Universities produce a large amount of inventions every year and are a useful source of intellectual property. More companies are realizing the importance of gaining access to this source of intellectual property through technology transfer.
To reduce any likely disputes stemming from poorly drafted technology transfer agreements between universities and the biotechnology industry, understanding licensing agreements that pertain to universities is critical. This paper reviews the mechanism of each key clause of a licensing agreement, the potential related disputes and how to avoid those disputes.
First, the Definition Clause deals with definitions of key terms in the agreement and becomes a basis for resolution when parties disagree. Second, the Grant Clause determines the kinds of rights given in the agreement—exclusive or non-exclusive rights, material subject to license, sublicensing/assignment of rights to third parties, and field of use. Third, the Best Efforts/Due Diligence Clause imposes the licensees’ obligation to commercialize the licensed technology. Fourth, the Royalty Clause is a highlight of the agreement and five different types of royalties will be covered: (1) upfront payments, (2) minimum annual royalties, (3) earned royalties (running royalties), (4) reach-through royalties, (5) patent cost, and (6) royalty-free licenses. Fifth, most university agreements that cover patented technology contain a provision about infringement by others. This clause predicts how both parties will act if they have to bring an infringement action or defend one. Lastly, various other clauses such as Termination, Warranties and Indemnification, and Confidentiality will be covered. Warranties and Indemnification, and Confidentiality Clauses connected with a university’s publication policies may be peculiarly controversial in university licensing agreements because they often cover the conflicting policies between the industry and universities. This paper presents a summary of the key clauses of a university’s licensing agreement and provides examples of possible disputes from each key clause. This review will be useful for negotiating and drafting a licensing agreement between a university and the biotechnology industry.