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

2 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 Telmo Vilela, 2011FD_UNL

3 Tech Transfer In Process: How To Take (Good) Ideas to the Market? Telmo Vilela, 2011FD_UNL

4 DISSEMINATE CREATE EVALUATE PROTECT EXPLOIT MANAGE IDENTIFY SHARE KNOWLEGDE From the idea to the market… Telmo Vilela, 2011FD_UNL

5 IP Rights Assignment; IP Rights Licensing; Spin-Offs/Start-Ups. Tech Transfer Tools… Telmo Vilela, 2011FD_UNL

6 Assignment VS Licensing… AssignmentLicensing 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. Telmo Vilela, 2011FD_UNL

7 Assignment… AdvantagesDisadvantages 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. Telmo Vilela, 2011FD_UNL

8 Licensing… ADVANTAGESDISADVANTAGES 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. Telmo Vilela, 2011FD_UNL

9 Source: Vertex Intellectual Property Strategies Inc. ©2004 Licensing: the best option?... Telmo Vilela, 2011FD_UNL

10 Why licensing?...  Benefit to the institution › Reputation › Money ›...  Benefit to the researcher › Reputation › Money ›...  Benefit to the applicant/customer › Availability › Telmo Vilela, 2011FD_UNL

11 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: Telmo Vilela, 2011FD_UNL

12 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 Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

13 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! Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

14 Grant 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

15 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 Example Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

16 Financials/Royalties Types of payments to chose from: › Upfront Payment › Annual Minimums › Milestone Payments/Lump Sum › Fully Paid (Single Payment) Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

17  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 Dissecting a License Agreement... Financials/Royalties Telmo Vilela, 2011FD_UNL

18  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) Dissecting a License Agreement... Financials/Royalties Telmo Vilela, 2011FD_UNL

19 Financials example Upon signing this Agreement, Licensee shall pay to Licensor a noncreditable, nonrefundable up- front 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 = % Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

20 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? Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

21 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

22 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

23 Diligence  Mandatory: Company will diligently develop the technology into a product  Recommendable: specific milestones Termination if Company cannot fulfill its obligations Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

24 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

25 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 Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

26 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

27 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

28 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

29 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 Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

30 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

31 Sublicensing example: Financials  COMPANY will pay to University.. % (... percent) of all payments and benefits in money’s worth received from any sublicensee. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

32 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? Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

33 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 Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

34 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

35 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. Dissecting a License Agreement... Telmo Vilela, 2011FD_UNL

Telmo Vilela, 2009UL Summer School 36 Patent Infringment cont. Dissecting a License Agreement... 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.

37 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 Telmo Vilela, 2011FD_UNL

38  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 Telmo Vilela, 2011FD_UNL

39  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 Telmo Vilela, 2011FD_UNL

40  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 Telmo Vilela, 2011FD_UNL

41 Identifying, selecting and working with the right licensee is probably the single most important ingredient to a successful licensing venture Licensing Tip # 5 Telmo Vilela, 2011FD_UNL

42 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, 2011FD_UNL

43 Thank you for your attention! Telmo Vilela Member of the Board Instituto Nacional da Propriedade Industrial Telmo Vilela Member of the Board Instituto Nacional da Propriedade Industrial