Preparing to negotiate

Preparing to negotiate

1. The negotiation

   • A licensor that has taken a molecule through one or more phases of a clinical trial, or has the financial resources to do so, will likely be in position to negotiate narrow licensing agreements that incentivize development and marketing of the technology and that enable additional licensing agreements with other licensees of different strengths that can compete in other markets.
   • Valuation approaches.
     • A business school/MBA approach to valuation often uses one of three methods: the cost method, the market method, and the income method
   • Proprietary position
     • A weak proprietary interest may exist where a patent is questionable in nature; one that covers only a very narrow technology, is very similar to other patented technology or was granted despite potentially not meeting the requirements for patentability
     • Developmental stage of invention
       • Patented inventions that are in the early stage of development often require substantial investment and development before a commercially viable product is produced
   • Payment terms
     • There are several forms of payment that licensing parties can negotiate to compensate the licensor for the patented technology. For example, when a University is the licensor, a typical license will include a signing fee, reimbursement and ongoing payment of patent prosecution costs, milestone payments, minimum annual royalties and a percentage royalty on sales

2. A key to any deal is for each party to have an understanding of what they want from the deal.

   • Thus, effective negotiation begins with effective preparation
     • It includes
       • assembling the right team
       • preparing a heads of agreement
       • defining guidelines for the process
       • negotiating honestly
       • drafting the contract

3. Initial Team Meeting.

   • It is important that the deal team meet and reach an understanding of the business motivation for the deal and the responsibilities and role of each team member during the process

4. The Term Sheet.

   • It is often helpful for parties to exchange a term sheet prior to the initial negotiation meeting

5. Deadlines.

   • Establishing preset deadlines for each of the major steps in the negotiation process is important because it forces the other party to reveal its true intentions and interests in the licensing agreement.

6. The groundwork for open dialog

   • In any negotiation, a nondisclosure agreement can provide security for both parties to maximize information transfer.

7. Drafting the contract.

   • Commentators have suggested that the party drafting the contract is always in the more favorable position because that party will be in a position to ensure inclusion of desirable provisions and places the other party in the position of defending every request to modify the drafted agreement.