Israel boasts a unique combination of academic excellence and an entrepreneurial approach. As a result, it is the home base for many startup companies. Most technologies underpinning startup companies develop at academic institutions. Multinational corporations looking to leverage academic innovation and industrial R&D capabilities have long considered Israel an attractive investment hub. Considering the steady growth in foreign investments in Israeli companies, we assume this trend will become entrenched in the coming years.
Joining the Innovation Trend
For local and foreign companies, there are two ways to take part in this trend. The first, adopted by most investors, is to invest in startup companies specializing in innovative technologies or to acquire and merge with such companies. This article devotes itself to the second way. This way is to directly sign a license agreement for a technology developed by an academic institution.
Even if you have an interest in using the first and more customary way of investing in or acquiring a technology-based company, and especially if you have an interest in obtaining a license for a technology developed in academia in order to base a new initiative on it or to add that technology to an existing company, it is important to know how to obtain a license from an academic institution. It is also important to understand what legal mechanism is directing the license agreement.
Technology Transfer Companies (TTC) in Israel
License agreements are usually signed with TTC of academic institutions, universities, hospitals, research institutes, and academic colleges. The role of these TTCs is to compile the knowledge accumulated in the aforesaid institutions. Another role is to bring about its development and to register patents to protect it. Later, and in order to transform the patent into a product, these companies will commercialize the patent to established companies that consider the technologies/patents an important contribution to their businesses. Alternatively, the TTC will commercialize the patent to startup companies it will assist in founding, and in which the TTC may even be a partner.
TTC in Israel are of greater importance to the academic institutions in which they operate than to TTC operating in academic institutions in other countries, such as in the United States or in Europe. This is because academic institutions in Israel rely more heavily on the revenues the TTC generates than do academic institutions abroad (which are therefore often called technology transfer institutes rather than companies).
Consequently, it is important to know the rules by which TTC operate in Israel, and the right 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 regarding TTC’s. According to the survey, TTC reported 989 discoveries of inventions in 2020, and filed new patent applications for about 656 of them.
The most customary way to commercialize technologies is through license agreements. In 2020, TTC and external companies signed about 550 new license agreements. TTC’ revenues from sales of intellectual property, from royalties from technology sales, from the granting of options for technologies, from license fees, from dividends deriving from ownership of startup companies, from proceeds from the sale of startup companies, etc.—totaled about ILS 1.3 billion in 2019.
License agreements embody the consent of the intellectual property owners and of the licensors (in this instance, the academic institutions the TTC represents) to the licensee’s use of the intellectual property. This is in exchange for a payment and a covenant to continue developing the technology.
The license allows the licensee to use the technology expressed in the patent and the associated know-how for the purposes of completing the research, developing products, commencing sequential product manufacturing, and, of course, selling the products and making any other commercial use thereof.
Contents of the License Agreement
1. The Nature of the license:
A license agreement’s key elements are the subject of the license, what can be done with it, and in what fields. A license agreement also contains answers to the following questions:
- Is the license for patents only or does it also cover the know-how amassed during the development of the patent-protected technology?
- Is this a general license or is it restricted to a particular scientific field or to particular types of products?
- In which territories is the license being granted – worldwide, in particular regions, or in particular countries?
- Is this an exclusive or non-exclusive license? If it is not exclusive, to which fields does it apply, and does it allow the granting of sublicenses
- If the granting of sublicenses is allowed, are they allowed solely for the purpose of product development or are sublicenses also allowed for manufacturing and marketing and perhaps also for developing additional products?
When a license agreement also includes a covenant to continue developing the technology, it specifies, among others:
1. The development plan.
2. The financial investment required.
3. The development timetable
4. The repercussions if the development fails.
2. The economic value of the license:
- What is the royalty rate and the duration of the royalty payments? (See here)
- What is the mode of payment – an annual license fee or payment upon reaching development, commercial, or financial milestones?
- What are the payment arrangements with regard to the granting of sublicenses?
- Does the licensee company grant a right to receive shares in it (under particular circumstances)?
The financial conditions also include the licensee’s obligation to finance the patent expenses for the technology that is the subject of the license agreement, usually as of the start date of the processing of the patents, even if registration of the patents occurred prior to the granting of the license.
Additional Issues in the Agreement
The license agreement should also address and regulate additional issues, which are relevant to nearly all types of licenses:
- The periods of the license and of the obligation to pay royalties, which usually lasts throughout the lifetime of the patent.
- The responsibility for maintaining the patents for which the license is being granted, for patent protection, and for decision-making
- with regard to the patents.
- The reports the licensee must issue to the licensor, and the records the licensee must retain.
- Confidentiality and publication possibilities, including whether academic publications are permissible.
- Issues such as liability, termination of the agreement, and post-termination arrangements, etc.
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Ken Shaked is a Partner at Barnea Jaffa Lande with over 20 years’ experience in providing ongoing legal services to corporates and commercial entities.
Our firm has extensive experience advising technology companies on all matters pertaining to licensing agreements with TTC. We are at your service to answer any questions you may have about such agreements and any other related issues.
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