innovi licensing presentation 2013

Licensing, Deal Making & the Art of Negotiation

Presentation by Ian Murphy

Professional support for commercialisation and internationalisation

Speaker credentials

• 28 years international business experience• Hundreds of licensing deals in many countries in sectors

from aerospace, electronics and renewable energy to pharmaceuticals and genetics (even music)

• Trained in industry, experienced in technology transfer in Universities, MBA

• Currently negotiating IP for equity deals for a leading University, working independently, and co-founding a technology start-up

• Also international marketing & business development experience


Recent Activities

• Head of Licensing – ERI

• Commercialisation Specialist

• Chair / Director of Start-up based on in-licensing


Why Consider Licensing?

• Sharing risk• Revenue generation• Market penetration• Reducing costs• Reducing time to market


Challenges in Licensing

• Identifying a compatible / motivated partner• Valuing your IP • Negotiating a good deal• Managing your partner(s)• All the usual business threats and challenges


When to License?

• Established companies have well developed channels to market; – This will enable rapid and comprehensive

exploitation• The market is moving rapidly• The market is highly distributed• The invention may complement a wider product

range, but not be sufficiently broad or disruptive to merit investment as a stand-alone proposition.


What types of IP

• Patents• Trade secrets / confidential materials• Trademarks• Designs• Copyright• Database Rights• Combinations of the above categories


Patents


Patents

• Do not actually confer on you the right to practice the invention; rather

• Gives you the right to exclude others from practising the invention for the life of the patent, in the territories covered

• This right has to be actively exercised– Sadly, there is no “patent fairy”


Patentability

• Novel• Non-obvious, Inventive step• Capable of industrial application– (may or may not be any use to anyone!)

• Not covered by certain exclusions– Discoveries– Business methods


Novelty

• In 1982 the examination report in response to Paul Usher's Patent Application for a Dog Doorbell cited as 'prior art' the publication of the same invention on the front page of another journal.

• The Beano - Dennis the Menace’s enemy Walter the Softy had one already for his poodle!


Non-obvious / Inventive step

• The blue squash ball was considered non-obvious and to involve an inventive step.

• It may seem obvious to a layman, to try different colours, but previously they were all green!


Patenting – the process

UK Priori

ty Date

•Initial search report

•12 months before next step

Transform into PCT

•Recognised by every nation worth worrying about (and then some)

•International Examination

•18 months before next step

National

Phase

•Declare which countries are of interest (limit based on cost and strategy)

•Gradual process of examination and grant in each jurisdiction. Slow process. (Translation fees, renewal fees, fees, more fees, ££££££££££)


Copyright• Covers;

– Literary works– Musical works / sound recordings– Dramatic works– Drawings / Pictures / photographs– Choreography– Architecture– Software

• Does not cover– Ideas, facts, short names or slogans


Rights under copyright

• Protects against unauthorised copying, reproduction, distribution, public performance, display (includes derivations)

• Originality is a defence against alleged copyright infringement– The Chiffons vs. George Harrison (£1m)– David Lodge and Pauline Harris (£0)


Anatomy of a Licence


What is a Licence?

• A legally binding written agreement• In which someone having definable rights in

certain property• Transfers all or some part of those rights to

someone else• In return for a consideration


Common Licence Terms

• Parties• Recitals• Definitions• Define IP to be licensed• Field of use• Territory• Exclusivity• Duration

• Right to sublicence?• Patent defence• Performance Obligation• Fees for the licence• Verifying Accounts• Warranties/Indemnities• Termination– By time– On breach

• Governing LawProfessional support for commercialisation and internationalisation

Usual Big Issues (for Licensor)

• Performance Obligations– Milestones– “Use or lose”– Expenditure or efforts in marketing– Minimum Annual Royalties

• Payments– Levy on net sales, NEVER on profits– Cover inflation, exchange rate risks, late payments


Good Practice

• Secure a right of audit• Use it!– Underpayment is common. Possibly in 80% of

cases.– Underpayment may be up to 25%– Negligence is common, fraud is rare– Audit is low-cost, often high value investment


Negotiations

• Both sides must share enough information to enable each to understand the perspective of the other

• Respect the right of the other side to negotiate• Know your own fall-back position• Choose your partners carefully• Understand cultural differences• You may need to take time to build the relationship


Preparing for Negotiations

• Do your homework;– On the technology– On the inventor– On the company– On the negotiator(s)– Know your own BATNA– Best Alternative To No Agreement


Valuation of IP


The scientific approach

• (A x B – C) *0.25

• A = Net present value of future profits• B = Likelihood of them being made• C = The cost of development of invention to commercial

sales• You don’t actually know A, B or C, so the margin of error

makes this is pretty worthless


Valuing IP (1)

• A genuine value only exists in the presence of a willing buyer and a willing seller

• Otherwise it is an aspiration• Licensors and Licensees both have a right to

negotiate, cut a deal or walk• Valuation - “It’s a funny old game”• Best advice – get out there in the market!


Valuing IP (2)

• A lot of people ask me about the valuation of their IP

• Usually their questions focus on the royalty rate

• Rarely are they thinking enough about the multiplier!


Incentivisation – the win/win

“It is also possible for an inventor who accepts an extremely small royalty percentage to become much richer than one who negotiates a high royalty percentage. The difference depends on the number of units sold. For example, the inventor of the drinks can ring-pull got only a tiny royalty percentage - but he is reputed to be the world's wealthiest inventor.”

- From the website of the European Patent Office


Relationship Advice

• Licences – more like a marriage than like a sale• After the party is over you have to live together for a

long, long time• Stuff happens - Unknowns will arise in your joint

future, you will need goodwill to get through• As in any relationship good communication will

minimise “opportunistic or exploitative behaviour”• Breaking up is hard to do…


In conclusion

• Licensing can be a great way to extend your outreach• It can help you to minimise time to market• It can allow you to generate cash from one part of

your business to invest in others• It is easy to say you are selling direct, but if you do

you must be clear – how will you get your products or technology to the customer in Uruguay, Kenya or China?


Thank you for listening!

Ian [email protected]

Twitter: @Commercialiser


mailto:[email protected]

innovi licensing presentation 2013

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