Licensing: An Overview
Varda N. MainDirector, Technology Licensing Office
Rochester Institute of Technology
Presentation to “Introduction to
Intellectual Property” Course
February 4, 2003
Licensing
In the broad sense, is a discipline that makes it possible to transfer technology from a proprietor (the licensor) to an interested purchaser (the licensee) in a well defined and effective manner
Intellectual Property Rights
Trade Secret– Know-how– Show-how
Patents Trademarks Copyright Mask Works
Emerging Trends
Technology development time decreasing Technology development costs increasing Growing importance of alliances Regulatory environment becoming more stringent Corporations licensing in more
Opportunity:
More customers for embryonic technologies
Global Issues
Knowledge moves quickly around the world Increase in industrial/academic espionage Trade agreements: GATT, NAFTA New trading blocks: EC, E. Europe, N. America Move to patent harmonization
Historical Context
Availability of R&D funds decreasing Competition for R&D funds increasing Universities seeking additional avenues to fund
R&D
Result:
Emergence of Technology transfer function in university community
Why Interest in IP
Value in intangible assets– GAAP and book value
IP protection adds value and increases lifetime of that value
Communication between lab and marketplace– Speeds movement of technology to products
How IP Moves to the Marketplace
Idea >> concept >> reduction to practice >> prototype >> scale-up >> productization
Direct application by IP owner Sale of IP to another entity who then
productizes License of IP to licensee(s) Public disclosure of IP
Technology Transfer
Collaborative process whereby the products of R&D flow from a source to the (next) user
Numerous transfer options including:– Licensing– Alliances– Use of facilities– Consulting– Outright sale
Types of Licensing
Licensing Out Licensing In
Rights under a License
To make To use To disclose to others
– by publication– in a marketed product– in a service manual– as a sub-license to a third party– to lease
To sell
Types of Licenses
Exclusive - there can only be one licensee; the licensor has no rights to exploit the technology/product
Sole - exclusive but for the licensor; i.e., the licensor has rights to exploit the technology/product
Non-exclusive - there is no limit to the number of potential licensees
Licensing Strategy
Position in technology life-cycle Presence/absence of competition Technical, financial and marketing strengths of the
parties Legal, political, and cultural environments Protection of proprietary information Grantsback Remuneration hoped to be realized over the term of
the license
Types of Licenses
Irrevocable/Revocable for cause Territory: World-wide/Limited to named
geographic regions Field of use: Market-specific Royalty-bearing/Royalty-free
Determining Position in the Technology Life Cycle
Technical performance obsolescence Technical feature obsolescence Cost obsolescence Safety obsolescence Shifts in consumer preferences
What do you really have?
Know the History Base patents and continuations Technically related patents and copyrights Software versions Previous agreements Outside authors and inventors Funding sources
The View on the Other Side of the Table
Perception of business risk. Who’s bringing what to the table? What are the 3 points of difference for the
technology/opportunity? What would make a user switch to this
product/process/service? What is needed to bring this to the commercial
marketplace?
Importance of Timing
Commercialization and patent prosecution timelines must coincide - “Window of Opportunity”
Understand the technology & IP life cycles Understand the impact of competing technologies (i.e.,
first to market) Durability of competitive advantage Fit with business or corporate strategy
Packaging of Technology for Transfer
Licensing need to be win-win situations What must the licensor do to ensure that the licensee will
be able to fully use the licensed technology? How to identify all the know-how, show-how and
technology needed by the licensee? What other information may be needed in negotiating a
technology transfer?– tax credits– financing– marketing
A Good Strategy is a WIN:WIN Strategy
There is no real strategy unless there are at least two interested parties
It’s all in “packaging to attract partners” Must find common ground Essential to understand needs of all parties Don’t get caught up in “but my needs are…”
Why License?
The Licensor’s reasons might include:– to make money– to help sell products, services, equipment– to obtain technology via grantback– to secure a market– to settle a patent dispute– cross-licensing of other, existing technology– rights to future technology– to buy continued development of the licensor’s technology
Why License?
The Licensor’s reasons might include:– to acquire marketing strength, capital and market assets or an
interest in them.– to reduce capital requirements for reaching a market.– to adapt a product to a local market– to reach fields of use outside the licensor’s normal purview– to avoid waste of by-product technology– to profit from residual value in an old technology– to fulfill local laws– to avoid antitrust/anti-competition or trade regulation problems
Why License?
The Licensee’s reasons might include:– to obtain rights to technology– to supplement the licensee’s R&D– to obtain continuing access to technical help– to benefit from the good reputation of the licensor by
gaining ability to use its trademark– to obtain quick entry without cost and technology
risks – to obtain access to the licensor’s facilities
Why Foreign License?
Advantages/practicality of foreign licensing over direct sales or export might include:
– tariff regulations– taxes– potential nationalization– political instability– capital to start foreign production– foreign patent laws– availability of materials and staff– quick return to licensor– access to/acceptance with foreign markets
Why NOT to license
To avoid risk of establishing a future competitor To make potentially bigger profits from direct
sales… at higher risk and capital cost To retain direct control over product liability
exposure To retain direct control over product quality To retain direct control over know-how
dissemination
Licensing
Licensor’s perspective– ensure that licensee is only acquiring those rights which are
necessary and which do not restrict licensor from making other uses of the technology
– restrictions to be placed on use of technology– is this an international transaction
what protection exists for technology in foreign jurisdiction what rights does a foreign national have to enforce rights
– to the extent that any third party material is incorporated in the technology, does licensor have all rights required in order to grant license
Acquiring Technology
Licensee’s perspective– what is the intended use of the technology– what form of legal protection exists in the technology being
licensed– is one acquiring all of the rights and information which they will
require in order to do what they want to do with the property licensed in
– in what jurisdictions do the technology rights exist– will licensee have to obtain rights from any other party in order
to carry out intended activity
Agreements - What can go Wrong
Who’s idea is it anyway?
I thought of that before we signed this deal.
But I thought I could do that.
Result: Court Actions This is costly
Lac Minerals v. International Corona Resources
Agreements - Why They are Needed
To clarify a win-win relationship To clarify intentions To provide a written statement To state what each party can and cannot do To describe tasks, budget, deliverables, responsibilities To protect against changes in involved personnel To refer to when there are misunderstandings and
disagreements
Value of The Portfolio
Value in the eye of the beholder A portfolio is more than the sum of its parts Value depends on how the portfolio is
protected and the strategy to sell it.
Portfolio Valuation
What is the competition? Is your portfolio unique?
Who is willing to buy? Different Parties = Different values How critical is technology/portfolio to the
outside? What are they willing to pay?
Pricing Technologies
Market value of technology Uniqueness of technology Competitive position Type of protection for the technology Stage of technology development Improvement provisions of license Exclusivity Field of use
– geographical– market sector
Investment Theory For Royalty Rates
Value of technology is a function of – the income that can be earned from its employment– the cost to replace it with equivalent
Payment Terms
Types of Payment– up front, paid-up licenses– running royalties– minimum annual royalties– sliding scale based on performance
Basis for royalty payments– net sales– net profits– percentage of service work– percentage of R&D contracts
Portfolio Valuation
Value each piece – Commercial cost to use facility or equipment
(analogs)– Commercial value of patents (price)– Investment in personnel to develop skill and
knowledge (replacement)
Value different combinations
Escrow
Required by licensee for protection in the event that licensor should go out of business
Licensor agrees to place confidential and other proprietary material in escrow and allow for its release only in the event of catastrophe
Usually a three party agreement, but can be done by having each party have an agreement with escrow agent
License Administration
Establishing the licensing relationship Maintaining the relationship throughout the term of the
license agreement Diverse aspects of the relationship
– financial payment/audit rights– technology transfer to/from– reporting– tracking performance/deliverables– joint development/exploitation
Licensing Costs are MINIMAL
Revenues are predominantly profits
The Licensing Person
The ideal licensing person has a technical education and background, legal training, market research and technical research experience, a knowledge of patents, the ability to get along with people, salesmanship, and enjoyment of negotiations, foreign language abilities, negotiation experience, resistance to jet lag and physical stamina. Technical ability is more important than legal ability. Marketing ability is more important than both.
LICENSING MUST BE A WIN-WIN SITUATION TO SUCCEED
REMEMBER…
The technology goes through the entire innovation/commercialization process (from concept to end user); people typically don’t go through the entire process– Know your strengths and weaknesses– Know when to say no– Know when to exit
Non-Disclosure Agreements
NDAs Go Under Different Names:
NDAs go under different names:– Secrecy agreement– Confidentiality agreement– Non-disclosure agreement
When to use NDAs:– When disclosing confidential information– When receiving confidential information
Principles of NDAs
Allowed use and disclosure of information defined– Use is typically limited to purpose of disclosure– Amount of disclosure is controlled by disclosing
party– Information must be kept confidential by
receiving party
Respective rights of the parties defined
One Should Always Ask:
What are the consequences of being the recipient of another party’s confidential information?
Employment Contracts
Who Owns your Work?
Work you do at RIT:– You? The University? Your Employer? Business Partners?
What agreements will you sign when you work for a company?
– Employee Assignment forms– Non-compete assurances– Confidentiality agreements
With your company With others with whom you do business
Employment Contracts
By specific contract; embedded in offer letter; through acceptance of policies
IP ownership by employer (24/7) Keep confidential in perpetuity Need-to-know Non-compete IP exit interview
FEDERAL FUNDING AND ARISING INTELLECTUAL PROPERTY
INTELLECTUAL PROPERTY
Background Intellectual Property Arising Intellectual Property Sole Inventions Joint Inventions Ownership of Intellectual Property Rights to Intellectual Property
FEDERAL GRANTS and CONTRACTS
Grants– Typically most terms are non-negotiable; one
applies for a specific grant understanding the terms that will be required
Contracts– Many terms are negotiable; including IP ownership
and rights
PROTECTING PROPRIETARY INFORMATION
Marking portions of proposals, reports and other correspondence
Certain information on grants is routinely published by each agency
Freedom of Information Act (FOIA) requests Disclosures can bar patenting
REPORTING REQUIREMENTS
When doing work under a grant or contract– Work progress– Disclosure of inventions
When licensing out IP developed under a grant or contract
– Licensing activity– Licensee reports– Job creation and net economic benefits realized– Royalty payments, if required
UNIVERSITIES and the BAYH-DOLE ACT
Stipulates that all IP developed by a university using federal funding is owned by the university– Includes flow through funds
US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES
The Government funds technology development– To meet government needs for a technology solution to a
problem– To assist in economic development by helping bring new
technologies to the marketplace– To provide a return to the US taxpayer from the technology
through: Job creation in the US Substantial manufacturing in the US Net economic benefit to the US
US GOVERNMENT AND USE OF FEDERALLY-FUNDED TECHNOLOGIES
The government wants to encourage use of new technologies in the marketplace– Agreement terms encourage/expect technology
owners to bring technologies to the marketplace The government wants to encourage further
R&D– IP protection (e.g. patents and copyright) permit
technology owners to disclose their technologies without losing value in the marketplace
REQUIRED TERMS
Government Use Rights– The government gets a non-exclusive, royalty-free
right to use technologies developed with federal funds for all government purposes
– This includes the ability of the government to grant licenses to government contractors to use the technology when doing work for the government
REQUIRED TERMS
Government March-In Rights– As the government wants to see technologies
brought to the marketplace it can require the owner of a technology funded with federal dollars to license out that technology if the owner is not actively bringing the technology to the marketplace
REQUIRED TERMS
US Competitiveness Requirements– The government wants to see technologies utilized
to the benefit of the US economy over that of foreign economies.
– Typically a technology owner will need to seek out US owned (preferably) or US based licensees and show that the licensee will use the technology to benefit US competitiveness
REQUIRED TERMS
Substantial Manufacture in the US– As with US competitiveness, the government wants
to see technologies primarily manufactured in the US, thus resulting in US job creation and net economic benefit to the US
REQUIRED TERMS
Export Control Requirements– Any use of federally funded technologies or licenses
granting rights to those technologies must comply with all relevant US export requirements and licenses
Joint Development Agreements
Joint Development Agreements – Corporate Perspective
Collaborate to obtain access to expertise and/or facilities not available within the company
Move R&D ahead quickly
>>>>> secure/enhance competitive advantage
>>>>> time to market considerations
>>>>> ownership of arising IP
Joint Development Agreements – University Perspective
Exposure to corporate scientists and facilities– For faculty and students
Additional avenues to perform research Career opportunities for students>>>>> publications and presentations>>>>> source of research funding>>>>> enhance reputation of institute and
individuals
RESOURCES
Resources
RIT Department of Grants, Contracts and Intellectual Property
– www.research.rit.edu US Patent and Trademark Office
– www.uspto.gov US Copyright Office
– www.loc.gov/copyright/ Good IP Sites
– www.ipmall.fplc.edu – www.patents.com– www.kuesterlaw.com
“To share an asset, usually it must first be divided. But knowledge is one of the few assets that multiplies as it is shared.”
. . . . . Indian proverb