N. 20, March - April 2005 
IP & RTD: Articles 

A Contractual Strategy for Technology Transfer
Dr. Britta Seidel-Speer
IPR-Helpdesk Legal Advisor
 
Technology Transfer (TT) represents a chance for industry, universities and R&D organizations to make a profit by exploiting their technology by granting licenses. Apart from the profit incentive, TT has positive effects on the common market. It improves economic efficiency, is pro-competitive, enhances innovation, reduces the risk of duplicate research and development, generates product market competition, and can lead to further initial R&D.

Depending on how close an undertaking is to a "ready-to-exploit" technology, it has to undergo phases of acquisition, evaluation and R&D project cooperation before it can enter the exploitation phase and grant licenses.

Each phase can be tackled safely by following a contractual strategy.

TT starts with acquisition. To provide a mutual exchange of background and other confidential information on a balanced good faith-basis, a Confidentiality or Non Disclosure Agreement (CDA or NDA) should be concluded, containing a mutual obligation to use the defined confidential information only for the purpose of evaluating further cooperation or exploitation possibilities.

CDAs or NDAs may include an option clause, enabling the potential partner to opt for the offered cooperation or licensing agreement within a certain option period. An exclusive option gives the potential partner a lead over competitors. The option period furthers decision making. If it runs out without the potential partner having exercised the option, the parties clearly know that they are free to search for new potential partners.

For the phase of R&D project performance, contracting is essential. It can be done by making an offer with enclosed General Terms and Conditions, or by individual agreement - cooperation or a consortium agreement as in the case of EU-funded projects under FP6. The parties should consider and negotiate their interests carefully, so that the vital terms of the agreement reflect the understanding reached by the partners. Vital issues are the task specification (technical annex), project period, remuneration, project management and control, confidentiality, liability, warranty, conflicting third party IPRs, treatment of IPRs, publication and advertisement, access rights for project performance and exploitation, choice of law, jurisdiction, arbitration or mediation. If the parties already know their basic exploitation interests at the time of concluding the agreement, an option clause or an additional option contract containing the conditions of licensing - as they can be defined at that stage - is advisable.

Finally, exploitation is based on a licensing agreement, patent-, know-how-, software-, copyright- or mixed licensing agreement, depending on the case. The extent of a license can vary from non-exclusive, to exclusive or exclusive for a defined field of application. Royalties can comprise a down payment, running royalties, minimum royalties, and the statutory remuneration paid to employed inventors. Royalty negotiations need to take into account the licensor's investment and innovative input in the technology as well as the licensee's investment in the licensor's development of the technology, investment for possibly further development and marketing, and the estimated market demand. A comparison with other licensing agreements concluded within the corresponding technology branch is useful in order to be able to clarify the market value of a license.

Last but not least, licensing agreements need to be compatible with Community competition rules. In particular, Art. 81 (1) of the EC Treaty prohibits licensing agreements that restrict competition, e.g. if two competitors share out markets between themselves.

Under Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81 (3) of the Treaty to categories of technology transfer agreements, licensing agreements are block exempt from Art. 81 (1) of the EC Treaty under the following conditions, which the contracting parties are responsible for assessing:

The license agreement may not contain any severely anti-competitive restraints such as the determination of prices or the limitation of output.

Licensing agreements of competing undertakings are exempt provided their combined market shares do not exceed 20 % of the relevant product and technology market. Licensing agreements of non-competing undertakings are exempt up to a limit of 30 % market share of the relevant product and technology market each.

In cases where it is unclear whether these conditions are met, assistance from legal and financial experts is advised.

In summary, contracting is and should be used as a strategic platform for loyal cooperation and successful exploitation, safeguarding the parties' interests.