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Compliance & Policies

Policy on the University's Relationship with a Faculty Start-up Company

Effective: July 20, 2001

  1. PREFACE

    The University recognizes that our primary functions are education, research, the expansion of knowledge and the application of that knowledge to advance the common good. Further, the primary professional obligation of faculty is to Washington University. To facilitate technology transfer, the University needs to provide an organizational structure and procedures through which inventions and discoveries made in the course of University research are made readily available to the public through channels of commerce. The University further recognizes that efficient and effective means of commercializing University technology may be through small, start-up companies that are founded by, or have a close relationship with, university faculty. The University is enthusiastic about such ventures and wishes to be supportive of faculty and companies formed for the purpose of developing and commercializing University technology. When such companies are formed, conflict of interest, conflict of commitment and other issues related to assuring the most effective and rapid development of University technology into products benefiting the public must be addressed. The following recommendations address the relationship between the University and start-up companies founded by members of the University faculty.
  2. ASSUMPTIONS

    1. The technology is developed by a faculty member and the ownership rights thereto are either already vested in the University as required under the University's Policy on Intellectual Property ("IP Policy") or are assigned to the University by the faculty member.
    2. The faculty member:
      • is actively involved in the founding and/or management of the start-up; or
      • holds significant equity (>5% of total authorized shares or value exceeding $10,000) in the start-up; or
      • is a member of the governing board of the start-up; or
      • holds, or will hold, equity in the start-up and would otherwise be entitled to receive a share of revenue from the commercialization of the invention in accordance with the IP Policy.
  3. RESPONSIBILITIES

    University Responsibilities

    At an early stage, the Vice Chancellor for Research, or his designee, in conjunction with the faculty member, where appropriate, will:

    1. Ensure that the Dean and relevant Department Heads are aware of the faculty start-up enterprise;
    2. Conduct a diligent examination of the sources of funding and applicable research agreements to ensure they are compatible with each other and that the University's interest in the intellectual property is protected;
    3. Help determine whether granting rights to the start-up is the "best mode" for commercialization, as opposed to a licensing agreement with a third-party commercial sponsor;
    4. Help identify outside professional advisors and other resources to aid the faculty member in structuring, organizing and managing the start-up company and obtaining capital financing;
    5. Define and negotiate the technology license with the start-up company; and
    6. Manage all intellectual property (patents, copyrights, etc.) and research contracts and grants, as appropriate.

    Faculty Responsibilities

    1. Faculty members must comply with all University policies, including employment, intellectual property and conflict of interest policies;
    2. Faculty members involved with a start-up company must fully disclose their activities and ownership to any trainees, fellows or students working on their research. Trainees, fellows and students should not be assigned to research projects that will lead to a direct financial benefit for the faculty member;
    3. All potential faculty conflicts of interest must be disclosed to the Disclosure Review Committee (DRC) on the Danforth or School of Medicine campus, in accordance with the University's Policy on Conflict of Interest. A suitable management strategy must be developed by the faculty members and the DRC;
    4. It is always up to the dean and/or department head to establish guidelines for time spent by faculty on outside activities. In general, a significant conflict of commitment will be created if the faculty member's responsibilities for the start-up company exceed more than one day per week; and
    5. To avoid the perception of conflict of interest, it is highly recommended that a faculty member who holds significant equity in the start-up company (as defined under B.2) allocate their personal share of the University's income (45% of net income) to his or her laboratory, rather than taking this share of income as additional personal revenue. In either event, the faculty member must disclose to other investors in the company how his or her share of the licensing revenue due the University is allocated.
  4. UNIVERSITY'S RELATIONSHIP TO THE START-UP COMPANY

    1. The University may grant to the start-up company an exclusive, worldwide license for the technology with the right to sublicense. The terms of the license agreement generally will include the start-up company paying the University:
      • All future patent expenses, and the University may seek reimbursement for any past patent expenses;
      • A license fee and annual maintenance fees for years prior to first commercial sale;
      • Milestone payments due on each round of equity financing;
      • Milestone payments on achievement of critical product development events; and
      • An earned royalty on product sales by the start-up or sublicensees, with annual minimum amounts due in each year after first commercial sales (fully creditable against earned royalties).
    2. The start-up company will be obligated to provide the following diligence provisions required to maintain the license. Failure to satisfy these requirements may result in termination of the license by the University. The start-up company will:

      • Provide an acceptable development plan with at least semi-annual updates;
      • Meet all milestones;
      • Make all required payments and reimbursements within 60 days of the due date;
      • Comply with all necessary steps to effectively manage conflicts of interest;
      • Indemnify and provide satisfactory insurance for the University for product liability and other risks;
      • Require University approval of sublicenses; and
      • Require that obligations of licensees are passed onto all sublicensees.
    3. The University's equitable interest and role in the start-up company:

      • Equity will only be taken if approved on a case by case basis by the University, but the University's ownership of equity will never exceed 5% of all authorized shares;
      • The University will not hold a seat on the governing board or otherwise participate in management or operations of the start-up company; and
      • Approval by the Investment Committee of the Board of Trustees will be obtained, when appropriate.
  5. SPECIFIC STIPULATIONS REGARDING RESEARCH SUPPORT BY THE START-UP COMPANY

    The start-up company may, under very specific circumstances, support research projects at the University in the inventor/faculty member's lab, provided that:

    • All projects are subject to the University's stringent conflict of interest rules and, as such, a decision will be required by the appropriate DRC that a conflict-of-interest either does not exist or has been appropriately managed;
    • All projects are subject to the approval of the appropriate dean;
    • The scope of work is clearly defined and the research is not for product development for the company;
    • No employees of the start-up company will be included as named participants on any research contract with the start-up company;
    • All inventions arising from the work are owned by the University and subject to an option to negotiate additional licenses;
    • Other University full-time faculty and staff employees who wish to work for the company will be required to resign their position at the University or take a leave of absence;
    • Students in the PI's lab will not be permitted to function as employees of the start-up company, and should not be compensated under the research contract to ensure that they are free to pursue publication and thesis defense without restriction; and
    • Commitment to fund research cannot be used to replace a license royalty payment obligation.
  6. PERMITTED USE OF WASHINGTON UNIVERSITY RESEARCH SPACE

    The University recognizes that technology used as the platform for faculty start-ups is almost invariably at an early stage of development and is intimately related to the faculty's ongoing research interest. It is likely, therefore, that some technology development will be necessary at the University before it can be transferred to the new venture. The University will work with the new venture to assist in this transfer and to assure that University facilities and resources are not being used inappropriately to support product development and for-profit activities. Please refer to the Policy on Private Use of Washington University Research Facilities. The University will offer assistance to the faculty member to locate suitable off-site space for the start-up company, when this is appropriate.