Introduction
Conventional drivers of economic growth became insufficient in the last couple of years to provide significant competitive advantages for companies that, in order to remain present in the relevant market, need to constantly meet demands for new or better prices at competitive prices. Amidst the fourth industrial revolution, the solution to this dilemma can be found in acquiring emerging technology and implementing novel technological advancements. Taking into account the legal character of technological solutions and multiple types of intellectual property as intangible assets, it is logical that the use of it by one user doesn’t affects its use by another. In other words, multiple users can simultaneously use the technology without affecting its core functionality.The transfer of technology in a wider sense could be described as handing over particular technologically applicable solutions, knowledge and experience from one entity, namely the rights holder, to another economic entity, i.e., the acquiring party. The dynamic nature of such process consists of several phases that eventually result in a certain contractual relationship. The stated term ‘transfer of technology’ seems quite broad, and according to WIPO’s interpretation, the mentioned definition encompasses various types of contractual relations.
In this article, we are going to present the basic characteristics and differences of license agreements and technology transfer agreements, along with the multiphase process from choosing a contractual relationship over negotiations to the very agreement that transfers the use of a particular technology from one party to another.License Agreement – definition, basic characteristics and practical application
The license agreement obliges one contractual party, the licensor, to transfer to the other party, namely the licensee, the right to use a particular invention, technical knowledge and experience, trademark, sample or model, and the licensee as the acquirer is obliged to pay the licensor a predetermined license fee. In the light of our legal system, the license agreement is a named contract regulated by the provisions of the Law of Contracts and Torts. A license can be defined in a simple manner as a permission given by the technology rights holder to another person for use under certain conditions in a predetermined time period with the possibility to apply it to a particular territory as well.The agreement in question can only apply to patented inventions, which is also one of the main differences from the technology transfer agreement. The formal nature of such contract requires it to be concluded in writing and registered in the registry of the state’s competent authority in order to become legally effective. It is noteworthy to add that the provisions of the Law of Contract and Torts stipulate that a license to use a patented invention, sample or model cannot be concluded for a longer period of time than the maximum duration of the legal protection of such rights. For example, according to the Serbian Law on Patents, the duration of a patent amounts to 20 years tops, and the Law on Legal Protection of Industrial Design has prescribed a maximum duration of 25 years. If explicitly contracted, the licensee may acquire an exclusive license. Otherwise, the license is considered as non-exclusive.
The rights granted by such agreement are extensive and may include a number of them such as the right to use, sell, import or export, reproduce, distribute and more. All of these can be expressed by an umbrella term i.e., the right to ‘use’ technology. Concluding a license agreement is much more than just striking a deal to ‘use’ because it indicates entering a time-limited business relationship and frequently assumes continuous interaction between contracting parties and cooperation in achieving a particular business-related objective. Such a contractual relationship is suitable for various economic purposes, yet it is crucial to approach the creation of a specific contract carefully. For example, in the field of biotechnology, the protected invention itself mainly includes material property, i.e., the transfer of biological material. Hence, when dealing with akin contractual matters, we may encounter a number of ‘tailor-made’ types of agreements, while adhering to basic principles of contract law and imperative provisions of applicable legislation.The path of creation – from due diligence and negotiations to the conclusion of a contract
In this section, we will focus solely on concluding a license agreement, even though many of the phases described are applicable to the development of a technology transfer agreement as well. An interesting figure of speech has been used regarding the conclusion of a license agreement in practice; namely, license agreements are described as ‘a big cake with multiple layers’ that parties cut and reshape during negotiations in order to eventually get their hands on a structure that presents a satisfactory solution for both sides, i.e., a win-win situation.The first step after the decision to enter into a license agreement is to verify all relevant information, namely perform a comprehensive ‘due diligence’ as a logical phase before entering into any long-term business relationship. In addition to obtaining relevant information about the technology itself, the patent, relevant market and the licensor/licensee, applicable national regulations should be double-checked as well. For example, a number of countries may have regulations with the effect of limiting the licensing or sale of particular technological achievements, such as the Commission Regulation (EU) no. 316/2014 on the application of Article 101 (3) of the Treaty on the functioning of the European Union to categories of technology transfer agreements.
The next step concerns entering negotiations. Negotiations are also regulated by our Law of Contract and Torts which stipulates that, while the negotiations that precede the conclusion of a contract are not legally binding, the party that entered into negotiations with no intention of concluding the contract or under false pretenses, is liable for damages. In practice, especially when the main subject of negotiations relates to a particular technology and technological innovations in a highly competitive market, it is not enough to participate on the basis of mere trust. Thereby, a common practice indicates the conclusion of a mutual confidentiality agreement or non-disclosure agreement (NDA). If necessary, the option of creating a memorandum of understanding during negotiations may also be useful under particular circumstances.During the negotiations phase, a number of issues may arise that will later be put in writing and clearly defined by the contracting parties, such as technology valuation and licensing fees, determination of the subject of the agreement, technical assistance, license type, expiration date, obligations and rights of the parties and others. In addition to the importance of clearly defining the subject of the agreement itself, it may also come in handy to consider incorporating a confidentiality clause, the dispute resolution matter and applicable law in circumstances that include the existence of a foreign element. For instance, if under such circumstances contracting parties fail to choose an applicable law, Article 20 of the Law on resolving conflict of laws with regulations of other countries explicitly states that a license agreement/technology transfer agreement shall be governed by the law of the place where the receiving party had its registered office at the time of signing a contract. Last but not least, in case both parties are in possession of a certain intellectual property, it is possible to conclude a cross-license agreement as well.
Technology Transfer Agreement – definition, basic characteristics and how to differentiate it from a license agreementEven though we have already established that the transfer of technology in a wider sense is a broad and complex term, when talking about entering into an agreement that differs from the license agreement, we are referring to the agreement by which one contracting party transfers to another technical knowledge and experience (‘know-how’) regarding the use of unprotected industrial property rights, as well as protected rights (separately or in combination), and the other contracting party pays the agreed fee. A divergent name for the contract indicates a change in the agreement’s main subject and distinguishes it from a license agreement that applies only to patented inventions.
Unlike the license agreement, this contract is an unnamed contract to which there is no direct reference in applicable legislation. Hence, mutual rights and obligations are regulated by the agreement itself in accordance with basic contractual principles. As with the license agreement, it is a complex and multiphase process in which one side transfers to the other a palette of technological solutions and knowledge for the purpose of economic exploitation.The highly competitive climate in the relevant market along with the constant development of new technologies have led to the emergence of a need to acquire additional and divergent types of legal protection. A license agreement may be a pivotal and widespread form of patented technology transfer-related protection, but novel tech can also be protected by the means of know-how and business secrets, especially when it comes to more complex technologies. That is to say, technology can be divided into patented inventions and accompanying technical knowledge and experience, protecting the latter as business secrets.
Know-how stems from the American industrial history and its transfer can be defined, in line with the recommendation of the International Chamber of Commerce (ICC) in Paris, as a complete transfer of technical knowledge and experience on particular technology and manufacturing processes. Taking into account it is an Anglo-Saxon creation, it would be interesting to end this discussion by the term’s definition given in the case of Hooker Chemical Corp v. Welsh Chemical Corp. dating back to 1964; namely, know-how has been illustrated as factual knowledge for which it is not possible to provide a precise description. Nevertheless, the case law stipulated that it is a set of knowledge and experience that gives one acquiring it the ability to do or produce something which otherwise would not have known how to do or produce at all, with the same precision or precision found necessary for commercial success.Closing remarks
By discussing these contracts, we have only scratched the surface of the world of the transfer of technology and technological achievements. Since there are many existing variants of contractual relations under the umbrella term of technology transfer, the selection and development path should be approached in an individualized manner, along with an adequate degree of possessing multidisciplinary knowledge in the field of legal regulations and the technology itself, all in order to reduce the possibility of making mistakes and ensuring further business successes.
Literature:
Books/Publications/Journal Articles:Dusan M. Popovic & Slobodan M. Markovic (2020) Intellectual Property Law – 8th Edition, Law faculty- University in Belgrade.
Jeffrey P. Somers (2003) Biotech Patent Licensing: Key Considerations in Deal Negotiations, Journal of Biolaw and Business Vol. 6, No. 3.Paul Luggard (2014) The New EU Technology Transfer Regime, Like a Rolling Stone? (2014) Digiworld Economic Journal No. 95.
Vladimir Todorovic & Ratomir M. Slijepcevic (2018) Commercial Law – 4th edition, Projuris.WIPO (2005) Exchanging Value – Negotiating Technology Licensing Agreements: A Training Manual, WIPO.
Legal Framework:Commission Regulation (EU) no. 316/2014 on the application of Article 101 (3) of the Treaty on the functioning of the European Union to categories of technology transfer agreements, OJ L 93/17.
Law of Contract and Torts, Official Gazette of the Republic of Serbia No. 18/2020.Law on Legal Protection of Industrial Design, Official Gazette of the Republic of Serbia No. 44/2018.
Law on Patents, Official Gazette of the Republic of Serbia No. 123/2021.Law on Resolving Conflict of Laws with Regulations of Other Countries, Official Gazette of the Republic of Serbia No. 46/2006- oth. law.
Case Law:Hooker Chemical Corp v. Velsicol Chemical Corp., 235 F. Supp. 412 (W.D. Tenn. 1964).
