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Term Sheet – Licensing
Chris Baxter
Chris Baxter

At Baxter IP, we have a number of strategies to help you to commercialise your IP via licensing – and we work closely with clients to formulate their optimum negotiation position and therefore maximise the commercial value of their IP.

I’ve spent a large part of my career involved in international licensing of technology.

This has proved to me the benefit of, initially at least, leaving the lawyers out of the licensing negotiations and trying to hone-down a simple term sheet with the other party, summarising the major terms of the licence agreement. And only when the term sheet is finally iterated sufficiently to be agreed by both parties do we recommend that the expert IP lawyers are called in… and set the task to draft a comprehensive licence agreement based on the principle points of agreement spelled out in term sheet.

At Baxter IP we work with you and generate a term sheet which summarises the basic financial and other terms that you will eventually require in the licence agreement. This term sheet forms your primary negotiation tool when you, as the licensor, negotiate with prospective licensees. This term sheet is typically no more than about 10 pages, and is a much easier document to manage and iterate during negotiations with another party. When finally agreed, this term sheet is passed over to an expert IP lawyer who then drafts a corresponding full licence agreement, which can be typically 50 – 80 pages.

Licensing Strategy

When you formulate a licensing strategy, it is best to think of the structure of the basic rights being granted by the licensor to the licensee as a matrix of parameters.

These should include:

  1. Firstly, whether the licence granted will be exclusive, sole or non-exclusive. The important question here is whether there will need to be other licensees now, or in the future? A sole licence is generally accepted to be an exclusive licence, except that the licensor also retains commercial rights to exploit the technology in its own right.
  2. Secondly, will the right being granted be for manufacturing, usage or sales, or a combination of these three. How will the licensee be limited in how it makes use of the IP? Remember that in the broadest sense, the monopoly provided by a patent is the right to manufacture, use and sell.
  3. Thirdly, the geographical territory or territories. In which countries will the licensee be allowed to commercialise the IP?
  4. Fourthly, an application field or a definition of the “licensed product” and/or licensed process” is needed. Will the licensee be limited in terms of the types of products or processes that it can use the IP in relation to? Generally the answer is ‘yes’ because patent claims, by their very nature, are written to maximise broadness in the context of the existing prior art.
  5. Fifthly, you need to define the actual IP being licensed – for example granted patents, patent applications, registered designs, registered trade marks, common law trade marks, documented knowhow and undocumented knowhow. Remember that any knowhow to be licensed should ideally be properly documented, and listed in summary bullet point form at the very least if this is not possible.
  6. And lastly, are sub-licensing rights and/or “have made” rights going to be granted. The question here is whether the licensee will have the right to licence others? If so, under what terms? Can the licensee subcontract the manufacture of the licensed product or of the product?

You can see here that it is very important to think of the rights granted in terms of a matrix of these parameters.

For example exclusive manufacturing rights may be granted under a certain set of IP in the US but non-exclusive sales rights may be granted under this IP for the entire world. IP relating to a hydraulic system may be licensed for the application of earth moving equipment greater than 10 tons in one territory and for the application of material handling and forklifts under 5 tons in another territory. You can be as specific as you need here, providing the definitions are rigorous. Such limiting definitions of course are particularly important where exclusive rights are being granted.

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About the author
Chris Baxter
Managing Director, Patent & Trade Mark Attorney
Chris Baxter is a Sydney patent and trade mark attorney specialising in software patents, computer patents, medical device patents and engineering patents.

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