1. © 2008 Innovate Legal Services Limited The Expansion Phase – Acquiring Products and Technologies From Others Garry Mills Head of Trade Marks and Brands Innovate Legal Presentation for the Licensing Executives Society B&I Annual Conference 2010 17 June 2010

2. © 2008 Innovate Legal Services Limited Introduction Businesses involved in the sale of products often need a flow of new products/technology. Three main sources: -Internal R&D -Acquisitions -Licensing in Historically, most large organisations developed new products in-house but this has been changing...

3. © 2008 Innovate Legal Services Limited Internal R&D and corporate acquisitions Internal R&D: - Expensive - Long lead in times for new products/technologies - Commercial success uncertain Acquisitions: - Often involve acquiring not just new products but people - Integration into buyer’s organisation not always successful

4. © 2008 Innovate Legal Services Limited Growth of licensing out as a business model Also, over the last 20+ years, there has been an increase in the number of IP holders (e.g. university spin-outs) with valuable IP (but no manufacturing infrastructure), looking to exploit their IP through licensing arrangements.

5. © 2008 Innovate Legal Services Limited Licensing in Can provide ready access to proven products and technology. Can enable licensee to bring a new product to market quickly, without the cost and uncertainty of conducting its own R&D or acquiring a 3 rd party’s business. May be the only option: licensor may be unwilling to transfer its IP outright. Proliferation of IP rights (especially patents) in some sectors has led to increase in cross-licensing and patent pooling arrangements.

6. © 2008 Innovate Legal Services Limited The Licence A licence is a contractual permission granted by the licensor of an IP right to exploit the licensor’s IP or know how. All forms of IP can be licensed, in particular patents, trade marks, copyright and designs. Know how and confidential information are often licensed, although, strictly speaking, they are not IP rights as such. The terms of the licence will depend on the parties’ commercial deal, but many terms are typical...

7. © 2008 Innovate Legal Services Limited Standard licence terms (1) Subject matter: -Which rights are covered? -Important to consider unregistered as well as registered IP. Scope: -Exclusive, non-exclusive or sole? -Field of use?

8. © 2008 Innovate Legal Services Limited Standard licence terms (2) Territory Other restrictions, e.g.: -Number of manufacturing sites allowed. -Any limit on the number of licensed products the licensee may produce. Payments Term and termination

9. © 2008 Innovate Legal Services Limited Common pitfalls (1) Commercial terms not properly considered Examples: - Licensed rights not adequately described - Rights granted too narrow (or sometimes too wide) - Insufficient account taken of local laws - Ancillary matters, such as costs of licence recordal not fully evaluated.

10. © 2008 Innovate Legal Services Limited Common pitfalls (2) Poor drafting Examples: - Royalty provisions unclear or inappropriate (see below). -Termination for default leaves licensee in a weak position. - Licensee’s right to renew unclear.

11. © 2008 Innovate Legal Services Limited Royalty clauses – A case study Burberry v Citizen Burberry granted Citizen a licence to use BURBERRY trade mark for wedding rings in Japan Citizen agreed Burberry’s standard form licence. Royalty clause obliged Citizen to pay a % on each manufactured item.

12. © 2008 Innovate Legal Services Limited Royalty clauses – A case study (Cont’d) Citizen’s business model involved production of a large number of rings for use by jewellers as samples. At end of each season, samples were returned to Citizen for melting down. Citizen assumed it was only liable for royalties on rings sold to customers. Burberry claimed royalty on sample rings also. - Outcome?

13. © 2008 Innovate Legal Services Limited Common pitfalls (3) Anti-trust / Competition law – An Overview IP rights are monopoly rights which can be used to protect goods and services from downward market-driven pricing pressure. Anti-trust / competition laws seek to maintain open and competitive markets that work for the benefit of consumers. The main European competition rules are found in Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). There are equivalent provisions in UK domestic law.

14. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) Why important? Infringement may lead to fines and other sanctions. Companies may be sued for damages in national courts if they have been adversely affected by anti-competitive behaviour. Agreements that fall foul of the rules are void and unenforceable.

15. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) Article 101 - Prohibits restrictive agreements Article 102 - Prohibits the abuse of a dominant position

16. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) Agreements between undertakings - Article 101 Main purpose is to catch serious anti-competitive behaviour, e.g. Cartels and price-fixing agreements. But can also render illegal IP licences, technology transfer agreements, patent pools and agreements regulating industry standards. Art 101(1) contains a non-exhaustive list of agreements likely to be considered anti-competitive, including price fixing and market sharing.

17. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) - Many agreements between small undertakings will not infringe provided they do not contain “hardcore” restrictions such as price fixing and restrictions on supply to customers. - An agreement which is caught may benefit from the exemption under Art 101(3) which permits the pro-competitive effects of an agreement to be taken into account. - Agreements may benefit from one of the “Block Exemptions”, which provide a “safe harbour” by way of an automatic exemption from Art 101(1).

18. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) Block Exemptions - Vertical Agreements Block Exemption - Ancillary trade mark licensing provisions in distribution agreements - R&D Block Exemption - Technology Transfer Block Exemption Note the importance of assessing market power and avoiding “hardcore” restrictions.

19. © 2008 Innovate Legal Services Limited Anti-trust / Competition law (cont’d) Abuse of a dominant position - Article 102 - Aimed at “unilateral” behaviour by companies abusing a dominant position. - May be an abuse for a company to refuse to grant licences of its IP or to allow access to its technology.

20. © 2008 Innovate Legal Services Limited Conclusions Licensing in of IP is becoming an increasingly important route for businesses to grow their product lines. Thorough due-diligence is essential to ensure that all relevant IP is captured. Need to ensure agreements are carefully drafted – don’t rely on precedent documents! Watch out for anti-trust / competition law issues – if in doubt, seek advice!

21. © 2008 Innovate Legal Services Limited Thank you for listening. Garry Mills Head of Trade Marks and Brands Innovate Legal 107 Fleet Street London EC4A 2AB Tel: +44(0)20 7936 9239 Fax: +44(0)20 7936 9111 Email: garrymills@innovatelegal.co.uk www.innovatelegal.co.uk