Transcript 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.

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.
Topic 12
Commercial and Financial
Considerations
In a Patent License
Based on pages 54 to 68 of
Exchanging Value by WIPO
Four Main Sections To A
Patent License Agreement
1.
2.
3.
4.
Subject Matter
Extent of Rights
Commercial and Financial Considerations
General Considerations
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.
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.
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%
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.
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.
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