Licensing, Alliances, and Partnerships Stephanie L. Chandler Jackson Walker L.L.P. August 3, 2005.

Licensing, Licensing, Alliances, Alliances,

and and PartnershipPartnership

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Stephanie L. ChandlerJackson Walker L.L.P.

August 3, 2005

Stephanie L. ChandlerStephanie L. Chandler• Business Transactions and

Intellectual Property• Specialty Area: Technology

Law

University of Nebraska University of Nebraska B.S.B.A. in FinanceB.S.B.A. in Finance

University of VirginiaUniversity of VirginiaJuris DoctorateJuris Doctorate

Community Involvement: Leadership San Antonio, Chair: Entrepreneurship Alliance Committee - San Antonio Technology Accelerator Initiative, National Association of Women Business Owners: Pro Bono General Counsel; Family Services of San Antonio: Board of Directors

LicensingLicensing• Patents -- gives the

inventor the right to exclude others from making the invention

• Trade Secrets/Know How -- protection by virtue of secrecy

• Trademarks/Service Marks -- identifies a unique source of goods or services

• Copyrights -- protects from copying of original works (music, books, software code)

License

Third Party

Idea

$$$$$$$$

*The terms of licensing and joint venture relationships can add or subtract value.

Product StoryProduct StoryFlorida State

University• Cancer treatment drug• Licensed to Bristol-

Myers Squibb, which began production in 1992

• BMS's leading anti-cancer drug, with 1998 worldwide sales in excess of $1 billion.

Bottom Line ImpactBottom Line ImpactPioneering research in both biotechnology and imaging enabled the University of Rochester to double the amount of revenue its basic research earned this year. The advance, to $29.5 million for the fiscal year that ends June 30, 2001, is more than double the $13.5 million that companies paid last year and 10 times the $2.9 million in royalties from the previous year.

- Strong Health, © 2001

Prior to 1980, fewer than 250 patents were issued to U.S. universities each year and discoveries were seldom commercialized for the public's benefit. In contrast, In FY 99, AUTM members reported that 3,914 new license agreements were signed. Between FY 1991 and FY 1999, annual invention disclosures increased 63% (to 12,324), new patents filed increased 77% ( to 5,545) and new licenses and options executed increased 129% (to 3,914).

- Association of University Technology Managers (AUTM), © 2001

Source: Association of University Technology Managers

License IncomeLicense Income(Average FY 1998 & 1999)

$ #1 Columbia University $80,908,972

$ #15 Baylor College of Medicine $10,025,025

$ #26 Texas A&M System $ 4,864,484

$ #29 UT Southwestern Med Ctr. $ 4,392,204

* 1997 statistics. Texas Business Review, June 1998

Licensing of innovations made at academic institutions contributed over $40 billion in economic activity and supported more than

270,000 jobs in Fiscal Year 1999Source: AUTM Licensing Survey: FY 1999

Smallco’s principals have filed a Smallco’s principals have filed a patent application on an patent application on an

invention, however, they do not invention, however, they do not have the resources to: have the resources to:

• Manufacture,• Distribute,• Import,• Market, and• Sellthe product based on the invention.

Solution: Smallco grants a Solution: Smallco grants a license to a large company to license to a large company to

exploit the invention on exploit the invention on Smallco’s behalf. Smallco’s behalf.

Bigco, as Licensee, can be granted rights to• Manufacture,• Distribute,• Import,• Market, and• Sellthe product disclosed in the patent

application.

Litigation: Breach of Litigation: Breach of ContractContract

• Development agreements• License Agreements• Joint Venture Agreements

The number one source of litigation

is a misunderstanding about what was to be delivered when

Technology ContractsTechnology ContractsCustomer:• You said it would be done _______• You said it would do _________• You said it would cost $__________Developer:• You added _____• You changed _______• You didn’t give me ________

Important Terms of Important Terms of LicenseLicense

• Grant Clause• Field of Use • Territory• Diligence Obligations• Payment Terms to Licensor

– Upfront fees (lump sum)– Milestones (sums paid over time)– Royalties (periodic payments based on

product sales)

Grant ClauseGrant Clause• Scope of rights granted to the Licensee:• Exclusive/non-exclusive • Smallco grants Bigco

– (exclusive/non-exclusive)– rights under all

• Patents (including patent applications) and• Know How…• Relating to the Glucose Meter

Grant Clause, cont.Grant Clause, cont.•To….

•manufacture, •market, •distribute, •import; and •sell

•the Glucose Meter…

Field of UseField of Use• Use Limitation

– Allows multiple licensees to exploit different uses of the technology

• Not a Geographical Limitation• Should Smallco limit the Field of Use?• Should Bigco demand unlimited

rights (limited only to the scope of the Patents and Know How)?

TerritoryTerritory• Geographical

Limitation on the rights to exploit Patent Rights and Know How

• Patents issued on Country by Country Basis

Diligence ObligationsDiligence Obligations

• Must Bigco commit to some level of diligence in commercializing the technology?– Termination rights– Minimum royalties– Exclusive to non-exclusive

Payment TermsPayment Terms• Advance Fees/Upfront Fees• Milestones• Royalties

Advance Fees/Upfront Advance Fees/Upfront FeesFees

• Lump sum payment for entering into the license agreement

• May be used to reimburse Smallco for past R & D costs and fund future R & D expenses

• Different factors impact determination of upfront fees (R&D costs, market potential, industry convention)

MilestonesMilestones• Future payments to Smallco upon

meeting defined goals• Incentive used to motivate parties

to advance project• E.g., First commercial sale of

System

RoyaltiesRoyalties• Percentage of Product Sales• Based on “Net Sales”, but is only net of

returns, mandatory reimbursements and rebates

• COGS typically is not deducted when determining Net Sales

• Audit rights (Right to check licensee books and records to ensure proper payment)

Use of FormsUse of FormsThe parties hereto agree that any disputes or questions arising hereunder, including the construction or application for this agreement, shall be settled by arbitration, in accordance with the Code of Civil Procedure 1280. Said arbitration to be accomplished by a single arbitrator appointed by the presiding judge of the Superior Court of Dallas County Texas.

Use of FormsUse of Forms13. Venue. This Agreement and all amendments or modifications hereof shall be governed by and interpreted in accordance with the laws of the State of Confusion governing contracts wholly executed and performed therein, and shall be binding upon and inure to the benefit of the parties, their respective heirs, executors, administrators and successors. Jurisdiction for any suit filed to enforce the provisions of this Agreement by either party shall be filed in the federal or state courts of Mostfavorable District of Confusion in Hitsville, Confusion or Miracle County, Confusion.

Use of FormsUse of Forms What is the status of the

parties? Whose law will govern? Who wrote the “form”? Why was the “form” created? Is this the final draft resulting

from negotiation?

Structure of AlliancesStructure of Alliances• Contract Relationship• General Partnership (GP)* • New Subsidiary of Both Parties

– Corporation– Limited Partnership (LP) – Limited Liability Company (LLC)

*Fear of unintended fiduciary duties between partners; default entity; No liability protection, partners are jointly and severally liable for all partnership liabilities

Structuring Structuring ConsiderationsConsiderations• Management

• Capital raising• Interest transferability• Continuity of life; desire

for relationship breadth to be narrow

• Nature of desired relationship; expected contributions of each party

• Exit strategy (i.e. acquisition)

Joint Ownership IssuesJoint Ownership IssuesNot only your partner, but … Buy-sell agreements

What if I don’t want to keep doing this?What if my files for bankruptcy?What if we have a unresolvable disagreement?

Issues are always easier to resolve before money is a factorSpecial Issue: Joint ownership of newly developed intellectual property

Licensing, Licensing, Alliances, Alliances,

and and PartnershipsPartnerships

Stephanie L. ChandlerJackson Walker L.L.P.

112 East Pecan Street, Suite 2100 San Antonio, Texas 78205

(210) [email protected]