4.6 Equity Acquisition in Technology Licensing and Distance Learning Agreements

Establishes specific conditions under which Stanford may acquire equity as part of an agreement.

Authority

Board of Trustees

Committee on Finance

Contact

Questions about this policy can be answered by:

Karin Hope Immergluck

Executive Director

Office of Technology Licensing (OTL)

2:(650) 723-0651

1. Policy

In the course of technology licensing, and in developing, marketing, selling and licensing various types of distance learning, Stanford University sometimes has the opportunity to acquire equity. This policy enables Stanford University to receive a benefit from equity. While potential conflict of interest issues are addressed through the Faculty Policy on Conflicts of Commitment and Interest RPH, the policy on Conflict of Commitment and Interest for Academic Staff in RPH, the Staff Policy on Conflict of Commitment and Interest in the Administrative Guide Memo 15.4 and through management of the University's equity separate from the Office of Technology Licensing (OTL) or an affected school or department. Equity includes shares of stock, and also other forms of equity (such as warrants, options, interest in limited partnerships or limited liability companies) that lend themselves to distribution in the manner contemplated.

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2. Technology Licensing Agreements

  1. The University may accept equity as one form of compensation for license rights, subject to a conflict of interest review if appropriate.
  2. Of the total amount of equity which is to be issued for a particular license, fifteen percent (15%) of such equity ("the Administrative Share") will be issued to the University for the benefit of the Office of Technology Licensing ("OTL") to cover its general administrative expenses.
  3. The remaining equity to be issued for the license, after deducting the Administrative Share, will be considered as "Net Equity."
  4. One third (1/3) of the Net Equity will be issued to the Inventor(s) as the Inventor(s)'s Shares. Following issuance of Net Equity, it shall be the sole responsibility of the Inventor(s) to manage the Inventor(s)'s Shares and to comply with any tax, legal or contractual obligations associated with the distribution, ownership, or disposition of the Inventor(s)'s Shares.
  5. The remaining two thirds (2/3) of Net Equity will be issued to the University as the University Share. The OTL Research and Fellowship Fund, administered by the Vice Provost and Dean of Research, will receive the University Share, less any unreimbursed OTL direct expenses.
  6. All equity received by the University will be managed by Stanford Management Company.

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3. Distance Learning Agreements

  1. The University may accept equity as one form of compensation for distance learning, subject to a conflict of interest review.
  2. The Provost, or his designees, will determine the allocations of equity under this policy. In making this determination, factors to take into account include: 1) any royalties or other compensation received from the affected parties; 2) any seed funds or other support given by the school or department to the long distance venture; 3) the value of the university's name to the venture; 4) the value to the distance learning venture that was added by each of the parties; and 5) such other factors as are deemed relevant.
  3. Of the total amount of equity which is to be issued for a particular venture, fifteen percent (15%) of such equity ("the Administrative Share") will be issued to the University for the benefit of the Office of Technology Licensing (OTL). If Learning Technology and Extended Education (LTEE) or the Stanford Center for Professional Development (SCPD) has contributed significantly to the licensing of the work, the Dean of Research may allocate a portion of the 15% to LTEE or SCPD, as appropriate.
  4. The remaining equity to be issued for the license, after deducting the Administrative Share, will be considered as "Net Equity."
  5. Up to one third (1/3) of the Net Equity may be issued to the Creator(s) as the Creator(s)'s Shares. Following issuance of Net Equity, it shall be the sole responsibility of the Creator(s) to manage the Creator(s)'s Shares and to comply with any tax, legal, or contractual obligations associated with the distribution, ownership, or disposition of the Creator(s)' Shares.
  6. The "Creator" or "Creators" are those individual(s) who created the intellectual content for the distance learning venture. If there is more than one Creator, they will generally share equally in the Creators' Share. If there are no readily identifiable Creators because the distance learning venture is a group project, was largely created by University or Departmental resources or for any other reason, then the Creators' Share will go to the University as set forth in paragraph 7. A committee appointed by the Provost [see 2 above] will make the determination of the apportionment of the "Creator" share.
  7. The remaining Net Equity will be issued to the University as the University Share. The Office of the Provost will determine how such proceeds are to be distributed. A department or school may petition the Office of the Provost to receive a portion of the equity for its particular teaching and education purposes.
  8. All equity received by the University will be managed by Stanford Management Company.
  9. Any disputes about any issues covered by this policy shall be submitted to the Provost who will attempt to informally resolve the dispute and, failing that, appoint a Panel to decide each dispute. Any objections to the decision of the Panel must be made in writing within 30 days of the decision of the Panel to the President, and the President of his designee will make a final and binding determination of the dispute.

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4. Equity

It may be in the best interests of technology transfer and distance learning to include equity as partial consideration of a license agreement. Young, privately-held companies often do not have the requisite cash reserves to compete with an established company for rights to Stanford property. An offering of equity is a means of enabling small companies to license Stanford technology or otherwise participate with Stanford in distance learning ventures. However, the acceptance of equity presents two potential problems: risk and the generation of conflicts of interest.

Risk is an issue because, at the time equity is given, it generally has no value. Whether or not it will acquire value will depend on the overall success of the company, which is a function of many factors that may not relate to the technology being licensed or the educational content being distributed. Therefore, Stanford University will always require some cash as part of the upfront license agreement.

Equity has considerable potential for creating conflicts of interest for inventors, creators and the University because equity holders are part owners of the company. As owners, they stand to gain considerably if the company does well, and therefore there may be incentives to take actions and make decisions that favor the interests of the company over the academic missions of the University.

Stanford's Faculty Policy on Conflict of Commitment and Interest in RPH recognizes these potential conflicts and requires disclosure and intervention as necessary to manage them. However, since departments and schools are involved in key personnel and facilities decisions, conflict of interest can also be a concern at the organizational and institutional levels.

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