OPTEON Philip MendesLevel 3, 33 Queen St Brisbane QLD, Australia Ph + 61 7 3211 9033 Fax + 61 7 3211 9025 [email protected] Topic 5 Transfer and Acquisition.

OPTEON

Philip Mendes Level 3, 33 Queen St

Brisbane QLD, Australia

Ph + 61 7 3211 9033

Fax + 61 7 3211 9025

[email protected]

Topic 5Transfer and Acquisition of IP

WIPO-KIPO-KIPA IP Panorama Business School Investment Summit6 October 2008

Geneva

What is an assignment ?

Assignment occurs when ownership of IP is transferred Assignor

The seller of the IP Assignee

The buyer of the IP

Outline Due diligence Assignment assurance What is assigned Financial terms Confidentiality and non use Technical assistance Records to transfer Warranties to make

What is a due diligence?

A fact finding “What are the facts”

An assessment “What do I think of this”

A validation or corroboration “Is this what I’m told it is” “am I getting what I understand I should be getting”

Types of due diligence IP ownership and rights due diligence patent position due diligence (validity and infringement) scientific / technical due diligence

Legal Due Diligence Chain of title: ownership & rights

What is the chain of title ?

What are the links in the chain ?

Are any links not accounted for ?

INVENTOR

EMPLOYER

OWNER

Inventor 1 Inventor 2 Inventor 3 Inventor 4

(student) University B Company

University A

License MTA Right Something

Field A Institute C First Refusal Else ?

Chain of title: ownership & rights

.

Legal Due Diligence - Encumbrances

Is there anything that detracts from the ability to make deals freely with this IP? Is there a security interest granted over the IP ?

Mortgage Charge

Is there a joint owner ? Does someone have an option over the IP Does someone have a right of first refusal Is there an obligation to manufacture in a particular country or state ? Does the owner have an obligation of confidentiality

Encumbered rights - contracts

Are there existing licenses in place ? Licenses granted in a Confidentiality Agreement Licenses granted in a Material Transfer Agreement Implied license granted by transferring biological material without a

Material Transfer Agreement Are there other contracts

carried forward interests Options for rights, or for shares

Are there any breaches of existing contracts ? Terms of other contracts

performance obligations Termination rights that may have accrued

Common Issues and Surprisesin a Legal Due Diligence

Is the person who asserts ownership really the owner ?

Is there a joint owner ?

Joint ownership: Patents: one owner cannot assign without the consent of the other (except US) Copyright: all copyright holders must act jointly, neither can act alone

Particulat ownership issues: students collaborators contractors volunteers seconded employees - visiting scholars staff for hire companies

Effect of due diligence defect

Likely: no adverse effect Defect is discovered, defect is remedied Worst impact may be a short time it takes to remedy the defect

But some defects may be serious Possible adverse impact:

Discovery of a joint owner that has inflated commercial expectations and puts your capital raising or deal at risk

Discovery of students who cannot be located, or refuse to sign an assignment – even on equitable terms

Delays in capital raising or deal Financial terms renegotiated by assignee / investor / licensee given the

risks of discovered and previously undisclosed defects Deal abandoned

What should active IP Owner do

IP Owner should undertake its own due diligence as part of preparing IP for a capital raising or deal Discover its own defects Plug them up first

Prepare IP & Contracts Map

Identifies every inventor Identifies every link in the chain of ownership and rights

Employee to Employer Assignment or license from collaborator Assignment from student Ownership provisions in an MTA Assignment from a contractor

Demonstrates that the IP Owner has the ownership (or rights) to deal with the IP in the deal proposed

Inventor 1 Inventor 2 Inventor 3 Inventor 4

(student) University B Company

University A

License MTA Right Something

Field A Institute C First Refusal Else ?

Chain of title: IP and Contracts map

.

Assignment / assurance

Assignment must be in writing Language of assignment is straightforward “Company A assigns its right title and interest in the Intellectual Property”

both legally and beneficially

Also customary: To assign the right to sue for damages against in past infringement To have a further assurance

That the assignor will sign and firther document required to more properly record the assignment

For example, the documents required by each domestic patent office to record the assignment in that patent office

What is assigned

May assign granted patents May assign a patent application, and

All future patent applications based on that application All future patents granted pursuant to all those applications

Consider also whether there is an confidential information or trade secrets that should also be “assigned” That is, knowledge, broadly

Knowledge is not proprietary, it cannot be “owned” nor “assigned” in the true sense But consider assigning knowledge broadly

Which may be the subject of a future patent application Which may be a trade secret, which the assignee wants to capture in the same way

as a patent is captured

Sometimes the assignment of IP is accompanied by the sale of physical assets Plant and equipment, prototypes, etc

Financial terms

Most commonly an assignment is for a lump sum payment payable on execution of the Deed of Assignment

Lump sum is paid All the value of the IP is paid to the Assignor simultaneously

Should an assignment be made in return for royalties ? Royalties are a periodical payment Unexpired patent may be many years What if the Assignee

Goes bankrupt ? Sells the IP to another person, without passing on the royalty obligation ? May be in breach, but it may cease to exist after selling the IP to another

person

Confidentiality and non use

Customary to impose on Assignor obligations in relation to the IP that is assigned:

confidentiality – not to disclose to other persons Of non use

Usual exceptions If the IP enters the public domain (other than as a result of breach) Of course, IP enters the public domain when a patent is published

Use: Sometimes the Assignor may retain use rights: In its own business If a university or research organisation – for research purposes

Technical assistance

Sometimes the Assignor may agree to provide technical assistance to the assignee in relation to the Intellectual Property assigned

Often, that is the subject of a separate agreement Technical assistance agreement Consultancy Agreement

With additional financial terms

Records to transfer

Customary to transfer certain records, along with the IP

Records relating to the ownership of IP Granted patents Certified copies of lab books (or originals?) to demonstrate inventorship if

there should be a future challenge Records relating to technical matters

Reports Data Drawings etc

Records relating to rights Licenses granted Employment contracts Contracts with collaborators etc (refer Contracts Map)

WarrantiesWhat are warranties ?

Warranties are statements made by an assignor Akin to a guarantee An assignor warrants something to be true, that is, the assignor guarantees

something to be true

If the statement is untrue, the assignee may : Sue for damages Termination inappropriate (title has transfferred)

Therefore important that warranties that are made, are made accurately Important consequences follow from the breach of a warranty

As a rule, an assignor will want to make the minimal warranties sought

Warranties: Warranties about ownership of IP

Not uncommon for an assignor to warrant that the assignor owns the IP being assigned

Should such a warranty be unqualified ? Consider:

Patent application filed Assignment of IP in PCT stage Assignor warrants that it owns the IP in that patent application Later, it is discovered that another person has an earlier priority date That other person owns the IP in that patent application, not the assignor

An absolute warranty about ownership would therefore be beached Such a warranty about ownership:

should not be unqualified should be expressed to be made to the best of the assignor’s actual knowledge

Warranties: Warranties about infringement

Not uncommon for warranties to be sought that a IP does not infringe another person’s IP rights

Should such a warranty be unqualified ? Use of an improvement patent held by the assignor infringes an earlier

patent Or, exploitation of assignor’s patent encumbered by another person’s

blocking patent Neither situation may be known to the assignor Assignor cannot undertake a complete search to be able to ensure accuracy Patent applications may be filed with an earlier priority date, but may not

be published for years afterwards Such a warranty:

should not be unqualified should be expressed to be made to the best of the assignor’s actual

knowledge

Warranties: Warranties about unencumbered rights

Not uncommon for an assignor to be expected to warrant that: No notice has been received of any claim asserting infringement No notice has been received opposing the grant of a patent, or challenging

its validity No license has previously been granted No option to license or right of first refusal has been granted

If any of the above are incorrect, warranties are made subject to disclosures

Should such a warranty be unqualified ? All these are matters within the control of an assignor Assignor should be able to make the warranties sought without any

qualifications

Warranties: Warranties about patents

Common warranties about patents: That named persons are the only inventors No inventor has been omitted from being named in the patent application That no person is named as an inventor who is not an inventor That named inventors are employees of the assignor and made the

invention in the course of employment All patent maintenance, continuation and renewal fees have been paid Patents have not been revoked Patent applications have been made properly No failure to take a required step in the patent application process

Should such a warranty be unqualified ? All these are matters within the control of an assignor Assignor should be able to make the warranties sought without any

qualifications