On March 28, 2019, Applied DNA Sciences, Inc. and its wholly-owned subsidiary, APDN (B.V.I.), Inc., (collectively, the "Company"), reported that it has entered into a Patent and Know-How License and Cooperation Agreement (the "Agreement") with ETCH BioTrace S.A. ("ETCH"), a wholly-owned subsidiary of TheraCann International Benchmark Corporation ("TheraCann"), a legal cannabis and hemp consultancy (Press release, Applied DNA Sciences, APR 3, 2019, View Source [SID1234534988]). The Agreement grants ETCH the exclusive right and license, with rights to sublicense, to use, offer to sell, sell and import the Company’s proprietary or patented DNA tagging, DNA tag application and DNA tag authentication technologies marketed under SigNature and/or CertainT (the "Technology") within the global cannabis sativa L and cannabis sativa L derivative product markets, excluding use in textiles. The Agreement further grants ETCH the non-exclusive right and license, with rights to sublicense, to use, offer to sell, sell and import the Technology within the global cannabis sativa L market and cannabis sativa L derivative product markets for use in textiles. The Agreement also grants ETCH the limited use of trademarks owned by the Company solely for the purpose of promoting, marketing and disclosing the Technology, with all goodwill and benefit arising from such use inuring to the exclusive benefit of the Company.
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Under the Agreement, a $5,000,000 non-refundable up-front licensing fee is payable to the Company over a four-month period, with $1,000,000 due on or before April 15, 2019, $2,000,000 due on or before June 30, 2019 and $2,000,000 due on or before August 15, 2019. The Company and ETCH will jointly market and sell the Technology, with profits to be shared between the parties after specified gross profit minimums are reached. The Agreement also provides for specified annual cash payment minimums to the Company, scaling from $2,000,000 in year two, $7,000,000 in year three, $10,000,000 in year four, $12,000,000 in years five through ten, $16,000,000 in years ten through fifteen, to $20,000,000 in year fifteen, which TheraCann must pay to the Company to maintain its license exclusivity. Such annual cash payment minimums may be comprised of any cash payments from ETCH or any sublicensee for DNA taggant, profit share, DNA authentication devices/reagents, DNA authentication services, project fees, other service or product fees, and/or other cash payments. In lieu of the annual cash payment minimums for years one and two, the parties agree to create a mutually agreeable development plan for TheraCann’s commercialization of the Technology which will contain commercialization milestones that can be met by TheraCann in lieu of annual cash payment minimums.
The term of the license granted with respect to any licensed patent will continue until any valid claim with respect to such patent has expired, and the term of the license granted with respect to any licensed know-how (such as trade secrets and methods) is twenty years. Either party may terminate the Agreement on written notice to the other party if the other party materially breaches the Agreement and such breach is incapable of cure or being capable of cure, remains uncured sixty business days after written notice. The Company may immediately terminate the Agreement if ETCH, its affiliates, or sublicensee institutes or participates in a challenge to the licensed patents. Either party may terminate the Agreement effective immediately in the event the other party dissolves, becomes insolvent, or is subject to bankruptcy proceedings. Should the Company dissolve, become insolvent, become subject to bankruptcy proceedings, cease its business operations generally, cease manufacture of the Technology, or fail to provide ETCH with the Technology for twenty business days, among other things, ETCH and its affiliates are granted licenses to enable ETCH to manufacture and/or practice the Technology to the extent required to comply with ETCH’s ongoing commercial obligations, and the Company has agreed to place into escrow the know-how pertaining to the Technology in connection with such backup license.
During the term, any improvements to any licensed patent shall remain the sole property of the Company if conceived, made or reduced to practice in whole or in part by the Company or be jointly owned by the Company and ETCH where conceived, made, or reduced to practice in whole or in part by ETCH. The Company and ETCH shall agree on a filing strategy for each country where patent protection is sought, and the Company shall be obligated to prepare, file, and prosecute any patent applications, maintain all patents, and notify ETCH of any changes in status or deadlines. ETCH’s consent is required to abandon any patents, and the Company shall assign such abandoned patent to ETCH upon request.
The Agreement also contains mutual confidentiality and indemnification obligations for the Company and ETCH. The Company may not assign the Agreement without ETCH’s prior written consent, not to be unreasonably withheld. Due to an acknowledged level of uncertainty relating to contracts for the provision of services to the legal cannabis industry, both ETCH and the Company expressly waived any defense based on illegality.
The foregoing description of the Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of such agreement.