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Ten DOs and DON'Ts to Remember for Negotiating Your Next Biotech Collaborative Research and License Agreement


May 1, 2002


Beth Macdonald

Ten DOs and DON'Ts to Remember for Negotiating Your Next Biotech Collaborative Research and License Agreement

It is well known throughout the biotech industry that collaborative research and license agreements are key to the strategic development of new products and to the profitable exploitation of a company’s intellectual property, or IP.  However, these types of agreements present a host of challenges for the negotiators and drafters.  Set out below are some “DO's” and “DON’Ts” to consider for your next negotiation.

1.  DO keep in mind that this agreement is forming an ongoing relationship between the parties.  The deal must work for both sides or the collaboration will fail.  DON’T take a “winner take all” negotiating approach.  You will need the other party’s co-operation and good faith efforts for an extended period of time.

2.  DO your research.  Assess not only the technical capabilities and financial stability of the other party, but also the chain of title to the relevant IP.  Make your own inquiries.  DON’T believe everything you hear, or assume that your proposed collaborator is as careful at documenting inventorship, or at protecting trade secrets as you are.  Make inquiries.

3.  DO take the time to carefully define what IP of your collaborator you need to use and what of your own background IP you will allow your collaborator to use.  Is there any technology that should be expressly excluded?  DON’T forget to address issues arising from the joint development of IP during the collaboration.  Who will own joint IP?  What rights or restrictions will be placed on its use?  Who will file for protection of that IP, and who will pay for that protection? 

4.  DO ensure that the scope of the license is as broad as you need or as narrow as you want.  If you want to be able to use the IP in providing services as well as products, or if you need exclusivity for all fields of use or for any one specific field or territory, then say so.  DON’T narrow your use of the licensor’s trade secrets to only the territories in which patent protection exists if you will need to use those secrets in any patent-free jurisdictions.

5.  DO establish both a means of regular communication between the parties and dispute resolution procedures.  A collaboration is ever changing.  DON’T ignore the fact that you cannot anticipate all possible issues that may arise during the course of the relationship.  Creating a joint steering committee that meets regularly, reviews the progress of the project and has decision making and dispute resolution powers will help keep the project on track.

6.  DO consider whether multiple technologies (and therefore multiple royalties) should be factored into the equation.  However, as licensor, do not agree to a standard royalty dilution clause when your IP is of a “platform” nature.  DON’T pay royalties on IP that your competitors can use for free.  Once a patent expires or is held invalid, or a trade secret is no longer a secret, your agreement should provide that your obligation to pay royalties for that technology end.

7.  DO determine whether you will need sublicensing rights.  If so, acquire those rights now. Also, assess what comfort your sublicensees will need in order for them to make a long-term financial commitment to your technology.  Should sublicenses survive the termination of your head license?  As a licensor, determine what protections you will need to put into place before you agree to give your licensee broad sublicensing rights.  DON’T settle for a right to sublicense upon the consent of the licensor unless you are the licensor.

8.  DO remember that a multi-jurisdictional agreement raises multi-jurisdictional legal issues.  For example, the laws respecting grant-back rights to IP, the rights of parties to exploit jointly owned IP, and the rights of parties on bankruptcy can vary greatly from country to country.  DON’T assume that the treatment of an issue in your home jurisdiction will be the treatment applied elsewhere.  Get local legal advice for important issues, such as the effect that the bankruptcy of the other party may have on your license.

9.  DO consider incorporating a technology transfer process into your arrangement.  Where a tech transfer is occurring, arrange for key personnel to be on-site or readily accessible for the transfer period, and identify how the costs and expenses of the transfer process will be handled.  Licensors should be wary of accepting open-ended obligations to support the transfer process.  DON’T forget about obtaining access to biological materials which may not be proprietary but the use of which will save you time and money.

10.  DO plan for the end of the relationship.  No collaboration or license will last forever, so determine when and under what circumstances your agreement should end.  If your arrangement is exclusive, the length of the term and the termination triggers will be key.  DON’T forget about the rights you may need after termination (e.g. to continue to use background IP, to use jointly developed IP, to continue with sublicense arrangements).  

Collaborative relationships are complex and dynamic.  Each one is unique.  However, the end goal of your drafting should be to accommodate and stimulate the collaboration and the profitable exploitation of the results of that collaboration.   

Beth Macdonald is a partner in the Vancouver office of McCarthy Tétrault LLP and chair of the firm’s National Biotechnology Law Group.  For more information on our Biotechnology Law Group, click here.


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