A biotechnology company licenses a promising compound from a university. The license agreement runs forty pages, negotiated over months, reviewed by experienced counsel on both sides. Five years later, the compound succeeds, and the parties discover they have fundamentally different understandings of what the license actually covers.
The scenario recurs across the industry. Biotechnology licensing agreements remain among the most complex commercial contracts in any sector. They must anticipate decades of development, accommodate regulatory uncertainties across multiple jurisdictions, and allocate rights in intellectual property that may not yet exist. The provisions that seem clear during negotiation become ambiguous when applied to scientific developments neither party foresaw.
But the complexity extends beyond the agreement itself. Competition law frameworks constrain what provisions are permissible. Litigation in 2024 reshaped expectations around diligence obligations. Corporate transactions trigger provisions that parties may not have fully considered when the license was signed, and by then, the contractual text is fixed.
Swiss law compounds these challenges. License agreements are treated as Innominatverträge (innominate contracts); they do not fall within any of the specific contract types codified in the Obligationenrecht (OR). While elements of a license may resemble an Auftrag (mandate, Art. 394 ff. OR) or a Miete (lease, Art. 253 ff. OR), Swiss courts classify the license agreement as a sui generis contract.1Swiss license agreements as Innominatverträge: no statutory default regime applies. The practical consequence is significant: where the contract is silent, there is no statutory default regime to fill the gap, unlike a sales contract governed by Art. 184 ff. OR, where the Code supplies missing terms. Silence in a licensing agreement under Swiss law is not merely ambiguous; it is a void that courts must fill through interpretation and supplementary construction (ergänzende Vertragsauslegung), with outcomes that are inherently unpredictable.
1. What Does the License Actually Cover?
License scope definitions determine what the licensee actually receives. In biotechnology, these definitions interact with evolving science in ways that standard contract language cannot anticipate.
Consider a license to a "compound" defined by its chemical structure. Development proceeds, and the licensee creates a prodrug, a derivative that converts to the active compound after administration. Is the prodrug within scope? What about a salt form selected for improved bioavailability? A polymorph with superior stability characteristics? Each variation may or may not fall within the licensed "compound" depending on how the definition was drafted.
Field-of-use restrictions create parallel challenges. A license limited to "oncology indications" may seem unambiguous until the licensee discovers efficacy in a condition that straddles therapeutic categories. Immuno-oncology emerged as a distinct field after many existing licenses were drafted. Cancer supportive care addresses symptoms rather than the disease itself. Oncology-adjacent indications like myelodysplastic syndromes occupy uncertain territory.
The provisions that seem clear during negotiation become ambiguous when applied to scientific developments neither party foresaw.
Territory definitions face similar erosion. A license for "the European Union" signed before Brexit raises questions about the United Kingdom. A license for "China" may or may not encompass Hong Kong, Macau, or Taiwan depending on how the parties understood the term. These ambiguities compound when sublicensing rights are involved, as a sublicensee's understanding of scope may differ from both the licensor's and the original licensee's.
The UPC, operational since June 2023, adds a further dimension to scope definitions for licenses covering European patents. A single UPC invalidity action can centrally revoke a European patent across all participating member states, meaning one challenge could eliminate the licensed IP across most of the EU simultaneously.2Agreement on a Unified Patent Court [2013] OJ C175/1; UPC operational 1 June 2023. This concentrated litigation risk has direct implications for scope definitions: a "licensed patents" clause that anchors royalty obligations to patent validity faces pan-European exposure from a single proceeding. No-challenge clauses, already excluded restrictions under the TTBER, take on heightened practical significance when the UPC makes centralized invalidity challenges more accessible than the territory-by-territory proceedings that preceded it. Switzerland is not a UPC member, creating an asymmetry where the same European patent may be challenged centrally for UPC states while remaining subject to national proceedings before Swiss courts.
The questions multiply with each layer of complexity: Does the license include diagnostic applications of a therapeutic compound? Does a platform license extend to targets identified using the platform but developed through independent research? Does an exclusive license preclude the licensor from conducting research that might lead to competing products?
2. When Does Competition Law Override the Contract?
Licensing agreements do not exist in a legal vacuum. Competition law frameworks constrain what provisions are permissible and may render certain clauses void or unenforceable regardless of what the parties agreed.
The EU Framework
In the European Union, technology transfer agreements are subject to Art. 101 TFEU, which prohibits agreements that restrict competition. The Technology Transfer Block Exemption Regulation (TTBER) provides a safe harbor for agreements meeting specified conditions, but the Regulation expires on 30 April 2026.3TTBER [2014] OJ L93/17.
The European Commission published draft revised TTBER and Guidelines in September 2025, with the Regulation expiring on 30 April 2026.4Art. 11 TTBER (expiry); draft TTBER published 11 September 2025. Based on the Commission's preliminary indications, market share thresholds are likely to remain unchanged (20% combined share for competitors, 30% individual share for non-competitors under Art. 3), though the draft may extend the grace period from two to three years when parties exceed these thresholds during the agreement's term.
The competitor/non-competitor characterisation is itself unstable in biotech. Parties are frequently non-competitors when the licence is signed (a university and a developer, or firms in different therapeutic areas) yet become actual or potential competitors as their programmes converge, which can move the agreement from the 30% non-competitor threshold to the 20% competitor threshold and bring the stricter hardcore list into play. The safe-harbour analysis is therefore not fixed at signing; it can shift with the parties' evolving competitive relationship.
Certain provisions remain "hardcore restrictions" that remove the entire agreement from the block exemption: price-fixing between competitors, output limitations, market allocation between competitors, and restrictions on passive sales into exclusive territories. Other provisions are "excluded restrictions" that do not benefit from the exemption but do not taint the entire agreement: exclusive grant-backs requiring the licensee to assign or exclusively license improvements to the licensor, and no-challenge clauses preventing the licensee from challenging the validity of licensed intellectual property.
The distinction matters significantly for biotech licensing. An exclusive grant-back provision, common in university licenses, does not invalidate the entire agreement, but the provision itself must be assessed individually under Art. 101 TFEU.
Such individual assessment requires satisfying four cumulative Art. 101(3) criteria, and for biotech licensing, the interaction between these criteria and the specific characteristics of exclusive grant-backs creates analytical complexity that the block exemption's safe harbor was designed to avoid.
A no-challenge clause, likewise excluded from the safe harbor, may be unenforceable even if the remainder of the license is valid.
The Swiss Framework
Switzerland lacks a block exemption regulation equivalent to the EU TTBER. Technology licensing agreements fall under the general competition law framework of the Kartellgesetz (KG), which distinguishes three categories of agreements: those that do not significantly restrict competition (lawful), those that significantly restrict competition but can be justified on efficiency grounds (lawful if justified), and those that eliminate effective competition (unlawful).5Art. 5 KG.
Art. 5(4) KG presumes that certain vertical agreements eliminate effective competition, including agreements on fixed or minimum resale prices and territorial restrictions preventing distributors from making passive sales. While technology licensing does not fit neatly within the vertical agreements framework, WEKO (the Swiss Competition Commission) applies similar principles by analogy.
For Swiss biotechs licensing to EU partners, or EU companies licensing into Switzerland, the dual framework creates compliance complexity. A provision permissible under Swiss law may be problematic under EU competition law if the agreement affects trade within the EU. The reverse may also apply. Parties cannot assume that compliance with one regime ensures compliance with the other. That said, Swiss courts and WEKO regularly look to EU competition law precedent as persuasive authority, creating a degree of practical alignment that pure textual analysis might not reveal.6See WEKO practice; BGE 143 II 297 (considering EU precedent).
For licenses involving UK parties or UK markets, the Competition Act 1998 applies analogous prohibitions modeled on Art. 101 TFEU.7Competition Act 1998, s 2 (Chapter I prohibition). The UK's assimilated TTBER expires on 30 April 2026, and the CMA has recommended replacing it with a new Technology Transfer Block Exemption Order (TTBEO), with a consultation draft anticipated in January 2026. This adds a third competition law regime for trilateral arrangements.
Parliament's Schlussabstimmung on the partial revision of the Kartellgesetz is scheduled for 19 December 2025.8See Federal Council Dispatch BBl 2023 1463; Schlussabstimmung scheduled for 19 December 2025. The revision would align Swiss competition law more closely with EU principles, including the introduction of the SIEC test for merger control and an effects-based approach to assessing restrictions of competition. Entry into force is anticipated no earlier than 2027, pending ordinance consultations.
Competition law constrains what provisions are permissible. Assuming compliance, royalty structures determine the economic value a license actually delivers.
3. Do Royalties Survive Patent Expiration?
Royalty provisions determine the economic value of a license. Yet the definition of "net sales" varies dramatically across agreements, and seemingly technical differences can amount to millions in disputed payments over a product's commercial lifetime.
Calculation Ambiguities
Common areas of ambiguity in royalty calculations include treatment of combination products where only one component is licensed. If a licensed compound is combined with an unlicensed compound, on what base are royalties calculated? Some agreements specify allocation by relative value, others by relative cost, still others by number of active ingredients. The choice can produce dramatically different results.
Government-mandated rebates and price controls present additional complexity. In markets with reference pricing, mandatory discounts, or rebate programs, should these reduce the royalty base? Currency conversion timing and methodology matter when products are sold globally. Sales to affiliates raise transfer pricing questions: is the royalty calculated on the inter-company price or the price to the ultimate customer?
Anti-stacking provisions, which limit total royalty burden when multiple licenses apply to a single product, require particular care. A poorly drafted anti-stacking clause may either fail to protect the licensee or deprive the licensor of expected value when third-party licenses prove necessary.
Post-Patent Expiration Royalties
Where a license requires royalties to continue past expiration of the licensed patents (a structure used to spread upfront value across a longer payment term, or to bundle patent rights with know-how that outlasts the patent), US law imposes a per se rule of unenforceability with no direct counterpart in Swiss or EU law. The foundational doctrine derives from Brulotte v. Thys Co., where the Supreme Court held that patent licensing agreements requiring royalties beyond patent expiration are unenforceable.9Brulotte v Thys Co, 379 US 29 (1964). The rule is often described as patent misuse, though in Kimble v. Marvel Entertainment the Court grounded it in the statutory policy that a patented invention passes into the public domain on expiry, reaffirming Brulotte despite academic criticism of its economic premises.10Kimble v Marvel Entertainment LLC, 576 US 446 (2015).
Circuit courts continue to refine this doctrine's application. In September 2024, the Third Circuit addressed its boundaries in Ares Trading S.A. v. Dyax Corp.11Ares Trading SA v Dyax Corp, 114 F.4th 123 (3d Cir. 2024). The court held that royalties remain enforceable when they are not tied to practicing the patented invention, even if paid after patent expiration. In Ares Trading, the licensed patents claimed a process for antibody discovery, not the resulting therapeutic. Royalties on sales of the therapeutic were enforceable post-expiration because they were never calculated based on patent practice in the first place. This represents one circuit's interpretation; other circuits may take different approaches, and the doctrine remains contested.
This distinction affects royalty structuring in biotech licenses where the relationship between licensed patents and licensed products is indirect. Platform licenses, know-how licenses, and agreements covering research tools may support post-expiration royalty obligations that would be unenforceable in a straightforward pharmaceutical compound license. The characterization of what is being licensed, and what the royalty compensates, determines enforceability.
By contrast, EU competition law applies no equivalent per se prohibition. In Genentech, the Court of Justice held that Art. 101 TFEU does not preclude a royalty obligation running for the full term of a licence even where the licensed patent is subsequently revoked or found not infringed, provided the licensee remains free to terminate on reasonable notice.12Case C-567/14 Genentech v Hoechst, ECLI:EU:C:2016:526: royalties may run for the full licence term despite revocation or non-infringement, provided the licensee may terminate. The divergence is structural: where US law forecloses post-expiration royalties categorically, EU law assesses them by reference to the licensee's freedom to exit and the agreement's actual effects on competition.
Supplementary Protection Certificates
For pharmaceutical compounds, SPCs extend effective patent protection beyond the basic patent term by up to five years (Regulation (EC) No 469/2009; in Switzerland, Art. 140a ff. PatG), with a further six-month pediatric extension available where the conditions of Regulation (EC) No 1901/2006 are met.13Regulation (EC) No 469/2009 concerning SPCs for medicinal products; Art. 140a ff. PatG (Swiss SPCs). The SPC is technically a separate intellectual property right, not a patent extension, which creates ambiguity in royalty provisions that tie obligations to "patent expiration." A license providing for reduced royalties "after expiration of the last licensed patent" raises the question whether the SPC constitutes a continuation of patent protection for royalty purposes or triggers the post-expiration rate. The Ares Trading analysis suggests that the characterization depends on how the royalty obligation is structured: royalties tied to patent practice may remain enforceable during the SPC term, while royalties explicitly tied to patent term may lapse at basic patent expiry even though SPC protection continues. This interaction between SPCs and royalty structures is typically addressed through express contractual treatment, particularly in view of the proposed EU pharmaceutical legislation revision (COM(2023) 192), which may alter SPC availability and duration (see Article 8).
4. What Effort Does the License Require?
Licensors naturally want to ensure that licensed technology reaches the market. Diligence provisions, requiring the licensee to pursue development with specified effort, address this concern. But the standard for measuring diligence has proven contentious, and 2024 case law developments reshaped expectations.
The "Commercially Reasonable Efforts" Problem
"Commercially reasonable efforts" (CRE) is the predominant diligence standard in biotech licensing. Yet CRE definitions vary widely, and courts have found even carefully drafted standards insufficient.
In September 2024, the Delaware Court of Chancery issued two significant decisions analyzing distinct CRE formulations. In Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc.,14SRS LLC v Alexion Pharmaceuticals Inc, C.A. No. 2020-1069-MTZ (Del. Ch. 5 September 2024). the CRE definition required efforts "typically used by biopharmaceutical companies similar in size and scope" to Alexion. The court found Alexion breached this standard. In Fortis Advisors LLC v. Johnson & Johnson,15Fortis Advisors LLC v Johnson & Johnson, C.A. No. 2020-0881-LWW (Del. Ch. 4 September 2024). the CRE definition required efforts "consistent with [J&J's] usual practice... with respect to [comparable] priority medical device products." The court likewise found breach.
The decisions are notable for finding breach despite, or perhaps because of, the specificity of the definitions. Alexion's standard benchmarked against external comparators; J&J's standard benchmarked against internal practice. Both proved enforceable but also proved violated. The implication for drafters: specificity creates accountability, and accountability creates litigation risk when circumstances change.
When Diligence Standards Are Tested
The consequences of diligence failure matter as much as the obligations themselves. Termination rights allow the licensor to reclaim technology but may destroy value if the licensee has made substantial progress. Conversion from exclusive to non-exclusive status preserves the relationship but may undermine the licensee's investment thesis. Milestone payment acceleration or penalty payments create financial consequences without disrupting the license itself.
Each remedy structure creates different incentives. A licensee facing termination for diligence failure has strong incentive to accelerate development, or to litigate the meaning of the diligence standard. A licensee facing conversion to non-exclusivity may accept the reduced scope rather than invest further. A licensee facing financial penalties may calculate whether paying the penalty is preferable to the expenditure required for compliance.
The questions that diligence provisions raise but cannot definitively answer: What constitutes adequate diligence when regulatory requirements change mid-development? When competitive developments alter the commercial landscape? When scientific setbacks require pivoting to alternative approaches? When the licensee's own portfolio priorities shift due to acquisitions or strategic reorientation?
Diligence provisions address effort in developing licensed technology. Improvement provisions address ownership of what that development creates.
5. Who Owns What the Licensee Creates?
Biotechnology development generates improvements: enhanced formulations, new delivery mechanisms, expanded indications, manufacturing process refinements. The allocation of rights in these improvements can determine whether a license creates lasting value or becomes a strategic burden.
Grant-back provisions requiring the licensee to share improvements with the licensor take several forms. Non-exclusive grant-backs allow both parties to exploit improvements. Exclusive grant-backs require the licensee to license improvements solely to the licensor. Assignment provisions require outright transfer of improvement IP to the licensor.
Under the EU TTBER, exclusive grant-backs and assignment obligations are "excluded restrictions"; they do not benefit from the block exemption and must be individually assessed under Art. 101.16Art. 5(1)(a)-(b) TTBER (grant-backs and no-challenge clauses). This does not make them unenforceable, but it removes the safe harbor protection that covers the remainder of the agreement. Non-exclusive grant-backs remain within the block exemption provided other conditions are met.
The practical impact depends on bargaining position and the nature of the technology. A university licensor with limited commercialization capacity may reasonably seek exclusive grant-backs to maintain leverage as the licensee develops the technology. A well-resourced licensee may resist any grant-back obligation that could benefit competitors who subsequently license the foundational technology.
Improvement definitions themselves generate disputes. Is a new formulation an "improvement" to the licensed compound, or a separate invention outside the grant-back? Does a combination product incorporating the licensed compound constitute an improvement subject to grant-back, or does the combination IP belong solely to the licensee? Does an improvement to manufacturing processes, reducing cost but not altering the product itself, trigger grant-back obligations?
These questions become more acute where AI-assisted drug discovery generates improvements to licensed compounds. If the licensee uses machine learning to identify optimized formulations or novel analogues of the licensed compound, the inventorship uncertainties surrounding AI-generated inventions (see Article 16) interact with improvement definitions: an "improvement" that lacks a clearly identified human inventor may fall outside traditional patent grant-back provisions while still constituting commercially valuable know-how subject to a broader contractual grant-back.
6. What Happens When the Parties Change?
Licensing relationships that begin between aligned parties may be transformed by corporate transactions. Change of control provisions determine what happens when the licensee, or the licensor, is acquired.
Licensee Acquisition Scenarios
When a licensee is acquired, the acquirer inherits the license. But the licensor may have strong views about who exploits its technology. If the acquirer is a competitor, the licensor may face a rival commercializing the licensed compound. If the acquirer has different strategic priorities, development may stall.
Change of control provisions addressing licensee acquisition take several approaches. Termination rights allow the licensor to end the license upon change of control, potentially reclaiming the technology. Consent requirements give the licensor approval rights over any acquisition, though withholding consent unreasonably may itself be contested. Notice requirements allow the licensor to receive information about acquirers without blocking the transaction.
The definition of "change of control" matters significantly. A narrow definition focused on majority ownership changes may not capture acquisitions structured as minority investments with operational control. A broad definition capturing any material change in ownership may inadvertently trigger provisions through ordinary shareholder transactions.
Licensor Acquisition Scenarios
When a licensor is acquired, the acquirer assumes licensing obligations. For an acquirer hoping to exploit the licensed technology in its own products, pre-existing exclusive licenses may be unwelcome encumbrances. The license survives the acquisition, but the acquirer's incentives may differ from the original licensor's.
Swiss law sharpens the question where the licensor sells the patent itself. A licence may be recorded in the Swiss patent register, but recording is not a condition of validity between the parties; an unrecorded licence cannot be asserted against a person who acquires rights in the patent in good faith.17Art. 34(3)–(4) PatG: a licence may be entered in the patent register; an unregistered licence is not opposable against a good-faith acquirer of the patent. An exclusive licensee that never recorded its licence may therefore find its position unenforceable against a third party that acquires the patent from the licensor, making register entry a precaution the contract text alone does not supply.
Licenses from academic institutions raise particular considerations. If a university technology transfer office commits to certain terms, does the commitment survive reorganization of the TTO? If a company spins off its licensing portfolio to a new entity, do the original terms continue to bind?
For university-origin licenses, the underlying IP framework adds further constraints. In the United States, the Bayh-Dole Act (35 USC §§ 200–212) governs ownership of inventions arising from federally funded research, granting the university title (subject to disclosure obligations under § 202(c)) but reserving government "march-in rights" under § 203 on four statutory grounds: failure to take effective steps toward practical application (§ 203(a)(1)), failure to satisfy health or safety needs (§ 203(a)(2)), failure to meet requirements for public use specified by federal regulations (§ 203(a)(3)), and failure of the U.S.-industry licensing preference (§ 203(a)(4)).18Bayh-Dole Act, 35 USC §§ 200–212; march-in grounds under § 203(a)(1)–(4). Although march-in rights have never been exercised, the threat began to materialize in August 2025, when the Department of Commerce opened an unprecedented Bayh-Dole compliance and march-in review of Harvard's federally funded patents, citing not pricing but failures spanning § 202(c) disclosure, the U.S.-industry licensing preference under § 203(a)(4), and effective steps toward practical application under § 203(a)(1). The risk surface for university licensing is therefore broader than the pricing controversies that historically dominated the discussion. Swiss universities lack a statutory equivalent: IP ownership policies vary by institution; ETH Zurich and EPFL assign invention rights to the institution under their respective Personalverordnungen, while cantonal universities follow their own regulations. The absence of a harmonized framework means that the IP ownership baseline varies with each academic licensor, leaving institutional policy as a separate analytical layer beneath the license terms themselves.
7. How Does a License End, and What Survives?
The provisions governing termination, and what survives it, often receive less negotiating attention than substantive license terms. Yet termination consequences can determine whether a licensing relationship ends cleanly or generates extended disputes.
Sublicense Survival
If a licensee has granted sublicenses, what happens to sublicensees when the head license terminates? Three approaches are common: sublicenses terminate automatically with the head license (protecting licensor control), sublicenses survive if the sublicensee is not in breach (protecting sublicensee reliance), or sublicensees become direct licensees of the licensor (transforming the relationship).
For sublicensees, survival provisions are critical. A pharmaceutical company sublicensing from a biotech intermediary may have made substantial investments in clinical development. Termination of the head license, potentially for reasons having nothing to do with the sublicensee, could destroy that investment. Some sublicensees seek direct agreements with the original licensor as protection, though such arrangements raise their own complications.
License Survival in Licensor Insolvency
Where the licensor, rather than the license, terminates through insolvency, Art. 211a SchKG governs how the bankruptcy estate may treat the continuing contract. The provision, in force since 2014, is a general rule on continuing contractual relationships (Dauerschuldverhältnisse) in bankruptcy: counterparty bankruptcy claims may run at most until the next termination date or the end of the fixed term, and benefits the estate continues to draw under the contract rank as estate liabilities (Masseverbindlichkeiten).19Art. 211a SchKG (Dauerschuldverhältnisse), in force since 1 January 2014. Commentary derives from this regime a doctrinal right of continued use (Weiterbenützung) for the licensee, though Art. 211a is not licence-specific and the statutory text does not delineate the scope of that protection. For biotechnology licenses combining patents, know-how, biological materials, and regulatory data, the contours of any continued-use right may be uncertain: does it extend to know-how that was transferred orally? To updated cell lines provided during the collaboration? The provision reinforces the article's core theme, that silence in licensing agreements creates risk, because the statutory backstop itself leaves gaps that only contractual foresight can close.
The contrast with US insolvency law is instructive. Where a debtor-licensor's estate rejects a licence, 11 USC § 365(n) lets the licensee elect to retain its rights to the licensed intellectual property for the contract term.2011 USC § 365(n): on a debtor-licensor's rejection, the licensee may elect to retain its rights in the licensed IP (patents, trade secrets, copyright works; not trademarks) for the contract term. Swiss law offers no equivalent codified election: the licensee's protection rests on the commentary-derived continued-use right read into the general Art. 211a SchKG regime, the contours of which the statute does not define. The same insolvency event can therefore leave a licensee materially better protected under US law than under Swiss law, a divergence the licence can close only through express survival, escrow, and step-in provisions.
Inventory and Sell-Off Rights
Termination raises questions about products manufactured before termination but not yet sold. A "sell-off" period may allow the licensee to exhaust existing inventory, but whether such a period exists, its duration and scope, and whether royalties continue during sell-off depend on express contractual treatment. Silence on these points invites dispute.
Reversion of Rights
Upon termination, licensed rights typically revert to the licensor. But what about improvements developed by the licensee? Regulatory filings made by the licensee? Clinical data generated during development? Manufacturing know-how created through scale-up activities?
If the license included grant-back provisions, improvements may already belong to (or be licensed back to) the licensor. If not, the licensor may regain the foundational technology without access to developments that make it commercially viable. Regulatory filings present particular complexity: the licensor may need access to clinical data to support applications in other territories or for other indications, but the licensee may have proprietary interests in the underlying data.
Regulatory data exclusivity adds a further layer. Under Directive 2001/83/EC, regulatory data for medicinal products enjoy a protection period independent of patent rights, a period during which generic applicants cannot reference the originator's clinical data.21Directive 2001/83/EC, Art. 10(1); proposed revision COM(2023) 192 would reduce exclusivity period. This de facto monopoly affects both royalty structures (since royalties may continue on the basis of data access rather than patent practice) and termination consequences, since a licensor regaining rights after termination may face years before a new licensee can commercialize. The proposed EU pharmaceutical legislation revision (COM(2023) 192/193) would shorten this window, altering the economic calculus for both parties without eliminating the underlying structural risk.
Surviving Obligations
Certain obligations may need to survive termination regardless of its cause: confidentiality provisions (for how long?), audit rights (to verify final royalty payments), indemnification obligations (for products sold during the license term), and dispute resolution provisions (to resolve termination-related disputes). Without explicit survival clauses, the question of which obligations continue after the license ends becomes a matter of interpretation, and potentially litigation.
Dispute Resolution Mechanisms
The choice between arbitration and court litigation has significant practical implications for biotech licensing disputes. ICC or LCIA arbitration offers enforceability under the New York Convention, critical for cross-border licenses where a judgment from one jurisdiction may not be recognized in another. Swiss-seated arbitration under ch 12 IPRG is common for Basel-area biotech deals, offering procedural flexibility and the ability to appoint arbitrators with scientific expertise.22IPRG ch 12 (international arbitration); New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). However, arbitration lacks precedential value; it does not develop the industry norms that court decisions create. The Delaware CRE cases (see Section 4) demonstrate how judicial decisions shape diligence expectations across the industry. A comparable dispute resolved by arbitration would bind only the parties, leaving the broader market without guidance. For licensors seeking to establish market standards, court litigation may be strategically preferable despite lower enforceability across borders.
8. What Are the Strategic Implications?
For biotechnology companies entering licensing relationships, the contractual and legal framework presents decisions that will constrain options for years or decades.
License scope definitions that seem adequate for development at the time of signing may prove ambiguous when applied to salt forms, polymorphs, prodrugs, combination products, or diagnostic applications that emerge during the license term. Grant-back provisions drafted without attention to competition law frameworks (EU TTBER, Swiss Kartellgesetz, or other applicable regimes) may fall outside safe harbors and require individual justification on efficiency grounds.
Diligence standards face an inherent tension: specific definitions create enforceable accountability but also litigation exposure when circumstances change, while vague standards preserve flexibility at the cost of ambiguity about what performance is actually required.
Change of control provisions allocate different risks depending on whether they protect licensor control over technology exploitation or preserve licensee transaction flexibility, and the balance struck at signing may not reflect the balance desired years later when an acquisition is actually contemplated.
Termination provisions negotiated as comprehensive may leave unaddressed sublicense survival, sell-off rights, reversion of improvements, or access to regulatory filings when termination actually occurs. The dispute resolution mechanism chosen (arbitration or litigation, choice of law, choice of forum) will determine how contested provisions are interpreted, by whom, and with what remedies available.
These dimensions interact. Each licensing relationship presents its own risk allocation, its own strategic context, its own regulatory and competitive environment. The questions that arise when provisions become contested are rarely the questions that received attention during negotiation.
This analysis identifies where complexity arises without purporting to resolve it. Each licensing relationship requires individual assessment against its specific legal and commercial context.