Licensing Best Practices

ROBERT GOLDSCHEIDER conceived and edited the first volume and is Coeditor of this book. He is an attorney and pioneer of the profession of technology management consulting. He heads the International Licensing Network, which was formed in 1975. He has also established precedence as an expert in litigation and has testified over fifty times. Mr. Goldscheider is the author of two treatises on licensing issues that are regularly update and has published over thirty articles on licensing-related subjects. He has been active in LES since 1967, has regularly lectured at LES and other meetings around the world, and believes he has taught more people about licensing than anyone alive. ALAN H. GORDON has thirty-five years' experience in the practice of intellectual property law. He established Alan H. Gordon & Associates after having been aprincipal/partner of Fish & Richardson, P.C.; a partner/shareholder with Arnold, White & Durkee (now Howrey, LLP); and an associate with Burns, Doane, Swecker & Mathis (now Buchanan Ingersoll P.C.). He earned his BS in engineering from Columbia University in New York City and his JD (with Honors) from The George Washington University in Washington, D.C. He is a registered patent attorney in the U.S. and a registered patent agent in Canada and the Philippines. He is an author and frequent lecturer in the intellectual property area and has appeared numerous times as an expert witness in patent, trademark, trade secret, and licensing cases. Mr. Gordon has served as a local chapter chair, committee chair, trustee, vice-president, and secretary of the Licensing Executives Society (USA & Canada).

Preface xv

About the Editors xxi

About LESI xxiii

Part 1 TERRITORIAL COMMENTARIES

1 Licensing and Technology Transfer to China: A Roadmap 3 
by Henry Beck and Xichun (Catherine) 
Pan

Introduction 3

“Free Riding” Past and Present 3

China Joins the World Economy 4

Intellectual Property Protection and Enforcement 5

Intellectual Property Rights Have Little Extraterritorial Force 5

International Treaties and Conventions; Trade Remedies 5

China’s Intellectual Property Protection Regimes 7

Enforcement of Intellectual Property Rights and the Threat of Trade Sanctions 9

U.S. and Chinese Export and Import Control Regulations: “Outbound” and “Inbound” 17

U.S. Export Control Regulations 17

China’s Regulations for Technology Imports and Exports 22

Concluding Thoughts 24

2 Software Licensing as a Driver of the Indian Economy 27 
by Rani Boazz and Subramaniam Vutha

Introduction 27

Background 27

The Scope of the Chapter 29

The Economic Impact of Software Licensing in India and Current Business Trends 29

The Legal Framework for Software Licensing in India 32

Copyright Law 32

Contracts 32

Trade Secrets Law 32

Patent Law 33

Taxes and Duties 33

Reproduction of Software in India 34

Insights into the Special Needs and Legal Requirements of the Indian Software Market 34

Outlook for the Indian IT Industry 35

3 The Industrialization of Korea (1962 to 2002) from the Patenting and Licensing Perspective 37 
by Yoon Bae Kim

Introduction 37

Overview of the Korean Economy and Trends in Technological Development According to Historical Dates 38

Before 1962 (Japanese Colonial Rule and the Korean War) 38

From 1962 to 1991 (National Economic Development Plans) 39

From 1992 to the First Half of 1997 (between the Post-Economic Development Plan and the Foreign Currency Crisis) 42

From the Second Half of 1997 to 2002 (Foreign Currency Crisis and Innovation-Led Economic Growth) 43

Key Indicators of the Korean Economy 44

Key Indicators of Korea’s Macrotechnological Capability 45

The Impact of the Korean Patent System and Licensing

Regulation on Korea’s Technological Development 47

The Patent System 48

Formulation of Law on Protection of Computer Program Copyright 49

Licensing Regulation 50

Patenting and Licensing Trends by Industry 52

Chemicals (Petrochemicals and Fine Chemicals) 53

Shipbuilding 54

Steel and Iron Manufacturing 55

Automobiles 56

Aerospace 56

Semiconductors 57

Electronics and Telecommunications 58

Conclusions 59

4 Japan on Its Way to Revitalization 63 
by Jinzo Fujino

Introduction 63

Overview of Technology Trade 64

Shifting to a New Knowledge-Based Economy 65

Overhauling Japan’s Intellectual Property Scheme 66

Intellectual Property Promotion Plan 2004 67

Creation of New Inventions 67

Protection of Intellectual Properties 68

Enhancing the Utilization of Intellectual Properties 69

Promotion of the Contents Business 70

Development of Human Resources in the Intellectual Property Arena 70

Protection from Foreign Counterfeits 70

Conclusions 71

Commentary 72

5 Secrets of Successful Dealmaking in Asia 75 
by Dennis Unkovic

Introduction 75

Factors Influencing Asian Business Deals 76

Thailand 77

Malaysia 78

Singapore 79

Indonesia 81

Asian Diversity 82

6 Modern Mexican Laws Governing Intellectual Property, Licensing, Antitrust, R&D, and Inventors’ Rights 83 
by Oscar M. Becerril and Hector E. Chagoya

Introduction 83

The Mexican Antitrust Law 84

The North American Free Trade Agreement (NAFTA) 86

The Freedom-to-Research Issue 87

Benefiting from the Mexican Industrial Property and Licensing System: Some Hints 88

Franchise Contracts 89

Licensing in the Pharmaceutical Sector 89

Licensing of Biotechnology 90

Licensing of Copyrights 90

R&D Contracts 91

The Mexican Employees’ Inventions System: Another Reason to Consider Mexico for R&D Activities 92

Remuneration to Employees for Their Inventions under Mexican Law 93

Patenting Controversial Technologies in Mexico 94

Computer-Implemented Technologies 94

Biotechnology 94

Conclusions 95

7 Licensing in Scandinavia: Home of Entrepreneurial Inventors, Industrialists, and Philanthropists 99 
by Robert Goldscheider and Jonas Gulliksson

Introduction 99

Scandinavian Creativity 99

Finland’s Impact 100

Success Factors 101

“Scandinavian-Bred” Technology 102

Karl V. Palmaer 102

Haldex All Wheel Drive System 103

Ole-Bendt Rasmussen 104

Conclusions 106

Part 2 SCIENTIFIC ISSUES

8 Global Innovation and Licensing Opportunities on the Internet 111 
by John G. Palfrey, Jr.

Introduction 111

The Digital Media Revolution 112

The First Clash: Digital Music 112

The First Success: Apple’s iTunes 113

Globalization and the Internet 114

Outsourcing of Software Development Services 114

Open Source Software Development 115

Other Global Effects of the Information Technologies Boom 116

Looking Ahead: Web Logs, Syndication, and Aggregation 117

The Phenomenon of Web Logs 118

Really Simple Syndication 119

Conclusions 120

9 Energy and the Environment: Driving Technology and Licensing 123 
by Walter G. Copan

Energy and Human Progress 123

Energy in the Petroleum Age 124

The Environment and Sustainability 127

Global Climate Change and Emissions Trading Markets 128

A Triple Bottom Line 130

New Technologies Driving Technology Transfer 130

Energy Efficiency and Resource Conservation 130

Green Buildings 131

Energy Efficiency and Emissions Control for Transportation 132

Electric and Hybrid Vehicles 133

Hybrid Vehicle License Strategies 133

Evolution of Fuels 134

Natural Gas Fuel 135

Biofuels 135

Distributed Power 136

Power Plants 137

Renewable Energy 137

The Hydrogen Economy 139

Fuel Cells 140

Venture Capital and Institutional Investment 140

The Role of Licensing in the Energy World 142

New Value Options for Licensing in Energy and the Environment 143

Risk Management Value 145

Emissions Reduction Value 145

Direct Policy Incentives 145

Reduced Resource Use 146

Corporate Social Responsibility 146

Societal Economic Benefits 146

Technology Transfer Value 147

Acknowledgments 147

10 Essentials of Licensing Biotechnology, Nanotechnology, and Other Cutting-Edge Technologies 151 
by Manya S. Deehr and Mary Ann Stretch

Introduction 151

Definitions 152

Improvements 153

Field of Use 154

License Grant 154

Information, Data, and Results 155

Source of Intellectual Property: Federal Funding and Academic Contributions 156

License or Divestiture 158

Patent Sections 159

Conclusions 160

11 The Big Picture: Nanotechnology Impacts Everyone 163 
by Robert C. Shaddox

Introduction 163

Licensing Nanotechnology 164

Overview 164

Definitions 165

Ownership/Encumbrances 166

Timing 167

Technology Licensing 168

Overview 168

Definition of Licensed Property/Licensed Products 168

Granting Clause 169

Termination Provisions 169

Consideration 169

Territory or Field of Use 170

Patent Protection 172

Infringement Actions 173

Confidentiality 175

Assignment and Sublicense 175

Conclusions 176

12 Ensuring Royalty Compliance in High-Technology Licensing 179 
by Arthur M. Nutter

Introduction 179

Intellectual Property versus Real Property 179

High-Technology Licensing Programs 180

Phase One 180

Technical Investigations: Treasure Hunting 182

Courtroom Discovery versus Reverse Engineering 182

Analyzing Semiconductors 183

Microcontroller-Based Product Analysis 184

Black Box Testing 184

Dumb Patents 185

Software 186

New Laws in the United States 186

Open Source Strategies 187

Part 3 BUSINESS, LEGAL, AND PROFESSIONAL ISSUES

13 Licensing Challenges Encountered by a Multinational Law Firm 191 
by Michael A. Epstein

Introduction 191

Knowledge Management 192

Maintaining Geographical Spread 193

Providing Subject Matter Diversity 194

Utilizing Litigation Expertise 195

Preserving Experience as to Past Deals 197

Leveraging Relationships 198

Conclusions 198

14 Small Companies’ View of Licensing 201 
by Norman A. Jacobs

Introduction 201

Acquiring Technology (Licensing In) 202

Granting Technology Rights (Licensing Out) 203

Identify Potential Licensees 204

Overcome the Confidential Disclosure Barrier 205

Consider a Joint Development Program 205

Define Fields of Use 206

Consider Novel Royalty Structures 206

Use a “Distress” License to Increase Product Sales 207

Determining the Value of Technology 207

Ensuring Licensee Diligence 208

Conclusions 209

15 Managing Intellectual Property Allocation in Joint Ventures 211 
by Ron Laurie

Introduction 211

JV Structural Models 211

The Contractual Model 212

The Entity Model 212

The Two-Stage Model 213

Intellectual Property Allocation in General 214

The Default Allocation Paradigm: Joint Ownership 214

Preferred Intellectual Property Allocation Strategies 217

Application of Intellectual Property Allocation Strategies to the JV Structural Models 218

The Contractual Model 218

The Entity Model 220

The Two-Stage Model 222

Exit Strategies 226

Merger or Acquisition of the JV Entity 226

Dissolution of the JV Entity 226

Conclusions 228

16 Experience in Norway with Strategic Alliances as a Work Form When Commercializing Technology 231 
by Håkon Haugen and Tor Oppedal

Introduction 231

The Particle Business in DYNO—and Beyond 231

From Idea to Market 232

Critical Success Factors for a Company Based on New, Advanced Technology 233

Technology 233

Infrastructure 233

Products 233

Market Apparatus 233

Alternative Strategies 234

DYNO’s Particle Development: A Strategic Evaluation 234 Establishment and Execution of Strategic Alliances:

A General Evaluation of Relationships 234

Choice of Partner 235

Establishing the Alliance 235

Administration and Leadership of Joint Activities 236

Experiences of Dyno Particles: Examples 237

Dynal Biotech ASA: Biomagnetic Separation 237

Pharmacia Biotech AB: Chromatographic Purification of Biomaterial 238

General Conclusions Based on Our Experiences 239

17 Application of Game Theory to Intellectual Property Royalty Negotiations 241 
by John C. Jarosz and Michael J. Chapman

Introduction 241

Usefulness of Game Theory 241

Bargaining Basics 243

A Simple Bargaining Game 244

An Intellectual Property Licensing Game 245

The Nash Bargaining Solution (NBS) 247

Description 247

Extension to Licensing 252

Estimation of NBS 258

Disagreement Profits (di ) 259

Total Profits (∏) 260

Bargaining Power (α) 260

Conclusions 263

18 Administration and Auditing of License Agreements to Promote Control and Harmony 267 
by Margaret (Peggy) Moizel

Introduction 267

Management Plan for Maintaining Licensee Agreements 267

Negotiation Steps 268

Inventory of Agreements 270

Remuneration Calculation 270

Conclusions 272

Suggested Reading List 273

Index 279