Exhibit10.1 SettlementAgreement

 

To Licensor:

Network-1 Security Solutions, Inc.

Definitions.

“Adverse Ruling” means a holding, by a final judgment of a court of competent jurisdiction (including the International Trade Commission), that (a) none of the claims of the Licensed Patent adjudicated by the court are valid, or (b) the Licensed Patent is unenforceable such that it could not be enforced against Licensee, or (c) the Licensor is estopped or enjoined from asserting the Licensed Patent against Licensee.  The term “Adverse Ruling” shall also encompass a final order by the U.S. Patent & Trademark Office that at least claims 1, 2, 6, and 9 of the Licensed Patent are invalid.

“Effective Date” of this Agreement shall mean the date first written above.

“Expiration Date” means the date on which the Licensed Patent shall expire.

“Have Made” means the right to purchase a Licensed Product from a third party (e.g., suppliers and vendors) and/or have a third party make a Licensed Product in whole or in part for the use by and/or sale or transfer by Licensee or its Subsidiaries, where the third party operates under the license grant to Licensee and its Subsidiaries for providing Licensed Products to Licensee and/or a Subsidiary of Licensee and for no other purpose.

“Licensed Patent” means the ‘930 Patent and any continuations, continuations-in-part, re-issues, re-examinations, and divisionals of the ‘930 Patent, and all patents and applications claiming priority from the ‘930 Patent, or from which priority is claimed.

“Licensed PSE” refers to a PSE product made, used, offered for sale, or sold within the United States or imported into the United States prior to the Expiration Date.  As used in this Agreement, “Licensed PSE” shall not encompass any apparatus, device, equipment or product that exclusively uses Spare Pairs to transmit operating power.

“Licensed PD” refers to a PD product made, used, offered for sale, or sold within the United States or imported into the United States prior to the Expiration Date.  As used in this Agreement, “Licensed PD” shall not encompass any apparatus, device, equipment or product that exclusively uses Spare Pairs to receive operating power.

“Licensed Product” means any Licensed PSE product or any Licensed PD product.  A list of current Licensed Products as of the Effective Date includes the products set forth in Exhibit 1.

“Power over Ethernet” or “PoE” means the technology used to deliver electrical power over Ethernet network cabling for the purpose of supplying operating power to devices connected to an Ethernet network.

“Powered Device” or “PD” means any apparatus, device, equipment, or product that receives or is capable of receiving (but not sending) power from PSEs in a PoE system.

“Power Sourcing Equipment” or “PSE” means any fixed configuration (i.e., stand alone and non-expandable) product that supplies power to PDs in a PoE system, including, but not limited to, products complying with IEEE Standards 802.3af and 802.3at.

“Sales Price” in any quarter, means, with respect to any Licensed Product sold by Licensee (or any of its Subsidiaries) on an arms-length basis to a party that is not a Subsidiary of Licensee, the “Average Sales Price” (which is calculated as the total sum of the “Extended Prices” actually invoiced during a quarter, substantially in the form of the representative invoice attached to this Agreement as Exhibit 3, for such product divided by the number of units of such product sold during such quarter).

“Spare Pairs” means the set of wires in a twisted pair cable not used for transporting data in an Ethernet network segment.

“Subsidiary” means as to Licensee (Licensor has no Subsidiaries) an entity of which shares of stock having voting power to elect a majority of the Board of Directors or other managers of such entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by the Licensee.

“Third Party Licensed Products” means any PD or PSE product of a third party that is made, used, offered for sale, or sold within the United States or imported into the United States that is licensed by Licensor and covered under a license between Licensor and the third party.

License Grant.

Upon the timely payment of the initial licensing fee set forth in Section 4.1, Licensor grants to the Licensee and its Subsidiaries a personal, non-exclusive, non-transferable, royalty bearing license under the Licensed Patent (i) to make, use, lease, sell, offer for sale, import, design, Have Made, and otherwise transfer Licensed Products, including the right to procure or produce components for Licensed Products, (ii) to practice any method or process involved in the manufacture of Licensed Products, and (iii) to practice any method or process involved in the use or other integration into a system or network of Licensed Products.  To the extent that any Licensed Product is sold or otherwise transferred by Licensee or its Subsidiaries to distributors, resellers, channel partners, retailers, customers, and other “arm’s length” customers and/or end users, and any other third parties involved in distributing, selling, or using Licensee’s Licensed Products, the license granted under this Section shall encompass such parties for such Licensed Products, but only to the extent that the Licensed Products distributed, sold, or used are licensed under this Agreement and subject to the royalty payment under Section 4.2 below.  To the extent that a third party is operating under the Have Made rights granted under this Section, the license granted under this Section shall encompass said third party, but only as to such third party’s sales of Licensed Products to Licensee or any Subsidiaries and other licensed conduct for Licensee and its Subsidiaries contemplated in this Section, and not for sales to other parties.

If the Licensee, its Subsidiaries, or its or their successors initiate any action to challenge, directly or indirectly through their acting officers, directors, employees, representatives, or agents acting at Licensee’s direction, the infringement or validity of the Licensed Patent, or assist or cooperate in any action, related to the non-infringement or invalidity of the Licensed Patent or any declaratory judgment action under the Patent Act of the United States, title 35, United States Code, the Declaratory Judgment Act, title 28, United States Code, or otherwise (unless the Licensee is required to do so pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that in such case the Licensee gives Licensor or its Subsidiaries reasonable advance notice that it is required to do so (so as to afford Licensor a reasonable opportunity to appear, object, and obtain appropriate relief regarding such requirement)) the Licensee shall pay a royalty rate of five percent (5%) of the Sales Price of Licensed Products (in lieu of the royalties owed under Section 4.2) with respect to all royalties payable after the date Licensee (or its Subsidiaries or successors) initiate any such action.  This Section shall not apply if Licensee, its Subsidiaries, or their successors initiate such action in response to any litigation, assertion, or claim for infringement of the Licensed Patent brought by Licensor (or any other party who owns rights to the Licensed Patent) against Licensee, a Subsidiary of Licensee, or another party with respect products licensed under this Agreement.

Licensee acknowledges that except for the licenses granted in section 2.1 above, no further licenses are granted.

All rights not expressly granted by Licensor are expressly reserved.  Nothing in this Agreement shall be construed as a right to use or sell Licensed Products in a manner which conveys or purports to convey whether explicitly, by principles of implied license, or otherwise, any rights to any third party user or purchaser of Licensed Product, under the Licensed Patent, to combine the Licensed Products with any other product (not licensed under Section 2.1) where the right applies specifically to the combination of the Licensed Product and other product and not to the Licensed Product itself.

Licensee acknowledges that, this Agreement grants no rights to combine Licensed PSE products with PD products not licensed by Licensor or to combine Licensed PD products with PSE products not licensed by Licensor.

Third Party Patents and Limitations on Liability.

Licensor hereby represents and warrants that:  (a) it has the authority to enter into this Agreement and grant the license under Section 2.1; (b) this Agreement is valid and binding and enforceable in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, bankruptcy reorganization, or similar laws affecting creditors rights generally; (c) it has all right, title and interest in and to the Licensed Patent; (d) there are no patents or patent applications or foreign counterparts related to the Licensed Patent, nor does Licensor own any patent or patent application claiming or disclosing any PoE technology except the Licensed Patent; and (e) Licensor has no Subsidiaries.  Licensor makes no warranty or representation that practicing the technology covered by the license granted to Licensee under Section 2.1 will not infringe any patent or patents of any country which is or are owned by any party or parties other than Licensor.  The obligations of Licensee to Licensor shall be in no way affected and no obligation of any character of Licensor to Licensee shall be created by the fact that practicing the technology covered by the license granted in Section 2.1 infringes the patent rights of others.

Except as expressly set forth above in Section 3.1, Licensor makes no warranty, whether express or implied, including warranties of merchantability or of fitness for a particular purpose.  Under no circumstances shall Licensor be liable for incidental, consequential, or other damages from alleged negligence, breach or warranty, strict liability, tort, contract, or any other legal theory arising out of the use or handling of the Licensed Product.

Consideration, Royalty Payments, and Royalty Reporting.

In connection with the Special Licensing Program, Licensor has agreed to offer Licensee an “early adopter” reduced royalty rate and to reduce its license initiation fees, which are based on Licensee’s past sales of PSEs and PDs, to three hundred fifty thousand dollars ($350,000) which shall be paid within five business days of the Effective Date.

In further consideration of the license granted in this Agreement, Licensee agrees to pay Licensor for each Licensed Product sold by Licensee to a third party a royalty of one point seven percent (1.7%) of the Sales Price  for each Licensed PSE and a royalty of two percent (2%) of the Sales Price for each Licensed PD (“Royalty Rate”).  If Licensor grants a license to any other licensee with a lower applicable Royalty Rate, (where such applicable Royalty Rate is either (i) contained in a royalty bearing license, or (ii) underlying the calculation of the amount of a paid up license), Licensee shall be entitled to obtain the benefit of such lower applicable Royalty Rate upon the effective date of such other license, provided however, that Licensee, is able to and agrees to assume all of the material financial and non-financial terms and conditions of the license agreement executed between such other licensee and Licensor (other than terms relating exclusively to payment for past infringement).  Licensor agrees to keep books and records, including other license agreements, adequate to accurately determine the material terms and conditions of any other licenses of the Licensed Patent.  Licensor shall retain such books and records for at least three (3) years after the delivery of any royalty reports.  Licensee shall have the right, no more than twice per calendar year, to have an independent certified

Only one royalty will be paid for the sale of any given Licensed Product subject to royalty in this Agreement.  Royalties for sales of Licensed Products shall be net of returns, including without limitation returns for warranty defects and stock rotation, but only to the extent (i) Licensee credits or refunds the customer returning Licensed Products an amount equal to or less than the amount originally invoiced for the Licensed Products, and (ii) the Licensed Products were initially sold after the Effective Date.  Licensee will not owe any royalty payment for Third Party Licensed Products sold by Licensee or under Licensee’s brand.  For the avoidance of doubt, for royalty calculation purposes, any resale of a returned product shall be treated as a new sale to the extent the resale brings to Licensee or to a Licensee Subsidiary an additional selling price not already accounted for by Licensee and its Subsidiaries through the initial sale of that product.

Licensee shall make all payments to Licensor in performance of any obligation of Licensee defined in this Agreement in United States Dollars by bank wire to the following account:

Licensee shall make running royalty payments within thirty (30) days after the end of each calendar quarter (“Royalty Period”) during which any Licensed Product subject to royalty in this Agreement was sold.  Royalties shall be calculated in the currency in which sales are made and, in the case of sales made in currency other than United States Dollars, the equivalent amount of the United States Dollars for any royalties payable hereunder will be determined on the basis of the rate of exchange quoted by The Wall Street Journal as of the due date of the royalty payment (in the event that The Wall Street Journal quotes more than one rate of exchange that day, Licensee shall select any one of those rates).  Royalties shall be submitted with a royalty report (“Royalty Report”), in the form of Exhibit 2, showing all Licensed Products sold by Licensee in the immediately preceding Licensee fiscal quarter.  The Royalty Report shall be certified by the Licensee setting forth the amount and calculation of the royalties for the reported period regardless of whether or not any payment is due.  The Royalty Report will include all Licensed Products sold by Licensee during the reporting fiscal quarter, including Licensed Products that are not on Exhibit 1 but were subsequently sold by Licensee.

Licensee assumes responsibility for any payment due but not made by any Subsidiary.

Irrespective of any ruling of a court, administrative body, or arbitral tribunal, no royalties paid by Licensee shall be subject to refund except for overpayments made in error and identified by Licensee within six (6) months of actual or constructive notice of such erroneous payment, whichever is later.  Any refund that Licensee may be entitled to pursuant to this Agreement shall be taken as a credit in a subsequent Royalty Report; provided, however that if no further royalties are due under this Agreement, Licensee shall receive a refund instead of a credit.  Such refunds shall be made to Licensee within thirty (30) days of notice.

No further royalties shall be due under Section 4.2 in the event of an Adverse Ruling.  Licensor shall provide Licensee with written notice of an Adverse Ruling as soon as reasonably practicable.  In the event that the Adverse Ruling is overturned, including by way of a ruling of the United States Court of Appeals for the Federal Circuit, or other higher court of competent jurisdiction, the obligations to pay royalties will be reinstated and the royalties that were not paid during the period before the Adverse Ruling was overturned shall be paid by Licensee with interest at the Prime Rate as reflected in The Wall Street Journal as of the date the Adverse Ruling is overturned.

In the event a third party’s PoE products (e.g., PSEs or PDs) are found not to infringe the Licensed Patent by a court of competent jurisdiction (including the International Trade Commission) (“Non-Infringement Finding”), Licensee may provide notice to Licensor that such finding could result in terminating Licensee’s obligation to pay royalties under the Agreement, and Licensee may provide notice to Licensor that it intends to cease making royalty payments for Licensed Products of comparable physical structure, with respect to the claims of the Licensed Patent, to the PoE products found not to infringe the Licensed Patent.  A Non-Infringement Finding arises if, for example, a court finds that a third party’s PoE product (i) fails to meet the limitations of all asserted claims not subject to an Adverse Ruling, (ii) is covered by an implied license, (iii) is subject to patent exhaustion, and/or (iv) is subject to legal estoppel.  Licensor shall provide Licensee with written notice of such Non-Infringement Finding as soon as reasonably practicable.  If the parties disagree with the effect the ruling has on Licensee’s obligation to pay royalties under this Agreement, the parties may submit the issue of whether the Non-Infringement Finding would be applicable to the Licensee’s Licensed Products to a mutually agreed upon

Payments when provided for in this Agreement shall, when overdue, bear interest compounded monthly (prorated for periods of time less than one month) at an annualized rate of five percent (5%) over the prime rate quoted by The Wall Street Journal, on the date that the payment is due, for each month during the delinquency.  If the amount of such charge exceeds the maximum permitted by law, such charge shall be reduced to such maximum.

Licensee shall keep books and records adequate to accurately determine the payments due under this Agreement.  Licensee shall retain such books and records for at least three (3) years after the delivery of the Royalty Report to which they relate.  Licensor shall have the right, no more than twice per calendar year, to have an independent certified public accountant inspect all relevant books and records of the other party on thirty (30) days’ prior written notice and during regular business hours to verify the reports and payments required to be made pursuant to this Agreement.  Such independent certified public accountant shall be selected by the auditing party and shall be reasonably acceptable to the other party.  The auditor shall enter into an appropriate nondisclosure agreement with the audited party and any necessary third parties, and shall disclose no more information than is reasonably necessary to complete the audit.  Should an underpayment in excess of five percent (5%) be discovered, Licensee shall reimburse Licensor for the cost of the audit.  In any event, Licensee shall promptly pay any underpayment together with interest at the compounded annual Prime Rate as reflected in The Wall Street Journal on the last day of each month during the period of the delinquency.

Term and Termination.

This Agreement will commence on the Effective Date and will remain in force and effect until the Expiration Date, unless earlier terminated or in the event all claims of the Licensed Patent are found to be invalid, or the Licensed Patent is held unenforceable against Licensee, or if the Licensor is estopped or enjoined from asserting the Licensed Patent against Licensee by a final non-appealable order of a court of competent jurisdiction.  Other than as provided for in Section 5.2, the parties to this Agreement may terminate this Agreement only by mutual written agreement.

In the event a party to this Agreement breaches any provision of this Agreement and fails to cure such breach within forty-five (45) days of receipt of written notice of such breach, the other party to this Agreement may, in its sole discretion, terminate the Agreement upon written notice to the other party.

If Licensee fails to make royalty payments required by this Agreement and fails to remedy such breach in accordance with Section 5.2, all remedial payments for outstanding payments shall be calculated at a royalty rate of five percent (5%) instead of the Royalty Rate set forth in Section 4.2.  The Royalty Rate set forth in Section 4.2 will continue to apply after Licensee makes the remedial payments.

Termination of this Agreement by mutual written agreement of the parties to this Agreement shall not, unless otherwise agreed by the parties, have the effect of terminating, revoking, or withdrawing rights and obligations set forth in this Agreement with respect to matters after the Effective Date and up through and including the effective date of the termination.  Notwithstanding the foregoing, the termination of this Agreement for any reason shall not terminate the license granted in this Agreement for any Licensed Product sold or in the process of being manufactured prior to the termination date so long as the applicable royalty due with respect to such product has been paid by Licensee.

Miscellaneous.

If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligations of any party to this Agreement  will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never been part of this Agreement, and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement.

This Agreement may not be assigned by either party without the express prior written consent of the other party, except in connection with a merger, acquisition, reorganization, or sale of all or substantially all of such party’s assets or equity (“Transaction”).  The license set forth in Section 2.1, however, shall continue to cover and apply only to Licensed Products (which are marketed, sold, and distributed under licenses granted in this Agreement) in existence as of the effective date of the transaction, and any subsequent updates, upgrades, enhancements, improvements to such products.  This Agreement is binding upon and inures to the benefit of the parties hereto, and their permitted assigns.  If the Licensee enters into any Transaction with another entity, the other entity involved in the Transaction will not, under any circumstances, be released for any of its past infringement of the Licensed Patent as a result of the Transaction, whether or not the surviving entity is licensed under Section 2.1 of this Agreement after the date of the transaction.

If Licensor sells, transfers or exclusively licenses the Licensed Patent, or grants any interest in the Licensed Patent (other than a non-exclusive license) Licensor will provide notice of this license granted to Licensee and will ensure the Licensed Patent remains subject to this Agreement.

Except as specifically provided in Section 2.1, nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give to any party, other than

This Agreement may be executed in separate counterparts, each of which shall be considered an original but all of which will constitute one agreement.

This Agreement is not confidential.  Each party understands that following the Effective Date, the other party may be required to file a Form 8-K with the SEC that will include this Agreement as an exhibit.  Each party further understands that the other party may be required to publicly disclose information pertaining to this Agreement.

ProSafe L3 Managed Stackable Switches (including FSM 7328PS-100NAS, FSM 7352PSNA, FSM 7326PNA)

ProSafe Smart Switches (including GS 724TP-100NAS, GS 748TP-100NAS, FS 728TP-100NAS, FS 752TPSNA, FS 726T PNA)

ProSafe Unmanaged Desktop Switches (including FS116PNA, FS108PNA)

ProSafe Smart Wireless Controller (including WFS709TP)

ProSafe Light Wireless Access Point (including WGL 102-100NAS)

ProSafe Dual Band Light Wireless Access Point (including WAGL 102)

ProSafe Wireless Access Point (including WG 302NA)

ProSafe 802.11n Dual Band Wireless Access Point (including WNDAP330-100NAS)