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In most industries, the licensing of patents is quite common. In the world of biotechnology, however, a company may not be able to wait for the issuance of the patent. Companies want to have some reassurance that, as cutting-edge technologies are developed and as articles are published on those technologies, they have access to those critical inventions. To secure their place in line, many biotechnology companies routinely license patent applications or, more accurately, license technology that is described in a patent application. This article does not address whether there could be issues with this particular contract structure of licensing a patent application in relation to patent misuse or antitrust law. Instead, it guides general counsel through other key issues to be aware of when considering negotiating a potential patent application license. When considering the licensing of technologies embodied in patent applications, general counsel for the licensee will consider conflicts of interest, confidentiality obligations, sublicensing rights, indemnification, payment schedules and termination. However, in addition to these standard issues, more complex matters lurk: What is the licensee getting? Is the priority date of the licensor’s technology prior to the invention date of others? What if the patent application was filed as a provisional without claims? What is the critical piece of the technology in which your company is interested? In-house lawyers need to answer another significant question: What is going to trigger the payment of the royalty? In traditional patent licenses, one may see the following language: “Licensee shall pay a royalty of X percent based on net sales from the following: any product that, but for this license, would infringe a valid claim of the patent.” Often this same language is included in licenses for patent applications, but it doesn’t make sense in this context. During prosecution, claims are added, amended and deleted. To base the payment of royalties on claims that have not issued is like trying to hit a moving target. One way to deal with this challenge is to clearly identify the most important elements of the invention and use these as the trigger for the payment of royalties pre-issuance of the patent. The use of a specific aspect of the technology as a royalty payment trigger also avoids the problem of unintended products being covered by claims that are added or amended during prosecution. Typically, when one licenses a patent, one is able to review the prosecution history of the patent before licensing. However, a potential licensee of a patent application may have only some information regarding the prosecution or, more likely, none at all. The application may have been filed as a provisional or may have just entered the examination phase. The licensee may have little indication regarding what, if anything, may issue, and the potential weaknesses of the application. REVIEW AND APPROVE But a GC who’s planning ahead can take steps to protect the company. One of the ways a licensee can attempt to keep apprised of the prosecution of the patent application is to require within the license agreement that the licensee receive a copy of all patent prosecution documents. In addition, the licensee may desire to have some sort of ability to approve the deletion, addition or amendment of claims to ensure that the prosecution is conducted in the licensee’s best interest. Also, the licensee may want to review and approve amendments before their submission to the patent office by the licensor. Prior approval is potentially important to discourage licensors from making statements during prosecution that might lead to a quicker notice of allowance, but also may result in prosecution history estoppel. At the least, the licensee should see all of the relevant documents. This will allow the licensee to 1. terminate the agreement if it seems that the licensor will obtain no patent or one that is not of use to the licensee; 2. re-negotiate the terms of the license; or 3. identify possible third-party infringers of the technology that may be put on notice of the patent application after publication. The need to receive all the patent prosecution documents is even more critical when the licensor asks the licensee to pay for patent prosecution costs. If a licensor demands that the licensee bear some or all the burden for costs of prosecution, the licensee should 1. demand access to documents; 2. stipulate that the licensor cannot abandon the application(s); and 3. be clear as to what constitutes a cost of prosecution. For example, if the licensee demands that the licensor put third parties on notice after the patent application publishes, and the licensor has that letter drafted by a firm, does the cost of having the letter drafted constitute a cost of patent prosecution? The licensee may want to stipulate that any expenses not directly associated with the prosecution of the patent application must be approved by licensee before being incurred by licensor. Also related to the issue of paying prosecution costs is whether the licensee can opt out of filing costs in countries in which the licensee has no interest. With regard to abandonment of the application, it is critical that the licensor not be able to abandon the application without prior written consent from the licensee. If the licensee makes up-front payments, the licensee may require a refund from the licensor, if the licensor, individually or in conjunction with the patent office, abandons or limits significant rights embodied in the patent application. Language regarding enforcement of the patent application and subsequent patent also should be included. Under U.S. law, it is possible to put a third-party infringer on notice before the issuance of a patent. As a licensee to technology, one is at a disadvantage in the marketplace unless competitors exit or are required to pay royalties. For this reason, the licensee will want to obligate the licensor to put third parties on notice of the patent application immediately after publication. Ana C. Ward is the general counsel of Ambion Inc. She holds a bachelor of arts degree, a master’s degree and a J.D. all from the University of Texas at Austin. Before joining Ambion, she was senior intellectual property counsel at Yum!Brands and an associate with Sidley & Austin (www.sidley.com) in Dallas. Ambion is a market leader in the development and supply of innovative RNA-based life science research and molecular biology products. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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