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Practical IP Issues and Challenges in Israeli Company’s Ordinary Course of Business

This lecture outlines the key issues and challenges in safeguarding and exploiting intellectual property (IP) in the ordinary course of business for Israeli companies. Topics include IP protection, patents/trademarks, confidentiality, non-compete agreements, investment and M&A agreements, due diligence, and the Israeli Research and Development Law.

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Practical IP Issues and Challenges in Israeli Company’s Ordinary Course of Business

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  1. Practical IP Issuesand Challenges in Israeli Company’s Ordinary Courseof Business Amir Halevy, Adv., Managing Partner Renana Dolev Harel, Adv., Head of IP Dept.

  2. Introduction • Lecture Outline: • Safeguarding your IP • Exploiting your IP

  3. Part ISafeguardingYour IP

  4. Incorporation of Commercial Entity • Rights to IP / Assignment of IP • Protection of IP • Patents/Trade marks • Confidentiality and Non-Disclosure • Non-Compete

  5. Investment and M&A Agreements • Term Sheet • Due Diligence • Agreements • Exhibits

  6. Term Sheet • Technology • IP Rights • Confidentiality • Non-Compete

  7. Due Diligence • Due Diligence • Employment Agreements with previous employers • Non Compete • Rights to IP • Rights of Third Parties • Non Infringement of IP Rights • Universities/R&D Institutions • License/Royalties • Patent Attorney Opinion

  8. Investment and M&A Agreement • Precise Definitions • Good Title • Good Standing • License/Royalty • Security Measures • Non Infringement • Company Rights • Third Party Rights • Israeli Research and Development Law, 5744-1984 • Indemnification • Company Views • Investor / Buyer View

  9. Israeli Research and DevelopmentLaw, 5744-1984 • Law applies to all companies who receive grants from the Israeli Chief Scientist, even after full return of the grants. • Latest Amendments • Manufacturing outside of Israel • “Exits” by sale of know-how to non-Israeli entities

  10. Israeli Research and DevelopmentLaw, 5744-1984 Transfer of know-how abroad: • Sale or transfer of know-how • Allowed after receipt of approval • Subject to repayment formula to be agreed on in future regulations • Transfer of know-how in exchange for the transfer of substitute know how to Israel • Committee may approve transfer of know how with no additional charge

  11. Israeli Research and Development Law, 5744-1984 Manufacturing Abroad • Obligation to Israeli portion of product manufacture unless: • Impossible • Unrealistic • Uneconomical • Manufacturing abroad allowed without transfer (sale) of know-how • Terms: • Manufacturing of up to 10% - no approval required • Manufacturing of more than 10% - approval required • may be subject to a lump-sum compensation of up to 120% of the grant amount

  12. Exhibits • Assignment Agreement • Employment Agreement • Rights to IP • Non Compete • IP Status reports • Opinion of IP Counsel and Patent Counsel

  13. Part II Exploiting Your IP

  14. Israel is a Leading Nation in IP Production But Do We Know How to Protect It?

  15. Problem: Patent Explosion • Intangible Assets Value > Tangible Assets Value • Soaring Patent Filings • Ability to Freely Operate is Difficult to Ascertain

  16. Solution: IP Analysis • Plan before acting! • Receive perspective on patent coverage and danger zones: • Relevant technologies • “Blocking” patents and potential design-arounds • Mitigation of infringement threat • Companies and inventors in the space

  17. Patents are like Real Estate Trespass Sale Lease Mortgage Annual Property Tax Title, Registration Design, Build, Exploit Location Square Footage Finishes Infringement Assignment License Security Interest Patent Maintenance Fees Patent Office Registration Design, Market, Sell Position w/ Tech. &Market Scope of Claims How well patent prepared Source: Morrison & Foerster LLP

  18. The Patent Landscape Big House Bad Location Valuable Land DANGER ZONE Fortress Blocking Technical Standard Unclaimed Valuable Land The Market Public Land/ Prior Art Invalid Patent Source: Morrison & Foerster LLP

  19. When and why should you perform IP Analysis? • IP audit and valuation • Patent strategy and portfolio development • Transactions • Merger & Acquisition (in new business area) • Joint Venture • Licensing • Joining standards group or licensing pool • Freedom to operate • Understanding competitor patent position • Identify opportunities for future R&D

  20. IP Evaluation Process Define Scope Select Patents of Interest Perform Search Map Trends Analyze Patents Mitigate Infringement Investigate Owners Display results Design Around?

  21. Return of Investment – IP Exploitation • Secure financing • Royalties • Protect market share • Deter third party infringement suits • Acquire a license to competitor’s patent • Provide a bargaining chip • Collaborations

  22. Business Aspects of Licensing Agreements • Nonexclusive v. Exclusive • Worldwide v. Defined Territory – geographical parameters. • Perpetual v. Specific Time Frame – temporal parameters. • Irrevocable • Nontransferable • Royalty Free v. Royalty Bearing • Unrestricted Use v. Field of Use

  23. Time is Money – Perpetual v. Irrevocable • Perpetual license • Irrevocable license • Perpetual license or Non-Perpetual license can be revocable or irrevocable. • Analogy – • perpetual regards a string of infinite length; • irrevocable regards a string (of any length) that cannot be cut.

  24. Field of Use • Unconstrained rights to use or make commercial use of intellectual property. • Limitation of use through definition of Field: • by product • by function • performance criteria • physical characteristics • markets • combination with other products or technology • technical or use aspects

  25. Field of Use • Tailored to the technology. • Value of the license according to scope of granted rights. • Specification of future trends, research, technology, etc. – prefer a non-generic clause.

  26. Revenues and Compensation • Nonrecurring Fees v. Recurring Fees • Nonrecurring Fee • Recurring Fees: • Periodic fixed fee. • Royalties - volumes or percentage of revenues. • Royalty terms vary according to licensed technology, license scope and exploitation.

  27. Business Leverage in License Termination • Expiration v. Automatic Renewal • Adjustments usually require agreement of all parties • Leverage for Licensee –no change in terms if the parties cannot agree, but the renewal term will commence anyway. • Leverage for Licensor – the term of the license shall end without renewal if the parties cannot agree on new terms.

  28. Surviving Termination • No Post Termination Rights v. Post Termination Rights • Ability to meet customer orders received. • Rights of use but no rights to title. • Freedom to operate • Non-Compete

  29. GKH Business Collaboration with Universities/R&D Institutions

  30. GKH Income of $39M in 2005toTTC of the Hebrew University

  31. IP of University/R&D Institutions Technology Transfer Company (“TTCs”/”TTOs”) • Converting scientific findings into commercial assets • Ownership of IP resulting from university employees • Profit making company • Identification and protection of IP • Assist researchers in finding potential investors and in creation of profitable license deals/spin-out companies • Cash incentives - substantial amount of the profits (usually 40% or more) back to the researcher and his team

  32. Q&A

  33. Thank You Contacts: amir@gkh-law.com renana@gkh-law.com

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