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

2. THE TEAM

   • It is important that you have a team, however small you know how to address technology, manufacturing, legal, intellectual property and finance points, as necessary
     • where the board of directors is likely to make the final decision, but the person leading the team must understand the corporate problems and the limits beyond which they cannot negotiate.
       • To conclude the terms, you must be convinced that the agreement is appropriate for the organization.
   • Stock photo - Business negotiations and brainstorming, analysis and creative office work. Idea and people, the place and busy, business people work administration. Vector illustration. Retrieved from https://es.123rf.com/photo_42361911_negociaciones-comerciales-y-de-intercambio-de-ideas-an%C3%A1lisis-y-trabajo-de-oficina-creativa-idea-y-la-g. html Avendaño associates and lawyers. (2019). Interinity contract. Obtained from https://www.avendanoabogados.com/area-laboral/contrato-de-interinidad/

3. NEGOTIATING

   • specific individuals of the team are introduced with a combination of technical and legal experience on both sides to complete the agreement and sign a formal agreement
     • comply with the requirements of contractual law to be a legally binding agreement
       • The contract must fulfill three essential elements
         • Exchange terms specified for the business
         • Some value exchanged
         • mutual exchange

4. THE TERMS

   • Licence Fee
     • For a proven technology or product, which is already in commercial operation and is being transferred as a turnkey technology package to the licensee, the license fee is usually a flat rate paid by all licensees.
       • The licensee is offered: a single non-refundable rate; A series of fees paid upon reaching the agreed milestones
         • By signing the contract, the complete transfer of technology, the production of a successful prototype, the manufacturing capacity of the product achieved, the sale of the first product, etc.
           • The license fee is intended to reflect a number of considerations
             • Payment as a guarantee or sign of intention that the licensee undertakes to market the technology; Recognition of access to intellectual property so that the licensee in monopoly of a single opportunity, which has a tangible value for the licensee in the defined territory
             • Recognition of access to intellectual property so that the licensee in monopoly of a single opportunity, which has a tangible value for the licensee in the defined territory
             • Recognition by the licensee that an important investment was made in the development of the technology, where there is no risk
             • Payment for a portion of these expenses that are committed by the licensor
             • Milestone rates to reward the licensor for the successful development of the technology, but only as the risk to the licensee decreases as the technology approaches the market
   • Royalties
     • They are generally based on a unit, volume or sales weight: the "royalty base"
       • "25% rule" is frequently used to negotiate a royalty
         • operating costs, the probable selling price and the net margin for the product of the technology being licensed
   • Setting the Royalty Rate
     • For stand-alone products or processes, base the royalty on the sales price of the product, a unit weight, or a unit volume;
     • 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)
     • If the licensee is making an investment, then a lower royalty might be fair
     • If the royalty is not based on a unit which itself tracks inflation (for example, sales price), then ensure that the royalty is index-linked
     • For compound products or processes, base the royalty on a percentage of the premium achieved by the manufacturer, as compared to the equivalent product without the licensed technology (the unimproved product)
     • For compound products or processes, base the royalty on the percentage contribution of the licensed technology to the total manufacturing cost of the final product (requires trust or auditing of the manufacturer’s costs)
     • A sliding scale with a high initial royalty falling to a lower rate on increased sales provides an incentive to the licensee to improve market share and a better overall return for both licensor and licensee
     • Set the royalty as a percentage of the profit (transparency and trust required)
   • Minimum Royalty
     • A minimum royalty can be based on this market forecast. The minimum royalty also ensures that the licensee actively exploits the license and does not use it as a blocking maneuver towards competitors
       • it may be more appropriate to choose a minimum sales figure
         • This is different from a minimum royalty, as it guarantees that the market stays alive
           • while the minimum royalty obligation only provides a minimum payment
   • Resetting Minimum Royalties
     • partners generally incorporate certain scope in the license agreement for the renegotiation of the minimum royalty on reasonable terms
       • some approaches to negotiate trade terms for a license agreement, particularly if the agreement relates to a new emerging company or a new university enterprise

5. HEADS OF AGREEMENT

   • the 'Heads of Agreement' and reach agreement on each of the important aspects of the planned interaction, either a research collaboration, licensing agreement, an option agreement license agreement to use patents or other
     • Heads of Agreement – Licence
       • Start date
         • Duration
           • Nature of licensed IP (patent, copyright, know-how, etc.)
             • Work schedule
               • Costs
                 • Lump sum/royalties (minimum royalties)
                   • Payment schedule
                     • Licence option
                       • Option term on licence
                         • Right of first refusal
                           • Scope of licence
                             • Exclusivity
                               • The licensee provides product liability
                                 • Warranty on licensed patents
                                   • Ownership of IP
                                     • Ownership of improvements
                                       • Infringement (who takes action to sue)
                                         • Termination
                                           • Choice of law
                                             • Dispute resolution
   • Burgos, V. (2019). Education & Open Science. Obtained from https://www.scoop.it/topic/innovacion-tecnologia-y-educacion

6. Software use license agreement. (2019). roccketlawyer. obtained from https://www.rocketlawyer.com/es/es/documentos/contrato-de-licencia-de-software

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