CLP CLP Licensing Negotiations & Deal Structuring 2 — Questions and Answers
Question 1: What is the difference between an option agreement and a license agreement in IP deal structuring?
- An option grants the right to negotiate or obtain a license within a defined period; a license grants immediate IP use rights (Correct answer)
- An option is a binding license with deferred payment terms
- An option covers trade secrets while a license covers patents only
- There is no legal distinction between the two documents
Correct answer: An option grants the right to negotiate or obtain a license within a defined period; a license grants immediate IP use rights
An option secures the exclusive right to negotiate or execute a full license later, allowing the party to evaluate the IP before committing to a full license.
Question 2: In negotiating royalty rates, the 'hypothetical negotiation' framework asks parties to imagine a negotiation:
- Occurring just before infringement began, between a willing licensor and willing licensee (Correct answer)
- Taking place at the time of litigation filing
- Involving only the patent owner and a government arbitrator
- Happening after the product launch to reflect actual market success
Correct answer: Occurring just before infringement began, between a willing licensor and willing licensee
The hypothetical negotiation standard, used in US patent damages law, envisions a negotiation at the eve of first infringement between willing parties to determine a reasonable royalty.
Question 3: Which deal structure is most appropriate when a startup lacks cash but has valuable IP?
- Equity-based licensing in which the licensor receives ownership stake instead of cash royalties (Correct answer)
- Lump-sum upfront licensing with deferred payment bonds
- Mandatory running royalties with no minimums
- Exclusive license with immediate full payment required at signing
Correct answer: Equity-based licensing in which the licensor receives ownership stake instead of cash royalties
An equity-based deal allows cash-poor startups to compensate the licensor with company shares, aligning both parties' interests in the company's success.
Question 4: A 'field of use' restriction benefits the licensor in deal structuring primarily by:
- Allowing multiple licensees in different fields, maximizing total deal value from the same IP (Correct answer)
- Reducing the licensee's royalty rate in exchange for broader rights
- Eliminating the need for diligence milestones in the agreement
- Protecting the licensee from competition within its defined field
Correct answer: Allowing multiple licensees in different fields, maximizing total deal value from the same IP
Field-of-use restrictions let the licensor divide IP rights by application market, signing different partners for each vertical and extracting maximum value.
Question 5: What is a 'right of first negotiation' (ROFN) in a licensing context?
- The right to be the first party to negotiate a license before the IP is offered to others (Correct answer)
- The right to match any third-party offer before a license is granted to a competitor
- An obligation requiring the IP owner to license on standard industry terms
- A clause granting automatic renewal at the current rate before renegotiation
Correct answer: The right to be the first party to negotiate a license before the IP is offered to others
A ROFN obliges the IP owner to offer the holder an exclusive negotiation period before marketing the IP to other prospective licensees.
Question 6: Which negotiation concept involves making an initial offer significantly above or below the target to anchor the counterpart's expectations?
- Anchoring (Correct answer)
- ZOPA analysis
- BATNA assessment
- Logrolling
Correct answer: Anchoring
Anchoring is a negotiation tactic where an extreme first offer shapes the other party's perception of a reasonable settlement range.
CLP CLP Licensing Negotiations & Deal Structuring 2
What is the difference between an option agreement and a license agreement in IP deal structuring?