UNIVERSITY OF PITTSBURGH POLICY 11-02-03
CATEGORY: RESEARCH ADMINISTRATION
SECTION: Technology Management
SUBJECT: Commercialization of Inventions Through Independent Companies
EFFECTIVE DATE: July 1, 2005 Revised
PAGE(S): 6
I. SCOPE
The University’s main missions are teaching, research, and public service.
As part of its public service mission, the University has a charge to help
with the economic development of the region and the nation. In part to
address this issue of economic development, the faculty, staff, and
students are encouraged to explore options to commercialize inventions
through independent companies (start-up companies) that are based on
technology that has been developed in their laboratories. The focus of
the faculty, staff, and students, however, must remain clearly on the
mission of the University when pursuing these largely independent
ventures.
The following is a policy and guidelines to facilitate and manage the
process of company start-up by University faculty, staff, and students.
Policy 11-01-03, Conflict of Interest - Research/Teaching, and Policy and
Procedure 11-02-01, Patent Rights and Technology Transfer, are applicable
with respect to this policy. This policy is an extension of those
policies. The Entrepreneurial Oversight Committee and the Director of
Technology Management and associates will ensure that the details of the
policy are implemented in an efficient and expeditious fashion. The
Entrepreneurial Oversight Committee and the Director of Technology
Management and associates also serve in an advisory capacity to the
Chancellor. All of the activity under this policy must also comply with
applicable statutes, regulations, and other governmental guidance.
II. POLICY
A. Ownership of Equity by Faculty, Staff, and Students and Members of
Their Immediate Family*
Ordinarily, faculty, staff, and students should be permitted to hold
equity in companies that license their technologies provided that:
1. the relationship has been reviewed and approved by the
Department Chair, Dean, and Entrepreneurial Oversight
Committee.
2. caps are placed on the percentage of stock held by University
faculty, staff, and students in the start-up company up to 20%
ownership by all University faculty, staff, and students in
the aggregate.** (Exceptions may be considered for
development stage companies that do not have products in
clinical trials or products being sold.)***
3. the stock is not traded or otherwise sold until the occurrence
of a triggering event or date to be specified by the
Entrepreneurial Oversight Committee. Depending on the nature
of the company and its products, the Committee may prohibit
the trading or purchase of stock or receipt of stock options
or warrants by University faculty, staff, and students:
a. during clinical studies, until the results of the
studies are published;
b. until two years have elapsed from the first commercial
sales of the licensed product;
c. until the company is sold; or
d. until the stock is publicly traded.
4. the faculty, staff, and students do not hold management or
operating positions in the company.
5. financial disclosures are provided by faculty, staff, and
students annually, and as relationships change, to Department
Chair or Dean and the Entrepreneurial Oversight Committee.
These disclosures, which also need to be submitted for grants,
contracts, etc., should be in line with the applicable
University Conflict of Interest policy forms. Particular
attention needs to be paid to accurate reporting of conflicts
of interest and commitments.
6. involved faculty/staff/students sign consent forms that
certify that they understand applicable policies and agree to
cooperate in their implementation.
B. Institutional Ownership of Equity
The University should be permitted to take stock in licensee
companies that do not have the financial resources to make full
license payments in cash, but licensees should be required to pay
for out-of-pocket patenting and related expenses. Equity should not
be held in sufficient amounts to confer management power, which
generally would limit ownership to less than 20% of voting stock.
Review and approval of acquiring stock should be provided by the
Entrepreneurial Oversight Committee and the Executive Vice
Chancellor. Should the University wish to invest funds in start-up
companies, this should be implemented through an independent entity
that is friendly to the University but that is not controlled by the
University and is managed by outside participants.
C. Company-Sponsored Research at the University
Sponsored research related to the business of the start-up company
should generally be permitted in the University laboratories of the
scientists who developed the technology provided that:
1. research proposals are reviewed by the Entrepreneurial
Oversight Committee prior to approval;
2. periodic reports are provided to the Entrepreneurial Oversight
Committee on the research methodologies and results;
3. faculty, staff, and students with equity and other potential
financial benefits from success of the start-up company (for
example, royalties, consulting fees or profit sharing) cannot
be the principal investigator on such sponsored research or be
the attending physician in clinical trials, nor record patient
data. The faculty, staff, and students generally should not
be permitted to negotiate a research contract or grant from
the start-up company to the University, and faculty, staff,
and students are prohibited from purchasing goods or services
from the company on behalf of the University. Any such
research contract or grant shall be negotiated on behalf of
the University by the Office of Technology Management in
collaboration with the Office of Research.
4. prior approval is obtained from Department Chair and Dean on
use of graduate and undergraduate students. In addition, the
faculty, staff, and students in carrying out confidential
research for the start-up company should not delay or inhibit
publication of research findings beyond the normally specified
time designated in Policy and Procedure 11-02-01, Patent
Rights and Technology Transfer.
D. Faculty Consulting for Companies in Which They Have an Interest
Consulting should normally be permitted, in accordance with the
policy on Consulting and Outside Professional Service contained in
the Faculty Handbook, provided that there is prior approval from the
Department Chair, Dean, and the Entrepreneurial Oversight Committee.
Attention needs to be paid to the use of University resources for
purposes other than University business as stated in Policy 05-08-
01, Personal Use of University Resources.
E. Other Affiliation Issues Between Faculty, Staff, and Students and
Start-up Companies
Board position: Prohibited.
Scientific Advisory Board: Permitted with disclosure to, and
ongoing review by, Entrepreneurial Oversight Committee.
Honoraria: Permitted, with review by Entrepreneurial Oversight
Committee.
Use of University name: Prior written approval required as stated
in Policy 08-01-01, Licensing and Use of University Name, Logos,
Trademarks, and Service Marks.
Management of multiple funding sources: Proposals for corporate
funding through which rights to technology are created in the
research sponsor should receive prior review and approval from the
Department Chair, Dean, and the Entrepreneurial Oversight Committee.
Disclosure in publications and consent forms: Corporate funding of
the research, equity ownership, or other potential financial
benefits to the researcher from the success of the company should be
disclosed in all related publications and in patient informed
consent forms.
F. Operation of Entrepreneurial Oversight Committee
The Chair of the Entrepreneurial Oversight Committee shall be
appointed by the Provost and Senior Vice Chancellor for Health
Sciences. The Entrepreneurial Oversight Committee shall be
appointed by the Provost and Senior Vice Chancellor for Health
Sciences in consultation with the President of the Senate. The
membership should consist of administrators, faculty, staff, and
students involved in activities pertinent to the process of
commercialization of inventions and knowledgeable in the research
and commercial environment. The Entrepreneurial Oversight Committee
should review disclosures submitted pursuant to this policy and
should convene subcommittees to investigate potentially problematic
situations.
Guidelines for Review by Entrepreneurial Oversight Committee
1. Initial Review
The initial review will consider the proposed relationships
between the faculty/staff/student-entrepreneurs, the company,
and the University to ensure that adequate safeguards are in
place to protect against inappropriate use of University
resources, employees, students or fellows; failure to perform
expected duties the University; or other violations of law,
ethical standards or University policy. The Committee will
either recommend changes in the proposed relationship or
provide a statement that the proposed relationships have been
found to be satisfactory. In either case, the Committee will
establish standards for events that would trigger subsequent
review by the Committee.
Specific information to be provided two weeks prior to the
meeting of the Committee:
a. List of all University employees and members of their
immediate families involved in the creation of the
company, with departmental affiliations and curricula
vitae.
b. List of individuals from other institutions,
entrepreneurs, and investors involved in the creation of
the company, with brief descriptions of the role that
each will play, and curricula vitae for those filling
management positions in the company.
c. Description of products or services that will be
developed and/or sold by the company, including
information on current developmental status,
intellectual property status, and sources of prior and
current funding.
d. Description of proposed ownership structure for the
company, with composition of Board of Directors and
Scientific Advisory Board, if any. This should include
a description of proposed equity holdings of the
University and its faculty/staff/ students and their
immediate families, and expectations as to how ownership
percentages held may evolve as additional investors,
managers, and/or researchers participate in the company.
e. Description of proposed sponsored research relationship
between the start-up company and the University, if any,
including description of any use of University
resources, equipment, personnel, and undergraduate and
graduate students. Description of any restrictions on
prompt communication or publication of research results.
f. Description of the terms of any proposed intellectual
property licenses between the University and the start-
up company.
g. Description of any proposed role of University employees
or students in performing services for the company
beyond the scope of sponsored research agreements with
the University, e.g., consulting with or without
compensation. Also describe the impact the proposed
relationships may have on the ability the University
employees and students to perform their academic and
research obligations and time commitments.
h. Itemization of all extramural funding (including that
from the entrepreneurial company) taking place in the
laboratories of the involved faculty, including source,
dollar amounts, space usage, and dates of contract.
This should also include a description of how the
existing sponsored research activities are distinguished
from the product development strategy proposed by the
entrepreneurial group.
i. Abstracts of all pending collaborative grant
applications, with detailed budgets.
j. Statements from each involved faculty/staff/student
member, specifically requesting approval for their
proposed relationships, and stating that they understand
and will comply with relevant University policies.
2. Subsequent Review
Subsequent review will be required annually and upon the
occurrence of specified triggering events. Changes in faculty
relationships the University or with the company will also be
reviewed.
Specific triggering events for subsequent review:
a. Prior review of collaborative grant applications,
proposed, and proposed allocation of University and
company resources to perform the scope of work.
b. Change in relationships between University employee and
the company.
c. Prior review of proposals to be submitted to other
corporate sponsors, where there is potential for overlap
in technical focus or use of personnel.
d. Change in ownership structure of company.
e. Change in management structure of company.
f. Specific request from relevant Dean or Department Chair
for review of allocation of effort of involved staff.
G. Licensing of University Technology to a Company in Which Faculty,
Staff, or Students Have an Interest
The University, through the Office of Technology Transfer and
Intellectual Property, has established a common format for licensing
of technology. Future rights to all technologies out of a lab
ordinarily will not be granted. Prior licensee and sponsoring
companies will be given the opportunity to review new technologies
per agreement. Broad marketing by the technology transfer staff
will occur. Attention is also called to the responsibilities of
faculty, staff, and students set out above under the topics of
equity, company-sponsored research, and consulting in sections B, C,
and D.
H. Entrepreneurial Leave
The Faculty Handbook addresses the issue of faculty leaves of
absence. The pursuit of entrepreneurial endeavors is a valid reason
for application for a faculty leave of absence.
I. Information Programs for Technology Transfer
Seminars should be conducted for faculty, staff, and students
involved in technology transfer situations to explain University
policies and the commercialization processes. Other outreach
mechanisms should be instituted to promote technology transfer
activities and compliance with University policies.
J. Product Liability
In order to control the risk of product liability, there shall be a
disclaimer of warranties to the licensee company, along with
comprehensive insurance requirements. Automatic indemnification of
the University by the licensee is required. These items will not be
waived by the University in the case of a company in which faculty,
staff, and students have an interest.
K. Appeals of decisions under this policy will follow the Conflict of
Interest - Research/Teaching policy appeals procedures.
L. All exceptions to this policy must be approved by a Senior Vice
Chancellor.
III. REFERENCES
Policy 05-08-01, Personal Use of University Resources
Policy 08-01-01, Licensing and Use of University Name, Logos, Trademarks,
and Service Marks
Policy 11-01-03, Conflict of Interest - Research/Teaching
Policy 11-02-01, Patent Rights and Technology Transfer
Procedure 11-02-01, Patent Rights and Technology Transfer
____________________
* Dependents, the spouse, and all members of the household are considered
members of the immediate family. In all future references to faculty, staff,
and students in this document, members of the immediate family are included.
Ownership shall be deemed to mean actual or beneficial ownership.
** It should be recognized that equity dilution occurs with multiple rounds of
financing. The ownership percentage will be treated on a fully diluted basis.
*** Development stage companies are those that do not yet have products in
clinical trials or in the commercial marketplace. It may be necessary for
University personnel to play an important role in the early stage of company
formation, but it is expected that this role will be reduced as the company
matures and outside management and investment are brought in.