What is the procedure for distributing commercialization income to inventors?
Under the University’s IP policy inventors are entitled to receive 50% of the net income from commercialization. The net income is calculated by subtracting all allowable expenditures under the policy from the gross income from commercialization. Typical allowable expenditures include such things as patent prior art searching costs paid to those outside the ILO, patent prosecution costs including patent agent fees, filing fees, maintenance fees and may include other out of pockets costs incurred by ILO in managing the IP such as Forge Ahead funding for prototype development, travel and fees paid to market consultants. Gross income includes option and license fees, milestone payments, royalties and liquidated equity but does not include licensee payments for further research and development at the University. There are a few exceptions to this 50% sharing arrangement. Contact the Managing Director or Legal Manager at ILO for details.
The Industry Liaison Office keeps accurate records of all income received and allowable expenditures made on an invention by invention basis. Every 6 months, April 30 and October 31, the two are compared, income and expenditures. If there is an excess of expenditures over income that excess is carried forward to the next 6 month period. If income exceeds remaining expenditures 50% of the excess is distributed within 90 days of the end of each 6 month period unless there are well defined anticipated expenditures in the coming 6 month period that are not recoverable from the licensee. If that is the case then sufficient income will be retained to cover those anticipated allowable expenditures.
Once the 50% of net income to be distributed has been determined ILO then instructs the University financial services to cut cheques to each inventor in accordance with the sharing agreement that the inventors have put forward to the ILO. In the absence of such agreement the default for ILO is an even distribution between inventors of record.
Although not inventors there are sometimes other researchers that have played an important role in the research leading to an invention. In such cases these researchers should not be named as inventors so as to reward them. Instead the inventor(s) may wish to share some of the inventors income with them. This can be done by advising ILO at the time of reporting the invention or at the time of providing an income sharing agreement to ILO.
Income from commercialization is treated by Canada Revenue Agency as employment income and consequently the University issues T4 slips for such income and deducts the appropriate amount for EI and CPP contributions unless you are already at the maximum for these deductions. Non-resident inventors need to send ILO a declaration of non-residency status which will trigger withholding tax.