Compensation Issues in Biotechnology Licensing

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The Ownership Dilemma

• Ownership of intellectual property
• considered by investors
• sought by companies seeking to exploit the
  intellectual property
• sought by companies in acquisitions

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The Ownership Dilemma

• Ownership and research institutions
• legislation (Public Servants Inventions Act,
  Financial Administration Act)
• institutional policies
• collective agreements
• funding agencies

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The Ownership Dilemma

• Problem
• transfer of ownership may be either impossible
  or impractical
• Solution
• transfer technology using exclusive licenses
• approximate as closely as possible the rights
  associated with ownership

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The Ownership Dilemma

• Problem
• transfer of ownership may be either impossible
  or impractical
• Solution
• transfer technology using exclusive licenses
• approximate as closely as possible the rights
  associated with ownership

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What is Ownership?

• The most far-ranging right in rem the law allows
  to a person to deal with something to the
  exclusion of everyone else or of everyone except
  one or more desingated people
• The Dictionary of Canadian Law, 2nd ed.

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What is a License?

• A contractual agreement
• A license is fundamentally an agreement by a
  patent owner not to sue the licensee
• United States Court of Appeal for the Federal
  Circuit in Fromson v. Western Litho Plate.

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Determining the Rights

• Owner - the legal rights associated with
  ownership
• impact of common law and legislation
• Licensee - the terms of the license agreement
• impact of law regarding contracts

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Contract Considerations

• Definition of licensed rights
• are they broad enough?
• Sublicensing
• is it expressly permitted?
• Improvements
• which party owns the rights
• grant backs?

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Contract Considerations

• Patent Rights
• which party obtains patents
• which party bears the cost?
• Enforcement of Rights
• which party sues infringers?
• Termination
• is it possible?

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Business Considerations

• Sale of the Business
• can the license be transferred?
• Secured Lending
• can security be taken in a license?
• Insolvency
• what are the consequences?

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Sale of the Business

• Share sale
• all assets are included
• no assignment necessary
• restrictions on change of control
• Asset sale
• contracts, including licenses, must be assigned
• restrictions on assignment
• silence on assignment?

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Security Interests

• Secured Lending
• security granted to secure an obligation
• eg mortgage
• provides priority over other creditors
• security attaches to property
• security can attach to intellectual property
• licenses?

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Security Interests

• Canada
• A dispensation or license properly passes no
  interest, but only makes a action lawful which
  without it had been unlawful.
• Heap v. Hartley (1889) (C.A.) - UK case
• cases often decide against attachment
• U.S.
• security can attach
• enforcement may be limited

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Bankruptcy

• Owner
• assets devolve to trustee
• may be exploited or sold
• Licensee
• concerns if licensor becomes bankrupt
• will licensed rights continue?
• issue relates to executory contracts

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Bankruptcy

• Canada
• unclear whether a trustee can disclaim executory
  contracts
• licensees try to avoid executory obligations
• Erin Features 1 (1991) B.C. Supreme Court
• U.S.
• trustees may disclaim executory contracts
• licensee may assume the license (s. 365(n))

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