Shrimp Farming in Minnesota: Licensing IP from Research Institutions
How do you build a shrimp farm in southern Minnesota, of all places? By licensing the technology that makes it possible from a research institution based near the “shrimp capital of Texas.”
Licensing technology from a university or other research organization is an often-overlooked way to start or expand a business, but doing so requires a strategic plan. Marshall-area feed producer Ralco took this approach with their recent licensing of shrimp production technology from Texas A&M University. Developed by shrimp researchers at the university’s Port Aransas facility off Corpus Christi, Ralco believes the technology, an innovative form of aquaculture, will allow them to efficiently farm shrimp for a protein-hungry marketplace.
As evidenced by the ambitious plans described in the Ralco press release, a strong entrepreneurial spirit in the company’s leadership is a key factor in developing business around licensed technology. Technology developed at research institutions can sometimes be focused on big picture concepts not quickly transferrable as fully developed products ready for the marketplace. Technology transfer offices at universities seek out licensees like Ralco for a reason: so their IP can reach its full commercial potential and royalties can help fund future research at the institution.
Licensees of research institution IP may need to make a significant investment into getting the technology “ready for prime time.” Depending on the situation, this additional research can relate to making the product easier to use, less expensive to manufacture, or be directed toward securing regulatory approval for the product.
An important consideration for the licensee is timing: at what stage of the patent process is the licensor’s technology? Entering into the license soon after the patent application is filed provides the licensee with the longest potential patent term. But since the patent is not yet in place, licensing at this stage has significant uncertainty as well.
In effect, the licensee is gambling the licensor will be able to obtain patent protection broad enough to significantly limit the ability of competitors to manufacture products or offer services similar to the licensed technology. At such an early stage, there is no guarantee this protection will be granted, which may allow the licensee to negotiate reduced fees reflecting the risk involved.
In 2010, my client St. Teresa Medical, a Minnesota-based medical device company, became aware of and sought to license hemostatic technologies newly developed by Virginia Commonwealth University and the Henry Jackson Foundation for the Advancement of Military Science.
Since the license was signed early in the patent process, St. Teresa was able to decide in which countries foreign patent applications were to be filed. The license also provided St. Teresa with the ability to take primary responsibility with regard to patent prosecution.
As discussed above, because St. Teresa licensed early stage technology, some important investments were necessary. St. Teresa invested both time and money making the technology commercially viable. It was also necessary for St. Teresa to do the testing required to obtain regulatory approval. These efforts however ultimately increased the company’s enterprise value.
An alternative high-value approach to technology licensing to that taken by St. Teresa Medical is to enter the license closer to the end of the patent term, such as 2-4 years prior to expiration. Facing declining patent value as the period of guaranteed exclusivity wanes, licensors may charge a reduced license fee compared to earlier in the term of a granted patent.
When conducting patent research relating to potential products, another of my clients, Fortus Medical, a Minnesota-based medical product startup, became aware of bone graft technologies patented by Cleveland Clinic Innovations. These patents had been previously licensed to another company, but the license was terminated when the prior licensee declined to pursue the planned product line associated with the licensed technology.
The license provides Fortus with the ability to protect itself from other entities during the first critical years while Fortus does the additional refinement needed to bring the product to market as well as during the product launch. After the licensed patent expires, Fortus intends to rely on protection provided by the additional patents Fortus has itself filed associated with the refined product ultimately brought to market. Depending on the situation, it may be possible for the licensee to exclusively control ownership and use of the technology covered by the new patents.
Fortus Medical improved on the results of its predecessor licensee. Time will tell if Ralco similarly realizes a better return on its patent license and related investments than Texas A&M’s earlier shrimp aquaculture licensees. But in my view, these imaginative Minnesotans have made a good catch.