1. 1 Successful Technology Licensing: A Practical Guide

2. 2 Technology Licensing only occurs when one of the parties owns valuable intangibles assets, known as Intellectual Property (IP).

3. 3 T echnology licensing occurs in the context of a business relationship in which other agreements are often important. These agreements are interrelated.

4. 4 Technology licensing negotiations have sides (parties) whose interests are different. The goal is to find a good balance of value, a “win-win” transaction. Technology licensing negotiations have sides (parties) whose interests are different. The goal is to find a good balance of value, a “win-win” transaction.

5. 5 Technology licensing involves reaching agreement on a complex set of terms. A dvance preparation is essential.

6. 6 Successful Technology Licensing Chapter II: Preparation for Negotiation

7. 7 In technology licensing, the most important indicators of success are bargaining leverage and preparation.

8. 8 Preparation: The Key to Success Keep the “horse before the cart” (Avoid beginning a negotiation after a technology project has already started) License terms have multiple permutations Allot 2X as much time for preparation as for negotiation. Keep the “horse before the cart” (Avoid beginning a negotiation after a technology project has already started) License terms have multiple permutations Allot 2X as much time for preparation as for negotiation.

9. 9 How to Prepare? SLT Chapter II 1. Form the team 2. Define business objectives 3. Assess bargaining power 1. Form the team 2. Define business objectives 3. Assess bargaining power 4. Decide key terms for Internal Term Sheet 5. Chose negotiating strategy 6. Select preliminary agreements 4. Decide key terms for Internal Term Sheet 5. Chose negotiating strategy 6. Select preliminary agreements

10. 10 1.Form the Team Involve legal counsel early. Who will speak? Who will have authority to decide? Technical consult? Marketing consult? Business/financial resource? Who will draft the agreement? Involve legal counsel early. Who will speak? Who will have authority to decide? Technical consult? Marketing consult? Business/financial resource? Who will draft the agreement?

11. 11 2. Define Business Objectives What is your business reason for the license? What is the other party’s business reason for the license? What is the best result that can be obtained? What outcome do you want to avoid? What are your alternatives? Is the best result a pure IP license or a business partnership? How will this license make money for your business? What is your business reason for the license? What is the other party’s business reason for the license? What is the best result that can be obtained? What outcome do you want to avoid? What are your alternatives? Is the best result a pure IP license or a business partnership? How will this license make money for your business?

12. 12 Define Business Objectives (cont’d..) What do you want to obtain or provide? Know-how Training Technology/product development Purchase of products or equipment Investment in R&D Distribution of products or technologies License to explore IP Comply with technical standard or specification What do you want to obtain or provide? Know-how Training Technology/product development Purchase of products or equipment Investment in R&D Distribution of products or technologies License to explore IP Comply with technical standard or specification

13. 13 3.Assess Bargaining Power Why does the other party want this agreement? What is the base for your advantage? What is the competition scenario? Why does the other party want this agreement? What is the base for your advantage? What is the competition scenario?

14. 14 4.Write the Internal Term Sheet What is a Term Sheet and how does it help? The Key Terms are the important business/legal agreements in the license. Internal and External Versions. Not MOU or Letter of Intent. See Form in Appendix of SLT. What is a Term Sheet and how does it help? The Key Terms are the important business/legal agreements in the license. Internal and External Versions. Not MOU or Letter of Intent. See Form in Appendix of SLT.

15. 15 The Term Sheet: A solid foundation Clarifies issues Shows problem areas Communicates to team Clears positions Keeps track of goals Use business language Is not signed

16. 16 5. Chose Negotiating Strategy Is “negotiating style” a myth? What is your “bottom line”? What is your “first line”? Think about the other party’s bottom line. What are the alternatives? The agreement is only the beginning. Is “negotiating style” a myth? What is your “bottom line”? What is your “first line”? Think about the other party’s bottom line. What are the alternatives? The agreement is only the beginning.

17. 17 6.Select Preliminary Agreements Confidentiality Evaluation Interim (letter agreement) Prototype Feasibility study Avoid MOUs, Letters of Intent, Standstill or other agreements restricting your ability to seek alternatives. Confidentiality Evaluation Interim (letter agreement) Prototype Feasibility study Avoid MOUs, Letters of Intent, Standstill or other agreements restricting your ability to seek alternatives.

18. 18 Successful Technology Licensing Chapter III: Key Terms

19. 19 The key terms are the important issues in the license contract. For simplicity, we group them into 4 clusters… The key terms are the important issues in the license contract. For simplicity, we group them into 4 clusters…

20. 20 I. Subject Matter: What is licensed? II. Scope: What can you do with it? III. Financial: What value is it? IV. Upgrades and maintenance: What will happen with it in the future? I. Subject Matter: What is licensed? II. Scope: What can you do with it? III. Financial: What value is it? IV. Upgrades and maintenance: What will happen with it in the future? Key Terms The Four Clusters

21. 21 I. Clarifying the subject What does your business model require? A product? A software? A license to use a trademark or logo? Compliance with a technical standard? Meeting a specification? Development of the technology? Relief from litigation threat? Training, Consulting, know-how? What does your business model require? A product? A software? A license to use a trademark or logo? Compliance with a technical standard? Meeting a specification? Development of the technology? Relief from litigation threat? Training, Consulting, know-how?

22. 22 Common Problems Puffing, technical unfamiliarity Unfinished development Patents not issued Who owns the IP? Multiple parties Pending claims MOUs or Letters of Intent Best efforts, good faith Puffing, technical unfamiliarity Unfinished development Patents not issued Who owns the IP? Multiple parties Pending claims MOUs or Letters of Intent Best efforts, good faith

23. 23 How can you clarify the Subject Matter? Confidentiality Agreements Prototype agreements Feasibility studies Interim agreements addressing cost Consultations with lawyers, experts Study of documentation, databases Study competing products Confidentiality Agreements Prototype agreements Feasibility studies Interim agreements addressing cost Consultations with lawyers, experts Study of documentation, databases Study competing products

24. 24 II. Scope: Exclusive rights? A necessary risk? What arguments can you make for? What arguments can you make against? What protection against a lazy, dishonest, or ineffective licensee? A necessary risk? What arguments can you make for? What arguments can you make against? What protection against a lazy, dishonest, or ineffective licensee?

25. 25 II. Scope Grant clause –Make, have made, use, sell = patent grants –Copy, reproduce, display, modify = copyright grants Exclusive Vs. Non-exclusive Sublicensing Geographic Field of Use Grant clause –Make, have made, use, sell = patent grants –Copy, reproduce, display, modify = copyright grants Exclusive Vs. Non-exclusive Sublicensing Geographic Field of Use

26. 26 Common Problems in Cluster 2 Scope too broad Scope too vague Scope too restricted (e.g. no right to sell) Exclusivity granted without protections Unclear how sublicenses are administered Scope too broad Scope too vague Scope too restricted (e.g. no right to sell) Exclusivity granted without protections Unclear how sublicenses are administered

27. 27 Valuation Form of Payment –Running Royalties –Minimum Royalties –Down payment Valuation Form of Payment –Running Royalties –Minimum Royalties –Down payment Cluster 3: Financial Terms in License Agreements

28. 28 Based on the licensee‘s sales Risk sharing - limits the licensor‘s upside Based on the licensee‘s sales Risk sharing - limits the licensor‘s upside Capping the Royalties

29. 29 Based on business plan Absolute payment obligations? Trigger for termination/ modification Based on business plan Absolute payment obligations? Trigger for termination/ modification Minimum Royalties

30. 30 Options: –beginning/end –milestones Start-ups “Loans” - Who owns the IP? Options: –beginning/end –milestones Start-ups “Loans” - Who owns the IP? Lump Sums

31. 31 Improvements by Licensor –Future versions –New products or patents Improvements by Licensee –Grant backs Joint Improvements –Who will own? What rights of use? Improvements by Licensor –Future versions –New products or patents Improvements by Licensee –Grant backs Joint Improvements –Who will own? What rights of use? Cluster 4: Future Developments

32. 32 Non-infringement Technical/Product Liability Limit liability if you are a research institution or non-profit Beware of meaningless warranties Non-infringement Technical/Product Liability Limit liability if you are a research institution or non-profit Beware of meaningless warranties Warranties/Indemnification

33. 33 What new versions, corrections will be provided? Telephone support Service in case of defects, breakdowns Spare parts Consulting, training, know how What new versions, corrections will be provided? Telephone support Service in case of defects, breakdowns Spare parts Consulting, training, know how Service and Support

34. 34 Illusory rights of first refusal, options Restrictive grant backs Commitments to offer new products, new technologies, new patents Lack of clarity on service and support commitments (e.g. best efforts) Agreements to agree in the future Lack of “complementary” agreements Illusory rights of first refusal, options Restrictive grant backs Commitments to offer new products, new technologies, new patents Lack of clarity on service and support commitments (e.g. best efforts) Agreements to agree in the future Lack of “complementary” agreements Common Problems

35. 35 Conclusion We have looked at the mechanics of licensing; Licensing starts with IP asset management; IP asset management starts with asset development; Asset development starts with proactive public policy favoring education and R&D. We have looked at the mechanics of licensing; Licensing starts with IP asset management; IP asset management starts with asset development; Asset development starts with proactive public policy favoring education and R&D.

36. 36