Simple Agreement for Innovation Licensing

This post is a slightly modified version of the SAIL v1 announcement on CanInnovate, the original version of which can be found here. This post is presented to archive the thought process that went into development of the agreement and should not be taken as guidance with respect to the current version of SAIL. For the latest versions of SAIL and related guidance, please consult the documents page.

The Simple Agreement for Innovation Licensing (SAIL) is a proposed framework for university tech transfer and is the result of a collaborative effort between Kyle Briggs via CanInnovate, David Durand via MVIP, and Rami Alhamad via Action Potential.

SAIL is a work in progress intended to foster collaboration through a community of engagement. Aside from technology transfer, its purpose is to drive a discussion around the issues that it seeks to solve, engaging relevant stakeholders from across Canada in an effort to get a productive conversation started around the shortcomings of the current models of tech transfer and to build together toward something better.

In this article, we provide a high level overview of the challenges facing university tech transfer and the philosophical framework we adopted when seeking to address them. Subsequent posts elaborate on each section of the first iteration of the agreement, providing a detailed rationale for the choices that we made. You can download a copy of the version 1 here, which is licensed under CC-BY-SA. Note that this version (and the content of this post) is now out of date, but it is included here to show the progression of thought that went into the current version. It is worth noting that this is not the first attempt that has been made at a templated tech transfer agreement. We believe the reason for past failures is the patchwork of tech transfer policies adopted across the country and the way that universities structure their governance, which may prevent the adoption of different technology transfer models by rigid policy frameworks outside of the decision-makers control. In other words: previous attempts at this tried to introduce a template without engaging in a conversation about the context in which it was to be used.

We are fully cognizant of the fact that many institutions will not be able to use SAIL in their present policy frameworks. We invite anyone from such institutions to read through SAIL, in particular the axioms of tech transfer and the logic we have provided and will continue to provide for the choices we made in designing it. Beyond starting a conversation around tech transfer, Canada needs to have a conversation around legacy institutional policies that stand between our research outputs and economic growth, and it is our hope that SAIL will facilitate those conversations as well. Feel free to reach out to the co-authors directly to get involved in the discussion.

Challenges with innovation licensing

The process of licensing intellectual property (IP) from universities to startup founders is often characterized by complexity, lengthy negotiations and high legal fees, and lacks a standardized framework to align incentives between a large number of stakeholders. University policies with respect to IP arising from publicly funded research vary widely between institutions, ranging from full inventor ownership to full university ownership, with many variations on hybrid models between. This in turns translates to a wide variety of licensing frameworks that are often characterized by significant misalignment of incentives, reducing the chances of long term success for all parties involved.

While this patchwork approach to IP policy and licensing is far from the only issue at play, it represents a first and often terminal point of friction between Canadian innovators and long-term economic impact from Canadian deep tech. In aggregate, these issues discourage many potentially groundbreaking innovations from being commercialized. The complexity of the current system, if it can be called that, leads to missed opportunities for all parties and slows down the pace of innovation.

SAIL is only applicable in cases where inventor does not own the IP. SAIL is not applicable, nor is it necessary, in cases in which the inventor owns the IP themselves.

Objectives

SAIL seeks to achieve several things in a single standardized framework, points which are also addressed directly in greater detail in the attached template above.

1. It seeks to reduce the tension inherent in IP negotiations between founders and tech transfer offices by limiting extraneous optionality, thereby reducing the time required to establish a license to a single focused negotiation session instead of the current standard of months and avoiding overwhelming negotiations with ambiguously consequential complexities.

2. It provides a clear path to transfer (rather than licensing) of the IP in question to the licensee that is predicated on a clear indication from the market that the licensee is viable, ensuring sound governance of publicly funded IP. This relates directly to the prior discussion on the parameters of the “Buy-out Event” by the interested parties.

3. It provides a means for universities to sow the seeds of a self-sustaining innovation ecosystem built on a foundation of their own research by enabling them to hold a small amount of equity in licensees long term, the returns of which can be reinvested in the next generation of innovation.

4. It ensures that no resources are drained from startup companies in the most vulnerable early stages, aligning the incentives of all parties to the agreement toward the long-term success of the licensee.

Core Design Principles

Note that in later literature relating to SAIL, these are referred to as "axioms of tech transfer", and they have evolved significantly in response to community feedback. The latest version is always included in the latest version of SAIL itself, which can be found on the documents page.

As the old adage goes, it is not possible to please everyone all the time. Given the number of stakeholders involved and the complexity of their various motivations, it was sometimes necessary to make a choice about the specific legal means by which to achieve the proposal objectives. In cases where such conflicts arose, the choices made in SAIL were guided by these core design principles, presented in order of priority.

1. SAIL should never block further innovation. Deep tech is often multi-purpose in ways that may not be immediately obvious, and no SAIL agreement should preclude economic development of use cases outside of the scope of the activity of the primary licensee. In line with AUTM best practices on the subject, SAIL encourages sublicensing as a means to ensure all innovations can be pursued, and embeds claw back mechanisms by which the university can re-acquire the IP in question in the event of failure to deliver, for whatever reason, by the licensee.

2. Ownership of the IP in question should transfer fully from the academic institution to the licensee upon realization of a clear event - a buy-out event - that indicates that the licensee is an economically viable entity (in practice, a priced round or liquidity event). This dictates that SAIL is by default an exclusive license, with a path to non-exclusivity only when this explicitly conflicts with Core Design Principle 1 and cannot be addressed by mechanisms built into SAIL for this specific purpose.

3. Valuation of a deep tech company cannot reasonably occur at the tech transfer stage, but valuation of the contribution of the university to its development can. In practice, this means that SAIL is built around compensation for the university (or designated third party licensor) in the form of convertible debt in an amount commensurate with that spent by the university in securing the IP in question that only converts to equity in satisfaction of the requirements laid out in Core Design Principle 2.

4. Every dollar available to a startup should be focused on building value. This precludes upfront fees, milestone payments, and royalties as a means to compensate the university, though it does not preclude inclusion of these things in the amount of convertible debt accumulated per Core Design Principle 3.

5. SAIL should over-index on simplicity and accessibility so as to be comprehensible by someone without legal training.

Key Stakeholders

Institutional policy does not change from within. It requires an external push. For SAIL to work, it is not enough to have TTOs on board: all stakeholders in the tech transfer process have a role to play in improving Canada’s track record of research translation and commercialization.

The SAIL framework identifies several key stakeholders, each with distinct incentives and constraints. Understanding these dynamics is crucial for creating a licensing agreement that aligns interests and maximizes the potential for successful innovation commercialization. Below is a summary of these stakeholders:

• Tech Transfer Offices (TTOs): Seek to maximize the impact and sometimes the financial return on their research investments. TTOs must balance their need to deliver sound governance of publicly funded research outputs against the long-term success of startups they enable, while in some cases requiring immediate financial returns to operate a balanced budget. While TTOs are generally executing and administering the agreements, they are often constrained by institutional policy as to the content of those agreements.

  
  

• Startup Founders: Aim for clarity, simplicity, and speed in concluding licensing negotiations. Founders prefer licensing agreements that minimize early-stage financial burdens and that are well understood and acceptable to downstream investors. They are particularly sensitive to agreements that could add difficulty to their future fundraising efforts or impose onerous financial obligations during critical growth phases. While founders have an obvious motivation to get new technologies to market, first time founders in particular often lack understanding of the implications of various models of IP licensing and management and are often in a position of having the counterparty in these negotiations, the TTO, as their primary source of related information.

  
  

• Investors: Look for clear, equitable stakeholder agreements that provide freedom to operate and a clear path to IP ownership, and that define their share of future gains without unnecessary complexity or constraints. They value transparency in equity distribution and are wary of agreements that might erode their investment through diversion of growth capital or preferential treatment for other entities on exit. While investors are rarely directly involved in tech transfer negotiations, their experience correlating different models of tech transfer to commercialization outcomes is a key input to the conversation.

  
  

• Regulatory Bodies and Public Funding Entities: Although not directly involved in the SAIL agreement, these stakeholders have an interest in the efficient commercialization of publicly funded research and ensuring effective translational activity. Their regulations and funding conditions can and should impose constraints on how universities and startups engage in licensing agreements and are the single most important force behind changing incumbent institutional policies.

  
  

• Uninvolved Inventors: While often aligned with university goals, inventors seek to ensure their contributions are recognized and fairly compensated. In cases where some or all inventors are not directly involved with the startups, they are interested in arrangements that support their ongoing research and development efforts and that provide a personal financial return commensurate with their contribution to the idea.

Key Features of SAIL

• Flexibility: Designed to be adaptable across various types of IP and industry sectors, ensuring broad applicability.

  
  

• Clear Equity and Compensation Structure: Establishes predefined terms for equity or future compensation linked to the startup's valuation at specified future funding events using a well-established financial instrument for this purpose (the YC SAFE by default, though any well-tested convertible debt agreement can me made compatible), ensuring fairness, transparency, and investor confidence. Though we understand that Universities may not use SAFE agreements, it is possible to use other types of agreements provided valuation of the licensee is deferred to a later date.

  
  

• Involvement of Inventors: Designed to facilitate involvement of inventors and university employees in spin-out activity by providing a simple framework to proactively manage the potential for conflict of interest.

  
  

• Alignment of Incentives: Ensures that all success and risk is shared fairly between stakeholders, aligning founders, universities, and investors toward the same outcome.

  
  

• Defined IP Rights: Clearly outlines the scope of IP rights being licensed, including provisions for improvements, derivatives, and future inventions related to the initial IP that avoid the need for additional negotiation when new related IP is available

  
  

• Simple Dispute Resolution: Proposes straightforward mechanisms for dispute resolution to avoid lengthy and costly legal battles, focusing on mediation or arbitration.

  
  

• Access to University Resources: Provides a simple framework for startups to be incubated within their parent university that addresses conflict of interest issues that can arise when hosting private enterprise in publicly-funded institutions.

Conclusions

SAIL represents a significant step forward in fostering innovation, reducing barriers for startup founders, and ensuring universities and researchers are fairly compensated for their contributions. By adopting a streamlined, equitable approach to IP licensing, we can accelerate the transfer of knowledge and technology from academia to the marketplace, benefiting society at large. This proposal invites feedback and collaboration from universities, legal experts, and the startup community to refine and implement the SAIL framework effectively.

As noted above, it is not necessarily just a matter of adoption of SAIL by TTOs across Canada. Many of them cannot, under the requirements of incumbent university tech transfer policies. This is a conversation that needs to happen nationally, involving all the key stakeholders identified above.

The following few posts feature a series of articles breaking down each section of SAIL to provide a detailed explanation of both the intention behind the legal language and the thought process that led us to that point. If this initiative interests you, and you would like to be a part of that conversation, please reach out to me or my co-authors directly.

Many thanks to Rami Alhamad for the conversations that led to the conception of this entire project, David Durand for his incredible generosity with his time in providing thoughtful review and debate, Tai Nahm for his reviews of our early drafts, and a host of tech transfer professionals, investors, and other members of the innovation community for their feedback and encouragement.