tools for technology license negotiation (patent/copyright) mark reeves oak ridge national...
TRANSCRIPT
Tools for Technology License Negotiation
(Patent/Copyright)
Mark Reeves
Oak Ridge National Laboratory
Albuquerque, New MexicoApril 26, 2010
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Agenda• Strategy Development
- Technology-based Strategy- Company-based Strategy
• The License Application- Business Plan Pro Forma Financials- IP Valuation Calculation
• Term Sheet• Questions
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Disclaimer!• The course will:
- Provide tips on what has worked in the past when negotiating licenses and other agreements
- Share tools that have been successful- Help you avoid the effects of
misinformation or lack of information• Not the only way to do this business• PLEASE SPEAK FREELY—DISAGREE, OFFER
ALTERNATIVES, ASK QUESTIONS!
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Agenda• Strategy Development
- Technology-based Strategy- Company-based Strategy
• The License Application- Business Plan Pro Forma Financials- IP Valuation Calculation
• Term Sheet• Questions
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Strategy Development
• Good way of recording data about the technology portfolio and the institution’s goals in licensing
• Offers a way to allow management and inventor participation/approval in developing the strategy
- Keeps everyone on the same sheet of music
- Could be very useful if future internal disputes arise
• Will be a “living” document (many updates as new data are gathered)
Develop a Formal, Technology-based Licensing Strategy
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Develop a Formal, Technology-based Licensing Strategy (Cont.)
•An internal formal document, with management approval•Documents the:
- State of the intellectual property/technology- Market - Competition- Fields of use- Candidate licensees- Pricing parameters- Other key factors
Strategy Development (Cont.)
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Strategy Development (Cont.)
Attachment A—Technology-based Licensing Strategy Template
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Strategy Development (Cont.)
• Assume we have an expression of licensing interest and need to formulate a term sheet (i.e., outline of proposed license agreement)
• We’re looking for an indication of ability to perform
Qualify the Partner
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Strategy Development (Cont.)
• Diligence on prospective licensee(s)- Dun & Bradstreet reports- Company website- SEC filings (http://www.sec.gov), Yahoo! Finance,
Motley Fool, etc.- Google them!- Income statement & balance sheet
Qualify the Partner (Cont.)
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Strategy Development (Cont.)
• Diligence on prospective licensee(s) (Cont.)- Formal market opportunity analysis
- Proprietary databases- Market reports- Etc.
- History on new product introduction- Technology licensing history- “Dirt?”- Stable market player
• Reference librarians are a superb resource!
Qualify the Partner (Cont.)
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Strategy Development (Cont.)
• In addition to information already in the “Technology-based Licensing Strategy,” document company-specific information that may be:
- Critical in determining if this candidate is a good licensing prospect
- Very useful during any negotiations that may ensue
Update Licensing Strategy to “Company-based”
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Strategy Development (Cont.)
Attachment B—Company-based Licensing Strategy Template
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Agenda• Strategy Development
- Technology-based Strategy- Company-based Strategy
• The License Application- Business Plan Pro Forma Financials- IP Valuation Calculation
• Term Sheet• Questions
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License Application• A License application should provide you essential
data from which to produce a term sheet.- Specific company data (company name, state of
incorporation, contact info)- Verify the authority of the company’s negotiator
and signatory- Financial data (pro forma on revenues and margins
based on products commercialized from your IP) provided by the candidate licensee
- Information to help you with export control issues, exclusivity determination, fields of use, etc.
• Probably the most useful tool in the toolkit• Discourages tire-kickers!
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License Application (Cont.)
• From the license application and its associated business plan and pro forma financials, calculate the financial consideration:- Up-front fee- Minimum annual fee- % sales- Perhaps equity- Perhaps sponsored research
• Calculate the potential profits and use the “25%” rule• Base the term sheet consideration on their financials,
where possible
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Attachment C—Technology License Application Template
License Application (Cont.)
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Attachment D—Execution Fee, Royalty Rate, and Minimum Annual Royalty Calculations Based on Business Plan
Pro Forma Financials
License Application (Cont.)
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Agenda• Strategy Development
- Technology-based Strategy- Company-based Strategy
• The License Application- Business Plan Pro Forma Financials- IP Valuation Calculation
• Term Sheet• Questions
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Term Sheet• Term sheet should provide your first offer to candidate licensee
regarding- Royalty rate- License fee- Expectations on licensee bearing cost of IP protection- Key legal terms (indemnification, warranties)- Sublicensing- Termination- Perhaps equity- Perhaps sponsored research- Etc.
• Calculate the potential profits and use the “25%” rule• Base the term sheet consideration on their financials, where
possible• Always ask for more than you expect to get
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Attachment E—Term Sheet Template
Term Sheet (Cont.)
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Agenda• Strategy Development
- Technology-based Strategy- Company-based Strategy
• The License Application- Business Plan Pro Forma Financials- IP Valuation Calculation
• Term Sheet Template• Questions
