1. Technology Transfer Tactics
Secrets of Win-Win Contracts: Negotiating and Contracting Tips from the Tech Transfer Experts
May 2008
Kevin M. Levy
Gunster, Yoakley & Stewart, P.A.
Miami, Florida
Gail Taylor Russell Taylor Russell & Russell, P.C. Austin, Texas

2. PRE-CONTRACT NEGOTIATION – Licensor’s Perspective
Prepare, Prepare, Prepare
Due Diligence
Know your IP
Know the market
Know your Licensee
Identify your team
Consider your Exit Strategy
Stay current on the applicable law
Stay current on business and legal trends
Identify your important issues
Identify your “give” issues
Develop a game plan … and execute it!

3. PRE-CONTRACT NEGOTIATION – Licensor’s Perspective
Non-Disclosure Agreement
NOT a boilerplate document.
Narrowly define the purpose of disclosure and use of the Confidential Information.
Do NOT include a provision requiring all Confidential Information documents to be marked “Confidential,” but do adopt an internal Confidential Information Policy for handling of licensor and third party disclosures and receipt of Confidential Information.
Exclude all warranties and liability with respect to the Confidential Information.
Do NOT limit period of confidentiality for trade secrets.
Attempt to obtain licensee’s agreement as to licensor’s ownership of specific trade secrets.

4. Key Considerations for Licensee in Contract Negotiation
Time to Market
Freedom to Operate
Valuation
Ownership of Improvements

5. Licensee’s Perspective: Time to Market
Technology acquisition must have economic value
Can licensee minimize time to market, cost and risk by licensing rather than developing?
Time to market is key consideration
Proven technology that has a been productized or has an advanced prototype more valuable (i.e. higher licensing fees)
More development that must be done - more time and risk (i.e. lower licensing fees)

6. Licensee’s Perspective: Freedom to Operate
Ability to practice the technology and sell the product or service that embodies the technology is critical
IP clauses must protect not inhibit licensee’s freedom to operate
Most licensees will get a freedom to operate opinion
Risk associated with licensing after the opinion must be factored into license price

7. Licensee’s Perspective - Valuation
Value of licensee’s rights affected by licensor’s subsequent acts or omissions
Absent express controlling terms no obligation to preserve value of license
“Licensor will perform its obligations under the license in good faith...”
Only refers to performance of the contract
Doesn’t preclude licensor from acting in its own interest
Licensee may want express language controlling certain acts of licensor

8. Technology Transfer Tactics: Negotiating and Drafting
Key Contract Terms
from the Licensor’s and Licensee’s Perspective

9. SPECIFIC TERMS – Licensor’s Perspective
Grant Clause and Scope of Rights
Narrowly define the granted rights by being specific and unambiguous.
Do not license more than you intend.
Include specific restrictions.
Exclusive v. non-exclusive license, and consider the territory.

10. Licensee’s Perspective: Grant clauses and scope of rights
Statutory license terms for patent and copyright
“make, use or sell” “reproduce, display, distribute”
Non-statutory license terms
“access and use software” where use is not related to a patent right”
Licenses that limit statutory terms
Both parties will want the terms clearly defined for non-statutory and limitations of statutory terms
Scope of rights
Field of use restrictions, geographical restrictions, reservation of rights in an otherwise exclusive license

11. SPECIFIC TERMS – Licensor’s Perspective
Transfer of Rights, Assignment and Sublicensing
Either none or include significant restrictions, such as licensor absolute right, at its sole discretion, to pre-approve in writing any assignee or sublicensee.
Counter licensee’s merger, acquisitions and loan argument with your right to know your “partner.”
Recognize that an overbearing provision will effect the market for the licensee - which may also effect licensor’s “investment” position.

12. Licensee’s Perspective: Transfer of rights and assignment by Licensee
For license to have economic value (especially for a small company), licensee:
Wants ability to freely transfer the license if acquired
“may transfer to a third party that acquires substantially all the assets” of licensee
Does not want to have to get consent during acquisition negotiations with a third party
Inserts uncertainty and risk into any acquisition negotiations
Case law: transferee of a license receives no rights unless the transfer was authorized so licensee will insist on ability to transfer language

13. Licensee’s Perspective: Assignment by Licensor
Licensee concerned with assignment of the agreement by licensor
Will want to ensure any assignee possesses technical competence to support, maintain and enhance the technology
Licensee should prohibit any assignment of the agreement by licensor by merger, consolidation, operation of law or otherwise without the prior written consent of licensee

14. Licensee’s Perspective: Sublicenses
Licensee may want to maximize revenue by sublicensing the technology
May not have manufacturing capability, channel access, geographic limitations etc.
Generally
Nonexclusive license may not be assigned without consent of licensor
Exclusive license may be assigned without consent of licensor

15. SPECIFIC TERMS – Licensor’s Perspective
IP Ownership and Improvements
Clearly define all IP owned by licensor.
Who owns derivative works and improvements ? The developer, unless otherwise specifically stated. Specifically state that all derivatives and improvements will be owned by licensor regardless of who develops, and licensee will (and licensee will cause its employees and agents to) assign all rights to Licensor.
Keep detailed records of developments during post-granting of license period.

16. Licensee’s Perspective: IP Ownership and Improvements
Usually most difficult contract clause to negotiate
Licensee wants rights to licensor downstream improvements since not having those rights could substantially reduce license value
Licensee wants to keep rights to its own improvements for competitive advantage
Options
Reciprocal rights (limited)
Option to license each other’s improvements
Some limited exclusivity to inventing party
Limit time period in which improvements may be licensed
Improvements sublicensable?

17. Licensee’s Perspective: IP Ownership and Improvements (continued)
Other issues
How should the IP be protected?
Patents or trade secrets?
Who decides?
Who patents and enforces newly developed IP?
Specify who pays for patents, prosecution globally
What about joint inventions?

18. SPECIFIC TERMS – Licensor’s Perspective
Warranties and Limitations of Liability
Exclude everything and try to limit liability as much as possible (but not always possible). Specifically exclude warranties of merchantability, fitness for a particular purpose and non-infringement.
If Licensor insists on full IP warranty and indemnification, counter with cost of patent search and cost of license will go up dramatically.
If international transaction and goods involved, also exclude applicability of UNCISG.

19. Licensee’s Perspective: Warranties and Limitation of Liability
General warranty vs. limited warranty
General: warranting party is liable upon breach and party receiving the warranty has all available remedies
Limited: remedy is limited, often to repair or re-performance
Limitation of liability
Usually disclaims special, incidental and consequential damages
Licensee will try to negotiate warranties of non-infringement, performance/capabilities of technology, has not failed to disclose any material fact, no pending or threatened litigation, compliance with law, virus warranties, etc.

20. SPECIFIC TERMS – Licensor’s Perspective
Indemnification
Read carefully - all indemnification provisions are NOT alike.
Who controls defense and settlement of claim ?
Who pays for costs of defense and settlement of claim ?
Who pays costs of helping to defend and settlement the claim ?
Can indemnified party choose counsel (at its own cost) to assist the indemnifying party’s counsel ?

21. Licensee’s Perspective: Indemnification
Technology has no value if licensee can’t practice it
Licensor will insist on limitations
Licensee will want “limited” limitations
No indemnification for combination only if technology alone does not infringe
Provide for options
Licensor procures right to use the technology or
Returns license fees amortized over reasonable period of time

22. SPECIFIC TERMS – Licensor’s Perspective
Royalties
Be specific.
Knowledge of market and licensee will help ability to negotiate closer to 5% rather than 1%.

23. Licensee’s Perspective: Royalties
For technology that requires productizing, licensee should request reduced or limited royalties for a reasonable period of time
Design of the royalty provision should be based on industry standards and practices – key for licensee
Example: patented technology may be used in process or method, not directly in a product
Risk allocation based on one upfront payment, smaller upfront payment with running royalty, no upfront payment and larger running royalty
Running royalties allow both parties to avoid assessing a fixed value upfront for the licensed technology – let’s the market determine
Important (and sometimes very difficult) point is specifying and defining the royalty base on which running royalties will be paid

24. SPECIFIC TERMS – Licensor’s Perspective
Milestones
Require specific milestones for the license to be kept alive. Examples include - completion of licensee business plan, hiring CEO, raising funds, clinical trials, government approvals, marketing and bringing product to market.
Include specific remedies if licensee fails to reach specific milestones. Examples include - licensor right to terminate the License Agreement, licensee loses exclusivity or payment of royalties are triggered and/or increased.

25. Licensee’s Perspective: Milestones
If licensee is productizing the technology
Licensee will want adequate time to commercialize given risk associated with development
However, if royalty payments are limited during that time, licensor will press for milestones and/or minimum royalties
Licensee does not want to loose all investment if runs into unforeseeable development problems
Will suggest a clause to allow the license terms to be renegotiated

26. SPECIFIC TERMS – Licensor’s Perspective
Post-MedImmune Issues
Are Royalties paid prior to or during period of protest refundable in the event the licensor’s patent is found invalid ?
Are No Contest Clauses unconscionable or within scope of contractual rights ?
Is a licensee declaratory judgment action an anticipatory breach, thereby allowing the licensor to pursue a patent-infringement claim against the licensee (which can include treble damages) ?

27. Licensee’s Perspective: Post-MedImmune Clauses
Outcome:
Licensee need not risk harm of breach in order to sue and can avoid jeopardy of patent infringement damages by continuing to pay royalties and otherwise observing the license terms
Licensees can use MedImmune to renegotiate existing agreements
No contest clause with automatic termination may be unconscionable – licensor will want to include high termination fee instead if licensee challenges patent
Licensee will want royalties to be refundable and will not want to be liable for attorneys' fees

28. Patent Exhaustion Elements:
Authority to sell the article by the licensee
Article sold must cover essentially features of any claim asserted and have no substantial noninfringing use
Article must be unconditionally sold
LGE case: in certain circumstances a patentee can enforce its patent even after licensee’s first sale
LGE license conditional license (limited license) that allowed LGE to assert its patents against downstream manufacturers
Exhaustion precludes enforcing “selling” and “using” but does not preclude “making”

29. Patent Exhaustion (continued)
Strategy to provide for certainty for both parties:
License grant for technology transfer and not patent license
Clearly specify grant of the license to third parties that acquire licensed technology from an authorized licensee under any licensor patents
Include clauses that licensee’s sale of the patented technology embodied in a product confers rights on the purchaser, by exhaustion, implied license or otherwise
State that money received for technology transferred is the full compensation licensor would receive if it transferred technology and patents to licensee

30. Dispute Resolution Senior Management Dispute Resolution Mediation
Arbitration v. Court Action
Governing Law, Venue and Jurisdiction
Prevailing Party Attorneys’ Fees