Provision Language
Definitions
“NET SALES” means the amount billed or invoiced, and if any amount is not billed or invoiced, the amounts received, on sales, rental or lease, however characterized, by LICENSEE and/or SUBLICENSEES of LICENSED PRODUCTS, less the following deductions (but only to the extent such deductions are otherwise included in NET SALES and are not obtained in view of other consideration received by LICENSEE):
(a) cash discounts actually granted to customers in such invoices for SALE of LICENSED PRODUCTS, but only in amounts customary in the trade;
(b) sales taxes, tariff duties and/or use taxes separately stated in such bills or invoices with reference to particular SALES and actually paid by LICENSEE to a governmental unit;
(c) actual, reasonable freight expenses between LICENSEE and customers, to the extent such expenses are not charged to or reimbursed by customers; or
(d) amounts actually refunded or credited on returns.
Where LICENSEE or SUBLICENSEE receives any consideration other than cash for such transactions, fair market cash value for such consideration, to be agreed upon by the parties hereto, shall be included in NET SALES. Where a product or activity is a LICENSED PRODUCT hereunder due to contributory infringement or inducement of infringement, NET SALES shall include SALES of the product or process that constitutes a direct infringement of the PATENT RIGHTS.
“ROYALTY TERM” means, on a LICENSED PRODUCT-by-LICENSED PRODUCT and country-by-country basis, the period starting on the FIRST COMMERCIAL SALE of such LICENSED PRODUCT and expiring upon the later of (a) expiration of the last to expire issued VALID CLAIM of the PATENT RIGHT(S) that cover the applicable LICENSED PRODUCT in the applicable country, or (b) the tenth (10th) anniversary of the FIRST COMMERCIAL SALE of the applicable LICENSED PRODUCT in the applicable country, unless the entire Agreement is terminated sooner in accordance with another specific Article of this Agreement. For purposes of this definition, a VALID CLAIM “covers” a LICENSED PRODUCT if it would infringe such VALID CLAIM under applicable law if not for a license to such VALID CLAIM.
ARTICLE 3 – CONSIDERATION
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3.2 With respect to RUNNING ROYALTIES, the following shall apply (a) LICENSEE is not obligated to pay multiple royalties if any LICENSED PRODUCT is covered by more than one claim of PATENT RIGHTS or the same LICENSED PRODUCT is covered by claims in two or more countries; (b) LICENSEE shall pay RUNNING ROYALTIES to MICHIGAN during the entire ROYALTY TERM, as determined on a LICENSED PRODUCT-by- LICENSED PRODUCT and country-by-country basis, and this provision shall survive any termination of this Agreement; and (c) if LICENSEE makes any SALES to any party affiliated with LICENSEE, or in any way directly or indirectly related to or under the common control with LICENSEE, at a price less than the average price paid by other parties in the ROYALTY TERM, the RUNNING ROYALTIES due to MICHIGAN shall be computed on the basis of the fair market price to be agreed upon in good faith by LICENSEE and MICHIGAN. With respect to LICENSED PRODUCTS made, used, imported, or offered for sale before end of the ROYALTY TERM, but are then SOLD after the end of the ROYALTY TERM, NET SALES shall include amount for the SALE of those LICENSED PRODUCTS. Within sixty (60) days after the end of the ROYALTY TERM, LICENSEE shall provide to MICHIGAN a verified inventory identifying all LICENSED PRODUCTS on hand or not SOLD that were manufactured prior to end of the ROYALTY TERM.
ARTICLE 4 – REPORTS
4.1 Until the FIRST COMMERCIAL SALE, by July 31 of each year LICENSEE shall provide to MICHIGAN a written annual report that includes reports on progress since the prior annual report and general future plans regarding: research and development, regulatory approvals, manufacturing, sublicensing, marketing and SALES. LICENSEE shall notify MICHIGAN within thirty (30) days after each of the following events:
(a) the filing of an Investigational New Drug Application with the U.S. Food and Drug Administration and/or equivalent filing with the European Medicines Agency and/or Chinese National Medical Products Administration (a “REGULATORY AGENCY”);
(b) the filing of a New Drug Application with the U.S. Food and Drug Administration or other REGULATORY AGENCY;
(c) the completion of any phase of clinical trial in any country; and/or
(d) the marketing approval of any LICENSED PRODUCT in any country.
4.2 LICENSEE shall specifically report to MICHIGAN the FIRST COMMERCIAL SALE within thirty days thereof, and provide a brief description of the products or services subject of the SALE, and terms thereof. After the FIRST COMMERCIAL SALE, LICENSEE shall provide semi-annual reports to MICHIGAN. Specifically, by each July 31 and January 31 (i.e., within one month after each ROYALTY PERIOD closes, including the close of the ROYALTY PERIOD immediately following any termination of this Agreement), LICENSEE shall report to MICHIGAN for the applicable ROYALTY PERIOD:
(a) number of LICENSED PRODUCTS that were SOLD by LICENSEE and/or each SUBLICENSEE, and an identification of each PATENT RIGHT that forms the basis of each product being a such LICENSED PRODUCT.
(b) NET SALES, excluding the deductions provided therefor, of LICENSED PRODUCTS that were SOLD by LICENSEE and/or all SUBLICENSEES, and an accounting for the country of SALE and the location of manufacture, including state if in the U.S., for each LICENSED PRODUCT resulting in those NET SALES.
(c) deductions applicable as provided in the definition for NET SALES above, and an explanation of the rationale(s) thereof.
(d) Sublicense Fees due on payments from SUBLICENSEES under Paragraph 3.1 above, including supporting figures.
(e) foreign currency conversion rate and calculations (if applicable) and total royalties due.
(f) each milestone (e.g. under Article 3 or Article 5) having a deadline during the ROYALTY PERIOD, and a specific identification of whether or not it was achieved.
(g) for each sublicense or amendment thereto completed in the particular ROYALTY PERIOD (including agreements under which LICENSEE will have LICENSED PRODUCTS made by a third party): names, addresses, and U.S.P.T.O. Entity Status (as discussed in Paragraph 4.5) of such SUBLICENSEE; the date of each agreement and amendment; the territory of the sublicense; the scope of the sublicense; and the nature, timing and amounts of all fees, royalties to be paid thereunder.
(h) progress on research and development, regulatory approvals, manufacturing, sublicensing, marketing and SALES, and general plans for the future.
(i) if a FIRST COMMERCIAL SALE was made in the ROYALTY PERIOD, the LICENSEE shall specifically so indicate, and additionally provide the country and date of such SALE, the location of the manufacture of the LICENSED PRODUCT(s), and the circumstances thereof.
LICENSEE shall include the amount of all payments due, and the various calculations used to arrive at those amounts, including the quantity, description (nomenclature and type designation as described in Paragraph 4.3 below), country of manufacture and country of SALE or use of LICENSED PRODUCTS.
If no payment is due, LICENSEE shall so report to MICHIGAN that no payment is due. Failure to provide reports as required under this Article 4 shall be a material breach of this Agreement. LICENSEE agrees to reasonably cooperate with MICHIGAN regarding any questions it may have relating to compliance with this Agreement, for example to discuss the information in reports.
4.3 LICENSEE shall promptly establish and consistently employ a system of specific nomenclature and type designations for LICENSED PRODUCTS to permit identification and segregation of various types where necessary, and shall require the same of SUBLICENSEES.
4.4 LICENSEE shall keep, and shall require SUBLICENSEES to keep, true and accurate records containing data reasonably required for the computation and verification of payments due under this Agreement. LICENSEE shall and it shall require all SUBLICENSEES and those making LICENSED PRODUCTS to: (a) open such records for inspection upon reasonable notice during business hours, and no more than once per year, by either MICHIGAN auditor(s) or an independent certified accountant selected by MICHIGAN, for the purpose of verifying the amount of payments due, and shall provide information to MICHIGAN to facilitate such inspection; and (b) retain such records for six (6) years from date of origination.
The terms of this Article shall survive any termination of this Agreement. MICHIGAN is responsible for all expenses of such inspection, except that if any inspection reveals an underpayment greater than five percent of royalties due MICHIGAN, then LICENSEE shall pay all expenses of that inspection and the amount of the underpayment and interest to MICHIGAN within twenty-one days of written notice thereof. LICENSEE shall also reimburse MICHIGAN for reasonable expenses required to collect the amount underpaid.
4.5 LICENSEE shall provide written notice to MICHIGAN at least 90 days prior to bringing any action, including administratively, seeking either to invalidate any claim of under any MICHIGAN patent rights or a declaration of non-infringement. LICENSEE shall include with such written notice an identification of all prior art it believes may invalidate or render unenforceable any such claim, along with an explanation thereof. LICENSEE agrees to dismiss with prejudice any action filed in violation of this provision.
4.6 So that MICHIGAN may pay the proper U.S. Patent and Trademark Office fees relating to the PATENT RIGHTS, if LICENSEE, any company related to LICENSEE, or any SUBLICENSEE (including optionees) does not qualify as a “Small Entity” under U.S. patent laws, LICENSEE shall notify MICHIGAN immediately. The parties understand that the changes to LICENSEE’s, SUBLICENSEE’s, or optionees’ businesses that might affect entity status include: acquisitions, mergers, hiring of a total of more than 500 total employees, sublicense agreements, and sublicense options.