Five Key Issues to Consider When Negotiating In-License Agreements With Nonprofit Entities -- Part I in a Continuing Series on Licensing and Strategic Alliances

Many of the most successful and profitable technologies being developed and commercialized by technology-based companies, particularly in the areas of life sciences and clean technology, were initially developed by universities and other nonprofit institutions. Since these technologies are frequently out-licensed by the nonprofit institutions at early stages of development, most of the responsibility for developing and commercializing these technologies will be assumed by commercial entities. In most cases, the ability of a company to succeed in producing a commercial product based on licensed technology will largely depend on how successful the company is in obtaining funding from the investment community. The process of obtaining such funding will involve the conduct of a significant amount of diligence by the entity’s existing and/or potential investors and will include, among other things, a review of the terms of all in-license agreements. Any such in-license agreement that fails to include certain critical provisions or includes provisions that are viewed by existing or potential investors as overly burdensome or unreasonable can severely inhibit the company’s ability to raise funding from investors. These provisions that may be subject to heightened scrutiny include monetary terms - such as up-front fees, sublicense fees, and milestone and royalty payments - as well as other provisions that relate to the rights to technology improvements and diligence obligations. Set forth below are five issues that will typically attract the interest of potential investors and should be considered by a company when negotiating an in-license agreement with respect to technology from a nonprofit institution.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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