From Laboratory to Market: Legal Strategic Planning for Spin-offs in Kaiserslautern

Technology transfer from research to industry is one of the strongest drivers of innovation in Germany. Particularly in the Kaiserslautern location – often referred to in the tech scene as "Silicon Woods" – the power of this ecosystem is evident: Here, the University of Kaiserslautern-Landau (RPTU), many established companies, and a unique density of top research institutes work closely together.

Special mention should be made of the German Research Center for Artificial Intelligence (DFKI), the two Fraunhofer Institutes for Experimental Software Engineering (IESE) and for Industrial Mathematics (ITWM), as well as the Max Planck Institute for Software Systems (MPI).

However, the path from a patentable idea to a market-ready company – a so-called spin-off – is legally complex. Unlike a spin-off from an existing group (corporate spin-off), where the German Umwandlungsgesetz (UmwG) often applies, foundations from universities and non-university research institutions are almost always new foundations from a legal perspective.

Using the example of a fictitious founder team from the environment of the RPTU or one of the neighboring institutes, we show which legal hurdles are to be cleared and how a legally secure exploitation of intellectual property succeeds.

1. The Starting Position: Who Owns the Idea?

Let's imagine a research team at Fraunhofer ITWM develops innovative simulation software or a novel AI algorithm is created at DFKI. The team wants to found a company based on this.

In the past, the so-called "University Teacher Privilege" applied at universities, whereby professors could freely dispose of their inventions. This is history. Since the reform of the German Employee Invention Act (ArbEG), inventions at universities – just as at non-university institutes (Fraunhofer, Max Planck) always have been – are service inventions. This means:

• The research institution (RPTU, Fraunhofer-Gesellschaft, MPI, etc.) has the right to claim the invention and apply for a patent.
• The founder team does not initially own the technology themselves, although they developed it.

Legal practice shows: The first big hurdle is often months of negotiations between the transfer office of the respective institution and the founders regarding the evaluation and transfer of the Intellectual Property (IP).

2. IP Transfer: The Transfer of Technology and Exploitation Rights

For investors (Venture Capital), it is essential that the IP resides permanently and legally securely within the start-up. In the process, the interests of the research institution (exploitation proceeds for the public sector) often collide with the reality of the start-up (tight budget). Legally and strategically, three essential aspects are to be regulated:

a) Licensing instead of Sale (Liquidity Preservation)

A direct sale of the patent from the institution to the start-up ("Asset Deal") is legally possible, but in practice usually fails due to the founders' lack of liquidity. A high purchase price would withdraw the money that the young company urgently needs for operational development.

The Solution: In practice, exclusive licensing has prevailed. The institute grants the spin-off the sole right to use the technology. As consideration, a mix is often agreed upon that preserves liquidity:

• Deferred License Fees: Payments are often postponed until certain "milestones" (e.g., first turnover or market entry) are reached.
• Equity Kicker: Instead of a high one-off payment (downpayment), the institution (or its exploitation company) receives a (usually virtual) stake in the company.

b) The "Chicken-and-Egg Problem" of Financing

Founders often find themselves in a dilemma: investors make financing dependent on the IP rights already residing in the company ("IP cleanliness"). The research institution, in turn, often only transfers the rights when financing is secured.

The Solution: Here, option or preliminary agreements help. These grant the founder team the right to first evaluate the research results and irrevocably assure them that they can acquire the license at defined conditions in a second step. This gives the investors the necessary security for the investment without capital flowing prematurely.

c) The Trap of the "Community of Interests"

An often-overlooked risk lies within the founder team itself. If the founders already work together on further development before the official GmbH formation, they often unconsciously form a partnership under civil law (GbR). The rights arising from the new work results then belong to the founders as a joint-hand or as a community of interests.

The Risk: An individual founder cannot dispose of their share in the invention alone. If a dispute arises in the team, this can block the transfer of the rights to the GmbH.

The Recommendation: It is essential to contractually regulate early on that all existing and future IP rights are transferred to the GmbH to be founded without charge (IP transfer agreement). For patent applications, written form must be urgently observed (cf. Art. 72 EPC for European patents).

3. Participation of the Research Institution: A Balancing Act

There is not yet a uniform standard model for participation in Germany. While large societies such as Max Planck or Fraunhofer often act through specialized subsidiaries (e.g., Max Planck Innovation) and set professional standards, the models vary greatly among universities. Generally, however, a trend towards virtual participations (phantom stocks) is recognizable here as well.

For our example in Kaiserslautern, this means: the founder team must clarify early on whether and how the RPTU or the respective institute (e.g., Fraunhofer ITWM) wants to participate. Too high a participation of the institution can deter later investors (cap table hygiene). Here, skill in negotiating license height against participation quota is required.

4. The Team: Labor Law and "Dual Roles"

Often the founders are still employed at the institute. However, a scientist cannot simultaneously research full-time at the MPI or Fraunhofer Institute and be a managing director of a company. Legally clean solutions are:

• Termination of the employment relationship at the institute.
• Part-time models or leave of absence (often with the right to return).
• Side activity permits (e.g., for a role on the advisory board, but rarely for management).

5. Professionalization through Governance: The Scientific Advisory Board

Especially in the case of "deep tech" spin-offs typical of the environment of the RPTU, DFKI, or the Fraunhofer Institutes IESE and ITWM, the link to the original chairs and research departments is essential for reputation and access to networks.

The instrument of choice here is the establishment of a scientific advisory board. Unlike a supervisory board, this has no control function but advises management on technological questions. Natural candidates here are often the institute directors or chair holders from whose environment the founders originate.

Legally, a contractual (advisory) board is usually suitable for start-ups. This is maximally flexible as it does not have to be anchored in the articles of association and the members are not subject to strict liability rules. This makes it easier to gain top-class experts from industry or research for the body.

Practical Tip: To save costs and avoid legal pitfalls during establishment, we often recommend standardized templates for the first phase. An excellent starting point is provided by the template of our partner platform Resolvio for the establishment of a purely advisory body:

Free template: Establishing an advisory board (Resolvio)

6. Conclusion and Our Recommendation

A spin-off from a research-intensive environment like Kaiserslautern offers enormous potential. The density of top-level research by RPTU, DFKI, MPI, as well as the Fraunhofer Institutes IESE and ITWM, creates ideal conditions. Success, however, depends not only on the technology but on the legal structuring of the technology transfer.

Our Consulting Priorities for Spin-offs:

• Design and negotiation of license and cooperation agreements with universities and research institutions (focus: option models and exclusivity).
• Corporate law formation (GmbH/UG) and design of investment agreements (Shareholders' Agreements) with investors and institutes.
• Establishment of advisory board structures for integrating scientific expertise.
• Labor law decoupling from the public service or research institution.
• Securing IP rights in the company (avoiding IP gaps for founders).

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