1 Legal Issues: Licensing & Startups Peter H. Durant Nixon Peabody LLP [email protected] April 20/21, 2005 Copyright © 2005 Nixon Peabody LLP
Dec 21, 2015
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Legal Issues: Licensing & Startups
Peter H. DurantNixon Peabody LLP
April 20/21, 2005Copyright © 2005 Nixon Peabody LLP
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Clients
“We go to market in 10 minutes and
we need to copyright/patent/trademark
our drug/software/surgical technique.”
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Me
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Overview
Learn more than you wanted to know about:
– Ownership/Funding Issues
– Exploiting Your Idea
– Startups
– Licenses
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Bayh-Dole Act (1980)
Applies to federally-funded projects and resulting patentable inventions
Faculty/staff/employees must disclose IP to University and University must disclose IP to government agency
University may elect to take title University cannot assign ownership of IP to third
parties (other than patent management firm)
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Bayh-Dole Act (cont’d) Government receives royalty-free, non-exclusive
license (government use rights only) Preference to small companies as licensees University must share (no set amount) license
fees/royalties with inventors - balance applied to scientific research or education
University cannot agree to royalty rate in advance
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Government License Rights
Unlimited – can hand out on street corner Limited/Restricted – cannot be:
a. disclosed outside Government
b. used by Government for manufacture
c. used by non-Government party
Non-standard rights (becoming more popular)
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Government License Rights (cont’d) Issues
– Is Tech. Data/SW a contract deliverable?
– Developed exclusively at “private expense”?
• If purely private dollars, Government gets limited rights
– Developed with mix of Government and private funds?
• Government gets “Government Purpose Rights” under DFARS but “Unlimited Rights” under FAR
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CREATE ACT (2004)
Avoids “prior art” problem if different employers collaborate in research
Three key requirements to CREATE
– Research must be undertaken pursuant to a joint research agreement
– Research agreement must be in effect on or before the date of the claimed invention
– Research agreement must be broad enough to capture the invention
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Exploiting Your Idea Know what you have (patent? invention disclosure? fundamental idea or
improvement? software? trademark? other?) Understand your ownership rights
– institutional policies differ
– check employment/affiliation agreements
– check funding agreements
Consult with technology transfer office (or reasonable facsimile) on strategic options
Develop a plan
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Exploiting Your Idea (cont’d)
Simple (?) choice– License
– Sell
– Use (start-up)
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Exploiting Your Idea (cont’d)
Roles for: you/your institution/other investors Director/officer; shareholder/investor
Director/Officer
– control
– employment contract
– exit
Shareholder/Investor
– “sweat”/other equity
– control percentages
– voting issues/rights
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Business Entity Formation
Sole Proprietor Partnership Corporation
– C Corp
– S Corp
Limited Liability Company
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Before You Seriously Search for Capital, Know: Which alternatives are feasible for your
business? How will potential investors evaluate your
business? How much money do you need? How much money can your business attract? How long will it take? Can your company run efficiently while you are
on the money trail?
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Early Stage Financing
Personal Savings Credit Cards Family and Friends Retirement Assets (e.g., investment of 401(K)
assets) Governmental Programs (e.g., SBIR/STTR
grant)
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Small Business Innovation Research (SBIR)
Small Business Technology Transfer (STTR)
Program Objectives Using small businesses for innovation Build small businesses to meet federal research
and development objectives Aid economically disadvantaged small businesses Aid minority-owned small businesses
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SBIR/STTR Funding and Structure
Up to $850,000 early-stage funding Selection criteria
– Qualification as a small business
– Degree of innovation
– Technical merit
– Future market potential
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SBIR and STTR Primary Differences
SBIR Principal Investigator (PI) must be primarily employed by the small business
SBIR permits outsourcing of one-third of Phase I and one-half of Phase II awards
STTR requires formal relationship with non-profit research partner
– At least 40% research by small business
– At least 30% research by partner non-profit
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Three Types Later Stage Equity Financing
Private Placement Venture Capital Public Offering
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“Murphy’s Laws” of Capital Formation
It will take longer - much longer - than you think to secure the money
In the end, the amount of money you need will be larger (by multiples) than first anticipated
Prepare yourself: Investors and lenders will not be nearly as impressed with your company, idea or product as you are
Try as you might to avoid it, looking for money will divert senior management from running the business
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Overlooked Traps
Personal tax planning Non-compete issues Conflicts of interest
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IP Licenses
Work Out the Terms
– Term Sheets = Good
– Letters of Intent = Not so good
License Grant (heart of the agreement)
– Most Important Question: a license to whom, to do what, with what, to what extent?
– A license is an extremely flexible and sharp
tool, and can divide and apportion IP in
innumerable ways to achieve parties’ goals
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IP Licenses (cont’d)
Division of Rights (Joint Ownership discussed at March seminars)
– Patents: make (have made), use, offer to sell, sell, import
– Copyrights: reproduce, distribute, perform, display, create derivative works
• Example: right to create and distribute copies of software, but no right to modify
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IP Licenses (cont’d) Licenses – exclusive/non-exclusive
– Limited field of use (industry, product specific, geographical, etc.)
Scope of license
– Use, manufacture, sublicense, distribute, re-seller (VAR)
– Limitations, e.g., exclusive, geographic limits, industry limits
– Consideration/royalties
– Assignment
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Other Important Licensing Provisions
• Training, support, etc.
• Minimums
• Confidentiality
• Assignment
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Termination
“How Do I Get Out of This?”
– Carefully drafted termination provisions critical
– Must consider impact of termination upon IP rights v. ability to use jointly developed technology
– Lawyers aren’t magicians, and can’t always get clients out of bad deals
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Congress shall . . . promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive ___ ___ ___ ___ ___ to their respective Writings and Discoveries. . .
ConstitutionArticle 1, Section 8