Tech Transfer University Reporter
Industry-Sponsored Research Management

University TTOs and licensing professionals beware: A “non-binding” term sheet can be anything but…


By David Schwartz
Published: January 21st, 2014

If you haven’t paid much attention to the Delaware Supreme Court  decision in SIGA Technologies v. PharmAthene, Inc., No. 314, 2012 2013 Del. LEXIS 265, 1-2 (Del. May 24, 2013), it’s time to get familiar with the frightening case – BEFORE you sign your next term sheet.

Here’s the background story: SIGA Technologies, Inc. developed the smallpox antiviral drug Arestvyr™ (ST-246) and needed more funding to continue the project. The company reached out to a competitor in the space, Pharmathene, for the money. The parties decided to structure the deal through a license agreement, and they agreed to the particulars in a non-binding term sheet. Then, some months later, it was decided Pharmathene would acquire SIGA.  The merger agreement stated that if the merger fell through, the Parties agreed to negotiate in good faith a license in accordance with the term sheet they had previously agreed upon.

However, before the merger closed, SIGA received a large grant to further develop ST-246 and no longer wanted to be acquired by Pharmathene. This led the parties back to the negotiating table — but SIGA proposed much higher economic terms than the ones in the original term sheet, and the parties reached an impasse.

Then, things got ugly.

Justice ScalesPharmathene sued SIGA in Delaware trial court for failure to negotiate in good faith in accordance with the original “non-binding” agreement. And won! 

So how does this decision affect your TTO? Take a look at your current “non-binding” agreements. Are you sure that the same situation won’t repeat itself in your own organization? What should you do when similar fact patterns occur in your licensing negotiations?

  • Clarify intentions and expectations upfront
  • Determine if you’re willing to renegotiate “already agreed upon terms” to get the deal done

Here are some additional steps to take to ensure non-binding agreements stay non-binding, in light of the court decision:

  • Additional care should be taken in drafting term sheets or preliminary documents  (options, letter agreements, MOUs)
  • Don’t agree to a term sheet unless it is explicitly non-binding or you are prepared to continue negotiations in good faith, consistent with the term sheet.  Even when the term sheet states that it is “Non Binding” — as was true of the term sheet in Siga Technologies — incorporating that term sheet into a later agreement may create a binding obligation.
  • Appropriate disclaimer language should be included.  For example:
    • “The parties intend material terms to be merely preliminary in nature”
    • “such terms merely represent our present understanding with respect to the intended transaction described herein, and is not binding upon and creates no rights, express or implied in favor of any party”

Special thanks to Emily Williams, a licensing associate at Johns Hopkins University Technology Transfer Office focusing on the physical sciences portfolio.  She presented a webinar for Technology Transfer Tactics and we captured every word and dozens more practical strategies. This program is currently available on DVD, On-Demand video and PDF Transcript. For more information and to order, CLICK HERE

Upcoming webinars:

Visit www.TechTransferCentral.com for more unique, practical, and advanced strategies, case studies, best practices, and expert guidance on a broad range of challenges and opportunities for technology transfer offices and professionals.

Posted under: Tech Transfer University Reporter

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