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Key Aspects of IP License Agreements
Donald M. Cameron
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed. © D. Cameron, R. Borenstein 2003
The Canadian Institute – Key Business AgreementsToronto, Ontario
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Agenda
IP Rights 5 Minutes
Skeleton of a License Agreement 5 Minutes
License Grant & Consideration 15 Minutes
Licensor & Licensee Obligations 10 Minutes
Common Clauses 5 Minutes
Questions 5 Minutes
3
What is Intellectual Property?
It’s not the right to do something
It’s the right to exclude others
Legal monopoly
Limited in time
Limited in territory
“License to litigate”
4
The Legal Cubby-holes
Patents Function, materials
Trade-marks Names, logos
Copyright Form of expression
Trade Secrets/ Confidential Information
Secrecy of info.
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Patents
“Applied science”
Machines
Processes
Compositions of matter
Drugs
Certain software processes (limited)
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Patents
Prerequisites:
New
Useful
Inventive (non-obvious)
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Patents
New (Novelty):
Never been done, used, written about before
Made available to the public
Useful (Utility):
It works
It achieves the promise
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Patents
Inventive (non-obvious):
Any idiot would not have thought of it
A person of ordinary skill in the area
With no inventive abilities
Would have been led to the solution
Directly and without difficulty
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Trade-marks
Names
Logos
Product packaging
Shape of product
Earned by use
Registration gives Canadian rights
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Trade-marks
Key:distinctiveness
Must link products or services to a unique source
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CopyrightProtects “works”
books movies music artwork computer programs
Protects “expression”, not ideas
Arisesautomatically, but can be registered
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Trade Secrets
Recipes
Formulae
Customer lists
“Know-how”
Non-patentableinventions
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The Legal Cubby-holes
Patents
Trade-marks
Copyright
Industrial Designs
Trade Secrets
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Overview of Basic Licensing
Permission to do what you would not otherwise have the right to do
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Skeleton of a License Agreement
The Big Question:
WHO GETS WHAT?
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Skeleton of a License Agreement
Three building blocks License Skeleton
Who: The Parties
Gets: The Grant
What: The Definitions
LicensorLicensee
Definitions
The Grant
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IP License Agreement - WHO
Who has the right to grant the license?
Ownership of the intellectual property?
Licensed to sublicense the intellectual property?
Do I have a warranty that says so?
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IP License Agreement - WHO
Who is the Licensee?
The company? >> 1 machine, 1 location >> site license >> corporate wide
Subsidiaries and affiliates?
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IP License Agreements - WHAT
WHAT DOES THE LICENSEE GET?
What IP rights are being granted?
copyright, trade secrets, patents, know-how if trade secrets, include confidentiality
provisions
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IP License Agreements - WHAT
WHAT DOES THE LICENSOR GET?
$$$$
License fees Royalties Cross-licenses
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License Grant
The Legal Cubby-hole What it Protects
Patents Function or Composition
Trademarks Brand Names and Logos
Copyright The Form of Information
Trade Secrets / The Secrecy of an ideaConfidential Info
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License Grant
Licensor hereby grantsto Licensee
a nontransferable,nonexclusive right andlicense to use
the Licensed Patents
In the Territory, solelyfor the purpose ofmanufacturing andselling the Licensed Products
License Skeleton
LicensorLicensee
Definitions
The Grant
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License Grant
What is the Licensee allowed to do?
Patents: make, use, sell Trade-marks: use Copyright: copy, publish, translate, perform,
modify, create derivative works Trade Secrets: use
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License Grant
What is the Licensee allowed to do?
Exclusive: only the Licensee Sole: only the Licensee and the Licensor Non-exclusive: multiple Licensees
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License Grant
What is the Licensee allowed to do?
Territory: “use the Licensed Trade-marks to promote, sell and distribute products in Canada and the United States
Field: use the Licensed Patents to develop a therapeutic product to treat diabetes
Sublicense: modify the source code of the Licensed Software to create the Integrated Software and sublicense the object code of the Integrated Software to end-users
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License Grant
What is the Licensee not allowed to do?
non-competition no reverse engineeringno misuse of confidential informationsublicenseuse outside scope of grant
Simon Says!
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License Grant
Everything should
be made as simple as possible,
but no simpler
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License Grant
“How many a dispute could have been deflated into a single paragraph if the disputants had dared to define their terms?”
- Aristotle
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Consideration
How much is the license worth?
¢¢¢ ---------------------------------------$$$
Non-Exclusive ----------------------- Exclusive
Small Territory ----------------- Large Territory
Narrow Field -----------------------Broad Field
“Use” ---------------------------------- “Exploit”
Technological ------------------ Technological Convenience Breakthrough
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Consideration
License Fees (Fixed)
Initial or Upfront Annual Milestone
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Consideration
Royalties (Fixed or Variable)
5$ per widget sold 5% of “Revenue” per widget sold
“Net Revenue” “Sales Revenue” “Profit” “Allocated Price”
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ConsiderationMinimum Royalty Commitment
Tied to exclusivity Quotas per Territory, Product line or Total
Maximum Royalties Payable
Cap on Amount (aggregate of royalty payments) Cap on Time (duration of royalty payments) “Stacks” (total percentage of 3d party royalties)
“Most Favoured Nation”
“Substantially Similar”
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Consideration
Reports
May be tied to payment of royalties Periodic reports (monthly, quarterly, annual) Certified? use outside scope of grant
Audits
Should be conducted regularly
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Consideration
Other Consideration
Cross-license Shares/ Stock/ Equity Joint Venture arrangements
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Obligations - Licensor
What does the Licensor have to do?
Deliver the Intellectual Property Modify/Improve the Intellectual Property Enforce the Intellectual Property Defend against claims of Infringement
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Obligations - Licensor
Deliver the Intellectual Property
Disclose Know-How Train Licensee Personnel Support and Maintenance Disclose/Deliver Improvements and
Modifications
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Obligations - Licensor
Improvements – a development in the field of the licensed intellectual property that enhances one of the following:
Usability Functionality Efficiency Performance
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Obligations - Licensor
Improvements can be deemed included in license grant
No additional payment required May extend life of payment terms
License may be offered a right of first refusal
Allows Licensor to negotiate additional $$$ Improvement may not be usable without
base technology
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Obligations - Licensor
Enforcement
Prosecute and maintain registrations Take action against infringers Keep other licensees “in line” Defend against challenges to the validity of
the intellectual property
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Obligations - Licensor
Infringement Claims
IP litigation can be VERY scary, VERY expensive and VERY risky
Licensor may not want to bear the risk – will factor into overall value of license
Other options: Replace Modify Settle or “Pay Tribute”
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Obligations - Licensee
What does the Licensee have to do?
“Work” the Invention Maintain Quality Standards Disclose and Deliver Improvements Indemnification/ Insurance Safeguard Confidential Information, Non-
Compete, Non-Solicit
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Obligations - Licensee
“Working” the Invention
Tied to exclusivity May incorporate “quotas” Covenant to use “commercially reasonable”
efforts to promote, distribute and sell products
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Obligations - Licensee
Quality Standards
Critical in trade-mark licenses Licensor entitled to inspect samples and
audit Good practice to provide Licensee with
specifications for mark use (e.g. dimensions, colours) and legends
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Obligations - Licensee
Improvements
These are “Licensee” improvements Licensor may require disclosure, and a
license back Beware of “blocking” patents
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Obligations - Licensee
Indemnification and Insurance
Flip side to infringement indemnity Product liability concerns also VERY scary
and VERY expensive Indemnity limited by Licensee’s activities
(i.e., is the Licensee manufacturing?) In trade-mark licenses, product liability can
be damaging to goodwill in owner’s mark
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Common Clauses
Assignment
Term and Termination
Conflict Resolution
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Common Clauses
Assignment
Usually require consent to assign or in the event of a change of control
May wish to withhold if assigned to a competitorGuarantee from original licensee?
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Common Clauses
Term
Term may be dependent on intellectual property rights
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The Terms
Patents 17 or 20 years
Trade-marks 15 years (repeat)
Copyright author + 50 years
Trade Secrets indefinitely
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Common Clauses
Termination
No matter how friendly the parties are, conflicts may arise – employees depart, market conditions change, etc.
Better to plan ahead, while the parties are still on good terms
51
Common Clauses
Termination
By Licensor:Failure of Licensee to pay royaltiesBreach of Confidential InformationFailure to exploit
By LicenseeInvalidity of PatentsInfringement Claim
Key Aspects of IP License Agreements
Donald M. Cameron
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed. © D. Cameron, R. Borenstein 2003
The Canadian Institute – Key Business AgreementsToronto, Ontario
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