Revealing the covert economics of licensing and collaborations: Technology transfers

In a definitive agreement, it is common for boilerplate language to specify that each party is responsible for its own expenses and fees, unless otherwise stated. One section that might expressly allocate costs outside of this boilerplate language is focused on information and technology transfers (Technology Transfers). This section comes into play when one party is required to transfer certain information (e.g., licensed know-how or manufacturing knowledge) to the other party(ies) as part of the licensing and/or collaboration arrangement.

When drafting Technology Transfer provisions, negotiations will often focus on the following elements:

• Purpose and scope: The scope of the information and the purpose for its transfer will be specific to each deal. For instance, in a straightforward licensing arrangement where the licensee oversees all aspects of a drug compound or other product’s development from research to market launch, the Technology Transfer clause might be broadly drafted to require the licensor to transfer all information under its control that will enable licensee to complete such stages. In contrast, under a collaboration arrangement where the parties are responsible for specific stages of the lifecycle, both parties may have an obligation to transfer information. In any Technology Transfer, the information transferred may be limited by purpose (e.g., only what is necessary and/or reasonably useful to exploit the product) or specific to a designated stage (e.g., manufacturing) in the relationship to permit the other party to carry out its obligations or exercise its rights. There may be a challenge in finding the right balance between one party receiving sufficient information to fulfill its rights and obligations under the agreement, while also ensuring that the other party safeguards its technology by not sharing excessive information that could potentially provide the receiving party with additional insight into the technology beyond the scope of the agreement. 

• Recipients: By specifying the recipients of the Technology Transfer in the definitive agreement, the receiving party can designate to whom it wants the information and technology to be disclosed. In cases of Technology Transfers focused on manufacturing, the transferring party may limit the disclosure of manufacturing information to a designated third party contract manufacturing organization (CMO) who is not a competitor of the transferring party or may require the transferring party’s approval for the designated CMO.

• Frequency and method: Parties may specify the frequency of the transfer, which can range from a one-time Technology Transfer at a certain point in the term of the agreement (e.g., upfront or upon the triggering of an event) to an ongoing obligation during the term. The provision may generally obligate the licensor to transfer certain information to the other party or may detail the specific methods in which the information will be transferred. This can range from a simple electronic transfer of information to more complex methods requiring the parties to interact through consultations to, or the delivery of training to, the receiving party’s personnel.

• Cost allocation: The expenses related to Technology Transfers and the subsequent distribution of costs between the parties will vary to reflect the applicable business deal. The expenses associated with Technology Transfer may be at no cost to the receiving party, limited to out-of-pockets costs, or may include full-time equivalent (FTE) costs. The parties may also negotiate for a limited amount of Technology Transfer assistance to be provided at no cost and then begin charging the receiving party for ongoing assistance. Ultimately, the elements described above with respect to the Technology Transfer will impact the financials of the transaction.

Next steps

When parties are in the initial stages of negotiating a term sheet, it is advisable to include a dedicated section outlining the need for a Technology Transfer and where appropriate, the aforementioned elements. The level of importance placed on the Technology Transfer and its projected costs will influence negotiations, resulting in increased scrutiny around cost allocation.

Please contact the authors or the Hogan Lovells attorneys with whom you regularly work to discuss your specific licensing and collaboration needs.

This is an article in our “Life Sciences Transactional Insights” series, which aims to provide key practical takeaways for our transactional colleagues by anticipating the needs of their regulatory, intellectual property, and business stakeholders. Our dedicated team of life sciences and health care licensing and commercial transactions lawyers understand the challenges and opportunities that strategic alliances and other partnering relationships present. We draw on the depth of our life sciences practice and work seamlessly with our regulatory experts to provide unparalleled transactional support. Ensure you are subscribed to Hogan Lovells Engage to receive our insights.

Authored by Shivani Suhag and Stephen Nicolai.