Australia: Ten tips for agribusinesses: In-licensing or jointly developing business technology

Technology is as important to agribusinesses as their physical resources, the products they produce and services they supply.

In food production, for example, farmers face the daily challenge of producing increased yields, in uncertain conditions, from finite resources, and at a reasonable cost.

Technology often proves to be the difference between success and failure, or at least drives margins: whether it be chemical technologies to increase production, mechanical technologies to improve harvesting efficiencies, or processing technologies to expedite and reduce the cost of the journey from paddock to plate. Primary producers that best address these challenges are likely to have an economic advantage over their competition.

Technology is the key. However, agribusinesses may lack the scale, capability or expertise in-house to develop and protect new technologies, and often need to look for it externally.

Where technology is not developed and protected in-house, it is commonly in-licensed from an unrelated third party, or created jointly with a third party collaborator. This article examines considerations for agribusinesses when licensing and/or jointly developing technology.

In-licensing

Where a need for new or improved technology is identified, there may be a third-party solution already available. In this case, there is the option of obtaining the rights to use it. Important issues to consider include:

1. Are you getting the rights you need? The grant of rights must cover the technology, the specific or general uses you will need it for, as well as the locations for that use. A limited licence that covers a narrow jurisdiction or uses only, will be of restricted or no use if it is also required in other places and for broader purposes.
2. How much will it cost you? The licence needs to be cost-effective, so any variables that affect royalties to be paid should be carefully considered. A one-off fee can be useful in providing a business with certainty and a fixed-cost base, but a performance-based fee (dependent upon the resource produced) can mitigate risks where volumes are uncertain.
3. Will the licence be exclusive? This can work both ways. A producer may require the licensor to grant an exclusive licence so competitors cannot access the technology, but that exclusivity will likely come at a higher price. On the other hand, the licensor may try to tie you in to exclusively using their technology and not that of a third party. This can be risky where that technology is a key part of a business, as it may leave you at the mercy of that one supplier, particularly where the technology fails to perform as expected.
4. What happens to any improvements you make to the technology in the course of using it in your business? The licensor may require a grant-back for any improvements made. You must also consider what will happen if the licensor improves its technology – will those improvements be included in the licence, or will others then have access to a technology that supersedes the one you are contractually bound to use?
5. What rights does the licensor have to terminate a right to use the technology? Termination or suspension rights must be carefully controlled so that, provided you are meeting your side of the deal, the licensor cannot simply end or suspend the arrangement, leaving you without the ability to use business-critical technology.
6. What happens if there is a problem with the technology? A defect might affect performance or safety. Or, a third party could claim that use of the technology infringes their rights. Any business-critical licence should be supported by contractual warranties and adequately address liability. It should ideally make the licensor clearly responsible for specific ownership and fit-for-purpose issues, and any loss suffered from a breach. Take, for example, a new chemical treatment for boosting yield and crop resilience. What if it turns out it does the opposite, falls short of promised performance or causes environmental damage? Significant losses could be suffered and therefore should ideally be protected against.

Joint technology development

In the situation where the solution you require may not yet exist, and you would like to work with a third party to develop that solution, you may provide significant input (financial and know-how) into the development. In considering how to protect your input into that investment, relevant issues may include the following:

7. Who will own the IP? Joint ownership is one option, but can be complicated. If you have paid for it, you may want to own it, resulting in greater control over what you can do with the IP. For example, joint ownership of a patent allows you to exercise your rights of use without accounting to the other owner, but you cannot grant a licence to a third party without your co-owner's consent. Where you have paid for a bespoke technology solution to be developed, sole ownership will usually be preferable.
8. What can be done with the IP? If IP is to be jointly owned, it is prudent to agree upfront what each party will be able to do with that IP without having to seek the consent of, or to account to, the other party. For example, as well as using the IP in your own business, you may want to license third parties to use the IP for a fee. Alternatively, you may wish to make it clear upfront that the other owner will not be permitted to give your competitors any right to use that IP. If you expect to be the sole owner, will the co-developer be given any rights to do anything with the IP?
9. Who manages the IP? It takes time and money to protect and manage IP. A global patent protection strategy can be very expensive but also very profitable. Newly developed technology may be useful to a similar business in another country. Joint owners of IP should agree upfront who will be responsible for controlling and funding an export strategy.
10. How will risks be apportioned? If you are to solely own the IP, it is usually appropriate to seek warranties and an indemnity from the co-developer where the part they created gives rise to problems. For example, consider the situation where a government agency and a private sector business co-develop a new plant variety within a government research laboratory, with a view to commercialising this new variety. The co-development contract needs to clearly set out who is responsible in the event that an issue arises in relation to the new variety, particularly where it is not possible to specifically identify whose "part" has caused the issue.

Take away

In-licensing of technology, or teaming with a third party to develop new technology, has enormous potential to significantly benefit agribusiness enterprises. However, such transactions can carry significant risks. With sound guidance, those risks can be properly addressed from the outset and equip an innovative business to meet commercial challenges from a position of security and strength.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.