1. Key Aspects of IP License Agreements Donald M. Cameron The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed. © D. Cameron, R. Borenstein 2003 The Canadian Institute – Key Business Agreements Toronto, Ontario

2. 2 Agenda  IP Rights 5 Minutes  Skeleton of a License Agreement 5 Minutes  License Grant & Consideration 15 Minutes  Licensor & Licensee Obligations 10 Minutes  Common Clauses 5 Minutes  Questions 5 Minutes

3. 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. 4 The Legal Cubby-holes PatentsFunction, materials Trade-marksNames, logos CopyrightForm of expression Trade Secrets/ Confidential Information Secrecy of info.

5. 5 Patents  “Applied science”  Machines  Processes  Compositions of matter  Drugs  Certain software processes (limited)

6. 6 Patents Prerequisites:  New  Useful  Inventive (non-obvious)

7. 7 Patents New (Novelty):  Never been done, used, written about before  Made available to the public Useful (Utility):  It works  It achieves the promise

8. 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. 9 Trade-marks  Names  Logos  Product packaging  Shape of product  Earned by use  Registration gives Canadian rights

10. 10 Trade-marks  Key: distinctiveness  Must link products or services to a unique source

11. 11 Copyright  Protects “works”  books  movies  music  artwork  computer programs  Protects “expression”, not ideas  Arises automatically, but can be registered

12. 12 Trade Secrets  Recipes  Formulae  Customer lists  “Know-how”  Non-patentable inventions

13. 13 The Legal Cubby-holes Patents Trade-marks Copyright Industrial Designs Trade Secrets

14. 14 Overview of Basic Licensing  Permission to do what you would not otherwise have the right to do

15. 15 Skeleton of a License Agreement  The Big Question: WHO GETS WHAT?

16. 16 Skeleton of a License Agreement  Three building blocks License Skeleton  Who: The Parties  Gets: The Grant  What: The Definitions Licensor Licensee Definitions The Grant

17. 17 IP License Agreement - WHO  Who has the right to grant the license?  Ownership of the intellectual property?  Licensed to sublicense the intellectual property?  Do I have a warranty that says so?

18. 18 IP License Agreement - WHO  Who is the Licensee?  The company? >> 1 machine, 1 location >> site license >> corporate wide  Subsidiaries and affiliates?

19. 19 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

20. 20 IP License Agreements - WHAT  WHAT DOES THE LICENSOR GET?  $$$$  License fees  Royalties  Cross-licenses

21. 21 License Grant The Legal Cubby-holeWhat it Protects  PatentsFunction or Composition  TrademarksBrand Names and Logos  CopyrightThe Form of Information  Trade Secrets / The Secrecy of an idea Confidential Info

22. 22 License Grant  Licensor hereby grants 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 License Skeleton Licensor Licensee Definitions The Grant

23. 23 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: use

24. 24 License Grant  What is the Licensee allowed to do?  Exclusive: only the Licensee  Sole: only the Licensee and the Licensor  Non-exclusive: multiple Licensees

25. 25 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

26. 26 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 Simon Says!

27. 27 License Grant Everything should be made as simple as possible, but no simpler

28. 28 License Grant “How many a dispute could have been deflated into a single paragraph if the disputants had dared to define their terms?” - Aristotle

29. 29 Consideration  How much is the license worth? ¢¢¢ ---------------------------------------  $$$ Non-Exclusive -----------------------  Exclusive Small Territory -----------------  Large Territory Narrow Field -----------------------  Broad Field “Use” ----------------------------------  “Exploit” Technological ------------------  Technological Convenience Breakthrough

30. 30 Consideration  License Fees (Fixed)  Initial or Upfront  Annual  Milestone

31. 31 Consideration  Royalties (Fixed or Variable)  5$ per widget sold  5% of “Revenue” per widget sold  “Net Revenue”  “Sales Revenue”  “Profit”  “Allocated Price”

32. 32 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”

33. 33 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

34. 34 Consideration  Other Consideration  Cross-license  Shares/ Stock/ Equity  Joint Venture arrangements

35. 35 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

36. 36 Obligations - Licensor  Deliver the Intellectual Property  Disclose Know-How  Train Licensee Personnel  Support and Maintenance  Disclose/Deliver Improvements and Modifications

37. 37 Obligations - Licensor  Improvements – a development in the field of the licensed intellectual property that enhances one of the following:  Usability  Functionality  Efficiency  Performance

38. 38 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

39. 39 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

40. 40 Obligations - Licensor  Infringement Claims  IP litigation can be VERY scary, VERY expensive and VERY risky  Licensor may not want to bear the risk – will factor into overall value of license  Other options:  Replace  Modify  Settle or “Pay Tribute”

41. 41 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

42. 42 Obligations - Licensee  “Working” the Invention  Tied to exclusivity  May incorporate “quotas”  Covenant to use “commercially reasonable” efforts to promote, distribute and sell products

43. 43 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

44. 44 Obligations - Licensee  Improvements  These are “Licensee” improvements  Licensor may require disclosure, and a license back  Beware of “blocking” patents

45. 45 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

46. 46 Common Clauses  Assignment  Term and Termination  Conflict Resolution

47. 47 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?

48. 48 Common Clauses  Term  Term may be dependent on intellectual property rights

49. 49 The Terms Patents17 or 20 years Trade-marks15 years (repeat) Copyrightauthor + 50 years Trade Secretsindefinitely

50. 50 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

51. 51 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

52. Key Aspects of IP License Agreements Donald M. Cameron The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed. © D. Cameron, R. Borenstein 2003 The Canadian Institute – Key Business Agreements Toronto, Ontario