Even as they rapidly innovate to fight the coronavirus pandemic, medtech companies need to stop IP theft. Here are the basics.
David J. Dykeman, Greenberg TraurigMedtech companies are at the forefront of innovation, and that has never been more evident than in the industry’s response to COVID-19. The healthcare research and development (R&D) engine is in high gear to create innovative products for hospitals to treat patients. Medtech companies are bringing new diagnostic tests, ventilators and personal protective equipment (PPE) to market in record time.
The increase in R&D reflects the fast pace of innovation seen across the entire healthcare industry, from digital health, to medical equipment, to diagnostics and drug delivery systems. Medtech areas poised for growth include medical robotics, artificial intelligence and combination products that combine devices and drugs.
Medtech IP theft
In an industry so heavily dependent on costly R&D, medtech companies need to take every precaution to safeguard their innovations against intellectual property (IP) theft. The potential losses are far from trivial: The National Bureau of Asian Research, for example, estimates that IP theft costs U.S. companies over $300 billion per year.
IP theft comes in many forms including counterfeiting, patent infringements, piracy, corporate espionage, cyberattacks, and the misappropriation of trade secrets, product designs or manufacturing processes. Whether entering a new market, improving existing products or expanding distribution networks, IP theft concerns are ever present.
The stakes are high. IP theft leads to competitive products that often bypass the costs of R&D. The competing products erode market share and cost the innovator sales and potentially millions in lost revenue.
To combat “IP thieves,” medtech innovators need to think broadly about ways to protect their IP in order to maintain a competitive advantage and prevent inferior medical products from entering the market. This article discusses five strategies to prevent IP theft, including both opportunistic and targeted IP theft.
1. Develop a strong patent strategy
Developing and maintaining a strategic patent portfolio is critical to a medtech company’s growth and survival, and can be effective at discouraging theft of company innovations. The key is to develop a strategic patent portfolio that has comprehensive patent coverage around the company’s inventions. The core technology must have adequate patent protection to provide flexibility and room to operate in the dynamic medtech market. To obtain broad patent protection, medtech companies should file an initial patent application covering the core technology, followed by additional patent applications covering key improvements and methods of treatment. Medtech companies should consider both current and future business objectives and analyze ways that competitors or copycats may attempt to design around its patents.
2. Protect trade secrets
Trade secret protection can provide an option to protect the IP of a medtech innovator when used in conjunction with or as an alternative to patent protection. As the name would imply, one requirement for trade secret protection is that the innovation must truly be kept secret, whereas with patent protection, the invention is disclosed in writing for the world to see. Once a trade secret is divulged, it is no longer protected and becomes part of the public domain. Therefore, trade secret protection requires continuous diligence, since once the medtech trade secret is revealed, it is no longer protected. To ensure secrecy, it is critical that medtech companies educate employees on keeping information confidential and implement a trade secret protection program to maintain the secrecy of innovations.
Medtech innovators can leave themselves vulnerable to IP theft by inadvertently including trade secret information — such as formulations, algorithms, manufacturing secrets, or mixing and assembly details — in the company’s instructions for use (IFUs), standard operating procedures (SOPs), or marketing materials. Companies should review a product’s IFUs and SOPs and eliminate any information that may reveal trade secrets that could allow a competitor to duplicate the product or device.
With trade secret protection, it can be easier to obtain an injunction for misappropriation under trade secret law. This is because, in the absence of a prior favorable court finding of infringement and validity of a patent, courts may not be as willing to issue preliminary injunctions in relatively complex patent litigation, thus allowing wrongdoers to continue infringing. However, courts generally are more willing to issue a preliminary injunction in trade secret litigation.
3. Don’t forget about trademarks
A carefully selected and maintained trademark can be a valuable business asset for medical device innovators. Among other important benefits, a registered trademark protects against registration of confusingly similar marks, as the USPTO has a duty to cite prior registrations against applications for similar marks and to refuse to register such marks. In essence, trademarks enlist the power of the U.S. government in helping to prevent trademark infringement (at no additional cost to the trademark owner).
The first step in an effective trademark strategy is to conduct a trademark search for a fanciful, arbitrary or suggestive mark. It is important to avoid using a mark that is merely descriptive – or worse, generic. Once the mark is determined, a U.S. trademark application should be filed. Filing early in foreign countries can be even more important, or a manufacturer may later find that another company owns the rights to “its” mark in a foreign country. Manufacturers should also take steps to monitor competitors’ activities, so that action to stop infringement can be taken as soon as possible if a problem is detected. Finally, manufacturers must ensure all trademarks are properly entered in the FDA’s medical device listing database and the Global Unique Device Identification Database (GUDID).
Founders of early-stage companies often get “married” to a proposed product name before engaging a trademark attorney and conducting a trademark clearance search and then continue to pursue the trademark even in the face of potential red flags. Trademark disputes are expensive and can drain valuable time and monetary resources from companies with little or no economic upside. Thus, it is prudent to engage an IP attorney early in the name selection process to avoid expensive missteps.
4. Draft strong agreements
For medtech companies, a key line of defense to protect IP is using ironclad agreements both internally with employees and externally with third parties.
All employees should sign a confidentiality agreement, sometimes called a non-disclosure agreement (NDA), that contains at least the following provisions: confidentiality protecting confidential information and trade secrets from disclosure; assignment of all inventions and IP to the company; and non-competes that limit an employee leaving to work for direct competitors. Exiting employees should also sign separation and/or severance agreements containing a release of claims and reminders to not disclose the company’s confidential information or trade secrets to new employers.
In dealing with third-party companies and contractors, medtech innovators must be sure to protect their proprietary designs, IP and other proprietary information. The first step is to make sure all third parties sign a strong NDA before any disclosure about the product (even getting a price estimate). Next, draft comprehensive written agreements with all potential partners including: independent contractors; consultants (R&D, regulatory, marketing); contract research organizations (CRO); component suppliers; original equipment manufacturers (OEM); contract manufacturing organizations (CMO); distributors; and marketing firms.
Innovators should ensure the following types of agreements contain strong confidentiality and assignment of IP and improvements clauses: master service agreements; development agreements; manufacturing agreements; distribution agreements; license agreements; regulatory and marketing agreements; and independent contractor and consulting agreements.
5. Be prepared for cyberattacks and corporate espionage
Sensitive designs and data must be secured physically and electronically to prevent cyberattacks and corporate espionage. IP theft via cyberattacks and hacking has become a real threat for the IP-driven medtech industry. A number of the world’s leading medtech companies have been infiltrated in recent years.
Unauthorized users attempt to break into computer systems to steal, change or destroy information, often by installing dangerous malware which can be accessed later. Computer hackers attempt to find holes in the cybersecurity protocols of medtech companies to gain access to sensitive information like product schematics and future designs. Sometimes, hackers try to hijack control of medical devices or extort manufacturers for monetary payments. Threats can also come from foreign nationals, especially from emerging economies with substantial funding and support from governments.
Internal threats are equally menacing. The risk of disgruntled current or former employees leaking important confidential information to competitors or the public is a universal concern. Personnel screening is critical, and should include performing background checks and credit checks on anyone hired for positions that involve proprietary information, from engineering to marketing and sales.
To combat both internal and external IP theft, medtech companies should create procedures for identifying and securing sensitive data and information, especially if they have complex supply chains that could make that information vulnerable at many points. Firewalls, intrusion prevention systems, web security proxies, payload analysis and other prevention-centric products can provide a first line of defense for electronic protection.
In the company’s physical space, measures to prevent IP theft include: keeping critical designs and product information and all tangible trade secrets under lock-and-key; restricting access only to employees with a need to know; using a visitor log with badges to control entry to proprietary areas; limiting electronic access to trade secrets through password-protecting key documents, encryption, and/or storage on a separate computer server with limited access. Implementing steps to prevent a security breach is an ongoing process, as IP thieves try to stay one step ahead of preventative measures.
Due to high R&D costs and the expense of clinical trials and marketing, the cost of bringing a medical device to market continues to increase. As each passing year brings new rivals, novel solutions and greater potential for theft, it is imperative that medtech companies develop a multipronged strategy to prevent all types of IP theft.
David J. Dykeman is a registered patent attorney with over 23 years of experience in patent and intellectual property law, and co-chair of Greenberg Traurig’s Global Life Sciences & Medical Technology Group. David’s practice focuses on securing worldwide intellectual property protection and related business strategy for high-tech clients, with particular experience in medical devices, robotics, life sciences, wearables and healthcare information technology. He can be reached at firstname.lastname@example.org or at (617) 310-6009.
This article reflects the opinions of the authors, and not of Greenberg Traurig or Medical Design & Outsourcing. The article is presented for informational purposes only and it is not intended to be construed or used as general legal advice nor as a solicitation of any type.