For the life science industry, patents are more than just tools for restricting the commercial activities of direct competitors.\u00a0 Patents are being used more and more to generate substantial additional returns on research and development (\u201cR&D\u201d) investment costs through licensing.\u00a0 Smaller and early-stage companies can use out-licensing revenues as non-dilutive equity to fund and to advertise their R&D programs.\u00a0 Unfortunately, smaller and early-stage companies rarely dedicate the resources necessary to set up an effective out-licensing program.<\/p>\n
Early-stage partnering is now a vital component of business strategy for many life science companies.[1]<\/a>\u00a0 Due to the fierce competition for late-stage life science assets, larger life science companies must look to early-stage life science companies for access to new and promising compounds and technologies.\u00a0 For early-stage life science companies, entering into a partnership with a larger, more established company increases their visibility, validates their technology in the life science industry, and helps fund their R&D programs.\u00a0 Successful licensing transactions can also attract further private or public equity investments.\u00a0 However, because smaller and early-stage companies have fewer resources, experience, and leverage than the larger life science companies, negotiating with a larger life science company before making adequate preparations may lead to suboptimal results.<\/p>\n A strong technology transfer program can help smaller and early-stage companies establish an intelligent IP strategy, placing companies in a more solid position for future negotiations with larger life science companies.\u00a0 Further, there are ways to structure transactions that enable small and early-stage life science companies to effectively mitigate and manage the risks inherent in business transactions.<\/p>\n This article is the first of a three-part series:<\/p>\n Part I \u2013 Creation of the Intellectual Property<\/p>\n Part II \u2013 Preparing for the Transaction<\/p>\n Part III \u2013\u00a0 Choosing the Right Transaction<\/p>\n As technologies are developed and reduced to practice, intellectual property (IP) can be created. \u00a0Owning valuable IP permits a life science company to consider a variety of business transactions, which in turn can validate the products and the company.<\/p>\n To achieve either a significant technology transfer program or to prepare for an eventual acquisition, a company’s technology must be well protected.\u00a0 Several forms of IP protection are available. \u00a0The most common is patent protection.\u00a0 Trade secrets can also be very valuable for protecting some life science technologies, especially when harmonized with a patent strategy.\u00a0 Despite the common misconception, patents and trade secrets are not mutually exclusive.[2]<\/a>\u00a0 For example, a company with an algorithm for optimizing probes and primers for improved diagnostic PCR assays may choose to patent the optimized probes and primers while keeping the algorithm a trade secret.\u00a0 Other forms of IP protection, such as copyrights and trademarks, should also be incorporated in a company\u2019s intellectual property whenever appropriate.<\/p>\n Building a patent portfolio can be a substantial financial commitment for small and early-stage companies with limited financial resources.\u00a0 A few suggestions to help create an intelligent, cost-effective IP strategy are provided below.<\/p>\n Provisional patent applications have several advantages for small and early-stage companies.[3]<\/a>\u00a0 First, the filing fees are substantially lower than for a utility application.\u00a0 Second, provisional patent applications are not published and are not examined. \u00a0They automatically expire after one year unless they are converted into a regular utility application.[4]<\/a>\u00a0 Therefore, a patent applicant can strategically capture subsequent developments of their invention during the year in second, third, … provisional applications. The applicant can then convert all these provisional applications into one utility application at the one-year anniversary of the first provisional application.\u00a0 This IP strategy is far more cost-effective than filing serial utility applications.\u00a0 Finally, and a very important advantage for life science companies, the 20-year patent term from the date of filing does not include the filing date any provisional patent applications.[5]<\/a>\u00a0 As such, provisional applications can effectively provide 21 years of protection. \u00a0This is an important advantage, because most life science technologies require many years to be commercialized and, for successful life science technologies, the revenues are often concentrated towards the end of the 20-year term.<\/p>\n Alternatively, filing a utility patent application from the outset can be a preferable strategy when the patent applicant has a shorter path to commercialization, a need to establish patentability quickly for, e.g.,<\/em> a potential investor or collaborator, or a need for a quicker path to an issued patent to assert against potential infringers.<\/p>\n Life science companies frequently develop technologies with potential indications or uses outside of their business models.\u00a0 These companies are then faced with spending additional capital to secure patents with a scope of protection that covers substantially more or different than their business model.\u00a0 Securing broader patents can be a worthwhile investment if the company also devotes resources in a significant technology transfer program.\u00a0 Otherwise, broader patents will be an unnecessary expense. And, the IP strategy may appear unfocused to potential investors.<\/p>\n Life science companies often fall into the trap of trying to cover all these additional potential indications or uses by merely including them in a list embedded in the patent application.\u00a0 However, without appropriate support, claims to these unsupported indications or uses will likely be rejected due to insufficient written description or lack of enablement.[6]<\/a>\u00a0 If the company subsequently develops the empirical data as support and wants to file a later patent application to cover these indications or uses, the company\u2019s earlier published patent application will likely be cited as prior art to deprive the later, more extensive patent application of novelty.\u00a0 Accordingly, a prudent strategy is to either put an adequate written description and prophetic support in the original application or to wait to file for patent protection on these additional indications when the company develops adequate support.<\/p>\n The Patent Cooperation Treaty (PCT)[7]<\/a> is an international patent law treaty that provides a unified procedure for filing patent applications in each of the over 150 Contracting States.[8]<\/a>\u00a0 By converting the provisional applications to an international patent application under the PCT, a life science company can simultaneously preserve patent protection in many countries for up to 30 months from the date of the earliest priority filing.[9]<\/a>\u00a0 After 30 months, the life science company may need to enter the National\/Regional Phase in the countries for which they wish to secure patent rights.\u00a0 This National\/Regional Phase can get quite expensive, depending on the number of countries.\u00a0 As such, a PCT application beneficially delays costs associated with National\/Regional patent protection until the life science company has secured financing, a licensee, or a strategic partner.[10]<\/a><\/p>\n The international application provides another important advantage.\u00a0 It is subjected to an “international search” carried out by one of the major patent offices appointed by the PCT Assembly as an International Searching Authority (ISA).\u00a0 The resulting International Search Report (ISR) provides the applicant with a list of the published documents that might affect the patentability of the invention claimed in the international application.\u00a0 The ISA also prepares a written opinion on patentability for the applicant.\u00a0 This Written Opinion provides valuable insight to the life science company about the strength and scope of patent protection likely to be obtained for their invention.\u00a0 A favorable ISR and Written Opinion can also provide comfort to any potential investor, licensee, or another party interested in acquiring rights to the invention.<\/p>\n The Patent Prosecution Highway (PPH) is a program initially launched in 2014 to speeds up the examination process for corresponding National\/Regional Phase applications filed in the participating patent offices.\u00a0 Under the PPH in participating patent offices, a patent applicant who receives a final ruling from a first patent office that at least one claim is allowed may request a fast track examination of the corresponding claims in the corresponding patent application pending in a second patent office.\u00a0 The PPH procedure enables an applicant to reach a final disposition of the patent application more quickly and efficiently than the standard National\/Regional examination process.<\/p>\n At present, there are over 20 participating patent offices participating in the PPH, including the U.S. (USPTO), the European Patent Office (EPO), Australia (IPAU), Canada (CIPO), China (CNIPA), and Japan (JPO).[11]<\/a> \u00a0These patent offices are the offices for the jurisdictions for patent protection commonly sought by life science companies.<\/p>\n An often-overlooked strategy is the use of the PCT application (i.e.,<\/em> a favorable Written Opinion of the ISA) as the basis for a PPH request.\u00a0 Issued patents reduce the risk and enhance valuation for any potential investor, licensee, or another party interested in acquiring rights to the invention. As such, an intelligent IP strategy is to submit claims in the PCT application that more narrowly cover the company\u2019s commercial embodiments to enhance the chance of receiving a positive Written Opinion.\u00a0 Filing a PPH request based on a positive Written Opinion accelerates the examination process and getting an issued patent. \u00a0Filing a PPH request based on a positive Written Opinion also typically results in substantial savings in patent prosecution expenses. \u00a0These results are important advantages for smaller and early-stage life science companies.\u00a0 Broader claims can be pursued later in subsequent continuation applications.<\/p>\n Obtaining broad foreign patent coverage is very expensive, especially for cash-limited smaller and early-stage life science companies.\u00a0 However, upon approaching the National\/Regional Phase deadline, the patent applicant is reminded frequently that this will be the final opportunity to seek foreign protection for their invention in all the PCT signatory countries.\u00a0 Smaller and early-stage life science companies often succumb to this pressure and file broadly in many foreign markets that they will never enter.\u00a0 The financial burden is further compounded when the company seeks protection for their second, third, fourth, … invention.<\/p>\n Given the long path to commercialization for life science technologies, too many smaller and early-stage life science companies, unfortunately, abandon patent protection in multiple countries several years later to lower their expenses and burn rate.\u00a0 Abandoning patent applications after having spent tens or hundreds of thousands of dollars is not a sound use of financial resources.<\/p>\n A more intelligent IP strategy involves the selection by the life science company of a predetermined set of countries for patent protection based on the more important commercial markets for their technology.\u00a0 For\u00a0a more sophisticated IP strategy, the company may have two sets of countries: (i) a narrow list of foreign countries for most invention; and (ii) a broader list of countries for the more valuable or cornerstone inventions.<\/p>\n For maximal valuation purposes, a patent portfolio with issued patents and consistent country filings across several patent families projects more favorably to any potential investor, licensee, or another party than a patent portfolio with inconsistent country filings across different families with dozens of intentionally-abandoned applications in too many countries.<\/p>\n [1]<\/a> U.S. Department of Justice and the Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, January 12, 2017, \u00a7 2.3 Procompetitive Benefits of Licensing.<\/p>\n [2]<\/a> See, On-Line Techs., Inc. v. Bodenseewerk Perkin-Elmer GmbH<\/em>, 386 F.3d 1133, 1141 (Fed. Cir. 2004) (quoting RESTATEMENT (THIRD) OF UNFAIR COMPETITION \u00a7 39 cmt. f (1995)).<\/p>\n [3]<\/a> 35 U.S.C. \u00a7 111(b)(1) (2011).<\/p>\n [4]<\/a> 35 U.S.C. \u00a7 111(b)(5) (2011).<\/p>\n [5]<\/a> 35 U.S.C. \u00a7 154(a)(2)-(3) (2011).<\/p>\n [6]<\/a> A patent application must disclose enough information to satisfy the requirements of 35 U.S.C. \u00a7112.\u00a0 See, e.g.,<\/em> Ariad Pharmaceuticals et al. v. Eli Lilly and Company, <\/em>598 F.3d 1336 (Fed. Cir. 2010) (en banc) (defining the written description requirement) and In re Wands, 858 F.2d at 737, 8 USPQ2d at 1404 (Fed. Cir. 1988) (defining the enablement requirement). Both the Ariad<\/em> case and the Wands<\/em> case concerned life science patents. The information that is disclosed in a patent is not protectable as a trade secret.<\/p>\n [7]<\/a> The PCT was concluded in 1970, amended in 1979, and modified in 1984 and 2001. See, The PCT Applicant\u2019s Guide, https:\/\/www.wipo.int\/pct\/en\/guide\/<\/p>\n [8]<\/a> The PCT currently has 153 Contracting States.\u00a0 See,<\/em> https:\/\/www.wipo.int\/pct\/en\/pct_contracting_states.html<\/p>\n [9]<\/a> The earliest priority date is usually the filing date of the first provisional patent application. Some Contracting States permit national stage entry at 31-months or later.\u00a0 See,<\/em> https:\/\/www.wipo.int\/pct\/en\/texts\/time_limits.html<\/p>\nIP Creation<\/h2>\n
Provisional vs. Utility Patent Application<\/h2>\n
Scope of the Patent Application<\/h2>\n
Patent Cooperation Treaty (PCT) Applications<\/h2>\n
Patent Prosecution Highway (PPH)<\/h2>\n
Foreign Patent Coverage<\/h2>\n
References:<\/h2>\n