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POST-MEDIMMUNE LICENSING CLAUSES

Robert MacWright UVA Patent Foundation

Technology Transfer Tactics Audioconference

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Terminate on Challenge

Licensor can terminate if licensee challenges

Case law has already enforced such clauses

Carefully define “challenges” – Legal or administrative proceedings that

Seek to have the patent declared invalid in whole or in part

Seek to reduce the scope of the claims

Seek to have the patent declared unenforceable

Seek a declaration of non-validity

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Notice Before Challenge

Licensee must give advance notice before any challenge, and identify prior art Gives you the option of beginning

reexamination or reissue proceedings Stay of litigation is likely

Licensor may claim it violates spirit of Lear Won’t help as much if the issue is non-

infringement or inequitable conduct May provide an opportunity to re-negotiate

the license terms

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Lear v. Adkins

Supreme Court: licensees are often the only ones with economic interest in eliminating bad patents, so it is in the public interest to allow them to challenge licensed patents

Requires that the licensee repudiate the license by not paying royalties and announcing intent to challenge

Licensor can terminate the license and add an infringement counterclaim

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Jurisdiction and Venue

Licensee must sue in a particular courthouse Choice of forum provisions are routinely used

in licenses, and are routinely enforced Was a good idea even before Medimmune! You would always rather defend in a friendly

forum, or at least a neutral one If there is no reasonable connection between

the agreement or the parties and the forum chosen, it could get moved for forum non-conveniens – some judges hate patent cases!

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Licensee Must Pay Costs

Clause requiring the licensee to pay licensor’s court costs and legal fees during any licensee challenge They are often required to for other

challenges, why not their own? Could be seen to conflict with Lear by

discouraging challenges by licensees Might be less risk if it only applied to

Medimmune challenges, but not Lear ones

Might be viewed as a “penalty” clause, which courts abhor

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Must use Medimmune

Require that in any challenge, royalties will continue to be paid as in Medimmune, rather than repudiate and stop paying royalties as in Lear

Could be important in funding the defense! May run afoul of Lear, but:

They still get to challenge the patent Less severe than an agreement not to

challenge They can just terminate if they wish

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Royalty Ramp-Up

Require the licensee to pay a higher royalty rate if they lose the challenge Similar Lear and penalty issues You might argue that the patent is

stronger after the challenge, and hence more valuable

In a Lear challenge, if the licensee fails to prove invalidity or non-infringement, then they have breached without cause, and liquidated damages might be reasonable

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If They Lose, Royalty is Reduced Probably only works if it is a hybrid

license, with patent rights and know-how

A general drop-down provision when all the patents expire or are held invalid or unenforceable would likely pass judicial muster

If there are other patents in the license that cover the product, no reduction is needed

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The BIG PROBLEM:

Getting a licensee to agree to any of these!

There is a good argument that if they won’t, you will need: Bigger up-front fees Bigger milestone fees Bigger minimum annual royalties

Because if you don’t you may not be able to fight a challenge, or get long-term value Big royalty income will inspire challenges

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Have a Good Severability Clause These clauses haven’t been tested,

and could be held unenforceable You want to make sure that one bad

clause doesn’t void the contract Also make sure you consider the

interplay between these clauses and the rest of the agreement, whether enforceable or not, to avoid unforeseen consequences

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INJUNCTIVE RELIEF AFTER E-BAY

Robert MacWright UVA Patent Foundation

Technology Transfer Tactics Audioconference

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e-Bay Revived the 4-Prong Test(1) irreparable injury

- BIG CHANGE is that this is not presumed!

(2) monetary damages are inadequate(3) balance of hardships favors patent

owner(4) the public interest would not be

disserved

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Kennedy Concurring OpinionProvided Some Guidance

Irreparable harm depends on the economic function of the patent holder MercExchange was considered a “patent

Troll,” functioning only to make money, and using the threat of injunction to exact large fees

Also depends on the nature of the patent “weak” business method patents For minor features of products, money

damages may be enough

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z4 Technologies, Inc. v. Microsoft Corp .Paice LLC v. Toyota Motor Corp. (ED Texas, 2006)

Infringing technology was a small part of the product technology

Hardship on infringers would be great, as they would have to re-design products

Patent owners were not competitors, so would lose no good-will or market share

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Visto Corp. v. Seven Networks, Inc . (E.D. Tex. 2006); Transocean v. GlobalSantafe Corp . (S.D. Tex. 2006); Smith & Nephew, Inc. v. Synthes , (W.D. Tenn, 2006)

Injunctions granted in all 3 cases All were direct competitors of the

infringers, which weighed heavily In Transocean, the core functionality of

the product depended on the infringed patent

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What about Universities?

“…some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test, and we see no basis for categorically denying them the opportunity to do so.”

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Universities Aren’t Trolls

A pharmaceutical invention is worthless without exclusivity, and the public suffers “wearing the white hat”

Loss of technology is loss of a research program, not just loss of income

A licensee may have a better argument for needing an injunction Having a “contingent licensee” lined up

may be just as good

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You May Not Want an Injunction Courts have tended to award more than a

“reasonable royalty,” lest companies come to consider infringement to be a good alternative to negotiating licenses

If injunction is denied, the court essentially provides a compulsory non-exclusive license – and they may be willing to pay a substantial amount for exclusivity, knowing it won’t be a friendly negotiation

Odds are you will settle before it’s decided

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Robert S. MacWright, Ph.D., Esq.University of Virginia Patent

Foundationmacwright@virginia.edu

(434)982-0378www.uvapf.org