Transcript Ready, Set, Negotiate - Jackson Walker L.L.P.

Licensing,
Alliances, and
Partnerships
August 3, 2005
Stephanie L. Chandler
Jackson Walker L.L.P.
Stephanie L. Chandler
• Business Transactions and
Intellectual Property
• Specialty Area: Technology Law
University of Nebraska
B.S.B.A. in Finance
University of Virginia
Juris Doctorate
Community Involvement: Leadership San Antonio, Chair:
Entrepreneurship Alliance Committee - San Antonio Technology
Accelerator Initiative, National Association of Women Business
Owners: Pro Bono General Counsel; Family Services of San
Antonio: Board of Directors
Licensing
• Patents -- gives the inventor
the right to exclude others
from making the invention
• Trade Secrets/Know How -protection by virtue of
secrecy
• Trademarks/Service Marks
-- identifies a unique source
of goods or services
• Copyrights -- protects from
copying of original works
(music, books, software
code)
Idea
License
$$$$
Third Party
*The terms of licensing and joint venture relationships
can add or subtract value.
Product Story
Florida State University
• Cancer treatment drug
• Licensed to Bristol-Myers
Squibb, which began
production in 1992
• BMS's leading anticancer drug, with 1998
worldwide sales in
excess of $1 billion.
Bottom Line Impact
Pioneering research in both biotechnology and imaging enabled
the University of Rochester to double the amount of revenue its
basic research earned this year. The advance, to $29.5 million for
the fiscal year that ends June 30, 2001, is more than double the
$13.5 million that companies paid last year and 10 times the $2.9
million in royalties from the previous year.
- Strong Health, © 2001
Prior to 1980, fewer than 250 patents were issued to U.S.
universities each year and discoveries were seldom commercialized
for the public's benefit. In contrast, In FY 99, AUTM members
reported that 3,914 new license agreements were signed. Between
FY 1991 and FY 1999, annual invention disclosures increased 63%
(to 12,324), new patents filed increased 77% ( to 5,545) and new
licenses and options executed increased 129% (to 3,914).
- Association of University Technology
Managers (AUTM), © 2001
License Income
(Average FY 1998 & 1999)
$ #1 Columbia University
$80,908,972
$ #15 Baylor College of Medicine
$10,025,025
$ #26 Texas A&M System
$ 4,864,484
$ #29 UT Southwestern Med Ctr.
$ 4,392,204
Source: Association of University Technology Managers
* 1997 statistics. Texas Business Review, June 1998
Licensing of innovations made at academic institutions
contributed over $40 billion in economic activity and
supported more than 270,000 jobs in Fiscal Year 1999
Source: AUTM Licensing Survey: FY 1999
Smallco’s principals have filed a patent
application on an invention, however, they
do not have the resources to:
• Manufacture,
• Distribute,
• Import,
• Market, and
• Sell
the product based on the invention.
Solution: Smallco grants a license to a
large company to exploit the
invention on Smallco’s behalf.
Bigco, as Licensee, can be granted rights to
• Manufacture,
• Distribute,
• Import,
• Market, and
• Sell
the product disclosed in the patent application.
Litigation: Breach of Contract
• Development agreements
• License Agreements
• Joint Venture Agreements
The number one source of litigation
is a misunderstanding about
what was to be delivered when
Technology Contracts
Customer:
• You said it would be done _______
• You said it would do _________
• You said it would cost $__________
Developer:
• You added _____
• You changed _______
• You didn’t give me ________
Important Terms of License
•
•
•
•
•
Grant Clause
Field of Use
Territory
Diligence Obligations
Payment Terms to Licensor
– Upfront fees (lump sum)
– Milestones (sums paid over time)
– Royalties (periodic payments based on product
sales)
Grant Clause
• Scope of rights granted to the Licensee:
• Exclusive/non-exclusive
• Smallco grants Bigco
– (exclusive/non-exclusive)
– rights under all
• Patents (including patent applications) and
• Know How…
• Relating to the Glucose Meter
Grant Clause, cont.
•To….
•manufacture,
•market,
•distribute,
•import; and
•sell
•the Glucose Meter…
Field of Use
• Use Limitation
– Allows multiple licensees to
different uses of the technology
exploit
• Not a Geographical Limitation
• Should Smallco limit the Field of Use?
• Should Bigco demand unlimited rights
(limited only to the scope of the Patents
and Know How)?
Territory
• Geographical
Limitation on the
rights to exploit
Patent Rights and
Know How
• Patents issued on
Country by
Country Basis
Diligence Obligations
• Must Bigco commit to some level of
diligence in commercializing the
technology?
– Termination rights
– Minimum royalties
– Exclusive to non-exclusive
Payment Terms
• Advance Fees/Upfront Fees
• Milestones
• Royalties
Advance Fees/Upfront Fees
• Lump sum payment for entering into the
license agreement
• May be used to reimburse Smallco for
past R & D costs and fund future R & D
expenses
• Different factors impact determination of
upfront fees (R&D costs, market
potential, industry convention)
Milestones
• Future payments to Smallco upon
meeting defined goals
• Incentive used to motivate parties to
advance project
• E.g., First commercial sale of System
Royalties
• Percentage of Product Sales
• Based on “Net Sales”, but is only net of
returns, mandatory reimbursements and
rebates
• COGS typically is not deducted when
determining Net Sales
• Audit rights (Right to check licensee books
and records to ensure proper payment)
Use of Forms
The parties hereto agree that any
disputes or questions arising hereunder,
including the construction or application
for this agreement, shall be settled by
arbitration, in accordance with the Code
of Civil Procedure 1280. Said arbitration
to be accomplished by a single arbitrator
appointed by the presiding judge of the
Superior Court of Dallas County Texas.
Use of Forms
13. Venue. This Agreement and all amendments or
modifications hereof shall be governed by and
interpreted in accordance with the laws of the State
of Confusion governing contracts wholly executed
and performed therein, and shall be binding upon and
inure to the benefit of the parties, their respective heirs,
executors, administrators and successors. Jurisdiction for
any suit filed to enforce the provisions of this Agreement
by either party shall be filed in the federal or state courts
of Mostfavorable District of Confusion in Hitsville,
Confusion or Miracle County, Confusion.
Use of Forms
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What is the status of the parties?
Whose law will govern?
Who wrote the “form”?
Why was the “form” created?
Is this the final draft resulting
from negotiation?
Structure of Alliances
• Contract Relationship
• General Partnership (GP)*
• New Subsidiary of Both Parties
– Corporation
– Limited Partnership (LP)
– Limited Liability Company (LLC)
*Fear of unintended fiduciary duties between partners;
default entity; No liability protection, partners are jointly
and severally liable for all partnership liabilities
Structuring Considerations
•
•
•
•
Management
Capital raising
Interest transferability
Continuity of life; desire
for relationship breadth
to be narrow
• Nature of desired
relationship; expected
contributions of each party
• Exit strategy (i.e. acquisition)
Joint Ownership Issues
Not only your partner, but …
Buy-sell agreements
What if I don’t
want to keep doing this?
What if my files for bankruptcy?
What if we have a unresolvable
disagreement?
Issues are always easier to resolve
before money is a factor
Special Issue: Joint ownership of
newly developed intellectual property
Licensing,
Alliances,
and
Partnerships
Stephanie L. Chandler
Jackson Walker L.L.P.
112 East Pecan Street, Suite 2100
San Antonio, Texas 78205
(210) 978-7704
[email protected]