The U.S. Bayh-Dole Act of 1980 fundamentally changed the nation’s system of technology transfer. This act was co-sponsored by Senators Birch Bayh (D-IN) and Robert Dole (R-KS).  The act created a uniform patent policy among the various federal agencies that fund research.  This enables small businesses and non-profit organizations, which includes universities, to retain title to inventions made under federally funded research programs.  

• Non-profits, including universities, and small businesses may elect to retain title to innovations developed under federally funded research programs 
• Universities are encouraged to collaborate with commercial concerns to promote the utilization of inventions arising from federal funding 
• Universities are expected to file patents on inventions they elect to own 
• Universities are expected to give licensing preference to small businesses 
• The government retains a non-exclusive license to practice the patent throughout the world 
• The government retains march-in rights to take title to the invention in very specific circumstances 

Source:  AUTM Website   

The following sections explain how the commercialization process works at Pitt, beginning with the creation of something new to the world. 

Posting messages online describing the innovation, including websites, public forums or blogs Transferring scientific materials without the use of a Material Transfer Agreement Submitting grant progress reports which are accessible to the public Posting or publishing a student thesis that reveals confidential information Talking with external parties about the innovation without having a confidentiality agreement (CDA) in place Presenting at a department seminar that includes individuals outside of the University Sharing the content of a patent application or any description of the invention with someone outside of the University Conducting a classroom presentation of your novel discovery, including distributing handouts Publish anything – an abstract of scientific journal article for example Giving a talk or presentation at a public meeting

Confidential Disclosure Agreement (CDA), sometimes referred to as Confidentiality Agreement or Non-Disclosure Agreement (NDA) is a legal agreement between a minimum of two parties which outlines non-public information the parties may wish to share with one another, but wish to restrict from wider dissemination. For discussions related to your research and discoveries, you will need to contact the University of Pittsburgh Office of Sponsored Programs (OSP).  The OSP manages an online application for the web-based development, routing, and submission of non-financial agreements (Material Transfer Agreements, Data Use Agreements and Confidentiality Agreements) for Office of Research review.  For discussions related to commercialization opportunities on proprietary information covering your University technology you wish to disclose to another party, contact the Innovation Institute for further instructions.  This would include any information on the technology that is not yet in the public domain through a patent or publication.   All CDA forms must be signed by a university representative with appropriate signatory authority in order to be executed.  Please do not sign a confidentiality agreement yourself.  These documents will NOT be considered legally binding if you do so, and you run the risk of losing rights to your intellectual property.  If you are unsure who the proper University representative is, please contact the Innovation Institute at 412-383-7670 or email innovate@pitt.edu.  It is very important to have one of the following agreements in place before confidential, proprietary information is disclosed to anyone outside of the university. The disclosure of this information without a CDA first being in place can negatively impact the desire of a third party to commercialize that technology.

One-way Confidential Disclosure Agreement (CDA): used when a party wishes to receive further information to help evaluate a particular technology that they may be interested in. In this agreement, only one party will de disclosing any proprietary information (discloser) while the other party (receiver) will be obtaining the information for analysis. 

Mutual Confidential Disclosure Agreement : used when proprietary information is exchanged between both parties to the agreement. This agreement protects the proprietary information each side will be disclosing to the other. 

Three-way Confidential Disclosure Agreement : used when proprietary information is exchanged between more than two parties. This agreement protects all sides when they each are disclosing their proprietary information to each other. 

In general, Intellectual Property (IP) refers to any product of creativity. In a University context, this includes technical innovations, inventions, discoveries, and scholarly works of art and authorship (including software) created in the course of academic pursuits at Pitt. 

Intellectual Property is protected by federal government legislation in the form of patents, copyrights, and trademarks.

The commercial value of an innovation is typically dependent on the ability of its owner to restrict its use (by competitors), thereby providing one party with exclusivity over use of the innovation.  IP protection is traditionally composed of the following categories: patents, copyrights, know-how, trademarks and trade secrets – each is protected in a different manner.  

A patent for an invention is the grant of a property right issued by the patent office of the country or region in which protection is sought.  A U.S. patent is effective within the United States, U.S. territories, and U.S. Possession and grants the right to exclude others from making, using, offering for sale or selling the invention in the U.S., or importing the invention into the U.S.  The typical term of a U.S. patent is 20 years from the date on which the patent application was filed in the United States or, in some cases, from the filing date of an earlier related patent application, assuming all periodic maintenance fees are paid.  Patent term extensions or adjustments may be available in special circumstances.  The potential for success in the market can be greatly strengthened by the support of a patent, which can provide a substantial and sustainable competitive advantage.

There are three patent types:

1. Utility Patent: Protects any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof.
2. Design Patent– Protects a new, original, and ornamental design of a manufactured article.
3. Plant Patent Protects a new and distinctive plant that can be asexually reproduced.

1. Reduced to practice – The invention must be more than just a theory or concept and requires a complete description of the new process, machine, article, or composition. 
2. Novel – The invention must be new and different from what has been used or described in the prior art.
3. Useful – The invention must have a useful purpose and must be operative to perform the intended purpose.
4. Non-obvious – The invention must be sufficiently different from the prior art in a way that is not obvious to someone of ordinary skill in the field of the invention or covered by prior-art (that is, someone has described or shown or made something that contains a use of technology that is very similar to your invention)

It is important to note that not all inventions and discoveries are patentable. The courts have interpreted the patent law to define certain limits on patentable subject matter. In general, natural phenomena, laws of nature, and abstract ideas are not eligible for patent protection. For example, a new chemical compound may be patented as a new composition of matter, but the discovery of a molecule that exists in nature would not be patentable. Software typically is not a patentable invention unless it executes a new technical process or improves the functionality of a device. Also, works of authorship are not eligible for patents.

A Provisional patent application provides the means to establish an early effective filing date in a later filed non-provisional application and provides a short-term amount of protection (one-year). The effective filing date establishes the priority or place in line with respect to the prior art and inventions of others that can be used to reject the subject patent application. Having an early filing date is especially important now that the United States has transitioned to a first-inventor-to-file (FITF) system. At the end of the year time limit (or before), one must convert to a Non-Provisional patent application.

A Non-Provisional patent application (or a full patent) contains all appropriate embodiments and at least one claim.  

A Divisional patent application is a patent application that has been “divided” from an existing application.  A divisional application can only contain subject matter in the application from which it was divided (its parent), but retains the filing and priority date of that parent.

A Continuation is an application filed by an applicant who wants to pursue additional claims to an invention disclosed in an earlier application of the applicant (its parent) that has not yet been issued or abandoned.  The continuation uses the same specification (or body) as the pending parent application.

Continuation-in-Part is an application claiming priority to the parent application in which the applicant adds subject matter not disclosed in the parent, but repeats substantial portion of the parent’s specification, and shares at least one inventor with the parent application.

A PCT is an international application filed under the Patent Cooperation Treaty. The Patent Cooperation Treaty provides a unified procedure for filing patent applications in each country that is a party to the PCT (about 150 countries).  However, the PCT does not provide for the grant of an “international patent” as one does not exist.  Each country or regional authority that is a party to the PCT determines whether to issue a patent in that country or region.

Once the application file is accepted as complete, the case is assigned to a patent examiner.  Once submitted, the patent application undergoes examination by the patent office.  This examination process is a series of discussions that occur between the patent attorneys working on behalf of the University and a patent examiner at the patent office that was assigned the patent case.  

Ongoing discussions can occur with the examiner until the application is:

1. Accepted as is 

1. Accepted after changes are made 

1. Rejected through a final rejection notice*

*There are a variety of paths that can be taken to pursue patent protection for the invention in the event of a rejection.

The duration of these discussions can vary significantly and can typically last over three years. The Innovation Institute remains involved with the inventor and the patent attorney throughout the process. The term of a patent is 20 years from the earliest effective filing date.

Since the patent rights granted by the United States Patent and Trademark Office (USPTO) do not cover foreign countries, the differing foreign laws for each country must be followed for protection in that country. Foreign patent applications must be filed within one year of a US application and the cost for this filing changes depending on the number of countries selected for protection and the respective costs associated with filing applications in those countries. Fortunately, most countries have signed the Patent Cooperation Treaty (“PCT”) which helps to centralize the process and defer fees.

Some of the University’s most successful commercialization efforts have been in the form of creative works content developed by Pitt faculty and staff and delivered as books, papers, CDs, DVDs, databases, software or computer programs – all of which are common examples of copyright material. Copyrights protect original works of authorship and prevent others from being able to reproduce your work or prepare derivative works based on your work without the author’s permission. 

A creative work is copyrighted automatically once the original work is affixed in a tangible medium, such as an article, book or CD. The copyright symbol (©) is used to remind people that the material is protected and should be visible on the work along with the entity that owns the work and the date. 

The copyright can be registered by the Copyright Office of the Library of Congress which provides certain rights such as access to federal courts, a presumption of validity and ability to pursue statutory damages.

The copyright owner is also the only person, in most circumstances, who can prepare or give permission for the creation of a “derivative work”. A “derivative work” is an original work of authorship based on the material protected by the original copyright, which expands, abridges or makes other copyrightable modifications to the original work. Some common examples of a derivative work include: a French language translation of an English language novel or poem; a movie screenplay based upon the original mystery novel, or if computer code is involved, the rewriting of the code in a different computer language.

If the copyright owner grants permission for someone to prepare a “derivative work”, only the newly added material can be the subject of a new copyright and the original owner retains the copyright in the preexisting work. In these situations, it is important to have an agreement in place first which specifies ownership of the derivative work.

What can you copyright?

1. Books, periodicals, manuscripts

1. Software, computer programs, apps

1. Stage plans and screenplays

1. Music and motion pictures

1. Fine art, graphic art, photographs, prints and art reproductions

1. Maps, graphs and charts

1. Technical drawings, diagrams and models

What can you not copyright?

1. Ideas, facts

1. Titles, names

1. Short phrases

1. Common property

1. Blank forms
2. Works consisting entirely of information that is common property and containing no original authorship. Examples include standard calendars, height and weight charts, tape measures and rulers and lists or tables taken from public documents

Copyrights offer protected exclusivity, at least for a limited time. 

The term of copyright for a particular work depends on several factors, including whether it has been published, and, if so, the date of first publication. As a general rule, for an individual author, copyright protection of a work extends for the author’s life plus 70 years. For employers, copyright protection of a work extends for 95 years from the date of publication. The protection extends for 95 years from first publication or 120 years from creation (whichever is shorter) for works “made for hire.”

Research tools are materials such as antibodies, vectors, plasmids, cell lines, transgenic mice, and other materials used as instruments in the research process.  Research tools do not necessarily need to be protected by patents in order to be licensed to commercial third parties. If you have research tools that you believe to be valuable or wish to provide to others (including research collaborators), the Innovation Institute will work with you to develop the appropriate protection, licensing, and distribution strategy. 

Know-How (or knowhow, or procedural knowledge) is a term for practical knowledge on how to accomplish something, as opposed to “know-what” (facts), “know-why” (science), or “know-who” (communication). In the context of intellectual property, know-how is a component in the transfer of technology in national and international environments, co-existing with or separate from other IP rights such as patents, trademarks and copyrights and is an economic asset. When it is transferred by itself, know-how should be converted into a trade secret before transfer in a legal agreement.

Know-how refers to all technical information, knowledge and data, including inventions (whether patentable or not), discoveries, trade secrets, specifications, instructions, processes, formulae, materials, expertise and other technology applicable to compounds, formulations, compositions, products or to their manufacture, development, registration, use or commercialization or methods of assaying or testing them or processes for their manufacture, formulations containing them, compositions incorporating or comprising them and including all biological, chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical and analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, regulatory filings and copies thereof, relevant to the development, manufacture, use or commercialization of and/or which may be useful in studying, testing, development, production or formulation of products, or intermediates for the synthesis thereof.

A trademark includes any word, name, symbol, device, or combination that is used in commerce to identify and distinguish the goods of one manufacturer or seller from those manufactured or sold by others, and also to indicate the source of the goods. Prior to registration for trademark protection, the designation “TM” after a trademark will give adequate notice of a claim of ownership. 

A service mark is any word, name, symbol, device, or combination that is used, or intended to be used, in commerce to identify and distinguish the services of one provider from those of others, and to indicate the source of the services.  Prior to registration for protection, the designation “SM” after a service mark will give adequate notice of a claim of ownership.

It is not necessary to register a trademark or service mark to prevent others from infringing upon the trademark. Trademarks generally become protected as soon as they are adopted by an organization and used in commerce, even before registration. In the U.S. trademarks can be registered at the state and/or federal level. With a federal trademark registration the registrant is presumed to be entitled to use the trademark throughout the United States for the goods or services for which the trademark is registered. The designation “®” for a trademark may only be used after registering it with the U.S. Patent and Trademark Office.

Trademark protection imposes certain obligations on the part of the holder of the mark, such as actual sustained use in commerce. In the case of trademark protection of an innovation, the University’s preference is to rely on use of “TM” or “SM” (i.e., unregistered marks) rather than ® (registered marks) for unlicensed technologies. 

In contrast to registered intellectual property as described above, trade secrets are pieces of intellectual property that are not disclosed to the world. The most important aspect of this type of intellectual property is that of secrecy. The protection will remain in place only as long as the secret information is maintained in confidence. In order to keep protection while a trade secret is being used, it is necessary to bind those individuals having access to the secret by a contractual agreement not to disclose it.  Such agreements are called nondisclosure or confidentiality agreements.  Many other requirements also exist, the description of which go beyond the scope of this document.  Given the complexity with which trade secrets need to be handled, the University does not accept trade secrets from others and does not keep trade secrets itself.

Unlike registered intellectual property, there is no federal trade secret statute. Trade secret laws are determined by the individual states but generally adhere to similar principles. However, once a trade secret is told to someone not bound by any confidentiality provisions, protection for this item is lost.

The recipe for Coca Cola® is perhaps the best-known example of a trade secret.

Intellectual Property:

The University has an Intellectual Property policy that governs decisions related to intellectual property ownership, the distribution of proceeds, and other matters that arise in the course of managing intellectual property developed at Pitt.

https://www.policy.pitt.edu/ri-10-intellectual-property

Here is a link to the Intellectual Property FAQ’s:

https://www.innovation.pitt.edu/resources/intellectual-property-policy-faqs/ 

Conflict of Interest:

The Office of Research Protections and the Conflict of Interest Office within it, play an important role in assisting the University community with understanding federal regulations and implementing best practices for managing potential conflicts arising from interactions with industry partners and engagement in entrepreneurial activities.

The Conflict of Interest Committee (COIC) is responsible for the oversight and management of the potential conflicts of the University’s employees, students, and the institution itself. It also reviews potential conflicts involving startup companies that license or option University technology. The execution of any option or license to University IP must receive advance approval from the COIC. Additionally, the COIC reviews potential conflicts involving human subject and animal research, as well as conflicts surrounding consulting and purchasing activities.

There are several ways in which the COIC office can help:

1. Submit or Update a COI Disclosure Form to include new financial interests.  Updates are mandatory within 30 days for newly acquired financial interests.
2. Obtain required approvals for outside consulting activities and forming a Licensed Start-up Company.
3. Online COI Training, which must be completed by all externally funded investigators every four years.
4. Assistance with special regulations and procedures for University researchers funded by the Public Health Service (PHS).

Additional information can be found on the Conflict of Interest website.

University of Pittsburgh Conflict of Interest Policy for Research

RI01, formerly 11-01-03

At the heart of the First Gear program is a great outline for business building and development called the Business Model Canvas (BMC), originally created by Alex Osterwalder.

There are nine elements to the BMC:

1 Value Proposition

• What value do we deliver to the customer?
• Which one of our customer’s problems are we helping to solve?

• Which customer needs are we satisfying?

2. Customer Segments

• For whom are we creating value?
• Who are our most important customers?

3. Channels

• Through which channels do we reach each of our customer segments?
• Which work best? 
• Which are most efficient?

4. Customer Relationships

• What types of relationship does each of our customer segments expect us to establish and maintain?

5. Revenue Streams

• For what value are our customers really willing to pay?
• For what do they currently pay?
• How are they paying? 
• How would they prefer to pay?

• How does each revenue stream contribute to overall revenue?

6. Key Activities

• What key activities do we need to undertake to deliver on the five areas above?

7. Key Resources

• What key resources do we need to deliver on the first five areas above?

8. Key Partners

• Who are our key partners?
• Who are our key suppliers?
• Which key resources are we acquiring from partners?
• Which key activities do partners perform?

9. Cost Structure

• What are the most important costs inherent in our business model?
• Which key resources are most expensive?
• Which key activities are most expensive?

Answering all these questions may seem like a daunting task, but doing so will help to make sure you have a well validated idea that can become a full-fledged business opportunity.  One of the key challenges for teams to fill in the BMC is the need to interview stakeholders who can provide honest input. 

While the fledging entrepreneur will often want to run their idea past friends, roommates, or relatives, these are not the ideal people to talk too and gain a customer’s perspective!  Will they give you the tough, real world feedback you need to perfect your idea or determine its viability?  Or will they more likely be nice and tell you that your idea is great, even if it isn’t, as they don’t want to hurt your feelings.

In most cases the process requires more than 100 interviews with people you have never met!    More importantly, at the end of the interviews, there is a high probability that the idea or approach you went into the discovery process with will not be the exact one you end up actually taking forward. This is commonly referred to as a “pivot” to a new market, opportunity, business model, customer base etc. This can then lead to a whole new set of customer interviews.

Understanding what development-phase the concept is currently in is important in that it impacts a sequence of critical events, from filing for IP protection to ramping up fundraising.  In general, there are multiple phases which include:

• Ideation
• Validation
• Development
• Scale
• Sustainable Growth  

Ideation is traditionally carried out, within a university environment, in the research laboratories.  Ideation may take place in the form of exercises to “shoot the moon” or through careful and relentless work by the individual inventor pursuing a breakthrough in his/her field.  For the most part, the invention disclosures that are submitted to the Innovation Institute are not in the Ideation stage as typically some data has been generated to support and validate its value, putting the idea in the Validation stage.

Validation is the first step in connecting with the outside world and evaluating if what the inventor saw as a significant breakthrough is seen in the same light by others.  There are two critical validation requirements: technology and market.  

First, validation should be focused on replicating the breakthrough and the efficacy that has been proposed or observed.  In life sciences, for example, while in-vitro data is a needed first step, investors may show little interest until in-vivo validation is available.  

The second important variable is how technology is converted to a product that specifically addresses the needs of the customer within the specified market.  This is important in that, in most cases, technology is the underlayment of a product solution which must be developed in order to meet the commercialization requirements for the product-market fit.

The third critical valuative task is to determine if the “market” (others) see the same value or impact that the inventor believes has been achieved.  In this evaluation one should include, peers, teachers, suppliers, proposed customers, potential development partners or even potential competitors. The idea is to “pressure test” the concept from a technical and market perspective with BOTH those that will potentially pay for it and those who will likely try to sabotage it.  You may need to have these people sign a non-disclosure agreement to protect your rights.

Development is the phase that results in a Minimally Viable Product (MVP) that satisfies a potential customer’s basic needs. This phase will likely require monetary resources beyond what the inventor has personally available, as well as additional people with specific skill sets to make it happen.  It’s very likely that raising sufficient funds and attracting the needed talent will not be done without the company structured legally and physically to get the job done.  

Scaling is the moment of truth.  All those years of work to develop and validate the idea, test it with potential customers, develop and test a prototype and the develop your Minimum Viable Product all comes to a nexus as you launch your product into the market.

Sustainable Growth combines all aspects built along the formation of the company to drive sales growth and company capabilities.  Focus for growth needs to be on monetizing core competencies and developing follow-on or new products that keep fueling the growth fire into the future.

For many investors this is an attractive time to explore an acquisition by a larger company, or initiate a public stock offering (IPO), but these events can happen in any of the last three stages.  

It’s always beneficial to understand what phase the specific technology or market that is being evaluated is in, especially when talking with investors.  For example, if we look at life science technologies and markets the development phases may be best described by milestones.  These typically include;

• Ideation:  In-vitro testing completed
• Validation:  In-vivo testing completed
• Development:  Investigational New Drug (IND) Application followed by appropriate Phase I, II, III, testing before submitting a New Drug Application (NDA) and subsequent approval by FDA.
• Scaling: Introduction of new diagnostic, therapeutic, or device into the market
• Sustainable Growth: Market penetration and growth

Consider this for your specific market and technology – defining the milestones along the development curve is a great way to present to potential investors, partners or acquirers.

As a general rule, forming an entity early has few downsides and a number of upsides.  On the downside, entity formation comes with monetary costs prior to generating any revenue, both in the formation itself and in on-going expenses and taxes.  On the upside, by forming an entity early you establish the basic tenets of ownership, as well as clearly outline the equity and corporate governance structure that lets everyone know what they own and what they are expected to provide to the company moving forward. Doing this early on can avoid a falling out with partners, family and friends who may have already provided seed capital in the innovation.  Further, by forming an entity early (and adhering to the requisite formalities), the owners’ liability will be limited to their investments in the entity and they will not be liable for the debts and obligations of the entity. 

An important decision prior to actual formation is what type of entity you will use.  As a U.S. startup you have two main choices:

1. Limited Liability Company (LLC) – This can be a simple legal structure. LLC’s can also be tax efficient, as they provide for pass through income tax treatment, meaning that the company does not pay its own income taxes; rather, the taxable income is passed through to the members’ personal income tax returns, with the members paying tax on the company’s income, thereby avoiding double taxation.   On the other hand, venture capitalists typically will not invest in LLC’s, owners of LLC’s are not eligible for favorable Federal income tax treatment on the ultimate sale of the LLC as Qualified Small Business Stock (QSBS), and LLC’s can not go through an Initial Public Offering (IPO).  

1. C-Corporation (C-corp) –This is the most common entity for high-growth startups because it allows the company to attract venture capital, may qualify the shareholders for QSBS treatment, and can go through an IPO.

Converting from an LLC to a C-corp is relatively easy and tax efficient, while converting from a C-corp to an LLC can create tax issues. As such, when in doubt, it may be better to start as an LLC and convert to a C-corp when appropriate. 

Another question that is common at this point is what state to form in.  There are three options: your home state, Delaware or offshore.  A large number of startups incorporate in Delaware.  Why? Delaware has been a hub for incorporation for years with a well-defined, predictable body of corporate law.  Most sophisticated investors, including venture capitalists, are familiar and comfortable with Delaware law.  As such, incorporating in Delaware may be advantageous in attracting capital.  On the other hand, if you do not intend to raise capital, then forming in your home state may be preferable. 

The three primary reasons startups fail are:

1. The company’s product(s) do not address a market need; 

1. Running out of money; and 

1. Not having the right team.  

 The founder/entrepreneur is the driving force behind the company.  The first critical question you have to ask if you are considering a startup is whether you are willing to invest a significant amount of your “spare” time to get the venture off the ground.

 If you are not, then it’s most likely better to look at licensing to an existing company to develop the technology.  Founders must also ask themselves if they have the soft and hard skills needed to build a successful venture.  Once you have an understanding of your strengths and limitations, it becomes much more effective to think about the team you need to recruit to maximize your chances for success.  People may be more important than the idea or technology.  Many investors will tell you that they would rather invest in a mediocre idea with a great team than a great idea with a mediocre team…they are betting on the jockey and not the horse!

A few tips to consider when building a team:

Hire Do-ers  

After finding the needed hard skills make sure you find individuals who outrun you both physically and mentally.  While many may consider this a potential threat to their position of leadership, it’s critical in an environment high in ambiguity and chaos.  Look for individuals with passion for the challenge and that will be personally devoted to the success of the venture.

Jack of All Trades 

We all know the saying “Jack of all trades master of none.” Seek to find people who are in fact both broad in their capabilities and highly effective.  These “rock stars” contribute significantly, especially early on in the venture when resources are limited.

People Focus 

 A burgeoning startup is no place for self-centered introverts.  One of the best ways to fail is to be internally focused. Look for people who are always getting the external perspective to validate internal biases through personal contacts and market discovery skills.

Hire Slow – Fire Fast  

Taking the time to make sure new hires are necessary is critical. More important, do not hesitate to eliminate poor performers.

Professional Help  

A key assumption that some make is that the founding members are in the best position to find talent for the company when in fact they may be the worst.  Develop a close relationship with a professional recruiter who may be able to help you  build a high-performance team.

Temporary Employees Help  

Avoiding fixed costs early in the venture is important. So consider leveraging temporary help and think of it as a long interview.  Temporary employment is a great way to evaluate and eventually hire (or eliminate) talent.

Probably the most challenging aspect of “making it” is raising the necessary funds to get the venture to the growth stage.  There are two primary sources of funding; non-dilutive and dilutive.  Non-dilutive is primarily funding that will not require equity to be distributed by the company and is typically in the form of grants. They are called non-dilutive as they do not “dilute” the equity pool of the investors Dilutive funds are capital from investors that take equity in the company in exchange for their investment.  These funds can come from friends and family, angel investors, venture capital or private equity. They are called dilutive as they do “dilute” the equity pool – to provide them equity, new equity has to be allocated to these folks.

For the non-dilutive approach potential sources for funding gifts, grants, debt and revenue from customers. For an early-stage company transitioning from the university, the most typical sources are Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) grants from the federal government, economic development agency funding (often in the form of convertible notes) and/or patient advocacy research grants (e.g., Bill & Melinda Gates Foundation, Michael J. Fox Foundation).  These funds are used to further refine the technology and the business plan and are typically too small to ramp-up the company, therefore, the next target for funding are often angel or venture capital investors As an example, a Phase I SBIR grant, depending upon the participating federal agency, can provide up to $250,000 to the company and a Phase II SBIR grant can provide up to $1.5 million to a company.  So a company can be awarded a close to total of $2.0 million for product development without having to give up any equity or repay the funding provided.

Dilutive approaches most likely start with friends and family or angel investor groups that give you cash in exchange for stock in the company. The angels can pool their capital into groups or networks to make larger investments. Angel investment groups tend be local and are quite familiar with the startup ecosystem in their city or region. The most prominent angel group in Pittsburgh is Blue Tree Allied Angels.  Angel fund investment tend to be smaller (<$500,000) and have strict, shorter term covenants to ensure that the high-risk early investment is prudently leveraged. 

Pre-Seed

Pre-seed is typically the first stage of capitalization for a startup.  Capital is acquired from the founders, friends and family, although angel investors may also participate.  At this stage there is little hard data on the idea itself and a bet is being made on both the idea and the people leading the venture.  Investments are typically small, less than $50K and much of the work is completed with “sweat equity” in exchange for future financial equity.

Seed

In the Seed round the Initial idea is in place and validated with a prototype or in-vivo data. Investment at this stage may come from angel investors, targeted funds, incubators, accelerators, idea pitch competitions, as well as friends and family.  Investments range from $10K to over $100K in startup capital.  The funds are used to continue the research, conduct customer discovery, define market fit, further product development and potentially bringing on a small number of new experienced hires.

Series A

Series A investments usually come after validation of the proof-of-concept with target markets/customers.  Critical at this stage is for the investor to see some “traction” through the accomplishment of milestones or goals defined by previous rounds.  The investment is used to optimize and further validate the go-to-market business model and demonstrate the ability to “scale” the approach.  Investors at this stage will most likely be venture capital funds, although some angel groups do participate at this stage.  Typical investments exceed $1million and could reach $10 million or more.

Series B and beyond

Series B rounds and beyond are most likely financed by VC’s.   This stage is focused on building the company and ramping up sales through expanded markets, talent acquisition, entering new markets or even geographic expansion. Investments at this stage are in the tens of millions of dollars or more.  Lastly, this stage is typically a doorway to a liquidity event or even acquisition by a strategic player.

The next source is Venture Capital firms (VC).  VC’s raise capital for venture funds from limited partners, which most often are public employee pension funds, insurance companies, endowments, or foundations. The Venture capital firm  and the limited partners enter into a partnership agreement, which stipulates the types of companies that will be invested in, the phase of company development and the amount of time it will take to return money back to the limited partners.  VC groups are for the most part national in scope and have targeted “investment thesis” resulting in a very disciplined and knowledgeable approach.  

While VC’s can invest in early stage (seed, pre-seed) startups, in general they focus on later stage (A-round and beyond) investments.  These investments range from less than $1 million to more than $10 million.  VC’s often “syndicate” investments meaning that they recruit multiple VC’s to an investment round in order to dilute their overall investment risk.  From initial engagement with a VC to actual funding, it may take up to a year or more (plus a lot of hard work) to sell the startup to the investor.  You can expect to do over 100 pitches to land a single syndicate of investors!

A few closing thoughts to consider as you move forward.  Customer discovery efforts cannot be over emphasized. They are critical to validating the idea or concept and are invaluable in directing the team and company in the right direction.  Be ready for the necessary pivots. Listening to the customer is the golden ticket to success.  

From the know how you collect in your discovery efforts, develop a simple but thorough business plan derived from the Business Model Canvas.  Typically, the BMC will grow with the evolving stages of the company.  At later stages you will need to develop detailed business and financial plans which we do not cover in this guide.  When it’s time to incorporate, professional legal and accounting assistance cannot be over emphasized.  Having the structural/legal details worked out early in the venture will significantly reduce headaches and challenges in the future.  And lastly, build a strong team.  Remember the team is more important than the technology or idea, so if you really need an area for priority and focus, make it your team!

Starting a company is an adventure not for the faint of heart. But the rewards in seeing your lab discovery actually making an impact on people’s lives is invaluable.

If you are not interested in leaving the University but still want to participate actively in a new venture based on an innovation you developed at Pitt, you will be required to follow guidelines that protect against a conflict of interest:

• The new company will be a University Licensed Start-up Company (“LSC”) under University Policy RI-01, and thus subject to oversight of the Conflict of Interest Committee (“COIC”) if the following factors all are present:

• The company is a legal entity
• The company is privately-held
• The company licenses, or options to license, University intellectual property
• Either Pitt or a University Member holds equity in the company

• You may hold any amount of equity in an LSC with prospective review and approval by the University Conflict of Interest Committee (COIC).
• You can be a consultant to the LSC with advance approval of your supervisor and  the COIC.
• You may hold a management or officer position in the LSC with the advance approval of your supervisor and the University COIC.
• The COIC must approve, in advance, any University faculty, staff or student who seeks to hold a management, officer or consulting position with an LSC. You may be able to conduct research that is funded by the company, but your conflict must be managed by the COI Division and you may be barred from serving as PI on human subject research, depending on the nature of your involvement with the company. If barred from serving as PI, you may serve as Co-I under a conflict management plan and your activities in the research will be limited.
• If you hold a management position with the LSC, you may serve as the principal investigator of animal or bench research sponsored by or of commercial interest to the company only after approval of the Senior Vice Chancellor for Research.  Such approval may come only after recommendation by the COIC and the establishment of a conflict management plan to manage the conflict.

Please consult members of the Conflict of Interest Division for additional specifics or reference the following COI policy: https://www.policy.pitt.edu/conflict-of-interest-research

If the potential partner wants to explore applications and opportunities for a given innovation, the Innovation Institute will negotiate an option agreement. This gives the partner an opportunity to “kick the tires” and take some time to determine whether it should consider taking a license to the innovation.

These may take several forms. An innovation, for instance, might offer numerous possible applications, and a licensee might choose to pay for the exclusive right to all of those applications. Alternatively, the licensee may only have interest in one specific application and, therefore, license that one only.  In some cases, licensees will sign non-exclusive agreements for innovation applications.

The most common path to market for University innovations is through licensing to an industry partner. The Innovation Institute will work closely with you to help prepare your innovation to be marketed to potential licensees. The Innovation Institute will coordinate activity with OIEP to ensure the University’s relevant partners are aware of the technology and the potential impact to the company.   Our programs help innovators step through the development of each marketing deliverable, then assist in getting exposure to industry partners. The Innovation Institute will work diligently to develop potential opportunities on your behalf.

To best position your innovation for licensing, you will need:

• The value proposition – a succinct explanation of what your innovation does and for whom to clearly translate the commercial value to potential partners.
• An understanding of the customers it serves and market potential
• To articulate how your innovation is differentiated and better than alternative solutions
• An explanation of the current stage of development along with specifications and supporting data

Ten things to remember when attracting industry or investors to your invention

1. Protect your idea. Before talking to industry, contact the Innovation Institute to discuss the use of a Confidential Disclosure Agreement (CDA) to ensure that your conversation remains confidential.
2. Proactively seek opportunities. Interact with companies at conferences, technology showcases, partnering events, venture fairs, and via publishing papers. Most technology licenses result from an innovator’s networking efforts with companies
3. Keep it simple. Don’t get too technical when discussing your innovation, regardless of how complex and captivating the science may be. Never assume that the potential partner will understand such technical concepts.
4. Prepare a compelling elevator pitch. Explain your idea simply in less than a minute. Include the problem it solves and how it’s significantly better, cheaper, or more effective than current solutions. The Innovation Institute will help you prepare one.
5. Show enthusiasm. It’s your idea and you believe strongly in it. Share that enthusiasm and confidence with others. They expect it.
6. Find out what they want. Listen to their needs, desires, and frustrations, any of which could lead to new opportunities.
7. Keep your marketing materials handy. An opportunity may arise at any time to discuss your innovation with someone. Be prepared with manuscripts, marketing briefs, articles, etc.
8. Exchange contact information and promise to follow up with them soon. While they may not be interested in your latest innovation, they may become valuable future contacts.
9. Keep the Innovation Institute in the loop. Share contacts and other information which can be used to follow up on potential partnering opportunities on your behalf.
10. Stick with it. The commercialization process can take considerable time and commitment, requiring patience and perseverance. 

The Office of Industry and Economic Partnerships (OIEP), part of the Office of Innovation and Entrepreneurship, supports interactions between the University and industry and venture capital partners, facilitating sponsored research, collaborations, technology licenses, new venture creation and other types of partnerships between Pitt and external organizations.  The OIEP team will work closely with you to understand your interests and needs, and to connect you with resources, potential partners and experts to assist you in navigating your licensing, funding and commercialization options. OIEP will provide guidance and manage the relationship throughout. 

In addition to licensing and new company creation, technology can also be advanced towards commercialization and impact through collaborative research agreements between the University and industry partners.

Industry partners (e.g. pharmaceutical and medical device companies) are increasingly looking to academia to help fill their innovation pipeline. Knowing that many university innovations are still early stage and often carrying significant technical or clinical risk, companies will partner with the University to fund research which advances an innovation to the point that it can be licensed by the company for commercial development. As an example, an investigator with a new drug compound shown though in vitro studies to be promising may partner with a pharmaceutical company to conduct pivotal in vivo studies which would give the company the information it needs to make a licensing decision around the compound. 

Pitt’s Office of Industry and Economic Partnerships (OIEP) facilitates the development of sponsored research agreements aimed at advancing technology commercialization. OIEP has relationships with companies small and large across many sectors. If you are interested in exploring industry research collaborations, please contact OIEP at partner@pitt.edu.

If the potential partner wants to explore applications and opportunities for a given innovation, the Innovation Institute will negotiate an option agreement. This gives the partner an opportunity to “kick the tires” and evaluate the technology to determine whether it should consider taking a license to the innovation.  This option period also preserves the opportunity to negotiate an exclusive or non-exclusive license agreement by the company. During the option period, the partner cannot commercialize the innovation and the University cannot license the innovation to another party. An Option Agreement does not allow a company to use the technology in a commercial manner.

LICENSE AGREEMENT – These may take several forms. An innovation, for instance, might offer numerous possible applications, and a licensee might choose to pay for the exclusive right to all of those applications. Alternatively, the licensee may only have interest in one specific application and, therefore, license that one only in a field of use limited license.  Sometimes there are also territory limitations. In some cases, licensees will sign non-exclusive agreements for innovation applications.

Licenses include a grant of rights to an intellectual property such as an issued patent, pending patent application, copyright, software, prototype device, research material, reagent or defined data set.  These agreements generally stipulate that the licensee commits itself to a thorough, vigorous, and diligent program to advance the technology so that public utilization results. 

A License Agreement generally starts with a Term Sheet.  This is a non-binding agreement between the University and a potential licensee, stating the basic terms and conditions necessary for a License Agreement.  The Term-Sheet starts with the technology being licensed and the financial terms required for the license.  It also includes requirements such as insurance coverage for the company and the payment of patent expenses.  Also stated are performance or due diligence milestones.  These milestones must be met by the company in order to ensure that the technology is moving forward and that they can keep the license. 

More specifically, the following items are typically included in the Term Sheet:

• Patent rights, Copyrights and/or Know-How rights are specified
• Type of license-Exclusive or Non-Exclusive, sublicense rights if appropriate and non-exclusive rights to Know-How if applicable
• Term of the agreement
• Up-front license fee

• Minimum maintenance/royalty fees
• Royalties on product sales
• Non-Royalty Sublicense income if applicable
• Specific agreed upon development milestones
• Equity or partial company ownership for new startups only

• The agreement will define the rights and exclusivity the partner receives by geography, fields of use and applications
• Defines the insurance requirements for the company
• Patent cost reimbursement

You can view our licensing and agreement templates on our website.

Innovators and their academic department will share in the financial benefits of successful commercialization of an innovation. 

For patents or groups of related patents or technology rights, the following distribution of the net proceed will apply: 

• 45% of net proceeds to Creator(s), Inventor(s), or Developer(s), with option to set aside up to 10% to support the research of the Creator(s), Inventor(s), or Developer(s).

• 7% of net proceeds to be divided by the units (typically department, division, institute, or center) that supported the creation of the IP.

• 5% of net proceeds to the School of the Inventor.

• 3% of net proceeds to be divided by the Provost and Senior Vice Chancellor and/or Senior Vice Chancellor for Health Sciences.

• 40% of net proceeds to the Senior Vice Chancellor for Research to provide resources to obtain and maintain patents, including to cover administrative expenses associated with those activities.

For copyrighted innovations, the following distribution of the net proceed will apply: 

• 50% of net proceeds to Creator(s) or Developer(s).

• 15% of net proceeds to be divided by the units (typically department, division, institute, school, or center) that supported the creation of the IP.

• 10% of net proceeds to be divided by the Provost and Senior Vice Chancellor and/or Senior Vice Chancellor for Health Sciences, as appropriate.

• 25% of net proceeds to the Senior Vice Chancellor for Research to provide resources to obtain and maintain copyrights, including to cover administrative expenses associated with those activities. 

The Universities Intellectual Property Policy further explains how net proceeds are applied. Additional information can be found in the Intellectual Property Policy FAQs.

After a technology is licensed, the Innovation Institute manages the license to ensure that all the terms and conditions are adhered to by the licensee and that the technology is moving forward on the commercialization path. In instances where the University receives proceeds from a license agreement, the Innovation Institute coordinates the execution of the Proceeds Distribution Agreement (PDA) among the inventor group and the distribution of such revenue in connection with the University’s Intellectual Property Policies. The PDA is a written document that defines how the inventor portion of proceeds is to be split among the inventors.  A PDA is generally executed once a License Agreement is executed (as opposed at the Option Agreement stage).  And, if the License provides for a patent expense installment payment schedule to secure payments for patent expenses incurred prior to the execution of the License Agreement, the PDA is executed only after all these installments have been paid by the Licensee.  

 If the licensee does not comply, steps may be taken to amend or terminate the license if needed, but all attempts are made to ensure this is not the outcome.

Stopping the prosecution process of a patent application; can be implicit, such as failure to reply to an office action or pay a prescribed fee within the time period allowed or explicit, such as the applicant or his agent informing the patent office that further prosecution will not be pursued.

Answer to an office action by a U.S. patent examiner, usually modifying, correcting, striking or adding claims, or correcting drawings in an attempt to overcome objections to the application. Amendments are also used to revise license/option agreements, MTAs and other legally binding contracts and agreements.

An invention lacks patentable novelty if it has been anticipated, exists as prior knowledge, or has been established by publication or use prior to the claimed date of the invention.

The complete, formal document filed with the U.S. Patent and Trademark Office requesting the grant of a patent; includes an oath, specification, claims, and drawings; the application must include a disclosure of the invention that would enable a person of ordinary skill in the art to make and use the invention.

One who receives rights in a patent from another by the signing over or assignment of a right.

One who can assign rights to a patent.

A statement by the patent applicant specifically describing the heart of the invention; claims establish the essence and scope of protection given to the patent owner continuing the same disclosure, but with claims directed to an invention that differs from the original application; usually filed in response to a Restriction Requirement from USPTO.

An agreement granting one party the sole rights under a specific issued patent restricting the licensor from granting license to another party.

Signed by President Clinton on Dec. 8, 1994; one resulting change is a U.S. patent granted on an application filed after June 8, 1995, will have a term of 20 years from the filing date rather than the previous standard of 17 years from the date the patent was granted; GATT also provided for provisional applications. 

Using an invention that is protected by a valid patent without the consent of the patent owner.

An agreement allowing another party to use, manufacture or sell an invention.

An agreement for use by a licensee in which the license or reserves the right to make similar agreements with other parties.

Indicates that the patent examiner has determined a patent application has met the statutory requirements for patentability and the patent will issue at some future date.

A multilateral treaty effective in 1978 that eliminates some of the duplication involved when obtaining patent protection for the same invention in several countries; more than 100 nations are signatories of PCT; with a PCT it is possible to file and prosecute a single international application, which has the same effect as filing a separate application in each PCT nation that the inventor designates at the time of filing the application; PCT neither creates an international patent nor changes the substantive requirements of patentability in any individual PCT nation (including the United States), it merely reduces the duplication of effort required to file and process parallel applications in several nations simultaneously.

Similar work in literature, issued patents, or published patent applications throughout the world; this body of information in combination with any other public knowledge.

Accepted since 1995, the provisional patent application provides an early priority date without counting against the 20-year patent life. Requirements for filing are specifications, drawings (if necessary), filing fee, and assignee; no claims are submitted with the provisional application. A non-provisional patent must be filed within 12 months of a provisional patent or the subject matter is abandoned and the inventor loses the priority date of the application.

Payment for use of an invention, usually a stated percentage of product sales.