Presentation on theme: "Technology Transfer Tactics"— Presentation transcript:
1Technology Transfer Tactics Secrets of Win-Win Contracts: Negotiating and Contracting Tips from the Tech Transfer ExpertsMay 2008Kevin M. LevyGunster, Yoakley & Stewart, P.A.Miami, FloridaGail Taylor Russell Taylor Russell & Russell, P.C. Austin, Texas
2PRE-CONTRACT NEGOTIATION – Licensor’s Perspective Prepare, Prepare, PrepareDue DiligenceKnow your IPKnow the marketKnow your LicenseeIdentify your teamConsider your Exit StrategyStay current on the applicable lawStay current on business and legal trendsIdentify your important issuesIdentify your “give” issuesDevelop a game plan … and execute it!
3PRE-CONTRACT NEGOTIATION – Licensor’s Perspective Non-Disclosure AgreementNOT 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.
4Key Considerations for Licensee in Contract Negotiation Time to MarketFreedom to OperateValuationOwnership of Improvements
5Licensee’s Perspective: Time to Market Technology acquisition must have economic valueCan licensee minimize time to market, cost and risk by licensing rather than developing?Time to market is key considerationProven 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)
6Licensee’s Perspective: Freedom to Operate Ability to practice the technology and sell the product or service that embodies the technology is criticalIP clauses must protect not inhibit licensee’s freedom to operateMost licensees will get a freedom to operate opinionRisk associated with licensing after the opinion must be factored into license price
7Licensee’s Perspective - Valuation Value of licensee’s rights affected by licensor’s subsequent acts or omissionsAbsent 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 contractDoesn’t preclude licensor from acting in its own interestLicensee may want express language controlling certain acts of licensor
8Technology Transfer Tactics: Negotiating and Drafting Key Contract Termsfrom the Licensor’s and Licensee’s Perspective
9SPECIFIC TERMS – Licensor’s Perspective Grant Clause and Scope of RightsNarrowly 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.
10Licensee’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 termsBoth parties will want the terms clearly defined for non-statutory and limitations of statutory termsScope of rightsField of use restrictions, geographical restrictions, reservation of rights in an otherwise exclusive license
11SPECIFIC TERMS – Licensor’s Perspective Transfer of Rights, Assignment and SublicensingEither 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.
12Licensee’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 licenseeDoes not want to have to get consent during acquisition negotiations with a third partyInserts uncertainty and risk into any acquisition negotiationsCase law: transferee of a license receives no rights unless the transfer was authorized so licensee will insist on ability to transfer language
13Licensee’s Perspective: Assignment by Licensor Licensee concerned with assignment of the agreement by licensorWill want to ensure any assignee possesses technical competence to support, maintain and enhance the technologyLicensee should prohibit any assignment of the agreement by licensor by merger, consolidation, operation of law or otherwise without the prior written consent of licensee
14Licensee’s Perspective: Sublicenses Licensee may want to maximize revenue by sublicensing the technologyMay not have manufacturing capability, channel access, geographic limitations etc.GenerallyNonexclusive license may not be assigned without consent of licensorExclusive license may be assigned without consent of licensor
15SPECIFIC TERMS – Licensor’s Perspective IP Ownership and ImprovementsClearly 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.
16Licensee’s Perspective: IP Ownership and Improvements Usually most difficult contract clause to negotiateLicensee wants rights to licensor downstream improvements since not having those rights could substantially reduce license valueLicensee wants to keep rights to its own improvements for competitive advantageOptionsReciprocal rights (limited)Option to license each other’s improvementsSome limited exclusivity to inventing partyLimit time period in which improvements may be licensedImprovements sublicensable?
17Licensee’s Perspective: IP Ownership and Improvements (continued) Other issuesHow should the IP be protected?Patents or trade secrets?Who decides?Who patents and enforces newly developed IP?Specify who pays for patents, prosecution globallyWhat about joint inventions?
18SPECIFIC TERMS – Licensor’s Perspective Warranties and Limitations of LiabilityExclude 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.
19Licensee’s Perspective: Warranties and Limitation of Liability General warranty vs. limited warrantyGeneral: warranting party is liable upon breach and party receiving the warranty has all available remediesLimited: remedy is limited, often to repair or re-performanceLimitation of liabilityUsually disclaims special, incidental and consequential damagesLicensee 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.
20SPECIFIC TERMS – Licensor’s Perspective IndemnificationRead 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 ?
21Licensee’s Perspective: Indemnification Technology has no value if licensee can’t practice itLicensor will insist on limitationsLicensee will want “limited” limitationsNo indemnification for combination only if technology alone does not infringeProvide for optionsLicensor procures right to use the technology orReturns license fees amortized over reasonable period of time
22SPECIFIC TERMS – Licensor’s Perspective RoyaltiesBe specific.Knowledge of market and licensee will help ability to negotiate closer to 5% rather than 1%.
23Licensee’s Perspective: Royalties For technology that requires productizing, licensee should request reduced or limited royalties for a reasonable period of timeDesign of the royalty provision should be based on industry standards and practices – key for licenseeExample: patented technology may be used in process or method, not directly in a productRisk allocation based on one upfront payment, smaller upfront payment with running royalty, no upfront payment and larger running royaltyRunning royalties allow both parties to avoid assessing a fixed value upfront for the licensed technology – let’s the market determineImportant (and sometimes very difficult) point is specifying and defining the royalty base on which running royalties will be paid
24SPECIFIC TERMS – Licensor’s Perspective MilestonesRequire 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.
25Licensee’s Perspective: Milestones If licensee is productizing the technologyLicensee will want adequate time to commercialize given risk associated with developmentHowever, if royalty payments are limited during that time, licensor will press for milestones and/or minimum royaltiesLicensee does not want to loose all investment if runs into unforeseeable development problemsWill suggest a clause to allow the license terms to be renegotiated
26SPECIFIC TERMS – Licensor’s Perspective Post-MedImmune IssuesAre 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) ?
27Licensee’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 termsLicensees can use MedImmune to renegotiate existing agreementsNo contest clause with automatic termination may be unconscionable – licensor will want to include high termination fee instead if licensee challenges patentLicensee will want royalties to be refundable and will not want to be liable for attorneys' fees
28Patent Exhaustion Elements: Authority to sell the article by the licenseeArticle sold must cover essentially features of any claim asserted and have no substantial noninfringing useArticle must be unconditionally soldLGE case: in certain circumstances a patentee can enforce its patent even after licensee’s first saleLGE license conditional license (limited license) that allowed LGE to assert its patents against downstream manufacturersExhaustion precludes enforcing “selling” and “using” but does not preclude “making”
29Patent Exhaustion (continued) Strategy to provide for certainty for both parties:License grant for technology transfer and not patent licenseClearly specify grant of the license to third parties that acquire licensed technology from an authorized licensee under any licensor patentsInclude clauses that licensee’s sale of the patented technology embodied in a product confers rights on the purchaser, by exhaustion, implied license or otherwiseState that money received for technology transferred is the full compensation licensor would receive if it transferred technology and patents to licensee
30Dispute Resolution Senior Management Dispute Resolution Mediation Arbitration v. Court ActionGoverning Law, Venue and JurisdictionPrevailing Party Attorneys’ Fees