Presentation to Innovation Fund; Patent Agent and Commercialisation Trainees<br />Marcel D. Mongeon<br />Intellectual Prop...
Outline<br />The TT Process<br />How Patent Agents can work within the TT process<br />The Licence Agreement<br />Preparin...
Technology Transfer<br />Definition:<br />Moving research results into practical use<br />Note that money is not required<...
Key Steps in TT Process<br />Disclosure<br />Early valuation<br />Includes market assessment<br />IP assessment<br />IP pr...
IP Protection<br />Because of ‘invention’ aspect of most early-stage results, patent are predominant mode of protection<br...
Patent Process<br />12 month provisional period<br />Formal application (SA alone or PCT)<br />Paris Convention – 12 month...
Back to the TT Process<br />Early assessments<br />What should be assessed before IP protection?<br />Suggest:<br />Freedo...
Inventorship<br />This is area where patent agent will provide crucial advice<br />Internal person may be better placed to...
Biggest Challenge Relating to Inventors<br />They won’t understand the process<br />Initial need to collect information (i...
Meeting Inventors<br />Need to meet inventors directly<br />Don’t rely on disclosure alone<br />Also have commercialisatio...
Discussion of Prior Art<br />Search for prior art and discuss why it would not be obvious to modify it into your claimed i...
How to Draft for Prior Art<br />Expand your disclosure - include comparative results, unsuccessful experiments, etc<br />T...
The application review process<br />Ensure inventor and commercialisation manager have both read application<br />Ask inve...
Prosecution of Application<br />Ensure continuous communication of each step with commercialisation manager<br />They in t...
Office Actions<br />From some offices, office action process may be difficult<br />Consider telephone or in person intervi...
The Licence Agreement<br />Many examples of licenses and agreements available<br />Sources:<br />www.10kwizard.com<br />ht...
Preliminary Issues<br />Business Terms - Use of a term sheet or Memorandum of Understanding<br />Reviewing the first draft...
Recitals<br />Not legally binding<br />Statement of background and intentions<br />Good place to identify problems such as...
Definitions<br />What should be defined; avoided<br />Capitalize defined terms<br />External references to other material<...
Grant of License<br />Exclusive versus non-exclusive<br />Transferable versus non-transferable<br />Field of use / Territo...
Grant Backs<br />Reservation of certain rights by the Licensor<br />Non-commercial purposes<br />
Sublicensing<br />Right to Sublicense<br />Control over Sublicensing<br />Approvals: consent versus notice, timelines<br /...
Royalties<br />Fully paid up Licenses<br />Royalties based upon gross, net or product sales<br />Royalty “reach through” o...
Patents<br />Management may pass from licensor to licensee over time<br />Issues of control, report, consent and abandonme...
Indemnity<br />Use and scope of an indemnity<br />Limitation on amount of claim<br />
Representation and Warranties<br />Who wants them<br />Who should give them<br />What does a Licensor warrant?<br />Differ...
Confidentiality<br />Permitted circumstances of disclosure<br />What constitutes “confidential information”<br />Importanc...
Accounting Records<br />Report of activities with respect to exploitation of the technology<br />Frequency<br />Right to a...
Terms and Termination<br />Term of the license<br />Events of termination<br />Automatic (insolvency)<br />Curable breache...
Insurance<br />Public liability or product liability insurance<br />Absolute need for both in most circumstances<br />Inde...
Proper Law of the Contract<br />Proper law of the contract<br />Attornment clause<br />
Assignments of Intellectual Property<br />Once property is transferred, cannot normally get it back<br />When might IP be ...
Failure of IP Owner<br />If owner of IP fails, how to recoup ownership?<br />Likely not possible<br />May be potential of ...
Drafting Patents for Licensing<br />Easiest licences are of specific claims<br />Can you embody licence terms for some fie...
Start-up Company Licences<br />Usually little difference in terms except royalty<br />Royalty may be paid up and in form o...
Assessment Issues<br />Two most important assessment or valuation questions are:<br />Patentability<br />Freedom to Operat...
Patent Searching Support<br />You have tools and skills to conduct patent searches<br />Consider:<br />State of the Art<br...
DIY Patent Searches<br />With many patent resources online, inventors want to do patent searches themselves<br />Usual cha...
Providing a Value<br />Frequently asked:<br />What is my IP worth?<br />Or, you need to explain to someone that their IP i...
Start-up Companies<br />e.g.: VC invests $20M in seed capital in company based on technology; subsequently company generat...
Valuing Start-ups Conclusion<br />Depends on each individual negotiation<br />Only real determinant is post dilution perce...
Technology for Defensive Uses<br />Technology will be added to portfolio to enable some other technology or to overcome ‘p...
Traditional Valuation Means<br />Rules of Thumb<br />Usually based on specific industries<br />May be confused with compar...
Example of Rule of Quarters<br />				Before	After<br />	Sales	–		$100		$200<br />	CGS 	– 		$50		$70<br />	Margin –			$50		...
Rule of Quarters in Practice<br />How to price the royalty?<br />The realities of the target industry<br />More informatio...
Another Rule of Thumb<br />The 50% Rule:<br />At point of product introduction, 50% of total risk remains<br />IF inventin...
‘Standard’ Royalty Rate<br />Some industries have ‘standard’ rate<br />Shrink-wrap software in 25 to 50% range<br />Some t...
Using Comparable Rates<br />More similar deals is better<br />But are the deals the same?<br />Industry segments; Margins;...
Acquiring Information about Comparables<br />Internet: Publicly-filed information like SEC and SEDAR information<br />www....
The Georgia Pacific1 Factors<br />Leading Fed Ct decision<br />Court established factors to consider in establishing a ‘re...
‘Scientific’ and ‘B School’ Approaches<br />Discounted Cash Flow (DCF) and Net Present Value (NPV)<br />Real options theor...
Precision and Valuation Estimates<br />What are assumptions that go into a DCF or NPV calculation?<br />Market size<br />P...
Rates in Reality<br />Discount rate is market driven<br />AUTM TTM (Part X, Ch. 2)<br />Low risk rates (known product): 15...
Auctions<br />Theoretically, the best way to obtain the highest value <br />Depends on exposure to largest number of poten...
Conclusion<br />We have covered:<br />The TT Process<br />Licensing Agreements<br />Valuations<br />
Questions?<br />Marcel D. Mongeon<br />+1 (905) 390 1818<br />+44 (0) 1905 70 1818<br />marcel@mongeonconsulting.com<br />
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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 professionals and the technology transfer process in publicly-funded research institutions..

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  • Technology Transfer and Patent Agents

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

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