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Kansas State University

Research Foundation
Kansas State University
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Suite 105
Manhattan, KS 66502-5020
Tel: 785-532-5720
Fax: 785-532-3920
tech.transfer@k-state.edu
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Royalty Payments


Royalty Sharing

KSURF takes the financial risk in protecting and commercializing K-State-owned IP. When successful, the returns are shared with the inventors/creators, their department or administrative unit, and the University. In addition, the KSU Institute for Commercialization (formerly NISTAC), shares in the return when they facilitate commercialization of the technology.

All K-State inventors/creators must agree upon how they will split the inventor/creator share of licensing revenue prior to any distribution.

For patented IP, the inventors/creators must also agree upon the department split if more than one department or administrative unit is involved. For non-patented IP, the University will determine the division of funds remaining after creator distributions are made.

These allocations are documented through the Intellectual Property Assignment and Royalty Agreement which is signed by all inventors/creators, the respective department/administrative unit head(s) and dean(s). No distributions are made until the agreement is completed and the inventors/creators have completed an IRS Form W-9 or equivalent.

Royalty Distribution

KSURF distributes licensing revenue according to the Kansas Board of Regents’ IP Policy and the K-State Intellectual Property Policy along with certain policies enacted by the KSURF Board of Directors. Distributions are based on licensing revenue less direct out-of-pocket costs such as legal fees. In general, distributions are made according to the following schedules.

PATENT LICENSING REVENUE DISTRIBUTION SCHEDULE
Annual Licensing Revenue Inventor Inventor Dept/Admin Unit(s) Institute for Commercialization Research Foundation
Ongoing Licensing Revenue        
          < $100,000 25% 10% 10% 55%
          > $100,000 35% 10% 10% 45%
Agreement Signing Fees        
          < $100,000 25% 10% 20% 45%
          > $100,000 35% 10% 20% 35%
NON-PATENTABLE LICENSING REVENUE DISTRIBUTION SCHEDULE
Annual Licensing Revenue Creator University Institute for Commercialization Research Foundation
Ongoing Licensing Revenue        
          < $100,000 25% 50% 10% 15%
          > $100,000 35% 40% 10% 15%
Agreement Signing Fees        
          < $100,000 25% 40% 20% 15%
          > $100,000 35% 30% 20% 15%

Beginning in 2008, the KSURF Board increased the inventor/creator share to 35% of annual royalty revenue for agreements that generate $100,000 and above annually. The increase is intended to reward those inventors/creators with high value technologies.

KSURF issues distributions quarterly on April 1, July 1, October 1 and before the winter break. Inventors/creators are paid when their cumulative share reaches at least $500 per agreement per quarter.

While KSURF prefers cash payments from licensees, equity may be accepted as consideration for a license or option. When equity is received, it is held by KSURF until it becomes liquid (e.g. the company goes public or is sold). Upon liquidation, equity is distributed to the inventors/creators according to policy.

Distributions are not affected should the inventor leave the University. The inventor will continue to receive his/her share as will the appropriate department or administrative unit.

Tax Treatment

Royalty distributions are considered personal income and as such, inventors are responsible for any taxes owed. According to the Internal Revenue Code (IRC), royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. However, IRC Section 1235 permits an inventor of a patent right to receive capital gains treatment for income derived from the patent right if he/she transfers substantially all rights to the patent to a third party, e.g. when an inventor assigns ownership of their rights to KSURF. Heirs, estates, trusts, relatives, corporations, and partnerships cannot qualify for capital gains treatments, so unless other sections apply, the payments would be treated as ordinary income. Payments relating to patents are reported as “Other Income” in Box 3 of IRS Form 1099-MISC.

Special rules apply to non-resident aliens that may require a different form of reporting or even tax withholding, depending on the individual’s country of residence. Most payments to non-resident aliens will be reported as “Industrial Royalties” on IRS Form 1042-S.

This information does not constitute tax advice; recipients of distributions should consult a tax professional for advice on their specific situation.

Non-KSU Inventors/Creators

In some instances, inventions are co-owned with other institutions. Co-inventors at other institutions will receive revenue under their institutions’ policies. KSURF will enter into an Inter-Institutional Agreement with that institution under which expenses and income will be shared and responsibility for patenting and commercialization will be assigned.

This explanation covers the customary distribution process. For more detailed information, please go to the Policies section of our website.