NEGOTIATIONS AND LICENSING

NEGOTIATIONS AND LICENSING

1. The purpose of any licensing negotiations is for both sides to identify clearly what each wants from the commercial arrangement they intend entering into.

   • The process of negotiation is frequently informal and, typically, is not completed in a single meeting of the parties around the table. More usually, the parties meet several times to discuss the technology.

2. THE TEAM

   • to appoint a small team, which can be as few as two people, to address points on technology, manufacturing, legal, IP and finance, as required.

3. THE TERMS

   • LICENCE FEE
     • It is a payment that, typically, is separate to royalty payments. For a proven technology or product, which is already in commercial operation and is being transferred as a turn-key technology package to the licensee, the licence fee is usually a set fee which all licensees pay.
   • ROYALTIES
     • The royalties are paid in addition to the licence fee. They are based usually on a unit, a volume or a weight of sale – the ‘royalty base’. As seen in , the ‘25% rule’ Chapter 16 approach is used frequently for the negotiation of a royalty.

4. HEADS OF AGREEMENT

   • The Heads of Agreement typically are a set of bullet point headings, under which the parties are expected to discuss and complete in their own words (or brief bullet points) the decisions they have reached on each item.
     • Parties: The registered legal name and location of the parties.
     • Start date: Commencement of licence.
     • Duration: Agree the appropriate term for the licence
     • Nature of licensed IP: Provide only those patents that cover the specific product which the licensee wants access to
     • Work schedule: Where work needs to be done, in transferring the technology from the licensor to the licensee
     • Costs: Who will incur the costs of the technology or the development work
     • Lump sum/royalties (minimum royalties): Negotiate the licence fee and royalty rate as discussed in the section above.
     • Payment schedule: Depending on the payments that have been agreed, also agree when the appropriate payments should be made.
     • Licence option: If the agreement includes a licence option, specify whether exclusive or non-exclusive
     • Option term on licence: In the case of a licence option, agree the term to allow time for the licensee to do due diligence on the patent applications
     • Right of first refusal: The licensee is interested, but may not be ready to take a licence, so the licensor may decide to offer a right of first refusal – that is, on receiving an offer from someone else, he has to offer the licence to the first pa
     • Scope of licence: The licence should be made as specific as possible by using several
     • Exclusivity: Exclusivity can be granted without giving away exclusive rights to the whole IP.
     • Liability: The licensee provides product liability for any products it manufactures under the licence and indemnifies the licensor against any damages.
     • Warranty on licensed patents: The licensor is expected to provide certain warranties on the patents to which the licensee has certain rights.
     • Ownership of IP: For any agreements where there will be an element of development work involved, ensure that the work schedule is written and that it contains a well-defined description of the work each party is responsible for.
     • Infringement (who takes action to sue): The licensor might wish to have control over all infringements, but this depends on whether the licensee might be considered to be in a stronger position to win an action in the territory than the licensor.
     • Termination: Other than for any specific duration of the licence that may be agreed, the usual terms should be inserted into the agreement to cover material breach, receivership, change of control, etc.
     • Choice of law: This depends on the country of residence of the partners. If it is the same for both, choose the laws and jurisdiction of that country.