An option agreement is sometimes used to enable a third party to evaluate the technology and its market potential for a limited time before making a decision about licensing. Startup companies often use an option to raise commercialization funds prior to licensing. A license agreement can make the startup ineligible for certain sources of capital (e.g. TVSF Phase II funding), therefore, an option agreement may be preferred for a given period of time.
A license agreement is a contract with a third party in which rights to a technology are licensed without relinquishing ownership, in return for fair consideration (e.g., upfront fee, milestone payments, royalties) and other benefits.
Terms of a startup license agreement
The terms for a startup are designed to help the company launch, enable investment by third parties, and align the interests of Ohio State with those of the startup. The typical components of a license agreement include the following:
- Field of Use – The field of use specifies the technology area in which the licensee is granted the rights to practice the patent.
- Territory – The territory specifies the geographic region in which the licensee is granted the right to practice the patent.
- Exclusivity – Exclusivity specifies whether a licensee is the sole practitioner of the patent right (exclusive) or shares these rights with others (non–exclusive).
- Upfront License Fee – The license may require payment of an up–front license fee as consideration for entering into the agreement.
- Patent Reimbursement – The licensee is responsible for all patent expenses associated with the technology. Past patent expenses will be paid on the following schedule: one third of total patent expenses as of the effective date of the license agreement on each of the second, third and fourth anniversaries of the license. The licensee is responsible for prompt payment of all patent expenses incurred after the effective date of the license. Additionally, OSIF requires the licensee to reserve 5% of all capital and grants raised in excess of $250,000 to be devoted to payment of patent expenses.
- Royalties – Royalties are payments made to the licensor (OSIF) based upon a percentage of net sales of the licensed technology. Some license agreements may specify a minimum annual royalty payment.
- Performance Milestones – Milestones are specified to ensure diligent commercialization of the technology.
- Sublicense Fee – A sublicense is defined as any agreement or arrangement pursuant to which the licensee directly or indirectly allows a third party to practice rights granted the licensee. Even if sublicensed, the licensee remains liable to OSIF for all of licensee’s duties and obligations outlined in the original license agreement. OSIF may charge a fee for revenue received pursuant to a sublicense agreement.
- Equity – An equity interest in the license agreement is negotiated to grant the licensor shares in the common stock of the licensee’s newly formed startup company, often in full or partial substitution of an upfront license fee.
Anti–Dilution Threshold – As equity protection, the equity granted to OSIF remains the same on a percentage basis until the licensee raises a negotiated threshold level of capital.
To help facilitate a clear commercialization pathway for licensing a university technology, below find our standard templates for option and license agreements.
- Standard Option Template
- Standard Licensing Agreement Template
In certain cases, where the creator finds the business leader and raises capital, the creator is eligible for standard (non-negotiated) deal terms.
Corporate Governance Documents
To reduce the time and cost of company formation, Ohio State offers entrepreneurs template corporate governance agreements for limited liability companies and C-corporations. These documents, prepared by independent legal firms, provide a ready-to-sign agreement that may, at the company’s option, be modified to the needs of each startup. When entrepreneurs use these templates as their starting point, Ohio State does not have to charge its legal costs to the startup company.
Limited Liability Company:
- OSIF LLC Agreement Template – Delaware
- OSIF LLC Agreement Template – Ohio
- OSIF to Scarlet - Assignment of Membership Interest Template
- OSIF Preemptive Rights Assignment LLC Template
- OSIF Code of Regulations Template
- OSIF Key Corporate Legal Agreements List
- OSIF Shareholders Agreement Template
- Pre-emptive Rights Assignment Agreement Template
- OSIF Certificate of Incorporation Template
- OSIF Written Consent – Incorporator Template
- OSIF Bylaws Template
- OSIF Written Consent – Directors Template