Intellectual Property Basics and Sticking Points for Negotiating Research Agreements BethLynn Maxwell, Ph.D., J.D. The University of Texas System Office of General Counsel Presentation to UT – San Antonio October 26, 2006

UT - San Antonio Presentation - October 26, San Antonio, TX 2 Discussion Points Patent Law Primer Four Major Areas in Research Contracts Intellectual Property Troublesome Clauses in Research Contracts Confidentiality Publication Indemnification

UT - San Antonio Presentation - October 26, San Antonio, TX 3 Patent Law Primer

UT - San Antonio Presentation - October 26, San Antonio, TX 4 Types of Intellectual Property Trademarks ~ identifies source of goods or services Copyrights ~ protect works fixed in a medium Trade Secrets ~ best where the subject matter can’t be easily “reverse engineered” Patents ~ 3 kinds: design, plant and utility

UT - San Antonio Presentation - October 26, San Antonio, TX 5 The United States Patent System Government sponsored “monopoly”; limited by time and geography Does not convey affirmative right – only the right to exclude others Article I of the Constitution provides the legal foundation Administered by the Commerce Department through the U.S. PTO

UT - San Antonio Presentation - October 26, San Antonio, TX 6 Protection for Inventions ~ Disclosure and Evaluation Evaluate the disclosure Identify the subject matter to be protected Determine what is patentable Select the best type of claims for the invention

UT - San Antonio Presentation - October 26, San Antonio, TX 7 Requirements for Securing a Patent in U.S. Statutory Subject Matter ~ category Novelty ~ new, first to invent Utility ~ specific, substantial, credible use Not obvious ~ person of ordinary skill in the art Written Description ~ clear and concise terms Enablement ~ enable others to make and use Best Mode ~ to carry out invention

UT - San Antonio Presentation - October 26, San Antonio, TX 8 What is Patentable Subject Matter ? 35 U.S.C. § 101 Novel Subject Matter – new, not made or done before What is the invention? A process, machine, manufacture, composition or improvement? Cannot claim products of nature, physical & chemical principles

UT - San Antonio Presentation - October 26, San Antonio, TX 9 Utility ~ Usefulness of an Invention Specific utility Is the utility specific for the claimed invention? Credible utility Is that specific utility credible? Substantial utility Does the utility have real world value?

UT - San Antonio Presentation - October 26, San Antonio, TX 10 Specific Utility The utility has to be specific to the subject matter claimed. Contrast this to a general utility that would apply to the general class of invention.

UT - San Antonio Presentation - October 26, San Antonio, TX 11 Credible Utility Standard is whether a person of ordinary skill in the art would accept that the disclosed invention is currently available for such use Perpetual motion machines But, some nucleic acids might be used as probes, chromosome markers, or forensic or diagnostic markers

UT - San Antonio Presentation - October 26, San Antonio, TX 12 Substantial Utility “Real world” use Must not require further research to identify or confirm a real world context Throw away utilities are not substantial uses unless nature of invention is specifically directed to such uses

UT - San Antonio Presentation - October 26, San Antonio, TX 13 Invention Can Not Be Anticipated ( 35 U.S.C. § 102) Not anticipated by the prior art Applicant shall be entitled to a patent unless 1 of the 6 conditions creates a time bar or if the applicant is not an inventor. Each and every element of the claimed invention must not be disclosed in a prior art reference. Objective standard of someone skilled in the art of the invention

UT - San Antonio Presentation - October 26, San Antonio, TX 14 Invention Can Not Be Obvious ~ 35 U.S.C. § 103 An invention is not patentable if the subject matter of the patent claims, as a whole, would have been obvious at the time the invention was made to a person having ordinary skill in the art to which the claimed subject matter pertains.

UT - San Antonio Presentation - October 26, San Antonio, TX 15 Factors to Consider For Non-Obviousness 1 – Educational level of the inventor; and 2 - Type of problems encountered in the art; and 3 - Any prior art solutions to those problems; and 4 - Rapidity with which innovations are made; and 5 - Sophistication of the technology; and 6 - Educational level of the workers active in the field

UT - San Antonio Presentation - October 26, San Antonio, TX 16 Enablement Requirements~ Teach How to Make and Use Written Description ~ full, clear, concise and exact terms Enablement ~ Must enable others to make and use the invention without undue experimentation Best Mode ~ Must present best way to carry out the invention

UT - San Antonio Presentation - October 26, San Antonio, TX 17 Non-Infringement Patent Disputes Inventorship disputes – defining inventorship is difficult Interferences – who was the first to invent Ownership – research agreements, MTA’s Most turn on who did what and when

UT - San Antonio Presentation - October 26, San Antonio, TX 18 One Final Point ~ Patenting Strategies Develop a Patent Claim Drafting Strategy Select Type(s) of Claims Prioritize Goals for Maximum Protection Include Licensing Safeguards Analyze Potential Revenue Flow ~ Carefully Define Field of Use Analyze Target Infringers Address all Statutory Hurdles

UT - San Antonio Presentation - October 26, San Antonio, TX 19 The Big Picture Synergies exist and great value can be created Research Inst. Biotech Big Pharma Hypothesis & Theory Discovery & Early Dev. Late Dev. & Commercialization

UT - San Antonio Presentation - October 26, San Antonio, TX 20 The Big Picture Perspectives  Taxpayers  Government  Early Investors/VC  Founders  Institutional Investors  Board of Directors  Prestige  Newsworthiness  Sustainable Growth  Top Faculty  National Ranking  Survival  Validate the Study  Meet Projections  Strengthen Pipeline Research InstitutionBiotechPharma Stake- holders Concerns Goals Objectives  Endowment  Research Grants  IPO/Market Cap  Rapid Growth  Increase R&D  Productivity

UT - San Antonio Presentation - October 26, San Antonio, TX 21 The Big Picture Cultures Research InstitutionBiotechPharma  Ivory towers  Tenure  Publish or perish  Hype  Heroic founders  IPO  Blockbusters  Bureaucracy  Slave to the street  Expansion of knowledge  Expansion of market cap  Expansion of profits Real Life Values Assumptions  Risk is removed  Speed is subordinate  Risk is embraced  Speed is life  Risk is mitigated  Speed is important

UT - San Antonio Presentation - October 26, San Antonio, TX 22 Understanding Who You Are Negotiating With Critical Deal Topics

UT - San Antonio Presentation - October 26, San Antonio, TX 23 Typical Points of Contention – Critical Deal Topics Intellectual Property Publication Confidentiality Indemnification

UT - San Antonio Presentation - October 26, San Antonio, TX 24 Intellectual Property Concerns IP Ownership and Inventorship A ll 3 Entities Agree: Inventorship follows U.S. Patent Law Rule: Creator owns data/IP Exception: Clinical Trial Agreement Ownership follows inventorship

UT - San Antonio Presentation - October 26, San Antonio, TX 25 How is Inventorship Determined? Definition According to US Patent Law Different from authorship Why can’t UTSA decide in advance who the inventor will be for IP resulting from the research

UT - San Antonio Presentation - October 26, San Antonio, TX 26 Intellectual Property Should be Treated Same for All Agreements Sponsored Research Agreement Material Transfer Agreement Clinical Trial Agreement

UT - San Antonio Presentation - October 26, San Antonio, TX 27 Ideal IP Clause for All Agreements What you invent is yours What I invent is mine What we jointly invent is jointly owned Inventorship follows US patent law Ownership follows inventorship $$$ does NOT equal ownership

UT - San Antonio Presentation - October 26, San Antonio, TX 28 Why Can’t UTSA Give Unknown IP Away To Sponsor Before It Is Created? Who owns the IP once it is created? Board of Regents of The UT System Use of State of Texas resources, personnel and equipment Adequate compensation for IP How can that be determined if you don’t know what the IP is?

UT - San Antonio Presentation - October 26, San Antonio, TX 29 Troublesome IP Clauses Non-Exclusive Royalty-Free License Internal research only - Good To make, use, and sell, and sublicensable - Bad Sponsor Wants to Own Our IP Not just a license Background Intellectual Property Right of First Refusal

UT - San Antonio Presentation - October 26, San Antonio, TX 30 Non-Exclusive, Royalty-Free, License in SRAs Internal, Research Purposes Only Acceptable; AOK; conforming Non-transferable Make sure NERF comes with option to nego royalty-bearing, sublicensable exclusive license to make, use and sell Try to limit all NERF licenses to internal use only – avoid any language that gives Sponsor right to commercialize our inventions for free

UT - San Antonio Presentation - October 26, San Antonio, TX 31 Non-Exclusive, Royalty-Free, License in SRAs Sublicensable & Right to Make, Use, & Sell Non-conforming; LOUSY Try to negotiate this clause out Or, reduce to NERF license for internal purposes only and link to royalty-bearing exclusive license Non-exclusive means no exclusive licenses are offered to anyone else – only non-excl What if Sponsor won’t budge? Form G

UT - San Antonio Presentation - October 26, San Antonio, TX 32 Sublicensable NERFs in SRAs This agreement allows Sponsor a world-wide, perpetual, royalty-free, fully paid-up, non-exclusive license, sublicensable to anyone, to make, use and sell any Invention created under the agreement Form G

UT - San Antonio Presentation - October 26, San Antonio, TX 33 What if Sponsor Wants to Own Our IP? Not Okay in Sponsored Research Ag $$ does not equal ownership We should own what we invent Grant royalty-bearing license, make, use, or sell Grant NERF license for internal purposes only Okay in Limited Instances Sponsor Initiated Clinical Trial Agreement Why is it okay here and not elsewhere??? Not Okay in PI initiated CTAs. Why?

UT - San Antonio Presentation - October 26, San Antonio, TX 34 Clinical Trial Agreements Sponsor Initiated CTA Okay for Sponsor to own IP – Why? Principal Investigator Initiated CTA Institution should own IP Sponsor will usually insist on owning our IP Jointly Initiated CTA Both Institution and Sponsor should own IP

UT - San Antonio Presentation - October 26, San Antonio, TX 35 Background IP What is it? Stuff you own going into an Agreement Why would Sponsor want it? What should you do? Don’t agree to BIP OR – narrowly define it to one piece of IP Problems with Background IP Scope Identify it Limit it to one PI Control it Compare to Foreground IP

UT - San Antonio Presentation - October 26, San Antonio, TX 36 Right of First Refusal What is it? Gives the holder the right to meet any other offer before the proposed contract is accepted. When Sponsor has a NERF license and does not exercise its option to negotiate an exclusive, royalty-bearing license AND, reserves a right of first refusal What Does it Mean? If you negotiate an exclusive, royalty-bearing license with another company, before you sign contract, you have to offer that deal to Sponsor.

UT - San Antonio Presentation - October 26, San Antonio, TX 37 Summary ~ Avoid Pitfalls When negotiating IP, avoid troublesome clauses NERF licenses to make, use and sell Sublicensable Ownership of IP Background IP Right of First Refusal How Can an Agreement get Approved if it has Non-Conforming Clauses in it?

UT - San Antonio Presentation - October 26, San Antonio, TX 38 What Is A “Form G” Agreement? Form G = Non-Conforming Agreement re: IP, publication, indemnification provisions Weigh Benefits Against Risks Identify Non-Conforming Provisions in Agreement Do Benefits Outweigh Giving IP Away? Administrative Approval/Procedural Process at UTSA Form G’s are not discouraged at UT System

UT - San Antonio Presentation - October 26, San Antonio, TX 39 Form G Process at UTSA Form G’s are Not Discouraged Important Administrative Authority Negotiate Agreement Can’t negotiate out non-conforming provisions Identify Deviations from RRR Negotiator Transmits Form G to UTSA President or Delagatee What’s in a Form G Transmittal Letter?

UT - San Antonio Presentation - October 26, San Antonio, TX 40 Publication Concerns When Can We Publish? What Can We Publish? Pre-Publication Review Process What is a Reasonable Delay? How to Monitor Faculty’s Enthusiasm Real World Remedies & Deal Breakers

UT - San Antonio Presentation - October 26, San Antonio, TX 41 When/How Can We Publish? Research Institutions – Non-Negotiable Preserve Institution/Principal Investigator’s absolute right to publish Sponsor cannot “control” our publication rights or “approve” contents of publication Cross reference right to publish in confidentiality and ownership of data §§ Principal Investigator owns the copyright in his/her publications

UT - San Antonio Presentation - October 26, San Antonio, TX 42 Pre-Publication Review Process Research Institutions All 3 understand why the review is necessary Constantly reminding other 2 that we need unrestricted publication rights Review periods must be reasonable Need to educate our faculty to submit sooner instead of later

UT - San Antonio Presentation - October 26, San Antonio, TX 43 When Can We Publish? Research Institutions - Negotiable Review periods Must be reasonable Balance publish or perish Length of review period days for manuscripts and 15 for abstracts – longer times discussed with and initialed by PI Delay publication to protect intellectual property Must be reasonable delay and must be specified Average ~ 60 – 90 additional days for filing Multi-site/center clinical trial studies Preserve Institution/PI’s right to publish separate from multi-site joint publication after reasonable delay Reasonable delays permitted until joint publication is published OR 12 – 18 months after our study is over (whichever is shorter)

UT - San Antonio Presentation - October 26, San Antonio, TX 44 What Can We Publish? Research Institutions We must have an unrestricted right to publish We want to publish everything Publish or perish – educate faculty Balance between publishing all versus publishing enough data to support conclusions If data and results are made confidential: Delete section that makes data/results confidential Preserve absolute right to publish info that supports conclusions Problems with young data (not raw data) Company/Sponsor wants to delay publishing until data is matured (or is it now stale?). Data is not like fine wine.

UT - San Antonio Presentation - October 26, San Antonio, TX 45 How to Monitor Faculty’s Enthusiasm Research Institutions Once it is out of the bag … Educate, educate, educate Stress importance of “no headlines” Emphasize their reputation is at stake Administrative oversight

UT - San Antonio Presentation - October 26, San Antonio, TX 46 Real World Deal Breakers ~ Publication Company/Sponsor cannot restrict or control our right to publish Deal will go “south” if Sponsor: Demands to “approve” manuscript/abstract Insists on unreasonable delay for review before publishing Insists on unreasonable delay for filing patent application Refuses to cross reference our publication rights in confidentiality § and § where Sponsor “owns” data Rarely a deal breaker – but they do exist Our needs are statutorily driven and are fair

UT - San Antonio Presentation - October 26, San Antonio, TX 47 Ideal Publication Clause ~ Research Institution’s Perspective “Institution shall have the right to publish or disclose all results of the research. To the extent that Company /Sponsor confidential information is needed to support the publication, Institution shall have the right to include such confidential information in the publication or disclosure.”

UT - San Antonio Presentation - October 26, San Antonio, TX 48 Ideal Publication Clause ~ Industry’s Perspective “Institution shall not publish or disclose any results of the research.”

UT - San Antonio Presentation - October 26, San Antonio, TX 49 Publication Clause ~ Reality 1.1 Review by COMPANY of Publications Related to Program Technology. Subject to the rights granted to Company under this Agreement, Principal Investigator will have the right to publish or publicly disclose all technical reports, Program Materials, Program Technology. Subject to the terms set forth in Sections 8.2 and 8.3 below, in order to avoid loss of Program Patent Rights as a result of premature public disclosure of patentable information, Principal Investigator and Institution will provide to Company, at least sixty (60) days prior to submission for publication or public disclosure, any and all presentations, manuscripts and abstracts intended for publication or public disclosure containing any technical reports submitted to Company pursuant to Section 5.2, Program Materials or Program Technology (in each instance, “Institution Disclosure” or “Institution Disclosures”). Company will have the right, but not the obligation, to waive all or any portion of the review period described above. Company will review portions of the proposed Institution Disclosure which Principal Investigator intends as a final draft to be submitted for publication or public disclosure, as the Principal Investigator makes such portions available, in a manner comparable to its review of a final version for public disclosure; provided, however, the experiments and results described therein are not materially or substantially modified in the final version of Institution Disclosure. Any such portions which are materially or substantially modified will be submitted to Company for review in accordance with this Section 8.1. Principal Investigator agrees to include in any publication or public disclosure of the results of the Research Program an appropriate acknowledgement of Company’s sponsorship of the Research Program. Authorship of any publication disclosing such results shall be determined in accordance with scientific custom. 1.2.Protection of Information to be Disclosed in Publications. During the course of the sixty (60) day review period set forth above, Company will notify Principal Investigator and Institution whether Company desires to file a patent application pursuant to Section 9.3(b) or desires Institution to file a patent application pursuant to Section 9.3(a) on any Invention disclosed in the Institution Disclosure. Subject to the terms set forth in Section 8.3, in the event Company desires that such a patent application be filed, Principal Investigator and Institution will delay publication or disclosure of such Institution Disclosure until the occurrence of the first of the following: (a) filing of a patent application covering such Invention, (b) agreement by Company and Principal Investigator and Institution that no Invention is disclosed in such materials, or (c) ninety (90) days after the date that such Institution Disclosure was received by Company from Principal Investigator and Institution. Further, subject to the terms of Section 8.3, if Company reports to Institution or Principal Investigator that such Institution Disclosure contains Company Confidential Information, Principal Investigator and Institution will remove such Company Confidential Information from such Institution Disclosure, except for Company Confidential Information which (i) the Principal Investigator deems is reasonably necessary to support the results which are described in such Institution Disclosure and (ii) is either sequence information of a transporter molecule provided by Company to the Principal Investigator for use in the Research Program for which an Identified Key exists or tissue distribution information disclosed by Company to the Principal Investigator under this Agreement 1.3.Institution Disclosure Including Identified Key. In addition to the rights and processes set forth in Sections 8.1 and 8.2 concerning Company’s right to review any proposed Institution Disclosures, and Principal Investigator’s and the Institution’s agreement to delay publication or disclosure of such Institution Disclosures in accordance with the time lines set forth in this Section 8.3, the Principal Investigator and Institution agree not to publicly disclose or permit the public disclosure of any Institution Disclosure which discloses any Identified Key until twelve (12) months following the date that Company and the Institution mutually agree in writing that the Key reported by the Institution to Company is deemed an Identified Key, all in accordance with the terms set forth in Section 5.3. The parties agree that the first public disclosure for each Identified Key shall be in a written manuscript to be published in a peer-reviewed scientific journal. During the twelve (12) month period described in this Section 8.3, the Principal Investigator shall be permitted to submit to a scientific journal for publication, any abstract or manuscript which discloses an Identified Key, provided that, the Principal Investigator and the Institution notify the Company Principal Investigator of their desire to do so prior to any such submission and each provides Company with reasonable assurance that publication of such manuscript or abstract shall not occur prior to the twelve (12) month period described above. For clarity, the terms set forth in this Section 8.3 shall not in any manner limit Company’s right to review any Institution Disclosure which discloses an Identified Key in accordance with the time lines set forth in Sections 8.1 and 8.2.

UT - San Antonio Presentation - October 26, San Antonio, TX 50 Confidentiality Concerns Research Institutions vs. Biotech Company vs. Big Pharma Length of Confidentiality Obligations Balancing Reasonable with Realistic How to Prevent Leakage

UT - San Antonio Presentation - October 26, San Antonio, TX 51 Confidentiality ~ Length Research Institutions Length must be reasonable and must be a date certain (statutory retention) 3 years after agreement ends –not from disclosure date Rare exceptions – Principal Investigator must agree and initial confidentiality provision Huge burden on PI and Institution Biotech Company 5 years from each disclosure date Big Pharma Follow statutory limits, normal time frame of 5-10 years End date must be explicitly defined

UT - San Antonio Presentation - October 26, San Antonio, TX 52 How To Prevent Confidentiality Leaks We Agree... Education, communication and good contract management are critical We Disagree... Starting length of obligations from “end of agreement” vs. “date of disclosure” Explicitly naming all persons bound by agreement – should be PI’s responsibility Unrealistic in Research Institution

UT - San Antonio Presentation - October 26, San Antonio, TX 53 Indemnification Concerns Needs Allocation of Risk in Clinical Setting Real World Deal Breakers

UT - San Antonio Presentation - October 26, San Antonio, TX 54 Our Indemnification Needs Seek broadest indemnification possible Full indemnity – Sponsor’s drug/Sponsor’s protocol – Institution does what Sponsor says (“arising out of the activities…”) Product liability Defects in design or manufacture of drug Sponsor’s negligence Use of Institution’s results - least amount of coverage Institution’s protocol; and Sponsor has little or no control over what Institution does; Then Sponsor must indemnify Institution for Sponsor’s use of Institution’s results Institution can only indemnify Sponsor for Institution’s negligence (to the extent authorized by Constitution and laws of State of Texas

UT - San Antonio Presentation - October 26, San Antonio, TX 55 Our Indemnification Needs Must include proper parties System, Regents, Institution, officers, employees, agents Should cover all kinds of claims Claims, demands, costs, liabilities, or judgments Should broadly cover us if we do exactly what Sponsor directs us to do – “Full Indemnity” “Arising out of the activities to be carried out under this Ag” Should also include Sponsor’s use of our results Carve-outs Our negligence voids Sponsor’s indemnification If Sponsor wants to control the defense – “subject to the statutory duties of the Texas Attorney General”

UT - San Antonio Presentation - October 26, San Antonio, TX 56 Indemnification ~ Allocation of Risk Sponsor’s Protocol and Sponsor’s Drug We receive no $ from Sponsor after Study is done Sponsor stands to gain a lot of money from the study Sponsor must broadly indemnify us if we do exactly what Sponsor directs us to do (“Full Indemnity”) Institution’s Protocol and Sponsor’s Drug Sponsor should bear all risk b/c it stands to gain a lot financially Sponsor must also indemnify us for its use of our results Sponsor can control defense and settlement only … “subject to the statutory duties of the Texas Attorney General”

UT - San Antonio Presentation - October 26, San Antonio, TX 57 Indemnification ~ Real World Deal Breakers Sponsor won’t broadly indemnify us for following their protocol and using their drug Sponsor wants a mirror indemnity - not only ‘as to our negligence’ Sponsor won’t indemnify us for its use of our results (standard CTA and principal investigator initiated protocol) Sponsor won’t agree to include language that allows them to control defense

UT - San Antonio Presentation - October 26, San Antonio, TX 58 SUMMARY Critical Deal Concepts That May Profoundly Impact Your Negotiations: Intellectual Property Publication Confidentiality Indemnification