Intellectual Property: Patent or Padlock: Patents and Trade Secrets Form the Heart of an Effective IP Strategy - A typical life sciences company probably keeps more than two-thirds of its proprietary

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Intellectual Property: Patent or Padlock: Patents and Trade Secrets Form the Heart of an Effective IP Strategy
A typical life sciences company probably keeps more than two-thirds of its proprietary information in the form of trade secrets.


BioPharm International
Volume 20, Issue 2

THREE TYPES OF COMMON TRANSACTIONS AND THEIR IP CONSIDERATIONS

In collaborative relationships, beyond the complexities of working with another entity that may have very different goals and ways of operating, the primary difficulties involve the exchange and capture of technology. One of the most common structures involves some sort of joint ownership of the resultant IP. The two companies in a collaborative relationship will contractually apportion the roles and responsibilities of each party, and will either share the IP outright, or in some proportion to its creation (conception and reduction to practice). In fact, the CREATE legislation codified at 35 USC§ 103(c) promotes this type of relationship by removing an obstacle under the patent laws. It is also a common practice to vest ownership of the IP in one of the parties and license back rights to the IP.

While collaborative relationships are usually amicable, they can always devolve. Therefore, even collaborative relationships should be approached with the understanding that certain aspects of the joint effort might need to be delegated solely to one of the parties, and that an open exchange of information is neither productive nor desirable to both parties involved, unless the collaborative activities are dependent on such open exchange. Even then, confidentiality arrangements should be in place before any information is shared, and trade secrets should be inventoried and memorialized before initial discussions and certainly before significant information exchange.

Licenses are simpler to manage than ongoing collaborations, but many licenses also involve an accompanying exchange of know-how or other kinds of confidential information. Royalty obligations are often tied to the existence of patents, and a royalty can't persist after the expiration of patent rights unless there is some additional consideration. When patents expire, the underlying know-how can provide this consideration, but there needs to be some reduction in royalty rates to reflect the loss of the patents. Safeguarding this know-how therefore takes on new significance when there is no underlying patent. However, because this relationship is more controlled than collaborative projects, and the exchange of information is more intermittent, it can be easier to protect the company's trade secrets in this type of business setting. Nevertheless, confidentiality provisions should be included in any technology license, along with a clear delineation of responsibilities upon termination or expiration of the license.

Sponsored research agreements provide a different challenge to companies, since the results of the work aren't necessarily known or predictable at the outset and the parties are likely to have vastly different goals. This makes protection and control of IP rights generated a significant point that must be clearly delineated at the outset of the relationship. Most sponsored research occurs between a company and a nonprofit or academic entity. These types of organizations have different agendas than for-profit companies, and while the creation of IP is desired, the mission of these organizations is usually to disseminate knowledge.

This is contradictory to the preservation of trade secrets. Similarly, most nonprofit centers require ownership of any resultant patents and tangible IP, which is licensed back to the sponsor. Companies about to enter into sponsored research need to negotiate agreements that let the company redact confidential information from publications, or that delay publication in order to prepare and file patent applications. Likewise, the company needs to narrowly define the scope of the work to be performed, and clarify the existing inventory of company-owned IP to preempt subsequent claims that something was jointly invented. The best strategy for the company is to get information classified as a pre-existing invention, and characterize the research as simply being directed by the company. This reduces the sponsored research to a fee-for-services type of relationship, which may preclude claims of invention by the non-profit. Inventorship is a high standard defined by the patent laws, and the goal for the company is to reduce the nonprofit's claims to conception of the invention.

Ending a business relation-ship properly is also critical. Contractual obligations should address the return of all proprietary information and materials. In certain cases it is appropriate to permit retention of archival copies of information, to ensure continuing compliance with surviving confidentiality provisions or ongoing regulatory obligations. However, this potentially permits a company to retain the trade secrets of another. Complicating this, the owner may not have any control or insight into whether the retaining company is adequately protecting this information. The best scenario is not to exchange the really sensitive information, but if it is protected by incorporation into a provisional patent application, then the consequences of inadvertent disclosure can at least be offset by its conversion into patent rights.

CONCLUSION

While patents typically get the attention in a company, trade secrets can be the crown jewels of an IP strategy. They should be protected at all times, and shared only after a demonstration of necessity. Nevertheless, any exchange should be planned to minimize the consequences of misappropriation or inadvertent disclosure. Patents and trade secrets can coexist, and the combination creates an intelligent IP strategy.

John M. Garvey, PhD, is a partner with Foley & Lardner, Boston, MA,
Andrew S. Baluch is a law clerk at Foley & Lardner,


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