COMMERCIALISATION

Question 1

EFFECTIVE MANAGEMENT

Answer 1

• Optimization – identify IP, ensure ideas are explored;
• Enrichment – update IP, ensure it stays current/relevant;
• Safeguarding – ensure IP is protected (via registration), via business practices, or if necessary, enforcement

Question 2

AUDITS

Answer 2

• Identify what IP the business generates/uses, whether it owns or controls the IP, and how to remedy any defects in ownership/control.
• Conducting Audits from time to time
• Why have regular audits and maintain records?
• Litigation
• Sale (or public securities offering, merger or acquisition etc)
• Day-to-day management (dealings with IP)
• IP Audit Process:
• Questions to ask include:
   What kind of IP is it?
• If IP is confidential business info – locate evidence of how it is protected (and if not protected, what you can do immediately to protect it).
   Who developed/created/invented the IP? [title/ownership issue]
   Under what sort of agreement or contract? (created by employee, etc.)
   When was it developed?
   What is the importance of the IP to your organisation’s activities?
   What potentially new IP is being developed?

Question 3

IP VALUATION

Answer 3

• Advantages of IP valuation include:
• Knowing which is the valuable IP (perhaps within a large portfolio) and determining:
   which needs to be protected fully;
   which is the IP of no significant value;
   which might be sold or abandoned;
• Creating new and diverse revenue streams, especially from underused IP;
• Establishing a realistic price, for negotiating transactions;
• Deciding whether to commence litigation to protect a patent.

Question 4

BASIC METHODS OF IP VALUATION

Answer 4

a. Cost
 What would production of the asset cost today?
b. Market
 What would a market pay for comparable assets?
c. Income
 What is the current value of the potential earnings stream or cashflow from the asset?

Question 5

LITIGATION

Answer 5

• Should you litigate?
• Generally involves significant costs, time and resources
• Is litigation likely to achieve the business objectives of the enterprise?
   Considerations incl the type of remedies, the appropriate Defendant, risks from counterclaims
• In essence – compare alleged infringing act with scope of exclusive right(s)

Question 6

LETTER OF DEMAND

Answer 6

• Before Litigating – Letter of Demand (alternative to heading straight to litigation)
• One of the most effective mechanisms for resolving dispute
• Letter should discuss:
   Specific form of IP allegedly infringed (eg registration details)
   Description of alleged infringing act (incl date)
   Request recipient cease to act infringing manner
   Seek response within a reasonable time frame (eg 1-2 weeks, depending on circumstances)
• Beware of unjustified threat – but valid action is a defence

Question 7

ADR

Answer 7

• Mediation – independent person facilitate settlement
• Arbitration – result determined by tribunal
• Useful where
• dispute re technical (not legal) matter
• Dispute relates to international contract
• Common for parties to invoke UNCITRAL arbitration/conciliation rules
• Note also Arbitration and Mediation Center of the World Intellectual Property Organization (the WIPO Center)

Question 8

INTERNATIONAL ENFORCEMENT

Answer 8

• Added complexity and cost
• Foreign jurisdiction
• Unfamiliar context and rules
• Could be significantly more expensive eg US, EU
• Practical consideration – established competitor, with stronger market position

Question 9

INJUNCTIONS

Answer 9

• Interlocutory (‘trial before the trial’) or final

Question 10

DAMAGES OR ACCOUNT OF PROFITS

Answer 10

• Plaintiff must choose between the two – not both
• See Copyright Act s 115(2); Patents Act s 122(1); TM Act s 126
   Damages
• Compensate Pl
   Account of profits
• Strip Df of ‘ill-gotten gains’
• Damages – 2 measures
• If Pl would be prepared to authorised – reasonable licence fee
• If competitors – Pl’s loss profits
• Potential for additional damages
• Account of profits
• Difficulty of apportioning value
• Eg only part of Df’s copyright work
• Or patent on a component of Df’s product

Question 11

MONETARY ORDERS

Answer 11

• Siddell v Vickers (1892) 9 RPC 152,162:
• ‘Accounts … very seldom result in anything satisfactory to anybody. The litigation is enormous, the expense is great and the time consumed is out of all proportion to the advantage ultimately attained.’
• Account of profits apportionment –
• Eg Dart Industries v Décor (1993) 179 CLR 101
   Whole product or just part of the product so only part of profit.
   They took whole product in this case.
   But have to consider the money etc that went into them developing the product.

Question 12

LITIGATION COST ORDERS

Answer 12

• Cost of all proceedings – Question of who pays
• In discretion of the court
• Generally – follows the event
• i.e. successful litigant receives cost order in their favour (portion)
• Types of costs
• Court costs
• Legal costs – solicitor

Question 13

COMMERCIALISING IP

Answer 13

1. DIY – Start-up company.
2. Collaborate – Joint Venture
3. Utilise others’ established IP – Franchises
   - Each to some extent will utilize:
   * Selling IP – Assignment
   * Permit others to commercialise IP – Licensing

Question 14

ASSIGNMENT

Answer 14

• The effect
• E.g. - In copyright
   Assignor, absent provision to the contrary, is divested of control of economic rights
• may be an infringer, and be sued by the new owner
  o But note moral rights constraints

Question 15

OTHER ISSUES WITH ASSIGNMENT

Answer 15

• What is or is not property
   This is relevant question because you can do some things with property that you cannot do with other subject matter – mortgage, sell it, dispose by will.
• Formalities of assignment at law
   Patents Act, s14(1): assignment must be in writing & signed
   Copyright Act, 196(3): an assignment of copyright (whether total or partial), does not have effect unless it is in writing & signed
   Designs Act, s11: owner may assign by writing
   Cf TM Act – no formalities prescribed in the Act
• Dividing assignment
   By location
• Under Patents Act, s14(2); Copyright Act, s196(2); Designs Act, s11(1).
• Cf TM Act, s106(2): may be partial to goods/services, but in relation to use of a TM in a particular area.
   Other divisibility
• Copyright Act, s196(2): contemplates divisibility by duration i.e. for ‘part of the period for which copyright is to subsist’.
• Designs Act, s11(1): contemplates all or part of owner’s interest being assigned.

Question 16

LICENCING

Answer 16

• LICENSOR: (grants the permission to exercise IP rights)
• shares risk of commercialisation
• gets monetary compensation
• LICENSEE: (receives permission to exercise IP rights)
• shares costs of development
• has access to an established product/service
• gets assistance in relation to technical & other know-how

Question 17

TYPES OF LICENCES

Answer 17

• Exclusive licence: Licensor does not offer anyone else a licence to exercise the exclusive right covering that area
• *Licensee has standing to sue
• Sole: Similarly, an exclusive license BUT the licensor retains the right to use the IP rights themselves
• Non-exclusive: The licensor has the right to grant other licenses which cover the same object or area

Question 18

LICENCE EXTENT OF GRANT AND FIELD OF USE

Answer 18

• Ensure that you are clear about what you can and can’t do with the license rights
   What jurisdiction?
   How long do the rights last?
   Is the licence exclusive or not?
   Is there a sub-licensing right?
• Eg ‘Licensor A hereby grants Licensor B a non-exclusive licence to exploit the patents referred to in Schedule 1 for a period of 10 years from the date of this licence in the field of human diagnostics throughout Australia in consideration of Licensee B paying Licensor A a royalty rate of 5% of net sales revenue earned by Licensee B from such exploitation.’

Question 19

OTHER CLAUSES THAT MAY BE NEGOTIATED IN LICENCE

Answer 19

• Improvements (stronger party usually wants control of improvements).
• IP enforcement against third parties
• Warranties or indemnities (in case infringing or mistakes down track. Indemnified against negligence down track).
• Confidentiality (know-how might exist – confidential agreement in relation).
• Technical assistance
• Remuneration (TBD)
• Records, reports and auditing
• Best efforts
• Grounds for termination
• Dispute Resolution – Mediation / Arbitration (in event of dispute).
• Governing Law (again in event of dispute which jurisdictions law to be applied).

Question 20

WHAT IS A ROYALTY

Answer 20

The monetary income earned by a licensor in return for granting rights to use its IP’ (McGinness)
- Each party start with valuation – considering market rates, costs of replacement/production, and likely income streams

Question 21

4 FUNDAMENTAL COMPONENTS OF A ROYALTY

Answer 21

1. Structure for payment
2. Rate
3. Basis of calculation
4. Mechanism to manage the payment

Question 22

PAYMENT STRUCTURES

Answer 22

• Up-front / milestone payment
• Creditable against royalty obligations?
• Refundable?
   Provide incentives for licensee:
• Milestone payments
  o Eg – regulatory approval; full registration (if provisional)
• Sliding scale royalty rate increase
   Protect licensor:
• Minimum royalty
• Agree on timing of payments
   Shipment of orders; delivery to customer; invoicing or payment
• Royalties

Question 23

WHICH STRUCTURES BENEFIT WHICH PARTY

Answer 23

• Advances – lump sum payment
   Beneficial to owner. Also very clear cut.
• Royalties – pay more the more use/sell the IP
   More work in determining royalty.

Question 24

RATE OF ROYALTY

Answer 24

• Balancing of multiple factors
• Comparable industry rates may be useful starting point
• Depends on the context - eg compare litigation or arm’s length commercial negotiation

Question 25

RATE OF ROYALTY FACTORS

Answer 25

* Legal protection * Scope/type of licence  Incl duration, territory; exclusive/non-exclusive; field of use * Advantages over old tech * Profitability * Competitive technology * Stage of development of technology * Degree of investment needed of licensee  Eg testing, clinical trials, prototypes * Cost of litigation

Question 26

BASIS OF ROYALTY CALCULATION

Answer 26

- Measures using * Description of financial gain by licensee (eg gross/net sales or profits * Amount of licensed technology exploited by licensee (unit sales/manufactured) - Examples * % of net sales for licensed product * Fixed fee per input unit for manufacturing process

Question 27

MANAGEMENT OF ROYALTIES

Answer 27

- Consequences of non-payment * Financial – eg additional amount / interest * Must not be a ‘penalty’ * Ability to terminate (subject to notice) - Require periodical royalty statements/reports - Audit requirements * Ensure compliance with licence agreement * Nominate independent auditor