Protecting Intellectual Property

Innovation is the lifeblood of our industry and of the patenting system. And yet in their day-to-day business, larger companies consistently adopt a very aggressive policy when dealing with intellectual property (IP) assets of smaller firms. This policy is not easy to detect or make public, because it generally consists of taking no action at all: simply ignoring the IP of smaller firms wherever possible.

This is bad for small companies in all sectors, but in life sciences, therapeutics and med-tech, it’s also bad for the patient and public health. Disrespect for IP discourages further innovation; simply put, small companies do not reap what they have sown. By robbing or ignoring the IP of smaller firms, and so removing the incentives for the creation of these innovator companies, the large players stifle future creators and transformers of original and innovative research.

Might is right

How does this disregard for the IP positions of smaller firms typically manifest itself in practice? Imagine you are a small company that becomes aware of a larger firm using your patented technologies without any compensation or acknowledgement. You naturally contact the big player and make your case. What happens next? Absolutely nothing – no comment... no response at all. While this is unlikely to be an explicit company policy, there seems to be an implicit understanding amongst all large companies that this is the first line of defense.

Assuming you don’t give up, the executive you contacted will eventually pass your complaint on to the IP, legal or business development department., who will proceed to give you answers to questions that you never asked, dragging the process out even further. By now, the process may have already taken years.

When the big company decides that it can’t ignore you any longer, they will usually set up a phone conference. Not surprisingly, the topics and arguments will nearly always be the same. The legal people from the big company will say:

• That they think that your IP position is weak.
• That you may have IP, but that it does not really apply to what they are doing.
• That your claims are not really valid and will be hard to enforce.
• In light of this, they see no reason to make a license agreement or to enter into a product supply agreement.

Of course, the small firm wouldn’t be in this phone conference without thinking otherwise, and will argue that its IP position is strong and relevant to what the big firm is doing, and that an IP agreement is needed.

Everybody on the call is doing what she or he is paid for – the legal team rejecting all claims, the small firm insisting on its rights. But as the call progresses, when some of the technical and business details have finally been touched and it becomes obvious that the IP in question is at least partially relevant, will the big company move forward and propose to discuss a license agreement? In my experience, only in about one out of 50 cases.

In all other cases the legal department of the big firm will tell you that they continue to disagree with your position, but that it is your right to go to court. For many small start-ups, the cost and risk of having a multi-million Euro/Dollar lawsuit is prohibitive. So the small firm just walks away from the table and keeps silent. And that is what the big firms expect.

David and Goliath

Polyplus produces transfection reagents, which are used to bring nucleic acids and many other biomolecules into living cells. We are a very small company – just 25 people currently. Polyplus owns a number of patents and, in our core technology areas, we believe our IP position is very strong. Unusually for such a small company, Polyplus is very active in ensuring that our IP position leads to revenues, either in the form of license royalties or product purchases from Polyplus. We consider our IP position and respective revenues core areas of our business model. Accordingly, we put a lot of focus and as many resources as we can manage into this. We have one full-time employee dealing with IP, and the business development director and I spend a considerable part of our time on these issues. We also have two external lawyers working with us. All in all, we have the equivalent of about two and a half full-time people working on IP.

Now, let’s assume there are three types of researchers using our technology without taking a license: (i) those who know about our technology and IP and use it nonetheless, (ii) those who know about our technology, but are not aware of our IP, and (iii) those who “invented” the technology themselves and know nothing about us. The third option is highly unlikely, as the technology is well known to everybody in the field. Those who are unaware of our IP position may make up 10 to 20 percent, but the great majority of researchers use it knowingly, hoping that they are not held responsible.

Over the years we have established a routine but flexible process for handling IP issues. It all starts with looking at publications, patent applications and other documents in the public domain, and visiting conferences to see posters and listen to oral presentations. Why? To detect research results that may have used our patented technologies. The second step is to review these research projects in-house and evaluate whether the scientists have used our commercial products – which are supplied with an implied license for use in transfection applications – and decide whether to write to the researchers or company leadership, to ask what technology or potentially counterfeit product they may have used. If so, we develop a well researched, well-written and personal letter.

Polyplus started going after our IP and trying to reach license or supply agreements in 2009. Since then, we have signed about 20 license and 10 supply agreements, resulting in about $4 million paid license fees and $1 million in sales. A significant revenue stream for a small company, but only a small proportion of the maximum market potential, which is in the order of $17 million per year.

Playing the game

If you enter a poker game with $100 in your pocket and the other players come in with $1 million, you shouldn’t complain about losing – whatever your cards may be. Or to put it another way, if you are a middleweight boxer stepping into the ring with a heavyweight, you should not be surprised to lose – painfully.

How can a small company negotiate with one of the big players about IP, without being KO’d? First, it is essential to be realistic about the value you can achieve or help create value for your potential licensee. As a general rule: never ask for royalties in the final marketed products, unless you have a very rare and strong IP position and value proposition. I would recommend to go first for a research license and only afterwards for a commercial license. In addition, it makes life much easier if you go for a one-time payment. An alternative would be to go for an upfront payment plus yearly royalties to be paid at the beginning of each year. Always remember that cash is king. Above all, be pragmatic, flexible and keep the process going all the time.

We are not children any more. We all know that the world is not divided into “the good guys” in the small companies against “the bad guys” in the big companies. Instead, we need to understand the structure of the game and learn to play to our advantage.

Mark Bloomfield originally spoke with Marcus Lippold, Editor in Chief, Life-Sciences-Europe.com – to read the interview in full, Click Here!