The University’s Technology Transfer Policy provides for the sharing of revenues received from commercialization efforts (“license revenue”) with “Inventors.” The Tech Transfer Policy sets a percentage of net revenues to be distributed among involved inventors (the “Inventors’ Share,” e.g., 50% of the first $200,000). The relative percentage that each inventor will receive of the total Inventors’ Share must be set separately for each agreement.
In order to provide an equitable and workable process for determining and documenting the relative inventor distribution percentages, U-M Tech Transfer has established the following procedure. The procedure includes the creation of a Revenue Distribution Plan (RDP) to document these relative percentages that are intended to estimate each inventor’s contributions to the intellectual property being optioned or licensed to an outside company, ideally as recognized by the inventors themselves.
The Revenue Distribution Plan (RDP)
According to the following steps, Tech Transfer will endeavor to create a draft RDP shortly after an agreement is first executed unless this is not appropriate under the circumstances. The intent of the draft RDP is to provide an initial basis for discussion among the inventors. An inventor should contact both Tech Transfer and his/her co-inventors if the inventor does not receive a draft RDP but is aware that several weeks or months have passed after completion of an agreement.
- Each Invention Report (IR) requests that inventors agree upon and identify “contribution percentages” at the time of IR submission. If the basis for the rights granted in the agreement relates to a single IR, then the draft RDP will simply use the contribution percentages stated in the IR. If the basis of the rights granted in the agreement relates to multiple IR’s, Tech Transfer will create a composite set of contribution percentages as the basis for the draft RDP, by equally weighing each IR and averaging the stated contribution percentages. If the IR (or, in the case of multiple invention reports, one of the IRs) did not include contribution percentages or if Inventors are added or dropped from the patent process, the procedure in section 2 below will be followed. Although Tech Transfer will facilitate obtaining contribution percentages on an IR, this task is the responsibility of the inventors.
- In the absence of contribution percentages from IRs, Tech Transfer will compute a draft set of contribution percentages based upon the number of times that each inventor is named in the U.S. patents and applications included in an agreement at the time of the draft RDP. Tech Transfer will weigh each U.S. patent/application in the agreement equally, even if one might argue, for example, that a particular patent might be more valuable or might not be in use by the licensee. Foreign applications/patents will not be used in the computation.
For example if there are two patents, one naming Inventor A and the other naming Inventors A, B, C and D, then the draft RDP would show Inventor A to receive (100%+25%)/2, or 62.5%, of the inventors’ share. Tech Transfer will make reasonable interpretations of, or alterations to, this method in unforeseen or unusual circumstances.
Specifically, the following will be counted:
- each pending U.S. utility application or U.S. patent will be counted once
- a provisional application will count only if a utility or PCT application has not been filed
- each pending continuation and divisional application/patent will count
- a PCT application will count only if no U.S. application has yet been filed (since a U.S. application may be filed from the PCT)
Note: For copyright and other agreements, if Section 1 does not apply, the draft RDP will state an equal percentage for each inventor. For agreements combining both patented and non-patented inventions, Tech Transfer may use other parameters, or a combination of parameters, for the draft RDP.
Tech Transfer will ask one of the inventors, usually the lead inventor as indicated in the Invention Report (but possibly an inventor who takes a leadership role in patenting and licensing), to act as a coordinator for seeking approval from each inventor for either (a) the draft RDP or (b) an altered RDP.
Except under situations described in the following paragraph, Tech Transfer will use the approved RDP for all revenue distributions relating to the agreement, regardless of patent coverage, product decisions by the licensee, or other information received from third parties or inventors. If the approved RDP is later revised, then the revised RDP shall only apply to revenues received after the date of the revised RDP.
1. A new inventor not previously included in the licensed portfolio is added, for example when Tech Transfer adds new patent rights or copyrights to the agreement by formal amendment. (Sometimes it is necessary to correct inventorship of patents or applications; typically this will not trigger an RDP revision unless (i) a new inventor is added who was not previously named in the licensed portfolio or (ii) an inventor is removed from all patents in the licensed portfolio.)
2. Tech Transfer adds new patent rights or copyrights to the agreement by formal amendment, and Tech Transfer determines there is clear evidence that those added rights were significant under the circumstances. The following are examples of facts that may be taken into consideration when determining whether rights added to a license were “significant”: (a) whether rights were added to the agreement along with new diligence milestone requirements; (b) whether the rights would be expected to result in end products in different fields of use compared to the rights already in the license; and/or (c) whether rights were added to the agreement along with substantially new or increased licensing fees. (Only rights added by amendment will trigger this section, e.g., newly filed continuations or divisionals based on an application already included in a license will not trigger this section.)
3. A patent or patent application within an agreement is either abandoned or dropped from the agreement and OTT determines there is clear evidence that those rights were significant under the circumstances. Abandoning of most applications (particularly a continuation or divisional application) typically will not trigger this section; in the case of abandoned or dropped patents, in most cases, the rights will not be considered “significant” unless there was a corresponding reduction in licensing terms.
4. All the inventors agree of their own accord in writing to a revised RDP (where the percentages bear some relevance to the research, technology, patents, or underlying agreement).
Inventors should alert Tech Transfer if they believe any of the above circumstances has arisen that may require a RDP revision.
Inventors may appeal final revenue distribution decisions to the Vice President for Research pursuant to the appeal process in the Technology Transfer Policy.
For license revenue receipts of less than $50, Tech Transfer may hold this revenue until the accumulated total reaches $50.
Unforeseen circumstances may prevent Tech Transfer from distributing license revenue according to this schedule. These circumstances may include, but are not limited to: the need to revise the RDP; potential or pending legal action; insolvency or bankruptcy of the licensee; expected or potential expenses associated with the license.
- For active employees, distributions cannot be combined with your paycheck.
- No income taxes are withheld.
- Payments are reported on form 1099-MISC, Box 2 (“Royalties”) at calendar year-end.
Please note: individuals receiving payment through Accounts Payable will be asked to complete form W9 to verify their citizenship, address, and Social Security Number. Federal regulations require the University to have this form on file.
Revenue distributions to Non-Resident Aliens are paid by the University Payroll office. Appropriate income taxes are withheld, and payments are reported on form 1042S at calendar year-end.
Tech Transfer strongly recommends that inventors seek accounting advice related to the potential need for paying estimated taxes. Other information on tax issues related to royalty revenue can be found here.