Henry Joseph Runge, JD MS Tyson Benson, JD

1. University IP License Negotiation Workshop Henry Joseph Runge, JD MS Tyson Benson, JD

2. B.S. Creighton University - 2000 JD, MS (Molecular Evolution) University of Iowa - 2004 Office of General Counsel (Intern), Integrated DNA Technologies 2004 University of Nebraska Medical Center – Technology Transfer Office (various) 2005 Joe Runge

3. Partner, Advent, LLP • J.D. - Creighton University School of Law, May 2009 • B.S. in Computer Engineering - Iowa State University, May 2004 Tyson Benson

4. University IP License Negotiation Workshop • Understanding the licensee’s motivation, and how to leverage that knowledge • Identify and respond to licensee tricks, traps, posturing, and demands • Deal terms you must insist on • Learning the art of give and take in license negotiations • Use your negotiations to build solid, long-term relationships with licensees • What to do when negotiations reach an impasse

5. Utilize information provided to you by licensee • What terms have been presented by licensee? • What terms has licensee attempted to modify? • What is the track record of the licensee in other deals? • Is Licensee a market leader in the technology or a market follower (or new to the market)? Leveraging Motivation

6. Party A initial terms set forth to Licensor: • Executive Licensee of Patent • Large initial payment • Little-to-no royalty rate on products produced under the Patent • No milestones • What do these terms indicate for Party A’s motivation for obtaining the Patent? Leveraging Motivation Example

7. Party A may want to just enforce the Patent as a patent aggregator • What terms does Licensee potentially counter with? • Exclusivity/Non-exclusivity • Minimum royalty rate with lesser initial up-front fee to encourage production of products • Multiple milestones to encourage production • Retractable field-of-use provisions Leveraging Motivation Example

8. Licensor reaches out to potential Licensee • Conduct Due Diligence • For instance: • Identify timeline for converting application (National Stage, Non-Provisional, etc.) • Potential Response Deadlines Leveraging Motivation Example

9. Licensee tricks, traps, posturing, and demands • Trips, traps posturing and demands are all part of the negotiation process • Recognizing them is a matter of understanding what you want/need and negotiation experience • They start from initial conversations and persist over the life of the license • Effective response starts before license negotiation • It is about having strong relationships with stakeholders and leveraging that relationship in a response • Beyond aligning stakeholders, it is about finding creative ways to build trust

10. Savvy Negotiation: Tricks, Traps, Posturing and Demands

11. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

12. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Selling vs • Expectation management • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

13. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Meaningful terms • IP investments • Selling vs • Expectation management • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

14. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Meaningful terms • IP investments • Valuable Terms vs • Sane partner • Selling vs • Expectation management • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

15. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Meaningful terms • IP investments • Valuable Terms vs • Sane partner • Keeping negotiations on point • Fighting the good fight • Selling vs • Expectation management • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

16. Savvy Negotiation: Tricks, Traps, Posturing and Demands • Meaningful terms • IP investments • Valuable Terms vs • Sane partner • Keeping negotiations on point • Fighting the good fight • Selling vs • Expectation management • Keeping negotiations on point • Fighting the good fight • Finding Licensees • Uncertain Licensee interest • Meaningful Commercial Plan

17. Identify and respond to licensee tricks, traps, posturing, and demands • Trips, traps posturing and demands are all part of the negotiation process • Recognizing them is a matter of understanding what you want/need and negotiation experience • They start from initial conversations and persist over the life of the license • Effective response starts before license negotiation • It is about having strong relationships with stakeholders and leveraging that relationship in a response • Beyond aligning stakeholders, it is about finding creative ways to build trust

18. Stakeholder interests do not always align • Advancing portfolio • Financial Stability TTO • Institutional growth • Strategic initiatives • Donors • Career development • External funding support University Inventor

19. Stakeholder interests do not always align • Advancing portfolio • Financial Stability TTO • Advancing an ongoing project • Professional collaboration • Supporting productive faculty • Advancing university priorities • Institutional growth • Strategic initiatives • Donors • Career development • External funding support University Inventor • Research in a strategic area • Producing external funds

20. Licensees can exploit different interests • Licensees can leverage inventor’s interest in the outcome to turn inventors against TTO’s • Licensees often have more natural technical collaborations, making TTO’s the outsiders • Trusted entities can go over the TTO’s head • Work directly with University administration who may have less experience with licensing TTO University Inventor • Licensees can poach faculty from Universities • Licensees can point to third party examples to underline perceived unreasonable ness

21. Get buy in for your stakeholders • Build long-term relationships with inventors, administration • Basic things, MTA’s, CDA’s, invention processing – every day is an opportunity • Know what they want and fight for it during negotiations • If a stakeholder is concerned, get them an early win • Early milestones, SRA’s cost on the long run, so explain that to faculty • If your faculty or administration loses faith the project is in far worse peril

22. Universities need licensees • There is a mission and financial impulse to make technology transfer work, which gives licensees a lot of power • If you find a licensee, it gives you leverage that you will find another • The efficiency of a bird in the hand is a factor worth paying attention to • A bad license is worse than no license • Do not do the deal for the sake of doing the deal • Difficult negotiations harken to difficult partnerships • Be very, very cautious and very, very proactive

23. Licensee Shared sacrifice aligns stakeholders • TTO patent budget • Time or expertise from TTO staff TTO • Unsupported research • Time • Developmental funding • Special access University Inventor

24. Shared sacrifice aligns stakeholders • TTO patent budget • Time or expertise from TTO staff TTO • Unsupported research • Time • Developmental funding • Special access Licensee University Inventor • Sponsored research • In kind developmental support

25. Identifying party that will pay for future costs related to prosecution • Continuation applications? • Continuation-in-part applications? • Who will own IP related to future development? • Choice of Law and Venue provisions • Often considered subordinate terms • Drafting party often inserts local jurisdiction and difficult to negotiate something more favorable Deal Terms

26. Choice of Law and Venue provisions • Often considered subordinate terms • Drafting party often inserts local jurisdiction and difficult to negotiate something more favorable • What is choice of law? • Indicates state or country whose laws will be applied for the interpretation of an agreement and for enforcement process • The validity, interpretation, performance, and enforcement of this agreement shall be governed by and interpreted in accordance with the laws of the state of Nebraska • Parties may regard a state’s laws as unacceptable Deal Terms

27. Deal Terms • What is choice of venue? • Provision that prescribes the court or tribunal that will resolve disputes between the parties to the agreement • The parties agree that any action, suit, or proceeding arising out of this agreement shall be brought in the United States District Court for the Northern District of Iowa • What are the scope of the provisions? • Will venue provision apply only to breach of agreement or the subject matter of the agreement? • Depends upon language of the provision • “arising out of agreement” generally applies only to breach of contract claims • “regarding the agreement,” “connected with the agreement,” or “related to the agreement” are generally construed more broadly

28. Indemnity Clauses • Obligation by an indemnitor to provide compensation for a particular loss suffered by an indemnitee • Additional thought to the following terms for Indemnity Clauses: • Notice (Time limit? Does failure to notify modify indemnification?) • Control (Who controls litigation?) • Settlement (Generally indemnitor controls settlement) • Limitations (Caps?) • Reimbursement (Who pays third party? Reimbursement for incidental damages?) Deal Terms

29. Indemnitor • The indemnitee should be required to notify the indemnitor promptly • Notice must be in writing • Include a statement of damages or a good faith estimate • Informed of possibly claims • Failure to comply with the notification provisional will render the indemnification provision invalid • Indemnitee • No time limit on informing indemnitor of claims • Breach of notification provision should not have any consequences unless indemnitor can shot it was harmed by failure to notify • Need not inform indemnitor of threatened suits – only filed suits Notice

30. Indemnitor • Include fewer people and entities • Generally includes indemnitee’s directors, officers, employees, and agents • Affiliates, successors, heirs, and assignees? • Indemnitee • Include as many people and entities as possible • Include sublicensee if sublicensed Coverage

31. Indemnitor • Since indemnitor will have to pay damages – strong interest in controlling litigation • Ensure indemnitee is required to cooperate with defense efforts • Indemnitee • Likely have control of witnesses, documents, etc. Control

32. Controlling party generally has settlement authority subject to other party’s consent • Indemnitee should only be able to withhold consent if it will affect any of indemnitee’s rights • Indemnitor should have broader discretion to reject a settlement because it will have to reimburse indemnitee for damages Settlement

33. Learning the art of give and take in license negotiations • Give and take pre-supposes knowledge of what you want and what the licensee wants • What do you want? • Aligning of stakeholders – you are not just you • Understanding the technology – what is its value and is that reflected in the license • Understanding a business model – does the license tell a story that makes sense for the technology? • What does your licensee want? • What kind of licensee are you working with • Does the licensee tell a story that the licensee is capable of carrying out

34. What kind of licensee do you have? Speed to Market Funding

35. What kind of licensee do you have? Speed to Market Major Licensee • Agree to more aggressive milestones • Capable of paying milestone fees or licensing fees to offset long term royalties • Concerned about efficiency and operability of license instead of overall cost Funding

36. What kind of licensee do you have? Speed to Market Major Licensee • Focus on fundraising, a project that can return 10x • More reliant on faculty for ongoing research and development • Back-loaded arrangement pushing off costs for the license as long as possible • Equity position instead of up front fees Funding Entrepreneur Startup

37. What kind of licensee do you have? Speed to Market Major Licensee Lean Startup • Focus on path to market and market fit • Pre-market milestones and customer development milestones • Equity focus despite early revenue • Value of cost effective intellectual property and licenses Funding Entrepreneur Startup

38. What kind of licensee do you have? Speed to Market Major Licensee Lean Startup • Work backwards from exit; deliberately structured milestones • Back-loaded deals that minimize up front costs • Focus on collaborative development, faculty involvement and evaluation Funding Development Company Entrepreneur Startup

39. What kind of licensee do you have? Speed to Market Major Licensee • Focus on intangible values of company • Faculty may use to pursue grant opportunities, commercialize specialized services or otherwise expand professional capabilities • License needs to realistically reflect what the faculty can and wants to do and not create friction during license enforcement Lean Startup Funding Development Company Entrepreneur Startup Faculty Startup

40. What kind of licensee do you have? Speed to Market Major Licensee • Not every licensee is going to make products and pay royalties • Structuring a license to conform to a NPE business model and be consistent with the mission of the university is very difficult • It requires some creative drafting and clear boundaries in order to find common ground Lean Startup Funding Development Company Non-practicing Entity Entrepreneur Startup Faculty Startup

41. The license and the licensee • During negotiation the license needs to tell a self-contained story that sounds like the kind of licensee you are working with • Do the financials make sense for the kind of licensee that you are working with? • Are the developmental milestones feasible and put everyone on a mutually agreed upon path

42. The license and the licensee • A TTO has a variety of tools available to commercialize intellectual property • Some disruptive technology is licensable, some iterative improvements are useful for startups • The license is the TTO’s business model, which means the terms need to explain how the licensee is going to make a going concern out of the intellectual property • Know a feasible model for your technologies early on

43. Building solid, long-term relationships with licensees • For TTO’s, your licensees are your customers • The customer is king • The key to building long-term relationships is risk • Be a good partner • Mitigate Risk • Share Risk • Advocate to a partner in the reward

44. Invention Partnering Internal Review Internal Review

45. Engage with faculty to understand where invention is coming from • Understand why the invention excites the inventor Invention Partnering Internal Review License Drafting

46. Engage with faculty to understand where invention is coming from • Understand why the invention excites the inventor Invention Partnering Internal Review License Drafting • Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement • Have a perspective on the commercial but not a dogma

47. Present the opportunity in clear terms with a direct ask; have an informed opinion of the next step developmentally • Establish commercial relationships in a collaborative vein • Engage with faculty to understand where invention is coming from • Understand why the invention excites the inventor Invention Partnering Internal Review License Drafting • Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement • Have a perspective on the commercial but not a dogma

48. Present the opportunity in clear terms with a direct ask; have an informed opinion of the next step developmentally • Establish commercial relationships in a collaborative vein • Engage with faculty to understand where invention is coming from • Understand why the invention excites the inventor Invention Partnering Internal Review License Drafting • Conduct a thorough review; avoid surprises during patent prosecution, negotiation, enforcement • Have a perspective on the commercial but not a dogma • Include clear developmental milestones with objective means to judge completion • Establish clear processes for payment, reporting and other actual obligations

49. License Completion Enforcement Repeat

50. Establish regular updates regarding progress on development • The license is not the end, just the beginning of the next phase License Completion Enforcement Repeat