This document summarizes a presentation on technology licensing given by Mark Malven and Jeanne Whalen of Dykema law firm. It discusses the basic concepts of technology and intellectual property licensing, including the anatomy of license agreements, financial terms, ownership issues, and special considerations around bankruptcy and change of control. Key topics covered include the differences between assignments and licenses, exclusive vs non-exclusive licenses, royalty structures, handling improvements and enforcement rights, and dealing with joint ownership of intellectual property. The presentation provides an overview of important legal and business issues to consider for technology licensing agreements.

1. Business Law & Order: Intellectual
Property II – Keys to Technology
Licensing
January 21, 2013
© Ann Arbor SPARK

2. The Keys to Technology Licensing
Ann Arbor SPARK: Business Law & Order Series
January 16, 2012
Mark G. Malven,
Jeanne M. Whalen
Results. Value. Dykema.
www.dykema.com
California | Illinois | Michigan | North Carolina | Texas | Washington, D.C.

3. Agenda
• Basic concepts
• Anatomy of a technology
license (or IP-oriented JV)
agreement
• Financial terms
• Change of control
• Bankruptcy
• Ownership issues
• Conclusion
Results. Value. Dykema. 3

4. Technology vs. Intellectual Property
• Technology = Stuff
– Software
– Equipment
– Chemical processes
• Intellectual Property =
Legal Right (to Block
Others)
– 4 basic kinds - patents,
copyrights, trade secrets
and trademarks
Results. Value. Dykema. 4

5. Types of Technology IP
• Patents
– Protects technological developments (claimed inventions)
– Independent development not a defense
– Strongest protection for technology
• Trade Secrets
– Destroyed by disclosure
– Tough to market without losing it
– Independent development is a defense
• Copyrights
– Protects works of authorship (text, art, software)
– Cannot protect ideas, only expression
– Independent development is a defense
– Weakest protection for technology
Results. Value. Dykema. 5

6. IP vs. Technology Licenses
• Pure IP License – appropriate if no tech transfer
– “I license you to make and sell widgets covered by
U.S. Patent 1,234,567”
• Pure Technology License – appropriate for a finished product
– “I license you to use my equipment”
– Would include an implied license to use the necessary IP of
licensor
• In business transactions, you will often have a combination
Results. Value. Dykema. 6

7. Types of Intellectual Property Transfers
• Need to understand the differences between assignments
and licenses
• Labels not determinative, courts will reform agreements to
make them consistent
Results. Value. Dykema. 7

8. Assignments
• In writing
• Entire right, title and interest (or undivided part of same for
jointly-owned IP)
• Cannot be done by Field of Use
• Putting limitations on recipient can be problematic
– Not OK: usage or future transfer limitations, retained
enforcement rights, step in rights
– OK: License back
Results. Value. Dykema. 8

9. Exclusive Licenses
• Express or implied promise that others will be excluded
• Can be limited by geography, field of use, time
• Exclusive as to licensor?
– Drafting Tip: Silence can be ambiguous. Best to be
explicit regarding licensor’s retained rights and “non-
competition” obligations
• Drafting Tip for Licensor: Have measurable performance
requirements for exclusive licensees – “commercially
reasonable efforts” alone not enough!
Results. Value. Dykema. 9

10. Non-Exclusive Licenses
• Freedom from infringement suit
• Personal to licensee
– Non-transferable by licensee unless clearly stated
otherwise
• Encumbers IP
Results. Value. Dykema. 10

11. Covenants Not To Sue
• Similar to non-exclusive license, but
• Personal from “licensor”
– Does not encumber IP
– “Licensee” not protected if IP transferred
Results. Value. Dykema. 11

12. Anatomy of a License Agreement
– Core is the license grant section
– What is licensed (IP type, technology, and what rights)
• Patent: make, use, sell, offer for sale, import
• Copyright: copy, create derivative works, distribute,
etc.
• Trade Secret: use
• Trademark: use
Results. Value. Dykema. 12

13. Anatomy of a Technology License Agreement
• License Grant
– Exclusivity/Non-Competition
– Retained Rights
– Use of 3d Parties/Sublicensing
• Financial Terms
– Payment Structure
– Royalty Base
– Currencies
– Taxes
– Special Sales
– Audit Rights
– Recordkeeping and Reporting
Results. Value. Dykema. 13

14. Anatomy of a Technology License Agreement
• Technology Transfer and Support
• Improvements – Disclosure, Ownership and Grant Back Rights
• Licensed Field
• Territory
• License Term/Termination
• Licensee Obligations – e.g., engineering/sales efforts
• Prosecution Rights
• Enforcement Rights
• Patent Validity Challenges (MedImmune)
• Confidentiality
• Transferability
Results. Value. Dykema. 14

15. Financial Terms
Results. Value. Dykema. 15

16. Payment Structures
• Upfront payments
• Milestone payments
• Royalties
– % of Net Sales vs. % of Net Profit vs. Fixed $ Per Unit
– Net Profit often a bad idea – hard to determine, more
subject to disputes
Results. Value. Dykema. 16

17. Pay Attention to the Royalty Base!
• Parties frequently obsess over the royalty rate and pay too
little attention to defining the royalty base.
– What is a Unit?
– Exclusions?
• Standard components
• Other royalty-bearing products
• Remember: Even a low royalty percentage, multiplied
against a large royalty base, can still be a lot of $$
Results. Value. Dykema. 17

18. Special Dispositions
• The smart licensor (and/or its lawyer) will have an
agreement that addresses:
– Bundling/package sales
– Payments in kind
– Related party sales
– Promotional giveaways
– Loss leaders
– Demos/samples/internal use
Results. Value. Dykema. 18

19. Special Dispositions
• Possible ways to address the above:
– Fixed $ per unit
– Pro rata allocations, based on list prices
– Royalty as % of total price
– % Royalty with floor $ per unit
Results. Value. Dykema. 19

20. Currency and Tax Issues
• Commonly overlooked
• Can turn good deal to bad deal
• Currency – allocation of risks
• Tax planning opportunities can be significant
• Engage internal tax and finance resources early
Results. Value. Dykema. 20

21. Recordkeeping and Reporting
• Quantities made and sold • Related party sales
• Returns • Promotional giveaways
• Bundling/package sales • [See Special Dispositions
• Payments in kind issues above]
• Reports should be certified
Results. Value. Dykema. 21

22. Audits and Interest
• Audit rights – think these through
• Drafting Tip for Licensors:
– Don’t forget interest on late or non-payment
– Consider escalating consequences for repeated Licensee
failures to pay
Results. Value. Dykema. 22

23. MFN: Most Favored Licensee Clauses
• Generally a bad idea
• Licensor concerns:
– Carefully circumscribe – field/ territory/notice and timing
– Limit to substantially similar terms
• Special circumstances – affiliates, settlements, cross-licenses
Results. Value. Dykema. 23

24. “Legal” Terms
Results. Value. Dykema. 24

25. Patent Prosecution Issues
• Licenses frequently involve technology developments at a
time when patents have not yet issued
• Common to include rights to applications and patents that
issue from them
• Unless/until an application becomes a patent - no legal right
of exclusion
• For pending/future applications
– Who picks the countries and controls prosecution?
– Does the other party participate in the process?
– Who pays for it?
– Step-in rights?
Results. Value. Dykema. 25

26. Control of Enforcement Actions
• Often overlooked, or have inconsistent enforcement
provisions
– Who decides whether or not to sue? (e.g., a first shot, chance to step
in?)
– Who pays for the litigation?
• If licensee pays, can it recoup/offset costs from royalty
payments?
– If licensee wins, who gets the $$$?
– Are royalties paid on the award?
– If licensee sues, can it name licensor? Who pays licensor’s costs?
– If licensee sues, does licensor participate in litigation?
– Must licensor consent to a settlement?
Results. Value. Dykema. 26

27. Change of Control
• Need to plan for mergers, acquisitions, etc. and include
appropriate provisions in agreement
• Non-exclusive patent and copyright licenses are by default
non-transferable (under federal common law)
– Contrast with generally free transferability of non-IP
agreements
– Very different treatment of assignability issues in merger
context
Results. Value. Dykema. 27

28. Change of Control
• Silence (or prohibition) will bar transfer by:
– Asset sale
– Forward merger (target into buyer)
– Reverse merger (buyer into target)
– Forward triangular merger (target into buyer sub)
• Silence (or prohibition) will generally not bar transfer by:
– Reverse triangular merger (buyer sub into target) – but
even here there are exceptions
• Can still bar transfer in RTM with a broad “deemed
transfer” clause
Results. Value. Dykema. 28

29. Bankruptcy Matters – Basic Concepts
• Ipso facto clauses are unenforceable
• Trustee can reject or assume any executory contract
• Reject – terminate license
– Usually when licensor bankrupt
– Done to increase the value of the IP asset prior to sale
• Assume – keep or assign
– Usually when licensee bankrupt
– Continue using or transfer to 3d party for value
Results. Value. Dykema. 29

30. Bankruptcy Matters – Licensor Protections
• Exceptions protecting licensors:
– Trustee may not assume/assign when non-bankruptcy
law excuses accepting another’s performance
– Non-exclusive patent and copyright licenses are personal
to licensee and therefore licensor need not accept
performance from a transferee (Courts are split re
exclusive licenses)
• Unless agreement indicates parties clearly intended to
permit assignment
Results. Value. Dykema. 30

31. Bankruptcy Matters – Licensee Protections
• Section 365(n) of U.S. Bankruptcy Code is for the protection
of licensees when licensor is in bankruptcy
– If trustee terminates, licensee has choice of:
• Treating as breach and seeking damages
• Continuing to use (existing) IP and continuing to pay
royalties
Results. Value. Dykema. 31

32. Bankruptcy Matters – Licensee Protections
• Important limitations re Section 365(n)
– Does not apply to trademarks
– Does not apply to non-U.S. IP
– Licensee will not have right to support, future
developments, etc.
Results. Value. Dykema. 32

33. Bankruptcy Matters – Drafting Tips
• Licensor:
– Draft to emphasize personal nature (and prevent
assignment by licensee)
– Watch out for “consent not unreasonably withheld”
• Licensee: generally wants to permit assignment, so include
explicit permission
Results. Value. Dykema. 33

34. Joint Ownership of Developed IP
Results. Value. Dykema. 34

35. Joint Ownership – How Created
• How created (under US law)
– By agreement
– Patent: any contributor to a patent claim owns a pro rata
undivided interest in whole patent – even a 1%
contributor will be a joint owner with full rights to use itself
and to grant non-exclusive licenses
– Copyright: contributor to “joint work”
Results. Value. Dykema. 35

36. Joint Ownership – The Problems
• What did the parties really intend?
– Actions to maintain value of the IP?
– Who will prosecute applications? In what countries?
– Who decides whether to keep as trade secrets or publish
pursuant to a patent application?
• Remember: Trade secret value generally destroyed by
disclosure
– Who will enforce rights against infringers?
Results. Value. Dykema. 36

37. Joint Ownership – The Problems
• Applicable laws lead to different results for:
– Different IP types
– Different countries
• Joint owners in different countries have different
expectations
Results. Value. Dykema. 37

38. Example Problem #1: U.S. Patent Law
• Exploitation (which includes granting non-exclusive
licenses):
– No permission required
– No duty to share proceeds
– Problem: race to offer best deal
• Enforcement:
– All owners must join suit
– Problem: race to agree not to sue (e.g. grant a license)
Results. Value. Dykema. 38

39. Example Problem #1: U.S. Patent Law
• Bottom Line: Each joint owner at the mercy of the others
because easy to license (and reap the proceeds), but hard
to sue infringers to protect the IP
Results. Value. Dykema. 39

40. Example Problem #2: Patents vs. Copyrights
• Under U.S. law, each joint owner can fully exploit (including
the right to grant non-exclusive licenses):
– Patents: without permission or sharing of the proceeds
– Copyrights: without permission, but with a duty to share
proceeds
• What happens with products that have both patent and
copyright, such as software?
Results. Value. Dykema. 40

41. Example #3: Differing treatment among U.S.,
U.K, Japan and Germany
Patents – Right to Exploit
By Co-owner By License to 3rd Party
U.K. No Permission Need Permission
[Similar to U.S.] [Different from U.S.]
Japan / No Permission Need Permission
Germany [Similar to U.S.] [Different from U.S.]
Copyrights – Right to Exploit
By Co-owner By License to 3rd Party
U.K. Need Permission Need Permission
[Different from U.S.] [Different from U.S.]
Japan / Need Permission, cannot be Need Permission, cannot be
Germany unreasonably withheld unreasonably withheld
[Middle ground between U.S. [Middle ground between U.S.
and U.K.] and U.K.]
Results. Value. Dykema. 41

42. Alternatives to Joint Ownership
• Parties create a separate JV entity that owns the developed
IP
– Entity licenses parties and 3d parties
– Management/ownership structures would govern
– Good for complicated deals
• Allocate ownership item by item in accordance with specified
criteria
– Need fair/ unambiguous criteria
Results. Value. Dykema. 42

43. Alternatives to Joint Ownership
• Ownership allocated to one party and licensed to other
– Good for complicated deals
– Can be cleanest (i.e. best) solution
• If you cannot avoid joint ownership, then you must be
explicit in defining the joint owners’ rights to exploit and
enforce rights
• Address structural issues early
Results. Value. Dykema. 43

44. Conclusion
• Be rigorous in your approach:
– Address structural issues early
– Watch out for sloppy thinking / language
– Counsel is much more than a scrivener
• Overarching goals:
– To maximize value
– To prevent surprises
Results. Value. Dykema. 44

45. Thank You
Mark G. Malven
Email: mmalven@dykema.com
Phone: (248) 203-0517
Jeanne M. Whalen
Email: jwhalen@dykema.com
Phone: (248) 203-0775
www.dykema.com/techtrans
Results. Value. Dykema. 45

46. Licensing University Technologies
University Technology Transfer
Brian R. Copple
Senior Licensing Specialist
University of Michigan
copplebr@umich.edu
(734) 615-8965

47. Agenda
• Tech Transfer Concepts
• The University Tech Transfer Office
• Denizens of a TTO
• U-M’s Tech Transfer Mission
• Standard Activities / Assessment
• How to interact with Tech Transfer
• Shopping for Technologies

48. Tech Transfer Concepts
• Codified in Bayh-Dole Act (1980)
• Federal Funding Drives Most University Research
• Make Benefits Available to the Public
• Encourage participation by small business
• Promote collaboration between academia & industry
• Share revenues with inventors and reinvest revenues
into further research

49. Technology Transfer Offices
• TTO, OTT, OTM, TTL, TLO, TMO, etc.
• Office of Vice President for Research or Finance
Offices (depends on University)
• Identify, Protect and License Inventions
• Create/Support New Startup Companies
• Manage IP-Related External Relations
• Support Sponsored Contract Divisions
• Educate Faculty & Staff
• Professional, Experienced Staff
• Accounting, Reporting Functions

50. Denizens of a TTO
• Large – 25 FTEs, 5-8 licensing/business formation staff
• Small – 5 FTEs, 1-2 licensing/business formation Staff
• Licensing, Marketing, Accounting, Legal, Support, (Startups)
• Life or Physical Science Backgrounds
• Technical, Business Experience
• In-house legal review
• Out-sourced patent counsel

51. U-M Tech Transfer’s Mission:
“To effectively transfer University technologies
to the market while generating and providing
resources to encourage research, education
and service for the University, the community
and the general public.”

52. U-M Tech Transfer Process
Research
Research
Pre-Disclosure
Pre-Disclosure
Licensing
Licensing New Business
New Business
Invention Disclosure
Invention Disclosure Formation
Formation
Assessment
Assessment
Protection
Protection
Marketing to Find or Form Licensee
Marketing to Find or Form Licensee
Existing Business
Existing Business Licensing
Licensing Form Startup Business
Form Startup Business
Commercialization
Commercialization
Revenue
Revenue

53. Technology Assessment
Science Business
Business
Science Business
Business
(MIRs)
(MIRs)
Licensing Specialist
Legal
Legal

54. U-M Tech Transfer – FY12
• Another solid year, especially given the economy
– 368 inventions reported, up 14% and new record
– 123 agreements, up 22% and new record
• 24 exclusive licenses, up from 21 last year
– 11 new business startups
• 98 new startup ventures in last 10 years
– $13.8 million in total revenues
• Down 6% but missing largest licensee (legal dispute)
• Growing recognition as valued University
contributor

55. U-M Tech Transfer Results
Inventions Agreements
400
350
100
300
Number of Agreements
Invention Reports
250
200
50
150
100
50
0 0
2007 2008 2009 2010 2011 2012
Fiscal Year

56. U-M Tech Transfer Revenues
40
Equity/Paid-up
35 Royalties
Royalties
30
Amount (Millions)
25
20
15
10
5
0
2007 2008 2009 2010 2011 2012*
*Excludes $ from
legal dispute
Fiscal Year

57. U-M Tech Transfer Startups
14
12
10
8
Number
Other
6
LSA
4
CoE
2 Med
0
2007 2008 2009 2010 2011 2012
Fiscal Year

58. Why Work with U-M OTT?
• Outstanding Innovations and Innovators
Awaiting Your Help
• Excellent Value for Money
• Access to Technical & Business Expertise
• Long-Term Relationships
• Association with UM’s Strong Reputation
• Experienced Business Professionals

59. How To Work with U-M OTT
• Process:
– Find Technology/Collaborators
– Assess Readiness Level
– Option (?)
– Sponsor Research (?)
– License!
– Maintain Ongoing Communication During License Term
– Launch Products
– Make Profit!

60. Typical OTT Documents
• Marketing Brochure
• Nondisclosure Agreement
• Patent Documentation
• Option Agreement
• License Agreement
• Sponsored Research Agreement

61. U-M Objectives in a License
• Primary Goal: Making the technology available to the public
• Milestones are included to verify diligence by licensee toward
commercialization
• U-M desires a fair commercial return; timing and form of the
return can be tailored appropriately
• Licensee must pay associated patent costs and costs of doing
business (e.g., liability insurance, enforcing patents, etc.)

62. U-M Venture Center

63. U-M Venture Center Accelerator
• Opened January 2011
• Over 16,000 sq. ft. of office and lab space
• 18 clients
• 5 clients in the application cue
• 70 employees
• More than half of clients have
expanded within first year
• Inside University
• 3 year maximum tenancy

64. Shopping for Technologies
• Websites:
– http://inventions.umich.edu/ (Physical Science & Medical)
– http://gtp.autm.net/ (Physical Science & Medical)
– http://www.ibridgenetwork.org/ (Physical Science & Medical)
– http://www.ctsaip.org/ (Medical)
– http://www.autoharvest.org/ (Automotive/Transportation)
• Communicate with the Office
– Introduce Yourself
– Visit, Describe Areas of Interest
– Periodic Follow-up Email/Calls
• Target & Follow Researchers
• Monitor Patents and Publications

65. Questions?

66. U-M Licensed Startups
FY07 FY08 FY09 FY10 FY11 FY12
FlexSys* CytoPherx* Biotectix** HistoSonics* ChemXlerate* Lecture Tools*
ImBio* Buck 80 ACSI* miRcore* Fusion Coolant* Spider 9*
Seventh Sense Tangent Medical
Avicennna* OtoMedicine* Ambiq Micro* Possibilities for Change
Biosystems Technologies*
Shepherd Intelligent
Origio InflaRx GmbH OcuSciences* JBR Pharma* Pryor Medical
Systems*
Integrated Sensor
Locomatix* Lycera* Crossbar* Nymirum* Diapin Therapeutics*
Technologies
Polaris Surgical Phrixus
Sandbox Tech Civionics* Photolitec E-Sens
Instruments Pharmaceuticals*
Tissue Regeneration InfoMotion Sports Ascentage Pharma
Biodiscovery* Umerse Baker-Calling*
System* Technologies* Group
Hearing Health
Omni Science* Securus Medical CAMLA* Reveal Design Automation*
Science*
Vortex Hydro
Arbor Photonics* Life Magnetics* Emergent Micro Systems*
Energy*
InCytu 3D Biomatrix* EFSolutions* Edington Associates*
ePack* Csquared* AlertWatch*
Sakti3*
Armune Bioscience*
*/** indicates Michigan HQ (*) or office (**) Italics = ceased operations or returned technology