LEGAL PERSPECTIVES ON the complexities and considerations when spinning out companies from universities to commercialise research
8th September 2023
In March 2023, His Majesty’s Treasury (HMT) and the UK Department for Science, Innovation and Technology (DSIT) jointly commissioned an independent review of university spinout companies aimed at delivering a step change in the performance of the UK’s university spinout ecosystem. This builds on a decade of significant growth in the external investments secured by university spinouts in the UK, and increasing experimentation within universities to improve their support to the process. Along with this success an increasingly contentious and public debate has emerged questioning whether the approaches of universities in supporting their spinouts is conducive to success.
The criticisms typically focus on the deal terms negotiated between the founding team and the university, and in particular the levels of equity taken by universities.
A need for greater inputs from legal scholars
The debate, as with much of the literature and studies informing policy discussions of university spinouts, is typically driven by investor, financial and technology/innovation perspectives.
Often absent, however, are inputs from legal scholars. This is problematic given the legal complexities and issues that those involved in spinning out companies have to confront in reality. These make setting up, and investing in, spinout companies materially different from a purely commercial enterprise. The legal complexities are likely to result from, among other matters:
- The need for universities, as “exempt charities”, to comply with charity law in all their activities, including the formation of spinout companies,
- The employment duties and career priorities of academic founders who wish to continue in their university roles,
- Spinouts being formed to commercialise research that is often built on significant public investment, with potentially charitable and industrial funding also contributing, and where such investment and funding are subject to detailed contract terms that may affect a university’s ability to commercialise the research, and
- Associated legal (including tax) and governance issues for universities, founders and investors.
To fill this gap in our understanding, UCI commissioned Mark Anderson, an English solicitor (attorney) and legal scholar, with significant experience as a commercial and intellectual property lawyer and with spinout transactions, to reflect on the complexities and issues influencing the university spinout process and the approaches universities take.
Focus of the expert insights paper
The paper walks us through the many legal obligations universities face – across many areas of law – when seeking to support the formation and development of spinout companies set up to commercialise the outcomes of research. These are discussed in the report, and brought together examples of key documents and case law, and implications for universities in Appendix 1.
Mark also reflects on how the system could be developed to make it easier for universities to engage in spinout activity, should the desired goal be to streamline their activities around spinouts (compared to, for example working with existing companies). This recognises trade-offs that may exist between optimising the system and its institutions (legal, cultural, financial etc.) for spinout production versus other forms of knowledge exchange.
Based on his extensive experience working in this area, Mark concludes with the following points:
- Universities should be free to set their IP and spinout policies to take account of academic priorities.
- Complaints by some investors about the initial shareholdings taken by UK universities are unpersuasive, in light of the reasoned analysis by the High Court in the Oxford case, as quoted in Appendix 2 to this paper. While investors have a financial interest in lowering university expectations, the judge was a neutral observer.
- We need more investors in early-stage technology companies, to create more competition in the market. Increased tax incentives and revised rules for pension fund trustees may be more effective at increasing spinout formation and growth than intervening on IP policies.
- The recently-published USIT Guide show that universities and investors can work together to streamline spinout deals, without government intervention.
- The most fruitful area of reform would be to standardise the contract terms of government funders, including IP terms. This would save significant costs in negotiating the terms, and would streamline and simplify the negotiation of licences and assignments to spinout companies.
The importance of universities having sufficient funding to invest in due diligence for potential spinout companies is also highlighted.
Finally, Mark emphasises that we must recognise that universities are different to commercial companies, and the differences are not all “faults” that need to be corrected. Academic and practitioner studies of universities and their contributions to innovation have shown that it is these differences that enable universities to create the seeds of groundbreaking technologies and innovations that have the potential to transform our lives and our futures. Our challenge is to find ways to bridge – rather than eliminate – these differences to allow for the smooth and efficient translation and transition of ideas and knowledge from the academic domain into the commercial world and society more widely.
About the author
Anderson Law LLP
Honorary Professor of Practice at the Institute of Brand and Innovation Law of University College London
Mark is an English solicitor (attorney) and managing partner of Anderson Law LLP. He has over 35 years’ experience as a commercial and intellectual property lawyer.
For several years, Mark has been recommended in Chambers Directory as a leading UK lawyer in fields of life science transactions, and intellectual property. He is highly recommended for transactions in IAM1000, a guide to the World’s Leading Patent Practitioners. He has chaired the Intellectual Property Law Committee of the Law Society, and led the Society’s work which resulted in the passing of the Intellectual Property (Unjustified Threats) Act 2017, including giving oral evidence to Parliament.
Mark drafts, negotiates and advises on commercial agreements, particularly those that concern intellectual property rights, such as R&D contracts, IP licences and spinout transactions. He has extensive experience of advising clients in various technology sectors, including life sciences, information and communications technology, and engineering.
Mark’s clients include commercial companies (both publicly-quoted and private companies, including SMEs), professional service firms (including overseas law firms), universities, hospitals and other charities, funding bodies, investors, and individual inventors and entrepreneurs. His clients are based mostly in England and Wales, but also in Continental Europe, North America and Australasia.
As well as advising clients, Mark is increasingly involved in helping with complex issues, e.g. as a facilitator of multi-party negotiations. He accepts instructions as an arbitrator or mediator of IP disputes, including disputes concerning the interpretation or performance of IP related contracts.
Mark regularly speaks at conferences in Europe on intellectual property and commercial law subjects, including contract drafting. He has been a guest lecturer at the London Business School and at Harvard Law School. He is an honorary professor of practice at the Institute of Brand and Innovation Law of University College London (UCL). He devised and is the course director of a five day course for IP lawyers, Intellectual Property Transactions: Law and Practice. Run annually at UCL, this course has won two awards: a Law Society Excellence Award (Highly Commended) and a UCL Provost’s Teaching Award.
Mark has written several practitioner textbooks on IP and commercial law subjects, including Technology Transfer (fourth edition, 2020, Bloomsbury). He is the lead author of a legal blog, IP Draughts , which has won an American Bar Association award.