Negotiating Technology License Agreements

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Negotiating Technology License Agreements

• Tamara Nanayakkara

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Intellectual Property Rights

• The intellectual property system converts the
  creative output of the human mind ideas,
  innovations and inventions into property and thus
  into valuable tradable assets.
• These assets can therefore be commercially
  exploited as with any other physical assets
  sell, lease rent etc..

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Licensing

• Licensing is one way of commercially exploiting
  an IP asset
• Licensing is when an owner of an intangible asset
  (licensor), such as a technology protected by a
  patent, transfers the right to use that asset to
  another (licensee) under mutually agreed terms
  while continuing to retain the ownership of that
  asset.

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Licensing of IPR

• If the technology (or other kind of expression of
  human creativity) is not protected by an IPR, it
  is then not property owned by someone and as such
  the issue of licensing does not arise.
• Licensing is only relevant where there is an
  intellectual property right.

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Why license - in

• Save time and money - is it cheaper to license or
  develop it in-house
• Despite lack of RD, access to new technologies
  and staying ahead of the competition
• access to improvements, trained personnel
• Possibilities of creating innovative products
• expand into new product line

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Why license -in

• Manufacture standardized products
• Settle infringement dispute
• Benefit from another's patent and thus all the
  benefits that accrue to a patent holder

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Why NOT license-in

• It is costly - royalties add to the margin
• Secrecy requirements
• Administrative burdens - audits, reports etc
• Obligations to grant back improvements

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Why License-out

• Earn revenue
• if the company is not using its IP in its
  products or it can be applied in other products
  that the company is not involved in
• Expand manufacturing
• if production capacity is limited or one is
  unable to manufacture

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Why license out

• Access to foreign markets
• Enter a foreign market without being concerned
  with setting up operations, dealing with foreign
  regulations and customs, test the market from a
  distance, access to low cost labor
• Stick license (make an ally of an infringer)
• Create standard - the more the technology is used
  the more likely it could become an industry
  standard

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Why NOT license-out

• Create competitor
• Lose control of proprietary information
• The risk of partnering with a bad licensee and
  risking revenue and the reputation of your product

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Negotiation

• you dont get the deal you deserve but the deal
  you negotiate

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Preparation - information gathering

• General information on the relevant market
• Companies active in that market and their
  products
• Existing technologies used by such companies
• On-going RD on relevant technologies
• Prevalent licensing practices in the relevant
  markets and products

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Preparation - sources of information

• Publicly available information of publicly traded
  companies.
• Online and subscription database services for the
  relevant market or products
• Trade publications, trade and technology
  exhibitions, fairs and shows
• Technology licensing offices of research based
  universities

• Relevant government departments
• Professional and business magazines, journals and
  publications concerning the relevant products and
  markets
• Professional and business associations
• Technology exchanges,
• Innovation centres
• Patent information services

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Preparation - Patent Information

• Patent information is the collection of patent
  documents consisting of patent applications and
  grants worldwide.
• For technologies that are patented it is the most
  useful information yet the least utilized
• it is the most recent, gives the legal status,
  information on technological activity (possible
  alternatives) and those involved in such
  technological activity

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Preparation

• Analyze your strengths and weaknesses
• Consider secrecy agreement
• Identify your team
• Prepare summary of key issues to be discussed
  (Heads of Agreement)

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Heads of Agreement - Who and what

• Parties - who will be bound by it
• Subject matter - what exactly is being licensed
  (what stage of development is it in)

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Heads of Agreement - Extent

• Exclusive, non exclusive or sole (licensor and
  licensee can operate in the territory)
• Sub licenses
• Field of use - to be used in an identified field,
  product
• Scope - make, use or sell, offer for sale, import
• Territory
• Improvements

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Heads of Agreement - Financial

• Lump sum - payable on the happening of a
  particular event
• Royalties - recurring payments tied to the use of
  the technology, commonly based on sales. Could go
  down as production goes up.(fixed price per unit
  or percentage)
• Annual minimum royalty - usually where the
  license is exclusive and the licensor needs to
  ensure a regular income.

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Heads of Agreement-Other

• Best efforts
• Usually with an exclusive license. An ambiguous
  obligation. Better to specify particular actions,
  such as an obligation by the licensee to spend
  agreed amounts on research or marketing or other
  activities tailored to increase the likelihood of
  success.

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Heads of Agreement

• Infringement
• A third party may be using the technology with no
  license. Essentially harms the competitiveness
  of the legitimate licensee. A non exclusive
  licensee would expect the licensor to take action
  and an exclusive licensee may bring suit on its
  own and join the licensor. If the licensor fails
  to bring suit licensee could suspend paying
  royalties.

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Heads of Agreement

• Product liability insurance
• Dispute settlement - Increasingly parties opt for
  alternative dispute resolution procedures, such
  as arbitration and mediation, or mediation
  followed by arbitration.
• Termination - either on the happening of an event
  such as the expiry of the patent or on
  termination by one of the parties

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Heads of Agreement

• Clauses to pay attention to - grant back
  provisions (obliging licensee to give
  improvements to licensor), post termination use
  of know how, price and volume fixation by the
  licensor, tie in clauses (obliging licensee to
  take other technology that he does not need)

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Golden Rule

• Aim for win win outcome