Israel boasts a unique combination of academic excellence and an entrepreneurial approach. As a result, it is the home base for many startups. Most technologies that underpin startups are developed in academic institutions. Multinational corporations looking to tap into academic innovation and industrial R&D opportunities have long considered Israel an attractive investment hub. Given the steady growth of foreign investment in Israeli companies, we predict that this trend will take hold in the coming years.
Joining the innovation trend
There are two ways for local and foreign companies to participate in this trend. The first, adopted by most investors, is investing in start-up companies specializing in innovative technologies, or acquiring and merging with such companies. This article is devoted to the second way. This way is directly signing a license agreement for technology developed by an academic institution.
Even if you are interested in using the first and more common way to invest in or acquire a technology-based company, and especially if you are interested in licensing a technology developed in academia to base a new initiative on or to add that technology to existing company, it is important to know how to obtain a license from an academic institution and what legal mechanism governs the licensing agreement.
Technology Transfer Companies (TTC) in Israel
License agreements are usually signed with TTCs of academic institutions, universities, hospitals, research institutes and academic colleges. The role of these TTCs is to bring together the knowledge accumulated in the aforementioned institutions. Another role is to contribute to its development and register patents to protect it. Later, and to transform the patent into a product, these companies will commercialize the patent to established companies that consider the technology/patents to be an important contribution to their business. Alternatively, the TTC will commercialize the patent to start-ups that it will help found and in which the TTC may even be a partner.
TTCs in Israel are of greater importance to the academic institutions in which they work than to TTCs working in academic institutions in other countries, such as the United States or Europe. This is because academic institutions in Israel rely more heavily on the income generated by the TTC than academic institutions abroad (which are therefore often referred to as technology transfer institutes rather than companies).
Therefore, it is important to know the rules by which TTC operates in Israel and the correct way to approach these companies in order to maximize the agreements signed with them.
Two years ago, Israel’s Central Bureau of Statistics conducted a survey on TTC. According to the study, the TTC reported 989 invention discoveries in 2020 and filed new patent applications for about 656 of them.
The most common way to commercialize technology is through licensing agreements. In 2020, the TTC and outside companies signed about 550 new license agreements. TTC’s income from sales of intellectual property, from royalties from sales of technology, from the grant of options for technology, from license fees, from dividends arising from ownership of start-up companies, from proceeds from the sale of start-up companies, etc.— a total of around ILS 1.3 billion in 2019.
License agreements embody the consent of intellectual property owners and licensors (in this case, the academic institutions that TTC represents) to the licensee’s use of the intellectual property. This is in exchange for payment and an agreement to continue developing the technology.
The license allows the licensee to use the technology expressed in the patent and related know-how for the purposes of completing research, developing products, starting serial production of products and, of course, selling the products and any other commercial use of them.
Content of the license agreement
1. Nature of the License:
The key elements of a license agreement are the subject matter of the license, what can be done with it, and in what areas. The license agreement also contains answers to the following questions:
– Is the license only for patents or does it also cover the know-how gained in the development of the patented technology?
– Is this a general license or is it limited to a certain scientific field or to certain types of products?
– In which territories is the license issued – worldwide, in certain regions or in certain countries?
– Is this an exclusive or non-exclusive license? If non-exclusive, to which fields does it apply and does it allow sublicensing?
– If sublicensing is permitted, is it permitted solely for the purpose of product development, or is sublicensing also permitted for manufacturing and marketing, and perhaps for additional product development?
When the license agreement also includes an agreement to continue the development of the technology, it specifies the development plan, the required financial investment, the development schedule and the consequences if the development fails.
2. The economic value of the license:
– What is the amount of the royalty and the duration of the royalty payments? (See the article “How much is your invention worth?”)
– What is the payment method – annual license fee or payment upon reaching development, commercial or financial milestones?
– What are the payment terms regarding sublicensing?
– Does the licensee give the right to receive shares in it (under certain circumstances)?
The financial terms also include an obligation of the licensee to fund the patent costs of the technology that is the subject of the license agreement, usually from the start date of the patent processing, even if the patent registration is done before the license is granted.
Additional matters in the agreement
The license agreement should also address and regulate additional issues that are relevant to almost all types of licenses:
– The periods of the license and of the obligation to pay royalties, which usually last for the entire term of the patent.
– Responsibility for maintaining the patents for which a license is issued, for patent protection and for making decisions regarding patents.
– The reports that the licensee must issue to the licensor and the records that the licensee must keep.
– Confidentiality and publication options, including whether academic publications are eligible.
– Issues such as liability, termination of contract and post-termination agreements, etc.