IP will be a core focus for a biotech company and its investors through its entire lifecycle. While the company’s IP strategy can and should evolve over time, there are certain steps that an early stage company can take at the outset to establish a strong foundation. This article identifies several key principles that, in addition to an intelligently crafted IP portfolio, will help set an emerging company up for future success.
Document Ownership
Too many deals – licenses, acquisitions or otherwise – stumble due to questions about ownership of a company’s core inventions. Fortunately, a few simple documents can avoid most issues. Founders and other employees should have straightforward agreements assigning (using “present tense” assignment language) relevant inventions to the company. Companies should also understand whether key personnel have parallel or prior obligations to academic institutions, and be able to clearly explain those obligations, and ensure that CROs, consultants and other service providers also appropriately assign IP generated for the company.
Document these arrangements when relationships begin—not several years later when an investor or potential acquirer asks for the paperwork and it may be logistically difficult or expensive to reconstruct a chain of title for IP.
License for the Long-Term
When a company is in its very early stages, there can often be a lot of time pressure to secure any third-party IP rights, such as a foundational IP license from a university. It is also important, however, to keep in mind that licenses are long-term instruments and the same document may be scrutinized several years later in a due diligence process when the company’s situation is very different. While perfection can often be the enemy of good, foresight does not have to be the enemy of speed. Negotiating the material license or collaboration with an eye towards future-proofing in a few key areas can even increase the value of the agreement to the company.
- Ask Today: Will we need the licensor’s consent for a change of control?
- Avoid Tomorrow: Licensor veto over a strategic transaction
- Ask Today: Does the license grant extend to affiliates of the company?
- Avoid Tomorrow: Constraints on how an acquirer can structure an acquisition
- Ask Today: Can we sublicense through multiple tiers?
- Avoid Tomorrow: Inability to structure a major partnership
- Ask Today: Could the license encumber an acquirer’s products too?
- Avoid Tomorrow: Deal economics change substantially for an acquirer
Patent then Publish
Once out of stealth, scientific publications, conference presentations and other disclosures can be integral to a young biotech company’s success. They can also have irreversible consequences for patent protection if not timed properly – i.e., a publication prior to patent filing can preclude the issuance of the patent.
Early training for employees and a simple process can go a long way in mitigating this risk. A one- or two-hour IP 101 training from counsel can be very effective, and can also roll out a straightforward process to ensure that both technical and other personnel know to check with patent counsel before submitting a manuscript for publication or disclosing proprietary information in a pitch without a confidentiality agreement in place.
The rule of thumb is simple: when potentially patentable technology is about to leave the building, determine whether to file a patent application first.
Joint Ownership Does Not Simplify
Negotiating a transformative IP agreement can sometimes take considerably longer than initially thought, and it can often be tempting to take the negotiation path of least resistance. When it comes to IP ownership, this path equates to “joint ownership” of inventions. On its face, joint ownership sounds like a great solution. It is fair, equitable and does not require a complex analysis of each party’s contributions to the invention. It is jointly owned, no matter what. The problem lies in operationalizing the joint ownership.
The rules governing jointly owned IP vary by jurisdiction and can create complications around licensing, patent prosecution, enforcement and commercialization. Joint ownership can also become particularly cumbersome in future transactions – e.g., an acquirer is a competitor of a joint owner. While it may take a little extra negotiation, there are many ways to allocate ownership of IP other than just inventorship that can suit both parties, including ownership based on relation to background IP, subject matter, or type of IP.
Data is a Key Asset
A biotech's most valuable assets increasingly extend beyond patents and traditional know-how. Preclinical results, clinical data, biomarker datasets, manufacturing data and datasets used to develop or validate computational tools may all have substantial strategic value. Data rights and restrictions should be given the same level of focus as the development of an IP strategy. Particular attention should be paid to distinctions among raw data, processed data, derived data and analytical outputs—and to privacy, consent or contractual restrictions that may constrain future uses.
