University IP License Negotiation Workshop Henry Joseph Runge

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University IP License Negotiation Workshop Henry Joseph Runge, JD MS Tyson Benson, JD ©

University IP License Negotiation Workshop Henry Joseph Runge, JD MS Tyson Benson, JD © 2016 UNe. Med Corporation

Joe Runge – B. S. Creighton University - 2000 – JD, MS (Molecular Evolution)

Joe Runge – B. S. Creighton University - 2000 – JD, MS (Molecular Evolution) University of Iowa - 2004 – Office of General Counsel (Intern), Integrated DNA Technologies 2004 – University of Nebraska Medical Center – Technology Transfer Office (various) 2005 © 2016 UNe. Med Corporation

Tyson Benson • Partner, Advent, LLP • J. D. - Creighton University School of

Tyson Benson • Partner, Advent, LLP • J. D. - Creighton University School of Law, May 2009 • B. S. in Computer Engineering - Iowa State University, May 2004

University IP License Negotiation Workshop 1. Understanding the licensee’s motivation, and how to leverage

University IP License Negotiation Workshop 1. Understanding the licensee’s motivation, and how to leverage that knowledge 2. Identify and respond to licensee tricks, traps, posturing, and demands 3. Deal terms you must insist on 4. Learning the art of give and take in license negotiations 5. Use your negotiations to build solid, long-term relationships with licensees 6. What to do when negotiations reach an impasse © 2016 UNe. Med Corporation

Leveraging Motivation o Utilize information provided to you by licensee • What terms have

Leveraging Motivation o Utilize information provided to you by licensee • What terms have been presented by licensee? • What terms has licensee attempted to modify? • What is the track record of the licensee in other deals? o Is Licensee a market leader in the technology or a market follower (or new to the market)?

Leveraging Motivation Example o Party A initial terms set forth to Licensor: • Executive

Leveraging Motivation Example o Party A initial terms set forth to Licensor: • Executive Licensee of Patent • Large initial payment • Little-to-no royalty rate on products produced under the Patent • No milestones o What do these terms indicate for Party A’s motivation for obtaining the Patent?

Leveraging Motivation Example o Party A may want to just enforce the Patent as

Leveraging Motivation Example o Party A may want to just enforce the Patent as a patent aggregator o What terms does Licensee potentially counter with? • Exclusivity/Non-exclusivity • Minimum royalty rate with lesser initial up-front fee to encourage production of products • Multiple milestones to encourage production • Retractable field-of-use provisions

Leveraging Motivation Example o Licensor reaches out to potential Licensee o Conduct Due Diligence

Leveraging Motivation Example o Licensor reaches out to potential Licensee o Conduct Due Diligence o For instance: • Identify timeline for converting application (National Stage, Non-Provisional, etc. ) • Potential Response Deadlines

Licensee tricks, traps, posturing, and demands • Trips, traps posturing and demands are all

Licensee tricks, traps, posturing, and demands • Trips, traps posturing and demands are all part of the negotiation process – Recognizing them is a matter of understanding what you want/need and negotiation experience – They start from initial conversations and persist over the life of the license • Effective response starts before license negotiation – It is about having strong relationships with stakeholders and leveraging that relationship in a response – Beyond aligning stakeholders, it is about finding creative ways to build trust © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management • • Meaningful terms IP investments Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Selling vs Expectation management • • Meaningful terms IP investments • • Valuable Terms vs Sane partner Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan Selling vs Expectation management • • Meaningful terms IP investments • • Valuable Terms vs Sane partner • • Keeping negotiations on point Fighting the good fight © 2016 UNe. Med Corporation

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee

Savvy Negotiation: Tricks, Traps, Posturing and Demands • • • Finding Licensees Uncertain Licensee interest Meaningful Commercial Plan Selling vs Expectation management • • Meaningful terms IP investments • • Valuable Terms vs Sane partner • • Keeping negotiations on point Fighting the good fight © 2016 UNe. Med Corporation

Identify and respond to licensee tricks, traps, posturing, and demands • Trips, traps posturing

Identify and respond to licensee tricks, traps, posturing, and demands • Trips, traps posturing and demands are all part of the negotiation process – Recognizing them is a matter of understanding what you want/need and negotiation experience – They start from initial conversations and persist over the life of the license • Effective response starts before license negotiation – It is about having strong relationships with stakeholders and leveraging that relationship in a response – Beyond aligning stakeholders, it is about finding creative ways to build trust © 2016 UNe. Med Corporation

Stakeholder interests do not always align • • Advancing portfolio Financial Stability TTO •

Stakeholder interests do not always align • • Advancing portfolio Financial Stability TTO • • • Career development External funding support Inventor Institutional growth Strategic initiatives Donors University © 2016 UNe. Med Corporation

Stakeholder interests do not always align • • • Advancing an ongoing project Professional

Stakeholder interests do not always align • • • Advancing an ongoing project Professional collaboration Advancing portfolio Financial Stability • • TTO Supporting productive faculty Advancing university priorities • • • Career development External funding support Inventor Institutional growth Strategic initiatives Donors University • • Research in a strategic area Producing external funds © 2016 UNe. Med Corporation

Licensees can exploit different interests • • Licensees can leverage inventor’s interest in the

Licensees can exploit different interests • • Licensees can leverage inventor’s interest in the outcome to turn inventors against TTO’s Licensees often have more natural technical collaborations, making TTO’s the outsiders • TTO Inventor • Trusted entities can go over the TTO’s head Work directly with University administration who may have less experience with licensing University • • Licensees can poach faculty from Universities Licensees can point to third party examples to underline perceived unreasonable ness © 2016 UNe. Med Corporation

Get buy in for your stakeholders • Build long-term relationships with inventors, administration –

Get buy in for your stakeholders • Build long-term relationships with inventors, administration – Basic things, MTA’s, CDA’s, invention processing – every day is an opportunity – Know what they want and fight for it during negotiations • If a stakeholder is concerned, get them an early win – Early milestones, SRA’s cost on the long run, so explain that to faculty – If your faculty or administration loses faith the project is in far worse peril © 2016 UNe. Med Corporation

Universities need licensees • There is a mission and financial impulse to make technology

Universities need licensees • There is a mission and financial impulse to make technology transfer work, which gives licensees a lot of power – If you find a licensee, it gives you leverage that you will find another – The efficiency of a bird in the hand is a factor worth paying attention to • A bad license is worse than no license – Do not do the deal for the sake of doing the deal – Difficult negotiations harken to difficult partnerships • Be very, very cautious and very, very proactive © 2016 UNe. Med Corporation

Shared sacrifice aligns stakeholders • • TTO • • Unsupported research Time Inventor •

Shared sacrifice aligns stakeholders • • TTO • • Unsupported research Time Inventor • • TTO patent budget Time or expertise from TTO staff Developmental funding Special access University © 2016 UNe. Med Corporation

Shared sacrifice aligns stakeholders • • TTO • • Unsupported research Time • •

Shared sacrifice aligns stakeholders • • TTO • • Unsupported research Time • • TTO patent budget Time or expertise from TTO staff Developmental funding Special access Licensee Inventor University • • Sponsored research In kind developmental support © 2016 UNe. Med Corporation

Deal Terms o Identifying party that will pay for future costs related to prosecution

Deal Terms o Identifying party that will pay for future costs related to prosecution • Continuation applications? • Continuation-in-part applications? o Who will own IP related to future development? o Choice of Law and Venue provisions • Often considered subordinate terms • Drafting party often inserts local jurisdiction and difficult to negotiate something more favorable

Deal Terms o Choice of Law and Venue provisions • Often considered subordinate terms

Deal Terms o Choice of Law and Venue provisions • Often considered subordinate terms • Drafting party often inserts local jurisdiction and difficult to negotiate something more favorable o What is choice of law? • Indicates state or country whose laws will be applied for the interpretation of an agreement and for enforcement process • The validity, interpretation, performance, and enforcement of this agreement shall be governed by and interpreted in accordance with the laws of the state of Nebraska • Parties may regard a state’s laws as unacceptable

Deal Terms o What is choice of venue? • Provision that prescribes the court

Deal Terms o What is choice of venue? • Provision that prescribes the court or tribunal that will resolve disputes between the parties to the agreement • The parties agree that any action, suit, or proceeding arising out of this agreement shall be brought in the United States District Court for the Northern District of Iowa o What are the scope of the provisions? • Will venue provision apply only to breach of agreement or the subject matter of the agreement? • Depends upon language of the provision • “arising out of agreement” generally applies only to breach of contract claims • “regarding the agreement, ” “connected with the agreement, ” or “related to the agreement” are generally construed more broadly

Deal Terms o Indemnity Clauses • Obligation by an indemnitor to provide compensation for

Deal Terms o Indemnity Clauses • Obligation by an indemnitor to provide compensation for a particular loss suffered by an indemnitee • Additional thought to the following terms for Indemnity Clauses: • Notice (Time limit? Does failure to notify modify indemnification? ) • Control (Who controls litigation? ) • Settlement (Generally indemnitor controls settlement) • Limitations (Caps? ) • Reimbursement (Who pays third party? Reimbursement for incidental damages? )

Notice o Indemnitor • The indemnitee should be required to notify the indemnitor promptly

Notice o Indemnitor • The indemnitee should be required to notify the indemnitor promptly • Notice must be in writing • Include a statement of damages or a good faith estimate • Informed of possibly claims • Failure to comply with the notification provisional will render the indemnification provision invalid o Indemnitee • No time limit on informing indemnitor of claims • Breach of notification provision should not have any consequences unless indemnitor can shot it was harmed by failure to notify • Need not inform indemnitor of threatened suits – only filed suits

Coverage o Indemnitor • Include fewer people and entities • Generally includes indemnitee’s directors,

Coverage o Indemnitor • Include fewer people and entities • Generally includes indemnitee’s directors, officers, employees, and agents • Affiliates, successors, heirs, and assignees? o Indemnitee • Include as many people and entities as possible • Include sublicensee if sublicensed

Control o Indemnitor • Since indemnitor will have to pay damages – strong interest

Control o Indemnitor • Since indemnitor will have to pay damages – strong interest in controlling litigation • Ensure indemnitee is required to cooperate with defense efforts o Indemnitee • Likely have control of witnesses, documents, etc.

Settlement o Controlling party generally has settlement authority subject to other party’s consent o

Settlement o Controlling party generally has settlement authority subject to other party’s consent o Indemnitee should only be able to withhold consent if it will affect any of indemnitee’s rights o Indemnitor should have broader discretion to reject a settlement because it will have to reimburse indemnitee for damages

Learning the art of give and take in license negotiations – Give and take

Learning the art of give and take in license negotiations – Give and take pre-supposes knowledge of what you want and what the licensee wants – What do you want? • Aligning of stakeholders – you are not just you • Understanding the technology – what is its value and is that reflected in the license • Understanding a business model – does the license tell a story that makes sense for the technology? – What does your licensee want? • What kind of licensee are you working with • Does the licensee tell a story that the licensee is capable of carrying out © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market Funding © 2016 UNe.

What kind of licensee do you have? Speed to Market Funding © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market • Agree to more

What kind of licensee do you have? Speed to Market • Agree to more aggressive milestones • Capable of paying milestone fees or licensing fees to offset long term royalties • Concerned about efficiency and operability of license instead of overall cost Major Licensee Funding © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market Entrepreneur Startup • Focus

What kind of licensee do you have? Speed to Market Entrepreneur Startup • Focus on fundraising, a Majorcan return project that Licensee 10 x • More reliant on faculty for ongoing research and development • Back-loaded Funding arrangement pushing off costs for the license as long as possible • Equity position instead of up front fees © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market Lean Startup • Focus

What kind of licensee do you have? Speed to Market Lean Startup • Focus on path to market Major Licensee and market fit • Pre-market milestones and customer development milestones • Equity focus despite early revenue • Value of cost effective intellectual property and licenses Funding Entrepreneur Startup © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market Lean Startup Development Company

What kind of licensee do you have? Speed to Market Lean Startup Development Company Major from exit; Licensee • Work backwards deliberately structured milestones • Back-loaded deals that minimize up front costs Funding • Focus on collaborative development, faculty involvement and evaluation Entrepreneur Startup © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market Faculty Startup • Focus

What kind of licensee do you have? Speed to Market Faculty Startup • Focus on intangible values of company Lean • Startup Faculty may use to pursue grant opportunities, commercialize specialized services or otherwise expand professional capabilities • License needs to realistically reflect what the faculty can and Development Company to do and not create wants friction during. Entrepreneur license enforcement Startup Major Licensee Funding © 2016 UNe. Med Corporation

What kind of licensee do you have? Speed to Market • Not every licensee

What kind of licensee do you have? Speed to Market • Not every licensee is going to make Major products and pay royalties Lean • Startup Structuring a license to conform to. Licensee a NPE business model and be consistent with the mission of the university is very difficult • It requires some creative drafting and clear boundaries in order to find common ground Funding Development Company Faculty Startup Entrepreneur Startup Non-practicing Entity © 2016 UNe. Med Corporation

The license and the licensee • During negotiation the license needs to tell a

The license and the licensee • During negotiation the license needs to tell a selfcontained story that sounds like the kind of licensee you are working with – Do the financials make sense for the kind of licensee that you are working with? – Are the developmental milestones feasible and put everyone on a mutually agreed upon path © 2016 UNe. Med Corporation

The license and the licensee • A TTO has a variety of tools available

The license and the licensee • A TTO has a variety of tools available to commercialize intellectual property – Some disruptive technology is licensable, some iterative improvements are useful for startups – The license is the TTO’s business model, which means the terms need to explain how the licensee is going to make a going concern out of the intellectual property • Know a feasible model for your technologies early on © 2016 UNe. Med Corporation

Building solid, long-term relationships with licensees • For TTO’s, your licensees are your customers

Building solid, long-term relationships with licensees • For TTO’s, your licensees are your customers – The customer is king – The key to building long-term relationships is risk • Be a good partner – Mitigate Risk – Share Risk – Advocate to a partner in the reward © 2016 UNe. Med Corporation

Invention Internal Review Partnering Internal Review © 2016 UNe. Med Corporation

Invention Internal Review Partnering Internal Review © 2016 UNe. Med Corporation

 • • Engage with faculty to understand where invention is coming from Understand

• • Engage with faculty to understand where invention is coming from Understand why the invention excites the inventor Invention Internal Review Partnering License Drafting © 2016 UNe. Med Corporation

 • • Engage with faculty to understand where invention is coming from Understand

• • Engage with faculty to understand where invention is coming from Understand why the invention excites the inventor Internal Review Invention • • Partnering License Drafting Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement Have a perspective on the commercial but not a dogma © 2016 UNe. Med Corporation

 • • • Engage with faculty to understand where invention is coming from

• • • Engage with faculty to understand where invention is coming from Understand why the invention excites the inventor • Internal Review Invention • • Present the opportunity in clear terms with a direct ask; have an informed opinion of the next step developmentally Establish commercial relationships in a collaborative vein Partnering License Drafting Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement Have a perspective on the commercial but not a dogma © 2016 UNe. Med Corporation

 • • • Engage with faculty to understand where invention is coming from

• • • Engage with faculty to understand where invention is coming from Understand why the invention excites the inventor • Internal Review Invention • • Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement Have a perspective on the commercial but not a dogma Present the opportunity in clear terms with a direct ask; have an informed opinion of the next step developmentally Establish commercial relationships in a collaborative vein License Drafting Partnering • • Include clear developmental milestones with objective means to judge completion Establish clear processes for payment, reporting and other actual obligations © 2016 UNe. Med Corporation

License Enforcement Completion Repeat © 2016 UNe. Med Corporation

License Enforcement Completion Repeat © 2016 UNe. Med Corporation

 • • Establish regular updates regarding progress on development The license is not

• • Establish regular updates regarding progress on development The license is not the end, just the beginning of the next phase License Enforcement Completion Repeat © 2016 UNe. Med Corporation

 • • Establish regular updates regarding progress on development The license is not

• • Establish regular updates regarding progress on development The license is not the end, just the beginning of the next phase Enforcement License • • Completion Repeat Keep in periodic contact with licensees, appropriate for the terms Assist, leverage faculty, university resources or contacts © 2016 UNe. Med Corporation

 • • Establish regular updates regarding progress on development The license is not

• • Establish regular updates regarding progress on development The license is not the end, just the beginning of the next phase Enforcement License • • If the licensee is successful, congratulations If not, terminate the license professionally, per the rules of the license Completion Repeat Keep in periodic contact with licensees, appropriate for the terms Assist, leverage faculty, university resources or contacts © 2016 UNe. Med Corporation

 • • Establish regular updates regarding progress on development The license is not

• • Establish regular updates regarding progress on development The license is not the end, just the beginning of the next phase Enforcement License • • Keep in periodic contact with licensees, appropriate for the terms Assist, leverage faculty, university resources or contacts • • If the licensee is successful, congratulations If not, terminate the license professionally, per the rules of the license Repeat Completion • • Existing licensees, successful or not, can be repeat business Professional conduct from invention receipt to license enforcement builds those relationships © 2016 UNe. Med Corporation

When negotiations reach an impasse • Impasses come for a variety of reasons •

When negotiations reach an impasse • Impasses come for a variety of reasons • Sometimes it’s a failure of imagination – Two entities, with very different cultures can fail to find a way around an impasse because they cannot conceive of it • Example: Japanese Pharmaceutical Company – no concept of a University TTO © 2016 UNe. Med Corporation

Common Deal-Killing Blunders o Overvaluing the project • How are you valuing the project?

Common Deal-Killing Blunders o Overvaluing the project • How are you valuing the project? • What patent valuation methodology is being utilized? • Cost approach • Sales Comparison • Income Approach o Identifying comparable royalty rates • SEC submissions • Royalty Rate Databases

Common Deal-Killing Blunders o Some issued patents may have lost value in recent years

Common Deal-Killing Blunders o Some issued patents may have lost value in recent years • Patents issued prior to Mayo/Alice decisions • America Invents Act provisions (e. g. , Inter Partes Review, Post-Grant Review, etc. ) o Not conducting due diligence • Previous enabling disclosure o Trying to turn inventors against licensee • “Didn’t we collaborate with you? ” • We should be named co-inventor on this technology

Common Deal-Killing Blunders o Trying to negotiate what is not negotiable • Reservation of

Common Deal-Killing Blunders o Trying to negotiate what is not negotiable • Reservation of government rights provisions • Non-assignment language • Indemnification clauses • March-in rights • Choice of law/forum • Certain alternative dispute resolution provisions (e. g. , binding arbitration provisions)

Examples o Licensee wants to manufacture technologies developed under federal grant in a manufacturing

Examples o Licensee wants to manufacture technologies developed under federal grant in a manufacturing facility outside of the United States o Licensee plans to partner with large corporation as sublicensee o Licensee plans to appoint inventors of licensed patent

Questions?

Questions?