The concept of Technology Transfer (TT) is transfer of latest technology from one company to another or within the same company. It is a process through which dissemination of Commercial Technology takes place i.e. through which existing knowledge, know-how, facilities and/or capabilities are shared to achieve the public and private needs.
Now, since Technology being discussed here is proprietary/exclusive property of the owner, which requires protection. The Technology Transfer Agreement (“TTA/Agreement”)acts as a medium to develop a legal relationship between the owner (“Transferor/Licensor”)and user (“Transferee/Licensee”) to purchase or sell exclusive rights or permission to use technology.
TT can be shared either in the form of Tangible Knowledge i.e. knowledge embodied in physical goods, services and codified in blueprints, designs, technical documents, etc., or Intangible Knowledge or know-how i.e. skills, tactics, information which a person learns over a period of time in a particular sector or field for operating the technology.
The concept of transfer of technology has gained global popularity and specifically amongst developing countries, as we are all aware that development of technology plays a prominent role in boosting economic growth of a country.
In this part of the series pertaining to Technology Transfer Agreement, we will be covering the modalities and the overview of Technology Transfer Agreements.
Methods of Technology Transfer
As we already learned that TT is a process through which dissemination of Commercial Technology takes place. Now, TT can take place in the following ways –
- Vertical Transfer
It is a process in which Technology develops organically within the organization when transfers from one phase cycle to another i.e. Research & Development department to production & Commercialization department.
In this method generic technology is transferred from its origin stage to the production or commercialisation stage where it can develop further.
2. Horizontal Transfer
Itis a process in which Technology transfers from one place/organization to another place/organization i.e. USA to India. In this already developed technology is shared between places/organizations to achieve the public and private needs.
Process of Entering into an Agreement
Technologies have various modes of development process. It can either be evolved through a research and development process or it can be acquired or purchased through imported sources. India has adopted an equal mixture of indigenous and imported technology.
Now, Transfer of Technology under TTA is a complex process, as here the transfer of Technology does not essentially mean physical movement of Technology from one place to another, instead vide this TTA a person/organization/country is authorized to use the Technology developed somewhere else for its own purpose .
Therefore, it is essential that parties consider the following process for reaching an Agreement-
- Identify the Technology
- Initiate Discussion
- Share Letter of Intent(LOI)
- Enter into an NDA
- Prepare a Term Sheet and a Memorandum of Understanding
- Negotiate the details pertaining to the TT.
Structure of the Agreement
The parties entering into Agreement shall ensure that following clauses are incorporated in the best manner –
1. Preliminary Clauses
a. Identification of Parties
This is the opening clause of the Agreement which depicts the identity of the parties entering into the Agreement. Under this clause parties are require to mention their details such as their official designated names, registered address, law under which it is incorporated, Authority etc.
Under this clause the purpose of the Agreement should be stated in a brief manner which captures the essence of the reason why this Agreement is being executed.
c. Effective Date
Under this clause the date when the Agreement comes into full effect is stated. It is often stated in different paragraphs and the effective date can be prior or post to the date the Agreement is signed. In cases, when Agreement is entered with a Government, the approval of the Government usually becomes the effective date.
d. Whereas Clauses (recitals, preamble)
Under this clause the rationale, the agenda and the background of the Agreement is mentioned.
e. Warranties & Representation of Parties
Under this clause both the parties will make statements as a promise or guarantee to each other to make the Agreement work. However, in case a party realises that the statement made is false in nature, then on the grounds of misrepresentation that party can set aside the Agreement and claim for damages.
Now, ‘Consensus ad idem’ – the meeting of minds is an essential part for a valid Agreement. Therefore, to avoid any misunderstanding between the parties the terms that will have broader impact on the Agreement will be defined here.
2. Subject Matter of the Agreement
a. Grant of License
This clause forms the most important part of the Agreement as under this license or permission is granted to use the Technology for which parties are entering into this Agreement. Therefore, it is essential to draft this clause unambiguously so that there is no doubt or questions regarding the rights being granted.
b. Term of Agreement
Under this clause the lifecycle of the Agreement is determined. Usually in Agreements the life cycle of the Agreement is from the Effective Date till the expiration date mentioned hereunder, unless terminated earlier due to material breach of the Agreement or misrepresentation made by a party.
c. Territory & Exclusivity
Under this clause the Territory for which license is granted and whether the license granted under the Agreement will be exclusive (sole licensee) or non-exclusive (license may be granted to other party) will be mentioned. Generally parties choose Exclusive license for their country including neighbouring countries, as a means of securing the market.
d. Rights & Obligations
Under this clause the rights being granted should be properly mentioned, to determine what exactly a Licensee/Transferee is free to do under the Agreement. Such as, whether the Licensee/Transferee is free to manufacture, have manufactured, use and/or sell the subject matter of the Agreement.
e. Limitation of Liability
Under this clause the parties put forth their limitations for which they can be made liable. In other words parties mentions situation or actions of other party for which they cannot be held liable to pay damages.
f. Limitation of Field of Use
Under this clause the Licensor/Transferor mentions the specifics fields for which the licensed Technology can be used, as there may be situations when a particular Technology can be used in varied fields. Therefore, to limit the scope of filed the parties incorporate this clause.
Under this clause the Licensor/Transferor mentions the mode or mechanism in which they want to receive payment for use of the Technology, it can be either in the mode of monthly or yearly lump sum amount or royalty or combination of both.
In case parties choose the mode of payment as royalty then under this clause they will mention the percentage of the net sales or export of the licensed Technology to be received as royalty.
Under this clause it is decided that whether the improvements made in the licensed Technology will be granted to the Licensee/Transferee or not. Therefore, this clause needs to be drafted very carefully keeping in mind the future requirements.
Under this clause the type of Assistance which can be availed by Licensee/Transferee from Licensor/Transferor is mentioned. Assistance can be in form of plain visit & training, direct assistance or consultation. This can be a beneficial clause for the Licensee/Transferee as the availability of Technical Assistancecan greatly reduce the time required by the Licensee/Transferee to move the licensed Technology into production, which in turn will help licensee to earn income faster and Licensor royalty sooner.
k. Intellectual Property
Under this Agreement the Intellectual Property will include the rights regarding patents, trademark, design, know-how etc. Therefore, it is essential for the parties to draft this clause very carefully, as this clause will decide the following questions such as, Who will have ownership over existing and new Intellectual Property, in case Intellectual Property is developed jointly then each party will have how much percentage of ownership etc.
Under this clause the Licensor/Transferor will mention that what kind of Information will be considered as Confidential Information and cannot be shared by Licensee/Transferee. As we are already familiar that sensitive information/technical know-how is shared between parties through this Agreement, it is essential for the Licensor/Transferor to have a strong Confidential clause in the Agreement to prevent leakage of sensitive information.
Under this clause the Licensor/Transferor mentions the acts for which he will indemnify or reimburse the Licensee/Transferee in case Licensee/Transferee suffers any damage due to wilful act of the Licensor/Transferor.
3. Boiler Plate Clauses
a. Force Majeure
In case a party is unable to perform its obligation due to events which could not be foreseen such as, war, acts of public enemies, terrorism, fires, floods, acts of God, strikes (being only national or regional strikes) or any causes beyond the reasonable control of such Party, then this clause will allow such party to terminate the Agreement without paying any damages.
Under this clause parties will decide the events which might lead to termination of the Agreement, by either party or one of the parties. The cause for termination may include – Change in control, non-payment of price or royalty, material breach by the terms of the Agreement, unreasonable delay in execution of the project, underperformance in terms of quality or quantity of work etc.
c. Most Favoured Licensee/Transferee
In case the Licensee/Transferee has opted for Non Exclusive license under this Agreement, then this clause will help such Licensee/Transferee to incorporate the most favourable terms granted by Licensor/Transferor to another Licensee/Transferee upon himself even if such terms are not part of this Agreement.
d. Dispute Resolution
Under this clause the parties will decide the mechanisms and the procedure through which they will try to resolve their disputes amicably.
Usually the procedure to resolve dispute is to first try to resolve it through mutual discussion, then in case parties fail to resolve it internally then they opt for Alternate Dispute Resolution Mechanisms (Mediation, Conciliation or Arbitration) and in last if parties fail to resolve it through ADR as well then they approach the Court, Tribunal or Forum as decided between parties.
e. Governing Law & Jurisdiction
Under this the parties will decide the laws and the jurisdiction of a particular place/country will be applicable, in case there is any dispute between the parties.
f. General Provisions
The parties under this Agreement should ensure that the Agreement contains the General Clauses such as, Whether party under the Agreement can assign rights to any other person or not, the clauses which will survive even if Agreement is terminated, the documents attached currently and documents attached in future will form part of the Entire Agreement, Places where Notices can be served etc.
While entering into a TT Agreement it is important to carefully consider and follow the process for entering into a TT Agreement. Since the concept of TT is new, the procedures are not properly established therefore, it is also important to take the necessary precautions and safeguards while entering in an Agreement.
In the upcoming blog pertaining to the Technology Transfer Agreements, the possible Safeguards and Foreign Collaborations shall be discussed.
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