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Key Aspects of IP License Agreements

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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:

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


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

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