1. Licensing: An Overview
Varda N. Main
Director, Technology Licensing Office
Rochester Institute of Technology
Presentation to “Introduction to
Intellectual Property” Course
February 4, 2003

2. Licensing
In the broad sense, is a discipline that makes it possible to transfer technology from a proprietor (the licensor) to an interested purchaser (the licensee) in a well defined and effective manner

3. Intellectual Property Rights
Trade Secret
Know-how
Show-how
Patents
Trademarks
Copyright
Mask Works

4. More customers for embryonic technologies
Emerging Trends
Technology development time decreasing
Technology development costs increasing
Growing importance of alliances
Regulatory environment becoming more stringent
Corporations licensing in more
Opportunity:
More customers for embryonic technologies

5. Global Issues Knowledge moves quickly around the world
Increase in industrial/academic espionage
Trade agreements: GATT, NAFTA
New trading blocks: EC, E. Europe, N. America
Move to patent harmonization

6. Emergence of Technology transfer function in university community
Historical Context
Availability of R&D funds decreasing
Competition for R&D funds increasing
Universities seeking additional avenues to fund R&D
Result:
Emergence of Technology transfer function in university community

7. Why Interest in IP Value in intangible assets
GAAP and book value
IP protection adds value and increases lifetime of that value
Communication between lab and marketplace
Speeds movement of technology to products

8. How IP Moves to the Marketplace
Idea >> concept >> reduction to practice >> prototype >> scale-up >> productization
Direct application by IP owner
Sale of IP to another entity who then productizes
License of IP to licensee(s)
Public disclosure of IP

9. Technology Transfer
Collaborative process whereby the products of R&D flow from a source to the (next) user
Numerous transfer options including:
Licensing
Alliances
Use of facilities
Consulting
Outright sale

10. Types of Licensing
Licensing Out
Licensing In

11. Rights under a License To make To use To disclose to others To sell
by publication
in a marketed product
in a service manual
as a sub-license to a third party
to lease
To sell

12. Types of Licenses
Exclusive - there can only be one licensee; the licensor has no rights to exploit the technology/product
Sole - exclusive but for the licensor; i.e., the licensor has rights to exploit the technology/product
Non-exclusive - there is no limit to the number of potential licensees

13. Licensing Strategy Position in technology life-cycle
Presence/absence of competition
Technical, financial and marketing strengths of the parties
Legal, political, and cultural environments
Protection of proprietary information
Grantsback
Remuneration hoped to be realized over the term of the license

14. Types of Licenses Irrevocable/Revocable for cause
Territory: World-wide/Limited to named geographic regions
Field of use: Market-specific
Royalty-bearing/Royalty-free

15. Determining Position in the Technology Life Cycle
Technical performance obsolescence
Technical feature obsolescence
Cost obsolescence
Safety obsolescence
Shifts in consumer preferences

16. What do you really have? Know the History
Base patents and continuations
Technically related patents and copyrights
Software versions
Previous agreements
Outside authors and inventors
Funding sources

17. The View on the Other Side of the Table
Perception of business risk.
Who’s bringing what to the table?
What are the 3 points of difference for the technology/opportunity?
What would make a user switch to this product/process/service?
What is needed to bring this to the commercial marketplace?

18. Importance of Timing
Commercialization and patent prosecution timelines must coincide - “Window of Opportunity”
Understand the technology & IP life cycles
Understand the impact of competing technologies (i.e., first to market)
Durability of competitive advantage
Fit with business or corporate strategy

19. Packaging of Technology for Transfer
Licensing need to be win-win situations
What must the licensor do to ensure that the licensee will be able to fully use the licensed technology?
How to identify all the know-how, show-how and technology needed by the licensee?
What other information may be needed in negotiating a technology transfer?
tax credits
financing
marketing

20. A Good Strategy is a WIN:WIN Strategy
There is no real strategy unless there are at least two interested parties
It’s all in “packaging to attract partners”
Must find common ground
Essential to understand needs of all parties
Don’t get caught up in “but my needs are…”

21. Why License? The Licensor’s reasons might include: to make money
to help sell products, services, equipment
to obtain technology via grantback
to secure a market
to settle a patent dispute
cross-licensing of other, existing technology
rights to future technology
to buy continued development of the licensor’s technology

22. Why License? The Licensor’s reasons might include:
to acquire marketing strength, capital and market assets or an interest in them.
to reduce capital requirements for reaching a market.
to adapt a product to a local market
to reach fields of use outside the licensor’s normal purview
to avoid waste of by-product technology
to profit from residual value in an old technology
to fulfill local laws
to avoid antitrust/anti-competition or trade regulation problems

23. Why License? The Licensee’s reasons might include:
to obtain rights to technology
to supplement the licensee’s R&D
to obtain continuing access to technical help
to benefit from the good reputation of the licensor by gaining ability to use its trademark
to obtain quick entry without cost and technology risks
to obtain access to the licensor’s facilities

24. Why Foreign License?
Advantages/practicality of foreign licensing over direct sales or export might include:
tariff regulations
taxes
potential nationalization
political instability
capital to start foreign production
foreign patent laws
availability of materials and staff
quick return to licensor
access to/acceptance with foreign markets

25. Why NOT to license To avoid risk of establishing a future competitor
To make potentially bigger profits from direct sales… at higher risk and capital cost
To retain direct control over product liability exposure
To retain direct control over product quality
To retain direct control over know-how dissemination

26. Licensing Licensor’s perspective
ensure that licensee is only acquiring those rights which are necessary and which do not restrict licensor from making other uses of the technology
restrictions to be placed on use of technology
is this an international transaction
what protection exists for technology in foreign jurisdiction
what rights does a foreign national have to enforce rights
to the extent that any third party material is incorporated in the technology, does licensor have all rights required in order to grant license

27. Acquiring Technology Licensee’s perspective
what is the intended use of the technology
what form of legal protection exists in the technology being licensed
is one acquiring all of the rights and information which they will require in order to do what they want to do with the property licensed in
in what jurisdictions do the technology rights exist
will licensee have to obtain rights from any other party in order to carry out intended activity

28. Agreements - What can go Wrong
Who’s idea is it anyway?
I thought of that before we signed this deal.
But I thought I could do that.
Result: Court Actions
This is costly
Lac Minerals v. International Corona Resources

29. Agreements - Why They are Needed
To clarify a win-win relationship
To clarify intentions
To provide a written statement
To state what each party can and cannot do
To describe tasks, budget, deliverables, responsibilities
To protect against changes in involved personnel
To refer to when there are misunderstandings and disagreements

30. Value of The Portfolio Value in the eye of the beholder
A portfolio is more than the sum of its parts
Value depends on how the portfolio is protected and the strategy to sell it.

31. Portfolio Valuation What is the competition? Is your portfolio unique?
Who is willing to buy?
Different Parties = Different values
How critical is technology/portfolio to the outside?
What are they willing to pay?

32. Pricing Technologies Market value of technology
Uniqueness of technology
Competitive position
Type of protection for the technology
Stage of technology development
Improvement provisions of license
Exclusivity
Field of use
geographical
market sector

33. Investment Theory For Royalty Rates
Value of technology is a function of
the income that can be earned from its employment
the cost to replace it with equivalent

34. Payment Terms Types of Payment Basis for royalty payments
up front, paid-up licenses
running royalties
minimum annual royalties
sliding scale based on performance
Basis for royalty payments
net sales
net profits
percentage of service work
percentage of R&D contracts

35. Portfolio Valuation Value each piece Value different combinations
Commercial cost to use facility or equipment (analogs)
Commercial value of patents (price)
Investment in personnel to develop skill and knowledge (replacement)
Value different combinations

36. Escrow
Required by licensee for protection in the event that licensor should go out of business
Licensor agrees to place confidential and other proprietary material in escrow and allow for its release only in the event of catastrophe
Usually a three party agreement, but can be done by having each party have an agreement with escrow agent

37. License Administration
Establishing the licensing relationship
Maintaining the relationship throughout the term of the license agreement
Diverse aspects of the relationship
financial payment/audit rights
technology transfer to/from
reporting
tracking performance/deliverables
joint development/exploitation

38. Licensing Costs are MINIMAL
Revenues are predominantly profits

39. The Licensing Person
The ideal licensing person has a technical education and background, legal training, market research and technical research experience, a knowledge of patents, the ability to get along with people, salesmanship, and enjoyment of negotiations, foreign language abilities, negotiation experience, resistance to jet lag and physical stamina. Technical ability is more important than legal ability. Marketing ability is more important than both.

40. LICENSING MUST BE A WIN-WIN SITUATION TO SUCCEED

41. REMEMBER…
The technology goes through the entire innovation/commercialization process (from concept to end user); people typically don’t go through the entire process
Know your strengths and weaknesses
Know when to say no
Know when to exit

42. Non-Disclosure Agreements

43. NDAs Go Under Different Names:
Secrecy agreement
Confidentiality agreement
Non-disclosure agreement
When to use NDAs:
When disclosing confidential information
When receiving confidential information

44. Principles of NDAs Allowed use and disclosure of information defined
Use is typically limited to purpose of disclosure
Amount of disclosure is controlled by disclosing party
Information must be kept confidential by receiving party
Respective rights of the parties defined

45. One Should Always Ask:
What are the consequences of being the recipient of another party’s confidential information?

46. Employment Contracts

47. Who Owns your Work? Work you do at RIT:
You? The University? Your Employer? Business Partners?
What agreements will you sign when you work for a company?
Employee Assignment forms
Non-compete assurances
Confidentiality agreements
With your company
With others with whom you do business

48. Employment Contracts
By specific contract; embedded in offer letter; through acceptance of policies
IP ownership by employer (24/7)
Keep confidential in perpetuity
Need-to-know
Non-compete
IP exit interview

49. FEDERAL FUNDING AND ARISING INTELLECTUAL PROPERTY

50. INTELLECTUAL PROPERTY
Background Intellectual Property
Arising Intellectual Property
Sole Inventions
Joint Inventions
Ownership of Intellectual Property
Rights to Intellectual Property

51. FEDERAL GRANTS and CONTRACTS
Typically most terms are non-negotiable; one applies for a specific grant understanding the terms that will be required
Contracts
Many terms are negotiable; including IP ownership and rights

52. PROTECTING PROPRIETARY INFORMATION
Marking portions of proposals, reports and other correspondence
Certain information on grants is routinely published by each agency
Freedom of Information Act (FOIA) requests
Disclosures can bar patenting

53. REPORTING REQUIREMENTS
When doing work under a grant or contract
Work progress
Disclosure of inventions
When licensing out IP developed under a grant or contract
Licensing activity
Licensee reports
Job creation and net economic benefits realized
Royalty payments, if required

54. UNIVERSITIES and the BAYH-DOLE ACT
Stipulates that all IP developed by a university using federal funding is owned by the university
Includes flow through funds

55. US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES
The Government funds technology development
To meet government needs for a technology solution to a problem
To assist in economic development by helping bring new technologies to the marketplace
To provide a return to the US taxpayer from the technology through:
Job creation in the US
Substantial manufacturing in the US
Net economic benefit to the US

56. US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES
The government wants to encourage use of new technologies in the marketplace
Agreement terms encourage/expect technology owners to bring technologies to the marketplace
The government wants to encourage further R&D
IP protection (e.g. patents and copyright) permit technology owners to disclose their technologies without losing value in the marketplace

57. REQUIRED TERMS Government Use Rights
The government gets a non-exclusive, royalty-free right to use technologies developed with federal funds for all government purposes
This includes the ability of the government to grant licenses to government contractors to use the technology when doing work for the government

58. REQUIRED TERMS Government March-In Rights
As the government wants to see technologies brought to the marketplace it can require the owner of a technology funded with federal dollars to license out that technology if the owner is not actively bringing the technology to the marketplace

59. REQUIRED TERMS US Competitiveness Requirements
The government wants to see technologies utilized to the benefit of the US economy over that of foreign economies.
Typically a technology owner will need to seek out US owned (preferably) or US based licensees and show that the licensee will use the technology to benefit US competitiveness

60. REQUIRED TERMS Substantial Manufacture in the US
As with US competitiveness, the government wants to see technologies primarily manufactured in the US, thus resulting in US job creation and net economic benefit to the US

61. REQUIRED TERMS Export Control Requirements
Any use of federally funded technologies or licenses granting rights to those technologies must comply with all relevant US export requirements and licenses

62. Joint Development Agreements

63. Joint Development Agreements – Corporate Perspective
Collaborate to obtain access to expertise and/or facilities not available within the company
Move R&D ahead quickly
>>>>> secure/enhance competitive advantage
>>>>> time to market considerations
>>>>> ownership of arising IP

64. Joint Development Agreements – University Perspective
Exposure to corporate scientists and facilities
For faculty and students
Additional avenues to perform research
Career opportunities for students
>>>>> publications and presentations
>>>>> source of research funding
>>>>> enhance reputation of institute and individuals

65. RESOURCES

66. Resources
RIT Department of Grants, Contracts and Intellectual Property
US Patent and Trademark Office
US Copyright Office
Good IP Sites

67. “To share an asset, usually it must first be divided
“To share an asset, usually it must first be divided. But knowledge is one of the few assets that multiplies as it is shared.”
Indian proverb