The royalty base must be defined and can be based on: net sales, net profit, mass production costs, number of units, products, processes, value creation and profits. No contract language is specified here for the license terms, as these and other variables must be taken into account. In many cases, the sponsor may want to obtain a license for all areas of use. However, the University may be concerned about the Sponsor`s ability to fully commercialize the Licensed Product in any possible use. In fact, such a complete development is an ideal that is rarely achieved in practice. Market size, development costs, and other factors often make the development of an invention unprofitable for certain applications or markets. Generally, contractual language is included that requires the sponsor to make “commercially reasonable efforts” to develop the invention in connection with the use. The promoter may develop specific applications or markets through sub-licenses or joint ventures. If a license is exclusive, it is always a good idea to require the licensee to pay minimum royalties.

These can be represented country by country or in a global number. A clause may be inserted in the contract so that if the licensee only manages to pay the minimum fees in two consecutive years, for example, the license will be terminated or converted so as not to become exclusive (at the choice of the licensor). Regardless of the above approach used to acquire a license, consideration of the scope of the license is the same. Below is a discussion of possible terms to consider, including exclusive and non-exclusive license terms, royalties, scope of use, and inclusion of a full license agreement. Now let`s look at the set-off and guarantee provisions in licensing agreements and what is appropriate when licensing technology. It is not uncommon for a licensee to request compensation or a security clause from the licensor when the licensor is sued for infringement resulting from the use of the licensed intellectual property. However, this is not appropriate. First, remember our initial discussion about intellectual property, liability is associated with products created by the use of rights, and there is no liability associated with ownership of intellectual property. For example, if alicensee is accused under a patent of infringement of a third party patent, the licensee manufactures, uses and sells the goods that assume responsibility for it. There is no lack of reliability vis-à-vis the patent owner.

In addition, the patent owner has no revenue generation that could justify a compensation clause for this liability associated with the goods. The income intended to cover a patent infringement of a third party comes from the sale of the goods by the licensee. The licensor must consider this potential risk of infringement of a third party`s patent as another risk of commercial activity and evaluate the products marketed accordingly. If the license is based on a set-off clause, the licensor must significantly increase the license rate to cover possible future liability. If a licensed product is provided as part of a service, the licensee may charge little for the product and give the service the majority of the price weighting, thereby minimizing a royalty due. In most cases, a licensee will request an exclusivity agreement. Exclusivity entails certain risks for the licensor, in particular the risk that the licensee will be underperforming and effectively bind the technology, resulting in a low return for the licensor. This scenario describes three approaches to acquiring license rights to exploit intellectual property. The document then describes the scope of the license terms considered in each of these approaches.

Before accepting exclusivity, Licensor must impose on Licensee certain performance obligations which, if not fulfilled, entitle Licensor to terminate the Agreement or convert it into a non-exclusive license. This may include minimum royalties, best effort clauses, etc. For more information, see the next section on performance bonds. This option extends to —— [time] between the disclosure of the intellectual property to the sponsor, OR the filing of a patent application, OR the notification of the grant of a patent, OR the conclusion of the term of the contract. The terms of these licenses must be negotiated in good faith and agreed between the university and the sponsor. The sponsor and the university must discuss the options that should be included in the research agreement. For example, an exclusive license may negate the need to grant a non-exclusive license. In general, licensing provisions are not included in research agreements. 10 If this is the case, the promoter often accepts a series of royalties and defers the determination of the actual interest rate. Pre-specification of the license rate – or a series of tariffs – does not preclude discussing other financial considerations during license negotiations. .