Anatomy of licensing agreements Professor Prabuddha Ganguli (PhD) CEO “VISION-IPR” 103 B SENATE, Lokhandwala Township, Akurli Road, Kandivli East, Mumbai 400101, India Tel: 91-22-28873766; Fax: 91-22-28844782 e-mail: ramugang@vsnl.com Presentation made at the WIPO-CSIR Workshop on Licensing and Technology Transfer; New Delhi; India, July 4-8, 2005

Technology Know How Patents Trademarks Layout for ICs Copyright Design Registrations Patents Trademarks Identify all the forms of IPR associated with the Technology Being transferred

Paths to Technology Transfer Delivery of Know-how Contract Research and Development Establishing Joint Ventures Setting up Plants, establishing production processes, quality control procedures, etc. on a turnkey basis Licensing patents, designs and other forms of IPR Collaborative R&D

A basket of Legal Frameworks to be considered in Technology Transfer Contract law Patent Law Trademarks. GI, Copyrights and Design Law Law relating to restrictive and unfair trade practices International laws Tax and revenue related laws Note: This is not an exhaustive list

Some Options for the IP proprietor Use the IP … manufacture the product, use the process, sell by self or by contracting it to another party. License it to someone for manufacturing but market the product by self or by contracting it to another party. Sell the IP Set-up a Joint venture Source of one-time or steady long term income from the license fees/royalties Negotiate License for manufacture by and /or marketing with geographical breakup of the markets.

Some Options available to the IPR Holder License the IPR to another party (s) with mutually negotiated benefit sharing arrangements Cross License for mutually independent working and / or collaborative working Assign the IPR to another party (s) for an appropriate return Barter rights Establish a franchise system involving other parties Take action against those who infringe the IP Let the rights selectively lapse in certain countries

LICENSING IS A RELATIONSHIP of co-operation between parties whereby one party, the licensor, the possessor of IP ASSETT permits the licensee to use his intellectual asset in return of negotiated compensation. The licensing arrangement could include assistance in the form of know-how, technical information or marketing skills. Nature of the compensation varies. Licensing is a relationshio with relative rights , obligations and duties and for it to be successful it has to be a win win relationshio

Licensing Agreement A reflection of Complimentary Needs satisfied by a formal contract that appropriately and equitably addresses the mutual requirements within a framework that is enforceable within specified legal frameworks

The aim of a licensing agreement is : To put the licensee in possession of the technology needed to manufacture the licensed products to derive an economic return from this activity to share this return with the licensor

License Agreements Define all the obligations of the receiver and the knowledge transferor during and after the term of the agreement clauses clearly so that the receiver is aware of what and how he can use and/or disclose delivered knowledge during and after the term of the agreement. what happens to the trade secrets and confidentiality clauses if the knowledge transferred becomes public domain knowledge in due course. What happens if the IP that is being licensed is invalidated during and after the term of the agreement

Understanding the scope of the license What is the field of technology transfer and technology use Subject matter of the licence Whether the licence is exclusive, non-exclusive or co-extensive with the licensor What are the licensed activities What is the licensed territory What is the duration of the licence What is the IP covered by the licence

Licence Agreements What is being licensed What are the rights of parties involved in the deal What are the financial and commercial aspects of the licensing arrangements What is the term of the licence? Other aspects of the agreement such as confidentiality Who will own the rights to further developments by the licensee. Will the licenser transfer further developments to the licensee as part of this agreement. Or what will be the arrangement.

Licence Agreements.. Key issues The rights… make, use sell ? Geographical jurisdiction of the rights Exclusive or non-exclusive Rights to sub-licence by the licensee? Rights to the improvements? Term of the agreement Are there any minimum time limits set for the licensee to put the licence into practice? If such time restrictions are not met, what are the consequences? Clauses that will survive beyond the term of the agreement Any anti-competitive practices have been built in the agreement? Rights to conduct parallel imports? What will happen if the technology licensed under this agreement becomes a subject of compulsory licence in a country?

Licence Agreements.. Key issues Who will be responsible for the renewal of the IPR associated with the technologies covered in the licence agreement? Who will bear the costs for such transactions? Who will be responsible for any disputes arising with respect to the IPR associated with the licence agreement? Who will bear the legal costs of the disputes arising out of the IPR associated with the licence agreement? What will be the impact on the commercial terms and the rights acquired if the IPR associated with the licence agreement get invalidated? What will be the impact on the royalty payments if the disputes related to the IPR are settled in favour or against the owner of the IPR associated with the licensing agreement? What happens if the licensee files for bankruptcy, insolvency,

Licensing Agreements Access to information Dispute resolution Applicability of law and jurisdiction Expiry and termination Notices Liabilities Penalty Clauses Any previous securities and pledges of either parties involved in the licence agreement Financial and commercial obligations Transmission of the rights and obligations to affiliated companies, present and future associates through mergers and acquisitions, legal heirs, employees, etc. Options for future amendments to the licensing agreement

Structure of Licensing Agreements Title of Transaction Table of content Identification of parties and signatories to a binding agreement Recitals and preamble a. Narrative - b. Introductory Definitions Period of agreement, Warranties and representations from both sides, description of rights, licensor’s and licensee’s obligations etc. Clauses on IPR (in some cases clauses related to right of first refusal) Confidentiality Clauses

Structure of Licensing Agreements Clauses on payments Miscellaneous Provisions such as non-assignment, good faith and best efforts, waivers, securities and pledges, liabilities, damages, non-performances, breach, Force Majaure, termination, maintenance, extension, survival clauses, litigation expenses, etc Dispute settlement, arbitration, jurisdiction of courts, applicable law Closing signatures, date & place of signing the agreement, date of effectiveness of the agreement Addenda

3. DEFINTIONS of key words and phrases used in the agreement: E.g.: “know-how” related company technology the territory trade marks affiliate patent rights net sales licensed products invoice value

Commercial Considerations Down Payments Milestone payments Royalty payments Royalty layering minimum royalty payments Other ways of compensating based on deferred returns, profits, successful application of technology

Subject Matter Nature of the creations under consideration Forms of IP under consideration If software involved what is included?…who owns the source code? Will one be allowed to use only the complied form for the applications indicated? Will the licensee be permitted to use it for other applications if he develops them or is developed by someone else? What is the licensed filed of use? Copyright issues in the drawings. Who will own any changes to the drawings made during the course of use or if any developments take place during the term of the agreement? Will an annexure or a separate agreement deal with the scope of related issues?

Confidential Information Confidential information, Know How, licensed trade secrets * All associated information received as part of the agreement that is not in the public domain * Appropriate information Security Measures are in place by the licensee. Licensor having rights to audit the information security arrangements. * clauses dealing with damages to licensor for any breach of confidentiality clauses. * how long will the confidentiality clause survive beyond the agreement

Scope of Rights Exclusive, Sole or non-exclusive Geographical territory Does it include the right to improve on the invention during the term of the agreement and beyond? If software involved will the licensee be allowed to use only the complied form for the applications indicated? Will the licensee be permitted to use it for other applications if he develops them or is developed by someone else? What is the licensed filed of use? Does it allow the licensee to make, use and sell the patented product or use the patented process? Is the right given only to produce and not to sell? Can the licensee display the copyrighted material under the licence?

Scope of Rights ……Exclusive, Sole or Non-exclusive The first aspect to deal with the defined territory for the licensed use of the rights In one territory the licence could be exclusive and in another it may be non-exclusive. + exclusive licence even excludes the licensor + Sole licence allows the licensor and the licensee to use to technology in the defined territory + Exclusive licenses are agreed for higher compensation and very often are associated with penalties for non-performance and may include termination of license, ensure minimum royalty, incentives, conversion of a non-exclusive licence to a non-exclusive licence, and other clauses in favour of the licensor. Exclusivity could be time bound and also linked to achieving milestones.

Scope of Rights ……Exclusive, Sole or Non-exclusive If a licnece is non-exclusive, + a most favoured licnesee clause may be included; i.e. If the licensor grants more favourable terms to someone else, then those terms will become applicable to the present licensee. Clauses for sub-licensing + Needs to be specifically negotiated and included in the agreement. Such clauses also need to consider the consultation on choice of the sub-licensee, conditions on the sub-licnesee, term of the sublicensee, rights of the sub-licensee, etc.

Scope of Rights ……Exclusive, Sole or Non-exclusive Improvements on the licensed technology + Definition of improvement vis-a-vis a new invention leading to a new IP + Who will own the IP?… issues related to contributions made to the development of the improvement, etc + What will the terms and conditions under which the original licensor will be able to use the improvements? Can the original licensor also use to worldwide and also give it to the other licensees to whom they had given the original licence? Will these be royalty-free or will it be based on royalty? If it is royalty free, then will the licensee who has done the improvement be entitled to any improvements done by the original licensor or its other licensees during the term of the agreement?

Term of the Licence ……Exclusive, Sole or Non-exclusive Term of Licence + Dictated by the Business needs therefore to be negotiated + Also based on the term and validity of the IP associated with the technology + Consider clauses that will survive after the term of the licence.

FACTORS TO TAKE CARE WHILE DRAFTING AN AGREEMENT That the agreement records the intention of the parties to the license That the interest of the party represented is best protected Are there any pre-requisite conditions for the agreement to be valid

SAFEGUARDS WHILE DRAFTING LICENSE AGREEMENT WARRANTIES

WARRANTIES Title Validity Quite enjoyment Infringement by third parties/pending litigations

SAFEGUARDS WHILE DRAFTING LICENSE AGREEMENT Ensure License agreement is not invalidated by: violation of statutory provisions e.g.restrictive covenants Recourse when patent is invalidated in third party proceedings Exceeding legal limits of licensing

Violation of statutory provisions Consider the relevant laws in the various jurisdictions in which the licence agreement is to be made operative

Exceeding Legal limits of licensing Tying agreements :including patented and unpatented products to increase term of license payable Exclusive dealing: an agreement only to deal with patented product Package licensing:a condition pre-requisite that license will be granted only as a package

Exceeding Legal limits of licensing Royalties payable after patent period has expired- unenforceable Licenses for the same patent granted at differing royalty rates In the US, royalty payments if based on total sales, whether or not patented technology used , is considered to be patent misuse.

Legal limits of Licensing Improvements on licensed technology by licensee, right of first inventorship vests with licensee. Grant backs not violative of anti-trust laws. Judicial decisions