The Recipe for IP Licensing Agreements

Transcription

1 SKYQUEST TECHNOLOGY GROUP The Recipe for IP Licensing Agreements White Paper Rahul Rajendra Mishra

2 TABLE OF CONTENTS Why License?... 3 Pre-Licensing Strategies Understanding your licensing needs Formulating best fit partner traits Identifying potential partners based on best fit partner traits Freedom to Operate Nature of the License Due Diligence... 4 Key Ingredients in Licensing Agreements Quality Control Detailed content of what is being licensed Obligations of each party Termination and renewability Representations, warranties and indemnification Survival Applicable/Governing Law and Dispute Settlement... 6 Getting the commercials right... 6 Concluding Notes... 6 Licensing with SkyQuest... 6

3 WHY LICENSE? The primary challenge faced in the global economy is to maintain profitability while creating new opportunities. Often entities are expected to develop innovative strategies or products in order to achieve the said goal. The not-so-silver lining in the cloud is that not all entity share the infrastructure or interest in developing such innovations, while still nurturing their goals of growth. This is where licensing steps in to save the day. Licensing is the act of authorizing another entity to use your idea/asset while receiving a fixed fee for such authorization. There can be various types of licensing agreements such as: Software Licensing Agreements Technology Licensing Agreements Music Licensing Agreements Media Licensing Agreements Brand Licensing Agreements; and Intellectual Property Licensing Agreements. For an entity, be it large or small, licensing provides an opportunity to capitalize one s intellectual property without any investment in developing infrastructure. It further acts as a strategic entry into new markets where the licensing entity may not have much knowledge or presence. The mechanism is not only beneficial to intellectual property owners, but also the entity that receives the authorization. The licensee gets authorization to manufacture/distribute/market or promote, depending upon the agreement, the said intellectual property and related goods/services. The licensee gets the opportunity to reap the benefits of years of research and development without actually investing into it. Licensing allows entities to focus on their core specialties and creating synergies to exploit the specialties of other entities in related fields to achieve harmony in today s innovation economy. Let s discuss in more detail about creating a symbiotic licensing partnership. PRE-LICENSING STRATEGIES Before even considering having a bite at licensing, it is essential for each entity, to engage in certain pre-licensing strategies: 1. Understanding your licensing needs It is important to understand that as an entity, what your company is looking to achieve from a licensing arrangement.

4 2. Formulating best fit partner traits After understanding your company s needs, the next step is to conceptualize what you are looking from your ideal partner. This would include presence in appropriate markets, manufacturing/distribution capabilities, good will amongst other varied criteria. 3. Identifying potential partners based on best fit partner traits After chalking down your requirements and the traits that you would be looking for from a licensing partner, it is time for identification of prospective partners. These prospective partners may be domestic or foreign, depending on the licensing requirements. 4. Freedom to Operate The next step after identifying potential partners is to evaluate if the intellectual property to be licensed would free to operate within the applicable jurisdiction. This step is especially important when it comes to international licensing arrangements. Further, it is advised to carry on a feasibility study to understand the participants and similar technologies/intellectual property that might be at play in the concerned market. 5. Nature of the License After identifying potential partners, the next step is to understand the nature of the licensing arrangement. Before entering into negotiations, it is of prime importance to understand, that as per your requirements, whether your licensing arrangement should be: Exclusive/Non-exclusive; Territorial restrictions; Sub-licensable or not; Time Period of license; Right to alter the intellectual property; Title of the altered intellectual property 6. Due Diligence Before entering into any contractual arrangement, the final step is to conduct a due diligence to confirm if the prospective partner possesses the traits that you are looking for from this arrangement. KEY INGREDIENTS IN LICENSING AGREEMENTS For the sake of convenience, licensing agreement templates and sample licensing agreements are used across industries to form the required agreement. Although this practice is not harmful, but it is essential to understand that every business or commercial arrangement has its own nuances and specifics. A sample licensing agreement or a licensing agreement template can only go so far as providing a basic skeleton of the required agreement. Every sample or licensing agreement template needs to be amended to

5 incorporate the specific nuances which are key to achieving the purpose of the said business/commercial arrangement. Every licensing agreement has certain key ingredients depending on the nature of the intellectual property that is licensed. In order to ensure that your company has a profitable licensing experience, it is important to ensure certain basic elements in the arrangement. These elements are: 1. Quality Control Every intellectual property and its holding entity have a certain goodwill attached to their identity. In order to ensure that this goodwill is carried forth from the licensor to the licensee, it is essential to give quality control powers to the licensor. 2. Detailed content of what is being licensed In order to avoid any confusion, the details of the intellectual property, all documentation and all allied components should be mentioned clearly in the agreement. 3. Obligations of each party As per the negotiations, the agreement should capture the obligations, rights and duties of all parties involved in clear terms, along with consequences of default. 4. Termination and renewability The termination procedure and steps to be taken after termination of the arrangement should mention each party s responsibilities to ensure a dispute-free end to the arrangement. 5. Representations, warranties and indemnification This clause would have undertakings from both parties as to the information that they have shared and represented during negotiations and their factual correctness. It is essential to make sure that both parties clearly warrant the correctness of information that led to this arrangement being entered into. Further, each party would agree to indicate the extent of indemnity and repairable actions that they would have to undertake in order to remedy any default of their representations and warranties. 6. Survival When it comes to intellectual property licensing, one ingredient that may trump all is the confidentiality clause. In order to ensure that any proprietary information with respect to the intellectual property or the manner of use proposed by the either party stays secure, it is essential for the clause to be applicable post termination as well. Apart from confidentiality, there may be other clauses within the agreement that may be required to survive termination of the agreement. The survival clause indicates these clauses which survive the termination of the agreement and continue to be applicable to both parties.

6 7. Applicable/Governing Law and Dispute Settlement In order to ensure a fair arrangement, it is of utmost importance for both parties to discuss and agree on the Law that would be applicable to the agreement and the dispute settlement procedure. This clause may be a little tricky in international licenses, since it is important to find a neutral or common point of Governing law and a dispute settlement procedure. GETTING THE COMMERCIALS RIGHT Each party has certain expectations from a licensing arrangement. Apart from the negotiation stage, the documentation should capture the intention of both parties. Payment terms and obligations of each party, consequence in case of default, mechanism of payment and damages if any applicable should be clearly listed in the agreement. Further, parties should also indicate who shall bear the applicable taxes, any additional costs that might incur and any penalties that may be imposed due to the actions of either party. The agreement should also indicate exceptions to default, and certain situations which may alter the payment mechanism and still be acceptable to each party. CONCLUDING NOTES In order to ensure that a licensing arrangement is well detailed on all three levels, i.e. Technical, Financial and Legal, it becomes important to work with a team possessing expertise on all three domains. Further, sample licensing agreements and licensing agreement templates should not be used for any purpose other than using as a skeleton for the final agreement which may be required as per the situation. Every licensing arrangement has specifics which may be different and hence, it is essential to ensure that the concerned licensing agreement, which is to be executed, covers both parties interests adequately. LICENSING WITH SKYQUEST SkyQuest is one of the key entities working towards establishing an innovation economy. SkyQuest has over 7 years of expertise in establishing licensing arrangements and related strategic alliances. We have a strategic network of regional offices and affiliates comprising of experts, advisors, investors and access to markets across various sectors, globally. Our team comprising of Legal, Tech and Finance professionals provides solutions with a balance of finance, technology and law.

7 Having served an array of domestic & foreign clients, we are used to leveraging our resources quickly and efficiently. Brand expansion strategies, business partner identification, Franchising and licensing prospects. Working model for licensing and related strategic alliances Feasibility study upon understanding requirements from potential partner. Assistance with compliances and regulatory in the new market. Finalization and execution of the most suited strategic alliance Identification of potential partners in required specific geographies. Preparing required documents and approval based on the working model selected. Policing and monitoring the intellectual property in the new market for potential infringement. Intellectual property protection and assistance in the said geography. Advising and developing strategies and most suited working model options. Regular reports on intellectual property policing and monitoring results.