Reviewing SAIL: Exclusivity and Sublicensing
Reviewing SAIL: Exclusivity and Sublicensing
Reviewing how the SAIL handles access to intellectual property assets
A couple of weeks ago we released Simple Agreement for Innovation Licensing (SAIL), a proposed framework for post-secondary tech transfer that seeks to simplify the licensing process for IP developed in post-secondary institutions, followed up with a detailed but plain-language review of the intent and philosophy behind it.
We have already started to receive detailed feedback on the agreement, which will be used to inform version 2.0. In the meantime, today’s article continues the review process, focusing on how SAIL proposes handling control over and access to licensed IP assets.
You can find a copy of the agreement below for reference. As context for this article, I suggest reading Sections 1 and 4 of SAIL, as well as the Core Design Principles section of the original article, before diving in.
Exclusive by Default
The primary Core Design Principle of SAIL is that this license should never block innovation, a principle of effective tech transfer that was explicitly noted by AUTM in their article Nine Points to Consider in Licensing University Technology. Given this, it was surprising to some readers that the SAIL proposes an exclusive, world-wide, non-field-specific license. At the same time, SAIL asks that the primary licensee define a “primary field of use”, in spite of the initial license grant not being limited to that field.
Given that deep tech is often multi purpose across disconnected fields, there should be a path for multiple parties to access a single deep tech IP asset. At the same time, the second Core Design Principle is that there should be path to full ownership of that IP - a common ask by investors and founders in deep tech, and a reasonable one for institutions given that tech transfer offices are often under-resourced to administer multiple licenses in the long term. This immediately creates a conflict that was by far the most difficult issue to reconcile when designing SAIL: how can there be a path to IP ownership if multiple independent entities have access to the IP? If it is simply decided by a race to milestone execution this creates the wrong incentives for the licensees and can result in sudden devaluation on a loss of this race. What happens to all the other licensees when ownership is transferred to one of them? Who pays what fraction of IP portfolio management costs? Who decides when and where to file additional patents within the scope of the licensed portfolio? These questions are all difficult to deal with in the general case, and so SAIL finds a way to avoid having to answer them entirely.
Mandatory Sublicensing
AUTM suggests several ways to ensure that licensing does not block innovation, but only one of their suggested frameworks supports eventual transfer of ownership of the IP to the startup, and that is their “mandatory sublicensing” approach. In this framework, which is adopted in SAIL, if there is third-party interest in commercializing an aspect of the technology that is outside the scope of the primary field of interest defined in SAIL, then the primary licensee has a choice: either issue a field-specific sublicense to that third party, or pursue commercialization in that field themselves after agreeing on a plan to do so with the Licensor.
SAIL also has some teeth in this regard. Failure to either issue a sublicense or to make a good-faith attempt to commercialize in the secondary field returns the right to the Licensor to issue a direct license to the third party in question. In this event, because multiple licenses exist, the door to full transfer of ownership of the IP will be closed. This creates a strong motivation for the primary licensee to cooperate with ensuring that all possible commercial opportunities to explore the technology are pursued. In practice, given that most startups are laser focused on a single application, the expectation is that sublicenses will be issued more often than additional fields are explored by the primary Licensee.
While the primary SAIL license is royalty-free as written, sublicenses are not. This is mainly because companies are rarely interested in equity stakes in other companies, and without knowing the economic scale of the sublicensee, it is not always possible to ensure that equity is even an option. Sublicences are instead royalty-bearing, with a fraction (25%-50% suggested) of proceeds being passed through to the Licensor, with pass-through royalties having a floor set at a minimum fraction of Sublicensee net sales. While this can come into conflict with Core Design Principle 4, Principles 1 and 2 take precedence.
Sublicenses have a set of minimal reporting element requirements, can pass to the primary Licensor in case of failure of the primary Licensee, and must survive transfer of ownership of the IP to the primary Licensee if and when it occurs.
Wrapping Up
This framework achieves several things:
All commercial opportunities that can be explored will be explored (Core Design Principle 1).
The Licensor benefits in some way from all commercialization efforts:
Equity in the primary licensee (the value of which may be enhanced by the additional revenue streams offered by sublicenses).
Pass-through royalties from Sublicensees.
There is a clean path to transfer of ownership to the primary licensee that avoids creation of unproductive incentives for (sub)licensees (Core Design Principle 2).
Next, we will get into detail on the topic of how and when SAIL suggests ownership of IP assets can be transferred to the primary licensee, balancing the needs of founders and investors with a requirement for sound IP governance by the licensing institutions.
If you are interested in getting involved in ongoing development of the SAIL framework, or have feedback to share on any aspect of the proposed framework, reach out directly to the co-authors at the coordinates below:
You can find other entries in the SAIL series in the following articles.
