SEMESTER PROJECT

STIPULATING GENERAL
CONDITIONS FOR
CONTRACTING TRANSFER
OF TECHNOLOGY (ToT)

Project By
Ahmad Hassan
SP-09-CE-120

Submitted to
Prof Sajid R Qureshi
Department of Engineering Management
Center for Advanced Studies in Engineering
Islamabad

Page 1 of 13
 Problem Statement

Developing countries where the technology has not

advanced to the levels of the developed countries especially
the west and where the indigenous Research and
Development is not yet as established, there is always
dependence for purchase of ready to use equipment. This
purchase, most of the times, is done at the terms and
conditions of the supplier. In the past two decade or so,
Pakistan has endeavored to establish its own technological
base and has thus looked for purchase of technology
together with the purchase of equipment. In some cases
due to not clearly defining the contents of ToT some
projects did not bear desired results. In such circumstances
the ingredients of the contracts for Transfer of Technology
must be defined and the conditions to be included in the
contract should be clear because some elements of the
transfer of technology may not be as tangible as in other
cases.

Introduction

The Transfer of Technology is defined as the process of sharing of skills,

knowledge, technologies, methods of manufacturing, samples of manufacturing
and facilities among governments and other institutions to ensure that scientific
and technological developments are accessible to a wider range of users who
can then further develop and exploit the technology into new products,
processes, applications, materials or services [1].

Page 2 of 13
Another definition states that transfer of technology is the assignment of
technological intellectual property, developed and generated in one place, to
another through legal means such as technology licensing or franchising [2].

Need for Transfer of Technology

Transfer of technology is often required to attain capability to be able to perform

certain task without being dependent on others. It is the basis of indigenization
and self-reliance. The transfer of technology enables an organization, country or
nation to attain knowledge and capability. Technology transfer is a legal way of
acquiring the knowledge and capability for doing something which was
conceived, researched and developed by someone else. In today’s world the
transfer of technology is the call of the day as it strengthens the capability and
helps improve economy. For developing countries like Pakistan the survival and
progression is embedded in acquisition of technology through legal transfers.

Need for a Contract / Agreement for Transfer of Technology

The technology developed by a specific organization is always proprietary and

patented. That organization has the sole user of the technology and remains
custodian of the exclusivity right to the technology. Usage or exercise of this
technology by someone else without prior approval from the principals falls in
breach or infringement of legal rights. Such transfers are realized by getting into
formal contracts and agreements with the organization from which these
technologies acquired companies. Formal agreements between parties provide
legal covers to both parties for providing and acquiring technology.

Structure of a Contract / Agreement for Transfer of Technology (ToT)

Like all contracts the contract for ToT should also elaborate conditions that
should be covered and mentioned while finalizing a contract. A typical contract
for transfer of technology must have the following sections given under the

Page 3 of 13
headings to address the pertinent issues. Generally the following contents must
be included in the contract for transfer of technology [3]:

Contents of a Technology Transfer Contract

According to the objects of technology transfer contracts the parties may agree
on the following essential contents:

Major contents

(a) Objects of a contract, the title, specifications and contents of

the technology, results of the technology application
(b) Quality of technology, contents and term of warranty
(c) Place, time and schedule of technology transfer
(d) Range and level of secrecy of technology transferred
(e) Price of the transferred technology and the mode of payment
(f) Obligations of parties in protection of technology
(g) Training responsibilities relating to technology transferred
(h) Obligations on mutual cooperation and information
(i) Conditions for changing or terminating a contract

Quality of the Technology Transferred.

The parties may agree on the quality of the transferred technology based on the
following contents

(a) The purpose of the use of technology

(b) The technical and economic indicators to be achieved when applying the
technology transferred
(c) Quality indicators of the products that are to be made with the transferred
technology
(d) The indicators of the products' shape
(e) The standards of environment protection.

Page 4 of 13
 (f) Liability for the breach of the signed contract and the process of dispute
settlement.

Warranty and Warranty Duration

The transferor of technology is liable for guaranteeing that the transferred

technology meets the agreed quality pursuant to the above provisions.

(a) Warranty period shall be determined by the parties or shall be ruled by

law.
(b) During the warranty period if the transferred technology is found not to
meet the agreed quality, the transferor shall be obliged to repair the
defects on his/her own expenses.
(c) If the transferor have done all his/her best, the transferred technology
remains unsatisfactory with the agreed quality, the transferee then shall
be allowed to terminate the contract and to demand compensation for
losses.

Right to Develop the Transferred Technology

(a) The transferee of technology is entitled to develop the transferred

technology without notifying the transferor if the parties do not agree
otherwise.
(b) If the transferor is interested in the results of the technology
development, the parties may agree on the transfer of the achieved
results on the principle of mutual benefit.

Obligation of Secrecy

(a) The parties may agree on the range and extent of secrecy of the
transferred technology; if there is no agreement on this matter, the
transferee shall be obliged to keep secret all information concerning the
Page 5 of 13
transferred technology during the term of the signed contract in the same
manner as they keep their own secrets.
(b) The transferee of technology must pay the transferor for the losses
caused by his/her violation of point 1 above.

Page 6 of 13
 Sample Model for Contract for transfer of
Technology

Having discussed the need, general contents and provisions of a contract for
Transfer of Technology, given below is the model for a contract for Transfer of
Technology. This may not be exhaustive but it gives a direction to be followed
and the main features to be considered while negotiating and framing a contract
for Transfer of Technology.

Title Page

This is to mention the names of contracting agencies, the title of contract, the
contract number and relevant information

Article-1: Preface

The preface should contain the background leading to the execution of the
contract. This section will have the “Whereas” statements elaborating the events
leading to the contract

Article-2: Definitions

Like all contracts this section would define salient terminology used in the
contract

Article-3: Objective

This section will broadly but clearly define the intentions to be realized and
objectives to be achieved through this transfer of technology. This will, for
example define the technology to be transferred, the extent and the intended
capability to be achieved by the transferee through this ToT contract.

Page 7 of 13
Article-4: Scope of Technology Transfer

This section will give details of scope for technology transfer. This will include
clear definition of all aspects of technology transfer, which may be in terms of
material capability, establishment of facilities, development of human resource
etc. Care must be taken that all tangible and intangible aspect of the technology
transfer may be given. In case the article is getting too lengthy then the details
can be mentioned in relevant appendices with reference in the main article.

Article-5: Method of Technology Transfer

The methods and mode through which the intended technology transfer would
be achieved is to be elaborated in this article. This should take into account the
definition of participants, the mode, like participatory role of transferees in some
work; classroom instructions; training through co-development; communication
methodology; methodology for addressing technical problems faced during the
transfer etc etc.

This article has to be exhaustive covering explanation of each aspect of the

methodology and the expected outcome.

Article-6: Deliverables

During the process of technology transfer he transferor would be obliged to

make deliveries for the transfer of technology. These deliverables may be fall in
one of the following categories:

(a) Drawings for designing, manufacturing and assembling.

(b) Specifications.

(c) Materials list.

(d) General calculation sheet.

(e) Data for inspections and trial operations.

(f) Fabrication and assembly procedures.

(g) Operating and instruction manuals.

Page 8 of 13
 (h) Code for software and firmware

(i) Logic diagrams for software development

(j) Any other necessary technical data and know-how generally used by
the transferor

This section should invariably lead to numerous appendices giving details of

deliverables.

Article-7: Responsibilities of Parties

The contract for Transfer of Technology may be concluded between two or more
parties. The clear mention of duties and responsibilities of all parties with
respect to this technology transfer to be mentioned under this article. The
responsibilities would include making of transfer plan, conducting training,
providing certain facilities, transferee to ensure participation of his people etc.
Preferably the duties may be defined under sub-paragraphs referring to duties
and responsibilities for all parties involved.

Article-8: Participation of Transferees Personnel

Transfer of Technology cannot be achieved without the physical participation of

the transferee. For sensitive technologies, despite formal contracts, there may
be reluctance on part of the transferor. This may directly affect the participation
of the transferee’s team. Hence it is very important to reduce to writing to the
last detail the extent of participation that is desired by the transferee to which the
transferor is obliged to provide. Care must be taken to include all possible
details, which could be left in view of brevity of the contract size.

Article-9: Costs

Like all contracts, the contract of transfer of technology also has defined
amounts. These amounts are to be mentioned under this heading. All costs to
Page 9 of 13
be given in broken down form at this point or in an Appendix referred to in this
section. All efforts should be made to put a cost to each facet of transfer of
technology rather than giving one round cost for the complete agreement.

Article-10: Terms of Payment

The manner in which the payment has to be made to the transferor by the
transferee be mentioned under this article. Contrary to a construction, supply or
services contract, the tangibles under the ToT contract may not be as many.
Hence the payments to be linked to the completion of various phases of the
transfer and the deliverables received under that phase. In case it is possible to
link the payment to the capability achieved, then the rights of the transferee
could be better secured.

Article-11: Completion of Technology Transfer

The completion of transfer of technology can be defined under various areas

including deliverables, capability attained, facility establishment etc. Hence the
benchmarks for ascertaining the completion of various parts / phases to be
clearly mentioned under this article.

Article-12: Technical Training

Training is a very vital aspect for the technology transfer, without which such
transfer would remain ineffective and incomplete. It may be mentioned under
this article that in order to process the Technology transfer effectively and for
gradual obtaining of the technology by the transferee, the transferor to arrange
for the team of transferee to participate in theory training, practical work,
analysis, encoding / decoding software /drawing etc, answer technical
questions, and take part in technical examination during each phase of
Technology transfer. Such measures would ensure smooth and effective
technology transfer.

Page 10 of 13
Article-13: Technical Assistance

Generally the training alone cannot completely ensure the technology transfer.
After the necessary training has been imparted and the transferee begins to use
the technology so transferred, it would require technical assistance by the
Transferor for a certain period of time and to a certain extent. A mention and
agreement in this respect has to be reached between both parties while
finalizing the contract. In order to remove any variations in understandings the
areas and extent of technical assistance sought by the transferee and agreed to
by the transferor must be mentioned under this article.

Article-14: Ownership and Right to Use

This article would define the ownership of the technology transferred and the
rights and obligations of each party in terms of ownership and the rights to use.
These specific contents of this article may vary with each type of contract.
However, in every instance and clear definition of the ownership and rights to
use must be mentioned.

Article-15: Secrecy and Confidentiality

This article would elaborate the duties and bindings on each party about
disclosure or sharing of the technology sought by transferee.

Article-16: Guarantees

Like other contract for construction, services or supply, it may not be possible in
a contract for ToT to put in a bank guarantee. However, the transferee can seek
a performance bond from the transferor, which should be based on the transfer
of technology with respect to the time in which it is to be transferred, the extent
of transfer, the quality of transfer and the deliverables. Benchmarks for
attainment of capability by the transferee may be placed as milestones for
measure of the performance by the transferor.

Article-17: Indemnities

Page 11 of 13
The contract agreement for ToT should contain indemnities both for the
transferor and the transferee. Indemnities may be mutually extended by both for
the transfer phase and the technology use phase.

Article-18. Disputes and Resolution

The agreement for resolution of disputes may be mutual. It could be referred to

a mutually agreed higher organization, an agreed court of law or under an
agreed statute.

Article-19: Force Majeure

This article should define the force majeure and its handling causing hindrance
or making impossible the transfer of technology. It may be more of less
similar to such stipulations in other contracts.

Article-20: Termination of Contract

This article should define the occasions under which the contract should be
terminated. Stipulations may also be made regarding notices to given by
each party to the other with reference to termination of the contracts and the
methodology to terminate and finally decide upon compensations to be
given by the party responsible for termination of the contract.

Article-21: Effectiveness and Duration of the Contract

This will define the date from which the contract would be effective and the date
to which it should remain effective. For a ToT contract, this date must remain
subservient to the capability attained and transfer of technology achieved under
the contract.

SIGNATURE BLOCK PARTY-1 SIGNATURE BLOCK PARTY-2

CONCLUSION

Page 12 of 13
 Transfer of Technology is need of the day and the progressive
developing countries are aspiring to get technology from developed countries.
Such transfers are at a cost, which is normally very high. The rights of the
transferee need to be secured under such transfers and it need to be ensured
that the required transfer is made as conceived and the value for money is
achieved. This can well be done under a carefully written contract agreement
between the parties. The basic structure given above can serve as guidelines
for concluding the contracts for Transfer of Technology.

References:

1. Definition of Transfer of Technology by www.wikipedia.org

2. Definition of Transfer of Technology by www.businessdictionary.com

3. Guidelines on Contract for Transfer of Transfer of Technology extracted

from Vietnamese Civil Code: www.ueh.edu.vn

4. Model Agreement for Transfer of Technology for Republic of Korea

http://www.1000ventures.com/technology_transfer/tt_agr_model_byrok.html

Page 13 of 13