technology transfer and patent agents
DESCRIPTION
Presentation made on July 29 2009 in Centurion, RSA to attendees from Innovation Fund, DST and other related people. The presentation paid specific attention to the interaction between patent professionals and the technology transfer process in publicly-funded research institutions..TRANSCRIPT
Mongeon SeminarsThe Information you need – When you need it!
Presentation to Innovation Fund; Patent Agent and
Commercialisation Trainees
Marcel D. Mongeon
Intellectual Property Coach
Outline
The TT Process How Patent Agents can work within the TT
process The Licence Agreement
Preparing patents for Licences Considerations for start-up companies
Valuation Issues The patent agent’s role
Technology Transfer
Definition: Moving research results into practical use
Note that money is not required But it helps!
Intellectual property a key component of this process Secures advantage to those who will invest in
process
Key Steps in TT Process
Disclosure Early valuation
Includes market assessment IP assessment
IP protection Marketing Licensing Monitoring
IP Protection
Because of ‘invention’ aspect of most early-stage results, patent are predominant mode of protection
Don’t forget alternate protections: Copyrights Trade-marks Plant breeders rights
Patent Process
12 month provisional period Formal application (SA alone or PCT) Paris Convention – 12 month deadline PCT deadlines – 30 months from priority
date (up to 42 mos. in some countries) Grace periods
Back to the TT Process
Early assessments What should be assessed before IP
protection? Suggest:
Freedom to Operate Clear ownership rights Clear inventorship rights
Ownership rights may be tricky with private company involvement
Inventorship
This is area where patent agent will provide crucial advice
Internal person may be better placed to answer tricky questions about contributions to issue
Who conceived? Reduced to practice? Need to understand cultural context of
each situation
Biggest Challenge Relating to Inventors
They won’t understand the process Initial need to collect information (i.e. Prior
and other cited non-patent art) Who is going to do this? Not you!
Preparing claims Need to explain what the purpose of claims is
and how they need to be supported The office action process
Not a scientific or peer review process
Meeting Inventors
Need to meet inventors directly Don’t rely on disclosure alone Also have commercialisation managers
present so they understand process and objectives
Discussion of Prior Art
Search for prior art and discuss why it would not be obvious to modify it into your claimed invention
Have early discussions with inventors about prior art
If the invention is not a significant advance over prior art, have frank discussion with inventor re obviousness.
How to Draft for Prior Art
Expand your disclosure - include comparative results, unsuccessful experiments, etc
Try add some functionality to link claim elements in a manner different from the prior art
The application review process
Ensure inventor and commercialisation manager have both read application
Ask inventor: Have we captured the invention? What have we missed?
Ask commercialisation manager: Have you reviewed the claims? Can you licence the claims?
Prosecution of Application
Ensure continuous communication of each step with commercialisation manager
They in turn should communicate with inventor
Give notice of costly upcoming steps Ensure you are communicating the total
costs and getting agreement to proceed
Office Actions
From some offices, office action process may be difficult
Consider telephone or in person interviews Consider taking inventor with you in some
cases
The Licence Agreement
Many examples of licenses and agreements available Sources:
www.10kwizard.com http://www.sec.gov/edgar.shtml
Actual form of clauses not important, content is
Clause by clause review doesn’t deal with language but the concepts
Preliminary Issues
Business Terms - Use of a term sheet or Memorandum of Understanding
Reviewing the first draft Associated Documents
Recitals
Not legally binding Statement of background and intentions Good place to identify problems such as
conflicts of interest
Definitions
What should be defined; avoided Capitalize defined terms External references to other material Consistency among agreements Reference appendices for variable
information Watch for ‘cut and paste’ definitions
Grant of License
Exclusive versus non-exclusive Transferable versus non-transferable Field of use / Territory Right to sublicense Use of Technology Grant of License to an affiliated company Cross-licensing Improvements
Grant Backs
Reservation of certain rights by the Licensor
Non-commercial purposes
Sublicensing
Right to Sublicense Control over Sublicensing Approvals: consent versus notice, timelines Flow through provisions: indemnity, royalties What happens in the event of default of the head
licence (comfort letters) End licenses (often attached as an appendix) Obligation to submit copies of licences
Royalties
Fully paid up Licenses Royalties based upon gross,
net or product sales Royalty “reach through” on sublicences Minimum royalties (creditable?) Milestone payments Interest on over-due amounts Stacking provisions Abeyance of payment pending results of
infringement action
Patents
Management may pass from licensor to licensee over time
Issues of control, report, consent and abandonment
Who pays? Who is the assignee? Obligation to mark or label licensed
products
Indemnity
Use and scope of an indemnity Limitation on amount of claim
Representation and Warranties
Who wants them Who should give them What does a Licensor warrant?
Different types of licensors What can you actually control?
Ownership; non-infringement
Disclaim technology “fitness for purpose”
Confidentiality
Permitted circumstances of disclosure What constitutes “confidential information” Importance of confidentiality for trade
secrets or know-how
Accounting Records
Report of activities with respect to exploitation of the technology
Frequency Right to audit Accounting standards
Terms and Termination
Term of the license Events of termination
Automatic (insolvency) Curable breaches
Termination process Consequences to sub-licensees of
terminating the head licence
Insurance
Public liability or product liability insurance Absolute need for both in most
circumstances Indemnity vs. Insurance
Proper Law of the Contract
Proper law of the contract Attornment clause
Assignments of Intellectual Property
Once property is transferred, cannot normally get it back
When might IP be transferred? Does institution continue to use it as part of a
research program? Does IP build or improve existing IP? Is there know-how or confidential information
involved?
Failure of IP Owner
If owner of IP fails, how to recoup ownership?
Likely not possible May be potential of bonds secured by IP
assets Can be very tricky area
Drafting Patents for Licensing
Easiest licences are of specific claims Can you embody licence terms for some
fields of use in claims? E.g. of inclusion material Ability to draft separate claims for separate
fields of use Always ensure a “picture claim” in the
patent relating to main product under licence
Start-up Company Licences
Usually little difference in terms except royalty
Royalty may be paid up and in form of shares
May also be hybrid models of cash and shares May defer cash or have cash convertible into
shares
Assessment Issues
Two most important assessment or valuation questions are: Patentability Freedom to Operate
Both can be done early before large patent expenses accrue
Patent Searching Support
You have tools and skills to conduct patent searches
Consider: State of the Art Freedom to Operate Patentability
Each has its place and you can assist
DIY Patent Searches
With many patent resources online, inventors want to do patent searches themselves
Usual challenges: Not keeping records (US IDS) Limiting to the wrong databases Key-word vs. classification searching
Providing a Value
Frequently asked: What is my IP worth?
Or, you need to explain to someone that their IP is worth something other than their expectations
Examples: Start-Up Companies
Start-up Companies
e.g.: VC invests $20M in seed capital in company based on technology; subsequently company generates $50M on an initial public offering (IPO)
What is value of technology?
Valuing Start-ups Conclusion
Depends on each individual negotiation Only real determinant is post dilution
percentage left Some suggestion that technology value
may be as little as 1 or 2% pre-IPO
Technology for Defensive Uses
Technology will be added to portfolio to enable some other technology or to overcome ‘patent thicket’
Good situation is ‘patent pooling’ e.g. of MPEG pool Future of bio: Patenting to permit use; e.g.
SARS
Traditional Valuation Means
Rules of Thumb Usually based on specific industries May be confused with comparable rates
Most used Rule of Thumb: The Razgaitis Rule aka The Rule of Quarters
Need to be able to analyze what is the ‘incremental’ margin before G&A
Rule suggests that ¼ of that increment should be licensors
In practice see anywhere from 10 to 50% Best suited to clear commercial products
Example of Rule of Quarters
Before After
Sales– $100 $200
CGS – $50 $70
Margin – $50 $130
G&A – $20 $20
Net profit $30 $110
Incremental Margin $80; therefore, royalty would be $20 or 10% of Sale Price
Rule of Quarters in Practice
How to price the royalty? The realities of the target industry More information on this: LES
Another Rule of Thumb
The 50% Rule: At point of product introduction, 50% of total
risk remains IF inventing org brings product to introduction
stage, entitled to 50% of profits Therefore, if commercializing org does part of
product introduction entitled to more than 50% of profits
More a starting position for discussions
‘Standard’ Royalty Rate
Some industries have ‘standard’ rate Shrink-wrap software in 25 to 50% range Some types of pharmaceuticals
What is the base? Stacking royalties problem
How to get information on comparable rates? Colleagues Subscriptions to Newsletters
Using Comparable Rates
More similar deals is better But are the deals the same?
Industry segments; Margins; Use of IP Licensing terms: exclusive; non; options
Risk analysis What is usual risk profile of our technologies?
Compared to industrially-generated technologies? Certainty analysis
Similar to risk but one component separate: certainty of measurement
Acquiring Information about Comparables
Internet: Publicly-filed information like SEC and SEDAR information www.sec.gov (look for EDGAR)
Court and other public records http://pacer.psc.uscourts.gov/
Specialty information www.10kwizard.com www.fda.gov
Company’s own websites and competitors
The Georgia Pacific1 Factors
Leading Fed Ct decision Court established factors to consider in establishing a
‘reasonable’ royalty 15 Factors include:
Existing royalty rates for licensor and licensee Exclusivity; territory; field of use Practice in licensing; relationship between parties;
potential related sales Duration and term of patent
1: Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, 318 F. Supp. 1116, (S.D.N.Y. 1970), modified, 446 F.2d 295 (2d Cir. 1971).
‘Scientific’ and ‘B School’ Approaches
Discounted Cash Flow (DCF) and Net Present Value (NPV)
Real options theory Auctions But first some arithmetic!
Precision and Valuation Estimates
What are assumptions that go into a DCF or NPV calculation? Market size Percentage of market Product price Royalty Rate Discount (interest rate)
How precise is any of these five assumptions?
Rates in Reality
Discount rate is market driven AUTM TTM (Part X, Ch. 2)
Low risk rates (known product): 15 to 20% New product, known manufacturing ability:
25% to 35% New product, new manufacturing, known
business: 30% to 40% New business, product ready (no R&D): 40%
to 50% New business, product needs R&D: 50% to
70% and up Q: for three examples, what discount rate?
Auctions
Theoretically, the best way to obtain the highest value
Depends on exposure to largest number of potential buyers
In patent field: Ocean Tomo – Summer 2009 IP Catalogue
online Prediction: will become a larger force as
business understands IP better
Conclusion
We have covered: The TT Process Licensing Agreements Valuations