Technology transfer guidelines for spin-off companies using UNIGE IP

Adopted by the Executive Board of the University of Geneva on October 17, 2022

Along with education and research, the ability to translate academic results into new products and services has become a central responsibility of higher education institutions. In that regard, entrepreneurial spirit combined with start-up creation around technologies based on research results and discoveries is a vector to generate new opportunities in terms of development as well as job creation and economic growth.

Spin-off companies are a key instrument when it comes to translating university research into business practice. Innovative product ideas and the resulting company foundations are an important factor in Geneva’s economic development that strengthen its capacity for innovation. Working at a spin-off company represents an alternative career path for university graduates. For this reason, the University of Geneva (UNIGE) supports the establishment of spin-off companies in every way it can.

In order to streamline the process of technology transfer and spin-off creation, it is essential to provide as much transparency on the conditions pertaining such process. This results in a common understanding between the spin-off founders and UNIGE on the main elements that need to be addressed to allow a smooth and rapid transition towards a viable company able to raise capital and initiate its development.

UNITEC, the technology transfer office of UNIGE, conducts the licensing negotiations with founders, investors or representatives (attorneys, licensing experts) of the spin-off company who are not simultaneously employed at UNIGE (to avoid conflicts of interests). However, UNIGE members who will only be employed at UNIGE for a short period of time and will then switch to the spin-off company after its foundation are also accepted as negotiation partners.

The following text defines the principles for the foundation of spin-off companies using UNIGE IP and the associated transfer of UNIGE research results. The principles must also be followed in cases in which spin-off companies interact with the research group of a co-founder at UNIGE.

What is a spin-off

A UNIGE spin-off is a company founded with the aim to further develop and commercialize a technology originated at UNIGE, under a license from UNIGE. A company created by UNIGE employees, student or alumni based on their knowledge acquired at UNIGE but that does not license proprietary assets from UNIGE is a start-up but not a spin-off.

Licensing UNIGE intellectual property and technology to spin-offs

The term “IP” in this document means any intangible asset, including patents and patent applications on inventions, trademarks, designs or know-how, copyrights on software or plans, databases, drawings and the like.
IP created by UNIGE employees (e.g., professors, doctoral and postdoctoral students) in discharge of their professional duties within UNIGE (“UNIGE IP”), belongs to UNIGE and must be submitted to UNITEC using an invention disclosure form signed by all the contributors.

If a person wishes to set up a spin-off to further develop and commercialize a technology based on, or using, such IP, the spin-off needs to obtain a license from UNIGE even if the founder of the spin-off is the inventor of such IP.

A license is a contract by which UNIGE (the “licensor”) grants the right to another party (the “licensee”) to use IP owned by UNIGE.  A license may also include the transfer of tangible assets such as demos, prototypes, or biological materials. Such license might be granted either on a non-exclusive basis (i.e. UNIGE may grant licenses on the same IP to other licensees) or on an exclusive basis (i.e. only the licensee has the right to use the IP) which is often the case for spin-offs.

In general, the license is limited to a certain field of application that the licensee plans to develop, in which event UNIGE retains the right to grant licenses to the same IP to other licensees that wish to develop the IP in other fields.

UNIGE grants licenses only to incorporated companies, as opposed to physical persons. An individual who wishes to create a spin-off and needs to provide to investors a proof of secured rights to the invention, may obtain a letter of intent or an option for such license, i.e. to reserve the right to negotiate a license on UNIGE IP during a limited period (usually six to twelve months) in order to evaluate the related business opportunity.

If a spin-off wishes to obtain a license on UNIGE IP, it must first submit a written business case to UNITEC. Generally, the business case is embodied in business development plans, investor pitches, market studies etc. to demonstrate that the spin-off has sound development and commercialization plans for the UNIGE IP, including from the financial perspective. Based on such information, the spin-off and UNITEC will summarize and document the main agreed licensing terms in a so-called “term-sheet”, on which basis the future license will be based and eventually be signed between the spin-off and UNIGE.

Licensing conditions

Duration

Usually, the license for the UNIGE IP lasts for the duration of the intellectual property right. However, specific performance obligations defined in the license condition the maintenance of the license. This is particularly the case for exclusive licenses.

Commitment

UNIGE’s primary objective is that a licensed technology translates into products and services that benefit the public and the economy. Accordingly, UNIGE expects that the spin-off to which a license has been granted commits to diligently develop and market the licensed technology and commits to reach certain milestones within agreed deadlines. These milestones are aligned with the business case submitted to UNITEC and may relate to product and business development, fund raising, achieving regulatory or commercial approvals, etc.

Compensation

UNIGE licenses to spin-offs have several cumulative remuneration components, typically equity plus a combination of success-based remunerations such as royalties, sublicense revenue and milestone payments. This is to offer an optimal mix of conditions adapted to the particular needs of the spin-off while allowing fair returns for UNIGE and its inventors. The following principles apply to the different types of compensation due to UNIGE in consideration of the license granted to the spin-off:

• Patent costs. Where it is the only licensee, the spin-off assumes the cost of all future prosecution and maintenance costs of any licensed patent or patent application, as from the signature date of the license. UNIGE agrees to bear the cost associated to priority application and PCT extension. If, in an exceptional case, UNIGE has covered substantial past patent costs, e.g. for national phases, prior to the granting of the license, the spin-off will be required to reimburse these past patent costs within an agreed schedule or upon a substantial investment round.

• Equity. To avoid upfront cash outflows, UNIGE takes instead of an upfront payment, an equity position in the spin-off.

• Royalties. UNIGE charges royalties on the sale of products or services covered by the licensed UNIGE IP. In certain cases, a minimum annual fee is requested after a few years, which is credited against the royalties due. This minimum fee testifies to the commitment of the spin-off to develop the licensed technology (see §Commitment above).

• Milestone payments. Additionally, milestone payments may apply depending on the type of licensed technology and the stage of technology development.

• Sublicense revenue. In case a sublicense is granted by the spin-off to a third party, UNIGE receives a percentage of the sublicense revenue received by the spin-off from the third party.

Considerations about Equity and Royalties

Different rationale and purpose

Equity. Compensation by way of equity enables the spin-off to avoid a premature outflow of funds at the early stage of its existence. The equity acquired by UNIGE is a deferred consideration for the opportunity given to the spin-off to start its business, attract funds and grow, that is monetized by UNIGE in the event of a future trading event (acquisition, IPO), or the distribution of dividends.

Royalties. Royalties remunerate the rights granted to the spin-off to use and sell products and processes under the UNIGE IP. Payments are proportional to the income generated from the exploitation of the UNIGE IP. This ensures a fair return to UNIGE in case the spin-off becomes a company with regular revenue.

Equity

For exclusive licenses, UNIGE expects to receive either a number of shares equivalent to 8-12% of the start-up capital stock at incorporation, or a corresponding lower share of the capital stock when the start-up has received a certain amount of equity investment.

For non-exclusive licenses, the percentages are adjusted according to the licensed UNIGE IP (patents, software, strength of the IP) and the go-to market strategy (number and type of licensees, fields of use, territories, etc).

Depending on the spin-off’s preference and circumstances, the equity share may be transferred to UNIGE at spin-off incorporation, or at a later development stage, either automatically upon the occurrence of a certain milestone or by a trigger event (e.g. completion of a significant investment round, acquisition, IPO), or by way of a call option that may be exercised by UNIGE at any time after a trigger event. In all cases, the equity share is transferred to UNIGE free of charge.

UNIGE is considered as co-founder and will sign the shareholder agreement provided it is compatible with its missions as an academic research institution.

The management of the equity (shares, options, etc.) is entrusted to UNITEC and governed by the applicable UNIGE guidelines¹. The equity is held by UNIGE, and the inventors are not entitled to the delivery of any shares or participations. Income generated by the subsequent sale of such equity by UNIGE is distributed to the UNIGE inventors of the licensed UNIGE IP (even if they are also founders of the spin-off) pursuant to the applicable UNIGE guidelines².

Royalties

The range of royalties is set in accordance with on-going UNIGE licensing practice. Under normal circumstances, the following figures serve as a baseline:

• Technology requiring a high level of investment after licensing (> CHF 100 million, e.g. therapeutics, drug delivery technologies) – around 2-3%
• Technology requiring a moderate level of investment after licensing (less than CHF 100 million, e.g. medical devices) – around 3-5%
• Technology that is closer to market at licensing ≧ 5%. Software for example may in some cases reach royalties of up to 25%.

Royalty rates may tend towards the upper or lower end of the ranges depending on:

• Technology readiness level
• Market potential
• Product margins
• Strength of intellectual property position
• Existence of third party IP rights

Sublicensing

Licenses to spin-offs usually include the right to freely sublicense the UNIGE IP to third parties. However, as UNIGE grants licenses on the assumption that the spin-off will actively contribute itself to the development and commercialization of the licensed technology, UNIGE may authorise the spin-off to grant sublicenses only after it has contributed to the development of the UNIGE technology in accordance with pre-agreed milestones stated in the license, or after a certain time period.

The royalty rate applied to sub-licensing revenue (royalties on product/ service sales, upfront payments, milestone payments, etc.) is conditioned by the extent to which the licensee further develops the subject-matter of the license between the execution of the license agreement and the time at which sub-licensing takes place. The sub-licensing royalty usually starts at 25% of licensee’s revenues in case of early sub-licensing and may decrease to 5% after several years of development, (typically 4-8 depending on the industrial sector).

Assignment

Assignment of license

The license agreement may not be assigned by the spin-off to a third party without UNIGE’s prior approval (except in case of a trade sale). If the spin-off envisages to assign a license agreement to another company, UNIGE will carefully review whether that company shows the commitment and has the capacity to further develop the technology and bring it to the market. UNIGE will require the potential acquiror to supply the necessary business information that supports the rationale of the transfer. UNIGE has no obligation to agree to the assignment.

Assignment of patent applications and patents to spin-off

As a general rule, UNIGE does not assign intellectual property rights to a spin-off. Exceptions may be possible for intellectual property jointly owned by UNIGE and the spin-off company in which UNIGE’s share is small (20% or less). Assignment of the intellectual property rights may also be considered if the spin-off is sold to a larger firm, or if the financial viability of the spin-off is assured. However, UNIGE is not obligated to approve such a request.

Liabilities and warranties

UNIGE provides no warranty of any kind with regards to the technology and related IP licensed to the spin-off. The technology requires further development and testing by the spin-off prior to becoming a commercial product. UNIGE does not control this development and commercialization phase and, accordingly, cannot be held liable for the consequences of the commercialization of products or services based on the licensed technology. The spin-off is solely responsible for such commercialization and its consequences. UNIGE may reserve its right to be Party to disputes related to PI.

Negotiation and signatures

License agreements are drafted and negotiated by UNITEC on behalf of UNIGE. Their signature is governed by the applicable guidelines³. The licence agreement may be signed individually by the Rector or the Vice-rector in charge of Knowledge and Technology Transfer. In practice, the additional co-signature by all inventors concerned is required to ensure that they are comfortable with its terms, as the inventors are entitled to a share of the revenue generated by the license⁴. Moreover, if one or more of the inventors are also founders of the spin-off, the additional co-signature of the relevant head of department is required to ensure full transparency and manage a potential conflict of interest situation.

Conflict of interests & ancillary services

UNIGE regulations impose on its members the duty to respect the interests of UNIGE and to refrain from any action that might be to its detriment⁵. UNIGE guidelines posit the principle that a conflict of interests situation exists when a UNIGE employee is faced with competing interests, one of which is related to interaction with the private sector, the latter term to be understood in a broad sense to include all persons or companies engaged in an activity for commercial purposes⁶. A spin-off is part of the private sector and pursues a commercial purpose.

Accordingly, in the context of the creation of a spin-off, the applicable guidelines lay on UNIGE staff the duty to report to their hierarchy (Faculty, Rectorate) any potential conflict of interest situation,e.g. where a UNIGE member or a relative thereof has a financial interest in the spin-off. UNIGE staff also have a duty to provide information on any role they may have in relation to the company (e.g. as a member of the board of the company or providing services in a personal capacity) by completing the register of links of interest⁷.

Hosting of companies on UNIGE premises

UNIGE is a public institution whose mission does not include the hosting of companies on its premises. Therefore, a spin-off has no right or expectation in that regard. Yet, the rental or use of UNIGE premises by a spin-off might be granted, on a case-by-case basis and subject to availability. In such case, the arrangement must be governed by a written agreement specifying the location, duration, and the compensation. Such agreement must also cover the ancillary use of UNIGE infrastructure (equipment, facilities) and communications and IT services⁸. The agreement must be approved by the Faculty and Rectorate⁹.

Collaborations between spin-offs and UNIGE

Any research collaboration between a spin-off and a UNIGE research group must be regulated by a written agreement, in abidance with the applicable guidelines.

¹ « Directives en matière de prise de participation dans des sociétés et leur gestion lors de valorisation de la recherche »
² « Directives en matière d'accords de transferts de technologies et de compétences »
³ « Signature d'une commande, d'un contrat ou d'un accord au nom de l'Université »
⁴ Art. 89 of  « Statut de l’Université » and « Directives en matière d'accords de transferts de technologies et de compétences »
⁵ Art. 20 « Règlement sur le personnel de l’Université »
⁶ « Directives en matière de conflits d'intérêts financiers »
⁷ « Registre des liens d’intérêts de l’Université »
⁸ « Directives sur les entités tierces »
⁹ « Directive sur l’utilisation des locaux de l’Université de Genève »