Constructing the “Price” of the Technology in IP Licensing Negotiations

Sub Regional Training Program on

IP Valuation

MariborNovember 5 to 7, 2012

Topics

That is a Licensing Agreement?

Business Objectives and Key Terms

Key Terms of a Licensing Agreement

Constructing a “Price”

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License Agreements (1)

Definition: A license is a consent by the owner of IP (Licensor) to the use of IP by other party (Licensee) in exchange for money or other value ( cross – license).

Permits another party to: - make, have made, use, sell, import (patents); - copy, display, distribute, modify, make derivative

works (copyright).

Patent license – waiver of right to exclude.

Copyright license – waiver of right to control.

“Technology license” – may include different types of IP.

Definition: A license is a consent by the owner of IP (Licensor) to the use of IP by other party (Licensee) in exchange for money or other value ( cross – license).

Permits another party to: - make, have made, use, sell, import (patents); - copy, display, distribute, modify, make derivative

works (copyright).

Patent license – waiver of right to exclude.

Copyright license – waiver of right to control.

“Technology license” – may include different types of IP.

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License Agreements (2) – When R&D Institution is Granting IP License?

Commercialization of the research results – bringing invention to the market

Licensing to the industry partner;Creation of the spin off company based on the licensed technology developed in the university.

In the context of the collaboration with R&D or industry partner for:Use of “Background IP” ;Use or access to the research results and IP developed by one party during the collaboration - “Foreground IP”; Commercialization of the jointly developed technology through Grant a license to the third party – company.

In the framework of the Sponsored Research Agreement - IP license of the research results may be granted by the university to a fonder of the research.Material Transfer Agreement – license to another R&D institution or company to use patented research material for scientific or commercial purposes.

Commercialization of the research results – bringing invention to the market

Licensing to the industry partner;Creation of the spin off company based on the licensed technology developed in the university.

In the context of the collaboration with R&D or industry partner for:Use of “Background IP” ;Use or access to the research results and IP developed by one party during the collaboration - “Foreground IP”; Commercialization of the jointly developed technology through Grant a license to the third party – company.

In the framework of the Sponsored Research Agreement - IP license of the research results may be granted by the university to a fonder of the research.Material Transfer Agreement – license to another R&D institution or company to use patented research material for scientific or commercial purposes.

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License Agreements (3) – Why is it Important for R&D Institutions?

Most frequently used mean of technology transfer from universities to industry, in particular in US where universities are obliged to retain ownership on the IP developed through publically funded research.Permits:

IP ownership to be retained;Development of strategic IP portfolio;Multiple options and partnerships for IP commercialization;Flexible negotiation context for reaching “Win – Win” deals;Development of building blocks for “Open Innovation” collaboration;Return on research funding and investment.

Most frequently used mean of technology transfer from universities to industry, in particular in US where universities are obliged to retain ownership on the IP developed through publically funded research.Permits:

IP ownership to be retained;Development of strategic IP portfolio;Multiple options and partnerships for IP commercialization;Flexible negotiation context for reaching “Win – Win” deals;Development of building blocks for “Open Innovation” collaboration;Return on research funding and investment.

Key Terms of a Licensing Agreement

The key terms of a licensing agreement

are the vital elements in the structure of the licensing agreement.

Key Terms and Business Objectives of Licensing Parties

Key Terms are Inter - Related;

Determined by Business Objectives of Negotiating Parties;

What do you want to achieve with the licensing agreement will influence your options related to key terms!

Key Terms and Business Objectives of Licensing Parties

Define Your Business Objective !

Starting Point in Development of Your Negotiation Strategy.

Achieving Business Objective – Guiding Principle During the Negotiation.

“Win – Win” Solution – Corresponds to the Business Objectives of Both Parties.

One of the main elements in constructing the price of a license is to which extend it corresponds to your / your partner’s business objective and plan!!!

Key Terms

I. Subject Matter: What is licensed?

II. Scope: What can you do with it?

III. Financial: What value is it?

IV. Upgrades and maintenance: What will happen with it in the future?

Key Terms – I. Subject Matter – What is Licensed ?

Subject matter of a licensing agreement is always intellectual property.

Pure IP License;

Technology License – combination of different IP;

Know-how License - in combination but also without an accompanying technology component.

Example – “Smart Turbine”

Smart Turbine (SM ) is a wind and solar energy collector;

Highly efficient due to specific turbine design, and also use of a new durable photovoltaic (PV) thin film;

Both elements of the system are integrated by using software to measure the energy flow and to increase synergy between the wind and solar elements;

Whenever the wind ceased, the solar collection intensify;

Whenever the sky is cloudy, the wind system become dominant.

Copyright(Software, Schematics, Documentation)

Trade SecretsKnow-how

Trademark

Ind.design

Patent 1 (Turbine)Patent 2

(Integration System)Patent 3 (Thin Film)

Subject Matter of the Imaginative “Smart Turbine” Licensing Agreement

1. Claim

2. Claim

3. Claim

7. Claim

4. Claim

5. Claim

6. Claim

1. Claim

2. Claim

3. Claim

7. Claim

4. Claim

5. Claim

6. Claim

1. Claim

2. Claim

3. Claim

7. Claim

4. Claim

5. Claim

6. Claim

Copyright(Technical Documentation)

Know-how

Trademark

Ind.design

Patent 1 (Turbine)Patent 2

(Integration System)Patent 3 (Thin Film)

II. What the Licensor Want to License OUT

7. Claim

5. Claim

6. Claim

7. Claim

5. Claim

6. Claim

7. Claim

5. Claim

6. Claim

Copyright(Software, Schematics, Documentation)

Trade SecretsKnow-how

Patent 2 (Integration System)

Patent 3 (Thin Film)

I. What the Licensee Wants to License IN

1. Claim

2. Claim

3. Claim

7. Claim

4. Claim

5. Claim

6. Claim

1. Claim

2. Claim

3. Claim

7. Claim

4. Claim

5. Claim

6. Claim

Value of IP in the Context of a Licensing Agreement

Does this IP correspond to my business objectives and business plan?

1. Reduce the investment needed to access the marketplace, 2.  Accelerate market introduction, 3.  Minimize inventor's potential liability, 4.  Acquire specific capabilities such as manufacturing, sales and distribution or business management,5.  Limit time commitment, 6.  Access markets otherwise inaccessible due to shipping restrictions or lack of a distribution system.

.Technical IP

scope of protection provided by licensorcan patents and trade secrets be easily circumvented and the projected cost to enforce patents and trade secrets

Market

Value of IP in the Context of a Licensing Agreement

Potential problems

Who owns the IP?

Unfinished development

Patents not issued

Multiple parties

Pending claims

Key Terms - Scope: What can you do with it?

Variety of options:

Exclusive – Non Exclusive (the price will not be the same, even for the same subject matter!!)

Time

Territory

Field of Use

Right to Sublicense

The scope of the rights will influence significantly the price!

Key Terms – III. Financial Terms

Value of IP – which will not forcibly be the “price” of a license !!!

Forms of Payment

Lump Sum

Upfront payment

Installment payment

Royalty Rates

Combination

Key Terms – IV. Upgrades and Maintenance: What will happen with it in the future?

“Grant back” – very important and valuable non – monetary compensation ;

Additional services – training and other support;

Responsibilities and Guaranties of Parties – licensor that takes responsibility to enforce the IP, licensee that will monitor potential infringement of IP,

IP Valuation Methods to be Applied

Adjusted to specific situation

COST method – good to determine a bottom line of licensor;

MARKET COMPARABLES – starting point, when reliable data is available, useful in valuation of early stage technologies;

INCOME METHOD – most frequently used in IP commercialization phase.

Communicate with your partner!!!

Constructing a “Price” – Key Elements

Business objectives and plans of both parties;

Value of IP;

Other key terms of a licensing agreement;

“Need” or “hunger” of your partner for this particular technology;

Good communication among parties to find “win” – “win” solution”.

What are Your Proposals?

Olga SpasicHeadInnovation Structures SectionInnovation DivisionWIPO