After having spent more than the last decade in-house in the pharmaceutical industry, coming back to private practice and writing about commercial agreements and the protection of IP Rights almost feels natural. Although I have to admit, it is also a bit scary…
From what I have experienced, seen and heard from fellow colleagues, what in-house lawyers lack the most of, are time and money. Tight budgets and managing priorities have become the new modus operandi. As such, dollars don’t often get spent on learning or training related to new trends or recent legal developments.
Obviously, law firm newsletters, and most recently, blogs are very useful for keeping appraised; it becomes a question of finding the ones which suit our particular needs. This blog is meant to address such needs by allowing you to provide feedback and letting us know how to best help you. What I would propose, is to write every second week on a topic of interest to you with respect to the challenges you face in your respective reviews of agreements which contain IP Rights you wish to protect. If you ask for it, it shall get posted!
IP Rights (and yes, I have capitalized the expression but have no intention of defining it… at this stage in any event) are still somewhat mythical. Although everybody uses the expression, not all know what they encompass and IP Rights often get confused with other rights in commercial agreements.
For example, I have seen many cases where the commercial agreement was referred to as a license agreement when in fact all that was ultimately granted were distribution rights and supply obligations for a product in a specific territory. There was no manufacturing required nor any flexibility as to the way the product could be used.
On the other hand, one will consider to be in the presence of a “license agreement” when a technology transfer occurs, whatever the nature of the technology. Citing Edward P.White in “Licensing, A Strategy for Profits”, p.5, “A license is the granting of a permission or rights (…) where a licensor usually sells or leases to a licensee the use of certain industrial rights andor technical expertise”.
Often as well, the subject matter of the license is poorly defined. In such a case, it makes it confusing to determine upon “what” the royalty will be payable. For example, “product improvements” may be outside the scope of the patent(s) licensed. In such a scenario, if you are the licensee and have developed the product improvement, you would want to share in the ownership (if not own altogether) of the improvement and, not pay a royalty on such an improvement. On the other hand, the licensor will benefit from including as many scenarios as possible, including, ensuring product improvements are incorporated in the definition of product, even if not covered by patent(s) licensed to licensee, to obtain additional royalties. It is fundamental to understand what is being licensed as all IP Rights will need different levels of protection depending on whether one is licensing-in or licensing-out.
The same logic will apply to exclusivity vs. no exclusivity. Here, the notions of “territory” and “field of use” become very important for both licensor and licensee. If exclusive, the licensor will benefit from having narrow definitions allowing him to “shop around” for different licensees in different jurisdiction potentially allowing him greater royalty rates in certain regions whereby worldwide rights do not offer the same financial flexibility. The licensee, in this scenario would push for worldwide rights or those countries where it is likely to generate more revenues because of the exclusivity. On the notion of “field of use”, the licensor will try and retain rights for uses of the product in another field if such other field of use can generate commercial interest. The licensee will want to be very careful in ensuring the licensor does not have the right to compete with him by paying close attention to the non-compete provision and the “narrowness” or “broadness” of the field of use provision. If it is a non exclusive arrangement, because the licensee is paying a royalty in a world where there is competition, the licensee will need to ensure it has a right of first refusal on any subsequent grant of rights to third parties as well as a most favored nation provision ensuring a third party would not get additional rights or benefit from more advantageous financial conditions.
I could go on and on about the various provisions for which to be on the lookout given every commercial transaction is different and needs of the licensor and the licensee vary as well. Remember that in our day and age, licensees should always ensure that they have the right to grant sublicenses and terminate the arrangement in the event the product cannot come to market (i.e. regulatory barriers, pricing barriers, manufacturing barriers, shortages of raw materials and or ingredients), is withdrawn, is found to be infringing or any other scenario in which licensee is forbidden from making andor selling a product. The licensee should also ensure that it shall not pay royalties beyond a certain date, which should typically be on the last to expire valid claim in the patent(s) licensed to licensee under the agreement. The licensor on the other hand should impose strict conditions on sublicensing to retain control over the use of its product (and possibly trademark(s)). Licensor should make sure the license cannot easily be terminated by licensee, either by allowing licensee to cure a breach, making an exclusive license non-exclusive, or asking for the “grant-back” of the rights (including all ancillary rights such as regulatory approvals which may have been granted since the grant of the original license).
What did I say above? I could go on and on? See, told you! I look forward to interacting with you and look forward to hearing your stories… It will be a pleasure to guide you in your reviews… Remember, it is important to take the time to ask…