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Technology Transfer and Patent Agents

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Presentation made on July 29 2009 in Centurion, RSA to attendees from Innovation Fund, DST and other related people. The presentation paid specific attention to the interaction between patent …

Presentation made on July 29 2009 in Centurion, RSA to attendees from Innovation Fund, DST and other related people. The presentation paid specific attention to the interaction between patent professionals and the technology transfer process in publicly-funded research institutions..

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    • 1. Presentation to Innovation Fund; Patent Agent and Commercialisation Trainees
      Marcel D. Mongeon
      Intellectual Property Coach
    • 2. Outline
      The TT Process
      How Patent Agents can work within the TT process
      The Licence Agreement
      Preparing patents for Licences
      Considerations for start-up companies
      Valuation Issues
      The patent agent’s role
    • 3. Technology Transfer
      Definition:
      Moving research results into practical use
      Note that money is not required
      But it helps!
      Intellectual property a key component of this process
      Secures advantage to those who will invest in process
    • 4. Key Steps in TT Process
      Disclosure
      Early valuation
      Includes market assessment
      IP assessment
      IP protection
      Marketing
      Licensing
      Monitoring
    • 5. IP Protection
      Because of ‘invention’ aspect of most early-stage results, patent are predominant mode of protection
      Don’t forget alternate protections:
      Copyrights
      Trade-marks
      Plant breeders rights
    • 6. Patent Process
      12 month provisional period
      Formal application (SA alone or PCT)
      Paris Convention – 12 month deadline
      PCT deadlines – 30 months from priority date (up to 42 mos. in some countries)
      Grace periods
    • 7. Back to the TT Process
      Early assessments
      What should be assessed before IP protection?
      Suggest:
      Freedom to Operate
      Clear ownership rights
      Clear inventorship rights
      Ownership rights may be tricky with private company involvement
    • 8. Inventorship
      This is area where patent agent will provide crucial advice
      Internal person may be better placed to answer tricky questions about contributions to issue
      Who conceived? Reduced to practice?
      Need to understand cultural context of each situation
    • 9. Biggest Challenge Relating to Inventors
      They won’t understand the process
      Initial need to collect information (i.e. Prior and other cited non-patent art)
      Who is going to do this? Not you!
      Preparing claims
      Need to explain what the purpose of claims is and how they need to be supported
      The office action process
      Not a scientific or peer review process
    • 10. Meeting Inventors
      Need to meet inventors directly
      Don’t rely on disclosure alone
      Also have commercialisation managers present so they understand process and objectives
    • 11. Discussion of Prior Art
      Search for prior art and discuss why it would not be obvious to modify it into your claimed invention
      Have early discussions with inventors about prior art
      If the invention is not a significant advance over prior art, have frank discussion with inventor re obviousness.
    • 12. How to Draft for Prior Art
      Expand your disclosure - include comparative results, unsuccessful experiments, etc
      Try add some functionality to link claim elements in a manner different from the prior art
    • 13. The application review process
      Ensure inventor and commercialisation manager have both read application
      Ask inventor:
      Have we captured the invention?
      What have we missed?
      Ask commercialisation manager:
      Have you reviewed the claims?
      Can you licence the claims?
    • 14. Prosecution of Application
      Ensure continuous communication of each step with commercialisation manager
      They in turn should communicate with inventor
      Give notice of costly upcoming steps
      Ensure you are communicating the total costs and getting agreement to proceed
    • 15. Office Actions
      From some offices, office action process may be difficult
      Consider telephone or in person interviews
      Consider taking inventor with you in some cases
    • 16. The Licence Agreement
      Many examples of licenses and agreements available
      Sources:
      www.10kwizard.com
      http://www.sec.gov/edgar.shtml
      Actual form of clauses not important, content is
      Clause by clause review doesn’t deal with language but the concepts
    • 17. Preliminary Issues
      Business Terms - Use of a term sheet or Memorandum of Understanding
      Reviewing the first draft
      Associated Documents
    • 18. Recitals
      Not legally binding
      Statement of background and intentions
      Good place to identify problems such as conflicts of interest
    • 19. Definitions
      What should be defined; avoided
      Capitalize defined terms
      External references to other material
      Consistency among agreements
      Reference appendices for variable information
      Watch for ‘cut and paste’ definitions
    • 20. Grant of License
      Exclusive versus non-exclusive
      Transferable versus non-transferable
      Field of use / Territory
      Right to sublicense
      Use of Technology
      Grant of License to an affiliated company
      Cross-licensing
      Improvements
    • 21. Grant Backs
      Reservation of certain rights by the Licensor
      Non-commercial purposes
    • 22. Sublicensing
      Right to Sublicense
      Control over Sublicensing
      Approvals: consent versus notice, timelines
      Flow through provisions: indemnity, royalties
      What happens in the event of default of the head licence (comfort letters)
      End licenses (often attached as an appendix)
      Obligation to submit copies of licences
    • 23. Royalties
      Fully paid up Licenses
      Royalties based upon gross, net or product sales
      Royalty “reach through” on sublicences
      Minimum royalties (creditable?)
      Milestone payments
      Interest on over-due amounts
      Stacking provisions
      Abeyance of payment pending results of infringement action
    • 24. Patents
      Management may pass from licensor to licensee over time
      Issues of control, report, consent and abandonment
      Who pays?
      Who is the assignee?
      Obligation to mark or label licensed products
    • 25. Indemnity
      Use and scope of an indemnity
      Limitation on amount of claim
    • 26. Representation and Warranties
      Who wants them
      Who should give them
      What does a Licensor warrant?
      Different types of licensors
      What can you actually control?
      Ownership; non-infringement
      Disclaim technology “fitness for purpose”
    • 27. Confidentiality
      Permitted circumstances of disclosure
      What constitutes “confidential information”
      Importance of confidentiality for trade secrets or know-how
    • 28. Accounting Records
      Report of activities with respect to exploitation of the technology
      Frequency
      Right to audit
      Accounting standards
    • 29. Terms and Termination
      Term of the license
      Events of termination
      Automatic (insolvency)
      Curable breaches
      Termination process
      Consequences to sub-licensees of terminating the head licence
    • 30. Insurance
      Public liability or product liability insurance
      Absolute need for both in most circumstances
      Indemnity vs. Insurance
    • 31. Proper Law of the Contract
      Proper law of the contract
      Attornment clause
    • 32. Assignments of Intellectual Property
      Once property is transferred, cannot normally get it back
      When might IP be transferred?
      Does institution continue to use it as part of a research program?
      Does IP build or improve existing IP?
      Is there know-how or confidential information involved?
    • 33. Failure of IP Owner
      If owner of IP fails, how to recoup ownership?
      Likely not possible
      May be potential of bonds secured by IP assets
      Can be very tricky area
    • 34. Drafting Patents for Licensing
      Easiest licences are of specific claims
      Can you embody licence terms for some fields of use in claims?
      E.g. of inclusion material
      Ability to draft separate claims for separate fields of use
      Always ensure a “picture claim” in the patent relating to main product under licence
    • 35. Start-up Company Licences
      Usually little difference in terms except royalty
      Royalty may be paid up and in form of shares
      May also be hybrid models of cash and shares
      May defer cash or have cash convertible into shares
    • 36. Assessment Issues
      Two most important assessment or valuation questions are:
      Patentability
      Freedom to Operate
      Both can be done early before large patent expenses accrue
    • 37. Patent Searching Support
      You have tools and skills to conduct patent searches
      Consider:
      State of the Art
      Freedom to Operate
      Patentability
      Each has its place and you can assist
    • 38. DIY Patent Searches
      With many patent resources online, inventors want to do patent searches themselves
      Usual challenges:
      Not keeping records (US IDS)
      Limiting to the wrong databases
      Key-word vs. classification searching
    • 39. Providing a Value
      Frequently asked:
      What is my IP worth?
      Or, you need to explain to someone that their IP is worth something other than their expectations
      Examples:
      Start-Up Companies
    • 40. Start-up Companies
      e.g.: VC invests $20M in seed capital in company based on technology; subsequently company generates $50M on an initial public offering (IPO)
      What is value of technology?
    • 41. Valuing Start-ups Conclusion
      Depends on each individual negotiation
      Only real determinant is post dilution percentage left
      Some suggestion that technology value may be as little as 1 or 2% pre-IPO
    • 42. Technology for Defensive Uses
      Technology will be added to portfolio to enable some other technology or to overcome ‘patent thicket’
      Good situation is ‘patent pooling’
      e.g. of MPEG pool
      Future of bio: Patenting to permit use; e.g. SARS
    • 43. Traditional Valuation Means
      Rules of Thumb
      Usually based on specific industries
      May be confused with comparable rates
      Most used Rule of Thumb:
      The Razgaitis Rule aka The Rule of Quarters
      Need to be able to analyze what is the ‘incremental’ margin before G&A
      Rule suggests that ¼ of that increment should be licensors
      In practice see anywhere from 10 to 50%
      Best suited to clear commercial products
    • 44. Example of Rule of Quarters
      Before After
      Sales – $100 $200
      CGS – $50 $70
      Margin – $50 $130
      G&A – $20 $20
      Net profit $30 $110
      Incremental Margin $80; therefore, royalty would be $20 or 10% of Sale Price
    • 45. Rule of Quarters in Practice
      How to price the royalty?
      The realities of the target industry
      More information on this: LES
    • 46. Another Rule of Thumb
      The 50% Rule:
      At point of product introduction, 50% of total risk remains
      IF inventing org brings product to introduction stage, entitled to 50% of profits
      Therefore, if commercializing org does part of product introduction entitled to more than 50% of profits
      More a starting position for discussions
    • 47. ‘Standard’ Royalty Rate
      Some industries have ‘standard’ rate
      Shrink-wrap software in 25 to 50% range
      Some types of pharmaceuticals
      What is the base?
      Stacking royalties problem
      How to get information on comparable rates?
      Colleagues
      Subscriptions to Newsletters
    • 48. Using Comparable Rates
      More similar deals is better
      But are the deals the same?
      Industry segments; Margins; Use of IP
      Licensing terms: exclusive; non; options
      Risk analysis
      What is usual risk profile of our technologies? Compared to industrially-generated technologies?
      Certainty analysis
      Similar to risk but one component separate: certainty of measurement
    • 49. Acquiring Information about Comparables
      Internet: Publicly-filed information like SEC and SEDAR information
      www.sec.gov (look for EDGAR)
      Court and other public records
      http://pacer.psc.uscourts.gov/
      Specialty information
      www.10kwizard.com
      www.fda.gov
      Company’s own websites and competitors
    • 50. The Georgia Pacific1 Factors
      Leading Fed Ct decision
      Court established factors to consider in establishing a ‘reasonable’ royalty
      15 Factors include:
      Existing royalty rates for licensor and licensee
      Exclusivity; territory; field of use
      Practice in licensing; relationship between parties; potential related sales
      Duration and term of patent
      1: Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, 318 F. Supp. 1116, (S.D.N.Y. 1970), modified, 446 F.2d 295 (2d Cir. 1971).
    • 51. ‘Scientific’ and ‘B School’ Approaches
      Discounted Cash Flow (DCF) and Net Present Value (NPV)
      Real options theory
      Auctions
      But first some arithmetic!
    • 52. Precision and Valuation Estimates
      What are assumptions that go into a DCF or NPV calculation?
      Market size
      Percentage of market
      Product price
      Royalty Rate
      Discount (interest rate)
      How precise is any of these five assumptions?
    • 53. Rates in Reality
      Discount rate is market driven
      AUTM TTM (Part X, Ch. 2)
      Low risk rates (known product): 15 to 20%
      New product, known manufacturing ability: 25% to 35%
      New product, new manufacturing, known business: 30% to 40%
      New business, product ready (no R&D): 40% to 50%
      New business, product needs R&D: 50% to 70% and up
      Q: for three examples, what discount rate?
    • 54. Auctions
      Theoretically, the best way to obtain the highest value
      Depends on exposure to largest number of potential buyers
      In patent field:
      Ocean Tomo – Summer 2009 IP Catalogue online
      Prediction: will become a larger force as business understands IP better
    • 55. Conclusion
      We have covered:
      The TT Process
      Licensing Agreements
      Valuations
    • 56. Questions?
      Marcel D. Mongeon
      +1 (905) 390 1818
      +44 (0) 1905 70 1818
      marcel@mongeonconsulting.com

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