1. WIPO NATIONAL WORKSHOP ON NEGOTIATING TECHNOLOGY LICENSING AGREEMENTS organized by The World Intellectual Property Organization (WIPO) in cooperation with The Ministry of Scientific and Industrial Research and The Council of Scientific and Industrial Research (CSIR) New Delhi India, July 4 to 8, 2005 Presented by Donald Bollella DB Technical Consulting Irvine, California, U.S.A.

2. Topic 12 Commercial and Financial Considerations In a Patent License Based on pages 54 to 68 of Exchanging Value by WIPO

3. Four Main Sections To A Patent License Agreement 1. Subject Matter 2. Extent of Rights 3. Commercial and Financial Considerations 4. General Considerations

4. Patent License Agreement Commercial and Financial Considerations I. Types of Payments 1. Lump sums. Due at signing vs. due at mile stones e.g. patent issuance, FDA approvals 2. Royalties: Royalty base i) cost to manufacture; ii) profit. Not common TS iii) units or volume produced not common (not sold) iv) sales most common either units sold or net sales Apply royalty rate e.g. $1.00 or 10% of net sales 3. Combination of Lump Sums and Royalties 4. Royalty Variables. Royalty rate increases or decreases with time or sales volumes. May also have minimum annual payments if volume or sales quotas are not met.

5. Patent License Agreement Commercial and Financial Considerations II. Accounting for Inflation The issue is effectively addressed when the royalty rate is a percentage of sales because the licensee will typically increase the price as cost of materials and labor increases. However, when the royalty is a specific amount in a specified currency, (e.g. $1.00 per unit) the license agreement should provide for rate adjustments every year or two as based on agreed to consumer, manufacturing, or other economic index.

6. Patent License Agreement Commercial and Financial Considerations III. Financial Administration The financial administration provisions of the license agreement should include obligations for the licensee to keep accurate accounts and records, to report sales results, and pay the royalties due. The royalty reports are typically due 1, 2, 4 times per year and should be certified by the licensee's CFO or auditor. Licensor should obtain the right to inspect the books of the licensee at its expense unless the licensee is under-reporting by a specific amount e.g. 5%

7. Patent License Agreement Commercial and Financial Considerations IV. Infringement When patents or other IP are licensed, that agreement should delineate rights and obligations in the case of infringement. Situation 1: Third party is using the protected technology without a license from IP owner. Is the license with licensee exclusive or non-exclusive? Licensee, particularly, non-exclusive, will typically ask that IP owner resolve infringement Situation 2: Third party alleges that licensee is using technology that is protected by IP of 3rd party. Who supports and defends in this situation should be provided for in initial license agreement.

8. Patent License Agreement Commercial and Financial Considerations V. Product Liability and Indemnification Product liability can have substantial financial consequences on the responsible party. The agreement should deal with the issues of injury or damage to person or property arising from the sale and use of a licensed product that is defective. Licensee as manufacture is typically responsible for product liability issues. Thus product liability insurance should be purchased by licensee. If licensor provides components or parts, same applies as the licensor. The party accepting responsibility would also typically provide the other party with indemnity against any claims by 3rd parties for loss or damage.

9. Patent License Agreement Commercial and Financial Considerations VI. Taxation Consider sales, royalties, and income on country by country basis VII. Insolvency and Bankruptcy These events should be triggers in agreement which allow IP owner to transfer, or allow licensee the option to purchase the IP assets. VIII. Transfer of License Rights to Third Party Assignment of license rights or obligations to 3rd parties is typically expressly disallowed, except in the case of insolvency or bankruptcy