The UNC Policy Manual
500.6
Adopted 01/14/05
I. Introduction. Constituent Institutions occasionally
have the opportunity to acquire equity in companies in relation to
inventions. Usually, equity agreements
are structured to enhance technology transfer whenever cash reserves for new
companies are not available for payment of intellectual property rights as the
result of licensing or other transfer of technology.
Acceptance
of equity for constituent institution intellectual property rights presents
issues considerably different from fee-generating licensing transactions and
therefore should be treated differently within the framework of the UNC Patent
and Copyright Policies, in regard to distribution of equity and/or earnings on
equity to inventors.
This
policy has been designed to limit the issues of institutional conflicts of
interest and conflicts of interest of inventors, departments, schools and
technology transfer offices and officers.
Decisions on when to convert equity into earnings should be made at “arms length” from the technology development and licensing
offices to limit securities exchange violations.
II. Policy
A. Conditions
for Receipt of Equity. Equity in a company may only be received by a
constituent institution in the UNC system as partial or full consideration for
a technology license or transfer of technology, as negotiated by the technology
transfer office or by the Chief Research Officer, Chief Academic Officer, or
University Counsel. Constituent institutions should designate the unit
responsible for effecting such negotiations and the unit responsible for
receiving and managing such equity.
Without the approval by a constituent institution’s Chancellor, no other
unit of the constituent institution, including affiliated foundations, may
acquire equity in a company from which the constituent institution has received
or is negotiating to receive equity in conjunction with a licensing or transfer
of technology transaction, except as provided in Section II(F) of this
Policy. Acceptance of equity will be
based upon similar principles of constituent institution fee-generating licensing
where transactions occur in an atmosphere of openness, objectivity and
fairness, placing education, research and public service before institutional
or individual gain. Equity transactions
will be conducted in accordance with other University policies such as: the
Policy on Conflicts of Interest and Commitment, the Policy on Ethics in
Research, the Policy on External Professional Activities for Pay, and other
related University policies and guidelines.
B. Negotiations, Founder’s Shares,
Voting Representation
1. Negotiations.
Except as expressly approved by the constituent institution’s Chief
Research Officer, there shall be no negotiation on behalf of a constituent
institution independent of the appropriate technology transfer office (or other
responsible unit, as designated by constituent institution) by any constituent
institution inventor regarding any constituent institution license with or on
behalf of a licensee, including a licensee company founded in whole or in part
by that inventor. Independent
negotiations by an inventor regarding personal consulting contracts with the
potential licensee are permissible, provided the inventor complies with the
Policy on External Professional Activities for Pay, the Policy on Conflicts of
Interest and Commitment, the Patent and Copyright Policies, and other
applicable University policies.
2. Founder’s Shares. Any constituent
institution inventor who is a Founder of a company shall not be eligible to be
a recipient of equity or the proceeds of equity accepted on behalf of the
constituent institution. For the
purposes of this Policy, a “Founder” shall be any person who has received,
receives or is likely to receive a substantial economic benefit as a result of
acting as a founder, originator, or promoter of a company.
3. Voting Representation. No
constituent institution or its assigns will seek or accept voting
representation on the board of directors of a licensee company that provided
equity as consideration for a license from the constituent institution,
regardless of the level of its equity received as consideration for a
license. Constituent institution
employees may accept appointments to boards of directors and scientific
advisory boards of licensees in their individual capacities and not as constituent
institution representatives, but are still subject to all applicable university
policies in doing so.
C. Constituent
institution Employee or Officer Equity Ownership. Other than a founder or
inventor, no officer or employee of a constituent institution will be allowed
to hold or acquire equity in a company with which the constituent institution
has negotiated or is negotiating a license agreement if that license agreement
includes the transfer of equity to the constituent institution as either
partial or complete consideration for the license agreement and if the officer
or employee is engaged in or has access to or knowledge of the negotiation
between the company and the constituent institution.
D. Equity Terms and Minority Ownership
1. Equity Terms. The
terms of any equity-based technology licensing transaction, with the exception
of the form of consideration, shall be consistent with constituent institution
licensing transactions for comparable technologies.
2. Minority Ownership. Neither constituent universities nor their
assigns will accept more than a minority ownership share in a licensee as
consideration for a license.
E. Timing
and Nature of Distribution. Where
there is a proposal for equity in a company to be accepted by the constituent
institution or its assign as consideration for a technology licensing
transaction, the constituent institution technology transfer office or other
designated responsible unit may elect either:
1. Distribution at Licensing. Arrange for inventor(s) other than Founder(s)
to receive in the aggregate a one time distribution
of no less than 15% of the total shares due to the constituent institution or
its assign directly from the licensee upon execution of the relevant agreement,
including provisions relating to restrictions, if any, on transfer or
disposition of inventor(s) equity, in which case the inventor will be
responsible for retaining his/her own business advisors, legal counsel and tax
counsel and will be responsible for all financial, tax and legal
consequences related to the equity
he/she receives; or
2. Distribution After Licensing. Arrange for all equity, including shares
attributable to the inventor(s) other than Founder(s), to be issued in the name
of and held by the constituent institution or its assign. The inventor(s)’ sole right under these
circumstances is the receipt of no less than 15% in the aggregate of the total
shares, or the pro-rata total shares, or cash equivalent, of equity held by the
constituent institution or its assign that become unrestricted and have market
value. The inventor will be responsible
for retaining his/her own business advisors, legal counsel and tax counsel and
will be responsible for all financial, tax and legal consequences related to
the equity or cash equivalent he/she receives.
F. Management of Equity
1. Independent Management Decisions. The constituent institution or its assign
shall make decisions regarding the management and disposition of equity it
receives pursuant to this Policy based upon sound business judgment, which may
include a decision that it is in the best interests of the constituent
institution to establish a certain date of liquidation of equity, and publicly
available information. Such decisions
shall be made independent of any undue influence by the inventors, the
technology transfer office, or any other campus licensing unit.
2. Limited
Additional Investment. Under no
circumstances shall the constituent institution or its assign make any direct
investment in any licensee in which equity has been accepted by the constituent
institution or assign in consideration for license pursuant to this Policy
unless and until the licensee company is publicly traded or until licensee’s
equity is priced by unrelated and independent means.
III. Institutional Policies. Each
constituent institution may adopt internal policies, procedures, and guidelines
consistent with this policy. The
internal policies, procedures, and guidelines may include a provision that
recognizes the unique nature of equity acquisition and allows the constituent
institution’s Chancellor to approve exceptions to certain provisions of this policy,
in extraordinary individual cases, where those exceptions comply with all
University of North Carolina and constituent institution policies, relevant
laws, regulations, and ethical requirements.