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Managing And Commercialising IP Assets Rob McInnes Principal.

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Presentation on theme: "Managing And Commercialising IP Assets Rob McInnes Principal."— Presentation transcript:

1 Managing And Commercialising IP Assets Rob McInnes Principal

2 How Does IP Add and Create Value?  Inhibits competition against the company’s existing products  Helps extract value from technologies not used in products sold directly  Allows technologies to be acquired with some assurance of value  Codifies the company’s knowledge both internally and to investors

3 Human Capital - expertise - know-how - skills - creativity Intellectual Capital - processes - innovations - methodologies Physical Capital Intellectual Property IP Is Legally Protected Knowledge or Creativity

4 Issues in IP Management  Dealing with staff and contractors  Dealing with research collaborators  Dealing with suppliers & customers  Planning and conducting R&D with IP issues in mind  Understanding the IP landscape

5 IP Landscape  To inform business strategy development and R&D planning  For competitor intelligence  To understand the technology and IP position of prospective licensees/collaborators  To determine what is available to in-license  To look for strategic and blocking IP opportunities

6 Different IP Business Strategies  Comprehensive product protection by building mutually reinforcing bundles of rights including patents, designs, copyright and brands  Placing roadblocks in competitors’ paths  Generating cross-licensing currency to deal with blocking rights of third parties  Building value for market perception  “Fit” with technology/IP deficits of prospective licensees

7 A Vision for IP Management  The marketing of products is supported by the maximum available IP protection and we capture the value that IP can bring to our new developments.  The identification of potential IP rights, and the IP protection process, becomes an integral part of strategy development and R&D projects.  Knowledge of the IP rights of competitors and other third parties is used as a resource in strategy development and in R&D projects and planning.

8 A Vision for IP Management  Opportunities for acquiring technology by licensing IP in, and exploiting technology by licensing IP out, are identified, evaluated and captured.  Brands are strong, consistently presented and well supported by our marketing materials.  We avoid infringing the IP rights of others.  We effectively defend our IP when it is threatened

9 Commercialisation Options  Licensing »of a product »of a technology  Collaboration »to get to the starting blocks  Fully integrated trading business  Virtually integrated trading business  Start-up company »stand-alone »with an industry partner »with a finance partner

10 Issues in Licence Agreements  Overall structure of a licence - commercial terms; performance obligations; allocating risk and liability.  Special issues with licensing research tools and reach through claims.  Pitfalls in royalty structures.  Pitfalls in performance obligations and penalties for failing to meet them.  Identifying, allocating and mitigating risk in licence agreements  "Boilerplate" that matters - particularly indemnities and dispute resolution

11 Anatomy of an IP Licence  What is being licensed?  Commercial terms »royalties and other remuneration »licensee’s obligations to perform  Allocation of risk and liability  Boilerplate  May also be a collaboration involved

12 Improvements  How to define? »wide meaning or only dependent improvements  Ownership  Grant-backs and grant-forwards  Aggregation of improvements  Antitrust issues

13 Bases of Royalty Calculation  Percentage of sales »gross/net confusion »exclusions: taxes, freight & insurance, packaging, returns… anything else? cap these? »deductibles: patent costs, sometimes R&D cost  Per unit made/sold »avoids problems with defining “licensed product” »indexation required  Share of sub-licensing income  Share of profit? No.

14 Minimum Royalties  No substitute for performance requirements »quantitative eg minimum sales, marketing spend »qualitative eg best endeavours  Beware giving the licensee a financial option to shelve the technology »but may be unavoidable  Avoid reversion to non-exclusive as a consequence of non-performance

15 Dealing with Sub-Licensing  Try to deal with a licensee who: »has direct market access, or »will add value before sub-licensing  Option 1: royalty of X% of sales by licensee or its sub- licensees  Option 2: royalty of X% of the sub-licensing income of the licensee »problems when the licensee creates new IP licensed in parallel with the original licensed IP »ignore sub-licensing to related companies

16 Royalty Splitting  Important in pharma/bio especially  Collaborators develop IP then the commercialising party takes the project further  Non-commercialising party’s share diminishes as the commercialising party adds further value

17 Negotiating Royalties  Comparable transactions approach »sources of information »how comparable are the previous deals  First principles approach »“25% rule of thumb” (LES/Bob Goldscheider) »risk-adjusted relative investment (Noel Byrne)  Adjustment factors »for negotiating up or down from starting point

18 25% Rule of Thumb Stated  The licensor should receive from the licensee around one quarter of the gain accruing to the licensee from the use of the licensed right »operating profit in the case of goods »“gain” may be a cost saving in an industrial process  Based on a notional “fair” apportionment of gain »licensee undertakes greater investment, risk  Tested in survey published by LES »Vol XXXVII No. 4 December 2002, p123 »median royalties are typically 25% of median gross profit for successfully licensed products

19 Limits of the 25% Rule  It’s a rule of thumb only  Based on a simplistic single innovator/ single right/single product model  Simple form doesn’t deal with licensee expenditure to get product to market  Requires data including information known better by the licensee  But a useful starting point  More sophisticated NPV approach is available

20 Adjustment Factors  stage of technology development  degree of know-how transfer  exclusivity  up front/milestone/ maintenance fees  funding of R&D  payment of patent costs  extent of economic monopoly conferred  other IP required  acceptance of product risk  acceptance of obligation to sue infringers  industry norms

21 Dealing with Royalty Stacking  When the parties anticipate that further IP will need to be licensed in to allow the licensed product to be sold »eg delivery system for a drug/vaccine  Increasing importance of research tools/ growth in patent numbers  Distinguish “blocking rights” versus desirable but inessential rights »licensor will seek tight definition of required rights

22 Performance Requirements  Adhere to a marketing plan  Milestones eg clinical, regulatory  Marketing as a percentage of sales  Maintain marketing infrastructure  Best endeavours/reasonable endeavours  Minimum payments  Sanction: termination or reversion to non-exclusive?

23 Risks Related to IP Coverage  Licensor: my bundle of patents/ applications in key countries plus proprietary information deserves a flat rate royalty »in all jurisdictions for a defined term  Licensee: I won’t pay for what is not delivered; I will pay: »patent royalties only on granted patents/active pending applications by jurisdiction »know-how royalties only on secret, substantial and defined proprietary information

24 Infringement Risk  That the licensed IP will be infringed »licensee will want to withhold royalties as it is not getting the exclusivity it paid for »withhold a proportion? »to be applied to infringement proceedings?  That the licensed product will infringe third party IP rights »licensee will want to withhold royalties pending determination »to be applied to defence of the claim? »royalty stacking arrangements will apply

25 Non-performance of Licensed Products  Distinguish supply of goods from licensing of IP »Generally no fit-for-purpose type warranties except in turnkey situations »Product licensors will generally offer due-care-and-skill type warranties, but hard to give content to these warranties for licensors of bare IP rights  Public sector organisations will rarely offer, and may be prevented from giving, warranties »Some won’t warrant ownership (perhaps wisely)  Watch insurance issues

26 Product Liability  Death or personal injury caused by defects in licensed products  Two separate issues: »Warranties by the licensor to the licensee »What happens if the licensor is sued by the injured party directly?  When is a developer/licensor of technology directly liable under product liability? »Negligence actions depend on type of deal »Strict (no-fault) liability an issue in the USA

27 Void Provisions in the EU  Provisions controlling licensee prices  Prohibition of supply to customers in other territories  Requiring the licensee to take non-patented materials if not necessary for quality or technical reasons  Grant-back provisions requiring the assignment of “severable” improvements  No-challenge provisions

28 “Per se” Unlawful in USA  “Naked” price-fixing  Output restraints  Market division among horizontal competitors  Collective boycotts to divide markets  Resale price maintenance

29 Australia - Patents Act  S 144 »conditions in a licence may not be used to force the purchase of non-patented goods or to prevent licensee from using other products or processes »except where the licensor proves the licensee had the option of not submitting to the condition and it is terminable with compensation »sanctions include unenforceability of the condition and the patent

30 Key Issues in a Collaboration  Managing the collaboration  IP identification and definition  IP ownership  What does the funding/commercial party get for its contribution?  Consideration back to the research party  Allocation of risk and liability

31 IP Ownership in Collaborations  Avoid joint ownership if practicable  Ownership can be allocated: »To the commercial party with a royalty »to the research party with a licence to the commercialising party »by inventorship (favoured in USA) »by field of interest »by coverage of background IP  Special issues with US collaborations

32 Rights of the Funding Party  “Option” is used loosely  The hierarchy of rights: »ownership with a royalty »automatic licence »conditional licence »option in the legal sense where all terms agreed subject to determination »right of refusal »right of negotiation

33 +61 2 9393 0300 Rob McInnes Any Questions?

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