Licensing: An Overview Varda N. Main Director, Technology Licensing Office Rochester Institute of Technology Presentation to “Introduction to Intellectual Property” Course February 4, 2003

Licensing In the broad sense, is a discipline that makes it possible to transfer technology from a proprietor (the licensor) to an interested purchaser (the licensee) in a well defined and effective manner

Intellectual Property Rights Trade Secret Know-how Show-how Patents Trademarks Copyright Mask Works

More customers for embryonic technologies Emerging Trends Technology development time decreasing Technology development costs increasing Growing importance of alliances Regulatory environment becoming more stringent Corporations licensing in more Opportunity: More customers for embryonic technologies

Global Issues Knowledge moves quickly around the world Increase in industrial/academic espionage Trade agreements: GATT, NAFTA New trading blocks: EC, E. Europe, N. America Move to patent harmonization

Emergence of Technology transfer function in university community Historical Context Availability of R&D funds decreasing Competition for R&D funds increasing Universities seeking additional avenues to fund R&D Result: Emergence of Technology transfer function in university community

Why Interest in IP Value in intangible assets GAAP and book value IP protection adds value and increases lifetime of that value Communication between lab and marketplace Speeds movement of technology to products

How IP Moves to the Marketplace Idea >> concept >> reduction to practice >> prototype >> scale-up >> productization Direct application by IP owner Sale of IP to another entity who then productizes License of IP to licensee(s) Public disclosure of IP

Technology Transfer Collaborative process whereby the products of R&D flow from a source to the (next) user Numerous transfer options including: Licensing Alliances Use of facilities Consulting Outright sale

Types of Licensing Licensing Out Licensing In

Rights under a License To make To use To disclose to others To sell by publication in a marketed product in a service manual as a sub-license to a third party to lease To sell

Types of Licenses Exclusive - there can only be one licensee; the licensor has no rights to exploit the technology/product Sole - exclusive but for the licensor; i.e., the licensor has rights to exploit the technology/product Non-exclusive - there is no limit to the number of potential licensees

Licensing Strategy Position in technology life-cycle Presence/absence of competition Technical, financial and marketing strengths of the parties Legal, political, and cultural environments Protection of proprietary information Grantsback Remuneration hoped to be realized over the term of the license

Types of Licenses Irrevocable/Revocable for cause Territory: World-wide/Limited to named geographic regions Field of use: Market-specific Royalty-bearing/Royalty-free

Determining Position in the Technology Life Cycle Technical performance obsolescence Technical feature obsolescence Cost obsolescence Safety obsolescence Shifts in consumer preferences

What do you really have? Know the History Base patents and continuations Technically related patents and copyrights Software versions Previous agreements Outside authors and inventors Funding sources

The View on the Other Side of the Table Perception of business risk. Who’s bringing what to the table? What are the 3 points of difference for the technology/opportunity? What would make a user switch to this product/process/service? What is needed to bring this to the commercial marketplace?

Importance of Timing Commercialization and patent prosecution timelines must coincide - “Window of Opportunity” Understand the technology & IP life cycles Understand the impact of competing technologies (i.e., first to market) Durability of competitive advantage Fit with business or corporate strategy

Packaging of Technology for Transfer Licensing need to be win-win situations What must the licensor do to ensure that the licensee will be able to fully use the licensed technology? How to identify all the know-how, show-how and technology needed by the licensee? What other information may be needed in negotiating a technology transfer? tax credits financing marketing

A Good Strategy is a WIN:WIN Strategy There is no real strategy unless there are at least two interested parties It’s all in “packaging to attract partners” Must find common ground Essential to understand needs of all parties Don’t get caught up in “but my needs are…”

Why License? The Licensor’s reasons might include: to make money to help sell products, services, equipment to obtain technology via grantback to secure a market to settle a patent dispute cross-licensing of other, existing technology rights to future technology to buy continued development of the licensor’s technology

Why License? The Licensor’s reasons might include: to acquire marketing strength, capital and market assets or an interest in them. to reduce capital requirements for reaching a market. to adapt a product to a local market to reach fields of use outside the licensor’s normal purview to avoid waste of by-product technology to profit from residual value in an old technology to fulfill local laws to avoid antitrust/anti-competition or trade regulation problems

Why License? The Licensee’s reasons might include: to obtain rights to technology to supplement the licensee’s R&D to obtain continuing access to technical help to benefit from the good reputation of the licensor by gaining ability to use its trademark to obtain quick entry without cost and technology risks to obtain access to the licensor’s facilities

Why Foreign License? Advantages/practicality of foreign licensing over direct sales or export might include: tariff regulations taxes potential nationalization political instability capital to start foreign production foreign patent laws availability of materials and staff quick return to licensor access to/acceptance with foreign markets

Why NOT to license To avoid risk of establishing a future competitor To make potentially bigger profits from direct sales… at higher risk and capital cost To retain direct control over product liability exposure To retain direct control over product quality To retain direct control over know-how dissemination

Licensing Licensor’s perspective ensure that licensee is only acquiring those rights which are necessary and which do not restrict licensor from making other uses of the technology restrictions to be placed on use of technology is this an international transaction what protection exists for technology in foreign jurisdiction what rights does a foreign national have to enforce rights to the extent that any third party material is incorporated in the technology, does licensor have all rights required in order to grant license

Acquiring Technology Licensee’s perspective what is the intended use of the technology what form of legal protection exists in the technology being licensed is one acquiring all of the rights and information which they will require in order to do what they want to do with the property licensed in in what jurisdictions do the technology rights exist will licensee have to obtain rights from any other party in order to carry out intended activity

Agreements - What can go Wrong Who’s idea is it anyway? I thought of that before we signed this deal. But I thought I could do that. Result: Court Actions This is costly Lac Minerals v. International Corona Resources

Agreements - Why They are Needed To clarify a win-win relationship To clarify intentions To provide a written statement To state what each party can and cannot do To describe tasks, budget, deliverables, responsibilities To protect against changes in involved personnel To refer to when there are misunderstandings and disagreements

Value of The Portfolio Value in the eye of the beholder A portfolio is more than the sum of its parts Value depends on how the portfolio is protected and the strategy to sell it.

Portfolio Valuation What is the competition? Is your portfolio unique? Who is willing to buy? Different Parties = Different values How critical is technology/portfolio to the outside? What are they willing to pay?

Pricing Technologies Market value of technology Uniqueness of technology Competitive position Type of protection for the technology Stage of technology development Improvement provisions of license Exclusivity Field of use geographical market sector

Investment Theory For Royalty Rates Value of technology is a function of the income that can be earned from its employment the cost to replace it with equivalent

Payment Terms Types of Payment Basis for royalty payments up front, paid-up licenses running royalties minimum annual royalties sliding scale based on performance Basis for royalty payments net sales net profits percentage of service work percentage of R&D contracts

Portfolio Valuation Value each piece Value different combinations Commercial cost to use facility or equipment (analogs) Commercial value of patents (price) Investment in personnel to develop skill and knowledge (replacement) Value different combinations

Escrow Required by licensee for protection in the event that licensor should go out of business Licensor agrees to place confidential and other proprietary material in escrow and allow for its release only in the event of catastrophe Usually a three party agreement, but can be done by having each party have an agreement with escrow agent

License Administration Establishing the licensing relationship Maintaining the relationship throughout the term of the license agreement Diverse aspects of the relationship financial payment/audit rights technology transfer to/from reporting tracking performance/deliverables joint development/exploitation

Licensing Costs are MINIMAL Revenues are predominantly profits

The Licensing Person The ideal licensing person has a technical education and background, legal training, market research and technical research experience, a knowledge of patents, the ability to get along with people, salesmanship, and enjoyment of negotiations, foreign language abilities, negotiation experience, resistance to jet lag and physical stamina. Technical ability is more important than legal ability. Marketing ability is more important than both.

LICENSING MUST BE A WIN-WIN SITUATION TO SUCCEED

REMEMBER… The technology goes through the entire innovation/commercialization process (from concept to end user); people typically don’t go through the entire process Know your strengths and weaknesses Know when to say no Know when to exit

Non-Disclosure Agreements

NDAs Go Under Different Names: Secrecy agreement Confidentiality agreement Non-disclosure agreement When to use NDAs: When disclosing confidential information When receiving confidential information

Principles of NDAs Allowed use and disclosure of information defined Use is typically limited to purpose of disclosure Amount of disclosure is controlled by disclosing party Information must be kept confidential by receiving party Respective rights of the parties defined

One Should Always Ask: What are the consequences of being the recipient of another party’s confidential information?

Employment Contracts

Who Owns your Work? Work you do at RIT: You? The University? Your Employer? Business Partners? What agreements will you sign when you work for a company? Employee Assignment forms Non-compete assurances Confidentiality agreements With your company With others with whom you do business

Employment Contracts By specific contract; embedded in offer letter; through acceptance of policies IP ownership by employer (24/7) Keep confidential in perpetuity Need-to-know Non-compete IP exit interview

FEDERAL FUNDING AND ARISING INTELLECTUAL PROPERTY

INTELLECTUAL PROPERTY Background Intellectual Property Arising Intellectual Property Sole Inventions Joint Inventions Ownership of Intellectual Property Rights to Intellectual Property

FEDERAL GRANTS and CONTRACTS Typically most terms are non-negotiable; one applies for a specific grant understanding the terms that will be required Contracts Many terms are negotiable; including IP ownership and rights

PROTECTING PROPRIETARY INFORMATION Marking portions of proposals, reports and other correspondence Certain information on grants is routinely published by each agency Freedom of Information Act (FOIA) requests Disclosures can bar patenting

REPORTING REQUIREMENTS When doing work under a grant or contract Work progress Disclosure of inventions When licensing out IP developed under a grant or contract Licensing activity Licensee reports Job creation and net economic benefits realized Royalty payments, if required

UNIVERSITIES and the BAYH-DOLE ACT Stipulates that all IP developed by a university using federal funding is owned by the university Includes flow through funds

US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES The Government funds technology development To meet government needs for a technology solution to a problem To assist in economic development by helping bring new technologies to the marketplace To provide a return to the US taxpayer from the technology through: Job creation in the US Substantial manufacturing in the US Net economic benefit to the US

US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES The government wants to encourage use of new technologies in the marketplace Agreement terms encourage/expect technology owners to bring technologies to the marketplace The government wants to encourage further R&D IP protection (e.g. patents and copyright) permit technology owners to disclose their technologies without losing value in the marketplace

REQUIRED TERMS Government Use Rights The government gets a non-exclusive, royalty-free right to use technologies developed with federal funds for all government purposes This includes the ability of the government to grant licenses to government contractors to use the technology when doing work for the government

REQUIRED TERMS Government March-In Rights As the government wants to see technologies brought to the marketplace it can require the owner of a technology funded with federal dollars to license out that technology if the owner is not actively bringing the technology to the marketplace

REQUIRED TERMS US Competitiveness Requirements The government wants to see technologies utilized to the benefit of the US economy over that of foreign economies. Typically a technology owner will need to seek out US owned (preferably) or US based licensees and show that the licensee will use the technology to benefit US competitiveness

REQUIRED TERMS Substantial Manufacture in the US As with US competitiveness, the government wants to see technologies primarily manufactured in the US, thus resulting in US job creation and net economic benefit to the US

REQUIRED TERMS Export Control Requirements Any use of federally funded technologies or licenses granting rights to those technologies must comply with all relevant US export requirements and licenses

Joint Development Agreements

Joint Development Agreements – Corporate Perspective Collaborate to obtain access to expertise and/or facilities not available within the company Move R&D ahead quickly >>>>> secure/enhance competitive advantage >>>>> time to market considerations >>>>> ownership of arising IP

Joint Development Agreements – University Perspective Exposure to corporate scientists and facilities For faculty and students Additional avenues to perform research Career opportunities for students >>>>> publications and presentations >>>>> source of research funding >>>>> enhance reputation of institute and individuals

RESOURCES

Resources RIT Department of Grants, Contracts and Intellectual Property www.research.rit.edu US Patent and Trademark Office www.uspto.gov US Copyright Office www.loc.gov/copyright/ Good IP Sites www.ipmall.fplc.edu www.patents.com www.kuesterlaw.com

“To share an asset, usually it must first be divided “To share an asset, usually it must first be divided. But knowledge is one of the few assets that multiplies as it is shared.” . . . . . Indian proverb