Product Development Agreement

PRODUCT DEVELOPMENT AGREEMENT



This PRODUCT DEVELOPMENT AGREEMENT (hereinafter the "Agreement") is made as of this 31st day of July, 1996, by and between COMPUTER MOTION, INC., a California corporation, having its principal place of business at 130-B Cremona Drive, Goleta, California, 93117, (hereinafter referred to as "CMI"), and The Cleveland Clinic Foundation, having its principal place of business at 9500 Euclid Avenue, Cleveland, OH 34239-3555 and its subsidiaries and affiliates (hereinafter referred to as "CFF").



R E C I T A L S:



A. CMI has developed or acquired substantial expertise, know-how and technical information relating to the design, development, manufacture and testing of hardware and software for a robotic microsurgery system.



B. CMI is in the process of developing and refining its Zeus Microsurgery Robotic System (the "Product");



C. CMI has developed or acquired rights to valuable hardware and software incorporated in the Product (hereinafter referred to collectively as "Technology") and holds patent, copyright, trade secret, trade identity and other proprietary rights which exist in and to the Product, Proprietary Information and Technology;



D. CMI desires to have CCF assist in the development and refinement of the Product and is willing to provide CCF a prototype Product and certain support services in connection with CCF's use thereof on such terms and conditions as are provided herein; and



E. CCF has experience in the application of surgical techniques and equipment and in clinical research activities which it desires to apply in the use and refinement of the Product.



A G R E E M E N T:



NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CMI and CCF, intending to be legally bound, have agreed and do hereby agree as follows:



1. LOCATION OF DEFINITIONS



(a) "Best Customer Rates" shall be defined as set forth in

Paragraph 2(d).



(b) "Claims" shall be defined as set forth in Paragraph 7(b).



(c) "CMI" shall be defined as set forth in the opening paragraph

of this Agreement.



(d) "Deliverable Items" shall be defined as set forth in Paragraph

2(a) and Exhibit A.









(e) Documentation shall be defined to mean technical specifications, operating manuals (as they become available), proposals, Exhibit C and other relevant data provided to CCF by CMI.



(f) Intellectual Property Definitions:



"Intellectual Property" means individually and collectively: all inventions, improvements or discoveries, whether patentable or not, and any technical data, software, or original works of authorship, which are conceived, made, developed or first reduced to practice in the performance of this Agreement.



"CMI Intellectual Property" means Intellectual Property for which, pursuant to U.S. law, only investor(s) from CMI would properly be named as the inventor(s) in a corresponding U.S. patent application.



"CCF Intellectual Property" means Intellectual Property for which, pursuant to U.S. law, only investor(s) from CCF would properly be named as the inventor(s) in a corresponding U.S. patent application.



"CMI/CCF Intellectual Property" means Intellectual Property for which, pursuant to U.S. law, inventors from both CMI and CCF, would properly be named as inventors in a corresponding U.S. patent application.



(g) "Product" shall be defined as set forth in Recital B.



(h) "Production Version" shall be defined as set forth in Paragraph 2(c).



(i) "Proprietary Information" shall be defined as set forth in Paragraph 6(a).



(j) "Quarterly Development Offset Fees" shall be defined as set forth in Paragraph 9(e).



(k) "Technology" shall be defined as set forth in Recital C.



(l) "Unilateral Improvements" shall be defined as set forth in Paragraph 3(e).



2. AGREEMENTS OF CMI



(a) CMI agrees to use diligent, good faith efforts to deliver the "Deliverable Items" as listed on Exhibit A on the schedule specified on Exhibit B. CMI shall incur all shipping and insurance charges for such Deliverable Items, which shall be delivered to CFF FOB Cleveland



(b) CMI shall furnish CCF with all available documentation, operations, technical specs relating to the Product and such other materials as may be reasonably requested in writing by CCF, as they become available. In addition, CMI management and engineering personnel shall be available to answer questions and provide telephone consultation to CCF's medical and clinical personnel, such availability to be coordinated by the Clinical Engineer.











(c) CMI shall waive any and all fees which would otherwise be levied on CCF related to the use of the Production Version of the Product to be delivered to CCF at the conclusion of this Agreement. The CCF will own such Production Version at the conclusion of this Agreement, and hereafter. A Production Version is defined as a system which has received all required federal regulatory approvals and is being actively marketed by CMI on the open market.



(d) CCF shall be charged no more than "Best Customer Rates" for disposable items required to operate such Production Version. Best Customer Rates shall herein be defined as the lowest price charged by CMI to customers substantially similar to CCF with regard to annual purchase volumes.



(e) CCF shall be charged no more than Best Customer Rates for any and all enhancements and upgrades made to Production Version for a period of (5) years following delivery of such Production Version to CCF.



3. AGREEMENTS OF CCF



(a) CCF agrees to pay CMI the amounts set forth at the times specified on Exhibit B, such payments to be effected by bank draft or by bank wire transfer into an account designated by CMI, as specified in writing by CMI not less than three (3) business days prior to the date such payment is due.



(b) CCF agrees to utilize the Product in the performance of surgical procedures and to utilize its facilities, clinical personnel and their expertise to further develop and refine the Product and the Technology on a non-exclusive basis and, based solely on its independent medical and fiscal judgment.. Efforts pursuant to this Paragraph 3(b) shall be in partial consideration for the use of the Product during the term hereof and shall be uncompensated unless provided for elsewhere in this Agreement.



(c) CCF shall, at its sole cost and expense, during the term of this Agreement, provide secure space for the storage and utilization of the Product for the conduct of the Work.



(d) CCF shall provide CMI with reasonable access to its clinical and administrative personnel, its operating rooms and training facilities in furtherance of the rights and obligations provided under this Agreement, subject to its patient care considerations and other policies and preexisting administrative commitments.



(e) In the event CCF desires hardware modifications which are unilaterally requested by CCF ("Unilateral Improvements") and not agreed to by CMI, CCF will be responsible for the costs thereof at a rate of [*] of the material cost relating thereto, with no additional charges being made for labor, administration or overhead. CMI shall provide CCF written estimates of any such charges and shall not commence work on such Unilateral Improvements without CCF's express written consent. Any amounts payable under this Paragraph 3(e) shall be payable by CCF within thirty (30) days of being submitted a written invoice with respect thereto by CMI. CCF retains the right to seek competitive cost estimates of









such Unilateral Upgrades. CMI shall have the right to match any such competitive estimates. In the event CMI does not elect to match such competitive estimates, CCF shall have the right to perform such Unilateral Improvements, either through its internal resources or through a third party, so long as such third party agrees to be bound by the confidentiality and non-use provisions set forth in Section 6 herein.



(f) From the date specified on Exhibit B and throughout the term of this Agreement, the CCF shall retain and have in place a Clinical Engineer, to be primarily stationed at CCF, with principle responsibility for the day-to-day operations and activities relating to the Product. This CCF employee will serve as the principle liaison between CMI and the CCF. The selection, evaluation and monitoring of the Clinical Engineer's efforts shall be the CCF's sole right and responsibility. The responsibilities of the Clinical Engineer shall include, but not be limited to the following:



(i) The coordination of quarterly engineering meetings

the location of which shall alternate between Santa

Barbara and Cleveland;



(ii) Arranging conference calls no less than monthly

between CMI engineering personnel and the clinical

staff of CCF;



(iii) Install hardware retrofittings and software upgrades

directly related to the Product;



(iv) Training relating to modifications and improvements

to hardware and software incorporated into the

Project; and



(v) General ongoing support of clinical studies and

research relating to the development of the Product.



4. OWNERSHIP OF THE WORK



(a) It is acknowledged that employees of both CCF and CMI are under an obligations to assign certain inventions and discoveries developed or conceived by them to CCF and CMI, respectively, during the term of their employment. CCF and CMI warrant and represent that their respective employees shall be obligated to execute instruments necessary to cause all rights in any Intellectual Property, whether sole or joint, to be assigned to CCF and CMI, respectively, prior to any involvement in the development work.



(b) The parties represent that this Agreement does not and will not breach any agreement with others. The parties will not disclose to the other party, or induce the other party to use, any proprietary information belonging to others. The parties agree not to enter into any agreement either written or oral in conflict herewith.



(c) New Invention or Discovery shall mean any invention or discovery conceived or reduced to practice during and as part of the development work performed pursuant to this Agreement. The terms conceived and firs reduced to practice shall be given the meaning of those terms as they appear in 35 USC Section 102(g).













(d) The parties will retain title to any patent or other intellectual property rights in New Inventions or Discoveries made solely by their respective employees in the course of the development work performed pursuant to this Agreement. New Inventions or Discoveries made jointly be CCF and CMI shall be jointly owned by the parties.



(e) For New Inventions or Discoveries developed solely by CCF and/or jointly by CCF and CMI, that may include a method for operating the Product or a method for performing a surgical procedure, using the Product, CMI will have a right of first refusal to obtain an exclusive, worldwide, royalty-bearing license to all of CCF's rights in the New Invention or Discovery, which must be exercised within one (1) year of CMI's receipt of notice of such New Invention or Discovery. If CMI commercializes such New Invention or Discovery, CMI shall pay CCF a royalty based upon the relative contribution of parties and commercial value of such New Invention or Discovery, according to the terms of a licensing agreement to be negotiated and executed prior to the grant of any license by CCF to CMI. In the event CMI fails to exercise its right of first refusal within this one (1) year period, CCF is unrestricted in its right to commercialize such New Invention or Discovery with no further obligation to CMI.



For New Inventions or Discoveries developed solely by CCF and/or jointly by CCF and CMI, that attach directly to the Product (Attachments), CCF hereby grants CMI an exclusive, worldwide, royalty-bearing license, with right to sublicense, to all of CCF's rights in the Attachments. The specific terms of the license will be determined by the parties within twelve months of first disclosure by CCF to CMI of the Attachment. Unless otherwise agreed to by the parties, if CCF and CMI do not execute a license agreement within twelve months of disclosure of an Attachment, the license right in such Attachment granted herein is revoked whereby CMI is relieved of all obligations under the license and CCF is unrestricted in its right to commercialize such Attachment with no further obligation to CMI. The royalty rate payable to CCF based on gross sales of any licensed Attachment will be determined by mutual agreement of CCF and CMI on the basis of the following factors: cost for regulatory approval of the Attachment, measure of value added by the Attachment to the Zeus Product, relative contribution of the parties (if jointly invented), the commercial value of the Attachment, disposable/non-disposable/reusable nature of the Attachment, whether the innovation is patented or nonpatented, marketing/sale strategy of the Zeus Product and the Attachment, and such other factors as the parties deem appropriate for consideration. In addition to royalties, CCF and CMI agree to incorporate appropriate diligence terms to ensure that the Attachment is successfully commercialized, including reversion of the technology to CCF if CMI will not or can not commercialize the technology. In the event that the terms cannot be mutually agreed upon by both parties at the time of license execution, CCF and CMI agree to refer the matter to an objective third party with recognized expertise in medical device valuations. If CCF and CMI cannot agree upon a third party, they will submit the selection of the third party medical device expert to arbitration in accordance with the terms of Section 10 of this Agreement.



(f) CMI shall be responsible for all patent costs for both CMI Intellectual Property and CMI/CCF Intellectual Property. CCF shall be responsible for patent costs for CCF Intellectual Property; however, CMI shall be responsible for patent costs for CCF Intellectual Property if CMI elects to license such technology from CCF as set out above in section (e) and CMI shall fully reimburse CCF for all patent cots incurred by CCF prior to CMI's exercise of









its licensed rights. CCF shall promptly disclose to CMI any New Invention or Discovery developed solely by CCF and/or jointly by CCF and CMI. CCF shall assist CMI in gaining patent protection for any New Invention or Discovery that is CMI/CCF Intellectual Property or for any CCF Intellectual Property for which CMI has exercised its right of first refusal.



(g) If CMI elects to discontinue the financial support of the prosecution or maintenance of any patent covering a CMI/CCF Intellectual Property, CMI shall give CCF written notice of such election and CCF, at its sole expense, may file or continue prosecuting or maintaining any such applications and to maintain any Patents issuing thereon in the U.S. or any international country. CMI shall continue to be liable for any and all expenses incurred before such notice. CMI shall, by written instrument, transfer to CCF full right and title in such Intellectual Property and CCF shall not be accountable to CMI for revenues related to the sale or other disposition of the Intellectual Property.



(h) CMI grants to CF a non-assignable, non-transferable, royalty-free license to make, use and practice CMI Intellectual Property Rights for CCF's internal, non-commercial research, education and patient care purposes.



(i) CCF grants to CMI a non-assignable, non-transferable, royalty-free license to make, use and practice CCF Intellectual Property Rights for CMI's internal, non-commercial research purposes.



(j) CMI and CCF reciprocally grant to each other a non-assignable, non-transferable, royalty-free license to make, use and practice CMI/CCF Intellectual Property for each parties respective internal, non-commercial research purposes.



(k) CCF acknowledges and agrees that CMI shall have, at its sole and final discretion, the right to decide, specify or otherwise to determine the following:



(i) the terms of sale of the Product, including but not

limited to wholesale and recommended retail price

levels, discounts, and returned goods policy use fees

and all related matters;



(ii) territories where the Product shall be, or shall not

be, sold and distributed, and the method of sales and

distribution, whether directly by CMI, its

subsidiaries or affiliates, by a sub-licensee, or by

other means;



(iii) the preparation, whether by CMI, or by a third party,

of additional versions of the Product, compatible

with other computer systems or other devices, or the

preparation of any other derivative works from the

Product, which at all times shall be for the sole

benefit of CMI, except as otherwise agreed to by the

parties in writing.



(l) Both parties acknowledge that they shall have no claims, right or entitlement to any Intellectual Property that has been conceived, documented and/or reduced to practice by either party prior to the effective date of this Agreement.











(m) The provisions of this Section 4 shall survive termination or cancellation of this Agreement.



5. EXPENSES



Except as otherwise expressly set forth in Section 4 herein, each party shall pay its own expenses incurred by such party while engaged in the performance of their respective duties under this Agreement.



6. CONFIDENTIALITY



(a) Each party acknowledges and agrees that certain information which it may receive from the other party will be proprietary information to the disclosing party. Such information includes but is not limited to:



(i) the fact that the disclosing party intends to develop

or has developed the Product;



(ii) any information concerning the Product and its

intended marketing;



(iii) any information concerning the terms and conditions

of this Agreement; except that CMI ...