Transcript
Cross-Border Series
Seminar Two: International Licensing
International Localisation
Cheryl SlusarchukTechnology Group
Licensing Abroad
• Key Areas of Concern
• Getting $$ out of foreign jurisdiction
• Loss of company name or trademark
• Loss of IP
• copyright and trade secrets in the software
• reseller filing similar patent
• Risk of liability in the foreign jurisdiction
• “UNKNOWN”
Geographic Regions
• Each has unique characteristics:
• North America
• Asia Pacific (at least 3 different sub-regions)
• Latin America
• EU
• Russia and Eastern Europe
Choice of Governing Law
Dispute Resolution
Public Policy – Mandatory Laws
IP Protection
Regulatory Laws
Key Issues
Choice of Governing Law
• Our law / their law
• Potential laws that come into play:
• your law
• law of the local jurisdiction
• if dealing with a European country, EU Directives
Public Policy – Mandatory Laws
• Protects the local country’s businesses & people
• Dealer Legislation
• Mandatory Warranties
• Import / Customs
• Transfer of IP and Improvements
• Bankruptcy / Insolvency Laws
Public Policy – Mandatory Laws (con’t)
• Language Laws – “France!”
• Taxes – “Everywhere you want to be”
• Foreign Exchange / Investment Controls
• Privacy laws (e.g. Differences with U.S., EU Privacy Directive)
Regulatory Laws
• Import Restrictions – Encryption
• U.S. / Canadian Export Regulation
No license, no permit, no entry!!
IP Protection
• IP protection is country specific
• Patents
• Copyright
• Trademarks
• Database rights, moral rights
Dispute Resolution / Enforcement
• Use arbitration
• Injunctive relief to stop using IP
• Breach of confidential info
• Damages for loss of profits
U.S. Specific Issues
David FordTechnology Group
Privacy
• Patriot Act – Canadian data gets covered
• Financial Services / Health – Specific obligations
• Websites – Privacy Policies / COPPA
• State laws – e.g. California and obligation to disclose security breaches
Intellectual Property
• Works Made For Hire
• Moral Rights
Contracting – Practical Tips
• Electronic Contracting – Use splash screens, EULAs
• Warranties – Material and damages not sufficient; opposite from Canada / UK
• Governing Law and Venue – Generally need nexus
Contracting - Practical Tips (cont’d.)
• ADR – Get comfortable; exclude injunctive relief
• Bankruptcy – US Bankruptcy Code 365(n)
• Withholding tax
Fundamental Tax Issues
Brent KerrTax Group
Overview
• License or Disposition
• Withholding tax
• Offshoring
• Transfer pricing
License or Disposition
• Legal substance
• Exclusive
• World-wide
• Fields of use
• Duration
Withholding Tax
$ 75$ 100Net fee received
(25)(33)Withholding tax (25%)
$ 100$ 133Total fee paid-33Gross-up
$ 100$ 100Basic feeNo gross-upGross-up
Fee
CANADAFOREIGN
Withholding tax
• Domestic exemptions
• ITA 212(1)(d)
• 25% withholding tax on royalties and similar payments
• Exemption for certain copyright payments
• Exemption for certain R&D cost sharing payments
Withholding tax
• Treaty exemptions
• US treaty, Article XII
• Tax rate reduced to 10%
• Exemption for certain copyright payments
• Exemption for computer software payments
• Exemption for patents, scientific information, etc.
Withholding tax
• Agreement should contemplate:
• Right to withhold
• Gross-up
• Treaty rate/exemptions
• Foreign tax credit offsets
• Access to information
• Other technical matters
Offshoring
CANADAFOREIGN
sales
License Dividends
Offshoring
• Choice of jurisdiction
• Residence
• Carrying on business
• Transfer pricing
Transfer pricing
• Symantec
• $1 billion assessment March, 2006
• Technology license agreement
• Subsidiary in Ireland
New BC tax incentive
• International Financial Activity Act
Some Pitfalls and Risksin Biotech Licensing
John PearsonLife Sciences Group
Introduction
• The Biotechnology Industry
• $35Billion of U.S. Partnering and Financing in last 12 months
• ½ from Licensing and Partnering Deals1
• 5,000 Companies worldwide
• Some Issues for your licenses with U.S. parties
1 Burrill & Company, BIO 2006
Is Your License Really Exclusive?
• License Agreement – The Licensee bargains for an exclusive license under Patent Rights
“Licensor hereby grants to Licensee a worldwide, exclusive, royalty-bearing license under the Licensor’s Patents to make, have made, use, sell, offer to sell and import Products in the Field.”
• Cooperative Research and Development Agreement –The Parties bargain to jointly own Patent Rights
“All Patent Rights covering inventions jointly made by the Parties shall be jointly owned.”
Answer: It Depends on the Jurisdiction
• U. S. – Each joint owner of a patent can grant a license to another party without accounting to the other co-owners.
• Canada - A co-owner cannot grant a license to another party without the consent of the other co-owners.
Patent Misuse
• What is it?
• Extending the Patent Monopoly Beyond the Statutory Grant
• Combination of Anti-Trust Laws and Patent Misuse Doctrine
• Result: Unenforceability of the License
Examples of Patent Misuse
• Tying arrangements
• tie-ins and tie-outs
• Illinois Tool Works v. Independent Ink (March, 2006)
• Prohibiting the licensee from asserting patent invalidity
• Discriminatory royalties
More Examples
• Post-expiration royalties
• single vs. patent package
• patents vs. trade secrets
• Royalties based on sales of patented and unpatented products
• Price-fixing
• Grant-backs
The U.S. Research Exemption
• Are you are carrying out research in the U.S., or do you own a U.S. patent?
• Section 271(e)(1)
“It shall not be an act of infringement to…use…a patented invention…solely for uses reasonably related to the development and submission of information under a Federal law which regulates the…use…of drugs.”
Merck KGaA v. Integra Lifesciences I, Ltd.(June 2005)
• Phase of the Research - Now pre-clinical as well as clinical work
• Scope of the Research
• Result of the Research
• Research tools?
Create
• Why it was necessary
• How it affects your research collaborations and CRADAs
International Financial Centre
• Not a pitfall, but an Opportunity
• International Financial Activity Act - 2006 Amendments
• Biotech is now included!
How Does It Work?
• International licensing of patents by B.C. Biotech companies
• Selling related goods or services to NR
• $8,000,000 Provincial income tax break
• Patents include:
• microbiology
• chemistry
• research tools
Biotechnology Licensing:International Royalty Structures
and Strategies
Paul ArmitageLife Sciences Group
Structures and Strategies - General
• Territorial considerations heavily influence royalty structures in biotechnology licenses
• Patent, no patent and competition in local markets
• Different royalty rates for patent vs. non-patent countries
• Royalty term: expiry or step-down of royalties as patent protection ceases on a country-by-country basis
• Reduced royalties where generic and other competition exists locally
Structures and Strategies – General
• Tiered royalties based on sales within geographic areas
• Different royalties for major and minor markets
• U.S. and EU vs. “rest of the world” (ROW)
• Profit-sharing
• “Profit-share territory” plus “royalty territory”
Example #1: Novartis – Anadys Pharmaceuticals, June 2005
• Exclusive, worldwide license by Anadys to Novartis for Anadys patents and know-how for the treatment of Hepatitis B and Hepatitis C, with an option for other infectious diseases
Example #1: Novartis – Anadys Pharmaceuticals, June 2005
• U.S. market – royalties or optional profit share: tiered royalties based on net sales OR profit share if Anadys opts to co-promote sales in U.S.
• Upon exercise of co-promotion rights in U.S., Anadys to pay 35% of Novartis’ commercialization costs in the U.S. to date of exercise of option, and parties thereafter to share commercialization costs in the U.S. on the basis of an Anadys/Novartis split of 35%/65%
• Profit share based on an Anadys/Novartis split of 35%/65%
Example #1: Novartis – Anadys Pharmaceuticals, June 2005
• ROW (i.e., outside of U.S.) - royalties: tiered royalties based on net sales (at different rates than U.S. royalties)
• Royalty adjustments:
• Royalties reduced on a country-by-country basis if:
• No licensed patent in a particular country
• Competitive product exists in a particular country, and sales drop by greater than a certain percentage from one year to the next
Example #1: Novartis – Anadys Pharmaceuticals, June 2005
• Royalty adjustments: (cont’d)
• If a license to a third party patent is required in a particularcountry, the cost of the third party license is deducted from royalties
• Restrictions on royalty adjustments:
• Royalty reductions for third party licenses and local competition are capped at a maximum, cumulative amount
• No combining of royalty reductions for (1) local competition, and (2) lack of licensed patent in local country
Example #1: Novartis – Anadys Pharmaceuticals, June 2005
• Royalty term: royalties payable on a product-by-product and country-by-country basis until the later of (1) expiry of the last patent in a particular country, and (2) set number of years from first sale in a particular country
• Full text of agreement available at:
http://www.sec.gov/Archives/edgar/data/1128495/000093639205000247/a11717exv10w38.txt
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• Collaboration for worldwide development and commercialization of New River’s compound for the treatment of attention deficit/hyperactivity disorder (ADHD)
• Two agreements entered into simultaneously: (1) U.S., and (2) ROW
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• U.S. market – profit share:
• New River primarily responsible for obtaining regulatory approvals of ADHD products in the U.S.
• Shire solely responsible for commercializing products in the U.S. after regulatory approvals obtained, except that New River may opt to co-promote up to 25% of sales efforts in the U.S.
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• U.S. market – profit share: (cont’d)
• Profit-share based on net sales in U.S. minus commercialization expenses in U.S. and certain clinical trial expenses
• Profit-share for first product (meeting certain conditions): Shire/New River 75%/25% for first two years, 50%/50% thereafter (different profit-share formulas used in different situations and for subsequent products)
• Development expenses shared at different percentages based on whether the expenses are specific to the U.S. or also have worldwide application
• “Net sales” amounts are reduced by the cost of third party licenses necessary for commercialization
• Profit-share term: for so long as the product is being sold in the U.S.
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• ROW - royalties:
• Shire primarily responsible for obtaining regulatory approvals and solely responsible for commercialization of products in ROW
• Shire’s development obligations commence after FDA approval is obtained in the U.S., and development and commercialization obligations apply only to “Major EU Markets” (i.e., France, Germany, U.K., Italy and Spain)
• Shire bears all its commercialization costs in ROW
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• ROW - royalties: (cont’d)
• Royalty structure (“low double-digit royalty”):
• Major EU Markets: tiered royalties based on net sales
• All other ROW markets: flat-rate royalty based on net sales
• Royalties reduced on a country-by-country basis if generic product is sold in local market
• No royalty reduction if no licensed patent in particular country
Example #2: Shire Pharmaceuticals and New River Pharmaceuticals, March 2005
• ROW - royalties: (cont’d)
• Royalty term: royalties commence upon first commercial sale of a product in a particular country and expire on a country-by-country basis upon the later of (1) expiry of the last patent in a particular country, and (2) set number of years from first sale in a particular country
Full text of agreements available at:
http://www.sec.gov/Archives/edgar/data/936402/000095010305001377/ex1002.htm
http://www.sec.gov/Archives/edgar/data/936402/000095010305001377/ex1003.htm
Questions?
dford@mccarthy.ca604.643.7170Technology GroupDavid Ford
cslusarchuk@mccarthy.ca604.643.7124Technology GroupCheryl Slusarchuk
jpearson@mccarthy.ca604.643.7912Life Sciences GroupJohn Pearson
bkerr@mccarthy.ca604.643.7988Tax GroupBrent Kerr
parmitage@mccarthy.ca604.643.5895Life Sciences GroupPaul Armitage
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