Olympus Has Risen: Session 2, Day 1; Law of Patents, Innovation and Commercialization

Reported by Ritvik M. Kulkarni, III BSL LLB, ILS Law College, Pune 

Welcome back to IP Week 2015!

The presentation mainly dealt with the benefits of and hurdles arising in monetizing patents while ensuring the optimum Return on Investment (ROI).

Mr. Sahay opened the presentation with a discussion on the benefits of commercializing a patented invention. He used the following pointers:

  1. Royalty Payment / Revenue

Royalty is the amount of money generated from smart patent licensing. This amount may be in the form of a one-time lump sum payment or a recurring percentage based on the sale of the commercialized invention or both. Payment of royalty may also depend upon the completion of certain milestones embedded in the licensing agreement.      

 

  1. New Markets

A patented invention can find its way into new and favorable markets it is appropriately commercialized through appropriate international and domestic partners. Especially in pharmaceutical-patents, this may act as a boon for the consumers who are in dire need of the drug; while remaining a profitable investment for the inventor and his / her licensees

  1. Venture Investors and Finance in Advanced Research

In light of the positive attitude towards start-ups and new ventures in the present market, there is huge scope for both foreign and domestic investment in technology based ventures in the global market. “There is no better competitive edge in the market than that of having a patent”, said Mr. Sahay.

  1. New Technology in the Market

Needless to say, the fierce competition for innovation in the market, the markets are likely to be bestowed with new and more effective technology.

My desire to obtain a patent for my invention now has certainly increased; but how should I proceed with commercializing it? What is the Process? But of course, Mr. Sahay came up with the perfect answer:

The first step towards patent commercialization is to conduct a thorough study of its prospects. To begin with, one should prepare an exhaustive wish-list; identifying the ideal companies which have the potential, resources and the will to turn your invention in to a commercial product.

Then begin to eliminate companies on the basis of factors such as incompatible technology, the existence of similar prior technology, non-preferred geographical area of operation etc. Arrive at one ideal partner after conducting extensive research on the Company; a due diligence exercise of sorts.

The next step is to enter into discussions with the prospective partner’s technical and management teams in order to make the foundation. Mr. Sahay strongly advised employing a technology consultant to help facilitate these discussions. At this stage, you must proceed with caution; divulge information in relation to your technology only after entering into a Non-Disclosure Agreement (NDAs).

Now is the time you consult your lawyers, and get them to hold negotiations with the prospective partner’s team of lawyers in order to determine the subject matter of the licensing agreement or the Technology Transfer Agreement. To cite an example, one of the issues which may arise during these negotiations are based on the partner’s belief that the technology offered can be further perfected (most times to make it market compatible). Here the Partner will propose to invest in further research for a better product in exchange for stronger ownership over the final product.

After conducting a valuation of your technology, you should ‘identify your priorities and harmonize them with the licenses’. This is to mean that while you may be satisfied with dealing with one partner for one market, you may choose to grant a number of licenses to various partners who can commercialize your invention in different markets. This may be done owing inter alia to the variation in the distribution networks which different companies command.

After negotiations are completing, the next step will require you to sign a letter of intent, followed by the final preparation of a license deed. Here will have to negotiate the terms of the licensing agreement such as the milestones for royalty payment.

Speaking of commercialization, pharma-giant Glenmark Inc. employs a rather interesting strategy for patent commercialization:

Glenmark’s business model is essentially based on identifying innovators researching on new drugs based on their therapeutic inclination, such as brain damage. It then obtains a license from these innovators whose drug which, at the time, is only developed to a preliminary stage. These licenses are then sold to the Big Pharmaceutical companies like Merck and GSK in order to allow them to develop these drugs to the final stage ready for sale in the market. In this way Glenmark makes a killing of almost a billion US dollars per license by simply trading in patent / technology licenses.

Next in line was a discussion on the key determinants of patent monetization for both the licensor as well as the licensee of a technology transfer agreement:

  1. Ability to Monetize the Technology on its own
    1. For example, the DRDO comes up highly effective technology to serve the needs of the soldiers in the Indian Army. Many of its food products can be used by civilian consumers as well, but the DRDO does not have the mandate to invest in placing the products on the public market. Therefore it entered into a licensing agreement with Jyoti Labs to commercialize another product which it invented: A Wet Wipe Mosquito Repellent. In this way the DRDO was successful in getting its innovation on the public market.
  1. Assessment of Distribution Network
    1. Venus Remedies, housed in Chandigarh developed an antibiotic drug and licensed it out to an African partner. This ensured the distribution o fits product to a geographical area where the drug was imminently required.

Both the aforementioned determinants show the existence of a strong interdependence between the licensor and the licensee. Therefore, both entities must conduct a full due diligence exercise on the there in order to preempt all contingencies and to eliminate all possible risks from the process of patent commercialization.

However, there are weak chances for technology to be commercialized if it is insufficiently developed, not ready or friendly to the prevalent market conditions and if the patent application is yet to be cleared.

Mr. Sahay advised compliance with the following Legal Strategy

  1. The IP White Space Test Should be Conducted in order to avoid making payments to any person for merely reinventing the wheel
  1. One should closely follow the trend of patent application publication and observe the variations in them from the stage of filing till the stage of grant of patent. This should be accompanied by extensive searches on the basis of class and assignee (or company) with forward and backward citations. This will help one to preempt the kind of technology being protected and decipher the intent of the patent holder. This is also known as the File-Wrapper Analysis
  1. One should trace the entire trend and behavior of the patentee during patent prosecution in order to crack the patentee’s strategy.
  1. The strength of the claimed IP to stand the test of novelty and non obviousness should also be thoroughly examined.
  1. Close attention should be paid to the NDAs entered into by the technology holder. The former should take immediate action in the event of a leak on part of the people holding information in confidence.

Regulatory Barriers to be surpassed

  1. In the US, a drug must be FDA compliant in order to be marketed. This proves as a formidable stone in the path of commercializing one’s patent; especially after having spent millions of dollars in R&D.
  1. All the required government licenses must be duly acquired.
  1. Make sure there is no violation of competition law inter alia by setting a predatory price for its products
  1. Prepare in advance to either combat or to surpass these regulatory barriers

To conclude, Mr. Sahay stated that obtaining a patent is only a stepping stone towards actually receiving any return on the cost of development. Nevertheless, patent commercialization, if carried out smartly, can ensure a great amount of profit in the technology market.

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