“Win-Win” LicensingAgreement: Negotiating and Drafting Strategies “Win-Win” Licensing Agreement: Negotiating and Drafting Strategies August 12 – 14, 2008 CTSW, P.C. © 2008 All Rights Reserved

2 Presenters: Y. Jerry Cohen Cohen Tauber Spievack & Wagner P.C. 420 Lexington Avenue, 24 th Floor New York, New York Tel: Laurence S. Tauber Cohen Tauber Spievack & Wagner P.C. 420 Lexington Avenue, 24 th Floor New York, New York Tel:

3 Strategies for Negotiating in Good Faith  Recognizing Respective Goals and Potentials  How to Incorporate Those Objectives Into Your Strategies

4 Recognizing what Licensors/Designers and Licensees/Manufacturers are each Typically Looking for  Licensors -  Royalty revenue  Recognition and visibility  Brand extension (product and territory)  Exploit manufacturers’ manufacturing and commercialization capabilities (including sales force)  Licensees -  Brand recognition and cachet (piggy backing)  New fresh product to differentiate itself from the competition  Tap new customer base  Maximize manufacturers’ manufacturing and commercialization capabilities (including sales force)

5 Licensor/Designer and Licensee/Manufacturer Perspectives  Licensors Demand Reasonable Value vs. Licensee Concern of Overpayment  Managing financial risk  Capping development and marketing expenses; creating budgets  Royalty reductions; reimbursement for certain payments  Ability to terminate

6  Licensors Require Development and Commercialization of Product. Licensees Require Flexibility and Focus on ROI  Diligence  Monitoring and Reports  Remedies Licensor/Designer and Licensee/Manufacturers Perspectives

7 The Ideal “Win-Win” Agreement:  Matches parties’ strengths to responsibilities and objectives  Avoiding pitfalls of taking on responsibilities that cannot be financed or are economically unsound  Time frames for obligations – an effective due diligence clause  Recognize true market for ultimate product  What are competing products?  What sort of pricing will the market bear for the ultimate product?  Recognizing what everyone is looking for and not overreaching means expressing in good faith abilities, expectations, goals, and desires during negotiating process

8 License Grant and Restrictions  Exclusive  Non-Exclusive  Semi/Co-Exclusive  Granting Clause  Licensor’s Reservation of Rights

9 Territory: Worldwide or Specific Countries  Infrastructure and Abilities of Partner  Available Patent, Copyright and Trade Dress Protection  Strategic Goals  Certain Rights May be Limited to Specific Territories  Other Issues (e.g. product leakage)

10 Intellectual Property: Define Rights  Utility and Design Patents  Copyright  Trade Dress  Trademark and Trade Name  Other IP  Confidential and/or Proprietary (trade secret)  Protecting Confidential Information

11 IP Prosecution, Maintenance, Defense and Enforcement  Control  Cost  Protection against competition  Managing IP

12 Compensation Structures  Royalty- Bearing License  Fixed Sum Per Unit or Period  Variable or Fixed Rate  Based on Invoiced Amounts or Amounts Received  Reductions, Credits, and Caps  Bundling  Licensees tend to only want to pay royalties on sales in markets where there is patent or other protection

13 Compensation Structures  Upfront Payments  Milestone and other Payments  Based on sales levels

14 Compensation Structures  Profit Sharing  Net sales less cost of goods and enumerated expenses  Can be more lucrative than royalties  Enhanced decision-making posture  Beware of sharing losses

15 Diligence  Standards  Best Efforts  Commercially Reasonable Efforts  Reasonable Efforts  Internal Standard

16 Diligence  Performance Requirement  Minimum Sales or Profit  Minimum Royalty Payments  Consequences  True-up  Convert to Non-Exclusive  Reversion of Rights  Liquidated Damages  Termination of Specific Rights or Agreement

17 Other Matters  Indemnification  Sublicensing  Licensor Concerns  Licensee Concerns  Change of Control  Non-Competition  Governance and Monitoring  Licensor Support  Creative Business terms to close a deal

18 Termination Grounds  Standard Termination Provisions  Licensee Contests Validity or Ownership of Licensor’s Rights  Commercially Unviable  May Be Country Specific, Product Specific or Complete  Other

19 Termination (Continued)  Effects of Termination  Reversion of Rights  Reimbursement of Certain Costs  Survival of Sublicenses  Access to IP and License to Use It

20 Dispute Resolution  Internal Escalation  Non-Binding Mediation  Binding Arbitration  Judicial Intervention

21 Presenter Biographies  Laurence S. Tauber has practiced corporate, business and commercial law for over twenty-five years, with a principal emphasis on corporate and commercial transactions, intellectual property and licensing. One of the founding partners of CTSW, Larry has developed expertise in public and private company mergers and acquisitions law, leveraged buy-outs and corporate finance, asset-based lending and leasing (representing borrowers as well as banks and commercial lenders) and real estate law, and provided general corporate, business and securities counseling to both public and private corporate clients  Y. Jerry Cohen has been engaged in business and commercial law for over twenty years. Jerry counsels furniture manufacturers, designers and national, regional and local furniture retailers with their corporate, commercial, licensing and intellectual property transactions, as well as day-to-day matters. One of the founding partners of CTSW, Jerry routinely counsels clients in a wide range of transactions, including strategic alliances, joint ventures, licensing, marketing and distribution arrangements, acquisitions, divestitures, restructurings and financings. Jerry writes the online legal blog for Furniture/Today.