This document discusses various agreements and considerations for technology transfer, including non-disclosure agreements, memorandums of understanding, term sheets, and license agreements. It addresses identifying commercially promising innovations, conducting due diligence on technologies, and using patent information to research technologies, business partners, and business opportunities. The document provides an overview of key elements to prepare for licensing agreements and managing confidential information.

1. European Business & Innovation Centre Network
Technology Transfer
András Haszonits
Amman, 16 May 2010
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2. Agenda
• Decisionmaking
• Confidentiality Agreement
• Memorandum of Understanding
• Standstill Agreement
• Term Sheet
• License Agreement
– Royalty stacking
– Royalty packing
• Material Transfer Agreement
• Cooperative Research and Development Agreement
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3. Technology Transfer – Identifying technology
Interviewing researchers
Researchers often do not recognize commercial potential of an
invention. Intensive contact with higher innovation potential, to identify
innovations ASAP after creation of mind.
• Identifying innovative researchers
A way by applying patent databases. Past innovators capable of creating
patentable inventions are more likely to develop similar in the future
• Recommendation method
Scientists have valuable knowledge on which of them have commercially
promising inventions. Recommendation method makes use of this internal
knowledge.
• Hierarchy method
Department leaders having an overview of research topic under their
supervision, thus they mean the first level of interview.
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4. Due Diligence
„Success in making a license deal depends 90% on
diligent preparation (homework), and 10% of the rest.”
Frédéric CAILLAUD, Licensing & Business Development Director, L’Oréal
Necessary first step before entering to any contact:
• Identify own short- and long-term strategic objectives
• License-out/license-in, if any fits those above
• Gather info on potential licensor/licensee, technology
in question, other available or being developed similar
technologies, legal and business environment
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5. Main areas of preparation
• Ownership of technology,
– is it proprietary, or free to use?
– have all proper procedures been followed to ensure its
proprietary rights in the relevant market?
– any third party claiming rights?
• Performance
– Can it deliver (reduce costs, improve performance, other
identifiable benefits)?
– Need on any further IP rights to fully implement deliverance
– Economic and strategic value?
– Fitting to and promote business objective?
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6. Information Sources
• Public information on companies listed on stock
exchange
• Patent information services/databases
• Innovation centers, Tech. license offices, TTOs,
• LESI, PROs, research-intensive universities,
• Technology exchanges
• Professional and business associations, chambers
• Databases and publications on the relevant
market/product
• Tradeshows, technology exhibitions, fairs
• Relevant ministries/agencies/fund managers
(beneficiaries of fund allocation to similar research area)
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7. Information Sources – in reality
Of which patent information: 3%
Source: National Innovation and IP survey, Hungary, 2005
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8. Patent Information
• Largest repository of technical information, contains
about 60 million patents
• Provide more detailed information about technology
than any other publications
• Most up-to-date source of technical Information in
new areas of technology
• Classified into technology areas branching down to
70.000 sub-divisions – allow focused search
• Each patent contains more than 50 different fields
providing technical / strategic business information in a
standardized manner
• Mostly free of charge
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9. Application of Patent Information
• Technology:
– Locating technology
– Possible alternative solutions
– Positioning own innovation (advancement/trend-like)
– Search possible solutions for a given problem
• Identifying business partners:
– Screening stake-holders in a given technology area
– Identifying their current level of technology activity
– Identifying possible license-in / license-out partners
• HR:
– Screening for lead researchers to hire
• Business development
– Searching for business opportunities (BO)
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10. IP is a valuable source of information ...
… because:
• Patents are well structured
Patent literature
documents
• Patent describes how to solve Not effective
Effective
a technical problem
• Largest most concentrated
source of technical information
60 million
• Most of the entries in patent documents Effective but not
reviewed
databases are not effective, in
other words, 94% of the
solutions described in patent
documents are free for use 80-90% of the innovations
described in patents are not
30-50% of R&D is duplicate! published anywhere else!
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11. Application of Patent Information: BO Decision-making Tree
Is the technology protected? Only 5 m. out of the 60 m.
patents are in force!
no
Use it!
yes
Is it so in my region? On average for any one invention
a patent is filed in 4 countries!
no
Use it!
yes
Is the protection stil valid? Expiration, non-payment,
invalidation
no
Use it!
yes
Is there any other relevant technology in the public domain?
yes
Use that!
no
Is it possible to „kill” or limit the patent”?
Try negotiate /
no
yes Kill and use it!
Does the licensing of the patent allows full exploitation?
no
Watch Out!
yes License stack
License! Patent information Patent information Calculate!
separate presentation case study
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12. Preparation for a License: NDA
Non-disclosure Agreement (NDA):
(also called as Confidentiality Agreement (CA), Secrecy Agreement (SA))
• When to use?
– Before patenting: Disclosure of the invention
prior to patent filing will destroy the application
(it is vital that any discussion with investors,
business partners, etc. be done
CONFIDENTIALY)
– After patenting: Even if an inventor has filed a
patent application, he must be careful to cover
any features of the invention which are not in the
patent application with an NDA
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13. Preparation for a License: NDA
Non-disclosure Agreement (NDA):
• Elements of a Nondisclosure Agreement
Specification of Ownership of rights
confidential information (title)
Obligations of receiving No obligation of
party disclosure;
Period of confidentiality Termination
Termination of obligation No warranty
of confidentiality
General
Sample NDA
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14. Preparation for a License: NDA – Exclusions
Information is not considered as confidential if:
• it is in the public domain
• it has entered the public domain other than through the fault of the
receiving party
• at the time of disclosure, the receiving party already had it in its
possession or has acquired it from a third party
• the disclosing party has been able to disclose it to another party
without restriction
• it is or was independently developed by the receiving party
• it is disclosed as required by law or governmental rules or
regulations
Soft IP
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15. Preparation for a License: MUO
Memorandum of Understanding (MUO):
(also called as Commitment Letter, Letter of Intent)
• When to use?
– Official start of license negotiation
– Showing serious intention to sign license deal with the
other party
– Motivating, speeding up process to reach license deal
– Indicate the period of time within which agreement is to
be concluded
– Usually non-binding document, though legal
obligations may arise
• Indicate the binding / non-bindig status!
• Binding by default (if not indicated otherwise) in some countries
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16. Preparation for a License: Standstill Agreement
Standstill Agreement:
• When to use?
– Potential licensor grants a limited period of time (few months)
to potential licensee for which period licensor agrees not to
attract any other candidature
– Mostly no financial remuneration for exclusivity and
opportunity
– Licensor may request report on licensee’s evaluation of
technology and reasoning decision
– Followed by Agreement to Negotiate License Agreement with
a Term Sheet if outcome positive
– Possibility to enter into preliminary commercial agreement,
distributorship agreement
Sample MUO-SA
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17. Preparation for a License: Term Sheet
Term Sheet (also called as Heads of Agreement):
• When to use?
– If carrying out evaluation of technology licensee wishes to
continue attached to the report
– Proposed basis of license agreement
– Summary of key issues, following the structure of the license
– Good basis of focused negotiation and bargaining
– Prepare one for internal use (add notes and borderlines), and
share one with negotiation partner
– Important!: if not intended to be legally binding „contractual
proposition” state in writing!
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18. License Agreement – Classification of Variants
• According to subject matter:
– Classical patent license
– Know-how license (→ training and consultancy agreement)
– Hybrid license agreement
– + Trademark license agreement
(technical aspects are considered indirectly)
– Copyright license
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19. License Agreement – Classification of Variants
• According to extent of rights:
– Geographic
– Commercial body (who is granted access?)
The company?
1 machine, 1 location
site license
corporate wide
Subsidiaries and affiliates?
– time limitations,
– restriction of field of use
– Exclusive, sole, non-exclusive license
• Sub-licensing
• improvements
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20. Extent of exercise
Rights conferred by a license may include:
• Technology/patent: • Copyright:
–make, –reproduce,
–have made, –display,
–use, –distribute,
–sell, –alter
–import, (make derivative work)
–store… …
• Trademark:
use in connection with distribution
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21. Why to Licence? – License-out
• No own resources (time, money, skill, or will) to commercialize
Developed technology does not fit with the business strategies
• Licencing generates immediate or quick cash in-flow
Licencing income may be more secure than revenue from sales
(in case of upfront / lump sum / fixed payments)
Licence income may enable quick pay-back of other liabilities
• Licencing is a good option to enter into new markets
Own product is not suitable for export but the embedded
technology can be used by others (i.e. foreign companies)
• One way of conflict resolution in case of infringement
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22. Why to Licence? – Licensing-in
• Exploiting technology that is new to the company
developed by others (in-licencing, cross-licencing)
• Access to technology otherwise unobtainable
• Opportunity to combine company’s own and in-licenced
technologies to create new solutions / products
• Opportunity to achieve geographical monopoly by
exclusive licence agreements
• Enables focusing in a narrow field of technology in R&D
• Savings in company’s own R&D costs
• In-licencing vs. cross-licensing?
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23. Why to Licence? – Cross-licensing
Cross-licensing agreement:
• two parties grant a license to each other for the
exploitation of their patents.
• mutual sharing of patents between companies
without an exchange of a license fee if both patent
portfolios are about equal in value.
• each company can make, use, and sell products
covered by patent of the other that had been cross-
licensed.
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24. Why to Licence? – Patent Pool
Patent pool:
• agreement between parties agreeing to cross-
licence their patents (relating to a particular
technology)
• Patent pools are example for members of a
competitive industry join to create common resource
for collective benefit.
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25. License Agreement
• Most important headings include:
– Definition of subject matter and conditions,
– Lifetime of legal relationship, termination
– Rights and obligations of licensor
– Rights and obligations of licensee
– Optionally terms of consulting
– Other general clauses
• Legislation in some countries defines content and
default conditions applying if not specifically agreed
otherwise
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26. License Agreement
• Definition of subject matter and conditions
– Plain English, easy to understand, use short
sentences, roll out abbreviations
– Minimize the use of profession related specific
wording
– Definition and consequent use of professional
jargon
– Avoid copy-pasting, referencing other materials
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27. License Agreement
• Lifetime of legal relationship, termination:
– Contractual period might be linked to patent
protection (end of 20 years)
– License agreement terminates by:
• Time period defined in the agreement
• Conditions occuring defined in the agreement
• Expiration/termination of patent
– Forms of termination:
• Mutually agreed termination
• Forced termination from one party
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28. License Agreement
• Obligations of licensor:
– Exact identification and communication of
technology information subject to the agreement
– Allowing utilization via (indemnity obligations of
licensor):
• no third-party rights exist on the subject patent
obstructing or limiting the commercialization,
during the whole period of agreement
• the invention is technically feasible
• maintenance of protection, enforcement, and
litigation (unless if otherwise agreed)
– Obligation of information
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29. License Agreement
• Rights of licensor:
– Have access to licensee’s company books, commercial
data serving grounds for remuneration
– In case of exclusive license right to transfer to non-exclusive
license if agreed commercial obligations are unmet
– Check on if licensee has made all necessary steps to prevent
confidential information to leak (verification of such
procedures via auditing)
– Liability in case of accidental or negligent disclosure
– In case of trademark license:
• Control the proper use of trademark in marketing and
advertising
• Control quality of product trademark assigned to
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30. License Agreement
• Obligations of licensee:
– Required to comply with the specifications and
standards
– Pay the license fee agreed,
– Keeping prudent bookkeeping, required for
retention of documents
– In case of exclusive license, to make all efforts to
achieve commercial success,
– To prevent confidential information from disclosure
– Non-Compete, Non-Solicit (if requested only!)
– In case of trademark license:
• Proper use of the trademark in marketing and advertisement
• Maintaining quality of product
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31. License Agreement
Usual forms of financial remuneration:
– Up-front lump-sum payment
– Milestone payment linked to certain events,
– Royalty, based on commercial activity
Problems:
– What to consider as grounds for setting the price?
– How to control?
Non financial rewards:
– Cross licensing
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32. License Agreement
Characteristics of license Specification Frequency (%)
Free-license 5,1
Up-font 11,6
Financial parameters
Royalty 21,2
Up-font + royalty 62,1
Beginning of contractual relation 48,4
Due date of Milestone 16,4
upfront payment Elongated 23,9
Mixed 11,3
Total sales volume 15,2
Sales embodying technology 73,3
Grounds of
royalty payment Net sales 10,7
Costs arisen at licensor 0,4
Market value of technology 58,4
Grounds for setting Standard industry rate 32,1
level of royalty Ability to pay of licensee 8,6
Other 4,9
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33. License Agreement
Typical royalty rates on sale price as of different subject-matters
Patent Royalty rate
Software 5-15%
Medical equipments 3-5%
Equipments 1-4%
Semiconductor (Chip design) 1-2%
Materials (process) 0,2-2%
Materials (products) 0,1-1%
Drugs in clinical testing stage 12-20%
Material composition of drugs 8-10%
New entity for diagnostics 4-5%
New process for known entity 2-4%
Biotech. process (exclusive) 1-2%
Process (non-exclusive) 0,25-15%
Source: LESI
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34. License Agreement
What does the Royalty apply to?
– To all fabricated product made?
– Combination products?
– Just areas where/until patent exists?
– The same royalty where support services not provided?
– Tying royalty to valid claims?
– Just in case of valid patent?
– How long is a patent valid?
– If patent is invalidated by a patent office, what is its area of
reference?
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35. License Agreement
Royalty Stacking:
– Example: development of a new vaccine implies:
• Research-tools,
• Recombinant techniques,
• DNA sequences,
• Transformation vectors,
• Cell lines,
• Adjuvants,
• Delivery devices
All of them might be proprietary
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36. License Agreement
Recommended solutions:
• Separate royalties due if sold alone / combined
• Royalty ceiling
– Licensee motivated to incorporate more technologies
if reached ceiling
– Licensee argues his/her technology being more
important than others, thus his/her pro rata royalty
should not be decreased
– Solution:
• Royalty floor
• Licensor may agree to lower pro rata only in case
additional technology is needed, not just desired
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37. License Agreement - Structure
Checklist
Title, Table of contents Life of the agreement Indemnity; liability;
Identification of parties Termination insurance
and signature Use of trademarks Notices
Background, Recitals Representations and Assignment
Definitions; description warranties (limited); Waiver
Grant or terms of use disclaimers Failure to perform
(Extent of rights; Intellectual property Confidentiality/secrecy
limitations) protection; conduct of Miscellaneous:
Fees, royalties, prosecution force majeure,
minimum annual Marking; export control maintenance,
payments Applicable law; survival on termination,
Payment terms choice of jurisdiction; Amendments etc.
Diligence requirements arbitration/mediation Closing; signatures,
Reporting schedules Infringement; date and place,
Records/accounts right to sue date of effectiveness
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38. Cooperative Research and Development Agreement
CRADA
Agreement between a private company and a government agency to work
together on a project.
• Benefits:
– Enable partners to combine their research budgets and optimize
resources
– Provide means for sharing technical expertise, ideas, and information in
a protected environment.
– Allow the partners to agree to share intellectual property emerging from
the effort or to agree that one partner may retain exclusive license to
patentable research.
– Promotes commercialization of technology resulted from CRADA
• Process:
dialog - joint development of work-plan – completion of CRADA
• Financing and fees agreed are due even if non-performance
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39. Partnership/Aliance Definition
• Collaboration to create something
which was not achievable „alone’
– „Virtual” structure
– Joint venture
• Is it dramatically different from a marriage?
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40. Partnership Process
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41. Cooperative Research and Development Agreement
Structure of CRADA:
• Definitions: (as of License Agrement)
– background,
– foreground,
– proprietary (confidential) information,
• Project team: both side to accomplish aims of the project
• Financing: shared cost, cost bearing party
• Confidentiality:
Reciprocity, field, info exchange and confidentiality duration,
written vs. oral, confidential stamp, no release of company names
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42. Cooperative Research and Development Agreement
Structure of CRADA:
• Liability: PRO has to be waived from economic
responsibility related to damages (including personal
injury) in connection with the activity of the business
entity, or the commercial use of products/processes/
services resulting from the research.
• IPR splitting, but at least:
– „first right of refusal”
– „first look option”
• Manufacturing
• Exclusivity
Sample CRADA
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43. Thank you very much for your attention
András Haszonits
haszonitsandras@upcmail.hu
The training material is to be
used exclusively in conjunction
to the SRTD project in Jordan
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