CLP CLP Licensing Negotiations & Deal Structuring 1 — Questions and Answers
Question 1: In licensing negotiations, BATNA stands for:
- Best Alternative to a Negotiated Agreement (Correct answer)
- Baseline Agreement Terms for New Agreements
- Bilateral Arrangement for Technology and Assets
- Base Amount for Total Net Assessments
Correct answer: Best Alternative to a Negotiated Agreement
BATNA is the best outcome a party can achieve if negotiations fail, and knowing it sets the minimum acceptable deal threshold.
Question 2: Which deal structure element allows a licensor to recapture rights if the licensee fails to meet agreed commercialization benchmarks?
- Diligence obligations with reversion right (Correct answer)
- Most-favored licensee clause
- Grant-back clause
- Covenant not to sue
Correct answer: Diligence obligations with reversion right
Diligence obligations require the licensee to actively develop and commercialize the IP; failure triggers a reversion right returning exclusivity or all rights to the licensor.
Question 3: A 'most-favored licensee' (MFL) clause in a license agreement obligates the licensor to:
- Offer the same or better terms to the MFL holder if a more favorable deal is later granted to another licensee (Correct answer)
- Give the licensee first right of refusal on any sublicense
- Charge the licensee the lowest royalty rate in the entire market
- Provide the licensee with exclusive rights in its territory
Correct answer: Offer the same or better terms to the MFL holder if a more favorable deal is later granted to another licensee
An MFL clause ensures the existing licensee automatically receives any better terms the licensor grants to future licensees in a comparable situation.
Question 4: What is the primary purpose of a term sheet in a licensing negotiation?
- To capture agreed key business terms before drafting a full binding agreement (Correct answer)
- To create a legally binding contract for immediate execution
- To submit proposed royalty rates to a regulatory authority
- To formally end negotiations and document areas of disagreement
Correct answer: To capture agreed key business terms before drafting a full binding agreement
A term sheet summarizes the principal economic and legal terms agreed upon in negotiation, serving as the blueprint for the final license agreement.
Question 5: In a cross-license agreement, parties exchange:
- Rights to each other's IP portfolios, typically without cash payment (Correct answer)
- Product samples for comparative testing before signing a license
- Confidential technical data under mutual NDA only
- Equity stakes in each other's companies
Correct answer: Rights to each other's IP portfolios, typically without cash payment
A cross-license allows two parties to use each other's patents, which is common in industries where both hold blocking IP necessary for product development.
Question 6: What is a grant-back clause in a license agreement?
- A provision requiring the licensee to license back to the licensor any improvements made to the licensed technology (Correct answer)
- A clause granting the licensor the right to inspect the licensee's facilities
- A provision automatically renewing the license unless terminated
- A right for the licensor to reclaim the IP upon bankruptcy of the licensee
Correct answer: A provision requiring the licensee to license back to the licensor any improvements made to the licensed technology
A grant-back clause obligates the licensee to share or license back improvements to the original licensor, which can be exclusive or non-exclusive.
CLP CLP Licensing Negotiations & Deal Structuring 1
In licensing negotiations, BATNA stands for: