New developments in intellectual property licensing

Licensing in biotechnology

Robert Michelin, lawyer

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The Canadian Institute presented its "Licensing of Intellectual Property" conference. This is a summary of the presentation given by David Butts, a Montreal-based specialist in biotechnology issues.

What happens when living tissue is removed from an individual by a doctor or researcher and then used as the basis for pharmaceutical products potentially worth hundreds of millions of dollars? The informed consent issue not withstanding, who owns this material and who therefore has the right to benefit from the extremely valuable products which may be derived from it?

This was the question put to the conference participants by Mr. Butts in the introduction to his presentation on biotechnology licensing rights. The scenario, drawn from the California case of Moore v. Regents of University of California¹, was used to point out some of the issues which emerge when considering the licensing of biotechnology.

According to Mr. Butts, biotechnology refers to technological developments based on genetic research and discoveries and the subsequent development of viable products from advancements in genetic knowledge. Such products are fast becoming the most interesting areas of numerous industries from agriculture (development of high-yield crops and more effective fertilizers) to pharmaceutical (development of genetic-based treatment for some forms of cancer and other diseases) to environmental protection (development of micro-organisms designed to clean up oil spills or chemical leaks).

Why licensing is suited to biotechnology transfers

Mr. Butts listed several reasons why licensing is uniquely suited to facilitate biotechnology transfers. First, he indicated that licensing is an extremely flexible arrangement in that the license agreement can be specifically tailored to meet legal and regulatory requirements of different jurisdictions. As well, the license agreement characteristically includes provisions dealing with improvements to the licensed technology and to the granting of patent rights for that technology - two issues that are critically important in biotechnology.

Second, licensing permits parties with different types of expertise to work together to their mutual benefit. Typically, this occurs when one party has developed an expertise in the commercialization of technology and another party's expertise is in basic research. Often, the latter is a non-corporate entity such as a university hospital or research laboratory. Such a party may lack capital to develop viable products from its discovery or may not have the development of useful products as part of its mission. Licensing the technology allows this party to profit from its discovery while at the same time concentrating its limited resources in its specific area of expertise.

Thirdly, licensing allows the parties to establish a continuous, ongoing relationship with one another. While this is true of every licensing arrangement, it is particularly important where biotechnology is concerned. Licensees of biotechnology must be aware of the importance of having access to the second and third generation of the products for which they have obtained licenses. Discoveries in biotechnology occur at such a rapid pace that unless a licensee has access to improved products, the initial license may have minimal value. It thus becomes necessary to pursue a technology transfer mechanism that will facilitate an enduring relationship.

Content of a biotechnology license agreement

Of particular interest to the conference participants was Mr. Butts' focus on what should be included in a biotechnology license agreement. Although it was noted that all license agreements share certain similarities, it is also true, in the speaker's view, that special attention must be paid to what is included in biotechnology licenses due to the nature of the technology or product(s) subject to the license.

In the definition section, for example, the parties must take care to identify precisely the licensed technology or licensed product. Is the licensed product in its early stages of development? Does the licensed product include the "know-how" of the licensor? (Such "know-how" may often be subject to its own definition).

Similarly, the parties must define the "Field of use" (the applications for which the licensee is obtaining its rights) for the licensed product. This definition is important for both the licensor and licensee. The licensor's interest lies in articulating a definition that allows it to remain free to exploit additional applications of the licensed product or technology, either on its own or by licensing those applications to other licensees. The interest of the licensee is generally in obtaining a license for a wide variety of uses in order to maximize its benefit.

In biotechnology license agreements it is essential to provide a precise and unambiguous license clause which describes exactly what rights are being granted. Some questions for consideration include whether the license contains a right to sublicense, whether the licensee participates in any clinical trials which may be required, whether the licensee participates in the regulatory approval process should one exist and whether the licensee receives access to the know-how of the licensor.

The biotechnology license agreement should ensure that it deals with any patent issues which may affect the rights of the parties. It should thus be indicated at the outset if any patent rights exist and if they do, whether they are held by the licensor or licensee (or possibly stipulates in some form of joint arrangement). If no such rights exist, are any patents pending? If no patents are pending, which of the parties is responsible for applying for them, should the need arise. If patent rights already exist, who is responsible for seeing to their maintenance and protection?

Other essential issues in any biotechnology license include the parties' protection of one another's confidential information and trade secrets, royalties and other forms of payment, product liability and indemnification (particularly in the pharmaceutical industry), the licensee's use of the licensor's trademarks on products the licensee develops and the licensor's guarantee of a secure supply of the licensed product. Mr. Butts indicated that some of these issues are frequently the subject of ancillary agreements such as a Materials Transfer Agreement, a Non Disclosure or Permissive Disclosure Agreement, a Trademark License Agreement or a Manufacturing and Supply Agreement which are attached as appendices or schedules to the main license agreement. Because it is not unusual for these ancillary agreements to be quite long and complicated, their inclusion as appendices was identified as an efficient method of spelling out certain rights within the context of the overall licensing transaction.

Conclusion

Mr. Butts concluded his presentation by addressing some of the newer developments in the biotechnology sector, the usefulness of licensing as a means for commercializing those developments, and the issues with which licensing practitioners will be faced.

 

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