UTMB HANDBOOK OF OPERATING PROCEDURES

Section 1 Official Governance Subject 1.1 Official Governance Policy 1.1.4 Intellectual Property

09/11/07-Originated -Reviewed w/ changes -Reviewed w/o changes Office of the President -Author

Intellectual Property

Definitions	Intellectual Property: are defined as inventions, discovery, trade secret, technology, scientific or technological development, computer software, or other form(s) of expression that is a tangible form
Policy	Intellectual property related to the area of expertise for which an individual was hired or resulting from activities performed on U. T. System time, or with support by State funds, or from using facilities owned by the U. T. System or any of its institutions is subject to ownership by the Board of Regents. The UTMB Center for Technology Development (CTD) administers the intellectual property policy for UTMB. The Center, in coordination with the Conflict of Interest Committee and the Office of Legal Affairs, where applicable and appropriate, will perform all duties with respect to the implementation of this policy. The President of UTMB will have ultimate responsibility for all decisions.
Invention Disclosures	Inventions should be reported to the CTD Office as soon as an inventor believes he/she has a new discovery, creation, and/or invention, including software, by submitting an "Invention Disclosure Form" (IDF). The IDF is a legal document that will clearly explain what is invented or what scholarly work was created, who sponsored the work, whether it has been or is scheduled for publication. For patentable inventions, the IDF should clearly indicate the new, useful and non-obvious properties of the invention over existing art. All contributors to the invention should be listed in the IDF even if they are non-UTMB employees. When a new IDF is received, it is given a UTMB identifier, logged into CTD’s database and assigned to the appropriate technology manager. An acknowledgement letter is sent to the inventors listed on the invention disclosure form.
Evaluation of Invention Disclosures	The CTD staff will evaluate the Invention Disclosure Form to determine • UTMB’s interest in and rights to the invention • Appropriate intellectual property protection, i.e., patent, copyright or

Evaluation of Invention Disclosures, continued

research tool • Commercial potential and market interest, and  • Technical merit The CTD Technology Managers meet regularly to review IDFs submitted to the CTD. At the review meeting the managers will also determine the inventions commercial potential by (a) identifying potential markets for the invention, (b) segmenting the market by existing technologies, applications and companies and (c) sizing those segments in which the invention seems to fit. In conjunction with this examination of market potential, third party interest in licensing the technology will be assessed. As necessary and appropriate, the CTD may consult with members of the UTMB faculty to review the invention disclosure for technical merit and to comment on the commercial potential and competitive advantages of the technology. Following initial evaluation of the Invention Disclosure the CTD will make a recommendation that may include the following: • Hold the disclosure for more information or research data from the inventor • Recommend whether or not to seek protection (patent or copyright) on behalf of UTMB • Pursue a research sponsor or licensee. Potential licensees may include existing or new start-up companies with an interest in using or commercializing the technology. • Release of some or all of the rights to the inventor(s). Inventors shall be notified of this recommendation within 20 business days after a decision is made on the on the invention disclosure. Invention Disclosures which the CTD considers promising but are either incomplete or have insufficient information for submission of a patent application or for which there is insufficient current interest are candidates for being held for future pursuit. CTD will hold the invention and monitor its development with the aim of protecting and/or licensing the invention when it has evolved sufficiently. In those instances where the evaluation of the marketing and patent prosecution process indicates that the CTD is not likely to pursue commercialization, the rights to the technology may be returned to the inventor(s).

Evaluation of Invention Disclosures, continued	When the President, or his designee, decides to patent or copyright an intellectual property, the CTD coordinates with outside intellectual property counsel approved by the Texas Attorney General and UT System to obtain the appropriate protection.  UTMB will give due regard to inventors in making decisions with respect to patents on their inventions and keep them informed of the decisions during patent prosecution. Inventors must assist throughout this process to ensure getting the strongest intellectual property protection. UTMB will bear expense of protecting such intellectual property. If UTMB decides to abandon a patent application, it first shall offer to release the invention, discovery, technology, or innovation back to the inventor, subject to the release provisions of the UT System.
Release of Rights to the Inventor	Except where prohibited by law or contractual obligations or requirements, the UTMB’s President may elect to release an invention to its Inventor at any time after asserting UT System's interest, with notice to the UT System Office of General Counsel; however, such a release must include provisions for the recovery of patent and licensing expenses, if any, as well as the UTMB retention of certain income rights, a nonexclusive license to the UT System, and any of its institutions to use the released invention for patient care, teaching, scholarly and other academically related purposes, and nonprofit research and may include certain limitations or obligations, including those set forth above. If a patent application has not been filed for the intellectual property then UTMB may require the inventor(s) to make formal application to the patent office for a patent on the invention within a specified number of days. Revenue derived from the commercialization of the released intellectual property shall not be considered royalty and shall not be subject to distribution to the inventors(s) or their laboratories.
Commercial-ization	The CTD determines what course of action to follow in order to realize the greatest potential for inventions. The first step is to assess the market potential of the technology by conducting a thorough market analysis to identify potential companies that may be prospective licensees. The companies are identified through proprietary database searches, industry contacts and in consultation with the inventor. Before contacting the companies, the CTD with the assistance of the inventor will write a non- confidential summary of the technology. The CTD will then contact the companies to asses their interest in obtaining a license to the technology. For unlicensed technologies, the CTD will reevaluate the marketing strategy annually and a decision will be made whether to continue marketing the technology.

Commercial-ization, continued

The CTD negotiates and administers all transactions relating to intellectual property owned by the Board of Regents, UT System for and on behalf of UTMB.  Such arrangements may include, but are not limited to, confidential disclosure agreements, material transfer agreements, joint ownership agreements, option agreements, and license agreements.  The Board of Regents and UTMB may grant licenses of any type, including, but not limited to, exclusive or nonexclusive licenses. In addition, all license agreements must provide UTMB and its inventors protection from undue restrictions of scientific publication and provide full indemnification and use of name restrictions.   Intellectual property agreements may yield a variety of different financial payments, which may include, but are not limited to, up-front license fees, milestone payments and royalties.  The resulting licensing income provides an incentive to UTMB inventors and authors to participate in the complex technology transfer process, funds further UTMB research, and supports the operation of the UTMB technology transfer program. All such income will be received through the CTD, which will maintain accounts documenting intellectual property expenses, income and disbursement. Licensing income will be distributed according to UTMB’s policy for disbursement.

Non-equity Revenue Generated Through Commercialization

Before disbursing licensing income, UTMB will deduct the expenses it incurred to protect, manage, and transfer the intellectual property. Additionally, UTMB may withhold a portion of the income received through licensing to meet expected future expense obligations. I - Disbursable net licensing income for licensed intellectual property that is proprietary to UT System and UTMB will be distributed according to the following formula: • 50% to Inventor(s) as personal share • 25% to inventor(s’) UTMB laboratory(ies) * • 25 % to UTMB *Note that the Laboratory Share is distributed ONLY in the period that the inventor remains a UTMB employee; should the inventor leave UTMB, the inventor(s') laboratory share is retained by UTMB. II - Disbursable income for the transfer of by-products of research will be

Non-equity Revenue Generated Through Commercialization

distributed according to the following formula: • 75% of annual disbursable income is disbursed to inventor(s') laboratory(ies) • 25% is retained by UTMB. By-products of research are defined as assets that are (i) not covered by an issued patent or pending patent application (current or past) and (ii) limited to a finite quantity.  Examples of by-products of research include purified proteins and antibodies. No inventor will receive a Personal Share of income from the licensing of by-products of research. If multiple inventors are due to receive Personal Shares resulting from a license generating income, the inventors must submit a written revenue sharing agreement signed by all inventors to the CTD.  The proportion by which the inventors agree to share their Personal Shares is applied to their separate Laboratory Shares. With UTMB's President's approval, inventors may assign their Personal Shares to UTMB and designate such income be added to their Laboratory Shares.  A written assignment must be submitted to the Center for Technology Development, and, if approved, only applies to the income received subsequent to the assignment date.  If the assignment is revoked, such revocation only applies to the income received subsequent to the revocation date. Payments are made to the inventors within ninety (90) days following the receipt of the royalty payment. Licensing income retained by UTMB may be used for research, managing intellectual property, and creating technology development services. The Board of Regents shall have sole ownership of all intellectual property created by an employee who was hired specifically or required to produce it or commissioned by the U. T. System or UTMB. Except as may be provided otherwise in a written agreement approved by the President of UTMB, the provisions of the Regents’ Rules and Regulations Series 90102, Number 2, Section 2.5 relating to division of royalties shall not apply to intellectual property owned solely by the Board of Regents.

Equity Ownership and Business Participation

For purposes of this policy, equity is stock, the right to receive stock, or an ownership interest in a business. UTMB accepts equity in private or publicly held businesses in addition to and/or in lieu of licensing payments. Such licensing activity shall be conducted in accordance with the UT System Regents Rules, the Conflict of Interest Policy, the Policy on Integrity in Research, and related UTMB policies and guidelines. The terms of a technology licensing-related transaction shall be consistent with UTMB transactions for comparable technologies and will include the following: • Commercialization plans for the technology, including financial projections and performance milestones • The amount of UTMB equity in the company • UTMB representation on the Board of Directors (determined and appointed by the President) • Financial and progress reports quarterly, a financial statement to be prepared annually according to generally accepted accounting principles, and a copy of company yearly income tax statements within 30 days of filing • All future patent expenses related to the licensed technology will be paid by the start-up. Stock certificates for UTMB’s equity will be managed by the University of Texas Investment Management Office under its standard guidelines. The equity will be sold according to procedures which insure that decisions to sell are made independent from the inventors or the CTD and with approval of the President. Liquidated equity shall be subject to the Intellectual Property Policy of the UT System Regent’s Rules as found in Series 90103, Section 1 and according to relevant policy adopted by UTMB. The institutional equity position will be decided at the inception of any start-up company. Upon the occurrence of an exit event of a company in which UTMB has an equity position, the proceeds will come back to UTMB in their entirety with the distribution of the proceeds determined by the President.

Equity Ownership in UTMB Faculty – Owned Start-Up Companies

In addition to the above policy for equity-based licensing transactions, the following requirements must be part of the transaction when UTMB inventor(s) intend to participate as an owner in the company: • Participating inventors must sign a Conflict Management Plan developed and approved by the UTMB Conflict of Interest Committee. • Incorporation documents, including By Laws, Registration Rights Agreement, Shareholders Agreement, and Subscription Agreement and when applicable: Convertible Demand Agreement or Promissory Note on file with the CTD. • Participation of the faculty/owner shall be limited to the Chief Scientific/Technical Officer. As long as the faculty/owner is a full time UTMB employee, he or she may not function in an active management position, including as a Chief Executive Officer or Chief Operating Officer. • Stock held by the Faculty/Owner will be distributed on a vesting schedule, commensurate with performance milestones (example: % ownership at inception, additional % following a successful funding round, and additional % following a Series A funding.) • Comprehensive business plan on file with the CTD addressing governance, management, funding, research and development strategy and exit strategy. Achievement milestones will be established, including: (1) effective company management, including personnel with a strong financial background, must be functional within 12 months of execution of license from UTMB and (2) adequate funding should be raised in the next twelve months to execute the technology commercialization plan. • Capitalization chart on file with the CTD showing the number of stock shares issued, % ownership of all participants, and the value of the company.

Product Buy-Back Provisions for Technology Developed at UTMB

The following provisions should be in any license granted to a UTMB start up company that is based on technology developed at UTMB: “UTMB and Company agree that “Products” derived and developed by company from the technology licensed by Company from UTMB under this Agreement may be purchased by UTMB on a cost basis calculated as follows: • Direct Cost: defined as all one-time cost of materials, supplies, labor (including benefits) and any other item directly used in the production of the product excluding capitalized items

Product Buy-Back Provisions for Technology Developed at UTMB continued

• Indirect Cost: defined as all cost for Product production including facilities, utilities, equipment (on a depreciated basis) …start-up cost (depreciated per IRS guidelines) • General Sales and Administrative Cost: General Insurance, legal fees, taxes, marketing cost and general administrative operating expenses (20%-30%) • Profit: 15%-25% Product Price Cap ($x/unit) shall be initially calculated by Company and shall not be exceeded during subsequent sales each year. In the event average annual cost is less than the Price Cap, Company shall refund to UTMB such excess amounts. Each year on the anniversary of this Agreement, UTMB and Company shall evaluate actual cost per Product and re-establish Product Price Cap. Annually Company shall furnish to UTMB a complete cost breakdown of all costs and expenses for production of the Products purchased by UTMB pursuant to this provision. UTMB or its authorized audit representative reserves the right to audit Company’s books and records relative to the production of the products and related costs and expenses related thereto. Notwithstanding anything to the contrary contained above, in no event shall UTMB’s purchase exceed the current market rate for sales of the product to all other customers of Company.

Consulting Transactions with External Entities

Faculty who are hired and paid by an entity external to UTMB are subject to the rules found in the UTMB Management Responsibilities Handbook. The relevant policy is: Consulting agreements between a faculty member and an outside organization (commercial or non-commercial) are considered outside employment under UT System Regents’ Rules and Regulations, and must receive prior approval of the department head and dean to assure that the duties under the agreement do not conflict with the duties the employee owes to UTMB. In clinical departments, a determination must also be made as to whether the money received will become MSRDP income. Also applicable are the policies found in the University of Texas System Rules and Regulations of the Board of Regents Series 30103 (Standards of Conduct).

Consulting Transactions with External Entities continued

As a courtesy to any UTMB faculty, the CTD will review a consulting agreement to determine if there are provisions in the agreement that are non-compliant with the Intellectual Property policies of the UT System. The liability for signing the consulting agreement and fulfilling the obligations of the agreement are solely the responsibility of the faculty consultant. Faculty who are hired and paid as consultants by an entity external to UTMB shall be considered to be hired for specific scholarly services relative to their field of scientific expertise. Intellectual property which may result from such consulting agreement related to the area of expertise for which the faculty was hired is subject to ownership by the Board of Regents.

References

Regents' Rules and Regulations - Series 90101, Section 2 (UTMB Employees)