and procedures stated in this and the following section.

When such equity interest is liquidated by the University, the net proceeds, after recovery of all University costs and after any distributions described in the following section, are administered by the Office of Research to promote research and technology transfer across the entire University. If the proceeds from the disposition of a particular equity interest are unusually large, the Provost shall confer with the University Budget Committee and with the Research Advisory Board on alternative uses for amounts in excess of a base figure (set at $3 million in 2000 dollars).

There may be situations in which both the University and its employees separately own equity interests in a business venture. In such circumstances, the employee's equity interest is considered to be independent of the University's equity interest and is not held, managed, disposed of, or distributed by the University. An example would be a case in which the University receives an equity interest in a business venture as a result of licensing certain innovations developed by one of its employees and in which the same employee also owns an equity interest as a result of being a founder of the business venture receiving the license. In this example, the employee's equity interest is not held or managed by the University but rather by the employee, and the employee's status as a founder having an ownership stake in the business venture renders the employee ineligible to receive a distribution of a portion of the University-owned equity interest or the proceeds from sale of such.
  c. Disposition and Distribution of Equity Interests
    1) Summary—This section describes the University of Washington's policies and procedures governing the disposition and distribution of equity interests received by the University as the result of the commercial licensing or other transfer of University-developed intellectual property rights for commercial use. With the exception of persons who are founders or have certain relationships with founders, the same persons eligible to share in patent and copyright royalties are also eligible to participate in a distribution of equity interests received by the University, to the extent that the amount realized by the University from the disposition of those equity interests exceeds the University's costs. These policies and procedures also provide that when the University makes a decision to publicly sell an equity interest, a prospective recipient may request to receive the distribution in either cash or marketable securities or a combination of both. Pending a distribution, the University shall be considered the sole legal and beneficial owner of, and shall manage, the securities. Prospective recipients shall have only the right to receive the net proceeds (if any) realized by the University from a liquidation. In addition, under certain circumstances, the University may allow the distribution of an equity interest prior to sale by the University. All distributions of equity interests must be conducted in accordance with all applicable securities laws and in accordance with University policies and procedures.
    2) Definitions—For purposes of this section, the following definitions apply.
  • Company means a corporation, limited liability company, limited partnership or other similar for-profit business entity issuing or transferring Equity Securities.

  • Distribution means a net distribution, after payment of all applicable University Costs, of:

    • Cash, a Marketable Security, and/or other proceeds of a Liquidation as described in Section 5.c.5, "Distribution of Cash and/or Marketable Securities Upon Liquidation"; or

    • An Equity Security pursuant to an Early Distribution as described in Section 5.c.6, "Early Distribution of Equity Securities."

  • Early Distribution means a net distribution, after payment of all applicable University Costs, of Equity Securities prior to a Liquidation, as described in Section 5.c.6, "Early Distribution of Equity Securities."

  • Equity Security means any common stock, other equity security (including any security convertible into any equity security such as an option, warrant, or other convertible security) or other similar right to share in the profits of a business received by the University in connection with the transfer or license to a Company of Intellectual Property Rights, including any accrued dividends thereon.

  • Founder means any person who participates in the creation, formation, establishment, initial fundraising, and initial management of a new business entity. A Founder may also be someone who receives stock, options, or warrants to purchase stock for his or her role as a developer or innovator that is not tied to a legitimate role as a consultant or member of an advisory board to the company.

  • Intellectual Property Right means all forms of intellectual property rights including, without limitation, patents, trademarks, copyrights, trade secrets, know-how, and similar technology rights.

  • Liquidation means the disposition of the University's holdings of an Equity Security for cash or Marketable Securities, as described in Section 5.c.5, "Distribution of Cash and/or Marketable Securities Upon Liquidation."

  • Marketable Security means an Equity Security that may be freely traded without restriction on a public securities exchange or market.

  • OIPTT means the University's Office of Intellectual Property and Technology Transfer.

  • Recipient means any faculty member, researcher, inventor, employee, or other person having a relationship with the University pursuant to which such person is eligible under the University's policies to receive a Distribution. Any person who is a Founder, any person who lives in the same household as a Founder, or any person who has an immediate family member who is a Founder, shall not be eligible to be a Recipient. For purposes of this provision, "immediate family members" shall mean those persons having a relationship, whether by blood, law, or marriage, of spouse, parent, child, grandparent, grandchild, or sibling.

  • SEC means the U.S. Securities and Exchange Commission.

  • Treasury Office means the University's Treasury Office.

  • University means the University of Washington, including its various campuses, schools, departments, branches, divisions and units.

  • University Costs means all direct and other expenses incurred and/or reserved by the University in connection with a Liquidation and management of Intellectual Property Rights, including a 20% overhead fee for Intellectual Property Rights managed by the OIPTT, and any similar expenses incurred and/or reserved by the University for Intellectual Property Rights managed for the University by a third party.
    3) Distribution Policies—

      #1 Except as provided herein, an inventor or similar person may be a Recipient if the invention or innovation was disclosed on or after December 20, 2000. Equity received by the University as a result of licensing for disclosures prior to December 20, 2000 will not be distributed to inventors, but will be retained in its entirety by the Office of the Provost to promote research and technology transfer.
      #2 A Recipient shall be eligible to receive the same percentage of a Distribution (if any) as the percentage specified for inventors in the University's distribution policy for license revenue. In the event more than one Recipient is eligible to receive a particular Distribution, such share shall be divided in accordance with any applicable written agreement signed by all of the Recipients, or lacking any such agreement, in accordance with University policies and procedures.
      #3 The College, School, and Department (or other comparable University organizational unit) shall receive the same percentage of a Distribution (if any) as the percentage specified for such units in the University's distribution policy for licensing revenue. Such share shall be distributed to the unit or units in which the research or other activities giving rise to the applicable Intellectual Property Rights were performed in the same proportion as would be distributed to the employees performing such research or other activities, subject to any adjustments deemed equitable and appropriate by the University.
      #4 If all or part of what would otherwise be a faculty member's, researcher's, or employee's share is not distributed to that person because that person is a Founder, or for any other reason, that person's share shall be divided among the remaining non-Founding inventors. If there are no non-Founding inventors, the inventor share shall be split evenly between the University Research Funds and the college/school/department.
      #5 Any cash or other dividends previously paid by a Company on Equity Securities and accumulated by the University shall be distributed on the same basis as the Equity Securities upon which such dividends were paid.
      #6 In connection with any Liquidation in which the University is to receive Marketable Securities, Recipients will be provided a single opportunity to irrevocably request to receive (in whole or in part) a Distribution in the form of Marketable Securities in accordance with the procedures described herein.
      #7 Recipients may be provided, in certain circumstances, a single opportunity to irrevocably request to receive (in whole or in part) an Early Distribution of Equity Securities in accordance with the procedures described herein.
      #8 The University shall have the sole and exclusive authority to determine the timing of a Liquidation. Recipients, including prospective Recipients, shall have no rights to participate in the management of Equity Securities, and in particular, shall have no right to approve, consent to, or receive notice of any securities transactions.
    4) General Rules and Conditions—
      #1 Only such persons who are expressly eligible to receive a Distribution, as provided in applicable University policies and procedures and under any applicable law, may be a Recipient. Prior to any Distribution, the University shall be considered the sole legal and beneficial owner of and shall have the sole right and authority to manage all Equity Securities.
      #2 Distributions shall be made in accordance with all federal, state, and other applicable securities laws, including the rules and regulations of the SEC, and all Distributions shall be made on condition of compliance by the Recipient and the Company with all such laws.
      #3 The University may establish such procedures, conditions,and limitations that it deems proper and appropriate with respect to Distributions, including any required tax withholding, restrictions on resale (including holding periods or other measures ensuring the restriction of transfer of Equity Securities in appropriate circumstances), and the filing of appropriate SEC notices and forms.
      #4 The University reserves the right to restrict, suspend, or not engage in a Distribution if at any time it determines that:
  • The Recipient and the Company are not in material compliance with all relevant agreements with the University;

  • The Distribution cannot be effected in compliance with all federal, state, and other applicable securities laws, including the rules and regulations of the SEC; or

  • A Distribution would not be in the best interests of the University.
      #5 The University shall have the sole and exclusive authority to manage Equity Securities including, without limitation, to make all decisions pertaining to Liquidations, sales of Equity Securities, Distributions, and Early Distributions, including their timing, manner, and method.
      #6 All Distributions (whether in the form of cash, Marketable Securities, or Equity Securities) will be net of University Costs, including, but not limited to, the costs to acquire, manage, transfer, or liquidate such securities.
      #7 The Treasury Office will administer all Liquidations and will ensure that the proceeds of Liquidations (whether in the form of cash or Marketable Securities) will not be released to Recipients until received and cleared by the Treasury Office, including making deductions for University Costs.
      #8 The Treasury Office will administer all Early Distributions and will ensure that Equity Securities distributed as part of an Early Distribution will not be released to Recipients until authorized under all applicable arrangements governing the Early Distribution.
      #9 A Recipient may waive (in whole or in part) the right to receive a Distribution in accordance with the policies and procedures relating to waivers of rights to receive royalties.
      #10 The University shall have the sole and final right to make decisions reserved to it under these policies and procedures and to construe, interpret, and apply these policies and procedures, including the making of any factual determinations necessary for their implementation.
      #11 The University reserves the right to change at any time its policies and procedures regarding Distributions.
    5) Distribution of Cash and/or Marketable Securities Upon Liquidation—
      a) Authority—Liquidations may arise out of one or more of the following circumstances:
  • The sale for cash of Marketable Securities in a public market;

  • The sale of Equity Securities or Marketable Securities for cash or Marketable Securities in a private transaction (including as part of an acquisition or merger of the Company);

  • The redemption by the Company of Equity Securities from the University for cash or Marketable Securities; or

  • The conversion of Equity Securities to Marketable Securities (including the exercise of stock options or warrants or the conversion of other convertible securities).
      b) Procedures—Upon the closing of an agreement (or as soon thereafter as may be practicable) pursuant to which the University will receive an Equity Security, the OIPTT will notify the Treasury Office of such an agreement and provide the Treasury Office with the following information:
  • The anticipated delivery date of the Equity Security to the Treasury Office;

  • The exact description and identification of the Equity Security;

  • The name, address, telephone number, and other contact information with respect to each Recipient;

  • Each Recipient's proportionate share or the basis for calculating such; and

  • Copies of such additional supporting documentation as may be requested by the Treasury Office.
      c) Request to Receive Marketable Security—Based on information furnished by the OIPTT, the Treasury Office will notify each Recipient in writing, at least ten days prior to a Liquidation affecting a Recipient, of the opportunity (if any) to request to receive all or part of the Distribution in the form of Marketable Securities. Distributions will be made entirely in cash, except Distributions of Marketable Securities may be made by the University if:
  • The University determines that a Distribution of Marketable Securities would be lawful, consistent with University policies and procedures, and not create an undue administrative burden;

  • A properly completed and executed, irrevocable written request on a form prescribed by the University is returned to the Treasury Office within the time period specified therein;

  • The Recipient has an account with a duly-licensed stock brokerage firm approved by the Treasury Office. This firm will be one that accepts and clears stock transfers through The Depository Trust Company (DTC) and has furnished the Treasury Office all requested information regarding the Recipient's brokerage account; and

  • Arrangements, satisfactory and acceptable to the University, are made for payment, including reimbursement to the University, of any required taxes or tax-withholding obligations.
    6) Early Distribution of Equity Securities—

      a) Authority and Conditions—An Early Distribution shall be allowed only if the University finds in its sole discretion that an Early Distribution would:
  • Be lawful and consistent with University policies and procedures;

  • Not be contrary to any securities laws, including the rules and regulations of the SEC, nor likely to create an unacceptable risk of a violation of any such securities law;

  • Not be in breach of or inconsistent with any agreements to which either the University, the Company, or the Recipient is a party;

  • Be manageable, if necessary, through implementation of measures limiting the transfer of unregistered or restricted Equity Securities (including obtaining physical possession of stock certificates and/or having restrictive legends placed on stock certificates); and

  • Not create an undue administrative burden, as determined by the sole discretion of either the Treasurer or the Vice Provost for Intellectual Property and Technology Transfer, or their designees.
      b) Procedures—In the event the University makes a decision to allow an Early Distribution (whether at the time of the closing of the agreement to acquire an Equity Security or thereafter), the OIPTT will notify all Recipients in writing of the opportunity to request to receive all or part of the Distribution as an Early Distribution. Whenever any Equity Securities to be included within an Early Distribution are under the control of the Treasury Office, the OIPTT will provide the Treasury Office the following information:
  • Instructions for dividing the shares in the case of multiple Recipients;

  • The exact description and identification of the particular Equity Security, or portion thereof, subject to an Early Distribution;

  • Appropriate instructions regarding the release and delivery of the Equity Security; and

  • Copies of such additional supporting documentation as may be requested by the Treasury Office.
      c) Request to Receive Early Distribution—No Early Distribution will be made to a Recipient unless in connection therewith:
  • A properly completed and executed, irrevocable written request on a form prescribed by the University is returned by the Recipient to the OIPTT within the time period specified therein;

  • The Recipient executes any written agreements required by the University and/or the Company, which may include custodial agreements, restriction-on-transfer agreements, and agreements containing appropriate indemnification provisions in favor of the University;

  • Arrangements, satisfactory and acceptable to the University, are made for payment, including reimbursements to the University, of any required taxes or tax-withholding obligations; and

  • Information, satisfactory and acceptable to the University, has been provided to enable the University to fulfill any tax reporting obligations, including information regarding the fair market value of the particular Equity Security subject to the Early Distribution.