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 TEAM
     • It is unwise to negotiate on your own, as points and issues may arise that you are either unsure of or misinterpret. 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
   • NEGOTIATING
     • 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.
   • THE TERMS
     • Licence Fee
       • 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
       • Normally, 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’.
     • Setting the Royalty Rate
       • A stand-alone product or process based completely on the licensed technology is more straightforward than a case where the technology is only part of a whole.
     • Minimum Royalty
       • A minimum royalty may be appropriate in a situation where the technology is at the pre-market stage and there is a good demand for it from several competitors.
     • Resetting Minimum Royalties
       • In the event that the minimum royalty is not achieved, partners usually build some scope into the licence agreement for renegotiation of the minimum royalty on reasonable terms, but cancellation of the licence is an option, or reverting to a non-exclusive licence where an exclusive licence exists.
   • HEADS OF AGREEMENT
     • ‘Heads of Agreement’ is discussed and that agreement is reached on each of the important aspects of the planned interaction, be it a research collaboration, a licence agreement, a licence option agreement, patent exploitation agreement, or other.
       • 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
       • 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, or where it is expected that one or both of the parties needs to do some specific development work to prepare the product for the market
       • Costs: Who will incur the costs of a) the technology transfer and b) the development work (if any)? Who will pay the patent costs if any new patents are to be filed
       • Lump sum/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 (see ‘Scope’ below). The option is granted on signing of the agreement.