Download - 1 Technology Transfer Tactics Secrets of Win-Win Contracts: Negotiating and Contracting Tips from the Tech Transfer Experts May 2008 Gail Taylor Russell.

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Technology Transfer Tactics

Secrets of Win-Win Contracts: Negotiating and Contracting Tips from

the Tech Transfer ExpertsMay 2008

Gail Taylor RussellTaylor Russell & Russell, P.C.Austin, Texas

Kevin M. LevyGunster, Yoakley & Stewart, P.A.Miami, Florida

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PRE-CONTRACT NEGOTIATION – Licensor’s Perspective• Prepare, Prepare, Prepare

Due Diligence- Know your IP- Know the market- Know your Licensee

Identify your team Consider your Exit Strategy Stay current on the applicable law Stay current on business and legal trends Identify your important issues Identify your “give” issues Develop a game plan … and execute it!

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PRE-CONTRACT NEGOTIATION – Licensor’s Perspective

• Non-Disclosure Agreement

NOT a boilerplate document.

Narrowly define the purpose of disclosure and use of the Confidential Information.

Do NOT include a provision requiring all Confidential Information documents to be marked “Confidential,” but do adopt an internal Confidential Information Policy for handling of licensor and third party disclosures and receipt of Confidential Information.

Exclude all warranties and liability with respect to the Confidential Information.

Do NOT limit period of confidentiality for trade secrets.

Attempt to obtain licensee’s agreement as to licensor’s ownership of specific trade secrets.

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Key Considerations for Licensee in Contract Negotiation

• Time to Market

• Freedom to Operate

• Valuation

• Ownership of Improvements

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Licensee’s Perspective: Time to Market

• Technology acquisition must have economic value

• Can licensee minimize time to market, cost and risk by licensing rather than developing?

• Time to market is key consideration

– Proven technology that has a been productized or has an advanced prototype more valuable (i.e. higher licensing fees)

– More development that must be done - more time and risk (i.e. lower licensing fees)

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Licensee’s Perspective: Freedom to Operate

• Ability to practice the technology and sell the product or service that embodies the technology is critical

• IP clauses must protect not inhibit licensee’s freedom to operate

• Most licensees will get a freedom to operate opinion

– Risk associated with licensing after the opinion must be factored into license price

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Licensee’s Perspective - Valuation

• Value of licensee’s rights affected by licensor’s subsequent acts or omissions

– Absent express controlling terms no obligation to preserve value of license

– “Licensor will perform its obligations under the license in good faith...”

• Only refers to performance of the contract

• Doesn’t preclude licensor from acting in its own interest

• Licensee may want express language controlling certain acts of licensor

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Technology Transfer Tactics:Negotiating and Drafting

Key Contract Termsfrom

the Licensor’s and Licensee’s Perspective

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• Grant Clause and Scope of Rights

Narrowly define the granted rights by being specific and unambiguous. Do not license more than you intend. Include specific restrictions. Exclusive v. non-exclusive license, and consider the territory.

SPECIFIC TERMS – Licensor’s Perspective

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Licensee’s Perspective: Grant clauses and scope of rights

• Statutory license terms for patent and copyright

– “make, use or sell” “reproduce, display, distribute”

• Non-statutory license terms

– “access and use software” where use is not related to a patent right”

• Licenses that limit statutory terms

– Both parties will want the terms clearly defined for non-statutory and limitations of statutory terms

• Scope of rights

– Field of use restrictions, geographical restrictions, reservation of rights in an otherwise exclusive license

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• Transfer of Rights, Assignment and Sublicensing

Either none or include significant restrictions, such as licensor absolute right, at its sole discretion, to pre-approve in writing any assignee or sublicensee.

Counter licensee’s merger, acquisitions and loan argument with your right to know your “partner.”

Recognize that an overbearing provision will effect the market for the licensee - which may also effect licensor’s “investment” position.


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Licensee’s Perspective:Transfer of rights and assignment by Licensee

• For license to have economic value (especially for a small company), licensee:– Wants ability to freely transfer the license if acquired

• “may transfer to a third party that acquires substantially all the assets” of licensee

– Does not want to have to get consent during acquisition negotiations with a third party

• Inserts uncertainty and risk into any acquisition negotiations• Case law: transferee of a license receives no rights unless the transfer was

authorized so licensee will insist on ability to transfer language

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Licensee’s Perspective:Assignment by Licensor

• Licensee concerned with assignment of the agreement by licensor

• Will want to ensure any assignee possesses technical competence to support, maintain and enhance the technology

• Licensee should prohibit any assignment of the agreement by licensor by merger, consolidation, operation of law or otherwise without the prior written consent of licensee

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Licensee’s Perspective: Sublicenses

• Licensee may want to maximize revenue by sublicensing the technology

– May not have manufacturing capability, channel access, geographic limitations etc.

• Generally

– Nonexclusive license may not be assigned without consent of licensor

– Exclusive license may be assigned without consent of licensor

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• IP Ownership and Improvements

Clearly define all IP owned by licensor.

Who owns derivative works and improvements ? The developer, unless otherwise specifically stated. Specifically state that all derivatives and improvements will be owned by licensor regardless of who develops, and licensee will (and licensee will cause its employees and agents to) assign all rights to Licensor.

Keep detailed records of developments during post-granting of license period.


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Licensee’s Perspective: IP Ownership and Improvements

• Usually most difficult contract clause to negotiate

– Licensee wants rights to licensor downstream improvements since not having those rights could substantially reduce license value

– Licensee wants to keep rights to its own improvements for competitive advantage

• Options

– Reciprocal rights (limited)

– Option to license each other’s improvements

– Some limited exclusivity to inventing party

– Limit time period in which improvements may be licensed

– Improvements sublicensable?

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Licensee’s Perspective: IP Ownership and Improvements (continued)

• Other issues

• How should the IP be protected?

– Patents or trade secrets?

– Who decides?

• Who patents and enforces newly developed IP?

– Specify who pays for patents, prosecution globally

• What about joint inventions?

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• Warranties and Limitations of Liability

Exclude everything and try to limit liability as much as possible (but not always possible). Specifically exclude warranties of merchantability, fitness for a particular purpose and non-infringement.

If Licensor insists on full IP warranty and indemnification, counter with cost of patent search and cost of license will go up dramatically.

If international transaction and goods involved, also exclude applicability of UNCISG.


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Licensee’s Perspective: Warranties and Limitation of Liability

• General warranty vs. limited warranty

– General: warranting party is liable upon breach and party receiving the warranty has all available remedies

– Limited: remedy is limited, often to repair or re-performance

• Limitation of liability

– Usually disclaims special, incidental and consequential damages

• Licensee will try to negotiate warranties of non-infringement, performance/capabilities of technology, has not failed to disclose any material fact, no pending or threatened litigation, compliance with law, virus warranties, etc.

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• Indemnification

Read carefully - all indemnification provisions are NOT alike.

Who controls defense and settlement of claim ?

Who pays for costs of defense and settlement of claim ?

Who pays costs of helping to defend and settlement the claim ?

Can indemnified party choose counsel (at its own cost) to assist the indemnifying party’s counsel ?


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Licensee’s Perspective: Indemnification

• Technology has no value if licensee can’t practice it

• Licensor will insist on limitations

• Licensee will want “limited” limitations

– No indemnification for combination only if technology alone does not infringe

– Provide for options

• Licensor procures right to use the technology or

• Returns license fees amortized over reasonable period of time

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• Royalties

Be specific.

Knowledge of market and licensee will help ability to negotiate closer to 5% rather than 1%.

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Licensee’s Perspective: Royalties

• For technology that requires productizing, licensee should request reduced or limited royalties for a reasonable period of time

• Design of the royalty provision should be based on industry standards and practices – key for licensee– Example: patented technology may be used in process or method, not directly in

a product• Risk allocation based on one upfront payment, smaller upfront payment with running

royalty, no upfront payment and larger running royalty– Running royalties allow both parties to avoid assessing a fixed value upfront for

the licensed technology – let’s the market determine• Important (and sometimes very difficult) point is specifying and defining the royalty

base on which running royalties will be paid

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• Milestones

Require specific milestones for the license to be kept alive. Examples include - completion of licensee business plan, hiring CEO, raising funds, clinical trials, government approvals, marketing and bringing product to market.

Include specific remedies if licensee fails to reach specific milestones. Examples include - licensor right to terminate the License Agreement, licensee loses exclusivity or payment of royalties are triggered and/or increased.


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Licensee’s Perspective: Milestones

• If licensee is productizing the technology

– Licensee will want adequate time to commercialize given risk associated with development

• However, if royalty payments are limited during that time, licensor will press for milestones and/or minimum royalties

– Licensee does not want to loose all investment if runs into unforeseeable development problems

– Will suggest a clause to allow the license terms to be renegotiated

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• Post-MedImmune Issues

Are Royalties paid prior to or during period of protest refundable in the event the licensor’s patent is found invalid ?

Are No Contest Clauses unconscionable or within scope of contractual rights ?

Is a licensee declaratory judgment action an anticipatory breach, thereby allowing the licensor to pursue a patent-infringement claim against the licensee (which can include treble damages) ?


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Licensee’s Perspective: Post-MedImmune Clauses• Outcome:

– Licensee need not risk harm of breach in order to sue and can avoid jeopardy of patent infringement damages by continuing to pay royalties and otherwise observing the license terms

• Licensees can use MedImmune to renegotiate existing agreements

• No contest clause with automatic termination may be unconscionable – licensor will want to include high termination fee instead if licensee challenges patent

• Licensee will want royalties to be refundable and will not want to be liable for attorneys' fees

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Patent Exhaustion

• Elements:

– Authority to sell the article by the licensee

– Article sold must cover essentially features of any claim asserted and have no substantial noninfringing use

– Article must be unconditionally sold

• LGE case: in certain circumstances a patentee can enforce its patent even after licensee’s first sale

• LGE license conditional license (limited license) that allowed LGE to assert its patents against downstream manufacturers

• Exhaustion precludes enforcing “selling” and “using” but does not preclude “making”

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Patent Exhaustion (continued)

• Strategy to provide for certainty for both parties:– License grant for technology transfer and not patent license– Clearly specify grant of the license to third parties that acquire licensed

technology from an authorized licensee under any licensor patents– Include clauses that licensee’s sale of the patented technology embodied in a

product confers rights on the purchaser, by exhaustion, implied license or otherwise

– State that money received for technology transferred is the full compensation licensor would receive if it transferred technology and patents to licensee

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Dispute Resolution• Senior Management Dispute Resolution

• Mediation

• Arbitration v. Court Action

• Governing Law, Venue and Jurisdiction

• Prevailing Party Attorneys’ Fees