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Lee M. Taylor JD, LL.M, MBA Candidate. The Mahele Method and its (Dis)contents. Education. University of Kansas - 2000 BS in Genetics BA in English Literature University of San Diego - 2004 Juris Doctor (JD) The George Washington School of Law - 2006 Masters of Law (LL.M)

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lee m taylor jd ll m mba candidate
Lee M. TaylorJD, LL.M, MBA Candidate

The Mahele Method

and its (Dis)contents

education
Education
  • University of Kansas - 2000
    • BS in Genetics
    • BA in English Literature
  • University of San Diego - 2004
    • Juris Doctor (JD)
  • The George Washington School of Law - 2006
    • Masters of Law (LL.M)
  • University of Hawai̒i - 2011
    • Masters of Business Administration (MBA)
  • Licensed Member of State Bars
    • California 2007
    • Hawai̒i 2008
experience
Experience
  • Laboratory Technician 1997
  • Biology Lab Instructor 1998
  • Field Researcher - Iceland 1999
  • Legal Clerk - San Diego, London 2003
  • Intern - IIPI 2004
  • Intern - ITC OUII 2005
  • UH Business Plan Competition 2008
  • UH OTTED 2008
otted licensing pre mahele method
OTTED Licensing pre-Mahele Method
  • Negotiations took 3 to 9 months
  • Performed sui generis (each technology is a unique entity and each licensee has unique circumstances)
  • Licenses:
    • No License Issue Fee; Equity due upon Execution; Production Milestones; Business Plans; and Sales Milestones
      • Milestones were known solely (wholly) to licensee
slide5

The Mahele Method™

Lee Taylor, University of Hawai̕i

  • 1. The License Issue Fee
    • $6,500 due upon execution if the patent expenses are less than that,
    • 50% of patent fees due upon execution and 50% due six months later if patent expenses are between $6,500 and $13,000, or
    • 33% of patent fees due upon execution, 33% six months later and the remaining 33% due twelve months after execution if expenses are greater than $13,000.
  • 2. The License Maintenance Fee
    • $12,000 due Dec 31st of the first full year of the license,
    • $24,000 due Dec 31st of the second full year of the license, and
    • $36,000 due Dec 31st of the third full year of the license and thereafter. All fees are creditable against royalties received during that calendar year.

3. Royalties

5% of net sales, 10% if licensing software. If the licensee wishes to have rates below 5% then the TTO requires sales projections for the first four years. If royalties in year 3 are close to $36,000 (+/- 10%) and exceed $48,000 in year four, the lower rate is accepted.

4. Equity “Never more than four”

Equity is something only sought from start-ups.It does not act in lieu of the above but in addition to it. There, the TTO takes 4% or less to allow enough equity left over for later rounds of fundraising. Equity is conveyed after the first round of $2M+ financing or at the fifth anniversary of the license—whichever is first.

the mahele philosophy
The Mahele Philosophy
  • Only a minority of licenses make substantial money
  • Royalty rates capture the upside of disparate technology
  • License maintenance fees capture the base rate / spur commercialization
  • TTOs and entrepreneurs time is limited / time is money
  • Business needs transparent, predictable terms
  • Licenses should have few “moving parts” and be easy to administer by using objective calendar dates
the license issue fee
The License Issue Fee
  • People only respect things they give consideration for ($$)
  • Some modicum of value is needed upfront
  • Money is the best proxy for competence & intent
  • Professors/Inventors reasonably expect the first 12 to 24 months of a license to be spent recouping significant patent expenses
  • They look for modest gains in year 3 and more substantial gains in year 4 and thereafter
the license maintenance fee
The License Maintenance Fee
  • Technology ages and loses value
  • There is substantial value in “locking up,” or having exclusive rights to a technology
  • The fee is the best goad towards commercialization
  • $25,000 is the pain point
royalties
Royalties
  • Royalties capture the upside of disparate technologies
  • The sliding scale forces the licensee to seriously consider the money that will be earned going forward
  • And yet . . .
  • Soft 3% on most technologies, 9% for software
  • Rebuttable presumption as to why it should be less (foolish consistency)
  • Licenses are “naked” research and consultation are not included
equity
Equity
  • Its FACT is more important than its Amount
  • We ask faculty to waive equity if receiving it directly from the licensee
  • UH does not need it until it has value
  • CELA’s liquidation preference may be more elegant still
is that it
Is that it?
  • Sublicensing?
    • Yes, but flow through and 10x royalty on all lump sum payments
  • Commercial sale are less important with license maintenance fees but can have first sale at year 3, 4, or 5
  • Standard license is full of non-controversial and/or non-negotiable terms
  • Improvement technology regularly granted
takeaways
Takeaways
  • The “nightmare” of the blockbuster technology is overblown (will “settle” for $30M instead of $40M in both equity and royalties)
  • The goodwill standard terms provide is real because they:
    • Empower professors
    • reduce workload
    • and provides predictability
  • The licenses are “fundable,” fast and fair
    • (works for companies of any size)
  • This method is “express” but not etched in stone, it is a rapid way to get to agreed upon terms
thank you
Thank You

Lee M. Taylor

Office of Technology Transfer & Economic Development, University of Hawai̒i

ltaylor2@hawaii.edu