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Anatomy of licensing agreements

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Anatomy of licensing agreements
Professor Prabuddha Ganguli (PhD)
103 B SENATE, Lokhandwala Township,
Akurli Road, Kandivli East, Mumbai 400101, India
Tel: 91-22-28873766; Fax: 91-22-28844782
Presentation made at the WIPO-CSIR Workshop on
Licensing and Technology Transfer; New Delhi; India, July 4-8, 2005
Know How
Layout for ICs
Identify all the forms of IPR associated with
the Technology Being transferred
Paths to Technology Transfer
Delivery of Know-how
Contract Research and Development
Establishing Joint Ventures
Setting up Plants, establishing production
processes, quality control procedures, etc. on
a turnkey basis
• Licensing patents, designs and other forms of
• Collaborative R&D
A basket of Legal Frameworks to be
considered in Technology Transfer
• Contract law
• Patent Law
• Trademarks. GI, Copyrights and Design
• Law relating to restrictive and unfair trade
• International laws
• Tax and revenue related laws
Note: This is not an exhaustive list
Some Options for the IP proprietor
• Use the IP … manufacture the product, use the process, sell by
self or by contracting it to another party.
• License it to someone for manufacturing but market the
product by self or by contracting it to another party.
• Sell the IP
• Set-up a Joint venture
• Source of one-time or steady long term income from the
license fees/royalties
• Negotiate License for manufacture by and /or marketing with
geographical breakup of the markets.
Some Options available to the IPR Holder
• License the IPR to another party (s) with mutually
negotiated benefit sharing arrangements
• Cross License for mutually independent working
and / or collaborative working
• Assign the IPR to another party (s) for an
appropriate return
• Barter rights
• Establish a franchise system involving other parties
• Take action against those who infringe the IP
• Let the rights selectively lapse in certain countries
of co-operation between parties
whereby one party, the licensor,
the possessor of IP ASSETT
permits the licensee to use his intellectual
asset in return of negotiated compensation.
The licensing arrangement could include
assistance in the form of know-how, technical
information or marketing skills.
Nature of the compensation varies.
Licensing Agreement
A reflection of Complimentary Needs
satisfied by a formal contract that
appropriately and equitably addresses
the mutual requirements
within a framework that is enforceable
within specified legal frameworks
The aim of a licensing agreement
is :
• To put the licensee in possession of the
technology needed to manufacture the
licensed products
• to derive an economic return from this
• to share this return with the licensor
License Agreements
all the obligations of the receiver and the knowledge
transferor during and after the term of the agreement
clauses clearly so that the receiver is aware of what
and how he can use and/or disclose delivered
knowledge during and after the term of the agreement.
what happens to the trade secrets and confidentiality
clauses if the knowledge transferred becomes public
domain knowledge in due course.
What happens if the IP that is being licensed is
invalidated during and after the term of the agreement
Understanding the scope of the
• What is the field of technology transfer and
technology use
• Subject matter of the licence
• Whether the licence is exclusive, non-exclusive or
co-extensive with the licensor
• What are the licensed activities
• What is the licensed territory
• What is the duration of the licence
• What is the IP covered by the licence
Licence Agreements
• What is being licensed
• What are the rights of parties involved in the deal
• What are the financial and commercial aspects of
the licensing arrangements
• What is the term of the licence?
• Other aspects of the agreement such as
• Who will own the rights to further developments by
the licensee.
• Will the licenser transfer further developments to
the licensee as part of this agreement. Or what will
be the arrangement.
Licence Agreements.. Key issues
The rights… make, use sell ?
Geographical jurisdiction of the rights
Exclusive or non-exclusive
Rights to sub-licence by the licensee?
Rights to the improvements?
Term of the agreement
Are there any minimum time limits set for the licensee to put
the licence into practice? If such time restrictions are not met,
what are the consequences?
Clauses that will survive beyond the term of the agreement
Any anti-competitive practices have been built in the
Rights to conduct parallel imports?
What will happen if the technology licensed under this
agreement becomes a subject of compulsory licence in a
Licence Agreements.. Key issues
• Who will be responsible for the renewal of the IPR associated
with the technologies covered in the licence agreement? Who
will bear the costs for such transactions?
• Who will be responsible for any disputes arising with respect to
the IPR associated with the licence agreement?
• Who will bear the legal costs of the disputes arising out of the
IPR associated with the licence agreement?
• What will be the impact on the commercial terms and the rights
acquired if the IPR associated with the licence agreement get
• What will be the impact on the royalty payments if the disputes
related to the IPR are settled in favour or against the owner of
the IPR associated with the licensing agreement?
• What happens if the licensee files for bankruptcy, insolvency,
Licensing Agreements
Access to information
Dispute resolution
Applicability of law and jurisdiction
Expiry and termination
Penalty Clauses
Any previous securities and pledges of either parties
involved in the licence agreement
• Financial and commercial obligations
• Transmission of the rights and obligations to affiliated
companies, present and future associates through mergers
and acquisitions, legal heirs, employees, etc.
• Options for future amendments to the licensing agreement
Structure of Licensing Agreements
• Title of Transaction
• Table of content
• Identification of parties and signatories to a binding
• Recitals and preamble a. Narrative - b. Introductory
• Definitions
• Period of agreement, Warranties and representations
from both sides, description of rights, licensor’s and
licensee’s obligations etc.
• Clauses on IPR (in some cases clauses related to right
of first refusal)
• Confidentiality Clauses
Structure of Licensing Agreements
• Clauses on payments
• Miscellaneous Provisions such as non-assignment,
good faith and best efforts, waivers, securities and
pledges, liabilities, damages, non-performances, breach,
Force Majaure, termination, maintenance, extension,
survival clauses, litigation expenses, etc
• Dispute settlement, arbitration, jurisdiction of courts,
applicable law
• Closing signatures, date & place of signing the
agreement, date of effectiveness of the agreement
• Addenda
3. DEFINTIONS of key words and phrases used in
the agreement:
E.g.: “know-how”
related company
the territory
trade marks
patent rights
net sales
licensed products
invoice value
Commercial Considerations
• Down Payments
• Milestone payments
• Royalty payments
– Royalty layering
– minimum royalty payments
• Other ways of compensating based on
deferred returns, profits, successful
application of technology
Subject Matter
Nature of the creations under consideration
Forms of IP under consideration
If software involved what is included?…who owns the
source code? Will one be allowed to use only the
complied form for the applications indicated? Will the
licensee be permitted to use it for other applications if
he develops them or is developed by someone else?
What is the licensed filed of use?
Copyright issues in the drawings. Who will own any
changes to the drawings made during the course of
use or if any developments take place during the term
of the agreement?
Will an annexure or a separate agreement deal with the
scope of related issues?
Confidential Information
• Confidential information, Know How, licensed
trade secrets
* All associated information received as
part of the agreement that is not in the
public domain
* Appropriate information Security
Measures are in place by the licensee.
Licensor having rights to audit the
information security arrangements.
* clauses dealing with damages to licensor for
any breach of confidentiality clauses.
* how long will the confidentiality clause
survive beyond the agreement
Scope of Rights
• Exclusive, Sole or non-exclusive
• Geographical territory
• Does it include the right to improve on the invention during
the term of the agreement and beyond?
• If software involved will the licensee be allowed to use only
the complied form for the applications indicated? Will the
licensee be permitted to use it for other applications if he
develops them or is developed by someone else? What is the
licensed filed of use?
• Does it allow the licensee to make, use and sell the patented
product or use the patented process?
• Is the right given only to produce and not to sell?
• Can the licensee display the copyrighted material under the
Scope of Rights
……Exclusive, Sole or Non-exclusive
• The first aspect to deal with the defined territory for the licensed use
of the rights
In one territory the licence could be exclusive and in another it may
be non-exclusive.
+ exclusive licence even excludes the licensor
+ Sole licence allows the licensor and the licensee to use to
technology in the defined territory
+ Exclusive licenses are agreed for higher compensation and very
often are associated with penalties for non-performance and
may include termination of license, ensure minimum royalty,
incentives, conversion of a non-exclusive licence to a
non-exclusive licence, and other clauses in favour of the
• Exclusivity could be time bound and also linked to achieving
Scope of Rights
……Exclusive, Sole or Non-exclusive
• If a licnece is non-exclusive,
+ a most favoured licnesee clause may be included; i.e.
If the licensor grants more favourable terms to
someone else, then those terms will become applicable
to the present licensee.
• Clauses for sub-licensing
+ Needs to be specifically negotiated and included in the
agreement. Such clauses also need to consider the
consultation on choice of the sub-licensee, conditions
on the sub-licnesee, term of the sublicensee, rights of
the sub-licensee, etc.
Scope of Rights
……Exclusive, Sole or Non-exclusive
• Improvements on the licensed technology
+ Definition of improvement vis-a-vis a new invention
leading to a new IP
+ Who will own the IP?… issues related to contributions
made to the development of the improvement, etc
+ What will the terms and conditions under which the original
licensor will be able to use the improvements? Can the original
licensor also use to worldwide and also give it to the other
licensees to whom they had given the original licence? Will
these be royalty-free or will it be based on royalty? If it is
royalty free, then will the licensee who has done the
improvement be entitled to any improvements done by the
original licensor or its other licensees during the term of the
Term of the Licence
……Exclusive, Sole or Non-exclusive
• Term of Licence
Dictated by the Business needs therefore to be
Also based on the term and validity of the IP
associated with the technology
Consider clauses that will survive after the term of the
• That the agreement records the intention of
the parties to the license
• That the interest of the party represented is
best protected
• Are there any pre-requisite conditions for
the agreement to be valid
Quite enjoyment
Infringement by third parties/pending
• Ensure License agreement is not
invalidated by:
a violation of statutory provisions
e.g.restrictive covenants
a Recourse when patent is invalidated in third
party proceedings
b Exceeding legal limits of licensing
Violation of statutory provisions
• Consider the relevant laws in the various
jurisdictions in which the licence
agreement is to be made operative
Exceeding Legal limits of
• Tying agreements :including patented and
unpatented products to increase term of
license payable
• Exclusive dealing: an agreement only to
deal with patented product
• Package licensing:a condition pre-requisite
that license will be granted only as a
Exceeding Legal limits of
• Royalties payable after patent period has expiredunenforceable
• Licenses for the same patent granted at differing
royalty rates
• In the US, royalty payments if based on total sales,
whether or not patented technology used , is
considered to be patent misuse.
Legal limits of Licensing
• Improvements on licensed technology by
licensee, right of first inventorship vests
with licensee.
• Grant backs not violative of anti-trust laws.
• Judicial decisions
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