1 Licensing Dissecting a License Agreement Telmo Vilela Telmo Vilela, 2011FD_UNL

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LicensingLicensing

Dissecting a License Agreement

Telmo Vilela

Telmo Vilela, 2011 FD_UNL

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Agenda

The Tech Transfer Process: How To Take (Good) Ideas to the Market?

Tech Transfer Tools

Licensing – the best option?

Dissecting a License Agreement

Licensing Tips

“Technology is worthless if it is not made available” –

Henry Ford


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Tech Transfer In Process:

How To Take (Good) Ideas to the Market?


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DISSEMINATE

CREATE

EVALUATE

PROTECTEXPLOIT

MANAGE

IDENTIFY

SHARE

KNOWLEGDEKNOWLEGDE

From the idea to the market…


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IP Rights Assignment;

IP Rights Licensing;

Spin-Offs/Start-Ups.

Tech Transfer Tools…


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Assignment VS Licensing…

Assignment Licensing

The ownership of the patent is fully

assigned (sold) to a third party.

The owner of the patent grants a third party the right to exploit the patent, but retains ownership.

Typically, the assignor only gets a single payment arising from the sale of the patent.

The licensor receives royalties and other incomes according to the profits/sales/production of licensed products.


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Assignment…

Advantages Disadvantages

Immediate gaining of the financial

compensation, by receiving a single and

pre-determined payment independent

from future profits/sales of the products

protected by the patent.

Loss of connection with the patented technology, its future developments, as well as with the assignee (short term relationship).

The assignee takes full responsibility on the patent maintenance, surveillance and enforcement.

Difficulty in doing the accurate market evaluation of the patent at this stage, when the technology is yet to be exploited. Usually, the assignor has a better knowledge of the market, and therefore is in a better position to dictate the value of the patent.


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Licensing…

ADVANTAGES DISADVANTAGES

Participation in the market success of

the patent, by benefiting from the results

of its exploitation.

Need to keep an eye (booth eyes, in fact…) on the licensee business, avoiding being misinformed in what concerns the patent commercial exploitation results.

Possibility of obtaining higher profits rather than in a assignment, considering that the profits are determined according to the sales/production of licensed products by the licensee (market success).

Difficulty to determine the licensee profits

Close relationship with the licensee, increasing the chances of new RD projects and possible sponsorships.

Need to keep watching for the patent maintenance and enforcement.


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Technology Applications

Options

New Capital Required

Personnel Requirements

Time Needed to Access Market

Accessibility to Worldwide

Markets and Broadly-Based Applications

Liability and Exposure to

Risk

Comparison Factor

Highest – 10 Lowest – 1

Most – 10 Least – 1

Longest- 10 Shortest – 1

Best – 10 Poorest – 1

Highest – 10 Lowest – 1

1. Include in Current Business 9 9 10 1 10

2. Spin-off 10 10 10 1 8

3. Joint Venture 3 4 7 6 6

4. License Technology 1 1 1 10 1

Source: Vertex Intellectual Property Strategies Inc. ©2004

Licensing: the best option?...


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Why licensing?...

Benefit to the institution› Reputation› Money› ...

Benefit to the researcher› Reputation› Money› ...

Benefit to the applicant/customer› Availability› ......


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Dissecting a License Agreement...

Definitions

Grant

Financials/Royalties

Reports, payments and records

Diligence

Warranties, Liability and Indemnification

Sublicensing

Patent Maintenance and Infringement

AREAS TO COVER:


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Definitions

Clear and concise

For words that will be used throughout the agreement

Licensee, Licensor, Invention, Exclusive, Field of Use, Royalty, Licensed Product, Licensed Patent, Licensed Territory, Net Sales



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Grant

What the licensor (University) is giving to the licensee (Company)

› What kind of license it is (exclusive, non-exclusive)

› What is it for (patent rights, materials)

› In what areas they can practice the technology (field of use, territory)

What the University is not giving to the Company

› Retain the right to use your technology!



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Grant exampleGrant example

Subject to the terms and conditions of this Agreement, University grants Licensee a license under the Licensed Patent in the Licensed Field of Use to make, use, import, offer to sell and sell Licensed Product in the Licensed Territory.



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University retains the right to practice the Licensed Patent and use Technology for any purpose, including sponsored research and collaborations. Licensee agrees that, notwithstanding any other provision of this Agreement, it has no right to enforce the Licensed Patent against University. University has the right to publish any information included in the Technology or a Licensed Patent.

Retained Rights ExampleRetained Rights Example



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Types of payments to chose from:

› Upfront Payment

› Annual Minimums

› Milestone Payments/Lump Sum

› Fully Paid (Single Payment)



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Examples of milestone payments triggers:

› Therapeutics: initiation of Phase I, II, III Clinical Trials, NDA filing, FDA approval

› Prototype

› First commercial sale

› Patent Grant

› Proof of Concept

› Number of years of survival of agreement




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Earned Royalties

› Can be:

a percentage

a set amount per item

scaled gross amount per sales

› Definition of Net Sales

Gross sales minus any deductible expenses both parties agreement on (e.g. returns, certain taxes)




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Financials example

Upon signing this Agreement, Licensee shall pay to Licensor a noncreditable, nonrefundable upfront fee of (“Up-front Fee”).

Licensee shall pay Licensor annually from the Effective Date for use or sale of the Products (“Annual Minimum”). Annual Minimum(s) are payable and deductible against accrued Royalties. Licensor shall invoice the Licensee for the minimum royalty payment at the beginning of each calendar year and Licensee shall make the payment within 30 days after receiving the invoice.

Licensee shall cumulatively pay to Licensor the percentage amount of the Revenues (“Royalty”) at following rates:

- years 1 and 2, Revenue share = %- years 3 and 4, Revenue share = %- years 5 and 6, Revenue share = %



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Reports, Payments, Records

You must receive updates on the company’s development progress!

You must receive earned royalty reports and payments! What sort of records should the company keep? What are

your auditing rights?



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Royalty reports and payments example

COMPANY shall deliver to University, within sixty (60) days after the end of each calendar year, reasonably detailed written accountings of Net Sales of Licensed Products that are subject to royalty payments due to University for such calendar year.

Such annual reports shall indicate gross sales on a country-by-country and product-by-product basis, the deductions from gross sales used in calculating Net Sales and the resulting calculation of royalties.

When COMPANY delivers such accountings to University, COMPANY shall also deliver all royalty payments due under Section XX to University for the calendar year.



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Records & auditing example

Licensee shall keep and maintain reasonably adequate books of account relating to the manufacture, use, distribution, sales and other disposition of the Products.

With thirty (30) days written notice to Licensee, Licensor may

at its own expense audit the applicable records in order to verify the amounts of the Products and Royalties hereunder.

Any possible audit shall be conducted during business hours and in such manner as not to interfere with Licensee’s normal business activities.

If the audit materially differs with statements provided by Licensee, Licensee shall be responsible for all incurring costs of such audit, besides any other legal consequences.



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Diligence

Mandatory: Company will diligently develop the technology into a product

Recommendable: specific milestones

Termination if Company cannot fulfill its obligations



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Diligence example

COMPANY is obligated to exploit the licensed rights.

Failure to exploit the Agreement Patent Rights is just cause for University to terminate this Agreement with thirty (30) days written notice to COMPANY.

COMPANY agrees to meet the development and product milestones for the Agreement Patent Rights set forth in Exhibit X.

If COMPANY fails to meet any of these milestones, University may terminate this Agreement with thirty (30) days written notice to COMPANY. In each case, if COMPANY (1) rectifies the failure and provides University with ample proof of this rectification before the thirty (30) days is over or (2) comes to a new agreement with University regarding the milestones, then the

termination will not go into effect.



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Warranties, Liabilities and Indemnification

What is a Warranty?› “a written guarantee of the integrity of a product...”

What is Indemnification?› security against hurt, loss, damage or liability for

licensed technology What is Liability?

› responsibility



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Liability example

Neither Party shall be liable to the other Party for any incidental, consequential, special, or punitive damages of any kind or nature, including, without limitation, the breach of this Agreement or any termination of this Agreement, whether such liability is asserted on the basis of contract, tort (including negligence or strict liability), or otherwise, even if either Party has warned or been warned of the possibility of any such loss or damage.



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No Warranties example

COMPANY understands and acknowledges that University, by this Agreement, makes no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or extent of the Agreement Patent Rights.

University, by this Agreement, also makes no representation as to whether there are any patents now held, or which will be held, by others or by University which may be dominant or subordinate to Agreement Patent Rights, nor does University make any representation that the inventions contained in Agreement Patent Rights do not infringe any other patents now held or that will be held by others.



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Indemnification example

COMPANY agrees to hold harmless, indemnify and defend University, its officers, employees and agents from and against any claims, demands, or causes of action whatsoever, including without limitation those arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from, the exercise or practice of the license granted hereunder by COMPANY, its sublicensees, or their officers, employees, agents or representatives.



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Sublicensing

Exclusive vs. Non-exclusive Allow sublicensees to further sublicense? What should the sublicense agreement include

(provisions from this Agreement)? What is the University getting from the

sublicense?› Earned royalties› Cash payments› R&D payments/expenditures



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Sublicensing example

Sublicenses for the Agreement Patent Rights can only be granted by COMPANY after prior written consent of University. COMPANY will send a copy of any sublicense contract to University.

Any sublicense will specifically include the provisions of §8 (Records and Reporting), §9 (Warranties and Liabilities), §10 (Indemnifications) and §12 Section 2 (Names and Marks) and will specifically state that sublicensee does not have the right to further sublicense the Agreement Patent Rights.

If COMPANY is unable or unwilling to develop a certain field of the Agreement Patent Rights for which there is a willing sublicensee, COMPANY agrees to negotiate with this third party for a sublicense to the Agreement Patent Rights.

If this Agreement terminates for any reason, any sublicensee will become the direct licensee of University.



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Sublicensing example: Financials

COMPANY will pay to University .. % (... percent) of all payments and benefits in money’s worth received from any sublicensee.



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Patent Maintenance and Infringement Procedures

Non-exclusive vs. Exclusive› Non-excl: Univeristy is decision-maker› Exclusive: Who is responsible for maintaining and

prosecuting? Who proceeds with infringers? Who receives what on outcome?

Non-exclusive› Is University required to maintain the patents?



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Patent Maintenance example

University will maintain the Agreement Patent Rights for the duration of this Agreement.

OR

Company will be responsible for maintaining the Agreement Patent Rights in the Licensed Territory



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Patent Infringement (excl. only)

Each Party agrees to notify the other Party promptly of each suspected or confirmed infringement of the Patent Rights such patents of which that Party is or becomes aware.

COMPANY shall have the right to prosecute in its own name and at its own expense any infringement of the Patent Rights in the Field.



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Patent Infringment cont.

If COMPANY is involved in any litigation regarding the assertion or enforcement of its interest in the Patent Rights in the Field and/or infringement of the Patent Rights in the Field, University upon request of COMPANY shall cooperate fully with COMPANY, and COMPANY shall reimburse University for all reasonable out-of-pocket expenses in connection with any such assistance.

Recoveries or reimbursements from actions commenced pursuant to this Section XX shall first be applied to reimburse COMPANY for all litigation costs. Any remaining recoveries or reimbursements shall be treated as Net Sales hereunder.



Telmo Vilela, 2009 UL Summer School36

Patent Infringment cont.


If COMPANY does not institute an action within 30 days after receiving notice from University or otherwise being informed of an infringement of the Patent Rights in the Field, then University may, at its sole discretion and expense, institute an action with respect thereto, and any recovery obtained shall belong to University .

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Licensing Tip # 1

Consider technology licensing as a strategic option – it can be a valuable and powerful business tool and can help access global and or new application opportunities


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Effectively manage intellectual assets, so they can become the cornerstone of a licensing venture – areas to address include:

• Employment & Consulting Contracts and Agreements

• Identification / Cataloguing / Inventorying of IP

• Patent Strategy

• Invention Policy

• Non-Disclosure Agreements

• Proprietary Information Protection

• Other Organizational Specific Issues

Licensing Tip # 2


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Clarify IP ownership issues up-front in all technology development activities including those that involve:

› Employees

› Contractors

› Universities

› Other businesses

› Customers

› Etc.

Licensing Tip # 3


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Don’t loose sight that the essence of a licensing relationship is one that:

Is a business partnership rather than the traditional supplier / customer relationship

Focuses on WIN -WIN results

Is similar to a Strategic Alliance and exhibits the following characteristics:

• Two separate independent entities

• Working together to tackle specific objectives

• Sharing the risk and rewards

• Supplying resources on a continuous basis

Licensing Tip # 4


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Identifying, selecting and working with the right licensee is probably the single most important ingredient to a successful licensing venture

Licensing Tip # 5


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Conclusion

„Work for What you Need, Negotiate for What you Want“

Louis P. Berneman, AUTM

„Work for What you Need, Negotiate for What you Want“

Louis P. Berneman, AUTM


Telmo Vilela, 2011 FD_UNL43

Thank you for your attention!

Telmo VilelaMember of the Board

Instituto Nacional da Propriedade [email protected]+351 21 881 81 00

Telmo VilelaMember of the Board

Instituto Nacional da Propriedade [email protected]+351 21 881 81 00

Documents

1 Licensing Dissecting a License Agreement Telmo Vilela Telmo Vilela, 2011FD_UNL