Patent and know-how licensing: Going beyond the textbooks
Charlotte Tillett, Partner at Stevens & Bolton LLP, discusses the key concerns of practitioners working with patents and know-how licenses
Practitioners working with patents and know-how licenses - in-house and in private practices - face a number of challenges. In this article, key concerns are addressed relating to ownership, royalties, visibility and protecting licensed IP.
Identifying the know-how
How to clearly identify the licensed know-how while not compromising its confidentiality is a top issue. In Europe, this also feeds into the need to describe know-how in sufficient detail to comply with European competition law[i]. A common solution is to use a general description, referring to a separate, confidential document. Alternatively, the names or titles of particular methodologies or procedures could be listed where these refer to specific elements of know-how. Care is needed, however, to ensure that documents are drafted precisely enough to cover the full range of the know-how, and technical input was crucial in this respect.
Clearly defining the intellectual property (IP) owned by each party is key to avoiding misunderstandings and disputes. The licensor must be clear about the extent to which it will offer its own future improvements to the licensee. Assignment or exclusive grant-back of the licensee’s improvements is not generally acceptable under EU competition law, but the licensor may require a non-exclusive licence back, and such clauses are commonly included. Particular consideration of IP ownership provisions is needed in collaboration type agreements, where more than one party will be creating and cross-licensing foreground IP. Upfront thought and discussions are needed to prevent dispute and avoid the need for jointly-owned IP. A point sometimes overlooked is whether a Supplementary Protection Certificate (SPC) would be applied for; as this can result in up to five years of extra patent protection, it is a subject that should be included upfront in negotiations.
Royalties and payments
Payment structures are becoming increasingly complex. Payment terms usually comprise a mixture of initial payments, milestone payments and royalty payments. Royalties are often structured with one rate for patents and another, lower, rate for know-how once the patents have expired. There may also be provisions to calculate reduced rates where there are combination products or antibody-drug conjugates. As most modern drug products are complex and require multiple licences, the licensee may wish to deduct third party royalties when working out the Net Sales on which royalties are paid, and the licensor may want an overall royalty ‘floor’. Where royalties depend on whether the licensee’s product falls within a valid claim, the parties should remember that the scope of claims may vary between countries.
Protecting licensed IP
Participants at the recent Life Sciences Patent Network Europe conference highlighted the importance of licensors carrying out robust due diligence. Many licensors remain nervous about protection in countries where IP and trade secret protection are perceived as weak, such as China and South Korea, and this is becoming an increasing problem as their biotech/drug production markets grow. Due diligence may include visiting the production facilities where the licensed materials will be used. This issue of trust in relation to how technology will be used may also affect the licensor’s approach to allowing assignment, sub-licensing and sub-contracting. In a market characterised by frequent consolidation and business sales, licensors may be wary of allowing licensees to share licensed technology with new business partners who could be or become competitors.
A patent licensee working with the patented technology may be more knowledgeable than the patentee about patent vulnerabilities, and licensors will wish to prevent such a licensee from using their knowledge to challenge the patent. Under EU law, the licensor may not generally ban the licensee from challenging the patent, and this is sometimes cited as a major obstacle impeding access to new technologies. However, a provision in an exclusive licence that permits its termination by the licensor in the event of such a challenge is often acceptable, and obliges the licensee to ‘put his money where his mouth is’ and risk termination if he believes the patent is invalid.
Given the increasing sophistication of modern drugs and healthcare solutions, it seems inevitable that sophisticated licensing is on the rise as multiple licences are needed for complex products. The playing field is ever-changing as new technologies emerge and markets evolve rapidly.
[i] Under the Technology Transfer Block Exemption 316/214 or EU Commission guidelines under Article 101, Treaty of Rome