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Success Protecting Intellectual Property in the Lifecycle of a Pre-Sales Revenue Biotechnology Venture Destined for IPO

Insight Mark H. Mirkin Mark H. Mirkin · April 22, 2014

For a drug discovery start-up, patent protection of the intellectual property underlying the commercialization pursuit is critically important. If the company is a university or research institution spin-out that obtained licensed rights to intellectual property through a technology transfer, either the licensor or the licensee – as set forth in the License Agreement -- must pursue and then maintain patent protection in the United States and other countries for the start-up to be investor-friendly and strategically relevant to pharmaceutical companies that may someday be candidates for collaboration, strategic investment or acquisition. Filing and prosecuting an application for patent protection is an involved process that is not inexpensive either for a university or research institution with budget constraints and an aversion to risktaking, and certainly for an unfunded start-up, but the rewards and benefits that accompany solid patent protection are measurable. The process is fraught with irreversible traps: scientists, their business colleagues and their patent counsel can fail to identify patentable aspects of fast-paced, multifaceted research and development efforts before it is too late to obtain patent protection. Furthermore, sometimes the dynamic between the licensor and the licensee results in missed protective action; if the party that controls the preparation, filing and prosecution of patent applications does not see eye to eye with the other party on patentability pursuits, failure to obtain patent protection can red-uce or in extreme cases eliminate the start-up company’s value proposition and consequently reduce or eliminate the anticipated revenue stream of royalties to the licensor. And while the scope of patent protection as well as the validity and enforceability of issued patents all impact commercial viability, they are increasingly the subject of distracting and even more expensive litigation.

Without patent protection, a biotech’s invention can be practiced by competitors with impunity. For that reason alone, obtaining patent protection is critically important, although the issuance of a patent by the U.S. Patent and Trademark Office is not conclusive as to its scope, validity or enforceability, and thus an issued patent is open to challenge. Issued patents on occasion fail to provide meaningful protection or provide the patentholder with a meaningful competitive advantage. And even a patent con-sidered protective may not effectively block circumvention if a competitor can develop similar or alternative technology or products in a non-infringing manner. Even with patent protection, the laws of some foreign developed countries do not protect a patentholder’s rights to the same extent that U.S. laws do, while the legal systems of many foreign developing countries do not support the enforcement of patents at all.

Further complicating the panacea that a patent application for a drug discovery assures a path to impenetrable protection is the scientific industry practice of expeditiously publishing articles about possible drug discoveries in scholarly literature against the backdrop of the USPTO timetable for delayed public-ation of patent applications. Start-ups often hustle to get articles published in such journals to burnish their images for attracting seed and early stage investment capital; sometimes publication is an obligation of the entrepreneur who is a scientist employed by a university or a research institution. But the USPTO does not publish patent applications for 18 months following filing – sometimes no publishing takes place at all. Thus a start-up and its licensor cannot be sure during a significant window of time that the inventions claimed in the patent application were not first conceived elsewhere, or that the start-up or the licensor was in fact the first to file, which is the standard for the new U.S. policy. (Until the America Invents Act was enacted in September 2011 with an effective date of March 2013, the U.S. followed a policy that the first to invent a claimed invention is entitled to patent protection. Outside the U.S., the first to file a patent application is entitled to patent protection. The courts have yet to address the new U.S. provisions and thus uncertainty will prevail until the new law and it’s even newer regulations become court-tested.)

Like applying for a patent, defending a patent against infringement by a competitor is also expensive and time-consuming. Doing so can have the unintended disastrous consequence of a court decision that the patent rights asserted are invalid or unenforceable, or that the other party may use the disputed technology.

Clearly, the patenting process is complex and not for the unfunded or non-confrontational entrepreneurs. Done right, it provides an extremely beneficial monopolistic position to the patentholder, which for drugs facing expensive drawnout FDA approval hurdles is essential to the large-dollar financing needed to bring a new drug to market.