Technology Transfer Transactions

In addition to transferring patent rights, as is the case with a pure patent sale, a technology transfer often involves transferring designs, prototypes, trade secrets, intellectual property, even technical staff. In its broadest sense, "technology transfer" means the transfer of ideas, information, methods, procedures, techniques, tools, or technology from the developers to potential marketers or customers. 

Depending on the nature of the transaction, technology transfer deals can be structured in a number of ways.  Sometimes a startup corporation is formed and this becomes the container for the transferred assets.  Sometimes, the vehicle for commercialization is a division of an existing organization. The transaction can involve an outright sale of assets or a license with up-front fee and ongoing royalties.

Typical Technology Sectors

Technology transfers often take place in sectors where channels to market are highly specialized or very expensive to establish.  Any type of complex technology can form the subject of a technology transfer. However, they are very common in the medical/biotech sector where drug and medical device developers transfer their technologies to large manufacturing organizations so that they can gain access to established brands, retail and specialist distribution channels and other specialized routes to market.

Typical Organizations

Corporations, government bodies, startup companies and a wide range of organizations are involved in technology transfers.  These transactions are most commonly associated with the offices of technology licensing (OTL's) or strategic licensing groups (SLG's) found within research laboratories, universities and some high-tech corporations.

The transferor is generally a research and development organization that does not have appropriate routes to market for the technology in question.  The transferee is generally a corporation or startup with access to markets via sales, marketing and distribution channels that is looking to expand by sourcing new products and revenue streams.

Common Concerns

R&D laboratories and universities all over the world often receive government funding to support their activities. Government funding usually comes with strings attached.  Technologies developed under these funding arrangements are frequently encumbered--restrictions are placed on the sale and transfer of the resulting patents and intellectual property. Many government funding programs restrict the way resulting technologies are sold or licensed.  Some restrict assets from being transferred to foreign entities. Others restrict outright sale but allow for licensing. As a result of these funding programs, many technology transferees are concerned about working within the guidelines and the nature of the restrictions can drive the way the technology transfer transaction is structured.

Technology transfers are sometimes the source of human resource concerns for both the transferor and the transferee. As some technologies are highly dependent on a core team of scientists, researchers or engineers, the transfer involves transferring individuals as well as assets.  The terms of the transfer, recruitment, remuneration and other human resource issues need to be carefully managed in these transactions.

Confidentiality is a concern for many organizations involved in technology transfers, especially where patents and trade secrets are concerned.  As a result, confidentiality agreements are carefully negotiated by the parties and restrictions placed on how sensitive information can be used.

Transaction Process

The process from initiation to final closing can take 9 months or longer depending on the size and complexity of the transaction.

1. Business Plan - From the perspective of the transferor, the process starts with the identification of the technology to be transferred,  estimation of the market opportunity and identification of the type of partner and business structure most suitable for successful commercialization of this particular technology.  Tynax recommends the transfer process for the most complex transactions starts with the preparation of what can best be described as a "business plan" as it analyzes the entire opportunity, strategy as well as tactical implementation matters.
2. Marketing Materials - There's little point in approaching a potential transferee until the materials have a good description of the technology to be transferred and the resulting business opportunity. As these materials will be studied by both technologists and financial analysts,  they need to justify the opportunity from both technical and financial perspectives.
3. Create & Circulate Anonymous Tynax Listing - The listing summarizing the opportunity is syndicated to Tynax brokers and potential candidates worldwide via the website exchange, email and other channels.
4. Approach Transferee Candidates Directly - A list of potential partners is drawn up and targeted sales activities are directed toward these organizations--directly or where appropriate through their agents and intermediaries.
5. Presentations, Demonstrations, Questions & Answers - When a candidate has been engaged and wishes to investigate the opportunity, technical specifications are exchanged, meetings are held and the question & answer process can go on for several months.
6. Terms Negotiated - In reality, the parties are negotiating from the moment they initiate discussions,  however, the final terms are usually clarified and confirmed after the technical questions have been answered.
7. Term Sheet Agreed - The general terms of the agreement are noted and exchanged and provide the lawyers with the framework from which they can prepare the final documents.
8. Due Diligence Process - Depending on the nature of the transaction, due diligence can involve analysis of the patents, the technology, the marketplace, validation of entire business opportunity and clarification of title to the assets to be transferred. 
9. Final Closing - When the legal documents are agreed and the due diligence process completed to the satisfaction of both parties, the transaction can close.
10. Technology Transfer Takes Place - Following transfer, the process of commercializing the technology can commence. 

Key Negotiation Points

If a license is involved with royalty payments determined by future sales revenues, the parties negotiate a variety of licensing issues:

• Scope of the License - Exclusivity, duration, enforcement rights and other points can be important.
• Initial license fee - The amount of fee payable up-front.
• Ongoing royalty payments - The royalty calculation can be based on sales revenues, units, profits or other criteria.
• Reporting & audit rights - As it's usually necessary to measure the sales or other figures in order to assess royalties, the licensor must be able to have access to this information from the licensee, and to verify the accuracy of the reported numbers.
• Terms of the License - See Licensing Transactions.

Where the transfer involves the formation of a joint venture or startup company, these transactions can involve intense negotiation on a number of issues:

• The Nature and Structure of Commercialization Vehicle - In some cases the technology is transferred into a new corporation or LLC - in others it may be transferred to an existing corporate subsidiary or division.  Joint ventures can be created and the form of vehicle is a critical part of the negotiation.
• Equity Shares - Where a joint venture or new organization is formed, the ownership and structure of the capitalization table can be the source of some discussion between the parties.
• Board of Directors - The structure and make-up of the board of directors involve important issues of power and control.
• Management Team - Appointment of the CEO and other officers often involve some debate.
• Technical Team - In a technology transfer, the recruitment or transfer of the developers or experts in the field can be critical to success.

Many of these arrangements involve marketing support from either the transferor or the parent company to the transferee, or both. The parties can negotiate advertising, promotional support as well as distribution, sales, marketing and business development.

As you can see, there can be numerous and substantive issues to negotiate in a technology transfer transaction.

Why Tynax?

Tynax has the technical expertise, the marketing channels and the transaction expertise to broker complex technology transfer transactions.  Startup incubators as well as large corporations use the Tynax exchange to search for new technologies and opportunities. 

Through its team members and its association with ASTECS, the Association of Technology Entrepreneurs, Tynax has extensive startup expertise, a unique methodology for structuring and managing startup companies and access to a large number of venture capital, angel and corporate investors.