NEGOTIATIONS AND LICENSING

By sandra herrera galvis
The purpose of any licensing negotiations is for both sides to identify clearly what each wants from the commercial arrangement they intend entering into.
The objective is to achieve an outcome, where each side is clear on what it is giving and receiving from the agreement and, importantly, that each party is content with the final deal reached and has gained a sense of trust and fairness from the other.
The team
1. the person leading the team must understand the corporate issues and the limits beyond which he cannot negotiate.
2. Identify the colleagues, and any consultants, you think should be involved in the negotiations and work out a clear role for each in the discussions.
NEGOTIATING
1. The contract must fulfil three essential elements. There must be:
  1. Terms of exchange specified for the bargain
  2. Something of value exchanged
  3. Mutual exchange
2. the negotiations should focus on the Heads of Agreement presented for the initial discussion
THE TERMS
1. Licence Fee
  1. is intended to reflect a number of considerations:
    1. Payment as a security or sign of intention
    2. Recognition of access to strong IP
    3. Recognition on the part of the licensee
    4. A payment towards a portion of the expenditures already committed by the licensor;
    5. Milestone fees to reward the licensor for the successful development of the technology
2. Royalties
  1. This necessitates an appreciation of the operating costs, the likely sales price and the net margin for the product from the technology being licensed.
  2. Setting the Royalty Rate
    1. consideration must be given to the end-use or application of the product or technology
    2. The following are some approaches worth considering:
      1. For stand-alone products or processes, base the royalty on the sales price of the product, a unit weight, or a unit volume;
      2. For compound products or processes, base the royalty on the percentage contribution of the licensed technology to the total manufacturing cost of the final product
      3. For compound products or processes, base the royalty on a percentage of the premium achieved by the manufacturer
      4. ensure that the royalty is index-linked;
  3. Minimum Royalty
    1. may be appropriate in a situation where the technology is at the pre-market stage and there is a good demand for it from several competitors.
      1. pre marketing stage
      2. marketing forecast
  4. Resetting Minimum Royalties
    1. The to discusses some approaches to negotiating commercial agreement for renegotiation of the minimum royalty on reasonable terms
HEADS OF AGREEMENT
1. discussed and that agreement is reached on each of the important aspects of the planned interaction, be it a research collaboration, a licence agreement, a licence option agreement, patent exploitation agreement, or other.
2. Heads of Agreement – Licence
  1. Parties: The registered legal name and location of the parties.
  2. Start date: Commencement of licence
  3. Duration: Agree the appropriate term for the licence
  4. Nature of licensed IP (patent, copyright, know-how, etc.): Provide only those patents that cover the specific product which the licensee wants access
  5. Work schedule: Where work needs to be done, in transferring the technology from the licensor to the licensee
  6. Costs: Who will incur the costs of a) the technology transfer and b) the development work
  7. Lump sum/royalties (minimum royalties): Negotiate the licence fee and royalty rate as discussed in the section above.
  8. Payment schedule: Depending on the payments that have been agreed, also agree when the appropriate payments should be made
  9. Licence option:If the agreement includes a licence option, specify whether exclusive or non-exclusive
  10. Option term on licence: In the case of a licence option, agree the term to allow time for the licensee to do due diligence on the patent applications
  11. Right of first refusal:I f the first party rejects the offer, then he can accept the second offer and grant a license to the second party
  12. Scope of licence: The licence should be made as specific as possible by using several
  13. Exclusivity: Exclusivity can be granted without giving away exclusive rights to the whole IP
  14. Liability: The licensee provides product liability for any products it manufactures under the licence and indemnifies the licensor against any damages.
  15. Warranty on licensed patents: The licensor is expected to provide certain warranties on the patents to which the licensee has certain rights

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NEGOTIATIONS AND LICENSING

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