NEGOTIATIONS AND LICENSING

NEGOTIATIONS AND LICENSING

1. The objective is to achieve an outcome, where each side is clear on what it is giving and receiving from the agreement and, importantly, that each party is content with the final deal reached and has gained a sense of trust and fairness from the other.

2. Each party should decide in advance of the negotiations what its expectations are for the transaction and have set a minimum to the terms it is willing to accept (its fall-back position).

3. THE TEAM

   • It is best 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. Identify the colleagues, and any consultants, you think should be involved in the negotiations and work out a clear role for each in the discussions.
   • Decide on who will lead the negotiations and outline the process the team should follow in accepting or rejecting proposals during the negotiation. Include break-out time to review and discuss points in private and for the team to agree on specific terms.
   • To conclude terms, he must be convinced that the deal is right for his organisation.

4. NEGOTIATING

   • the parties meet several times to discuss the technology. When they decide to enter into a formal licence arrangement, specific individuals from the team with a combination of technical and legal expertise are introduced on both sides to complete the deal and to sign a formal agreement.
   • It is important to avoid beginning negotiations with the exchange of a template licence agreement as the initial draft document. All too often, parties get so caught up in the urgency of having a completed legal agreement that one party draws on a template agreement, inserts some specific terms and conditions which it has decided should be included and forwards this to the other party for review and, hopefully, sign-off after some minor amendments.
   • The main point to be aware of is that the agreement needs to provide for the exchange of a bargain in order to create an enforceable contract – that is, a ‘consideration’ is exchanged in return for ‘something of value’.
     • The contract must fulfil three essential elements
       • Terms of exchange specified for the bargain.
       • Something of value exchanged
       • Mutual exchange
     • What do you want to achieve and what have you got to offer?
       • have clearly identified the specific applications of the technology you want to commercialise, in terms of the types of products or manufacturing processes you want access to and the market sectors they are relevant to. These are the key elements for you in negotiating the scope of the licence, which determines the extent of your rights under the licence.

5. THE TERMS

   • Licence Fee
     • is a payment that, typically, is separate to royalty payments. The basis for the payment can be any, or a combination.
     • A once-off non-refundable fee
     • The licence fee is intended to reflect a number of considerations
       • Payment as a security or sign of intention that the licensee is committed to commercialising the technology
       • Recognition of access to strong IP that provides the licensee with a monopoly for a unique commercial opportunity, which has a tangible value for the licensee in the defined territory
       • A payment towards a portion of the expenditures already committed by the licensor
   • Royalties
     • royalties are paid in addition to the licence fee. They are based usually on a unit, a volume or a weight of sale.
   • Setting the Royalty Rate.
     • consideration must be given to the end-use or application of the product or technology
     • The following are some approaches worth considering
       • Set the royalty as a precise cash amount per unit/volume/ weight sold (involves a risk to licensor from inflation and a risk to licensee if he needs to reduce the price to compete)
       • Set the royalty as a percentage of the profit (transparency and trust required)

6. 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.

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