Preparing to negotiate

Preparing to negotiate

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

2. The Team. In many negotiations both parties will have a deal team. The deal team will conduct due diligence and negotiate the license.

3. The Business Development Executive is the person responsible for finding the deal and bringing the parties to the table.

4. The Scientific/Technical Expert(s) provide scientific and technological expertise to the deal team and conduct due diligence research relating to the technology at issue.

5. The Decision Maker may or may not be the ultimate decision maker for a company, but should be someone who has authority to commit a party to particular deal terms. In an emerging biotechnology company, the Decision Maker is often the CEO.

6. The Licensing Attorney, who is often an experienced patent attorney, is responsible for committing the terms of the agreement, and the desires of the parties, to writing.

7. 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 (e.g., spokesperson, technology review, business evaluation, record keeping).

   • The team should evaluate and determine the marketing, technical, sales and services strengths of itself and the other party in the field of the patented technology. All of these factors are relevant to the amount of the licensing fee and royalty to be paid to the patent holder, in addition to other contract provisions, and help the parties to define the scope of the licensed technology and their competitiveness as potential licensing partners.

8. The value of the licensor's patents may be reduced by the need to license or otherwise deal with the third party patent.

9. The Term Sheet. It is often helpful for parties to exchange a term sheet prior to the initial negotiation meeting. The term sheet typically covers the major issues in a potential deal in outline form.

10. 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.

11. The groundwork for open dialog. In any negotiation, a non disclosure agreement can provide security for both parties to maximize information transfer.

12. 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.

13. Practitioner’s Section Patent License Negotiation: Best Practices

    • The negotiation
      • The terms of a licensing contract reflect the allocation of risk between the parties of the potential future development and marketability of the patented technology.
      • 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.
      • Exclusivity and field of use. License exclusivity refers to whether the licensor has licensed the invention/technology to multiple licensees, whereas the field of use is the circumstances for which the licensor has granted the licensee permission to make, use and sell the patented technology.
      • Payment terms. There are several forms of payment that licensing parties can negotiate to compensate the licensor for the patented technology.
      • Rights to improvements. Parties should negotiate provisions to address the ownership of any current or future improvements of the technology. A licensee will want the right to use any variation of the technology claimed in the patent and developed by it or the licensor after the license agreement is entered into so that it does not need to renegotiate a license if the uses become desirable to it.
      • Conclusion Licensing can be, and is often, essential for the maximum development of biological and pharmaceutical inventions. Licensing arrangements can be specifically tailored to meet the legal and regulatory requirements of different jurisdictions, as well as the specific needs and capabilities of the parties, and characteristically includes provisions dealing with improvements to the licensed technology and to the granting of patent rights for that technology.