Abstract
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This seems to be especially true for biotech start-ups. Here, the founders are generally scientists at the pinnacle of their careers and recognized experts in their fields. Most have no direct business management experience, having come from either an academic environment or from the R&D department of a large company. They are comfortable being totally in charge of their projects and are not used to having their scientific decisions questioned. They also know that they are smart people and believe that they can figure out just about anything. All of which can make generating strong patent protection for the biotech start-up a struggle.
Below are some of the common issues that arise when counselling biotech start-ups about building a strong patent portfolio.
1. Business First: Identifying he Scientific Core of the Business and its Marketplace Potential
While many biotech start-ups begin with a particular compound for treatment of a particular disease, oftentimes this is not the case. Perhaps the start-up is founded around a platform technology or is targeting particular combinations of microorganisms, or their products, for application to environmental problems. Frequently, the founders are thinking only of the advance that the innovation provides for one area of science, and either grossly overestimate its commercial potential or give no consideration to whether the invention can be sold at all. Assisting the start-up to think creatively and identify a variety of different ways that the invention can be applied helps the company to focus and increases its value potential.
As an example, perhaps the innovation allows one to generate novel and unnatural proteins having new functions, and the founders envision using the invention to create improved microorganisms for cultured dairy products. Here, one of the first issues that must be addressed in developing a patent portfolio strategy is to identify the pertinent market(s) that will support commercialization of the invention. This may or may not be what the start-up founders considered as the target industry, despite the fact that the invention could be used in multiple fields of biotechnology, such as drug screening/development, pesticide improvement, or oil spill remediation.
Identifying viable markets requires consideration of how the purchaser will evaluate whether the costs of adopting the new technology are worth the investment. Perhaps manufacturers of cultured dairy products feel that the advantage afforded by a new microorganism pales in comparison to the costs of altering their procedures/equipment and re-training their workforce. If so, there is no sense in obtaining patent protection for products or methods with no true commercial value. On the other hand, oil companies may be particularly interested in products and procedures that produce any improvement in remediation. Consequently, it may be that additional experimentation to identify novel proteins that would support the oil spill remediation market should be conducted before filing a patent application, so that the protection is clearly apparent to the targeted industry, and which will increase the potential value of the patent.
2. Who is the Owner?
Ownership questions also tend to be commonplace for start-ups and can present some difficult choices for founders. These issues generally fall into one of three categories: ownership concerns arising from technology that is in-licensed to the start-up; ownership concerns involving employment agreements; and ownership concerns created when there are multiple inventors associated with a single invention, which arise from collaborations between the founders or from collaborative efforts with another organization.
In-licensed technology
Virtually all start-ups understand that if they license technology, they do not own that technology. Yet many are surprised to find that their licensing agreement can indicate that improvements on or to the licensed technology may be owned by the licensor. These “grant back” provisions can be in the form of a required assignment of the improvement patent/patent application to the licensor or an “exclusive” provision giving the licensor an exclusive right to use and/or sublicense any patented improvements, with the licensee having only a non-exclusive right to practice the patented improvements. Even the common “non-exclusive” grant back, which allows the licensor to practice the improvement while the licensee retains ownership and all other rights, can be a cause for concern for a start-up which views the licensor as a potential competitor.
Employment agreements
If the technology is not licensed, but generated de novo, ownership problems can still occur. A common misconception by scientists is that if you invent something, you own it. Inventors are typically presumed to be owners of a patent unless they are employees. If they are employees, then an employment agreement may shift ownership to the employer. Under federal law which governs U.S. patent assignments, when an employee expressly grants an employer all rights in future inventions, then no further act or document is required and the rights in that invention immediately vest in the employer at the time that the invention is conceived and comes into being. 1 In California, if an invention was made using employer time or resources, relates to the employer's business or actually/demonstrably anticipated research and development, or resulted from work performed by the employee for the employer, then the invention is likely owned by the employer. 2 This can be particularly problematic if the founders of a start-up have kept their “day jobs” while trying to get the start-up off the ground.
Multiple inventors
Additional problems can arise when there are multiple inventors that start working together to commercialize innovation. As a rule, joint inventors together own the entire right, title, and interest of the intellectual property. That means they share ownership equally regardless of who contributed what, as long as they have contributed to the conception of the invention. 3 In the absence of any agreement to the contrary, each joint owner has the right to practice the entire invention without the permission of the other inventors and has no duty to share any portion of the profits made by exploiting the invention with the other inventors. 4
This is a foreign concept to many founders who have formed the start-up with trusted and respected partners and who tend to think of joint inventorship in terms of “one for all and all for one.” It is difficult for them to visualize some type of falling out between partners that would jeopardize the business. Placing ownership in the name of the company, rather than the founders/inventors, increases the potential for attracting funding and company growth. This can be accomplished by contracting for rights, such as profit sharing among owners regardless of who exploits the patent, or giving each owner exclusive rights to particular claims. More typically, each joint inventor/owner executes an assignment document that irrevocably transfers all of his/her rights to the company, thereby making the company the patent owner.
Collaborations between organizations
Having a clear and detailed agreement in place is particularly important for joint collaborations. It is easy to see that if the employees of two companies are named as joint inventors, joint ownership may not meet the business needs of each of the companies—or worse, can actually be adverse to each company's business objectives. This is especially true when the joint collaboration uses very different resources from each of the participating companies/institutions. Consequently, it is critical to have appropriate collaboration agreements in place.
While U.S. law defines patent ownership in terms of inventorship when no other contractual agreement is in place, U.S. law also recognizes that parties can contract for joint ownership based on many other considerations. It is perfectly acceptable to allocate patent ownership and/or patent rights based on criteria other than inventorship, but it is important to realize that in the absence of such contracts or agreements, ownership will be attributed based on inventorship, which can lead to loss of control of the invention.
3. Conducting a Patentability Search
Frequently, start-up companies are hesitant to pay someone to thoroughly search for publications that are related to the science and/or technology that is the subject of the invention before they file an application. It is understandable that the founders question why they would pay someone to review the published literature when they are intimately familiar with what is known, understood, and speculated about in their area of expertise. Yet conducting such a “prior art” search oftentimes better grounds the company and provides an unbiased check on the ability of the science to be easily patented.
This is due, in part, to the fact that a professional searcher has no particular bias about the invention and when conducting the prior art search uses pertinent, yet neutral, terms in addition to the jargon commonly used in the laboratory and/or the literature of a particular field of study. As an example, if the start-up's invention is a new method of conducting a polymerase chain reaction (PCR) to be used for identifying new organisms in deep ocean thermal vents, the scientists will not necessarily be aware of PCR methods associated with forensic applications used at crime scenes. If there is no bias as to how PCR is used or what the ultimate point of using PCR is (e.g., identifying a new organism), then the publications searched could easily come up with a publication of which the scientists were unaware, or which they had dismissed as unrelated because it was directed to something other than identifying new organisms. Consequently, the searcher has a much higher probability of identifying prior art that an examiner at the United States Patent and Trademark Office (USPTO) would consider relevant to the patent application—even if it does not immediately appear to be intimately related to the exact same end-product, approach, or implementation as that presented in the patent application.
4. Application Drafting and Filing
Drafting a patent application is not a trivial task. Start-up founders/inventors that try to short-cut the process by “do it yourself” patent drafting do so at their peril. Many start-up companies believe that drafting a patent application is similar to writing a peer-reviewed journal article or a grant proposal. But this is not the case because the patent application—even a provisional patent application—is a legal document.
Among the common misconceptions of start-ups having little experience with the patenting process is the meaning of the legal terms “novelty” and “obviousness.” To most scientists and engineers—in fact most lay people—“novelty” means just what the Merriam-Webster Dictionary says: “The quality or state of being new, different, and interesting; something that is new or unusual; something novel.” But in patent law, novelty doesn't mean exactly that. Instead, novelty means that when an examiner searches the patent, scientific, and popular literature (prior art) that was published before the earliest filing date for the application, she or he cannot find one single publication that has each and every element of the claim. Like novelty, the terms “non-obviousness” and “obvious” also have a special meaning in patent law. Once more, the focus is on the elements of the claim. But while novelty requires that each and every element of the claim is present in a single publication, to destroy non-obviousness and show that an invention is obvious, an examiner is allowed to combine two or more references so that each and every element of the claim is represented.
These legal definitions tend to flummox most start-ups, especially when the publications are directed to areas of biotechnology that do not seem at all related to the start-up's invention. Experienced patent drafters appreciate that while novelty may exist over two publications, the invention could be considered obvious even if the publications are focused on different aspects of biotechnology. This then allows the drafter to further define the invention by including aspects that are absent from the prior art, which in turn provides the best chance to move through the patenting process to a granted patent with the minimal amount of argument and expense. Here, the benefits of conducting a prior art search before beginning to draft a patent application become apparent.
Another common error made by start-ups who draft their own applications is to inadequately present the innovation so that it is viewed as patent eligible subject matter. Prior to 2012, the Supreme Court had decreed that “anything under the sun that is made by man” was patent eligible. 5 Since then, the Supreme Court has started to focus on what is not patentable, including DNA, proteins, and many isolated/purified natural products. This turn of events is particularly difficult for those in the biotechnology sector, whose roots are in the natural world.
Late last year, the USPTO issued revised Guidelines that provide good examples of patent eligible claims despite the fact that the underlying product or process is “natural.” 6 Thoughtful consideration of these examples allows the application drafter to identify the “significantly more” that the Supreme Court says is needed to jump the eligible subject matter hurdle. 7
But most start-ups are not familiar with the particulars of the Supreme Court cases (although they may have heard of them through the media), and are not aware of how these decisions have affected the ability to obtain patent protection for biotechnology innovations. As a result, an application drafted by a start-up frequently does not adequately differentiate the invention from the “natural” product or process.
In addition, the passage of the America Invents Act in September 2011 moved the United States from awarding patents on a first-to-invent basis to a system rewarding the first-inventor-to-file. The first-inventor-to-file system encourages early filing of applications, but this approach can have drawbacks, too, because if an application is filed too early, the description of the innovation may be incomplete. This can be particularly problematic if what is missing is needed to place the invention into the eligible subject matter realm. Also, while start-up companies may perform tests comparing their new product or process to a known, closely related one, the tests are frequently performed after a patent application has been filed, which may affect the ability to rely on those results. Consequently, it is more important than ever to consider timing when filing applications. Again, this can be a hard sell to start-ups, who want to obtain patents as quickly as possible.
Working with biotechnology start-up companies can be extremely rewarding but does require a significant time and teaching investment on the part of the attorney. Generally the science that biotech start-ups are based on is outstanding; the high failure rate for the start-ups tends to be more a function of poor business decisions and the lack of business experience than failure to perform scientifically. Understanding the legal issues associated with biotechnology, whether they are related to intellectual property, regulation, or environmental concerns, increases the probability of a start-up's success in the marketplace.