TECHNOLOGY TRANSFER AND LICENSING

Technology Transfer
What is technology transfer?
Different Definitions, Approaches and Models
Doha Declaration – Article 37.- Trade and Transfer of Technology
Trade-Related Aspects of Intellectual Property Rights (TRIPS) - Article 66.2
“Least-Developed Country Members”
“The technology transfer is the process of applying research results in practical use”
The Massachusetts’s Institute of Technology : “ Technology transfer is the movement of knowledge and discoveries to the general public”
AUTM (The Association of University Technology Managers) – very broad definition of technology transfer as the movement of ideas, tools, and people among institutions of higher learning, the commercial sector and the public.
Transfer of technology refers broadly to a series of processes enabling and facilitating flows of skills, knowledge, ideas, know-how and technology among different stakeholders such as university and research institutions, international organizations, IGOs, NGOs, private sector entities and individuals. Transfer of technology, which is often considered to include the absorption of new technologies, is sometimes also considered to involve the transfer of concrete knowledge for the manufacture of products, the application of a process or for the rendering of a service granting the improvement of domestic as well as the international competitiveness in the economic market.

Technology Transfer
Technology Transfer – almost always contains transfer of “know – how”, thus closely related to Knowledge Transfer
What can be transferred?
Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.
IP is divided into two categories:
Industrial property:
inventions (patents)
trademarks
industrial designs, and
geographic indications of source;
Copyright: mostly related to software, but also drawings, manuals, scientific works.
Tangible research property: unpatented biological research materials
Intangible property: trade secrets, know how.

Technology Transfer
How knowledge / technology transfer can be done?
Informally
Discussions
Seminars
Articles
Working relations
Formally – Contracts
License Agreements
Development Collaboration Agreements
Research Services Agreements
Sponsored Research Agreements
Material Transfer Agreement
Consultancy Agreements
Confidentiality Agreements

I. Intellectual Property (IP) Licensing
A license is a consent by the owner (Licensor) to the use of IP by other party (Licensee) in exchange for money or some other value (cross – license).
COMMISSION REGULATION (EC) No 772/2004 – “Technology transfer agreements concern the licensing of technology. Such agreements will usually improve economic efficiency and be pro-competitive as they can reduce duplication of research and development, strengthen the incentive for the initial research and development, spur incremental innovation, facilitate diffusion and generate product market competition”

I. Intellectual Property (IP) Licensing
Legal Framework
Contract – gives freedom of regulating relations between contractual parties – but can not be contrary to the Constitution and applicable laws
International IP Treaties and Standards (TRIPS)
National IP Laws
Competition Law
Specific Laws – relevant for the particular area of negotiation
Health Regulations
Environmental Law
Nuclear Law, etc.

I. Intellectual Property (IP) Licensing
Nuclear Law Definition
The body of special legal norms created to regulate the conduct of legal or natural persons engaged in activities related to fissionable materials, ionizing radiation and exposure to natural sources of radiation – IAEA Handbook on Nuclear Law.
Special legal norms
Risk–benefit approach
Relate to the conduct of individuals and legal persons (commercial, academic, scientific and governmental entities), as well as
Use of fissionable material or ionizing radiation, justify special regime.
License in nuclear context is often understood as permission - license to build power plant and/or license to operate.
IP licensing agreement has always as a subject matter IP – registered on non registered.

I. Intellectual Property (IP) Licensing
Licensing parties in the nuclear industry should be in compliance with:
Regulations, security and liability surrounding the use of nuclear energy, nuclear waste and its proper disposal.

Innovation Trends in Nuclear Power Generation
Source: François Lévêque, Ecole des mines de Paris

I. Intellectual Property (IP) Licensing
USPTO Regulation
706.03(b) Barred by Atomic Energy Act [R-2] - 700 Examination of Applications
706.03(b) Barred by Atomic Energy Act [R-2]
A limitation on what can be patented is imposed by the Atomic Energy Act of 1954. Section 151(a) (42 U.S.C. 2181(a)>)< thereof reads in part as follows:
No patent shall hereafter be granted for any invention or discovery which is useful solely in the utilization of special nuclear material or atomic energy in an atomic weapon.

I. Intellectual Property (IP) Licensing
”
IP licensing only occurs when one of the parties owns valuable intangible assets know as Intellectual Property (IP).
IP ownership gives a legal right to the owner of IP to exclude or prevent others from using that IP for commercial purposes.
Intellectual Property (registered or non registered) is the subject matter of the licensing agreement.
Different kinds of IP Licenses
Pure IP License
Product or Technology License
Standard License

I. IP Licensing
Technology Licensing often occurs as a consequence or in the context of other relationships (research or business) in which other agreements are very important. In that case licensing agreement is interrelated to these other agreements.
Joint Venture Agreement
Merger of Businesses
Research Collaboration Agreement
Sponsored Research Agreement
Material Transfer Agreement
Research Service Agreement ( IP ownership of the developed research results may be assigned in advance)

I. IP Licensing and Technology Transfer
Licensing Agreements
Most frequently used mean for technology transfer, in particular in university-industry relations,
Advantage - gives variety of options for business relations with different partners by using the same portfolio of IP,
“Win – win “ solutions,
Possibility for licensing partners to share the risk through royalty rates;
Potentially provides significant return on investment and incentives for creativity and innovation;
Very important business tool for new “collaborative innovation” or “open innovation”.

II. Key Terms of a Licensing Agreement

The key terms of a licensing agreement - are the vital elements in the structure of the licensing agreement.

I. Subject Matter: What is licensed?
II. Scope: What can you do with it?
III. Financial: What value is it?
IV. Upgrades and maintenance: What will happen with it in the future?
Key Terms
The Four Clusters

Key Terms are Inter - Related with Business Objectives of the Negotiating Parties.
What do you want to achieve with the licensing agreement will influence your options related to key terms!
What is essential for you?
Key Terms and Business Objectives

What must you gain in order for this agreement to be worthwhile?
What is the best result that can be obtained?
What outcome do you want to avoid?
From a business perspective, is the best result a license to IP rights only (“pure IP license”) or a broader set of related agreements (“business partnership”)?
In what specific ways will this license make money for your business?
Key Terms and Business Objectives
What is the business reason for the license?

Chapter III: Cluster 1
The Subject Matter

It can be registered IP:
Patent – formula for medical treatment;
Copyright – software;
Trademark – “coca – cola”, franchising – “McDonalds”
Industrial design – car design;
Important subject matter of a technology transfer agreement is trade secret and know - how – non registered IP.
Subject Matter: What is Licensed?

Copyright
(Software, Schematics, Documentation)
Trade Secrets
Know-how
Trademark
Ind.
design
Patent 1 (Turbine)
Patent 2
(Integration System)
Patent 3 (Thin Film)
Subject Matter of the Imaginative “Smart Turbine” Licensing Agreement

Copyright
(Technical Documentation)
Know-how
Trademark
Ind.
design
Patent 1 (Turbine)
Patent 2
(Integration System)
Patent 3 (Thin Film)
II. What the Licensor Want to License OUT
7. Claim
5. Claim
6. Claim
7. Claim
5. Claim
6. Claim
7. Claim
5. Claim
6. Claim

Copyright
(Software, Schematics, Documentation)
Trade Secrets
Know-how
Patent 2
(Integration System)
Patent 3 (Thin Film)
I. What the Licensee Wants to License IN

The Subject Matter
What are You Licensing? Define and Include Relevant Documentation
Patent No. ____
The trademark ___
A protocol
All rights necessarily infringed by the X Standard
The X technology
Formula (to be completed….?)
The Product
The Licensed Material
Documentation
Schematics
As set forth in Appendix A…

Common Problems
Who owns the IP?
Unfinished development
Patents not issued
Multiple parties
Pending claims
MOUs or Letters of Intent
Best efforts, good faith

How Can You
Clarify the
Subject Matter?
Confidentiality agreements
Prototype agreements
Feasibility studies
Interim agreements (addressing cost)
Consultations with lawyers, experts
Study of documentation, databases
Study competing products

Chapter III: Cluster 2
The Scope of the Rights

Scope of Rights
What and how broad rights your business model require?
Make, have made, use, sell, import, transfer, make improvements?
Copy, display, modify, make derivative works, distribute, transfer?
Conduct research and product development?

Scope of Rights
Very important element in a licensing agreement, as it gives both parties various options to negotiate and to adjust to their own business interest – “win-win”.
Options manly relates to:
Exclusivity of the rights
Field of use of IP and technology
Territory
Timelines
Sublicensing

Scope: Exclusive rights?
A necessary risk (for Licensor)?
What arguments can Licensee make for obtaining exclusivity of the rights?
What arguments can Licensor make against?
Possible means of protection against a lazy, dishonest, or ineffective licensee:
Minimum Royalties
Time Limitation of Exclusivity
Ineffeciciency as a Trigger for Contract Termination

Common Problems
in Cluster 2
Scope too broad
Scope too vague
Scope too restricted (e.g. no right to sell)
Exclusivity granted without protections
Unclear how sublicenses are administered
Grant backs that prevent the licensee from creating advantage

Chapter III: Cluster 3
Financial Terms in Licensing Agreements

Value: Total value of the licensed IP in context of the other key terms; and
Form of payment: How the payments will be made.
Cluster 3: Financial Terms in License Agreements

What is IP Valuation?
Benefit
Risk
Valuation: The process of identifying and measuring financial benefit and risk from an asset.
The value of IP depends on the context !!

When is IP Valuation
Used?
Litigation – Lost Profit
Strategies and Transactions – Benefit and Risk
Merger and Acquisition
IP Audit
Funding
Financial Reporting
Investment Transactions
IP Commercialization/Licensing

When is IP Valuation
Used in the Context of Licensing Negotiation?
Sell or License?
What is the Right Price?
Royalty Rate?
In context of other key terms
Subject of the license
Scope of the rights granted
Exclusive – Non Exclusive
Territory
Time
Other financial arrangements

« Background »
Commercialization
P
P
1
10
30
50
Value of the Same IP is Variable
The value of the same IP imbedded in the research results will change in the process of IP commercialization depending on the context – maturity of the technology, investment, identified partners, business model for commercialization...
Development
Research Result

The Three Classic Methods
Income
value over time discounted for
risk
time value of money
Market Comparables
Cost to Recreate

The Income Method
Projection of the future net income (“net cash flow”) that the IP asset can be expected to generate over a certain period of time (usually the economic lifetime of the asset), taking into account the time, value of the money and the risk that the income will not be realized.
Different approaches – “Discounted Cash Flow” - determination of the Net Present Value of the IP asset.

How DCF Calculation
Works

Market Method
Advantage-simple, if there are appropriate data
Difficulties
IP market is not developed
Difficult to find pertinent data (contracts are confidential usually)
Sectarian databases might have useful information-variations and complexity of each case have to be taken into consideration
Geographical and market differences
Other terms in contract have to be taken into account

Cost Method
Replacement (creation) cost of R&D plus the cost of IP protection;
Advantages: useful to estimate a competitor’s invent-around costs and understand licensor’s perspective;
Disadvantages
lost time
difficult to determine
cost of creation is not always representative of the value of the protected technology.

Royalties
Lump sum
Initial fee or licensing fee
Installment payments
Combinations
Formes of Payment

What is a Royalty?
A form of payment in which Licensee pays value to Licensor over a negotiated period of time, in return for Licensor’s consent to use IP.
Royalties are based on volume (per unit) or a percentage revenues of products using the IP.

Why Royalties are Used
A way of distributing payment of value to Licensor so as to:
Permit sharing of benefit,
Share risk that the technology will not succeed (because of technology defect or market failure),
Avoid immediate high cost to Licensee,
Ensure mutual motivation to make technology succeed.

Minimum Royalties - Important for licensor in exclusive licenses as security in case of failure of licensee to exploit the technology
Capped Royalties
Ramping (Increasing) Royalties
Declining Royalites
Premium for high performance (bonus)
Advances against royalties (where licensor needs up front cash to fund operations)
Royalty Variations

Comparable Royalties
Dan McGavock, IPC Group, Chicago, Illinois (based on survey)

Chapter III: Cluster 4
Development of the Technology

Improvements by Licensor and Licensee
Joint Improvements
New products
New patents
Service and support
TECHNOLOGY IS ALWAYS CHANGING! BUT CONTRACTS are fixed in time.
Future Developments

EC Competition Law - lists a number of restrictions which do not benefit from the safe harbour (not automatically exempted), and require individual assessment on the basis of the TT Guidelines as to whether they merit exemption because their pro-competitive effects outweigh their restrictive effects.
Exklusive grant-back obligations (either through a licence or assignment) in respect of a licensee’s own ‘severable’ improvements to (or his own new applications of) the licensed technology (a severable improvement means ‘an improvement that can be exploited without infringing the licensed technology’);
In case of non-competitors: restrictions on the licensee’s ability to exploit his own technology or on the parties’ ability to carry out R&D.
Platform strategy often involves grant backs: e.g. Linux /Open Source.
Future Developments: Grant Backs by Licensee

Grant Backs: Contractual „grant backs“ are frequently used by licensor requesting the potential licensee to agree to „grant back“ to the licensor rights to the improvement patents developed by the licensee, that related to the original patent as partial consideration of license rights.
Exclusive grant backs often challenged by competition law.
Grant backs can also be negotiated as mutual obligation – cross licensing of the improvements. More balansed solution.
Future Developments: Grant Backs by Licensee

Licensing Negotiation

In technology licensing, the most important indicators of success are bargaining leverage and preparation

How to Prepare?
Define the team
Define business objectives
Assess bargaining power
Fix time frame
Gather documents
Write the Term Sheet
Chose negotiating strategy
Select any preliminary agreements
Evaluate the other party
Meet with the Team

The Advantage Continuum
The negotiator has the difficult task of constantly assessing the way the key terms affect the business objectives of the license
The goal of the negotiator is to stay as much as possible on the right side of this continuum with respect to each key term

Fall-back Positions
and Compromise
You may decide to accept a compromise with respect to a certain key term, that is, take a position that is not advantageous (a negative number in the above continuum), but that is acceptable in the context of positions taken on other key terms
The objective is to reach “Win-Win” solution!!