Licensing Policies

It is Vanderbilt's policy not to assign ownership of its patents to companies, but instead to license those rights. This approach protects the long-term value of the University's intellectual property and supports responsible stewardship of its innovations.

The reasons for this policy include:

• Technology value is difficult to determine early. Assigning patent rights for a one-time payment requires estimating a technology's value at a very early stage, when its true commercial potential is often unknown.
• Assignments limit Vanderbilt's legal protections. If patent rights are assigned and the company later breaches the agreement (such as by failing to make required payments), Vanderbilt's remedy is limited to enforcing the contract. The company would continue to own the patent rights despite the breach.
• Federal funding restrictions may apply. If an invention was developed with federal funding, assignment of patent rights generally requires written approval from the federal government, which is difficult to obtain and is often denied.
• Future patent rights could be affected. Retaining ownership helps Vanderbilt preserve its ability to protect future related inventions and benefit from applicable provisions of U.S. patent law, including exceptions under 35 U.S.C. § 102(b)(2).
• Bankruptcy creates additional risk. If a company holding assigned patent rights declares bankruptcy, the patents become company assets that may be sold during liquidation. Vanderbilt would have little protection and would likely be treated as an unsecured creditor.

In the absence of compelling reasons to the contrary, Vanderbilt limits option agreements to a maximum term of 12 months. In most cases, a longer evaluation period is unnecessary and increases the opportunity cost of delaying commercialization opportunities.

Exceptions

An extended option term may be appropriate when the option is associated with a sponsored research agreement in which the option holder is funding the development of the technology.

In these cases:

• The option may extend for the duration of the research agreement, plus an additional 3–6 months.
• The agreement should include a defined maximum end date to prevent indefinite, no-cost extensions.
• The option holder should be required to cover all patent costs incurred during the extended option period.

Vanderbilt recognizes that the needs and circumstances of its licensees may change over time. To support the successful commercialization of licensed technologies, Vanderbilt is willing to work with licensees to modify the terms and conditions of existing license agreements when appropriate.

Guiding Principles

• Vanderbilt does not provide unilateral concessions or make changes that unfairly favor one party.
• Any modifications should preserve the overall balance and value of the original agreement.
• The value of one contractual term may be adjusted in exchange for changes to another, provided the agreement remains equitable for both parties.
• Payment plans may be established to defer payment obligations, but the timing and amount of future payments should be structured so that the overall net present value of the agreement remains substantially unchanged.

Vanderbilt will not amend an existing license agreement or enter into a new transaction with an existing licensee until the licensee is fully compliant with the terms of all current agreements.

Requirements for Consideration

Before Vanderbilt will consider an amendment or new transaction, the licensee must:

• Be current on all financial obligations, including royalties, patent costs, and any other amounts due.
• Be in good standing with all reporting requirements and contractual obligations.
• Have met all required diligence milestones outlined in the existing agreement.
• Have resolved any outstanding disputes or disagreements related to the current license or other transactions.

Rights granted to a licensee under a License Agreement should be limited to the statutory rights provided under federal law. Vanderbilt grants only those rights that are necessary under applicable patent and copyright laws.

Patent Rights

For patent rights, the grant may include the statutory rights to:

• Make
• Use
• Offer to sell
• Sell
• Import

As interpreted by the courts, these rights also include "have made" and "have sold" under 35 U.S.C. § 271.

Copyright Rights

For copyrightable works, the grant may include the statutory rights to:

• Reproduce the work
• Prepare derivative works
• Distribute copies
• Perform the work publicly
• Display the work publicly

These rights are established under 17 U.S.C. § 106.

Additional Rights

Licensees may request that additional rights—such as market, promote, research, develop, or export—be included in the grant section of a License Agreement. While some of these terms may overlap with statutory rights, Vanderbilt generally does not include them.

In particular:

• The term "export" should generally be avoided because it may imply the granting of rights in countries where Vanderbilt does not own or control the applicable intellectual property rights.
• Because patent rights are territorial, Vanderbilt cannot grant export rights unless it also has the legal authority to grant the corresponding import rights in the destination country.

Vanderbilt is committed to advancing science through research, education, and patient care. Nothing in a license agreement should restrict Vanderbilt or its employees from carrying out this mission. Accordingly, Vanderbilt reserves certain rights whenever it licenses its intellectual property.

Reservation of Rights

When Vanderbilt grants an exclusive license to its intellectual property, the license must reserve the following rights:

• Vanderbilt, Vanderbilt University Medical Center (VUMC), and the inventors retain the right to practice the licensed technology for education, research, patient care and treatment, and other internal non-commercial purposes.
• Vanderbilt may extend these rights to non-profit institutions that employ an inventor in the future when the technology is necessary to support that inventor's ongoing research program.
• Licensees may not bring infringement claims against inventors or their current or future non-profit employers for activities related to non-profit research or education.

Return of Rights to Inventors

If Vanderbilt returns ownership of a patent or patent application to its inventors, the inventors must grant Vanderbilt the same reservation of rights described above.

Federal Government Rights

Each license agreement should include a blanket reservation of rights for the U.S. Government, regardless of whether federal funding has been identified at the time the agreement is executed. This ensures compliance if federal funding is later determined to have supported the invention.

VA Co-Owned Technologies

For technologies that are co-owned with the U.S. Department of Veterans Affairs (VA) and governed by the Invention Management Agreement (IIA21003), the license agreement must include the following reservation of rights:

"The U.S. Government shall have the irrevocable, royalty-free, paid-up right to practice and have practiced the Patent Rights throughout the world by or on behalf of the U.S. Government and on behalf of any foreign government or international organization pursuant to any existing or future treaty or agreement to which the Government is a signatory."

Vanderbilt does not grant a First Right of Refusal in its license agreements. Instead, the University may grant a limited-term exclusive option when appropriate.

First Right of Refusal

A limited-term exclusive option provides a potential licensee with the opportunity to obtain rights to an invention while allowing Vanderbilt to pursue other licensing opportunities if the option is not exercised.

A First Right of Refusal is generally not permitted because it:

• Restricts Vanderbilt's ability to license technology to other interested parties.
• May discourage other companies from negotiating a license if it could later be claimed by another party.
• Allows a licensee to delay decision-making, potentially slowing commercialization.
• Can leave an invention without a clear commercialization path.

If a First Right of Refusal is considered in connection with an option agreement or sponsored research agreement, it should be limited to a reasonable period, not to exceed one year after the conclusion of negotiations.

Most Favored Licensee Clauses

"Most Favored Licensee" clauses allow a licensee to receive the benefit of licensing terms that Vanderbilt may negotiate with future licensees of the same technology. Vanderbilt generally discourages these provisions because they can create uncertainty and complicate future licensing negotiations.

If such a clause is ever considered, the following principles should apply:

• The licensee must accept all terms of the future license agreement—not just those it considers more favorable.
• The agreement should include objective criteria for determining what constitutes "more favorable" terms.
• The clause should be carefully drafted to avoid ambiguity and reduce the potential for future disputes or litigation.

Because these provisions are often viewed by courts as vague and broadly worded, they may increase the risk of costly and prolonged legal disputes.

To the extent practicable, Vanderbilt grants licenses to research tools and Licensed Know-how on a non-exclusive basis.

Licensed Know-how generally includes proprietary information, trade secrets (as defined by the Uniform Trade Secrets Act), and tangible research property, such as biological materials, chemical compounds, prototypes, and other research tools that are relevant to practicing the licensed patents.

Policy Guidelines

While Vanderbilt recognizes that access to Licensed Know-how may be important for successful commercialization, the University generally follows these principles:

• Non-exclusive licenses are preferred for Licensed Know-how whenever practicable.
• In some situations, such as inventor-founded startup companies, restricting access to Licensed Know-how may not be practical, and a non-exclusive license is generally sufficient to support commercialization.
• Exclusive licenses to Licensed Know-how are discouraged because they may:
  • Create overlapping rights among multiple commercial partners.
  • Limit Vanderbilt's ability to license future inventions that rely on the same know-how.
  • Increase the risk of conflicts with existing or future license agreements.
• Licensed Know-how is rarely assigned a separate financial value within a license agreement.

Confidentiality

License agreements should clearly state that:

• Vanderbilt is not obligated to maintain Licensed Know-how as confidential.
• Vanderbilt may publish Licensed Know-how without liability to the licensee.

As a research university, Vanderbilt cannot guarantee that Licensed Know-how will remain confidential, nor can it control all information that researchers may publicly disclose through research, publications, or other scholarly activities.

Vanderbilt generally does not include rights to future inventions in a license agreement. Because the value of future inventions cannot be determined in advance and federal conflict-of-interest regulations may apply, the University is cautious when considering these requests.

However, when access to certain future rights is essential to completing a licensing agreement, Vanderbilt may negotiate limited future rights under the following guidelines.

Policy Guidelines

Future rights should be granted through an Option to License.

• Access to future inventions should be provided through an Option to License future inventions in exchange for additional consideration.

Any grant of future rights must meet all of the following conditions:

• The grant applies only to inventions developed within one year of the effective date of the license agreement, unless the inventions are developed under sponsorship by the licensee.
• The grant is limited to improvements to the Licensed Patents, meaning inventions that cannot be practiced without a license to the existing Licensed Patents.
• The grant is limited to the field of use and any other scope limitations defined in the license agreement.
• The agreement must include reasonable diligence requirements to ensure commercialization of any future inventions covered by the grant.
• The grant does not include future rights that Vanderbilt is contractually obligated to provide to third parties, such as sponsors of research leading to a new invention.
• The grant is limited to rights that Vanderbilt owns or controls, including Vanderbilt's share of inventions that are co-owned with third parties.
• The grant must include additional consideration, such as payment of a New Invention Fee.
• The grant remains subject to Vanderbilt's customary reservation of rights for Vanderbilt and its inventors, as well as any rights retained by the U.S. Government or other sponsors that supported the research leading to the invention.

Vanderbilt does not place caps, cutoffs, or other limitations on the amount of earned royalties payable under a license agreement.

Policy Guidelines

Royalty caps are generally not appropriate because they:

• Limit Vanderbilt's financial return after the value of the licensed technology has been demonstrated.
• Reduce the long-term value of a license agreement as the commercial risk to the licensee decreases over time.
• Undermine the purpose of royalty rates by turning them into a mechanism that only determines how quickly a payment cap is reached, rather than reflecting the ongoing value of the licensed intellectual property.

Accordingly, Vanderbilt license agreements should not include caps or other restrictions on earned royalty payments.

Vanderbilt does not base royalty rates for intellectual property on the cost of goods sold (COGS). Royalty rates should reflect the value of the licensed intellectual property rather than the cost of manufacturing or producing a product.

Policy Guidelines

Royalty rates based on the cost of goods sold are discouraged because they:

• Do not accurately reflect the value of the licensed intellectual property.
• Fail to account for the commercial value that intellectual property contributes to a product's market price.
• May underestimate the worth of the license, since manufacturing costs alone are not an appropriate measure of the value created by the licensed technology.

Instead, royalty structures should be based on measures that more accurately represent the value of the intellectual property and its contribution to the commercial success of the licensed product.

When appropriate, Vanderbilt may:

• Accept equity in place of an upfront cash licensing fee.
• In limited circumstances, accept equity in lieu of certain upfront out-of-pocket expenses, such as previously incurred patent costs.

However, Vanderbilt generally does not accept equity in place of other standard licensing terms, including:

• Milestone payments
• Running royalties
• Annual license fees
• Other ongoing financial obligations

Equity-Only Licenses

Vanderbilt does not enter into equity-only license agreements, where equity is the sole form of consideration.

Royalties remain an essential component of technology licensing because they directly reflect the commercial value generated from products developed using the licensed intellectual property.

While the value of intellectual property is closely tied to product sales, the value of a company's equity may fluctuate over time due to many factors unrelated to the licensed technology, including the company's other assets, liabilities, and overall business performance. For this reason, equity alone is not considered an appropriate substitute for traditional licensing consideration.

Vanderbilt requires licensees to assume responsibility for both past and future patent costs associated with licensed intellectual property. (Vanderbilt-affiliated startup licenses may be subject to a different policy.)

Recovering patent costs helps Vanderbilt maintain its limited patent budget and supports the continued protection of future innovations.

Policy Guidelines

Patent license agreements should require the licensee to:

• Cover all past and future patenting costs related to the licensed intellectual property.
• Reimburse Vanderbilt for patent-related expenses in accordance with the terms of the license agreement.

Foreign Patent Costs

Because foreign patent prosecution can involve significant expense, license agreements that include non-U.S. patent rights (other than Patent Cooperation Treaty (PCT) applications) should, whenever practicable, require the licensee to:

• Cover the costs of drafting, filing, prosecuting, and maintaining foreign patent applications and patents.
• Pay these costs in advance, before the expenses are incurred by Vanderbilt.