Gyeonggi-UT Innovation Program:

Gyeonggi-
Intellectual Property Licensing Basics

Joel G. Momberger
Momberger,, Esq
Director, Gyeonggi-
Gyeonggi-UT Innovation Program
Agenda
Background
Introduction to IC2 Institute and Program Essentials
Introduction to Technology Licensing
how it works
Valuation issues
Commercial issues
Legal Issues
 Background: The University of Texas

Founded 1883
350-acre main campus with 21,000 faculty and staff, 16 colleges and
schools, and almost 50,000 students.
More than 3,500 research projects, 90 research units and annual
research funding exceeding $600 million, UT-Austin is one of the
USs leading public research universities.
Highly decorated faculty; highly acclaimed programs
Nobel, Enrico Fermi, and hundreds of members of prestigious academic and
science organizations such as the National Academy of Engineers

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 IC Institute

IC2 = Innovation, Creativity and Capital

A think and do research lab whose mission is to
generate wealth, jobs, and shared prosperity.

Founded in 1977 by George Kozmetsky.

Fellows in 19 countries around the globe.

Eco-System for Wealth Creation

GCG - International program development and management
ATI - Austin Technology Incubator
MSTC - Masters degree in technology commercialization
BBR Bureau of Business Research
Years of know-how and methodologies developed

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 IC Institute and GCG
IC Institute at The University of Texas at Austin has devoted over 30 years to
establishing itself as a leader in technology commercialization and wealth
creation.
The Global Commercialization Group (GCG) implements IC2s lessons learned
and best practices globally.
GCG employs technology commercialization and technology-based venture
creation to drive economic development.
GCGs model simultaneously generates real business results while transferring
know-how to partners so that they can sustain a system for wealth creation.

Global Commercialization Group 5

 Global Commercialization Group
Mission Statement
Connecting Innovation to Global Markets
The Global Commercialization Group (GCG) designs and delivers
technology commercialization programs based on proven methodologies
for wealth creation and access to global markets that generate early results
with sustainable outcomes.
 IC2 Programs Around the Globe

Poland
PortugalHungary
USA Eastern EuropeMiddle S. Korea
Egypt East
Mexico India
Malaysia
Brazil

Chile

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 GCG Technology Accelerators

As We Use it, this means Accelerating an Innovation into the Market

Intersection of Higher Education, Public Sector and Private Sector
Key Elements
Technology Assessment (10% rule)
Market Feedback
Innovator Capacity
Assessing present capability
Capacity building
Political Reality
Real World Results
 Case Study:
Gyeonggi--UT Innovation Program Structure
Gyeonggi
Program Elements:
Innovation Assessment
Educate Potential Program Participants
Accept Applications
Entrepeneurship Training and Skills Transfer
Quicklook Reports
Innovation Selection
Competition
Quicklook Results
Business Development
Real Results

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 Innovation Assessment and Training

Activities
Screening of technology projects according to established
criteria and utilizing GCG screening tools;
Interviews of project representatives by industry and
commercialization experts;
Industry validation research and reporting on selected projects;
GCG QuicklookTM market assessments of selected projects;
Utilization of an International review board;
High-profile events and announcements honoring the
technologies, participants, and progress;
Selection of technology projects for Phase 2.
 IC QuicklookTM

Market Assessment & Commercialization Strategy

The IC QuicklookTM is a methodology created by IC
faculty to obtain reliable and valuable data on the IP status,
market potential, and technology issues of an innovation in a
relatively short period of time (approximately 40 hours per
technology).
Specific recommendations for a commercialization strategy
for the technology are formulated and reported.
The IC QuicklookTM has been utilized by Austin
entrepreneurs, high-tech corporations, and regions outside of
the US served by IC programs.

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 IC Market Validation Study

Quicklook Lite

a less rigorous but equally valuable starter tool for

innovators who are not moving on to the final
competition. Very good for helping you understand
challenges/opportunites, can be the starting point for a
good, honest SWAT analysis and market response to
your product

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 Business Development
The GCG offers Direct Business Development Support
from World-Class Professionals for Innovators in the
Program
Leverage QL market response
Work with Innovators to Develop Strategies
Act as Direct Business Development Representatives for Innovators
to Connect to Global Partners, Customers, Joint Developers,
Investors, Licensees, etc.
Provide Borrowed Branding For Innovators

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Case Studies

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 Korea - Gyeonggi Province Program

Initial 3-Year Term, Renewed for 3 Years

Current Program:
100+ Technologies Evaluated Per Year
20 Quicklook Reports Per Year
Entrepreneurship Training for Each Year
Annual Competition
12 Companies for Business Development,
including site visit to U.S.

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 Overall Program Metrics
Over 600 Technologies Evaluated
Over 160 Innovators Provided Entrepeneurship Training
110 Quicklook Market Studies
85 Innovators Trained in Presentation Skills-You are Next!
52 Innovators Provided Direct Business Development
Support
Over 40 Agreements in Furtherance of Business
Development
 Program Challenges
Continuity: Province Funding is good for up to 1 year
After the Program, Innovators have struggled
Market Entry Barriers
Long Sales Cycles
Innovators Don't know what they don't know
 Case Study: DGS

Company Profile:
Automotive Component Vendor
Near Bankruptcy before entering Program
Patented Technology for Coating Brake Clips
9 Employees
No International Sales
Over 7 Years attempting to enter Global Market With No Success

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 Case Study: DGS

Outcomes To Date:
In Less than 1 Year, Direct Tier 1 Relationships
300% Sales Growth
10+ New Jobs
Just Opened New Factory
Sourcing Partnership with a US-based partner
Recent Wins in the US, Japan and Europe
Many Suitors for Investment
Primary Challenge Is Success:
Production Capacity Due to meet demand
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 Real Results

Kim Doe Hee, CEO of DGS Corporation, at Signing Ceremony with TRW
 Case Study: Wheel Corporation

Company Profile:
Automotive and Industrial Aluminum Component Producer
Less than 10 Employees
Patented Aluminum Handling Technology
Less than $100k in International Sales
 Case Study: Wheel Corporation

Outcomes To Date:
Direct Relationships with Major Global Vendors
Approved Supplier for Visteon Corporation
Export Revenues in excess of $US6m/year and growing
Strong Opportunity to Become Industry Standard Worldwide
Extended Pipeline
5x Expanded Factory to Meet New Demand
Innovator Made $US20,000 contribution back to the Program
 Result
President Yu, Tae-Sung of Wheel Corporation at Signing Ceremony
with Representative of Visteon Corporation EU Division
 Real Results: KNR/Link Engineering

Introduced KNR to Link Engineering in the US

KNR/Link entered into business engagement agreement
Governor Kim traveled to Michigan to attend ribbon-
cutting with Governor Rick Snyder of Michigan
Joint projects underway in US and India
Link/KNR Signing Event
Detroit Michigan
Governor Kim, Moon-Su and
Governor Rick Snyder
 What We Can Do for You
Help you understand commercialization as a process
Introduce you to potential buyers, customers and partners primarily in
the US
Help you understand what the market thinks
Help you position your product in the market
Help you improve marketing materials for use in the international
community
Help you understand the international competitive landscape
Help you develop proposals and close deals
 For Semi-Finalists: What To Expect
From the Competition
High Expectations
Tough Questions: if someone asks you for your competitive
advantage and you say we're cheaper and better, be prepared for
hard questions;
how much cheaper? Prove it!
how much better? Prove it!
The questions you will be asked are from FRIENDS: We are not out
to get you, but we know what your potential customers, partners,
competitors and evaluators will ask; in a safe environment, we use the
competition to help you deal with what the market is going to put you
through
 For Semi-Finalists: What To Expect
From the Competition
Questions about your Quicklook Report: BE SURE TO READ AND
UNDERSTAND IT
Judges are highly experienced, trained professionals who will have
read your QL report
You will learn more by listening than by talking: if you focus
primarily on your technology you will be challenged; identify product
differentiator, but also focus on market, opportunity and ability to
execute
Tech is the start: real question is will someone buy your product,
and if so, for how much?
Bottom line; No one cares if your tech is cool if no one wants to
buy it or if it has no real market differentiator
 What We Need From You If You Make
it to Biz Dev
Executive Sponsorship from the CEO
At least one good English speaker
Willingness to make your UT business developer a member of your
team
Prompt responses to requests, esp. from potential customers/partners
Commitment to making it happen
 Technology Licensing

Technology Means IP for License

Licensing Purposes. Right to Use IP of another
Regardless of Business
Like Rent, but IP can be licensed
Context, License must be to lots of people at the same time
expressed in terms of legally (eg software)
recognized Intellectual Generally no transfer of IP
Property rights.
Very few hard legal
requirements, so lots of options
Patent
Trademark
Copyright
Trade Secrets
 Big Picture Licensing Issues

What is being licensed?

Who will get to use the licensed technology what is
licensed?
What can the person getting the license use the licensed
stuff for?
What will the license cost?
 Many Reasons to License Technology

Commercialize Someone Else's Innovation

Combine your innovation with someone else's to make a better
product
Mailbox Money - collect royalties
IBM
Patent Trolls
To be able to make/sell product that might infringe on rights of
another
Obtain rights so you can make/sell your product
Cross Licensing between players who each have something the other
needs
 Kinds of Licenses

Patent
Non-Exclusive
Field of Use
Territory-based
Types of Licenses: Scope of Use
Exclusive
Non-Exclusive
Field of Use
Territory-based
 Types of Licenses: What is Licensed?
Patent Licenses
Trademark Licenses
Copyright Licenses
Trade Secret Licences
Combinations of above (e.g. Franchising)
 What Kinds of Patents Can be Licensed?
Single Patent
Bundled Patents
continuations, continuations in part, divisions, extensions,
renewals...
Corresponding patents and applications worldwide
PCT
EU
Country level
What Patent Rights Can be
Licensed?
Make
Have Made
Use
Offer for Sale
Sell
Import
Foundry Right
 Copyright
The Copyright itself
Source Code
Object Code
Manuals
Derivative Works/Improvement
 Trademarks

The Mark (name, logo, trade dress)

Related marketing, promotional, packaging materials (which
may also be copyrighted independtly
Manufacturing equipment, displays, etc.
 Trade Secrets

The Trade Secrets

Improvements
 Specialty Licenses
Software Licenses
Many users, special issues
Franchise Licenses
elements of trademark, trade dress
Trade secrets, methods, etc.
Business elements
User manuals, etc
Foundry Rights; Right to use licensed technology to make
something designed by someone else who is not licensed
(e.g. chip manufacturer)
 Some Licensing Terms
Licensor: the person who owns the technology and is granting the license
Licensee: the person who is getting the license
Royalty: the fees payable for the license
Front/disclosure fee(s)
Running Royaltyperiodic payments, often based on revenue
IP Indemnity: often required of Licensor; assurance that the licensed
technology does not infringe anyone else's IP
Derivative Works: Term from copyright for new invention/creation based on
underlying IP; often used inaccurately to mean dependent invention or
technology
Dependent Invention or Technology: an innovation that is built upon existing
IP
 Some Licensing Terms

Paid Up License: A license for which there are no running royalties; either the
license is granted without any royalty but is supported by other consideration
(e.g. a covenant not to sue) or whatever royalties there were have all been paid.
Consideration: the value given in exchange for the license; usually, but not
always, money; can be a promise to act or to withhold from acting; pretty much
anything of value, but there must be some value
Cross-License: Where two entities each have something the other wants to
license, common for them to grant each other license rights.
Foundry Rights: the right to use a licensed technology to make something to
sell to someone else
Sub-license; right of the Licensee to grant rights to the licensed technology to
someone else
 Licensing Basics

Most Common Question for Innovators:

Should I try to make and sell a product

or should I license my technology?
 Licensing Basics

Answer:

It All Depends*
 Licensing Basics

Factors to Consider re License v. Produce:

Overall business objectives
Capital: Do we have/can we get enough $$ to make it ourselves?
IP Dependecies: Do we need IP rights from someone else?
Involvement: Does the innovator want to spend all day trying to
make something or would she prefer to continue with other
research?
What stage of commercialization?
Mailbox $$ v. operating business?
 Licensing Basics

Advantages of Licensing:
Often simplest commercialization path
Generates revenue with essentially no or very low cost
Frees Innovators to pursue other innovations
Creates wealth by getting innovations into the hands of those
who can actually use the innovation to make $$
 Licensing Basics

Disadvantages of Licensing:
Valuation Expectations: generally license fees for innovation run
between 1-13% of revenue
Loss of Control
Emotional Perspective: Expectation that new technology should make
the inventor wealthy; perception that licensing will make someone else
wealthy
Does not create jobs
Hard to sustain long-term
 Licensing Basics: Exercise

Case Study:
Dr. Lee has invented a new technology that is an additive to recycled asphalt. His material is
made from recycled plastics. When added to old asphalt makes it possible to use the old asphalt
like new.
Dr. Lee has very little money. He is a scientist and would like to continue to do research.
Dr. Lee has solid lab results demonstrating some of the characteristics of his material.
Dr. Lee has found out that in order to use his material, the US Department of Transportation will
require extensive testing in the field. He was also surprised to discover that each state in the
US has their own requirements regarding road surfacing materials.
Dr. Lee has been approached by a large US manufacturing company who have expressed and
interest in licensing his technology. Their offer is a 3% royalty on any revenue in exchange for
an exclusive world-wide right to Dr. Lee's patents, know-how, and technology.
The estimated market for this technology is $US500m

Question: Should Dr. Lee license his technology or should he commercialize it himself?
 Licensing Valuation

Exclusive/Non-Exclusive
Internal Use/Foundry Rights
Term
Dependent Inventions/derivative works
Rule of Thumb: pure IP is worth between 1-13% of total
product revenue stream
exceptions; very high margin items, e.g. software, pharma
 Licensing Process
Assumptions:
Issued patent, pct filing
no known infringing product
Trade Secrets
 Licensing Process
Determine whether the Patent and related Trade Secrets cover a
valuable potentially commercial product.
Assess the commercial prospects for the proposed product.
Prepare a marketing analysis.
Analyze the file history of the Patent.
Perform a validity search for the Patent (optional).
Review foreign patents and applications corresponding to the
Patent.
Establish a reasonable royalty (may have separate royalties for
Patent and Trade Secrets) and other license terms, including "grant-
backs.
Prepare a Term Sheet.
 Licensing Process

Contact prospects with a "teaser" of information.

Get a signed Confidentiality Agreement (NDA).
Prepare a "bible" for each Target Product, containing:
(a) Copy of the Patent
(b) General description of the Trade Secret
(c) Market information and projections
(d) List of corresponding foreign patents (copies optional)
(e) Copy of relevant prior art (optional)
(f) Royalty Term Sheet with "ramp-up" dates
(g) Form License Agreement
 Licensing Process

Follow up as needed.
Meet to discuss interest in the product and royalty terms.
Follow up as needed.
Negotiate.
License.
Monitor
 Key Licensing Issues

Clear Definition of Use Rights; what can the Licensee Do with the
licensed technology? What can't they do?
Realistic valuation of the licensed technology
how will you calculate royalties?
How will you verify when royalties are owed? (Dunkin Donuts
example)
What are the Payment Terms?
Do you have any ongoing obligations? (support, idemnity, etc)
What happens if your licensee creates new technology based on
your technology?
 Licensing Issues

Are you the Licensee?

Realistic valuation of the licensed technology
How will you calculate/verify royalties?
What are the Payment Terms?
Do you have any ongoing obligations?
What happens if your licensee creates new technology based on
your technology?
 International Issues

Special consideration for International Licenses

Moral Rights
Choice of Law
Venue for dispute resolution
Foreign Exchange risk allocation
Tax treatment
 Actual Agreement

See Handout and Agreement Outline

Thank You