the anatomy of contracts in licensing: the context of...

The Anatomy of Contracts in Licensing: The Context of Bayh-Dole

Chapter 11 Teaching Note1

This chapter introduces the complex payment terms often included in licenses in order to give licensees appropriate incentives to undertake development of embryonic technologies, and the fundamental concepts embedded in contract language, specifically the language of a non-disclosure agreement and an exclusive patent license agreement between two university entities (licensors) and a potential licensee of patent-pending university technology. This note begins by describing the teaching purposes and objectives for the chapter, which are followed by an account of the pedagogical flow of two class sessions devoted to the chapter, including a drafting assignment to be completed for the second class. Exhibits 1 and 2 contain the PowerPoint slides and a student team’s response to the drafting assignment. Teaching Purposes The chapter was designed as part of the second year TI:GER® curriculum. Although students in the TI:GER program have read Chapters 3, 4, and 5 of the TI:GER volume, which cover various intellectual property law topics, this chapter could be used as a stand-alone chapter in a more general course on technology commercialization for business, science or engineering students, because it assumes no prior knowledge of intellectual property law. This chapter includes an overview of the Bayh-Dole Act and the impact of that legislation upon specific terms of license agreements. Next, the authors describe the licensor motivations that drive various due diligence and payment terms in licenses. The chapter then shifts to an explanation of the contract language that expresses those payment terms, first setting the context by describing the five core issues in any business transaction: money, risk, control, standards, and endgame. That analytical framework is the creation of Professor Tina L. Stark, Emory University School of Law, and appears in her book, “Drafting Contracts: How and Why Lawyers Do What They Do” (Wolters Kluwer 2007). Each of the five core issues is explained and illustrated, in Section 6 of this chapter, by reference to a Nondisclosure Agreement (Appendix A to the chapter) and by reference to certain terms of an Exclusive Patent License Agreement (Appendix B). The chapter also provides a few examples of the ways in which Bayh-Dole requirements are embedded in that Agreement’s terms, thus setting up the drafting assignment in Section 7.

1 This teaching note was prepared by Anne M. Rector, TI:GER Program Director, Emory University School of Law, 1301 Clifton Road NE, Atlanta, GA 30322, [email protected], and Dr. Marie Thursby, Professor and Hal and John Smith Chair of Entrepreneurship, College of Management, Georgia Institute of Technology, 800 W. Peachtree Street NW, Atlanta, GA 30308. [email protected]. The authors are grateful for support from the Ewing Marion Kauffman Foundation.

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Chapter 11 – Anne Rector, Marie Thursby 2

Objective 1: To what extent does the Bayh-Dole Act--the driving force behind the past 27 years of university innovation—impact the terms of university technology licenses, including payment terms? Bayh-Dole requires licensors of federally-funded technology, among other things, to: 1) take effective steps to achieve practical application of the technology; 2) ensure the technology becomes reasonably available for public use; 3) hold for the federal government a nonexclusive license to the invention; and 4) take steps to ensure that license-based products sold in the U.S. are substantially manufactured in the U.S. A university licensor’s ability to meet its Bayh-Dole obligations depends on the licensee’s efforts toward development and commercialization of the licensed technology. The nondisclosure agreement and exclusive patent license agreement provide an opportunity for students to closely read both documents and to recognize the portions required by Bayh-Dole. Objective 2: What are university licensors’ motivations for requiring certain license terms? Universities seek multiple payment terms due to the early stage of development of a majority of university inventions (Thursby et al. 2001), and the need for inventor and licensee efforts to further that development. Due diligence provisions and, more importantly, payment terms in licenses are licensors’ attempts to motivate both the inventor and the licensee to invest additional effort in the licensed technology. The chapter’s hypothetical licensing scenario allows students to closely analyze an exclusive patent license agreement and to better understand both their clients’ and the licensor’s needs. Objective 3: How can the terms of specific contracts (nondisclosure and license agreements) be drafted to address university licensors’ concerns as well as the needs of licensees? Generally, the standard parts of a contract embodying a business transaction can be seen as reflecting five core concerns of the parties: money, risk, control, standards, and endgame (Stark 2007). The nondisclosure agreements that often precede them, contain provisions addressing these core issues. Licenses of university technologies, however, raise the more specific issues identified in Objectives 1 and 2 above. This chapter’s drafting assignment asks students to identify and respond to these issues by drafting revised license language that is more favorable to their client, the licensee. Teaching Plan Taught in two class sessions, this chapter first requires students to consider the unique issues that arise in connection with university licensing of early-stage technology and, in class, to examine the terms of a proposed nondisclosure agreement between a university licensor and a private company licensee. After that introductory discussion, students complete a drafting assignment, which is discussed in the second class session. The first class session usually requires about 90 minutes. Discussion of the nondisclosure agreement provides the framework in which students, especially non-law


students, are introduced to the business reasons behind certain types of contract terms. Using the framework provided by Stark (2007), the class examines a nondisclosure agreement to learn how those business reasons are expressed in a specific context. Sample PowerPoint slides for the first class session are provided in Exhibit 1. The nondisclosure agreement appears in Appendix A to the chapter. After discussion of contract language basics, and whether and how that language is used in the nondisclosure agreement, students are asked to complete the assignment in Section 7 of the chapter. The assignment requires them to apply their learning from the chapter and from the first class to a draft of an exclusive patent licensing agreement between the same parties:

Assume your TI:GER team is, or that as attorneys you represent, TechLicensee, Inc. - the public company that signed the NDA, evaluated the technology, and now wants to license that technology. This is a shift from your team’s usual viewpoint as a potential licensor. Read and think through the practical impact of each provision of the Exclusive Patent License Agreement Draft in Appendix B. Identify terms that reflect issues of money, risk, control, standards, and endgame discussed in Section 6. As noted in this chapter, contractual provisions often are driven by government regulation of technology transfer. Thus, please identify language in the Exclusive Patent Licensee Agreement Draft that may be included as a response to the Bayh-Dole Act.

As a team, write a short memorandum to opposing counsel (who represents the Licensor – MIT, its TTO, and the inventor). Identify the provisions of this agreement to which you object. Draft the language you want opposing counsel to use in place of the original. Do not completely rewrite the form license agreement: instead, select the portions for negotiation and revision that your team identifies as of most importance to TLI, the Licensee.

Be prepared to discuss your team’s drafting experience during the next class meeting, including explaining each language change you request. Your memos to opposing counsel are due at the beginning of that class.

To prepare for the second class session, teams apply the learning from the chapter, and from the first class discussion, by identifying portions of the agreement’s language that raise concerns for their client and by revising that language. Thus, they encounter both the substantive challenge of understanding the competing needs of the licensor and licensee, and the technical challenge of reducing those positions accurately to standard contract language.


Student teams submit their assignment at the beginning of the second class on this chapter. A sample TI:GER team response to the assignment is provided in Exhibit 2. The second class session usually requires 90-120 minutes and includes discussion of students’ attempts to revise specific terms of the draft patent license agreement and their reasoning in choosing those terms. Each team is asked to justify its selection of certain terms as most critical to their client, the licensee. While the assignment itself does not require students to justify their revised contract language, class discussion reveals that actually drafting the substitute language has helped students recognize the relative importance or insignificance of various client issues. Comments in class also show that the law students’ selection of contract terms to be negotiated did not at first align with what their client (the PhD and hypothetical licensee) felt was of most importance. These comments create an opportunity to explore the lawyer’s role in advising the client and how the lawyer can add value to the proposed license transaction (Stark 2007). As just noted, this drafting assignment provides students the opportunity to drill down into the licensee’s needs, but it also pushes students to understand what motivates licensors to demand certain payment provisions. In addition, students begin to understand that some of the agreement’s language, while unfavorable to their client, may be non-negotiable because it reflects various policies underlying the Bayh-Dole Act. For example, students frequently balk at section 2.4, which requires the products be substantially manufactured in the U.S. They realize that many products sold in the U.S. are manufactured in Asian countries, and they see section 2.4 as potentially putting their client, the licensee, at a competitive disadvantage. In-class discussion reveals that other students have read Bayh-Dole closely enough to realize section 2.4 derives from section 204 of Bayh-Dole, and thus may be a non-negotiable term of the license. In Exhibit 2, the team noted three other examples of language deriving from Bayh-Dole. First, the team identified language in the recitals of the license agreement requiring that the licensee “commit itself to a thorough, vigorous and diligent program of exploiting the PATENT RIGHTS so that public utilization shall result therefrom . . . .” The same team recognized contract terms attributable to Bayh-Dole, in Sections 2.5 (licensee’s exclusive license includes a carve-out for the federal government’s non-exclusive license to practice), and 3.1 (licensee must make the licensed products “reasonably available to the public”). Discussion of the impact of Bayh-Dole in this setting lends itself to a broader discussion of the general impact, and some perhaps-unintended consequences, of the Act. Law students may be aware of those consequences as a result of taking a course in patent law. Business, science and engineering students often have less knowledge of the impact of the Act since its passage in 1980. Thus, the second class session provides an opportunity to move beyond basic knowledge (that Bayh-Dole was intended to increase public access to cutting-edge technologies by permitting inventors to patent their inventions made using federal funding) to a more sophisticated discussion of the extent to which the Act (while encouraging universities to patent and license technologies, Bayh-Dole may in


some instances inhibit technology transfer, or at least make the process more costly and cumbersome). Independent of Bayh-Dole, another issue is raised by section 9 of the license agreement: the university licensor makes no representations and warranties, especially as to ownership of the technology and associated patents. Students always identify their client’s legitimate desire to avoid risk by receiving some assurance that the university actually owns the technology it seeks to license out. However, in the real world of university research, funding often comes from multiple sources under a variety of research agreements handled by the sponsored research office of the university. Thus, the university’s technology transfer office may have difficulty determining what ownership rights, if any, are held by companies that sponsored the research underlying the technology to be licensed. Law students should be comfortable with the idea that “ownership” represents a bundle of rights, not a single unitary right. Thus, they should understand that rights to use and practice the technology can be and often are shared among the university (which requires the inventor(s) to waive ownership rights in exchange for a portion of any income the university derives from the technology), the companies (if any) that sponsored the research, and the federal government itself. Finally, discussion in the second class session includes students’ questions about and comments on the difficulties inherent in drafting contract language—a skill even the law students have only begun to develop. Recommended Student Readings Chapter 11 can be used without any additional reading assignment. However, the attached short Bibliography lists additional resources (from industry and from the academy) on licensing and on the impact of the Bayh-Dole Act. Bibliography Bagley, Margo A. “Academic Discourse and Proprietary Rights: Putting Patents in Their Proper Place.” 47 B.C. L. Rev 217 (2006). Eisenberg, Rebecca S. “Public Research and Private Development: Patents and Technology Transfer in Government-Sponsored Research.” 82 Va. L. Rev. 1663 (1996). Goldscheider, Robert, ed. “Licensing Best Practices: The LESI Guide to Strategic Issues and Contemporary Realities.” (Wiley 2002). Goldscheider, Robert, & Gordon, Alan H., eds. “Licensing Best Practices: Strategic, Territorial, and Technology Issues.”(Wiley 2006). Lennon, Michael J. “Drafting Technology Patent License Agreements.” (2d ed. Aspen Publ. 2007). Megantz, Robert C. “How to License Technology.” (Wiley 1996).


Nimmer, Raymond T. “Licensing of Intellectual Property and Other Information Assets.” 2d ed. LexisNexis 2007). Parker, Thomas J. “Patent Licensing Transactions.” (Mathew Bender & Co., Inc. 2008). Parr, Russell L. “Royalty Rates for Licensing Intellectual Property.” (Wiley 2007). Poltorak, Alexander I. and Lerner, Paul J. “Essentials of Licensing Intellectual Property.” (Wiley 2003). Raubitschek, John H. & Latker, Norman J. “Reasonable Pricing -- A New Twist For March-In Rights Under The Bayh-Dole

Act.” 22 Santa Clara Computer & High Tech. L.J. 149 (2005).

Speser, Phyllis L. “The Art and Science of Technology Transfer.” (Wiley 2006).


Teaching Note Exhibit 1

THE ANATOMY OF CONTRACTS IN LICENSING:

THE CONTEXT OF BAYH-DOLE

Opening sections of a contract

• Preamble: title, parties, and date• Recitals• Statement of Consideration• Definitions


Business provisions of a contract

• Action Sections: the key business provisions of a contract. Here, MTRC or MIT shall disclose, and TLI shall receive, certain information. – Precise identification of what is being promised by

each party—how might we do that?• List, with specificity, the types of information MTRC will

disclose, in an attached exhibit or schedule – Flow of information/money/paper– Closing Date (common in a buy/sell contract)– Closing Deliveries (common in a buy/sell contract)– Term—length of time contract is in effect between

the parties

More Action Sections

• Subject matter performance provisions– Reciprocal promises

• Money/paper/product flow provisions– Purchase price or royalty

• Timing• Form and required information

– Obligation to pay• Timing • Form and manner of payment

– Bills of lading– Declarations


Subject matter performance provisions

• Reciprocal promises example:“MTRC and MIT agree to disclose Proprietary Information

to TLI, and TLI agrees to hold Proprietary Information in confidence.”

More often, a contract describes the exchange of money for a company or its assets, or for a product, a service, or an idea.

Money/paper/product flow provisions

– Purchase orders • Timing• Form and required information

– Obligation to pay• Timing • Form & manner of payment• Taxes, fees, licenses, duties (What kinds? Who pays?)

– Notice of performance (i.e., purchase order is filled)– Bill of lading (pick-up of products)– Declarations (scattered throughout document)


What is a declaration?

• A statement of fact as to which both parties agree, but with respect to which neither party has a remedy.– Statement of purchase price– All definitions– Some boilerplate provisions

Remaining parts of a contract

• Representations and warranties• Covenants• Conditions Precedent• Endgame• Deal-specific Provisions• Boilerplate• Signature lines• Exhibits and schedules


Representation definition

• Statement of fact• As of a moment in time• Intended to cause reliance, and • Based on that reliance, to cause another

to act or refrain from acting

Warranty definition

• A promise that if a statement of fact isn’t true, the maker of the statement will pay damages to the recipient of the statement.

• Unlike a representation, a warranty has no reliance component.


Reps and warranties give rise to different remedies.

• Representation– Honest or negligent

misrepresentation:• Rescission• Restitutionary

recovery– Fraudulent:

• Damages

• Warranty:– Damages only– No rescission or

restitution• Can you find a rep and

warranty in the form Nondisclosure Agreement?

Example of a rep & warranty in the Nondisclosure Agreement:

“MTRC and MIT represent and warrant that neither of them has disclosed the Proprietary Information to any person or entity except

pursuant to agreements substantially similar to this Agreement.”


Reps & warranties are a risk allocation device.

• Flat representation– Unequivocal, without wiggle room: – “MTRC and MIT represent and warrant that, prior to the date of this

Agreement, neither of them has disclosed the Proprietary Information.”

• Qualified representation – hedged or has a carve-out. What might we have to carve out

when disclosing confidential information?– “MTRC and MIT represent and warrant that, except for the disclosures

listed on Schedule 4.1 attached hereto, the Proprietary Information has not been disclosed.”

Covenant

• Definition: addresses actions/changes in circumstances between signing of contract and closing of deal.

• Creates common law contract remedies– Damages– Specific performance

• Can you think of an example TLI would want in our Nondisclosure Agreement? – “MTRC and MIT covenant and agree that, prior to the date Propriety

Information is disclosed pursuant to this Agreement, the Proprietary Information will not be disclosed to any other person or entity.”


Condition precedent

• Definition: a state of facts that must exist before there is an obligation to perform under a contract.

• Gives rise to what lawyers often call a “walk-away right.”

• Example: “TLI agrees that, as a condition precedent to the obligation of MTRC to disclose the Proprietary Information, TLI will create a secure room at its principal place of business (the “Site”), at which the Proprietary Information will be disclosed and stored. Proprietary Information will not be removed from the Site by TLI.”

Suppose TLI, MTRC and MIT sign the Nondisclosure Agreement, but TLI does not have the Site set up when promised.

• What can MTRC and MIT do if TLI fails to fulfill the condition precedent to delivery of Proprietary Information?

– They can refuse to disclose the Proprietary Information, and TLI cannot sue MTRC or MIT for breach of contract.

– Alternatively, MTRC and MIT can waive the failure to satisfy the condition precedent and go ahead with the disclosure.


Interplay of Contract Concepts

• Rep and Warranty– “MTRC and MIT represent and warrant that, except

for the disclosures listed on Schedule 4.1 attached hereto, the Proprietary Information has not been disclosed.”

• Covenant– “MTRC and MIT agree that, prior to the date

Propriety Information is disclosed pursuant to this Agreement, the Proprietary Information will not be disclosed to any person or entity.”

• Condition precedent to closing or to the other party’s performance– “TLI shall have complied with all covenants.”– “TLI agrees that, as a condition precedent to the

obligation of MTRC and MIT to disclose the Proprietary Information, TLI will create a secure room at its principal place of business (the “Site”), at which the Proprietary Information will be disclosed and stored. Proprietary Information will not be removed from the Site by TLI.”

Endgame Provisions

• Mutual non-mutual decision not to renew – What happens?

• “Event of Default”—does our NDA define this?– “If there is an Event of Default, then MTRC and MIT

have the right, in their sole discretion, either to terminate this Agreement with no prior notice to TLI, to disclose the Proprietary Information to another person or entity, or both.”


Deal-Specific Provisions

• Indemnities• Proprietary information protection• Non-competes/non-solicitations

– Where else did we hear about non-competes in TI:GER?• Does any of these three appear in our Nondisclosure

Agreement form?• Should they?

Indemnities—common in more complex contracts

• Seller and Buyer promise to protect each other from liability if certain things within their respective control go wrong.

Indemnifications can be hotly-negotiated deal terms.


Boilerplate Provisions

• Provisions of general applicability that tell the parties how the contract is to be managed– Choice of law and forum for litigation– Notices from one party to another– Captions, severability of provisions, entirety of

the agreement– “Time is of the essence” language– Is any of these in our NDA?

Signature page(s)

• How the parties sign does matter. Why?– Individual signing– Other legal entity signing

• Officer• Director• Corporate Secretary• General Partner• Managing Member

□What else might be included on a signature page?

• Notarization• Signature(s) of

witness(es)• Corporate seal


Exhibits and Schedules

• Contain essential, deal-specific data not conventionally included in the body of the main contract

Exhibit • usually an entire

document in its own right, that the parties wish to incorporate into the central contract

• “’Personal Guaranty” shall mean the guaranty by Javier Richardson, substantially in the form attached to this Promissory Note as Exhibit A.”

Schedule – Used to disclose information

not included in the reps & warranties

– labeled to match the specific section it supplements or limits

– “Schedule 6.4 lists all employees and agents of TLI who will have access to the Proprietary Information.”

What items from our NDA might belong in schedules attached to the NDA?

The incidents of prior disclosure of the Proprietary Information

A list of items or categories of items to be delivered by MTRC and MIT

A description and address of the Site at which the Proprietary Information will be held


REVIEW—what are the essential parts of a contract?

• Preamble: title, parties, and date• Recitals• Statement of consideration• Definitions• Action Sections--the key business provisions of a contract• Representations and warranties• Covenants• Conditions Precedent• Endgame• Deal-specific provisions• Boilerplate• Signature lines• Exhibits and schedules

YOUR CONTRACT REVIEW & DRAFTING ASSIGNMENT

• Assume your TI:GER team is, or that as attorneys you represent, TechLicensee, Inc. - the public company that signed the NDA, evaluated the technology, and now wants to license that technology. This is a shift from your team’s usual viewpoint as a potential licensor.

• Read and think through the practical impact of each provision of the Exclusive Patent License Agreement Draft in Appendix B. Identify terms that reflect issues of money, risk, control, standards, and endgame discussed in Section 6. As noted in this chapter, contractual provisions often are driven by government regulation of technology transfer. Thus, please identify language in the Exclusive Patent Licensee Agreement Draft that may be included as a response to the Bayh-Dole Act.

• As a team, write a short memorandum to opposing counsel (who represents the Licensor – MIT, its TTO, and the inventor). Identify the provisions of this contract to which you object. Draft language you want opposing counsel to use in place of the original. Draft the language you want opposing counsel to use in place of the original. Do not completely rewrite the draft license agreement: instead, select the portions for negotiation and revision that your team identifies as of most importance to TLI, the Licensee.

• Be prepared to discuss your team’s drafting experience during the next class meeting, including explaining each language change you request. Your memos to opposing counsel are due at the beginning of that class.

Teaching Note Exhibit 2 MEMORANDUM

TO: Counsel for the Montana Institute of Technology, the Montana

Technology Research Corporation, and relevant Inventors FROM: [TI:GER STUDENTS] representing TechLicensee, Inc. (“TLI”) DATE: October 30, 2008 RE: Issues of Concern in Draft Licensing Agreement for certain MTRC

Technology


You have asked us to review your draft of the Exclusive Patent License Agreement.

We have identified below issues of concern to our client, TLI, and, where applicable, have suggested new language. In a separate section, we have identified language in the Agreement that pertains to the Bayh-Dole Act. Issues of Concern 1. Section 1.7 Patent Rights

: Patent Rights must also include any dominant patents owned by the licensor that would prohibit the licensee from fully and unrestrictedly practicing the licensed invention. Without this provision, we could be prevented from making use of the Technology. We suggest a new Section 1.7(f) stating, “any patents owned by licensor the rights to which are required in order for licensee to legally make use of the Technology (“Dominant Patent(s)”).”

2. Section 2.2 Exclusivity

: Given the stringent requirement in Section 3, it is imperative that the Exclusive Period be lengthy. We ask that the Exclusive Period be based only on 2.2(i), because it is difficult to predict the amount of time necessary to comply with the diligence requirements in Section 3.

3. Section 2.6 No Additional Rights

: As in Section 1.7, this section must make clear that the term Patent Rights includes rights to dominant patents. We suggest the following italicized language, “…or any other entity other than the Patent Rights (including Dominant Patents), regardless…”

4. Section 3.1 (c) Diligence Requirements

: Requiring a hard date for a working model may prove burdensome for TLI. Furthermore, overly frequent plant visits may interfere with TLI’s manufacturing schedule. Therefore, we suggest the following language: Company shall make a good faith effort to develop a working model on or before _________, 200_, and permit an in-plant inspection by M.I.T. ___ months after the completion of a working model, and thereafter permit in-plant inspections by M.I.T. at regular intervals with at least six (6) months between each such inspection.

5. Section 3.1(d) Diligence Requirements

: As with Section 3.1(c), requiring a hard date may prove to be overly burdensome to TLI. We suggest the following: Company shall make a good faith effort to make a first commercial sale . . .”.

6. Section 3.1(e) Diligence Requirements

: Same issue as with 3.1(c) and (d). We suggest, “Company shall make a good faith effort to make Net Sales according to the following schedule . . .”.

7. Section 3.1(f) Diligence Requirements: We suggest, “Company shall make a good faith effort to sell the following . . .”.


8. Section 4.1(a) License Issue Fee and Patent Cost Reimbursement

: A requirement to reimburse M.I.T. for costs associated with Patent Rights could impair TLI’s ability to build a profitable business. Given that TLI will be providing M.I.T. with a continuous royalty stream, we do not see any reason to reimburse M.I.T. for already-accrued costs associated with Patent Rights. We suggest the deletion of the following language, “and, in accordance with Section 6.3, shall reimburse M.I.T. for its actual expenses incurred as of the Effective Date in connection with obtaining the Patent Rights.”

9. Section 4.1(b) License Maintenance Fees

: Maintenance fees should be a fixed amount and remain the same from year to year.

10. Section 4.1(d) Sharing of Sublicense Income

: We suggest the deletion of this section. M.I.T. will receive a royalty on net sales by Sublicensees. Requiring TLI to pay 50% of all Sublicense income to M.I.T. would have a profound impact on TLI’s profitability. Because TLI’s ability to succeed is in the interests of M.I.T, this section must be deleted.

11. Section 5.2(vi)

: This section should make clear that TLI makes available Sublicense Income to M.I.T. only for the purpose of showing royalty payments due to M.I.T. The section should state, “the amount of Sublicense Income received by Company from each Sublicensee and the amount due to M.I.T. from royalty payments associated from such Sublicense Income. . .”.

12. Section 6.1 Responsibility for Patent Rights

: TLI should have the power to prosecute during the Exclusive Period. We suggest that this section read, “Company shall prepare, file, prosecute, and maintain all of the Patent Rights during the Exclusive Period. M.I.T. shall have reasonable opportunities to advise Company and shall cooperate with Company in such filing, prosecution and maintenance. Upon expiration of the Exclusive Period, responsibility for patent rights shall transfer to M.I.T.”

13. Section 6.3 Payment of Expenses

: Because M.I.T. retains the right to license the Technology in a different field of use, M.I.T. should be responsible for all costs associated with the Patent Rights. As a compromise, TLI will agree to be responsible for expenses incurred during the Exclusive Period. We suggest this section state, “Payment . . . shall be the responsibility of Company if incurred during the Exclusive Period. Any fees incurred outside this period are the responsibility of M.I.T.”

14. Section 7.2(a) Right to Prosecute Infringement

: We agree to indemnify M.I.T. for any costs or expenses, but not to indemnify them for liability. We suggest “liability” be deleted from the text of this section.


15. Section 7.2(b) M.I.T. Right to Prosecute

: We suggest replacing “reasonable time” with a definite time period so as to avoid ambiguity. We suggest TLI be allowed a six-month window in which to bring a claim, starting from when TLI first becomes aware of a basis for action.

16. Section 7.4 Offsets

: We believe TLI should be given the opportunity to offset 100% of expenses, rather than the stated 50%.

17. Section 7.5(iii) Recovery

: If TLI brings the suit, it should be entitled to all punitive damages awarded. Such an arrangement will provide TLI with the necessary incentive to bring a suit.

18. Section 9 No Representations and Warranties

: Section 2.6, as rewritten, should give TLI rights to rights to Dominant Patents. Therefore, this section can be preserved as written so long as it is clear to M.I.T. that it is agreeing to provide patent rights to any dominant patents owned by M.I.T. that would otherwise be infringed by TLI in its usage of the Technology.

19. Section 10 Assignment

: M.I.T.’s ability to terminate the License, should TLI be sold, could severely hamper TLI’s ability to enter into a beneficial merger or amalgamation with another company. We suggest this section be rewritten to state, “M.I.T agrees to not withhold its consent without just cause.”

20. Cessation of Business

: TLI should be provided more advance notice than “immediate” before M.I.T. can terminate this agreement. We suggest, “M.I.T. shall have the right to terminate this Agreement six (6) months after providing written notice to Company if Company does not make reasonable efforts to resume its business related to this Agreement.”

21. Section 12.4 Inventory

: Depending upon the nature of its sales, TLI may require more than six months after the effective date of termination to sell its inventory. We suggest that this time period be extended to 12 months.

22. Section 12

: The following two provisions should be added to Section 12.

a. Section 12(d)

:“If for any reason, including but not limited to MIT’s failure to pay the maintenance fees or any other fees due to the USPTO for any patent or pending application, the PATENTS RIGHTS become abandoned, COMPANY has the right to terminate this agreement immediately and MIT shall be liable for any damages resulting therefrom.

b. Section 12(e):“If any PATENT RIGHT transferred under this Agreement is held to be invalid or unenforceable for any reason, COMPANY has the right


to terminate this agreement immediately and MIT shall be liable for any damages resulting therefrom.

Bayh-Dole Act Language 1. Recitals

: “… COMPANY shall commit itself to a thorough, vigorous and diligent program of exploiting the PATENT RIGHTS so that public utilization shall result therefrom…”. (italics added).

2. Section 2.4

: Bayh-Dole requires mandates that Licensed Products be substantially manufactured in the United States. This could be burdensome for TLI if it is more beneficial for us to manufacture in another country (e.g., Asian countries).

3. Section 2.5

: Bayh-Dole mandates an allowance for usage of the Technology by the federal government. This could also be disadvantageous to us but is beyond our control to negotiate.

4. Section 3.1

: Bayh-Dole probably mandates that Licensee or Sublicensee make Licensed Product “reasonably available to the public.” This requirement could be difficult or expensive for TLI to satisfy.

We would happy to discuss any of these proposed changes with you. We look forward to hearing your thoughts and suggestions.

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