Published on Product Design & Development (http://www.pddnet.com)
Jennifer Collins, Morningstar Law Group
Prior to embarking on product development activities, it is critical that companies take time to protect their intellectual property rights. Several separate partnerships, alliances and agreements may be needed to go from the research phase to the marketplace. Each strategic alliances, development agreement, or joint development contract should clearly allocate the rights and the responsibilities of all parties concerned.
Because each product development deal is different, there is not a way to template a strategic alliance agreement. However, there are five topics that should be covered in any agreement where intellectual property is involved:
1. Ownership of Intellectual Property – Frequently, one or more of the parties is bringing pre-existing intellectual property to the partnership. It is important to specifically identify and reserve its ownership within the contract.
For newly developed intellectual property, there are two common ways to allocate ownership: by inventorship (the party that invents owns and jointly developed inventions are jointly owned) or by subject matter (inventions that relate to Party A’s core business or improve Party A’s pre-existing intellectual property are owned by Party A, while inventions that relate to Party B’s are owned by Party B). To effect the applicable transfers of ownership in either allocation method, express preset assignments should be included in the agreement.
2. Licenses to Intellectual Property – Commercializing the new development will also require some cross-licensing of intellectual property rights and should cover both pre-existing and new intellectual property. For example, if the project is to develop a new pharmaceutical product for use in humans and in animals, with one party commercializing the product for human use and the other party commercializing the product for animal use, then each party should license to the other all rights necessary to perform such commercialization. If each party wants exclusive rights to its field (human health and animal health), then the licenses should also be exclusive to the particular field.
These licenses need to be carefully tailored to the particular rights that the licensee needs. For example, if one party is to exclusively manufacture the new product and the other party is to exclusively commercialize it, then the licenses need to clearly specify all limitations and restrictions.
3. Responsibility for Obtaining and Maintaining Patents – Patents are an important part of intellectual property protection. Joint development agreements should include detailed provisions about which party will take the lead in obtaining and maintaining them. The other party should also be clearly identified with the responsibility assisting and commenting. The agreement should also allocate responsibility for the fees and costs associated with obtaining and maintaining patents. Finally, it should include contingencies in case the party that owns the patent decides to abandon it or if only one of the parties wants to file for a patent in a particular country.
4. Responsibility for Prosecuting Infringers – The negotiation of these provisions can become contentious, as any infringement litigation will put the applicable patent at risk of challenge.
Each party will also want some level of control over if, when and how the patent is put at such risk. Therefore, it is often easier to agree to the allocation of responsibility and cooperation prior to an infringement, rather than after the infringement has occurred.
First, the parties should agree on how infringers will be prosecuted. Like other responsibilities, rights of prosecution can be allocated by ownership or by field. It is also not uncommon for the party that has exclusive rights in a particular field by ownership, license or both to have the first right to prosecute infringers. However, some courts will not allow licensees (even exclusive licensees in some cases) to prosecute infringers. So, it is necessary to review the standing requirements for prosecution of infringers when drafting and negotiating these provisions and require that the other party join any suit as a plaintiff if requested.
It is also important to provide for how costs and damages will be allocated. It is not uncommon to see damages applied first to cover both parties’ costs of litigation and then allocated in proportion to how expenses were allocated. Alternatively, damages may be awarded according to field of use after costs are recovered.
5. Term and Termination – It is tricky to unwind a product collaboration if intellectual property is jointly owned. So careful thought during negotiations and drafting can prevent problems if the agreement terminates. Questions that should be answered by contractual provisions include:
- Under what circumstances can each party terminate? For cause?
Without cause? - What should each party be permitted to do with project IP after
termination? Will there be continuing licenses? For a run-out period
to sell inventory, or longer? - What are the remedies for the non-breaching party if the other party
breaches? Should the other party be required to assign, license or
otherwise transfer any IP to the non-breaching party?
All product development deals are different. However, where patentable products and inventions may be developed, intellectual property provisions should be considered and addressed clearly in the governing agreement.
