Helen Yu Bull, Housser & Tupper LLP March 24, 2009

Helen YuBull, Housser & Tupper LLP

March 24, 2009

Intellectual Property & Licensing Seminar

Presented to Life Sciences BC BioProducts and BioEnergy Sector May 6, 2009

Helen YuBull, Housser & Tupper LLP

What Is Intellectual Property?What Is Intellectual Property? Intellectual property (IP): legal rights that result from creations of the

mind in the industrial, scientific, literary or artistic fields IP is one of the most valuable business assets because registration of IP

gives owner exclusive rights that may be used as a competitive advantage to exclude others from the marketplace

Forms of IP Patents Trade-marks Copyright Industrial Designs (Design patents) Integrated Circuit Topography Registrations Trade Secrets / Know How Plant Breeders Rights

Intellectual PropertyIntellectual PropertyIntegrated Circuit Topography(Circuit Board)

Patent(embedded

software, novel system, novel

method of manufacture)

Trade secret(Process,

customer list)

Trade-mark(Name / logo)

Copyright

(Embedded

software)

Common Law: Trade Secrets Common Law: Trade Secrets

Trade secrets may be protected contractually by non-disclosure or confidentiality agreements

Advantages of protecting IP under trade secrets is that a trade secret can exist perpetually and does not require registration

Disadvantage is any rights over a trade secret can be instantaneously extinguished if publicly disclosed

Trade SecretsTrade Secrets to secure protection, you must demonstrate:

• information has the necessary quality of confidence about it

• information was disclosed in circumstances importing an obligation of confidence

• there has been an unauthorized use of the information

Trade SecretsTrade Secrets

Relying on trade secret protection is useful when the IP is unlikely to result in granted rights under the existing IP regime

Also useful if an extended term for exclusive rights is desired

Trade secret protection is appropriate when the ability to copy or reverse engineer the construction, manufacturing process or formulation of the product is difficult

Trade SecretsTrade Secrets Create an inventory Contract before

disclosure Need to know basis Confidentiality clauses

with customers, distributors, etc.

Physical and electronic security

Train your employees Mark all documents Shred, don’t discard Do not disclose source

code Enforce confidentiality and

conduct exit interviews

Patents, Trade-marks, Copyright, Patents, Trade-marks, Copyright, and Industrial Designsand Industrial Designs

Patents Trade-marks Copyright

InventionsWares & services Literary,

artistic, dramatic &

musical works

Industrial Design

Aesthetics

PatentsPatents

What is a patent? A government-sanctioned monopoly on an invention

What can you patent? Inventions: any new and useful art, process,

machine, manufacture or composition of matter, or any new and useful improvement.

Patents: What can you patent?Patents: What can you patent?

Useful Not obviousNew

Patent



Patent

• Absolute novelty: no-one else in the world can have invented it before and made it available to the public

• Keep it secret until you file the patent application. In Canada and the U.S., you have one year to file after public disclosure; in other countries, you lose your right to file if you have disclosed it publicly.



Patent

•An invention is useful if someone can take it and use it to construct something or do something with it.•A perpetual motion machine is not useful, for example.



Patent

•There must be inventive ingenuity involved. It must be a “development or an improvement that would not have been obvious beforehand to workers of average skill in the technology involved.”

•The test person is the “omniscient but dull” artisan: aware of all the relevant knowledge, but incapable of ‘invention’.

PatentsPatents How do you get a patent?

Patent search Patent application

1½ to 3 years Examined Process of objections and responses Patent issued

Cost: $8,000 - $12,000 Paris Convention

It is a long road……It is a long road…… US Patent

Application Filed

Examine

File Amendments

US Patent Renewals3.5 y 7.5 y11.5 y

PCT Application Filed (12 mos)

National Phase Entry

Canada

Deadlines and Renewals

Europe China AU NZJapan

International Search/Examination 16 mos

(Published 18 mos)

International Examination (optional) 19 mos

PatentsPatents What can you do with a patent?

Manufacture and sell the invention Stop others from manufacturing or selling the invention

for 20 years retroactively to the date of filing the application

License the invention for manufacture or use by others Assign the patent

CopyrightCopyright

Copyright

Literary Works

Dramatic Works Musical Works

Artistic Works

CopyrightCopyright

Copyright

Literary Works


Artistic Works

Literary works:

•Anything that is written or in print, such as manuals, reports, brochures, instructions, application forms, business forms, tickets, etc.

•Also includes computer software

CopyrightCopyright

Copyright

Literary Works


Artistic Works

Dramatic works:

•Plays, movies, choreographic work, mime (all of which must be fixed in writing or otherwise)

•Video clips on website

•Copyright covers not just the script, but the entire concept such at the characters, location in time and place, background, individual incidents, etc.

CopyrightCopyright

Copyright

Literary Works


Artistic WorksMusical works:

•Any work of music or musical composition, with or without words

•Includes compilations

•Background music for advertising or on website

CopyrightCopyright

Copyright

Literary Works


Artistic Works

Artistic works:

•Includes paintings, drawings, maps, charts, plans, photographs, specifications, sculptures, architecture (any building or “non-functional” structure)

•Includes CAD and other engineering drawings

Copyright in web Copyright in web pagepage

Copyright in Copyright in a a photographphotograph

Copyright in Copyright in design design Copyright in a Copyright in a

diagramdiagram

CopyrightCopyright

Copyright is created AUTOMATICALLY upon creation of the material, provided material is original

Original if requires skill and judgment (database) Protects the expression of an idea, not the idea

itself-publish -distribute -translate-copy -modify -adapt to

-perform -exhibit another medium

CopyrightCopyright Term: generally for life of the author plus 50 years Owner: The author is the first owner of the

copyright, except for employees creating work in the context of employment (employer owns copyright); except commissioned photographs (paid)

Grant of Rights: copyright can only be assigned or licensed in writing

CopyrightCopyright Registration benefit: presumption of ownership;

burden of proof shifts to the other side if register copyright

Cost: $50 filing fee (online); $65 filing fee hard copy

Use the © symbol to assert copyright and notify others of claim of copyright; not essential but recommended

© 2009 Bull, Housser & Tupper LLP

© <date(s) of publication> <owner>

CopyrightCopyright

Direct Infringement Must prove ownership, access and a

substantial copy (in the sense of quality taken, not necessarily quantity)

Knowledge of copyright irrelevant Indirect Infringement

Assisting, inducing or contributing to the selling, distributing or exhibiting of a work in public that you know infringes copyright

CopyrightCopyright Exceptions

Fair dealing: research, private study, criticism or review, in certain circumstances

Must be for allowable purpose and must be fair Parody is not considered fair dealing in Canada

and is not a defence

Example: ripping your own copy of a CD to make copies for MP3 player and/or CD player in vehicle

Moral RightsMoral Rights Right of the author to:

be associated with their work maintain the integrity of their work

distorting, mutilating or otherwise modifying using a work in association with a particular

product, service, cause or institution but only if to do so would be to the prejudice

of the author’s honour or reputation Can be waived, but cannot be assigned

Trade-marksTrade-marks

Trade-marks: Key ConceptsTrade-marks: Key Concepts Acquired, protected, maintained and violated

through use Distinctiveness

The mark and the product or service must be associated

The owner uses this association Association enables consumers to distinguish

the owner’s product or services from those of others

ConfusionConfusion

Trade-marks: Common LawTrade-marks: Common Law Common law:

rights acquired by simple use scope of protection will depend on the scope of the use permits you to stop others from using the same or

similar marks in association with similar products, in the area where your mark has a reputation

registration gives better rights

Trade-marks: RegistrationTrade-marks: Registration Canada-wide protection without need to prove

reputation in a geographic area Other benefits

perfect defense to allegation of passing off registration cited against applications limited grounds to challenge after 5 years

Valid for 15 years, and renewable for additional 15 year periods (with payment) indefinitely

Trade-marksTrade-marks Choose a “strong” mark that bears no relation to the

character or quality of the goods Use your mark on all packaging, labeling, advertising Keep representative samples of all your packaging,

labeling and advertising Use ™ (for unregistered trade-marks) and ® (for

registered trade-marks) Use your mark consistently Refer to owner and licensee on packaging Enforce your rights against third parties

Trade-mark Caution Trade-mark Caution Chemical names and generic names are not

registerable as trade-mark – cannot claim exclusive right to commonly used or accepted name

Overcome by coining words that incorporate part of the generic name

Trade Dress: protecting appearance of packaging; product design features must be shown to have acquired distinctiveness

Industrial DesignsIndustrial Designs An industrial design is:

a decorative feature, such as a design or shape, … applied to an object … … that is intended to be reproduced more than 50 times.

Industrial designs are excluded from copyright and must be registered under the Industrial Design Act.

Industrial DesignsIndustrial Designs Potential overlap with trade dress protection Like trade dress, industrial design cannot be “functional” to obtain

protection. Functional: when it is essential to the use or purpose of the

device or when it; refers to product-design aspects that go beyond enhancing the aesthetic appeal of the product, and serves some other purpose such as improving product performance.

If the product design is found to be legally functional, protection is not available

Industrial DesignIndustrial Design

HOLEY SOLES CROCS CANADA INC.

Subject Form Duration Scope Weaknesses Trade secrets Information Contract or

implied Potentially forever

Protects anything you can keep secret

Protection lost through disclosure or independent creation

Patents Inventions Registration only (one year grace period in Canada)

20 years from filing date

Protects functional inventions

Public domain after expiry

Copyright Fixed works Automatic, with some advantages to registration

50 years from death of author

Protects the expression of an idea, not the idea itself.

Does not protect against independent creation

Trade-mark Words and logos used with a product or service

Automatic, with significant advantages to registration

Potentially forever

Permits you to stop others from using a similar mark in association with similar goods/services.

Must actively maintain distinctiveness

Industrial Design Shape, pattern, ornament, configuration

Registration only (one year grace period in Canada)

10 years from registration

Protects appearance of object; may protect design elements with functional component

Not renewable after expiry

SummarySummary

Intellectual Property & Licensing Seminar

Presented to Life Sciences BC BioProducts and BioEnergy Sector May 6, 2009

Susan Ben-OlielBull, Housser & Tupper LLP

Introduction to LicensingIntroduction to Licensing

What is a License?

Key Terms to Consider

IP Issues, Threats, Risks

Licensing IPLicensing IP

A License is a special form of contract

Provides a licensee certain defined rights to use IP owned/controlled by the licensor pursuant to certain agreed upon terms and conditions


Licensor retains ownership of the IP Designer terms--License can cover

any arrangement you wish Few limits on possible license terms A license agreement may be

implied, but should be in writing

Licensing vs. Assigning IPLicensing vs. Assigning IP

IP can be assigned or licensed Differ in fundamental ways Assignment changes ownership Assignments usually very short documents Often signed in connection with rollover

agreements or royalty agreements

Licensing vs. Assigning IPLicensing vs. Assigning IP

Assignment generally preferred over license by IP “acquirers” and investors IP becomes an asset of the assignee not affected by assignor bankruptcy

IP owners prefer to license technology IP continues to be owned by licensor Greater control over IP


Types of License In licensing Out licensing Cross licensing

License Agreements-Key Steps & License Agreements-Key Steps & ProvisionsProvisions

Due Diligence Term Exclusivity Scope of use and Territory Pricing strategy/fees Performance obligations Modifications/improvements Representations & Warranties Transferability Rights to sue for infringement Bankruptcy/Insolvency Termination

License Agreements-Due DiligenceLicense Agreements-Due Diligence

What is Due Diligence?

Searches, investigations and reviews

Conducted by business parties, lawyers and other advisors

For purpose of informed decisions and assessment of sources of risk

Relationship to warranties and representations and risk

Verification and assurances

License Agreements-Due DiligenceLicense Agreements-Due Diligence

Identification of IP Assets

Verification of Status

Verification of Ownership / Authority

Infringement / Adverse Claims

Validity

Value / Functionality / Quality

Licensing Agreements-Due Licensing Agreements-Due DiligenceDiligence

Needs to be intensified in tough economic times

Risks that short-cuts were taken re: IP protection due to lack of funds

How important are particular pieces of IP to the deal?

Danger in rushing due diligence

License Agreements-TermLicense Agreements-Term

Specify the length of time of the license

Duration of patent or copyright?

Strategic considerations: Shorter term if licensor doubts licensee’s ability Longer term if commercialization requires

significant investment Know how?

License Agreements-Scope of License Agreements-Scope of ExclusivityExclusivitySole vs. exclusive vs. non-exclusive

Must be in writing Exclusivity represents an extra value (monopoly) Only sign an exclusive license agreement if you

know and trust the licensee Competitive advantage vs. freedom to operate Consider performance/anti-shelving provisions

License Agreements-Scope of UseLicense Agreements-Scope of Use

Subject matter being licensed What the licensee can do with the IP Different applications of IP can be licensed

separately with different fields of use Geographic limitations The scope of use needs to be clearly defined in order

to avoid disputes and implied licenses In general, the licensee is only entitled to use the IP

for purposes that have been specified in the license

Licensing Agreement-Identify the Licensing Agreement-Identify the AssetAssetFor example: description of “invention” some or all patent claims (pending or

granted) Combination patents and know-how

or trade secrets

License Agreements-GrantLicense Agreements-Grant

The core of the entire Agreement:

“Licensor hereby grants to Licensee a perpetual, exclusive, worldwide right and license to make, use and sell Compound ABC for the treatment of colon cancer.”

License Agreements-FeesLicense Agreements-Fees

Fees Fixed fees Milestone payments Royalties Shares in the capital of the licensee Consider cash flow needs and risk/reward

calculations to determine the right mix


Fees – Milestone Payments Milestone payments can be paid for certain events such as:

Obtaining financing for a project Entering into different phases of clinical trials for

compounds, vaccines or medical devices Obtaining regulatory approval First commercial sale of a product

Milestone payments tied to product development allow the licensee to lessen the risk of a large up-front payment

Draft Milestone payment provisions carefully


Royalties can be calculated and paid based on the licensee’s sales under the license (possible ascending and descending structure)

Royalties are riskier than fixed payment but allow the Licensor to get a bigger share of the commercial upside of technology

Require a clear calculation method

Secure Audit rights

Anti-stacking clauses

If licensee abroad—consider issues around repatriation royalties

License Agreements-Anti-StackingLicense Agreements-Anti-Stacking

If, at any time, LICENSEE discovers that any Licensed Product or the use thereof in the Field or the practice of any Licensed Technology infringes claims of an unexpired patent or patents other than those in the Patent Rights, LICENSEE may, if it has not already done so, negotiate with the owner of such patents for a license on such terms as LICENSEE deems appropriate. Should the license with the owner of such patents require the payment of royalties or other consideration to such owner then the royalties otherwise payable under this Agreement shall be reduced by the dollar amount of the royalties or consideration paid to the owners of such patents; provided that in no event shall the royalty payable under this Agreement be less than one percent (1%) on the first $50,000,000 in Gross Sales and two percent (2%) on the any Gross Sales above $50,000,000.

License Agreements-ImprovementsLicense Agreements-Improvements

Is the licensee entitled to modify the IP or not? If modification is permitted, who owns modifications? Licensors usually want to own all IP relating to the core

IP Modifications may be inherent to the use that will be

made of the work, e.g. update of websites If licenses exist in separate territories, all parties might

benefit from cross licensing of improvements Grant backs/Right First Refusal

License License Agreements-Representations/WarrantieAgreements-Representations/Warrantiess Address and apportion risk Who is responsible when things go

wrong Not boilerplate They are key contractual promises

License License Agreements-Representations/WarrantieAgreements-Representations/Warrantiess Status of IP Title and authority Validity and enforceability Non-infringement Functionality/Quality/Performance

License Agreements-Infringement License Agreements-Infringement of IPof IPRight to sue for infringement of IP

Is the licensor obligated and/or entitled to sue for IP infringement, and if so, under what conditions?

The licensor often does not want to be involved in infringement proceedings

Exclusive licensees are entitled to sue for infringement of certain IP

Licensor is often required to assist in such actions, even if no control

Licensing Agreement-TerminationLicensing Agreement-Termination

Under what conditions will the license terminate: Failure of Licensee to perform Breach of the terms of the license agreement Bankruptcy of either party By mutual consent

Licensing Licensing Agreements-Performance/Anti-shelvingAgreements-Performance/Anti-shelving

Licensor (and sometimes Licensee) to terminate if certain milestones are not met Product development Regulatory approval Sales

More important with exclusive licenses** Prevent Licensees from “shelving” the technology Reversion to non-exclusive

Licensing Agreements-BankruptcyLicensing Agreements-Bankruptcy

Core Technology Licenses – will they survive insolvency? U.S. Position: Lubrizol Enterprises v. Richmond Metal Finishers, Inc.

(4th Cir., 1985) Ct. concluded that the non-exclusive license

agreement was an executory contract under s. 365(a) of U.S. Bankruptcy Code and could be disclaimed

Sole remedy of licensee (Lubrizol) was to seek damages as an unsecured creditor


U.S. Position: Cont’d U.S. Legislative Response to Lubrizol:

1988: s. 365(n) US Bankruptcy Code: gives Licensee 2 options:

retain license rights, make payments & forfeit any claim against licensor

treat license as terminated for breach & sue for damages


Current Canadian Position:

(a) Disclaimer of Licenses: an insolvent licensor or its trustee in

bankruptcy can disclaim or reject executory contracts (New Skeena Forest Products Inc. v. Don Hill & Sons Contracting Ltd. (2005, BCCA)


Current Canadian Position: Cont’d license agreements = executory contracts and

can be disclaimed by insolvent debtor or trustee under either BIA or CCAA proceedings

(b) Sale of IP to Third Party: effectively defeats licensee by selling IP to a

third party e.g. Royal Bank of Canada v. Body Blue Inc. (2008, O.J.)


Amendments to BIA and CCAA Under new legislation, licensees will remain

at some risk of disclaimer: proposed amendments do not protect

against disclaimer by a trustee/receiver

uncertain position re: other obligations of licensor


Practical Considerations: Consider Structures to Protect Licensee

Assignment of IP with right of reversion/license back Have Licensor vend IP into separate ‘holdco’ Security interest over licensed IP Other options (but none are bulletproof) e.g. separate

license fees from other fees to be paid to licensor

Licensing Agreements-PatentsLicensing Agreements-Patents

Consider provision preventing Licensee from bringing action to challenge Licensor’s patents during term of License

Consider separating some compensation between patent and know-how and/or trade secrets (benefit to Licensor if patent claims fail)

Licensing Agreements-Trade-marksLicensing Agreements-Trade-marks

Control Preserve distinctiveness of mark Specify quality standards Provide inspection rights Licensor must exercise control Consider prohibition against Licensee’s

registration of Licensor’s trade-mark in new market country

Licensing Agreements-Trade Licensing Agreements-Trade SecretsSecrets Confidentiality provisions Who decides if patent protection to be

sought in the future What happens if secret lost? Will there be on-going flow of

information exchanged?

Licensing Agreements-CopyrightLicensing Agreements-Copyright

Moral rights Only applies to copyrights Are moral rights wholly or partially waived? If so, which moral rights?

right of integrity right of association

Be aware that moral rights represent a value

Advantages of Licensing IPAdvantages of Licensing IP

Licensee can acquire access into new technological area or add to portfolio

Access rights to IP to join “patent pool”

Decrease legal and financial risks

Enable entry into foreign markets

Licensing AgreementsLicensing Agreements

Licensing IP to allow entry into Patent Pool patent pool is a consortium of at least two companies agreeing to cross-

license patents relating to a particular technology

The pooling of the patents, licensing all patents in the pool collectively, and sharing royalties

May need strategically to acquire patents to access the pool

Example: Sony, Philips and Pioneer pooled and shared patents for MPEG data compression technology

Example: Alcatel-Lucent, Cisco, Clearwire, Intel, Samsung and Sprint formed alliance with the aim of stimulating the patchy market for WiMax products

Advantages of Licensing IPAdvantages of Licensing IP

Franchisor (licensor) permits franchisee (licensee) to use trade-marks or service marks in contractually controlled manner for marketing goods/services

Licensor might use licensees as licensor’s secondary (or tertiary, etc.) manufacturing source.

Avoid tariffs which might attach to export of Canadian manufactured products (if Licensee will be manufacturing abroad)

IP Risks: LicensingIP Risks: Licensing

control over licensed technology may be weakened (depending on circumstances)

risk of loss of trade-mark rights if use not monitored

Risk of violation of rights protecting trade secrets

in developing countries, problems re unauthorized use of technology by third parties (enforcement issues)

Importance of IP to the License?Importance of IP to the License?

2003—83% of the collective market value of publicly traded companies on S&P index was attributable to owned or licensed intangible assets (up from ~50% in the late 1970s)

IP rights may be of great interest to potential investors of licensee

Can be industry specific: in some cases software patents can be discretionary

and their contribution to a deal minimal—contrast to pharmaceuticals (no patents—no deal)

Further DiscussionFurther Discussion

Susan [email protected] 604.641.4936

Helen [email protected]. 641.4890

Documents

Helen Yu Bull, Housser & Tupper LLP March 24, 2009