WARNING:
The Tax Simplification Act of 1984 (I'm pretty sure that's the one) had in
it, or in the Congressional discussions published about it, a restriction
on specifying the return for an invention before the invention is ready to
sell as an intellectual property.  The penalty is some limitation on
issuance of tax exempt bonds.

To restate the situation:  Congress perceived an abuse, in that
universities were reputed to make big deals committing the licensing of all
their future inventions for a prenegotiated rate.  Congress felt that
"selling" something before you really knew what it was or what its value
was, was unwise, and in addition, they were concerned that many of the
inventions presold in this way would be invented using federal research
money.  So they wished to make this practice unpalatable to institutions of
higher education.

SO, if you expect the higher education institution to need to issue tax
free bonds, check with your bond counsel before agreeing to a royalty rate
prior to knowing what the invention is!!

Your underlying question was directed at what rate to settle on in your
negotiations.  If I understand correctly, you have no idea what the value
of the invention is, because you haven't made it, yet.  So there is no
reasonable way to set a rate.  (The Congress maybe wasn't as dumb this time
as it usually is!)

You refer to 50% and 20%.  Per cent of what?  There is no "standard"
royalty rate, though there are rates that are typical in a given industry
for inventions of a given type.  For good business practice, the rate must
be applied to an objectively measured datum. Very typical is the selling
price (usually net of returns, rebates and shipping cost) of the product(s)
produced under the licensed patent.

Those numbers are VERY high.  Could they relate to the share of the total
royalty in a jointly invented/owned patent?  In that case, the situation is
wholly open for negotiation.  The only reasonable approach is to look at a
number of things:  Is it really joint, or is the company taking advantage
of the insititution?  What are the relative contributions to the licensable
intellectual property?  (The university may have a controlling but
scientifically fundamental patent, but the company may add refinements that
enable a product to be made.)  And finally, a small percentaqge of
something is better than a large percentage of nothing; you may be forced
to accept a lower percentage than you'd like simply because you can/will
not undertake the additional risk to get to a marketable intellectual
property.

You asked a BIG question, with no real details.  Each situation is
different.  Phone me, or a university Tech Transfer officer, with more
details, and you'll ge  much more helpful advise.

Chuck

At 09:10 AM 11/11/97 -0500, you wrote:
>I'm looking for some guidance on the question of royalties to be specified
>in a proposal for a contract between a higher education institution and a
>company.  The institution is seeking royalties on potential patentable
>outcomes in the amount of 50%, the company does not want to pay more than
>20%.  My sense is that this is all a matter of negotiation, but would like
>to know if the numbers are realistic on both sides.  Is there any guidance
>in the NSF or NIH general guidelines?  What is the experience of those who
>are involved in tech transfer programs on this question?
>
>I'm researching this for a friend.  We seminarians don't get much traffic
>in the tech transfer area -- although if anyone needs a CD-ROM version of
>the Talmud, don't hesitate to call.
>
>Andrew
>---------------------------
>Andrew J. Grant, Ph.D.
>Director of Foundation and Corporate Relations
>The Jewish Theological Seminary of America
>3080 Broadway, New York, New York 10027
>Voice: (212) 678-8934; FAX: (212) 678-8941
>E-mail: xxxxxx@jtsa.edu (Andrew J. Grant)
>URL: http://www.jtsa.edu
>
Herbert B. Chermside, CRA
Director, Office of Sponsored Programs
Virginia Commonwealth University
PO BOX 980568
Richmond, VA  23298-0568
Express Delivery:
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Phone:    804-828-6772
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