A license agreement is a contract between MIT and a third party in which MIT’s rights to a technology are transferred to the licensee company (without relinquishing ownership) for financial and other benefits. Our main goals in any license agreement are to ensure that the technology will be developed by the licensee for public benefit, complying with federal and MIT policies, and, if successful, providing a reasonable financial return to MIT and the inventors of the technology. License agreements are used with both new, startup businesses and established companies.
Key starting points for customizing a licensing approach for each entity include knowing:
- the product benefits relative to existing products
- the expected customers
- market channels
- potential sales and margins
- additional aspects of the proposed or existing business
An option agreement is sometimes used to enable a third party to evaluate the technology and its market potential for a limited time before licensing. An option agreement provides companies with a non-commercial, internal-use license for a fee. The option holder is responsible for payment of patent costs during the option period.
Standard features of a license will typically include negotiated financial terms, such as annual fees, milestone fees, a royalty on product sales, and reimbursement of patent costs. They may also include a minority share of equity, if a startup. The non-financial terms of the license are equally important and will include:
- Degree of exclusivity: nonexclusive, exclusive, or restricted by field of use
- Reservation of rights for the Federal government (if the invention is derived from Federally-funded research), and for MIT and other non-profit organizations for their research and educational activities
- Performance (or “diligence”) requirements to assure that the company has the resources to develop the technology and is committed to doing so. These diligence terms allow for tracking the progress of the technology toward commercialization
All licensing negotiations are handled directly between the TLO and a non-inventor representative of the company in order to avoid potential conflicts of interest.
The licensee company continues the advancement of the technology and makes other business investments to develop the product or service. This step may entail further development, regulatory approvals, training, and other activities. Your role in product development can vary depending on your interest and involvement (within the limits of MIT policies), the interest of the licensee in utilizing your services for various assignments and any sponsored research related to the license or any personal agreements. We maintain an ongoing working relationship with each licensee over the term of the license agreement to monitor progress and ensure product development.
Revenue, Reinvestment and Relationships
Revenues received by MIT from licensees are distributed to inventors and to departments, centers and the MIT General Fund to fund additional research and education. Every year, we, working with MIT inventors and licensees:
- Receive over 700 invention disclosures
- Negotiate approximately 100 new option and license agreements
- Assist in forming 15-25 start-ups
The revenues received are shared with inventors and among MIT departments, centers, Lincoln Laboratory and the MIT General Fund. Revenues going to MIT entities are reinvested in additional research and education, thus fostering the creation of the next generation of research, researchers and entrepreneurs.
Our new technology transferred to industry enhances industrial competitiveness, brings new products and therapies to the public, and fosters economic development and new jobs through our startup companies.
In addition, the creation and deepening of company relationships through these activities support MIT’s mission. They result in additional research projects, broader educational opportunities and collaborative investments, and an enhanced ability to create, retain and share valuable resources that contribute to our mission.
For more detailed information on these and other aspects of the Tech Transfer process, please refer to An Inventors Guide to Tech Transfer.