Technology Transfer & Licensing
Any technology transfer begins with an identification, evaluation and assessment of the intellectual property owned. Due diligence is the process of identifying all intellectual property assets, verifying ownership and ensuring that such assets are free of encumbrances for the intended business use. Intellectual property due diligence is fundamental to any merger, acquisition or investment considerations.
Properly conducted intellectual property due diligence should provide a prospective investor with detailed information about the intellectual property assets of a target that may affect pricing or other key elements of the proposed transaction or, in certain circumstances, even recommend termination of proposed investment. The consequences of mismanaging or ignoring intellectual property due diligence can be severe. Without the proper investigation into an entity’s intellectual property assets, an investor may find, after the deal is already concluded, that it does not have ownership of the sought-after intellectual property assets or that the intellectual property assets have been transferred or encumbered by third-party interests or litigation.
An initial goal of intellectual property due diligence is to identify and locate the intellectual property assets of the target. Depending on the nature of the business, the research could include patents and/or patentable subject matter, copyrights, trademarks, domain names, trade secrets, mask works, inventions, works of authorship, hardware and devices. Some intellectual property assets require closer evaluation and analysis than others due to various factors including, complexity, competition and foreign registration of intellectual property assets.
The nature and extent of the due diligence inquiry will depend on the type of intellectual property rights involved. Generally, intellectual property rights can be broken down into four main categories: patents, trademarks, copyrights and trade secrets. Each class of intellectual property rights will necessitate the use of different methods of review.
- Review all issued, pending and abandoned patent applications and patents in the United States and in foreign countries. Such review should include not only those patents owned by the target but also those previously owned or licensed by the target.
- Examine all patent searches conducted by or on behalf of the target in relation to the inventions of the target.
- Confirm that all issued patents are being properly maintained and that the target is current with all maintenance fees.
- Review and evaluate all threatened or pending interferences.
- Evaluate the transfer of rights by evaluating all relevant agreements including licensing and manufacturing agreements.
- Investigate the underlying technology of the target.
- Examine all trademarks and service marks used by the target.
- Examined all trademarks and service marks registered by the target in the United States and abroad.
- Examine both the geographic area of use and the date of the first use of the mark in the given territory.
- Examine the prosecution files for any registrations of pending applications and examine all trademark searches performed in connection with such pending applications.
- Review all quality control manuals files or guidelines relating to goods or services sold under the marks.
- Review all trademark licenses, not only through trademark license agreements but also through all other types of agreements that include trademark licenses, including, for example, co-branding agreements and marketing and distribution agreements.
- Review all copyrighted works that the target has created, commissioned or to which it has acquired rights.
- Evaluate all work-for-hire agreements and contracts relating to consulting services and development work.
- Review all documents concerning copyright registrations, including applications, correspondence, transfers and security interests.
- Review all licenses related to copyrighted works used by target.
- Review and evaluate the target’s policy for identifying and protecting its copyrights in works it develops or has developed.
- Review and evaluate efforts undertaken by company to avoid claims of copyright infringement and obtain proper copyright clearances.
- Identify and evaluate all actual or pending claims of copyright infringement asserted against the target.
- Obtain an inventory of all material trade secrets utilized by the target.
- Determine whether non-disclosure agreements have been executed with key employees, consultants and other individuals or entities having access to the target’s confidential information.
- Determine whether non-compete agreements have been executed between the target and its key personnel.
- Review employment records of key personnel.
- Consider the impact of recent arrivals and/or departures of key personnel.
- Evaluate the adequacy of exit interviews.
- Evaluate security policies including physical, technical and administrative security procedures employed by the target.
- Review and evaluate all relevant agreements including know-how licenses and technical assistance agreements.
An intellectual property license is a contract that defines a temporary or limited transfer of the intellectual property rights. All intellectual property licenses address the same five basic questions:
1. Why is the IP being licensed?
2. Who is authorized to possess and use the IP?
3. How long can the IP be used?
4. How may the IP be used?
5. Where may the IP may be used?
Licenses may be granted on patents, trademarks, copyrights and trade secrets. It is important to understand what exactly is being licensed. There are many examples of companies who either obtained a license believing the required rights were contained within but were not, or provided a license for their assumed intellectual property where the rights were actually owned by or assigned to another entity. In this respect, proper due diligence is critical to understanding the intellectual property rights in your control, what rights you have to offer, and/or what intellectual property rights you are licensing, the rights obtained, and who controls those rights.
The reasons and motivations for licensing vary between the licensor and licensee.
A. Why is the IP being licensed?
a. Do you want to retain ownership?
b. Do you want to control who uses the IP?
- Proliferate the use of licensed IP.
- Generate income and return on R&D investment.
- Potential disclosure or abuse of trade secret.
- Must patent within one year of licensing (on sale bar).
- Trademark dilution.
Once determined to license:
- What is the value to you of others using the IP?
- Cost to create.
- Recoup cost or altruistic motives.
- Interests served thru one time licensee, royalties or free use?
- Does free or low cost use drive licensing of other IP?
- What is the value of the IP to others?
- What licensing model best achieves your objectives?
- License directly to user.
- Allow others to license on your behalf. (use, embed, distribute).
- License available for anyone and everyone?
- Desire or means to market IP directly?
- What is the underlying need or want for the IP?
- Does the business need the IP to function?
- Will the IP give you an edge or benefit over others?
- Does the IP meet some desire rather than need?
- What is the value of the IP to you?
- Cost/time to create?
- Could you live without the use of the IP and at what cost?
- What is the value to others?
- What is the demand for the IP?
- Where does the IP stand in the market; rumors, trade journals, potential use?
- What is the FMV of the IP? What others pay for similar IP?
- What is the minimum use of the IP required to meet objectives?
- Need to sublicense?
- Who has the most to gain from a successful licensing deal?
- Which party has more leverage?
- Who has the most to lose from a failed licensing deal?
B. Who is authorized to possess and use the IP?
- Exclusive or nonexclusive?
- Nonexclusive by default. If exclusive, must say so.
- Patent and copyright require exclusive license to be in writing.
- Trademark requires in writing and filed with the USPTO to be valid against third party infringers.
- Transferable or nontransferable? Nontransferable by default. If transferable, must say so.
- Permit the licensee to determine who else may use the IP.
- Trade secrets and trademarks are typically non transferable.
- Who exactly may use the IP?
- Licensor’s need to control access to IP?
- Licensee, its employees and subsidiaries etc. need to have access to the IP?
C. How long can the IP be used?
- Perpetual vs. Term.
- What are the objectives for licensing the IP?
- How long must the licensee use the IP to accomplish licensor’s or licensee’s objectives?
D. How may the IP be used?
- Restrictions and controls on use.
- Critical to trademark licenses.
- The right to restrict the use of the IP to a specific task, operation or function.
E. Where the IP may be used.
- State, country or geographic region.
- The use of the IP in jurisdictions where infringement might occur.
- Prior rights by other licensees.