Jay A. Lefton Senior Partner Common Mistakes That Cause Turmoil in Licensing, Financing and M&A Transactions Common Mistakes That Cause Turmoil in Licensing, Financing and M&A Transactions Presentation at the Sault Ste. Marie Innovation Centre September 15, 2009

2 IP Protection  Failure to obtain and keep good title to intellectual property  Enter into agreements on a timely basis  Intellectual property assignment agreements  Employees  Consultants  Including waiver of moral rights  Confidentiality agreements  Be aware of employees’ pre-existing obligations  Instituting an IP and trade secret protection policies/program  Failure to have, keep and chronicle key documents

3 Contracts Only Go So Far  Assuming that a contract is all you need  Failure to assess the integrity of the people you’re dealing with  “Once a trade secret or confidential information is out of the bag, you can’t get it back in”  Failure to recognize that patents are different from trade secrets  Patents represent exclusive monopoly rights granted by the government in exchange for disclosure of an invention  Trade secrets are internal information or knowledge that is not known by anyone else

4 IP Protection  Failure to understand the implications of collaborating with outside parties in the creation of intellectual property  Consultants  Academics  Implications of Joint Ownership of IP  Rights of joint owners to act independent of the company

5 Patent Protection  Premature disclosure of invention  Failure to pay attention to patent filing deadlines  Is there a grace period?  In the U.S.: yes  Elsewhere: no!  Failure to ensure that scope of the patents is broad enough to give protection  Underestimating the importance of trade secrets and confidentiality

6 Due Diligence  Failure to constantly be re-evaluating the need for “housekeeping”  Don’t be a pack rat: get rid of financial obligations for patent filings you don’t need anymore  No one should know the skeletons in your closet better than you, so deal with them, or at least be aware of them  Don’t let someone else find the cracks in your walls  Misguided priorities:  “We’ll save money now and fix things later”  Results in bad, inconsistent or non-existent documentation  Be cost-conscious, but do it right

7 Assessment of Third Party IP  Failure to properly recognize or license IP rights that are owned by others

8 Securities in the Company  Failure to have proper record keeping of organizational matters  Who owns what number of shares?  Properly document transfers  Grants of options:  Don’t just “promise”: implement!  Don’t always need a Shareholders’ Agreement  Should always have drag-along provisions  Make sure that you can deliver 100% of the company  Keep your eye on voting control  Don’t let the tail wag the dog!

9 Assignment clauses in Contracts  Failure to plan for the future disposition of the company  Share Sale:  Is there a “change of control” clause in the agreement?  Asset Sale:  Contracts often require the other party’s consent to the assignment of the contract  Include a consent to assignment to a party who is acquiring all of substantially all of the company’s assets or the assets of the division in respect of which the contract relates  Be clear that the company is only responsible for obligations up to the date of the sale

10 Licensing Agreements  Assuming that all license agreements are the same  Failing to pay attention to detail  Nothing is boilerplate!  Read the words carefully: they’ll bite you!  Failing to tailor the agreement to the realities  Failure to plan for the future contingencies  Things won’t always be rosy  Not being explicit about expectations/obligations

11 Licensing Agreements  Sloppiness in the Grant Clause  What is granted to whom?  Don’t give what they don’t need  Improvements?  How broad/narrow is the “whom” defined?  Ability to sublicense?  What can’t the licensee do?  For what purpose?  For how long?  For where?  Exclusivity  “exclusive”  “sole” (NEVER “sole and exclusive”)  “non-exclusive”

12 Licensing Agreements  Failure to create deal terms which properly incentivize/motivate/protect  Compensation strategy  Types of fees, royalties and payments  Royalty obligations based upon what?  Currency conversion  “Duty to Exploit” obligations  Silence?  “Best efforts”?  “Reasonable commercial efforts”?  Particular milestones?  Subjective/objective criteria?  Limitation of Liability provisions

13 Licensing Agreements  Failure to consider term/termination  Be clear as to start date and termination date  Be clear on when obligations to make financial payments terminate  U.S. vs. Canada  Patents vs. know-how  Who gets what on termination?  When can the agreement be terminated?  What rights continue post-termination?

14 Agreements Generally  Blind reliance on precedents  Failure to draft the first draft  Failure to include all deal terms  Failure to make sure that your advisor truly understands what you want from the deal  Failure to consider the Choice of Law  The law may override your intentions  Failure to consider implications when a provision changes  A Rubik's cube!  Failure to distinguish between a regular “contract” and a “strategic alliance”

15 Privacy Laws  Failure to understand the implications of privacy laws to the collection of “personal information”  Establish the proper policies and practices  Plan for the ability to share and/or transfer such personal information in the event of a sale of the business

16 Jay A. Lefton Ogilvy Renault LLP Suite 3800 – 200 Bay Street Royal Bank Plaza, South Tower Toronto, Ontario, Canada M5J 2Z (o) (c)