Transcript IWSA Health and Safety Seminar Charleston, SC April 19, 2005

Business of IP Conference
Series/Tech Council of Maryland:
Technology Licensing
Fundamentals
Presented by
Stephen Candelmo
Arent Fox LLP
Washington, DC | New York, NY | Los Angeles, CA
March 27, 2008
Agenda
1. Fundamental Issues
2. Common Mistakes to Avoid
TECHNOLOGY LICENSING FUNDAMENTALS
Industry Overview
How big is the
technology licensing
industry?
• No exact numbers, but can be
estimated through a variety of sources.
• Of the 332,000 patents applied for in
2006, 179,280 patents were issued.
• 5% of those granted patents (which
will be licensed or cross licensed)
represents approximately 9,000
licensing transactions.
• In 2002, the IRS reported that U.S.
corporations claimed approximately
$115 billion in royalty income.
•
Technology licensing transactions likely
represented more than $70 billion in value
when you back-out printed and broadcast
copyrights, trademarks and other nontechnology royalty transactions.
TECHNOLOGY LICENSING FUNDAMENTALS
Intangible assets and
their value is growing
significantly
Technology Licensing Fundamentals
What is a License?
“License” means the legal permission to
use a specific intellectual property right of
another in connection with agreed purpose
and duration.
TECHNOLOGY LICENSING FUNDAMENTALS
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Subject Matter
•
Intellectual Property Rights
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Patents
Software
Know-How
Designs
Data
Trade-Secrets
TECHNOLOGY LICENSING FUNDAMENTALS
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Technology Licensing Fundamentals
•
Fundamental Licensing Issues
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•
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Why?
Who?
What?
Where?
How?
When?
How Much?
TECHNOLOGY LICENSING FUNDAMENTALS
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Technology Licensing Fundamentals
•
Why are you licensing?
• Essential to business model (licensor’s primary
business model)
• Collaborative relationships
• Need for additional resources for development or
marketing/distribution
• Optimal asset utilization
TECHNOLOGY LICENSING FUNDAMENTALS
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Technology Licensing Fundamentals
•
Who are you licensing to?
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Single User
Affiliates
Sublicensing rights
Exclusivity
Assignability/transferability
TECHNOLOGY LICENSING FUNDAMENTALS
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Technology Licensing Fundamentals
•
What are you licensing?
•
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Nature of intellectual property rights being licensed
Current versions/future versions
Back-licenses
Co-development
TECHNOLOGY LICENSING FUNDAMENTALS
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Technology Licensing Fundamentals
•
Where is the license applicable?
• Will there be a geographic scope to the license
• Will there be a scope as to certain markets or
products
• If the license is to be used internationally, will the
technology be subject to U.S. export laws or other
foreign laws
TECHNOLOGY LICENSING FUNDAMENTALS
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License Grant Language
1.
Grant of License. During the Term, Licensor hereby grants
to Licensee an exclusive, worldwide, unlimited, royalty based,
perpetual (with the unlimited right to sublicense through multiple
tiers (“Sublicenses”)) right and license (the “License”) to use, copy,
make use, offer, sell, distribute, modify and otherwise commercially
exploit the Software in conjunction with the Licensee’s business
activities with any and all federal, state, or local governmental
authorities (the “Exclusive Category”). During the Term, Licensor
and his affiliates (including their respective successors and
assigns) shall not, directly or indirectly, permit, authorize, assign,
transfer, convey, license, distribute or grant any rights to the
Software or any rights that would conflict with the License granted
herein to any third party for use within the Exclusive Category.
Furthermore, during the Term, Licensor and his affiliates (including
their respective successors and assigns) shall not use, offer,
market, sell, license or distribute the Software for their own
respective personal or commercial benefit for use within the
Exclusive Category. Licensee may modify, make improvements,
and create derivative works based upon the Software , and the
parties hereby agree that Licensee shall be the exclusive owner of
any such modifications, improvements and/or derivative works and
the intellectual property rights related thereto. Licensee hereby
acknowledges and agrees that he shall not grant any Sublicenses
that provides for any rights not authorized or that exceed the rights
granted herein pursuant to the License.
TECHNOLOGY LICENSING FUNDAMENTALS
Technology Licensing Fundamentals
•
How will the licensee use the license?
• Depends on nature of intellectual property right granted
pursuant to the license
• Field of Use: For example: patents: make, have made,
use, offer to sell, sell and import
• Limitations: derivative works, sublicensing rights,
improvements
• Non-competition restrictions
• IP enforcement: Will licensee have the ability to enforce
the underlying IP in certain markets? Who will bear costs?
• IP prosecution:
-Patent applications? Who will bear costs?
TECHNOLOGY LICENSING FUNDAMENTALS
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Enforcement Language
Control of Actions. Licensor shall promptly advise
Licensee if it becomes aware of any infringement of the
Patent or Technology by any other Person or any matter
which comes to its attention which may affect the
prosecution or maintenance of the Patent. The parties
hereby acknowledge and agree that Licensor shall have
sole control over any action that it may choose to file to
enforce its rights under the Patent or to the Technology.
Licensee shall reasonably cooperate with Licensor, at
Licensor’s expense, in the investigation of any apparent
infringement by others, and agrees to cooperate with and
assist Licensor, at Licensor’s expense, in any such legal
action or proceedings for the purpose of enforcing
Licensor’s rights under the Patent or to the Technology.
In the event that a declaratory judgment action alleging
invalidity of the Patent shall be brought against Licensee,
Licensor, at its sole option, shall have the right to
intervene and take over the sole defense of the action at
its own expense.
TECHNOLOGY LICENSING FUNDAMENTALS
Technology Licensing Fundamentals
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When (or for how long) is the license applicable?
• Under what circumstances will the license terminate
• In exclusive relationships, under what circumstances
would the license become non-exclusive
-Tied to economic measures or passing of time
• Residual rights after termination
TECHNOLOGY LICENSING FUNDAMENTALS
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Term and Termination Language
Term. This License Agreement shall remain in full
force and effect from the date first written above in
perpetuity unless terminated earlier in accordance
with this License Agreement. (the “Term”). If
Licensee materially breaches his payment
obligations under this License Agreement, the
Licensor may terminate this License Agreement by
giving Licensee written notice of default ("Notice of
Default") that specifies in reasonable detail the
nature of the alleged material breach. Licensee shall
have a sixty (60) day grace period after his receipt of
the Notice of Default ("Grace Period") to correct or
cure the material payment breach specified therein.
If the breach by Licensee is not corrected within the
Grace Period, Licensor shall be entitled to terminate
this License Agreement immediately upon written
notice.
TECHNOLOGY LICENSING FUNDAMENTALS
Technology Licensing Fundamentals
•
How will licensor be compensated?
• Royalty Structures: on what basis (unit of measurement)
-For example, gross revenues, net revenues, net
income
• Initial licensing fees
• Flat fees
• Caps
• Valuation Issues
-What is the industry practice?
-Nature of product?
-Anticipated profit?
-Scope and duration of license?
TECHNOLOGY LICENSING FUNDAMENTALS
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License Fee Language
2.
License Fee. Licensee shall pay Licensor within sixty (60)
days after the end of each calendar year a royalty fee of 3% of Net
Sales of the Software (“Royalty Payment”); provided however, the
maximum aggregate amount of Royalty Payments paid by Licensee
pursuant to this License Agreement shall not exceed $2,000,000.
For purposes of clarification, the parties hereby acknowledge and
agree that once Licensee has paid Licensor Royalty Payments in the
aggregate amount of $2,000,000, Licensee shall have no obligation
to Licensee to pay any further Royalty Payments. Licensor
acknowledges and agrees that the Royalty Payments shall
constitute full consideration for the License, and no additional
royalty fees or license fees of any kind shall be due at any time in
the future. For purposes of this License Agreement, “Net Sales”
means the gross sales actually received by Licensee during the
applicable calendar year in connection with the sale or licensing of
the Software to Licensee’s customers or sublicensees less any
discounts or refunds in connection with such sales or licenses.
TECHNOLOGY LICENSING FUNDAMENTALS
Technology Licensing Fundamentals
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Licensing Pitfalls to Avoid?
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Improper license grant or field of use
Improper or unclear royalty structure
Absence of auditing rights on royalty arrangements
Lack of risk allocation for infringement liabilities
Lack of change of control or assignability restrictions
Collaborative efforts that do not address ownership of future IP
(absence of grant-back licenses)
Improper identity of licensees (sublicensing rights and affiliates)
Who controls rights to sue infringers
Failure to address international considerations
TECHNOLOGY LICENSING FUNDAMENTALS
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A Few Last Words
“We've arranged a civilization in which most crucial
elements profoundly depend on science and
technology.”
-Carl Sagan
I knew that a country without a patent office and
good patent laws was just a crab, and couldn't travel
any way but sideways or backways.
-Mark Twain
"A Connecticut Yankee in King
Arthur's Court"
Everything that can be invented, has been invented.”
-Charles H. Duell, Commissioner, U.S. Office of
Patents, 1899.
TECHNOLOGY LICENSING FUNDAMENTALS
Contact Information:
Stephen Candelmo
PH: 202-828-3468
[email protected]
Arent Fox LLP
1050 Connecticut Ave., N.W.
Washington, DC 20036
TECHNOLOGY LICENSING FUNDAMENTALS