![Page 1: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/1.jpg)
![Page 2: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/2.jpg)
Strategic AlliancesStrategic AlliancesHow to Structure, Negotiate, and Implement
Successful Alliances
June 5, 2003Debra J. Dorfman
![Page 3: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/3.jpg)
3
DisclaimerDisclaimer
The purpose of this presentation is to provide general information on certain legal agreements and common issues that may be relevant to you in forming and implementing strategic alliances. This presentation and the information contained in the following slides should not be considered legal advice. Every case has special circumstances requiring its own analysis by legal counsel.
![Page 4: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/4.jpg)
4
Why are Strategic Alliances Valuable in Today’s Market?
“Venture capitalists are placing more and more emphasis on a company’s ability to demonstrate customer ‘traction’ - either through early revenue or customer validation of the company’s product or product concept - before investing.”*
*From Hale and Dorr Venture Capital Report for 2003
![Page 5: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/5.jpg)
5
Strategic Alliances
H ireEm ployees
D irectSales
D o ItYourself
AK AM anufacturer
R epresentative
C om m issionedAgentsSolic itO rders
SalesR epresentative
Pay Som eoneB etter to
Sell B etter
D istributorSells B y
PrescribedM arket'g P lan
Franchise
H elpSom eone Sell
For You
Specia l C ases :O EM
Private Label
AK ASupply orM arketing
Agreem ent
D istributorR esells
ForProfit
D istributor
Let Som eoneSell For You
Specia l C ases:Team ing
Agreem ents
C an B e A:C orporation ,
Partnership , LLCor O ther
L icensee isJointly O w ned
B y You andAnother
JointVenture
Let Som eoneE lse M ake/Sell& O w n Part o fThat Som eone
Specia l C ases :K now -H owShow -H ow
M ore F lexib leC om pared to
Sale o fTechnology
Licensee M akes/Sells Product,
PaysR oyalty
L icenses
Let Som eoneE lse M ake/Sell
As responsibility decreases, up-side opportunity decreases and need for financing decreases.
![Page 6: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/6.jpg)
6
Well Crafted Agreements Can Provide a Blue Print to Success
> Flexibility
> Clear definition of responsibilities and scope
> Mutual ongoing incentives
> Good communication
> Dispute resolution
> Wind down / termination provisions
![Page 7: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/7.jpg)
7
Pre-Contract Issues
> Hart-Scott-Rodino Antitrust Rules
> EU Competition Laws
> Timing and disclosure
> Should a letter of intent be used?
![Page 8: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/8.jpg)
8
The Term Sheet
This includes the negotiated business expectations of your company and your partner
> Time frame and schedules
> Obligations and rights of each party
> Financing and pricing terms
> Intellectual property
> Publicity
> Non solicitation
> No shop clause
![Page 9: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/9.jpg)
9
The Non Disclosure Agreement
> Must be in place prior to commencement of due diligence
> Essential to maintain trade secret and competitive advantages
> Opportunity to assess the other party’s technology
> Review of technical and business compatibility
![Page 10: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/10.jpg)
10
Types of Agreements
What is the nature of the relationship to be established between the parties?
> License Agreement
> Research Agreement
> Development and License Agreement
> Co-Promotion Agreement
> Distribution Agreement
> Manufacturing and Supply Agreement
> Joint Venture Agreement
> Consortia
![Page 11: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/11.jpg)
11
Grant of Rights
What rights will be granted?> Defining technology to be licensed
Patents Know-how Improvements/“second generation” technology Technology of affiliates
> Scope of license Duration Exclusivity Field Territory Grant backs Retained rights Sublicensing
> Additional technology rights ROFNs/ROFOs/ROFRs
![Page 12: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/12.jpg)
12
Grant of Rights
Background technology
Limit to technology actually used for the proposed relationship
Limit to technology developed as of effective date
Limit to technology to which Licensor has right to grant licenses
Collaboration technology
Can be joint or sole inventions
Include inventions of larger company in the relevant Field or Market to ensure royalty is payable even when the smaller company is not the inventor or the joint inventor
Licensed Product Definition
Narrow definition is limited to products covered by valid patent claim
Broader definition includes products that embody each party’s technology or jointly developed technology
![Page 13: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/13.jpg)
13
Grant of Rights
> Territory
Worldwide
License limited to specified countries or regions
> Affiliates
Know who they are
Avoid inclusion of technology of “affiliates”
> Field/ Market
> Grant back of rights
> Retained rights
> Sublicensing
![Page 14: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/14.jpg)
14
Grant of Rights
> Structuring methods of obtaining additional IP and/or additional markets
Right of First Negotiation
Right of First Offer
Right of First Refusal
![Page 15: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/15.jpg)
15
Financial Terms
> Milestone Payments
> Royalties
> Profit-Sharing
> License fees
![Page 16: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/16.jpg)
16
Financial Terms
Sublicensee Sales and Example
> Net Sales• $1,000,000: Sublicensee net sales• 5% royalty• $50,000 payment
> Sublicense Income• $1,000,000: Sublicensee net sales• 15% royalty to Licensee ($150,000)• 50% sublicense income sharing• $75,000 payment
![Page 17: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/17.jpg)
17
Financial Terms
> Equity investments What type of security?
— Common stock
— Special class of preferred stock
— Warrants Other rights and restrictions?
— Board representation or observer rights
— Standstill provision
— Voting rights and veto power of collaborator
> Debt/loan facility
![Page 18: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/18.jpg)
18
Exclusivity/Non-Compete Provisions
Exclusivity: Either party agrees that it will not perform services, commence a research or commercialization program (other than as contemplated by the collaboration), either alone or in collaboration with any third party, in competition with the Alliance in the relevant Field/ Territory/ Market
Exceptions: Grandfathered Relationships/ Existing collaborations Academic/research institutions Affiliate activities Carve-out for acquisitions of or mergers with entities
with competing programs
![Page 19: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/19.jpg)
19
Product Development
Generally, who does what?
Plan
Budget
Diligence
How are decisions made?
Management Committee
![Page 20: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/20.jpg)
20
Manufacturing
> Who makes the Licensed Product?
> Key Manufacturing Issues Forecasting Price Quantity Second manufacturing source Warranty Product liability indemnity Insurance
![Page 21: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/21.jpg)
21
Commercialization
Who markets and sells the Licensed Product?
Co-Promotion/ Co Branding
Each party markets product under shared label Control issues:
— Sales call assignments
— Advertising and collateral materials
— Training and related materials
— Samples use
— Pricing
— Regulatory approval
![Page 22: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/22.jpg)
22
Managing the Alliance
How to make the deal work once the contracts are signed
> Expectations and objectives
> Control vs. collaboration
> Communications
> Commitment
> Issue resolution
![Page 23: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/23.jpg)
23
Dispute Resolution
What happens when parties disagree?
> Steering Committee
Structures
— Usually equal representation
— Raises concerns about disrupting progress of collaboration
Possibilities
— Kickup issues to senior officers
— Provide one party with veto power over all issues or specified issues
— Resort to mediation or arbitration
![Page 24: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/24.jpg)
24
Dispute Resolution Mechanisms
> Typical dispute resolution mechanisms
• Mediation/arbitration
– binding vs. non-binding
– designation of arbitrators
– governing rules (e.g., AAA, UNCITRAL, etc.)
– location
– specify rules for the proceedings (e.g., timetables, limits on discovery, etc.)
– special types of arbitration - e.g., “baseball”-style
• Litigation
• jury trials
• contingency fees
• extensive discovery
• large class actions
![Page 25: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/25.jpg)
25
Termination
Expect the Best, Anticipate the Worst
> A significant percentage of strategic alliances are terminated prior to the introduction of the targeted products/technologies.
> While strategic alliance agreements typically cover product development, commercialization and financial terms in great detail, dispute resolution and termination clauses are often an after-thought.
![Page 26: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/26.jpg)
26
What rights should I try to get back if my partner terminates the collaboration?
> All data and information
> Inventory at cost
> Manufacturing contracts and data
> Supply commitment
> Customer information
![Page 27: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/27.jpg)
27
Common Triggers for Termination Of Strategic Alliances
1. Breach
2. Change of control
3. Unilateral termination right/ Termination for convenience
4. Failure to achieve milestones
![Page 28: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/28.jpg)
28
Bankruptcy Considerations
> Licensor in bankruptcy
• Licensor may assume or reject agreement post-filing
• If licensor assumes, licensee at risk of agreement assigned to third party, which may be a competitor
• If licensor rejects, 365(n) applies and licensee becomes unsecured creditor for damages
• 365(n): continued access to licensed “intellectual property” after rejection (services and other obligations terminate)
> Licensee in bankruptcy
• Licensee may assume or reject agreement post-filing
• Licensee may assume agreement and assign to third party, which may be a competitor
![Page 29: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/29.jpg)
29
Miscellaneous Issues> Indemnification
product liability intellectual property infringement
> Insurance self-insurance? dollar amount? primary or secondary coverage? term of coverage?
> Export control
> Publicity
![Page 30: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/30.jpg)
30
Any Questions?
Please feel free to contact
Debra J. Dorfman609-750-7644
with any questions you may have.
![Page 31: Strategic Alliances How to Structure, Negotiate, and](https://reader036.vdocuments.us/reader036/viewer/2022062511/54ba6da44a79592e7a8b456b/html5/thumbnails/31.jpg)