Unconventional Financing of Intellectual Property: Patent

Donations

Varda N. MainAssociate Director, Intellectual Property

Rochester Institute of Technology

LES 2001 Annual Meeting

V.N. Main – RIT – LES 2001 Annual Meeting

What’s driving unconventional financing of IP?

Increasing importance of realizing shareholder value from ALL assets

V.N. Main – RIT – LES 2001 Annual Meeting

Means of Leveraging IP

Direct sale Use in product/service Expect to use in future product/service License out Depreciate asset Donate to a not-for profit Dedicate to the public

V.N. Main – RIT – LES 2001 Annual Meeting

When to Consider Donating Patents

Technology is not being used in a product or service

Technology is not expected to be used by the company in future

Licensing revenues do not (or would not) realize sufficient ROI

Technology status after M&A activity

V.N. Main – RIT – LES 2001 Annual Meeting

Patent Donor Eligibility

Company must be profitable Company must have tax liability An independent party must conduct an IP

valuation within 3-6 months Technology must be viable

V.N. Main – RIT – LES 2001 Annual Meeting

Intended Use by Not-for-Profit

Fit with existing research programs Complements existing IP portfolio Recipient must take undivided interest in

donated patent Recipient must use the donated patent in

accordance with its NFP status

V.N. Main – RIT – LES 2001 Annual Meeting

Decision Considerations for IP Donor

Perform due diligence to ensure– Not using the IP– Don’t intend to use the IP– Understand any encumbrances on the IP– Understand status of patent protection

V.N. Main – RIT – LES 2001 Annual Meeting

Donor Benefit

Corporate benefit = (Effective tax rate of corporation)(IP valuation) – (Costs of donation process)

V.N. Main – RIT – LES 2001 Annual Meeting

Valuation of IP

The fair market value of the patents to be donated must be established by an independent third party– Experienced in such valuations– Conducted typically within 3-6 months of execution

of donation agreement

V.N. Main – RIT – LES 2001 Annual Meeting

Benefits to Patent Donor

Tax write-off based on estimation of fair market value Establish closer ties with faculty and students

– Prospective future employees Enhance company image

– In the community– With the university

Enhanced ROI Alternate source of funds for technology development Release from payment of future maintenance fees

V.N. Main – RIT – LES 2001 Annual Meeting

Decision Considerations for NFP

Fit with current research areas Finding a technical champion Projected future patent expenses

– Prosecution– Maintenance

Expectation for revenue streams:– Licenses– Grants– Contracts– Sponsored Research

V.N. Main – RIT – LES 2001 Annual Meeting

US Patent Maintenance Fees

Year Large Entity Fee ($) Small Entity Fee ($)

3.5 880 440

7.5 2020 1010

11.5 3100 1550

V.N. Main – RIT – LES 2001 Annual Meeting

Benefits to Recipient

Additional technology in IP portfolio Complementary IP to existing IP Enhanced relationship with patent donor Potential source of research funds, equipment

and technical consulting Prospect for enhanced revenue streams

through technology transfer

V.N. Main – RIT – LES 2001 Annual Meeting

Who Approaches Whom?

Company >>> university University >>> company Local economic development organization >>>

company >>> university

V.N. Main – RIT – LES 2001 Annual Meeting

Soliciting Recipients

Donor may choose to solicit recipient candidates– Establish bid process– Selection criteria– Typically require proposal from candidates

V.N. Main – RIT – LES 2001 Annual Meeting

Recipient Candidates

Universities NFP research institutions Think tanks Federal, State and Local technology transfer

centers

V.N. Main – RIT – LES 2001 Annual Meeting

What to Look for in a Recipient

Technically qualified On-going research in the field Proven ability to bring technologies to the

marketplace; specifically in that field Existence of a technical champion at the

recipient organization

V.N. Main – RIT – LES 2001 Annual Meeting

Parallel Donation

In conjunction with donation of patents there can be parallel donations of:– Know-how– Show-how– Equipment– Trademarks– Copyright

V.N. Main – RIT – LES 2001 Annual Meeting

Donation Agreement

Resources to be provided by donor– Help with patent preparation, prosecution and

enforcement– Payment of maintenance fees for limited period– Provision of funds for technology development,

equipment and personnel at recipient

V.N. Main – RIT – LES 2001 Annual Meeting

Donation Agreement

Resources to be provided by recipient– Commitment to maintain patent for specified period– Agreement to assume/honor existing

licenses/options– Indemnification of donor– Commitment to seek licensees– On-going research program

V.N. Main – RIT – LES 2001 Annual Meeting

Patent Donation

Patent donation can be a win-win situation for patent owners, not-for-profit organizations and the ultimate end-users of technology