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This article is written by Sankeit Taneja, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.  

Introduction

In the general parlance a Technology Transfer Agreement can be defined as the transfer of intellectual property from one organization to the other and the most collective means of transferring them is through licensing agreement whereby the licensee attains a right to use the technology for a fixed period of time by paying a particular fee for it. Before proceeding further to discuss the topic in detail, the following agreements have been defined below so as to give a general impression regarding the two agreements in focus:

As mentioned above, Technology Transfer Agreement is the transfer of intellectual property from one organization to the other. Whereas a Licensing Agreement can be defined as the permission granted by the property owner (being the Licensor) to the party making requests for such a permission (being the Licensee) for a specific period of time. The term “property” mentioned above generally includes real estate holdings or personal possession but in Licensing Agreement it usually means Intellectual Property such as Patent, Copyrights and Trademarks. 

Nature of Contract

Technology Transfer Agreement pertains to a specific method of transfer of technology along with its use under particular terms & conditions. The word ‘Transfer’ does not purports to mean the actual transfer or delivery of technology but is rather a process through which a technology is developed for one specific purpose and used by individuals on a large scale. The said agreement can also be for a License Agreement or a know-how agreement. The transfer is usually conducted through documents, software programs, raw materials, ministries and Schooling.

On the other hand, Licensing Agreements is nothing but a deal amongst owner’s (Licensor) patent, trademark or brand and the person (Licensee) who shall be granted permission for the usage of Licensor’s patent, trademark or brand subject to a monetary prearrangement, which the Licensee shall be obliged to pay to the Licensor as a result of the usage such patent, trademark or brand by the Licensee.

It can be noted that the European Commission has issued various Block Exemption Regulations which give certain kinds of agreements Chapter I/ Article 81(1) prohibition. The regulation has exempted patent and know-how licenses which fall within the terms of Technology Transfer Block Exemption Force which came in force on 1st May 2014 and those agreements which come under European Commission Block Exemption are also exempted from UK Competition Act Chapter I

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Need for Technology Transfer Agreements & Licensing Agreements

Technology Transfer Agreement is required by organizations/companies when technology is transferred to another organization or companies. This agreement specifies the process of transfer of intellectual property, whether the license given to the licensee is an exclusive license or non -exclusive the validity along with terms and condition of the agreement.

Licensing Agreement is required when intellectual property for instance business concept, software, application is taken from another organization/company by entering into a licensing agreement. It is necessary when a company gives access to another for allowing its business but for a limited period of time.

Types of Technology Transfer Agreements & Licensing Agreements

Technology transfer agreements can be bifurcated into vertical and horizontal technology transfer. 

  • Vertical Technology Transfer is when there is a conduction of new technologies from a new range of technology while the technology is still exploration and advancement. 
  • A Horizontal Technology transfer agreement is the swing of well-known technology from one organization to another.

Licensing Agreements in particular have no type but are extensively used in real life situations like a company enters into an agreement with a sports team to develop, sell products bearing the team’s logo or a soft drink company reaches an agreement with distributor to produce range of stickers which shall be stuck over the soft drinks bottle.

Essential Elements of Technology Transfer Agreement & Licensing Agreements

At times when parties to a contract are discussing the nature of their business with respect to the contract, there might be a possibility of every transaction contrasting from the concerned agreement. To avoid the said contrast, the following elements mentioned below should remain present in a technology transfer agreement.

  1. The sale, vending or grant of license by the owner of technology with respect to its proprietary rights;
  2. An obligation to transfer confidential information;
  3. Process know how;
  4. Application know how;
  5. Engineering know how;
  6. Manufacturing know how;
  7. Management know how; and
  8. Design Know how.

With Licensing Agreement being vast in nature and being sufficiently compound, the basic points mentioned in the agreement form its particular element. However, one of the most important elements of a Licensing Agreement is the Monetary Arrangement and its planning. Costs which are received from the Licensee are either in form of royalties or assured minimum payment. In case of royalties, the percentage of royalty shall differ from one Licensee to another depending upon the Licensee’s financial capacity and the terms of contract. Assured minimum payment is not mandated but experts suggest that Licensors get as much compensation as possible. In some cases, this assured minimum payment by the Licensee is considered as base for renewing a Licensing Agreement. 

Time Period is also considered as an important element of a Licensing Agreement. Quality Issue is also measured as an important element as quality is measured by an exhaustive analysis of the Licensor’s reputation.

Technology Transfer can only take place if the Licensee is being able to adapt, understand, implement technology and its essentials.

Difference between Technology Transfer Agreement & Licensing Agreement

  • Technology Transfer Agreement is wide-ranging in concept as compared to Licensing Agreement as the former focuses on organizations, companies to up-skill, upgrade, improve their technology whereas the latter grants these organizations, companies for the usage of these technology which remain secured through the protection of Intellectual property rights, including patents, though the latter can have an up-skilling purpose yet it is subordinate to the licensing of the rights. 
  • Technology Transfer Agreements comprises a technology license which includes patents but its primary objective is organizations, companies as a whole in technology to either generate or market or generate industry or for educational impetus.

Pros & Cons of Technology Transfer Agreement and Licensing Agreement

While the said two agreements are parallel in nature and are used by various organizations and companies in a systematic order, they have their equal share of pros and cons:

Technology Transfer Agreement

Pros:

  • To procure Organizations & Companies with admission towards new technology or offset filibustering technology through the process of cross licensing.
  • Provide access for enhancement of technology without any development and examination expenditures.
  • Boost company’s brand acknowledgement in markets.
  • Handing over business control for technical standards raised by national and international organizations throughout the globe.
  • Conversion of infringement or competition in a collaboration by avoidance of Intellectual Property Litigation.
  • Solidification and Establishing Company’s relations with its present and future customers.

Cons:

  • Exploitation of Technology transfer through the said agreement by the Licensee in any manner whatsoever.
  • Decrease in the performance of the licensed technology by the Licensee thereby leading to damage of the technology’s goodwill resulting in Diminution of technology’s value.
  • Increase of litigation risk after transfer of technology thereby forcing the Licensor to liability suits.

Licensing Agreement

Pros:

  • Utilization of the Licensed technology thereby entering into new geographical, technological dimensions, areas and various markets around the globe.
  • Generation of revenue due to the usage of the licensed technology.
  • Acquiring access to the developed technology.
  • Licensor’s ability to acquire revenues through royalty.
  • Forming a unique business approach.

Cons:

  • Loss of control of the licensed technology.
  • Increasing chances of Technology theft. 
  • Acceptance of higher risk by the licensee at the time of entering into a licensing agreement thereby resulting to over reliance over the licensor. 
  • Control over technology for a limited time.
  • Royalty Litigation.
  • Deferral in royalty fee.

Situation at the Time of Violation of Agreement

Every agreement has a clause which points out the steps to be taken in case of violation of a certain clause of agreement. Technology Transfer Agreement, just like every other agreement contains the same clause. Clauses such as Governance of Law, Dispute Resolution, Severability, Integration shall come in force in case of violation of a certain clause of agreement.

Now when a violation arises in a Licensing Agreement, a dispute shall definitely arrive in case of infringement. In order to avoid any infringement, it is recommended that the parties consult their respective lawyers regarding the agreement as a whole in order to avoid infringement thereby leading towards disagreement and disagreement with respect to Licensing Agreement can lead towards an expensive Intellectual Property Litigation. 

India’s Current Scenario regarding Transferring & Licensing

In terms of technology, our country has experienced a significant amount of growth in the past and each year is rapidly growing due to advancement of technology thereby playing a significant role in our country’s economy. Developing nations including India do not necessarily follow the measures taken by developed countries in terms of development but rather optimise the technological advantages they have. Our government has planned to open technological transfer offices (TTO), educational institutions being financed by the Central government. These TTO shall act as an instrument for transferring or examination conducted and its outcomes.

Conclusion

Technology Transfer and its Licensing play a significant role with respect to advancement and overall growth of technology which results in improvement of the economy of the country. Our country needs to focus on the growth of technology and its licensing along with simultaneous transfer for which a significant strategy which emphasizes its focus on new companies and different market sectors and also create an impact on the younger generation of our country regarding the benefits which arise due to the transfer of technology and its licensing.


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