stikeman elliott – ip strategy & licensing
DESCRIPTION
Presentation notes from BCTIA in-house seminar on IP Strategy and Licensing Best Practices, presented by Stikeman Elliot and Longley Advantage Consulting Inc.TRANSCRIPT
STIKEMAN ELLIOTT LLP | VANCOUVER TORONTO MONTRÉAL OTTAWA CALGARY NEW YORK LONDON SYDNEY www.stikeman.com
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
SEMINAR SEPTEMBER 26, 2013
STIKEMAN ELLIOTT LLP | MONTRÉAL TORONTO OTTAWA CALGARY VANCOUVER NEW YORK LONDON SYDNEY www.stikeman.com
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0913
STIKEMAN ELLIOTT BUSINESS LAW
BLOGS
STIKEMAN ELLIOTT LLP
SEPTEMBER 26, 2013
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
CONTENTS
SPEAKERS
Dr. Cindy Longley Consultant Longley Advantage Consulting Inc
Noordin Nanji Partner Stikeman Elliott, Vancouver
Robert Kiesman Associate Stikeman Elliott, Vancouver
PRESENTATION NOTES
IP Strategy and Licencing Best Practice
RESOURCES
FAQ for Technology Start-Ups
FIRM PROFILES
An overview of Stikeman Elliott and our Technology Group
An overview of Longley Advantage Consulting
STIKEMAN ELLIOTT LLP
SEPTEMBER 26, 2013
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
PROFILES OF TODAY’S SPEAKERS
Dr. Cindy Longley Consultant Longley Advantage Consulting Inc.
Noordin Nanji Partner Stikeman Elliott, Vancouver
Robert Kiesman Associate Stikeman Elliott, Vancouver
STIKEMAN ELLIOTT LLP PROFILE
Noordin Nanji Suite 1700, Park Place, 666 Burrard Street,Vancouver, BC V6C 2X8Direct: (604) 631-1396 [email protected]
Law PracticeNoordin Nanji is a partner in Stikeman Elliott's Vancouver Corporate and Securities Group. He advises public and private companies with respect to mergers, acquisitions and dispositions, joint ventures, the formation and financing of both public and private business ventures and complex strategic transactions.
STIKEMAN ELLIOTT LLP PROFILE
Robert KiesmanSuite 1700, Park Place, 666 Burrard Street,Vancouver, BC V6C 2X8Direct: (604) 631-1474 [email protected]
Law PracticeRobert Kiesman is an associate practicing in the Corporate and Securities Group of Stikeman Elliott, with a focus on public and private mergers and acquisitions. He has represented clients in the mining, forestry and technology industries. As part of the technology group he understands the business challenges and the unique roles and risks associated with the exploitation of information technology. His corporate capabilities combined with his technology understanding help to deliver the best possible support for technology-related matters.
Dr. Cindy Longley
Dr. Cindy Longley is an Intellectual Property Consultant providing advice on IP strategy, patent portfolio development, and IP management to early-stage companies in the technology sector. Prior to establishing Longley Advantage Consulting Inc. in 2004, Cindy was the Director of IP at Ballard Power Systems for almost 10 years. Cindy managed Ballard’s IP portfolio as it grew from about 150 to over 1700 patents and patent applications. Cindy was responsible for defining Ballard’s IP strategy, particularly in the context of Ballard’s business relationships with its large strategic partners in the US, Europe and Asia.
Noordin Nanji Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 Direct: (604) 631-1396 [email protected]
Noordin Nanji is a partner in Stikeman Elliott's Vancouver Corporate and Securities Group. He advises public and private companies with respect to mergers, acquisitions and dispositions, joint ventures, the formation and financing of both public and private business ventures and complex strategic transactions. Noordin is the head of the Stikeman Elliott Vancouver Technology Group and understands both the business and technology drivers of technology contracting. In the past, Noordin has also held various executive positions at Ballard Power Systems including, Vice-President Strategy and Development, where he oversaw the formation of Chrysalix Energy, now a leading venture capital firm in the cleantech industry.
Robert Kiesman Suite 1700, Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8 Direct: (604) 631-1474 [email protected]
Robert Kiesman is an associate practicing in the Corporate and Securities Group of Stikeman Elliott, with a focus on public and private mergers and acquisitions. He has represented clients in the mining, forestry and technology industries. As part of the technology group he understands the business challenges and the unique roles and risks associated with the exploitation of information technology. His corporate capabilities combined with his technology understanding help to deliver the best possible support for technology-related matters.
STIKEMAN ELLIOTT LLP
SEPTEMBER 26, 2013
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
PRESENTATION NOTES
IP Strategy and Licencing Best Practices
IP STRATEGY & LICENSES BEST PRACTICES
CINDY LONGLEY, Ph.D.
BCTIA Workshop September 26, 2013
© LONGLEY ADVANTAGE CONSULTING INC. 2013
What is IP?
An intangible created when something new has been conceived or developed
o Has value in the marketplace
o Can be protected
Recognized tangible assets associated with IP include:
o Utility Patents
o Design Patents (Industrial Designs)
o Trade Secrets
o Trademarks
o Copyrights
Use as business tools to further your commercial objectives
Deriving Business Value from IP
Sales of unique products or services
IP rights enforcement
o Protect market share, block others, suppress competition
o Monetary damages awards, injunctions
Defensive – passive litigation deterrent
Licensing-out – royalty revenue
Cross-licensing – access to third party technology
Increase company value
o Establish credibility
o Attract investment
o Increase shareholder confidence
o Attract strategic partners
o Increase value in M&A
Why have an IP Strategy?
Important corporate asset – maximise value from investment in R&D and product development
Key part of the business plan - ensure alignment with business objectives of the company
Provides framework for decision-making around IP
IP protection is expensive – easy to devote significant resources to the wrong things
Risk mitigation
© LONGLEY ADVANTAGE CONSULTING INC. 2013
IP Strategy Development
Determine the objectives for the IP program (the WHY)
Identify the strategic framework considering the objectives (the WHAT and WHERE)
Consider tactics (the HOW)
Document and communicate the strategy
Re-visit the strategy as the business evolves
IP Strategy - Objectives
Example questions to consider
Why are we building a portfolio and how do we plan to use it?
How does it fit with our business plan?
Are we intending to be offensive or defensive?
What are the biggest IP risks we face?
IP Strategy – Strategic Framework
Example questions to consider
Trade secrets or patents?
Patent everything or be more selective?
Where should we be seeking protection?
How quickly do we need to secure protection?
Where to File Patents
Consider where you want to block others or force them to pay: location of significant markets, competitors, licensees, partners, manufacturing
Cost/benefit – translations, prosecution, maintenance fees.
More patents vs. more countries?
Enforceability of your IP rights abroad – consider practicalities & the legal system
Be selective and strategic
© LONGLEY ADVANTAGE CONSULTING INC. 2013
Trade Secrets
Information which derives potential or actual commercial value from not being generally known
Protection potentially lasts forever
Can be sold, assigned, licensed like other IP rights
No formal registration required (less cost)
No territorial limitation
Others cannot learn from and build on your trade secret knowledge
However, value is lost once in public domain, e.g. reverse-engineering, independent discovery, theft, breach, accidental disclosure
IP Strategy – Tactics
Example questions to consider
What is a reasonable budget?
What resources do we need?
Use in-house or outside counsel?
When should we file and where should we file first?
What mechanisms shall we use to accelerate or to defer?
Evolution of IP Strategy
IP strategy changes from technological innovation to commercialization
IP Best Practices
IP strategy development
Building and managing an IP portfolio
Resources and processes to support IP activities
© LONGLEY ADVANTAGE CONSULTING INC. 2013
IP Best Practices – Getting Started
Seek advice, and put robust systems & discipline in place at the start. Often difficult to undo missteps
At the beginning there is often great opportunity to capture fundamental IP
Cannot get a valid patent in most countries once the invention is publicly disclosed, sold or offered for sale
Building & Managing a Portfolio
Establish criteria for decision-making
Implement structured approach
Ensure IP spending is commensurate with the investment in technology and product development
Mitigate risk by allocating appropriate resources to freedom-to-operate considerations, as well as portfolio development
Choose law firm carefully and build internal expertise
o Avoid fragmenting IP prosecution work between law firms
Control disclosure of information about the content and size of the portfolio
o Information is not generally public until 18 months after the filing date of a patent application
Conduct annual portfolio reviews and re-visit the IP strategy regularly
Processes & Systems
Be proactive about invention capture
Establish a cross-functional IP Committee to make new filing and portfolio decisions
Build competitor patent awareness
Use carefully drafted employment and contractor agreements
Define policies for visitors, publications, NDAs
Conduct employee training on IP
Summary
Consider IP at the outset
Develop an IP strategy that supports your business objectives
Implement structured processes for IP capture, protection & management
IP STRATEGY & LICENSES BEST PRACTICES
NOORDIN NANJI
BCTIA Workshop September 26, 2013
STIKEMAN ELLIOTT LLP 2013
Introduction
Licensing issues arise in many contexts o Licensing o Distribution o Joint development o Supply o Joint ventures and partnerships
Be clear and complete
Negotiating Strategy
Be prepared o Financial modeling o Internal due diligence o Research similar transactions by licensee
Define “boundary conditions” Define both parties’ “next best option” Generally avoid “agreements to agree”
o Generally not enforceable o Limit to issues not critical to you o Could be enforceable if includes resolution
process (e.g. arbitration, third party determination)
Be realistic
Negotiating with a Large Company
If IP not proven, consider phasing (and delay in finalizing royalties)
o Feasibility o Prototyping o Demonstration o Market development o Commercialization
Ensure licensee has an executive level “champion” Don’t mistake interest with commitment Large companies are slow – rushing will result in a worse deal Beware sequential negotiations
o e.g. R+D Corp Dev Purchasing Legal Executive
o Leave yourself a back-door (e.g. board approval) Get everything in writing
STIKEMAN ELLIOTT LLP | 2013
Who
Licensor o Restrictions on freedom to license?
Licensee o Use by affiliates and subsidiaries? o Ability to sublicense? o Parent or “shell” subsidiary?
What
Specifically identify IP subject to license Address licensor future improvements Treatment of licensee improvements
o Ownership (avoid joint) o Rights of use o Grant back to licensor
Does license include technology transfer? o Cost o Scope/level of effort
Does licensee require development services? o Scope/timetable o Deliverables o Cost o Acceptance testing
What
Development rights - important to be clear if not included
Use (e.g. processes, techniques) Make/have made (e.g. contract manufacturing) Sell, lease, distribute Repair, maintain, service Common limits
o Field of use (e.g. stationary power) o Application ( e.g. back-up power for
telecom) o Product
STIKEMAN ELLIOTT LLP | 2013
Where
Specify territory Match scope of licensee’s operations Territory could expand based on
o Time o Level of effort o Minimum royalties o Right of first refusal to licensee
When
Be clear on term of each license and other key terms
o What provisions terminate and when o May vary (e.g. license, confidentiality,
indemnities, other terms) License can be perpetual, defined period or
duration of IP Termination considerations
o Consequences o Rights that survive o Transition period – sale of inventory,
dealing with trademarks o Return of property/confidential information
How
Exclusive – in effect a transfer, if unlimited Sole – exclusive other than licensor Means different things in different jurisdictions Cannot grant rights to others (high opportunity
cost) Connect exclusivity to
o Limitation of time (lead time) o Product/application/field of use o Geographic limits o “Best efforts” obligation to exploit o Performance metrics o Upfront fee
May have competition/anti-trust implications o May be considered a “sale” or “merger”
STIKEMAN ELLIOTT LLP | 2013
IP Maintenance & Enforcement
Obligation to maintain and preserve IP o If licensor abandons, then ROFR to
licensee or adjustment to royalties? Obligation to pay costs – typically licensor unless
exclusive Licensor generally responsible for enforcement
o Can licensee compel licensor to enforce? o Can licensee take action if licensor does
not? o Allocation of costs/awards
Representations, Warranties & Indemnities
Typically addresses IP ownership, validity, enforceability, non-infringement of third party rights
o Licensor wants to limit liability/exposure o Licensee wants assurance/avoid
infringement risk o Extent may impact fees/royalties
Limitations o “No knowledge” of infringement o Specific jurisdiction, application, product or
timeframe Exclude non-contractual and implied rights (e.g.
common law, Sale of Goods Act, UN Convention on International Sale of Goods)
Limits o Carve-outs – e.g. licensee modifications,
combination with other IP o Monetary cap o Limited to obligation to substitute/work
around/acquire third party license o Direct damages o Limits don’t apply to fundamental breaches
(IP infringement, confidentiality, willful misconduct) and for people/property damage
STIKEMAN ELLIOTT LLP | 2013
Why
Up-front payment, license fees, royalty or combination
Different tax consequences Some jurisdictions regulate Factors impacting quantum
o Prevailing rates o Sunk R & D costs o Need for more development o Cost/time to work-around (strength of IP) o Market size/volumes (DCF, NPV) o Competitive advantage gained o Licensee’s “next best option”
Licensee may seek “most favoured licensee status Licensee may want cap Licensor may want a minimum
Contacts
Dr. Cindy Longley Longley Advantage Consulting Inc. [email protected] 604-222-3554 Noordin Nanji Partner, Stikeman Elliott [email protected] 604-631-1396 Robert Kiesman Associate, Stikeman Elliott [email protected] 604-631-1474
STIKEMAN ELLIOTT LLP
SEPTEMBER 26, 2013
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
RESOURCES
FAQ for Technology Start-Ups
STIKEMAN ELLIOTT LLP | VANCOUVER CALGARY TORONTO MONTRÉAL OTTAWA NEW YORK LONDON SYDNEY www.stikeman.com
Despite being known primarily as an exporter of natural resources, British Columbia is a hub for many successful technology companies. Be it clean tech, life sciences or information technology, entrepreneurs are a driving force in the provincial economy. The technology industry is the third largest contributor to provincial GDP, with thousands of technology companies, employing over 80,000 people, generating revenues in excess of C$18B.1 The following are some of the most common legal questions we are asked by founders who are aiming to set their technology start-ups on the path to success.
Protecting Intellectual Property
Q: How do you protect trade secrets and confidential information? A: �All� confidential� information� and� IP� should� be� protected� by� carefully-drafted� agreements�
between�the�company�and�all�of�its�contractors�and�employees.�While�there�is�a�presumption�that� the�company�owns�IP�that� is�developed�by�employees,� the�company�should�take� further�measures�to�protect�its�IP�and�confidential�information�in�the�employment�agreements�signed�by�each�employee�at�the�time�of�hiring.
� �With�respect�to�independent�contractors�or�consultants,�there�is�a�presumption�that�IP�developed�by�a�contractor�or�consultant�in�the�course�of�its�engagement�will�be�owned�by�the�contractor�or�consultant�unless�an�agreement�provides�otherwise.�
� �The� company� should� also� address� confidential� information� and� ownership� and� use� of� IP� in�agreements� that� are� signed�by� all� of� its� customers,� investors,� partners� and�prospects.� If� the�company�is�providing�any�products�or�samples�to�the�other�party,�these�agreements�should�also�include�a�prohibition�against�reverse-engineering.
Q: What are the key issues that should be addressed in an IP licensing agreement?
A: The�company�should�ensure�the�following�issues�are�addressed�in�any�licensing�agreement:■ �clear�definitions�of�each�party’s�background�IP■ �ownership�of,�and�rights�of�use�to,�any�improvement�or�other�IP�developed�by�either�party,�or�both�jointly,�both�during�and�after�the�term
■ �the�application�or�field�of�use�for�the�IP�under�license�and�whether�the�license�includes�development�rights
■ �whether�the�license�is�exclusive,�non-exclusive�or�a�“sole”�license�(i.e.�exclusive�except�for�the�licensor’s�own�use)
■ �the�term�and�geographic�scope�of�the�license■ �whether�the�license�may�be�sub-licensed�or�assigned�by�the�sub-licensee■ �the�termination�rights�of�each�party■ �indemnities�and�limitations�of�liability■ �clear�definitions�of�the�royalties�or�license�fees�payable�and�audit�rights�to�the�licensor;�and■ �responsibility�for�preserving�and�maintaining�the�IP,�including�prosecution,�
maintenance and enforcement1 BC Technology Industry Association, Growing BC’s Technology Industry: A 4-Point Plan for Growth, Fall 2012.
FAQ for Technology Start-UpsBy Noordin Nanji and Robert Kiesman
EFFECTIVE START-UP STRATEGIESSee page 4 for
documents tailored specifically for start-ups in their
formative stages.
2 | STIKEMAN ELLIOTT LLP FAQ FOR TECHNOLOGY START-UPS
Using Options as Incentives
Q: What are options?A:� �An�option�is�an�instrument�that�gives�a�director,�officer,�employee�or�consultant�the�option�to�buy�shares�of�the�
company�at�a�set�price�for�a�specified�length�of�time.�
Q: What benefits are there in having an option plan and granting options?A:� �Option�plans�set�out�the�terms�of�the�options�that�will�be�issued�by�a�company,�including�expiry�terms,�minimum�
exercise�prices�and�the�total�number�of�options�that�may�be�issued.�Options�are�an�inexpensive�way�for�the�company�to�incentivize�people�when�it�does�not�have�cash�to�compensate�them.
Q: What are the alternatives to granting stock options?A: The�company�can� issue�restricted�share�units� that�provide�employees�with� the� right� to�a� specified�number�
of� shares� at� no� cost� subject� to� achieving� certain�performance�milestones� or� continuing� to�be� employed�by�the�company� for�a� specified�period�of� time.�The�company�can�also�grant�phantom�stock�options�which�are�essentially�a�cash�bonus�based�on�the�increase�in�value�of�a�specific�number�of�shares�over�a�specified�period.�
Paying Attention to Record-Keeping
Q: What are the requirements for record-keeping?A: �The�company�must�keep�a�minute�book�at�its�records�office�with�up-to-date�documents,�including�a�register�of�
shareholders,�a�register�of�directors�and�officers,�minutes�of�meetings�of�directors�and�shareholders�as�well�as�consents�to�act,�resignations�and�disclosures�of�interest�of�directors.
Q: Should we keep our own records to save on legal fees?A:� �Many�companies�believe� they�will� save�money�by�keeping� their�own�corporate�records.� In� reality,� record-
keeping�often�falls�to�the�bottom�of�management’s�priority�list.�While�a�company�may�get�away�with�keeping�inadequate�records�for�a�time,�at�some�point,�be�it� in�preparing�to�take�on�a�strategic�investor,�borrowing�from�a�bank,�going�public,�or�staging�an�exit,�a�third�party�will�carefully�review�the�corporate�records�and�insist�that�matters�such�as�share�ownership�and�changes�in�directors�and�officers�be�properly�documented.�
� �Repairing� these� deficiencies� often� costs� companies� much� more� than� they� saved� by� keeping� the� records�themselves,�particularly�where�shareholders�and�directors�whose�cooperation�is�required�have�moved�on�or�become�uncooperative.
Protecting the Board from Liability
Q: What is the role of a board?A: �The� role�of�a�board� is�not� to�micromanage,�but� to�manage�or� supervise� the�management�of� the�company’s�
business�and�affairs.�The�general�functions�of�a�board�includes�approving�all�major�decisions,�such�as�the�hiring�and� firing� of� senior� officers,� issuing� shares,� borrowing�money� and� saying� “no”� to�management�when� they�propose�something�that�is�not�in�the�best�interests�of�the�company.
Q: How can board members be protected from liability?A: �A�director�who�fails�to�meet�his�or�her�duties�to�act�honestly�and�in�good�faith�with�a�view�to�the�best�interests�of�
the�company�or�to�exercise�the�care,�diligence�and�skill�of�a�reasonably�prudent�person�can�be�held�liable.�There�are�three�main�ways�directors�can�be�protected:�
1.� Each�director�should�take�an�active,�informed�role�in�the�board’s�deliberations,�which�should�be�recorded�in�minutes.2.� The�company�can�purchase�directors’�and�officers’�liability�insurance.3.� The�company�can�indemnify�its�directors�in�its�articles�or�in�separate�agreements.
For�more�information�on�the�roles,�duties�and�liabilities�of�directors�and�officers,�see�our�publication�Directors and Officers in Canada – Duties and Liabilities�which�can�be�ordered�from�our�website�at�www.stikeman.com.
STIKEMAN ELLIOTT LLP FAQ FOR TECHNOLOGY START-UPS | 3
Preparing for a Financing
Q: Will the company have to comply with securities laws when conducting a financing?A: �Generally,�the�company�may�issue�shares�to�certain�persons,�including�employees,�directors,�officers,�friends�
and�family�members�of�a�director�or�officer�of�the�company�or�“accredited�investors”�without�triggering�onerous�disclosure�and�reporting�requirements�so�long�as�the�company�is�owned�by�no�more�than�50�shareholders,�excluding�current�and� former�employees.�Once� the�company�has�more� than�50�shareholders,�among�other�things,�the�company�will�need�a�prospectus�exemption�whenever�it�issues�shares�and�must�report�issuances�to�the�BC�Securities�Commission.�
Q: What can the company do to ensure the financing transaction goes smoothly?A: �Due�diligence�is�an�integral�part�of�any�financing�transaction�and�is�often�the�cause�of�the�greatest�delay�and�
cost�escalation.�Due�diligence�typically�encompasses�conducting�searches�of�the�public�record�for�liens�and�security�affecting�the�company’s�assets,�reviewing�title�to�all�assets�(including�IP),�authorized�and�issued�share�capital,�accuracy�of� the�company’s�books,�records�and�financial�statements,�contractual�arrangements�with�employees,� contractors,� customers,� suppliers�and�others,� compliance�with�all� laws,�and�determining� if� any�third�party�approvals�or�consents�are�required.�Accordingly,� the�company�should�ensure�these�matters�are�properly�attended�to�and�documented�on�an�ongoing�basis.
�In�addition,�founding�shareholders�should�be�realistic�and�balanced�in�their�approach�to�negotiating�the�terms�of�any�financing�transaction�to�avoid�protracted�negotiations.�The�company�should�retain�legal�counsel�who�can�provide�guidance�as�to�what�are�considered�typical�terms�of�financing�transactions.
Q: Can the company pay finder’s fees to people who find investors?A: �It�is�common�for�those�who�find�investors�to�require�the�company�to�pay�a�finders’�fee,�which�could�be�paid�
in�cash,�shares,�warrants�or�a�combination.�Similar�to�options,�warrants�give�the�holder�the�right�to�purchase�shares�at�a�set�price�for�a�specified�length�of�time.�
Adopting a Shareholders’ Agreement
Q: When should a company adopt a shareholders’ agreement?A: �We�advise�our�clients�to�adopt�shareholders’�agreements�at�the�moment�more�than�one�person�owns�shares�in�
a�company.�Founding�shareholders�should�draft�the�agreement�in�a�reasonable�manner�and�in�contemplation�of�the�likely�interests�and�demands�of�future�investors�and�corporate�needs.
Q: What are the pros and cons?A: �While� shareholders’� agreements� bring� an� element� of� predictability� and� stability� to� the� shareholders’�
relationship�as�joint�owners,�these�agreements�will�limit�the�ability�of�the�founders�to�do�what�they�want�when�they�want�with�their�company.�
Q: What issues should be addressed in a shareholders’ agreement?A: �A� shareholders’� agreement� can�address�or� anticipate�a�wide� range�of� issues,�but� the� following� four� issues�
should�always�be�covered:
1. Electing Directors Every� shareholders’� agreement� should� answer� the� question� of� who� gets� to� decide� who� controls� the�company?� Strategic� investors� usually� insist� on� having� the� ability� to� nominate� directors� based� on� their�proportionate�shareholdings,�while�founding�shareholders�try�to�retain�the�right�to�nominate�a�majority�of�the�directors.�The�typical�compromise�is�to�appoint�“independent”�directors�who�can�provide�balanced�and�objective�advice�and�direction,�particularly�where�the�board�may�become�polarized�due�to�the�underlying�interests of the shareholders.
2. Transferring and Selling Shares�Every�shareholder�should�care�who�owns�the�other�shares�of�the�company.�Therefore,�every�shareholders’�agreement� should� set� out� clear� limits� on� the� ability� of� shareholders� to� transfer� their� shares,� and� any�permitted�transfer�should�be�conditional�upon�the�buyer�becoming�a�party�to�the�shareholders’�agreement.�
0813
© STIKEMAN ELLIOTT LLP | www.stikeman.comThis publication provides general commentary only and is not intended as legal advice.
Some of the more common mechanisms used to regulate the transfer of shares include:
■ �Right� of� First� Refusal:� A� right� of� first� refusal� (“ROFR”)� that�gives�the�shareholders�the�first�right�to�purchase�any�shares�that a shareholder wants to sell;
■ Drag-along Rights: Drag-along rights allow shareholders holding� a� minimum� specified� percentage� of� shares� (usually�50%)�to�force�all�of�the�other�shareholders�to�sell�their�shares�to�a�third�party�who�has�made�an�offer�to�buy�their�shares�on�the same terms; and
■ �Tag-along�or�“Piggyback”�Rights:�Tag-along�rights�provide�that�if�one�or�more�shareholders�holding�a�specified�percentage�of�shares�(usually�50%)�sells�their�shares,�the�other�shareholders�have�the�right�to�sell�their�shares�on�a�proportionate�basis�on�the same terms.
3. Special Approvals Founding shareholders and strategic investors often insist that
a�shareholders’�agreement�give�them�“veto�rights”�over�certain�key�decisions�of�the�company,�such�as�hiring�and�firing�the�CEO,�licensing�IP,�selling�material�assets,�spending�or�borrowing�over�certain� amounts,� issuing� shares,� amending� the� shareholders’�agreement�or�deciding�to�proceed�with�an�exit.
� �Instead�of�granting�blanket�veto�rights,�it�is�better�to�set�“special�approval”� thresholds� that� require,� for� example,� a� 66� 2/3%� or�75%�vote�of�the�directors�or�shareholders.�The�company�should�avoid�being�pressured�into�setting�these�thresholds�too�high,�as�that could result in a single shareholder having an effective veto over�critical�corporate�initiatives.
4. Spousal Protection� �In�British�Columbia,� shares�held�by� an� individual�may�become�
“family�property”� if� that�shareholder�separates� from�his�or�her�spouse�or�common�law�spouse.�A�shareholders’�agreement�can�protect� the� other� shareholders� in� cases� where� the� estranged�spouse�claims�an�interest�in�the�shares�by:
■ �providing� that� the�ROFR�applies� to�any� shares� that�become�subject�to�transfer�to�an�estranged�spouse;
■ �requiring� that� each� shareholder� must� divide� their� assets�with�their�estranged�spouse�by� first�offering�the�spouse�the�shareholder’s�other�assets�in�any�settlement;�and
■ �requiring� that� any� shares� to�be� transferred� to�an�estranged�spouse�be�exchanged�for�non-voting�shares.
VISIT OUR TECHNOLOGY AND IP LAW BLOGwww.CanadianTechnologyIPLaw.comStikeman Elliott’s online resource provides the technology industry with information on legal developments and analysis.Visit today to register for regular updates by email, RSS or Twitter @CdnTechnologyIP.
For more information about Effective Start-up Strategies, please contact the authors Noordin Nanji ([email protected]) or Robert Kiesman ([email protected]) or any other member of our Vancouver Technology Group:
John Anderson [email protected] Bachynski [email protected] Dueck [email protected] Krzyskow [email protected] Little [email protected] Stark [email protected] Steiner [email protected] Urbani [email protected]
EFFECTIVE START-UP STRATEGIES PREFERRED 2013 RATES
† The fixed fee assumes a standard incorporation structure and shareholders’ agreement, provision of the other documents listed as templates, and excludes specific advice on tax, IP and employment matters.
THE LAUNCH ■ Incorporation ■ Standard Shareholders’ Agreement ■ Plus the following templates:
- Stock Option Plan - Employment Agreement - Consulting Agreement - Non-disclosure Agreement - IP Transfer Agreement
THE SAFETY CHECK ■ Standard Shareholders’ Agreement ■ Plus the following templates:
- Stock Option Plan - Employment Agreement - Consulting Agreement - Non-Disclosure Agreement - IP Transfer Agreement
THE SAVVY START-UP
The following templates: ■ Stock Option Plan ■ Employment Agreement ■ Consulting Agreement ■ Non-Disclosure Agreement
As you have read, there are numerous legal issues to address when organizing your company. If the proper steps are not taken in the formative stages, your progress can come to a grinding halt.
Stikeman Elliott Vancouver has designed three packages of essential documents tailored specifically to assist in your formative stages. Each package is offered at a preferred fixed fee and includes two hours of legal services†.
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STIKEMAN ELLIOTT LLP
SEPTEMBER 26, 2013
BCTIA Workshop
IP STRATEGY AND LICENCING BEST PRACTICES
FIRM PROFILES
An overview of Stikeman Elliott and our Technology Group
An overview of Longley Advantage Consulting
STIKEMAN ELLIOTT LLP FIRM PROFILE
Firm Profile
Stikeman Elliott is recognized internationally for the sophistication of its business law practice. It frequently ranks as a top firm in domestic and international capital markets, M&A and corporate-commercial law by industry league tables and directories, and is widely regarded as a leader in business litigation. Its other areas of expertise include banking and finance, restructuring, competition/antitrust, real estate, tax, labour and employment, and intellectual property The firm has developed in-depth knowledge of a wide range of industries including energy, mining, financial services, insurance, infrastructure, retail, telecommunications and technology.
Located in Toronto, Montréal, Ottawa, Calgary and Vancouver, its Canadian offices are among the leading practices in their respective jurisdictions. Stikeman Elliott is also prominent internationally, with a longstanding presence in New York, London and Sydney and extensive experience in China, South and Southeast Asia as well as in central and eastern Europe, Latin America, the Caribbean and Africa.
Celebrating 25 years in the city, our Vancouver practice includes a number of British Columbia’s leading lawyers in the areas of M&A, securities, banking, litigation and real estate. Our corporate lawyers lead local matters and draw on expertise of other Stikeman Elliott offices in national and international matters. We have one of British Columbia's most prominent real estate developments and acquisition practices, while our Litigation Group has acted for all levels of government and offers a broad range of commercial dispute resolution and advocacy services, including significant class action expertise. A very experienced group of lawyers also practice in the areas of public-private partnerships, infrastructure development and project finance. The Vancouver office has a strong cross-border focus, acting as the firm’s Canadian gateway to the Asia-Pacific region.
Because Stikeman Elliott has grown through internal expansion, rather than through mergers, the firm’s clients can expect a consistently high level of service from each of its eight offices. Its offices frequently work together on major transactions and litigation files, and regularly collaborate with prominent U.S. and international law firms on cross-border transactions of global significance.
STIKEMAN ELLIOTT LLP TECHNOLOGY
Technology
The Stikeman Elliott Technology Group understands its clients’ business challenges and the unique role and risks associated with the exploitation of information technology, combining this understanding with sophisticated corporate capabilities to deliver the best possible support for any technology-related matter.
Our Technology Group is comprised of technology practitioners who are fully integrated into the firm’s transactional business law practice, ensuring that the members have strong corporate-commercial skills to complement their significant technology expertise. Our team frequently collaborates with lawyers in our corporate, PPP/infrastructure, energy, communications and restructuring practices to provide timely advice on the technology considerations applicable to commercial transactions. This multidisciplinary approach combined with the group’s depth of transaction experience allows the group to provide innovative, practical legal advice for complex technology arrangements.
The Stikeman Elliott technology lawyers with whom you would be working understand both the business and the technology drivers of technology contracting, a product of experience that includes negotiating with virtually all of the major technology service providers, software companies and hardware manufacturers.
The core competencies of the Technology Group are:
Service Arrangements and Outsourcing Members of our Technology Group have assisted clients with the negotiation and drafting of some of the most complex service and outsourcing transactions in Canada, including a wide range of offshore outsourcing transactions, cross border outsourcings into Canada and federal and provincial government procurement transactions.
Licensing and Commercialization Stikeman Elliott has in-depth experience negotiating and drafting technology, patent and other intellectual property licensing, exploitation and commercialization agreements. We regularly represent both vendors and customers, advising on all aspects involving the licensing, exploitation or commercialization of intellectual property.
Technology Development The protection and allocation of ownership rights in intellectual property is often complicated and contentious in the context of technology development, particularly where developed technology contains or relies upon pre-existing or underlying technology. Members of the Technology Group have significant experience advising on the issues arising out of development, design and manufacturing arrangements involving technology.
STIKEMAN ELLIOTT LLP TECHNOLOGY
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Privacy Stikeman Elliott is highly regarded for innovative solutions to the challenges presented by the privacy and data protection laws in Canada. Members of our Technology Group help clients understand these laws and advise them on developing compliant practices and programs.
Intellectual Property Management / Branding Members of the group are frequently called upon to assist clients in respect of critical intellectual property and branding issues as they relate to technology, including patent portfolio development and enforcement, confidentiality, copyright issues (particularly as they relate to software), employee intellectual property issues, trade-marks, domain names, and the protection of corporate and brand identities, as well as other aspects of the protection and exploitation of technology.
Technology Litigation Members of the Technology Group advise clients with respect to software/licence disputes, patent infringement and validity matters, copyright and industrial design disputes, trade secrets, passing off and confidential information, valuation disputes in the IT field, departing employee disputes and related injunctions, obtaining Anton Pillar orders with respect to trade secrets, confidential information and proprietary technology, product liability and deficiency cases, and financing issues and disputes.
E-commerce and Internet Infrastructure Stikeman Elliott has experience in enabling clients to do business electronically and over the Internet, including advising on issues relating to electronic contracting, website development or hosting agreements and B2B marketplaces.
STIKEMAN ELLIOTT’S TECHNOLOGY & IP LAW BLOG www.CanadianTechnologyIPLaw.com Canada’s Online Resource for Technology & IP Law Developments and Analysis
Featuring information and resources on relevant legal developments including: – outsourcing – e-commerce – corporate transactions – privacy
Fully searchable with archived materials, indexed by topic
Subscribe for updates via e-mail, RSS or Twitter
Examples of the type of intellectual property (IP) consulting services we
provide to clients:
In the area of IP strategy
□ Ensuring the corporate IP strategy and management is aligned to support the client’s
strategic business objectives – analysis of the current IP portfolio in the context of the
business plan; integrating IP strategy development into overall business planning. □ Helping to ensure effective communication of the corporate IP strategy and
management processes to stakeholders so that they have confidence that this critical
asset is being managed optimally, and so that they understand how the IP strategy will underpin the long-term success of the company.
□ Helping to make IP part of the corporate culture – for example, by educating
employees and raising awareness so that valuable IP is created, captured and protected, and is recognized by all involved as a key element of the client’s strategy
for success.
In the area of IP management
□ Developing or refining internal policies and procedures for identifying, documenting, evaluating and protecting inventions, and for performing freedom-to-operate
(clearance) analysis.
□ Predicting and controlling IP costs – working with the client to validate an appropriate IP budget; managing costs; leveraging resources; developing realistic cost projections;
conducting structured portfolio rationalization reviews.
□ Assisting with the selection, assessment and on-going management of outside patent counsel – selection based on objective criteria; on-going assessment of the role,
performance and value-added by outside counsel; management of their activities.
□ Advising on the composition of the in-house IP team - structuring the right team with the appropriate combination of skills and expertise to reduce external costs and
improve output; assisting with hiring, defining roles and responsibilities, and mentoring
team members. □ Ensuring appropriate administrative systems and tools are in place to effectively
manage a growing IP portfolio – implementing appropriate in-house docket and file management systems; ensuring efficient workflow and improved decision-making.
□ Integrating IP protection and clearance steps into formal stage-gate R&D and product
development processes.
In addition, we provide assistance with the following:
□ Preparation of comprehensive Invention Disclosure documentation.
□ Drafting and prosecution of patent applications. □ Conducting IP audits on products and development programs to ensure that all
valuable IP is being captured.
□ Assessment of the competitive IP environment and patentability searching. □ Provision of IP-related training seminars for employees.
□ Technology and IP acquisitions. □ Licensing (in and out).
STIKEMAN ELLIOTT LLP | www.stikeman.com
STIKEMAN ELLIOTT LLP
carbonNEUTRALStikeman Elliott is the first national Canadian law firm to be certified Carbon Neutral. More information is available at www.stikeman.com The contents of this document has been printed on paper sourced from managed forests and certified accordingly by international organizations.
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This publication provides general commentary only and is not intended as legal advice. © Stikeman Elliott LLP
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VANCOUVERSuite 1700, Park Place, 666 Burrard Street, Vancouver, BC, Canada V6C 2X8Tel: (604) 631-1300 Fax: (604) 681-1825
TORONTO5300 Commerce Court West, 199 Bay Street, Toronto, ON, Canada M5L 1B9Tel: (416) 869-5500 Fax: (416) 947-0866
MONTRÉAL1155 René-Lévesque Blvd. West, 40th Floor, Montréal, QC, Canada H3B 3V2Tel: (514) 397-3000 Fax: (514) 397-3222
OTTAWASuite 1600, 50 O’Connor Street, Ottawa, ON, Canada K1P 6L2Tel: (613) 234-4555 Fax: (613) 230-8877
CALGARY4300 Bankers Hall West, 888 - 3rd Street S.W., Calgary, AB, Canada T2P 5C5Tel: (403) 266-9000 Fax: (403) 266-9034
NEW YORK445 Park Avenue, 7th Floor, New York, NY 10022Tel: (212) 371-8855 Fax: (212) 371-7087
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© STIKEMAN ELLIOTT LLP | www.stikeman.com This publication provides general commentary only and is not intended as legal advice.