1. Key Aspects of IP License Agreements
Donald M. Cameron
Revised by Noel Courage
for U of T Law – March 2015

2. Agenda IP Rights Skeleton of a License Agreement
License Grant & Consideration
Licensor & Licensee Obligations
Common Clauses
Questions

3. What is Intellectual Property?
It’s not the right to do something
It’s the right to exclude others
Legal monopoly
Limited in time
Limited in territory
“License to litigate”

4. The Legal Cubby-holes

5. Patents “Applied science” Machines Processes Compositions of matter
Drugs
Certain software processes (limited)

6. Patents
Prerequisites:
New
Useful
Inventive (non-obvious)

7. Patents New (Novelty): Useful (Utility):
Never been done, used, written about before
Made available to the public
Useful (Utility):
It works
It achieves the promise

8. Patents Inventive (non-obvious):
Any idiot would not have thought of it
A person of ordinary skill in the area
With no inventive abilities
Would have been led to the solution
Directly and without difficulty

9. Trade-marks Names Logos Product packaging Shape of product
Earned by use
Registration gives Canadian rights

10. Trade-marks Key: distinctiveness
Must link products or services to a unique source

11. Copyright Protects “works” books movies music artwork
computer programs
Protects “expression”, not ideas
Arises automatically, but can be registered

12. Trade Secrets Recipes Formulae Customer lists “Know-how”
Non-patentable inventions

13. The Legal Cubby-holes
Patents Trade-marks Copyright Industrial Designs Trade Secrets

14. IP Assets
Buy (assignment of ownership)
Sell
License
Use as security for a loan

15. Overview of Basic Licensing
Permission to do what you would not otherwise have the right to do

16. Licensing Out

17. Licensing Out - Compex UofT – Schering Alzheimer’s gene
Largest Industry – University biotech deal to that date

18. Licensing In

19. No license at all
IP infringement
Counterfeit

20. Consequences
Society of Composers, Authors and Music Publishers of Canada (SOCAN)
a not-for-profit corporation; collective under the Copyright Act.
SOCAN grants music licenses, then distributes the royalties
IIC Enterprises Ltd. runs nightclub in Kelowna, BC
Unpaid royalties: $20K unpaid for Oct to 2011
Court awarded statutory damages of six times the normal royalty. $122K
(Copyright Act allows for an award of up to ten times the normal royalty)
SOCAN v. IIC Enterprises Ltd., 2011 FC 1088

21. Licensed use becomes unlicensed
Visibility Corp. sues for copyright infringement re software.
Visibility had previously granted a software license to the defendants’ parent company
defendants were merged but continued to use the software, now without a license.
License agreements prohibited transfers of the software without Visibility’s consent. 
Visibility Corp. v. Hudson Prods. Corp., RGS (D. Mass. Dec. 30, 2010)

22. You’ve got licenses
Sharing Your Content and Information You own all of the content and information you post on Facebook, and you can control how it is shared through your privacy and application settings. In addition: For content that is covered by intellectual property rights, like photos and videos (IP content), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (IP License).

23. Skeleton of a License Agreement
The Big Question:
WHO GETS WHAT?

24. Skeleton of a License Agreement
Three building blocks License Skeleton
Who: The Parties
Gets: The Grant
What: The Definitions
Licensor Licensee
Definitions
The Grant

25. IP License Agreement - WHO
Who has the right to grant the license?
Ownership of the intellectual property?
Licensed to sublicense the intellectual property?
Warranty of licensor’s ownership?

26. Many different relationships between licensor and licensee
Licensee may be ‘customer’
License may be business arrangement between affiliates

27. Respondent Docket: A-486-10 BETWEEN:
BRISTOL-MYERS SQUIBB COMPANY (Patent Owner) and
BRISTOL-MYERS SQUIBB CANADA CO. (Licensee)
Appellants
and
APOTEX INC.
Respondent

28. IP License Agreement - WHO
Who is the Licensee?
The company?
>> 1 machine, 1 location
>> site license
>> corporate wide
Subsidiaries and affiliates?

29. Main body of license Recitals Definitions
Listing of terms and conditions

30. Clear Drafting is Essential

31. Clear Drafting is Essential
The comma case - 14 page contract:
Rogers’ five-year, renewable agrt to attach cable lines across Bell Aliant utility poles in the Maritimes. $9.60 access fee per pole. Aliant terminated. Price raised. Approx $1m cost differential at stake.
Agreement “shall continue in force for a period of five years from the date it is made, and thereafter for successive five year terms, unless and until terminated by one year prior notice in writing by either party.”
Rogers loses initially, wins on appeal b/c of unambigious French version of contract. (Telecom Decision CRTC )

32. 2156775 Ontario Inc. v. Just Energy, 2014 ONSC 3276 (CanLII)
Enforceability of arbitration clause in dispute.
Plaintiff alleges agreement void due to lack of signing authority, misrepresentation. Defendant Tried to force arbitration. The arbitration clause:
“Customer may contact Just Energy with regard to a concern or dispute under this Agreement… such a dispute will be referred to and finally resolved by binding arbitration pursuant to Governing Law, before a single arbitrator…”
Clause only applied to disputes “under” the agreement?
Covers disputes pertaining to the validity of the agreement?
Narrow wording used so the defendant could not enforce the arbitration clause.
To enforce clause in validity situation, use broader wording, such as, “in relation to” or “in connection with.”

33. IP License Agreements - WHAT
WHAT DOES THE LICENSEE GET?
What IP rights are being granted?
copyright, trade secrets, patents, know-how
if trade secrets, include confidentiality provisions

34. IP License Agreements - WHAT
WHAT DOES THE LICENSOR GET?
$$$$
License fees
Royalties
Cross-licenses

35. License Grant – the Asset
What it Protects
Patents Function or Composition
Trademarks Brand Names and Logos
Copyright The Form of Information
Trade Secrets / The Secrecy of an idea Confidential Info

36. License Grant Licensor Licensee Definitions The Grant
Licensor hereby grants License Skeleton to Licensee
a nontransferable, nonexclusive right and license to use
the Licensed Patents
In the Territory, solely for the purpose of manufacturing and selling the Licensed Products
Licensor Licensee
Definitions
The Grant

37. License Grant What is the Licensee allowed to do?
Patents: make, use, sell
Trade-marks: use
Copyright: copy, publish, translate, perform, modify, create derivative works
Trade Secrets: make, use, sell product made with trade secret

38. License Grant – all or part of asset?
What is the Licensee allowed to do?
Exclusive: only the Licensee
Sole: only the Licensee and the Licensor
Non-exclusive: multiple Licensees

39. Headlines - Grant
Amorfix and JSW Sign LOI for Exclusive Worldwide License of Preclinical Alzheimer's Disease Diagnostic Technology. January 9, 2012
AJ, ATCC sign worldwide non-exclusive licensing agreement for iPS cell patent portfolio. June 15, 2011.
February 14, OTI Signs $7 Million Core Technology License Agreement. November 30, 2011.

40. License Grant What is the Licensee allowed to do?
Territory: use the Licensed Trade-marks to promote, sell and distribute products in Canada and the United States
Field: use the Licensed Patents to develop a therapeutic product to treat diabetes
Sublicense: modify the source code of the Licensed Software to create the Integrated Software and sublicense the object code of the Integrated Software to end-users

41. Headlines - Territory
BTG Plc – Voraxaze® / Glucarpidase Licensed to Ohara Pharmaceuticals in Japan. December 7, 2011.
IntelGenx Announces License Agreement for the Commercialization of CPI-300 in the United States.

42. License Grant What is the Licensee not allowed to do? non-competition
no reverse engineering
no misuse of confidential information
sublicense
use outside scope of grant
Query: which of the above are also prohibited by common law or IP rts?

43. Consideration How much is the license worth?
¢¢¢ $$$
Non-Exclusive Exclusive
Small Territory  Large Territory
Narrow Field Broad Field
“Use”  “Exploit”
Technological  Technological
Convenience Breakthrough

44. Consideration
License Fees (Fixed)
Initial or Upfront
Annual
Milestone

45. Consideration Royalties (Fixed or Variable) 5$ per widget sold
5% of “Revenue” per widget sold
“Net Revenue”
“Sales Revenue”
“Profit”
“Allocated Price”

46. UofT examples – license in
MS Office Standard $74
SharePoint database server $131
Restrictions: For UofT departments, faculty and staff on UofT owned workstations
(query: who is licensee?)
Perpetual license
No support or upgrades

47. UofT examples – license out
Fields: Clothing, Uniforms, Promotional items, Furnishings
Consideration: $120/yr license fee + 8% royalty on wholesale cost of product
Royalty report within 30 days of each quarter.
Licensees must get $2m product liability insurance

48. Consideration Minimum Royalty Commitment Tied to exclusivity
Quotas per Territory, Product line or Total
Maximum Royalties Payable
Cap on Amount (aggregate of royalty payments)
Cap on Time (duration of royalty payments)
“Stacks” (total percentage of 3d party royalties)
“Most Favoured Nation”
“Substantially Similar”

49. Consideration Reports May be tied to payment of royalties
Periodic reports (monthly, quarterly, annual)
Certified?
use outside scope of grant
Audits
Should be conducted regularly

50. Maximizing royalty revenue
Issue more licenses
more licensees/sublicensees, new fields, new territories etc.
More volume of sales under license
marketing/advertising, incentives to licensees
Higher royalty per sale under license
Verify royalty payments

51. Headlines: more licenses and more licensed products = $$
CryptoLogic Reports Profit and Revenue Growth in 2011
DUBLIN, IRELAND--(Marketwire - March 8, 2012) - CryptoLogic …a developer of branded online betting games and Internet casino software…. Branded Games revenue increased 25% to $6.9 million in 2011 (2010: $5.5 million), accounting for approximately 25% of total revenues (2010: 21%). In Q4 2011, revenue from this segment increased to $1.9 million (Q3 2011: $1.4 million). The increase in Branded Games revenue is primarily due to the increased number of revenue producing games through an increased number of licensees and games per licensee.

52. Consideration Other Consideration Cross-license Shares/ Stock/ Equity
Joint Venture arrangements

53. BREAK!

54. Obligations - Licensor
What does the Licensor have to do?
Deliver the Intellectual Property
Modify/Improve the Intellectual Property
Enforce the Intellectual Property
Defend against claims of Infringement

55. Obligations - Licensor
Deliver the Intellectual Property
Disclose Know-How
Train Licensee Personnel
Support and Maintenance
Disclose/Deliver Improvements and Modifications

56. Obligations - Licensor
Improvements – a development in the field of the licensed intellectual property that enhances one of the following:
Usability
Functionality
Efficiency
Performance

57. Obligations - Licensor
Improvements can be deemed included in license grant
No additional payment required
May extend life of payment terms
License may be offered a right of first refusal
Allows Licensor to negotiate additional $$$
Improvement may not be usable without base technology

58. Obligations - Licensor
Enforcement
Prosecute and maintain registrations
Take action against infringers
Keep other licensees “in line”
Defend against challenges to the validity of the intellectual property

59. Obligations - Licensor
Infringement Claims
IP litigation can be VERY expensive and VERY risky
Licensor may not want to bear the risk – will factor into overall value of license
Consultation, cooperation typically required
Get settlement approval by licensee, divide litigation proceeds

60. Obligations – Licensee
What does the Licensee have to do?
“Work” the Invention
Maintain Quality Standards
Disclose and Deliver Improvements
Indemnification/ Insurance
Safeguard Confidential Information, Non-Compete, Non-Solicit

61. Obligations – Licensee
“Working” the Invention
Tied to exclusivity
May incorporate “quotas”
Covenant to use “commercially reasonable” efforts to promote, distribute and sell products

62. Obligations – Licensee
Quality Standards
Critical in trade-mark licenses
Licensor entitled to inspect samples and audit
Good practice to provide Licensee with specifications for mark use (e.g. dimensions, colours) and legends

63. Obligations – Licensee
Improvements
These are “Licensee” improvements
Licensor may require disclosure, and a license back
Beware of “blocking” patents

64. Obligations – Licensee
Indemnification and Insurance
Flip side to infringement indemnity
Product liability concerns also VERY scary and VERY expensive
Indemnity limited by Licensee’s activities (i.e., is the Licensee manufacturing?)
In trade-mark licenses, product liability can be damaging to goodwill in owner’s mark

65. Common Clauses
Assignment
Term and Termination
Conflict Resolution

66. Common Clauses Assignment
Usually require consent to assign or in the event of a change of control
May wish to withhold if assigned to a competitor
Guarantee from original licensee?

67. Common Clauses
Term
Term may be dependent on intellectual property rights

68. IP Expiry

69. Contract term re expiry
Gerhard Reichert and a co-inventor created the window insulator called "Super Spacer"
Lauren Intl bought Super Spacer patents and patents for 2 other potl products.
Lauren agreed to pay Reichert and his co-inventor a royalty of 1% each on gross sales under the patents. Reichert earned > $2 million in royalties.
Lauren International, Inc. v. Reichert, [2008] ONCA 382, affirming [2007] CanLII 44351

70. Contract term re expiry
The patents for the Super Spacer and the other two products were filed in different countries on different dates and had different expiry dates.
The Super Spacer patents expired on dates between , while the patents for the other products expired as late as 2011.
patent royalty payments were, "ending on the expiry of the Principals' Patent Rights."

71. Common Clauses Termination
No matter how friendly the parties are, conflicts may arise – employees depart, market conditions change, etc.
Better to plan ahead, while the parties are still on good terms

72. Common Clauses Termination By Licensor:
Failure of Licensee to pay royalties
Breach of Confidential Information
Failure to exploit
By Licensee
Invalidity of Patents
Infringement Claim

73. Termination
Revision: April 26, 2011.
Sharing Your Content and Information …This IP License ends when you delete your IP content or your account …

74. Termination
Revision: April 26, 2011.
Sharing Your Content and Information …This IP License ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it.

75. Trade secret blend of 11 herbs and spices
Trade secret blend of 11 herbs and spices. KFC’s Original Recipe was first perfected by KFC founder Colonel Sanders more than 60 years ago in Kentucky. In fact, the recipe is so secret, that, to this day, it’s locked away in a high-security vault in Louisville, Kentucky.
Query: special terms with licensees re use of Tm, trade secret recipe?

76. Soricimed company Shrew venom peptide - five US patents.
Treatments: Cancer, wrinkles, analgesia
Diagnostics, drug delivery
The drugs home-in on lymph nodes and deliver a fluorescent molecule (drug) to them.
A fluorescent marker attached to the peptide detects ovarian tumours.

77. Isys company
Isys
Technology for identifying defects in fish fillet, adapted for automated ‘red eye’ reduction in photos

78. Assignments

79. Assignments IP – exclusive rights (monopoly)
eg. patent: exclusive right to make, use, sell
Assignable in whole or part

80. Co-ownership More complex rules
Can’t stop co-owner from using invention
Ability of co-owner to assign or license?

81. Co-ownership Can assign entire ownership rights
Licensing co-ownership interest without consent of other co-owner?
Forget v. Specialty Tools of Canada Inc.
(1995), 62 C.P.R. (3d) 537 (B.C.C.A.), aff’g (1993), 48 C.P.R.(3d) 323 (B.C.S.C.).

82. Georgina and Daniel Forget coowned patent for a scissor-type tube-cutter
Daniel licensed the cutter --- Specialty Tools of Canada Inc. – right to mfr and sell in Canada
Georgina was cut out of the action

83. Co-owner can assign entire interest in a patent to a third party without the consent or an obligation to account to the other co-owner.
Cannot dilute the rights of the other co-owner.
Co-owner cannot grant a valid license without consent: icense not valid - would dilute the rights of the other co-owners. Patent infringement by licensee.

84. Best practice to avoid dispute
Co-owners should make their own agreement governing commercialization

85. Security on IP
IP is federal, but security over patents, Tm, © is under provincial law
Security agreement creates security interest
Describe IP in detail
Perfect security by registering financing statement in province where debtor is located
Sometimes registered at CIPO

86. Other Special issues Implied licenses Competition law interface
International variability
moral rights – ©
civil code vs common law (consideration etc.)
Patent ‘trolls’

87. WiLAN Provides Litigation Update
03/08/2012
Download this Press Release (PDF 61 KB)
OTTAWA, Canada – March 8, 2012 – Wi-LAN Inc. (TSX:WIN) (NASD:WILN) today provided a litigation update.
In January 2010, WiLAN sued LG Electronics…for infringement of WiLAN’s V-Chip patent (U.S. Patent No. 5,828,402) in the United States District Court, Southern District of New York.  ….
About WiLAN
WiLAN, founded in 1992…has licensed its intellectual property to over 255 companies worldwide.  Inventions in our portfolio have been licensed by companies that manufacture or sell a wide range of communication and consumer electronics products including 3G and 4G handsets, Wi-Fi-enabled laptops, Wi-Fi and broadband routers, xDSL infrastructure equipment, cellular base stations and digital television receivers.  WiLAN has a large and growing portfolio of more than 3,000 issued or pending patents. 

88. Thank You
Noel Courage