Product development and technology transfer

Technology transfer is fast becoming more widespread. As product development becomes ever more costly and specialised, rarely can an individual or a company find the time and money to develop a concept through to market without some form of collaboration.

Consequently, advising a client how to balance ‘speed to market’ with safeguarding legal issues presents some real challenges.

So, how to start when a client walks through the door claiming to have invented something which he is confident is novel, determined that there’s a market for it, but has no means to exploit it alone?

Common people

Put the first statement to the test: is he truly the inventor, or has he collaborated with others in developing the technology?

This is more common than one may imagine, so check any pending patent application to see if it’s been taken out in one or more names.

Try to identify exactly how the concept has come about and how it has been developed
to date. For example, from time to time, pre-launch due diligence reveals software products with embedded unlicensed third-party software. Finding this out late in the day is a costly exercise.

Identify whether the client
was working as a freelancer or
as an employee or director of a company when he came up
with the idea. Has he used subcontractors, did he have employees, or has he adopted something that he thought inadvertently he was free
to copy? All these will have implications which need to
be addressed.

Consider the need to gather in any third-party rights assignment. Get ‘all your ducks in a line’ before commencing any third-party discussions. Aim to avoid the client finding mid-transaction he has an issue over IP ownership.

Where more than one IP owner is involved, ensure they agree how they will split potential income or capital receipts before commencing negotiating with third parties, otherwise prospective licensees will seek to capitalise upon any friction.

Identify your client’s strengths and weaknesses; if more than one person is involved, who does what? Do they have a common goal? Do they both want to licence or is one keen to produce the product themselves?

Clarify whether the client wishes to be involved in the commercialism by working with the licensee and, if so, is he free contractually to do so?

Next steps

Next, establish how the client has protected the IPR.  Many believe that protection starts and finishes with patents, so consider registered design, copyright,and registering as trademarks potential brand names, especially with B2C products. Each may create additional licence income streams.

Ensure your client consults an appropriately qualified patent agent to advise on patentability or reliance upon the concept of ‘trade secret’ as an alternative. Look at each case on its merits.

Repeatedly highlight to the client the need to maintain confidentiality. Ensure the client does not disclose inadvertently anything which might either prejudice a patent application, or simply lead to a leak of knowledge into the market.

Always check suitable non-disclosure and non-circumvention agreements are entered into before discussions regarding prototyping, prospective licensing or partnering to further develop a product. Consider with the client whom he thinks the most appropriate 'partner' to bring the product to market.

Appoint a suitably experienced and competent licensed practitioner (www.iilp.net) to identify suitable introductions and conduct negotiations.

Sometimes the most likely licensee may already be known to the client, but having an agent to negotiate in those circumstances is essential.

Take steps to evaluate the prospective licensing agent, establish their propriety, track record and evaluate whether they’d get on well with the client during stressful negotiations.

Before letting a client enter into time consuming and expensive licensing negotiations, check out if possible the bona fides, commercial integrity and financial strength of any prospective licensee.  Make discreet enquiries, but also ask a licensee about previous licensing arrangements and then follow up with the counterparties.

Always ensure there is an NDA in place before commencing discussions with any prospective licensee, but recognise that certain large players such as BAe, Unilever and P&G rarely enter into confidentiality agreements in case their R&D teams have already come up with a similar idea: consider with the client whether or not to proceed.

Always try to negotiate detailed heads of agreement. Even though they’re non-binding, it enables both parties to know they are moving the same direction.

Never ignore the potential impact of taxation to both licensor and licensee; do not defer taking accountancy advice until too late in the day and risk the parties having to restructure arrangements purely for tax.

A successful licensing arrangement should be both commercially beneficial for the client and intellectually satisfying for the lawyer.

Jonathan T R Silverman is a commercial partner with City Law firm Silverman Sherliker www.silvermansherliker.co.uk

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