As any viewer of “Shark Tank” can attest, the variety of financial arrangements which are negotiated between inventor entrepreneurs and investors is broad. A final agreement is always the result of negotiation between the two parties. Unfortunately, many inventors go into the gunfight with a knife, so to speak, over-matched and under-prepared.
Unless you are a veteran of previous negotiation and thoroughly understand the potential value of your invention, you would be wise to engage the services of an attorney and/or a firm who has previously negotiated financial transactions for similar inventions. You don’t want to leave money on the table, nor do you want to have an unrealistic view of your work. Expert assistance can help you avoid either outcome.
The following descriptions are by no means exhaustive, but represent a sample of the strategies you might employ in order to monetize your work:
Recently in the news you may have read that some are questioning the success, viability and wisdom of Universities owning patents, pushing back against University patent rights in order to raise a debate over the usefulness of the Bayh-Dole Act of 1980. While perhaps predictable it is rather sad given the unquestionable truth that Bayh-Dole has been extraordinarily successful. The Economist wrote: “Possibly the most inspired piece of legislation to be enacted in America over the past half-century was the Bayh-Dole act of 1980… More than anything, this single policy measure helped reverse America’s precipitous slide into industrial irrelevance.” Economist Technology Quarterly, Dec. 14, 2002. Lofty praise indeed, but the facts back up the claim.
The facts are overwhelmingly on the side of those who know and understand that Bayh-Dole has been a thorough and profound success. Indeed, if you actually look at the facts no one could ever objectively question whether Bayh-Dole is succeeding or has been good. Yet, year after year supposed experts and scholars choose to ignore the objective data and question whether we should go back to the way it used to be — back when no University technology was commercialized due to the enormous red-tape involved.
This isn’t just a philosophical debate. There is a right and a wrong answer, and to think that the New England Journal of Medicine would aline themselves with the clear and objectively wrong answer would be astonishing if it weren’t so predictable. The agenda of those who despite patents and the progress of science thanks to incentivizing behavior knows no boundaries.
Of course it would be wonderful to live in a world where self-interest takes a back seat to humanitarian efforts and altruism on all occasions; where financial incentives are not required to promote the greater social good. That, however, is not the world we live in and the regimes where this economic philosophy has been tried have unanimously faltered or failed. If we want maximum good for society pursuing a path that results in maximum good ought to be the agenda, not some pollyannish pursuit of the impossible because it feels better or fits into some pre-ordained social narrative that some deem acceptable. Failure for an altruistic reason is still failure, and when we are talking about the economy, jobs and hundreds of life saving treatments and cures the right thing is to do the most good. It is truly a pity that some would choose not to maximize social good simply because it means someone else will make money in the process.
“Man Controlling Trade,” outside of FTC headquarters in DC.
The Federal Trade Commission will require Honeywell International Inc. to license patents critical to the manufacture of two-dimensional (2D) bar code scanners, under a settlement resolving FTC charges that Honeywell’s acquisition of rival scan engine manufacturer Intermec Inc. would be anticompetitive.
The proposed FTC consent order preserves competition in the market for 2D scan engines by requiring Honeywell to license its and Intermec’s patents for 2D scan engines to Datalogic IPTECH s.r.l for the next 12 years. Scan engines are used in products such as retail store scanners to translate an image (often a UPC barcode) into a digital format that can be interpreted and analyzed by a computer.
“Although divestiture of assets is the preferred remedy in merger cases, licensing requirements can preserve competition in markets where access to needed technology is the main barrier to entry,” said Deborah Feinstein, Director of the FTC’s Bureau of Competition. “By requiring Honeywell to license its technology, the proposed order gives Datalogic access to the patents it needs to enter the U.S. market immediately and restore the competition lost due to the merger.”
I am frequently asked by inventors whether they should file a patent application and obtain a patent before they submit the invention to a licensing company like Lambert & Lambert.
This is an age-old question, which is really the patent/invention equivalent of the chicken or the egg. Moving forward with a patent doesn’t make a lot of sense if the invention is not likely to be marketable. I always tell folks that the best invention to patent is one you will make money with regardless of whether you ultimately obtain a patent. So I do believe there needs to be market considerations factored into the analysis. After all, the goal is to make money and investing in a business or to obtain a patent makes sense only if there is a reason to believe more money will be made than spent. Having said that, without at least a patent pending you have absolutely no protection unless you obtain a signed confidentiality agreement, which is not always easy to do. But even if you do obtain a signed confidentiality agreement that contract will only protect you with respect to those who have signed the agreement.
Without a patent pending you also don’t have anything to license other than an idea that lacks tangible boundaries. While that is not always an impediment to moving forward, the further you can develop your idea the better. The more tangible the more valuable. So an idea is worth something to some people, but an idea that has taken more shape and is really an invention is worth even more. An invention that has been defined in a provisional patent application is worth more, and of course an issued patent takes away much of the risk and questions associated with whether your invention is new and unique. But now we are getting ahead of ourselves. The business of inventing needs to be considered a marathon — not a sprint. Take things one step at a time, proceed deliberately and invest little by little and only so long as it makes financial sense. See Financially Responsible Inventing. That is why starting with a provisional patent application is frequently the best thing to do.
On Monday, August 5, 2013, the the Association of University Technology Managers (AUTM), a nonprofit association of academic technology transfer professionals, released the highlights of the AUTM U.S. Licensing Activity Survey: FY2012. The AUTM survey shares quantitative information about licensing activities at U.S. universities, hospitals and research institutions.The full report is scheduled for release at the end of the year.
The highlights of the survey reveal that University licensing and startup activity continued to see a robust increase during fiscal year 2012.
Institutions responding to the survey reported $36.8 billion in net product sales from licensed technologies in fiscal year 2012. In addition, startup companies formed by 70 institutions employed 15,741 full-time employees. This was the second year in which AUTM asked questions specifically targeted at ascertaining the economic impact of academic technology transfer.
The Supreme Court on May 20, 2013, agreed to review a Federal Circuit decision that a patent licensee bears the burden of proof in its action for a declaratory judgment of noninfringement where the license remains in effect to preclude the defendant patentee’s infringement counterclaim. Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, 5/20/2013.
The question presented in the petition for certiorari is as follows:
In Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”
The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.
Recently, it has struck me that many business folks who “negotiate tons of IP license agreements,” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements. Well, that is not too surprising. What is very surprising, however, is that many of their lawyers also fail to appreciate the differences as well! Many think the terms are synonymous and thus use them interchangeably. They are not. So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”
A covenant is a promise by a party by which it pledges that something is either done, will be done or shall not be done.
Example 1: “Licensee shall pay Licensor a flat royalty based on 2.5% of Gross Revenues received from the sale of Licensed Products.”
Example 2: “Company A hereby covenants not to sue Company B under any patent listed in Exhibit A for infringement based upon any act by Company B of manufacture, use, sale, offer for sale or import that occurs after the Effective Date.”
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