Practitioner’s Section

Practitioner’s Section

1. Preparing to negotiate

   • 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
   • 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.
   • The Team: In many negotiations both parties will have a deal team. The deal team will conduct due diligence and negotiate the license. One or more members of the deal team are likely to be individuals that will be responsible for maintaining the relationship during the term of the license.
   • 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. The process of creating this document will help team members understand and focus on the overall objectives of the agreement and avoid unfavorable terms.
   • The groundwork for open dialog: In any negotiation, a nondisclosure agreement can provide security for both parties to maximize information transfer. Some key terms include license and scope, enforcement rights, the financial arrangement, additional patent prosecution and maintenance costs, ownership of improvements, liability, indemnification, and warrantie s and representations.

2. The negotiation

   • 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.
   • 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.
   • 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.
   • Rights to improvements: Parties should negotiate provisions to address the ownership of any current or future improvements of the technology.