For many early-stage companies, their most valuable asset, besides their management team, is their intellectual property (IP). This is particularly true in the world of medical devices, where significantly larger levels of investment and time may be necessary before a product clears all regulatory hurdles and enters the marketplace. Investors, as a result, demand more substantial intellectual property protection to ensure their return on investment.
Unfortunately, intellectual property is one of the most difficult asset classes to understand, preserve and extract value from, particularly for 1st-time, early-stage ventures. This article addresses five of the most common intellectual property quandaries facing early-stage medical device companies:
1. Does my company own and control its intellectual property?
Most early-stage companies have little registered intellectual property, such as issued patents, that they can tout to potential investors. For most, at best they may have a provisional or non-provisional patent application, with claims that have yet to have been tested by a patent office. These patent applications represent a hope for defensible protection, but patent applications cannot provide an investor with any degree of certainty. The most this company can truthfully tell its investors is that the company owns its IP.
To ensure that your company owns its intellectual property, there are few basic steps to follow. First and foremost, all employees, including the founders, should sign invention assignment agreements. The company should carefully evaluate the existing IP assignment obligations of new employees to ensure no other entity can lay claim to owning the IP developed for the company. All contractor and consultant agreements should be read with care to ensure that the company owns the IP generated under those agreements. Finally, the company should diligently document its innovations as they are developed, and especially before the company enters any form of collaboration, to avoid clouding questions of inventorship.
2. What should my IP strategy be?
Given the large costs associated with protecting one’s intellectual property through patent protection, it it is useful for a company to develop a patent strategy early on. This strategy can be used to evaluate whether the costs for protecting a given innovation makes sense. The most important inventions to protect early are those that drive market demand and are easier to reverse-engineer, which must be disclosed to investors, regulators or customers to move the business forward. For example, mechanical structures and circuit designs are prime targets for patent protection, while the details of a complex software algorithms may better be protected as trade secrets.
A clearly elucidated strategy also helps ensure a company does not bite off more than it can chew. In the medical device industry, international patent protection is essential. At the same time, it is incredibly expensive. A company should expect to spend between $16,000 and $18,000 per patent application in the first year to have it drafted and filed with the U.S. Patent Office and PCT to preserve patent rights. (A full third of these costs are patent office fees!) While early provisional patent applications may be filed at relatively low cost, the rest of these costs cannot be deferred without risking loss of rights. Note these costs do not even include the cost of entering the application into any non-U.S. countries. Such filings will need to be made within two-and-a-half years from your original filing and can cost between $2,000 and $10,000 per country. Developing a strategy at the outset can ensure that your company is spending its patent budget intelligently, instead of reactively, instinctively attempting to protect every innovation at tremendous cost.
3. Under What Conditions Can I Discuss My Technology With Others?
A common dilemma faced by many early-stage medical device companies is that their success depends on being able to explain their technology to third parties, including investors, doctors and regulators. Doing so under the wrong conditions risks added competition and potential loss of patent rights. Ideally, a company would have a well-thought-out patent application on file, or a signed NDA with the recipient of information before disclosing their technology–and preferably both. Of course, this is not always possible. In such scenarios, any written documentation should clearly be labeled as “Confidential.” The information being disclosed should also be carefully vetted to limit disclosure of the most sensitive information. If the disclosure is part of a larger event, such as a conference, at a minimum a provisional application including the subject matter should be filed. In the worst-case scenario, a cover sheet can be added to the presentation or paper and filed, nearly as is, before the presentation is given, though a review by a patent attorney prior to filing is strongly encouraged.
4. Should I file a Provisional Patent Application?
To many early-stage companies, the option of filing a provisional patent application appears to be a saving grace, solving their patent problems. Although provisional patent applications have a number of valuable benefits, they are not appropriate in all cases. Provisional patent applications provide a number of benefits. They grant a patent applicant a priority date with respect to the subject matter in the application relative to what might otherwise be prior art. A provisional patent application can extend the life of a patent by a year, because the term of patent is calculated from the date of the earliest non-provisional patent filing. This is particularly useful for those medical device innovations in which market acceptance is expected to take more time and when demand is expected to increase toward the end of the life of the patent. Finally, the provisional patent application need not be as formal as a non-provisional patent application, allowing for faster, less expensive filings.
Taking advantage of this last benefit, though, carries risks. Many patent applicants become complacent after filing a provisional, forgetting that the informal document they filed was not as complete as it would have been had they taken the time to prepare a full application. Important features that would have been included in a full patent application are then publicly disclosed prior to the non-provisional filing, jeopardizing the company’s rights to protect those features. In addition, informal provisionals may not provide enough support for an applicant’s claims under the stricter standards for enablement and explicit textual support of various jurisdictions around the world.
Informal provisionals can also lead to budget woes. Many companies file multiple provisional applications, because they can–forgetting that non-provisional U.S. and PCT (if desired) patent applications will need to be filed within one year, close to a $20,000 expense per provisional filing. Preparing an informal provisional does little to reduce the cost of the final application. If the company publicly discloses the subject matter during that year and then cannot afford to make these filings, the opportunity to protect the technology again may be lost.
Accordingly, provisional applications are best used when the primary goal is to delay the expiration of patent term, or when the filing is necessitated by an impending public disclosure or a limited budget. In the latter circumstances, a patent applicant should prepare an updated filing as soon as possible to limit the applicant’s exposure to the risks identified above.
5. How can I budget for an intellectual property portfolio?
An important aspect of patent strategy is budget management. Budgeting for an IP portfolio should take into account more than just the costs of preparing patent applications. After the first few years of developing a portfolio, more than half the cost of a portfolio can be attributed to filing fees. International filing costs, including translation fees, foreign associate fees, and foreign patent office fees, quickly mount. A well-thought-out patent budget modulates which countries each patent application is filed in, based on strategic importance, to help manage these costs. As a company matures, room should be left in an IP budget to address issues raised by third-party intellectual property rights. These funds can be used to analyze third-party patents to demonstrate the company’s freedom to operate, to design around a patent or obtain a license if needed. Finally, costs should be set aside to manage the company’s non-patent IP, including trade secrets, trademarks and copyrights. While often less expensive to protect than patent rights, trademark protection is not free and can often become one of a company’s most valuable IP assets.