Negotiation and Licensing.

Negotiation and Licensing.

1. The process of negotiation is frequently informal and, typically, is not completed in a single meeting of the parties around the table.

2. All too often, 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

3. In the first instance, the negotiations should focus on the Heads of Agreement presented for the initial discussion. The points in these heads need to reflect all the essential aspects of the business transaction that both parties seek agreement on.

   • The negotiations should focus on one item at a time until agreement is reached. Where a party has difficulty in accepting the other party’s proposal, there may be an opportunity to trade on items and so come to an amicable overall solution. When all of the points are agreed, which needs to conform to the requirements of contract law in order to make it a legally-binding deal.
     • 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’.
       • Terms of exchange specified for the bargain; Something of value exchanged; and Mutual exchange.
         • In the licence agreement, the licensor agrees to provide the licensee with the use of his property , the licensee agrees to pay the licensor a fee and/or royalties as consideration and the agreement specifies the terms and conditions for exchange of the bargain.
           • You need to prepare financial projections for the business opportunity and calculate the net margin you expect to achieve on the sales price for products based on the technology. Taking the ‘25% rule’ into account
             • You also should prepare a realistic business plan or proposal, demonstrating the level of sales and market share you expect to achieve, while outlining the methods you will employ to do this. Present the key strengths your company has in terms of technical capability, personnel, sales and marketing activities
               • A once-off non-refundable fee; A number of fees paid on reaching agreed milestones – for example, signing of the contract, completed transfer of the technology.
                 • A fee paid on signing of the licence agreement, but deductible against the first royalty payments
                   • Cost of patents to date (or a percentage of these) or cost of research to date (or a percentage of this)
                     • A lump sum to cover the costs of negotiating and drafting the agreement, the transfer of the technology and the required training and consulting support after the transfer.

4. HEADS OF AGREEMENT is discussed and that agreement is reached on each of the important aspects of the planned interaction

   • t is important to be brief and specific on the points and to avoid the temptation to express them in legal formulations. That is the task of the acting lawyers, to whom the jointly-agreed Heads will be passed to draft a formal legal agreement that reflects the planned interaction between the parties.
     • Heads of Agreement – Licence Parties: The registered legal name and location of the parties. Start date: Commencement of licence. Duration: Agree the appropriate term for the licence (see ‘Duration’ under ‘Scope’ below).
       • Nature of licensed IP (patent, copyright, etc) Provide only those patents that cover the specific product which the licensee wants access

5. Nature of licensed IP (patent, copyright, know-how, etc.) 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 a) the technology transfer and b) the development work (if any)? 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. agree the term to allow time for the licensee to do due diligence on the patent applications and the technology and specify the event that triggers an exercise of the option
     • Scope of licence: The licence should be made as specific as possible by using several parameters to define its restricted scope – for example, by agreeing territories, fields of application and the degree or type of exclusivity given, if any (see ‘Application’ under ‘Exclusivity’ below): Exclusive licence: The licensee is the only permitted user of the licensed IP (see ‘Application’ below); Sole licence: The licensee is the only legal entity granted a licence to use the IP, although the licensor is permitted to use the IP as well
       • Exclusivity: Exclusivity can be granted without giving away exclusive rights to the whole IP. Different kinds of exclusive rights can be divided out by defining specific rights that fall within the following terms: Application: Where the technology has more than one commercial application, Territory: Restrict the licence to a specific country or geographic region in which the licensee has the exclusive rights; Duration: The duration of the licence can be (i) for the term of the last of the patents

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