1 POST-MEDIMMUNE LICENSING CLAUSES Robert MacWright UVA Patent Foundation Technology Transfer Tactics Audioconference

2 Terminate on Challenge  Licensor can terminate if licensee challenges  Case law has already enforced such clauses  Carefully define “challenges” –  Legal or administrative proceedings that Seek to have the patent declared invalid in whole or in part Seek to reduce the scope of the claims Seek to have the patent declared unenforceable Seek a declaration of non-validity

3 Notice Before Challenge  Licensee must give advance notice before any challenge, and identify prior art  Gives you the option of beginning reexamination or reissue proceedings Stay of litigation is likely  Licensor may claim it violates spirit of Lear  Won’t help as much if the issue is non-infringement or inequitable conduct  May provide an opportunity to re-negotiate the license terms

4 Lear v. Adkins  Supreme Court: licensees are often the only ones with economic interest in eliminating bad patents, so it is in the public interest to allow them to challenge licensed patents  Requires that the licensee repudiate the license by not paying royalties and announcing intent to challenge  Licensor can terminate the license and add an infringement counterclaim

5 Jurisdiction and Venue  Licensee must sue in a particular courthouse  Choice of forum provisions are routinely used in licenses, and are routinely enforced  Was a good idea even before Medimmune!  You would always rather defend in a friendly forum, or at least a neutral one  If there is no reasonable connection between the agreement or the parties and the forum chosen, it could get moved for forum non-conveniens – some judges hate patent cases!

6 Licensee Must Pay Costs  Clause requiring the licensee to pay licensor’s court costs and legal fees during any licensee challenge  They are often required to for other challenges, why not their own?  Could be seen to conflict with Lear by discouraging challenges by licensees  Might be less risk if it only applied to Medimmune challenges, but not Lear ones  Might be viewed as a “penalty” clause, which courts abhor

7 Must use Medimmune  Require that in any challenge, royalties will continue to be paid as in Medimmune, rather than repudiate and stop paying royalties as in Lear  Could be important in funding the defense!  May run afoul of Lear, but:  They still get to challenge the patent  Less severe than an agreement not to challenge  They can just terminate if they wish

8 Royalty Ramp-Up  Require the licensee to pay a higher royalty rate if they lose the challenge  Similar Lear and penalty issues  You might argue that the patent is stronger after the challenge, and hence more valuable  In a Lear challenge, if the licensee fails to prove invalidity or non-infringement, then they have breached without cause, and liquidated damages might be reasonable

9 If They Lose, Royalty is Reduced  Probably only works if it is a hybrid license, with patent rights and know-how  A general drop-down provision when all the patents expire or are held invalid or unenforceable would likely pass judicial muster  If there are other patents in the license that cover the product, no reduction is needed

10 The BIG PROBLEM:  Getting a licensee to agree to any of these!  There is a good argument that if they won’t, you will need:  Bigger up-front fees  Bigger milestone fees  Bigger minimum annual royalties  Because if you don’t you may not be able to fight a challenge, or get long-term value  Big royalty income will inspire challenges

11 Have a Good Severability Clause  These clauses haven’t been tested, and could be held unenforceable  You want to make sure that one bad clause doesn’t void the contract  Also make sure you consider the interplay between these clauses and the rest of the agreement, whether enforceable or not, to avoid unforeseen consequences

12 INJUNCTIVE RELIEF AFTER E-BAY Robert MacWright UVA Patent Foundation Technology Transfer Tactics Audioconference

13 e-Bay Revived the 4-Prong Test (1) irreparable injury - BIG CHANGE is that this is not presumed! (2) monetary damages are inadequate (3) balance of hardships favors patent owner (4) the public interest would not be disserved

14 Kennedy Concurring Opinion Provided Some Guidance  Irreparable harm depends on the economic function of the patent holder  MercExchange was considered a “patent Troll,” functioning only to make money, and using the threat of injunction to exact large fees  Also depends on the nature of the patent  “weak” business method patents  For minor features of products, money damages may be enough

15 z4 Technologies, Inc. v. Microsoft Corp. Paice LLC v. Toyota Motor Corp. (ED Texas, 2006)  Infringing technology was a small part of the product technology  Hardship on infringers would be great, as they would have to re-design products  Patent owners were not competitors, so would lose no good-will or market share

16 Visto Corp. v. Seven Networks, Inc. (E.D. Tex. 2006); Transocean v. GlobalSantafe Corp. (S.D. Tex. 2006); Smith & Nephew, Inc. v. Synthes, (W.D. Tenn, 2006)  Injunctions granted in all 3 cases  All were direct competitors of the infringers, which weighed heavily  In Transocean, the core functionality of the product depended on the infringed patent

17 What about Universities? “…some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.”

18 Universities Aren’t Trolls  A pharmaceutical invention is worthless without exclusivity, and the public suffers  “wearing the white hat”  Loss of technology is loss of a research program, not just loss of income  A licensee may have a better argument for needing an injunction  Having a “contingent licensee” lined up may be just as good

19 You May Not Want an Injunction  Courts have tended to award more than a “reasonable royalty,” lest companies come to consider infringement to be a good alternative to negotiating licenses  If injunction is denied, the court essentially provides a compulsory non-exclusive license – and they may be willing to pay a substantial amount for exclusivity, knowing it won’t be a friendly negotiation  Odds are you will settle before it’s decided

20 Robert S. MacWright, Ph.D., Esq. University of Virginia Patent Foundation (434)