Getting to “Yes” in University IP Licensing: Mock Negotiation Workshop October 25, 2012 Presented by Jim Singer Brienne Terril

2 Licensing Activity Statistics  University and research institute licensing has remained strong despite economic conditions  According to the Association of University Technology Managers U.S. Licensing Activity Survey for FY2010 (which reflects responses from 183 U.S. institutions): - 4,284 licenses executed - 38,528 active licenses and options - $59.1 billion total sponsored research expenditures - $2.4 billion total license income

3 Overview  Anatomy of a license agreement - Key clauses - What does each side want?  Negotiation of license provisions - University and start-up - University and large company  Questions

4 Anatomy of a License Agreement  License provisions - Non-exclusive vs. exclusive licenses  Reservation of rights to the institution  Sublicensing - Defining the IP - Consideration: royalties, etc. - Improvements - Enforcement / defense - Representations / warranties - Reporting and auditing - Terminating the relationship

5 Non-exclusive vs. Exclusive  University Concerns - Universities want to ensure that technology is actually developed and innovation is advanced - Exclusive licenses cut against universities’ goal of ensuring that research programs result in broad practical applications - Overly broad exclusive licenses may have consequences if the technology is found to have unanticipated utility

6 Non-exclusive vs. Exclusive  Licensee Concerns - Freedom to develop technology without concern of competitor licensees - Licensees, especially early stage companies, invest substantial money and resources to bring a product to market, and usually require time to do so - Sublicensing and transfer

7 Scope of license: negotiation  University hereby grants to Licensee, and Licensee hereby accepts, an [exclusive or non-exclusive], [worldwide or Territory] right to use the Licensed Technology to make, have made, use, reproduce, and otherwise create or distribute Licensed Products in the Field of Use.  Notwithstanding the above, University reserves all right to the Licensed Technology outside of the Field of Use, and University retains the right to use the Licensed Technology free of charge for University’s academic, research purposes.

8 Non-exclusive vs. Exclusive  Considerations for reaching middle ground - Universities will usually reserve the right to practice the licensed invention and allow other non-profit organizations to do so, even with respect to exclusive licenses - “Field-of-use” license - Limited period of exclusivity - Require licensee to achieve development milestones to maintain exclusive license

9 Defining the Intellectual Property  Patents and patent applications - Invention disclosure  Copyrights / software  Trade secrets / confidential information  Know-how

10 Improvements  University Concerns - Don’t want to inextricably link a research program to a particular licensee and preclude funding from or collaboration with other companies - Broad licenses of future improvements may touch inventions and university employees outside of the original invention - Not all improvements are relevant or valuable

11 Improvements  Licensee Concerns - Wants ability to make use of the most up-to- date technology

12 Improvements  Considerations for reaching middle ground - Limit the scope of improvements that are licensed - Restrict licensed improvements to those owned by the university - Limit improvements to those supported by original patent filing and entitled to priority date - License improvements in exchange for additional payment

13 Consideration (royalties, etc.)  University Concerns - Want to share in the financial success of licensed technology - Licensing income is usually put back into research and teaching

14 Consideration  Licensee Concerns - Upfront licensing fees may be impractical for certain licensees - Early stage technology may require significant development before commercialization - High royalties payments may discourage investors - Lower licensing fees and royalties translates to a lower-priced product which increases market opportunity

15 Royalties: negotiation  Licensee shall pay University the nonrefundable sum of dollars ($ ) upon execution of this Agreement.  Licensee shall pay University a royalty of ___% of Net Sales.  Licensee shall pay University a royalty of ___% of Sublicense Fees.  Milestones: - Business plan - Initial funding - FDA approval - Commercial product release - Annual minimum licenses

16 Royalties and Licensing Fees  Considerations for reaching middle ground - Implement a royalty or fee structure that increases over time or that is dependent on the development of the technology - Impose minimum annual royalty payments after a time period or a achievement of a milestone - Balance royalties/licensing fees and patent prosecution costs - Equity arrangements, especially for up-front payments - Renegotiate financial terms every few years

17 Enforcement/Defense  University Concerns - Usually want to avoid the time, resources and cost involved in litigation - Will often permit licensees to enforce/defend infringement claims on their own - Don’t want to alienate licensees of other technology with litigation

18 Enforcement/Defense  Licensee Concerns - Want ability to enforce patent rights against infringers and participate in the defense of infringement claims

19 Enforcement/Defense  Considerations for reaching middle ground - Parties agree to use reasonable efforts to seek resolution of infringement allegations without litigation - Licensee has first right of enforcement in Field of Use  University will be named party if needed - Licensee pays university a royalty on any monetary recovery - Licensee is permitted to withhold a certain percentage of payment to apply to litigation costs and pay withheld amounts to university from recovery

20 Enforcement/Defense  BUT – be mindful of whether licensee has standing - Licensee’s standing depends on whether it possesses “all substantial rights” under the license - license language is not dispositive - Non-exclusive licensee’s do not have standing, even if license conveys such a right - But, an exclusive license in and of itself is not necessarily sufficient to convey standing

21 Enforcement/Defense  Considerations in evaluating standing - Exclusivity - Right to sue - Right to transfer - Rights reserved by university

22 Enforcement: negotiation  Licensee will have the first right and option to enforce any infringement of the Licensed Technology. If Licensee fails to take such action within sixty (60) days of first learning of the infringing activity, university will thereafter have the right and option to do so.  The Party who commences the action shall pay all costs required for the action and retain all proceeds resulting from the action.  The non-enforcing Party shall provide the enforcing Party with such reasonable assistance as the enforcing Party may require, including but not limited to agreeing to be named as a party on any pleadings in the enforcement action.

23 Reps and Warranties  Licensee wants: - Non-infringement - Right to license (title) - Technology will work as advertised  University wants: - Indemnity for third party claims - Diligence in commercialization

24 Reporting and Auditing  Licensee shall provide University with a quarterly written report of all Net Sales and Revenues and Sublicense Fees in each country within the Territory. The report must be provided within 30 days of the end of the quarter.  To the extent that Licensee does not have net sales in any country within the Territory within any calendar year, License shall provide university with an annual written report of Licensee’s efforts toward commercialization in that country.  Licensee shall maintain accurate books and records such that the amounts due and payable under this Agreement can be easily ascertained. Licensee shall make such books and records available for audit by university or its agent, and Licensee shall fully cooperate in any such audit  In the event that any audit reveals a deficiency in payment of more than five percent, then in addition to paying the deficiency Licensee shall also pay the costs of the audit.

25 Term and Termination  By university: - On breach by licensee - Failure to pay royalties - If milestones not met  By Licensee: - At any time upon notice

26 Questions? Jim Singer Brienne Terril