7 Technology transfer in biotechnology (continuum of agreements)

IP ownership

In biotechnology, various forms of agreement are utilized to drive the commercialization process, and in this regard IP, including patents and know-how, comprises a key element of any agreement. Thus, commercialization of biotechnology must be built on a strong foundation of IP with patents at the core to be successful. Furthermore, for an academic institution to effectively engage in the transfer of technology, it must have a mechanism in place to take ownership of its discoveries.

Technology transfer legislation

To enable academic institutions to legitimately take title to these assets, a country may promulgate national laws, such as the Bayh-Dole Act in the United States (and similarly focused laws and regulations adopted by many other countries including the United Kingdom, China, Japan, Germany, France, Austria, Denmark, Norway, Portugal, Spain and Finland), which establish paths for academic institutions to take title to government-funded inventions as well as develop technology transfer policies and practices to manage these inventions. In some countries, policies give the researcher ownership of their invention. These policies, often referred to as “professor’s privilege” or “research privilege”, can complicate matters, especially in terms of invention management, the relationship with a licensee or when further development of the invention occurs inside the institution and ownership stays with the inventor. In the absence of national law or to further specify IP rights management procedures and technology transfer processes, institutions may act to implement their own IP policies and practices.

Role of the Technology Transfer Office (TTO)

It is important that an academic institution has a robustly funded TTO with an adequate number of skilled professionals to empower it to take title to inventions and manage their transfer and licensing. ⁽¹⁾Some publicly funded universities in the United States can take title to inventions but are required to establish external foundations or other entities to manage marketing, transfer and licensing on behalf of the university. Such requirements are not an obstacle to developing a high-quality TTO. Such a system allows for academic discoveries to be protected by filing, managing and maintaining patent applications. Indeed, one of the ways a TTO adds value is by ensuring that the inventions and IP it seeks to license are high quality as a result of well-vetted IP policies and clear technology transfer procedures. Along with protecting IP, the academic institution must have the ability and financial and personnel resources to draw up contracts such that outside commercial partners can be granted valid rights and vested with clearly delineated obligations to develop and sell a product for the public good based on the institutional IP.

Technology transfer agreements

The academic institution technology transfer process includes a stepwise continuum of agreements. Many of these agreements work in concert with each other and, in some instances, a single agreement may incorporate what could be multiple agreements by granting licenses to a variety of IP as well as referencing other agreements. For example, an overall exclusive license may grant further licenses to patents, know-how and proprietary materials, all of which were developed by two or more academic institutions, with one institution taking the lead, as memorialized in an inter-institutional agreement (IIA). An IIA governs the management of jointly owned IP and may be attached as an appendix to an exclusive license agreement (ELA). In most countries each joint owner must obtain the written consent of the other joint owner(s) before licensing the joint invention and, therefore, whenever possible, it is important to enter into an agreement in advance of a joint collaboration to ensure all parties have a common understanding as to how joint inventions will be commercialized.

Material transfer agreements (MTAs)

Proprietary materials are materials which are not freely available and are only transferred under the terms of a material transfer agreement (MTA) that delineates the allowed use of such materials. In biotechnology agreements, proprietary genetic and other biological materials (for example, hybridomas, animals developed for disease models, cell lines, libraries, vectors) are often a necessary component for effectively transferring the technology from academia to industry for further development and commercialization. WIPO maintains a database of contracts, including technology transfer contracts, MTAs and licensing agreements, for such genetic and other biological resources, which can be consulted for up-to-date agreements relating to such transfers. Know-how and trade secrets are also important for the development and handling of the materials and may or may not be included in an ELA. In this regard, there is often the need for a strategic decision-making process to optimally include know-how and trade secrets in an ELA, importantly taking into account the balance between protecting proprietary information and leveraging these assets for commercial and competitive advantage.

Industry-sponsored research agreement (ISRAs)

Along with a license to know-how or trade secrets, other means of conveying know-how include the execution of an industry-sponsored research agreement (ISRA) where the company/licensee financially supports research in the academic lab of the inventor. Alternatively, the licensee may engage the inventor as a consultant to assist in the transfer and application of the technology pursuant to a consultancy agreement, which often requires approval by the academic institution to avoid or manage any potential conflict of interest and to ensure the terms of the consultancy agreement do not conflict with the inventor’s obligations to the academic institution.

Continuum of agreements related to technology transfer

The flowchart in Figure 7.1 shows a continuum of agreements, illustrating many of the typical agreements handled in the technology transfer process when moving an academic discovery from the academic institution to an industry licensee for commercialization. While the sequencing may vary slightly, the scheme shown in the chart is a generalized process that represents most cases. Almost every negotiation starts with a confidentiality agreement (called by a variety of names – secrecy agreement, confidential disclosure agreement, confidentiality agreement or nondisclosure agreement) and culminates in a license agreement. There are many agreements that may also come into play along the way, including post-license agreements. The MTA is a common component of the initial conversations and due diligence done by industry around a biotech licensing opportunity with an academic institution, and is therefore shown in the main flow of the agreement process. Many biotech license agreements are more complex than non-biotech agreements and often require inclusion of materials and know-how.

Figure 7.1. The continuum of agreements in the technology transfer process

Nondisclosure agreement/confidentiality agreement

A nondisclosure agreement is often the first formal agreement in the technology transfer commercialization process; it may also be referred to as a confidential disclosure agreement or a secrecy agreement. A nondisclosure agreement can be crucial because licensing discussions often involve the disclosure of unprotected proprietary information, and such discussions may predate the filing of a patent application that covers such information. Furthermore, enabling disclosure may preclude or limit patenting in some countries. Industry is accustomed to signing these agreements.

There are, however, some complications that may arise at this point in the process. If discussions with industry are purely for licensing purposes, a one-way nondisclosure agreement protecting the institution’s confidential information may be sufficient and advantageous from the institution’s perspective as it prevents it receiving (or being “tainted” with) the company’s proprietary information. In addition, the institution may not want to shoulder the liability or unnecessary burden of handling the confidential information of a third party. On the other hand, a two-way nondisclosure agreement may be necessary if the parties are discussing or negotiating a license that would, for example, involve joint R&D efforts, industry-supported research or a collaboration agreement. Some further considerations to keep in mind about nondisclosure agreements are summarized below.

• The scope of the subject matter governed by the terms of the nondisclosure agreement should be limited to the specific information being shared and the purposes for which it is being provided (that is, the purposes for which the receiving party can use the disclosed information), each of which is typically expressly defined by the agreement. Beware of overly broad scopes for either of these definitions.

• The term of both the agreement and the receiving party’s obligations under the agreement should be defined. The term of the agreement (that is, how long the parties can disclose information to each other) could continue for a year or more, meaning information will be shared during that time. Obligations of confidentiality should run for an appropriate length of time for the subject matter being disclosed. For example, five years may be sufficient if the disclosing party intends to file a patent application on the disclosed information within that time, whereas a longer period may be required by a disclosing party if it intends to disclose trade secret information, or if the parties are negotiating and subsequently enter into a license agreement. However, the duration of confidentiality obligations is often unlimited, even if there are no further negotiations between the parties or a license agreement is reached, in order to protect the information of the disclosing party.

• The law governing the agreement should be, whenever possible, the jurisdiction of the academic institution’s country, or the law that is usually applicable in the region – like a Swiss law in Europe – when it is not possible to reach an agreement under the national law of one of the parties. The jurisdiction should be known by and easily accessible to the academic institution so as to avoid facing an unknown legal framework and the costly burden of resolving a dispute in a foreign territory. Parties normally agree on a national jurisdiction without much friction, and often also opt to include a dispute resolution clause indicating the use of arbitration and mediation services, such as those provided by WIPO, before any legal action would be taken.

Material transfer and evaluation agreements/material and data transfer agreements (from institution to company)

MTAs and evaluation agreements are often precursors to an exclusive option agreement (EOA) or an exclusive license agreement (ELA). The commercialization of IP rights in biotechnology often necessitates access to, and the right to use, as part of an ELA, proprietary materials, such as cell lines, hybridomas, monoclonal antibodies, animal models, libraries and vectors, or proprietary methods. As part of a potential licensee’s due diligence, they may ask to receive a sample of materials or details of methods for testing. The party supplying the materials/methods can (and should) include reasonable limitations on how they are used during the evaluation period. Thus, the materials/methods may be sent under an MTA and evaluation agreement which allows the company to test them for a limited time. The key provisions of such agreements are listed in Box 7.1.

WIPO has issued a Guide on Intellectual Property Issues in Access and Benefit-sharing Agreements, which provides an introduction to the specific IP issues that arise in the context of MTAs, access and benefit-sharing agreements for genetic material, and material and data agreements.

Collaboration agreement/cooperation agreement

In addition to a transfer of materials, there may also be a need for collaboration (which may be unfunded) and cooperation between a company and the scientists in the academic institution to help a potential licensee assess the feasibility of the technology and materials. This is particularly so if the institution’s technology is to be used in combination with the company’s technology or existing research programs. Such unfunded collaboration arrangements may be embedded in an agreement such as a two-way MTA. These types of agreements generally allow for the exchange of materials between parties while carefully defining the terms of the agreement, the roles of each party, the uses of the materials, the limitations on modifications and derivatives, and the disposition of the materials at the end of the term.

These agreements differ from ISRAs, in that ISRAs involve funding for work to be done at the institution and are more commonly negotiated to further develop licensed IP. Unfunded collaborations that may be covered by agreements such as MTAs have no reporting, work scope or financial accounting obligations for either party, and any work carried out is funded by each party separately if required.

Short-term option/letter of intent

A letter of intent, also known as a short-term no-practice option, is a simple short-term agreement allowing a potential licensee (company) to option patent rights for a short period of time in order to assess a potential opportunity. The agreement allows the company time to perform its due diligence and evaluation prior to proceeding with a formal option agreement or exclusive license but does not give it rights to use the technology, except for the purposes of assessment. The company may be responsible for patent expenses incurred during the term of the agreement, which may include paying for time-sensitive actions such as the conversion of a provisional patent to a full-utility application in the United States, the filing of a Patent Cooperation Treaty (PCT) application, or the filing of applications in foreign territories. These agreements are particularly advantageous for startup companies that may need time to raise money as having time-limited exclusivity to IP rights is valuable for prospective investors in the company. Among the advantages of these agreements is that legal negotiation is not needed. However, rules on access to the patent-protected information should be included in any agreement, as well as restrictions on the group of persons who have access to the protected information. Other advantages of short-term no-practice options are listed in Box 7.2.

For institutions, a short-term no-practice option is an important first step in the process of obtaining an exclusive license and helps to focus and commit a prospective licensee.

Exclusive option agreement

An EOA is an important step along the path to an ELA, particularly for small or startup companies that may need more time to develop their commercialization strategies and fundraise. Larger companies, by contrast, may bypass the step of taking an EOA and go directly to an ELA. An EOA typically lasts for one year with the ability to renew in six-month or one-year increments.

Under an EOA, unlike a short-term no-practice option, the company has the right to use the technology but may not engage in any commercial activities. Typically, a company uses the time during which it is bound by an EOA to test the technology in its own laboratories and to fundraise. The company also uses this time to determine an acceptable development timeline, which is necessary for justifying a future license agreement. An EOA typically contains an upfront fee, reimbursement of ongoing patent expenses incurred during the term of the license, and insurance (if taken out by the company) to account for any liabilities incurred out of the company’s exercise of the EOA. An EOA may or may not spell out the future terms of an ELA, though EOAs often include “penalty clauses” if the company does not elect to negotiate and execute a license at the end of the option. For instance, the licensor may be reluctant to place its patent rights under a long-term option because it begins to eat into the patent term, or the company may use the time to identify an improvement that either blocks practice of, or enables the company to avoid infringement of, the academic institution’s patent. To protect itself, the academic institution may include a provision requiring that the company grants it a commercial license, with the right for the academic institution to grant sublicenses, or provisions to block improvement IP and/or requiring the payment of a financial penalty if no license is executed.

Exclusive license agreement

ELAs are the main mechanism through which academic institutions grant the biotech industry rights to bring academic discoveries to the marketplace. Many of the recommendations throughout this Primer have their foundation in what is widely considered a good practice manual for the technology transfer community, a document entitled Nine Points to Consider in Licensing University Technology which was created in 2007 by a dozen preeminent academic institutions to help guide academic institutions in their licensing practice. ⁽²⁾https://www.aau.edu/newsroom/press-releases/nine-points-consider-licensing-university-technology ELAs are of paramount importance in the biotech industry, where R&D timelines are lengthy and financial investments substantial. These time and financial costs make the exclusivity of ELAs necessary for the industry.

Furthermore, because therapeutics are typically regulated by government entities and the approval process requires disclosure of a significant amount of information regarding the drug, including its manufacture and administration, companies in the biotech industry need to rely on patents (rather than trade secret strategies) to protect their proprietary position. In industries with quick developmental cycles or products with thousands of components, patents may be less critical as companies can in many cases rely on trade secrets to maintain their proprietary position, and licensing strategies may include nonexclusive licensing. Also, as a result of their complex molecular structure, biotechnologically produced drugs might be more difficult to analyze and replicate by successor companies than chemical-synthetic drugs. In the case of biopharmaceutical products, the manufacturing method and production unit also determine the molecular structure. Therefore, biosimilars as successor products to biopharmaceutical drugs are only “similar” and not “identical”. The manufacturing method could in turn be protected by a know-how trade secret.

This Primer lays out the criteria for an ELA that grants exclusive patent rights, transfers materials and involves inventions made by employees of two academic institutions with an agreement between the two entities codified in an IIA. An IIA typically gives one academic partner the lead responsibility for licensing and may specify terms that must be included in any license agreement executed. The important clauses of an ELA are set out in general terms in Box 7.3 and discussed in more detail below.

IP rights

The most important clause in an ELA is the scope of the IP rights being granted by the licensor to the licensee. For example, does it include solely patent rights, or will know-how and copyrightable information also be included? Are there any co-owner rights that need to be considered? How is potential blocking IP (whether previously existing IP in the licensor’s portfolio or improvements that may arise in the future) addressed?

Grant

In this clause the most important concepts are exclusivity, territory (worldwide or specific countries), field of use and right to sublicense. The patent rights granted are threaded into the grant clause through the definitions of the licensed products and licensed methods. A clear bounding of the extent of the patent rights conveyed is of critical importance as the grant should state exactly what rights are being given to the licensee. Many licensees wish to have access to improvements. The difficulty with granting rights to improvements is that the inventor may have funding and third-party obligations that will attach to new rights. Most exclusive licensees gain rights to the inventor’s improvements by financially supporting research in the inventor laboratory, giving the company certain rights which may include the first right to negotiate a license to (this is more common in the United States), or ownership of (more common in European countries), improvements that are made under the industry-supported research agreement.

The field of use concept is of importance particularly if the invention being licensed has multiple uses and could be relevant to several industry sectors. For example, a therapeutic may have several applications for multiple diseases and may also have utility in, say, veterinary markets that fall outside of the licensee’s core business. An agreement should allow a licensee exclusivity that aligns with its core business plans and capabilities. The agreement should not grant rights that exceed the licensee’s capability in order to ensure that an academic institution’s IP is fully developed, perhaps by another nonoverlapping licensee.

Diligence

The diligence timeline is often the most difficult part of a licensing negotiation but is essential for ensuring timely development and commercialization. A good diligence timeline is one that obligates the licensee to develop the technology to an agreed schedule. Failure to meet specific, clear and indisputable milestones results in termination or loss of exclusivity. Typically, a TTO in an academic setting will ask a potential licensee to provide an executive summary or brief development plan during a license negotiation to assist in assessing the capabilities of the prospective licensee. A potential licensee can also be asked to propose a diligence timeline to include in the ELA.

However, most potential licensees will resist the inclusion of diligence timelines in their ELAs, since no company wants to risk losing a license for failure to meet a developmental diligence milestone. Some licensees will say that it is too early to commit. In these circumstances, the company may be bound by an EOA with a decided timeline that prevents the situation from continuing for too long without progress while the patent term reduces, the institution loses further opportunities and the public is potentially deprived of the benefit of a promising commercial innovation.

Without a diligence timeline, inventions may be put on the back burner if a company has other priorities or strategies. Even the cost of an annual maintenance fee and ongoing patent expenses are often not enough to ensure that licensees press forward with development. Furthermore, a lack of diligence requirements also prevents other potential licensees from developing products of the invention. There are alternative mechanisms and/or incentives that could be employed to encourage licensee compliance with diligence timelines, without overly penalizing innovation flexibility. These could include progressive milestones, renegotiation options or performance-based incentives to balance timely development with the realities of commercialization challenges.

Patent prosecution

In most cases, academic institutions will agree to pursue patent protection at the licensee’s expense. While the academic institution will typically retain control over the patent prosecution, it will consider and incorporate input from the licensee as this may be critical to secure meaningful protection that supports planned commercial development. That said, it is desirable for the academic institution to retain ultimate control of patent prosecution for many reasons, including if:

• the licensee attempts to narrow the patent claims to avoid covering its commercial products (and thereby avoiding royalty obligations to the academic institution);

• the licensee develops a competitive portfolio and, as a result, a potential conflict of interest arises when attempting to prosecute both the academic institution’s patents and its own patents;

• the licensee makes any misrepresentations or commits any other misconduct before the patent office with respect to a patent that is being pursued in the academic institution’s name; or

• the ELA terminates and the rights are returned to the institution.

Reservation of rights

The academic institution should reserve the right to continue to use the licensed patent rights in academic research, which includes industry-supported research. The "Nine Points to Consider" document mentioned above suggests the following phrasing: "Institution retains the right, on behalf of itself and all other nonprofit academic research institutions, to practice the Licensed Patent and use Technology for any nonprofit purpose, including sponsored research and collaborations. Licensee agrees that, notwithstanding any other provision of this Agreement, it has no right to enforce the Licensed Patent against any such institution. Institution and any such other institution have the right to publish any information included in the Technology or a Licensed Patent.”

Term of the ELA

The academic institution should reserve the right to terminate the ELA if the licensee does not fulfil its obligations (diligence obligations, for example). In addition, it may make sense to agree on the obligations of the licensee in case the ELA is terminated.

Indemnification

Academic institutions are not resourced for, nor is it fair for them to take on, the extensive liability associated with the licensee’s development and sale of human therapeutic and diagnostic products. It is essential that the licensee bears this risk and carries appropriate levels of insurance, so the institution is fully protected from misfortune. However, in the industry setting, it is common for both parties to indemnify each other.

Financial terms

In negotiating an ELA, it is important for an academic institution to examine the totality of the consideration ⁽³⁾“Consideration” is something that each party to a contract gives to the other party in exchange for that other party’s promise or performance of the contract. provided by the agreement, and to avoid agreeing to one financial term in isolation. The financial aspects of an ELA are best communicated and negotiated through the use of a simple nonbinding term sheet to list and define the major financial components (Box 7.4) in order to facilitate timely negotiation and avoid focusing too heavily on one financial term. For example, a party might be willing to accept a modest upfront fee if the milestone payments are generous. It is also helpful to make fee-bearing milestone events requirements in the diligence section of the license agreement so that there is no ambiguity around the timing and completion of the milestone event.

Academic institutions’ licensing strategies may vary depending on whether the licensee is the academic institution’s own startup or a third party. Most ELAs with smaller/startup companies are backloaded (that is, most payments will be at a later stage of the development process or at the royalty payment stage) as a startup company may not have the resources to accommodate a large upfront fee. In these situations, a licensor/academic institution may consider taking a low upfront fee or a modest amount of equity as partial consideration for the license agreement while bearing in mind the caveats below. Additionally, some TTOs may be resourced to manage the shares obtained from the license agreement, whereas others may not have the capacity and may also be precluded from taking equity.

From a company’s point of view, it is better to avoid offering large amounts of equity that would give the TTO control or a voting seat on its board, because future investors in the company may not appreciate having bureaucratic institutions as shareholders. Additionally, a TTO would need to avoid taking shares to avoid potential conflicts of this kind. There may be additional complicating factors if an academic institution does not have a policy for handling equity or a treasurer’s office to manage the shares. Acceptance of equity can raise issues relating to securities law (for example, insider trading) or whether the institution has fiduciary obligations to inventors.

Nonexclusive license agreements

When an invention is a platform technology it is possible that it would be most effectively commercialized via widely granted nonexclusive licenses. Stanford University in the United States has had great success, in terms of both technology dissemination and licensing revenues, in nonexclusively licensing biotech inventions. As one example, in A History of OTL, Stanford’s Office of Technology Licensing (OTL) recounts: “By August 1981, OTL started offering special, nonexclusive licenses to the new recombinant DNA technology. While there was not an immediate rush of interest, word spread through media coverage and our own intensive marketing efforts, and by the deadline – midnight on December 15 – Federal Express trucks were lined up outside the doors to OTL. When the deadline passed, 73 companies had signed agreements. By the end of that fiscal year, August 31, 1982, license fees from the new DNA technology had produced over $1.4 million in income. It is interesting to note that during the same period, all other technologies licensed by OTL together brought in just $1.1 million. While the percentage of income produced by the recombinant DNA licenses subsequently decreased to about one third of total income for the next several years, it then quickly overtook all other licensed technologies as the biotechnology industry caught fire.”

Research agreements with industry and nonprofit foundations

In addition to receiving federal and state grants, a significant portion of many academic institutions’ research budgets comes from for-profit and nonprofit entities. This is particularly the case in the biotechnology sector given the heavy investment that is required to translate basic research findings into clinical solutions. Each of these types of financial support are described below.

Industry-supported research agreements

An ISRA is an opportunity for a company, often a licensee, to provide financial support for an academic institution researcher to conduct work that is of interest to both parties (researcher and company) in the researcher’s lab at the academic institution. The ISRA contains a clearly defined scope of work with a budget and a performance period. The researcher and the company agree on the scope of the work, which must have sufficient academic merit and not be merely work-for-hire work that could be contracted to a private research company (often the academic institution researcher has unique expertise that cannot be found elsewhere). The scope of work is appended to the ISRA and an appropriate budget is set out in the agreement.

Under the negotiated budget, the company pays the academic institution for both the direct costs of the research (salaries, equipment and materials) as well as “overhead” or “indirect” costs. These indirect costs include infrastructure expenses such as keeping the research buildings lighted and heated. In exchange for sponsorship, the company is given certain rights as determined during negotiations between the academic institution and the company.

Nonprofit grants

An increasing percentage of academic institutions’ research budgets comprises financial support from nonprofit entities, primarily from foundations that have a particular disease or philanthropic focus (for example, the American Diabetes Association, Komen Foundation, Bill & Melinda Gates Foundation, etc.) and the research is intended to advance progress in related scientific disciplines.

While a nonprofit grant is like an ISRA in that both often have defined scopes of work and the nonprofit grantor typically has the right to receive a copy of the results, the IP obligations are quite different because the nonprofit cannot directly commercialize the results. So, for example, rather than requiring that the academic institution gives the nonprofit granting foundation an option to negotiate a license (which would be of no use to the nonprofit), nonprofit grantors may expect anything from a simple report of the results to a share of the academic institution’s profits derived from commercialization of the results.

Consulting agreements

A company may wish to engage an academic researcher in outside consulting work. Companies that have executed an ELA may seek assistance in implementing the licensed technology – in particular, they may seek assistance in implementing the know-how associated with the technology. Some licensees will elect an IRA while others will seek assistance from a researcher/inventor outside of the institution. Each institution will have its own policies governing consultation activities, but the parameters and caveats set out in Box 7.5 should always be considered. These are not comprehensive, nor should they be construed as legal advice but rather a list of some issues to consider.

Licensing know-how and data/information (“nonpatentable information”)

While patent protection is often essential for a technology to attract enough investment to make it to the marketplace, nonpatentable information can be just as important in terms of enabling others to effectively implement the technology. Know-how, or information that is not patented or patentable, is often bundled and jointly licensed with patents in biotech-related licensing agreements. This is usually done on a nonexclusive basis because of the difficulty in controlling access to know-how, the fact that researchers are incentivized to publish and the desire to advance science by sharing know-how.

Methods of protecting nonpatentable information

The main methods of protecting nonpatentable information are summarized in Box 7.6 and reviewed below together with considerations of how value is captured and incorporated in the context of biotechnology licensing agreements.

Trade secrets

For companies, maintaining information as a trade secret can be a very effective and inexpensive way of protecting the value of nonpatentable information. However, this strategy is challenging, even inappropriate, for most academic institutions to adopt in view of their desire to publish, and, at least within the United States, to maintain their fundamental research exclusion (FRE) under the Export Administration Regulation (EAR) and/or International Traffic in Arms Regulations (ITAR) export control laws. “Fundamental research” is characterized as basic or applied research in science, engineering or mathematics, the results of which ordinarily are published and shared broadly within the scientific community, and for which the researchers have not accepted restrictions for proprietary or national security reasons. An academic institution can lose its FRE and subject its research enterprise to export control regulations (which are very onerous and expensive to implement) if it agrees to provisions prohibiting publication or dissemination of its research results. Therefore, protecting nonpatentable information via other means such as copyright or a contract may be preferable.

Copyright

The challenge of relying on copyright laws to protect nonpatentable information is that mere ideas alone are not protectable under copyright, only the expression of those ideas. However, in most countries, a database of facts may be protected by copyright as a “compilation” (that is, a “collection and assembling of preexisting materials or of data that are selected in such a way that the resulting works constitutes an original work of authorship” – see 17 USC 101). Academic licensing can involve granting rights to use a valuable database or other copyrightable expression of technical information. In the European Union, for example, databases are protected under EU law by Directive 96/9/EC on the legal protection of databases. ⁽⁴⁾Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases, OJ L 77, 27 March 1996, p. 20–28, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:31996L0009.

Court causes of actions

While not widely relied on as a means for enforcement, trespass to chattels (that is, intentional taking of property without permission of the owner) and conversion are two possible causes of action that can be employed to pursue the improper taking of personal data. Case law is expanding to potentially cover intangible rights, such as electronic databases (virtual documents).

Sui generis rights

Sui generis rights are not available in the United States, but the European Union and several other countries recognize them for certain nonpatentable information. These rights prohibit the extraction or reutilization of any database in which there has been a substantial investment in obtaining, verifying or presenting the data contents. There is no requirement for creativity or originality, which are typically required for a work to be copyrightable.

Considerations when drafting the license grant

Once nonpatentable information has been protected, it may be included in biotechnology licensing agreements. The following are some key considerations to keep in mind when drafting the license grant and defining the scope of rights granted.

Basic grant clause

Parties to an agreement should carefully consider the scope of the license grant to ensure the grant clause is only as broad as is intended. For example, compare “Subject to the terms and conditions set forth in this Agreement, University hereby grants to Licensee a nonexclusive license to use the Nonpatentable Information”with this, more restricted, grant clause: “to use the Nonpatentable Information solely for the Licensed Purpose”.

Bundling nonpatentable information with patent rights

Often, during the negotiation of a bare patent license in the biotechnology sector, it becomes evident that the prospective licensee also wants access to nonpatentable information, as well as tangible materials and other valuable resources. This can be advantageous from a licensor’s standpoint as it can provide the licensor with a “royalty tail” (that is, continued consideration after the patent rights expire) and helps provide focus for the permitted licensed purpose. For example: “Licensee may use the Nonpatentable Information solely for the purposes of making, using, and selling Licensed Products covered by the Patent Rights.” The scope of licensed products and/or licensed purpose might survive the expiration of the patent rights, depending on the term of the specific licensing agreement. In addition, contrary to registered IP rights, unregistered IP rights like know-how, protected as a trade secret, have, in principle, no limitation in time. When bundling nonpatentable information with patent rights, it is crucial to distinctly differentiate these assets in the licensing agreement and establish separate financial terms for each. This ensures clarity on the value and terms associated with licensing nonpatentable information, especially after the patent rights expire, allowing for transparent and equitable arrangements throughout the duration of the agreement and beyond.

If there is no intention to transfer or license nonpatentable information in a patent license, it is important to state as much in the disclaimer of warranties or grant clause section. The following is an example of such a statement: “For clarity, the rights granted pursuant to this Agreement pertain solely to the Patent Rights; if Licensee desires any right or license from University to use any information and/or tangible material associated with such Patent Rights (e.g., data, protocols, tangible materials, etc.), the parties may negotiate and either amend this Agreement, or enter into a separate agreement, to the extent such rights are available at the time of Licensee’s request.”

Defining the rights to be granted

In biotechnology agreements, it is important to clearly delineate the rights to be granted, including granting rights solely to what the licensor owns, and the scope of commercial rights the licensor wants to extend. Below are examples of such statements.

• "Nonpatentable information". Stock should be taken of what the licensor owns (check assignments, sponsor and employment agreements, and institutional or company policies) and rights should be defined carefully. As an example: “Nonpatentable Information means University’s ownership interest (but, for clarity, excluding any patent rights) as a result of assignment by the Creators of the nonpatentable subject matter, including by way of example technical information, copyrightable works, processes, procedures, methods, protocols, techniques, designs, drawings and/or data, that satisfies all of the following: (i) it exists as of the Effective Date of this Agreement, and (ii) it is expressly identified in Appendix _ of this Agreement. University will have no obligation to keep Nonpatentable Information confidential or as a trade secret.”

• "Licensed purpose". What commercial rights does the licensor want to grant and what does the licensee want to receive? For example, are the commercial rights solely for internal purposes? Or to make, use, sell, offer for sale and import products? Or solely for the purposes of training an algorithm? Consideration should be given to defining or enhancing the definition of “licensed purpose” by excluding certain activities: "Notwithstanding the foregoing, Licensee may not use the Nonpatentable Information to do X or Y.…”

Granting exclusivity

Before granting exclusive rights to nonpatentable information, the parties must carefully consider what it means to grant exclusivity. Unless otherwise defined, it requires maintaining full control over the dissemination of the nonpatentable information, which is often challenging to do in an academic context and may run afoul of export control laws and/or institutional policies. Other practical considerations include the desire to publish in the future, the ability to track dissemination of the nonpatentable information and challenges with prohibiting use of the nonpatentable information in future research, etc.

Closing potential royalty/consideration gaps

If the licensor will not be receiving all its consideration at the time of the transfer of the nonpatentable information, then it is also important to ensure that the license being granted is co-extensive in scope with the licensee’s obligation to pay consideration in relation thereto. As an example: "Subject to the limitations and other terms and conditions set forth in this Agreement, University grants to Licensee a nonexclusive license with respect to the Nonpatentable Information to make, have made, manufacture and use Licensed Products for the sole purpose of offering for sale, selling, having sold, importing, exporting and distributing Licensed Products in the Field of Use and Licensed Territory solely in a manner that will trigger an Earned Royalty pursuant to Section X when such Licensed Product is sold, provided, distributed or otherwise transferred.”

Restrictions in view of human-derived data

If the nonpatentable information includes the right to have access to any data derived from humans, then consideration must be given to whether further transfer by the licensee is permitted in view of internal review board approvals or existing patient consent forms. Typically, permission to transfer patient-related information is granted on a per licensee (that is, a specifically identified entity) basis. In addition, data aggregation and data mining technology are continually advancing, resulting in an increased risk that personally identifiable information may be matched to a dataset. Therefore, it may be important to prohibit the licensee from conducting such data mining (for example, "Licensee has no right to, and shall not attempt to, identify the patient source of any … provided or licensed hereunder”).

In any case it is important to distinguish between anonymized and nonanonymized data. When a person is identifiable, strict privacy and data protection regulations must be respected. In the European Union, for example, the General Data Protection Regulation (GDPR) ⁽⁵⁾Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation, GDPR), OJ L 119, 4 May 2016, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679. regulates principles for the collection, processing and transfer of personal data as well as the rights of persons concerning their data. The GDPR is the toughest privacy and security law in the world and is directly applicable in all EU member states. However, though it was drafted and passed by the European Union, it imposes obligations on organizations anywhere, so long as they target or collect data related to people in the European Union. The regulation came into effect on May 25, 2018, and can levy harsh fines against those who violate its privacy and security standards, with penalties reaching into the tens of millions of Euros. For almost all activities concerning private data, such as collecting, processing and transferring of personal data, the prior consent of the individual is required and must be documented. Third countries, such as Switzerland and Japan, have adopted similar data protection laws to facilitate transfer of personal data with the European Union.

Assessing and capturing value

An important aspect of biotech licensing agreements that include nonpatentable information is assessing and capturing the value of said information.

• Assessing value. Factors to consider when assessing the value of the nonpatentable information may include the sum of research expenditures which led to the creation of the information; reproducibility or other sources for the data set (uniqueness and exclusivity); manner and difficulty of aggregation; value of time saved in recreating data/information or finding another source (known as the first mover or accelerated scale-up theory); whether data/information are validated or published (validation can increase value depending on application); quality of the data or information (this includes relevance, accuracy and type); testing the licensee (that is, if data/information were removed from the patent/data/information deal, would the licensee still take the deal?); and contractual provisions to include regarding the data/information’s ownership and/or value (for example, "University owns the data/information and University has expended significant resources gathering, assembling and compiling the data/information, and the data/information is the valuable property of University”). 

• Capturing value. The parties should consider modeling the consideration obligations on the licensor’s ability to police whether the licensee has extracted value and to enforce the contractual rights. If it is relatively easy to assess value but difficult to enforce, requiring the consideration upfront or on an annual fee basis could be an option. If it is more difficult to assess value but relatively easy to enforce, basing the consideration on equity, earned royalties and/or success fees could be a strategy if negotiating it in this form would result in a significantly higher payout. The choice of approach largely depends on visibility into product development and ability to enforce.

Termination considerations

There are unique termination considerations when licensing nonpatentable information. It is important to define the terms of the agreement, as well as the term of the licensee’s obligation to pay if consideration is to be paid later. If the nonpatentable information is being licensed with patent rights, it is necessary to consider whether the licensee’s obligation to pay with respect to the licensed nonpatentable information should run longer/shorter than the term of the patent rights. If the agreement terminates prior to the natural expiration of whatever term the licensor places on the licensee’s ability to use the data and the obligation to pay consideration for such use, there should be a requirement to confirm the destruction of the nonpatentable information. Alteration of the payment obligation (for example, by way of a payment step down) could be considered if the nonpatentable information becomes publicly available. It is also important to consider whether the licensee could sublicense the right to sell licensed products (but not sublicense the nonpatentable information) or assign the license agreement (or its assets) to avoid an obligation to pay ongoing consideration.

There are a host of laws and regulations applying to the transfer and use of data that must be considered on termination of an agreement, particularly when the license included access to human-derived and personal information. These include, for example, the European Union’s GDPR; California’s Consumer Privacy Act (CCPA); Brazil’s Lei Geral de Proteção de Dados; and South Africa’s Protection of Personal Information Act, as well as regulations governing personally identifiable information and protected health information. Other considerations include internal review board permissions, patient consent forms, data privacy laws and trade secret regulations (See “Privacy and export control laws and regulations are not uniform”.)

Financial research support from foundations and nonprofits

As noted above, funding from charitable foundations and nonprofit organizations can supplement other internal and external financial sources and can bring several advantages. These include support for applied (versus basic) research for a specific therapeutic or diagnostic goal; finance for investigations into conditions affecting underserved populations; and introductions to key external networks of researchers, patient advocacy groups, companies and investors.

Contract terms will vary depending on the sponsoring organization. Typically, the academic institution is allowed to own inventions and control licensing. However, some funders’ terms can undermine any licensing effort and discourage commercial interest. If the funder demands co-ownership of inventions, approval of the licensee/licensing terms or the right to terminate a license under certain scenarios, it may be impossible to find interested companies. Foundations pay few or no indirect costs, which can burden the research institution. Some foundation sponsors expect a share of any license income. Overall, however, these kinds of issues can usually be resolved and the benefits of accepting funding from charitable foundations or nonprofit organizations outweigh the risks or challenges.