ATS IP Mgt and Comm McInnes 2010 by runout

VIEWS: 19 PAGES: 32

									Managing And Commercialising IP
Assets

Rob McInnes
Principal
How Does IP Add and Create Value?

§   Inhibits competition against the company’s existing
    products
§   Helps extract value from technologies not used in
    products sold directly
§   Allows technologies to be acquired with some assurance
    of value
§   Codifies the company’s knowledge both internally and to
    investors
IP Is Legally Protected Knowledge or Creativity

                                        Intellectual
            Human                         Property
            Capital
            - expertise
           - know-how
               - skills     Intellectual Capital
            - creativity          - processes
                                 - innovations
                               - methodologies

                     Physical Capital
Issues in IP Management

§   Dealing with staff and contractors
§   Dealing with research collaborators
§   Dealing with suppliers & customers
§   Planning and conducting R&D with IP issues in mind
§   Understanding the IP landscape
IP Landscape

§   To inform business strategy development and R&D
    planning
§   For competitor intelligence
§   To understand the technology and IP position of
    prospective licensees/collaborators
§   To determine what is available to in-license
§   To look for strategic and blocking IP opportunities
Different IP Business Strategies

§   Comprehensive product protection by building mutually
    reinforcing bundles of rights including patents, designs,
    copyright and brands
§   Placing roadblocks in competitors’ paths
§   Generating cross-licensing currency to deal with blocking
    rights of third parties
§   Building value for market perception
§   “Fit” with technology/IP deficits of prospective licensees
A Vision for IP Management

§   The marketing of products is supported by the maximum
    available IP protection and we capture the value that IP
    can bring to our new developments.
§   The identification of potential IP rights, and the IP
    protection process, becomes an integral part of strategy
    development and R&D projects.
§   Knowledge of the IP rights of competitors and other third
    parties is used as a resource in strategy development
    and in R&D projects and planning.
A Vision for IP Management

§   Opportunities for acquiring technology by licensing IP in,
    and exploiting technology by licensing IP out, are
    identified, evaluated and captured.
§   Brands are strong, consistently presented and well
    supported by our marketing materials.
§   We avoid infringing the IP rights of others.
§   We effectively defend our IP when it is threatened
Commercialisation Options
§   Licensing                          §   Fully integrated trading
     » of a product                        business
     » of a technology                 §   Virtually integrated trading
                                           business
§   Collaboration
                                       §   Start-up company
     » to get to the starting blocks
                                            » stand-alone
                                            » with an industry partner
                                            » with a finance partner
Issues in Licence Agreements
§   Overall structure of a licence - commercial terms;
    performance obligations; allocating risk and liability.
§   Special issues with licensing research tools and reach
    through claims.
§   Pitfalls in royalty structures.
§   Pitfalls in performance obligations and penalties for
    failing to meet them.
§   Identifying, allocating and mitigating risk in licence
    agreements
§   "Boilerplate" that matters - particularly indemnities and
    dispute resolution
Anatomy of an IP Licence

§   What is being licensed?
§   Commercial terms
     » royalties and other remuneration
     » licensee’s obligations to perform
§   Allocation of risk and liability
§   Boilerplate
§   May also be a collaboration involved
Bases of Royalty Calculation

§   Percentage of sales
     » gross/net confusion
     » exclusions: taxes, freight & insurance, packaging, returns…
       anything else? cap these?
     » deductibles: patent costs, sometimes R&D cost
§   Per unit made/sold
     » avoids problems with defining “licensed product”
     » indexation required
§   Share of sub-licensing income
§   Share of profit? No.
Minimum Royalties

§   No substitute for performance requirements
     » quantitative eg minimum sales, marketing spend
     » qualitative eg best endeavours
§   Beware giving the licensee a financial option to shelve
    the technology
     » but may be unavoidable
§   Avoid reversion to non-exclusive as a consequence of
    non-performance
Dealing with Sub-Licensing

§   Try to deal with a licensee who:
     » has direct market access, or
     » will add value before sub-licensing
§   Option 1: royalty of X% of sales by licensee or its sub-
    licensees
§   Option 2: royalty of X% of the sub-licensing income of
    the licensee
     » problems when the licensee creates new IP licensed in parallel
       with the original licensed IP
     » ignore sub-licensing to related companies
Royalty Splitting

§   Important in pharma/bio especially
§   Collaborators develop IP then the commercialising party
    takes the project further
§   Non-commercialising party’s share diminishes as the
    commercialising party adds further value
Negotiating Royalties

§   Comparable transactions approach
     » sources of information
     » how comparable are the previous deals
§   First principles approach
     » “25% rule of thumb” (LES/Bob Goldscheider)
     » risk-adjusted relative investment (Noel Byrne)
§   Adjustment factors
     » for negotiating up or down from starting point
25% Rule of Thumb Stated
§   The licensor should receive from the licensee around one quarter of
    the gain accruing to the licensee from the use of the licensed right
     » operating profit in the case of goods
     » “gain” may be a cost saving in an industrial process
§   Based on a notional “fair” apportionment of gain
     » licensee undertakes greater investment, risk
§   Tested in survey published by LES
     » Vol XXXVII No. 4 December 2002, p123
     » median royalties are typically 25% of median gross profit for
       successfully licensed products
Limits of the 25% Rule
§   It’s a rule of thumb only
§   Based on a simplistic single innovator/ single right/single
    product model
§   Simple form doesn’t deal with licensee expenditure to
    get product to market
§   Requires data including information known better by the
    licensee
§   But a useful starting point
§   More sophisticated NPV approach is available
Adjustment Factors
§   stage of technology           §   extent of economic monopoly
    development                       conferred
§   degree of know-how transfer   §   other IP required
§   exclusivity                   §   acceptance of product risk
§   up front/milestone/           §   acceptance of obligation to sue
    maintenance fees                  infringers
§   funding of R&D                §   industry norms
§   payment of patent costs
Dealing with Royalty Stacking

§   When the parties anticipate that further IP will need to be
    licensed in to allow the licensed product to be sold
     » eg delivery system for a drug/vaccine
§   Increasing importance of research tools/ growth in patent
    numbers
§   Distinguish “blocking rights” versus desirable but
    inessential rights
     » licensor will seek tight definition of required rights
Performance Requirements

§   Adhere to a marketing plan
§   Milestones eg clinical, regulatory
§   Marketing as a percentage of sales
§   Maintain marketing infrastructure
§   Best endeavours/reasonable endeavours
§   Minimum payments
§   Sanction: termination or reversion to non-exclusive?
Risks Related to IP Coverage

§   Licensor: my bundle of patents/ applications in key
    countries plus proprietary information deserves a flat rate
    royalty
     » in all jurisdictions for a defined term
§   Licensee: I won’t pay for what is not delivered; I will pay:
     » patent royalties only on granted patents/active pending
       applications by jurisdiction
     » know-how royalties only on secret, substantial and defined
       proprietary information
Infringement Risk

§   That the licensed IP will be infringed
     » licensee will want to withhold royalties as it is not getting the
       exclusivity it paid for
     » withhold a proportion?
     » to be applied to infringement proceedings?
§   That the licensed product will infringe third party IP rights
     » licensee will want to withhold royalties pending determination
     » to be applied to defence of the claim?
     » royalty stacking arrangements will apply
Non-performance of Licensed Products
§   Distinguish supply of goods from licensing of IP
     » Generally no fit-for-purpose type warranties except in turnkey
       situations
     » Product licensors will generally offer due-care-and-skill type
       warranties, but hard to give content to these warranties for
       licensors of bare IP rights
§   Public sector organisations will rarely offer, and may be
    prevented from giving, warranties
     » Some won’t warrant ownership (perhaps wisely)
§   Watch insurance issues
Product Liability
§   Death or personal injury caused by defects in licensed products
§   Two separate issues:
     » Warranties by the licensor to the licensee
     » What happens if the licensor is sued by the injured party directly?
§   When is a developer/licensor of technology directly liable under
    product liability?
     » Negligence actions depend on type of deal
     » Strict (no-fault) liability an issue in the USA
Void Provisions in the EU

§   Provisions controlling licensee prices
§   Prohibition of supply to customers in other territories
§   Requiring the licensee to take non-patented materials if
    not necessary for quality or technical reasons
§   Grant-back provisions requiring the assignment of
    “severable” improvements
§   No-challenge provisions
“Per se” Unlawful in USA

§   “Naked” price-fixing
§   Output restraints
§   Market division among horizontal competitors
§   Collective boycotts to divide markets
§   Resale price maintenance
Australia - Patents Act

§   S 144
     » conditions in a licence may not be used to force the purchase of
       non-patented goods or to prevent licensee from using other
       products or processes
     » except where the licensor proves the licensee had the option of
       not submitting to the condition and it is terminable with
       compensation
     » sanctions include unenforceability of the condition and the patent
Key Issues in a Collaboration

§   Managing the collaboration
§   IP identification and definition
§   IP ownership
§   What does the funding/commercial party get for its
    contribution?
§   Consideration back to the research party
§   Allocation of risk and liability
IP Ownership in Collaborations

§   Avoid joint ownership if practicable
§   Ownership can be allocated:
     » To the commercial party with a royalty
     » to the research party with a licence to the commercialising party
     » by inventorship (favoured in USA)
     » by field of interest
     » by coverage of background IP
§   Special issues with US collaborations
Rights of the Funding Party
§ “Option” is used loosely
§ The hierarchy of rights:
    »   ownership with a royalty
    »   automatic licence
    »   conditional licence
    »   option in the legal sense
         • where all terms agreed
         • subject to determination
    » right of refusal
    » right of negotiation
Any Questions?

          Rob McInnes
          +61 2 9393 0300

          rob.mcinnes@sprusons.com.au

								
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