1 To License a Patent or, to Assign it: Factors Influencing the Choice Philip Mendes Partner Innovation Law Level 3, 380 Queen Street Brisbane, QLD, Australia Introduction Other than by a holder of a patent itself exploiting that patent, licensing is perhaps the most likely, and therefore most common commercialisation pathway. But, sometimes, the assignment of a patent can be a pathway to commercialisation that not just warrants consideration, but in fact, depending upon the occasion, may be the more desirable or even necessary pathway. On each occasion, the appropriateness or inappropriateness of licensing, or assignment, needs to be considered. Sometimes an assignment is mandatory, such as where employee inventions are assigned by an employee to the employer, or, in some circumstances, by an employer to an employee, and a license is simply inappropriate. In focus here is assignment or licensing as a commercialisation pathway. Neither should be considered as being the automatic commercialisation pathway. Depending upon the needs and expectations of the patent holder, and the person with whom a deal is proposed, either licensing or assignment may present a better pathway, or a more remunerative pathway, than the other. Some of the factors that may influence choosing licensing or assignment on a particular occasion are considered below. What is licensing? Licensing occurs when a licensor grants exploitation rights over a patent to a licensee. A license is also a legal contract, and so it will set out the terms upon which the exploitation rights are granted, including performance obligations that a licensee must comply with. A license being a contract with those performance obligations, the failure to comply with those obligations may lead to the termination of the license, and the reversion of exploitation rights back to the licensor. A license is therefore revocable.
2 What is assignment? In contrast, an assignment is irrevocable. An assignment involves the sale and transfer of ownership of the patent by the assignor to the assignee. This transfer of ownership is permanent and irrevocable. Just as when any other asset or property is sold, its sale results in the former owner being permanently divested of that ownership. Royalties If the revenue strategy sought is royalties, licensing is the most common, and most prudent commercialisation pathway. Royalties are typically paid over the life of the patent, such as the unexpired 20 year term of a patent. Royalties therefore have the prospect of being maximised in a license, over that term. Where royalties are sought on this long term basis, an assignment of a patent would not be the most prudent commercialisation pathway, and that is so for a number of reasons. In a license, the failure to pay royalties will be a breach of the license contract, and would entitle the licensor to terminate the license. This is an important contractual provision in a license operating to deter a licensee from breaching the royalty obligation, since its breach may result in the loss of the licensed rights. This important deterrent is very valuable to a licensor, and why, as a rule, royalty expectations are best served with a license, and not an assignment. That deterrent would be absent if the patent was to be assigned. An assignment being a conveyance of title in a patent that is permanent and irrevocable, an assignee that fails to pay royalties does not risk the loss of rights in relation to the patent, since the assignee owns the patent unconditionally. The failure to comply with the future royalty obligations, while actionable with the recovery of damages for non payment, does not put at risk the intellectual property rights which have been irrevocably transferred This is why it is undesirable to assign a patent for future royalty payments. Lump sum sale price An assignment may be appropriate however where the patent owner prefers to receive a lump sum price, at the time of the assignment, rather than collecting royalties.
3 The payment of a lump sum may be a term of a license contract. However, if only that sum is paid, and royalties are not payable, it will generally be regarded by the person paying the lump sum as being a purchase price for the patent. The person making such a payment will therefore be likely to seek a permanent and irrevocable assignment, instead of a revocable license contract with conditions. This will be so where the payment of the lump sum relates to the whole of the unexpired period of the patent. Where the lump sum payment relates to a lesser period, then assignment would be inappropriate, and instead there should be a license for the period that relates to the actual lump sum payment. Royalties may be received over a period up to 20 years for example, in the case of a patent. In that case, the patent owner runs the risk that over that very long period there may be technical failure, market failure, regulatory failure, or even a competing product that enters the market and erodes the royalties that might otherwise have been paid. Rather than risk uncertain royalties with a license, the patent owner may prefer to receive a once only lump sum payment, at the outset, receiving all the value of the patent in this way on one single occasion only. This may be an occasion when assignment may be preferable to a license. By assigning, the patent owner transfers these risks of reduced royalties in the event of technical failure, market failure, regulatory failure, and competing products, to the assignee. The once only lump sum payment that the assignor receives is not refundable if these risks should eventuate. The disadvantage to an patent owner is that the lump sum amount at the time of the assignment will be assessed on the value of the patent at that time. This means that these risks will be factored into the lump sum price, as will a discount rate for the immediate benefit of a sum of money which if paid otherwise as royalties would have been over time a greater dollar amount. Another disadvantage is that the patent owner, by assigning, ceases to have the prospect of blue sky financial return should the patent have otherwise generated greater royalties than the lump sum amount has been assessed on. These disadvantages however need to be weighed up against the advantages of a once only lump sum price. The capital value of a patent that is assigned may be a very substantial amount of money. Receiving a capital lump sum can be extremely advantageous to an assignor. The assignor may have the need for capital. The assignment of a patent can provide an excellent opportunity for raising that needed capital. The assignor in need of capital may otherwise have had to raise debt capital, with repayment obligations to the lender, as well as interest obligations.
4 Often, debt capital in this way is difficult to raise because conventional lenders are reluctant to regard a patent as adequate security for borrowings. Or, where the assignor is a company, it may otherwise have had to raise equity capital, by issuing shares in return for the capital subscribed, with the a result that the assignor s existing shareholders would be diluted. Selling a capital asset such as a patent for a once only lump sum amount may sometimes be a more attractive capital raising option than raising debt capital or equity capital. For example, a start up company such as a biotechnology company researching and developing a patent to take it to state of development where it can make a commercial deal, may choose, instead of licensing the patent, to assign it, and in that way raise substantial capital to fund further research and development of other patents in its portfolio. Assigning for a lump sum will not always be a prudent course, but it sometimes may be the most prudent course to take. Start up companies A start up company, in the sense in which that term is employed here, is a company with speculative venture capital investment, where the venture capital investors will typically be seeking an exit from their investment in a 3 to 5 to 7 year timeframe. Typically, the start up company s patent has been made available by a technology developer, such as an individual, or a university, research institute or government laboratory. The investment made into a start up company has as its purpose to take the state of development of the company s patent to a level where an exit opportunity arises. An exist opportunity for a venture capital investor will typically be by listing the company upon a stock exchange, or to trade sell the assets of the start up company. Both exit opportunities are maximised, according to venture capital investors, if the start up company owns the patent made available by the individual, university, research institute or government laboratory, rather than just a license. There are a number of reasons for this perspective by a venture capital investor. Firstly, raising investment capital in the pre listing stage is perceived by capital raising professionals to be more easily done when the start up company owns its major asset, namely the patent, rather than just has licensed rights to it. Secondly, the listing of a patent owning start up company, and the raising of public capital in an initial public offerring is also perceived by capital raising professionals, and venture capital investors, to be a more attractive investment proposition to the public from whom capital is sought, than comparatively when the start up company only has a license. Thirdly, if instead of listing the exist is a trade sale, venture capitalists perceive that a sale of the patent asset that is owned is much easier than the sale of a license to that patent.
5 Given that the start up company will typically develop new patents as its own asset, there is also a negative perception where the start up company s patent is partly licensed in from the individual, university, research institute or government laboratory, and partly owned by the start up company. There is a more positive perception when all the patent is owned, instead of it being in part owned and in part licensed. Typically, the individual, university, research institute or government laboratory making its patent available to the start up company does so, not for royalties, but instead for shares in the start up company. In this way, the financial expectations of the individual, university, research institute or government laboratory are aligned with the investors, namely a return is realized from increased share value, not from royalties payable in relation to product sales. As a result, the absence of royalties does not make it essential that the individual, university, research institute or government laboratory consider only a license. Given that the patent is made available for shares, not royalties, and given the desirability of maximising the exit opportunities and exit terms, for both the venture capital investor, and the individual, university, research institute or government laboratory shareholder, it might be considered prudent to assign the patent to the start up company, and not just to license it. Performance obligations A license of patent typically contains performance obligations upon a licensee. These performance obligations will be of two types: pre market entry milestones, and post market entry sales targets. Pre market entry milestones require a licensee to achieve or meet the agreed milestones. The milestones may for example be: undertaking a trial or validation, producing a prototype, producing a pilot plant, meeting regulatory requirements, progressing through clinical trial phases, etc. By achieving or meeting those milestones, the licensee travels the pathway to market entry, and continues to enjoy the licensed rights. If the licensee fails to achieve or meet those milestones, the licensor may terminate the license, with reversion of the patent back to the licensor. In this way, a licensor ensures that the licensee does not shelve the patent, that is, does not become an inactive rights holder, with no commercialisation, and no financial benefits back to the licensor. A licensee, for any number of prudent commercial reasons, may not progress the development of the patent. A licensor will be concerned that without pre market entry performance obligations, the shelving of the patent by the licensee will result in there never being market entry, and result in the licensor not earning any royalties. Sales targets are performance obligations which commence once market entry has occurred.
6 Sales targets require a licensee to achieve minimum sales of products and services by which the licensed patent is exploited. By having sales targets in this way, a licensor ensures that there is exploitation by a licensee to at least the minimum extent represented by the minimum sales targets, and this in turn ensures that the licensor can expect the minimum royalties represented by those minimum sales targets. Performance obligations like these pre market entry commercialisation milestones, and sales targets are a critical part of the obligations upon a licensee in a license. Failure to achieve these performance obligations typically results in the termination of the license, with reversion of the patent back to the licensor, and the licensor then being able to license the patent to another person that does have the capability to meet these performance obligations. However, putting performance obligations such as these in an assignment is a challenge. Not unexpectedly, an assignee, having purchased the patent, will have the view that performance obligations such as these are inappropriate. Further, an assignment of patent being absolute and irrevocable, termination for failure to meet performance obligations is not possible. Accordingly, where performance obligations such as pre market entry commercialisation milestones and sales targets are sought, and this invariably occurs when long term royalties is the remuneration to the grantor of commercialisation rights, a license is the prudent commercialisation pathway to follow, not assignment. Conclusion Licensing is not necessarily always the best or most advantageous commercialisation pathway. Sometimes, assignment might be. Similarly, assignment is not necessarily always the best or most advantageous commercialisation pathway. Sometimes, licensing instead might be. On each occasion an assessment of the advantages and disadvantages of assignment versus licensing needs to be made. Neither is necessarily the better course to take to the exclusion of the other. The benefits of royalties, as against the benefits of receiving a once only lump sum need to be assessed, with all other implications, to reach a conclusion whether on a particular occasion, a license, or an assignment is to be the preferred course.
Understanding a Firm s Different Financing Options A Closer Look at Equity vs. Debt Financing Options: A Closer Look at Equity vs. Debt Business owners who seek financing face a fundamental choice: should
The Intellectual Property in the collaboration between Public Research Organisations and industry Nowadays new patterns of industrial innovation have emerged (often referred to as Open Innovation model)
Progress Test 2 Advanced Financial Management P4AFM-PT2-Z14-A Answers & Marking Scheme 2014 DeVry/Becker Educational Development Corp. Tutorial note: the answers below are more comprehensive than would
1 June 2015 REVISED SECURITIES TRADING POLICY In accordance with ASX Listing Rule 12.10, Echo Entertainment Group Limited (Echo) advises that it has amended its Securities Trading Policy. The revised policy
Adviser Services trust overview long form OVERVIEW Set out in this document is a summary of the unit trust structure ( Trust). A general discretionary trust creates an equitable obligation binding a person,
OKLAHOMA TAX COMMISSIO PHONE ( 405) 521-3133 TAX POLICY DIVISION DAWN CASH, DIRECTOR FACSIMILE ( 405) 522-0063 f 1907 ` March 29, 2007 REDACTED LETTER RULING Re: Our File No. LR -07-037 Dear This letter
Cross Border Tax Issues By Reinhold G. Krahn December 2000 This is a general overview of the subject matter and should not be relied upon as legal advice or opinion. For specific legal advice on the information
Continuous Disclosure Special Topics II MD&A Cash Flow Disclosure Examples 1 Repetition of information from financial statements Liquidity and Changes in Cash Flows Example of Boilerplate Disclosure During
Understanding gearing Version 5.0 This document provides some additional information to help you understand the financial planning concepts discussed in the SOA in relation to gearing. This document has
1(11) Key Investment Terms of Tekes Venture Capital Model Limited Partners Agreement (the model LPA) Disclaimer The Key Investment Terms set forth herein is are a summary of the key terms of the Tekes.vc
University of the West of England, Bristol Intellectual Property Policy 1 INTRODUCTION...2 1.1 EXTERNAL CONTEXT...2 1.2 CONTENT...2 1.3 STAKEHOLDERS...2 1.4 RAISING ISSUES...3 2 LEGAL OWNERSHIP OF INTELLECTUAL
BPEP Workshop Financing your Company (part 2) Corporate Structure and Managing Debt October 21, 2013 Scott D. Elliott Partner, Ropes & Gray email@example.com 415-315-6379 Ryan A. Murr Partner,
(unaudited) 1. SCOPE OF APPLICATION Basis of preparation This document represents the Basel Pillar 3 disclosures for Canadian Tire Bank ( the Bank ) and is unaudited. The Basel Pillar 3 disclosures included
Case # 5-0006 Updated January 12, 2005 Note on Private Equity Deal Structures Introduction Term Sheets are brief preliminary documents designed to facilitate and provide a framework for negotiations between
Exposure Draft National Consumer Credit Protection Amendment (Enhancements) Bill 2011 Table A: Main amendments Commentary on amendments: Reverse mortgages Topic Provision Commentary Definition of reverse
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR AUSTRALIA 3I INFRASTRUCTURE LIMITED
Equity Release Guide www.seniorissues.co.uk For more information or to speak to one of our trained advisers please telephone our Senior Issues Team on 0845 855 4411 The Caesar & Howie Group 7/3/2008 EQUITY
Chapter 2: Major Sources of Financing Solutions to Chapter Review Questions 1. Debt finance available in Australia: Trade Credit Bank Overdraft Trade Bills Promissory Notes Commercial Bills Inter-Company
Policy for the Exploitation of University Intellectual property - Formation of New Companies 1. Introduction By law, the University owns the Intellectual property (IP) generated by its employees in the
International Accounting Standard 28 Investments in Associates Scope 1 This Standard shall be applied in accounting for investments in associates. However, it does not apply to investments in associates
Sri Lanka Accounting Standard LKAS 28 Investments in Associates CONTENTS SRI LANKA ACCOUNTING STANDARD LKAS 28 INVESTMENTS IN ASSOCIATES paragraphs SCOPE 1 DEFINITIONS 2 12 Significant influence 6 10 Equity
Insufficient Cash On Hand A Frequent Reason For Needing A Business Loan 2 Cash flow is cash into or out of a business When cash inflows exceed cash outflows, it is generally indicative of good financial
8 Steps for Analysing Listed Private Equity Companies Important Notice This document is for information only and does not constitute a recommendation or solicitation to subscribe or purchase any products.
RAISING CAPITAL: SECURITIES LAW AND BUSINESS CONSIDERATIONS A Collaborative Effort Minnesota Department of Employment and Economic Development Oppenheimer Wolff & Donnelly LLP Raising Capital: Securities
STREET CAPITAL FINANCIAL CORPORATION STREET CAPITAL HOLDINGS CORPORATION STREET CAPITAL MORTGAGE CORPORATION (Collectively referred to as Street Capital) CONFLICT OF INTEREST AND MORTGAGE SUITABILITY POLICY
The Companies Act 1862-1900 Private Company Limited by Guarantee and not having a Share Capital Memorandum of Association of Children North East As amended by special resolution dated 11 July 2007 1. Name
Royalties, The better way of both investing in and financing of companies and projects Prepared for UCSD Jacobs School of Engineering s von Liebig Entrepreneurism Center Aligning the interests of those
Different forms business organization Financial Management Sole proprietorship Partnership Cooperative society Company Private limited Vs Public limited company Private co min- two and max fifty, Pub Ltd
Compiled Accounting Standard AASB 127 Consolidated and Separate Financial Statements This compiled Standard applies to annual reporting periods beginning on or after 1 July 2007. Early application is permitted.
IFAC Board Exposure Draft 50 October 2013 Comments due: February 28, 2014 Proposed International Public Sector Accounting Standard Investments in Associates and Joint Ventures This Exposure Draft 50, Investments
FREQUENTLY ASKED QUESTIONS ABOUT RIGHTS OFFERINGS Background What is a rights offering? A rights offering typically provides an issuer s existing shareholders the opportunity to purchase a pro rata portion
WELCOME To the Wonderful World Of Reverse Mortgages Reverse Mortgage Loans Borrowing Against Your Home Basic Questions: 1. Do you really need a reverse mortgage? -- Why are you interested in these loans?
Asset Classes Traditionally pension schemes invested in four main asset classes: Shares (Equities or Stocks), Bonds, Property and Cash. Shares (also called Equities or Stocks) are shares bought in quoted
SECTION 7 Raising Money, Issuing Shares and Distributing Assets A. Financing the Corporation One of the most important roles of the board of directors is to authorize financing of the corporation to meet
Overdraft By enabling you to overdraw from your cheque account, an overdraft is particularly useful at times when income is temporarily insufficient to meet payments that are due. Overdrafts do not require
POLICY STATEMENT TO REGULATION 55-103 RESPECTING INSIDER REPORTING FOR CERTAIN DERIVATIVE TRANSACTIONS (EQUITY MONETIZATION) The members of the Canadian Securities Administrators (the CSA) that have adopted
1.0 FINANCING PRINCIPLES Module 1: Corporate Finance and the Role of Venture Capital Financing Financing Principles 1.01 Introduction to Financing Principles 1.02 Capitalization of a Business 1.03 Capital
Dairy Australia Intellectual Property Policy Further information: Dairy Australia Level 5, IBM Centre 60 City Rd Southbank Victoria 3006 Australia T + 61 3 9694 3777 F + 61 3 9664 3733 www.dairyaustralia.com.au
International Accounting Standard 28 Investments in Associates and Joint Ventures In April 2001 the International Accounting Standards Board (IASB) adopted IAS 28 Accounting for Investments in Associates,
Securitisation of intellectual property assets in the US market William J. Kramer and Chirag B. Patel Marshall, Gerstein & Borun, Chicago, IL Corporations that have little or no tangible assets are able
HUMAN RESOURCES POLICY Policy Number RH-GEN.10 Date issued 2005-09-08 Date updated Approved at July 30, 2014 meeting of the Board of Directors Issued by Human Resources Department Approved by Management
R A I S I N G F U N D S I N SWEDEN Raising funds in Sweden Sweden can offer good opportunities and many ways to raise finance for businesses. The costs of establishing a Swedish limited company are low
1 The Stock Market for Beginners Presenter Date What is a share? If you own a share, you own a portion of a company. In the same way you can see your ownership of a company as a slice of pie, cut out of
IFRS News Special Edition December 2012 Many commentators have long believed that consolidating the financial statements of an investment entity and its investees does not provide the most useful information.
IFRS Global Office Issue 2, June 2011 IFRS industry insights Joint arrangements in the energy and resources industry The most significant change will likely be the removal of the option to proportionately
Nova Entertainment Pty Ltd - Advertising Terms and Conditions This document sets out the terms and conditions which apply to the provision of advertising services by any radio station owned or operated
MARCH 2002 Actuarial Standard 4.02 MINIMUM SURRENDER VALUES AND PAID-UP VALUES Life Insurance Actuarial Standards Board TABLE OF CONTENTS INTRODUCTION PAGE The Standard 2 Application of the Surrender Value
largeequityrelease.com EQUITY RELEASE GUIDE Speak to one of our specialists today on 020 3824 0904 CONTENTS What is equity release?... 3 How much money could I raise through an equity release?... 4 What
Security Trading Policy Grays ecommerce Group Limited (ACN 125 736 914) (Grays or Company) Adopted by the Board on 1. Introduction 1.1 Purpose This policy summarises the law relating to insider trading
STATUTORY BOARD FINANCIAL REPORTING STANDARD SB-FRS 28 Investments in Associates and Joint Ventures This standard applies for annual periods beginning on or after 1 January 2013. Earlier application is
ACCOUNTING STANDARDS BOARD OCTOBER 1998 FRS 14 14 EARNINGS FINANCIAL REPORTING STANDARD PER SHARE ACCOUNTING STANDARDS BOARD Financial Reporting Standard 14 Earnings per Share is issued by the Accounting
Pharmaxis Ltd 1. Board responsibility The Pharmaxis Board is responsible for ensuring the Company establishes and maintains a risk management framework for the oversight and management of risk. The Board
A Guide to Intellectual Property Management & Commercialisation The following is a brief overview Intellectual Property management & commercialisation focussing on patents and copyright, the most common
INSIGHTS Attempting to Protect the Value Accumulated in a GRAT The primary goal of a GRAT is the ability to allow assets to potentially increase in value, then have the appreciated amounts pass on to beneficiaries
FINANCIAL INSTITUTIONS AND MARKETS T Chapter Summary Chapter Web he Web Chapter provides an overview of the various financial institutions and markets that serve managers of firms and investors who invest
Reverse Mortgage Is it right for you? Reverse Mortgages are being hyped as a tremendous tool for retirement income. This type of mortgage uses part of the equity in a home as collateral. A Reverse Mortgage,
Statement of Edward M. Gramlich Acting Director Congressional Budget Office before the Committee on Veterans' Affairs United States Senate June 17,1987 NOTICE This statement is not available for public
Current and Non-Current Assets as Part of the Regulatory Asset Base. (The Return to Working Capital: Australia Post) R.R.Officer and S.R Bishop 1 4 th October 2007 Overview Initially, the task was to examine
Innovation Investment Fund Program Round Three Customer Information Guide 9 November 2006 website: www.ausindustry.gov.au AusIndustry hotline: 13 28 46 Contents 1 About the Innovation Investment Fund Program...
Managing Cash Flow & Accessing Finance A Presentation by Clive Lewis, Head of Enterprise, Institute of Chartered Accountants in England & Wales (ICAEW) Managing Cash Flow & Accessing Finance Presentation
Grantor Retained Annuity Trusts A GRAT may allow a person to share the future appreciation of an asset with the next generation with no gift tax. Executive Overview Transferring wealth can be a significant
BRIEFING NOTE With-Profits Policies This paper has been prepared by The Actuarial Profession to explain how withprofits policies work. It considers traditional non-pensions endowment policies in some detail
PROTECTING PATENTS AND TRADEMARKS THE U.S. MODEL DEVELOPMENTS IN THE TRANSFER OF PATENT RIGHTS Paolo M. Trevisan Patent Attorney Office of Policy and External Affairs United States Patent and Trademark
Chapter 7 7-1 Income bonds do share some characteristics with preferred stock. The primary difference is that interest paid on income bonds is tax deductible while preferred dividends are not. Income bondholders
Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Credit is the lifeblood of South Louisiana business, especially for the smaller firm. It helps the small business owner get started, obtain equipment, build inventory,
CENTURY ENERGY LTD. FORM 51-102F1 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED AUGUST 31, 2014 The following management s discussion and analysis ( MD&A ), prepared as of December 11, 2014, should
HKFRS 10 Revised October 2014January 2015 Effective for annual periods beginning on or after 1 January 2013 Hong Kong Financial Reporting Standard 10 Consolidated Financial Statements COPYRIGHT Copyright
Frequently Asked Questions 1. What is a reverse mortgage? 2. How does a reverse mortgage differ from a home equity loan? 3. What are the advantages of a reverse mortgage? 4. How much money can I get? 5.
The impact of insolvency on IP licences in the work of UNCITRAL Spyridon V. Bazinas Senior Legal Officer UNCITRAL Secretariat LL 1. Insolvency of the licensee: ipso facto clauses Ipso facto clauses are,
Spin-Out Company Formation Knowledge Transfer Guidance Document August 2011 Document title Spin-Out Company Formation Knowledge Transfer Guidance Document August 2011 Document author and department Responsible
IP Valuation WIPO Workshop on Innovation, Intellectual Asset Management and Successful Technology Licensing: Wealth Creation in the Arab Region Muscat, Oman, December 12 and 13, 2011 Topics Intangibles
CAIRNS REGIONAL COUNCIL NO.1:02:46 General Policy LEASING GUIDELINES Intent Scope To ensure that Council: (i) complies with the Leasing in the Queensland Public Sector Policy Guidelines, (revised December