University spinoff companies have the potential to become high-growth firms, in some cases creating entirely new industries that not only change our lives but also generate hundreds of thousands of jobs.

Lecture-HallOur nation’s universities produce some of the most important basic and applied research in the world, contributing to America’s competitiveness and prosperity in the global economy. University spinoff companies have the potential to become high-growth firms, in some cases creating entirely new industries that not only change our lives but also generate hundreds of thousands of jobs—one need only think of game-changers like Netscape, Google, Cadence, and A123 Systems to understand the significance of these firms. Yet there is evidence that restrictions at academic institutions themselves are slowing the diffusion of new technologies.

With approximately 60 percent of the nearly $150 billion federal R&D budget funneled directly to university labs, the Obama administration, too, recognizes that it is imperative that academic innovation finds a more streamlined path to the marketplace. Despite this support, however, successful commercialization of new knowledge remains inconsistent. In a recent speech to the National Academies of Science, Commerce Secretary Gary Locke acknowledged that “America’s innovation ecosystem isn’t as efficient or as effective as it needs to be,” and he warned that “the United States cannot afford to merely fund research and say a prayer that some entrepreneur will commercialize it down the road.”

To maximize the potential for economic growth, academic institutions must seek new opportunities to reduce lag time in harvesting discoveries and expedite their translation into the private sector. Fortunately, there are universities beginning to do just that. A few commercialization pioneers are on the forefront of creating new models for expediting university startups across the country.

The University of North Carolina at Chapel Hill has broken with traditional approaches to commercializing research by establishing a pre-negotiated set of terms that faculty may choose when launching companies that promises a three-week approval process. Traditionally, universities channel commercialization of intellectual property through centralized technology licensing procedures established following the passage of the Bayh-Dole Act of 1980, which granted academic institutions the rights to IP stemming from federal support. Licensing arrangements for university research often can be complex, sometimes requiring elaborate negotiations between researchers, universities, and private sector partners that can lead to bottlenecks that delay progress or deter entrepreneurs from even attempting the process. UNC has found a way to circumvent this costly and cumbersome impediment to progress with the Carolina Express License Agreement, which comprises a simplified set of terms that can facilitate widely divergent deals that bypass lengthy negotiations.

The Carolina Express License Agreement is transformative to those familiar with the intricacies and redundancies of the university licensing process. As an example, the agreement offers a 1 percent royalty on products requiring FDA approval based upon human clinical trials, a 2 percent royalty on all other products, and cash payout equal to 0.75 percent of the company’s fair market value in the event that the company is involved in a merger, stock sale, asset sale, or IPO. The license includes provisions that encourage broad commercialization of the licensed technology, including making products available for humanitarian purposes in developing countries.

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Source: Joseph M. DeSimone | Kauffman Foundation