Tech Transfer eNews Blog

Strategies for managing underperforming licensees: Enforcer, counselor, or both?

By Jesse Schwartz
Published: September 21st, 2022

A detailed article on strategies for dealing effectively with struggling licensees appears in the September issue of Technology Transfer Tactics. To subscribe and access the complete article, or for further subscription details, click here.

It happens to every TTO once in a while. You licensed patented technology to a company that just isn’t making enough progress, so your original expectations for licensing revenue, attainment of milestones, and associated fees aren’t met.

What can you do? There’s the nuclear option of clawing back the IP, but in many cases the better course might be to amend the agreement and begin looking for ways to support the licensee in reaching the specified goals.

The Cleveland Clinic Foundation recently found itself in a similar situation with technology licensed to Notox Bioscience, which is using patented IP relating to the treatment of a neuromuscular abnormality. The company is seeking to produce products in the areas of aesthetics, drug-free pain management, body contouring, and sweat control.

The company recently announced that Cleveland Clinic Foundation had agreed to amend the original terms of the licensing agreement, the third such amendment since 2013, and extend the deadline for Notox Bioscience to reach the first commercial milestone — submission of regulatory filings — to December 2023. The amendment also requires Notox Bioscience to begin making partial refunds of approximately $215,000 of patent fees accrued by the Cleveland Clinic Foundation at the rate of $25,000 per calendar quarter, the company announced.

The tech transfer office at Cleveland Clinic Foundation declined a request to comment on the amendment. Notox Bioscience reported that the license agreement is valid until the expiration of the last to expire of certain patents. “In accordance with the license agreement, we are required to pay the clinic a royalty based on the sale of certain products, a milestone payment upon the first commercial sale of the first such product, and a percentage of any sublicense,” the company reported.

CEO Zoran Konevi said the amendment “signals that our key partnerships are stronger than ever, and it is also heartening to receive such fantastic support.”

That kind of flexibility and support is one way to go, but a tougher stance is warranted in some cases, says Alfonso Garcia Chan, JD, principal with the McKool Smith law firm in Dallas, TX. He focuses his practice specifically on litigating and licensing complex IP cases on behalf of universities, research institutes, and technology companies.

When your original expectations for licensing revenue and attainment of milestones and associated fees keep getting pushed back, your choice of action may depend on who is involved, Chan says.

“If the licensee is affiliated with the university and primarily staffed by professors and students, more patience may be needed to incubate and allow the company to grow to viability. Financial requirements should rarely be reduced, but timelines can be adjusted,” he says. “If, however, the licensee is a more sophisticated commercial or industrial company, then the requirements and milestones should be more strictly policed with notices of breach, warnings, and audits.”

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