INTELLECTUAL PROPERTY

Intellectual property is the core of every biotechnology company. It is essential that the nature and source of the intellectual property including patents, know-how, and trade secrets be understood and protected through appropriate documentation and agreements. Since founders bring their expertise and prior work experiences to a new organization, it is rare that a start-up organization will begin without significant intellectual property. The ownership of that intellectual property must, therefore, be understood.

To address the intellectual property issues, the following questions must be answered:

  1. Who are the Company's founders and are all of the inventors part of the Company? If not, the entity will require an assignment and/or license to acquire the rights and inventions from a holder who is not going to be part of the new entity.
  2. What agreements have the founders, in any capacity, signed with prior companies that impact on the ownership of the intellectual property?
  3. Has the intellectual property been developed or enhanced through university research and/or government sponsored research, and, if so, what ownership claims can be made by those institutions to the intellectual property?

The due diligence required to understand the issues and possible conflicting contractual claims is significant. The best practice is to research and develop an intellectual property due diligence report.

The second level of intellectual property protection relates to the documentation and agreements that should be put in place at the time of incorporation including:

  1. Founder's agreements that provide for the ownership of the intellectual property to be transferred to the company with the attendant filings made with the Patent and Trademark Office ("PTO");
  2. Waivers or disclaimers of conflicting rights;
  3. Invention assignment and non-disclosure agreements for each service provider including, consultants, independent contractors, scientific advisors, consultants and members of the Scientific Advisory Board. Forms are available for download from Evelexa.
  4. Confidentiality and non-disclosure agreements that include provisions controlling publications.

All of this work and analysis is preliminary to a venture capital financing. Each investment transaction will include a Securities Purchase Agreement that will contain standard representations and warranties to be made by the company and occasionally the founders regarding the ownership, lack of infringement and control of the intellectual property. The company must anticipate these issues. The following are typical provisions:

  1. "The Company owns or possesses sufficient legal rights, free and clear of any lien, encumbrance or other restriction, to its intellectual property necessary to conduct its business as it is currently being conducted and as proposed to be conducted without any conflict with, or infringement of, the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing..."
  2. "The Company has done nothing to compromise the secrecy, confidentiality or value of any of its intellectual property required to conduct its business as it is currently being conducted or as proposed to be conducted. The Company is not aware that any of its employees, consultants or advisors are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted."

To avoid ownership and control problems, a company should initiate an Intellectual Property Ownership Program that helps it build, maintain and protect the intellectual property portfolio. The components of an Intellectual Property Ownership Program would include:

  1. A centralization of information that limits access to the company's patents, know-how, confidential information, and trade secrets;
  2. The right to review, delay and possibly edit the publication of any article to provide the company an opportunity to file patent applications; and
  3. The development of a checklist identifying each agreement that an employee, advisor, consultant and other service provider has to execute that would include the assignment of all of his or her rights to the intellectual property to the company. It is essential that these agreements be signed when the employment, consulting or other form of relationship commences to insure that there is adequate consideration for the assignment of the rights.