discoveries and inventions have originated, from the burdens of patent prosecution and protection, but have also successfully introduced and promoted the use of many important new discoveries and inventions. In addition, they have handled the complicated and often difficult relations with inventors and licensees. Especially in the case of public institutions, these services have saved the institutions from becoming involved in situations, both legal and personal, which might otherwise have entailed serious political and fiscal complications.

In many ways the economy has been substantially enhanced and significant contributions have been made to the public welfare through the activities of these nonprofit patent-management organizations. In the case of streptomycin, which was developed at Rutgers University, sales by manufacturers under licenses granted by the Rutgers Research and Endowment Foundation amount to $40 million annually. Also, under the foundation's policy of licensing all reputable, financially responsible manufacturers, competition has been keen and the free-enterprise system has functioned without restriction, with the result that the price of streptomycin has been reduced from $25 a gram in 1946 to 12 cents a gram at present. Similarly, thriving new industries have grown up, improved manufacturing procedures have been adopted, operating costs have been reduced and the public health and welfare benefitted through the use of patented discoveries and inventions handled by these nonprofit organizations.

LICENSING EXPERIENCES

Educational institutions have had very limited direct patent licensing_experience, and then usually through special institutional units. For the most part their patentable discoveries and inventions have been handled either by an affiliated patent management foundation or by Research Corp. Similarly, the independent nonprofit research organizations have usually turned over the administration. of their patents to an affiliated nonprofit patent-management agent, such as the Battelle Development Corp., or to Research Corp. A few have had licensing experience prior to entering into a patentdevelopment agreement with Research Corp.159

As a general practice, nonexclusive licenses bearing nominal royalties have been granted by these nonprofit patent-management organizations. In those instances where exclusive licenses have been given for special reasons, the license has usually been for a limited period of time, in order to provide an incentive to the licensee for undertaking the initial development and promotion of the finished product and for putting up the necessary venture capital. The royalty rates have varied, depending upon the nature of the patented discovery or invention, the field of its application and other individual factors.

LICENSES GRANTED

The following brief descriptions of the licensing practices and experiences of a number of educational institutions and other nonprofit research organizations, directly and through their patent-man

15 P. 31-40, supra; also Palmer, Nonprofit Patent Management (1956).

agement agents, illustrate both the diversity and the complexity of nonprofit patent management.160

Since 1927 the Wisconsin Alumni Research Foundation has granted approximately 600 licenses under the patents included in its portfolio, nearly 500 of them under the Steenbock vitamin D patents. The majority of the licenses have been on a nonexclusive basis. However, on occasions, especially with respect to the Steenbock patents, the foundation has entered into exclusive licenses for the life of the patents concerned, or what might perhaps be more properly designated as "partially exclusive" licenses, with individual companies or small groups of companies in widely different, noncompetitive fields. In certain other instances exclusive licenses for a limited period of time have been granted in order to stimulate commercial development and promotion by the licensee. Also, when the original nonexclusive licensee is adequately meeting the market demand for a product, subsequent licenses under that patent have been withheld.

The policy and thinking of the foundation on the important subject of exclusive versus nonexclusive licensing has varied considerably over the years, largely as a result of its experience. Originally, with a view to obtaining wide distribution and public benefit, exclusive licenses were granted in the various fields covered by the patents. When it was found that this practice led to serious administrative complications in later years, the foundation adopted a wholly nonexclusive licensing policy and avoided, insofar as possible, any exclusive commitments. In more recent years the foundation has in most cases reverted to the policy of granting exclusive licenses. Such commitments, however, have in practically all cases been for a limited period of time, rather than for the life of the patent concerned.

The type of license granted and the terms of the license agreement have in each instance been determined by a number of factors, such as the nature of the patented discovery or invention, the amount and expense of developmental work necessary to achieve its commercial potentialities, the demand for the licensed product and the field of operation of the licensee. Accordingly each license agreement is, of necessity, tailor-made to meet the particular situation, except for the usual clauses common to all licenses and, in the case of nonexclusive licenses, equitable treatment of all licensees, particularly with respect to the royalty rate.

The royalty rates charged by the foundation vary widely as between different patents, depending upon the importance of the invention, whether the license is exclusive, partially exclusive, or nonexclusive, the extent of the foundation's investment in development work, the margin of the licensee's profit, the assistance rendered by the foundation in the promotion and commercial marketing of the licensed product and the customary or established royalty rate in a particular industrial field. Licenses in the pharmaceutical field, for example, are at the royalty rate more or less common in the field, 5 percent of net sales. On the other hand, the royalty rate under the sabadilla seed insecticide licenses is 3 percent of net sales. Because of the manner in which Warfarin is processed and marketed, a special royalty rate is charged for its use as a rodenticide, whereas licenses covering its use for human medication are at 72 percent of net sales. Graded scales of

160 The individual descriptions in this chapter are based upon confidential information furnished the author and disclosed with the permission of the sources of the information.

royalty, related to the quantity sold, apply under the Nu-World cheese and processed cranberries licenses.

Similarly, in the foundation's licensing of its expired and abandoned patents a variety of royalty rates were used, depending upon the field of operation of the licensee. The copper-iron, progesterone, and microdensitometer licenses carried a royalty rate of 5 percent of net sales. In the pharmaceutical field the Steenbock patents were in the beginning licensed on a percentage of net sales, originally 10 percent on certain products and 6 percent on others, which were later reduced respectively to 5 percent and 3 percent; still later the royalties were placed on a flat amount of 10 cents per million units of vitamin D used. In the evaporated-milk field the royalties were based upon so much per case of 48 cans of evaporated milk, ranging from 12 down to 1 cent per case, while in the fluid-milk field they were a specified amount per quart, ranging from one-tenth of a cent down to as low as one-fiftieth of a cent per quart; in other fields a flat-sum royalty per year was charged. On stabilized iodized salt for human consumption the royalties charged under the stabilized iodine licenses ranged from 172 to 25 cents per ton; on stabilized iodized salt or mineral mixtures for animal consumption they ranged from 14 to 32 cents per ton, depending upon the quantity of iodine used.

The Rutgers Research and Endowment Foundation has 21 nonexclusive licenses currently in effect under which each licensee pays a royalty of 22 percent on net sales of streptomycin, 2 percent on net sales of dihydrostreptomycin, which is covered by the streptomycin patent, and 22 percent on net sales of neomycin. It is the policy of the foundation to license all reputable and financially responsible manufacturers upon equal terms. The foundation has not granted exclusive licenses, except in one instance where a limited exclusive license was granted to the sponsor of the research who made application for the patent and assigned it to the foundation.

Through its biochemistry committee on grants for research, St. Louis University has granted 9 nonexclusive licenses under its Theelin, Theelol, Antuitrin-S, and vitamin K patents, all at 5 percent of gross sales. Without exception, its licensees have exhibited an excellent spirit of cooperation, and the attitude and helpfulness of the first one to obtain a license under the Theelin patent has far exceeded contractual requirements. The pattern developed with respect to the licensing of Theelin has served as the model for the successful handling of the later patentable discoveries. The number of license granted under these four patents has been limited in order to maintain sufficient control over the reliability of the product.

The University of Tennessee Research Corp. has granted licenses under the patents on 14 inventions, all of which have been income-producing in some degree. As is generally the practice, no standard license form is used; individual contracts are drawn providing for an appropriate minimum royalty, the amount depending upon the type of invention. No rigid licensing policy is followed, although Tennesseans are given preference in the issuance of licenses, all things being equal. The general practice of the corporation is to grant nonexclusive licenses, as the patents cover the results of research supported by public funds. Exclusive licenses are issued only in unusual cases, when it is apparent that the public welfare will be served thereby, and then only for a limited period of time.

With a view to safeguarding the interests both of the public and of Iowa State College and taking into account the relation of specific inventions to agriculture and the other industries of the State, as well as any possible relation to life and health of both humans and animals, the Iowa State College Research Foundation has since 1938 been highly effective and successful in acting as patent management agent for the college and members of the college faculty and staff. It has granted both exclusive and nonexclusive licenses at varying rates of royalty under the patents it has administered. Eighteen nonexclusive licenses bearing a royalty of one-fourth of a cent per pound were issued during the life of a basic patent, which has now expired, on a method of making blue-veined cheese. As the process covered by the basic patent made possible the development of a thriving new industry which would hardly have otherwise occurred, the foundation considers its experience with this patent a vindication of the philosophy of the United States patent system.

Under the most productive patent in its portfolio, on a method for treating growing ruminants and preparing their feed material, the foundation granted an exclusive license for 5 years to protect the large development expense incurred by the licensee, charging a royalty of 5 percent of the net selling price. Similarly, an exclusive license was granted on a solvent extraction apparatus and process at 5 percent of the net selling price, because of the large development investment required. On another invention, of an earth terracing apparatus on which the patent has expired, an exclusive license was also issued for the life of the patent at a royalty of 4 percent of the selling price. Because the patent was prosecuted and the necessary development work was performed at the licensee's expense, a sewage treatment method was exclusively licensed.

Under a special licensing arrangement, the Institutum Divi Thomae Foundation licenses its patents to a commercial company, Sperti, Inc., or its subsidiaries, who may manufacture under these patents or may sublicense independent manufacturers. Sublicensees normally pay royalty to Sperti, Inc., or its subsidiaries, from whom the foundation receives no direct royalties but instead holds a substantial block of stock in those companies and its return comes from their overall operations. Under this arrangement Sperti, Inc., and its subsidiaries are responsible for the commercial exploitation of the inventions and bear the expense of patent prosecution and maintenance.

The California Institute Research Foundation has granted 1 exclusive and 11 nonexclusive licenses under the patents included in its portfolio. On the basis of a development program carried out by the licensee, an exclusive license on an oxygen meter with a 9 percent royalty rate was issued in exchange for production assistance. One nonexclusive license on the foundation's contour sensing apparatus carries a 10 percent royalty charge, as do the two under its radiation meter patent. The royalty rate under the nonexclusive license on the porous wall construction is 9 percent, while under the licenses on the magnetic drum readout it is one-half of 1 percent. Royalty rates on the patented orthodontic appliances are charged at so much per dozen of each item.

The foundation's policy specifically precludes the use of exclusive licenses beyond a limited period, except in the case of high develop

mental expenditures by the licensee or for other special reasons, and then generally with a suitable cancellation clause. In the case of licenses for materials affecting public health, the foundation reserves the right to control the quality of the product marketed and to reject license applications when the proposed licensee does not meet the standards of ethics, quality control or market coverage deemed desirable for the purpose of making available to the public a suitable product at a reasonable price in as many territories as practical. Because of the nonexclusive license as well as cancellation and quality control provisions in public health licenses, the administration of the license is relatively simple.

To insure both national and international distribution of its patented coccidiosis vaccine, after approval by the Pure Food and Drug Administration, the Auburn Research Foundation has licensed dealers to promote its use. As an indication of the recognized effectiveness of the vaccine against cecal and intestinal coccidiosis in poultry, more than 1 million doses were administered to flocks of poultry during 1954 and it was estimated that over 2 million doses would be used the following year in the State of Georgia alone.

Under the one patent in its portfolio which is income-producing, on shoe construction and last, Noned Corp. has granted two exclusive licenses under which the prime licensees have issued 10 sublicenses. These licenses all fall into a pattern of nonassignable rights, either exclusive for a limited period of time (3 to 5 years, subject to renewal), with royalties to be paid on a percentage of the wholesale price of the shoes or, in one instance, on the basis of a fixed amount per pair of shoes made under the license. In all cases the royalty rate decreases as production increases; the percentages start at 2 percent and the fixed amount at 22 cents per pair.

Six nonexclusive licenses, arranged by a commercial concern in behalf of the University of Michigan, under the three Bailey motors patents administered by the Engineering Research Institute of the university, provided for royalties on a graduated scale based upon the horsepower of the motor. Five cents was charged on a one-sixteenth horsepower motor, 50 cents on a 1-horsepower motor and $1 on a 15horsepower motor. In an exclusive license granted under the two pharmaceutical patents, on thienyalkyl esters and basic esters of substituted thienylacetic acids, royalties are based upon a grant by the licensee of $4,000 plus a percentage of gross sales.

Over the years Research Corp. has granted both exclusive and nonexclusive licenses with a wide variety of terms and royalty rates. The general policy of the corporation with respect to licensing is to use the patent rights to promote the development and usefulness of the invention, to bring about its widest possible public use, and to derive reasonable royalty income therefrom for the support of research in educational and scientific institutions.

In negotiations with industry, careful attention is given to the terms of the license so that the licensee will be encouraged to undertake the further developmental costs that are almost invariably necessary to bring the invention from the laboratory stage to that of a useful and economic industrial process or product. As a matter of policy the corporation does not seek large initial payments for licenses, nor does it impose onerous minimum royalties. License fees are usually