Jay A. LeftonJay A. LeftonSenior PartnerSenior Partner

jlefton@ogilvyrenault.comjlefton@ogilvyrenault.com

416.216.4018416.216.4018

Common Mistakes Common Mistakes That Cause Turmoil in That Cause Turmoil in

Licensing, Financing and Licensing, Financing and M&A TransactionsM&A Transactions

Presentation at the Sault Ste. Marie Innovation Centre

September 15, 2009

2

IP ProtectionIP Protection

Failure to obtain and keep good title to intellectual property Enter into agreements on a timely basis

Intellectual property assignment agreements Employees Consultants Including waiver of moral rights

Confidentiality agreementsBe aware of employees’ pre-existing obligations

Instituting an IP and trade secret protection policies/program Failure to have, keep and chronicle key documents

3

Contracts Only Go So FarContracts Only Go So Far

Assuming that a contract is all you need Failure to assess the integrity of the people you’re

dealing with “Once a trade secret or confidential information is out of the

bag, you can’t get it back in” Failure to recognize that patents are different from trade

secrets Patents represent exclusive monopoly rights granted by the

government in exchange for disclosure of an invention Trade secrets are internal information or knowledge that is

not known by anyone else

4

IP ProtectionIP Protection

Failure to understand the implications of collaborating with outside parties in the creation of intellectual property Consultants Academics Implications of Joint Ownership of IP

Rights of joint owners to act independent of the company

5

Patent ProtectionPatent Protection

Premature disclosure of invention Failure to pay attention to patent filing deadlines

Is there a grace period? In the U.S.: yesElsewhere: no!

Failure to ensure that scope of the patents is broad enough to give protection

Underestimating the importance of trade secrets and confidentiality

6

Due DiligenceDue Diligence

Failure to constantly be re-evaluating the need for “housekeeping” Don’t be a pack rat: get rid of financial obligations for patent filings

you don’t need anymore No one should know the skeletons in your closet better than you, so

deal with them, or at least be aware of themDon’t let someone else find the cracks in your walls

Misguided priorities: “We’ll save money now and fix things later”

Results in bad, inconsistent or non-existent documentationBe cost-conscious, but do it right

7

Assessment of Third Party IPAssessment of Third Party IP

Failure to properly recognize or license IP

rights that are owned by others

8

Securities in the CompanySecurities in the Company

Failure to have proper record keeping of organizational matters Who owns what number of shares? Properly document transfers Grants of options:

Don’t just “promise”: implement!

Don’t always need a Shareholders’ Agreement Should always have drag-along provisions

Make sure that you can deliver 100% of the company

Keep your eye on voting control Don’t let the tail wag the dog!

9

Assignment clauses in Assignment clauses in ContractsContracts

Failure to plan for the future disposition of the company Share Sale:

Is there a “change of control” clause in the agreement? Asset Sale:

Contracts often require the other party’s consent to the assignment of the contract

Include a consent to assignment to a party who is acquiring all of substantially all of the company’s assets or the assets of the division in respect of which the contract relates

Be clear that the company is only responsible for obligations up to the date of the sale

10

Licensing AgreementsLicensing Agreements

Assuming that all license agreements are the same Failing to pay attention to detail

Nothing is boilerplate! Read the words carefully: they’ll bite you!

Failing to tailor the agreement to the realities Failure to plan for the future contingencies

Things won’t always be rosy Not being explicit about expectations/obligations

11

Licensing AgreementsLicensing Agreements Sloppiness in the Grant Clause

What is granted to whom? Don’t give what they don’t need Improvements? How broad/narrow is the “whom” defined? Ability to sublicense?

What can’t the licensee do? For what purpose? For how long? For where? Exclusivity

“exclusive” “sole” (NEVER “sole and exclusive”) “non-exclusive”

12

Licensing AgreementsLicensing Agreements Failure to create deal terms which properly

incentivize/motivate/protect Compensation strategy

Types of fees, royalties and paymentsRoyalty obligations based upon what?Currency conversion

“Duty to Exploit” obligationsSilence?“Best efforts”?“Reasonable commercial efforts”?Particular milestones?Subjective/objective criteria?

Limitation of Liability provisions

13

Licensing AgreementsLicensing Agreements

Failure to consider term/termination Be clear as to start date and termination date Be clear on when obligations to make

financial payments terminateU.S. vs. Canada

Patents vs. know-how

Who gets what on termination? When can the agreement be terminated? What rights continue post-termination?

14

Agreements GenerallyAgreements Generally

Blind reliance on precedents Failure to draft the first draft Failure to include all deal terms

Failure to make sure that your advisor truly understands what you want from the deal

Failure to consider the Choice of Law The law may override your intentions

Failure to consider implications when a provision changes A Rubik's cube!

Failure to distinguish between a regular “contract” and a “strategic alliance”

15

Privacy LawsPrivacy Laws

Failure to understand the implications of privacy laws to the collection of “personal information” Establish the proper policies and

practices Plan for the ability to share and/or

transfer such personal information in the event of a sale of the business

16

Jay A. LeftonJay A. Lefton

Ogilvy Renault LLPOgilvy Renault LLP

Suite 3800 – 200 Bay StreetSuite 3800 – 200 Bay Street

Royal Bank Plaza, South TowerRoyal Bank Plaza, South Tower

Toronto, Ontario, Canada M5J 2Z4Toronto, Ontario, Canada M5J 2Z4

416.216.4018 (o)

416.998.1818 (c)

jlefton@ogilvyrenault.com