LICENSE AGREEMENT

 

TABLE OF CONTENTS

 

Article No
1.	DEFINITIONS	2
2.	LICENSE GRANT	4
3.	EXCLUSIVE PERIOD AND TERM OF AGREEMENT	5
4.	SUBLICENSE	5
5.	LUMP SUM PAYMENT	5
6.	VALIDITY	6
7.	DUE DILIGENCE	6
8.	CONFIDENTIALITY	8
9.	ANNUAL REPORTS	8
10	PATENT PROSECUTION	9
11.	PATENT MARKING	9
12.	BOOKS AND RECORDS	10
13.	TERMINATION BY LICENSOR	10
14.	TERMINATION BY LICENSEE	10
15.	WARRANTY BY LICENSOR	11
16.	INFRINGEMENT	11
17.	WAIVER	12
18.	ASSIGNABILITY	12
19.	INDEMNIFICATION	12
20.	LIABILITY	12
21.	NOTICES	12
22.	FOREIGN LAWS	13
23.	GOVERNING LAW	13
24.	RELATIONSHIP OF PARTIES	13
25.	NON-USE OF NAMES	13
26.	DISPUTE RESOLUTION	14
27.	GENERAL PROVISIONS	14
	Exhibit “A	17
	Exhibit “B	18
	Exhibit “C	19
	Exhibit “D	20

 

 

LICENSE AGREEMENT

 

THIS LICENSE AGREEMENT (“AGREEMENT”) is made and is effective as of March 31, 1999 (hereinafter “EFFECTIVE DATE”) by and between the UNIVERSITY OF UTAH RESEARCH FOUNDATION, a Utah non-profit corporation, having its principal place of business at 421 Wakara Way, Suite 170, Salt Lake City, UT 84108, hereinafter referred to as “LICENSOR,” and MEDQUEST PRODUCTS, INC., a Utah corporation, having its principal place of business at 825 North 300 West, Suite 107, Salt Lake City, UT 84103, hereinafter referred to as “LICENSEE.”

 

WITNESSETH

 

WHEREAS, certain inventions, generally characterized as an ELECTROMAGNETICALLY SUSPENDED AND ROTATED CENTRIFUGAL PUMPING APPARATUS AND METHOD, U.S. Serial No. 08/850,156, assigned University of Utah identification number U-2377, an IMPLANTABLE CENTRIFUGAL BLOOD PUMP WITH HYBRID MAGNETIC BEARINGS, U.S. Serial No. 09/064,352, assigned University of Utah identification number U-2376, and a HYBRID MAGNETICALLY SUSPENDED AND ROTATED CENTRIFUGAL PUMPING APPARATUS AND METHOD U.S. Serial No. 08/850,598, assigned University of Utah identification number U-2376, as covered by LICENSOR’S PATENT RIGHTS (as defined herein), hereinafter collectively referred to as “the INVENTIONS”, have been made in the course of research at the University of Utah, the University of Virginia and MedQuest Products, Inc. conducted by Paul Allaire, Gill Bearnson, Ron Flack, James Long, Eric Maslen, Don Olsen, Pratap Khanwilkar, Ajit Kumar and Mary Sinnott and are covered by LICENSOR’S PATENT RIGHTS;

 

WHEREAS, LICENSOR and LICENSEE desire that the INVENTIONS, the LICENSOR’S PATENT RIGHTS and LICENSEE’S patent rights be developed and utilized to the fullest extent so that their benefits can be enjoyed by the general public;

 

WHEREAS, LICENSEE wishes to obtain from LICENSOR an exclusive license under certain rights for the commercial development, production, manufacture, use and sale of the LICENSOR’S PATENT RIGHTS, and LICENSOR is willing to grant such a license upon the terms and conditions hereinafter set forth;

 

WHEREAS, the LICENSOR’S PATENT RIGHTS and LICENSEE’S patent rights were developed in the course of research sponsored in part by the U.S. Government, and as a consequence are subject to overriding obligations of LICENSOR to the U.S. Government;

 

NOW, THEREFORE, for and in consideration of the covenants, conditions and undertakings hereinafter set forth, the parties hereby agree as follows:

 

ARTICLE 1. DEFINITIONS

 

Section 1.1              “LICENSOR’S PATENT RIGHTS” means all rights of LICENSOR to any subject matter claimed in or covered by: (a) any patent application listed on Exhibit “A” attached hereto, which is incorporated herein by this reference; (b) any U.S. or foreign patent issuing on one or more of such applications; (c) any continuing, divisional, continuation-in-part, or reissue applications

 

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thereof; and (d) any U.S. or foreign patent issuing on such continuing, divisional, continuation-in-part or reissue applications.

 

Section 1.2              “LICENSED PRODUCT” means the implantable blood pump or any other product or component part, the manufacture, use or sale of which is covered by any claim or claims included within LICENSOR’S PATENT RIGHTS. LICENSED PRODUCT excludes third party products; for example, a power source licensed or purchased from a third party which when combined with the LICENSED PRODUCT will make up a system, which may be sold by LICENSEE

 

Section 1.3              “LICENSED METHOD” means any method, procedure, process or other subject matter, the manufacture, use, or sale of which is covered by any claim or claims included within

 

LICENSOR’S PATENT RIGHTS.

 

Section 1.4              “. . . covered by... “means (in the appropriate context) a LICENSED PRODUCT that, when made, used or sold, or a LICENSED METHOD that, when practiced, would constitute, but for the license granted to LICENSEE pursuant to this AGREEMENT, an infringement of any claim or claims included within LICENSOR’S PATENT RIGHTS, but for the LICENSEE’S joint ownership of said patent rights.

 

Section 1.5              “NET SALES” means billings by LICENSEE or its SUBLICENSEES (as defined herein), for any LICENSED PRODUCTS or LICENSED METHOD sold or leased or services performed for commercial purposes, in all cases, net of the sum of the following items (where applicable): (1) services performed by LICENSEE for development or testing of the LICENSED PRODUCTS or sale of LICENSED PRODUCTS developed at cost or no cost for clinical trials or evaluation by potential partners or SUBLICENSEES; (2) cash, trade or quantity discounts actually allowed; (3) sales, use, tariff, customs duties or other excise taxes directly imposed upon particular sales; (4) outbound transportation charges prepaid or allowed; and (5) allowances or credits to third parties for rejections or returns or bad debts. A LICENSED PRODUCT and services performed using a LICENSED PRODUCT or LICENSED METHOD shall be considered sold when billed out or invoiced or, if not invoiced, when delivered or performed. There shall be no deductions from NET SALES for costs of commissions or collections. NET SALES shall not include billings for LICENSED PRODUCTS sold or services performed by LICENSEE to any AFFILIATE unless such AFFILIATE is an end-user of any LICENSED PRODUCT or service performed using any LICENSED PRODUCT or LICENSED METHOD.

 

Section 1.6              “AFFILIATE” means any person or entity that controls, is controlled by, or is under common control with LICENSEE, directly or indirectly. For purposes of this definition, “control” and its various inflected forms means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through ownership of voting securities, by contract or otherwise.

 

Section 1.7              “FIELD OF USE” shall mean all fields of use.

 

Section 1.8              “TERRITORY” shall mean the world.

 

Section 1.9              “CF3” is defined as a prototype pump intended for use in ex vivo animal experiments. The rotor in the CF3 is electromagnetically suspended (no hybrid magnetic bearings)

 

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and is covered by a U.S. patent application entitled “Electromagnetically Suspended and Rotated Centrifugal Pumping Apparatus and Method” as set forth on Exhibit “A”. CF3 uses discrete rotor position sensors as part of the magnetic bearing system. CF3 has been reduced to practice and extensively tested in vitro as of the date of this agreement.

 

Section 1.10            CFVAD is defined as a centrifugal ventricular assist device.

 

Section 1. 11           “CF4” is defined as the most recent (as of the EFFECTIVE DATE) major design iteration of the CFVAD implantable blood pump before use in clinical trials begins. The rotor is magnetically suspended using hybrid magnetic bearings and is covered by U.S. patent applications entitled “Implantable Centrifugal Blood Pump with Hybrid Magnetic Bearings” and “Hybrid Magnetically Suspended and Rotated Centrifugal Pumping Apparatus and Method” as set forth on Exhibit “A”. CF4 uses “self sensing” of rotor position using measurements obtained from the magnetic bearing actuators. There are no discrete position sensors in the system. Other aspects of this design are similar to the CF3, but with some modifications to accommodate the magnetic bearing design changes and to reduce the size of the system.

 

ARTICLE 2. LICENSE GRANT

 

Section 2.1              Subject to the terms and conditions set forth herein, LICENSOR hereby grants to LICENSEE an exclusive license to the LICENSOR’S PATENT RIGHTS in the FIELDS OF USE to make, have made, use, sell, offer to sell, import and export any LICENSED PRODUCT and to practice any LICENSED METHOD throughout the TERRITORY where LICENSOR may lawfully grant such a license.

 

Section 2.2              The license granted in Section 2.1 hereof is expressly made subject to a non exclusive, irrevocable, royalty-free license heretofore granted to the U.S. Government, a copy of which is attached hereto as Exhibit “B” and incorporated herein by reference.

 

Section 2.3              The license granted in Section 2.1 hereof is expressly made subject to LICENSOR’S reservation of the right to practice under LICENSOR’S PATENT RIGHTS for educational and research purposes at the University of Utah.

 

Section 2.4              LICENSOR agrees that with respect to any United States or foreign patent which, on the EFFECTIVE DATE of this AGREEMENT, it owns or under which it has the right to grant licenses, or with respect to any United States or foreign patent which may later issue on a pending application for patent which, on the EFFECTIVE DATE of this AGREEMENT, it owns or under which it has the right to grant licenses, it shall not assert against LICENSEE or its vendees, transferees, or SUBLICENSEES any claims for infringement based on the manufacture, use, sale, offer for sale, importation or exportation of any apparatus made or sold by LICENSEE, its vendees, transferees, or SUBLICENSEES under the license granted in this AGREEMENT, or based on the practice by LICENSEE, its vendees, transferees, or SUBLICENSEES of any method, process, or procedure under the license granted in this AGREEMENT; except that LICENSOR may assert any such claim of infringement if required by a legal duty to a third party, or may advise a third party of such claim of infringement if required by a legal duty to such third party. This agreement of non- assertion shall not be construed as a license from LICENSOR to LICENSEE, and it shall only apply to patents and to claims of patents that relate specifically to inventions in the technical field of heart

 

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pumps, which field shall not include coatings as applied to heart pumps, which coatings are covered and permitted by a license to LICENSEE from LICENSOR under a separate agreement dated December 18, 1998.

 

ARTICLE 3. EXCLUSIVE PERIOD AND TERM OF AGREEMENT

 

Section 3.1              This AGREEMENT shall be in full force and effect from the EFFECTIVE DATE until the end of the term of the last-to-expire of LICENSOR’S PATENT RIGHTS licensed under this AGREEMENT, unless otherwise terminated by operation of law or by acts of the parties pursuant to the terms of this AGREEMENT.

 

Section 3.2              The license granted under Section 2.1 and subject to Section 2.1 is exclusive and LICENSOR hereby agrees that it shall not grant any other license to make, have made, use, sell, offer to sell, import or export LICENSED PRODUCTS or to utilize LICENSED METHODS in the TERRITORY for the FIELD OF USE during the period of time commencing with the EFFECTIVE DATE and terminating with the last-to-expire of LICENSOR’S PATENT RIGHTS (hereinafter the “EXCLUSIVE PERIOD”).

 

ARTICLE 4. SUBLICENSE

 

Section 4.1              LICENSOR hereby grants to LICENSEE the right to sublicense LICENSEE’S rights and license under this AGREEMENT and to enter into exclusive and non-exclusive sublicensing agreements with third parties (hereinafter referred to as “SUBLICENSEES”) to make, have made, sell, offer to sell, import and export any LICENSED PRODUCT and to practice any LICENSED METHOD, provided that LICENSEE has current exclusive rights thereto under this AGREEMENT in the territory being sublicensed. LICENSEE may only enter into sublicensing agreements to LICENSOR’S PATENT RIGHTS during the EXCLUSIVE PERIOD of this AGREEMENT. Such sublicense may extend past the expiration date of the EXCLUSIVE PERIOD of this AGREEMENT, but any potential exclusivity of such sublicense shall end upon the expiration of the EXCLUSIVE PERIOD. Upon any termination of this AGREEMENT, any SUBLICENSEES whose sublicense is in good standing with LICENSEE shall automatically become direct licensees of LICENSOR under the terms and conditions of their sublicenses, and LICENSOR agrees to offer and execute license agreements with such SUBLICENSEES under the terms and conditions of their sublicenses.

 

Section 4.2              Any sublicense to LICENSOR’S PATENT RIGHTS granted by LICENSEE to a SUBLICENSEE shall incorporate all of the terms and conditions of this AGREEMENT, which shall be binding upon each SUBLICENSEE as if such SUBLICENSEE were a party to this AGREEMENT.

 

Section 4.3              LICENSEE shall promptly provide LICENSOR with a copy of each sublicense for the LICENSED PRODUCT or the LICENSED METHOD granted by LICENSEE hereunder and any amendments thereto or terminations thereof.

 

ARTICLE 5. LUMP SUM PAYMENT

 

In full consideration for the license granted in this AGREEMENT, LICENSEE shall pay to LICENSOR, a lump sum payment of One Hundred Thousand Dollars ($100,000) in two installment

 

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payments of Fifty Thousand Dollars ($50,000.00) each, which is payment for a fully- paid-up exclusive license to the LICENSED PRODUCTS and LICENSED METHODS. The first installment shall be due and payable within ten (10) days of the execution of both this AGREEMENT and an agreement between LICENSEE and the University of Virginia Patent Foundation (hereinafter, “UVPF”), for an exclusive license to UVPF’s jointly owned rights to the INVENTIONS, whichever occurs later. The second installment shall be due and payable within ninety (90) days of the execution of the said agreement between LICENSEE and UVPF. Failure to make either installment payment by the due date shall result in immediate termination.

 

ARTICLE 6. VALIDITY

 

Section 6.1              If, in any proceeding in which the validity or priority of any claim of any patent included within LICENSOR’S PATENT RIGHTS is in issue, a judgment or decree is entered that becomes irrevocable through the exhaustion of all permissible applications for rehearing or review by a superior tribunal, or through the expiration of the time permitted for such applications, the construction placed on any such claim by such irrevocable judgment or decree shall thereafter be applicable to this AGREEMENT with regard to any acts occurring thereafter, and if any such irrevocable judgment or decree holds any such claim invalid, LICENSEE’S obligations toward LICENSOR under this AGREEMENT based on such claim or any claim patentably indistinct therefrom, including LICENSEE’S obligations to pay fees to LICENSOR based on such claim or any claim patentably indistinct therefrom, shall cease as of the date such judgment or decree becomes irrevocable.

 

ARTICLE 7. DUE DILIGENCE

 

Section 7.1              LICENSEE warrants that it has completed the following due diligence milestones:

 

A.            Three patent applications, as listed in Exhibit “A”, have been authorized and filed by LICENSEE;

 

B.              LICENSEE has done the system design, conception and reduction to practice of the CF3 and anatomic fit and implant site specifications, and established the initial requirements for the subsystems: magnetic bearing, pump and motor;

 

C.              LICENSEE has performed in vitro, performance, and blood compatibility testing of the CF3;

 

D.             LICENSEE has prepared, submitted, and obtained one Phase I Small Business Innovation Research Grant from the National Heart, Lung and Blood Institute, Bethesda, MD to design and develop the INVENTIONS;

 

E.               LICENSEE has submitted a Phase II SBIR application as of 4/15/98, and plans to submit other funding proposals to further develop and commercialize the INVENTIONS;

 

F.               LICENSEE signed an AGREEMENT on October 13, 1998 for funding of three (3) million dollars to partially fund this project from the Heart and Lung Research Foundation and has received approximately half of the funds as of February 8, 1999;

 

G.              LICENSEE, along with the University of Utah, helped organize the International Congress of the International Society of Rotary Blood Pumps in July 1998 to enhance the CFVAD project team’s reputation as a world leader in this field; and

 

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H.             LICENSEE has delivered to LICENSOR a business plan showing the amount of money, number and kind of personnel and time budgeted and planned for each phase of development of the LICENSED PRODUCTS and LICENSED METHODS.

 

Section 7.2              Upon execution of this AGREEMENT, LICENSEE shall diligently proceed with the development, manufacture, sale and use of LICENSED PRODUCTS and/or LICENSED METHODS in order to make them readily available to the general public as soon as possible on commercially reasonable terms. LICENSEE shall continue active, diligent, commercially reasonable, marketing efforts for one or more LICENSED PRODUCT(S) and/or LICENSED METHOD(S) throughout the term of this AGREEMENT.

 

Section 7.3              LICENSEE shall perform the following obligations as part of its due diligence activities hereunder:

 

A.            LICENSEE shall deliver promptly to LICENSOR a copy of each updated business plan developed that shows the amount of money, number and kind of personnel and time budgeted and planned for each phase of development of the LICENSED PRODUCTS and LICENSED METHODS

 

B.              The period between submission of an updated business plan to LICENSOR by LICENSEE shall not exceed two (2) years;

 

C.    Upon one week’s notice, LICENSEE shall permit an in-plant inspection by LICENSOR at any time subsequent to one year from the EFFECTIVE DATE of this AGREEMENT and thereafter permit in-plant inspections by LICENSOR at regular intervals with at least twelve (12) months between each such inspection;

 

D.    LICENSEE shall spend at least Six Hundred Thousand Dollars ($600,000.00) on research, development and commercialization of LICENSED PRODUCTS and/or LICENSED METHODS during the two -year period following the EFFECTIVE DATE of this AGREEMENT;

 

E.     CF4 design will be completed by January 1, 2000. System level mechanical and electrical drawings including dimensions, and a functional description of operation of the device (getting device to the stage of building a prototype system);

 

F.     CF4 Prototype completed by September 30, 2001. This is the prototype of the device that will be used clinically. The deliverables for this milestone will be a demonstration of full magnetic suspension of the impeller, and pump performance in a loop circuit pumping water at nominal pumping conditions (6 liters per minute of flow at l00mmHg of pressure);

 

G.    One-week animal trial completed by January 1, 2003. Survival of an animal for at least a week with the CFVAD in operation as a ventricular assist device. (Protocol approved by animal care committee not the FDA);

 

H.    Obtain Development Partner by January 1, 2004. When LICENSEE has received a binding legal commitment of funds for development or commercialization of the INVENTIONS from a third party sponsor (not including any funds derived from any debt instrument or securities issued by LICENSEE) totaling at least Five Million Dollars ($5,000,000) to be received by LICENSEE over a period of time not exceeding two (2) years, LICENSEE shall pay to LICENSOR a milestone payment of Two Hundred Fifty Thousand Dollars ($250,000) within ninety (90) days of actual receipt of at least two

 

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hundred and fifty thousand dollars ($250,000) from the above mentioned development partner.

 

I.                  Start pre clinical durability tests 1/1/05. This includes regulatory agency approval of the reliability test protocol to be done before clinical trials, building the number of CFVAD systems specified in protocol, and starting reliability tests;

 

J.     Start pre clinical animal tests 1/1/07. Deliverables are: approval by regulatory agency of protocol to be completed before clinical trials, and beginning the long-term animal tests;

 

K.    Start human clinical trials 1/1/08. Regulatory agency approval of the clinical trial application and performance of the first human implant;

 

L.     Submission of regulatory marketing application by 1/1/10. Obtain all data needed for the regulatory marketing approval application from clinical trials and submit the application for approval; and

 

M.   Obtain regulatory approval 7/1/11. Obtain regulatory agency approval for the device to be marketed in selected markets.

 

Section 7.4              Commencing on January 2, 1999 and on each January 2 thereafter, until the first occurrence of NET SALES, LICENSEE shall submit to LICENSOR a written report covering LICENSEE’S progress in (a) development and testing of LICENSED PRODUCTS and LICENSED METHODS; (b) achieving the due diligence milestones specified herein; and (c) preparing, filing, and obtaining of any approvals necessary for marketing the LICENSED PRODUCTS and LICENSED METHODS. Each report shall be in substantially similar form and contain at least the information required by Exhibit “D” attached hereto and incorporated herein.

 

ARTICLE 8. CONFIDENTIALITY

 

Section 8.1              LICENSEE and LICENSOR acknowledge that either party may provide certain information to the other about the INVENTIONS and LICENSOR’S PATENT RIGHTS that is considered to be confidential. LICENSEE and LICENSOR shall take reasonable precautions to protect such confidential information. Such precautions shall involve at least the same degree of care and precaution that LICENSEE customarily uses to protect its own confidential information.

 

Section 8.2              LICENSEE acknowledges that LICENSOR is subject to the Utah Governmental Records Access and Management Act (“GRAMA”), Section 63-2-101 et.seq ., Utah Code Ann. (1953), as amended. LICENSOR shall keep confidential any information provided to LICENSOR by LICENSEE that LICENSEE considers confidential, to