The 2008 global economic recession and the explosion in the availability and distribution of information electronically via the Internet over the past 15 years have combined to change the way in which new technologies are commercialised 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 to 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 merger with or acquisition of a company with desirable intellectual property.
- Contracting out research projects to qualified institutions or specialised technical service companies.
- Entering into joint R&D agreements with a single institutional partner or a corporate partner.
- Entering into research consortia, which 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 intellectual property sought must integrally support the corporate strategic business plan.
The growing corporate view is 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 trademarks 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 activity is the need for the individual parties to:
- Share their background proprietary information, which may include trade secrets, patents, trademarks and/or copyrights.
- Jointly create and protect new intellectual property that has commercial value.
- Agree on responsibilities for IP monetisation and revenue sharing.
- Successfully execute their mutually agreed responsibilities and deliverables.
A key component for the success of such endeavours is to ensure that 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 intellectual property of one company is used by another 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 licence agreements.
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 intellectual property (only to enable its business or to license to others actively)?
- What is each party’s intellectual property that is being offered?
- Is each party’s intellectual property constrained (eg, by retained rights or other licences) and if so, how?
- What intellectual property still needs to be created?
- Are any performance measures associated with the intellectual property (eg, 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 intellectual property be communicated among the parties?
- Which party will be responsible for protecting the new intellectual property and how will the costs be shared?
- What is each party’s field of use for the new intellectual property?
- How will the new intellectual property be monetised and what requirements and deliverables are placed on the monetising party?
- How will revenues from the new intellectual property be distributed?
Equally important are agreed record-keeping and reporting processes, document retention processes and the governance of information sharing and distribution for each party to:
- Ensure that shared intellectual property and proprietary information is kept confidential and not inadvertently disclosed to third parties.
- Facilitate regular reporting and audits.
- Enable determination and confirmation of individual contributions to inventions and invention dates.
- Ensure that patentability assessments and patenting decisions are transparent to all the parties and are carried out on a timely basis.
Additionally, there must be agreement on commercialisation 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.
This article first appeared in IAM magazine. For further information please visit www.iam-magazine.com