Feature
Research Collaboration in Australian Biotechnology
In brief: Our feature article this week is the second in a series that looks at structuring research collaborations in Australian biotechnology. In this edition Lawyer Jacky Mandelbaum looks briefly at the structure of research collaboration agreements and in detail at the protection of intellectual property rights.
Further articles in this series will review strategies for the commercialisation of the research project and tax considerations.
- Introduction
- Structural issues
- Protection of intellectual property (IP)
- Termination of the project
- Conclusion
Introduction
Research collaboration agreements are commonly used where one party has expertise in research and development (for example, a research institute or university) and the other party has expertise in commercialisation (for example, a biotech company). The parties wish to combine their expertise in order to develop a product for commercial gain. Research institutes are often keen to form relationships with commercial entities both in order to obtain funding for their research projects and to provide an avenue to sell their technology to potential investors. In such agreements, the protection of intellectual property rights is a key issue. Who will own and who will be able to use the intellectual property rights which exist or are developed will be crucial when commercialising, or attracting investment to, any project.
Structural issues
Funding
Usually, the biotech company provides funding to the research institute to carry out research and development in a specific area with a view to developing a product which can be commercialised.
Funding to the research institute may take the form of a lump sum payment, or 'milestone' payments, payable on the achievement of pre-determined research objectives. Royalties on product sales may be provided for later when there is a product developed which is capable of commercialisation. It is worth considering whether grants may be available under various government initiatives which have been set up to encourage research and development as well as to encourage research institutes to commercialise their research.
It is important to keep in mind that the research institute may require an up-front payment for the initial costs of the project, such as attracting and retaining the scientists and the cost of any materials and facilities used during the research phase. This payment may be included in the overall budget or set off against royalties payable to the research institute further down the line.
Management
Management of the project can be a contentious issue as both parties have strong interests to protect. The biotech company will want to ensure that its investment is well managed and that it has control over the way in which the money is spent. The research institute will seek flexibility in the research and to maintain its reputation. In addition, the manager may be given the important role of monitoring the intellectual property and deciding how the intellectual property should be protected and when registered rights should be applied for (for example, through patent applications).
The solution is often a management committee comprising representatives from both parties. Still, there is the question of the number of representatives of each party and the method in which decisions will be made. The research collaboration agreement should specify:
- precise role of the management committee;
- frequency of meetings;
- quorum; and
- voting rights and casting vote.
If the parties seek equal representation, it may be appropriate for the management committee to include an independent expert in the relevant technical field to act as a chairman with a casting vote.
Scope
A precise definition of the scope and field of the research project is required It is important for the parties to be certain of the exact project to be conducted so that, amongst other things:
- the research institute knows the extent to which its researchers are free to engage in areas of research outside of the collaboration; and
- the company knows what it is paying for and to what research it will have rights.
Protection of intellectual property (IP)
It is likely that the research institute (and perhaps the biotech company) will bring intellectual property to the project (Background IP). The IP may comprise both patents and know-how or confidential information. Once the project commences, it is likely that new IP will be created (Project IP). The agreement needs to deal with both Background and Project IP.
Background IP
It is important that each party provides the other with access to its Background IP for relevant purposes. This is usually done by granting the other party a licence to use the Background IP.
Such a licence may be:
- exclusive: only the licensee is entitled to use the IP, to the exclusion of the licensor itself;
- non-exclusive: the licensee is entitled to use the IP, but the licensor can also use it and licences can be granted to any other parties; or
- sole licence: the licensor and the licensee may use the IP, but the licensor may not grant any further licences.
While the biotech company may seek an exclusive licence to the research institute's Background IP, it is likely that the research institute will need to use its Background IP in other unrelated projects being carried out within the research institute and for teaching purposes. In these circumstances a non-exclusive, or perhaps sole, licence may be more appropriate.
The licence should specify for what purpose(s) the Background IP may be used. The biotech company's licence to the research institute's Background IP may be restricted to use in connection with any commercial rights the company may have to exploit the Project IP. Similarly, if the biotech company is contributing Background IP, the research institute's rights to use that IP should be for the purpose and duration of the specific research project.
Project IP
The parties must consider at the outset who will own the Project IP upon its creation. As a starting point, as the biotech company is providing the funding for the project, it is likely to seek to own the Project IP. This assists it to secure commercialisation contracts where collaborators and investors are likely to require proof of ownership of IP rights. Co-ownership by both parties is a possible alternative, but it does introduce a degree of uncertainty as to the respective rights of each co-owner in various jurisdictions. For instance in Australia, in the absence of any agreement to the contrary, a co-owner of a patent may exploit that patent without accounting to the other co-owner(s), but may not grant a sub-licence under the patent or assign an interest in it without the consent of the other co-owner(s).
In any case, it will again be important that each party is licensed to use the Project IP for their relevant purposes. The research institute will need to use the Project IP for the purpose of the carrying out the project. The biotech company will wish to use the Project IP for commercialisation purposes. Again, the parties must consider whether such licences should be exclusive, non-exclusive or sole. It is likely that the arrangement will not be exclusive, as each party will need to use the Project IP for their own specific purposes.
Enforcement
The agreement should also set out the parties' respective rights and obligations in relation to enforcement of the Project IP and Background IP. The provision should specify:
- which party will be responsible for registering and maintaining patents;
- which party will have the right to sue for infringement of the Project IP or to defend any infringement actions by any third parties; and
- which party will bear the costs of the above actions.
As patent prosecution, maintenance and litigation can be costly and time consuming this is an important factor to consider in deciding ownership of Project IP.
Confidential information and confidentiality
Part of the IP is likely to consist of confidential information, including sensitive technical and commercial information, which the parties will need to disclose to each other for the purposes of the project. It is important to ensure that the use of confidential information is regulated under the research collaboration agreement. In addition, if there is patentable subject matter within the confidential information it must be kept secret before obtaining patent protection in order to ensure that a potential patent is not invalidated by prior disclosures by either party.
There is an inherent tension between the need for research institutes to publish their research and to share it with other researchers and the converse requirement to keep patentable subject matter, and therefore the results of important research, secret at least until appropriate protection has ben obtained. The research collaboration agreement may deal with the issue of publication by allowing the research institute to publish results of the research from the project, and use it for the purposes of teaching, unless the biotech company has a reasonable commercial reason to prevent it from doing so. The biotech company's embargo may also be subject to a time limit (eg to enable appropriate patent protection to be secured).
IP identification and capture
The agreement should implement a system to ensure that all relevant Background and Project IP is identified and appropriately captured. This is especially important if IP is to be held by a special purpose IP holding company.
Such a system should include:
- regular reports by representatives of the research group(s) on progress of research with recommendations as to whether any IP is suitable for registered protection (such as patents or designs); and
- regular reviews of the strength and validity of any such protection and whether that IP remains strategically important.
Termination of the project
Although the agreement is negotiated in the spirit of collaboration, thought must be given from the outset to what conditions will allow termination and what will occur upon termination. The biotech company may wish to include provision for termination in the events that:
- the research project is not successful;
- the research is progressing at a slow rate;
- that a desirable researcher ceases to participate in the project; or
- the research ceases to be relevant or new in the market place.
The research institute may wish to terminate the agreement if it has not received the agreed funding or payments.
The following considerations should be made in relation to termination:
- who will own and who will have the right to use the IP after the end of the collaboration;
- cessation of project activities and commercialisation rights;
- liability for costs incurred up to the date of termination, for example in expenditure on materials and employment of staff;
- liability for costs incurred due to termination; and
- protection of confidential information which parties have been given access to, such as return or destruction of such information and restrictions on use and disclosure after termination. The agreement may also require parties to sign a statutory declaration that this has been complied with.
Conclusion
In a research collaboration it is important that the arrangement is clearly and accurately documented in the agreement. IP rights should be clearly defined and adequate provisions dealing with ownership issues included to allow the parties to be in a strong position to attract investment as well as to avoid misunderstandings and disputes. Such agreements are important to both biotech companies and universities as investors require them to demonstrate that the technology has been adequately protected.
For further information please contact Tony Pyman on (03) 9613 8894 or Jeff Bergmann on (03) 9613 8979.