Royalty-stacking clauses

This week’s golden oldie – royalty-stacking clauses.

IP Draughts

When negotiating royalty-stacking clauses, make sure you don't get fleeced! When negotiating royalty-stacking clauses, make sure you don’t get fleeced!

One of the pleasures of teaching is learning from your audience. This happened in abundance recently when IP Draughts, presently in Australia, delivered his advanced IP licensing course to a group of in-house lawyers and licensing managers. In fact, he delivered the course twice to the same organisation: last Friday to a team in their close-to-Sydney office, and yesterday to another team in their close-to-Melbourne office.

IP Draughts’ knowledge of Australian suburbs has increased greatly, but this posting will focus on legal issues rather than the architecture of Melbourne bungalows, or the surprise felt by a Brit who learns that St Kilda is close to Richmond.

Royalty-stacking refers to the situation where a licensee must pay royalties to multiple parties in order to commercialise a product. The royalties are said to be stacked, one on top of another. A licensee…

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Contract drafting tips: word order

Techniques for drafting contracts – we all use them, whether we consciously follow a formal guide such as the Manual of Style for Contract Drafting, or take an ad hoc approach based on our previous experience. Older readers in the UK, and perhaps a larger number of readers outside the UK, tend to apply rules of grammar and other writing techniques that they were taught at school. Sometimes those techniques are now considered out of date or discredited. Most of us have moved on from rigid obedience to rules (if we were even taught them) such as never start a sentence with a conjunction, or never split an infinitive.

IP Draughts finds that some techniques keep coming back to him when drafting contracts. A particularly valuable technique is to critically review the order of the words in the sentence. An example that IP Draughts uses when teaching is the following:

Being ignorant of the law, the attorney argued that his client should receive a light sentence.

The phrase “being ignorant of the law” is in a weak position in the sentence. If it is put immediately after “attorney” or “client”, the meaning becomes clear and unambiguous.

Consider the following example from a consultancy services agreement:

MegaCorp shall provide all access to documentation in its possession and to personnel under its control where required by Consultant within 7 days and if notified in writing to Megacorp.

Several techniques can be used to improve the clarity of this sentence, but for now let’s focus mainly on word order.

Within 7 days of the Consultant’s written request, MegaCorp shall provide access to (a) documentation in its possession and (b) personnel under its control.

Alternatively, the 7-day deadline point could be moved to after “access” or could be addressed in a second sentence. It is clearly in the wrong place in the original version, as it suggests that the obligation to provide access only applies where the Consultant needs access within 7 days. If the Consultant’s needs are less urgent, the obligation will not apply.

In a full review of the wording, many other points of drafting and substance might need to be addressed, including:

  • Who is the access to be given to – employees of the Consultant?
  • Confidentiality obligations
  • What does “access” mean in practice? Free rein to rummage in the company’s files, or something more controlled?
  • Are there any limits on access to documentation? Eg is access to pricing information on the Consultant’s competitors allowed?
  • Are there any limits on access to personnel, eg if they are busy or on holiday?
  • Cost implications

The careful drafter will be thinking about all of these points and more, even if some of them are quickly dismissed in the context of the deal.

Applying a scalpel to the sentence, and moving bits around, is often a good way of removing potential ambiguity, cutting out redundant wording, and improving clarity generally.

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Resistance is futile: all paths lead to co-ownership of IP

Golden oldie number something – comments on co-ownership of IP

IP Draughts

You have probably encountered this scenario.  A university, a small company and a large company are engaged in a research collaboration.  The parties have entered into a written collaboration agreement.  As one might expect, the agreement addresses the question of which of them will own any intellectual property arising from the collaboration, which is defined as Foreground IP.

During the negotiation of the agreement, various proposals were made on the ownership of Foreground IP.  The university suggested that a party would own any IP in improvements of the technology that it brought to the collaboration.  Unfortunately the parties couldn’t agree what would happen if the improvement related to more than one party’s technology.  The large company suggested that it would own all the Foreground IP and license the other two parties.  The small company’s investors wouldn’t accept this solution.  The small company suggested that the three parties should be joint…

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MPs’ report on TT: mostly practical, sensible advice

The House of Commons of the UK Parliament has a Science and Technology Committee. The committee has today released its report (HC755) on its Inquiry into Managing Intellectual Property and Technology Transfer. Disclosure: IP Draughts was one of 19 witnesses who gave oral evidence to the inquiry, and he gets a brief mention in the report, more on which below.

The terms of reference of the inquiry explained that it was taking place in light of two recent developments:

Dame Ann Dowling’s July 2015 Review of Business-University Research Collaborations commented that in universities “there is a tension between the desire to earn short-term income from their Intellectual Property and the need to deliver wider public benefit, and potentially greater long-term return on investment from this IP. The emphasis needs to shift towards the latter, and this must be reflected in Technology Transfer Office funding models and success metrics. … This area remains a major source of frustration for both academics and businesses.”

Our recent hearing on Graphene included discussion about the role of universities in the commercialisation of their research work. We now invite written evidence on how well this system works and what measures are needed to improve it.

The inquiry ranged across a number of aspects of university technology transfer (TT) and the commercialisation of IP. The final report of the committee focused on three areas:

  • how business demand for technology transfer might be increased
  • the geographical context of technology transfer [is it nearly all done in the ‘golden triangle’ of Oxford, London and Cambridge, and should it be encouraged in other places]
  • funding and support for technology transfer

Golden triangle. A=Oxford, B=Cambridge, C=London, X = Milton Keynes?

The report summarises the range of views that it heard when taking evidence on these topics and draws some sensible conclusions and advice for government. The main points that IP Draughts takes from the report are:

  1. Let’s move on to implementation. We’ve had enough national reviews of intellectual property and technology transfer (“at least 12 …over the last 15 years”). It’s time for the government to take action in several areas, outlined in the report. [Hoorah! IP Draughts and his colleagues on the Law Society’s IP Law Committee have spent hundreds of hours over the last 15 years submitting evidence to some of those reviews, including Gowers and Hargreaves, and have been disappointed by the quality of some of their conclusions.]
  2. Don’t scapegoat the TT offices. Dame Ann Dowling’s review expressed the frustration felt by some companies and academics about the process of negotiating IP issues with universities. The suggestion appeared to be that TT offices were the cause of this frustration. The present report gives a much more balanced picture, pointing out that some of the perceived difficulties may be down to (a) a lack of understanding of the complex issues involved, (b) the problems of valuing early stage technologies, and (c) the different interests of the parties. The report provides some welcome support for TT offices (“…situated in the middle of complex IP negotiations, balancing competing priorities, with varying degrees of support.”) [Hoorah! It is too easy to blame the TT office, which often has insufficient support from the university’s senior management, leaving other participants – whose interests differ from the university – with an easy target for cries of causing “difficulties”.]
  3. Focus on improving take-up by UK industry. Universities are good at generating technology; UK industry has a poor record of making use of it. Rather than continually focus on making universities better at serving UK industry, focus on improving the environment for industry to make use of university research and innovation. [Hoorah! Viewed globally, UK universities have a more impressive reputation than UK industry. Government policy should focus on the areas mentioned in the report, including tax policy on R&D credits, VAT and investment in technology.]

Some other recommendations in the report didn’t resonate with IP Draughts. Databases of university technology are unlikely to be of much use. Getting government agencies to look into training TT offices sounds like a bureaucratic solution. Encouraging regional specialisation in research and TT sounds like another top-down, dirigiste waste of time and money.

Overall, IP Draughts welcomes the report’s conclusions and the committee’s encouragement to government to implement TT-friendly policies.

And how could he not, when he is quoted at paragraph 69 (on the subject of whether TT offices cause problems in negotiations over IP):

Other witnesses suggested that the very nature of negotiations, together with the challenges posed by valuing new, early-stage technologies, can mean that a degree of delay and difficulty is unavoidable. As [IP Draughts] explained, “it is a negotiation: inevitably, there are going to be difficulties sometimes”.

Hardly an earth-shattering observation, but one that needed to be made in light of Dame Ann Dowling’s unbalanced conclusions on this issue.


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