Posts Tagged: "Patent Licensing"

We’ve learned from experience that just because a theory’s off base doesn’t mean it won’t take root, particularly when it involves patents and medicine. “No Vaccines Before the Next Zika Outbreak?: A Case for IP Preparedness”  by Professor Ana Santos Rutshman, a faculty fellow in Health Law and Intellectual Property at DePaul University, Co-Director of the Global Healthcare Innovation Alliances at Duke University, and consultant to the World Health Organization, previews  her upcoming UCLA law review article. It could be titled “Developing Treatments Without Patents: Let’s Give it a Try.” The article blames exclusive licensing for the lack of a Zika vaccine citing the failed deal between the Department of the Army and Sanofi. The remedy: banning exclusive licensing for federally supported inventions related to specific diseases while imposing price controls on other life science discoveries. Before this bandwagon rolls, let’s look at the quality of its construction.

The clear consensus seems to be that the patent licensing market is not dead, but that the U.S. market is in decline and due to a weakening of patent rights capital will go elsewhere.

Patent monetization has become nearly impossible for middle-market technology companies without engaging in some level of legal action. Management teams have consequently shied away from pursuing licensing opportunities, even when the revenue potential of a company’s intellectual property is compelling. While traditional debt and equity investors have an aversion to patent monetization stories, there are specialized investors willing to underwrite capital raises aimed at financing licensing revenue initiatives. By structuring these financings in a way that isolates monetization risk to the patent investor, companies can pursue licensing initiatives that have the potential to generate significant residual value for all stakeholders in the capital stack. In addition to capital, patent investors bring monetization expertise that can play a critical role in the success of a licensing revenue strategy… In many contexts, licensing revenues will only persist so long as the underlying patents remain valid. Increasingly, however, licensees and strategic third parties seek to invalidate patents in Inter Partes Review, rather than continue to pay or renew patent licenses. The uncertainty of future revenue streams further justifies financing structures that ameliorate such risk.

Licensing a product instead of selling it may also be a tool for avoiding international patent exhaustion. It is common to distribute software via license, and this might avoid international exhaustion, although it will not work for all products. For example, licensing a drug makes little sense. However, re-importation of a drug would be regulated by the FDA, and the conditions and chain of control of drugs might mitigate some of the international exhaustion issues there. As such, many companies are evaluating the extent of the decision on international exhaustion and how it affects their industries. Since companies have thousands of contracts already in place and the parties will have to reevaluate their positions going forward, this is causing mass confusion and restructuring of contracts and relationships.

Even at ground level, where American courts in San Diego and San Jose are now being called on to apply the law laid out in prior court decisions to the particular facts of the smartphone chip market, the multipronged attack on Qualcomm’s patent licensing practices offers an unusually rich platter of meaty issues to feast upon for those who advise patent licensors and licensees. Leaving aside the implications for the smartphone industry and the market for cellular baseband processors that Qualcomm now dominates, the new precedents that will be set in court—if the parties don’t settle or a Republican-controlled FTC doesn’t withdraw its case—will have broad and deep implications for patent owners and users—much as the US v. Microsoft case has had since it was decided almost two decades ago.

Today (TTOs) are increasingly being run by professionals who are experienced in startups, licensing, monetizing and have tremendous depth of technical knowledge in a variety of fields. But they are all waging a losing battle in an industry where 73% of the offices are losing money and an additional 16% just breakeven. It is not because of the efficiency of these offices, it is because of the underlying business model… But the impact of technology transfer on the US economy has been enormous. Since 1980 more than 5,000 startups have been created. From 1996-2013 technology transfer has contributed $518 billion on the US gross domestic product, and $1.1 trillion on the US gross industrial output.

The art of preventive negotiation in a license agreement is not practiced solely by means of pen and paper (or word processor); but instead, starts much earlier. The care and attention devoted to the earliest stages of a deal are highly worthwhile. A friend and fellow LES member is fond of saying: “No deal without a meal.” This is emblematic of the fact that a license agreement is no more than an attempt to put in writing what the parties have agreed they are desirous of achieving, and how they propose allocating rights and responsibilities to achieve those ends. Trust is an essential component, and this is built up over time… The term sheet should be focused only on the major terms of consequence. It should not descend to tactics and operations or else it runs the risk of invading the rightful province of detailed negotiation and drafting of the agreement itself, and a needless redundancy. Tactical details are for later, when the investment is clearly justified. Likewise, premature focus on the tactical raises the risk that negotiation of the ultimate agreement becomes a rehash of the term sheet, which risks not only duplication of effort, but inconsistency, misunderstanding, and deviation from the strategic objectives underlying the alliance.

An exclusive right is more than a mere right of remuneration – it is the right to control the use and disposition of one’s property, and to deny others access to it. Without the fundamental attribute of exclusivity, we lurch toward a system of compulsory licensing, or a private right of individuals to take another’s property on the promise of mere monetary compensation. Under our Constitution, and particularly the Fifth Amendment, or the Takings Clause, even the government does not possess that right except that it be for some demonstrable public – rather than private — use. Thus, to be true to the express language of our Constitution, and respectful of the limits imposed on the Fifth Amendment, the rights inherent in intellectual property necessarily must include a right to exclude others from the enjoyment of that property.

Though aimed at certain pharmaceutical products, Sens. Angus King’s and Bernie Sanders’ potential amendments would throw the key to the Bayh-Dole Act’s success —certainty and exclusivity of the intellectual property associated with technology transfer in order to agree to attempt commercialization in the first place — into disarray beyond a single product or sector, the signatories contend.

“The key ingredient needed for the prisoner’s dilemma to work its destructive magic is a lack of transparency between the parties involved,” Siino writes. The article goes on to discuss how the lack of transparency in patent licensing transactions is disrupting the the patent marketplace, and threatens “to break licensing’s virtuous circle of innovation leading to commercialisation, which in turn funds more innovation.”

Sen. Bernie Sanders (I-VT) introduced legislation requiring every agency and non-profit entity to include a “reasonable pricing” provision based on King’s formula for any life science invention made with government support. Apparently the colossal failure of a similar requirement forced on the National Institutes of Health (NIH) in the 1990’s which led to the collapse of industry partnerships without any reduction in drug prices is either unknown, or made no impression on Sen. Sanders. Or perhaps like his trust in socialism, he thinks that what failed in the past will somehow work by some weird magic if trotted out again.

When the corporate asserter arrived at our client’s door, the asserter wanted: (1) to obtain both a cross-license and revenue from a patent license and (2) to increase our client’s purchases of the asserter’s products. Our client had virtually no patents of its own. To shift the negotiation, the decision was made to purchase defensive patents (counter-assertion patents). The reasons were that invalidating the asserter’s 10,000+ patents would be expensive and would take too long. Also, putting revenue from the asserter’s products and services at risk would change the dynamic of the negotiations to our client’s benefit.

Why does U.S. policy with respect to patent owners and patent licensing seem to be in direct opposition to U.S. antitrust policy relating to vertical mergers? If vertical mergers are anticompetitive and particularly bad when dealing with a monopolist then why are patent owners, who we are told over and over again are in possession of a limited monopoly, encouraged (if not demanded) to vertically integrate in order to escape characterization as a patent troll?

A $1 trillion a year industry not wanting to pay innovators less than a 1% royalty on the innovations they appropriate (i.e., steal) for their own profits seems like a terrible price to pay given the national security and economic consequences of forfeiting our world leadership to the Europeans and Chinese… Google and Uber are locked in a patent battle over self-driving automobiles, so does that make Google or Uber a patent troll? What about General Electric, Apple, Samsung, Microsoft, Cisco, Oracle, Whirlpool, Kraft Foods, Caterpillar, Seiko Epson, Amgen, Bayer, Genzyme, Sanofi-Aventis, and Honeywell, to name just a few?

What’s even more impressive is the impacts on gross industry output and GDP are up 14% while  the number of U.S. jobs supported rose 12% since the previous report issued two years ago. That’s remarkable at a time when the overall U.S. economy has been treading water… While the attacks on Bayh-Dole (and the patent system) are largely driven by emotion, here’s some additional data BIO cited that’s worth considering: over the past 25 years academic inventions led to the formation of 11,000 startups and the commercialization of more than 10,000 new products.