Top 10 Legal MinefieldsA University Perspective

October 8, 2009

Catherine SheaAssociate University Counsel

University of Colorado

Overview• What Terms Really Matter

• Federal Requirements

• Standard State University Provisions

• Standard University Provisions

• Proper Care and Feeding of Your Lawyer

#1 Knowing What Terms Really Matter

• University wants the licensee to succeed• University templates reasonable starting point• Start up companies– Patent prosecution costs – Insurance • When do you have to have it• What types and what limits are reasonable

– Diligence Terms– Create opportunity to seek relief on breach terms

#1 Knowing What Terms Really Matter (cont’)

• Start up companies– Patent prosecution costs – Insurance

• When do you have to have it• What types and what limits are reasonable

– Diligence Terms– Create opportunity to seek relief on breach terms

• Who is really negotiating– Potential “sublicensee”– Major investor– Inventor

Federal RequirementsThe Bayh-Dole Act

• Before the Act, – Government held patents– Would license on non-exclusive basis– Inventions rarely developed into commercial products

• After the Act– Grantee can hold patent– License at its discretion– Preference for small business– Substantial U.S. manufacturing , if exclusive in U.S.– U.S. Government royalty free rights– March In Rights, if licensee not developing or significant national

need

Federal RequirementsThe Bayh-Dole Act

#2 Practical Implications of Bayh-Dole - March-in Rights

• Because the patent holder is not taking effective steps to achieve practical application of the invention,

• To alleviate health or safety needs which are not reasonably satisfied by the patent holder,

• To meet requirements for public use specified by federal regulations not reasonably satisfied by the patent holder; or

• Because an exclusive licensee has failed to give preference to U.S. manufacturing where that would be required.

35 U.S.C. 203

Federal RequirementsThe Bayh-Dole Act

#2 Practical Implications of Bayh-Dole (con’t)

Substantial Manufacturing in the U.S. • http://www.sbir.gov/links/topics/

rothman_stephen_us_manufacturing.htm

Assignment of Intellectual Property requires government approval• Time consuming but usually a positive outcome

Standard State University Provisions

• Preservation of Governmental Immunity• Tax Exempt• No endorsement of products, use of names – State ethics laws governing public entities,

officials, and employees• May affect activities of University employee who is also

a company employee

– Tax laws barring commercial activity by not for profit entities

Standard State University Provisions

#3 State Open Records Act– Many open records acts have statutory exceptions

for company proprietary data– In practice (unless criminal activity), university will

want to consult with licensee before releasing any documents

– Negotiate clauses to protect company information• Is the Agreement itself confidential?• What reports are confidential?• What is the open records act procedure?

Standard State University Provisions

#4 Inherently Governmental Authority

– Patent Prosecution– Patent Enforcement– Assignment– No binding arbitration

Standard University Terms

• #5 Full indemnification of University (and co-owner)– Defense costs

• Reservation of Rights – internal research purposes, other sponsors?

• Mandatory Sublicensing

Standard University Terms• Sublicensing Flow-down provisions– Indemnification, insurance, warranties

#6 MedImmune ProvisionsIf licensee challenges the licensed patent– Triple royalty payments– Termination– Notice prior to bringing such action

Question: is this approach legal?

Standard University Terms• #7 No warranties

• #8 University Conflict of Interest Rules– Heightened congressional and federal scrutiny– Company reporting on consultants– Lower thresholds for conflicts, e.g., any ownership

level in private company

• Choice of Law

Standard University Terms

#9 Knowing what other agreements are in place– Confidentiality Agreement• Subject matter and term

– Sponsored Research Agreements• Joint Inventions, other sponsors, other inventors

– Consulting Agreements• Conflict with university rules

– Material Transfer Agreements• Third Party Access to Licensed Technology, publication

rights

#10 Managing your lawyer

• When to bring in the lawyer• Educating the lawyer on the deal• Keeping the negotiations on track– Timing– Relearning the deal– Raising new issues in second, third review– Business comments

Questions?