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The future of nanotechnology and IP licensing

Nanotechnology is a growing area but licensing can be tricky. A session at the AIPLA Annual Meeting last week gave advice on that and the choice between exclusive and non-exclusive licensing

As key nanotechnology patents expire over the next few years, new opportunities will emerge for innovation, but lawyers and executives will face complex and untested patent issues. Raj Davé of Pillsbury Winthrop Shaw Pittman led a section on nanotechnology in the session, explaining how to navigate these issues and the history and potential of nanotechnology patents.

Nanotechnology, which uses tubular structures made of layers of interconnected carbon atoms, is an emerging field with vast economic potential. It has a wide range of applications across several industries, which has resulted in a race to acquire patents on nanotube innovations.

Reap the rewards

Davé says strict conditions are often imposed on licensing agreements relating to nanotechnology patents.

“A lot of nanotechnology has been invented using universities or government funding, so there are strings attached,” he says. “For example, it may be that the patent can only be licensed to an entity that will produce in the U.S.”

However, since many U.S. companies have moved their manufacturing operations abroad, satisfying these conditions is often difficult.

One solution is to obtain a waiver to allow the product to be licensed to organizations which do not meet the conditions. However, this usually involves obtaining authorization from multiple entities, such as government departments and other organizations involved in the funding and research process. It also involves meeting stringent requirements, such as demonstrating that the main manufacturing facilities of the relevant industry are no longer based in the U.S.

“That’s quite difficult to demonstrate,” adds Davé. “What prevents you from setting up a plant? The success rate is not very high.”

But since nanotechnology offers promising new revenue streams, companies have ample motivation to try to resolve licensing issues. Nanotubes can be used in multiple industries, including the pharmaceutical and electrical fields. Some of the technology’s potential applications may displace existing multibillion dollar industries. For example, nanotubes can be used to deliver a drug to a specific area within the human body, which has potential applications in fields such as cancer research.

“Nanotechnology is strong. It’s important as a tech space and it’s growing,” says Gary Weinstein, the session moderator.

Opportunities will develop

Many of the breakthrough carbon nanotube patents will expire in about three years, which will reduce revenue streams for the owners of the original patents. However, this will pave the way for new applications of the original technology to be developed. Davé anticipates a frenzy of applications for secondary patents as companies from start-ups to multinational corporations rush to stake out their place in the nanotechnology field. By 2015, the global value of the nanotechnology market will reach an estimated $27 billion.

Davé says it is essential for a company licensing in nanotechnology to conduct due diligence on the patent portfolio it is intending to license. It should consider patents to license as part of a larger IP portfolio which may include rights to patents, design patents, copyrights, trade secrets, and trademarks.

Although nanotechnology could completely displace certain classes of drugs, for example in chemotherapy treatments, the future of nanomedicine business is likely to depend on IP rights.

The business of licensing

The session also included a discussion of the economics behind IP licensing for all industries. In a presentation on designing a patent licensing program, Robert Kahrl from the University of Akron School of Law talked about factors for businesses to consider when entering into licensing decisions.

For example, companies wishing to license their products should consider when it is appropriate to enter into exclusive or non-exclusive licensing agreements and how this will affect revenue streams.

A non-exclusive license usually creates less compensation for the patent owner because it does not offer exclusive rights to the licensee. However, the patent owner can grant any number of non-exclusive licenses. In determining which strategy will be more profitable, patent owners should consider the number of potential licensees and the impact of exclusivity on the value of the license.

The invention may also be able to be sold nationwide more quickly if several non-exclusive licensees market it in different areas of the country. Finding an exclusive licensee with the means to launch a nationwide campaign may be more difficult than making non-exclusive agreements with multiple organisations.

A non-exclusive license may also be desirable when a competitor is already selling a product which may infringe the license holder’s IP rights, as even a small royalty package may be preferable to the expense of litigation and the risk of the patent being found invalid.

Steve Levy of the Accent Law Group led a section on licensing of trademarks and copyright works, designed to update attendees on recent developments in the law. There was also a discussion on IP licensing in information technology, led by Karen Copenhaver of Choate Hall & Stewart.


Exclusive or non-exclusive licensing?

Here are some of the advantages and disadvantages IP owners need to consider when deciding whether to use exclusive and non-exclusive licensing agreements:

Exclusive

Advantages:

• IP owner can charge more for the license

• IP owner only has to negotiate an agreement with one party

• May qualify for advantageous capital gains tax treatment

Disadvantages:

• Finding a single licensee with the means to widely promote the product may be difficult

• IP owner usually cannot market the product after granting an exclusive license

• If the licensee does not effectively promote the product, the IP owner may have no alternative way of doing so


Non-Exclusive

Advantages:

• Multiple potential revenue streams—may produce more total revenue than a larger sum from a single exclusive licensee

• Reduced risk in getting the product effectively marketed— if one licensee fails to do so, others may succeed

• May be possible to market product nationwide more quickly

• May be possible for the IP owner to market the product and collect licensing revenue

• If a competitor is arguably infringing on the license, a non-exclusive license may be useful to avoid litigation and risk of having patent declared invalid

Disadvantages:

• IP owner cannot charge as much as for an exclusive license

• If terms of the agreement are not well-considered then multiple parties, including the IP owner, may be competing for the same customers

• Revenue is treated as ordinary income—does not qualify for capital gains tax treatment

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