Transcript Key Aspects of IP License Agreements

Key Aspects of IP License
Agreements
Donald M. Cameron
Revised by Noel Courage
for UofT Law 32H1S – March 13, 2012
Agenda
 IP Rights
 Skeleton of a License Agreement
 License Grant & Consideration
 Licensor & Licensee Obligations
 Common Clauses
 Questions
What is Intellectual Property?
 It’s not the right to do something
 It’s the right to exclude others
 Legal monopoly
 Limited in time
 Limited in territory
 “License to litigate”
The Legal Cubby-holes
Patents
 “Applied science”
 Machines
 Processes
 Compositions of matter
 Drugs
 Certain software processes (limited)
Patents
Prerequisites:
New
Useful
Inventive (non-obvious)
Patents
New (Novelty):
Never been done, used, written about before
Made available to the public
Useful (Utility):
It works
It achieves the promise
Patents
Inventive (non-obvious):
 Any idiot would not have thought of it
 A person of ordinary skill in the area
 With no inventive abilities
 Would have been led to the solution
 Directly and without difficulty
Trade-marks
 Names
 Logos
 Product packaging
 Shape of product
 Earned by use
 Registration gives Canadian rights
Trade-marks
Key:
distinctiveness
Must link products or
services to a unique source
Copyright
Protects “works”
 books
 movies
 music
 artwork
 computer programs
Protects “expression”,
not ideas
Arises
automatically, but
can be registered
Trade Secrets
Recipes
Formulae
Customer lists
“Know-how”
Non-patentable
inventions
The Legal Cubby-holes
Patents
Trade-marks
Copyright
Industrial Designs
Trade Secrets
IP Assets
• Buy (assignment of ownership)
• Sell
• License
• Use as security for a loan
Overview of Basic Licensing
Permission to do what you would not
otherwise have the right to do
No license at all
• IP infringement
• Counterfeit
Consequences
Society of Composers, Authors and Music Publishers of Canada (SOCAN)
• a not-for-profit corporation; collective under the Copyright Act.
• SOCAN grants music licenses, then distributes the royalties
• IIC Enterprises Ltd. runs nightclub in Kelowna, BC
• Unpaid royalties: $20K unpaid for Oct. 2005 to 2011
• Court awarded statutory damages of six times the normal royalty. $122K
• (Copyright Act allows for an award of up to ten times the normal royalty)
SOCAN v. IIC Enterprises Ltd., 2011 FC 1088
Licensed use becomes unlicensed
• Visibility Corp. sues for copyright infringement re
software.
• Visibility had previously granted a software
license to the defendants’ parent company
• defendants were merged but continued to use
the software, now without a license.
• License agreements prohibited transfers of the
software without Visibility’s consent.
Visibility Corp. v. Hudson Prods. Corp., 1012279-RGS (D. Mass. Dec. 30, 2010)
Skeleton of a License Agreement
The Big Question:
WHO GETS WHAT?
Skeleton of a License Agreement
Three building blocks
 Who: The Parties
License Skeleton
Licensor
Licensee
 Gets: The Grant
Definitions
 What: The Definitions
The Grant
IP License Agreement - WHO
Who has the right to grant the license?
 Ownership of the intellectual property?
 Licensed to sublicense the intellectual
property?
Warranty of licensor’s ownership?
Many different relationships between
licensor and licensee
 Licensee may be ‘customer’
 License may be business arrangement
between affiliates
Docket: A-486-10
BETWEEN:
BRISTOL-MYERS SQUIBB COMPANY (Patent Owner) and
BRISTOL-MYERS SQUIBB CANADA CO. (Licensee)
Appellants
and
APOTEX INC.
Respondent
IP License Agreement - WHO
Who is the Licensee?
 The company?
>> 1 machine, 1 location
>> site license
>> corporate wide
 Subsidiaries and affiliates?
Main body of license
Recitals
Definitions
Listing of terms and conditions
IP License Agreements - WHAT
WHAT DOES THE LICENSEE GET?
What IP rights are being granted?
 copyright, trade secrets, patents, knowhow
 if trade secrets, include confidentiality
provisions
IP License Agreements - WHAT
WHAT DOES THE LICENSOR GET?
$$$$
 License fees
 Royalties
 Cross-licenses
License Grant – the Asset
What it Protects
Patents
Function or Composition
Trademarks
Brand Names and Logos
Copyright
The Form of Information
Trade Secrets /
The Secrecy of an idea
Confidential Info
License Grant
Licensor hereby grants
License Skeleton
to Licensee
a nontransferable,
Licensor
nonexclusive right and
Licensee
license to use
the Licensed Patents
Definitions
In the Territory, solely
for the purpose of
manufacturing and
The Grant
selling the Licensed Products
License Grant
 What is the Licensee allowed to do?
 Patents: make, use, sell
 Trade-marks: use
 Copyright: copy, publish, translate,
perform, modify, create derivative works
 Trade Secrets: make, use, sell product
made with trade secret
License Grant – all or part of asset?
What is the Licensee allowed to do?
 Exclusive: only the Licensee
 Sole: only the Licensee and the
Licensor
 Non-exclusive: multiple Licensees
Headlines - Grant
• Amorfix and JSW Sign LOI for Exclusive Worldwide
License of Preclinical Alzheimer's Disease
Diagnostic Technology. January 9, 2012
• AJ, ATCC sign worldwide non-exclusive licensing
agreement for iPS cell patent portfolio. June 15,
2011.
• February 14, 2012. OTI Signs $7 Million Core
Technology License Agreement. November 30,
2011.
License Grant
 What is the Licensee allowed to do?
 Territory: use the Licensed Trade-marks to promote,
sell and distribute products in Canada and the United
States
 Field: use the Licensed Patents to develop a
therapeutic product to treat diabetes
 Sublicense: modify the source code of the Licensed
Software to create the Integrated Software and
sublicense the object code of the Integrated Software
to end-users
Headlines - Territory
• BTG Plc – Voraxaze® / Glucarpidase Licensed
to Ohara Pharmaceuticals in Japan.
December 7, 2011.
• IntelGenx Announces License Agreement for
the Commercialization of CPI-300 in the
United States.
License Grant
What is the Licensee not allowed to do?
non-competition
no reverse engineering
no misuse of confidential information
sublicense
use outside scope of grant
Query: which of the above are also prohibited by common law or IP rts?
Consideration
How much is the license worth?
¢¢¢ -----------------------------------$$$
Non-Exclusive ---------------------Exclusive
Small Territory -------------------- Large Territory
Narrow Field -----------------------Broad Field
“Use” -------------------------------- “Exploit”
Technological ----------------------Technological
Convenience
Breakthrough
Consideration
License Fees (Fixed)
 Initial or Upfront
 Annual
 Milestone
Consideration
Royalties (Fixed or Variable)
 5$ per widget sold
 5% of “Revenue” per widget sold
• “Net Revenue”
• “Sales Revenue”
• “Profit”
• “Allocated Price”
UofT examples – license in
• MS Office Standard 2010 $74
• SharePoint database server $131
• Restrictions: For UofT departments, faculty
and staff on UofT owned workstations
(query: who is licensee?)
• Perpetual license
• No support or upgrades
UofT examples – license out
• Fields: Clothing, Uniforms, Promotional items,
Furnishings
• Consideration: $120/yr license fee + 8%
royalty on wholesale cost of product
• Royalty report within 30 days of each quarter.
• Licensees must get $2m product liability
insurance
Consideration
 Minimum Royalty Commitment
 Tied to exclusivity
 Quotas per Territory, Product line or Total
 Maximum Royalties Payable
 Cap on Amount (aggregate of royalty payments)
 Cap on Time (duration of royalty payments)
 “Stacks” (total percentage of 3d party royalties)
 “Most Favoured Nation”
 “Substantially Similar”
Consideration
 Reports
 May be tied to payment of royalties
 Periodic reports (monthly, quarterly, annual)
 Certified?
 use outside scope of grant
 Audits
 Should be conducted regularly
Headlines: more licenses and more
licensed products = $$
CryptoLogic Reports Profit and Revenue Growth in 2011
• DUBLIN, IRELAND--(Marketwire - March 8, 2012) - CryptoLogic …a
developer of branded online betting games and Internet casino
software….
Branded Games revenue increased 25% to $6.9 million in 2011
(2010: $5.5 million), accounting for approximately 25% of total
revenues (2010: 21%). In Q4 2011, revenue from this segment
increased to $1.9 million (Q3 2011: $1.4 million).
The increase in Branded Games revenue is primarily due to the
increased number of revenue producing games through an
increased number of licensees and games per licensee.
Consideration
Other Consideration
 Cross-license
 Shares/ Stock/ Equity
 Joint Venture arrangements
Obligations - Licensor
What does the Licensor have to do?
 Deliver the Intellectual Property
 Modify/Improve the Intellectual Property
 Enforce the Intellectual Property
 Defend against claims of Infringement
Obligations - Licensor
Deliver the Intellectual Property
 Disclose Know-How
 Train Licensee Personnel
 Support and Maintenance
 Disclose/Deliver Improvements and
Modifications
Obligations - Licensor
Improvements – a development in the field
of the licensed intellectual property that
enhances one of the following:
 Usability
 Functionality
 Efficiency
 Performance
Obligations - Licensor
 Improvements can be deemed included in license
grant
 No additional payment required
 May extend life of payment terms
 License may be offered a right of first refusal
 Allows Licensor to negotiate additional $$$
 Improvement may not be usable without base
technology
Obligations - Licensor
Enforcement
 Prosecute and maintain registrations
 Take action against infringers
 Keep other licensees “in line”
 Defend against challenges to the validity of
the intellectual property
Obligations - Licensor
 Infringement Claims
 IP litigation can be VERY expensive and VERY
risky
 Licensor may not want to bear the risk – will
factor into overall value of license
 Consultation, cooperation typically required
 Get settlement approval by licensee, divide
litigation proceeds
Obligations – Licensee
What does the Licensee have to do?
 “Work” the Invention
 Maintain Quality Standards
 Disclose and Deliver Improvements
 Indemnification/ Insurance
 Safeguard Confidential Information, NonCompete, Non-Solicit
Obligations – Licensee
“Working” the Invention
 Tied to exclusivity
 May incorporate “quotas”
 Covenant to use “commercially
reasonable” efforts to promote, distribute
and sell products
Obligations – Licensee
Quality Standards
 Critical in trade-mark licenses
 Licensor entitled to inspect samples and
audit
 Good practice to provide Licensee with
specifications for mark use (e.g.
dimensions, colours) and legends
Obligations – Licensee
Improvements
 These are “Licensee” improvements
 Licensor may require disclosure, and a
license back
 Beware of “blocking” patents
Obligations – Licensee
Indemnification and Insurance
 Flip side to infringement indemnity
 Product liability concerns also VERY scary
and VERY expensive
 Indemnity limited by Licensee’s activities
(i.e., is the Licensee manufacturing?)
 In trade-mark licenses, product liability can
be damaging to goodwill in owner’s mark
Common Clauses
Assignment
Term and Termination
Conflict Resolution
Common Clauses
Assignment
Usually require consent to assign or in the
event of a change of control
May wish to withhold if assigned to a
competitor
Guarantee from original licensee?
Common Clauses
Term
Term may be dependent on intellectual
property rights
IP Expiry
Common Clauses
Termination
No matter how friendly the parties are,
conflicts may arise – employees depart,
market conditions change, etc.
Better to plan ahead, while the parties are
still on good terms
Common Clauses
Termination
By Licensor:
Failure of Licensee to pay royalties
Breach of Confidential Information
Failure to exploit
By Licensee
Invalidity of Patents
Infringement Claim
Assignments
Assignments
• IP – exclusive rights (monopoly)
–eg. patent: exclusive right to make,
use, sell
• Assignable in whole or part
Co-ownership
• More complex rules
• Can’t stop co-owner from using
invention
• Ability of co-owner to assign or
license?
Co-ownership
• Can assign entire ownership rights
• Licensing co-ownership interest without
consent of other co-owner?
Forget v. Specialty Tools of Canada Inc.
(1995), 62 C.P.R. (3d) 537 (B.C.C.A.), aff’g
(1993), 48 C.P.R.(3d) 323 (B.C.S.C.).
• Georgina and Daniel Forget coowned patent
for a scissor-type tube-cutter
• Daniel licensed the cutter --- Specialty Tools
of Canada Inc. – right to mfr and sell in
Canada
• Georgina was cut out of the action
• Co-owner can assign entire interest in a patent
to a third party without the consent or an
obligation to account to the other co-owner.
• Cannot dilute the rights of the other co-owner.
• Co-owner cannot grant a valid license without
consent: license not valid - would dilute the
rights of the other co-owners. Patent
infringement by licensee.
Best practice to avoid dispute
• Co-owners should make their own agreement
governing commercialization
Security on IP
• IP is federal, but security over patents, Tm, ©
is under provincial law
• Security agreement creates security interest
• Describe IP in detail
• Perfect security by registering financing
statement in province where debtor is located
• Sometimes registered at CIPO
Thank You