Home > Topics > Technology and Product Licensing > Licensing Biotechnology Inventions > Editor's Summary, Implications and Best Practices

This chapter raises a number of issues that licensors and licensees will want to consider when negotiating patent license agreements. After providing an overview of licensing in the field of biotechnology, the chapter carefully considers the key components of a license agreement, and highlights concerns specific to the field of biotechnology. The key components of a license agreement include:

• The background section, which recites the factual predicates for the license, including the identification of the parties, the effective date, and the parties’ motivations and expectations. Critical definitions may also appear here.
• The grant section, which establishes whether the license is exclusive to the licensee or whether others (including the licensor) may practice the invention. It also establishes limitations on the grant, such as restrictions on the technical or commercial fields, or on the geographical locations within which the license may be practiced. It may stipulate rights to sublicense or assign, or it may say that there are no such rights under the license.
• The section on fixed payments and royalties, which sets out the payment terms of the agreement.
• Confidentiality provisions, which, depending on the extent to which the parties exchange confidential information and biological materials, can be extremely important in the agreement.
• A section on enforcement against infringers, which should indicate which party shoulders the burdens and realizes the benefits of enforcing the licensed patent against infringers. This often involves allocating the risks and rewards of the overall success of the venture. As with payment terms, the decision about which party shoulders the burdens and realizes the benefits from enforcing the licensed patent against infringers often involves allocating the risks and rewards of the overall success of the venture.
• The term of the agreement and termination procedures should also be fully spelled out. As with most licenses, the biotechnology license will often have a term that coincides with the patent term. Note also that the right to premature termination for material breach typically includes a grace period for correcting the breach after notice.

The chapter also offers precise definitions of key terms, points out areas of the agreement that require special attention (including the relative merits of exclusive and non-exclusive licensing), considers the difficult question of how to determine a patent’s value (especially when the patent is being used for screening purposes). Finally, the chapter gives much-needed attention to the complexities of confidentiality agreements, especially when working with academic research institutions.

To help make negotiations easier and more realistic, the chapter discusses incentives for licensors and licensees, and also some of the finer issues of development collaboration. The author also offers some advice about how to define “patent misuse,” and gives some helpful suggestions about what to do should things go bad. The goal of this chapter, however, is to ensure that agreements go very well.

Key Implications and Best Practices

Given that IP management is heavily context specific, these Key Implications and Best Practices are intended as starting points to be adapted to specific needs and circumstances.

For Government Policymakers

• The likelihood of successfully commercializing any medical application embodied in a patent is a battle against the odds: less than one quarter of 1% of newly-developed compounds make it to market. Expecting universities to fund a significant portion of their research through royalties is wildly unrealistic.
• It is useful to encourage institutions to build IP management and licensing capacities as this will increase the likelihood that new inventions and technologies benefit society.

For Senior Management (university president, R&D manager, etc)

• The likelihood of successfully commercializing any medical application embodied in a patent is a battle against the odds: less than one quarter of 1% of newly-developed compounds make it to market. It is dangerous to rely on royalties from patents to fund the university.
• Given the inherent business and scientific complexities of a biotech patent license, it is easy to forget that a biotech patent license is merely a contract between two willing parties.
• The primary driver of a license should be the business decisions and not the legal aspects. Lawyers, evidently, should ensure that the contracts are according to prevailing law but should not drive the deal. This is equally applicable to private sector and public sector deals.

For Scientists

• The likelihood of successfully commercializing any medical application embodied in a patent is a battle against the odds: less than one quarter of 1% of newly-developed compounds make it to market. A patent invention is, therefore, clearly not a reliable cash source.
• Deciding who owns inventions is the hardest part of any collaboration negotiation.
• Ideally, leave such aspects to the relevant offices in your institutions but do participate in the internal discussions.

For Technology Transfer Officers

• The likelihood of successfully commercializing any medical application embodied in a patent is a battle against the odds: less than one quarter of 1% of newly-developed compounds make it to market. Knowing that a biotech invention is unlikely to succeed should heighten your sensitivity to reasons for terminating the agreement, as well as the impact of that termination.
• Given the inherent business and scientific complexities of a biotech patent license, it is easy to forget that a biotech patent license is merely a contract. All of the basic principles of contract law apply.
• Negotiating about low probability events can sidetrack progress toward agreement on core issues, so care should be taken during the negotiation to attend to low probability events commensurate with their true value, keeping in mind that alternate ways of mitigating their risks may be equally appropriate.
• The right to sublicense or not should be explicit, as should be the right to assign.
• In return for an exclusive license, the licensor should place contractual requirements to ensure that the licensee exerts sufficient efforts to commercialize the invention.
• Where there is a genuine collaboration, in which employees of each company share ideas and information, confidentiality provisions become even more important.
• Deciding who owns inventions is the hardest part of any collaboration negotiation.
• Sponsored research should not be viewed as a typical collaboration, but as a special case.