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SEPTEMBER 2014
les Nouvelles
JOURNAL OF THE LICENSING EXECUTIVES SOCIETY INTERNATIONAL
Volume XLIX No. 3
September 2014
LES NOUVELLES
Advancing the Business of Intellectual Property Globally
Determining An Appropriate Royalty Rate For Reasonable Royalty
Trademark Damages—A Modified Georgia-Pacific Framework
DAVID DREWS — Page 150
Advanced Citation Analysis Can Help Identify Licensing Candidates
MIKE LLOYD — Page 156
Customs Value, Licensing And Royalties—The Russian Perspective
SERGEY MEDVEDEV — Page 166
Radioisotope Pharmaceutical Licensing
PAUL R. BETTEN — Page 172
How Does Europe Deal With The Question Of How To Transfer Rights From The Author
To The Exploiter?—The European Perspective On The Work Made For Hire Doctrine
JULIAN KLAGGE AND CHRISTIAN CZYCHOWSKI — Page 178
The Unitary Patent And The Unified Patent Court
CHRISTOPH CORDES — Page 184
Protecting Traditional Knowledge As Cardinal Technology In The Philippines
ROBERT NEREO B. SAMSON AND GONZALO D.V. GO III — Page 192
The Impact Of Australian Goods And Services Tax On Assignments And
Licences Of Intellectual Property
STEPHEN ADRIAN — Page 202
EU State Aid Policy: A Model To Assess Intellectual Property Rights And
Knowledge Dissemination In R&D Cooperation—Part II
MARIO CISNEROS — Page 206
UniLink: A New Model For Increasing Academic And Industry Partnerships
HESTER TAK AND BOB SMAILES — Page 215
New Age Intellectual Property: Emerging Global Benefits
LAWRENCE J. UDELL — Page 224
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Rate For Royalty Trademark Damages
Determining An Appropriate Royalty Rate
For Reasonable Royalty Trademark Damages
A Modified Georgia-Pacific Framework
By David Drews
W
hen a plaintiff believes that its trademark
has been infringed, an important element
is oftentimes the determination of damages suffered by the plaintiff. At the federal level,
the calculation of damages is dictated by the Lanham
Act.1 Once liability has been proven, the Lanham Act
provides for the recovery of defendant’s profits, actual
damages sustained by the plaintiff and the costs of
the action, subject to principles of equity.2
Although the Lanham Act does not explicitly list a
reasonable royalty as a valid remedy in trademark infringement matters, the award of a reasonable royalty
as compensation for trademark infringement damages
has been recognized as an appropriate alternative for
decades.3 This makes sense from an economic perspective since royalty rates have long been utilized as
pricing and value indicators for intellectual property
of all kinds, including trademarks. However, it is
important to note that a reasonable royalty is not appropriate in every trademark infringement situation.
It should also be noted that the recovery of a reasonable royalty in a trademark infringement action
is limited by some jurisdictions to those situations
in which the licensing of the mark has already taken
place with a third party, or has at least been contemplated by the plaintiff.4 Other jurisdictions accept a
hypothetical negotiation between the plaintiff and
the defendant, even in situations where the plaintiff
1. This article is concerned with reasonable royalty damages in a
federal trademark infringement action. While damages associated
with state or common law trademark infringement actions may
utilize similar approaches, they are outside the scope of this discussion. Also, this article assumes that a reasonable royalty has been
determined to be an appropriate damages remedy for a particular
infringement scenario.
2. 15 U.S.C. § 1117(a).
3. For example, see Sands, Taylor & Wood Co. v. Quaker Oats
Co., 978 F.2d 947, 963, 24 U.S.P.Q.2d 1001 (7th Circuit 1992).
4. For example, see Trovan Ltd. v. Pfizer, Inc., No. CV-98-0094
WL 709149 (United States District Court, Central District of
California, May 24, 2000). In this case, the court explicitly stated
that the Ninth Circuit would not recognize a reasonable royalty as
a measure of damages where no evidence had been proffered that
a party intended to license its trademark.
has categorically stated that it would not license its
mark to anyone, including the defendant.5
Depending on the facts of the case, the use of a
reasonable royalty to calculate damages is a fairly
straightforward exercise once the infringing revenue
and appropriate royalty
rate have been identified.
■ David Drews,
Royalty rates can also figIPmetrics LLC,
ure prominently in a lost
President,
market value assessment
San Diego, CA, USA
of the damages resulting
from trademark infringeE-mail: ddrews@ipmetrics.com
ment. In a lost market
value assessment, an analysis calculating the change
in the value of the brand or trademark resulting
from the defendant’s alleged infringing actions can
be based on the fact that the owner of a trademark
does not have to pay royalties to a third party in order
to use it.6
However, the selection of an appropriate royalty
rate has typically been one of the most contentious
areas of disagreement among parties involved in a
trademark infringement action, even when both
plaintiffs and defendants agree that a reasonable
royalty is the proper method for calculating damages.
With patent infringement damages, the identification
of an appropriate royalty rate has been guided for
several decades by the fifteen-factor test described
in Georgia-Pacific Corp. v. U.S. Plywood Corp., which
takes into consideration numerous aspects of the
relevant economic, financial and competitive characteristics associated with the infringing use and the
parties involved.7 As of yet, a preferred method for
5. For example, see Sands, Taylor & Wood v. Quaker Oats Co.,
978 F.2d 947 ¶57 (7th Circuit 1992). In this case, the court stated
that a “generous approximation of the royalties Quaker would
have had to pay STW for the use of the THIRST-AID mark had it
recognized the validity of STW’s claims seems to us an appropriate
measure of damages…”
6. Known as a “Relief from Royalty” analysis, it measures the
value of the trademark by quantifying the present value of avoided
costs, i.e., the royalty payments not made due to ownership of
the asset.
September 2014
150
identifying an appropriate royalty rate for trademark
damages purposes has not been as well documented
by the courts.
This has led to an inconsistent application of reasonable royalty analyses across the various federal
circuits. In my experience, I have found that using
a modified Georgia-Pacific analysis can oftentimes
provide a framework for identifying an appropriate
royalty rate in trademark infringement situations.
Georgia-Pacific and Trademark Infringement
The Georgia-Pacific factors used in patent infringement reasonable royalty analyses were originally
selected to help determine the outcome of a hypothetical negotiation between the two parties involved
in the lawsuit. The framework was designed to
identify and incorporate the respective negotiating
positions of the two parties for a hypothetical grant
of rights associated with the infringed patent under
circumstances similar to the use of the patent embodied in the infringing activities.
A similar analysis may be appropriate when
determining the royalty rate to use in trademark
infringement damages analyses. Most of the factors
are analyzed in the context of the hypothetical negotiation, which is usually set at a point immediately
preceding the start of the infringement period. The
analysis is therefore typically restricted to what was
known or knowable at the time of the hypothetical
negotiation, including reasonable forecasts of expected results.
Some of the factors, however, suggest the inclusion
of analysis that considers activity that is subsequent
to the date of the hypothetical negotiation, which oftentimes incorporates information beyond that which
would have been known or knowable at the time
of the negotiation. Without getting too far into the
“Book of Wisdom”8 or ex ante versus ex post damages
analyses discussions,9 which are deserving of their
own articles, the potential use of any information that
becomes available after the hypothetical negotiation
takes place should be considered on a case-by-case
basis when determining a reasonable royalty rate in
a trademark litigation.
Also, there is more involved with using a Georgia7. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp.
1116, 166 U.S.P.Q. 235 (S.D. N.Y. 1970).
8. Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289
U.S. 689, 53 Supreme Court 736, 77 L. Ed. 1449 (1933).
9. For example, the “Litigation Services Handbook: The Role of
the Financial Expert,” by Roman L. Weil and Peter B. Frank has a
chapter on ex ante versus ex post damages calculations.
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Pacific factor analysis in relation to trademark
infringement than simply substituting the word
“trademark” for the word “patent” in each of the factors. As is noted below, modifications within some
factors are oftentimes necessary, and the differences
between patents and trademarks in general need to
be acknowledged.
With patents, for example, attention has to be
paid to the “Entire Market Value Rule, which, inter
alia, is concerned with the extent to which the patented invention is the basis for consumer demand
for the product that features the invention. As was
highlighted in Paper Converting Machine Co. v.
Magna-Graphics Corp.,10 when the invention is the
basis for consumer demand, one should calculate
the reasonable royalty on total sales of the accused
products. However, if other aspects are responsible
for a portion of the consumer demand, it is necessary
to determine the portion of sales associated with the
patented invention and limit the calculation of the
reasonable royalty to one based only on that portion
of accused sales. Since all of the infringing sales in
trademark litigation typically feature the use of the
trademark, no such limitation is necessary.
The discussion that follows identifies each GeorgiaPacific factor, as well as indications of some of the
modifications necessary to make it more relevant to
a trademark infringement action.
Factor One—The royalties received by the patentee for the licensing of the patent in suit, proving
or tending to prove an established royalty.
As discussed above, the concepts in each factor are
analyzed for their applicability to trademarks. Obviously, information regarding the royalties earned by
licensing the trademark in suit is extremely relevant.
When assessing the plaintiff’s licensing of the trademark in suit, the expert should take into consideration
the timeframe, geography and product categories of
the various licenses, including how those factors may
have changed during the period between when the
actual license was negotiated and when the hypothetical license would have been negotiated.
The form of compensation and royalty rate struc10. Paper Converting Machine Co. v. Magna-Graphics Corp., 745
F.2d 11 (Federal Circuit 1984). This precedent has been refined
numerous times since 1984, recently by Lucent Technologies, Inc.
v. Gateway, Inc., 580 F.3d 1301 (Federal Circuit 2009) and Uniloc
USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Federal Circuit 2011),
and perhaps most significantly by Laserdynamics, Inc. v. Quanta
Computer, Inc., 694 F.3d 51 (Federal Circuit 2012), in which the
court indicated that the royalty base should be the “smallest saleable patent-practicing unit.”
ture are important elements as well. Items such as
guaranteed minimums, marketing contributions, per
unit versus percentage of net sales royalty bases and
upfront payments all need to be analyzed. In addition,
the comparability of the plaintiff’s previous licensing
activity to the set of circumstances in the lawsuit
needs to be considered.
Information associated with offers to license the
trademark in suit made by the plaintiff can provide
information on the plaintiff’s perception of value.
Care must also be taken to distinguish between
licenses granted via unforced negotiations and those
that result from settled litigation, or between arm’slength agreements and those entered into by related
parties, and some of the plaintiff’s licenses may not
be relevant to the instant case at all. In general, not
much modification from the patent framework may
be necessary with this factor.
Factor Two—The rates paid by the licensee for
the use of other patents comparable to the patent
in suit.
Like Factor One, the information related to what
the defendant has paid to license similar trademarks
may also be relevant. Here again, there is not much
need for modification. Generally, it is important
to assess the comparability of the defendant’s past
licensing activity in terms of timing, scope, compensation terms, geographical constraints and approved
product categories, as well as the comparability of
the actual asset or assets being licensed, including
the relative strength, awareness or heritage of the
respective marks.
Factor Three—The nature or scope of the license,
as exclusive or non-exclusive; or as restricted or
non-restricted in terms of territory or with respect
to whom the manufactured product may be sold.
Factor Three is concerned with making sure that
the hypothetical negotiation tracks closely with the
parameters surrounding the alleged infringing activity.
This factor is not necessarily modified from the patent
scenario in terms of how it is analyzed; rather, the
existing elements are simply applied to the trademark
infringement scenario. As with a patent infringement
analysis, the hypothetical negotiation is typically constructed on a non-exclusive basis and is restricted to
those geographies in which the infringement activity
allegedly took place.
In addition to the exclusivity and territory characteristics mentioned in the factor description, when
applied to a trademark infringement this factor is
also associated with items such as approved product
categories, distribution channels and other con-
straints or requirements that may be applicable to
the infringing situation. The closer the comparable
license agreements from Factors One, Two and Twelve
match with the parameters of the infringing activity,
the more relevance they may have to the hypothetical negotiation.
Factor Four—The licensor’s established policy
and marketing program to maintain its patent monopoly by not licensing others to use the invention
or by granting licenses under special conditions
designed to preserve that monopoly.
When analyzed in the context of a trademark infringement, Factor Four is concerned with more than
the license/not license question or special conditions
listed in the description. It is also concerned with
the overall trademark licensing policy of the plaintiff,
including marks other than those in suit. While the license/not license question and any special conditions
will certainly be important, the plaintiff’s policies
regarding other elements, such as those having to do
with required compensation, required or forbidden
product categories, exclusivity versus non-exclusivity,
geographical constraints and required or forbidden
distribution channels will also be significant.
A plaintiff with a long history of licensing its
trademarks on an arm’s-length basis will be better
positioned to defend its royalty rate demands than
one that has only limited experience in this area.
Also, a trademark owner that has defended its mark
against all instances of alleged infringement helps
demonstrate its willingness and ability to maintain
its rights in the trademark.
Factor Five—The commercial relationship between the licensor and licensee, such as whether
they are competitors in the same territory in the
same line of business, or whether they are inventor and promoter.
The commercial relationship between the parties
is naturally important. If the two are direct competitors, the plaintiff would typically demand a higher
royalty rate since the defendant is likely either (1)
making sales that the plaintiff believes it could have
made or, (2) in a case where the plaintiff does not
distribute its products in the defendant’s territories
or distribution channels, preventing the plaintiff from
expanding its operations.
Situations in which the two are not direct competitors typically argue for a relatively lower royalty rate
conclusion, although a supplier/customer relationship
between the parties can complicate matters. The
complication arises because a defendant who is also
a key supplier or customer may induce the plaintiff
September 2014
152
to accept even lower compensation than would otherwise be the case.
Factor Six—The effect of selling the patented
specialty in promoting sales of other products of
the licensee, the existing value of the invention
to the licensor as a generator of sales of his nonpatented items, and the extent of such derivative
or convoyed sales.
It is very rare when a trademark infringement situation features a concept akin to “convoyed sales,” i.e.,
sales of products that do not utilize the trademark
but should be included as part of the royalty base. In
trademarks, there is scope to license a trademark to
be used in marketing a composite good when a component’s trademark assists in differentiating the final
good in the consumer’s perception. Such is the case
with the use of the Intel Inside® trademark by several
computer manufacturers. Competitive considerations
in determining the reasonable royalty rate in these
situations will likely include the competitive environment among licensees in addition to that between
the plaintiff and the defendant. Also, a defendant may
occasionally require customers to purchase products
associated with one of its other (non-infringing)
brands in order to purchase the products that feature
the allegedly infringing trademark.
Without convoyed sales, this factor is typically
scored as neutral or slightly favorable to the defendant. If there are indeed convoyed sales, it argues for
a higher royalty rate than otherwise since the defendant is enjoying additional sales activity and building a
more extensive relationship with customers/retailers.
Factor Seven—The duration of the patent and the
term of the license.
This factor provides one of the main contrasts
between the patent-centric analysis typically found
with Georgia-Pacific and the modified version used
to analyze a reasonable royalty rate in a trademark
infringement situation. As long as a trademark is
continuously used in commerce, the registration fees
are paid on a timely basis and the owner defends it
against all instances of infringement, the trademark
will continue to remain valid. For example, the Fruit
of the Loom® and Coca-Cola® trademarks have been
in continuous use since the late 1800s.11
The expected term of the hypothetically negotiated
license is typically dictated by the duration of the
infringing activity, although the previous licensing
activity of the two parties and/or the industry com11. www.uspto.gov, Registration Numbers 0238146 and
0174998, respectively.
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parable license agreements may also be important.
In general, this factor has little or no bearing on the
determination of the royalty rate, unless different
royalty rates are associated with different durations
in the parties’ relevant licenses and/or the comparable
agreements. Also, to the extent that a longer license
term allows the defendant to develop customer relationships that may endure beyond the life of the
hypothetical license agreement, it may indicate the
need for a higher royalty rate.
Factor Eight—The established profitability of the
product made under the patent, its commercial
success, and its current popularity.
With this factor, in addition to the analysis of the
product-related aspects listed in the description, one
must also pay attention to the popularity and awareness of the trademark itself. The use of the trademark
may enable a greater level of success than the product
would achieve without it. Currently, Apple® is a good
example of a trademark that instantly conveys status
on a new product offering.
With the demise of the 25% rule in patent litigation,12 it is safe to assume that this technique is no
longer a suitable choice in trademark reasonable
royalty rate analyses either. Therefore, the established
profitability of products featuring the infringed trademark can no longer be a direct input to the formula
used to determine a reasonable royalty rate. However,
the established profitability and commercial success
of products that featured the trademark in suit prior
to the hypothetical negotiation are still important indicators of the relative strength and level of consumer
awareness of the trademark, and will help narrow a
relatively wide range of comparable property royalty
rates to one that is more appropriate. Generally, a
more established, more successful trademark will
command a higher royalty rate than one without a
similar track record of success, ceteris paribus.
Also, the profitability of the underlying product line
typically is an important limit on the royalty rate, as
no licensee would willingly transfer all or most of its
profits to a trademark licensor. That said, trademark
licensors typically demand higher royalty rates for
uses in particularly profitable categories than in undifferentiated, commodity products.
As stated above, most factors are analyzed in the
12. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315,
98 U.S.P.Q.2d 1203 (Federal Circuit 2011). In this case, the court
stated that “[t]he court now holds as a matter of Federal Circuit law
that the 25 percent rule of thumb is a fundamentally flawed tool
for determining a baseline royalty in a hypothetical negotiation.”
context of the hypothetical negotiation, which is usually set at a point immediately preceding the start of
the infringement period. Factor Eight, however, explicitly requires analysis of the “current popularity” of
the asset. Certainly, subsequent information regarding the level of sales actually achieved is required to
calculate reasonable royalty damages. When analyzing
the factors to determine the royalty rate, however,
the potential use of any information that becomes
available after the hypothetical negotiation takes place
should be considered on a case-by-case basis.
In trademark cases, Factors Nine and Ten are
frequently analyzed together since they are similar
and essentially define the impact that the trademark
has in the marketplace. I have elected to follow that
convention in this article.
Factor Nine—The utility and advantages of the
patent property over the old modes or devices (if
any) that had been used for working out similar
results; and,
Factor Ten—The nature of the patented invention;
the character of the commercial embodiment of it
as owned and produced by the licensor; and the
benefits to those who have used the invention.
Factors Nine and Ten deal with the utility and nature
of the assets being licensed. The utility and nature of
a trademark is that it identifies the source of a product and it harbors any goodwill generated among its
customers. It also conveys information regarding the
reputation and characteristics of the associated brand.
For example, Tiffany & Co.® and Wal-Mart® convey
information to consumers about what they will find
and experience at the two retailers’ establishments
(e.g., luxury goods and low prices, respectively).13
Therefore, a trademark with high relative strength
and awareness attributes and a long successful history in the marketplace (essentially, more “utility”)
will generally command a higher royalty rate than one
without those features.
Also, a trademark will have more “utility” when
used with products with which it has been associated for a long time than it will with products for
which there is no history of use. For example, Apple®
resonates with consumers when used with personal
electronics, but may not have the same effect when
used with garden tools or laundry detergent.
From a financial perspective, the advantage that
a trademark provides may sometimes be measured
by the price or market share premia associated with
13. www.tiffany.com and www.walmart.com.
the mark versus generic goods. There may also be a
differential when compared to other branded goods,
although that is typically a smaller advantage and more
difficult to measure.
Factor Eleven—The extent to which the infringer
has made use of the invention; and any evidence
probative of the value of that use.
This factor is oftentimes used to inform the analysis surrounding Factor Three regarding the nature
and scope of the license; the extent of use typically
outlines the geographic scope, distribution channels
and product categories covered by the hypothetical
negotiation. This is also where evidence of actual
confusion (or lack of) and surveys indicating likelihood of confusion (or lack of) will provide guidance
as to the value of the use by the defendant. As with
Factor Eight, this factor oftentimes requires analyzing
data that is subsequent to the date of the hypothetical negotiation.
If the use of the trademark allowed the defendant
to generate increased sales and higher profits, or to
enter a distribution channel or geography to which
it had not previously had access, the royalty rate
called for is typically higher than use that does not
provide these kinds of benefits. Generally, the more
extensive the use and the greater the benefit enjoyed
by the defendant, the higher the royalty rate that is
supported.
Factor Twelve—The portion of the profit or
of the selling price that may be customary in
the particular business or in comparable businesses to allow for the use of the invention or
analogous inventions.
This factor incorporates any relevant third-party
comparable licenses into the analysis. It is important
to narrow the search so that it only includes license
agreements for trademarks used during a similar timeframe, on similar product categories and in similar
geographies. It is oftentimes possible to adjust for
slight differences in these aspects, but the impact of
this factor should count for less weight in the overall
analysis when these adjustments are utilized.
As with Factors One and Two, the form of compensation and royalty rate structure are important
elements. Items such as guaranteed minimums,
marketing contributions, per unit versus percentage
of net sales royalty bases and upfront payments all
need to be analyzed. Also, any constraints, requirements or restrictions need to be considered, as
well as differences in the negotiation context. The
relative strength and awareness of the trademark
September 2014
154
in suit as compared to the trademarks included in
the comparable licenses is also a key aspect of this
factor analysis.
Finally, it is important that the risks borne by the
licensors and licensees in the relevant comparable
agreements match up with those hypothetically borne
by the plaintiff and defendant in the constructed
negotiation framework. Depending upon which
trademarks are included in the third-party comparable
agreements, this factor analysis will help determine
where the trademark in suit should fall on the spectrum of relevant royalty rates.
Factor Thirteen—The portion of the realizable
profit that should be credited to the invention
as distinguished from non-patented elements,
the manufacturing process, business risks, or
significant features or improvements added by
the infringer.
This factor is modified from the typical patentoriented analysis to more closely follow a typical
trademark apportionment analysis. Ultimately, the
determined royalty rate will provide the concluded
apportionment; this factor analysis will help to determine what that reasonable royalty rate should be.
Elements that may need to be considered include
other trademarks owned and used on the accused
sales by the defendant, non-infringing trade dress
and packaging elements, an experienced and effective management team and sales force, the
distribution network utilized by the defendant,
relationships with retailers, marketing efforts (trade
shows, websites, advertising, etc.), any technology
that is incorporated in the products (patents and/
or trade secrets), and any other elements that are
specific to the products being sold.
Factor Fourteen—The testimony of qualified
experts.
Occasionally, evidence related to experts other than
the damages experts in a trademark case may have
some bearing on the determination of a reasonable
royalty rate. Rarer still is the expert analysis or opinion
not associated with the instant case that is targeted
enough to provide guidance on this question in a litigation environment. When expert opinion is available
and relevant, it should be relied upon, at least to the
extent that it is deemed to be reliable and accurate.
Otherwise, this factor is typically scored as being
neutral, or having no impact on the determination
of a reasonable royalty.
Factor Fifteen—The amount that a licensor
(such as the patentee) and a licensee (such as
the infringer) would have agreed upon if both
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had been reasonably and voluntarily trying to
reach an agreement; that is, the amount which
a prudent licensee—who desired, as a business
proposition, to obtain a license to manufacture and
sell a particular article embodying the patented
invention—would have been willing to pay as a
royalty and yet be able to make a reasonable profit
and which amount would have been acceptable
by a prudent patentee who was willing to grant
a license.
Essentially, this factor is the conclusion of the
hypothetical negotiation described via the analysis
of the preceding fourteen factors. All of the quantitative and qualitative factors that are relevant to the
infringement situation should be weighed by the
damages expert to determine an appropriate reasonable royalty rate.
Conclusion
When using a modified Georgia-Pacific factor
analysis to determine a reasonable royalty rate in a
trademark infringement action, it is crucial to understand how the various factors should be applied
to trademarks, trademark licensing and the alleged
infringement. For example, there are numerous differences between the rights granted by a patent and
those associated with a trademark. In general, a patent grants the right to exclude others from practicing
the revealed invention for a period of time, whereas
a trademark identifies the source of the goods and
serves as a repository for any goodwill generated.
In practice, the analysis for a trademark-related
reasonable royalty rate will be the same as that for a
patent-related reasonable royalty rate for some factors
and markedly different for others. The differences
may be related to items such as the potential presence
of non-infringing alternatives and design-arounds
(patents, but not trademarks), the implications of
the “Entire Market Value Rule” (again, patents, but
not trademarks) and the fact that patents have an
explicit expiration, whereas trademarks can continue
indefinitely (when certain conditions are met).
As long as the analysis of the various factors has
captured the nature and scope of the potential license
and trademark in suit, the financial and logistical aspects of the usage, the impact of comparable licensing
situations and the relevant risk profiles for both parties, the resulting reasonable royalty rate conclusion
for the use of the trademark in the context of the
alleged infringing activity should be appropriate and
defensible, and could be informative to the trier of
fact in considering a suitable remedy. ■
Advanced Citation Analysis
Advanced Citation Analysis Can Help Identify
Licensing Candidates
By Mike Lloyd
Abstract
Citation analysis is used by many patent owners to
search for potential licensing candidates, with many
licensing managers reviewing forward citations for
their patents to help find these candidates. In this
paper we suggest some additional approaches that
may also be useful. These include a statistical review
of the forward citation patents, the Forward Rejection
analysis available from Patent River, and the similarity
and importance filters available in the AmberScope
patent citation searching tool.
any patent applicants will be very familiar
with patent citations. For a patent to be
granted it needs to be both novel and inventive over the prior art. While the exact definition
of ‘novel’ and ‘inventive’ can vary between different
jurisdictions, in almost every case the patent examination process includes a review of older published
documents that may disclose similar subject matter
to the claims of the patent application. These earlier
published documents can be identified by a patent
search run by the patent examiner, be based on a
search conducted by another patent office examining
the same application, or be submitted by the applicant either in the body of the patent specification or
within an ‘Invention Disclosure Statement’ or similar
document supplied by the patent applicant.
Published documents can include scientific papers,
other documents and in the vast majority of cases will
include earlier published patents. Prior art patents are
so popular in search reports both because the patent
M
literature is unusually well organised, catalogued and
searchable, and also because the patent literature is
so voluminous, with ca 2 million new patent publications every year.
These earlier published documents are often referred to as ‘backward’ or ‘reverse’ citations. Similarly,
after a patent has been
published it may be cited
■ Mike Lloyd,
by later patents. Relative
Griffith Hack,
to the patent in question,
Consultant,
these later patents are
often referred to as ‘forMelbourne, Victoria, Australia
ward citations,’ as shown
E-mail: mike.lloyd@
in Figure 1.
griffithhack.com.au
Both forward and backward citations can be very
helpful to people reviewing the patent literature.
Essentially each citation connection between two
patents is an acknowledgement that an expert in
the area (being a patent examiner or applicant) sees
two patent as similar—or having overlapping subject
matter. Given a relevant patent in any area, we can
quickly identify similar patents simply by following
patent citation connections.
Practically, these can be easily found on many
patent search websites or subscription services. An
example of this is shown in Figure 2 for the Google
Patent search site, but there are many other sources
of this data. These include Espacenet, Patentbuddy,
the USPTO patent search site, and a number of paid
patent search sites.
Figure 1: Forward And Backward Citations
b) Reverse or
Backward
Citations
Earlier Patents
Considered to
be Similar
a) Patent
Publication
c) Forward
Citations
Later Patents
Considered to
be Similar
September 2014
156
Citation searching, like other
forms of patent searching, is not
perfect. Citation searching tends
Example of where to find forward and backward citations for a patent shown
to be more effective for ICT and
within Google patent. In this site, backward citations are simply referred to as
mechanical engineering patents
“Patent Citation” while forward citations are referred to as “Referenced by.”
Selecting either of these options will open up a list of these citations.
than for pharmaceutical patents.
U.S .patent examiners appear to
Publication Number
US6123456 A
have a bias to selecting U.S. based
Publication Type
Grant
rather than foreign prior art, but
Application Number
US 09/108,452
the prior art patents listed on IDS
Publication Date
Sep. 26, 2000
statements may help to counteract this bias. Regardless, citation
Filling Date
Jul 1, 1998
searching
can be a very useful adPriority Date ?
Jul 1, 1998
dition to existing patent searching
Fee Status ?
Lapsed
processes and help provide what
Also Published As
US6632970
can be a useful second opinion that
Inventors
Robert J. Lyons
avoids the risk of missing relevant
patents due to what turns out to
Original Assignee
General Electric Company
be erroneous assumptions about
Export Citation
BBTeX, EndNote, RefMan
the best keywords or patent classes.
Patnet Citations (5) Referenced By (6) Classifications (8) Legal Events (6)
While these principles are generally
well known, it can be time
Forward citation connections can be particularly
consuming for owners of large patent portfolios to
helpful to patent owners looking for potential licensmake this objective review of their portfolio. Coning candidates. Later patent applicants who cite your
sider, for example patent US5343970 for a Hybrid
patents in their patent applications may be using
Electric Vehicle, filed by Alex Severinsky and then asinventions claimed by your patent in their products
signed to the company he founded, Paice Corporation
and services. While patents per se do not infringe
(and subsequently to a number of other assignees).
other patents, patent filings can provide useful inforWhile this patent has now expired, this patent was
mation on the commercial intentions of the patent
successfully asserted against Toyota including in the
applicants, providing earlier patent owners with clues
Federal Circuit. Paice had earlier settled with Ford
on where they should be looking for infringement. A
over the same patent, but this litigation has recently
conventional infringement analysis on products and
restarted. Paice has also filed a suit against Hyundai
services produced by the later patent applicants can
and Kia, alleging that these two companies were
then provide the information needed to determine
infringing their patents.
if infringement is occurring.
As we might expect from a widely litigated patent
Citation Patent Searching vs. Keyword and Patent
that
was one of the earliest patents in its field, this
Code Searching
patent
has been widely cited by later patents. The
The vast majority of patent searching is done using
patent
searching
website Espacenet lists 326 forward
queries based on keyword or patent class codes.
patent
citations.
While undoubtedly useful, these technique can
This raises the question—if a patent analyst withsuffer limitations due to inconsistencies in selecout
specific information about an industry was asked
tion of technical terms by different applicants for
to
review
these forward citations to suggest potential
the same concept, and inconsistent application of
licensing
partners, where would they start? Such a
patent class codes by different patent examiners or
scenario
is
in fact surprisingly common, for example
offices. In contrast, patent citations are nominated
in
the
review
of a patent portfolio that might be held
by either patent examiners or applications based
by
the
likes
of
universities that may hold patents filed
on recognition of similarity, regardless of keyword
in
a
very
broad
range of subject areas.
or patent codes. Accordingly, the proportion of
relevant patents for citation based patent searching
There are in fact a series of techniques that alcan be in many cases higher than the proportion
low the patent analyst to filter through such a large
amount of forward citations. Some of the techniques
of relevant patents for a more conventional search.
Figure 2. The Google Patent Search Site
157
les Nouvelles
First Case Study—
‘Paice Patent,’
US 5343970
a) General statistical
review of citations.
Although it is more conventional to only look at
forward citations in this
sort of analysis, there are
some good reasons to also
review backward citations
as well. Applicants for
backward citation patents
also have a proven interest
in the technology and can
be worth investigating for
this reason.
Figure 3 shows that
the filing of forward and
backward patent citations
peaked in the year 2002.
There were relatively few
backward citations.
Figure 4 shows that
Ford was by far the leading
applicant of forward cita-
Number of Citations Filed
may be familiar to some readers, but for some it will be
tion patents with 84 known citations, a long way ahead
new. To review these techniques, we will consider the
of Toyota and Aisin (a leading supplier of automotive
Paice patent discussed above, and then a patent filed
parts, partly owned by Toyota). Toyota was unique in
by Carnegie Mellon University which has been sucthis list of top citers in that it also had a backward citacessfully litigated for over $1 billion dollars in damages.
tion from the Paice patent. For a patent owner such as
Paice, any of these leading companies would be worth
We will discuss these techniques below in separate
investigating to see if any of their commercial products
sections, first for Paice, consecutively for Carnegie
were infringing the ‘970 patent. It is worth noting that
Mellon. It should be noted that the examples shown
Paice has successfully completed litigation against both
are for illustrative purposes only. The value of an
Ford and Toyota after asserting US5343970.
analysis such as this is that it can help to suggest
who should be investigated. Any references to
any companies owning Figure 3: Citation Filing Trends For ‘Paice Patent’ US5343970
forward citation patents
Known Citation Links To Paice Patent US5343970
in this article is not to im45
ply in any way that these
40
companies are infringing
35
any patent discussed—instead only that the owners
30
of the prior art patents
25
Forward
might review the activities
20
Backward
of these later patent filers
15
as part of their general in10
fringement investigation.
5
0
1968
1974
1979
1984
1989
1995
2000
2005
2010
Filing Year
Figure 4: Leading Owners Of Forward Citation Patents
For The ‘Paice Patent’
Known Patent Citations To Paice Patent US5373970, By Applicant
Ford
Toyota
Aisin
84
19
16
Paice
Railpower
Nissan
Chrysler
11
11
8
Forward Citation
8
8
Hitachi
Suzuki
Deere & Co
BYD
Backward Citation
7
6
6
6
Honda
0
20
40
60
80
100
Number of Known Patent Citations
September 2014
158
b) Identification of forward citation patents that
refer to the subject patent in examiner’s reports
(Patent River ‘Forward Rejection’ analysis).
As discussed earlier, citation links can be supplied
by both patent applicants and patent examiners.
While some analysts believe that backward citations
supplied by patent applicants as part of their ‘Information Disclosure Statement’ (IDS) are of lower quality
than examiner citations and should be ignored, we
have seen plenty of evidence of highly relevant patent
citations supplied by patent applicants.
Examiner patent citations can also be further classified according to whether they were specifically
mentioned by the examiner in the examination report
as either a reference to:
• The patent being examined lacking novelty in the light of the cited patent (e.g section 102
of the U.S. patent code),
• Or a reference to the patent being examined lacking inventive step in the light of the cited patent (Section 103 of the U.S. patent code).
Patent data analysts Patent River (not affiliated with
Ambercite) can supply lists of the forward citation
patents from any nominated U.S. patent where these
forward citation patents were specifically referred
to by the examiner in either a novelty or obviousness objection. This can include citation references
to patent applications that are subsequently abandoned—whereby these forward citation links may
not be available in conventional databases. To help
educate the readers of this article, Patent River has
generously supplied this data for the Paice Patent.
These results are supplied in table form listing the
individual objections. For the purpose of this paper,
these results have been summarised in Table 1 below.
Table 1. List Of Novelty And Obviousness Rejections For The ‘Paice Patent’
Applicants with
Patents Where the
Paice Patent
is Referred to in
Examination Reports
Novelty (102) ‘Rejections’
Patent
Application
Ultimately
Abandoned
or Rejected
Abell Foundation/Paice
Patent
Application
Granted
2
Patent Still
Pending at
Time of
Review
Total
Number of
Rejections
2
4
Hitachi
2
2
Luke Clawson
2
2
Railpower LLC
Tesla
1
1
1
1
Daimler Group
1
1
Denso Corporation
1
1
ISE Corporation
1
1
McCutcheon Company
1
1
Sanyo Electric Company
1
1
Toyota
1
1
BMW
1
1
Chrysler
1
1
Delta Electronics
1
1
Ford
1
1
GM
1
1
Nissan
1
1
None Recorded
1
1
Sunyen Company
1
1
Gate SEL
159
Patent
Application
Granted
Obviousness (103) ‘Rejections’
Patent
Application
Ultimately
Abandoned
or Rejected
les Nouvelles
1
1
While technically the reference to an earlier patent
to a given patent, along with the interconnections
in an examination report is more akin to an ‘objecbetween these cited patents. Moving a mouse over
tion,’ Patent River prefers to use the term ‘rejection’
these citations opens up details of these citations.
for a direct reference in an examination report, and
The size of each patent node governs the relative
so the term ‘rejection’ will be used in the remainder
importance of a patent. There are options for manuof this paper.
ally classifying patents from 1 to 4, which changes
the colour of the node of each patent and so can be
Table 1 shows that:
used to highlight patents belonging to nominated
• Abell Foundation (an investor in Paice) along
patent owners.
with Paice were the most common patent owners
The AmberScope patent network for the Paice patto have the Paice patent cited against it. This is
ent is shown in Figure 5.
often seen in citation analysis, where an earlier
patent of a patent owner is cited against later
While for smaller patent networks a manual review
patents from the same owner.
of the patent network can help to quickly identify
the most likely to be important connections, for a
• Hitachi and an individual inventor by the name
complex network such as this it can be hard to know
of Luke Clawson each had the Paice patent cited
where to start.
against two of their patents.
For this reason, AmberScope provides two filters
• Railpower LLC and what became a Tesla patent
to
help this process.
each had the Paice patent cited against two of their
patents in novelty rejections.
i)A similarity filter. Interconnections between
the different cited patents can be used to predict
—The Tesla patent (abandoned after grant) was
the similarity between the ‘focus patent’ (the ‘970
US7228925 and covered Electrical systems for
patent in this case) and its connected patent. The
electric powered vehicles, which referred to a
similarity filter can be used to hide all but the most
voltage controller, an element found in some
similar patents.
of the claims of the Paice Patent.
—The Railpower company
patent was US20050206331,
Figure 5: AmberScope Patent Network Map
covering a Hybrid locomotive
For The Paice Patent
configuration, and which has
now been abandoned.
• Both novelty rejections have
significant similarity between
the Carnegie Mellon patent and
the Seagate patent application.
For a patent owner such as Paice,
any of these leading companies
would be worth investigating to see
if any of their commercial products
were infringing the Paice patent. In
addition, we might have a special
focus on Tesla and Railpower as
both companies had patent applications rejected for being too similar
to (disclosed by) the Paice patent.
c) AmberScope analysis.
AmberScope has been developed
by the patent analyst company
Ambercite to visualise the network
of patents connected to a patent
of interest. Each network displays
the backward and forward citations
September 2014
160
Four of these forward citation patents
are also filed by Paice, again a very common finding in citation analysis. The
other three patents are US5697466,
AmberScope patent network map for the Paice Patent, with the filing filter set to exclude patents
filed by Equos Research (part of Aisin,
filed before 1993 and the similarity filter set to only show the most similar 3% of patents to the
Paice Patent.
affiliated with Toyota), US6367570, filed
by Electromotive, and US6116363, filed
by the University of California.
This is only illustrative of the process.
For example, if the similarity filter is reset to ‘10’, i.e. to show the most similar
10 percent of forward citation patents,
the 25 most similar patents are shown,
as in Figure 7.
ii) An importance filter.
Ambercite has developed a metric
called AmberScore, which is designed
to measure the role and impact of a
patent in the patent network and so to
suggest the relative importance of the
patents. AmberScore has been scaled
so that the average U.S. patent has an
AmberScore value of 1.0—in practice
patents with AmberScores above 2 are
worth looking at.
The value of AmberScore as a filter
Figure 7: AmberScope Patent Network Map For The
for
forward citation patents is that
Paice Patent—Most Similar 10 Percent Of Patents
higher scoring patents can suggest that
AmberScope patent network map for the Paice Patent, with the filing filter set to exclude
its owner applicant is making a large
patents filed before 1993 and the similarity filter set to only show the most similar 10% of
patents to the Paice Patent.
investment into a technology, and in
most cases is being recognised by others
for doing so.
We can use the importance filter to
limit patents to the highest scoring
patents. In Figure 8, the importance
filter has been set to only show the
leading 10 percent of the connected
patents in combination with the filing
filter, again set to exclude patents filed
before 1993.
Of note, this network of patents
includes five patents filed by Aisin or
Equos, three patents filed by Ford, three
patents filed by Toyota, and two patents
filed by General Motors.
This analysis shows that the ‘leading’
patents (by AmberScore) for each of
In Figure 6, the similarity filter has been combined
these applicants were:
with a filing year filter so that only the most similar
• Aisin or Equos: US5806617, for a Hybrid Vehicle.
3 percent patents (seven patents in total) filed after
• Ford: US5713425, for a Parallel hybrid drivetrain
1993 are shown. The arrows point to the forward
for an automotive vehicle.
citations, i.e. patents that were filed later.
For The Paice Patent—Similar 3 Percent Of Patents
161
les Nouvelles
Second Case Study—Two
Patents Asserted by Carnegie
Mellon Against Marvell
AmberScope patent network map for the Paice Patent, with the filing filter set to exclude patCarnegie Mellon University in 2012
ents filed before 1993 and the importance filter set to only show the most important 10% of
had
a 1.13 billion dollar patent judgepatents connected to the Paice Patent.
ment against Marvell Semiconductor,
a judgement upheld in January 2014.
The two patents concerned where
US6201839 and US6438180, both
covering a method to separate the
signal from the noise when reading
hard disc drives.
These two patents are closely related, and Espacenet regards them as
being in the same patent family. For
the purposes of this analysis, I will
combine the results from these two
patents (hereafter ‘Carnegie Mellon
patents’), which is recommended for
closely related patents.
a) General statistical review
of citations.
For ward citations outnumbered
Figure 9: Combined Citation Filing History
backward citations, with filing activFor The Carnegie Mellon Patents
ity peaking between 2003 and 2006,
Figure 9.
Known Citation Links To Carnegie Mellon Patents
Marvell and Quallcom (including
US6201839 And US6438180
acquisition
Flarion Technologies) were
15
the leading owners of these patents,
Figure 10.
10
b) Patent River analysis.
Using the exact same process as
5
used with the Paice patent, but looking for forward rejections for both of
0
the Carnegie Mellon patents, we can
produce Table 2.
Forward Citation
Backward Citation
This shows that:
• Broadcom had the Carnegie Mel• General Motors: US8285432, for a Method and
lon patents mentioned in obviousness rejections
apparatus for developing a control architecture for
to two of their patents, but both patents were
coordinating shift execution and engine torque
ultimately granted.
control.
• Seagate had a Carnegie Mellon patent cited
• Toyota: US5839533, covering an Apparatus for
(US6438180) against one of its patent applications
controlling electric generator of hybrid drive ve(US20040268208) in a novelty rejection, and this
hicle to control regenerative brake depending upon
patent application was ultimately abandoned. This
selected degree of drive source brake application
suggests significant similarity between the Carnegie
Mellon patent and the Seagate patent application.
The value of this list is that it can help uncover
the commercial plans of these applicants—along
• Nokia, Realtek and Sony also had Carnegie
with careful due diligence required for any sort of
Mellon patents cited in an obviousness rejecinfringement analysis on the products of a potentially
tion against patent applications which were
infringing company.
ultimately abandoned.
2012
2011
2009
2010
2008
2006
2007
2005
2004
2001
2002
2003
2000
1997
1998
1999
1996
1995
Figure 8: AmberScope Patent Network Map For The
Paice Patent—Most Important 10 Percent Of Patents
September 2014
162
Figure 10: Leading Owners Of Forward Citation
Patents For The Carnegie Mellon Patents
Known Patent Citations To Carnegie Mellon Patents
US6201839 And US6438180
Of note, all three are to Marvell patents,
with AmberScope telling us the very most
similar patent being US7000177.
Discussion and Conclusions
Before comparing these three sets of
results, there is another method many
Qualcon/Flarion Technologies
licensing managers use to identify potenSeagate
tial licensees—namely scanning the list
Forward Citation
of the owners of forward citation patents,
Broadcom
Backward Citation
such as what might be found by reviewLSI Corporation
ing the patent in a suitable patent search
Direct TV
website. There is no doubt that in these
Hitachi
two examples, that this simple method
Infineons Technologies
would have worked. The Paice manage0
10
20
30
40 ment would have seen the likes of Ford and
Toyota listed as owners of forward citation
Number of Forward and Backward Citations
patents, while the managers of the Carn• Marvell, Direct TV and Spreadtrum Communicaegie Mellon patents would have seen Qualcomm
tions had one of the Carnegie Mellon patents cited
and Marvel listed as owners of forward citations.
against patents which were ultimately granted.
And indeed there is nothing wrong with this,
c) AmberScope analysis.
but this assumes a level of knowledge about the
industry that the patents belong in. Many licensUS6438180 has the most citation links, so we will
ing managers have good industry knowledge, but
concentrate on this. An AmberScope network map
from this patent is shown in Figure 11. In this map,
not all do for all industries. Also patents may be
patents filed by Marvell are highlighted.
owned by subsidiaries of large companies where
the link to the large company is not immediately
i) Most similar forward citation patents.
obvious. So a more objective approach that is less
The three most similar (most similar 4 percent)
dependent on industry knowledge can be helpful
forward citation patents to US6438180 are shown
in some situations.
in Figure 12.
Marvell
Table 2. List Of Novelty And Obviousness Rejections
For The Carnegie Mellon Patents
Novelty
(102 Rejections)
Applicants
Patent Application
Ultimately
Abandoned
or Rejected
Patent Application
Ultimately
Abandoned
or Rejected
Broadcom
Seagate Technology
163
Patent
Application
Granted
Total Number of
Patent Applications
Where the Paice
Patent was Referred
to in Examination
Reports
2
2
Obviousness (103 Rejections)
1
1
Nokia
1
1
Realtek
Semiconductor
1
1
Sony
1
1
Carnegie Mellon
University
1
1
Direct TV
1
1
Marvell
1
1
Spreadtrum
Communication
1
1
les Nouvelles
are probably very interested in this area of
technology, and probably applications, even
if not all of these developments are eventually commercialised.
However the limitation with the ‘look
for known applicants’ and the ‘count the
patents’ approach is that not all forward
citation patents are the same—in both
commercial value and the similarity to the
patent being licensed. While all of us would
inherently understand this, this principle is
too often ignored in patent analysis. From
a valuation principle, this would be akin to
valuing say a portfolio of houses simply on
the number of houses in the portfolio.
Many patent analysts do go further and
classify the patents being reviewed by the
patent classification code applied to the
patents. Returning to the real estate analogy,
this would be akin to classifying a portfolio
of houses by area code. Without doubt, this
is a step forward in the valuation model—
but a bigger step forward would be to look
at the value of the individual houses.
The Patent River approach and the AmFor The Carnegie Mellon Patent US6438180
berScope approach both look at licensing
potential for the forward citation patents
AmberScope patent network map for the Carnegie Mellon patent US6438180, with the
being reviewed on an individual basis. The
filing filter set to ignore prior art patents, and the similarity filter set to show only the
most similar 4% of patents to this Carnegie Mellon patent.
Patent River approach relies on the U.S.
patent examiner identifying the specific
similarities between the earlier patent and
its forward citations in a written examination report. When these similarities are
found they can be very powerful pieces of
information, especially if the forward citation patent is ultimately rejected on the
basis of the earlier patent—which can be
strong evidence of similarity. The Patent
River approach can also be very helpful
where, due to the earlier patent, the later
patent application is rejected before grant.
In many cases this means that these forward
citation links are not formally available as
backward citations from un-granted patent
applications are not always published. Accordingly, the Patent River approach can find
potential licensees where patent citation
connections are not formally published.
The next most common approach is the statistical
An alternative approach is to combine all the
approach, which essentially is just counting the foropinions of all of the examiners in an area of techward citation patents by patent owner. Again this is
nologies, and effectively triangulate these opinions
widely practiced, and well worth doing. Companies
to identify the most similar, and the likely to be the
that file lots of patents that cite an earlier patent
Figure11: AmberScope Patent Network Map
For The Carnegie Mellon Patent US6438180
September 2014
164
most important patent. This in turns can potentially
identify citation links where the ‘collective wisdom’
of the patent examiners and applicants are suggesting a high degree of similarity—or an important
patent which may be a valuable patent. This is the
AmberScope approach, and this can be very effective
where there is a large number of forward citation
patents. Such an approach could be very useful, for
example, where the listed owner of a very similar
patent is not recognisable as a major company in the
area of interest. Identification of these very similar
patents can encourage further investigation of these
patents, which may uncover opportunities which
may be missed by a simple review of listed owners.
It should also be noted that the statistical Patent
River and AmberScope approaches are all able to
be automated and the results provided in a report
suitable for review of a large portfolio—ideal for IP
managers responsible for large or new portfolios.
Going Beyond Listed Citations
The Patent River approach can find links to patents where no forward citation links are formally
published. The AmberScope approach also allows
this type of analysis, on the basis that if a patent A
is similar to a patent B based on citations analysis,
and patent B is also similar is patent C based on
citation analysis, then patent A must also be similar to patent C—even if no formal citation analysis
exists. These analyses can be done manually using
AmberScope, or via an automated report now
165
les Nouvelles
available from Ambercite. Further details of this
type of analysis are found at the Ambercite website.
Summary
In summary, this paper has considered four different approaches for identifying potential licensees or
commercial partners from forward citation data for
a patent being reviewed:
•Scanning lists of forward citation patents to take
note of owners.
•Identifying the most common owners of forward
citation patents.
• The Patent River approach of identifying forward
citations where a patent being reviewed is specifically mentioned by the patent examiner.
• The AmberScope approach of identifying the most
similar and important forward citation patents.
All of these approaches have their strengths and
can have their limitations.
In the two examples shown, these separate analyses
have produced a range of results, some overlapping.
The observation that they are overlapping to some
extent is not surprising and provides some comfort
as to their predictive capability. The observation that
each approach produces a slightly different set of
suggestions for licensing partners suggests that each
analysis has its own value. In practice, using all of
these techniques is recommended for patent managers looking for the best possible source of information
regarding commercial options for their patents. ■
Customs Value, Licensing And Royalties
Customs Value, Licensing And Royalties—
The Russian Perspective
By Sergey Medvedev
C
ross-border trade is a driver of the global economy and the world’s better financial condition.
According to the World Trade Report 2013, the
rise of a world economy, the spread of investment and
technology, the growth of international specialization,
the ascent of new economic powers, and the dramatic
surge in growth and population would not have been
possible without a massive expansion of global trade
over the past 200 years.1 Being a constantly developing BRICS region, Russia persistently fights to conquer
first place by vying with its competitors and improving
its commercial status.
In fact, Russia has always been an attractive platform
for doing business, especially from the supply and
distribution standpoint. Different foreign companies
and brand owners have gotten used to bringing their
brands, technologies and products to Russia every
day in order to have them reach the hands and minds
of Russian consumers. Before that happens though,
these companies and brand owners have to tackle
certain customs and border clearance procedures
established for imports by Russian laws. And, that
is where different issues, including on the point of
determination of the exact customs value of products
being declared, can arise during or after the process
of release of the same onto the market place.
Background and Issue
When involved in the business of trade and
participating in various import campaigns, foreign
companies and brand owners will normally undertake the international customs planning matters to
consider the calculation of relevant fees and duties
in advance. However, as the Russian customs practice
shows, many contracted business partners (buyers,
distributors, agents, licensees, etc.) may sometimes
ignore the aspect of royalties or license fees in the
context of determination of the correct customs
value by trying to turn the saved funds into another
transaction benefit. Although it is not clear, whether
such actions depend on the mere lack of knowledge
of the Russian intellectual property and customs laws,
or on the intention to pay less money to the Russian
government, or on improper communications (negotiations) and documentation (e.g. supply and license
1. http://www.wto.org/english/res_e/booksp_e/wtr13-2b_e.pdf.
agreements) involved in the course of the customs
clearance proceedings, or on some other factors, it is
obvious that such negligence can lead to severe legal
consequences, including customs fines and other
charges. Therefore, before implementing any specific
customs planning for the Russian market, it is important to understand in each particular case, whether
royalties or license fees,
if they do exist under
the executed license
■ Sergey Medvedev, PhD, LLM
agreement(s) underlyGorodissky & Partners,
ing the signed supply
Senior Lawyer,
agreement(s), will be
Moscow, Russia
included or excluded
E-mail: MedvedevS@
from the customs value
gorodissky.ru
of the imported goods,
since proper calculation
and settlement of the
same will help the businesses to avoid any potential
problems and monetary sanctions in the future.
Laws and Regulations
In accordance with paragraph 1 of Article 1235 of
the Russian Civil Code (Part IV) (the “RCC”), under a
license agreement one party—an intellectual property
owner (licensor)—grants or is obliged to grant to the
other party (licensee) a right to use the intellectual
property subject matter within terms as set out by the
subject agreement. Pursuant to paragraph 5 of Article
1235 of the RCC, a licensee is obliged to pay an agreed
compensation to the benefit of the licensor under the
license agreement, unless such agreement provides
otherwise. Practically, an agreed compensation will
take the form of royalties in most licensing transactions, where royalties will be repeated instalments paid
on a monthly, quarterly or annually basis. Normally,
these instalments will be computed as a percentage
of proceeds of sales of the licensed products imported
in the contractual territory (e.g. Russia).
According to Article 64(1) of Customs Code of
the Customs Union,2 adopted on November 27,
2009 (the “Customs Code”), the customs value of
2. On July 6, 2010 Russia, Belarus and Kazakhstan established a new and regional Customs Union within the framework
of the Eurasian Economic Community (EAEC).
September 2014
166
the goods imported into the customs territory of the
customs union shall be determined in accordance
with the international treaty3 of member-states of
the customs union that regulates the issues of determination of the customs value of the goods moved
through the customs borders. According to Article
64 (2) of the Customs Code, the customs value of
the goods imported into the customs territory of the
customs union shall be determined if the goods actually cross the customs borders and such goods are
moved to the customs proceedings for the first time
right after traversing the customs borders, except for
the customs proceedings related to customs transit.
According to Article 64(3) of the Customs Code, the
customs value of the goods shall be determined by the
customs declarant or customs representative acting
on behalf of the customs declarant, and in cases set
forth by the Customs Code—by the customs agency.
Pursuant to Article 65(3) of the Customs Code,
the customs value shall be the integral part of the
declaration of goods. Pursuant to Article 65(4) of the
Customs Code, the declared customs value of the
goods and evidence submitted related to its determination shall be based on the information that is true
and can be determined and supported by documentation. Pursuant to Article 66 of the Customs Code,
the inspection of the customs value of the goods shall
be done by the customs agency before or after the
release of the goods, including through the use of the
risk management system.
According to Article 5 of the Agreement between
the Government of the Russian Federation, the Government of the Republic of Belarus and the Government of the Republic of Kazakhstan, dated January
25, 2008, “On Determination of the Customs Value
of Goods Transported Across the Customs Borders
of the Customs Union” (the “Agreement on Determination of the Customs Value”), royalties must be
generally included into the customs value of goods.
Specifically, in the sense of paragraph 1(7) of Article
5 of the Agreement on Determination of the Customs
Value, license and other similar fees, set for the use of
intellectual property (including royalty payments for
patents, trademarks, copyrights), related to the valued
(imported) goods, and which are directly or indirectly
paid, or will be paid, by the buyer as a condition for
the sale of valued (imported) goods in the amount not
included into the price which has been de facto paid
3. The Agreement between the Government of the Russian
Federation, the Government of the Republic of Belarus and the
Government of the Republic of Kazakhstan, dated January 25,
2008, “On Determination of the Customs Value of Goods Transported Across the Customs Borders of the Customs Union.”
167
les Nouvelles
or is subject to payment for such goods,—shall be
considered during the determination of the customs
value of the imported goods under the transaction
cost in addition to the price which has been de facto
paid or is subject to payment for such goods.
In other words, there are two (2) basic requirements in Russia under which royalties or license
fees will be included into the customs value of the
imported goods: (a) royalty payments must relate to
the imported goods; and (b) royalty payments must
be made as a condition for the sale of the imported
goods. Importantly, these conditions must both be
met at the same time, meaning that if one of them
is omitted, or not duly complied with, royalties will
be excluded from the customs value of the imported
goods. Hence, royalties shall be included into the
customs value in the case when they are related with
the imported goods and payment of the same stands
as a condition precedent for the sale of such goods.
This shall obviously mean that the documentation
(i.e. supply agreement) submitted by the importer in
the course of customs clearance proceedings (or afterwards) must provide for the contractual obligation
of the importer to acquire the right of use of certain
intellectual property under a license agreement in
exchange for a purchase of the goods; otherwise, the
goods will not be sold to the importer.
Further, pursuant to paragraph 1(7) of Article 5
of the Agreement on Determination of the Customs
Value, there are certain royalty payments, which shall
not be added to the customs value of the imported
goods. In particular, the following royalties or license
fees shall be excluded from the customs value of the
imported goods: (a) royalty payments related to the
right of reproduction (copying) of the imported goods
in the customs territory of the customs union; and (b)
royalty payments related to the right of distribution or
re-sale of the imported goods, if such payments do not
attend to the condition for sale of the imported goods
for the purpose of exportation to the customs territory
of the customs union. There are no other exceptions
provided by the law when royalties can be excluded
from the customs value. Hence, if the documents
(i.e. supply and license agreements) submitted by
the importer in the course of customs clearance
proceedings (or afterwards) clearly state that royalties
or license fees, subject to payment for distribution
or re-sale of the imported goods, do not stand as the
condition precedent for sale of such goods in the territory of the customs union (e.g. Russia), then such
royalties or license fees will be excluded from the
customs value as per the above “statutory exception
rule.” In addition, it should be noted that the right
of reproduction, as referenced above, does not mean
copying of the imported goods only. It can also relate
to manufacture of the patented product (or process)
or reproduction of know-how.
Court Practice and Case Law
In the opinion of many local customs officials, the
dutiable customs value produce more than 30 percent
of all income of the Russian government. Hence, it is
not a surprise that the Russian Customs Authorities
will try to increase the customs value of the imported
goods in order to bring more income to the country.
Sometimes, they may do it correctly and the calculations they make (or add to the declared customs value)
will match with the records of the importers, who
then remit the required outstanding amounts in favor
of the state budget. At the same time, some Russian
Customs Authorities make mistakes by correcting
the customs value in an incorrect or ungrounded
manner leaving the bona fide companies a chance
to challenge the customs calculations in court. In
fact, many locally-based entities representing foreign
businesses and brands in Russia, including Beiersdorf,
Procter & Gamble, ABB, Oriflame Cosmetics, Colgate
Palmolive, Quelle, Rockwool, ZARA and others, have
already had to struggle with the decisions of the
Russian Customs Authorities on the judicial basis.
These actions eventually helped to establish specific
precedents on the issue.
Although Russia is a civil-law jurisdiction, and the
national case law does not necessarily have any binding legal effect for future analogous situations, as opposed to the U.S., UK or other common law countries,
certain court decisions and opinions, especially those
issued by the highest local tribunals, may be taken
into account in similar cases. In view of the fact that
the issue of inclusion of royalties into the customs
value has not been finalized to date at the highest
judicial level, and no judicial recommendations or
suggestions have been announced by the supreme
court so far, the court practice with respect to this
area is rather diverse in Russia, meaning that there
are judgments issued in favor of the Russian Customs
Authorities4 as well as judgments issued in favor of the
businesses (importers, licensees).5 Of course, such
court decisions will vary depending on the specific
circumstances surrounding the referenced cases and
material evidence submitted in the course of the
civil proceedings. Interestingly, the very recent court
practice tends to be more reasonable and positive for
the businesses.
The review of the “unfavorable case law,” where
the judgments have been issued in favor of the Russian Customs Authorities, shows that many courts are
of the opinion that royalties or license fees must be
included in the customs value every time the license
agreement is made in support of the supply agreement, since royalties or license fees would relate to
the imported goods and be paid by licensees as a condition for further distribution of the same in Russia.
According to the cited court decisions and additional
customs guidance, the existence of a license agreement may be treated as a valid condition for the sale
of the goods, notwithstanding the fact of whether
such agreement is connected with (and referenced
in) a supply contract or not, or the fact whether such
agreement is made with a supplier or third party (i.e.
intellectual property owner). Moreover, many Russian Customs Authorities believe that the connection
between royalties and imported goods may be traced
by the form of payment of contracted compensation
(e.g. license fees dependent on net sales). It is curious, that some local courts would agree that the above
can actually be applied not only to licenses, but to
franchise agreements, which provide for the grant of
right to trademark usage as a part of the franchised
system conveyed to franchisees.
The review of the “favorable case law,” where the
judgments have been issued in favor of the importers/licensees, shows that there are courts in Russia
that started to apply the “statutory exception rule,”
under which royalties or license fees shall not be
included in the customs value in the event when
such royalties or license fees relate to the right of
distribution or re-sale of the imported goods and do
4. Decision of the Federal Commercial Court of the Moscow
District dated 5 May 2009 No. KA-A40/3422-09, Decision of
the Federal Commercial Court of the Moscow District dated
26 March 2010 No. KA-A41/2366-10, Decision of the Ninth
Commercial Appellate Court dated 18 May 2010 No. 09AP6825/201-AK, Decision of the Federal Commercial Court of the
Moscow District dated 8 September 2011 No. A40-133761/10147-845, Decision of the Federal Commercial Court of the
Moscow District dated 10 July 2012 No. A40-60752/11-149331, Decision of the Federal Commercial Court of the Moscow
District dated 10 October 2013 No. A40-152783/12-92-1453,
Decision of the Federal Commercial Court of the Moscow District dated 10 October 2013 No. A40-154132/12-120-1592,
Decision of the Federal Commercial Court of the Moscow District dated 10 October 2013 No. A40-154144/12-21-1491.
5. Decision of the Federal Commercial Court of the NorthWestern District dated 6 June 2011 No. A44-3558/2010, Decision of the Federal Commercial Court of the Central District
dated 12 March 2012 No. A23-1556/10A-18-68, Decision of
the Federal Commercial Court of the North-Western District
dated 16 April 2014 No. A56-31657/2013, Decision of the Thirteenth Commercial Appellate Court dated 28 February 2014
No. A56-7925/2013, Decision of the Seventeenth Commercial
Appellate Court dated 5 May 2014 No. 17AP-3327/2014-AK.
September 2014
168
not attend to the condition for sale of the imported
goods for the purpose of exportation to the customs
territory of the customs union (see paragraph 1(7)(b)
of Article 5 of the Agreement on Determination of
the Customs Value). Specifically, according to the one
recent court decision,6 in a situation when: (a) supply
and license agreements are not linked together, (b)
such agreements do not have any cross-references,
including with regard to payment of royalties, and (c)
payment of royalties under the license agreement is
not a condition precedent to the execution of the
supply agreement,—such royalties must be excluded
from the customs value of the imported goods. This
case is especially a good judgment to rely on in the
event where three (non-inter-connected) parties are
involved, where the importer has a supply agreement
with one company (supplier/seller) and has a license
agreement with another company (intellectual property owner/licensor), and where both agreements
are not linked. However, when the licensor and the
buyer are different but inter-connected entities (see
paragraph 1 of Article 3 of the Agreement on Determination of the Customs Value), the payment of royalties
may be a condition for sale of goods, consequently—
they will be included into the customs value.
Another “favorable” recent court decision7 is a perfect example of how businesses need to distinguish
royalties paid for the use of the franchised trademark
from royalties paid for the use of the other franchised
intellectual property objects (i.e. trade name, knowhow and software) which are usually included in
the franchised system. The court held that while a
trademark might have a direct relation to the product
since it was a source identifier, the relation of the
franchised trade name, know-how and software to the
product had to be proved, but that was not done in
that case by the plaintiff (customs office). The court
also referred to some additional documents (deeds of
conveyance) accompanying the franchise agreement
where it was expressly mentioned that neither these
intellectual property subject matters (i.e. trade name,
know-how, software), nor the payments for the use
of the same were related to the imported products.
Hence, the franchisee was not supposed to be paying
royalties for the use of the franchised trade name,
know-how and software as a condition for sale of
the imported products in Russia. The court summarized that when different royalty payments were set
6. Decision of the Federal Commercial Court of the NorthWestern District dated 16 April 2014 No. A56-31657/2013.
7. Decision of the Seventeenth Commercial Appellate Court
dated 5 May 2014 No. 17AP-3327/2014-AK.
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for various contracted intellectual property subject
matters in the franchise agreement, it was possible
to include certain royalties into the customs value
(i.e. trademark-related royalties) by excluding the
other (trade name, know-how and software related
royalties). By analogy, this court ruling may have a
precedential effect for regular licensing transactions.
In light of the existence of the conflicting case law,
it will be very useful to know the judicial advice or
position of the supreme tribunal on the issue. It is
hoped that the highest Russian judiciary will provide
certain guidance in the near future, as some of the
cited court decisions are being appealed at this time
and may finally reach the supervisory court.
Discussion and Analysis
Generally, royalties will relate to the imported
goods in the event when such goods contain any
particular form of intellectual property, such as
copyrights, patents, trademarks, know-how, etc. For
instance, if the imported product, or its packaging,
has been trademarked, and the use of the trademark
provides for the payment of royalties, they will most
probably be related to the imported product. At the
same time, the affixation of the trademark on the
product, or its packaging, does not necessarily mean
that the corresponding royalties or license fees will
always relate to the imported products. For example,
royalties may not simply be related to the imported
products in case when the trademarked packaging is
being imported into Russia for further packaging of
the products in Russia, and the trademark use is supposed to be made in connection with such products,
while the payment of royalties is not a condition for
sale of the packaging in Russia.
Further, if the imported goods are used as components in the product manufacture process in Russia,
where a licensee will be using the licensed know-how
in exchange for the payment of royalties, such royalties will be excluded from the customs value, as they
will relate to the licensee’s activities committed after
the importation of the products into Russia. And, in
the case where in exchange for the payment of royalties a buyer acquires the right to use the owner’s
know-how in order to manufacture a specific product
in Russia, and it separately buys some machinery from
the manufacturer for the purpose of making the use
of the licensed know-how in Russia, royalties will
also be excluded from the customs value, since the
payment of the same does not clearly attend to the
condition for sale of the machinery in Russia, even
though royalty payments are linked with the whole
manufacture process.
In any event, all circumstances, contracts and
documents of the subject transaction(s) must be
subject to due diligence each time before reaching a
final conclusion as to the inclusion of royalties into
the customs value of the imported goods, products,
components and/or ingredients (as applicable). According to the recommendation of the European
Commission, in determining whether a particular
royalty relates to the goods to be valued, the key issue is not how the royalty is calculated, but why it is
paid (i.e. what in fact the licensee receives in return
for the payment). Thus, in the case of an imported
component or ingredient of the licensed product, or in
the case of imported production machinery or plant,
a royalty payment based on the realization on sale of
the licensed product may relate wholly, partially or
not at all to the imported goods.8
As to the second requirement, more specifically,
whether royalties are paid as a condition for sale of
the goods to be imported, the European Commission
states that the question to be answered in this context
is whether the seller would be prepared to sell the
goods without the payment of a royalty or license
fee. The condition may be explicit or implicit. In the
majority of cases it will be specified in the license
agreement whether the sale of the imported goods
is conditional upon payment of a royalty or license
fee. However, it is not essential that it should be so
stipulated.9 Hence, the direct provision in the licensing contract that the trademark usage, and, therefore,
payment of royalties, shall not be regarded as a valid
condition for the sale of the trademarked goods can
mitigate the whole situation, essentially when different contracts (e.g. supply and license agreements)
governing the supply of goods and the exploitation of
intellectual property will be made with different noninter-connected companies (e.g. supplier and intellectual property holder). For example, if the importer
makes royalty payments to a third party owner for
the right to use certain intellectual property subject
matters in Russia, such intellectual property subject
matters relating to the goods imported under a supply
agreement which is made with a different supplier
may not be a condition for exporting these goods
for sale into Russia, and as a result—such royalty
payments will be excluded from the customs value.
At the same time, pursuant to the opinion of the
European Commission, when goods are purchased
from one person and a royalty or license fee is paid
to another person, the payment may nevertheless be
regarded as a condition of sale of the goods under certain conditions. The seller, or a person related to him,
may be regarded as requiring the buyer to make that
payment when, for example, in a multinational group
goods are bought from one member of the group and
the royalty is required to be paid to another member
of the same group. Likewise, the same would apply
when the seller is a licensee of the recipient of the
royalty and the latter controls the conditions of the
sale.10 The following elements should be analyzed to
determine if there is control: (a) the licensor selects
the manufacturer and specifies it for the buyer; (b)
there is a direct contract of manufacture between
the licensor and the seller; (c) the licensor exercises
actual control either directly or indirectly over the
manufacture (as regards centers of production and /
or methods of production); (d) the licensor exercises
actual direct or indirect control over the logistics and
the dispatch of the goods to the buyer; (e) the licensor
nominates/restricts who the producer can sell their
goods to; (f) the licensor sets conditions relating to
the price at which the manufacturer/seller should
sell their goods or the price at which the importer/
buyer should resell the goods; (g) the licensor has the
right to examine the manufacturer’s or the buyer’s
accounting records; (h) the licensor designates the
methods of production to be used/provides designs
etc.; (i) the licensor designates/restricts the sourcing
of materials/components; (j) the licensor restricts
the quantities that the manufacturer may produce;
(k) the licensor does not allow the buyer to buy
directly from the manufacturer, but, through the
trademark owner (licensor) who could as well act as
the importer’s buying agent; (l) the manufacturer is
not allowed to produce competitive products (nonlicensed) without the consent of the licensor; (m)
the goods produced are specific to the licensor (i.e.,
in their conceptualization/design and with regard to
the trademark); (n) the characteristics of the goods
and the technology employed are laid down by the
licensor. It should be noted that, in individual cases,
other kinds of indicators may also exist.11
8. Paragraph 11 of the Commentary No. 3 of the Customs
Code Committee (customs valuation section) on the incidence
of royalties and license fees in customs value (EC Compendium
of Customs Valuation).
Code Committee (customs valuation section) on the application of Article 32 (1) (c) CC in relation to royalties and licensee fees paid to a third party according to Article 160 of
Reg. (EEC) No. 2454/93.
September 2014
170
Basically, in the absence of any local clarifications
or guidance from the Russian Customs Authorities as
well as the Russian highest judiciaries, these recommendations of the European Commission may play a
persuasive role and be tested in Russia. However, if
the Eurasian Economic Commission (EEC) approves
the draft of Rules for Inclusion of License and Other
Similar Fees for Use of Intellectual Property in Customs Value,12 which have been prepared and submitted by the Russian non-commercial organizations,
including by the Chamber of Commerce and Industry
of the Russian Federation, the nationally oriented
recommendations may enter into force to be applied
in intellectual property/customs practice of Russia,
Belarus and Kazakhstan.
Conclusion and Comment
When considering whether to include or exclude
royalties in the customs value, it is important to carefully analyze all facts, circumstances and documents
involved in the particular importation of the goods
into Russia. Different facts, circumstances and documents may produce different advice and strategies.
Therefore, before taking any steps forward, assistance
of local counsel should be obtained.
Generally, there are a few practical recommendations that might help to deal with or mitigate the issue
of customs value vs. royalty:
• Form the contractual relationship of the parties
on the basis of a single agreement (e.g. supply,
distributorship) by simply permitting the contractor to use the associated intellectual property (e.g.
patent, trademark) in connection with the sale of
products without royalty payments—applicable for
a situation when: (i) the seller and the intellectual
property owner are one and the same business entity, and (ii) manufacture of products stays beyond
the scope of the transaction at issue;
• Form the contractual relationship of the parties
on the basis of a single agreement (e.g. supply,
distributorship) and grant a separate letter of
authorization by permitting the contractor to use
the associated intellectual property (e.g. patent,
trademark) in connection with the sale of products without royalty payment—applicable for a
situation when: (i) the seller and the intellectual
property owner are different business entities,
and (ii) manufacture of products stays beyond the
scope of the transaction at issue;
• Omit cross-referencing or citation of the subject
12. http://www.ank.kz/projects/npa/54883/.
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les Nouvelles
transaction documentation (e.g. supply and license
agreements)—applicable for a situation when inter-connected business entities (e.g. supplier and
licensor) are involved in the transaction at issue;
• Clearly indicate in the subject transaction documentation (e.g. supply and license agreements)
that the use of the associated intellectual property
subject matter is not a condition for sale of the
imported goods—applicable for a situation when:
(i) product components or product packaging are
involved in the transaction, and (ii) manufacture
of products stays within the scope of the transaction at issue;
• Split royalty payments for the use of various
contracted intellectual property subject matters—applicable for a situation when the license/
franchise agreement set out different intellectual
property subject matters.
As to the appropriate method of calculation of
the exact amount of the customs value, this aspect
is beyond the scope of the present article. The
Agreement on Determination of the Customs Value
as well as different customs resolutions provide for
a diversity of options in this regard. In one of the
above-referenced “unfavorable” cases, the Supreme
Commercial Court of the Russian Federation, when
refusing to hear the appeal of the importer, upheld
the lower courts’ holding. In its ruling, delivered
on November 8, 2012,13 the Russian Supreme Commercial Court stated that considering the principle
of freedom of contract, the variety of intellectual
property forms, the individual characteristics and
terms of license agreements, it is not possible to
develop unified methods of calculation of license
fees subject to inclusion into the customs value.
Basically, the supreme court confirmed that a particular method of calculation of customs value of
the imported goods should be followed in terms of
the factual matters and relevant provisions of the
subject license agreement depending on the documents submitted by the importer in the course of
the customs clearance proceedings. In any event,
the choice of the optimum method of determination of the customs value can always be made in
the framework of negotiations and consultations
between the customs office and the importer.14 ■
13. Ruling of the Supreme Commercial Court of the Russian
Federation dated 8 November 2012 No. VAS-13933/12.
14. Letter of the Federal Customs Service of Russia dated 22
September 2008 No. 05-33/39045.
Radioisotope Pharmaceutical
By Paul R. Betten
Abstract
This paper discusses radioisotope pharmaceutical
licensing and provides background information on
the manufacturing process, supply chain, and how
royalties are developed, using the radioisotope Molybdenum-99, which decays into technetium-99m, as
an example. Technetium-99m is the world’s leading
isotope for medical imaging. Radioisotope pharmaceutical licensing involves “stacked” royalties, with
royalties going to the isotope manufacturer, isotope
separation, monoclonal antibody licensee, and final
sale to end users at the hospital level on the supply
chain, with the majority of the costs being charged by
the hospital. This paper provides a literature review
on licensing fees for the production of other isotopes
and our experience with an otherwise rare isotope,
copper-67, which holds promise as a Non-Hodgkin
Lymphoma therapy. While Tc-99m is a diagnostic isotope and Cu-67 is a therapeutic, the business models
for both are based on government subsidized isotope
production. Currently, many isotopes are produced
using research-scale nuclear reactors; however, this
manufacturing method entails a large capital cost. In
addition, these research reactors are aging and have
maintenance issues. New approaches to radioisotope
production using particle accelerators, which are less
capital intensive, appear to provide a more efficient
and economical method of isotope production.
Introduction
T
he addressable medical isotope market is
multi-billion dollars worldwide.1,2,3 The most
widespread isotope used in medical imaging is
molybdenum-99 (Mo-99), which decays into technetium-99m (Tc-99m). However, there are other medical
isotopes used for medical imaging, such as thallium-201 (Tl-201) for cardiac imaging and xenon-133
1. http://www.snm.org/docs/SNM%20poster%20low%20res%20
1001.pdf, Society of Nuclear Medicine, “An Outlook on New
Sources of Mo-99 and Other Medical Radionuclides.”
2. Strategic and Commercial Considerations in the Producton and Supply of Radisotopes,” WNA Symposium, NESCA, Rob
Adam, CEO., Sept. 2010. http://www.world-nuclear.org/sym/2010/
presentations/adamppt.pdf, indicates a global $5 billion market.
3. “Making Isotopes at the Hospital Could Relieve Chronic
Shortages,” Innovation, Vol 10 No 4, Aug/Sept 2012, indicates
a global $5 billion market, http://www.innovation-america.org/
making-isotopes-hospital-could-relieve-chronic-shortages.
(Xe-133) for lung imaging. There are a number of
isotopes used in vitro oncology for the treatment
of solid tumors using brachytherapy seeds, such as
iodine-125 (l-125), yttrium-90 (Y-90), and iridium
192 (Ir-192). Another important isotope is cobalt-60
(Co-60), which has a wide variety of medical applications and is used in stereotactic tumor radiotherapy,
commonly known as the Gamma Knife, as well as a
wide variety of industrial applications such
as the sterilization of
■ Paul R. Betten, PhD
foods, elimination of
pest insects, and in
Independent Consultant,
medical equipment.
Naperville, IL, USA
The majority of the
E-mail: betten69@
aforementioned isogmail.com
topes are produced
in government-subsidized nuclear test
reactors, the sales of which supplement the primary
purpose of these reactors: basic research. Particle
accelerators are now becoming important as sources
for isotopes, due to the aging of these governmentsubsidized test reactors. This paper discusses the
novel and exciting development of a copper-67 (Cu67) isotope, which is produced using accelerator
technology, for the treatment of non-solid white blood
cancers, such as Non-Hodgkin Lymphomas (NHLs).
Overview and Economics of the Mo-99/
Tc-99m Supply Chain
An instructive example of the licensing and economics of medical isotopes may be found by examining the Mo-99 product supply chain. Mo-99 decays
into Te-99m and is the most commonly-used medical isotope, being used in roughly 80-85 percent of
medical imaging applications.4,5 Currently, the United
States and Canadian supply of Mo-99 is provided by
the Atomic Energy of Canada Limited (AECL) nuclear
research reactor at the Chalk River Laboratories,
4. http://www.snm.org/docs/SNM%20poster%20low%20res%20
1001.pdf, Society of Nuclear Medicine, “An Outlook on New
Sources of Mo-99 and Other Medical Radionuclides.”
5. “Making Isotopes at the Hospital Could Relieve Chronic
Shortages,” Innovation, Vol 10 No 4, Aug/Sept 2012, indicates
a global $5 billion market, http://www.innovation-america.org/
making-isotopes-hospital-could-relieve-chronic-shortages.
September 2014
172
Canada, using highly enriched uranium-235 (HEU)
targets. The Chalk River reactor has a unique design
that permits selected fuel rods to be withdrawn
while the reactor is still in operation, and is therefore suitable for isotope production. Although there
are about 250 test reactors in the world, only five
(including Chalk River) are multifunctional enough
to be used for industrial-scale isotope production.6
Nordion, Inc.7 holds an exclusive license with AECL
to purify and distribute the Mo-99 produced by their
research reactor.
Mo-99 has a half-life of 2.7 days and decays into
Tc-99m (with the “m” indicating a metastable half-life
of 6.0 hours). Nordion processes enriched uranium
and separates out the Mo-99 within a hot cell2. The
isotope is then delivered to hospitals with a Tc-99m
generator to separate the technetium from the Mo99. Mo-99 is first applied to the Tc-99m generator,
a shielded chromatography column—also known as
Moly Cow—that initially binds technetium; subsequent application of saline solution elutes technetium
in the form of sodium pertechnetate (NaTcO4), which
is then directly injected into a patient. Tc-99m decays
with a 140 keV gamma ray, which is recorded by
normal x-ray imaging equipment.
The Chalk River reactor is over 40 years old, has aging equipment problems, and temporary maintenance
shutdowns may become increasingly frequent or even
permanent. A permanent Chalk River decommission
would be a major shock to the medical imaging industry. Concerns regarding a potential Mo-99/Tc-99m
shortage has triggered a number of organizations to
look to other methods of isotope production. Nuclear
reactors—even test reactors— are expensive capital
investments requiring hundreds of millions of dollars. Commercial utility reactors for the production
of electricity utilize a different design, and are not
suitable for medical isotope production.
A number of alternatives for commercial manu6. Report on Molybdenum-99 production for Nuclear Medicine—2010-2020, Association of Imaging Producers & Equipment Suppliers (European Industrial Association for Nuclear
Medicine and Molecular Healthcare) p. 8. http://www.oecdnea.org/med-radio/docs/200902_AIPESMolySupplyReport.pdf.
Currently, the irradiation of the U-235 targets for more than
90 percent of Mo-99 production is manufactured in only five
reactors: NRU reactor in Chalk River, Canada; HFR in Petten,
The Netherlands; BR2 in Mol, Belgium; OSIRIS in Saclay,
France and SAFARI in Pelindaba, South Africa. All are 40 years
or older. http://www.euronuclear.org/1-information/news/medical-isotope-crisis.htm.
7. http://www.nordion.com/our_products/molecular_medicine_
products.asp.
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les Nouvelles
facture of medical isotopes exist, but these private
business alternatives cannot compete with the
lower cost of government subsidized Mo-99. Highenergy particle accelerators, whose costs can vary
from $50-$200 million depending upon the isotope
being manufactured, appear to be an efficient and
cost-effective alternative to nuclear reactor isotope
production.8 One approach is to use low enrichment
uranium-235 (LEU). Low enrichment would minimize nuclear proliferation and diversion issues.9,10
Another accelerator approach is to use Mo-100 and
fission it into Mo-99. In order to accomplish this, an
accelerator must be specifically designed with the
desired isotope(s) in mind. The U.S. Department of
Energy (DOE) is considering refurbishing the test
reactor at the University of Missouri, Rolla, as a
possible Mo-99 source.
The economics of the Mo-99/Tc-99m supply chain
have been analysed by the Nuclear Energy Agency
(NEA) and are summarized in Table 1.11 These numbers are taken to be illustrative and not exact, for a
6-day curie supply, at the end of processing (EOP)
for each step. Table 1 shows that each step in the
process has a substantial increase in incremental cost
over the previous step, with the hospital setting the
final price and having the largest increase of 4,210
percent over production costs.
Another important factor to consider is that reactor
costs are significantly subsidized by the government
running the reactor; hence, prices do not accurately
reflect the economic costs involved, such as depreciation of the reactor. The NEA report calculates the Mo99/Tc-99m cost at the reactor and discusses isotope
production and its economic sustainability.12 Depending upon the depreciation rate and assuming payback
periods of 10, 20, or 30 years, a “dedicated” reactor
price could increase by a factor varying between 4
and 11 fold. Put another way, any private company
8. “Scientists Develop Affordable Way to Generate Medical
Isotopes,” Argonne National Laboratory News Release, Oct 15,
2012, http://www.anl.gov/articles/scientists-develop-affordableway-generate-medical-isotopes.
9. Kramer, D., U.S. Output of Critical Medical Isotope to Begin this Year, Physics Today 67(1): 24-25 (2014).
10. National Academy of Sciences, “Medical Isotope Production without Highly Enriched Uranium, Committee of Medical
Isotope Production without Highly Enriched Uranium,” National Research Council, The National Academies Press, 2009.
11. “The Supply of Medical Radioisotopes: An Economic Study
of the Molybdenum-99 Supply Chain,” Nuclear Energy Agency
Organisation for Economic Co-Operation and Development,
ISBN 978-92-64-99149-1, OECD No. 6979, 2010, p. 14-92.
12. Ibid, p.73-87.
Table 1. Representative Mo-99/Tc-99M Price And Supply Chain Mark-Up
For A Six-Day Curie Supply
Representative Selling Cost
and Markup at
Each Point of Sale in
U.S. Dollars
Percent Change From
the Reactor Price
Percent of the
Final Cost
Reactor Production
$60
—
2.4%
Hot Cell Processing
$445
740%
17.6%
Tc-99m Generator
$520
870%
20.6%
$2,525
4,210%
59.4%
Mo-99/Tc-99m
Isotope Supply Chain
Hospital/Radiopharmacy
involved in making isotopes will operate as a profitmaking business and charge as much as “the market
can bear.” However, the hospital ultimately sets the
Mo-99 end-user price, as they are the last step in
the supply chain and are best able to determine the
final market price. If a private company initiates production, the entire economics of the supply chain is
expected to change; the company could increase their
Mo-99 price (and profit margin), which will ripple
through the supply chain. As the Affordable Care Act
(ACA) is implemented to control health care costs,
there may be pressure on the hospitals to maintain,
for example, current imaging billing costs, thereby
absorbing any cost increases in Mo-99/Tc-99m initiated at the supplier level. The U.S. government, by
law, cannot compete with private companies in the
open market if there is a U.S. commercial producer.13
Non-Hodgkin Lymphomas
Non-Hodgkin Lymphomas (NHLs) are a form of
non-solid white-cell blood cancers with more than
80 identifiable variations. NHLs exhibit rapid growth
or changes in lymphoid cells with about 85 percent
involving B-cells and about 15 percent being T-cell
related. In 2009, it was estimated that there were
about 484,300 cases of NHL in the U.S.14 This report
projected 70,130 cases of NHL in 2012, of which
18,940 patients would die. The median age, based on
2005-2009 data, for NHL diagnosis was 66; however,
NHL occurs in all age ranges from under 20 to over
85 years of age. The age-adjusted death rate was 6.6
13. DOE Order 481.1C Work For Others (Non-Department
of Energy Funded Work); DOE Accounting Handbook, Chapter
13—Reimbursable Work, Revenues, and Other Collections;
DOE Order 483.1—DOE Cooperative Research and Development Agreement; DOE Order 522.1—Pricing of Department
Materials & Services; DOE Manual 481.1A—Reimbursable
Work for Non-Federal Sponsors Process Manual.
14. Surveillance Epidemiology and End Results (SEER):
Non-Hodgkin’s Lymphoma, http://seer.cancer.gov/statfacts/
html/hnl.html.
per 100,000 men and women per year, with the death
rate increasing as a function of age from 6.6 percent
in the 45-54 age range to 14.2 percent in the 55-64
and 21.9 percent in those aged 65-74. The highest
mortality rate is 33.4 percent for those in the 75-84
age range. Roughly 2.1 percent of people born will
develop NHL.
There are a number of chemotherapies and radioisotope therapies used to treat NHLs, and these
therapies vary depending on the cancer stage and
patient’s age. One radioisotope therapy for B-cell
NHL uses Ibritumomab tiuxetan (Zevalin, Spectrum
Pharmaceuticals), a monoclonal antibody attached
to a Yr-90 or Indium-111 (In-111) isotope.15 Zevalin
is used in 65 percent-95 percent of B-cell follicular
lymphomas.16 Therapy costs vary from $30,000 for a
single treatment of Zevalin.17 Another radioisotopebased NHL therapy is Tositumomab (Bexxar, GlaxoSmithKline), that is attached to I-131 isotope. Because
of a smaller market, GlaxoSmithKline has decided
to discontinue the sale of Bexxar in February 2014.
Other antibody drugs, namely Rituximab (Rituxan,
Biogen Idec), Veltuzumab and Epratuzumab (both
from Immunomedics/Takeda Pharmaceuticals),
which are currently under clinical trials, may also
be used alone or in conjunction with a radioisotope.
Depending upon the stage of the treated cancer and
variations in location across the U.S., therapy costs
can easily exceed $100,000. M.D. Anderson Cancer
15. Ibritumomab tiuxetan, http://www.accessdata.fda.gov/
drugsatfda_docs/label/2002/ibriide021902LB.pdf. A single treatment dose costs about $24,000, with other chemotherapies
costing $40,000 or more. Time Magazine: Why Medical Bills are
Killing Us, March 24, 2013, p. 18-55, indicates that one case of
NHL chemotherapy costs $83,900.
16. The Therapeutic Antibodies Market to 2008, A. Pavlou
and M. Belsey, European Journal of Pharmaceutics and Biopharmaceutics, 59, (2005) p. 389-396.
17. “The Cure and the Cost—Cincinnati Business Courier,”
Bizjournals.com, 2002-06-17. Retrieved 2014-03-12.
September 2014
174
Center reports that a procedure called the mini-BMT
(nonablative bone marrow transplant), which employs
chemotherapy and stem cell transplants, has had a
success rate of 83 percent in five patients with B-cell
follicular lymphomas.18 Bone marrow transplants alone
generally cost in the range of $100,000 to $150,000.
Isotope Production and the National Laboratories
The Department of Energy (DOE) National Laboratory system has a long history of isotope production,
with three Laboratories (Oak Ridge, Brookhaven,
and Los Alamos) providing small quantities of rare or
not commonly available isotopes, with other Laboratories producing other rare isotopes in even smaller
quantities.19 These isotopes are intended for research
purposes, and are produced as a secondary mission
of these Laboratories, with basic research being the
primary objective. Some Labs have developed commercial isotope programs; these licensing efforts will
be discussed later. DOE may fund the test reactor
at the University of Missouri, Rolla, to manufacture
isotopes. DOE maintains an Office of National Isotope
programs, and Federal legislation provides that the office receive a modest compensation for commerciallysold isotopes deriving from National Lab facilities.
Copper-67 Therapy
Cu-67 is a short-lived medical isotope with a halflife of 61.8 hours and decays by emitting an electron;
this isotope was used in 2000 to treat patients with
Non-Hodgkin Lymphomas (NHLs) at the University
of California, Davis.20,21 At that time, Cu-67 was rare,
and sufficient amounts for patient trials had to be
flown in from three different National Labs located
across the U.S. medical trials were in Phase I/II,
with 11 of 12 patents having Stage III/IV NHL. The
patients had been previously treated and found to
have chemotherapy-resistant NHL. Patients were
treated using the cu-67 radioisotope linked to a Lym-
18. c. mini-BMT: Non-Hodgkin’s Lymphoma Cure?, WebMD
Health News, http://www.webmd.com/cancer/news/20071210/
mini-bmt-nonhodgkins-lymphoma-cure.
19. Oak Ridge National Laboratory, National Isotope Development Center, http://www.isotopes.gov/catalog/.
20. “Copper-67-Labeled Monoclonal Antibody Lym-1, A Potential Radiopharmaceutical for Cancer Therapy: Labeling and
Biodistribution in RAJI Tumored Mice,” S. Deshpande, et. al,
Journal of Nuclear Medicine, Vol. 29, No. 2, February 1988, p.
217-225.
21. “A Clinical Trial of Radioimmunotherapy with 67Cu-2ITBAT-Lym-1 for Non-Hodgkin’s Lymphoma,” Robert O’Donnell,
et. al, The Journal of Nuclear Medicine, Vol. 40, No 12, Dec.
1999, p. 2014-2020.
175
les Nouvelles
1 monoclonal antibody. 58 percent of the patients
responded positively to this treatment; however,
the trials were ended abruptly in 2001 due to the
September 11th terrorist attacks. The terrorist
events of September 11th grounded all air flights,
and Cu-67 clinical testing was halted due to insufficient quantities of the isotope.
Argonne National Laboratory has recently upgraded
an electron accelerator and has developed a commercial process for recovering Cu-67 from zinc-68 (Zn68); this process was developed under a Cooperative
Research and Development Agreement (CRADA) with
an industrial partner.22,23 Argonne’s contribution to the
CRADA effort was the development of a novel method
to recover Cu-67 from Zn-68 quickly and efficiently.
Argonne’s method of manufacture should ensure an
adequate Cu-67 supply for restarting medical trials.
Argonne would like to manufacture limited quantities
of the isotope, with DOE’s concurrence, to support
clinical trials for FDA approval until the industrial partner develops a commercial accelerator and hot cell
facility. Argonne’s radiotherapy may also be applicable
to a wide variety of other non-solid blood cancers,
such as leukemia. Science has progressed in the13
years since initial clinical testing was performed, and
new monoclonals have emerged, which might also be
suitable— or more suitable— for linking with Cu-67.
Additional antibodies may increase the therapeutic
use of Cu-67.
Licensing Discussion
A literature survey has provided some, but limited,
information about medical radioisotope licensing from
National Laboratories. The Pacific Northwest National
Laboratory (PNNL), Hanford, Washington, has licensed
Y-90 created by the Fast Flux Test Reactor (FFTF) to
the NEN Life Science Products, lnc.24 The publicly
available documents indicate an upfront fee of $75,000
with undisclosed running royalties based on net sales,
paid to the Battelle Memorial Institute (BMI), operator
of PNNL; Battelle estimates it will receive $500,000
in royalties over the course of 5 years. In addition,
22. D. Ehst, et al, “Copper-67 Production on Electron Linacs—Photonuclear Technology Development,” AIP Conference
Proceedings 1509, 157 (2012).
23. “Methods for Producing CU-67 Radioisotopes with use
of a Ceramic Capsule for Medical Applications,” D. Ehst and J.
Willet, UChicago Argonne, LLC, Pub No US 2013/0083882A1,
Pub. Date: April 4, 2013.
24. Isotope production at the Hanford Site in Richland, Washington, Pacific Northwest National Laboratory, Report # PNNL12228, June L999, P.4.
DOE will receive an immediate payment of $25,000
and expects to receive $1 million over five years in
leasing fees. A review of Techniclone SEC filings
indicates that they have obtained exclusive rights to
the Lym-1 and Lym-2 monoclonal antibodies when
combined with I-131 for 3 percent royalties on net
sales.25 Another Techniclone license agreement for a
different antibody provides 4 percent royalties and
milestone payments of $100,000 for the completion
of Phase II trials and a $300,000 payment for the first
commercial sale.
It was noted that these licensing fees are in agreement with those university fees previously published
by Betten as listed in Table 2.26 The data in Table 2
were tabulated in 2001 from 10 universities and represent 160 data points. Fees were not negotiated nor
necessarily received for each Phase, with some phases
involving no payments. Fees were most commonly
associated with the IND Filed/Phase I and Phase III
PLA/NDA Filed, and these fees are highlighted in italics. It is noted that pre-clinical fees tend to be annual
payments. The university licensing staff indicated that
these data represent small or modest market pharmaceuticals (not blockbusters), with some fees negotiated ahead of time but never executed in cases where
the previous phase of testing had been unsuccessful.
Despite being an older publication, many of the fees
are still relevant and provide a licensing baseline due
to the emerging nature and limited public information on these technologies. These licensing fees are
further supported by the low licensing fee discussed
next. Universities and government laboratories are
research organizations and their discoveries tend to
occur very early and before a market product is developed. This is especially true in the pharmaceutical
area where many years of clinical testing are needed
before final FDA approval is granted.
The Advanced Medical Isotope Corp. (AMIC) in
2008-2009 executed an agreement with the University of Missouri, Rolla, for making Mo-99/Tc-99m
with a $10,000 non-refundable upfront fee, a royalty
agreement on sales, an equipment licensing fee on
equipment sales, a milestone payment of $250,000
in five years, and a milestone payment of $250,000
upon reaching $50,000,000 in cumulative sales.27 In
August 2010, AMIC executed an exclusive license
agreement with BMI for its brachytherapy seed production technology. This license agreement calls for
a $10,000 non-refundable license fee and a royalty
based on a percent of net sales for licensed products
sold; the license agreement also contains a minimum
royalty amount to be paid each year beginning in
2012. In another license executed in February 2011,
$5,000 was paid for a one year option agreement to
negotiate an exclusive license with BMI regarding its
patents for the production of a radiogel technology.
This option agreement calls for a $5,000 upfront fee
and expired in February 2012. In March 2012 AMIC
entered into an exclusive license agreement with
BMI for the use of its patented radiogel technology.
This license agreement calls for a $17,500 license
fee and a royalty based on a percent of gross sales
for licensed products sold; the license agreement also
contains a minimum royalty amount to be paid each
year beginning in 2013.
Royalties for radioisotope production hover in the
3–4 percent range. Newly-published data may push
this royalty range towards 5 percent, but higher
royalties appear difficult because of the number of
intermediate steps on the supply chain, as noted in
the Mo-99/Tc-99m supply chain, Table 1. Each step
takes an additional markup, until the price reaches a
value that “the market will bear,” and the gains are
optimized for each step. Unlike a pharmaceutical
company that can create a new drug or license promising new drugs from universities, the pharmaceutical
company has the know-how and expertise to move
through the stages of clinical testing and eventual
market entry. The isotope producer, on the other
hand, is quite familiar with isotope manufacturing
and its separation from a target material using hot
cell facilities, but is not well versed in the clinical
drug testing process. Thus, it is expected that a
pharmaceutical company will be sought to develop
the clinical testing and marketing of the isotope.
For the Cu-67 isotope, if manufacturing is initially
subsidized by National Laboratory production, it can
be assumed there will be a royalty of, 3–4 percent on
net sales, an additional 3–4 percent royalty on the
Lym-1 antibody, and the recovery of costs from the
company doing the clinical testing and FDA approvals.
Finally, the hospital(s) treating patients will add their
fees and the physician’s fees. There is a royalty stacking at each step in the supply chain, with the hospital
setting the final market price, just as occurs for the
Mo-99 isotope. Once a private company decides to
25. Techniclone Corp., SEC 10-K documents.
26. “Pharmaceutical Up-Front Licensing Fees,” P. Betten, les
Nouvelles, Dec. 2003, Vol 38, No. 4, p. 201-205.
27. Advanced Medical Isotope Corporation, SEC Filing,
FORM S-1—September 4, 2012. See: http://www.faqs.org/
sec-filings/120904/ADVANCED-MEDICAL-ISOTOPE-Corp_S1/#ixzz2n83a2ozq.
September 2014
176
cost-control measures,
pressure on hospitals to
Table 2. University Survey Of Pharmaceutical Payments
maintain their current
imaging billing costs
Typical Range
FDA Stage/Up-front Fees
Typical Range ($1,000)
Min/Max ($1,000)
could mitigate any cost
increases in Mo-99/TcPre-clinical
$10-$50
$5/$100
99m costs derived from
IND Filed
$50-$250
$50/$500
private producers.
Phase 1
$20-$50
$200/$1,000
Argonne is developing
a new and novel method
Phase 2
$50-$500
$50/$1,000
of producing Cu-67 for
Phase 3
$200-$1,000
$200/$2,000
the treatment of NonPLA/NDA Filed/Approved
$500-$2,000
$100/$5,000
Hodgkin lymphomas.
This radiotherapy may
build its own accelerator and hot cell facilities, it is
also be applicable to a wide variety of other non-solid
expected that the isotope price will eventually rise
blood cancers, such as leukemia. For this therapy,
such that a new pricing equilibrium occurs, over the
the Cu-67 requires a cancer-targeting monoclonal
subsidized isotope manufacturing price.
antibody delivery vehicle. It is noted that there is
Conclusion
a royalty stacking occurring in the supply chain and
it has been found that government national labs
This paper reviews the status of the Mo-99/Tc-99m
generally seek a royalty of 3–4 percent for providing
radioisotope pharmaceuticals and how an impending
the isotopes. The university royalties for monoclonal
shutdown of government-subsidized test reactors,
antibodies appear to be in the 3–4 percent range,
due to aging and maintenance issues, may affect
although for a blockbuster therapy, these royalties
isotope pricing. Accelerator technology has advanced
may rise slightly. As in the case of private producsignificantly and there is a high probability that private
tion of Mo-99, the cost of production for Cu-67 will
industry will begin to provide Mo-99 commercially.
likely increase beyond subsidized levels. However,
As the government cannot compete with private inthe overall cost of NHL therapy with a radioisotope
dustry, it is estimated this will lead to a cost increase
between a factor of 4 to 11, and this increase will
may not increase substantially over current therapy
ripple through the supply chain up to the hospitals. As
costs, as there is pressure from the ACA to reduce
the Affordable Care Act (ACA) stimulates healthcare
medical costs in the long run. ■
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les Nouvelles
European Perspective On Transfer Rights
How Does Europe Deal With The Question Of How To
Transfer Rights From The Author To The Exploiter?
The European Perspective On The Work Made For Hire Doctrine
By Julian Klagge and Christian Czychowski
I. Introduction
The claim that the legal framework concerning
the work made for hire doctrine in U.S. copyright
law needs reforming has consistently arisen in the
recent past. Among others, Haviland46 argues for
a fundamental revision of the current provisions
with respect to works made for hire. In his article
he posits in particular the legal recognition of the
actual creator of the work as the “author” in a legal
sense, combining this change with an automatic and
exclusive assignment of the exploitation rights to the
hiring party for a 56 year term.
In our article we take the proposition made in
Haviland’s46 article and discuss the work made for hire
doctrine from the Continental European perspective.
Starting with a brief exposition of the essential differences between the U.S. work made for hire doctrine
and the European droit d’auteur system. This article
analyzes how European law deals with the work made
for hire doctrine using the example of German copyright law. In doing so, we emphasize various provisions
of the German copyright law that—at least from an
economic point of view—converge with the work
made for hire doctrine. Finally, Haviland’s46 proposed
revision of the U.S. copyright law can be analyzed in
terms of whether and how a rejection of the work
made for hire doctrine would bring improvements to
European legal practice.
II. The Major Differences Between the
Work Made for Hire Doctrine and the Droit
D’auteur System
A
t the European level a uniform definition of
the legal term “author” does not exist. Despite
numerous harmonization measures conducted
by the European Union affecting the copyright law
of the Member States, a common understanding of
the term “author” cannot be identified.1 However, at
the national level the Continental European Member
States’ copyright systems are governed by the authorship principle; namely, the droit d’auteur system. It
is the central idea of the authorship principle that
only the actual creator of a work can be considered
as the “author” in a legal sense and that all initial
rights comprised in the copyright are assigned to
that person.2 According to this, § 7 of the German
Copyright Act (“GCA”) simply states:
“The author is the creator of the work.”
Pursuant the authorship principle, copyright
■ Julian Klagge,
is regarded philosophiScientific Assistant,
cally as an individual
Boehmert & Boehmert,
right on the basis of
Berlin, Germany
natural law. Given this
approach, copyright as
E-mail: klagge@boehmert.de
such derives from the
■ Christian Czychowski,
author ’s intellectual
Boehmert & Boehmert,
property concerning his
3
Attorney of Law,
work and the legal protection provided by the
Berlin, Germany
copyright law focuses
E-mail: czychowski@
strictly on the author’s
boehmert.de
moral and economic
interests. 4 The moral
imprint of the authorship principle results in the presumption of a spiritual bond between the author, who
can only be a natural person, and his work.5 According
to this, under Article 14 of the German Constitution
copyright enjoys constitutional protection.6 As there
is regarded as being a moral bond between the author
1. See Wirtz, in Fromm/Nordemann, Urheberrecht [Copyright
Law] § 7 note 6; Dreier, in Dreier/Schulze, Urheberrechtsgesetz
[German Copyright Act] Einl. note 10.
2. See Ulmer, Urheber-und Verlagsrecht [Copyright and Publishing Law] p. 183 ff.; Wöhrn, in Wandtke, Urheberrecht [Copyright law] 2nd chapter note 141; Loewenheim, in Schricker/
Loewenheim, Urheberrecht [Copyright Law] § 7 note 1; Dreier,
in Dreier/Schulze § 7 note 1.
3. See Ulmer, p. 183; Loewenheim, in Schricker/Loewenheim,
Einl. note 10.
4. See Wilhelm Nordemann/Jan Bernd Nordemann, in Festschrift für Gerhard Schricker zum 70. Geburtstag [Festschrift for
Gerhard Schricker’s 70th birthday] p. 473, 475.
5. See Dietz, in Wandtke, 3rd chapter note 4; Dustmann, in
Fromm/Nordemann, before §§ 12 ff. note 2.
6. See German Federal Constitutional Court GRUR 1972, 481
—Kirchen-und Schulgebrauch; GRUR 1980, 44, 46 ff.—Kirchenmusik; GRUR 1989, 193—Vollzugsanstalten.
September 2014
178
and his work, pursuant § 29 GCA copyright as such is
not transferrable; except in the case of inheritance.
Instead, the author can only grant rights of use to
another. But it is fair to say, that these principles of
Continental European copyright law are qualified in
terms of economic considerations, in ways resulting
in a factual approximation to the work made for hire
doctrine; particularly with regard to software development and audiovisual production.
In contrast to the Continental European authorship
principle, the Anglo-American copyright system is
based substantially upon a utilitarian understanding.7
The “copyright clause”8 of the U.S. Constitution
empowers Congress “… To promote the Progress of
Science and useful arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries.”
An immediate effect of this utilitarian approach, is
that American copyright law protects the economic
investment standing behind the creation of the work.9
The work made for hire doctrine must be considered
before this background.10 § 101 of the 1976 Copyright
Act (“1976 Act”) defines a work made for hire as:
“a work prepared by an employee within the scope
of his or her employment.”
In addition, certain “commissioned works” can
qualify as works made for hire pursuant § 101 of
the 1976 Act; however, only on condition that a
written agreement has been made. Where there is a
work made for hire, the initial copyright with all its
present and future rights is vested in the employer
or the commissioning party, as § 201 (b) of the 1976
Act states:
“In the case of a work made for hire, the employer or other person for whom the work was
prepared is considered the author for purposes
of this title, and, unless the parties have expressly
agreed otherwise in a written instrument signed
by them, owns all of the rights comprised in the
copyright.”
For this reason, the work made for hire doctrine
is in stark contrast to the Continental European authorship principle, which vests copyright only in the
creator of the work. As the employer or commission7. See Dreier, in Dreier/Schulze, Einl. note 10; de la Durantaye
GRUR Int. 2012, 989, emphasizing a stronger moral approach of
the U.S. copyright law in the recent past.
8. U.S. Constitution Art. I Sec. 8 Clause 8.
9. See Wirtz, in Fromm/Nordemann, § 7 note 4.
10. See xy, Fundstelle les Nouvelles in terms of the historical
development of the work made for hire doctrine.
179
les Nouvelles
ing party is considered to be the author, the question
of copyright protection for the actual creative author
of the work does not even arise.11
III. How European Conflict of Laws Rules
Deal With the Work Made for Hire Doctrine
Given the fundamental differences between the
Continental European and the American copyright
system, the question arises: how does Europe deal
with the work made for hire doctrine in terms of
conflict of laws. In order to solve this set of problems,
it is appropriate to distinguish two dimensions of the
work made for hire doctrine: on the one hand the
question of authorship, on the other hand, the question of who owns the exploitation rights.12
With respect to authorship, the question of the
applicable law governing ownership of copyright as
well as its transferability, is governed on the European
level by the law of the country of protection.13 The
principle of the country of protection follows basically the principle of territoriality, recognizing that a
uniform worldwide copyright law does not exist, but
rather a collection of various national copyright laws.14
Since January 11, 2009, in all cases where there is
a conflict between laws on the European level, the
application of the principle of the country of protection, without exemption, is mandatory pursuant Art.
8 Sec. 1 of the Rome II Regulation15 (“Rome II”). Thus,
only the law of the country in which protection is
claimed is applicable.16 As a result of this construction, within the European Union, U.S. copyright law
cannot be applied to determine the initial authorship
under the work made for hire doctrine, so that, in
Europe, the actual creator of the work is recognized
as the author.17
11. See Jan Bernd Nordemann, Journal of the Copyright Society of the USA, Vol. 53 (2006), No. 3-4, 603, 606.
12. See Wilhelm Nordemann/Jan Bernd Nordemann, p. 473,
477 ff.; Jan Bernd Nordemann, p. 603, 609 ff.
13. See the leading case in Germany: Federal Court of Justice
(FCJ) GRUR Int. 1998, 427, 429—Spielbankaffaire.
14. See Jan Bernd Nordemann, p. 603, 607 f.; NordemannSchiffel, in Fromm/Nordemann, before §§ 120 ff. note 59; dissenting the followers of the principle of universality, according
to whom there exists only one worldwide coypright, determined
by the country of origin; see in particular Schack, Urheber-und
Urhebervertragsrecht [Copyright and Copyright Contract Law],
note 894 ff.
15. Regulation (EC) No. 864/2007 of the european parliament
and of the council of 11 July 2007 on the law applicable to noncontractual obligations.
16. See Nordemann-Schiffel, in Fromm/Nordemann, before §§
120 note 59.
17. See Jan Bernd Nordemann, p. 603, 608.
Under the copyright law of a European country
of protection, the exploitation rights would also be
vested in the creator of the work. In doing so, the
work made for hire doctrine would be completely
disregarded. In order to avoid this unsatisfactory
result, the second limb of the work made for hire
doctrine, namely contractual provisions, can become
relevant.18 Section 201 (b) of the 1976 Act provides
that “… unless the parties have expressly agreed
otherwise in a written instrument signed by the, [the
hiring party] owns all of the rights comprised in the
copyright..” Section 202 (b) of the 1976 Act then
provides that“… [the hiring party] is considered the
author for the purposes of this title..” The fact that
the 1976 Act attaches sole economic power to the
deemed author raises the issue under European law
as to whether the same result could be obtained by
contract in the same way, or at least in a similar way.19
This two limbs of the work made for hire doctrine
enable a second analysis to be made in accordance
with European private international law: with regard
to contractual terms, whether those terms can determine the question of who owns the exploitation
rights20 in a copyright work. Since December 17, 2009
conflicts of laws concerning the law applicable to contractual obligations are harmonized on the European
level by the Rome I Regulation21 (“Rome I”). Pursuant
Article 3 Rome I a contract is governed generally by
the law chosen by the parties. In the absence of an
express choice of law, according to Article 4 Sec. 1
Rome I, the law of the country which has the closest
links with the contract, is to be applied. Article 4 Sec.
2 Rome I presumes a contract to have the closest
links with the country in which the party providing
the characteristic performance of the contract has
his, her or its usual residence or place of business at
the time the contract was concluded.
According to the prevailing view within Germany,
at least with regard to an exclusive exploitation right
being granted, the characteristic performance is by
the assignee of this right—the exploiter—because
the main emphasis in the contractual relationship is
on the exploitation of the copyright-protected work,22
especially against the background that the work has
18. See Jan Bernd Nordemann, p. 603, 609 ff.
19. See Jan Bernd Nordemann, p. 603, 610; Wilhelm Nordemann/Jan Bernd Nordemann, p. 473, 477 ff.
21. Regulation (EC) No 593/2008 of the european parliament
and of the council of 17 June 2008 on the law applicable to contractual obligations.
only been created for the purpose of exploitation
by the exploiter.23 The consequence is that in work
made for hire situations U.S. copyright law should be
applied as the relevant law of contract.24 Apart from
that, in most cases U.S. copyright law might expressly
be chosen by the parties. [Is this only where you have
a U.S. resident commissioning a work in Germany?
If so, this needs to be made clear.]
IV. Provisions of European Copyright
Law Converging With the Work Made
for Hire Doctrine
Given the authorship principle, the initial copyright and all its associated exploitation rights are
vested in the creator of the work. Despite the
fundamental differences between the Continental
European and the U.S. copyright laws, European
copyright systems (in our case: the German Copyright Act) likewise contain provisions aiming for the
protection of the party that bears the financial risk
of the creation of the work. In this context, specific
provisions converge with the work made for hire
doctrine, both for political reasons and economic
impact. The most relevant provisions of the German
copyright law are exemplified in the following.
1. Contractual grant of exploitation rights.
The vesting of the initial copyright in the hiring
party is unthinkable under the authorship principle.
Therefore, third parties who want to exploit copyrighted works need the exploitation rights to be
granted to them by contract. The contractual grant
of rights is the core of the economic exploitation
of copyrighted works within Continental European
copyright systems.
§ 31 (1) GCA is the central provision of the German
copyright contract law as it states:
“The author may grant a right to another to use
the work in a particular manner or in any manner
(exploitation right). An exploitation right may be
granted as a non-exclusive right or as an exclusive
right, and may be limited in respect of place, time
or content.”
With respect to the primary protection of the moral
and economic interests of the author, § 31 (5) GCA,
23. See Katzenberger, in Schricker/Loewenheim, before §§
120 note 156.
24. Article 4 Sec. 3 Rome I remains unaffected: “Where it is
clear from all the circumstances of the case that the contract is
manifestly more closely connected with a country other than that
indicated in paragraphs 1 or 2, the law of that other country shall
apply.” Such cases are likely to happen rarely in work made for
hire situations.
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180
which aims at the purpose of the contract in cases
of absence of an express agreement, provides that
as many exploitation rights as possible shall remain
with the author.25 In addition, the particular protection of the author’s interests is manifested in § 34
GCA, according to which the author must agree to
the transfer of the exploitation right. Furthermore,
the author must also agree to the granting of further
exploitation rights by a person holding an exclusive
exploitation right to a third party(§ 35 GCA).
2. Legal fictions converging with the work made
for hire doctrine.
In principle, the axiom of the contractual granting
of exploitation rights also applies in cases that would
be subordinated to the work made for hire doctrine
under U.S. copyright law. However, by legislation certain rules have been promulgated in order to protect
those who do not create works on their own but bear
the economic risk of their creation.
a.) § 43 GCA: employer-employee
relationships.
§ 43 GCA states a first step towards the work
made for hire doctrine. This provision is of high
practical importance to employer-employee
relationships.26 At first sight, § 43 GCA recapitulates the natural consequence of the authorship
principle:
“The provisions of this Subsection shall also
apply where the author has created the work
in the fulfilment of obligations resulting from
an employment or service relationship, unless
otherwise provided in accordance with the
terms or nature of the employment or service
relationship.”
In fact, it has exactly the opposite effect: all exploitation rights associated with a work created
within the scope of an employer-employee or
service relationship are vested in the employer
insofar as the employer needs them for his, her
or its business.27 Thus, in general terms only the
employer will be entitled to exercise all economic
rights concerning the works created within the
employer-employee relationship. § 43 GCA modi25. See FCJ GRUR 2010, 623 note 20—Restwertbörse; Jan Bernd Nordemann, in Fromm/Nordemann, § 31 note 109; Schricker/
Loewenheim, in Schricker/Loewenheim, § 31 note 65.
26. § 43 GCA does not apply to commissioning relationships,
see Dreier, in Dreier/Schulze, § 43 note 5.
27. See FCJ GRUR 1974, 480, 482—Hummelrechte; Axel Nordemann, in Fromm/Nordemann, § 43 note 1; Rojahn, in Schricker/Loewenheim, § 43 note 51.
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fies the rule of interpretation of § 31 (5) GCA in
favor of the employer who bears the economic
risk and pays the employee’s living wage.28 As the
employee generates a continuous income, his or
her need for economic protection remains much
weaker compared to freelance authors.29
The political motivation for § 43 GCA is very
similar to the U.S. copyright law as it protects
an employer’s financial investment. But there
still exists material differences to the work made
for hire doctrine: First, the initial copyright
always remains with the actual creator of the
work, namely the employee. Second, as long as
an express agreement has not been concluded,
pursuant to a legal fiction only those exploitation rights are assigned to the employer that are
needed for business purposes. Accordingly, the
terms and the nature of the employer’s business
limit the grant of exploitation rights in respect
of place, time or content. Such a limited grant
of rights does not comply with the work made
for hire doctrine where the initial copyright
with all its associated exploitation rights would
be immediately vested in the employer. In addition, it is the employer’s burden to proove that
the exploitation right in question falls within the
purposes of his, her or its business.30
b.) § 69b GCA: employer-employee relationship in the field of software production.
The employer31 finds himself in a much more
comfortable position in cases where the work in
question is a work of software. § 69b (1) GCA
states:
“Where a computer program is created by
an employee in the execution of his duties or
following the instructions of his employer, the
employer exclusively shall be entitled to exercise
all economic rights in the computer program,
unless otherwise agreed.”
§ 69b GCA forms a specific rule with respect
to software production.32 The provision derives
28. See Axel Nordemann, in Fromm/Nordemann, § 43 note
27; Kotthoff, in Dreyer/Kotthoff/Meckel, Heidelberger Kommentar zum Urheberrecht, § 43 note 14.
29. See Axel Nordemann, in Fromm/Nordemann, § 43 note 3.
30. See FCJ GRUR 1978, 244, 246—Ratgeber für Tierheilkunde; Wandtke, in Wandtke/Bullinger, § 43 note 61.
31. § 69b GCA does not apply to commissioning relationships,
see Kotthoff, in Dreyer/Kotthoff/Meckel, § 69b note 4.
32. See Czychowski, in Fromm/Nordemann, § 69b note 2;
Loewenheim, in Schricker/Loewenheim, § 69b note 11.
immediately from European law as it implements
Article 2 (3) of the Directive 91/250/EEC on the
legal protection of computer programs (“Software
Directive”).33 According to Recitals 2 and 3 of the
Software Directive, uncertainties in the protection of computer programs are to be removed and
the partly extensive financial investment in the
field of software development are to be secured.34
Again, the political background of § 69b GCA is
very similar to the work made for hire doctrine
as it protects the person who bears the costs and
the risk of the creation of the work.
Compared to § 43 GCA, the employer, whose
business is software production, enjoys a much
stronger protection of his investment. The actual creator of the computer program, indeed,
remains the author of the program according to
the authorship principle, because the legal fiction
of § 69b GCA only provides a derivative grant of
exploitation rights.35 But the grant of exploitation
rights is not restricted to the employer’s business
purposes, rather it comprises all exclusive rights
of use with regard to the computer program
without limitations in space, time or content and
the rights even remain with the employer after
the employee has left the entity.36 Additionally,
it does not matter if the employer exercises his
rights of exploitation or not37 and the legal assumption of § 69b GCA can only be rebutted by
a contrary contractual agreement which must
be demonstrated by the employee. Thus, § 69b
GCA achieves, in fact, the same economic result
as the work made for hire doctrine.
c.) § 88 GCA: cinematographic works.
Finally, § 88 GCA contains a special rule for cinematographic works. § 88 (1) sentence 1 states:
“If the author permits another person to make
a film of his work, this shall, in cases of doubt,
be deemed to involve the granting of the exclusive right to use the work in unaltered form or
following adaptation or transformation in the
production of a cinematographic work and to
use the cinematographic work as well as translations and other cinematographic adaptations in
33. Now Directive 2009/24/EC.
34. See Czychowski, in Fromm/Nordemann, § 69a ff. note 2
and § 69b note 1.
35. See Czychowski, in Fromm/Nordemann, § 69b note 5;
Loewenheim, in Schricker/Loewenheim, § 69b note 11.
36. See Dreier, in Dreier/Schulze, § 69b note 9.
37. See Czychowski, in Fromm/Nordemann, § 69b note 2.
all manners of use.”
This provision intends to concentrate all rights
of use required to exploit a cinematographic
work38 as it recognizes that it is generally the film
producer who bears the economic risk of the film
production by making a large investment. Therefore, he should be able to recoup his expenses
through exploitation of the film with the minimum of obstructions.39 The parallel to the work
made for hire doctrine and its characteristics to
“commissioned works” are obvious.
§ 88 GCA, again, stipulates a rule of interpretation subsidiary to contrary contractual agreements.40 It contains a legal fiction specifying that,
if the author permits another person to make a
film of his work, all exclusive rights of use are
vested in the film producer, including the rights
to adapt the cinematographic work and to exploit
it in all manners of use.41 In cases of doubt, the
film rights are deemed to be granted without
limitations in space and time,42 but only with
restriction to cinematic types of use, for example
those that are linked with the promotion of the
film.43 E.g. a book of the film or merchandising
articles would not be covered by the application
of § 88 GCA.44
Ultimately, the rule of § 88 GCA concentrates
the exclusive exploitation rights with the film
producer whose legal position, therefore, is
comparable with the status of the “commissioning party” in work made for hire situations. The
film producer’s position gets even stronger, as
it is the obligation of the actual creator to disprove the legal presumption.45 But in contrast
to the work made for hire doctrine the initial
copyright remains with the author. Furthermore,
not all potential exclusive exploitation rights are
38. See Jan Bernd Nordemann, in Fromm/Nordemann, § 88
note 1.
39. See Jan Bernd Nordemann, in Fromm/Nordemann, before
§§ 88 ff. note 1; Katzenberger, in Schricker/Loewenheim, before
§§ 88 ff. note 9; Meckel, in Dreyer/Kotthoff/Meckel, § 88 note 1.
note 21; Meckel, in Dreyer/Kotthoff/Meckel, § 88 note 9.
note 42 ff.
note 48 f.; Schulze, in Dreier/Schulze, § 88 note 27 f.
note 69.
44. See Schulze, in Dreier/Schulze, § 88 note 54.
45. See Manegold, in Wandtke/Bullinger, § 88 note 66.
September 2014
182
assigned to the film producer, rather only the
rights named in § 88 GCA. The work made for
hire doctrine goes considerably further and vests
the initial copyright immediately in the commissioning party.
3. Résumé and consequences in legal practice.
The aforesaid provisions demonstrate, that in copyright systems following the droit d’auteur principle,
economic aspects play an important role, too, and as
a result in certain cases protect those who carry the
financial risk of the creation of the work. But unlike
the work made for hire doctrine, these rules do not
vest the copyright in the employer or other commissioning party. Instead, they must be qualified as legal
fictions providing for a grant of derivative rights. The
extent of the grant of these exploitation rights in
cases of doubt is regularly restricted to specific purposes. It is only with regard to software production,
that there is grant of all of the exclusive exploitation
rights, which, from an economic perspective, factually
mirrors the work made for hire doctrine.
In practice, both approaches mostly differ in terms
of enforcement. Pursuant the authorship principle
the person who claims an infringement of his rights
is obligated to prove his ownership of the exploitation rights, if necessary, by exposing a proper license
chain. In this context, legal assumptions concerning
the authorship may be used by the plaintiff, e.g. §
10 GCA. Of course, giving such evidence does not
apply to the work made for hire doctrine. Rather,
the commissioning party has to prove that the legal
conditions of a work made for hire are met.
V. Conclusion
Which improvements would bring a reform of the
work made for hire doctrine as suggested by Haviland46 from the European perspective? With regard
to conflicts of laws, there will not be any differences
compared to the current legal situation. The application of the two rules regarding the applicable law described above, the question of authorship, is governed
by the principle of the country of protection, which
will be the specific copyright law of the European
Member State relevant to the issue whereas the
ownership of the exclusive exploitation rights must
be determined by ascertaining the law governing the
contract. In doing so, it does not matter if the work
made for hire doctrine would remain unchanged or
if the actual creator would be legally deemed the
author under U.S. copyright law. In both cases, the
actual creator of the work will be recognized as the
author under European copyright law whereas the
exclusive exploitation rights would be vested in the
hiring party.
Instead, reforming the work made for hire doctrine would materially improve the situation for
creative employees within the U.S.A., especially
by vesting the copyright in the creator of the work
and extending the author’s protection under copyright law in terms of his moral interests. From the
European perspective, such a reform, resulting in a
copyright system mainly identical with the European
droit d’auteur system, can only be appreciated as it
respects the creator’s intellectual property in his
or her work. ■
46. Haviland, M., Superman and Statutes: The Case for Restructuring the U.S. Legal System and Awarding Copyrights to
Authors Behind Works for Hire, les Nouvelles, Vol. XLIX, No. 2,
2014, p.126.
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les Nouvelles
The Unitary Patent
By Christoph Cordes
Abstract
In the European Union a major change in the existing patent system is underway. By the end of 2012
and in spring 2013, the so called Unitary Patent was
created and 25 of the 28 Member States of the European Union have signed the Unified Patent Court
Agreement (UPCA). This Agreement now needs to be
ratified by at least 13 Member States. The European
Commission hopes that the required number of ratifications will be reached in spring of 2015 and that the
new patent system will then come into force.
The Unitary Patent and the Unified Patent Court
(UPC) will cause significant changes in the European
patent landscape: For the first time, a uniform patent
protection throughout the European Union is envisaged. The application and procurement procedure will
be simplified. The enforcement will be concentrated
on a few European courts.
With the coming into force of the so-called Patent Package, the new Unified Patent Court will start
working. The court will not only have jurisdiction over
disputes arising out of Unitary Patents, but also arising
out of already existing European patents. Therefore,
already today applicants and owners of European patents have to consider whether to stay in the Unified
Patent Court system with their European patents or
to opt out.
1. Introduction
1.1 Existing Patent Protection
urrently, technical inventions may be protected
in Europe by:
• National patents and
• European patents.
National patents are granted by national patent
offices (in Germany by the German Patent and Trademark Office). They usually require representation by
local counsel and follow with regard to procurement,
legal effects and enforcement as well as with regard
to revocation and declaration of nullity, the respective national law.
European patents are granted by the European Patent Office (EPO) on the basis of the Convention on
the Grant of European Patents (EPC). They are granted
in a centralized procurement procedure which is followed by a centralized opposition procedure before
C
the EPO. After its grant, a European patent dissolves
into a bundle of national parts which have the same
effect as national patents, i.e. enforcement, revocation and nullification follow the respective national
patent law.
The EPC comprises at present 38 European states;
ten of them are not member states of the European
Union. These are, for example, Norway, Switzerland and Turkey. The
applicant designates the
states in which the Euro■ Christoph Cordes LL.M.,
pean patent shall come
Partner,
into force upon its grant,
Esche Schümann Commichau,
i.e. in which states it
Hamburg, Germany
shall be validated. There
are different validation
E-mail: c.cordes@esche.de
requirements in each
contracting state, for
example with regard to translations and costs. Also
the renewal fees vary from state to state. The main
advantage of the European patent is its uniform procurement and opposition procedure which has cost
advantages in so far as only fees for attorneys and the
patent office accrue once only. However, a European
patent does not distinguish itself from national patents with regard to its enforcement.
1.2 Creation of the Unitary Patent
In order to provide a uniform enforcement, efforts
were made over decades to create a patent which has
a uniform effect within the whole European Union.
The long way to the Unitary Patent with all its trials
and tribulations is not to be discussed here in detail.
Only two core issues shall be highlighted.
A stumbling block has always been the language
issue. Under the EPC, the official languages for the
procedure before the EPO are limited to three languages only (English, French and German), whereby
different translation requirements exist in the
contracting states. It has been a major demand that
likewise there should be a minimum of translation
requirements with regard to the Unitary Patent to
be created.
A further obstacle has been the issue where the
new EU patent courts should be located. In the
European Union currently by far the most patent
infringement proceedings are dealt with by the GerSeptember 2014
184
The Unitary Patent
man courts.1 Germany had no interest to impair its
position by the creation of a new European patent
court system.
A breakthrough was finally reached when, by the
end of 2012, the Unitary Patent was created by way
of the so-called enhanced cooperation.
1.3 Legal Basis—The “Patent Package”
The Unified Patent Court system is based in essence
on three pillars, the so-called patent package:
•The Unitary Patent Regulation,2
•The Translation Regulation3 and
•The Agreement on the Unified Patent Court (UPCA).4
The Unitary Patent is created by the Unitary Patent
Regulation. The Translation Regulation deals with the
language regime for this Unitary Patent. Unitary Patent Regulation and Translation Regulation came into
force on 20 January 2013. However, both regulations
shall apply only as of the date of entry into force of
the UPCA.
The UPCA has the character of an international
treaty. It is a so-called special agreement in the
meaning of art. 142 et seq. EPC has been signed on
19 February 2013 by all EU member states with the
exception of Spain and Poland. It will enter into force
as soon as at least 13 member states have ratified the
Agreement, among them are the three member states
with the highest number of European patents in force,
i.e. Germany, the United Kingdom and France (art.
89 par. 1 UPCA).
Furthermore, there are to be created:
1. According to Kühnen/Claessen, GRUR 2013, 592, 593, in
2011 the patent infringement actions were distributed within
the European Union as follows: Germany some 1.250 actions,
France and Italy each some 250 actions, the United Kingdom and
the Netherlands each some 50 actions, in further 14 Member
States less than 10 actions were filed and in the remaining eight
Member States to the European Union no patent infringement
actions were filed.
2. Regulation (EU) No. 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing
enhanced cooperation in the area of the creation of unitary patent
protection, OJ of EU no. L 361 of 31 December 2012, page 1.
3. Council Regulation (EU) No. 1260/2012 of 17 December
2012 implementing enhanced cooperation in the area of the creation of unitary patent protection with regard to the applicable
translation arrangements, OJ of EU no. L 361 of 31 December
2012, page 89.
4. Agreement on the Unified Patent Court, Council document
no. 16351/12 of 11 January 2013, OJ of EU no. C 175 of 20 June
2013, page 1.
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les Nouvelles
•A schedule of fees for the application
procedure, and
•Rules of procedure and a schedule of fees for
the Unified Patent Court.
With regard to the former schedule of fees there do
not exist yet any drafts, so that it is not yet possible
to estimate the future costs of an applications for a
Unitary Patent. However, with regard to the rules of
procedure, there already exist drafts.
2. The Unitary Patent
2.1Application Procedure
The Unitary Patent system uses the application
procedure before the EPO. Thereby the building of
a complete new procurement authority was avoided.
Instead, it was possible to revert to the proven competence of the EPO.
The whole application and examination procedure
before the EPO remains unchanged. The applicant
for a European patent may apply for it having unitary
effect within one month after the mention of the
grant is published in the European Patent Bulletin.5 In
this case it becomes retroactively unitarily effective
within all participating member states as of the date
of its grant (art. 4 par. 1 Unitary Patent Regulation).
For the application a fee is to be paid of which the
amount is not yet determined.
2.2The Languages Regime
The languages regime of the EPO principally applies
as stated here:
A patent application may be filed in English, French
or German. Furthermore, a patent application may
also be submitted in any other language to the EPO;
in such a case a translation into English, French or
German has to be filed within two months.
The official language of the EPO in which the application was submitted or into which the application was
translated, is the language of the procedure before the
EPO. European patent specifications are published in
the language of the procedure and contain a translation of the patent claims into the two other official
languages of the EPO (art. 14 par. 6 EPC). In principle
this also applies to Unitary Patents.
A validation of a Unitary Patent will not be necessary and therefore also any translation requirements
with regard to validation will fall away. However,
within the transitional period of art. 6 Translation
Regulation:
5. See art. 9 par. 1 (g) Unitary Patent Regulation.
The Unitary Patent
•Unitary Patents granted in French or German have to be translated completely (that is not
only with regard to the patent claims) into the English language, and
•If the Unitary Patent was granted in the
English language, a complete translation of the patent specification into any other official
language of the European Union has to be
submitted (art. 6 par. 1 Translation Regulation).
The transitional period of art. 6 Translation Regulation ends no earlier than six and no later than twelve
years after the date of application of the Translation
Regulation. Whether this transitional period already
ends before the above-mentioned twelve years have
elapsed, depends on whether or not high quality
machine translations of patent applications and patent specifications into all official languages of the
European Union are then available (art. 6 par. 3
Translation Regulation). Such machine translations
from English into German are already offered by the
EPO on its Internet homepage.
Once the transitional period has elapsed, an application in one of the three official languages of the
EPO (English, French or German) with a translation
of the patent claims into the respective two other
official languages only will be sufficient.
However, there is an exception in case of litigation: In the event of a dispute relating to an alleged
infringement of a Unitary Patent the patent proprietor
shall provide at the request of the alleged infringer
a full translation of the patent specification into the
official language of the member state in which the
alleged patent infringement has taken place or in
which the alleged infringer is domiciled. Also the
court may request a complete translation of the
patent specification into the language of the court
proceedings. In both cases the costs for translations
are to be borne by the patent owner (art. 4 par. 3
Translation Regulation).
2.3 The Unitary Effect
The Unitary Patent provides uniform protection and
has equal effect in all the participating member states.
It may only be licensed, transferred, revoked or
lapsed in respect of all the participating member
states. However, it may be licensed in respect of
the whole or also only a part of the territories of the
participating member states (art. 3 par. 2 Unitary
Patent Regulation).
The substantive provisions regarding the effect of
the Unitary Patent are surprisingly not provided for
in the Unitary Patent Regulation. This has the background that the United Kingdom suggested to delete
entirely the provisions of art. 6 through 8 of the former draft regulation which dealt with the substantive
effects of the Unitary Patent. The United Kingdom
feared that otherwise the European Court of Justice
would have to rule on substantive patent law which
might have overburdened the court. However, the
complete elimination of any substantive law provisions in the Unitary Patent Regulation could have
made it questionable whether this regulation may be
based on art. 118 of the Treaty on the Functioning
of the European Union (TFEU).
As a compromise, art. 5 Unitary Patent Regulation
now provides that the Unitary Patent confers on its
proprietor the right to prevent any third party from
committing acts against which that patent provides
protection. What acts these are may be concluded
from the UPCA: Art. 25 and 26 UPCA prohibit direct
and indirect patent infringement. Art. 27 UPCA
provides limitations thereof such as, e.g., acts done
privately or for experimental purposes. Art. 28 UPCA
provides for a right on prior use of the invention.
From the perspective of the law maker, all of this has
the character of national law and therefore is not
subject to control by the European Court of Justice.
The Unitar y Patent therefore provides some
specialties from the perspective of the law of the
European Union: The Unitary Patent is granted by
the EPO which is not an organization of the European
Union. Decisions of the procurement and opposition
proceedings cannot be reviewed by European courts;
legal protection is only granted within the EPO by
its Boards of Appeal. And finally, the substantive
effect of the Unitary Patent is not provided for by a
regulation of the European Union, but rather—this
is the conception of the law maker—on the level of
the national law, and therefore is also beyond the
reach of control by the European Court of Justice.
3. Unified Patent Court System
3.1The Unified Patent Court
3.1.1 Organisation of the Court
The UPCA creates a complete new jurisdiction:
the Unified Patent Court.
The Unified Patent Court comprises two instances,
a Court of First Instance and a Court of Appeal. Furthermore, a registry and various committees exist, i.e.
an administrative committee and a budget committee.
The Court of First Instance is divided into various
divisions. It comprises:
•A central division,
•Regional divisions, and
•Local divisions.
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The Court of Appeal has no divisions.
3.1.1.1 The Central Division
The central division has its seat in Paris, with sections in London and Munich.
The central division sits in a composition of two
legally qualified judges which have to be nationals
of different contracting states and one technically
qualified judge. The central division is chaired by a
legally qualified judge.
With regard to the substance of the matter, the
panels of the central division are allocated in accordance with the International Patent Classification
(IPC) of the World Organization for Intellectual
Property (WIPO). The section in London deals with
IPC classes A (human necessities) and C (chemistry,
metallurgy) and the section in Munich deals with IPC
class F (mechanical engineering, lighting, heating,
weapons, blasting). All other substantive matter is
dealt with in Paris.
3.1.1.2 Local and Regional Divisions
Any contract member state is free to apply for the
installation of a local division for its territory. The
decision is made by the administrative committee.
Regional divisions are built the same way for the
territory of multiple member states.
Local and regional divisions comprise each three
legally qualified judges. Upon request of the parties or
if the court deems this to be necessary, a technically
qualified judge is allocated to the panel. Again, the
panel is chaired by a legally qualified judge.
Local and regional divisions have a multi-national
composition, as is the case with each panel of the
Unified Patent Court. Of the three legally qualified
judges in principle only one is a national of the respective member state or member states hosting the
local or regional division, respectively. In member
states where, during a period of three successive
years prior or subsequent to the entry into force
of the UPCA, 50 or more patent cases per calendar
year on average have been commenced, two of the
three legally qualified judges are nationals of the
respective member state hosting the local division.
For each 100 patent cases commenced per calendar
year, a contracting member state may apply for an
additional local division, with a maximum of four
local divisions for one member state. For the time
being, this will only be the case with Germany where
the local divisions will be domiciled in Düsseldorf,
Mannheim, Hamburg and Munich.
3.1.1.3 The Court of Appeal
The Court of Appeal has its seat in Luxembourg.
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The Court of Appeal is composed of five judges:
three legally qualified judges who shall be nationals of different contracting member states and two
technically qualified judges.
3.1.2 Jurisdiction
3.1.2.1 Jurisdiction as to Subject Matter
The Unified Patent Court has the exclusive jurisdiction for court proceedings provided for in art. 32 par. 1
UPCA insofar as they are based on:
•Unitary patents,
•“Classical” European patents, or
•Supplemental protection certificates.
The court proceedings provided for in art. 32 par. 1
UPCA comprise in particular patent infringement
actions, actions for revocation of patents (also in the
form of counter claims for revocation of patents) as
well as provisional injunctions.
The enumeration in art. 32 par. 1 UPCA is exclusive; any other court proceedings will remain with the
jurisdiction of the national courts. The Unified Patent
Court therefore has, for example, no jurisdiction
over actions arising from patent license agreements
or actions for the transfer of patents and patent applications filed by a third party which came into the
position of the invention in bad faith.
The Unified Patent Court will therefore not only
have jurisdiction with regard to Unitary Patents, but
also for “classical” European patents, i.e. for European
patents without unitary effect. For a transitional period, the patent owner may give a declaration that his
European patent shall not fall under the jurisdiction
of the Unified Patent Court. This transitional period
will last seven years and may be prolonged for further
seven years. However, thereafter all European patents
will fall under the jurisdiction of the Unified Patent
Court. The only alternative will be to file a national
patent application.
3.1.2.2The Competence of Central, Local and Regional Divisions
The parties may agree on a division to be competent
for infringement and revocation actions. If no such
agreement is concluded the following rules apply:
3.1.2.2.1 Patent Infringement Actions
Patent infringement actions are to be filed with
the local or regional division at the domicile of the
defendant or at the place where the patent infringement took place or threatens to take place.
The central division is competent for infringement
actions if the defendant has no domicile in any contracting member state or if in the respective member
The Unitary Patent
state no local or regional division exist.
The central division has, furthermore, jurisdiction
over actions for declaration of non-infringement of
a patent. Such action pending with the central division is stayed if, within three months upon filing the
declaration action, patent infringement proceedings
based on the same patent are commenced between
the same parties at a local or regional division. This
safeguards that infringement proceedings cannot be
withdrawn from a local or regional division against
the will of the plaintiff.
However, there is an exception to this rule in case
the alleged infringement has taken place in the territory of at least three regional divisions. Then, upon
request of the defendant, the regional division shall
transfer the case to the central division (art. 33 par.
2 UPCA). This exception makes infringement actions
before the regional division less attractive because,
in case of a presumably massive patent infringement,
the plaintiff must fear that the case is transferred to
the central division. Such transfer may cause a loss of
time and has potentially the disadvantage of a change
of language of the proceedings. It may further have
the disadvantage that not the principle of bifurcation
will apply, but rather that the central division will most
likely hear both actions, i.e. infringement action and
revocation action, at the same time. This may cause
an additional loss of time.
3.1.2.2.2 Revocation Actions
Revocation actions are to be filed with the central
division.
Counterclaims for revocation of patents may also
be filed with the local or regional division where a
respective patent infringement action is pending. It is
then in the discretion of the local or regional division:
•To decide on both actions and to seek the aid of
a technically qualified judge,
•To transfer the revocation action to the central
division and to stay or continue the infringement
action, or
•To transfer the whole case to the central division
upon consent of both parties.
Therefore it will in principle be possible that a local
division practices a procedure as it is currently done
by the German patent infringement courts, i.e. that
revocation actions are transferred to the central division and to stay infringement actions only if there is
a high likelihood that patent will be revoked.
Revocation actions do not require prior opposition
proceedings before the EPO. Pending opposition
proceedings before the EPO do not block revocation
actions before the Unified Patent Court. However,
the Unified Patent Court may stay its proceedings
in such a case if a rapid decision may be expected
from the EPO.
3.1.3 Qualification of the Judges
Legally qualified judges shall possess the qualifications required for appointment for judicial offices in
a contracting member state.
Technically qualified judges shall have a university
degree and proven expertise in a field of technology.
They are appointed from a pool of judges on a case
by case basis for a certain technical field.
According to art. 15 par. 1 UPCA judges shall ensure
the highest standards of competence and shall have
proven experience in the field of patent litigation.
This requirement can hardly be balanced with the
further requirement of a multi-national composition
of all panels of the Unitary Patent Court. The problem is that in the vast majority of the contracting
member states only a few or no patent litigation at all
is commenced. Judges from such contracting states
will have little or no experience in the field of patent
litigation. However, the UPCA solves this conflict
of objectives by letting it suffice that judges have
only theoretical knowledge which can be obtained
by training. Whether this will safeguard confidence
of the potential plaintiffs in the qualification of the
panels of the Unified Patent Court remains to be seen.
3.2Rules of Procedure
The main features of the proceedings are outlined
in the UPCA. For details the UPCA refers to rules
of procedure which still need to be created. The
signatory states have set up a preparatory committee
which has developed draft rules of procedure. The
current draft of 31 January 2014 comprises 382 rules.
3.2.1 Stages of Proceedings
The court proceedings are divided into three parts:
First there is an exchange of briefs. In principle only
four briefs are to be exchanged (statement of claim,
statement of defense, reply to statement and rejoinder
to the reply) which shall safeguard a speedy procedure.
The written procedure is followed by an interim
procedure which may include an interim conference
led by the juge-rapporteur and which may be held as
a video or telephone conference. Thereafter again
written submissions may be exchanged.
Finally, an oral hearing will be held before the entire
panel, which is led by the presiding judge.
3.2.2 Language of the Proceedings
Before the central division the language of the
proceedings is always the language in which the patent was granted.
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The Unitary Patent
The language of the proceedings before a local
division is in principle the official language of the
hosting member state. Notwithstanding the above,
the respective member state may designate one of
the official languages of the EPO (English, French or
German) as the language of the proceedings before
the respective local division. The same applies for
proceedings before the regional divisions, whereby
the respective contracting member states determine the official language of one of the contracting
member states as language of the proceedings.
The parties may agree on the use of the language
in which the patent was granted as language of the
proceedings, subject to approval by the competent
panel. If the panel objects, the parties may request
that the case will be referred to the central division.
Furthermore, the president of the Court of First Instance may, on the grounds of fairness, decide on the
use of the language in which the patent was granted
as the language of the proceedings upon request of
one of the parties and after having heard the other
party and the court panel.
The language of the proceedings before the Court
of Appeal is the language of the proceedings before
the Court of First Instance, unless the parties agree
on the use of the language in which the patent was
granted as language of the proceedings. Subject to an
agreement by the parties, the Court of Appeal may
decide on another official language of a contracting
member state as language of the proceedings.
4. Entry into Force and Transitional Provisions
4.1 Entry into Force
The UPCA now needs to be ratified by at least 13
signatory states, among them Germany, France and
The United Kingdom.
As the first signatory state, Austria has deposited an
instrument of ratification with Brussels on 7 August
2013. On 23 October 2013 a bill was introduced
to the French Senate which shall be dealt with in
accelerated proceedings. However, ratification has
not yet happened. Denmark will most likely hold a
referendum on 25 May 2014 on the ratification of
the UPCA.
Spain and Italy have not concurred in the enhanced
cooperation but rather filed actions against the Unitary Patent Regulation and the Translation Regulation
with the European Court of Justice. Both law suits
have been rejected on 16 April 2013.6 Italy has in
the meantime signed the UPCA. Spain has filed two
further law suits on 22 March 2013 which are still
pending.7 Poland has participated in the enhanced
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cooperation; however Poland did not sign the UPCA.
Poland and Spain as well as (since June 2013) Croatia
may join the Agreement since they are member states
to the European Union. However, the EPC member
states which are not European Union member states8
do not have this possibility. A joinder of these states
would only be possible after them becoming member
states to the European Union.
4.2 Transitional Provisions
For at least a transitional period, Unitary Patents
will not have effect in all member states of the European Union:
According to art. 18 par. 2 Unitary Patent Regulation, a Unitary Patent has only effect in such member
states in which at the time of the grant of the patent
the UPCA was in force. An extension of the territorial scope of already granted Unitary Patents to later
ratifying or joining states is not provided for in the
Agreement. Since most likely not all participating
member states will ratify the UPCA at the same time,
there will be Unitary Patents with different territorial
scope for at least a transitional period.
Art. 83 par. 1 UPCA allows for a transitional period
of seven years from the coming into force of the
Agreement during which patent infringement actions
and actions for revocation with regard to “classical”
European patents may be filed either with the Unified Patent Court or with the national patent courts.
The applicant or owner of a European patent can
exclude the competence of the Unified Patent Court
by giving a declaration in accordance with art. 83 par.
3 UPCA (opt out). The declaration must be given
at least within one month prior to the end of the
transitional period. This is to safeguard proprietors
of European patents from being forced into the Unified Patent Court system against their will. The applicant or owner of a European patent may withdraw
this exclusion declaration at any time (art. 83 par. 4
UPCA; opt in).
The transitional period may be extended for seven
further years (art. 83 par. 5 UPCA) which will give
the Unified Patent Court system an opportunity to
establish confidence in its quality.
5. Strategic Considerations
6. ECJ C-274/11 and C-295/11.
7. ECJ C-146/13 and C-147/13.
8. These states are Switzerland, Turkey, Norway, Lichtenstein,
Monaco, Island, Republic of Mazedonia, San Marino, Albania,
and Serbia.
The Unitary Patent
5.1 Application Procedure
The unitary effect of Unitary Patents will clearly
simplify matters. It will allow the applicant to assess
the effects of patent protection in the participating
member states on the basis of only one legal regime.
Also the patent administration will be considerably
simplified: instead of administering a number of
patents, there only will be a single patent to be administered with deadlines being surveyed and annual
fees being paid in time.
Also the reduced translation requirements will
bring fundamental simplification compared to the
current status in a number of EPC states.
Whether in the future it is advisable to apply for
Unitary Patents, “classical” European patents or
national patents (or in Germany, utility patents) is of
course also a question of costs. Since there are not
yet any cost schedules this question cannot yet be
answered. However, it is expected that the Unitary
Patent will have its price. At the moment, a majority of European patents are validated only in a small
number of states. Therefore the Unitary Patent will
most likely often cause an increase of costs.
5.2 Court Proceedings
5.2.1 The Need for a Decision with regard to “classical” European Patents.
It is a complex task to balance the pros and cons
of national jurisdiction on the one side and of the
Unified Patent Court on the other side.
This will become very clear already during the
transitional period of art. 83 par. 1 UPCA. This art.
provides that lawsuits before the national courts have
no exclusive effect on lawsuits before the Unified
Patent Court and vice versa.
Such an exclusive effect exists only with regard to
the opt-out or opt-in declaration in accordance with
art. 83 paras. 3 and 4 UPCA, respectively; an opt-out
or opt-in declaration is blocked if a lawsuit (patent
infringement action or revocation action) is already
pending before a national court or the Unified Patent
Court. However, if no opt-out or opt-in declaration is
given, there is an alternative competence between
the Unified Patent Court and national courts for
matters based on “classical” European patents, i.e.
during the transitional period lawsuits with regard to
“classical” European patents may be filed with either
the national courts or the Unified Patent Court.
The patent owner may, for example, decide to
file a patent infringement action with a national
court (for example, with the Regional Court of
Düsseldorf in Germany) which then is answered by
the defendant with a revocation action before the
central division of the Unified Patent Court. This
might happen quite frequently.
The possibility of a forum shopping following from
art. 83 par. 1 UPCA for patent infringement and
revocation actions forces the proprietor of European
patents already now to consider the pros and cons
of each court system.
5.2.2 Pros and Cons of the Unified Patent Court
System (Opt in or opt out?).
So what are the pros and cons?
Court proceedings under the Unified Patent Court
system will tend to be easier and more cost effective
since only a single patent infringement action and
only a single revocation action, if any, is to be filed
instead of a number of respective national court
proceedings. Consequently, court costs and attorneys
fees will be reduced.
The decision for the Unitary Patent and the Unified
Patent Court will furthermore have the huge advantage that effective patent protection can be obtained
for a number of states in which currently no effective
enforcement of patents is possible.
At the moment, only in a handful of European states
is patent litigation commenced: The judgments of
national courts are limited to the respective national
territory. It would theoretically also be possible that,
e.g., before a German court, one litigates the infringement of a French patent. However, since the decision
“GAT/LuK”9 of the European Court of Justice this possibility is practically barred. The introduction of the
Unified Patent, which will be enforced in one single
court proceedings for all participating member states,
will have the effect that in a wide range of European
Union member states for the first time ever patent
protection will effectively be enforced.
The most striking disadvantage of the Unitary Patent will clearly be that it can be nullified with one
single revocation action. The patent owner “raises the
stakes” if he makes a decision for the Unitary Patent
and the Unified Patent Court system.
A further disadvantage of filing a patent infringement action with the Unified Patent Court lies in
art. 63 par. 1 UPCA: Under German law, the patent
owner has a mandatory claim for injunctive relief
in case of patent infringement. Under the UPCA,
it is in the discretion of the Unified Patent Court to
grant injunctive relief. It remains to be seen which
aspects the Unified Patent Court will consider in its
9. ECJ C-4/03.
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The Unitary Patent
discretionary decision. However, it is not unlikely that
collecting companies as well as other non-practicing
entities will have to face an additional hurdle for
obtaining injunctive relief. There is an ongoing discussion whether non-practicing entities shall be entitled
to monetary relief only. The same applies for owners
of standard-essential patents.
A further important issue will be how local and
regional divisions will handle counterclaims for revocation of patents, i.e. whether they will transfer
such counteractions or whether they will hear both,
the patent infringement action and the revocation
action. It is widely expected that the local divisions
domiciled in Germany, which will comprise experienced German patent judges, will transfer revocation
actions to the central division. If this should become
common practice for the local divisions in Germany,
it could possibly become equally attractive to file patent infringement actions with a local division of the
Unified Patent Court in Germany as with a national
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German patent court. However, the assessment of
the pros and cons in this respect also depends on
the quality and speediness of decisions of the central division. It might well be that it remains more
attractive to keep on filing patent infringement actions with the national German patent courts rather
than with the Unified Patent Court since the former
procedure often awards the plaintiff the advantage
of being able to enforce a judgment of first instance
long before patent validity has been assessed by the
German Federal Patent Court.
And finally the biggest obstacle for the Unitary
Patent to overcome might be the uncertainty how
the new patent regime and the new courts will prove
themselves. The question whether the users will gain
confidence in the Unified Patent Court system will
depend in the first place on whether it will be possible
to recruit highly qualified judges and to establish a
body of high quality decisions. We will follow up this
interesting future development. ■
Traditional Knowledge In The Philippines
Protecting Traditional Knowledge As Cardinal
Technology In The Philippines
By Robert Nereo B. Samson and Gonzalo D.V. Go III
Abstract
Technology is an important tool for the sustainable
development of society. Far from being known for robotics and high-level technologies, the Philippines has
its own formidable technology to offer the world: the
traditional knowledge (TK) of its indigenous peoples
and communities (“Indigenous People”).
TK originated from the intellectual creations of Indigenous People, and has been passed on from generations to generations. Its scope spans from agriculture,
science, ecology, medicine, biodiversity, and such other
fields of knowledge relevant to Indigenous People’s
continued existence. TK possesses global importance
for its proven benefits to society in general.
Blessed with 110 diverse groups of Indigenous People
in its 7,107 islands, the Philippines’ TK collection may
be the key to economic development and the sustainability of the indigenous cultures and traditions of the
Philippines, truly worth identifying, developing, and protecting. This paper explains the legal framework of TK,
how the contemporary Philippine intellectual property
system protects it, and the reservations of Indigenous
People in availing of such protection.
Introduction
A
n archipelago of 7,107 islands, the Philippines is
the home to 110 groups of indigenous peoples
and communities, each continuously living as
an organized community and sharing common bonds
of cultural resources: “the tangible and intangible effects of an individual or group of people that define
their existence, and place them temporally and geographically in relation to their belief systems and their
familial and political groups, providing meaning to
their lives.”1 Their field of cultural resources includes
tangible items, such as land, sacred sites, and religious
and funerary objects; and intangible knowledge and
customs, such as tribal names, symbols, stories, and
ecological, ethnopharmacological, religious, or other
traditional knowledge (“TK”).2 TK serves an element
of their cultural heritage, contributes to the sustain1. Angela R. Riley, ‘‘Straight Stealing: Towards an Indigenous
System of Cultural Property Protection,” 80 Wash. L. Rev. 69,
77 (2005).
2. Felix Cohen, Handbook Of Federal Indian Law § 20.01 (2012).
able use and preservation of biodiversity, and is
fundamental to their sustainable development.
Overshadowed by the pomp and promise of modern
science and technology, TK has been disregarded until
recently. While scientists and development agencies
are only beginning to acknowledge its significance,
its enduring role as the
mainstay of local food
■ Robert Nereo B. Samson, production and health
Intellectual Property
care in the developing
Office of the Philippines,
world cannot be quesAttorney V,
3
tioned. The TK system
Taguig City, Philippines
encompasses a broad
E-mail: robertnereo.samson@
range of knowledge such
ipophil.gov.ph
as the use of biological resources for medi■ Gonzalo D.V. Go III,
cal treatment, water
Jollibee Foods Corporation,
management strategies,
Senior Legal Counsel,
agricultural timing and
Pasig City, Philippines
production techniques,
climate change adaptaE-mail: gonzalo.go@
tion policy and practice,
jollibee.com.ph
visual arts, designs, performances, literature, folklore, and other literary
and artistic materials. There is a lot to learn from the
indigenous knowledge systems and practices, which
the law seeks to control, develop and protect.4
TK is considered a species of intellectual property
(“IP”) and a form of technology the Philippines may
truly take pride from and claim an abundance of. The
Philippines, being one of the world’s repositories of
diverse biological resources in terms of plant and animal species, has an immense potential for the production of medicines and food through TK. If only this can
be developed and utilized using proper contracts and
monitoring systems, substantial benefits will accrue
to benefit national food requirements and provide
medical security, while preserving biodiversity, and
3. Douglas Nakashima and Marie Rou´e, Indigenous Knowledge, Indigenous People and Sustainable Practice, 5 Social And
Economic Dimensions Of Global Environmental Change, Encyclopedia Of Global Environmental Change 314, (2002), available
at http://portal.unesco.org/science/fr/files/3519/10849731741IK_
People/IK_People (last accessed April 10, 2014).
4. The Indigenous Peoples’ Rights Act of 1997, Republic Act
No. 8371, sec. 34 (1997).
September 2014
192
lead to improvements in Indigenous People’s lives.5
However, in spite of existing laws and guidelines,
there are still substantial implementation challenges
to IP rights being adapted to the protection of TK.
These challenges include the role and the use of the
IP system in the recognition and respect of the free
and prior informed consent of the indigenous peoples
in the use of their TK, as well as provisions for ensuring the fair and equitable benefit-sharing arising from
the utilization of the TK of the indigenous peoples.
This article provides a legal framework to understanding the concept of TK and the concerns it poses
to the Filipino IP system and Indigenous People. Part I
explains TK as a concept, its legal framework, and its
connection to IP and human rights. Part II discusses
the extent of protection being afforded to TK by the
contemporary IP system in the Philippines, and the
ideological conflicts it poses to the Indigenous People.
I. Demystifying TK
Indigenous People celebrate TK as a vital part of
their individual lives and their community’s continued solidarity. TK forms part of a holistic world-view,
and is inseparable from the way of life of Indigenous
People and their cultural values, spiritual beliefs, and
customary legal systems.6 It is imperative for their
future well-being, sustainable development, and intellectual and cultural vitality for them to maintain not
only the distinct knowledge systems that give rise to
TK; but also the social and physical environment of
which TK forms an integral part.
A. Definition and Criteria for Protection Eligibility
The basic issues for the protection of TK are terminology and concept. There is as yet no universally
accepted definition of TK at the international level.
TK, as a broad description of subject matter, generally includes the intellectual and intangible cultural
heritage, practices and knowledge systems of Indigenous People. In other words, TK in a general sense
(lato sensu) embraces the content of knowledge itself
as well as traditional cultural expressions, including
distinctive signs and symbols associated with TK.
In international debates, TK in the narrow sense
refers to knowledge as such, in particular the knowledge resulting from intellectual activity in a traditional
5. Andrea B. Agillon, Traditional Knowledge in the Philippines:
Progress of IPR Protection, Tech Monitor 57 (2007), available at
http://www.techmonitor.net/tm/images/7/70/07mar_apr_sf6.pdf
(last accessed April 10, 2014).
6. World IP Organization, IP And Traditional Knowledge: Booklet II 1 [hereinafter Booklet], available at http://www.wipo.int/
export/sites/www/freepublications/en/tk/920/wipo_pub_920.pdf
(last accessed April 10, 2014).
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context. It includes know-how, practices, skills, and
innovations. TK can be found in a wide variety of
contexts, including: agricultural knowledge; scientific knowledge; technical knowledge; ecological
knowledge; medicinal knowledge, including related
medicines and remedies; and biodiversity-related
knowledge.7
TK has developed over time and has been used to
sustain communities. It consists of the experiences,
culture, environment, local resources, animal knowledge and or plant resources generally considered to
be owned collectively by a community; and transmitted across generations through traditional stories to
selected persons in the community.8
As an IP asset, TK should be protected from misuse or misappropriation, whether through copying,
adaptation, or use by unauthorized third parties. IP
protection can take the form of the grant of exclusive
rights, i.e., in the context of TK, excluding others
from making certain uses of TK; but can also take
the form of non-proprietary forms of protection like
moral rights, equitable compensation schemes, and
protection against unfair competition.9
In order to be eligible for IP protection, the WIPO
Intergovernmental Committee on TK considered the
proposition that TK should possess all of the following
characteristics:
1. It should be distinctively associated or linked
with the cultural, social identity, and/or cultural
heritage of (a) Indigenous People who hold, maintain, use and/or develop the TK, or (b) any other
national entity defined by national law,10
2. It should have been generated, maintained,
shared, or transmitted in a collective context,
3. It should be intergenerational or passed on from
generation to generation, and
7. Glossary of Key Terms Related to Intellectual Property and
Genetic Resources, Traditional Knowledge and Traditional Cultural Expressions, WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge
and Folklore, 27th Sess. 2014.
8. See Stephen A. Hansen & Justin W. Vanfleet, Traditional
Knowledge And Ip: A Handbook On Issues And Options For Traditional Knowledge Holders In Protecting Their IP And Maintaining Biological Diversity 3 (2003) [Hereinafter Hansen & Vanfleet].
9. WIPO, Frequently Asked Questions, available at http://www.
wipo.int/tk/en/resources/faqs.html (last accessed April 10, 2014).
10. The Protection of Traditional Knowledge: Draft Articles,
WIPO Intergovernmental Committee on Intellectual Property
and Genetic Resources, Traditional Knowledge and Folklore,
27th Sess. 2014 [hereinafter Draft Articles], art. 2.1, available at http://www.wipo.int/meetings/en/doc_details.jsp?doc_
id=261910 (last accessed April 10, 2014).
4. It should have been used for a term not less than
fifty years, as may be determined by each Member
State or Contracting Party.11
Furthermore, TK protection should not be given
to TK that is (a) widely known or used outside the
community of its beneficiaries for a reasonable period
of time, (b) in the public domain, (c) protected by an
IP right, or (d) protected by the application of principles, rules, skills, know-how, practices, and learning
normally and generally well-known.12
The paragraphs citing the draft articles under the
WIPO negotiations may be deleted in view of the development and subsequent discussions in the WIPO.
B. Legal Framework under International Law
Michael Brown, a renowned anthropologist, observed that “in the late 1980s ownership of knowledge
and artistic creations traceable to the world’s indigenous societies emerged, seemingly out of nowhere,
as a major social issue.”13 Yet it was not from nowhere
that the issue burst onto the international stage; TK’s
emergence as an issue of global importance can be
traced to at least two major political and legal shifts:
(1) the unprecedented expansion and internationalization of first-world style IP rights, most notably with the
passage of the Agreement on Trade-Related Aspects of
IP Rights (TRIPS);14 and (2) the increased global recognition of Indigenous People’s rights.15
1. Applying the IP System to TK
Historically, IP development has had three distinct periods of evolution: (1) a territorial period
characterized by local protection but an absence of
international protection; (2) an international period
highlighted by several international countries joining the WIPO and agreeing to form the international
Paris16 and Berne17 Conventions to protect industrial
11. Draft Articles, supra note 12, art. 1.3.
12. Draft Articles, supra note 12, art. 1.4.
13. Michael F. Brown, Who Owns Native Culture? ix (2003),
and the amended WIPO/GRTKF/28/5.
14. Agreement on Trade-Related Aspects of IP Rights art. 41,
Apr. 15, 1994, Marrakesh Agreement Establishing the World
Trade Organization, Annex 1C, Legal Instruments—Results of
the Uruguay Round, 1869 U.N.T.S. 299, 33 I.L.M. 1195 (1994)
[hereinafter TRIPS].
15. Deepa Varadarajan, A Trade Secret Approach to Protecting
Traditional Knowledge, 36 Yale J. Int’l L. 371, 379 (2011) [hereinafter Varadarajan].
16. Paris Convention for the Protection of Industrial Property of Mar 20, 1883, done July 14, 1967, 21 U.S.T. 1583, 828
U.N.T.S. 305; [hereinafter Paris Convention].
17. Berne Convention for the Protection of Literary and Artistic Works of Sept. 9, 1886, concluded July 24, 1971, 25 U.S.T.
1341, 1161 U.N.T.S. 3 [hereinafter Berne Convention].
property and literary and artistic works respectively;
and (3) the global period characterized by TRIPS
that links trade and IP.18 IP protection has morphed
from having protection only in the country of origin
to global agreements on reciprocal IP protections;
wherein member countries that subscribe to global
agreements agree to abide by specific protection
rules and regulations in consideration for receiving
the same protections for their own IP in all other
member countries.19
The global IP protection agreements most significant to TK originated from the World Trade Organization (WTO) and WIPO. WTO protects IP within the
scope of international trade, and is notable for TRIPS
which focuses on national and territorial IP treatment.
TRIPS has opened the door to nations to trade globally
without fear of theft of innovations, streamlined IP
protection, and paved the way for Indigenous People
to break into the global trade market.20 TRIPS has
revolutionized global IP standards, but its effects seem
to have compromised TK identification and protection
mechanisms.
Other international agreements [such as the Paris
and Berne Conventions] may have preceded TRIPS,
but TRIPS expanded, strengthened, and homogenized
global IP standards in unprecedented ways.21 First, the
high minimum standards mandated by TRIPS curtailed
much of the flexibility that countries previously enjoyed in tailoring national IP laws.22 Subject to limited
exceptions, countries must make patents available
“for any invention, whether products or processes,
18. See Peter Drahos, Panel Discussion: The Universality of IP
Rights: Origins and Development, World IP Organization 13 (1999).
19. Lindsey Schuler, Modern Age Protection: Protecting Indigenous Knowledge Through IP Law, 21 Mich. St. Int’l. L. Rev. 751,
757-8 (2013) [hereinafter Schuler].
20. Schuler, supra note 21, at 758.
21. For a description of the industry lobbying efforts that led
to the passage of TRIPS, see Susan K. Sell, Private Power, Public
Law: The Globalization Of IP Rights 96-120 (2003).
22. TRIPS, supra note 16, art. 27. Prior to TRIPS, some countries such as India did not recognize patents in pharmaceutical
products, only pharmaceutical processes. This flexibility allowed
for a thriving generics industry. Several firms could produce the
same drug, so long as they found an alternate way of producing
it. TRIPS eliminated such flexibility by requiring patents to be
available for “any inventions, whether products or processes, in
all fields of technology,” subject only to limited exceptions. In
terms of required standards, TRIPS is a floor, not a ceiling. But
under the national treatment principle of TRIPS, if a country does
provide stronger IP to its own citizens, it must generally extend
those same rights to the citizens of other member countries. For
a description of patent protection variation among countries prior
to TRIPS, see generally Paul Goldstein, International IP Law 354
(2d ed. 2008).
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194
in all fields of technology,” including pharmaceuticals, modified micro-organisms, and microbiological
processes (such as those used in biotechnology),
“provided that they are new, involve an inventive step
and are capable of industrial application.” Moreover,
while countries can exclude from their patent laws
“plants and animals other than micro-organisms, and
essentially biological processes,” they must protect
plant varieties.23
The controversial protection of plant varieties and
bioengineered goods is particularly relevant to the
emergence of traditional knowledge protection as a
hot global topic.24 Several countries oppose patents
on any life forms, man-made or otherwise, and resent
the TRIPS requirement that such patents be recognized.25 Controversial U.S. and European patents on
inventions derived from developing country genetic
resources and traditional knowledge—such as patents
for neem-based pesticides—further fueled the fires.26
These widely publicized cases led advocates for indigenous groups, local farmers, and developing country
governments to coin the term “biopiracy.”27 This term
describes the industrial practice of patenting products
based on traditional knowledge or genetic resources,
without providing compensation or recognition to the
source countries or communities.
Not only does TRIPS homogenize and strengthen
minimum standards in unprecedented ways, but its
formidable enforcement mechanism also stand in
23. TRIPS, supra note 16, art. 27(3)(b) (requiring protection
“either by patents or by an effective sui generis system or by any
combination thereof”).
24. See Graham Dutfield, Ip, Biogenetic Resources And Traditional Knowledge 260 (2004) (describing the convergence
of “biodiplomacy and IP diplomacy” as a result of this requirement). The genesis of the requirement that patents be extended
to bioengineered goods—an explicit nod to the biotechnology
sector--can be traced to the controversial decision in Diamond v.
Chakrabarty, 447 U.S. 303 (1980), in which the U.S. Supreme
Court permitted the patenting of a genetically engineered, oileating microbe, as well as earlier cases that allowed the patenting
of isolated and purified chemical compounds, see, e.g., Merck &
Co. v. Olin Mathieson Chem. Corp., 253 F.2d 156, 164 (4th Cir.
1958) (upholding a patent on purified Vitamin B-12). Following
Chakrabarty, inventors have obtained patents on “anything under
the sun that is made by man,” Chakrabarty, 447 U.S. at 309, from
isolated genetic sequences to modified plants and animals. See
also Sabrina Safrin, Hyperownership in a Time of Biotechnological
Promise: The International Conflict To Control the Building Blocks
of Life, 98 AM. J. INT’L L. 641, 645-46 (2004).
25. Even in the United States, the seemingly limitless scope of
biotechnology patents are contested, as exemplified by a district
court decision invalidating patents held by Myriad Genetics on
genes linked to breast and ovarian cancer. See Ass’n for Molecular
Pathology v. U.S. Patent & Trademark Office, 702 F. Supp. 2d 181
(S.D.N.Y. 2010).
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stark contrast to previous international IP instruments. Unlike other agreements, “TRIPS has teeth.”28
Because it is linked to the WTO’s dispute resolution
system, member states must comply and submit to
mandatory adjudication of disputes initiated by member governments or risk retaliatory trade sanctions.29
Developing countries agreed to the draconian conditions imposed by TRIPS in exchange for favorable
trade treatment and the promise of foreign direct
investment.30 The troubling politics of TRIPS, and its
linkage to the WTO enforcement mechanism, have
triggered numerous, trenchant critiques…31
26. In the case of neem, a type of tree native to South and
Southeast Asia, the specialty chemicals company W.R. Grace
obtained U.S. and European patents on pesticides derived from
neem extracts. For centuries, Indian farmers have used a mixture of soaked neem seeds and alcohol as a pesticide. Grace’s
patents covered processes that increased the shelf life and storage
of azadirachtin, an active agent in neem; the company claimed
their patents were improvements on the traditional process because the neem mixture used by farmers begins to degrade if not
used within a few days. A number of advocacy groups challenged
these patents in 1995, arguing that Grace’s extraction process
did not sufficiently differ from the traditional process. In 2000,
the European Patent Office revoked Grace’s patent on grounds
that it was not novel, but the U.S. patent remains valid. The U.S.
neem example demonstrates the difficulty of challenging patents
for products or processes derived from traditional knowledge and
genetic resources through chemical isolation or a genetic engineering process, because of the way novelty is assessed under
U.S. patent law. For discussions of the neem and other “biopiracy” controversies, see, for example, Shubha Ghosh, Traditional
Knowledge, Patents, And The New Mercantilism (Part II, 85 J. Pat.
& Trademark Off. Soc’y 885 (2003).
27. See Dutfield, supra note 26, at 237 (describing the coinage of the term as “part of a counterattack strategy on behalf of
developing countries”).
28. Laurence R. Helfer, Regime Shifting: The TRIPS Agreement
and New Dynamics of International IP Lawmaking, 29 Yale J. Int’l
L. 1, 2 (2004).
29. Id. (describing the WTO’s dispute settlement system). Only
member governments can initiate dispute settlement proceedings
in the WTO; private individuals, companies, and NGOs do not
have direct access to the dispute settlement system. But these
nongovernment entities can and often do pressure WTO member
governments to bring disputes where another member violates
their obligations. And several WTO member governments have
“formally adopted internal legislation under which private parties
can petition their governments to bring a WTO dispute.”
30. For a nuanced view of the politics of TRIPS, see Amy Kapczynski, The Access to Knowledge Mobilization and the New Politics of IP, 117 YALE L.J. 804, 848 (2008) (explaining that the “success of TRIPS required not just pressure and transfer payments,
but also interventions in the realm of ideas” in order to “produce
the acquiescence of developing countries”—i.e., the industry
lobby “made the case that TRIPS was not only good for American
business, but also good for global innovation, and for developing
countries specifically”).
31. Varadarajan, supra note 17, at 379-82.
On the other hand, WIPO is a United Nations (UN)
agency serving as the global forum for IP services,
policy, information, and cooperation. WIPO has
developed a balanced and effective international
intellectual IP system that enables innovation and
creativity for the benefit of all.32 WIPO has organized
the Intergovernmental Committee and is currently
crafting an international legal instrument for the
protection of IP, genetic resources, traditional knowledge, and the folklore of Indigenous People.33 This
will be exceptionally important to Indigenous People
on a global level, developing a forum for rigorous TK
protection through modern legal application.34
2. Linking TK Protection to Human Rights
Around the same time that TRIPS began to shake
the international IP landscape, Indigenous People had
become more politically aware and begun to demand
increased recognition and protection of, and control
over, their indigenous culture, resources, and TK.35
The Universal Declaration of Human Rights pronounced the Indigenous People’ right to freely participate in their community’s cultural life, to enjoy
the arts, and to share in scientific advancement and
its benefits.36 Indigenous People have the right to
own property37 (including TK); not to be deprived
thereof;38 and to protect their moral and material
interests resulting from their own scientific, literary,
or artistic production.39
The United Nations Declaration on the Rights of
Indigenous People acknowledged that the diversity of
Indigenous People, cultures, languages, and spiritual
traditions constitutes the genuine richness of human
existence, guaranteeing the continued survival and
development of humankind.40 It underscored the right
of Indigenous People to IP,41 self-identification, and to
know, learn, preserve and develop their own culture,
history, language, religion, and customs.42
The Declaration on the Rights of Indigenous
People43 expressed the right of Indigenous People to
practise and revitalize their cultural traditions and
customs; including the right to maintain, protect and
develop the past, present and future manifestations
of their cultures, such as archaeological and historical
sites, artifacts, designs, ceremonies, technologies and
visual and the performance of arts and literature.44
It categorically pointed out the Indigenous People’s
right over their TK, and to maintain, control, protect,
and develop their IP over it.45
The International Covenant on Civil and Political
Rights seeks to protect the right of ethnic, religious
or linguistic minorities to enjoy their own culture.46
The Convention on the Elimination of All Forms of
Racial Discrimination attempts to insure that Indigenous People can exercise their rights to practise
and revitalize their cultural traditions and customs.47
The International Convention on the Elimination of
All Forms of Racial Discrimination desires to implement the principles embodied in the United Nations
Declaration on the Elimination of All Forms of Racial
Discrimination and to secure the earliest adoption of
practical measures to that end.
C. TK Through the Lens of Philippine Laws
The Philippine Constitution recognizes and promotes the rights of Indigenous People within the
framework of national unity and development,48 by
32. WIPO, Inside WIPO, available at http://www.wipo.int/aboutwipo/en/ (last accessed April 10, 2014).
33. See WIPO, Intergovernmental Committee, available at
http://www.wipo.int/tk/en/igc/index.html (last accessed April 10,
2014).
34. Schuler, supra note 21, at 759.
35. See, e.g., U.N. Econ. & Soc. Council, Subcomm. on Human
Rights, Written Statements Submitted by International Indian
Treaty Council 3, U.N. Doc. E/CN/4/2003/NGO/127 (Mar. 17,
2003); see also Stephen R. Munzer & Kal Raustiala, The Uneasy
Case for IP Rights in Traditional Knowledge, 27 Cardozo Arts &
Ent. L.J. 37, 51 (2009) (“Indigenous peoples increasingly cooperate globally on a range of shared issues, such as land tenure and
language preservation.”).
36. Universal Declaration of Human Rights, G.A. Res. 217
(III) A, U.N. Doc. A/RES/217(III), art. 27(1) (1948) [hereinafter
UDHR], available at http://www.un.org/en/documents/udhr/ (last
accessed April 10, 2014).
37. Id., art. 17(1).
38. Id., supra note 38, art. 17(2).
39. Id., supra note 38, art. 27(2).
40. Universal Declaration of the Rights of Indigenous People,
Unrepresented Nations and Indigenous People Organization, at
Preamble (2004) [hereinafter UDRP], available at http://www.
unpo.org/article/105 (last accessed April 10, 2014).
41. Id., art. 5.
42. Id., art. 15.
43. United Nations Declaration on the Rights of Indigenous
Peoples, G.A. Res. 61/295 Annex, U.N. Doc. A/RES 61/295 (2007)
[hereinafter UNDRIP], available at http://www.un.org/esa/socdev/
unpfii/documents/DRIPS_en.pdf (last accessed April 10, 2014).
44. Id., art. 11(1).
45. See Id., art. 31.
46. International Covenant on Civil and Political Rights, G.A. Res.
2200A (XXI), art. 27 (1976), available at http://www.ohchr.org/en/
professionalinterest/pages/ccpr.aspx (last accessed April 10, 2014).
47. Committee on the Elimination of Racial Discrimination,
General Recommendation 23, Rights of indigenous peoples (Fiftyfirst session, 1997), U.N. Doc. A/52/18, annex V at 122 (1997),
available at http://www1.umn.edu/humanrts/gencomm/genrexxiii.
htm (last accessed April 10, 2014).
48. Phil. Const. art. II, sec. 22.
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196
recognizing, respecting, and protecting their rights
to preserve and develop their cultures, traditions,
and institutions.49
The Indigenous Peoples’ Rights Act50 established
the necessary mechanisms to enforce and guarantee
the realization of the Indigenous People’s rights
to their ancestral domain, cultures, traditions, and
institutions. It provided them with the right to the
restitution of cultural, intellectual, religious, and
spiritual properties taken without their free and
prior informed consent or in violation of their laws,
traditions, and customs.51 Zeroing in TK, Indigenous
People are entitled to the recognition of the full
ownership, control, and protection of their cultural
and IP rights;52 and to control, develop, and protect
their scientific developments, technologies, and cultural manifestations, including TK on medicines and
health practices, vital medicinal plants, animals and
minerals, fauna and flora, oral traditions, literature,
designs, and visual and performing arts.53 Indigenous
People are even allowed to collect wildlife for their
traditional use and not primarily for trade.54
The National Cultural Heritage Act55 mandates the
documentation of traditional and contemporary arts
and crafts, including their processes and makers, and
the sustaining of the sources of their raw materials.56
It also extends assistance to Indigenous People in
preserving their particular cultural and historical
properties.57
The Traditional and Alternative Medicine Act58
49. Phil. Const. art. XIV, sec. 17.
50. An Act to Recognize, Protect and Promote the Rights of
Indigenous Cultural Communities/Indigenous Peoples, Creating a National Commission on Indigenous Peoples, Establishing
Implementing Mechanisms, Appropriating Funds Therefor, and
for Other Purposes, Republic Act No. 8371, sec. 2 [hereinafter
IPRA].
51. Id., sec. 32.
52. Id. sec. 34.
53. Id., sec. 34.
54. Wildlife Resources Conservation and Protection Act, Republic Act No. 9147 (2001).
55. An Act Providing for the Protection and Conservation of
the National Cultural Heritage, Strengthening the National Commission for Culture and the Arts (NCCA) and its Affiliated Cultural Agencies, and for Other Purposes, Republic Act No. 10066
(2010).
56. Id., sec. 16.
57. Id., sec. 21.
58. An Act Creating the Philippine Institute of Traditional and
Alternative Health Care (PITAHC) to Accelerate the Development
of Traditional and Alternative Health Care in the Philippines, Providing for a Traditional and Alternative Health Care Development
Fund and for Other Purposes, Republic Act No. 8423 (1997).
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seeks to provide a legally workable basis by which
Indigenous People would own their knowledge of traditional medicine. When TK is used by third parties,
Indigenous People can require them to acknowledge
its source and can demand a share of any financial
return from its commercial use.59
The IP Code of the Philippines60 has nothing specific
to say about TK. It merely posits for consideration the
enactment of a law providing sui generis protection
of plant varieties and animal breeds and a system of
community intellectual rights protection.61 In this
regard, its major roadblock in practice is the availability and sufficiency of the existing mechanisms
in the IP system to provide legal protection to TK to
address the concerns of the TK right holders on their
IP rights. Nonetheless, a deeper understanding of the
contemporary Philippine IP system may narrow its
limitations in protecting TK, and enable the sharing
of benefits arising from TK access and use.
II. TK Protection Afforded by Contemporary
Philippine IP System
The dynamic landscape of the contemporary IP
system in the Philippines can be applied to various
fields of disciplines including the innovations derived
from the indigenous knowledge systems and practices
of the Indigenous People. However, for the effective
application of the IP system, it is necessary that there
must be a clear identification of TK that is recognized
as the intellectual creation of Indigenous People,
and consequently, recognized as being owned and
controlled by the Indigenous People.
A. TK in the Form of Other IP Rights The Subheading “A” May be Titled as “IP Rights Protection
for TK.”
The essence of IP protection is to encourage creation and innovation that is useful and beneficial
to the public. As to the patent system, it is not the
reward to the individual which is paramount in public
policy terms, but the advancement of science. The
function of a patent is to add to the sum of useful
knowledge; and one of its purposes is to encourage
dissemination of information concerning discoveries
and inventions.62
TK owners or holders may secure patent protection
on their innovations and practices if they can satisfy
59. Id., sec. 2.
60. An Act Prescribing the IP Code and Establishing the IP
Office, Providing for its Power and Functions, and for Other Purposes, Republic Act No. 8293 (1998).
61. Id., sec. 22.4.
62. Manzano v. Court of Appeals, G.R. No. 113388 (1997).
the elements of novelty, inventive step, and industrial
applicability. “TK, just because it is ‘traditional’ is not
necessarily old. Tradition, in the context of TK, refers
to the manner of producing such knowledge, and not
to the date on which the knowledge was produced…
Besides, even TK that is “old”—in the sense that it
has been produced yesterday or, eventually, many
generations ago– can be novel for the purposes of
several areas of IP. Novelty, in general, has been defined by laws according to more or less precise criteria
according to which the specific piece of technical
knowledge has been made available to the public. In
the field of patents for example, it is disclosure (or
the lack thereof) that establishes whether the condition of novelty (and of inventiveness) has been met.
The date on which the invention was realized is not
necessarily taken into account for that purpose.”63
Clearly, TK not forming part of prior art can still
be considered new.
Patented TK brings about a bundle of exclusive
rights effective for a limited period of time as an
incentive to further intellectual contributions. A product patent holder has the exclusive right to prevent
third parties not having the owner’s consent from
making, using, offering for sale, selling, or importing
that product. A patented process holder can prevent
third parties not having the owner’s consent from
using the process, and from using, offering for sale,
selling, or importing the product obtained directly
by that process. Patent owners also have the right to
assign, or transfer by succession, the patent and to
conclude licensing contracts.64
In South Africa, a patent involving a pharmaceutical
composition extracted from the “Hoodia” plant and
identified as having an appetite suppressing activity
was the subject of a benefit sharing agreement between the San people in South Africa and pharmaceutical companies from developed countries. The San
have used the Hoodia plant for centuries as a food
and water source. This practice was brought to the
attention of the South African Council for Scientific
and Industrial Research, which undertook research
on the plant, and with the agreement of the San, filed
63. World IP Organization Intergovernmental Committee on IP
and Genetic Resources, Traditional Knowledge and Folklore [hereinafter IGC], Third Session, Review of Existing IP Protection of
Traditional Knowledge WIPO/GRTKF/IC/3/7 (06 May 2002) at 11.
64. Agreement on Trade-Related Aspects of IP Rights (TRIPS
Agreement), Art 28, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Annex 1(c) of the
Marrakesh Agreement Establishing the World Trade Organization,
15 April 1994, 1869 U.N.T.S. 299.
a patent application on the various properties of the
Hoodia plant in 1998.65
In Samoa, traditional healers were acknowledged
in a benefit-sharing agreement concerning the development of an anti-AIDS compound. The TK of these
healers guided the researchers in developing this
compound and the expected revenues will be shared
with the village and the families of the traditional
healers.66
On the other hand, assuming that the patentable TK
holder is not interested in securing exclusive rights
over an invention but would rather maintain such
knowledge in the public domain, patent laws also
extend “defensive” protection by effectively providing
a bar to third parties from patenting the invention
or its equivalent through the novelty requirement.67
To illustrate, if we assume the existence of a patent application for an “anti-obesity” invention with a
filing date of March 20, 2014. If, prior to this date, a
“Traditional Knowledge Journal” published an article
citing the “anti-obesity” characteristics of a fruit or a
plant which happens to be the source of the invention
the subject of the patent application which claims
that since the 1950’s, various groups of Indigenous
People have used this fruit of the plant to suppress
their appetite, the patent examiner could use the
publication to rule against the novelty of the invention claimed in the patent application.
TK in the form of traditional cultural expressions
may be protected by copyright and, if so, it will be
protected from the moment of creation. These may
be treated as literary or artistic creations referring
to tangible and intangible forms in which TK and cultures are expressed, communicated, or manifested.
Examples are traditional music, performances, narratives, names and symbols, designs, and architectural
forms.68 The owner of a copyright in TK has the right
to prohibit its reproduction in various forms, public
performance, recording (fixation), broadcasting,
translation into other languages, and adaptation.69
65. WIPO, PCT Notable Inventions: Hoodia appetite suppressant, available at http://www.wipo.int/pct/en/inventions/hoodia/
index.html (last accessed April 10, 2014).
66. Booklet, supra note 8, 24.
67. An invention is deemed equivalent to a prior invention if it
performs substantially the same function in substantially the same
way to achieve substantially the same result. Smith Kline Beckman
Corporation v. Court of Appeals, 409 SCRA 33, 40 (2003).
68. IGC, Glossary of Key Terms Related to IP and Genetic Resources, Traditional Knowledge, and Traditional Cultural Expressions, Annex Page 40, WIPO/GRTKF/IC/22/INF/8 (2012).
69. WIPO, Copyright, available at http://www.wipo.int/copyright/en/ (last accessed April 10, 2014).
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198
Over the years, many Indigenous People have
condemned the unauthorized reproduction of their
fixed and unfixed cultural expressions such as artistic
works, handicrafts, designs, dances, and musical and
dramatic performances.70 As holders of copyright of
TK pertaining to artistic and literary creations, the indigenous peoples have the right to secure or share in
the benefits arising from their contemporary works.
They may object to any distortion, mutilation or other
modification of, or other derogatory action in relation
to the traditional cultural expression, prejudicial to
their interests.
Moreover, the expressions of the Indigenous
People that have become distinctive may be the
subject of trademark protection if they are capable of distinguishing the goods or services of
the Indigenous People.71 If a product has gained a
reputation because of its characteristics attributed
to its geographic origin, the system of protection
on geographical indication may be used. Indigenous People who have been identified as living
and residing in this particular geographical location can then take advantage of this reputation.
Geographical indications protect certain traditional
know-how and help maintain the economic value
of locally produced goods.72 Production must be
in that particular geographical area associated
with the geographical indication; thereby creating rural employment niches and supporting rural
economies indirectly through associated industries
such as tourism.73 Trade secrets may also be used to
ensure TK protection and provide economic incentives and benefits to the TK holders, subject to the
free and prior informed consent of the Indigenous
People concerned.
In broad terms, therefore, both IP and TK protection follow the same principles of acknowledging
the author or creator and preventing the use of
the intellectual creations without the consent
of the owner. Often, the enhancement of an old
technology generates valuable new inventions, or
the adaptation of an old artistic tradition results
in new creative works. The economic value of TK
70. Graham Dutfield, IP, Biogenetic Resources And Traditional
Knowledge 101 (2004) [hereinafter Dutfield].
71. TRIPS, supra note 16, art. 15.
72. Dutfield, supra note 26, at 107.
73. Domnina T. Races. Tatak Pinoy: Towards the full protection
of Philippine Geographical Indication, at 77, (2008) (J.D. Thesis,
Ateneo de Manila University).
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les Nouvelles
could, therefore, be enhanced by the use of IP.74 TK
protection includes giving the Indigenous People
the control over these intellectual assets, which is
essentially similar to the rights given to the holders
of IP rights. The IP system can, therefore, be used
within the broader scope of TK protection for the
economic development of the Indigenous People
considered as TK holders.
B. Option to Exclusively Appropriate or Share
to Public
Some Indigenous People regard it as being inappropriate to cloak TK with rights to exclusive use but
rather see it as part of their culture, traditions, and
way of life. They argue that using the IP system is
incompatible with their culture and traditions. The
IP system does not prevent them from refusing to
take advantage of its benefits. IP rights are private
in character, and whether or not they are exercised
is a matter for the owner. There is nothing in the IP
system which would prevent an innovation or TK
which is patentable to be freely used by the public
if that was desired by the Indigenous People. What
is necessary, however, is for the Indigenous People
to be informed that there is the legal framework in
the present IP rights system which may be available
to them for the protection of their TK.
Thus, in the case of copyright works in the form
of traditional cultural expressions of an Indigenous
People, any derivative works would be subject to
control by the owners of the original works. But if
the Indigenous People believe that these derivative
works are only inspired by their traditional cultural
expressions and that they do not want to exercise
their IP rights, they are not compelled to do so. In
the same vein, if Indigenous People intend to keep
as a “trade secret” their TK, the IP system recognizes
the protection of undisclosed information.
In order for the Indigenous People to maximize
the benefits of the IP system, TK mapping through
databases or inventory is needed, to serve as the
guidelines on which of their TK may be subject to
protection, management and commercialization. In
examining patent and trademark applications, the TK
databases or inventory would be valuable for prior
art searches and for identification of TK owners.
Certificates of registration could be issued in favor
of the TK holders, which would simultaneously bar
other parties from securing protection that would
74. Kamil Idris, Intellectual Property: A Power Tool for Economic Growth, at 27, available at http://www.wipo.int/export/
sites/www/freepublications/en/intproperty/888/wipo_pub_888_1.
pdf (last accessed April 10, 2014).
be contrary to those rights. The mapping activities
could extend to cultural documentation that could
safeguard the Indigenous People’s cultural heritage for
future generations and enable a system under which
use by third parties could be regulated through prior
informed consent.75
Furthermore, the mapping activities could identify
the potential IP rights that are appropriate to the commercialization of the TK and consistent to the way of
life, values, and aspirations of the Indigenous People
concerned. The Indigenous People may themselves
opt to directly initiate the TK commercialization
activities using the trademarks or copyright on their
intellectual creations, while ensuring that their TK
is preserved, recognized, and given due respect.
Adopting collective marks or certification marks is
recommended in their merchandising activities to
ensure the proper recognition of their distinctive and
original intellectual creations.
Collective marks are often used to promote products deriving from a given region. Products may
have certain characteristics which are specific to the
producers in a given region, linked to the historical,
cultural, social conditions of the area. In such cases,
the creation of a collective mark has not only helped
to market such products domestically and occasionally
internationally, but has also provided a framework for
cooperation between local producers. The creation
of the collective mark, in fact, must go hand in hand
with the development of certain standards and criteria and a common strategy; powerful tool for local
development.76 To illustrate, the indigenous women
weavers in South Cotabato, Philippines embarked
on using the trademark system in their weaving of
the “T’boli T’nalak” products; while the Lake Sebu
Indigenous Women Weavers Association, Inc. (LASIWWAI) secured a trademark registration in 2011
for “LASIWWAI and logo” which they are using to
distinguish their products.
C. Indigenous Peoples’ Potential Concerns on
TK Protection
Many countries have attempted to extend TK
protection to their respective Indigenous People by
legislating their own protective laws. Difficulties remain because the schools of thought between western
legal systems as opposed to the Indigenous People
75. WIPO, Cultural Documentation and IP Management Training Program, available at http://www.wipo.int/tk/en/training/cult_
doc_ip_man.html (last accessed March 22, 2013).
76. WIPO, Collective marks, available at http://www.wipo.int/
sme/en/ip_business/collective_marks.htm (last accessed February
27, 2013).
are vastly contradictory. Indigenous People can rarely
meet the rigorous legal prerequisites because they
simply are not aligned and do not correspond to the
norms of their community. A glaring example is the
communal ownership over TK. Individualized forms of
ownership in western legal systems, are unsuitable for
Indigenous People’ culture and traditions because it
is the Indigenous People community which owns the
traditions and culture, and not one individual person or
entity. TK is generally passed down over generations,
and is not able to be identified with a single author or
origination date. In the tribal context, rights to TK and
other forms of intangible cultural resources may be
cascaded among members in ways in which IP would
recognize as placing them in the public domain. Consequently, if and when TK fails to meet the demanding
criteria for protection, it will not be secure and will be
open for appropriation. Indigenous People want TK to
function in a way that allows them to control the use of
cultural information to preserve their way of life, and
not necessarily become the subject of global processes
of commodification and appropriation.77
Copyright protection for TK may not necessarily be
acceptable to the Indigenous People who believe that
property ownership extends to perpetuity, whereas
copyright ownership in the Philippines ends after the
passing of fifty years after the death of the author.78
Not all TK of Indigenous People are sacred, but
those considered sacred are usually kept as secret
and require special usage.79 IP law offers trade secret
and patent protection, but it does not offer protection for TK such as knowledge of religious rituals or
folktales. Trade secret protection requires that the
information is “used in one’s business” and is “not
generally known.”80 Neither of these is characteristic
of traditional knowledge. The element of “used in
one’s business” demonstrates that the aims of IP
law diverge from tribal interests because the primary
goal of IP law is the commoditization of knowledge,
whereas tribes want protection from that very process, as well as privacy.81
Some Indigenous People even fear that instead of
77. See Peter Drahos, The Universality of IP Rights: Origins
and Development, available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.106.7755&rep=rep1&type=pdf (last
accessed April 10, 2014).
78. IP Code, supra note 62, sec. 198.
79. See Felix Cohen, Handbook Of Federal Indian Law § 20.01
(2012).
80. 1 Melvin F. Jager, Trade Secrets Law §§ 5:6-5:7 (2012).
81. Gerald Carr, Protecting Intangible Cultural Resources: Alternatives to IP Law, 18 Mich. J. Race & L. 363, 365 (2013).
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200
paving the way for the continued flourishing of their
TK assets, protection from laws will create reduced
access to traditional remedies, produce legal monopolies on certain biological resources, and limit, rather
than stimulate, the sharing of knowledge because of
economic prospects.82
Efforts of the current IP rights system are largely
focused on creating TK databases to increase the
likelihood that patent examiners will locate and
consider TK as “prior art” searches and deny subsequent applications. But for many Indigenous People,
disclosure of TK in publicly available databases is a
double-edged sword. By making otherwise secret
or inaccessible knowledge public, this form of
defensive protection can actually facilitate the unauthorized use of TK that the community wishes to
prevent. Documentation can thus have the perverse
effect of “tipping off outsiders to knowledge that
will ultimately aid them.”83
Conclusion
The Indigenous People, and the society in general,
cherish TK as a precious intellectual response to the
necessities of life. Several important technologies are
being derived from TK, and the resulting temptation
to exploit, misappropriate, or misuse it for industrial
or commercial advantage ought to be curbed. For TK
82. See Lidewyde H. Berckmoes, Protecting Indigenous Knowledge In South Africa: Debates On IP Rights And Development,
Radboud University Nijmegen 36 (2008).
83. Varadarajan, supra note 17, at 385.
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to continue to exist and develop, the Philippines has
to maintain not only the distinct knowledge systems
where TK originated, but more importantly, the Indigenous People’s social and physical environment, their
very ways of life, and their cultural values, spiritual
beliefs and customary legal systems.
Inasmuch as existing IP laws have been successfully
utilized to protect Indigenous People against some
forms of TK misuse and misappropriation, material
adaptations or modifications to IP law ought to be
implemented to make the existing IP rights system respond better to serious problem of misappropriation
and the lack of appropriate recognition of the value
of TK. Enabling laws must nurture and strengthen
the roots of TK, even in times of social dislocation
and change, so that its fruits may continue to flourish
and be enjoyed by future generations, and so that
Indigenous People can continue to thrive and develop
in ways consistent with their own values and interests. Legislators should seriously consider enacting
a law which will particularly address the challenges
currently being faced by TK; a more appropriate law
categorically recognizing TK as a distinct IP right, and
goes beyond the basic protections currently extended
to it as a clone of copyright, patent, trademark, or any
other traditional IP. ■
Australian Goods And Services Tax Impact
The Impact Of Australian Goods And
Services Tax On Assignments And Licences
Of Intellectual Property
By Stephen Adrian
Introduction
1. What is a Taxable Supply?
s with many other countries, Australia imposes
a tax on the supply of goods and services in
certain situations. In some countries this will
be called a goods and services tax and in others a value
added tax. In Australia, the tax is to be found in the
rather oddly named, “A New Tax System (Goods and
Services Tax) Act 1999” (the “GST Act”).
In this article, we provide guidelines as to how the
GST Act will apply to common transactions involving
the transfer of technology. Basically, the article deals
with assignments and licences of intellectual property
rights and the disclosure of confidential information.
The GST Act is complex and it is important to note
that these guidelines are not intended as a substitute
for professional advice in relation to technology
transfer transactions. Furthermore, in any technology
transfer transaction, appropriate clauses dealing with
GST ought be included in the documentation whether
or not the transaction is thought to be subject to GST.
The choice, in most situations, is between making the
transaction inclusive of GST or exclusive of GST. In
situations where the consideration is increased by the
amount of GST, in most cases, the effect will be cash
flow neutral provided that the acquirer of the services
is registered for GST and is entitled to claim a credit
for the amount of GST paid against GST payable in
respect of other transactions. The situation is very
different however where the acquirer of the right is
unable to obtain an input tax credit because it does
not otherwise pay GST.
The language of the GST Act would be foreign to
many licensing practitioners. For instance, licences
and assignments are included in the omnibus term
“supply,” carrying on a business in Australia is subsumed into the phrase “in the course of or furtherance of an enterprise” and one of the touchstones
for liability to Australian GST is that the transaction
is “connected” to Australia. So, before we embark on
trying to establish some guidelines as to whether or
not a transaction will be subject to GST, we need to
deal with the concepts on which liability is founded.
Under the GST Act, the following conditions
need to be satisfied for a licence or assignment
(“a supply”) to be a
taxable supply:
• The supply is made
■ Stephen Adrian,
for consideration;
Moore Stephens,
• It is made in the
Director,
course or furtherMelbourne, Victoria, Australia
ance of an enterprise;
E-mail: sadrian@
moorestephens.com.au
• The supply is connected with Australia; and
• The acquirer of the rights is registered or required to be registered for GST.
A supply will be connected with Australia where:
• The thing is done in Australia; or
• The thing is done through a permanent establishment that the non-resident carries on in
Australia.
1.1The Thing is Done in Australia
If a right to use intellectual property is granted by
the execution of a written contract, the grant of the
right is done in Australia if the contract is executed
in Australia. Accordingly, a supply will be connected
with Australia if the agreement is executed in Australia. There may be other circumstances where the
thing is done in Australia.
1.2The Thing is Done Through a Permanent
Establishment That the Non-Resident Carries on
in Australia
The meaning of the term permanent establishment
must be considered in light of the double taxation
agreements between Australia and various other
countries. In most cases, the primary meaning of
permanent establishment is a fixed place of business
through which a business is wholly or partly carried
on. The meaning of the term may be extended to
things such as a construction site, which exists for
A
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202
more than 90 days, factory, quarry or mine. Some
double tax agreements may deem certain supervisory
activities and the maintenance of substantial equipment by a non-resident company to be a permanent
establishment.
If the non-resident company has a permanent establishment in Australia, and the agreement is executed
through that permanent establishment, the supply
will be connected with Australia.
If the above conditions are satisfied, prima facie,
the supply will be a taxable supply.
For the purpose of these guidelines, we have assumed that the supplies are made for consideration
and in the course or furtherance of an enterprise.
Furthermore, we have assumed that the entities are
registered for GST. An entity is required to be registered for GST if its annual turnover meets or exceeds
the GST registration turnover threshold of A$75,000.
Non-resident entities are required to register for GST
where their GST turnover from supplies connected
with Australia exceeds A$75,000. With respect to
whether a supply is connected with Australia, this
will depend on the circumstances of the supply and
is considered below in more detail.
However even if a supply is a taxable supply, there
are specific provisions in the GST Act which allow
for certain supplies to be GST-free. Of particular
relevance is the exemption in respect of a supply of
rights which will be GST-free if:
(a) The rights are for use outside Australia; or
(b) The supply is to an entity that is not an Australian resident and is outside Australia when the
thing supplied is done.
2. Australian Statutory IP Rights
2.1The assignment or Licence of Australian
Statutory IP Rights by an Australian Company
to an Australian Company
The assignment or licence of Australian IP rights by
an Australian company to another Australian company
will be a taxable supply as the supply is connected
with Australia on the basis that the assignor is carrying
on an enterprise in Australia. Therefore, the supply
will be subject to GST.
2.2 The assignment or Licence of Australian
Statutory IP Rights by an Australian Company
to a Foreign Company Outside of Australia
The assignment or license of Australian IP rights
by an Australian company to a foreign company will
be a taxable supply as the supply is connected with
Australia on the basis that the assignor is carrying on
an enterprise in Australia.
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However, the assignment or license of Australian
IP rights to a foreign company will be GST free if
the supply is made to a non-resident entity and the
non-resident entity is outside of Australia when the
agreement is executed.
2.3The Assignment or the Licence of Australian
Statutory IP Rights by a Foreign Company to an
Australian Company
The assignment or the licence of Australian Statutory IP rights by a foreign company to an Australian
company will be subject to GST where the assignor
(i.e. the foreign company) is registered for GST.
A foreign company will be required to register for
GST if:
• It is carrying on an enterprise; and
•The GST turnover from supplies that are “connected” with Australia in the course of carrying on
that enterprise exceeds the registration threshold
of A$75,000.
In summary, the supply of a license of Australian IP
rights by a foreign company will be subject to GST if
the non-resident company is required to be registered
for GST and:
•The contract for the right to use the intellectual
property is signed in Australia; or
•The non-resident company has a permanent
establishment in Australia, and the agreement is
executed through that permanent establishment.
Otherwise, the supply will not be subject to GST.
2.4The Assignment or License of Australian
IP Rights by a Foreign Company to a Foreign
Company with the Agreement Being Executed
in Australia
The assignment of Australian statutory IP rights by
a foreign company to another foreign company may
be subject to GST where the assignor (i.e. the foreign
company) is registered for GST.
In these circumstances, if the particular supply of
Australian IP rights is more than A$75,000, the nonresident entity will be required to be registered for
GST (even if no other business is being conducted in
Australia) as the supply is connected with Australia
given that the contract is executed in Australia.
However, the supply may be GST-free where the
foreign company recipient is a non-resident of Australia and is outside of Australia when the Australian
statutory rights are granted.
A company would be considered outside of Australia if it doesn’t carry on a business in Australia:
•At or through a fixed and definite place for a suf-
ficiently substantial period of time; or
•Through an agent at a fixed and definite place for
a sufficiently substantial period of time.
The Australian Tax Office takes the view that generally a company would be in Australia if:
•The company is registered with the Australian
Securities and Investment Commission; or
•The company has a permanent establishment in
Australia for tax purposes.
Accordingly, if a foreign company does not satisfy
any of the above criteria, it will be outside of Australia
and the supply of statutory rights will be GST-free,
despite the agreement being executed in Australia.
3. Foreign Statutory Rights
3.1 The Assignment or the Licence of Foreign
IP Rights by an Australian Company to an
Australian Company
The licensing or assignment of foreign IP rights between Australian companies will be GST-free provided
that the rights are solely for use outside of Australia.
3.2The Assignment or the Licence of Foreign
IP Rights by an Australian Company to a Foreign Company
The assignment or licence of foreign IP rights will be
GST-free as the rights are for use outside of Australia.
3.3The Assignment or the Licence of Foreign
IP Rights by a Foreign Company to an
Australian Company
The assignment or the licence of foreign IP rights
by a foreign company to an Australian company will
be subject to GST where the assignor (i.e. the foreign
company) is registered for GST.
However, the assignment or licence of foreign
rights will be GST-free if the rights are for use outside
Australia.
3.4The Assignment or License of Foreign
IP Rights by a Foreign Company to a Foreign
Company with Agreement Being Executed
in Australia
The assignment or license of foreign IP rights by a
foreign company to a foreign company may be subject
to GST where the assignor (i.e. the foreign company)
is registered for GST.
However, the assignment or licence of foreign rights
will be GST-free if the rights are for use outside of
Australia. This will be the case even if the agreement
is executed in Australia.
4. Worldwide Rights
Where an Australian company provides rights to
another Australian company for use in and outside of
Australia (e.g. worldwide rights), an apportionment
will be required. The same would apply to a foreign
company providing such rights to an Australian company if the foreign company is required to be registered
for GST and the supply is connected with Australia.
In instances where worldwide rights are provided
to Australian entities, the portion of the rights relating to use outside of Australia will be GST-free. The
rights to be used in Australia will be subject to GST.
Accordingly, the consideration will be apportioned
between the part of the rights that is made in relation
to rights for use in Australia and the part in relation
to use outside of Australia.
The GST Act provides that any reasonable method
of apportionment may be used. The factors to be taken
into account in making this determination include:
•Expectations of the recipient, based on reasonable
grounds, as to the likely use of the right over the
period for which the right is granted;
•Economic, social, cultural, and political conditions
the nature of the right itself;
•Past revenue, royalty or profitability patterns
evident from the use of similar rights—through
industry statistics or similar.
For completeness we note that where worldwide
rights are provided to foreign companies who are
not Australian residents and are not in Australia
when the rights are supplied, the supply will be
completely GST-free.
5. Common Law IP Rights—Confidential
Information
5.1 Disclosure by an Australian Company to a
Foreign Company
Intellectual property is defined in the GST Act to
include the provision of confidential information.
Accordingly, the provision of confidential information will be GST-free provided that the information is
for use outside Australia or the recipient of the rights
is a non-resident of Australia and is outside Australia
when the thing supplied is done.
5.2 Disclosure by a Foreign Company to an Australian Company
The provision of confidential information by a foreign company to an Australia company will be GSTfree if the information is for use outside of Australia.
In instances where the information is used in Australia, the rights to this information will be subject
to GST if the foreign company is registered for GST
or required to be registered.
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204
5.3 Disclosure by an Australian Company to an
Australian Company
The provision of confidential information by an
Australian company to another Australian company
will be subject to GST as the supply is connected
with Australia.
The supply would be GST-free if the rights were
for use solely outside Australia.
6. Supplies of a Going Concern
The GST Act has special provisions dealing with
the sale of a business as a going concern. These will
be GST-free if:
•The supply is for consideration;
•The recipient is registered or required to be
registered;
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•The supplier and recipient have agreed in writing
that the supply is of a going concern;
•All things that are necessary for the continued
operation of an enterprise are supplied; and
•The supplier carries on the enterprise until the
day of the supply.
Accordingly, where the assignment of statutory or
common-law rights is part of the supply of a going
concern, the supply will be part of the GST-free supply of a going concern.
Conclusion
The position of GST, as with any tax, can have a
significant impact on a transaction. It is therefore
important for those involved in the transfer of rights
to have an appreciation as to when GST might be
imposed and when to seek specialist advice. ■
EU State Aid Policy—Part II
EU State Aid Policy: A Model To Assess
Intellectual Property Rights And Knowledge
Dissemination In R&D Cooperation
Part II
By Mario Cisneros
1. Introduction
I
n Part 1 dynamic efficiency and potential distortion of competition caused by State aid and IPRs
allocation in collaborative R&D projects has been
discussed. It was shown how different IPR ownership schemes are connected to potentially distortive
competition practices, the generation of market
power, the distortion of dynamic incentives and the
maintenance of inefficient market structures, all elements under assessment from the perspective of EU
State aid law.
In Part 2, an analysis on how State aid law should
be applied to knowledge dissemination and licensing
practices involved in publicly funded R&D cooperation is presented. Part 2 is structured in two sections.
Firstly, the alternatives for the rules on knowledge
dissemination are evaluated from the perspective of
the benefits generated by knowledge spillovers, the
problem of asymmetric information and coordination and network failures. Secondly, the alternative
rules to define how parties regulate access rights to
the resulting knowledge are weighted, focusing on
potential effects to dynamic incentives and distortion
of competition through the enforcement of IPRs.
2. Knowledge Dissemination
Knowledge dissemination represents one of the
main arguments for the justification of State aid for
R&D activities, particularly R&D cooperation.1 By
providing aid for the accomplishment of R&D, States
can generate positive externalities to other economic
activities by the generation and dissemination of technological knowledge. That technological knowledge,
incorporated into products and processes, can be
used to develop further knowledge and to improve
the competitiveness of the industry, which generates
1. For example, State aid N 667/2007 (Germany, Land Mecklenburg-Vorpommern). R&D&I-scheme, ‘Guidelines for R&D&IPromotion.’ “By granting this type of aid, the German authorities
hope to remedy market failures in the form of insufficient dissemination of information,” para 51.
benefits for the society and the economy. Under the
economic foundations of the EC Framework for State
aid for R&D, aid measures are justified only in cases
of market failures while
information asymme■ Mario Cisneros, Ph.D, LL.M.
try and limitations for
knowledge disseminaUniversidad Austral and
tion are identified as two
NOVATIO Consulting, of the main target probAdjunct Professor and Director,
lems responsible for
Buenos Aires, Argentina
productivity and competitive limitations of
E-mail: marcisne@gmail.com
technology industries.
Restrictions on the
possibility to disclose knowledge generated from
R&D projects are of primary concern for universities and research organizations. One of the primary
goals of these institutions is to conduct fundamental research, industrial research or experimental
development and to disseminate the results by way
of teaching, publication or technology transfer. At
the same time, scientists are evaluated by measuring quantity and quality of publications, while the
reputation of research institutions is also weighted
on the presence of their scientists in conferences,
seminars and scientific journals. All these referred
activities involve in one or another way disclosure
of information resulting from R&D activities, including disclosure in the context of R&D cooperation
with the industry. Nevertheless, a recent survey
has indicated that no more than 25 percent of researchers in the EU make data generated from R&D
projects available for everyone.2 Around 40 percent
of researchers base their decision on potential legal
problems generated as a consequence of the dissemination of those data. Several EU Governments
have recently recognized the importance of the
dissemination of research results generated from
2. Van der Hoeven J., “Insight into digital preservation of research output in Europe,” PARSE.Insight, June 2010.
September 2014
206
public funds.3 They believe that research results from
publicly funded projects should be made available as
widely as possible with no barriers to access and that
improving access to the results benefits the economy
and facilitates more effective knowledge exchange.
This has raised awareness about the need for actions
to increase access to the publications arising from
R&D activities.4 At the same time, industrial partners
are usually interested in protecting the results of R&D
activities to avoid third parties free riding on those
results. The use of secrecy over technological developments or scientific knowledge is one of the strategies
followed by the industry in order to appropriate the
benefits of investments in R&D activities. By avoiding
the disclosure of valuable information, industrial undertakings can avoid competing companies to access
the technology and the benefits generated by the use
of knowledge.5
Theor y indicates that non-collaborative R&D
levels decrease with higher spillovers, while investment in cooperative projects tend to increase
with spillovers, and thus imperfect appropriability
of knowledge increases the benefits from collaborative agreements.6 As expected, the presence of
spillovers increases the incentive for R&D collaboration through the internalization of the positive
externality, i.e. the knowledge acquired during
the collaboration. But, imperfect appropriability
of the generated knowledge also encourages third
parties to free ride on the generated R&D results.7
Unfortunately, most of the theoretical models only
consider horizontal R&D co-operation. Despite
the fact that this theoretical approach has been
of key importance in the development of competition policy in the field of horizontal agreements,
the interest of State aid law is to assess vertical
3. For example, see the letter to Dame Janet Finch on the
Government Response to the Finch Group Report: “Accessibility,
sustainability, excellence: how to expand access to research publications,” July 2012.
4. Media Release, “Universities UK welcomes Dame Janet
Finch report on open access,” June 2012.
5. Confidentiality or trade secret protection can only be implemented where the information is not disclosed by the mere
commercialization or use of the product that embodies the technology. Typical examples of knowledge that can be protected by
secrecy practices are technologies related to manufacturing processes.
6. Czarnitzki D, Ebersbergerc B., Andreas F., “The Relationship Between R&D Collaboration, Subsidies and R&D Performance: Empirical Evidence From Finland and Germany, Journal
of Applied Econometrics,” J. Appl. Econ. 22: 1347–1366, 2007,
pp. 1347–1366.
7. Id.
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les Nouvelles
cooperation, i.e. cooperation between industry and
universities or ROs.
2.1 Existence of State Aid as a Consequence of
Limitations to Knowledge Dissemination
The Community Framework for State Aid for R&D&I
requires the dissemination of results as one of the
possible conditions for the Commission to consider
that no indirect State aid is granted to the industrial
partner through the research organization.8 Where
the results of an R&D project are widely disseminated
through technical and scientific conferences or published in scientific or technical journals or in open
access repositories, a bonus in the ceiling thresholds
to R&D projects is used to consider a State aid measure compatible with the internal market within the
meaning of Article 107(3)(c) TFEU. Despite knowledge spillovers represented by the level of information dissemination foreseen in an R&D project being
regarded as a positive effect of State aid measures,
the Framework provides limited information on the
mechanisms through which such spillovers take place,
and no information on how disclosure mechanisms
and incentives for disclosure should be assessed.
Besides in the definition of the existence of indirect State aid, results dissemination prerequisites
are also used to decide on the maximum amounts
under which a State aid measure does not affect
trading conditions to an extent contrary to the common interest.9 Thus, in establishing the rules for the
calculation of the amount to determine compatibility
of aid with Article 107(3)(c) TFEU, a bonus can be
granted in the case that results are widely disseminated “through technical and scientific conferences
or published in scientific or technical journals.”10 The
provision implicitly accepts the fact that dissemination of R&D results can affect trading conditions and
a competitive market.
From these elements it can be proposed that
dissemination of results as an assessment variable
for the existence of indirect State aid finds its legal
justification either in its effect on the selective
advantage requirement, due to the favourable conditions of the collaboration, or in the distortion or the
threat to distort trade and competition.
8. The requirement is limited to knowledge that does not give
rise to IPRs.
9. Id.
10. Id. In many cases, the access to scientific publications and
conferences is limited by fee payments by private publishers or
conference organizers, which in practice reduce the possibility of
third parties to access the related knowledge.
2.2Distortion of Competition as a Result of
Limitations in Knowledge Dissemination
Knowledge spillovers can take place by several
means. The most classic examples refer to scientific
and technical publications, lectures, seminars, and
presentations in specialized conferences. Other
means of knowledge spillovers take place via the mobility of scientists, the licensing and commercialization of products and technology and the publication
of patents. Knowledge dissemination is extensively
referred to as a positive spillover in the creation of
new technological knowledge, the increase of productivity and the commercialization of new products
and services.11 Disclosure and dissemination being a
necessary step in the process, effective knowledge
transfer defined as the capacity of third parties to
integrate such knowledge into processes and products, translates such spillovers into positive effects.12
Knowledge dissemination has to be understood
as an intermediate step between knowledge generation and knowledge absorption.13 If it is assumed
that knowledge dissemination requires not only the
willingness to disclose, but also the resources to
make such disclosure effective by publications in
recognized journals or conferences presentations, it
is reasonable to consider that parties will not make
the resulting knowledge public or, at least, will not
spend resources in making third parties aware of the
knowledge except when they have an incentive to do
so. In this perspective, it is clear that the generation
of knowledge is not a sufficient condition to have
positive externalities from dissemination and that
State aid does not guarantee knowledge spillovers to
take place. Studies show that researchers in the EU
consider that up to 50 percent of additional effort,
compared to the resources invested in production
and analysis, is necessary to preserve R&D data and
results in a re-usable form.14 Under this perspective,
State aid measures that explicitly request disclosure
of research results in an usable manner would assure
more knowledge dissemination.
11. Block J., et al., “What turns knowledge into innovative
products? The role of entrepreneurship and knowledge spillovers,” Journal of Evolutionary Economics, 2012.
12. Janczak S., “Knowledge and learning in strategic alliances:
how to learn with cooperation,” Problems and Perspectives in
Management, Volume 6, Issue 1, 2008, volume 6.
13. Eckl V., “Barriers of knowledge transfer,” Stifterverband
für die deutsche Wissenschaft e.v., Druid, 2012.
14. Holzner A. et al, “First results from PARSE. Insight The
HEP survey on data preservation, re-use and (open) access,” First
Workshop on Data Preservation and Long Term Analysis in HEPv,
2009.
As described, in projects carried out jointly by
undertakings and research organizations, the Commission considers that no indirect State aid is granted
to the industrial partner through the research organization, due to the favourable conditions of the
collaboration, if the results which do not give rise to
intellectual property rights may be widely disseminated.15 It should be noticed that the provision does
not require that the results are widely disseminated
but just that they may be disseminated. The condition
implicitly assumes that market distortions are less
likely to occur if results are open to be disclosed as
a consequence of less favourable conditions granted
to the industrial partner. Under this perspective, the
opposite reasoning assumes that if dissemination of
results is not possible, market distortion generated by
knowledge access restriction may exist. Following the
reasoning, cooperation agreements with restrictions
on result disclosure can potentially generate a distortion in competition markets, which makes the State
aid measure to be incompatible under Article 107(1)
TFEU. In the same way, from the perspective of the
incentive effect requirement, State aid measures
should be focused not only on the generation of more
R&D results but also on the generation of knowledge
spillovers as a way to make State expenditure more
efficient by producing more positive externalities.
The essence of this view is shared by the ECJ, which
agrees that confidentiality agreements between
undertakings may occasionally prevent, restrict or
distort competition.16
To be compatible with the internal market, State aid
measures should modify the behaviour of the beneficiaries and generate an incentive to encourage more
and better R&D. In a scenario where a reduction in
the restrictions for use, open access and free publication policies are promoted,17 more effective State aid
measures would imply a greater generation of positive
externalities by the dissemination of R&D results.
The EC has recently recognized the importance to
improve access to scientific information produced in
the EU to allow researchers and businesses to build
on the findings of public funded research.18 While
open access to scientific publications will be a general
15. Other conditions apply.
16. C-7/95, John Deere Ltd v Commission, ERC I-03111, 1998.
17. “Accessibility, sustainability, excellence: how to expand access to research publications,” Letter to Dame Janet Finch on
the Government Response to the Finch Group Report, July 2012.
18. EC Press Release, Scientific data: open access to research
results will boost Europe’s innovation capacity, July 2012.
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208
principle in the Horizon 2020 Program,19 the EU’s
Research & Innovation funding plan for 2014-2020,
the Commission has also recommended Member
States to take a similar approach for the results of
R&D funded under their own programs.20
Restrictions on knowledge dissemination may
create positive or negative incentives. In any case,
the assessment of such practice should take place in
the context of the R&D project and the aim of the
aid measure. When knowledge spillovers want to be
favoured, no dissemination restrictions should be
allowed. In cases where a comparative competitive
advantage of the aided undertaking is the objective,
the use of tools that favour the appropriation of R&D
results, including secrecy, should be promoted. While
an obligation to disclose and effectively transfer the
generated knowledge may in some cases deter the
participation of industrial partners in R&D cooperation projects, disclosure limitations in collaboration
projects should be allowed only under certain circumstances. The assessment of such limitations should
be explicitly promoted by State aid law.
2.3The Grant of an Advantage and Knowledge
Dissemination Restrictions
Advantage requirements refer to a specific and
selective State aid benefit granted to one or several
undertakings. According to Article 107(1) TFEU, an
advantage can be granted “in any form whatsoever.”21
A direct transfer of IPRs from a research organization
to the industry is the obvious example of a transfer
of intangible resources from a State controlled institution to an industrial undertaking. Another less
obvious resource transfer can be represented by the
transfer of knowledge, generated either during the
execution of the collaborative project, the foreground
technology, or in possession of the research organization before the start of the project. Confidentiality
requirements, restrictions for open dissemination and
the limitations for the research undertaking to make
technological knowledge available by disclosures to
third parties is a less obvious element to evaluate in
assessing the transfer of resources under State aid law.
Industrial partners in R&D cooperation are usually
interested to limit the disclosure of information in
19. Horizon 2020 is the financial instrument implementing
the Innovation Union, a Europe 2020 flagship initiative aimed at
securing Europe’s global competitiveness, running from 2014 to
2020 with an $80 billion budget.
20. Id.
21. Id.
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les Nouvelles
order to avoid third parties to free ride on the project results. Firms with higher incoming spillovers
and better appropriation mechanisms have a higher
probability to cooperate in R&D.22 At the same time,
consortia organize to avoid spillovers, and therefore
do not achieve the cross-pollination of know-how
that State aid partially wants to achieve.23 The interests of the industrial partner and the research organization on this subject are usually contradictory.
While the industrial undertaking can be benefited
from limited dissemination of research results, the
research organization usually pursues the objective of publication and the possibility to use the
results for teaching purposes. The divergence on
the standpoint of both parties depends on factors
like the nature of the technology, the characteristics of the research project and the objectives and
internal policies of the cooperating parties. In case
that a legal protection scheme, other than secrecy,
is available, the parties usually agree on the proper
timing to firstly apply for such protection and then,
depending on the required procedures, to proceed
with the publication by the research partner.24 Nevertheless, in cases that no alternative protection
scheme is available, a common situation in projects
dealing with basic research and the generation of
knowledge without direct industrial applicability,
secrecy may be the only protection at hand.25 In cases
where protection by other means is not available,
the industrial partner may request partial or total
confidentiality over the resulted knowledge or a refusal right for any publication related to the project
that is proposed by the research organization or the
involved researchers. The possibility to maintain the
results of R&D activities resulting from a State aided
cooperation project secret may represent a benefit
for the industrial partner. Such benefit, activated
by the limitation of the RO to publish, represents a
transfer of resources from the research institution
to the industrial partner and an advantage under
Article 107(1) TFEU.
22. Cassiman & Veugelers 2001.
23. Majewski S., “How Do Consortia Organize Collaborative
R&D? Evidence from the National Cooperative Research Act,” Industry Studies Annual Conference, 2008.
24. Responsible Partnering Initiative 2009. For example, to
permit the filing of patent application without loosing the novel
character of the invention.
25. Patent law requires the invention to be plausible of industrial applicability to be patentable. Discoveries and general scientific theories are usually not patentable.
3. Use and Licensing of IPRs
The term exploitation of IPRs refers to the utilization of intangible assets in internal processes and the
production of products or the licensing out of the
technology for use by third parties. Traditional exploitation of IPRs by research organizations is limited
to activities of research and teaching. Recently, more
sophisticated approaches for IPR use and exploitation
have included licensing out strategies and the creation
of spin-off companies.26 In the context of cooperation
projects, the agreement between the parties on the
use and exploitation of IPR related foreground and
background technology is of key relevance.27 The
agreement will define the circumstances and conditions under which each party is allowed to exploit
the resulted technology. Such agreements usually
also determine how background IPRs are used for
the execution and after completion of the cooperation project.28 Regarding the foreground technology,
crucial points to decide are the use and scope of
licensing practices and its scope by the participants
for exclusive or non-exclusive, commercial or noncommercial use, limitation in time and territory or
the allowed industrial field for commercial application
and use.29
Use rights can be granted by the owner of the related IPRs or the proprietor of a related licensing right.
For example, an RO may provide certain knowledge
that needs to be used during the R&D cooperation
project. In granting a license or a use right to the industrial partner, the research organization may decide
the conditions under which that knowledge can be
used, for example, that the authorization is limited to
the cooperation project and that the industrial partner
26. Intellectual Asset Management for Universities, The Intellectual Property Office (IPO) Report, UK, 2011.
27. Background technology means “information which is held
by participants prior to their accession to the grant agreement, as
well as copyrights or other intellectual property rights pertaining
to such information, the application for which has been filed before their accession to the grant agreement, and which is needed
for carrying out the indirect action or for using the results of the
indirect action,” Council Regulation (Euratom) No 1908/2006 of
19 December 2006 laying down the rules for the participation
of undertakings, research centres and universities in action under the Seventh Framework Programme of the European Atomic
Energy Community and for the dissemination of research results
(2007 to 2011).
28. “Intellectual Property (IP) Management in International
Research Collaboration Agreements between European and NonEuropean Partners,” Knowledge Transfer Working Group of the
European Research Area Committee, June 2012.
29. Id.
is forbidden from using the background technology
with other purposes after the termination of the
cooperation contract. Such kind of agreements may
limit future development of the resulted technology
by the industrial partner. In the same way, the industrial partner may decide that the foreground technology can not be used by the research organization for
research or teaching purposes out of the cooperation
project, which may limit the freedom of the research
organization to use in the future the results of the
cooperation. Thus, parties agree on access rights
for the project, access rights for further research
and access rights for future scientific or commercial
development of the results and the previously owned
knowledge.30 These agreements, while producing a
market impact, can be the object of assessment under
compatibility rules of State aid law.
In evaluating licensing agreements between undertakings, the Commission has issued a block exception and guidelines to interpret how technology
transfer practices can distort competition.31 While
the referred framework is limited to assess transfer
and licensing of IPRs in the context of Article 101
TFEU, the underlying reasoning may be extrapolated
to other areas of competition law, like State aid law.32
In this context, the Commission has indicated that,
“In order not to reduce dynamic competition and
to maintain the incentive to innovate, the innovator
must not be unduly restricted in the exploitation of
intellectual property rights that turn out to be valuable. For these reasons the innovator should normally
be free to seek compensation for successful projects
that is sufficient to maintain investment incentives
(…).” While this guideline indicates that distorting
agreements between undertakings on the licensing
of IPRs may still generate incentives to innovate, it
30. Id.
31. Commission Regulation (EC) No 772/2004 of 27 April
2004 on the application of Article 101(3) of the Treaty to categories of technology transfer agreements, and Communication from
the Commission on Guidelines on the applicability of Article 101
of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, (2011/C 11/01).
32. Article 101 TFEU rules “The following shall be prohibited as incompatible with the internal market: all agreements
between undertakings, decisions by associations of undertakings
and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal
market.” While Article 101 targets agreements between undertakings, Article 107 rules on measures taken by Member States,
both articles belongs to the Chapter 1 of the TFEU, “Rules on
Competition,” which is intended to avoid competition distortions
in the internal market.
September 2014
210
is also true that in the case of State aid measures
such incentives are produced by the grant of State
benefits to the participating undertakings. Thus, the
threshold under which IPRs exploitation agreements
are evaluated from the perspective of State aid law
should be much higher than the threshold used in
the case of agreements between undertakings involving IPRs generated with private funds. Otherwise, a
double cost on tax payers would be imposed: the cost
of expenditure in State aid measures and the dead
weight loss associated to the enforcement of IPRs.
Certain characteristics of collaborative projects
may lead to the transfer of IPRs at reduced price.
ROs are becoming more interested during the last
years in putting to use the technology developed by
researchers. This objective, still not as important as
publication but gaining relevance with the development of technology transfer activities, constitutes a
pressure to the RO to agree on lower transfer prices.
Either for a license or the transfer of ownership the
RO usually considers that placing the technology in
use is more preferable than to recover R&D costs or
to generate an income to the institution. Usually,
there is no more than one company interested in
the technology and a public tender becomes impracticable, though a competitive procedure is not enough
to eliminate State aid.33 Usually, the RO will include
certain conditions in the contract, as to limit the license to the business field of the licensee or a clause
establishing the termination of the contract in case
the licensee does not commercialize the technology
after a certain amount of time. Imposing conditions
on the licensee will not automatically eliminate State
aid in the transaction, and it is still the evaluation of
the conditions under the perspective of a rational
market player that counts. In case the State, in trying
to speed up transfer of technology to the industry,
encourages ROs to an undervaluation of intangible
assets in order to sign more licensing contracts, those
transactions are clearly under the scope of Article
107. From the perspective of case law, the requirement to an RO to behave as a market player trying
to maximize income from a license agreement to
eliminate State aid is still in place.34
33. Nicolaides P., “State Aid, Advantage and Competitive Selection: What Is a Normal Market Transaction?,” European State Aid
Law Quarterly, 2010.
34. See C-334/99–Germany v Commission, 2003 I-01139 and
C 56/06 (ex NN 77/06) Commission Decision on State aid implemented by Austria for the privatization of Bank Burgenland, 2008,
cited in Nicolaides P., “State Aid, Advantage and Competitive Selection: What Is a Normal Market Transaction?,” European State
Aid Law Quarterly, 2010.
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les Nouvelles
3.1Limitations of Dynamic Incentives and
IPR Use
Limitations on the use of background and foreground technology in future R&D projects may affect
the development of improvements and constrain
further cooperation with third parties. A wide
authorization to use background and foreground
knowledge and IPRs would, in principle, prevent
competition restrictions.
A distinction should be made between background
and foreground, and the different possible uses
assigned to the technology. In the first case, it is
a normal assumption that both parties are free to
independently assign use rights over related IPRs
and protected knowledge. Usual agreements grant
crossed rights over background technology that need
to be used during the execution of the cooperation
project.35 The conflict may arise in connection to
the use of background technology for purposes of
those related to the cooperation project, which are
rarely granted by the cooperating parties. From the
perspective of dynamic incentives for further development of the technology, either for improvements
or as a result of the need to use the background
as a platform to enter in an R&D project in other
technological field, it is of interest that use rights
are granted by the parties. In principle, this would
avoid further negotiation on the terms of use of such
technology, simplifying the process and reducing
transaction costs.
In the second case, where foreground technology is the result of the joint effort between the
research organization and the industrial partner, the
same concepts concerning the possibility to further
develop on the resulted technology apply. Barriers
in the possibility to use the resulted knowledge to
further develop an improvement would mutually
block parties from the possibility to further invest
in improvements. The effect could be more relevant
in case that the resulted knowledge represents
a platform technology or scientific concepts that
can be used in a variety of industrial and academic
fields. While blocking future use of foreground and
background technology would protect the industrial
partner from the possibility that competitors free
ride over their proprietary technology, dynamic
35. A detailed analysis of the alternative use schemes proposed
by industrial and research organizations is provided in M. Cisneros, “The Role of EU State Aid Law in Promoting a Pro-Innovation
Policy—A Review from the Perspective of Public-Private R&D Cooperation.” Intersentia (UK), 2014.
incentives to further invest in R&D activities to
improve the related technology will be diminished.
The Commission has a clear position on the anticompetitive nature of agreements where the use
of background technology is not allowed to one of
the cooperating parties. Provided other competition
provisions pursue the same objective of avoiding a
distortion in the competing forces between undertakings, the analysis of some of those rules may provide
an indication on how the Commission would assess
agreements under the perspective of State aid law.
Under this view, the Commission has indicated that
to effectively protect competition “the research and
development agreement must stipulate that each
party must be granted access to any pre-existing
know-how of the other parties, if this know-how is
indispensable for the purposes of its exploitation of
the results.”36 Regarding foreground technology, the
Commission has indicated that “the research and
development agreement must stipulate that all the
parties have full access to the final results of the joint
research and development (…), including any resulting intellectual property rights and know-how, for the
purposes of further research and development and
exploitation.”37 While these rules are applicable to any
agreement under the scope of Article 101 TFEU, it is
arguable that in cases where State funds are involved
the restrictions to avoid for anti-competitive behavior between the parties should be strengthened. In
this scenario, the view of this paper is that State aid
measures should incorporate more clear rules on the
allowed agreements for the use and exploitation of
background and foreground technology.
3.2Selective Advantage and the Use of IPRs
By granting the industrial partner the right to
use IPRs and knowledge with other objectives than
performing the R&D tasks contemplated in the cooperation project or using the generated technology
in the commercialization of product or services, the
research organization may transfer rights that are in
most of cases not appropriately valued in the amount
of remuneration agreed by the parties. One reason
for this is that research institutions cannot always
clearly identify the background information. Several
times such information is in possession of individual
researches but not recorded as an institutional asset.
36. Article 3, para. 3, Commission Regulation (EU) No
1217/2010 on the application of Article 101(3) of the Treaty on
the Functioning of the European Union to certain categories of
research and development agreements, December 2010.
37. Id., para 2.
Besides, part of the information is not protected by
any means, either because the information relates
to non-patentable knowledge, as discoveries or basic
scientific knowledge without industrial application
or simply because the organization has not implemented the necessary steps to formally protect the
asset. In other cases, protection is not possible as
a consequence of publication of the results by the
researchers or the research organization, which in
most jurisdictions impedes later patenting of the
invention. These limitations make difficult the possibility to grant a license to the industrial partner on
background technology. The knowledge transfer is in
these cases not documented or contemplated in the
calculation of the resources involved in the cooperation project. Thus, no monetary retribution can be
requested from the industrial partner. This fact may
constitute both, a hidden transfer of resources from
the research organization to the industrial undertaking and the grant of a selective advantage. Despite
the differences between protected and non-protected
intellectual assets, know-how should account in the
assessment to calculate aggregated benefits transferred to the industrial partner. In referring to the
exploitation of research results, the Commission
accounts for both, intellectual property rights and
the know-how required for the manufacture or application of the technology.38 The only requirement
for the know-how to be accounted as such is that it
needs to be secret, substantial and identified.39 In
cases where no clear identification can be made of
the transferred assets, the aid cannot be considered
as transparent, and block exemptions on the aid
measure would not apply.40
Selective advantage can also be defined by the conditions, namely price and exclusivity, of the transfer
of IPRs generated during a collaborative R&D project.
If several industrial partners are involved in the collaborative project, transference conditions should be
maintained equal to all of them to avoid favouring
certain parties. Thus, price for the technology, either
for a license or for the transfer of ownership of IPRs,
38. Id., Article 1, (g).
39. Id., (i). “Secret” means that that the know-how is not generally known or easily accessible; “substantial” means that the
know-how is significant and useful for the manufacture of the
contract products or the application of the contract technologies;
“identified” means that the know-how is described in a sufficiently comprehensive manner so as to make it possible to verify that
it fulfils the criteria of secrecy and substantiality.
40. See General Block Exemption Regulation, Reg. (EC) No
800/2008.
September 2014
212
should be kept equal for all partners. Even more, if
no partner decides to acquire the IPRs and the RO
determines to offer the technology to third parties
not involved in the cooperation project, such transaction should also keep the same price as offered to
the cooperating parties. This element may be taken
into account by the EC to assess indirect State aid
measures. For example, in an aid measure granted to
the Ludwig Boltzmann Institut für Krebsforschung
(LBG), the EC considered aid as compatible with the
internal market because the contractual conditions
for the cooperation established that if the cooperating parties accept the offer to take ownership or a
license on the technology, the RO can put up for sale
the IPR “at a price not inferior, and conditions not
more favourable than those offered to the cooperating parties.”41
3.3Distortion of Competition by Limiting the Use
of IPRs to Third Parties
Limitations in the use of background and foreground technology can also limit competition in
innovation and technology markets. The most clear
example is the limitation for third parties to make use
of the resulted knowledge in further R&D activities
out of the scope of the cooperation project. The agreement between parties in an R&D project forbidding
the grant of licenses to third parties may limit the
further development of the related technology. IPRs
allocation may determine the further development of
the technology that is the object of the cooperation
project. In principle, there is no non-commercial and
experimental use exemption for patented technology
under the European Patent Convention. Rules on
enforcement of patented developments are exclusivity national law of member states. While some countries have implemented exclusions on patent rights
in the benefit of science by granting exceptions for
non-commercial use of patented technology, there is
no general criterion that can be extrapolated at EU
level.42 Those EU countries where research activities
are exempted from patent rights would not produce
distortions in competition for innovation intended to
improve the technology. Nevertheless, in Member
States where such exemption is not implemented,
an agreement between the cooperating parties to
limit the possibility to allow third parties to further
develop the related technology would deter dynamic
41. State aid NN 65/2007 Austria, Ludwig Boltzmann Institut
für Krebsforschung.
42. Implementing Article 27(b) of the Community Patent Convention (CPC).
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les Nouvelles
incentives. Under this perspective, universities and
research institutions should assure that further
development and non-commercial use of the IPRs
generated as result of the collaboration can still be
used for research and teaching purposes. Allocation
of IPRs on the industrial partner may in some cases
lead to a disincentive to continue with research projects and collaboration with other parties. Any future
improvements of State aid law and particularly the
Framework should consider these factors not only as
direct and indirect State aid measures assessment,
but also as an economic perspective to improve the
efficiency of public expenditures.
3.4Distortion of Competition by the Enforcement
of IPRs
Recent behaviour of non-practicing entities, also
known as patent trolls, generates concerns about
IPR allocation and about the potential distortion of
innovation and product markets. In theory, research
institutions and industrial partners may act as patent
trolls in trying to stop third parties from making use
of the developed technology exclusively with the
purpose of making profits of such rights, even when
the enforcing party is not interested to commercialize or produce the related product. In practice, due
to the nature of public research institutions, acting
as non-practicing IPR would be strange. IPR ownership with the industrial partner would in principle
have a greater likelihood that an IPR generated as a
consequence of the use of State aid ending up in the
hands of a patent troll. State aid law should assure
that R&D results generated from public funds are not
used with these purposes.
4. Conclusions
Diverse arrays of the available IPR ownership, disclosure and use schemes have been described. It was
also shown how they may affect market competition
under State aid measures compatibility assessment.
This paper has provided an overview of contractual
IPR provisions defined in collaborative R&D contracts
and has discussed how these elements may determine the compatibility of State aid measures with
the internal market. Generation of market power,
distortion of dynamic incentives to innovation and
the maintenance of inefficient market structures have
been identified as potential consequences generated
by certain IPR ownership models used in collaborative
R&D contracts. A poor design of an aid measure, and
the absence of IPR requirements in EU State aid law
facilitates the possibility that parties organize in a way
that the market can be distorted, either by distorting
competition by some of the mentioned mechanisms
or by the generation of adverse effects in the internal
market. It was also shown that IPR ownership models
used by cooperating partners may be decisive in the
assessment of selective advantage as defined by EU
State aid law.
The alternative schemes of exclusive vs. non-exclusive use of the resulting technology, free publication
vs. secrecy, public vs. private ownership and intermediate IPR options have shown not to be neutral
in assessing the effects of State aid measures on the
market. One of the critical justifications for State
intervention, the positive spillovers generated by
R&D cooperation between ROs and industry, is highly
affected by restrictions on knowledge dissemination.
Moreover, the dissemination objective pursued by
R&D aid measures may be offset by contractual limitations on disclosure and use between cooperating
partners. In this way, it was shown that IPR schemes
should be coherent with the market failures that State
aid measures try to solve.
Taking into account the fundamental effect that
IPRs and disclosure models selected by collaboration
partners may have on the spillovers pursued by R&D
State aid measures, and considering the fundamental
interest of the Commission in both market functioning and efficient use of State aid, it is crucial that some
basic IPRs and disclosure conditions are imposed to
aid measures targeting R&D cooperation in the new
Framework. Today, IPRs are only mentioned as an
ingredient to define the existence of indirect State
aid in RO-industry cooperation. Nonetheless, the new
Framework should go beyond this point to explicitly
incorporate IPRs and knowledge dissemination as
one of the fundamental elements in applying the
balancing test. ■
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214
UniLink
UniLink: A New Model For Increasing
Academic And Industry Partnerships
By Hester Tak and Bob Smailes
Abstract
Tech transfer models for university-industry licensing
are essentially of three types. The classical model used
by the majority of universities, the economic model
and more recently, the Easy Access IP model, which is
gaining popularity. The models are summarized with
their advantages and disadvantages and an alternative
model, UniLink, is presented which has been discussed
with over 50 international companies with positive results. The views received from the international companies reflect their experiences worldwide. UniLink was
developed in The Netherlands to overcome problems
in the classical model. The problems described in the
literature regarding the classical tech transfer offices
primarily reflect the U.S. situation. However, the Dutch
TTO’s seem to be suffering from the same problems.
The model seeks to optimize academic-industry interaction by allowing early stage insight into unpublished
research results in a controlled way. Benefits include
reduced transaction time and costs, lower patent costs,
an expected increase in the volume of research collaboration with industry, and an expected increase in
the value of research collaboration for the universities.
The benefits for the companies include insight into
research outputs, shorter transaction time and costs,
potential ability to influence the direction of translational research programs in the institutions, use of the
research for their own internal programs, free access
to research tools; and the research is expected to have
greater societal, commercial and economic benefit. here are many different definitions for the
term technology transfer. Generally speaking,
the term is used for a process of transferring
knowledge or technology from one entity or individual
to another entity or individual. The movement may involve physical assets, know-how, and technical knowledge1 and in some cases relocating or the exchange
of personnel.8 The term technology transfer can also
1) apply across or within firms, 2) across or within
universities, and 3) also across university-industry
collaborations. More recently the term knowledge
exchange is also used to indicate the stream of information and knowledge is, or should be, both ways
rather than coming from one direction.
T
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les Nouvelles
As most universities will confirm, there has been
a growing pressure to turn knowledge into commercially applicable products through partnering with
firms. These innovations create both societal and
economic impact. Traditionally, technology transfer
is formalized through license contracts, royalty arrangements and patents. In collaborative research,
exchange of know-how often occurs through direct
interaction and is therefore an informal mechanism of
technology transfer.6 With the pressure that has been
put on the universities to demonstrate the impact of
research funding, many academic institutions have
a formal technology transfer mission as part of their
core tasks besides teaching, research, education,
further training, and if the institution has a medical
hospital attached, patient care. Universities globally
have been setting up Technology Transfer Offices
(TTOs) whose main task is to carry out and manage
the transfer of inventions and knowledge into the
market. Particularly in university-industry collaborations, transfer of technology is often formalized
through filing of patents and subsequently negotiating
licenses and research agreements.
There are three drivers for universities to engage
in technology transfer or exchange activities: societal
benefit, economic benefit and financial benefit. Each
of these variables can be given a weighting. Some institutions will value societal benefit more than economic
benefit perhaps, whereas others may find the financial
benefit to the institution more important. Depending
on how an institution ranks each of these drivers, the
way the TTO carries out its task will follow from that.
For example, an institution that focuses primarily on
financial return will argue hard for upfront payment,
milestones and royalties.
There are three basic “business models” that can
be identified that institutions use to carry out their
technology transfer activities. Firstly, the traditional
or classical technology transfer model. Secondly,
the economic model and thirdly, a recently emerged
model called Easy Access IP Each of these models will
be discussed below.
The Classical Technology Transfer Model
In 1980 the Bayh-Dole act was introduced in the
UniLink
U.S. This Act allowed intellectual property rights
generated using funds from federal research grants
to be transferred to the institution. As a result, many
universities started engaging in technology transfer
as an out flow of their academic research mission. In
order to encourage industrial parties to develop some
of these technologies, universities were allowed to
patent their inventions. Through this mechanism,
industry would be able to protect their investments.16
Having universities being able to protect their inventions before offering them to industry, forms the basis
of the classical technology transfer model.
The classical model is a filtration process that
eventually leads to a selection of inventions being
disclosed to the commercial sector. Academics make
the first selection of what is potentially of interest
to industry. This selection is then brought forward
to the TTO as a disclosure and the TTO will make
a further selection of which inventions potentially
have commercial interest (Step 2, Figure 1). In most
cases, the inventions brought forward are often very
embryonic. The third step is a “due diligence step”
and includes looking at the science, the marketability
and the patentability of the invention. In the event
the inventions are patentable, have favorable market
potential and the science data is sufficient, the TTO
will move into the “patenting phase” (Step 4, Figure
1). The cost of filing a patent varies per area, but
generally speaking, patenting process is regarded as
a costly game and a risk for the institution as there is
no assurance of finding a licensee or that the licensee
will successfully take it to market.3 In the life sciences,
there is an additional complication. Because these
inventions are often very embryonic, some patents
have to be re-filed because of new data, which in
turn affect the claims. Patents can only be re-filed if
there has been no publication yet and the first filing
can be retracted. Once the patent is filed, the TTO
staff will look for potential licensees, also known as
the “marketing phase” (Step 5, Figure 1). Sometimes
potential interest is brought forward by the academics that know from their industry network where the
technology may potentially fit. If no prior licensee
has been identified, a non-confidential document is
produced giving a short summary of the invention
and additional information such as the advantages
over the golden standard (if there is one), the status
of patent (filed, granted) and/or what the institution is
looking for (e.g. license and/or collaboration transfer
of rights, etc.) are mentioned. This non-confidential
document (NCD) is subsequently targeted towards
companies who have expressed an interest in a certain
area. In addition, the NCD is posted on the university
TTO website and some institutions may also post the
NCD on more general showcase websites such as
iBridge (www.iBridgeNetwork.org) or Innoget (www.
innoget.com).
Having identified a potential licensee, the TTO and
the firm will subsequently start negotiating a license.
This is the “negotiating phase” (Step 6, Figure 1). The
art of negotiating is to incorporate the interests of
the academic, the institution and the licensee into
one agreement. Where some clauses will be relatively standard, the key
clauses that are negotiated heavily in licenses
■ Hester Tak,
are the financial comGunn & Twynmore,
ponents (upfront payPartner,
ments, milestones and
Leiden, The Netherlands
royalties). Regarding the
research agreements,
E-mail: gt@gunntwynmore.com
publication clauses and
licenses to foreground
■ Bob Smailes,
IP, for example, are
Gunn & Twynmore,
heavily negotiated.
Partner,
A license can be given
to an existing company
Leiden, The Netherlands
or a start-up (Step 7 &
E-mail: gt@gunntwynmore.com
8, Figure 1). In some
cases, the institution
may choose to spin the
technology out itself (spin-out) often negotiating both
a license and an equity stake. The decision to set up
a spinout company is often highly dependent on the
entrepreneurial spirit of the academic.4 However, if
the technology is regarded as radical or pioneering,
most universities will make a decision to go for a spinout, even if the academic is not so entrepreneurial.
In these cases, the academic will often stay closely
involved in the research from within the institution.17
In summary, the commercialization of technology
begins with an invention and is subsequently depicted
as a linear process including evaluation, patenting,
marketing and license negotiating.2
The Economic Model
A second (economic) business model is primarily
focused on developing the regional economy. The
focus of this model is on developing spinouts and/or
start-ups and licensing to existing companies in the
local area. Like the traditional technology transfer
model, it is a technology push model. However, this
model is not found in Europe as most countries in
Europe have to comply with the rules and regulations
of the EU, which do not allow preferences to local
firms for economic development.
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UniLink
Easy Access IP
A third business model, Easy Access IP is a relatively
new business model, but has gained quite some
popularity in a short time period. This model, too,
is focused on technology push. In this model, the
technologies are offered for free to industry using
standard license agreements in exchange for “anticipated future engagements” within a period of three
years after the license has been granted. If this does
not occur, the license is terminated. Companies have
to indicate how they wish to use the technology, etc.,
when they apply for a license. Some universities have
adopted this model in parallel to the traditional technology transfer model whereas others have adopted
the model as their sole technology transfer model.
The biggest criticism companies have, however, is
that they feel that universities who have adopted
Easy Access IP in parallel to the traditional technology
transfer model, save the potentially revenue generating inventions for the traditional model and “the rest”
is offered via Easy Access IP How the universities
select which technologies go via which route is not
disclosed to industry.
Problems in Classical Technology
Transfer Model
As most institutions still operate under the classical technology transfer model, the most common
problems are listed and described.
The first problem arises at the start of the process.
Before any invention reaches the TTO, the academics
make a selection of their research output that they
think may have a commercial application. These inventions are then brought forward to the TTO who
then filters a second time. In other words, it begins
with a double filtration process.
Although the intentions of the Bayh-Dole act were
good, the institutions have become real protectionists
of the IP they generate and have become too concerned with the legal aspects.13 This has resulted in
long negotiating times and because the negotiations
take longer and longer, the actual deal flow decreases.
One of the elements that takes up more and more
time in the negotiations is the determination of the
value of the technology. It can be argued that both
sides have polarized views of what the value is. Institutions seem to start the negotiations with what
they perceive is the potential value of the technology
when it reaches the market whereas most firms start
negotiating from the standpoint of the technology’s
value at the time of negotiating and the risk they
still need to take to develop the technology. These
are two very different viewpoints and the basis for
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les Nouvelles
long and complicated discussions. Because of the
long negotiating time, some academics and firms
are avoiding the TTO. A recent study14 shows that
it currently takes four years for 50 percent of the
disclosures to go from the moment of disclosure to
the TTO to the signature on the license agreement.
During this time, a lot of the research related to the
technology is on hold, which leads to a loss of value.
This has led to situations where firms are contacting academics directly and arranging to work with
them informally.12 This in turn means that many
technologies are indeed “going out the back door.”7
Also, managers and entrepreneurs have expressed
the lack of skillset with TTO staff regarding marketing and negotiations13 as well as their lack of dealmaking mentality,11 which also may be a reason for
the firms to avoid the TTO.
There also appear to be other problems of a more
abstract nature such as the bureaucracy and inflexibility of the institution.13 But not only are the firms
avoiding the TTO, also academics sometimes avoid
the TTO.12
There also seems to be a mutual complaint from
both academics and industry regarding the lack
of understanding of the other party regarding the
norms; academics do not sufficiently understand
the industry environment and industry insufficiently
understands the academic world. Thus, more efforts
and time should be spent on developing a mutual understanding, also referred to as boundary spanning.13
An additional problem that causes delays is the fact
that R&D activities by larger pharmaceutical companies are outsourced to smaller biotechnology SME’s.
This in turn has led to a change in the number of
potential licensees for an institution. Although the
number of SME’s in biotechnology is far larger than
the number of multinational pharmaceutical companies, it has become increasingly difficult to identify
the right companies during marketing activities by
the TTO as these SME’s potentially could be based
anywhere around the world.
Because it is taking longer to identify the right
partners and subsequently negotiate a license, the
institutions are inclined to maintain their patent
portfolios beyond national phase. Taking patents
into national phase can become very expensive if
protection is sought in Europe. As most institutions
have a limited patent budget, some technologies and
inventions may be dropped before they’ve had a fair
chance to be tested out in the market.
Even if the process is successful and a license is
agreed between the parties, there is no guarantee
UniLink
that there will be any financial benefit for the institution beyond the upfront payments that may have
been negotiated. The rest of the financial benefit
(milestones and royalties) is highly dependent on the
research that still needs to take place and the sales
figures. The financial share that the institution gets
follows what has been negotiated.
As has been described above, TTOs are often regarded as obstacles. In addition to these problems,
the efforts and investments made by the TTO both
in time and money do not seem to pay off. The majority of the TTOs are not profitable and even if the
benefits are higher than the cost of running a TTO,
the income stream is still a relatively small percentage
of the total research volume.
Trends
The universities are part of a complex ecosystem
and work together with many different bodies. In
each part of the ecosystem, changes are taking place
and putting pressure on the institutions to change as
well. The two biggest “sectors” that the universities
deal with and are evolving onwards are the government and the industry sector.
Many governments seem to focus more on the
valorization of the research they fund and stimulate
(PPP) private partnerships. The EU, too, is investing
heavily in public private partnerships with Horizon
2020, which has a total budget of EUR 79 billion.
The interest in partnership models and different
types of partnership models seems to exist amongst
industry as well. More and more collaboration models
are being tried but with various degrees of success.
There is a clear shift in the pharma sector whereby
companies are moving from a closed environment to
an open environment; it is more about collaboration
than deals. Companies have found that the classical
technology transfer model does not work efficiently,
especially without (academic) collaborations, and
therefore, a shift can be seen from ownership of IP
to freedom-to-operate (FTO). Companies are looking toward new ways of finding their technologies:
collaborations, scouting networks such as innocentive, yet2com, nine sigma, etc., as well as their own
innovation portals being used to post the challenges
they face (“technology pull”).
An Alternative Academic-Industry
Partnership Model
Given the above issues and the trends, there is
room and opportunity to explore new alternative
academic-industry partnership models. The model
below starts from a different perspective than the
models described earlier. The basis of UniLink is
about giving insight into research output to industry
in a structured way that goes beyond the inventions
and research tools offered in the classical model.
The model is aimed to lower the threshold for
knowledge exchange, to increase collaboration between industry and academia both at a national level
as well as an international level. The long-term goals
of the model include long term partnerships between
academia and industry, an enhanced quality of translational research and higher societal economic impact.
Related to these goals, four pillars have been developed: 1) facilitating easier access to knowledge and
IP 2) broadening the partner base (this can be for
both the institution as well as the industry sector)
3) increasing the number of research collaborations
between academia and industry, and 4) developing
an ecosystem that is complementary to the model.
Each of these pillars has a subset of “modules”
(Table 1). Two of these modules can be regarded as
compulsory for the model: a platform to exchange
information and data and an industry community.
A more detailed description of each of the modules
of each pillar will be given below.
Pillar 1: Platform
The platform, a cloud, is an essential element in the
UniLink model. It offers a platform for academics to
post their unpublished research outputs that would be
sufficient for a publication. The outputs are presented
in a format that is similar to the information sheets
that are used for marketing patented technologies.
The information should be short, concise and legible
for all companies. If the companies see something
that is of interest to them they can choose to take
a license, collaborate or do both. In this respect,
the platform is a “technology push” tool. If there is
interest in certain research data, the companies can
contact the academic directly via the platform. However, the platform also allows companies to post their
(unused) technologies, expertise and/or challenges
(“technology pull”). This allows academics insight
into the needs of the companies as well.
Pillar 1: Express Licensing
Licensing can be done through standardized terms
and fees. The contracts should be downloadable from
the website. The company can fill out the form, sign
and submit the contract to the TTO.
There are two different types of research output
that can be distinguished: research tools and any
other IP research tools can include software for
analyses, cell lines, antigens, etc., that can be used
for research purposed. In some cases, certain research
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UniLink
tools can be commercialized as a product in itself. If a
firm wishes to take a license for purposes other than
research within its own organization, a commercial
license should be taken. Because the model encourages research progress and research collaboration,
the price for research tools ideally should be free or
as low as possible (e.g. a fee or reimbursement for
production costs). IP that is to be used beyond research purposes, require a commercial license. Again,
a standard agreement that is downloadable from the
website should lower the threshold. As in the Easy
Access IP model, a short form should be included as an
appendix to the contract before it is sent to the TTO.
This form, a bid, should explain how the company
thinks it can utilize the technology or develop it into
a product, the expected time to market, the intention
to collaborate with the institution (is not required
but preferred) and if the company wishes to have an
exclusive or non-exclusive license. It is not the intention of the form for the company to disclose highly
classified information to the institutions, but there
should be some openness as to how the technology
is to be used. The bid will be used for two reasons: to
evaluate the proposals of (a) potential partner(s) and
for the reports that are due annually. If the reports
divert drastically from the original bid, this may be a
reason for the institution to terminate their license
with the company. If there are good reasons why the
original bid is no longer valid, e.g. there is a delay
in the research due to specific circumstances, then
the institution should accept that. A second way of
using the bid may be to evaluate preferred partners
if multiple parties apply for a license for the same
technology. Reasons for selecting one partner above
the other may be time-to-market (clinical benefit can
be reached more quickly) or perhaps collaboration
with the institution. However, the selection may
be different for different institutions based on their
drivers for doing tech transfer.
The cost of a commercial license should be low
as the model aims to lower barriers and thresholds.
The model has been discussed with more than 50
companies of which half have had very detailed presentations and all, having confirmed that the model
lowers the barriers, are very supportive. In these
same discussions, the size of various license fees
was discussed. A one off fee of 10K and an annual
lease fee was acceptable to all. A variable lease fee
was proposed depending on the size of the company.
Small companies with less than 50 employees pay the
smallest fee. Companies with 50-250 employees pay
an annual lease fee of a few thousand euros e.g. €5K
whereas companies with more than 250 employees
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les Nouvelles
could afford a little more e.g. €10K. The lease fee
essentially replaces the milestones and the royalties.
The fees are not meant to raise barriers but are there
to remind companies that there is an expectation
from the institution to take the technology forward
to market.
Pillar 2. Industry Community
Because of patent law in most countries around the
globe, patent application need to be filed before there
is a public disclosure. As the platform offers insight
into unpublished and pre-patented data, the cloud
must be closed off in order to allow companies to file
a patent and take a license. By closing the cloud, an
industry community can be established which companies could join for a small fee. Once the companies
are a member of the community, they have insight
into the unpublished data for a select period of time,
e.g. 3 months. After this time period, the academics
are free to publish their results. Membership includes
the right to use the research output for internal research in the firm. If the company wishes to exploit
the research output at a later stage, it may need to
take a sublicense from a third party or if there is no
existing license, the invention is not protected and
freely accessible for all parties. Inventions or technologies that companies would like to take a license
to will have to be evaluated in that time period, as
well as prepare the bid, and if the license is awarded,
file the patent application. If this time period is too
short for the company, they will need to discuss this
with the academics directly.
Members of the industry community also have
other privileges. If a company sponsors research at
full economic cost, any foreground IP that is developed in the course of that research collaboration will
automatically be licensed to the company and will be
regarded as fully paid-up. Companies who are not a
member of the community can also carry out research
with the institution, but they will be required to pay
an extra percentage over the full cost of the research
project for the paid-up license to any foreground that
arises. An additional privilege that the community
members have is that they have access to specific
industry days.
Pillar 2: Industry Days
The platform is a tool that has very little human
interaction. However, to establish good relationships there is a degree of personal interaction
required. Often academics and firms meet each
other at conferences, symposia, etc., and are more
opportunistic than structured. The industry day
program allows a more structured way of industry
UniLink
and academia to meet and collaborate together.
The first type of industry day is focused on multidisciplinary challenges. Either the institution or the
firms can bring these challenges forward. The idea
behind these events is to bring different parties
together to brainstorm and develop new “out-of-thebox” roadmaps. These events are to be held in small
groups with partners who are genuinely interested
in forming a small consortium to tackle a multidisciplinary challenge. Companies in different parts of the
value chain should therefore also not be excluded.
The second type of industry day event is focused on
bringing information on a very broad topic together.
For example, many institutions carry out stem cell
research, often in different departments. In other
words, it is rather fragmented over the organization.
Even within the institution there is not a good overview of what expertise there is in stem cell. These
events are primarily aimed at bringing the existing expertise together, which may be beneficial to both the
companies as well as the academics themselves. The
topics for these events can either be selected by the
academics themselves or by the industry community.
Pillar 2: PR and Outreach
Universities are generally speaking not very good
at PR activities. Although most universities will have
a newsletter or a magazine, the distribution of these
is limited and does not reach many people outside
of the university ecosystem. As mentioned above,
this model focuses on societal impact. The definition of societal impact goes beyond new products
that enhance patient care, etc. It can and should be
extended to other parts of society. As most institutions receive a large part of their funding from the
government, sharing the achievements an institution
has accomplished in research is therefore part of
this model. There are different ways of connecting
with society outside of the university community.
For example, annual diner events relating to the
industry club, strategic industry days and their topics, themed industry day calls and/or topics can be
announced in (inter)national newspapers as well as
interviews in more local newspapers with academics and their research. Institutions can even hold an
“open house” event where scientists and doctors
show the immediate community and others interested the latest technologies and research progress
in certain areas to give them an idea of what the
taxpayer’s money is used for. Some universities have
started offering science summer camps to children
and teenagers to encourage science education. All
of these activities are different ways of engaging
society, which many universities have not yet developed to their full potential.
Pillar 3. Express Research
As mentioned before, the platform is aimed at giving insight and, thus, expertise into the research that
is carried out within an institution. This may lead to
companies wanting to collaborate with academics. As
with the licensing agreements, research agreements,
too, seem to require long negotiating times. However,
many of the clauses can be standardized as well. This
leaves the science to be “negotiated and discussed”
between the scientists.
Pillar 3: Finance Structure for Research Projects
Having lowered the threshold for research contracts, the calculation of the cost can also be more
transparent through moving towards standard fees
for students, PhD’s, postdoc’s, etc. A lump sum for
a professor’s time can be included. The size of the
lump sum can depend on the size and duration of the
collaboration. In addition, a minimum overhead rate
of 100 percent is to be added to the labour cost. The
overhead rate is meant to cover indirect costs such as
office space, lab space, depreciation of lab equipment,
etc. In medical faculties it is not uncommon to use
higher overhead rates due to the high-tech labs and
facilities. Naturally, the final cost element that needs
to be added is the material cost.
Pillar 4. Student Link
An important element of knowledge exchange is
the linkage to students. Often companies are eager
to take on students for internships and participate
in practical PhD programs such as DEng. Some universities have well developed placement structures
for students and companies. As this is an important
element of knowledge exchange, there are potentially
other ways of engaging students more in practical
challenges. Specialized programs could be developed
between the institution and firms where companies
give students challenges related to their coursework
that they can brainstorm over in teams. Alternatively,
some challenges may be more appropriate to have
a multi-disciplinary team of students to brainstorm
over. Through the interactions with companies,
students may be stimulated to think in a more entrepreneurial way as well.
Pillar 4: External Ecosystem
Some institutions will have an existing science park
nearby the university campus or science faculties.
This external ecosystem can be an important mechanism for attracting potential research partners for the
institution and some science parks have very strong
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ties with the institution. Especially incubators with
spin-offs and start-ups often work closely with the
institution. However, young companies, particularly in
biotech, often face problems regarding investments in
facilities and equipment. Some universities will allow
them to make use of their facilities and equipment
for a fee (facility sharing). In some cases, however,
certain equipment is not available for companies,
either because the institution uses its full capacity
or simply because the institution does not have the
equipment in its arsenal either. Therefore, a shared
facility building may have an added value to some
science parks if it can house facilities that are not
available within the institution.
The industry community may also lead to new
customers or partners for the Science Park or
even new residency. A business gateway could be
established to help new businesses find the right
partners and/or find their way around the Science
Park and institution.
A different element of the ecosystem is an external
funding platform or investment fund for new research
and/or technologies. Proof of concept funds, seed
funds, etc., are important for bridging the valley
of death. Long-term partners of the institution or
members of the industry community together with
the science parks could help develop this part of the
ecosystem with government bodies co-investing.
Pillar 4. Sustainable Social Development and
Social Entrepreneurship
Another way of engaging with society on a different level is through sustainable social development
programs and social entrepreneurship programs.
Many institutions have internships for medical
students in Africa, South America or Eastern Asia.
However, structured programs to engage actively
in social development, regardless whether it is at
a national or international level, for both students
and professional university staff, are often lacking.
Social entrepreneurship is also a new development
in some corporate organizations. Combining the
industry community and the institution together,
potentially with financial institutions dedicated to
entrepreneurial development could lead to long-term
structural programs with other countries enhancing
both societal benefit and economic benefit on a different scale.
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les Nouvelles
Potential Pitfalls
There are potential pitfalls that need to be taken
into account. The model requires active participation
from the academics. It is therefore important that
they are motivated sufficiently. With the downward
pressure from the government funding schemes, most
academics will be looking for a balanced research
portfolio. For an academic institution, this is vital. If
the balance slides to primarily industry funding, the
focus may shift too much to translational research
with fundamental research decreasing.
A second pitfall is that the research output offered
on the platform may result in a jungle of output, which
becomes difficult to search and find what companies
are looking for. Therefore, clear guidelines need to be
developed what research output would be suitable for
the platform so that an effective insight can be given.
Flexibility
The model with its different modules is relatively
flexible. Leiden University and Leiden University
Medical Center, at the time of submission of the article, have the intention to adopt the model (currently
known as LeidenLink) later this year. A selection of
the modules has been made and preparations for the
implementation are currently taking place. The two
institutions will be using one platform to give insight
into their research. Other universities may join this
platform. Similarly other platforms could be set-up at
a regional, national or international level.
Summary of Benefits
The model offers benefits to both the institution
and the companies. For the institution, the biggest
benefits include reduced transaction time and costs,
lower patent costs, an expected increase in the
volume of research collaboration with industry, an
expected increase in the value of research collaboration, spill-over effect to an increase in large PPP such
as Horizon 2020 from the EU and the nature and
quality of translational research will increase, which
will result in higher societal and economic impact.
The benefits for the companies include insight into
research outputs, shorter transaction time and costs,
potential ability to influence the direction of translational research programs in the institutions, use the
research for their own internal programs, free access
to research tools and the research is expected to have
greater societal, commercial and economic benefit. ■
UniLink
Bibliography
1. Bozeman, B. (2000). Technology transfer and
public policy: a review of research and theory. Research Policy, 29, 627-655.
2. Bradley, S. R., Hayter, C. S., & Link, A. N. (2013).
Models and methods of university technology transfer. Working Paper 13-10.
3. Colyvas, C., Crow, M., Gelijns, A., Mazzoleni,
R., Nelson, R., & Rosenberg, N. (2002). How do
university inventions get into practice? Management
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4. Feldman, M., Feller, I., & Bercovitz, J. (2002).
Equity and the technology transfer strategies of
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5. Jensen, R., & Thursby, M. (2003). The disclosing
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(2006). An agency theoretic study of the relationship
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8. Osman-Gani, A. (1999). International technology
transfer for competitive advantage: a conceptual analysis of the role of HRD. Competitiveness Review, 9, 9.
9. Ramanathan, K. (n.d.). An Overview of Technology Transfer and Technology Transfer Models.
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files/1383812118_An percent20overview percent20of
percent20TT percent20and percent20TT percent20Models.pdf.
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Link, A. N. (2003). Commercial knowledge transfers
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Link, A. N. (2004). Toward a model of the effective
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Assessing the impact of organizational practices on
the relative productivity of university technology
transfer offices: an explorator y study. Research
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multiple organizational forms leading to successful
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16. Wood, M. S. (2011). A process model for
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Figure 1.
7
University
Scientist
Makes A
Discovery
1
Discloses
Invention To
Technology
Transfer Office
2
TTO
Evaluates
Invention,
Decides
Whether Or
Not To Patent
3
Patent
Applications
4
Market
Technology
To Firms/
Entrepreneurs
5
Negotiate
Licensing
Agreements/
Royalties/
Equity Stake,
Etc.
6
Existing
Firms Adapt
And Use
Technology
License
Technology
8
Spinoffs
& Startup
Companies
Ref: Bradley, Hayter, & Link, 2013
Table 1.
Pillar 1
Access To
Knowledge And IP
Pillar 2
Broadening Of The
Partner Base
Pillar 3
Increase The Number
Of Collaborations
Pillar 4
Develop An
Ecosystem
Required Modules
Platform
Industry Community
—
—
Optional Modules
Express Licensing
Industry Days
Express Research
Student Link
PR And Outreach
Finance Structure Of
Research Projects
External Ecosystem
Sustainable
Development
223
les Nouvelles
New Age Intellectual Property
New Age Intellectual Property:
Emerging Global Benefits
By Lawrence J. Udell
I
originally wrote this article in the year 2000,
which was a hectic time, especially with the
potential disruption of it being the start of a new
century and how would “modern” technology survive
in the dilemma of Y2K and the new millennium. Well
it did and we all gained a better knowledge of the
high-tech world.
As I now look back at the exciting times that I
have lived through over the past 83 years, this article today has a significant new meaning. Since the
introduction of the Internet, intellectual property
has not only found its special place in the world
economic markets, but also is steadily establishing
new values and new business opportunities. Hundreds of companies have been created over the last
decade for the sole purpose of selling, licensing and
transferring new technologies.
The World Wide Web has become an effective tool
for this process and can showcase new technologies
to a myriad of potential users. Since there are no
geographic boundaries, the world becomes the market
and continually enhances what is today a knowledgebased global economy.
This does present a great many intellectual property
issues as to rights and the ability to transfer said rights.
Potential infringement would not be recognized until
exposed to the world. This of course is establishing
new opportunities for not only law firms but international consulting conglomerates that not very many
years ago were called accounting firms.
An example of the success of this new process
is the dramatic increase over the last few years in
licensing revenue. License Global estimated that in
2012 the world’s top 150 brand licensors generated
US$230 billion globally. The Disney Company alone
generated $39.3 billion.
It has been estimated that in the U.S. there are
several trillion dollars’ worth of non-performing or
dormant intellectual property assets. Considering
that the U. S. Patent & Trademark office in the year
2013, issued 305,081 patents, which is 5,867 every
week, and at the same time received 11,564 new
applications every week, makes the potential value
even greater. These figures have basically doubled in
the last decade. Bill Gates in an interview with the
Washington Post stated that, “Patents are the new
gold rush.”
According to statistics issued by OMB (April 2012)
IP intensive industries create 27.1 million jobs
and indirectly support
another 12.9 million
jobs. IP is also critical
■ Lawrence J. Udell,
to our balance of trade;
Intellectual Property
IP intensive industries
International, LLC,
accounted for $5.06
trillion in value added, or
Founder/CEO,
34.8 percent of the U.S.
Castro Valley, CA, USA
gross domestic product.
E-mail: ljudell@att.net
It is a well known fact
that over 95 percent of
all patents issued are
never commercialized. So, whether it is an individual
inventor or a corporation, there are literally millions
of patents that are not being exploited. We can understand that with the individual inventor, this is very
often due to lack of funding or that the product has
no market. However, with the corporation, after going to the extensive time and expense from concept
to patent, and not following the commercialization
process, you have to ask, why?
There is a myriad of answers, from poor calculations of the market, to not having a competitive advantage, to other potential products taking priority,
etc. These are but a few of the contributing factors
to why companies end up with patent portfolios
that are not producing income. This also applies to
universities and research facilities, including private
and federal laboratories.
When you consider the thousands of websites currently featuring technology transfer information or
access, is it any wonder that the filing cabinets are
opening? The National Technology Transfer Center
in Wheeling, West Virginia, was an early attempt to
move technologies from NASA into the private sector. It was created in 1989 by Congress, to provide
American companies with access to federal R&D for
the purpose of competing in the international marketplace. They have expanded their efforts to where
September 2014
224
they now have a great success record and proof that
invested tax dollars in federal R&D can provide a real
transfusion to the U.S. economy.
This is also true of the SBIR program initiated by
Senator Warren Rudman (D-NH) in 1982 which has
provided over $30 billion to American small business
and allocates over $2 billion a year by the eleven
federal agencies. I had the pleasure of providing early
input into the program with Lee Mercer, Chief of
Staff to Senator Rudman.
Since those early days over 30 years ago, the Internet
has provided innumerable advantages. Information
access has made it much more difficult for companies
and people to protect valuable assets. What has become a big business and often overlooked, is corporate
intellectual property espionage. According to the U.S.
Chamber of Commerce, it is costing corporations well
over $100 billion a year in IP losses.
In the late 80’s and early 90’s I was teaching accredited courses in Entrepreneurship at California
State University and lecturing throughout the U.S.
and Canada on the ever-increasing value of IP. With a
background in IP since the late 1950’s, I assembled
a small team of business and university colleagues
and created a new program called T-MAP. This was
the acronym for “Technology Market Assessment
and Profiling.”
The program consisted of matching federal lab
scientists and their technologies with teams of
business school students. The student team motivation was, “If you owned this technology, how could
you become independently wealthy?” The program
was co-funded by DOE and the various labs, such
as Sandia and Lawrence Livermore. Each student
team had a volunteer retired or corporate executive
who served as their technical and business mentor.
Over the four years of its operations, hundreds
of technologies were evaluated and several licenses
consummated with corporations of all sizes. Stories
of the program appeared in major publications,
including the Wall Street Journal in 1993. It was
truly a hands-on learning experience for not only
the students, but the lab researchers who were
educated in real world dynamics.
We have all been witness to the fact that a single
invention can create a huge industry. Consider just
the last fifty years, with such shining examples as
the: transistor, integrated circuit, Kevlar, fiber optics,
personal computers, MRI scanner, space shuttle,
microprocessor, the laser, DNA, GPS, etc. A great
example that I had the privilege of witnessing was the
LCD (Liquid Crystal Display) invented and licensed
225
les Nouvelles
worldwide by my former colleague and dear friend
James Fergason, who at the time of his passing on
December 9, 2008 held over 150 U.S. and over 500
foreign patents. Jim was inducted into the National
Inventors Hall of Fame in 1999. His invention has
led to a multi-billion dollar industry that employs
over a million people throughout the world. He was
a shining example to inventors everywhere how a
humble Missouri farm boy became a multi-millionaire
entrepreneur. We often traveled together giving
speeches for the USPTO. In 2006 he was awarded
the Lemelson-MIT award of $500,000, which he
donated to various children’s hospitals. I was proud
to have nominated him.
The federal government’s budget for research and
development in 2014 is $140 billion. When you add
the federal laboratories, universities, colleges, nonprofit R&D facilities, plus American corporations,
collectively there is a staggering $450 billion-plus a
year spent on R & D. The results are obvious with
the employment and positive economic conditions
that exist. This is a contributing factor to motivation
for creativity and Invention which is the greatest
stimulation for the creation of improvements and
new technologies.
Now consider the demise of hundreds of dot-coms
that have failed over the past few years. If you look
carefully at those who had a very limited lifespan, you
will find that they did not own any intellectual property
or, if they did, it could not be validated. They were
basically smoke and mirrors. The perception of value
was created by the hype and the extraordinary amount
of private and venture capital that was invested. This
was a great period in America, since multi-millionaires
were being created on a daily basis. It proved that a
good new idea could create a company, especially
when supported by an experienced management team.
Whether it survived or not was not always the criteria,
the money chase obliterated good logic.
Within the past several years the venture capital
industry pumped billions of dollars into computer
and Internet companies. Today the objective is still
profits and return on investment, but done with far
more conservative planning and much better detailed
due-diligence on the technology, intellectual property
and management team.
The firms that sell the assets of the failed dot-coms
can easily place a value on furniture, computers and
other tangible inventory. The problem is attempting
to put a value on the intangible, such as patents,
etc. After burning through $135 million in venture
capital, the British fashion site Boo.com sold off its IP
system for just $375,000. An important negotiating
ingredient is if the IP has any issued patents or pending. The intelligent comparison of values becomes
obvious since there is no guarantee that the patent(s)
will ever issue, so what is there to sell?
By the same token, in bankrupt situations there
may not be a clear written document of who really
owns the technology. The inventor and so often a cofounder assigned his or her rights to the corporation
in exchange for equity. When the company is dying,
then the question is asked; “If I exchanged my intellectual property for stock, and the stock isn’t worth
anything now, do I get my IP or patents back, or are
they sold to satisfy the creditors?”
Should the intellectual property not sell, the rights
could revert to the bank that provided loans, or
remain with the asset-management firm given fiduciary control over the assets. In such a situation, the
original reason for the company’s founding may be
based upon the IP, which has now been reduced in
value, unless it is worth something to a competitor,
who will buy it for a few cents on the dollar.
A great many companies are waiting in the wings
to pick over the carcasses of those who are dying on
the roadway to success. Why invest lots of money
in creating new IP if it can be purchased for almost
nothing? Sherwood Partners in Los Angeles, which
liquidated assets for several tech companies was
quoted as saying; “You’re buying a dream that’s not
completed yet.”
However, there are more success stories than there
are failures. Experience of success comes from the
doing. Failures are a great lesson in what to do right
the next time. The news media rarely provides stories
on business failures.
The new products and technologies of tomorrow
will come from the fertile minds of today’s creative
inventors. Whether they are working in laboratories
or in the garages of America, what they can envision
can become reality. Technological progress has and is
moving at an accelerated rate, since what is invented
today creates the spark for the improvements of
tomorrow. Nothing is standing still.
I can remember my participation in a challenge
presented by Ken Olsen about 40 years ago. As the
founder and Chairman of Digital Equipment Corporation and one of America’s early premier entrepreneurs, the patent portfolio owned by DEC included
over 1,500 issued patents. The objective was to
isolate those that had the potential to be licensed for
a new source of income. The strategy that was created worked, however, in those days even the words
“technology transfer” or “commercialization” was not
seriously considered. Also, there was no Internet to
utilize for broadcast, or companies that would even
consider taking on the challenge.
When you consider that today huge multi-national
corporations are investing in the creation of their own
incubators, which not only serve as a means to keep
creative people within the company, but also allows
them to be a part of a new entity that is funded by the
mother corporation. The result is greater diversification, and the ability of the offspring to grow at a fast
rate, because of its relationship with the parent. Over
the last several years I have had personal experience
working with not only companies, but countries that
are establishing their new venture innovation incubators with the help of the United Nations and others.
The obvious results are greater employment,
increased exports and a healthier economy. This
benefits both the World Bank, and all those who are
providing much needed resources into nations that
are attempting to become more self sufficient.
In looking back, Edison was credited with hundreds
of inventions and products that we have taken for
granted. However, one of his greatest achievements
is recognized as creating the research and development process and laboratories to prove the concepts.
When you think of Henry Ford, you immediately
relate to the automobile, however, one of his greatest recognized accomplishment’s was creating the
manufacturing assembly line.
Today, the driving force in the world economy is
inventions and technologies. It was not long ago
when material assets, such as equipment and buildings were the priority, but not today since they have
been replaced by intellectual property which now
has established value on the corporations’ books.
Shareholder value has a whole new meaning.
One great example of the new age focus on intellectual property is IBM. For the last twenty-one years
they have been number one in patents granted. In
2013 they were issued 6,809. It is easy to understand why they earn over a billion dollars a year in
licensing royalties and have over 250,000 scientists
and researchers. This goes right to the bottom line.
Instead of the conglomerates created in the
1960s through ‘90s, we have learned the value of
“strategic alliances” in pursuing corporate earnings. Now, the small company with patents can
deal equally with the big corporation who has all
the resources to exploit the intellectual property.
A common bond has been found.
Only one of many examples of technological
September 2014
226
progress can be found in farming. In 1900 in the
United States, 35 percent of the population (of 75
million) worked on farms or in the transportation of
agricultural products. In 2013 with a U.S. population
of 330 million, it is 2 percent who were producing
more crops because of revolutionary technology;
from bio-engineering to the tractors that are locked
into satellites that provide a myriad of information for
greater crop yield and production methods. We now
have what is called “Precision Farming” born from
the new technologies that progress and invention
has created. American farms and ranches produce
(at retail) $547 billion to the economy.
In 1900 the average citizen could expect to live
to about 50 years. Today that has changed to 84
years and rising. Since 1950, more financial wealth
has been generated in the U.S. than was created in
all the rest of the world since time had begun. In
1900 there were approximately 5,000 millionaires
in America. Today it is estimated there are over five
million. We are a Nation of creators and doers that
never learned about limitations.
We each can personally think of those inventions
227
les Nouvelles
and improvements that have had a major positive effect on our own lives. Not only from our health and
the medicines that keep us well, but the diagnostic
equipment to quickly analyze what is wrong and
how to cure it. Just think back to our grandparents
and the life that they took for granted, and compare
it to today. Now project your thoughts into the
future, where our grandchildren will be so much
better off because of what we are inventing and
discovering in labs and research centers throughout
the world.
One thing is for sure, the creation of intellectual
property will continue on an accelerated basis, with
increased demands by industry and the consumer.
IP is a whole new business that is not only changing
the world today, but will continue for centuries to
come. When technological progress ceases, then so
will mankind.
So in summation, the obvious is that intellectual
property is an unlimited and inexhaustible resource
that is changing the course of destiny on an almost
daily basis. Tomorrow is the future that we are
creating today. ■
LES International
Officers
President
President-Elect
Past-President
Vice-President
® Vice-President
Vice-President
Vice-President
Secretary
Treasurer
Counsel
Counsel
Arnaud Michel
Jim Sobieraj
Yvonne Chua
Omer Hiziroglu
Mark Horsburgh
Fiona Nicolson
John Paul
François Painchaud
Eduardo de Souza
Michael Lechter
Junichi Yamazaki
les Nouvelles Editorial Review Board
Chair: Rodney DeBoos, Melbourne, Australia
Lex van Wijk, Amersfoort, Netherlands
Heinz Goddar, Munich, Germany
Norm Jacobs, Boca Raton, Florida, U.S.A.
Sun-Ryung Kim, Seoul, Korea
Masato Kobayashi, Tokyo, Japan
Kenneth D. McKay, Toronto, Canada
Thomas Bereuter, Vienna, Austria
Eduardo C.A. de Mello e Souza, Rio de Janeiro, Brazil
Larry Plonsker, Editor
10580 Northgreen Dr., Wellington, FL 33449
Tel: +1-561-432-8814 E-mail: editor@lesi.org
Carla J. Blackman, Design Interface Inc.
Design & Production
les Nouvelles
Volume XLIX Number 3
(ISSN 0270-174X)
les Nouvelles is published quarterly by the Licensing
Executives Society International (LESI). LESI is an association of 32 National and Regional Societies, each composed
of individual members who are engaged in the profession
of licensing and other aspects of transferring or profiting
from intellectual property. Subscription to the journal is
included in the membership dues paid by all members.
Subscription for the print publication is available to nonmembers for US$200/year. Please contact the Editor for
further details.
The articles published in les Nouvelles reflect the views
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A peer review and evaluation system is used to maintain
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(ERB). The ERB members are chosen for their expertise in
the fields of licensing and intellectual property. All evaluations are reviewed in a double-blind fashion to remove
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A guideline for authors can be found on our Web site at
the following address: www.lesi.org/lesnouvelles/advertise.
asp#submission
Copyright ©2014 Licensing Executives Society International.
DEADLINES FOR les Nouvelles: Copy for publication
in les Nouvelles should be received by the Editor-in-Chief
as far as possible in advance of the final deadlines, January 1, April 1, July 1 and October 1. Articles for the
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LES NOUVELLES
SEPTEMBER 17, 2014
les Nouvelles
Volume XLIX No. 3
September 2014
Advancing the Business of Intellectual Property Globally
Determining An Appropriate Royalty Rate For Reasonable Royalty
Trademark Damages—A Modified Georgia-Pacific Framework
DAVID DREWS — Page 150
Advanced Citation Analysis Can Help Identify Licensing Candidates
MIKE LLOYD — Page 156
Customs Value, Licensing And Royalties—The Russian Perspective
SERGEY MEDVEDEV — Page 166
PAUL R. BETTEN — Page 172
How Does Europe Deal With The Question Of How To Transfer Rights From The Author
To The Exploiter?—The European Perspective On The Work Made For Hire Doctrine
JULIAN KLAGGE AND CHRISTIAN CZYCHOWSKI — Page 178
CHRISTOPH CORDES — Page 184
Protecting Traditional Knowledge As Cardinal Technology In The Philippines
ROBERT NEREO B. SAMSON AND GONZALO D.V. GO III — Page 192
The Impact Of Australian Goods And Services Tax On Assignments And
Licences Of Intellectual Property
STEPHEN ADRIAN — Page 202
EU State Aid Policy: A Model To Assess Intellectual Property Rights And
Knowledge Dissemination In R&D Cooperation—Part II
MARIO CISNEROS — Page 206
UniLink: A New Model For Increasing Academic And Industry Partnerships
HESTER TAK AND BOB SMAILES — Page 215
New Age Intellectual Property: Emerging Global Benefits
LAWRENCE J. UDELL — Page 224

journal of the licensing executives society international

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