Express License vs Option

A license agreement is a contract between UC and a third party in which UC’s rights to a technology are licensed (without relinquishing ownership) for financial and other benefits. UC uses a standard express license model for all graduates of our Venture Lab. Using a standard license enables us to move quickly and allows the start-up to raise external private investment as soon as it is merited. You cannot raise investment dollars unless you have a license to your IP.

UC does not take an equity position when a company is formed. The IP is owned by UC but is licensed at a fair rate to start-ups, summarized below:

• Upfront fee of $1,500
• Royalty fee of 2% of sales
• 10% of any sublicensing fees earned
• Escalating annual license fees beginning Year 3
• Fees applied at milestones such as the launch of a non-software product, the issuance of a patent, FDA approval of a new drug, etc.
• All existing and ongoing costs associated with a patent
• Success fee up to 1% when a change of control event occurs, such as the company is sold or goes public

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. Sometimes a license makes the start-up ineligible for certain funding, in which case an option agreement is preferred. The express option model guarantees to the start-up that UC will not market the technology to other companies during this evaluation period, however it is designed to discourage “sitting” on a technology with little movement toward licensing. Terms are summarized below:

• No upfront fee, royalties, or sublicensing fees
• Annual fees of $1,500 from Year 3 through Year 5; $5,000 at Year 6 and beyond
• A fee of $5,000 for each issued US patent deferred until license    
• Ongoing foreign costs associated with a patent
• Success fee of 0.5% when a change of control event occurs, such as the company is sold or goes public