UNC has taken an innovative approach to licensing technology invented on campus by drafting a one-size-fits-all licensing agreement. The license -- a sample one can be found at http://bit.ly/8Zif7E -- offers the same terms to all start-ups. The license key provisions include:
(1) A 1 percent royalty on products requiring Food and Drug Administration approval based upon human clinical trials.
(2) A 2 percent royalty on all other products.
(3) A cash payout equal to 0.75 percent of the company's fair market value will be paid to UNC upon a merger, stock sale, asset sale or initial public offering.
(4) Provisions to make products available on a humanitarian basis in developing countries.
The agreement does not include provisions granting UNC equity in the company and milestone fees. UNC found that most universities' start-up deals have equity provisions in lieu of cash up-front fees. But it is difficult for the universities to manage equity, and by the time a liquidation event occurs, the university's position is not significant. UNC arrived at the payout value and royalty terms through an analysis of previous transactions.
UNC hopes the new agreement will make UNC-based spinouts attractive to venture-backed investors and other commercialization partners. I agree with the position that this new license is good public policy and I applaud the faculty, administration officials, venture capital and law firms that put time and effort into this endeavor.
UNC has been and will continue to be a major magnet to bringing new businesses into our area. The new license agreement will also encourage our incredibly talented youths to stay in the area after their schooling and build successful businesses. This effort shows that UNC is keeping its commitment to Chapel Hill and Orange County to encourage economic development.
On a separate but parallel track, Congress tucked two provisions (Sections 1005 and 1006) into HR 3325, the Department of Defense Appropriations Act of 2010, to extend and fund the SBA programs to allow for business loans with little or no origination fees and higher guarantees to the bank started by the February 2009 Recovery Act (aka Stimulus Bill). The bill will be sent to President Obama for his signature shortly. The money for this program originally ran out in late November 2009 with many worthy loan applications waiting in line for funding.
These programs bring incentives to banks to loan money to small businesses with little risk to the banks as 90 percent of the loans are guaranteed by the federal government. The program has been successful in getting banks to loan to small businesses again. For the past year, small businesses have found it difficult to obtain additional funding for working capital, equipment, building, or land purchases. These programs are essential for bringing down our state's unemployment rate, which is hovering around 10.8 percent right now.
If the money spigot is open, then businesses have the ability to start, expand and, most important, hire employees. So sidle up to your favorite professor and ask to hear what the latest is in their field and watch the good ideas spring forth from their fertile minds. Maybe you can even commercialize on these ideas with money from the federal government and the new license agreement from UNC.
Jeremy Todd Browner is an attorney with a solo practice in Chapel Hill.
