This License
Agreement (“Agreement”) is entered into as of
March 15, 1988 by and between CYBERONICS, INC., a Delaware
corporation, having a principal place of business at 827 W. Main
Street, League City, TX 77573 (“Licensee”), and DR.
JACOB ZABARA, an individual residing at 200 Locust Street, #22F,
Philadelphia, PA 19106 (“Licensor”).
WHEREAS, Licensor
owns a patent relating to Neurocyberenetic Prosthesis Technology
(U.S. Patent No. 4,702,254) and other pending patent
applications and know-how, and technology relating thereto
(collectively referred to as the “Technology”);
and,
WHEREAS, Licensee
wishes to obtain all exclusive license under the Licensed Patents
as hereinafter defined and under the Technology generally to
further test and develop the Technology and to manufacture and
market products based on such Technology upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in
consideration of the promises and of the mutual covenants
hereinafter contained, the parties agree as follows:
(a) The
term “Licensed Patents,” as used in this Agreement,
shall mean and include both individually and collectively the
United States and foreign patents and patent applications listed in
Schedule A attached to this Agreement, such additional United
States and foreign patent applications acquired by Licensor on
improvements and variations upon inventions disclosed in said
listed applications or other inventions “in the field of
nerve stimulation, and such additional patent applications as may
be filed by Licensor pursuant to Section 7 of this Agreement,
all Letters Patent which shall issue on said applications and any
division thereof, and all reissues, continuations, or extensions of
said Letters Patent.
(b) The
term “Product,” as used in this Agreement, shall mean a
product or portion of a product that (i) embodies a device
invention claimed in a Licensed Patent (or which had been
“claimed” in a Licensed Patent which has been declared
invalid), or (ii) which is specifically intended to be used to
practice a method claimed in a Licensed Patent (or which had been
“claimed” in a Licensed Patent which has been declared
invalid) and which is manufactured and sold by or for Licensee (or
its sublicensees); provided that at the time and in the territory
of manufacture or sale of such Product a Licensed Patent is pending
or in force claiming such device or method (or such device or
method had been “claimed” in a Licensed Patent
previously valid in the territory of manufacture or sale but which
has been declared invalid).
2.
Licensor’s Representations & Warranties .
Licensor represents and warrants that:
(a) He
owns the Licensed Patents and has the legal power and authority to
extend the rights granted to Licensee pursuant to this Agreement
and he has not assigned, licensed, pledged or compromised the
Licensed Patents or made any commitments or offers inconsistent
with or in derogation of the rights created by this
Agreement.
(b) Neither
the Licensed Patents nor any claims contained therein have been
declared invalid or unenforceable and to the best of
Licensor’s knowledge there are no patent infringement suits
or asserted patent infringement claims pertaining to the Licensed
Patents and there are no suits or claims attacking the validity of
any Licensed Patent, and Licensor knows of no basis for any such
claim.
(c) Licensor
has no knowledge of any information likely to have a material
effect on the validity or enforceability of any Licensed Patent or
any claim thereof which was not disclosed to the Patent Office of
the respective countries in which Patent Applications were filed
during the prosecution of the application from which any Licensed
Patent matured or, with respect to pending applications, from which
any Licensed Patent may mature. ¶A
(a) Licensor
hereby grants to Licensee, and Licensee hereby accepts from
Licensor, upon the terms and conditions herein after specified, the
exclusive, worldwide right and license under the Licensed Patents
and Technology to further test and develop the Technology, to make,
to have made, to use, to sell, to lease, to implant, and to have
implanted and otherwise dispose of Products and to sublicense the
rights created hereby pursuant to the terms of Section 5
hereof. Such license shall be perpetual unless this Agreement is
terminated pursuant to Section 3.0 hereof.
(b) Any
person, firm, or corporation purchasing Products from Licensee or
any Sublicensee hereunder, and its successors and assigns, shall
automatically enjoy a royalty-free right under the Licensed Patents
to implant and/or have implanted and to use the particular Product,
and to manufacture, purchase, implant, and use any auxiliary
products which may be necessary or desirable to provide a complete
implant.
4.
Royalties, Records and Reports .
(a) Licensee
agrees to pay to Licensor, in consideration for the license granted
pursuant to this Agreement, royalties on the Net Sales Value (as
hereinafter defined) of all Products sold during the term of this
Agreement at the rate of six percent (6.0%) on the first
$12,000,000 of Net Sales Value and three percent (3.0%) on all Net
Sales Value after said $12,000,000, cumulative and not annual, for
the life of U.S. Patent No, 4,702,254, including any extensions,
renewals, continuations, divisions, or continuations-in-part
thereof. Upon expiration of the last to expire of U.S. Patent
No. 4,702,254 (including any extensions or renewals thereof)
or any continuation, division or continuation-in-part thereof, the
royalty rate payable pursuant to this Section 4(a) shall be reduced
to two percent (2.0%) on the first $12,00.0,000 of Net Sales Value
and one percent (1.0%) on all Net Sales Value after said
$12,000,000, cumulative and not annual. It is understood and agreed
that Licensee shall have no obligation to make any payment to
Licensor under this Section 4(a) or Section 4(d) from and after the
date on which all of the Licensed Patents (including any extensions
or renewals thereof) have expired or have been declared invalid by
any judicial decree, order or final judgment beyond right of
further appeal, except royalties at the percentile rate specified
in this Section 4(a) or Section 4(b), as the case may be, on
the Net Sales Value of Products sold under the license created by
Section 3 of this
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Agreement prior
to such date, and upon such date the license granted by
Section 3 hereof shall be fully paid.
(b) If
U.S. Patent No. 4,702,254 and all continuations, divisions,
and continuations-in-part thereof are held invalid by any judicial
decree, order or final judgment beyond further right i of appeal,
the-percentile rate at which royalties shall be payable to Licensor
pursuant to Section 4(a) shall be retroactively reduced to two
percent (2.0%) on the first $12,000,000 of Net Sales Value and one
percent (1.0%) on all Net Sales Value after said $12,000,000 with
respect to Products sold after the filing of a claim in a court of
competent jurisdiction which claim results in the invalidation of
U.S. Patent No. 4,702,254 and all continuations, divisions and
continuations-in-part thereof (the “Claim”).
(c) In
the event of U.S. Patent No. 4,702,254 .and all continuations,
divisions and continuations-in-part thereof being declared invalid,
and notwithstanding anything to the contrary contained herein, no
further royalty payments shall be made to Licensor until such time
as the aggregate royalties payable on products sold after filing of
the Claim at the percentile rate specified in Section 4(b) are
equal to the actual aggregate royalties already paid to Licensor on
products sold after filing of the claim, at which time royalty
payments as provided in this Section 4 shall resume. The right
created by this Section 4(c) shall be a right to recover excess
royalties paid during the pendency of the claim from future
royalties payable to Licensor hereunder only; Licensee shall have
no right, claim or cause of action against Licensee to recover such
excess royalties from Licensor.
(d) Licensor
agrees to pay Licensee a minimum royalty of $36,000 per year
($12,000 per year if the events specified in Section 4(b) occur),
payable on a monthly basis until a Product is first sold and on a
quarterly basis thereafter. Payments made pursuant to this Section
4(d) shall be paid at the beginning of the month or quarter, as the
case may be, and shall be deducted from any royalties payable
pursuant to Section 4(a) and shall not constitute an additional
royalty obligation of Licensee.
(e) The
term “Net Sales Value,” as used in this Section 4,
shall mean the full amount actually received by Licensee or its
sublicensees (exclusive of sales by Licensee to its sublicensees)
for Products sold by Licensee or its sublicensees to customers less
the sum of the following, where applicable:
(i) Discounts
allowed, commissions paid in lieu of trade discounts, and
commissions paid to independent sales representatives or agents, in
the amounts customary in the trade;
(ii) Sales and/or
use taxes (or other taxes equivalent thereto), duties or any other
taxes or levies directly imposed by any governmental authority upon
and with reference to particular sales;
(iii) Outbound
transportation costs prepaid or allowed by way of freight
equalization or otherwise;
(iv) Cartons,
packing, and crating charged separately ;
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(v) Amounts
refunded, allowed, or credited in connection with shortages,
returns, or defective, articles;
(f) Where
proceeds from the sale of Products are received in currency other
than United States Dollars, the Net Sales Value of such foreign
sales shall be the U.S. Dollar equivalent of such proceeds
determined by multiplying the foreign currency actually received by
the applicable exchange rate in effect on the last day in the
quarter in which such proceeds were received, as published in the
Wall Street Journal for such date.
(g) Only
one royalty shall be payable on a Product at the applicable
percentile rate specified in Section 4(a) or 4(b), as the case may
be, regardless of the number of Licensed Patents or use of
Technology under which such Product has been manufactured, used or
sold. In those cases where a Product is sold as a part of an
article which includes additional materials or components, the
production of which does not use the inventions of the Licensed
Patents, the Net Sales Value shall be based on the sales price at
which Licensee would sell the Product independently of such other
materials or components in an arm’s length
transaction.
(h) Licensee
agrees to keep full, true, and accurate records and books of
account containing all particulars which may be necessary to show
the royalties payable to Licensor. Such books of account shall be
kept at Licensee’s principal place of business and shall be
available, upon thirty (30) days notice, for inspection during
business hours, by independent auditors reasonably acceptable to
Licensee appointed and paid by Licensor provided, however, that if
upon audit it is determined that Licensor is entitled, to., receive
an additional royalty amount in excess of five percent (5%) over
the amount previously paid during the period subject to
“audit, then Licensee shall pay the reasonable fees and
expenses of such independent auditors. Such records shall be
retained by Licensee for a period of six (6) years following
the end of the calendar year to which they pertain; provided,
however, that Licensor’s right to inspect such records
pursuant to this Section 4(h) shall be limited to the right to
inspect record
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