Pick the Right Lawyer for a Royalty Contract

Role play with me for a moment. Imagine you’re going in for surgery and you can choose between two surgeons: a doctor who performs that surgery twice a year, or one that does it twice a month?

It’s a no brainer. The same should apply to lawyers – particularly when it comes to the mission-critical task of negotiating royalty contracts. These key agreements will make or break a company. Plus, if things go bad between your company and other parties, these documents will be what separates losing millions (and sometimes more) and remaining intact.

Here are some ways to vet your attorneys to see which ones know enough about royalty agreements.

Ask about Frequency

Attorneys who do more licensing and royalty agreements will be better allies. Ask about the number of agreements they’ve done in the last few years. But also ask about different kinds of royalty agreements they’ve executed and how often they’ve done them. For example, discuss:

  • Hybrid licenses, in which the patent is just part of the value being delivered (for example: marketing, manufacturing, product development and beyond)
  • How they negotiated payments in a deal with multiple patents that expire at different times
  • How they negotiated changes to the royalty rates based on certain milestones, such as an FDA approval or new applications for the device or molecule
  • How have they seen the term “net sales” defined, and which definition do they think most suited to your company’s goals?

Keep Third Parties In (or Out)

Third parties and how they’re used will be critical at maximizing a royalty agreement. When meeting with different attorneys, listen to their opinions about the treatment of sales made by sub-licensees, as well as what should happen when third-party technology is needed to finish the product.

Discuss the Opportunity to Have Revenue Post-Patent

Federal law prohibits receiving royalties on a patent once it expires. But that doesn’t mean you can’t still receive a royalty post-patent. Licensing deals often include royalty agreements based off net sales, with the percentage dropping after the patent expires. This type of agreement assigns a value to the patent itself and, once it expires, deducts that value and allows a lower level of payment to continue.

Quiz Them on Kimble

An attorney deep into royalty agreements will have a deep point of view on Kimble v. Marvel Enterprises, which asked the Supreme Court in June to allow royalty patents to extend beyond the life of a patent – overturning a 50-year-old+ precedent. The Supreme Court did not overturn this practice, but that shouldn’t stop a royalty attorney from having a point of view of the issue and the potential for such a change in the future.

Intangibles

Beyond the specifics of royalty deals, there are other attributes of a life science attorney you will want, particularly when it comes to intellectual property agreements.

Degrees in your field. Some of the best intellectual attorneys often have PhDs at the end of their names. If the two attorneys have equal experience, lean toward an attorney with a life science background.

A lawyer that finds a way. When you’ve checked all the experience boxes, here’s the final litmus test for any startup law firm:

So rather than discuss why startups fail, let me explain why startup lawyers fail. I can sum it up with one word: “No.” The startup lawyers who fail say, “No, you can’t do it that way.” And they say no all the time.” Those who succeed answer every problem with “this is what you can do” instead of “no way, impossible.”

So experience counts – but so does having the kind of startup ethos you want in your key employees.

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