Anatomy of licensing agreements

Professor Prabuddha Ganguli (PhD)

CEO
VISION-IPR
103 B SENATE, Lokhandwala Township,
Akurli Road, Kandivli East, Mumbai 400101, I ndia
Tel: 91-22-28873766; Fax: 91-22-28844782
e-mail: ramugang@vsnl.com


Presentation made at the WIPO-CSIR Workshop on
Licensing and Technology Transfer; New Delhi; India, July 4-8, 2005
Technology
Know How
Patents
Design
Registrations
Copyright
Trademarks
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
IPR
Collaborative R&D

A basket of Legal Frameworks to be
considered in Technology Transfer
Contract law
Patent Law
Trademarks. GI, Copyrights and Design
Law
Law relating to restrictive and unfair trade
practices
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
LICENSING IS A RELATIONSHIP
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
activity
to share this return with the licensor

License Agreements
Define

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
license
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
confidentiality
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
agreement?
Rights to conduct parallel imports?
What will happen if the technology licensed under this
agreement becomes a subject of compulsory licence in a
country?
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
invalidated?
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
Notices
Liabilities
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
agreement
Recitals and preamble a. Narrative - b. Introductory
Definitions
Period of agreement, Warranties and representations
from both sides, description of rights, licensors and
licensees 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
technology the territory
trade marks affiliate
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
licence?
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
licensor.
Exclusivity could be time bound and also linked to achieving
milestones.
Scope of Rights
Exclusive, Sole or Non-exclusive
I f 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
I mprovements 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
agreement?
Term of the Licence
Exclusive, Sole or Non-exclusive
Term of Licence

+ Dictated by the Business needs therefore to be
negotiated

+ Also based on the term and validity of the IP
associated with the technology

+ Consider clauses that will survive after the term of the
licence.
FACTORS TO TAKE CARE WHILE
DRAFTING AN AGREEMENT
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
SAFEGUARDS WHILE
DRAFTING LICENSE
AGREEMENT

WARRANTIES
WARRANTIES
Title
Validity
Quite enjoyment
Infringement by third parties/pending
litigations
SAFEGUARDS WHILE DRAFTING
LICENSE AGREEMENT
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
licensing
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
package
Exceeding Legal limits of
licensing

Royalties payable after patent period has expired-
unenforceable
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