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Commercializing Ethanol - International Out-licensing
Client's Business Objective:
The client, a start-up company that had developed technology for turning agricultural waste into ethanol, wanted to commercialize its discovery with the help of a licensee capable of producing and selling ethanol.
The Challenge:
The client developed its technology based on an in-license from a local university, and that underlying license had to be pressure-tested for sufficiency in Japan, where the client’s best commercial partner candidate was located. There were language issues, cultural issues, and business issues that had to be resolved.
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What We Did:
Our legal team successfully negotiated with the university an amendment to the in-license agreement that passed the scrutiny of the Japanese partner. Then we worked out a deal with that partner by negotiating around the clock, with the help of interpreters and trusted foreign associates.
Results:
Within two months, our client concluded a substantial deal with its Japanese trading partner. This deal will enable construction of the first cellulose-based ethanol production plant utilizing wood waste products from construction sites and similar sources in Asia. The license extends to Japan, Thailand, Malaysia, and Indonesia.
Key Takeaways:
It is critical to have a legal team with relevant experience. Many deals today involve university-developed technology, foreign trading partners, and the need for trusted foreign legal associates. It pays to have a legal team that has technical expertise, international experience, and established relationships with foreign associates.
Identifying Hidden Risks and Remedies in Acquisitions
Client's Business Objective:
The client, a Japan-based company, sought to acquire a Philadelphia company in a $350 million deal. The client needed to identify any hidden risks and obtain a means of compensation or indemnity for such risks.
The Challenge:
The client needed to close the deal within a very tight time frame, and there were literally hundreds of contracts and intellectual property issues associated with the acquisition.
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What We Did:
Our due diligence team worked closely with our patent team for a comprehensive and efficient review. We effectively identified the real and practical risks in light of the client’s business objectives and created likely remedies for those risks while eliminating duplication of effort among lawyers.
Results:
The acquisition agreement was concluded on time, with an indemnification basket reserving proceeds of sale to cover post-closing risks for a reasonable period of time. We also ensured that certain post-closing fixes were possible, such as negotiation with third parties for additional license rights and invention around certain blocking patents. The legal team then made those remedies a reality after closing.
Key Takeaways:
It is important to have a legal team that understands business objectives and intellectual property rights. It is also critical to have experienced lawyers who can quickly identify, isolate, and remedy the problems that inevitably arise during the closing process.
Out-licensing for Medical Devices
Client's Business Objective:
The client, a relatively small life sciences company, had developed a design for a useful new medical device and sought a revenue stream from out-licensing of the technology.
The Challenge:
Just one large company held a bundle of manufacturing patents that would enable development of our client’s technology. Thus we had only one choice for a manufacturing partner and no leverage.
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What We Did:
We investigated the likelihood of a successful invalidation challenge against the major manufacturer. We also demonstrated the uniqueness and commercial value of our client’s invention. Our legal team negotiated persistently but courteously, making changes to each of more than 30 drafts of the agreement between the parties.
Results:
Patient persistence and careful advocacy yielded a fair agreement with a reasonable allocation of proceeds from resulting technologies and indemnifications that were fair and mutual. Our client can now look forward to a safer and more reliable royalty stream that will flow from use of its medical device designs.
Key Takeaways:
When dealing with a party of superior size and resources, it pays to have experienced lawyers who have an understanding of institutional needs, procedures, and negotiation methods.
Pharmaceutical In-licensing
Client's Business Objective:
The client, a midsized pharmaceutical company, wanted an in-license to work with a compound that has potential therapeutic applications for treatment of hepatitis C.
The Challenge:
The licensor was a U.S. subsidiary of a foreign company and derived its patent rights from a parent that was relatively unsophisticated and unused to negotiating licenses. The parent also had an in-license from a foreign university. Some of the underlying research had been funded with government support, necessitating some clearance with the foreign government through the university. Furthermore, the prospective licensor was a small company with a limited asset base to support the licensor’s warranties.
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What We Did:
Our legal team structured a deal so that any damages resulting from challengers blocking development work or raising freedom to operate issues could be paid out of royalties or milestone payments as they became due to the licensor. We also facilitated trust between the parties by persuading the attorneys for the foreign parent and the foreign university that the deal was commercially reasonable and fair in light of other comparable deals.
Results:
Within a few months, our client obtained an in-license for use of the compound, enabling drug development work to start on time. Furthermore, because of our due diligence, there were no material adverse affects resulting from use of the in-license.
Key Takeaways:
When dealing with multiple parties, look for lawyers who have the flexibility, creativity, and credibility to bring those parties together, despite differences in their cultures, their relative sophistication, and their expectations.
Representing David v. Goliath in Out-licening Commercial Partnerships
Client's Business Objective:
The client, an individual inventor who developed magnetic resonance imaging (MRI) technology, sought to find a commercial partner that could develop and sell machines using the technology.
The Challenge:
The best prospective licensor, a major manufacturer, needed to move quickly in order to successfully commercialize this technology. Furthermore, the licensor argued that the inventor’s discovery would be a relatively minor part of any next-generation MRI production.
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What We Did:
Our legal team quickly documented the uniqueness and utility of the inventor’s contribution, demonstrating that significant royalties were typical for similar inventions. We also used the licensor’s need to move quickly to our advantage, persuading the inventor to take a firm stand in negotiations while politely advancing ideas for reaching the objectives of both parties.
Results:
In a matter of weeks, our client obtained an out-license agreement with a successful and credible manufacturer that was potentially worth several million dollars (much more than the licensor initially offered).
Key Takeaways:
When dealing with a large and sophisticated party on the other side of the table, it pays to have experienced lawyers who understand the thought processes and needs of major institutions.
Transactional Valuation Of IP Rights
Client's Business Objective:
The client, shareholders in a start-up company, had signed an agreement to sell the business to a large European entity. They wanted to avoid damaging post-closing adjustments to the purchase price based on allegations of infringement brought by a third party against the acquiring company (and ostensibly related to our clients’ technologies).
The Challenge:
The European entity was much larger, and had great leverage based on the fact that a deal had been consummated which provided for an escrow to cover liabilities that arose after signing and were arguably related to what they purchased.
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What We Did:
Our legal team looked at the relevant law of infringement and determined that the infringement accusations of the third party, to the degree they held merit at all, were based on technologies that the acquiring company had employed prior to acquisition. Furthermore, we laid out the equitable case for fair treatment of the selling shareholders, many of whom had become key employees of the European entity. We also put on the negotiation table an issue relating to a post-closing performance bonus, arguing that the acquiring company should really pay that bonus (it had been withheld) because our client’s product line had substantially produced the post-closing performance desired (within a certain margin of error).
Results:
Exceeding our client's expectations, we were able to capture half of the escrowed amounts (approximately $2 million dollars) and most of the performance bonus (approximately $7 million dollars) for the individual shareholders and the primary shareholder, the venture capital group.
Key Takeaways:
Lawyers who possess business-sense and people skills and understand the company's critical technologies, are most likely to provide the greatest return on investments in legal services.
