TECHNOLOGY LICENSING TODAY
(Highlights of Technology Licensing Course)
Karl F. Jorda
David Rines Professor of Intellectual Property Law & Industrial Innovation
Director, Kenneth J. Germeshausen Center for the Law of Innovation & Entrepreneurship
Franklin Pierce Law Center
Two White Street, Concord, NH 03301 USA
Seminar
Siam Cement Group
Bangkok, Thailand
December 19-20, 2006
PATENT SYSTEM INCENTIVES
1) To invent
2) To disclose inventions
3) To “invent around” prior inventions — improvements
4) To invest in innovation —
a) the most important incentive of all
(CAFC Judge Giles Rich)
b) ratio of requisite investment in the 3
phases of innovation from lab to market,
i.e. research, development and
commercialization is 1:100:1000. (This
supports the thesis of investment incentive.)
TENETS AND TRUISMS
on Intellectual Property Rights and
Technology Transfer
• Technology transfers, licensing and investments are
ever so much easier to carry out and accomplish via
patents and other IPRs as vehicles or bases.
• Importation of technology leads not only to export of
products but also to export of adapted, improved
technology (reverse technology transfer).
• The days when technology transferors took advantage of
transferees (in developing countries) are gone, the
realization having taken hold that the only viable license
is one that results from a win/win approach and passes
the fairness test.
REASONS FOR LICENSING
1)
2)
3)
4)
5)
Unblock interlocking IPR’s
Settle IP litigation, interference
Grow and diversify the business
Deal with outside idea submission
Convert dormant IP portfolios into profits
HOW TO FACE THIRD-PARTY
PATENTS
Starting point and first step in managing downside risk:
company policy is not to infringe valid patents of others
1. Determine scope — if outside, no problem
Caveat: positive doctrine of equivalents
(even if inside there may be no problem by dint of negative doctrine of
equivalents)
2. Determine validity — invalid patent cannot be infringed
3. Work around it, design around it, invent around it
4. Wait till expiration, if not too far off
5. Take a license or buy patent or whole business
N.B. Different kinds of patents have different
scope of protection
• Paper patent
• Commercially-used-patent
• Basic or pioneer patent
KINDS OF LICENSES
I.
Patent License
Trademark License
Know-How License
Trade Secret License
Copyright License
Software License
Hybrid License
Franchise
II.
Exclusive License
Non-Exclusive License
Sole (semi-exclusive) License
III.
Royalty-bearing License
Royalty-free License
IV.
U.S. (domestic) License
(Specific country) License
World-wide License
KINDS OF LICENSES (cont.)
V.
Sublicense
Cross-License
Package License
Label License
Shrinkwrap License
Grantback License
Grant-forward License
VI.
Implied License
Compulsory License
VII.
Shopright
Option Agreement
Secrecy Agreement
Consultation Agreements
Technical Assistance Agreement
Invention Agreement
Employment Agreement
Releases, Waivers
VIII.
Assignments
DEVELOPMENTS AND TRENDS
IN LICENSING/TECHNOLOGY
TRANSFER
• Companies that didn’t used to license at all, now do it (CIBA-GEIGY,
DuPont, IBM, Westinghouse)
• Royalties are going through the roof
• Option Agreements are on the increase
• Other quid pro quos are preferred, e.g. cross licenses, products
• Dormant IP portfolios are licensed for profit
• Other arrangements have been developed, e.g. joint venturing,
corporate partnering, co-marketing, co-promotion, strategic
alliances, consortium licensing (Sematech)
• No anti-trust enforcement
Nine no-nos are history
Positive anti-trust through legislation
• Above all — win/win philosophy, attitude more prevalent
INNOVATION: A THREE-STEP
PROCESS
• one day an American firm announces a
breakthrough invention;
• next day the Russians claim they made
the same discovery twenty years ago; and
• on the third day the Japanese start
exporting the new product.
KINDS OF PATENTS
I. Utility Patents
Design Patents
Plant Patents
II. Mechanical Patents
Chemical Patents
Electrical patents
Biotech Patents
Software Patents
Business Method Patents
III. Product Patents
Composition Patents
Use Patents
Process Patents
IV. Pioneer Patents
Basic Patents
Dominant Patents
Improvement Patents
Paper Patents
Picture Patents
Selection Patents
Poor Man’s Patents
Submarine Patents
V. Petty Patents (Utility Models)
Patents of Importation
Patents of Confirmation
LICENSING OF PATENT
APPLICATIONS
1) Truism: a pending application confers no right of exclusion — only issued
patent do.
2) So how can one license an application that at law grants no right to
exclude? If one can’t license and exact royalties after patent term — why
before?
3) Very commonly done — grammatical, substantive error?
4) If error — business community lives with it very well.
5) License is merely a withholding of a right to exclude others. License is not
grant of anything.
6) What’s rationale, rationalization, justification?
a) § 261 makes patent personal property, so application in and of itself is
species of property. Thus right to license application is inherent in
lawful right to assign application. Strained!
Better:
b) Purported license = license of trade secret or
c) Purported license = license of patent when issues or
d) Both
7) “Licensing of patent applications is a hybrid animal which requires special
treatment to avoid (potential problems.” (David Hill)
IMPLIED LICENSE
1.
2.
3.
4.
5.
Shopright — employer-employee relationship
Via acquiescence of patent owner — sits on his/her
rights — laches
Business relationship — close cooperation on
innovative project
See Wang v. Mitsubishi, CAFC, 1997
Licensor-Licensee Relationship — under unlicensed
but indispensable patent — e.g. dominant patent
issued later to licensor or earlier-issued dominant
patent acquired by licensor
Seller-Buyer relationship under combination or method
patent of seller who sells a component or article for
use in the patented combo or method
See Jacobson v. Cox, Dist. Ct., Arizona
COMPULSORY LICENSES
In Foreign Countries
Compulsory License
provisions universal
Paris Convention — Art. 5
GATT TRIPS — Art. 31
(very restrictive)
For non-working
For dependent patent
Rarely used
In United States
General Rule: No duty to use or license patented
invention (§ 271(d)(4)
Compulsory license notion = anathema in U.S.
However,
Forcing patentee to license = compulsory
license
Denying patentee injunctive relief = tantamount
to compulsory license
Examples:
Infringement by Government
Infringement by TVA
Infringement via assistance under International
Development Act
Compulsory license provisions in
— Atomic Energy Act
Air Pollution Control Act
Plant Variety Protection Act
Bayh-Dole Act (march-in rights)
As relief in Antitrust cases
Injunction denied — Public Health & Safety,
Unusual hardship on infringer without benefit
to patentee
TYPES OF LICENSE
TRANSACTIONS
• Assignment
– outright sale, transfer of title
• Exclusive license
– permission to one party only (licensee)
• Sole (semi-exclusive)
– permission to one other party (licensor and licensee)
• Non-exclusive
– permission to one or more parties (licensor and any
number of licensees)
• Covenant not to sue
– nonassertion agreement
NON-EXCLUSIVE LICENSES
• No statutory basis
• Immunity from suit — covenant not to sue
– I.e. merely waiver of right to sue for conduct
which would constitute infringement and
would be actionable, absent license
• No affirmative rights go with it
– e.g. re enforcement of licensed patent
• No freedom from competition
– if there is infringement, it is no legal injury
SPECTRUM OF LICENSING
1) Option
2) Option/License
3) Covenant not to sue
Non-assertion agreement
4) License — Non-exclusive
Immunity from suit
5) License — Sole, Semi-exclusive, Co-exclusive
6) License — Exclusive
7) Assignment
8) Acquisition
OPERATIVE LANGUAGE
A. Assignment
A sells, conveys, transfers and assigns to B
all its right, title and interest
in and to certain Patent Rights.
B. License
1) A grants to B
2) a (non) exclusive license under certain Patent Rights
3) to make, have made, use, offer to sell, sell or import
Licensed Products
(or to practice Licensed Methods)
4) throughout the U.S.
5) for the duration of the Agreement.
THE ALL-IMPORTANT GRANT
CLAUSE
The most important clause in a license agreement.
A typical basic grant clause might have the following five
elements:
1) A grants (or agrees to grant or grants and agrees to grant)
2) a (non) exclusive (or sole) license under certain IP Rights
3) to make, have made, use, offer to sell, sell or import Licensed
Products (or to practice Licensed Methods)
4) throughout the territory
5) for the duration of the Agreement.
Do not use such modifiers as “indivisible,” “irrevocable,” “nontransferable” and “perpetual.”
EXCLUSIVE LICENSE OR
ASSIGNMENT?
Not uncommonly, what is perceived by the
businessman as an “exclusive license,” is best
negotiated into the form of a paten assignment
perhaps with rights to reversions of title if royalties
are not paid– this is because the exclusive license
differs from assignments only in areas (like who
sues infringers and has authority to compromise in
settlement) which may be better born by the party
actively in the business than by the passive
transferor of the technology.
Tom Arnold, “Basic Considerations in Licensing,” p.128
PROTECTION OF (EXCLUSIVE)
LICENSOR
1. Lumpsum payment — paid up license
2. Minimum royalties
3. Termination power — outright
• if a desired total not reached
• if annual minimums not maintained
4. Conversion to non-exclusive license
5. “Best efforts“ clause
•
•
•
•
dubious language
variously interpreted
very strictly or leniently
better: reasonable diligence consistent with interests of
business
best: objective, quantitative criteria of performance
BETTER ALTERNATIVES FOR
THE COMMON
“BEST EFFORTS” CLAUSE
A “best efforts” clause to the effect that ABC ‘shall exercise its best
efforts to exploit the Licensed Products” is dubious language.
Better: “reasonable diligence consistent with the interests of the
business”
Best:
1. Best Efforts shall mean those efforts which a reasonably
prudent person knowledgeable of such matters would consider
desirable, necessary or commercially reasonable to further the
intentions of the Parties hereunder”
2. Objective, quantitative criteria of performance
3. Conversion from exclusive to non-exclusive status
4. Termination power if specific levels of performance or annual
minimums are not maintained
5. Lumpsum up-front payment
BEST EFFORTS OBLIGATION
Licensee shall exercise its best efforts to
produce, sell and offer for sale Licensed
Machines. “Best efforts” shall mean those
efforts which are commercially reasonable to
further the intentions of the Parties with
respect to quality as well as quantity of the
Licensed Machines produced. Production of
250 Licensed Machines per half year after
March 1, 2001 of a quality that conforms with
established industry standards, will satisfy
Licensee’s best efforts obligation hereunder.
WAYS TO PROTECT LICENSEES
FROM THIRD-PARTY DOMINANT
PATENT RISKS
1)Hold-harmless clause with licensor
— getting licensee another license
— providing a non-infringing alternative or
— defending an infringement suit (but not
open-endedly)
2)Cost-sharing arrangement
— if royalties have to be paid to third party
— if infringement suit has to be defended
3)Renegotiation of royalty provision
A TROUBLE-FREE MFL CLAUSE
A very important clause in non-exclusive licenses.
Advisable
1.
to stay away from vague phrases (such as,
“other terms and conditions,”
2.
to include escape clauses or exceptions, e.g.
settlements,
3.
to give licensee the right to terminate and
negotiate the license, if a subsequent
licensee has been overly favored.
PATLEX LICENSE
ARTICLE XII – MOST FAVORED
LICENSEE
If subsequent to the effective Date of this Agreement
another manufacturer of lasers, laser systems, or Low or
High Power Laser Tubes similarly situated to LICENSEE
is granted a license by PATLEX which provides to said
another manufacturer a combined royalty rate and
royalty base materially more favorable to said another
manufacturer with respect to any of the Licensed Patents
than that provided herein to LICENSEE for lasers, laser
systems and Low or High Power Laser Tubes sold or
leased in the United States, then LICENSEE may, at its
option, adopt the subsequent license in its entirety,
mutatis mutandis, as of the effective date of such
subsequent license. PATLEX shall notify LICENSEE of
any such subsequent license and provide LICENSEE an
opportunity to exercise the option provided herein.
ADDITIONAL CLAUSES NEEDING
CLOSE ATTENTION
Definitions — the second-most critical clause in licenses
Confidentiality — crucial where trade secrets are involved
Improvements — “grant-back” by licensee to licensor or
“grant forward” by licensor to licensee where they continue
their R&D,
a narrow, precise definition, tied to the scope of the patent
claims,
in non-exclusive form
Sublicensing rights — especially important in exclusive licenses
for practical and legal reasons
Termination — this third most important clause is a multipronged
concept,
each prong needs to be defined separately,
a license never terminates over night,
different rights and obligations of the parties continue
ROYALTIES
Royalty-free
Royalty-bearing
Lump sum — single or installments
Running royalties
Fixed
Sliding
Increasing
Decreasing
Maximum (Cap)
Minimum
Combination of both
Most common combination
1) Initial lump sum (10%)
2) Running royalty (on net sales)
3) Minimum yearly royalty
Total royalty income depends on
Royalty base
Royalty rate
Duration of agreement
ROYALTIES
Non-exclusive Licenses
“Industry Standards”
“Folklore — Suspect as Royalty-rate Guide”
Chemicals 1-5%
Electronics 1-5%
Computers 3-5%
Consumer Products 2%
Pharmaceuticals 4-15%
For exclusive licenses
20-50% premium
Up to 300% premium in pharma field
ROYALTIES
MOST IMPORTANT FACTORS
a) the state of development of the subject technology
(embryonic and untested v. tested and commercial),
b) the strength of the IP rights (solid v. weak, ease to
design around vel non), and
c) the degree of exclusivity (exclusive v. non-exclusive).
----d) the amount of, and value added by, trade secrets
“Trade secrets are a component of almost every
technology license...(and) can increase the value of a
license up to 3 to 10 times the value of the deal if no
trade secrets are involved.” (Melvin Jager).
ROYALTY-FREE LICENSES
There is significant royalty-free licensing.
Makes eminent business sens.
There is indeed great virtue in royalty-free licensing in terms of good
will and good relationships, bringing about increased sales of goods
and supplies and hence larger market share.
Examples.
At one point in my career at CIBA-GEIGY Corp. (now Novartis), I
prepared over 20 royalty-free non-exclusive licenses to carpet
manufacturers under patents I had obtained in the U.S. and Canada
on an important improvement in tufting carpets. CIBA-GEIGY was
not in the business of manufacturing and selling carpets but
dyestuffs. CIBA-GEIGY had no intention to practice this tufting
method itself. Licensing was the best alternative. Rather than doing
it for royalties, we did it for free with the expectation that this would
induce grateful carpet manufacturers to buy more dyestuffs from
CIBA-GEIGY. Carpet manufacturers were pleased to be licensed
for free to practice an important new technique for tufting carpets.
ROYALTY-FREE LICENSES (2)
A more recent example is the royalty-free licensing by
Iridian Technologies of iris-scan patents. Iridian owns a
broad patent and another two dozen patents on irisrecognition software, which is able to accurately identify
people at airport security or automated teller machiens.
They licensed these patents also on a royalty-free basis
after deciding that the “upside of software sales was
greater than the downside of collecting royalties.” They
won contracts with Schiphol Airport and the UAE
government and expected other big government
contracts. Iridian will “end up getting a lot of business”
per US Today of August 15, 2005. This case also shows
that giving away valuable patent rights for free can be a
savvy business move.
ROYALTY-FREE LICENSES (3)
In the field of licensing law and practice there are other instances of,
or occasions for, granting free licenses.
• Interference settlement agreements.
• Grant-back provisions in license agreements often are royaltyfree.
• Releases of patent rights to employees, where a corporation or
university has no interest in the employee’s invention.
• Hybrid patent/trade secret licenses with royalty based on the
trade secrets.
• Corporations owning patents that would be infringed by university
research grant the university a royalty-free license.
• In standard setting situations, assurances by patentees to license
on royalty-free terms.
The conclusion is inescapable that royalty-free licensing of valuable
IP rights in preference to royalty-bearing licenses, is conducive to
creating good will and establishing or cementing good
relationships, with attendant increases in market share.
DUE DILIGENCE
An investigation undertaken in the course of an IP transaction.
The purpose of a due diligence investigation is to provide the data
needed to analyze and assess the business and legal risks
associated with the IP rights that are the subject of the transactions.
Due diligence procedures may include, among other things:
1)
2)
3)
4)
identification of all IPRs involved in the transaction,
verification of ownership and inventorship of the IPRs,
determination of the enforceability or strength of the IP assets,
review and verification of all documentation associated with the
IPRs, including registrations, licenses, security liens, file wrappers,
and claims of infringement; and
5) interviews of those persons with knowledge of the subject IPRs.
NEGOTIATION TACTICS
Prepare thoroughly
• do research on other side
• develop strategy
• prepare draft agreement or outline
Choose third or fourth choice candidate for first round
Form a team
Stage a dress rehearsal
Go in with win/win approach — not “wimpy/wimpy”
Assure comfort and convenience
Take good notes
Take up less controversial issues first
Take up money matters at end
• agreement clauses have economic weight
Use silence in negotiations
Volunteer to draft agreement
NEGOTIATION OF LICENSING
AGREEMENTS
A. Object —
1.
Good deal for both sides: win-win
B. Necessary pre-negotiation homework — the more the better
70% of negotiation is preparation
1.
Licensor’s information
a)
about company
b)
product or process description
c)
proprietary position
d)
sales history of product
e)
materials, components and equipment required
f)
cost data
g)
licenses already granted
h)
other
2.
Licensee’s information
a)
place in market
1. names and volume of competitors
b)
financial position
c)
physical plant
1. availability of space and capital for expansion
d)
ownership
1. other affiliations
2. other licenses
e)
estimated costs for new license program
f)
estimated future market
g)
annual sales volume for past few years for other products, related and nonrelated
NEGOTIATION OF LICENSING
AGREEMENTS (continued)
C.
D.
Pre-negotiation internal discussions.
1. Selecting the team
2. Who does what
3. Practice negotiation – dress rehearsal
a) helps your people feel comfortable
b) try to determine and understand other needs
c) may discover your, or other’s, weak points
The negotiation
1. With as high a level as possible
2. With knowledgeable people on both sides.
3. Convince other party of reasonableness of your position
4. Listen to, and analyze, other party’s position
5. Know what is important and what is not — what you can give and what
you cannot
6. Be creative and flexible
7. Say enough, but not too much
8. Caucus as often as necessary
a)
some emphasize items agreed upon
b)
some emphasize items not agreed upon
c)
a above is better
9. At end of session, state current status and what is next
10. Volunteer to prepare first draft
Homer O. Blair
INESCAPABLE UNCERTAINTY
PRINCIPLE IN CONTRACT
DRAFTING
1. Semantic Dilemma
— undefined terms
— terms incapable of definition
— few terms universally understood to have a single meaning
e.g. “public domain”, “line of business”
if try to define, often substitute another uncertainty
stiff definitions important
2. Human Frailty
Imperfection of human intelligence and attentiveness, press of business
— can be mitigated
Can lead to three defects
a.) ambiguity
— two possible meanings —
— different from vagueness (imprecise boundaries)
e.g. “residence,” “period from June 15 to” can be eliminated
— of different words
— additional words
b.) excessive vagueness — e.g. “indivisible”
c.) unclear modifier
— most common, most dangerous
see p.46 of Brunsvold
ADMINISTRATION OF
LICENSING PROGRAM
POST-SIGNING ISSUES
Distribution of license agreement — “working copies”
Cooperation with Accounting re royalty set up
Continuing contacts with and monitoring, notifications of other party re
–
–
–
–
–
–
–
–
–
–
–
–
–
Quality control (in trademark licenses)
Royalty audits
Information exchange and technical assistance
Grantback and grantforwards
MFL clauses
Sublicenses
Patent activities
Patent markings
Bankruptcies — M& A’s
Renegotiation, revision
Termination — Multipronged
Breach of contract
`Other follow-through
BASIC CONSIDERATIONS
•
•
•
•
•
•
Some threshold considerations, principles and rules to keep in mind for
drafting technology license agreements.
The only viable license agreement is one that results from a win/win
approach and passes the “fairness test.” A win/lose license agreement
has no future. It is by far better to “open a relationship” rather than “close
a deal,” when concluding a technology license. Even a 500-page
agreement may not cover all possible contingencies.
Technology license agreements covering intellectual property rights
(IPRs), and more particularly patents and trade secrets, are unlike other
general contracts. The laws relating to IPRs have special characteristics
and peculiarities, which leads to many misconceptions.
In technology licensing the “merchandise” involved in the transaction are
IPRs and hence it is imperative that one understands the nature of the
“merchandise.” The IPRs, serving as the basis of the transaction,
determine much of the substance of the license agreement.
In drafting technology licenses, the grant clause is the most important
one and hence requires special attention. It is formulaic and has five
crucial elements. The definitions and termination clauses are the second
and third most important clauses, respectively.
The payment clause is the very last one to be negotiated and finalized,
because most other operative clauses have economic weight and affect
the size of the ultimate consideration.
BASIC CONSIDERATIONS (2)
•
•
•
•
In royalty-rate setting, so-called industry standards are suspect as royalty-rate
guides; instead such factors as the stage of development of the subject
technology, the strength of the IPRs and the degree of exclusivity as well as
many others among Tom Arnold’s “100 Factors Involved in Pricing the
Technology License” are determinative.
In drafting technology licenses and other IPR licenses, the trend is away from
archaic formalistic legalese and the preferred format or sequence of clauses is
as follows: preamble, background, definitions, grant of rights, royalties, payment
of royalties, license restrictions, confidentiality, enforcement/defense, future IP,
duty to use, term and termination, other miscellaneous provisions.
Most technology licenses are hybrid agreements, covering both patents and
trade secrets, because without collateral know-how patented technology often
cannot be practiced. But because of the different characteristics of patents and
trade secrets, especially as regards duration, there has to be a differentiation in
the treatment of patents and trade secrets. Royalties have to be allocated
separately to each, depending on their proportional value in the technology
package and there has to be a corresponding reduction of the royalty rate if the
patent expires, is declared invalid or the application does not issue, inasmuch as
it is per se patent misuse to continue to exact royalty payments once patent
rights cease or don’t materialize (Brulotte v. Thys, Supreme Court, 1964).
Anent the question of what role lawyers should play in licensing negotiations,
many business and licensing executives believe it is better to limit the lawyer’s
role to cleaning up the contract language once the business terms have been
settled.
LICENSING CASE HISTYORY
CLOCK CALCULATOR PATENT
Four-Step Project
1.
2.
3.
Exhaustive infringement search and study
Exhaustive validity search and study
Design of comprehensive Licensing Strategy
a) Patent ownership transferred to new subsidiary
b) Narrow royalty base
c) Low royalty rate
d) Offer of paid-up licenses
e) Agreements prepared for both paid-up and running
royalty licenses
4. Implementation
LICENSING CASE HISTORY
GOULD LASTER PATENTS
CAST OF CHARACTERS
1.) Gordon Gould
Sole inventor as Columbia graduate student — Owns 20% of patent rights and
has a 20% share of the royalties.
2.) Richard I. Samuel
Partner of Lerner, David, Samuel, et al — prosecuted Gould applications —
became President and CEO of PATLEX which had acquired 80% ownership
in Gould patent rights from REFAC, a New York City licensing outfit, initially
retained by Gould/Lerner, David, Samuel, et al to exploit Gould patent
rights. (REFAC receives 16% and PATLEX, 64% of royalty income.)
3.) Herbert Dwight, Jr.
Entrepreneur and founder of Spectraphysics and its CEO till retirement in 1988.
4.) Frank Borman
Former Astronaut and Chairman of Eastern Airlines, became Board Chairman
of PATLEX in 1988.
LICENSING CASE HISTORY
GOULD LASER PATENTS
THE PRINCIPAL PATENTS
1.) USP 4,053,845
Optically Pumped Laser Amplifiers
Filed 4/6/59 — issued 10/11/77 — expires 10/11/94
2.) USP 4,161,436
Method of Energizing a Material
Filed 4/6/59 — issued 7/17/79 — expires 7/17/96
3.) USP 4,704,583
Gas Discharge Light Amplifier
Filed 4/6/59 — issued 11/3/87 — expires 11/3/2004
4.) USP 4,746,201
Brewster Angle Window Laser Device
Filed 4/6/59 — issued 5/24/88 — expires 5/24/2005
(Canada — 907,110 — ‘89)
LICENSING CASE HISTORY
GOULD LASER PATENTS
PATENT PROCUREMENT & LITIGATION
Difficult Prosecution
Multi-party Interferences
Three Re-examinations
Appeals from PTO to District Court and Federal Circuit
Infringment Litigation
Control Laser FL
Quantronix CA
General Photomics CA
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
1. User License
Grant:
non-exclusive worldwide license under USP 4,161,436 on
“Method of Energizing and Material” — immunity under all
Gould patents.
Royalty:
1)
2)
3)
4)
5)
3% of purchase price of all lasers — for past
infringement — within 60 days of effective date.
1% of purchase price on first, second and third
anniversary of effective date.
6% of purchase price for future purchases unless
purchased from licensed source.
8% for lasers which licensee hides.
In case of acquisitions of companies over $20M,
royalties as per 1) — 4) within 60 days of acquisition.
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
2 Manufacturer License
Grant: non-exclusive worldwide license under all Gould
patents.
Royalty:
For Past Infringement:
1) 5% of net selling price upon signing under USP
4,053,845.
2) 13% under USP 4,161,436.
3) 5% under Can. Pat. 907,110..
4) 6% under USP 3,562,662, 3,576,500 and 3,586,998.
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
As Future Royalties:
1)
5% under USP 4,053,845
(Optically Pumped Lasers)
2)
2% under USP 4,704,583
(Gas Discharge Laser) or
3-1/2% or 5% depending on occurrence of certain conditions.
3.)
3-1/2% under Application No. 869,831
(Brewster’s Nagle Window)
4)
3% under USP 4,161,436
(User patent)
5)
5% under Can. patent 907,100
6)
6% under USP 3,576,500
(Copper Vapor Laser)
7)
O% under any other Gould patent.
For multiple patents — highest rate.
Other terms:
complicated provisions with respect to the above patents as to royalty base.
No royalty on governmental sales.
Licensee’s customers won’t be sued.
LICENSING CASE HISTORY
GOULD LASER PATENTS
KEY PROVISIONS — CRUX OF THE AGREEMENTS
Step-up royalty
from 2% to 5% in 2 steps
Triggers:
1) when one competitor licensed or sued
up to 3-1/2%
2) when both competitors licensed or
sued up to 5%
LICENSING CASE HISTORY
GOULD LASER PATENTS
PATLEX/COHERENT LICENSE
USA Sales
Sales Range
Royalty Rate
$ O — $12.5 million
5.0%
$12.5 million and above
4.0%
Foreign Sales
Sales Range
Royalty Rate
$ O — $7.5 million
2.0%
$7.5 million and above
1.6%
As long as Spectraphysics is neither licensed nor sued, royalty is only 3% of
U.S. net sales and 1.2% of foreign net sales.
Annual cap of $125K under Use Patent License.
Contains MFL Clause.
LICENSING CASE HISTORY
GOULD LASER PATENTS
VOLUME BREAKPOINTS OR DESCENDING ROYALTY SCALE
USA Sales
Sales Range Royalty Rate
$ 0-$15 million
5.0%
$15-$20 million
3.0%
$20-$25 million
1.0%
$25 million and above
0.5%
Foreign Sales
Sales Range Royalty Rate
$ 0-$ 5 million
2.0%
$ 5-$10 million
1.0%
$10-$15 milion
0.5%
$15 million and above
0.25%
LICENSING CASE HISTORY
GOULD LASER PATENTS
This case history clearly illustrates the dynamic
interplay of step-up royalty/MFL clauses and a
descending royalty scheme with the former
inducing the smaller players to sign up when the
bigger competitors—here Coherent and
Spectra-Physics– are holdouts and thus have an
additional competitive edge by not paying any
royalties. And the descending royalty schedules
entice the holdouts to take out licenses,
inasmuch as their total royalty exposure is
significantly reduced, e.g. down to about 1.7% in
the case of Spectra-Physics