The severe global economic recession of 2008 and the explosion in the availability, distribution and access to information electronically via the internet over the last 15 years combined to significantly change the way new technologies are commercialized and existing technologies are improved.
Large firms have significantly reduced their internal R&D staffing and facilities during the past five years and consequently are reducing their reliance on vertically integrated internal R&D to discover and feed new technologies and technology improvements into their product pipelines. Instead, companies from large multinationals to small and medium-sized enterprises are actively exploring different ways they can gain access to third-party technologies through a number of mechanisms. These include:
- IP licensing
- IP cross-licensing
- IP acquisitions through purchase of IP portfolios or via a merger with or an acquisition of a company with desirable IP
- contracting out research projects to qualified institutions or specialized technical service companies
- entering into joint research and development agreements with a single institutional partner or a corporate partner
- entering into research consortia that may include several companies that are typically competitors in their marketplaces, and one or more institutions, among others.
The most important consideration is that the IP sought must integrally support the corporate strategic business plan.
The arising corporate views are that in a world of widely distributed knowledge and fast-moving innovation, companies can no longer rely entirely on their own R&D efforts to ensure market dominance. Instead, they need to buy or license processes, patents or trade-marks from other companies, as well as to sell or license their own internal IP rights for profit. Most importantly, they also need to share invention processes and expenditures to push forward the frontiers of knowledge and innovation, while fulfilling consumer needs for ever-evolving and interoperable technologies. These are the fundamental principles on which the “Open Innovation” business model is based.
Central to ensuring successful outcomes for these types of transactional activities is the need for the individual parties to: (i) share their background proprietary information, which may include some or all of trade secrets, patents, trade-marks and copyrights, (ii) jointly create and protect new IP that has commercial value, (iii) agree on responsibilities for IP monetization and on revenue sharing, and (iv) successfully execute their mutually agreed-to responsibilities and deliverables. A key component for the success of such endeavours is to ensure suitable requisite legal agreements are negotiated and executed by the parties before commencing the IP acquisition and/or IP creation activities. The legal and IP issues are particularly relevant to any relationship or transaction in which the proprietary IP of one firm is used by another firm in a business context, and can be clearly spelled out in agreements such as non-disclosure agreements, material transfer agreements, joint development agreements, research collaboration agreements, contract research agreements and license agreements among others.
Questions to be considered and addressed in such agreements include:
- What is each party’s current IP position relative to the proposed collaboration?
- How does each party use its IP (only to enable its business or to actively license to others)?
- What is each party’s IP that is being offered?
- Is each party’s IP constrained (retained rights, other licenses) and if so, how?
- What IP still needs to be created?
- Are there any performance measures associated with the IP (e.g., minimum sales)?
- What are each party’s geographic, duration and field of use requirements?
- Are there any requirements for supply exclusivity or purchase obligations?
- How will the discovery of new IP be communicated among the parties?
- Which party will be responsible for protecting the new IP and how will the costs be shared?
- What is each party’s field of use for the new IP?
- How will the new IP be monetized and what requirements and deliverables are placed on the monetizing party?
- How will revenues from the new IP be distributed?
Equally important are agreed-to record-keeping and reporting processes, document retention processes, and governance of information sharing and distribution for each of the parties to ensure shared IP and proprietary information is kept confidential and not inadvertently disclosed to third parties, to facilitate regular reporting and audits, to enable determination and confirmation of individual contributions to inventions and invention dates, to ensure patentability assessments and patenting decisions. Additionally, there must be agreement on commercialization planning and execution.
The Open Innovation business model for technology acquisition and development is based on speed and timeliness. Negotiating and drafting agreements between parties engaging in Open Innovation business activities is greatly enhanced and facilitated by a team approach including IP counsel and legal counsel supporting the business and/or technical leads for each party.