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U of Florida Sees First Payoff from Biofuel IP Portfolio in Royalty Check from Verenium

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After more than fifteen years of development, a biofuel patent estate at the University of Florida is beginning to bear financial fruit. Earlier this month, Verenium, a developer of cellulosic ethanol that holds exclusive rights to UF’s IP portfolio, presented the university with its first royalty payment related to the technology.
 
The $66,000 check is modest by the standards of the UF Office of Technology Licensing, which generates around $40 million in licensing fees every year. Nevertheless, while the payment “is not really huge in the grand scheme of things, the commercialization of this technology as we go forward has huge financial potential,” David Day, director of technology licensing at UF, told BTW.
 
More significant than the financial promise of the milestone payment, Day said, is the fact that “this is an alternative energy technology that’s proving that it works and it can work in a commercial way.”
 
John Howe, vice president of public affairs at Verenium, told BTW that the royalty payment “is quite significant because it marks the first tangible result in terms of dollars flowing from the licensing and application of this technology.”
 
Neither Howe nor Day was able to pin a specific number on the potential market opportunity for the UF IP portfolio or the biofuel market in general, but Howe said that Verenium expects its royalty payments to UF to “grow over time as our business grows.”
 
Howe added that the company is “at the front end of what we believe will become a very significant business opportunity over the next several years, and that’s driven by several basic fundamentals that we see in the energy marketplace: Concern about climate change, concern about high oil prices, and about the possibility of an approaching peak in global oil production.”
 
Foundational IP
 
The UF patent estate is based on the work of Lonnie Ingram, a professor of microbiology at the university’s Institute of Food and Agricultural Sciences. In 1989, Ingram filed his first patent on the technology – for a genetically engineered strain of Escherichia coli that can produce ethanol from non-food biomass such as corn cobs and stems, forest thinnings, and sugarcane bagasse. In 1991, the US Patent and Trademark Office selected the technology as its landmark five-millionth patent.
 
Verenium – formed in June by the merger of Celunol and Diversa – holds exclusive worldwide rights to US Patent No. 5,000,000 and the rest of UF’s patent estate in the area of cellulosic ethanol production, which includes 15 US patents, seven pending US patent applications, 54 foreign patents, 52 foreign patent applications, “other related proprietary ethanol technology, and any extensions and improvements thereof for the production of ethanol,” according to a filing with the US Securities and Exchange Commission.
 
The licensing agreement dates back to a 1995 deal between Celunol – then called BC International – and the university. According to the SEC filing, the agreement ends with the expiration of the last patent related to the UF technology. Based on the latest of the current granted US patents, the agreement will extend into 2022. Based on pending and future patent applications related to the technology, the agreement could extend beyond 2026, the SEC filing said.
 
The SEC filing states that Verenium is committed to pay “certain fees and royalties” to the University of Florida Research Foundation as the exclusive licensee, as well as “certain fees” for sublicensing the technology, but specific financial terms were not disclosed.
 
UF’s Day said that there is “no written agreement” that gives Verenium the right of first refusal to future technologies developed in Ingram’s lab. “Everything is on a patent-by-patent basis,” he said.
 
However, he added, Ingram “has a very good relationship with Verenium. They work collaboratively and closely together, and if he wants us to license his latest patent to them, that’s what we’re going to do.”
 

“This is an alternative energy technology that’s proving that it works and it can work in a commercial way.”

The recent royalty payment is the result of a sublicensing agreement between Verenium and BioEthanol Japan, a joint venture of Marubeni and Tsukishima. BioEthanol Japan is using the UF technology in a cellulosic ethanol plant in Osaka that currently produces 1.4 million liters of biofuel per year and is the first commercial plant to produce ethanol from wood construction waste, according to Verenium.
 
Commercial Production by 2010
 
Verenium currently operates a pilot-scale cellulosic ethanol plant in Jennings, La., and broke ground in February on a second, demonstration-scale facility in Jennings that is expected to produce 1.4 million gallons of ethanol per year. The demonstration facility is targeted for completion by the end of the year.
 
Verenium’s Howe said that the company plans to use the demonstration plant to prove the feasibility of the technology in order to gain financial backing to begin construction of a commercial-scale plant by the end of 2008. That facility would have a capacity of up to 30 million gallons – about 20 times larger than the demonstration site, he said.
 
If all goes according to plan, he said, “We’ll be ready to produce ethanol commercially by the end of 2010.”
 
Acknowledging that the company’s timeline is “ambitious,” Howe said, “We think it’s very feasible to achieve that kind of a schedule.”
 
Howe added that the nascent biofuel industry could prove an economic boon to Florida and other states with high biomass production and said that Verenium is “actively looking at commercial production sites across the entire Gulf Coast region.”
 
The company has specifically targeted Texas, Louisiana, and Florida as “the three states in the entire country where cellulosic ethanol production is most likely to be feasible and economic,” based on their biomass production, proximity to water, and large, contiguous regions of land under common control.
 
Another factor “is the receptivity of state and local governments and the availability of support. That will be key – at least in the early stages – to making this a success,” he said.
 
“We believe this is really a new industry for our country that we hope will be welcomed and embraced by state and local governments, because it’s a potential source of jobs, of technology innovation, and revitalization of many parts of our rural agricultural economy,” Howe added.

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