IpHandbook Volume 1

S h a r i n g T h e A r t o f I P M a n a g ement VOLUME ON E
VO LUM E O N E
a handbook of best practices

in Health and Agricultural Innovation
Intellectual Property Management
“At the dawn of the 21st Prepared by and for policy-makers, leaders of public sector research establishments,
century the world created technology transfer professionals, licensing executives, and scientists, this Handbook
an unprecedented wave of
offers up-to-date information and strategies for utilizing the power of both intellectual

public–private partnerships.
For such investments to property and the public domain.
bear fruit as public goods
Eschewing ideological debates and general proclamations, the authors always keep

it is paramount to manage
intellectual property with their eye on the practical side of IP management. The Handbook provides substantive
the public interest in mind. discussions and analyses of the opportunities awaiting anyone in the field who wants
This Handbook provides
to put intellectual property to work.
expert guidance to do a handbook of best practices
just that and will assist in
developing new capabilities
in low- and middle-income “This Handbook is timely. [It] is a valuable guide in helping to navigate the complex—
countries.” but rewarding—world of an increasingly global innovation system.”
—From the Foreword of Norman Borlaug, Nobel Peace Prize Laureate
— Ariel Pablos-Méndez,
Managing Director,
edited By
Rockefeller Foundation “For all who believe, as I believe, that developing countries can—and should—participate in
and benefit from an interconnected world of innovation, this book is an indispensable guide.” Anatole Krattiger
—Mahmoud F. Fathalla, Professor and former Dean, Medical School at Assiut University, Egypt, Richard T. Mahoney
and Chairperson of the WHO Advisory Committee on Health Research
Lita Nelsen
“This Handbook—which really transcends the category of handbooks altogether—

Jennifer A. Thomson
is a must read for anyone who deals with intellectual property.” Alan B. Bennett
—Pramilla Senanayake, FRCOG, Chair, Global Forum for Health Research, MIHR, and the Concept Foundation
Kanikaram Satyanarayana
Gregory D. Graff
“Intellectual property (IP) has become a much richer field of endeavor as it has moved from
isolationism in the world of policy to a position of engagement … [This Handbook] will serve Carlos Fernandez
as an invaluable resource in this challenging new environment.”
Krattiger
Stanley P. Kowalski
—From the Foreword of Francis Gurry, Deputy Director General, WIPO
Mahoney
Nelsen
“[This] Handbook is an important step towards transnational networks … involving multiple Thomson
Bennett
partners in both North and South—donors and doers alike—who believe in the power of
Satyanarayana
innovation to address the needs of the poor.” Graff
—From the Foreword of Sir Gordon Conway, KCMG DL FRS, Chief Scientific Adviser, DFID UK Fernandez
Kowalski
Distributed for free to developing countries

(subject to availability of funding and support).
US $150
Published by MIHR, PIPRA, ISBN: 978-1-4243-2026-4

Oswaldo Cruz Foundation, and
bioDevelopments-International
Institute The companion Executive Guide distills the key points
of each chapter into simple language and places them
www.ipHandbook.org in the context of evolving best practices.
VOLUME ONE
edited By
Anatole Krattiger
Richard T. Mahoney
Lita Nelsen
Jennifer A. Thomson
Alan B. Bennett
Gregory D. Graff
Carlos Fernandez
Stanley P. Kowalski
© 2007. MIHR, PIPRA, Oswaldo Cruz Foundation, and bioDevelopments-International Institute. Second printing.
Sharing the Art of IP Management: Photocopying and distribution through the Internet for non-commercial purposes is
permitted and encouraged providing all such copies include complete citation and copyright notices as given on the first page
of each chapter. For details, see www.ipHandbook.org.
Published by
MIHR (Centre for the Management of Intellectual Property in Health Research and Development), Oxford Centre for
Innovation, Mill Street, Oxford, OX2 0JX, U.K. www.mihr.org, mihr@bioDevelopments.org
PIPRA (Public Intellectual Property Resource for Agriculture), University of California, Davis, Plant Reproductive Biology
Bldg., Extension Center Circle, Davis, CA, 95616-8780, U.S.A. www.pipra.org, info@pipra.org
Oswaldo Cruz Foundation (Fiocruz), Av. Brasil 4365, Rio de Janeiro, RJ 21040-900, Brazil. www.fiocruz.br, ccs@fiocruz.br
bioDevelopments-International Institute, Cornell Business and Technology Park, PO Box 4235, Ithaca, NY 14852, U.S.A.
www.bioDevelopments.org, info@bioDevelopments.org
www.ipHandbook.org, info@ipHandbook.org
Manuscript Editors
Paula Douglass (Dryden, New York, U.S.A.)
with Jacqueline Stuhmiller (Ithaca, New York, U.S.A.) and Katy Dixon (Champagne, Illinois, U.S.A.)
Layout and Design

Linette Lao (Invisible Engines, Ypsilanti, Michigan, U.S.A.)
Copy Editor
Barry Hall (OmniGlyph, Ypsilanti, Michigan, U.S.A.)
Online version
Dynamic Diagram (Providence, Rhode Island, U.S.A.)
Citation
Krattiger A, RT Mahoney, L Nelsen, JA Thomson, AB Bennett, K Satyanarayana, GD Graff, C Fernandez, and
SP Kowalski (eds). 2007. Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices.
MIHR: Oxford, U.K., and PIPRA: Davis, California, U.S.A. Available online at www.ipHandbook.org.
Translations
Requests for permission to reproduce the book in its entirety or for translations,
whether for sale or for non-commercial distribution, should be addressed to MIHR or PIPRA.
Library of Congress Preassigned Control Number

2007925343
ISBN 978-1-4243-2026-4
Distributed free of charge to low- and middle-income countries

(subject to availability of funding and support for distribution).
www.ipHandbook.org
FOR POSITION
ONLY GREEN
PRESS INITIATIVE
BOX HERE
Editors-in-Chief
Anatole Krattiger
The Biodesign Institute at ASU, bioDevelopments-International Institute
and Cornell University, U.S.A.
Richard T. Mahoney
International Vaccine Institute, Republic of Korea
Editorial Board
Richard T. Mahoney (Chair)

Jennifer A. Thomson (Co-Chair)

University of Cape Town, South Africa
Alan B. Bennett
PIPRA and University of California, Davis, U.S.A.
Carlos Fernandez
Foundation for Agriculture Innovation, Chile
Gregory D. Graff
PIPRA and University of California, Berkeley, U.S.A.
Stanley P. Kowalski
The Franklin Pierce Law Center, U.S.A.
Anatole Krattiger
The Biodesign Institute at ASU, bioDevelopments-International Institute
and Cornell University, U.S.A.
Lita Nelsen
Massachusetts Institute of Technology, U.S.A.
Indian Council of Medical Research, India
Comprehensive Editorial Consultant
David P. Alvarez
University of California, Davis, U.S.A.
March 21, 2007
Dear Reader,
Over the last decade, the world has been paying increasing attention to the
agricultural, health, and economic disparities between industrialized and
developing countries. The Rockefeller Foundation is proud to have helped develop
and launch some of the numerous initiatives to address these issues—initiatives
Judith Rodin
President
such as the African Agricultural Technology Foundation, the Alliance for a Green
Revolution in Africa, the International AIDS Vaccine Initiative, the Global Alliance
for TB Drug Development, and others.
We believe, however, that launching the success of these and other similar
initiatives requires that we both engage directly with research universities in the
industrialized world and encourage the growing innovation capacity of developing
countries. The Public Intellectual Property Resource for Agriculture (PIPRA) and
the Centre for the Management of Intellectual Property in Health Research and
Development (MIHR) were created for precisely these reasons. Their mission
is to enhance the power of publicly funded research institutions to harness new
technologies and to ensure that the benefits of globalization are shared more
equitably. This Handbook and the companion Executive Guide and online version
are a natural outcome of their efforts to contribute new solutions to this two-fold
challenge. A follow-on interactive electronic version will reach an even wider
audience and, we hope, provide even greater benefits.
The Rockefeller Foundation is delighted to have supported the creation of this

unique resource. It holds lessons that are valuable (in many senses of the word)
for policy-makers, leaders of research institutions, researchers, and technology
managers alike—in both industrialized and developing countries. Indeed, this
Handbook and Executive Guide, a testament to the committed, excellent work of
MIHR and PIPRA, might be the most thorough primer on intellectual property
management for the public interest ever assembled. As such, it will be an
indispensable tool for both planners and practitioners for years to come.
With best wishes,
420 Fifth Avenue

New York, New York
10018-2702
Tel 212.852.8400
Fax 212.852.8277
president@rockfound.org
www.rockfound.org
Message from the Board of Patrons
Dear Reader,
Intellectual property can be a powerful tool. When effectively and ethically managed, it can
both accelerate the development of lifesaving, poverty-alleviating innovations and secure
access to them. Both development and access are urgently needed in health and agriculture
to improve the lives of people in need—particularly those living in the developing world.
This Handbook and its companion Executive Guide constitute an authoritative, compre-
hensive, and practical reference on intellectual property management and best practices.
These works will be invaluable for anyone seeking to use intellectual property strategically to
enhance economic growth and equitably distribute innovative technologies. This Handbook
and Executive Guide uniquely contributes to efforts in global health and food security.
We are pleased to endorse its use. ■
Charles J. Arntzen, U.S.A. Alex F. McCalla, U.S.A.

Roger N. Beachy, U.S.A. Carlos Morel, Brazil
Norman E. Borlaug, Mexico Ingo Potrykus, Switzerland
Zhang Liang Chen, China Judith Rodin, U.S.A.
Jacques Diouf, Senegal and Italy Emil Salim, Indonesia
Mahmoud F. Fathalla, Egypt Albert Sasson, Morocco/France
Maria Freire, U.S.A. Akinori Seki, Japan
William Hennessey, U.S.A. Ismail Serageldin, Egypt
Kamil Idris, Sudan/Switzerland Victor S. Shevelukha, Russia
Molly Jahn, U.S.A. M. S. Swaminathan, India
Gurdev Khush, India/U.S.A. Baron Marc Van Montagu, Belgium
Mosibudi Mangena, South Africa Vo-Tong Xuan, Vietnam
R. A. Mashelkar, India Yongyuth Yuthavong, Thailand
Sponsors and Distribution Supporters of the Handbook
with
We thank the following Distribution Supporters
Law Offices of
and Gerow D. Brill, Esq. ’91
DODDS AND ASSOCIATES
Thomson-Shore
Book Manufacturing
A number of organizations, after seeing sample chapters of the Handbook, came forward to purchase copies for wide
distribution in developing countries. We are grateful for their generosity and extend our thanks in advance to others
who will join their ranks. For an updated list of Distribution Supporters, please visit www.ipHandbook.org.
In-kind support provided by AUTM and PIIPA.

Individuals are also encouraged to purchase Handbooks on behalf of developing countries; we will distribute such orders at cost.
Table of Contents
Foreword by Norman E. Borlaug.................................................................................................... xxvii

Foreword by R. A. Mashelkar.......................................................................................................... xxix
Foreword by Francis Gurry.............................................................................................................. xxxi
Foreword by Howard A. Zucker..................................................................................................... xxxiii
Foreword by Sir Gordon Conway.....................................................................................................xxxv
Message from the Editorial Board..................................................................................................xxxvii
Prelude . ..........................................................................................................................................xli
Acknowledgments.............................................................................................................................xliii
About MIHR................................................................................................................................. xlvii
About PIPRA.................................................................................................................................. xlix
About the Online Version of the Handbook.......................................................................................... li
Disclaimer ....................................................................................................................................... lii
VOLUME ONE
Section 1: Innovation and IP Management: A Contextual Overview
1.1 The Role of IP Management in Health and Agricultural Innovation....................................... 3

Richard T. Mahoney and Anatole Krattiger
1.2 Building Product Innovation Capability in Health............................................................... 13
Richard T. Mahoney
1.3 IP Management and Deal Making for Global Health Outcomes:
The New “Return on Imagination” (ROI)............................................................................ 19
John Fraser
1.4 Ensuring Developing-Country Access to New Inventions:
The Role of Patents and the Power of Public Sector Research Institutions............................. 23
Lita Nelsen and Anatole Krattiger
1.5 Genomics, Ethics, and Intellectual Property......................................................................... 29
Gary E. Marchant
HANDBOOK OF BEST PRACTICES | xv

Section 2: Specific Strategies and Mechanisms for Facilitating Access to Innovation
2.1 Reservation of Rights for Humanitarian Uses....................................................................... 41

Alan B. Bennett
2.2 Facilitating Humanitarian Access to Pharmaceutical and Agricultural Innovation................. 47
Amanda L. Brewster, Stephen A. Hansen, and Audrey R. Chapman
2.3 Ensuring Global Access through Effective IP Management:
Strategies of Product-Development Partnerships................................................................... 63
Robert Eiss, Kathi E. Hanna, and Richard T. Mahoney
2.4 Patenting and Licensing Research Tools................................................................................ 79
Charles Clift
2.5 Valuation and Licensing in Global Health............................................................................ 89
Ashley J. Stevens
2.6 Open Source Licensing....................................................................................................... 107
Janet Hope
2.7 Using Milestones in Healthcare Product Licensing Deals
to Ensure Access in Developing Countries.......................................................................... 119
Joachim Oehler
2.8 Facilitating Assembly of and Access to Intellectual Property:
Focus on Patent Pools and a Review of Other Mechanisms................................................. 131
Anatole Krattiger and Stanley P. Kowalski
Section 3: The Policy and Legal Environment for Innovation
3.1 The Courts and Innovation................................................................................................ 147

Pauline Newman
3.2 Global Health: Lessons from Bayh-Dole............................................................................. 153
Rachel A. Nugent and Gerald T. Keusch
3.3 Echoes of Bayh-Dole? A Survey of IP and Technology Transfer Policies
in Emerging and Developing Economies............................................................................ 169
Gregory D. Graff
3.4 Technology Transfer Snapshots from Middle-Income Countries:
Creating Socio-Economic Benefits through Innovation...................................................... 197
Susan K. Finston
3.5 Benchmarking of Technology Transfer Offices and
What It Means for Developing Countries........................................................................... 207
Anthony D. Heher
3.6 Public Sector IP Management in the Life Sciences:
Reconciling Practice and Policy—Perspectives from WIPO................................................ 229
Antony Taubman and Roya Ghafele
3.7 Developing Countries and TRIPS: What Next?.................................................................. 247
Robert Eiss, Richard T. Mahoney, and Kanikaram Satyanarayana
3.8 The TRIPS Agreement and Intellectual Property in Health and Agriculture....................... 253
Jayashree Watal and Roger Kampf
xvi | HANDBOOK OF BEST PRACTICES

3.9 U.S. Laws Affecting the Transfer of Intellectual Property.................................................... 265
Howard Bremer
3.10 Compulsory Licensing: How to Gain Access to Patented Technology................................. 273
Carlos María Correa
3.11 The Role of Clusters in Driving Innovation........................................................................ 281
Peter W. B. Phillips and Camile D. Ryan
3.12 What Does It Take to Build a Local Biotechnology Cluster in a Small Country?
The Case of Turku, Finland................................................................................................ 295
Kimmo Viljamaa
3.13 The Activities and Roles of M.I.T. in Forming Clusters
and Strengthening Entrepreneurship.................................................................................. 309
Lita Nelsen
3.14 Building Research Clusters: Exploring Public Policy Options
for Supporting Regional Innovation................................................................................... 317
Peter W. B. Phillips and Camille D. Ryan
Section 4: The IP Toolbox
4.1 The Statutory Toolbox: An Introduction............................................................................. 337

John Dodds and Anatole Krattiger
4.2 How to Read a Biotech Patent............................................................................................ 351
Carol Nottenburg
4.3 Trademark Primer............................................................................................................... 361
William Needle
4.4 The Statutory Toolbox: Plants............................................................................................. 371
Jay P. Kesan
4.5 Plant Breeders’ Rights: An Introduction............................................................................. 381
William H. Lesser
4.6 Plants, Germplasm, Genebanks, and Intellectual Property:
Principles, Options, and Management................................................................................ 389
John Dodds, Anatole Krattiger, and Stanley P. Kowalski
4.7 Plant Variety Protection, International Agricultural Research, and Exchange
of Germplasm: Legal Aspects of Sui Generis and Patent Regimes....................................... 401
Michael Blakeney
4.8 IP and Information Management: Libraries, Databases,
Geographic Information Systems, and Software.................................................................. 419
John Dodds, Susanne Somersalo, Stanley P. Kowalski, and Anatole Krattiger
4.9 Data Protection and Data Exclusivity in Pharmaceuticals and Agrochemicals..................... 431
Charles Clift
4.10 Regulatory Data Protection in Pharmaceuticals and Other Sectors..................................... 437
Trevor Cook
HANDBOOK OF BEST PRACTICES | xvii

Section 5: Institutional Policies and Strategies
5.1 IP Strategy.......................................................................................................................... 459

Robert Pitkethly
5.2 IP Management Policy: A Donor’s Perspective.................................................................... 475
Zoë Ballantyne and Daniel Nelki
5.3 Making the Most of Intellectual Property: Developing an Institutional IP Policy................ 485
Stanley P. Kowalski
5.4 Ownership of University Inventions: Practical Considerations............................................ 495
B. Jean Weidemier
5.5 The Role of the Inventor in the Technology Transfer Process.............................................. 507
Anne C. Di Sante
5.6 Conducting IP Audits........................................................................................................ 515
Michael Blakeney
5.7 Conflict of Interest and Conflict of Commitment Management
in Technology Transfer....................................................................................................... 527
Alan B. Bennett
Section 6: Establishing and Operating Technology Transfer Offices
6.1 Ten Things Heads of Institutions Should Know

about Setting Up a Technology Transfer Office................................................................... 537
Lita Nelsen
6.2 Establishing a Technology Transfer Office........................................................................... 545
Terry A. Young
6.3 How to Set Up a Technology Transfer Office: Experiences from Europe............................. 559
Alison F. Campbell
6.4 How to Set Up a Technology Transfer System in a Developing Country............................. 567
Carlos Fernandez
6.5 Practical Considerations for the Establishment of a Technology Transfer Office.................. 575
John Dodds and Susanne Somersalo
6.6 Administration of a Large Technology Transfer Office........................................................ 581
Sally Hines
6.7 Training Staff in IP Management........................................................................................ 597
Sibongile Pefile and Anatole Krattiger
6.8 Building Networks: The National and International Experiences of AUTM....................... 617
Karen Hersey
6.9 How to Select and Work with Patent Counsel.................................................................... 625
Michael L. Goldman
6.10 How to Hire an IP Attorney and Not Go Bankrupt........................................................... 635
John Dodds
6.11 Technology Transfer Data Management.............................................................................. 641
Robert G. Sloman
xviii | HANDBOOK OF BEST PRACTICES

6.12 WIIPS™: Whitehead Institute Intellectual Property System (A Relational Database
for IP Management and Technology Transfer).................................................................... 649
Amina Hamzaoui
6.13 Organizing and Managing Agreements and Contracts........................................................ 651
Robert Potter and Hild Rygnestad
6.14 Monitoring, Evaluating, and Assessing Impact.................................................................... 659
Sibongile Pefile
Section 7: Contracts and Agreements to Support Partnerships
7.1 Agreements: A Review of Essential Tools of IP Management.............................................. 675

Richard T. Mahoney and Anatole Krattiger
7.2 Confidentiality Agreements: A Basis for Partnerships.......................................................... 689
Stanley P. Kowalski and Anatole Krattiger
7.3 Specific Issues with Material Transfer Agreements............................................................... 697
Alan B. Bennett, Wendy D. Streitz, and Rafael A. Gacel
7.4 How to Draft a Collaborative Research Agreement............................................................. 717
Martha Bair Steinbock
7.5 Drafting Effective Collaborative Research Agreements and Related Contracts.................... 725
E. Richard Gold and Tania Bubela
7.6 The Use of Nonassertion Covenants: A Tool to Facilitate
Humanitarian Licensing, Manage Liability, and Foster Global Access................................. 739
Anatole Krattiger
Section 8: Inventors and Inventions
8.1 Introduction to IP Issues in the University Setting: A Primer for Scientists......................... 747
Martha Mutschler and Gregory D. Graff
8.2 How to Start–and Keep–a Laboratory Notebook: Policy and Practical Guidelines.............. 763
Jennifer A. Thomson
8.3 Documentation of Inventions............................................................................................. 773
W. Mark Crowell
8.4 Invention Disclosures and the Role of Inventors................................................................. 779
David R. McGee
Section 9: Evaluation and Valuation of Technologies
9.1 Evaluating Inventions from Research Institutions............................................................... 795

Lita Nelsen
9.2 Technology Valuation: An Introduction............................................................................. 805
Robert H. Potter
HANDBOOK OF BEST PRACTICES | xix

9.3 Pricing the Intellectual Property of Early-Stage Technologies:
A Primer of Basic Valuation Tools and Considerations..................................................... 813
Richard Razgaitis
9.4 Valuation of Bioprospecting Samples: Approaches, Calculations,
and Implications for Policy-Makers.................................................................................... 861
William H. Lesser and Anatole Krattiger
Section 10: Patents and Patenting: Balancing Protection with the Public Domain
10.1 Defensive Publishing and the Public Domain..................................................................... 879

Sara Boettiger and Cecilia Chi-Ham
10.2 Provisional Patent Applications: Advantages and Limitations.............................................. 897
Richard L. Cruz
10.3 Designing Patent Applications for Possible Field-of-Use Licensing..................................... 903
Arne M. Olson
10.4 Patenting Strategies: Building an IP Fortress....................................................................... 911
John Dodds
10.5 Cost-Conscious Strategies for Patent Application Filings.................................................... 921
Oren Livne
10.6 A Guide to International Patent Protection........................................................................ 927
Ann S. Viksnins and Ann M. McCrackin
10.7 Filing International Patent Applications under the Patent Cooperation Treaty (PCT):
Strategies for Delaying Costs and Maximizing the Value
of Your Intellectual Property Worldwide............................................................................. 941
Anne M. Schneiderman
10.8 Filing and Defending Patents in Different Jurisdictions...................................................... 953
Ronald Yin and Sean Cunningham
10.9 The Interface of Patents with the Regulatory Drug Approval Process
and How Resulting Interplay Can Affect Market Entry................................................... 965
Dennis S. Fernandez, James Huie, and Justin Hsu
10.10 Deposit of Biological Materials in Support of a U.S. Patent Application............................. 973
Dennis J. Harney and Timothy B. McBride
10.11 Protecting New Plant Varieties through PVP: Practical Suggestions
from a Plant Breeder for Plant Breeders.............................................................................. 981
William D. Pardee
VOLUME TWO
Section 11: Technology and Product Licensing
11.1 Licensing Biotechnology Inventions................................................................................... 991

John W. Freeman
11.2 Licensing Agreements in Agricultural Biotechnology........................................................ 1009
Richard S. Cahoon
xx | HANDBOOK OF BEST PRACTICES

11.3 The In- and Out-Licensing of Plant Varieties.................................................................... 1017
Malin Nilsson
11.4 Potential Use of a Computer-Generated Contract Template System (CoGenCo)
to Facilitate Licensing of Traits and Varieties..................................................................... 1029
Anatole Krattiger, John Dodds, and Donna Bobrowicz
11.5 Trade Secrets and Trade-Secret Licensing.......................................................................... 1043
Karl F. Jorda
11.6 Use of Trademarks in a Plant-Licensing Program.............................................................. 1059
William T. Tucker and Gavin S. Ross
11.7 Commercialization Agreements: Practical Guidelines in Dealing with Options................ 1069
Mark Anderson and Simon Keevey-Kothari
11.8 Field-of-Use Licensing...................................................................................................... 1113
Sandra L. Shotwell
11.9 Problems with Royalty Rates, Royalty Stacking, and Royalty Packing Issues..................... 1121
Keith J. Jones, Michael E. Whitham, and Philana S. Handler
11.10 In-Licensing Strategies by Public-Sector Institutions in Developing Countries................. 1127
11.11 A Checklist for Negotiating License Agreements.............................................................. 1133
Donna Bobrowicz
Section 12: Dealmaking and Marketing Technology

to Product-Development Partners
12.1 Negotiating an Agreement: Skills, Tactics, and Best Practices............................................ 1155

Richard T. Mahoney
12.2 An Introduction to Marketing Early-Stage Technologies................................................... 1165
Marcel D. Mongeon
12.3 Technology Marketing...................................................................................................... 1173
Robert S. MacWright and John F. Ritter
12.4 IP Portfolio Management: Negotiating the Information Labyrinth................................... 1195
Jeremy Burdon
12.5 The IP Sales Process.......................................................................................................... 1203
Todd S. Keiller
12.6 Patent Licensing for Small Agricultural Biotechnology Companies................................... 1213
Clinton H. Neagley
12.7 Business Partnerships in Agriculture and Biotechnology
that Advance Early-State Technology................................................................................ 1221
Martha Dunn, Brett Lund, and Eric Barbour
12.8 Biotechnology and Pharmaceutical Commercialization Alliances:
Their Structure and Implications for University Technology Transfer Offices.................... 1227
Mark G. Edwards
12.9 Product Development and IP Strategies for Global Health
Product Development Partnerships................................................................................... 1247
Sandra L. Shotwell
HANDBOOK OF BEST PRACTICES | xxi

Section 13: The Public Sector and Entrepreneurship
13.1 Creating and Developing Spinouts: Experiences from Yale University and Beyond........... 1253
Alfred (Buz) Brown and Jon Soderstrom
13.2 Dealing with Spinout Companies..................................................................................... 1271
Jon C. Sandelin
13.3 What the Public Sector Should Know about Venture Capital........................................... 1281
Roger Wyse
13.4 The Role of Technology Transfer Intermediaries in Commercializing
Intellectual Property through Spinouts and Start-ups........................................................ 1289
Tim Cook
13.5 New Companies to Commercialize Intellectual Property:
Should You Spinout or Start-up?...................................................................................... 1295
Cathy Garner and Philip Ternouth
13.6 Formation of a Business Incubator................................................................................... 1305
Edward M. Zablocki
Section 14: Freedom to Operate and Risk Management
14.1 Freedom to Operate, Public Sector Research, and Product-Development Partnerships:

Strategies and Risk-Management Options........................................................................ 1317
Anatole Krattiger
14.2 Freedom to Operate: The Preparations............................................................................. 1329
Stanley P. Kowalski
14.3 How and Where to Search for IP Information on the World Wide Web:
The “Tricks of the Trade” and an Annotated Listing of Web Resources............................. 1345
Harry Thangaraj, Robert H. Potter, and Anatole Krattiger
14.4 Freedom to Operate: The Law Firm’s Approach and Role................................................. 1363
Gillian M. Fenton, Cecilia Chi-Ham, and Sara Boettiger
14.5 Managing Liability Associated with Genetically Modified Crops...................................... 1385
Richard Y. Boadi
Section 15: Monitoring, Enforcement, and Resolving Disputes
15.1 Administration of Technology Licenses............................................................................. 1395

Hans H. Feindt
15.2 Policing Intellectual Property............................................................................................ 1405
H. Walter Haeussler and Richard S. Cahoon
15.3 Alternative Dispute-Resolution Procedures: International View........................................ 1415
Eun-Joo Min
15.4 Parallel Trade: A User’s Guide........................................................................................... 1429
Duncan Matthews and Viviana Munoz-Tellez
xxii | HANDBOOK OF BEST PRACTICES

Section 16: Bioprospecting, Traditional Knowledge, and Benefit Sharing
16.1 Biotechnology Patents and Indigenous Peoples................................................................. 1437

Dennis S. Karjala
16.2 Access and Benefit Sharing: Understanding the Rules for Collection
and Use of Biological Materials......................................................................................... 1461
Carl-Gustaf Thornström
16.3 Access and Benefit Sharing: Illustrated Procedures
for the Collection and Importation of Biological Materials . ............................................ 1469
Carl-Gustaf Thornström and Lars Björk
16.4 Deal Making in Bioprospecting........................................................................................ 1495
Charles Costanza, Leif Christoffersen, Carolyn Anderson, and Jay M. Short
16.5 Bioprospecting Arrangements: Cooperation between the North and the South................ 1511
Djaja Djendoel Soejarto, C. Gyllenhaal, Jill A. Tarzian Sorensen, H.H.S. Fong, L.T. Xuan,
L.T. Binh, N.T. Hiep, N.V. Hung, B.M. Vu, T.Q. Bich, B.H. Southavong, K. Sydara,
J.M. Pezzuto, and M.C. Riley
16.6 Issues and Options for Traditional Knowledge Holders
in Protecting Their Intellectual Property........................................................................... 1523
Stephen A. Hansen and Justin W. Van Fleet
16.7 Reconciling Traditional Knowledge with Modern Agriculture:
A Guide for Building Bridges........................................................................................... 1539
Klaus Ammann
Section 17: Putting Intellectual Property to Work:

Experiences from around the World
A Country Studies
17.1 Current Issues of IP Management in Health and Agriculture in Brazil.............................. 1563
Claudia Inês Chamas, Sergio M. Paulino De Carvalho, and Sergio Salles-Filho
17.2 A Model for the Collaborative Development of Agricultural
Biotechnology Products in Chile...................................................................................... 1577
Carlos Fernandez and Michael R. Moynihan
17.3 IP Rights in China: Spurring Invention and Driving Innovation
in Health and Agriculture................................................................................................. 1585
Zhang Liang Chen, Wangsheng Gao, and Ji Xu
17.4 Experiences from the European Union:
Managing Intellectual Property Under the Sixth Framework Programme......................... 1593
Alicia Blaya
17.5 Current IP Management Issues for Health and Agriculture in India................................. 1605
17.6 Current Issues of IP Management for Health and Agriculture in Japan............................. 1621
Junko Chapman and Kazuo N. Watanabe
17.7 Technology Transfer in South African Public Research Institutions................................... 1651
Rosemary Wolson
HANDBOOK OF BEST PRACTICES | xxiii

B Public Sector Institutions and Universities
17.8 The New American University and the Role of “Technology Translation”:
The Approach of Arizona State University........................................................................ 1661
Peter J. Slate and Michael Crow
17.9 IP Management at Chinese Universities........................................................................... 1673
Hua Guo
17.10 Application and Examples of Best Practices in IP Management:
The Donald Danforth Plant Science Center..................................................................... 1683
Karel R. Schubert
17.11 IP Management in the National Health Service in England.............................................. 1697
Tony Bates
17.12 Partnerships for Innovation and Global Health:
NIH International Technology Transfer Activities............................................................. 1709
Luis A. Salicrup and Mark L. Rohrbaugh
17.13 The Making of a Licensing Legend: Stanford University’s
Office of Technology Licensing......................................................................................... 1719
Nigel Page
17.14 Technology Transfer at the University of California.......................................................... 1729
Alan B. Bennett and Michael Carriere
17.15 Intellectual Property and Technology Transfer by
the University of California Agricultural Experiment Station............................................ 1739
Gregory D. Graff and Alan B. Bennett
17.16 From University to Industry: Technology Transfer at Unicamp in Brazil........................... 1747
Rosana Ceron Di Giorgio
C Product-Development Partnerships
17.17 How Public–Private Partnerships Handle Intellectual Property: The PATH Experience.... 1755
Steve Brooke, Claudia M. Harner-Jay, Heidi Lasher, and Erica Jacoby
17.18 The African Agricultural Technology Foundation Approach to IP Management............... 1765
Richard Y. Boadi and Mpoko Bokanga
17.19 Pragmatic and Principled: DNDi’s Approach to IP Management..................................... 1775
Jaya Banerji and Bernard Pecoul
17.20 From Science to Market: Transferring Standards Certification Know-How from
ICIPE to Africert Ltd....................................................................................................... 1783
Peter Munyi and Ruth Nyagah
D Focus on Solutions: Accelerating Product Development and Delivery

17.21 Patent Consolidation and Equitable Access: PATH’s Malaria Vaccines.............................. 1789
Sandra L. Shotwell
17.22 Lessons from the Commercialization of the Cohen-Boyer Patents:
The Stanford University Licensing Program...................................................................... 1797
Maryann P. Feldman, Alessandra Colaianni, and Connie Kang Liu
17.23 Specific IP Issues with Molecular Pharming: Case Study of Plant-Derived Vaccines.......... 1809
Anatole Krattiger and Richard T. Mahoney
xxiv | HANDBOOK OF BEST PRACTICES

17.24 How Intellectual Property and Plant Breeding Come Together:
Corn as a Case Study for Breeders and Research Managers............................................... 1819
Vernon Gracen
17.25 Successful Commercialization of Insect-Resistant Eggplant by
a Public–Private Partnership: Reaching and Benefiting Resource-Poor Farmers................. 1829
Akshat Medakker and Vijay Vijayaraghavan
17.26 The University of California’s Strawberry Licensing Program............................................ 1833
Alan B. Bennett and Michael Carriere
17.27 The IP Management of the PRSV-Resistant Papayas Developed by Cornell University
and the University of Hawaii and Commercialized in Hawaii........................................... 1837
Michael Goldman
17.28 Fundación Chile: Technology Transfer for Somatic Embryogenesis of Grapes................... 1845
Carlos Fernandez
Appendix: Sample Agreements

1. Editor’s Note.................................................................................................................... 1853
2. Co-Development Agreement............................................................................................ 1855
3. Public Sector Technology License..................................................................................... 1865
4. Public Sector Patent License (Medical Research Council of South Africa) . ...................... 1877
5. Plant Variety and Trademark License................................................................................ 1893
6. Intellectual Property and Trademark License (Stanford University) . ............................... 1903
7. Distributorship Agreement............................................................................................... 1921
Biographical Sketches of Authors and Members of the Board of Patrons.............. 1931
Glossary . ....................................................................................................................................................1977
Index.............................................................................................................................................1985
HANDBOOK OF BEST PRACTICES | xxv

Foreword by Norman E. Borlaug
This Handbook is timely for several reasons. Whether we like it or not, when it comes to
technology transfer, global integration has created a complex system of intellectual property
management. This system includes public sector research institutions in developing coun-
tries that need guidance on how to negotiate the new and changing terrain. The Handbook
aims to provide these institutions with such guidance in the form of a reference resource.
But the Handbook is more than that. It not only explains the intellectual property system,
but shows how both public sector research institutions and developed countries can use
intellectual property to achieve their humanitarian and socio-economic objectives.
The past 50 years make up the most productive period in history, in terms of ag-
riculture. Innovations in agricultural science and technology made possible the Green
Revolution, which is reputed to have spared one billion people the pain of hunger and
starvation. New health innovations have helped control the scourges of polio, leprosy, and
smallpox. Although we have seen the greatest reductions in hunger in history, it has not
been enough. And despite the enormous potential of modern medicine, its reach is still too
short for the hundreds of millions most in need of its preventative and curative powers.
Several billion people around the globe require access to new agricultural technologies
that could feed families while protecting the environment, as well as new health innova-
tions to combat HIV/AIDS, malaria, tuberculosis, dengue, and a host of other diseases that
typically afflict the poor in developing countries. New science and technology—including
biotechnology—have the potential to satisfy these needs.
Today, the world food supply is nearly six billion gross metric tons and three billion
net metric tons of edible dry matter. It includes cereals, roots and tubers, legumes, fruits
and vegetables, livestock and fish. Within the next 50 years, the world’s population is likely
to increase 60%–80%, requiring global food production to nearly double. We will have to
achieve this increase on a shrinking agricultural land base, with most of the increased pro-
duction to occur in the countries that will consume it. Compounding the problem is the
fact that more than half of the world’s 800 million hungry people are small-scale farmers
who cultivate environmentally sensitive marginal lands in developing countries. Bringing
the power of science and technology to bear on the protection of these fragile environments
is one of the greatest challenges of the 21st century.
Borlaug NE. 2007. Foreword. In Intellectual Property Management in Health and Agricultural Innovation: A
Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA:
Davis, California, U.S.A. Available online at www.ipHandbook.org.
© 2007. NE Borlaug. Sharing the Art of IP Management: Photocopying and distribution through the Internet
for noncommercial purposes is permitted and encouraged.
HANDBOOK OF BEST PRACTICES | xxvii

Despite these serious and daunting challenges, there is reason for hope. With the new
biotechnology tools, we are poised for another period of rapid agricultural innovation. New
science has the power to increase yields, address agroclimatic extremes, and mitigate a range
of environmental and biological problems. Private industry has invested billions of dollars in
research to make astonishing new discoveries and products, such as genetically modified crops.
Unfortunately, with the notable exception of insect resistant Bt cotton in China and India,
relatively few of the new crops developed by private industry are reaching smallholder farmers
in the developing world. This situation must be corrected as soon as possible.
The world of scientific innovation works differently today than it did 50, or even 20, years
ago. Developing countries can no longer rely primarily on innovations from the public sector,
because the private sector has taken the lead in inventing new technologies. Even those innova-
tions developed by public sector research institutions are inextricably part of a global IP regime
since they normally build on inventions made by both public and private entities.
As part of a global system, scientific institutions in developing countries need to un-
derstand how the IP system works to be able to capitalize on new opportunities. Moreover,
global public sector research no longer marches to its own beat; to move forward, it must
now work in tandem with the private sector. The promise offered by the new system is
enormous; developing countries need to know how to negotiate access and how to build
partnerships based on mutual value exchange.
This Handbook is a valuable guide to navigating the complex—but bountiful—world
of an increasingly global innovation system. The reader will find relevant case studies, con-
crete observations, and practical suggestions. The Handbook should be most useful to gov-
ernment policy-makers, senior managers of public research institutions, technology trans-
fer officers, and scientists in developing and developed countries. It is a resource that can
help governments and other institutions move forward to meet the agricultural and health
challenges of tomorrow. ■
December 2006
El Batán, Mexico
NORMAN E. BORLAUG, CIMMYT, Apdo. Postal 6-641, 06600 Mexico, D.F., Mexico. N.Borlaug@cgiar.org
xxviii | HANDBOOK OF BEST PRACTICES

Foreword by R. A. Mashelkar
Intellectual property (IP) is no longer seen as a self-contained domain in which specialists

alone work and dwell. It is viewed as an integral part of innovation-driven socio-economic
development across the globe and is increasingly becoming an effective policy instrument
with respect to a range of technological, socio-economic, and political concerns. This
Handbook of best practices in intellectual property management, with its novel and useful
Executive Guide is, therefore, an extraordinary contribution that has arrived at precisely the
right time.
The issues of generation, valuation, protection, and valorization of intellectual
property are growing in complexity. There is increasing demand for new forms of IP
protection. Economies are changing, with a new knowledge-based economy replacing
“bricks-and-mortar” based economies. Scientific knowledge is growing exponentially.
A new “geography of science” exists with innovative developing countries, such as
India, China, and Brazil, having emerged as major contributors to science and technol-
ogy. Policy-makers, researchers, and entrepreneurs have begun to appreciate the vast
resource of traditional knowledge in the developing world and to recognize the com-
plex issues connected with intellectual property therein. Not long ago, IP experts had
only to deal with inanimate objects. Today, IP involving plants and animals, including
humans, raises new complex issues and perplexing questions. Therefore, a book dealing
with guidance on these issues with authority and clarity was sorely needed. The timely
issuance of the Handbook and Executive Guide fulfills that need. The book is authorita-
tive, comprising contributions by many of the leading practitioners and thought lead-
ers in the field of IP management. The book has clarity. Its best practices and strategies
have been explained in a way that is very easy to assimilate.
Books on intellectual property that were published in the past, while in many ways
valuable, dealt only with enterprises and institutions in developed countries. This Handbook
represents the first major effort to deal with issues of concern within the developing world.
Furthermore, the role of public sector research institutions in fulfilling the socio-econom-
ic goals and objectives of developing nations, by contributing immensely to the public
good as well as to the private good, had never before been written about extensively. This
Handbook fills this void admirably.
Mashelkar RA. 2007. Foreword. In Intellectual Property Management in Health and Agricultural Innovation:
A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA:
© 2007. RA Mashelkar. Sharing the Art of IP Management. Photocopying and distribution through the Inter-
net for noncommercial purposes is permitted and encouraged.
HANDBOOK OF BEST PRACTICES | xxix

In the past, issues of emerging global innovation networks related only to North–North
partnerships. But today North–South partnerships as well as South–South partnerships
are emerging. As “technonationalism” finds a new equilibrium with “technoglobalism,”
IP management issues are becoming ever more complex. New forms of knowledge in the
private domain as well as the public domain are being created. It is no longer Linux versus
Windows—it is Linux with Windows! In general, how do we create a new nexus between
the public and the private? The Handbook has taken up this new challenge head-on.
Drafting, interpreting, and analyzing the techno-legal and business information con-
tained in IP documents requires specialized skills. Monitoring, through online databases,
the wealth of information in patents and other forms of intellectual property in order to
ward off threats to national IP portfolios is becoming critical. Analyzing such information,
for market intelligence, to identify strategic alliances, and to exploit potential niche areas
for the innovative use of intellectual property will, itself, give rise to new knowledge-based
businesses. This Handbook is invaluable from this perspective, as well.
Today, start-up companies and spinouts reach beyond Stanford, M.I.T., Cambridge,
and Oxford. Leadership in China reports that Chinese universities have set up several hun-
dred high-tech start-ups. India is introducing a Bayh-Dole-type law for Indian universities
and research institutions. In short, the phenomenon of wealth creation through the knowl-
edge generated at universities is spreading across the world. The Handbook offers valuable
guidance to university inventors and administrators with regard to licensing, negotiating
agreements, technology transfer, dispute resolution, and so on.
One of the most fascinating sections presents institutional case studies, providing in-
sights from Stanford, M.I.T., Cambridge, and other leading public sector research institu-
tions. The case studies will be most revealing for institutions in emerging economies setting
up their own technology transfer systems and wishing to emulate those universities.
When a patenting culture starts in an institution, issues of how to read and write
patent applications, how to document inventions, as well as how to prepare laboratory
notebooks and invention disclosures become crucial. In India, there was nothing to guide
us when our own “patent literacy movement” began. We learned the hard way. How much
easier and productive our work would have been had the Handbook and Executive Guide
been available to us then!
The issues of IP management in low- and middle-income countries are vastly complex.
In particular, lifesaving innovations in health and livelihood-generating innovations in ag-
riculture directly affect those countries’ socio-economic development. Special attention has
been given in the Handbook to address these issues.
I do hope this Handbook will not only help in providing guiding principles and best
practices in IP management, but will become a lighthouse that will show the way toward
a more equitable and inclusive world. After all, making intellectual property work for the
poor, whether it is owned by the public or by private entities, can be the only way to create
an innovation-led inclusive growth movement.
March 2007
Pune, India
R. A. Mashelkar, Bhatnagar Fellow, National Chemical Laboratory, Pune 411 008, India. ram@ncl.res.in.
xxx | HANDBOOK OF BEST PRACTICES

Foreword by Francis Gurry
Intellectual property (IP) has become a much richer field of endeavor as it has moved from
isolationism in the world of policy to a position of engagement. From a one-dimensional
technical specialization, intellectual property has become a multidimensional complex of
policies. The transition has not, however, been without cost, in this case in the form of
greater complexity. The range of policy fora in which intellectual property is discussed has
expanded, seemingly without limit, to encompass most international organizations, as each
of the policy domains for which these organizations are responsible confronts the implica-
tions of IP rights in the new environment of the knowledge economy. These policy inter-
sections recur at each of the regional, bilateral, and national levels. And the cast of actors
involved in the drama contains a much wider and more diverse range of characters, per-
forming a more demanding repertoire than would have been imaginable two decades ago.
Nowhere is this development more striking than in the life sciences, especially related to in-
novation for public health and agriculture, where the promises of new technology that may
serve the most fundamental of human needs vie with complex concerns over the impact of
technologies, ethical issues, and claims over fundamental justice and human rights.
Intellectual Property Management in Health and Agricultural Innovation: A Handbook
of Best Practices will serve as an invaluable resource in this challenging new environment.
The Handbook is based on a number of orientations that contribute in highly positive ways
to an understanding of the utility, value, and limitations of IP rights as a system of law, a
mechanism for policy development, and a policy instrument.
The Handbook’s first positive orientation is the practical approach embraced by it and by
the companion Executive Guide. The increased attention that intellectual property has, quite un-
derstandably, attracted has brought with it a certain tendency to conflate IP issues with some of
the grandes idées that permeate the reflections of contemporary society, such as globalization, the
ethical limits of scientific endeavor, and distributional equity. This tendency has had an adverse
effect on IP management because it has redirected the focus of intellectual property away from
practical issues; intellectual property is not necessarily neutral with respect to any of these grand
movements of thought. But we would do well to remember that policies involving intellectual
property are operational policies, the effects of which depend heavily on how the intellectual
property is deployed and used. Solid practical guidance and experience are precious resources
and they are to be found in abundance in the Handbook.
Gurry F. 2007. Foreword. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
book of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis,
California, U.S.A. Available online at www.ipHandbook.org.
© 2007. F Gurry. Sharing the Art of IP Management: Photocopying and distribution through the Internet for
noncommercial purposes is permitted and encouraged.
HANDBOOK OF BEST PRACTICES | xxxi

Practical approaches and solutions offer a welcome contrast to the notion that every-
thing has a legislative solution. Legislation, whether national or international, is of limited
value and is always without meaning unless given life through practical action or imple-
mentation. We have experienced an explosion of IP legislation at the international level in
the past 15 years, with ten new multilateral treaties being concluded between 1989 and
2000. Experience of the practical management of IP rights provides a rich knowledge base
for evaluating and harnessing the benefits of this legislative landscape and for assessing the
full range of options open to public- and private-sector actors to deliver, in practice, the
ostensible benefits of this intense phase of legislative activity.
A second very positive orientation of the Handbook is through the espousal of a meth-
odology of best practices. In the complex world of international negotiations, solutions
are often based on the identification of the lowest common denominator of the varied
positions and underlying interests of the countries involved. Such an approach is often
necessary for finding agreement in a world with, as yet, a still underdeveloped sense of the
common sphere. Few examples are to be found of agreements based on the identification
of best practices, as a positive expression of the common interest, and agreement on the
aspiration of striving toward such best practices. While the world awaits more widespread
acceptance of the methodology of best practices with regard to the international legislative
process, the Handbook makes a major contribution, by providing a description of the use
of that methodology, with respect to practical choices for the management of intellectual
property within the current legislative environment.
An understanding of best practices is essential for the Handbook’s strategic orienta-
tion—a strategic approach to the management of intellectual property. The complexity of
the environment of intellectual property demands the use of effective strategies for navi-
gating the sophisticated institutional architecture and for utilizing the potential that intel-
lectual property offers for the generation, deployment, and diffusion of new knowledge in
the commercial, scientific, and public sectors. The patent system has developed the most
comprehensive, systematic, and accessible record of humanity’s technology. Fifteen years
ago, this treasure of knowledge was known only to a small group of experts who had access
to the paper collections in which the record was stored. Digital technology has combined
with the accessibility of the Internet to make this record available, free of charge, to the
whole world. When mined intelligently, this wealth of raw data can provide the techno-
logical and policy information that enables the public and private sectors to have a more
strategic approach to the identification of research opportunities, freedom to operate, and
business strategies.
The Centre for the Management of Intellectual Property in Health Research and
Development (MIHR) and the Public Intellectual Property Resource for Agriculture
(PIPRA) are to be commended for the development and publication of the Handbook,
which will advance the understanding and practice of intellectual property in a construc-
tive, pragmatic, and highly effective manner.
March 2007
Geneva, Switzerland
Francis Gurry, Deputy Director-General, World Intellectual Property Organization (WIPO), 34, chemin des
Colombettes, 1211 Geneva 20, Switzerland. francis.gurry@wipo.int
xxxii | HANDBOOK OF BEST PRACTICES

Foreword by Howard A. Zucker
The past 25 years have witnessed major challenges and successes in the field of public health.
Carefully planned and implemented measures for prevention and control have shown their
worth in battling formidable infectious scourges: smallpox was eradicated in 1979, and
the public health menace measles has been contained. New drugs have been developed for
HIV infection, dramatically improving the prognosis of those who receive antiretroviral
therapy. Even with new menaces, such as avian influenza, and setbacks to such programs as
polio eradication, the control of communicable diseases is technically feasible.
What is technically possible, however, has not always been accessible by developing
countries. Indeed, access to appropriate treatments for diseases and conditions that dispro-
portionately affect developing countries is still a big stumbling block. Part of the problem
stems from inadequate health-services coverage: one-third of the world’s population lacks
regular access to essential modern medicine (up to one-half, in certain parts of Africa and
Asia). Direct financial constraints contribute to the problem. Drug discovery and develop-
ment is a complex, lengthy, and costly process. As recently reviewed in the World Health
Organization Report of the Commission on Intellectual Property Rights, Innovation and
Public Health (see pages 17 and 76 of that report*), even moderate estimates of the cost of
R&D for some drugs put the total between US$115 million and US$240 million.
Socio-cultural inequalities also have a profound affect on distribution. The majority of
potential patients live in the poorer parts of the world, whereas the majority of drug and
vaccine producers—and purchasers—are found in affluent countries. Although developing
countries have more than 80 percent of the world’s population, they account for only about
10% of drug sales. Major pharmaceutical producers—however great their desire to benefit
all—are answerable to market forces and to the wishes of shareholders.
For health products, both demand and supply are out of balance. Many public-health-
policy experts have pointed to the concept of IP (intellectual property) rights—the protec-
tion of intellectual and financial investments in new drugs and vaccines—as contributing
to this imbalance and inequity. As part of the ongoing international debate about the wider
aspects of the relationship between IP rights, innovation, and public health, the World
Health Assembly under the auspices of the World Health Organization decided to establish
an independent Commission to analyze the issue. The Commission’s report, released in
Zucker HA. 2007. Foreword. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. HA Zucker. Sharing the Art of IP Management: Photocopying and distribution through the Internet
HANDBOOK OF BEST PRACTICES | xxxiii

2006, states that governments around the world have recognized moral and legal issues
with respect to ensuring general access to existing drugs (see pages 8 and 9 of that report).
This access is essential for sustaining government efforts in developing countries and else-
where to control disease.
As a follow-up to the Commission’s report, a working group comprising government
officials and other key stakeholders in public health, innovation, and intellectual prop-
erty is developing a global strategy and plan of action. The goal is to secure an enhanced
and sustainable basis for need-driven health research and development aimed at curing or
treating diseases that disproportionately affect developing countries. The strategy being
discussed includes “making intellectual property work for health” as one of three major chal-
lenges. Among eight elements of the proposed plan of action for implementing the strategy
is the management of intellectual property, including such aspects as legislation, incentives,
documentation, training, and regulation.
In deliberations of the intergovernmental working group, Member States have identi-
fied IP management as a key element of progress in the fight against diseases, an element
that poses complex and sensitive problems in the realms of ethics, economics, and health
policies. This Handbook of Best Practices is both timely and highly relevant. It is hoped that
the Handbook will help build capacity in decision making at the national level by assisting
academics, researchers, and policy-makers—especially in the developing world—to clarify
many of the issues that currently influence the relationship between generalized access to
drugs and the protection of IP rights.
March 2007
Geneva, Switzerland
* http://www.who.int/intellectualproperty/report/en/index.html
Howard A. Zucker, Assistant Director-General, Health Technology and Pharmaceuticals, Representative of

the Director-General on Intellectual Property, Innovation and Public Health, World Health Organization, 20
Avenue Appia, CH-1211 Geneva 27, Switzerland. zuckerh@who.int
xxxiv | HANDBOOK OF BEST PRACTICES

Foreword by Sir Gordon Conway
From 1998 to 2004, I served as president of the Rockefeller Foundation. During that time,
it’s fair to say there was no universally accepted understanding of the exact relationship be-
tween intellectual property (IP) and affordable essential goods for the poor. The foundation
chose to approach this issue in a variety of ways, including support for the creation of the
Centre for the Management of Intellectual Property in Health Research and Development
(MIHR) and the Public Intellectual Property Resource for Agriculture (PIPRA). Until now,
these organizations have worked independently. But although they differ in many respects,
they share a common goal: to develop and disseminate best practices for the management
of IP for the public good. Now, for the first time, the organizations have joined forces to
weave together the common threads of their respective fields in order to create this unique
and comprehensive book titled IP Management in Health and Agricultural Innovation: A
Handbook of Best Practices.
I would like to reflect a bit on the founding principles of these complementary orga-
nizations. Both PIPRA and MIHR were developed to promote the ethical stewardship of
new technologies in their respective fields, based on the idea that publicly owned IP can be
a currency to improve access to health and agricultural products and know-how. Yet the idea
for each organization arose independently within The Rockefeller Foundation, following
separate consultations with the agricultural and health communities. During the time that
the foundation’s rice biotechnology program was operational, food security officers were
keenly aware that many proprietary technologies developed in public institutions were
then locked up in large corporations, a problem that was becoming evident to experts at
U.S. universities as well. The “health equity” theme encountered similar problems as the
foundation was working to establish global public–private partnerships for the develop-
ment of affordable drugs and vaccines.
How had this situation developed? In many cases, research institutions in developed
countries simply hadn’t considered the impact of their technology-licensing practices on
developing countries. Public institutions in both developed and developing countries
lacked sound policies that were specifically designed to maximize the benefits of global
public goods resulting from their own public–private partnerships in R&D. To address
these problems, local technology managers would need to become better informed and
empowered to think globally, while public research institutions would need sound insti-
Conway G. 2007. Foreword. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. G Conway. Sharing the Art of IP Management. Photocopying and distribution through the Internet
HANDBOOK OF BEST PRACTICES | xxxv

tutional policies to ensure that public investment would lead to affordable essential goods
for the poor.
So far, MIHR’s efforts have focused on capacity building, working to build a cadre
of technology management professionals in developing countries and to raise the stature
of these professionals. MIHR has also worked to develop and promote a “tool kit” of best
practices for technology managers in both developed and developing countries to encour-
age licensing practices that would benefit global health.
PIPRA, in contrast to MIHR, is a consortium made up of more than 40 major
American research universities and not-for-profit research institutions in the United States
and abroad. The consortium was established to enhance global access to agricultural tech-
nologies that are developed by its member institutions. PIPRA promotes research collabo-
ration and collective management of IP among its members for public benefit.
The PIPRA consortium is creating a broad patent/license database that will make it
possible to determine readily both the range of technologies available from its member
institutions and the manners in which these technologies will be made available to allow
for specific applications. Where freedom to operate is clear, PIPRA is developing strategies
that will promote the use of technologies by scientists to address the agricultural needs of
poor farmers in developing countries. PIPRA is also creating public sector tools for use of
improved subsistence crops for developing countries and of specialty crops to be grown in
the United States.
The PIPRA business plan envisioned future work in the building of agricultural tech-
nology–management capacity in developing countries—an effort that has been central to
the mission of MIHR. At the same time, MIHR’s business plan envisioned the creation
of a patent-and-licensing database for health technologies, and MIHR is currently explor-
ing the creation of a PIPRA-like consortium of university technology-management offices
based in developed countries. In biotechnology, the similarities between agriculture and
health range from the reagents used in the laboratory to their national regulatory and
industrial policies. The potential for collaboration between PIPRA and MIHR on a wide
range of issues is obvious. This publication is an exciting first step in that direction.
I believe the global community must do more to promote the ethical stewardship of
new technologies arising from public funding in developed countries to benefit agricul-
ture and health in the developing world. At the same time, we must begin to recognize
that developing countries themselves are increasingly capable of contributing solutions
to their own food shortages and public health challenges. This Handbook advances these
goals. It is an important step toward both building upon and transcending the work of
MIHR and PIPRA, by creating new transnational networks that involve multiple part-
ners—donors and doers alike—who believe that the power of innovation can address the
needs of the poor. ■
December 2006
London, U.K.
Sir Gordon Conway KCMG DL FRS, Chief Scientific Adviser, Department for International Development
(DFID), 1 Palace Street, London, SW1E 5HE, U.K. g-conway@dfid.gov.uk
xxxvi | HANDBOOK OF BEST PRACTICES

Message from the Editorial Board:
From Best Principles to Best Practice
As members of the Editorial Board, we represent not only a diversity of professional back-
grounds, institutions, and geographic regions, but also a diversity of viewpoints about in-
tellectual property (IP). We agree on many things and we share a common goal: to broaden
and accelerate access—especially in developing countries—to life-saving and poverty-al-
leviating innovations in health and agriculture. A fundamental vision of a more equitable
world—represented in the points that follow—binds us together in this endeavor.
• Intellectual property is a tool to foster innovation. Intellectual property is

here. And here to stay. Whether viewed as a legal concept, a social construct, a
business asset, or an instrument to achieve humanitarian objectives, the value
of intellectual property cannot be disputed. The notion that inventions can
become property and can therefore be owned and sold, has encouraged scien-
tists and researchers to invent, and entrepreneurs and companies to invest in
innovation, by allowing them to profit from the resulting technologies. But
by permitting entrepreneurs to exclude competitors and set higher prices, IP
protection may also prevent some individuals, or populations, from being able
to access products. There are many ways, however, that intellectual property
can be utilized and distributed. Through the publishing of this Handbook, the
companion Executive Guide, and the online version, we intend to help put
intellectual property to work for the public sector and the public interest. We
agree that intellectual property should be neither feared, nor blindly embraced;
rather, it should be managed to maximize the benefits of innovation for all of
society, especially the poor.
• IP rights are a compromise and an imperfect solution. They represent the

search for balance between making all knowledge freely available within the
public domain and granting ownership of valuable discoveries to the inven-
tors. Historically, we have seen that this balance encourages investment—and
reinvestment—in innovation, although this innovation too infrequently is di-
rected toward the needs of the poor. Reaching an appropriate balance requires
Krattiger A, RT Mahoney, L Nelsen, JA Thomson, AB Bennett, K Satyanarayana, GD Graff, C Fernandez and SP

Kowalski. 2007. From Best Principles to Best Practice: Message from the Editorial Board. In Intellectual Property
Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L
Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. A Krattiger, et al. Sharing the Art of IP Management: Photocopying and distribution through the
Internet for noncommercial purposes is permitted and encouraged.
HANDBOOK OF BEST PRACTICES | xxxvii

continuous, sound IP management, and our desire to encourage this was a ma-
jor impetus for compiling this Handbook and for writing the Executive Guide.
Fortunately, as numerous case studies have shown, the public sector can craft
effective solutions that can achieve, or at least approach, a suitable balance. This
can be accomplished by using the existing IP system, especially as it addresses
situations in which companies agree to donate or otherwise share their intel-
lectual property.
• Genius can flourish anywhere, and the emerging global systems of innovation
in health and agriculture open up new prospects for innovation everywhere.
This notion has profound implications for the management of innovation,
technology transfer, market competition, and economic development in every
country, regardless of its economic status. Provided with opportunities and re-
sources, scientists and scholars from any locale can create promising inventions
with the potential to become valuable technology. And whether inventions are
home grown or come from outside, authoritative IP management will play a
crucial role in enabling and preserving access to the resulting innovations.
• Policies to promote the creation and management of intellectual property by

public sector institutions should give first priority to advancing the mission
of those institutions. In most countries, the mission of universities is edu-
cation, research, and public service. Universities are not revenue generators.
Technology transfer should support the larger mission, and not merely the
budgets, of those institutions.
• The historical trend has been for intellectual property to benefit mostly the
affluent. This is due, in part, to the fact that insufficient attention has been
paid by the public sector to managing intellectual property. This lack of fo-
cused attention must be corrected. Public sector IP management is a rather
young discipline, and there have been enormous changes in the public sector’s
involvement in health research since the 1970s and in agri-biotechnology since
the 1990s. The public sector is only now beginning to appreciate how it can
use its own intellectual property—and leverage that of others—to help meet its
social mission, including its responsibilities to the poor. We believe that there
is growing interest, within both the public and private sectors, in using intel-
lectual property for public benefit but, also, a lack of knowledge and capacity.
This Handbook is designed to help address these needs.
We hope this Handbook and Executive Guide will encourage all parties to take greater
advantage of the unprecedented opportunity to benefit from the strategic management of
intellectual property aimed at promoting the public welfare—especially those people who
have, until now, been unable to partake in technology’s benefits—and that this will con-
tribute to building a healthier and more equitable world. ■
xxxviii | HANDBOOK OF BEST PRACTICES

Anatole Krattiger, Research Professor, the Biodesign Institute at Arizona State University; Chair,
bioDevelopments-International Institute; and Adjunct Professor, Cornell University, P.O. Box 26, Interlaken,
NY, 14847, U.S.A. afk3@cornell.edu
Richard T. Mahoney, Director, Vaccine Access, Pediatric Dengue Vaccine Initiative, International Vaccine
Institute, San Bongcheon-7dong, Kwanak-ku, Seoul 151-818, Republic of Korea. rmahoney@pdvi.org
Lita Nelsen, Director, M.I.T. Technology Licensing Office, Massachusetts Institute of Technology, Five Cambridge
Center, Kendall Square, Room NE25-230, Cambridge, MA, 02142-1493, U.S.A. lita@MIT.edu
Jennifer A. Thomson, Professor, Department of Molecular and Cell Biology, University of Cape Town, Private
Bag, Rondebosch 7701, South Africa. Jennifer.Thomson@uct.ac.za
Alan B. Bennett, Associate Vice Chancellor and Executive Director, PIPRA, Office of Research, University of
California, Davis, 1850 Research Park Drive, Davis, CA, 95616, U.S.A. abbennett@ucdavis.edu
Kanikaram Satyanarayana, Chief, IP Rights Unit, Indian Council of Medical Research, Ramalingaswami
Bhawan, Ansari Nagar, New Delhi 110029, India. kanikaram_s@yahoo.com
Gregory D. Graff, Research Economist, PIPRA; and Visiting Research Fellow, Department of Agricultural
and Resource Economics, University of California, Berkeley, PIPRA, Plant Sciences, Mail Stop 5, University of
California, Davis, CA, 95616, U.S.A. gdgraff@ucdavis.edu
Carlos Fernandez, Director, Strategic Studies, Foundation for Agriculture Innovation (FIA), Loreley 1582,
La Reina, Santiago, Chile. carlos.fernandez@fia.com
Stanley P. Kowalski, The Franklin Pierce Law Center, 2 White Street, Concord, New Hampshire, 03301,
U.S.A. spk3@cornell.edu and skowalski@piercelaw.edu
Pictured above, from left to right: Carlos Fernandez, Alan Bennett,

Anatole Krattiger, Lita Nelsen, Jennifer Thomson, Kanikaram
Satyanarayana, and Richard Mahoney
Left: Gregory Graff and Stanley Kowalski
HANDBOOK OF BEST PRACTICES | xxxix

Prelude
The many voices in this Handbook make up an expert chorus in the field of intellectual
property (IP) management. Motivated by their passion for a better world, these virtuosos
volunteered to share their experiences as part of a broader effort to bring innovation to the
poor and improve the lives of millions of people. These selfless, ground-breaking experts
bring to mind another revolutionary, Ludwig van Beethoven, who declared, “I have never
thought of writing for reputation and honor. What I have in my heart must come out;
that is the reason why I compose.” The compositions here are obviously less sublime than
Beethoven’s, but their potential to inspire is nonetheless comparable: they are always writ-
ten from the heart.
The creativity in these chapters reflects the fact that IP management is an emerging
discipline, one best described not as science but as art. This is why the title pages of ev-
ery chapter announce that this Handbook is “Sharing the Art of IP Management.” These
chapters offer lucid, cogent analyses of the role of intellectual property in many practical
contexts and give free play to the imagination, inspiring readers to try new strategies, risk
improvisation, and embrace new motifs. Such creativity is a necessary response to the in-
creasing complexity and importance of the nexus of intellectual property and the public
good.
Given that intellectual property is a critical institutional management and global pol-
icy issue, it can no longer be ignored by public sector-research institutions or left to the
legal establishment. Policy-makers, leaders of scientific institutions, licensing experts, and
scientists everywhere all need to act in concert to make the most of their work. But protect-
ing intellectual property is just the beginning. The real challenge is to use one’s intellectual
property and to leverage that of others. This approach is at least as important for the public
sector as it is for the private sector, given its humanitarian and socio-economic mandate.
This concerto grosso gathers the experiences of IP professionals from North, South,
East, and West, and offers innovative knowledge and strategies that can be applied to many
institutional settings. Because increasing numbers of developing countries are seeking to
optimize the economic, social, and cultural value of their IP assets and resources, I believe
this Handbook will find a ready audience. The suite of chapters, composed by nearly 200
authors, offers pragmatic suggestions and reference resources that will pave the way to
greater access to health solutions and agricultural innovations. The authors write about
Krattiger A. 2007. Prelude. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
book of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A.
Available online at www.ipHandbook.org.
© 2007. A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Internet
HANDBOOK OF BEST PRACTICES | xli

the topics from various perspectives, an approach that inevitably led to some overlap. This
overlap allows the reader to see a topic from several perspectives. The authors have distinc-
tive voices, and, as with Beethoven’s famous counterpoint, the distinctive parts are precisely
what make the whole so compelling.
Driven by rapid advances in science and technology and by the dawn of a worldwide,
networked society, the increasing economic and humanitarian centrality of intellectual
property will lead to more sophisticated and complex institutional infrastructures. The
process is happening even as you read this Prelude. This is no time, therefore, to remain in
complacent isolation. It is time to join your voices—and aggregate your values and your ac-
tions—to form a network of effective partnerships. A solo performance will lack the power
of a full orchestra, and solo efforts at innovation will be stymied without collaboration.
The strength of this Handbook is the depth and breadth of its information. But just
as notes only become music when the bow meets the viola string and the timpani sounds,
so these chapters will matter only when the reader translates them into action. My high-
est hope is that this Handbook will incite a passionate, rousing performance, one that will
touch the lives of others and reverberate far beyond these pages.
Anatole Krattiger
Editor-in-Chief
Anatole Krattiger, Research Professor, the Biodesign Institute at Arizona State University; Chair, bioDe-
velopments-International Institute; and Adjunct Professor, Cornell University. PO Box 26, Interlaken, NY,
14847, U.S.A. afk3@cornell.edu
xlii | HANDBOOK OF BEST PRACTICES

Acknowledgments
Like the progress of any invention from bench to bedside (to use a health-related meta-
phor), or from sowing to harvesting (to borrow from agriculture), the road leading to the
creation of this Handbook, and its companion Executive Guide and online version, has
required a great deal of effort and more than a little good fortune. As editor-in-chief, I have
discovered that compiling a book composed of 158 chapters and prefatory comments,
written by nearly 200 authors, presents many unique challenges but offers many more
unique rewards.
The authors, first and foremost, deserve special thanks for their willingness to share
their experiences and insights, their cooperation in meeting sometimes rather tight dead-
lines, and for their readiness to volunteer their valuable time (thanks are also due to their
employers for allowing the authors to take the time to write). The hard work of these au-
thors is the good fortune of any reader of this Handbook.
Special thanks go to the Rockefeller Foundation, particularly Ariel Pablos-Méndez
and Charles Gardner, in health; Gary Toenniessen and Deborah Delmer, in agriculture;
and Jacob Werksman (now at the World Resources Institute). Under their leadership, the
Centre for the Management of Intellectual Property in Health Research and Development
(MIHR) and the Public Intellectual Property Resource for Agriculture (PIPRA) were estab-
lished several years ago. Their inspired vision and determination, along with the foresight
of Judith Rodin, president of the Rockefeller Foundation, has enabled us to bring you this
Handbook. On behalf of all the users of the Handbook, the Editorial Board, and MIHR
and PIPRA, I would like to offer my sincere appreciation to the Rockefeller Foundation
for its commitment to and primary funding of this venture. Funding from the Ewing
Marion Kauffman Foundation is also gratefully acknowledged. Lesa Mitchell’s interest in
the Executive Guide was particularly welcome. Their combined sponsorship of these two
foundations made the preparation of this Handbook possible. We would like to emphasize,
however, that all of the policy, content, and editorial decisions were the sole purview of
the Editorial Board. Naturally, as editor-in-chief, I take full responsibility for any errors or
omissions.
We are grateful for the generosity of our Distribution Supporters. After the Handbook
content had been prepared, a number of organizations were provided copies of sample
chapters which prompted some to come forward to purchase copies for wide distribution
in low- and middle-income countries. It is particularly noteworthy that the Distribution
Supporters include several institutions from developing economies, in addition to aca-
demic and public-sector research institutions, philanthropic foundations, and companies.
The impact of this Handbook will be greatly enhanced by the support of the Distribution
Supporters–including those that we hope will come forward in the future.
HANDBOOK OF BEST PRACTICES | xliii

The Editorial Board would like to express its gratitude to all the members of the Board
of Patrons for their generous endorsement of the Handbook. Their wise counsel is much
valued.
The Editorial Board also wishes to thank the Association of University Technology
Managers (AUTM) for allowing us to choose, update, and edit selected papers from the
AUTM Technology Transfer Practice Manual, which appear as chapters in this Handbook, as
well as for giving us permission to reproduce case studies from the association’s Better World
Project and Reports from the Field (which appear in the Executive Guide). These contribu-
tions add much breadth and depth to the Handbook’s content. Mark Crowell, John Fraser,
Stu Gordon, Vicki Loise, and Lisa Richter were all especially helpful. The Editorial Board
would also like to thank the Public Interest Intellectual Property Advisors, Inc. (PIIPA),
especially Michael Gollin and Steven Price, for assistance in enlisting the help of the law
firms within its network; members of those law firms contributed many important chap-
ters. The individuals proved their commitment to PIIPA’s ideals by responding so promptly
to our request and willingly contributing their ideas and experiences to the Handbook.
The University Companies Association of the United Kingdom (UNICO) deserves ap-
preciation for sharing a valuable UNICO Practical Guide. My sincere gratitude also goes
to the Guide’s main author, Mark Anderson, of Anderson & Company, for his coopera-
tion during the editing phase. I extend my gratitude to Intellectual Asset Magazine (IAM,
published by Globe White Page, Ltd.) and particularly its editor, Joff Wild, for allowing
the Handbook’s editors to edit and update an important chapter that previously appeared
as an article in IAM. Thanks go also to Les Nouvelles, published by the Licensing Executives
Society, for allowing us to revise two of its articles for inclusion in the Handbook.
Particular thanks go to the Whitehead Institute for Biomedical Research, which,
through the good offices of Amina Hamzaoui, granted us a license to its valuable, pro-
prietary patent- and agreements-management system, WIIPS™ (the Whitehead Institute
Intellectual Property System), and granted us the right to sublicense the system to technol-
ogy transfer offices through the online version of the Handbook.
The members of the Editorial Board are most grateful to the colleagues at MIHR in
Oxford, U.K. First, the Editorial Board would like to thank Robert Eiss, CEO, for his
resourcefulness in facilitating progress on the Handbook. Thanks are due also to Junko
Chapman for coordinating, most diligently and always with characteristic Japanese cour-
teousness, all of the authors’ biographies, deeds, and photographs (the latter appear in the
online version of the Handbook). Rachelle Harris deserves special appreciation for her in-
dustrious help—and always enthusiastic support—on many different crucial fronts. Thanks
to the administrative staff at MIHR who always went the extra mile to get things done.
Sincere thanks go to the entire Board of Trustees of MIHR, particularly the chair, Pramilla
Senanayake, for their foresight in establishing a Board subcommittee for the Handbook.
That committee, composed of Lita Nelsen, Richard T. Mahoney, and Jerry Keusch, was
astonishingly effective. I thank them for their pragmatism and encouragement.
This endeavor has truly been a collaborative effort between MIHR and PIPRA—an
essential partnership that made this Handbook possible. Members of PIPRA’s staff, led by
Alan Bennett and Greg Graff (both members of the Editorial Board), Sara Boettiger, and
Cecilia Chi-Ham, were always a pleasure to work with. Their efforts, always indispensable,
were executed with PIPRA’s characteristic professionalism and efficiency.
Without its skillful and effective editorial and production team, this Handbook could
not have taken shape nor reached its high level of readability and quality. My personal and
most sincere thanks go to David Alvarez, for his unstinting help and commitment. He
xliv | HANDBOOK OF BEST PRACTICES

worked with me throughout this project and his good humor made crunch times more
bearable. Thanks also to his most able and enthusiastic manuscript editors, Jacqueline
Stuhmiller and Katy Dixon. I am most grateful also to Paula Douglass for her diligent,
sharp, and sensitive editing of the manuscripts and her exacting standards. I wish to espe-
cially acknowledge the efforts of the contributing editors, Stan Kowalski and Greg Graff,
for their perseverance. Their ability to organize and process complex and diverse material
proved indispensable.
The elegant design work by Linette Lao will be evident to anyone holding this
Handbook. She is truly a pleasure to work with, and I am grateful to her staff—Mary Penn,
Julie Morelli, and Kristin Schrader—who sometimes worked around the clock on the lay-
out and design of this book. On behalf of all of the Handbook’s readers, I thank eagle-eyed
Barry Hall who performed the final copyediting of each and every chapter.
Stan, David, Jacqueline, Paula, Greg, Linette, Mary, and Barry deserve special mention
for extraordinary dedication, which allowed us to go to press in a timely manner.
It is a particular pleasure to acknowledge the creativity and superb work of the staff of
Dynamic Diagrams, Inc.—Lisa Agustin and her team of Timothy Roy, Fred Toth, Matt
DeMeis, and Henry Woodbury—for their excellent work in developing the online version
of this Handbook. Their enthusiasm and focus have taken the online version further than
we could ever have imagined. Jacob Werksman’s foresight proved particularly valuable.
A special word of appreciation goes to Charles Arntzen at the Biodesign Institute at
Arizona State University for having recognized the importance of this Handbook and for
his thoughtful support. Michael Crow, president of Arizona State University, with his vi-
sion and enthusiasm, encouraged me both directly and indirectly. I am indebted to John
Dodds of Dodds & Associates for having taught me a great deal about the ins and outs of
intellectual property management. His advice on legal matters during the chapter review
process was extremely helpful.
I have been most fortunate, as editor-in-chief, to have had the assistance and support
of an outstanding Editorial Board. The hard work, deep commitment, expert guidance,
and collective experience of these dedicated and talented Board members have inspired
and motivated me, personally and professionally, and have kept this project on course. I am
grateful for having had the opportunity to lead this worthwhile and far-reaching endeavor
with these fine individuals.
Finally, on behalf of the Editorial Board, I would specifically like to thank Richard
T. Mahoney, co-editor-in-chief of this Handbook and sole editor of an earlier and more
concise version. Richard’s book—and life work—inspired me throughout the work on this
Handbook. His enthusiastic support and creativity and generous investment of time and
energy over the last two years were always delivered allegro maestoso. His good humor and
pragmatism—which helped keep everything in perspective—have contributed in immea-
surable ways to creating this Handbook and making it available to you. ■
Anatole Krattiger
Editor-in-Chief
HANDBOOK OF BEST PRACTICES | xlv

About MIHR
Centre for the Management of Intellectual Property
in Health Research and Development
To contribute to a world in which the thoughtful stewardship and creative
management of intellectual property leads to better health for the poorest.
Over successive generations, innovations result- MIHR also works to ensure that holders and
ing from research have dramatically improved managers of technology worldwide are aware of
life expectancy and quality of life. However, the the need for and potential applicability of their in-
benefits of these innovations are not reaching the ventions for improving health in developing coun-
populations with the greatest need. Stark dis- tries. The Centre accomplishes this by facilitating
parities persist with regard to health status both local development of appropriate, affordable, and
among and within populations. Today there is innovative biomedical technologies for poor pop-
an urgent need to identify practical mechanisms ulations. MIHR contributes to economic devel-
that translate R&D investments more effectively opment by enhancing essential linkages between
into affordable interventions for diseases of the sectors, institutions, and disciplines involved in
poor. Central to resolving the issue is the need to biomedical innovation and by enhancing the ca-
develop and promote forms of IP management pabilities relevant to technology transfer that con-
and technology transfer practices that enable and tribute to economic and social welfare.
empower local public–private technology part-
nerships, that direct them toward public health MIHR’s core objectives are:
priorities, and that follow licensing practices that • to create a broad and sustained program
ensure access for the poor. of capacity building in IP and technology
MIHR was established in 2002 with funds management to promote global health equi-
from The Rockefeller Foundation, to advance ty through North–South and South–South
the goal of improving availability of health institutional partnerships and networks
products needed by the poorest in develop- • to help ensure that access considerations for
ing countries. MIHR is a not-for-profit global global health are pursued in parallel with
organization headquartered in Oxford, U.K. product development, so that successfully
Its foundational tenet is that improved man- developed products become available and
agement of innovation and intellectual prop- affordable to populations in need
erty (IP) by the public sector is a key means to • to develop technology and IP management
achieve that goal. approaches that create incentives for re-
The organization works to improve the search cooperation in global health by sup-
processes of innovation management in the porting analysis and new models
biomedical arena by building skills, know-how,
and awareness in developing countries and by MIHR achieves its goals by working through
contributing to the understanding of sustain- and with other institutions. It functions with
able innovation and IP policies that affect global a small core operational staff, a Committee of
health research. Interested Parties, and a Board of Trustees. n
HANDBOOK OF BEST PRACTICES | xlvii

MIHR Board of Trustees
Prof. Edward Ayensu Dr. Carlos Morel

Chairman of the Council for Scientific and (Chair, MIHR Committee of
Industrial Research (CSIR), Ghana Interested Parties)
Scientific Director, Oswaldo Cruz Foundation
Mr. Robert B. Eiss (FIOCRUZ), Brazil
CEO of MIHR, U.K.
Ms. Lita Nelsen
Dr. Mahmoud F. Fathalla Director, M.I.T. Technology Licensing Office,
Professor of Obstetrics and Gynecology, Massachusetts Institute of Technology, U.S.A.
Assiut University, Egypt
Dr. Ariel Pablos-Mendez
Dr. Cathy Garner Managing Director,
Managing Director of Manchester: The Rockefeller Foundation, U.S.A.
Knowledge Capital, U.K.
Dr. S. Ramachandran
Prof. Gerald Keusch (Chairman Emeritus)
(Vice-Chair), Assistant Provost for Global Secretary (ret.), Department of Science &
Health at Boston University Medical Center Technology, Government of India, India
(BUMC) and Associate Dean for Global
Health at the Boston University School of Dr. Pramilla Senanayake
Public Health (BUSPH), U.S.A. (Chair)
MBBS DTPH Ph.D. FRCOG,
Dr. S. Anand Kumar Sri Lanka
Director, AstraZeneca Research Foundation,
India Dr. Sandy Thomas
Director of the Nuffield Council on Bioethics,
Prof. Richard T. Mahoney U.K.
Director, Global Access, Pediatric Dengue
Vaccine Initiative, Seoul, Korea
xlviii | HANDBOOK OF BEST PRACTICES

About PIPRA
Public Intellectual Property Resource for Agriculture
A public sector collaboration for agricultural IP management:
Enabling access to intellectual property for the development of improved crops
Patenting of agricultural biotechnologies has ex- was created as a result of lengthy consultations
panded dramatically over the last 25 years, and involving two philanthropic foundations, the
today a lack of access to patented technologies Rockefeller and McKnight foundations, and ap-
represents a significant barrier to new crop devel- proximately 12 public and/or private nonprofit
opment. Companies are addressing the develop- agricultural research institutions. The consulta-
ment of major crops and large market opportuni- tions identified many of the IP issues and barriers
ties, yet most crops in developing countries and that were affecting the ability of public institu-
specialty crops in developed countries are being tions to address their historic mission of deploy-
neglected. Developing countries are not receiving ing new agricultural technologies.
research investment or opportunties to benefit In response, PIPRA has established a strategy
from the many promising technologies developed and a series of programs that promote broad ac-
and patented by both public and private sector cess to agricultural technologies. The strategy is
researchers. based on bringing together a strong membership
The public sector and publicly supported base of the major public or nonprofit agricultural
research continues to play a major role, as it has technology developers of the world. PIPRA is
historically, in agricultural innovation. This is par- seeking, through its membership base, to build a
ticularly true in developing countries where the framework of open and collaborative communi-
public sector and publicly supported research in- cation and principles for IP management and to
stitutions are virtually the only innovative forces. begin to coordinate the highly fragmented port-
In spite of this and the now well-established im- folio of agricultural intellectual property owned
portance of intellectual property (IP) in agricul- by its member institutions.
tural innovation, public sector institutions have PIPRA does not subscribe to a single phi-
not developed the skill base and infrastructure losophy or approach to addressing IP issues.
needed to actively manage intellectual property. Instead, PIPRA believes in employing a wide
Consequently, these institutions find that their range of available IP management tactics. These
research programs may be blocked at the point of include defensive publishing, trademarks, bail-
application or that they are unable to effectively ment, open source, patenting, and careful licens-
transfer their own technology for private sector ing. In each case PIPRA chooses the best tools
development. available to achieve the goals of a specific project.
The primary objective of the Public This approach is practical in that it recognizes
Intellectual Property Resource for Agriculture that technologies may need to be sourced from a
(PIPRA) is to promote access to agricultural tech- wide range of public and private technology de-
nologies developed in public and/or private non- velopers who have their own objectives and their
profit research institutions for both humanitar- own IP strategies. PIPRA has developed sufficient
ian and neglected commercial purposes. PIPRA internal capability to work flexibly in navigating
HANDBOOK OF BEST PRACTICES | xlix

a path to enable agricultural projects that meet
PIPRA Executive Committee
the complementary objectives of a community of
public/nonprofit technology developers.
PIPRA’s services, its broad membership base, Dr. Gerard Barry
its extensive knowledge of public sector agricul- Golden Rice Network Coordinator,
ture, its legal network, and its capacity for legal International Rice Research Institute,
Philippines
research, work to reduce the IP hurdles that exist
along the path from research, through develop- Dr. Alan Bennett
ment, to distribution. This work enables the Executive Director of PIPRA,
strategic use of IP rights to further the goals of Associate Vice Chancellor, Office of
public sector research and reduces the diversion Research, University of California, Davis,
of individual institutional resources into the legal U.S.A.
issues of technology access and IP rights.
Dr. John Byatt
PIPRA’s primary strategies to improve access
Associate Director, Life Sciences,
to technologies are to:
University of Florida, U.S.A.
• provide an IP clearinghouse for access to
public-sector patented technologies Prof. Robert Goodman
• provide a resource for the analysis of pat- Dean of the School of Environmental and
ented technologies for implementation of Biological Sciences, Rutgers University,
specific projects U.S.A.
• develop gene transfer and gene-based-trait
DR. KEITH JONES
technologies that have maximum legal free-
(Chair)
dom to operate
Director, Intellectual Property
• manage pools of public sector technologies Administration, Washington State
to promote availability and reduce transac- University, U.S.A.
tion costs associated with the transfer of
rights to patented technologies Dr. Charles kitima
• support the development of IP manage- Vice Chancellor, St. Augustine University
ment best practices and capacity enhance- of Tanzania, Tanzania
ment in developing countries. n
DR. ALAN McHUGHEN
Biotechnology Specialist, University of
California, Riverside, U.S.A.
Dr. IRVIN METTLER

Senior Licensing Officer, Office of
Technology Licensing, University of
California, Berkeley, U.S.A.
| HANDBOOK OF BEST PRACTICES

About the Online Version of this Handbook
visit www.ipHandbook.org
HANDBOOK OF BEST PRACTICES | li

Disclaimer
The publishers, editors, and authors have given their best efforts in preparing this publica-
tion, and, while we believe the Handbook (including the Executive Guide and the online
version) will all be useful resources relating to intellectual property and the management
thereof, the Handbook is not intended to serve as the sole source of information on the top-
ic. Readers are advised to seek independent legal counsel and/or other professional advice
for all intellectual property and contractual matters with regard to appropriate practices for
specific situations and countries. No warranties or representations of any kind are made as
to the accuracy, usefulness, or completeness of any suggestions or information provided in
the Handbook. Neither MIHR, PIPRA, nor any of the contributors to the Handbook, nor
the editors, funding agencies, or sponsors will be liable for any loss or damage arising out of
the use of any information or suggestions in the Handbook. This comprehensive limitation
of liability applies to all damages of any kind, including (without limitation) compensa-
tory, direct, or consequential damages; loss of data, income, or profit; loss of or damage
to property; and claims of third parties. All Web pages have last been accessed between 15
February and 18 March 2007.
lii | HANDBOOK OF BEST PRACTICES

1
SECTION
Innovation and IP Management:

A Contextual Overview
CHAPTER 1.1
The Role of IP Management

Richard T. Mahoney, Director, Vaccine Access, Pediatric Dengue Vaccine Initiative,
Anatole Krattiger, Research Professor, the Biodesign Institute at Arizona State University;
Chair, bioDevelopments-International Institute; and Adjunct Professor, Cornell University, U.S.A.
ABSTRACT policies, and d) the strengthening of IP court systems

Recent national and international changes in intellectual and patent offices.
property (IP) legislative frameworks are likely to have These are what best practices in IP management are all
profound effects on the ways in which health and agri- about, and what this Handbook seeks to help bring about
cultural innovations reach the poor and on how public and promote.
and private research and development institutions pursue
their work. Whereas IP rights are sometimes viewed as
creating barriers to access to innovations in health and ag-
riculture, we argue that it is not intellectual property, per 1. Introduction
se, that raises barriers, but rather how intellectual prop- Changes in both national and international legis-
erty is used and managed, particularly by public sector
lative frameworks have profoundly affected how
institutions. Above all, we argue that intellectual property
is only one of six components of innovation. It is rarely innovation reaches the poor and how public and
the most important component. private research and development institutions
The chapter reviews recent dramatic developments pursue their work. In this regard, the experience
in institutional aspects of intellectual property, as well of the United States with the Bayh-Dole Act of
as global policy shifts and international studies that,
among other outcomes, affected the environment for the 1980, which harmonized the numerous IP own-
creation of MIHR and PIPRA. In the field of health, ership policies of U.S. government agencies, is
changes have been particularly pronounced with the quite instructive.1 The act significantly changed
founding of a new form of institution for innovation: how academic institutions manage intellectual
product-development partnerships (PDPs). As a result,
we make the case for a fundamental shift in the way in
property. Universities had to adapt to an increas-
which IP management in health and agricultural innova- ingly knowledge-based economy, a trend that is
tion is viewed and conducted. In addition, we argue that continuing and even intensifying. And because of
IP management should be seen as an important element the increasing interaction between developed and
in developing countries’ strategies to become more in-
developing economies and the increased number
novative in addressing diseases of poverty, the alleviation
of poverty, and malnutrition. The public sector can em- and complexity of relationships between the pub-
ploy new ways to achieve its goals within the evolving IP lic and private sectors, the need for understand-
framework. These new ways can help it better mobilize ing these partnerships and how they can best op-
the resources to take a product through the process of erate is becoming compelling. Some of the major
innovation. These new ways should include, a) creative
licensing practices that ensure global access and afford- changes in this environment of the last decade in
ability, b) improved institutional IP management capa- health, agriculture, and intellectual property itself
bilities, c) the formulation of comprehensive national IP are shown in Box 1.
Mahoney RT and A Krattiger. The Role of IP Management in Health and Agricultural Innovation. In Intellectual Property
Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et
al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. RT Mahoney and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Inter-
HANDBOOK OF BEST PRACTICES |

MAHONEY & KRATTIGER
In addition, the last several years have been • 2003: The creation, within AUTM, of the
marked both by big changes in institutional IP Technology Managers for Global Health
infrastructures and by dramatic developments (TMGH) group
in the world of non-governmental organizations • 2004: The founding of the Public Intellectual
(NGOs), public sector research institutions, and Property Resource for Agriculture (PIPRA)
public–private partnerships (see Box 2 for a dis-
cussion on agricultural biotechnology-related as- In the field of health, the changes have been
pects). These developments promise to reshape no less dramatic. A number of product-develop-
the global IP environment, especially for devel- ment partnerships (PDPs), concerned with most
oping countries. Some of the more significant of of the high priority diseases in developing coun-
these events include:2 tries, emerged during the 1990s and 2000s. PDPs
• 2003: The founding of the African must deal daily with IP management issues, and
Agricultural Technology Foundation the lessons they are learning about the role of in-
(AATF) tellectual property are of great interest. MIHR
• 2003: The founding of the Centre for has convened two meetings to analyze IP man-
the Management of Intellectual Property agement in PDPs, both of which took place at the
in Health Research and Development Aeras Global TB Vaccine Foundation, the first in
(MIHR) December 2004 and the second in July 2006.3
In fact, MIHR’s founding and development in
Box 1: Major Recent Events in the Global IP system
Concerning IP in General
• 2002: Report of the Commission on Intellectual Property Rights of the United Kingdom4
• 2005: Entry of many low- and middle-income countries into TRIPS on January 1
Primarily Health-Related
• 2001: Meeting of the 4th Ministerial Conference of the World Trade Organization (WTO),
which adopted the Doha Declaration concerning the TRIPS Agreement and Public Health5
• 2005: Approval of the amendment to the TRIPS Agreement providing for the supply of drugs
manufactured under compulsory licenses for developing countries without manufacturing
capability
• 2006: Report of the WHO Commission on Intellectual Property Rights, Innovation and
Public Health6
Primarily Agriculture-Related
• 2001: Creation of the World Intellectual Property Organization (WIPO) Intergovernmental
Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and
Folklore7
• 2001: Creation of the International Treaty on Plant Genetic Resources for Food and
Agriculture, under the Food and Agriculture Organization of the United Nations (FAO)
• 2002: Establishment of the Global Crop Diversity Trust, by FAO and the World Bank
• 2002: Adoption of the Bonn Guidelines on Access to Genetic Resources and Fair and
Equitable Sharing of Benefits Arising out of Their Utilization, under the Convention on
Biological Diversity

CHAPTER 1.1
Box 2: Putting Public-Sector Agricultural Intellectual Property to Work
During the 1990s, the field of agricultural biotechnology was consolidated. A few large companies
owned important elements of the enabling technology platforms. That ownership, coupled
with strong R&D capability, existing marketing and distribution networks, and substantial cash
flows from agro-chemicals and seeds, gave the companies incentives to invest heavily in the
development of agricultural biotechnology products. With these increased R&D investments,
the companies became the dominant providers of new crop genetics and genetically modified
crops.8 During the same period, biosafety regulatory requirements led to greatly increased R&D
costs that slowed public sector developments of agri-biotechnology crops, especially public
sector crop breeding programs.9 Research on minor crops and on traits of low economic value
in developing country agriculture also decreased, even though these crops and traits have high
social, humanitarian, and environmental value.10
A significant turning point in the relationship between the public sector and intellectual property
in agriculture occurred when a freedom-to-operate (FTO) review, commissioned by the Rockefeller
Foundation, led by one of us (AK), of pro-Vitamin A-containing Golden Rice showed that around
70 patents and patent applications were applicable to the improved rice.11 Fortunately, all of these
constraints were resolved in a few months by a straightforward IP management strategy (grant
back of rights to a single entity that could use the rights for the benefit of developing countries).
The rapid resolution of these obstacles demonstrated, first of all, how effective IP management,
coupled with strong collaborations between the public and private sectors, can help achieve
humanitarian goals. The IP constraints did not delay the development of the product, and their
resolution did not cost much, especially when compared to the overall R&D costs. The FTO review,
moreover, served as a wake-up call to the public sector to pay more attention to IP management
as a powerful tool.
Concern about potential constraints on public sector research and innovation in agriculture
spurred the public sector’s interest in intellectual property. One important response was work
that led to the formation of the Public Intellectual Property Resource for Agriculture (PIPRA).12
Supported by the Rockefeller and McKnight foundations, among others, PIPRA is a public sector
initiative that recognizes that continuing and enhancing relationships with the private sector are
critical components of successfully utilizing intellectual property to meet public sector goals.
As part of its initial work, PIPRA began a study of the structure of IP ownership in agricultural
biotechnology. In the words of the study’s authors, Richard C. Atkinson and colleagues:
This study found that roughly one-fourth of the patented inventions were made by public-sector
researchers, which is substantially larger than the IP portfolio held by any single agricultural
biotechnology company. It is, however, highly fragmented across institutions and across technology
categories. And much of this IP has been licensed, often under terms that are confidential but which
have likely resulted in greatly restricted access to the underlying technologies. This study suggested
that, apart from a few important exceptions, public-sector scientists have invented many of the
types of technologies that are necessary to conduct basic biological research and develop new
transgenic plant varieties. For instance, they have developed technologies to transfer genes into
plant cells; have characterized specific DNA elements that drive unique patterns of gene expression;
and have identified many genes that confer important plant traits. Such discoveries underscore
the fact that public-sector research institutions have been significant sources of technological
innovation … .13
We believe that these innovations can be put to work more directly to help the poor with more
focused public sector IP management.

MAHONEY & KRATTIGER
many ways reflect, and perhaps have helped to in- development and availability of new health tech-
fluence, the changing environment of IP manage- nologies that addressed diseases affecting people
ment. We summarize here the story of MIHR’s in developing countries. In the 1990s, the staff
founding to help understand the major changes had observed a significant amount of agricultural
that have occurred and are underway. intellectual property captured by multinational
We believe that the events of the last decade companies, a situation that made it difficult to
have led the international development commu- conduct certain kinds of agricultural research for
nity in health and agriculture to fundamentally the benefit of poor countries. The Rockefeller
reconceptualize the role of intellectual property Foundation staff sought to ensure that a similar
in health and agricultural innovation, especially situation did not occur vis-à-vis health technol-
in relation to the needs of the poor. In the 1980s ogy development. The Foundation therefore
and 1990s, many individuals argued that intel- commissioned a group of individuals, led by one
lectual property and patents were bad for people’s of us (RTM), to assess in detail the needs and op-
health and innovative biotechnology products portunities in intellectual property and health.
bad for their food. According to this argument, The results of this assessment eventually led to the
intellectual property was controlled by large founding of MIHR.
pharmaceutical and agricultural companies that The study was launched in April 2001. At
used the power of IP rights to capture markets, the time there was a lot of confusion about the
limit consumer choice in both health and agri- role and impact of patents and other intellectual
culture, and, above all, raise prices. This not only property. It was feared that crucial intellectual
priced the poor out of the market, but also dis- property would be controlled by private entities,
couraged further innovation of products needed and that this control would make it impossible
by the poor.14 to conduct product research and development.
The claims of these arguments hold, howev- With respect to existing products, there was con-
er, only when the public sector responds passively cern that patents provided virtual monopolies
to the global IP system. Like everyone else, the for companies—monopolies that the companies
public sector needs to adapt to the changes in this would use to extract high rents on the market-
system so that it can seize new opportunities and place, making it difficult, if not impossible, for
take advantage of previously unavailable options. the poor to access the technologies that could
Indeed, by neglecting to utilize the IP system ef- benefit them.
fectively, the public sector not only neglects its The Rockefeller Foundation study immedi-
own interests but the interests of those it serves. ately faced a practical difficulty: little research had
Without effective IP management, the public sec- been done on needs and opportunities in intel-
tor risks squandering the new powers that the re- lectual property and health. Only a small body
vised IP system provides. Intellectual property is of published literature addressed issues of interest
a tool, and the impact of a tool depends on who to the foundation. Moreover, few scholars were
uses it, how it is used, and for what purpose. studying these issues. The study team therefore
This perspective has led to new efforts, in- decided to carry out its work by interviewing a
cluding the founding of MIHR (see below) and wide array of individuals in the public and private
of PIPRA (see Box 3), to make IP management a sectors and in developed and developing coun-
powerful tool for the benefit of the public sector. tries. Nearly 200 individuals were interviewed,
sometimes in groups but most often one-on-one.
The following highlights some of the study’s sig-
2. THE ROAD LEADING TO MIHR nificant findings.
Toward the end of the 1990s, staff of the Health The study began by contextualizing the prob-
Equity program at the Rockefeller Foundation lem. In market economies, the private sector is
became concerned about the possible impact of driven by the desire to maximize returns on in-
patents and other intellectual property on the vestment. Modern economic theory holds that

CHAPTER 1.1
maximizing such returns spurs economic growth. Within this political and economic frame-
Because selling highly profitable health products work, which is certain to be with us for the fore-
to the well-to-do leads to the highest maximiza- seeable future, intellectual property has grown
tion of return on investment, the private sector increasingly important. Capitalist companies
accords priority to products for these individuals. energetically seek and avidly protect intellectual
Conversely, the private sector does not and can- property to obtain adequate returns on invest-
not be expected to accord priority to the needs of ment. Indeed, it is widely accepted that intel-
the very poor. lectual property is essential for the private sector.
The public sector, on the other hand, is driv- But what about the public sector? Does or can
en, in democracies, by its search to maximize hu- intellectual property help achieve important pub-
man well-being. Modern social theory holds that lic sector goals?
all humans, regardless of citizenship, economic
status, or other demographic variables, should
be given the chance to maximize their well-be- 3. The social and economic
ing. Because the poor suffer the lowest quality imperatives of product
of health, and because they often cannot afford development and access
to buy needed pharmaceuticals, the public sec- On the most pragmatic level, intellectual prop-
tor has the responsibility of according priority to erty is important to the public sector because it
these individuals. is important to the private sector. If public sector
Box 3: The Public Intellectual Property Resource for Agriculture (PIPRA)
PIPRA is an international initiative undertaken by universities, foundations, and non-

profit research institutions to make agricultural technologies more easily available for the
development and distribution of subsistence crops in the developing world and specialty
crops in the developed world.
With the introduction of biotechnology in agriculture, researchers have a unique opportunity

to contribute to the development of improved staple and specialty crop varieties. However,
developing new crop varieties with biotechnology depends on access to multiple technologies,
which are often patented or otherwise protected by IP rights. Ownership of these rights is
fragmented across many institutions in the public and private sector, a situation that makes it
difficult to identify who holds what rights to what technologies, and in which countries. Such
information is necessary, however, to establish whether or not a new crop variety is at risk of
infringing those rights. The current situation thus creates barriers to commercializing new
staple and specialty crop varieties. PIPRA members believe that if public-sector institutions
collaborated in gathering information about and in the use of agricultural IP rights, it would
be easier for them to speed up the creation and commercialization of improved staple and
specialty crops and thereby fulfill part of their public missions. Specifically, PIPRA focuses on
the following principal activities:
• Reviewing public sector licensing practices

• Implementing a collective public IP asset database
• Developing shared technology packages
• Providing information, engaging other organizations, and stimulating discussions
• Engaging private sector organizations
Source: Adapted from PIPRA.15

MAHONEY & KRATTIGER
organizations, such as PDPs, want to collaborate amounts of capital in order to pay for them. The
with the private sector to develop new, valuable investors who put up such huge sums naturally
health technologies, they must address IP issues. sought high returns on their risky investments,
Many, if not all, of the PDPs have recognized and such high returns could not be achieved
this. In fact, their experiences have led many of without IP protection. In fact, the existence of
them to reassess the role that intellectual property intellectual property allowed the private sector
plays in making health and agricultural products to mobilize the funds necessary to develop safe
available to the poor. Before PDPs, critics con- and effective pharmaceuticals. The public sec-
tended that intellectual property allowed private tor could not (or at least did not) provide these
pharmaceutical companies to dominate markets, funds, nor was it capable of developing the new
perpetuating high prices and excluding the poor. products that were needed.
The experience of PDPs, however, shows not only The study therefore concluded that the IP
that intellectual property can be utilized to serve regime plays an essential role in achieving an im-
the needs of the poor, but also that its misuse or portant public sector goal: the development of
waste slows the development of new technologies safe and effective pharmaceuticals. Accordingly,
for developing countries. its next question was whether or not intellectual
But how can the public sector best use the property had some additional practical benefits
IP system? Should it seek to minimize the prob- for the public sector. The study consequently
lems that emerge from patents and other forms identified a number of licensing practices that
of intellectual property? Or should it take a more public sector organizations have used for the
active role and seek to take advantage of some of public’s benefit. If the public sector owned valu-
the powers provided by intellectual property? To able intellectual property, it could license that
answer these questions, one must be able to see intellectual property to private sector companies
what capabilities and what benefits might accrue with conditions that benefited the public sector.
from the exercise of these powers. For example, the licensing terms could require fa-
The study ultimately concluded that there is vorable pricing to the public sector. Moreover, by
a very important reason for public sector support licensing to more than one company, the public
of intellectual property: it is an essential tool for sector could foster competition that could lead
achieving safe and effective health technologies. to lower prices for consumers. And finally, the
Why? The answer is found in a combination of public sector could require that the product be
government actions and economic imperatives. made available to both the lucrative private sector
During the latter half of the 20th century, de- market and to the public sector.
veloped countries created whole new systems In addition, the emergence of Innovative
of drug regulation. Of these, the Center for Developing Countries (IDCs),17 such as Brazil,
Biologics Evaluation and Research of the Food China, and India, is changing the face of global
and Drug Administration (FDA) in the United health and agricultural innovation. These coun-
States is one of the more influential. One of the tries and others like them will certainly contrib-
motivations for its founding was the death of ute significantly to biomedical R&D in the near
several children from polio vaccinations; the future. A major unresolved question, however, is
vaccine turned out to contain live poliovirus.16 whether their innovations will benefit the poor
Rules and regulations, therefore, were estab- within their own borders and in other less well-off
lished to produce and distribute vaccines and countries. It is important to identify innovation
drugs that are safe and effective. Over the years, strategies and IP management policies and prac-
these rules and regulations have become steadily tices that will help ensure that the investments of
more rigorous, making it increasingly expensive IDCs in R&D benefit the poor.
to develop new, safe, and effective pharmaceuti- The study also concluded that the public sec-
cals. As the costs of developing drugs rose, the tor, especially in developing countries, had very
pharmaceutical industry had to raise greater little capability—in terms of staff, policies, and

CHAPTER 1.1
practices—to extract the benefits that could be used by several Korean manufacturers that jointly
obtained were they to implement enlightened li- developed a hepatitis B vaccine.20
censing practices. The study therefore proposed The study’s analysis concluded that intellec-
programs to document best licensing practices tual property is almost never the most important
and capacity-building initiatives. These are two of factor affecting the development and availabil-
MIHR’s major programs, and this Handbook ad- ity of pharmaceuticals and vaccines. Instead, the
dresses both of these goals: it seeks to document most important factor seems to be the existence
best practices and to be a teaching and capacity- or absence of a market for those pharmaceuticals.
building resource. Hepatitis B again presents a cogent case study.
As noted above, one of the concerns the study From a price of greater than $18 a dose, hepatitis
addressed was the extent to which the existence B vaccine cost fell to less than $0.30 a dose once
of patents and other intellectual property might the public sector “made a market,” i.e. started
inhibit or prevent the development of products buying tens of millions of doses per year.21 This
needed by the poor in developing countries. The finding about the relative lack of importance of
study, like that of Golden Rice (see Box 2 above), IP led Rockefeller Foundation staff to study all
concluded that intellectual property rarely, if ever, of the major issues affecting the development
blocks product development. This conclusion and availability of pharmaceuticals. Briefly, the
was supported by interviews with individuals in analysis revealed that the other factors were: sup-
both the public and private sectors. They noted port for research and development, the existence
that there were several ways that companies or of domestic markets (including national health
product developers could address “blocking pat- systems), the existence of international trade in
ents.” First, one could seek a license from the pat- the products (including procurement by inter-
ent owner. If this attempt was unsuccessful, other national public-sector procurement agencies),
courses of action could be taken. For example, if the operation of capable regulatory systems, and
an expert opinion determined that the blocking the ability to manufacture products to high stan-
patents might not withstand legal challenge, then dards. Intellectual property was only one of six
one could proceed without a license. In addition, factors—and rarely the most important. These
Europe has a general research exemption that al- six factors are referred to as the “components of
lows one to undertake research using a patented innovation.”
technology without having to obtain a license for We believe that placing intellectual prop-
that technology. In the United States, however, erty in a broader product-development context
“safe harbor” provisions18 greatly facilitated the is necessary to improve the development and
development of a vigorous generic drug industry availability of health technologies for the poor.
through a research exemption of the patent laws Conversely, any strategy that focuses only on IP
allowing them to make and use (but not to sell) a issues is bound to fail and may be counterpro-
drug during its period of patent protection. This ductive. Thus, efforts to promote compulsory
exclusion was critical to developing data neces- licensing to get low prices for pharmaceuticals
sary for regulatory approval once the patents had in developing countries must overcome not only
expired. A third option is to “invent around” IP difficulties but also the obstacles presented by
intellectual property: in other words, to create other components of innovation: the existence
a similar technology that does not infringe on of capable manufacturing facilities that meet
any existing patents. For vaccines, this is a com- international standards, the availability of funds
mon practice because it is often difficult to secure to procure the products for both domestic and
one or more dominating patents (that is, patents international distribution, and the cost of ob-
that would make it nearly impossible to invent taining regulatory approval for products manu-
around). Yet another strategy is to develop and factured under compulsory licenses. These are all
market the products in countries where patents significant, costly hurdles; any one of them could
have not yet been filed.19 This was the strategy prevent a compulsory license from being useful

MAHONEY & KRATTIGER
or cost effective, i.e. the cost of production un- needs. The meeting also concluded that innova-
der a compulsory license may be greater than the tion is such a complex process—of which intel-
cost that could have been obtained through direct lectual property is only one component—that it
procurement of bulk quantities either individu- would be very difficult to document the impact
ally by nations or through mechanisms such as of TRIPS on innovation; conversely, any impacts
the GAVI Alliance. (The Global Fund to Fight will be the result of a combination of factors, and
AIDS, TB and Malaria is [as of mid-2007] recon- will never be due to intellectual property alone.
sidering it procurement policies. Rather than al- Toward the end of the MIHR study that
lowing each country to do its own procurement, began in 2001, but before the establishment of
the Fund is considering doing bulk procurement MIHR, the UK Commission on Intellectual
to ensure getting the best prices.) Property Rights (CIPR) issued its report,23 which
was read with great interest by the MIHR study
team. A core conclusion of the CIPR report was
4. INNOVATION AND IP MANAGEMENT that a one-size-fits-all approach to intellectual
IN A POST-TRIPS WORLD property was undesirable. Each country should
Shortly after the MIHR study began, the Doha have some freedom to adopt and implement laws
Declaration was approved. It called for accord- and regulations that fit its own needs. Most re-
ing higher priority to public health than to trade cently, the WHO Commission on Intellectual
concerns, and it emphasized that countries were Property Rights, Innovation, and Public Health
free to use the “flexibilities” of TRIPS to protect (CIPIH) report has emerged. It takes an even
public health. A few years after MIHR was estab- broader view of intellectual property and innova-
lished, the Doha Declaration was approved as an tion than the CIPR report. Both reports come to
amendment to the TRIPS agreement. In the in- the following conclusions:
terval between the Doha meeting and the approv- • Innovation takes place in a complex en-
al of the amendment, there were vigorous debates vironment in which intellectual property
about the potential impact of TRIPS on access is only one factor, and rarely is the most
to medicines in developing countries. Some felt important.
that TRIPS would be disastrous for developing • Developing countries need to determine
countries. There were fears that it would suppress what kinds of rules and regulations best ad-
R&D, cause generics to disappear, and rapidly dress their particular needs.
raise drug prices. Others felt that TRIPS would • IP management capabilities in developing
create a surge of support in developing coun- countries need to be rapidly improved in
tries for R&D, encourage joint ventures between order to ensure that intellectual property is
pharmaceutical companies in developed and de- used to improve health.
veloping countries, and have little if any impact
on the availability and prices of generics. An analysis of IP management and innova-
In January 2005, India and many other devel- tion by Morel and colleagues24 found that donors
oping countries came under the rules of TRIPS. In have already marshaled significant resources and
December 2005, MIHR and the Indian Council created organizational structures that accelerate
of Medical Research convened an international the development of new health products and that
symposium to examine the impact of TRIPS. The procure and distribute drugs and vaccines for the
full report of the symposium has since been pub- poor. Their analysis concluded with a proposal
lished.22 In short, the meeting’s conclusions tend for complementary strategies to improve health
to support the positive predictions mentioned equity: national governments should support
above. Of perhaps greater importance, however, product-development efforts, and the public and
the meeting emphasized the need for developing private sectors need a coherent strategy to address
countries to increase their capacities to manage each of the six interrelated components of inno-
intellectual property in ways that meet their own vation, also called determinants.25
10 | HANDBOOK OF BEST PRACTICES

CHAPTER 1.1
5. CONCLUSIONS - Encourage high-quality manufacturing

The Rockefeller Foundation launched in-depth of drugs and vaccines and investments
evaluations of the role of intellectual property in in high-quality seed production and that
innovation of health and agricultural technologies of other agricultural inputs
that benefit the poor, especially those in develop- - Adopt policies and develop safe and ef-
ing countries. Its efforts and those of the many fective regulatory systems (for drug and
individuals and organizations that have worked vaccine registration; biosafety and food
in this space to date have helped to reconceptual- safety for applications of biotechnology
ize the relationship between the global intellectu- in food, feed, and fiber; and seed quality
al property system and developing countries. This certifications)
reconceptualization has the following elements: • Each country needs to take advantage of the
• The dominant political/social framework freedoms granted by TRIPS and formulate
of capitalism, markets, and democracy ac- and implement policies and practices that
cords high priority to the protection of in- best meet its own needs. Short-cut solu-
tellectual property. This framework is going tions to technology needs in medicine and
to be with us for the foreseeable future, and health, such as compulsory licenses, are un-
so the public sector needs to find ways to likely to be as effective or sustainable as are
achieve its goals within this framework. collaborative efforts between the public and
• Intellectual property is important to the private sectors. Countries would benefit
private sector because it helps investors substantially from developing their internal
achieve high returns on their investments. IP management capabilities, strengthening
• Intellectual property is also of importance their IP court systems and patent offices,
to the public sector because: and according priority to meeting the needs
− It mobilizes the resources that are needed of the poor.
to take a product through the process of
research and development (especially When it comes to increasing developing
those steps that are designed to ensure countries’ access to fundamental innovations in
the product’s safety and efficacy). health and agriculture, success requires knowl-
− It can help the poor. Creative licensing edge, capacity, and active engagement. These
practices, for example, can help ensure are what best practices in IP management are all
global access and affordability. about and what this Handbook seeks to help cre-
• IP management capabilities need to be im- ate and promote. n
proved, particularly in developing coun-
tries, so that intellectual property can be
Richard T. Mahoney, Director, Vaccine Access, Pediatric
managed for the benefit of the poor.
Dengue Vaccine Initiative, International Vaccine Institute,
• Intellectual property is only one of six San Bongcheon-7dong, Kwanak-ku, Seoul 151-818,
components of innovation and is rarely the Republic of Korea. rmahoney@pdvi.org
most important. Efforts to meet the needs
Anatole Krattiger, Research Professor, the Biodesign
of the poor must also:
Institute at Arizona State University; Chair, bioDevel-
- Support R&D opments-International Institute; and Adjunct Professor,
- Develop national health programs and Cornell University, PO Box 26, Interlaken, NY, 14847,
agricultural extension systems that are U.S.A. afk3@cornell.edu
sustaining domestic markets, including
distribution systems in both the public
and private sectors 1 The Patent and Trademark Amendment Act of 1980 (35
U.S.C. §§ 200–211). See, also in this Handbook, chapters
- Be conducive to facilitating trade in 3.2 By RA Nugent and GT Keusch and 3.4 by SK Finston.
health and agricultural technologies and
2 While these developments trace their origins to many
products (both input and output)
HANDBOOK OF BEST PRACTICES | 11

MAHONEY & KRATTIGER
sources, it is important to note that the Rockefeller 13 Atkinson RC, RN Beachy, G Conway, FA Cordova, MA Fox,
Foundation played a lead role in each. KA Holbrook, DF Klessig, RL McCormick, PM McPherson,
3 See, also in this Handbook, chapter 2.3 by R Eiss, KE HR Rawlings III, R Rapson, LN Vanderhoef, JD Wiley,
Hanna and RT Mahoney. and CE Young. 2003. Public Sector Collaboration for
Agricultural IP Management. Science 301(5630):174–
4 Commission on Intellectual Property Rights. 175.
2002. Integrating Intellectual Property Rights and
Development Policy. Final Report of the Commission 14 ‘t Hoen E. 2002. TRIPS, Pharmaceuticals, Developing
on Intellectual Property Rights. DFID: London. www. Countries, and the Doha “Solution.” Chicago Journal of
iprcommission.org. International Law 3(1): 27–48.
5 WT/MIN(01)/DEC/W/2, 14 November 2001. www.wto. 15 www.pipra.org/.

org (full text in Annex I). 16 The Center was first established within the National
6 www.who.int/intellectualproperty/report/en/index. Institutes of Health but was later moved to the FDA.
html. 17 Morel CM, T Acharya, D Broun, A Dangi, C Elias, NK
7 www.wipo.int/tk/en/. Ganguly, CA Gardner, RK Gupta, J Haycock, AD Heher,
PT Hotez, HE Kettler, GT Keusch, AF Krattiger, FT
8 Graff GD, GC Rausser and AA Small. 2003. Agricultural Kreutz, S Lall, K Lee, R Mahoney, A Martinez-Palomo, RA
Biotechnology’s Complementary Intellectual Assets. Mashelkar, SA Matlin, M Mzimba, J Oehler, FG Ridley, P
Review of Economics & Statistics 85(2):349–363. Senanayake, P Singera and M Yun. Health Innovation
9 Wright BD. 1998. Public Germplasm Development at Networks to Help Developing Countries Address
a Crossroads: Biotechnology and Intellectual Property. Neglected Diseases. Science 309: 401–4.
California Agriculture 52(6):8–13; Kowalski S. 2007. 18 Hatch-Waxman Act (Drug Price Competition and
Rational Risk/Benefit Analysis of Genetically Modified Patent Term Restoration Act of 1984).
Crops. Journal of Intellectual Property Rights 12:92–103.
19 For a comprehensive discussion on FTO strategies,
10 Krattiger AF. 2000. Food Biotechnology: Promising particularly for the public sector, see, also in this
Havoc or Hope for the Poor? Proteus (Special Millennium Handbook, chapter 14.1 by A Krattiger.
Issue on Food) 17: 3–8; von Braun J, M Qaim and AF
Krattiger (eds.) 2000. Agricultural Biotechnology in 20 See, also in this Handbook, chapter 1.2 by RT Mahoney.
Developing Countries: Towards Optimizing the Benefits 21 Advances in molecular pharming, the so-called third
for the Poor. Kluwer Academic Publishers. The Hague. p. generation biotechnology plant products, are bringing
433; Wambugu FM. 1999. Why Africa Needs Agricultural agricultural biotechnology and health innovations
Biotech. Nature 400(6739):15–16. closely together. For a recent review, see Arntzen C, B
11 Kryder D, SP Kowalski and AF Krattiger. 2000. The Dodet, R Hammond, A Karasev, M Russell and S Plotkin.
Intellectual and Technical Property Components of pro- 2004. Plant-derived Vaccines and Antibodies: Potential
Vitamin A Rice (GoldenRice™): A Preliminary Freedom- and Limitations. Vaccine 23:1753–1885. See, also in
to-Operate Review. ISAAA Briefs No 20. ISAAA: Ithaca, this Handbook, chapter 17.23 by A Krattiger and RT
NY. www.isaaa.org/kc/bin/isaaa_briefs/index.htm. Mahoney.
Vitamin A deficiency (VAD) is one such problem. In many 22 See, also in this Handbook, chapter 3.7 by R Eiss, RT
areas of the world where rice is a basic staple food, Mahoney and K Satyanarayana.
thousands of impoverished people lose their eyesight 23 See supra note 2.
because of VAD. In fact, severe VAD (xerophthalmia, also
called night blindness) leads to permanent blindness: 24 Morel C, D Broun, A Dangi, C Elias, C Gardner, RK Gupta,
500,000 people, 250,000 of them children, go blind J Haycock, T Heher, P Hotez, H Kettler, G Keusch, A
every year. VAD also leads to a depressed immune Krattiger, F Kreutz, K Lee, R Mahoney, RA Mashelkar,
system that increases the incidence and severity of Hong-ki Min, S Matlin, M Mzimba, J Oehler, R Ridley,
infectious diseases and infant mortality rates. See also P Senanayake, H Thorsteinsdóttir, PA Singer and
www.goldenrice.org/Content2-How/how9_IP.html. Mikyung Yun. 2005. Health Innovation in Developing
Countries to Address Diseases of the Poor. Innovation
12 Graff G, A Bennett, B Wright and D Zilberman. 2001. Strategy Today 1(1):1–15. www.biodevelopments.org/
Intellectual Property Clearinghouse Mechanisms for innovation/index.htm.
Agriculture: Summary of an Industry, Academia, and
International Development Round Table. IP Strategy 25 Mahoney R. 2004. Policy Analysis: An Essential Research
Today No. 3-2001. pp 15–38. www.bioDevelopments. Tool for the Introduction of Vaccines in Developing
org/ip. Countries. Journal of Health, Population and Nutrition
22: 331–37.

CHAPTER 1.2
Building Product Innovation Capability in Health

ABSTRACT regulatory agencies and are adopting modern

This chapter presents a theoretical framework to explain laws and regulations for IP management, as well.
the role of intellectual property (IP) in innovation and ap-
Some of the pharmaceutical companies in those
plies the framework to the growth of the pharmaceutical
industry. Developing countries progress through stages of countries have entered the international market
capability to reach the status of Innovative Developing with both generics and self-developed products.
Country (IDC). To reach the status of an IDC, coun- Rapid economic development is leading to ex-
tries need to give concerted attention to six components panded domestic markets. This expansion is in-
of product innovation: R&D in the public and private
sectors, regulatory mechanisms for drugs and vaccines to creasing demand for products that address domes-
achieve safety and efficacy, the ability to manufacture to tic diseases. Countries that are developing in the
high standards new health technology products, national ways mentioned here are referred to as Innovative
distribution systems in both the public and private sec- Developing Countries (IDCs).1 Because diseases
tors, international distribution systems (including supply
of the poor disproportionately affect these and
of drugs and vaccines through international organizations
such as UNICEF, the operation of global funds, and trade other developing countries, IDCs may become
among countries), and systems for managing IP. a major source of health product innovation for
An analysis of pharmaceutical innovation in Korea’s diseases of the poor.
vaccine industry concludes that its success in develop- The changes in IP management taking place
ing its impressive capabilities was achieved by paying
close attention to all six components of innovation. in IDCs need to be assessed so that the interna-
Yet unknown is the extent to which the Agreement on tional development community can understand
Trade-Related Aspects of Intellectual Property will stimu- how IDCs can best participate in and, in some
late or thwart progress in the other innovation compo- instances, actually lead efforts to develop new
nents when IP is quickly moved to an advanced stage.
health technologies for the poor in developing
countries. Such an assessment should consider
changes in biotechnology manufacture, local de-
mand for these products, potential for export,
1. Introduction the nature and extent of public and private sec-
Several developing countries, including Brazil, tor support for biotechnology research, and the
China, India, and South Africa, are rapidly in- changing environment of IP, drug, and vaccine
creasing funding for biotechnology. These regulations. This chapter describes a framework
countries and others are improving their drug for analyzing these factors.
Mahoney RT. 2007. Building Product Innovation Capability in Health. In Intellectual Property Management in Health and
Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and
PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. RT Mahoney. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-
mercial purposes is permitted and encouraged.

Mahoney
2. A framework for analyzing the needed especially when domestic R&D is focused
pharmaceutical industry on imitating or modifying foreign technology.
On the other hand, developing countries have
2.1 The six components been able to access foreign technology cheaply
The framework allows us to analyze the develop- and build manufacturing capability more quickly
ment of the pharmaceutical industry in develop- when unfettered by IP rights. This has worked to
ing countries through six components: keep IP protection levels low, especially since few
1. R&D in the public and private sectors domestic innovators are harmed by such a regime.
2. Ability to manufacture to high standards Instead of viewing the goals of foreign IP owners
new health technology products and domestic innovators as simply opposed, how-
3. National distribution systems in both the ever, a closer analysis leads to a dynamic perspec-
public and private sectors tive. In the early stage of development, conflicts
4. International distribution systems, includ- with foreign IP holders are minimal, typically,
ing supply through international organiza- because domestic capability is poor and few for-
tions such as UNICEF, the operation of eign firms are interested in bringing technologies
global funds, and trade between countries to the country. As the country’s technological ca-
5. Systems to manage IP pability improves, poor protection of foreign IP
6. Systems for drug and vaccine regulation to rights is likely to conflict with the further growth
achieve safety and efficacy of domestic capability. In the last stage, when lo-
cal firms are able to generate their own IP, local
The components of the framework are linked demand for greater IP protection increases, re-
dynamically. Progress in one requires progress in ducing conflicts with foreign IP holders.2
most—if not all—of the other components. It is
difficult to improve R&D capability without first 2.3 The special role of drug and
increasing manufacturing capability or having a vaccine regulation
national or international export market (requiring One key difference between the pharmaceutical
a distribution system) to generate resources for industry and most other industries is the role of
investment in production facilities. It is likewise the stringency of the regulatory system for drugs
difficult to enter markets in developed countries and vaccines. As a country develops, the IP sys-
without good IP or regulatory systems. And while tem and the regulatory system often progress in
developing countries can access new technologies tandem.3 In the early stage, there is little need
by entering into joint ventures with sophisticated for a well-developed national regulatory system.
firms in developed countries, these foreign firms Most drugs and vaccines are imported from other
will decide to form joint ventures based on the countries, and it is assumed that the regulatory
value of the domestic market in the developing agencies of the producing countries have ensured
country, the capability of local R&D centers, and their safety and efficacy. Any local production is
IP protection levels. The interconnectedness of contracted by foreign companies, which ensure
the six components is clearly very strong. And IP quality control in order to meet regulatory stan-
is an important aspect in all of them. dards in their home country or other countries
where the products will be sold.
2.2 From knowledge access to the role of IP However, as the local production of copied
IP policy-making in developing countries seems products intended for the domestic market be-
to be driven by conflicting goals. One goal is to comes important, the need for local regulation
encourage the influx of foreign technology. This emerges. The government now has an interest
can be achieved by providing enough protection in ensuring quality products. Initially, its main
for IP rights to enable foreign IP owners to pursue activities are to check composition and review
profits through licensing, marketing, and invest- the production facilities. Later, domestic compa-
ment in the recipient country. This protection is nies demand a much more developed regulatory

CHAPTER 1.2
capability. They want greater regulation and a The growth of the biotechnology industry
capable regulatory agency for two reasons: to es- in Korea can be interpreted in terms of the six
tablish an approval process for newly developed framework components illustrated in Table 1.
products and to support the development and Showing the varying levels of capability with re-
sustenance of export markets. spect to each of the components of innovation
at each stage, the table illustrates how developing
countries can progress through four stages of capa-
3. IP and the growth of bility in pharmaceuticals. The table distinguishes
biotechnology in Korea between national and international distribution
and breaks out support for R&D into public and
3.1 A dynamic version of the framework private sectors. The table illustrates that there are
The growth of biotechnology in developing coun- different systems of IP management at different
tries is illustrated in Figure 1, which shows the stages of development. The table assists our think-
patenting trends in Korea and the United States ing about one of the challenges brought about
by Korean vaccine inventors. Korea is a good by the Agreement on Trade-Related Aspects of
example for purposes of this chapter because of Intellectual Property Rights (TRIPS Agreement),
its rapid development in biotechnology. Korean namely that all developing countries that are sig-
vaccine biotechnology evolved rapidly, especially natories of the Agreement will have to move im-
beginning in the mid-1990s. mediately to Stage 3. Several countries, such as
Figure 1: Vaccine-Related Patents Obtained by Koreans
50
45
40
35
Number of patents
30
25
20
15
10
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Korean patents related to vaccines U.S. patents related to vaccines

obtained by Korean inventors obtained by Korean inventors
Source: Based on data from the U.S. Patent and Trademark Office (PTO)4

Mahoney
Table 1: The Four Stages in the Development of Biotechnology
Development of Development of Distribution Systems Development of R&D Capability Drug and Vaccine

Manufacturing National International Private Sector Public Sector IP Systems Regulation
Stage 1. Importation of finished Small domestic market Very little, except as Very little Very little Initial development Very limited
Establishing goods or assembly toll manufacturer allowing patents for local
the of parts into finished inventors; no interest
foundation products from foreign inventors
Stage 2. Production on license or Growing local market Growing companies R&D to understand Development of Interest growing among Limited services but
Capacity by copy of increasing interest to learning how to technology either to university and foreign inventors; local without enforcement
Building foreign companies; import establish export produce on license or independent research inventors starting to file capabilities
substitution markets to copy centers; capacity more patents
building
Stage 3. Manufacture of Rapidly growing domestic Increasing exports Small-scale, advanced Vast acceleration Advanced IP system Advanced capabilities
Maturation domestically developed, market of interest to that account for a R&D effort capable of of funding for R&D; but with certain but not at highest
IDCs high technology foreign companies growing share of GNP creating new products development of major limitations such as lack level because of lack of
products for domestic and export research centers; of enforcement enforcement capabilities
market linking with private
sector
Stage 4. Highest capabilities to Highly profitable market Global companies Generous support for health research from basic Sophisticated system Sophisticated agency
The Most- produce high technology in both the public and to applied; large research investment by private of IP management overseeing regulatory
Developed drugs and vaccines private sectors, generating companies, including large pharmaceutical operating according to approvals of drugs and
Countries, profits to support, in part, manufacturers and biotechnology companies the requirements of the vaccines; government
with a drug advanced research TRIPS Agreement oversees clinical trials and
or Vaccine production facilities and
Industry enforces regulations
CHAPTER 1.2
Brazil, China, and India, have achieved this goal. research scientists, but also the creation of spin-
Others are in the process. The major unresolved outs, in which a professor set up a company for
issue is whether the immediate move to Stage 3 the specific purpose of developing an invention
IP systems will provide a pull effect on the other into a commercial product. Beginning in the
components of innovation or whether it will lead late 1990s, Korea followed suit, revolutionizing
to imbalances that will adversely affect access to its laws and regulations concerning IP manage-
pharmaceutical products. ment by public institutions. Public universities
were allowed to retain ownership of new IP and
3.2 Development of IP systems in Korea were encouraged to set up technology transfer of-
Korea provides a useful case study of a coun- fices. The Technology Transfer Facilitation Law
try that developed economically and, for the was passed, mandating the establishment of tech-
most part, independently enhanced IP protec- nology transfer offices and setting guidelines for
tion without the requirements of TRIPS. Now sharing licensing income with a specific allotment
in Stage 3, Korea was able to develop a vaccine for the inventors.
industry very rapidly because it addressed each Based in part on the patent data in Table 1,
of the framework components stage-by-stage. It Korea seems to have completed Stage 2 of its IP
passed through the first two stages of the frame- system in about 2000, again in tandem with its
work in roughly ten-year steps during the 1980s progress in biotechnology R&D capability. Thus,
and 1990s. Having joined the World Intellectual the country was able to develop its IP system in
Property Organization (WIPO) in 1979, Korea tandem with the growth of capability in the five
acceded to the Paris Convention in 1980 and the other components of innovation. It will be in-
Patent Cooperation Treaty (PCT) in 1984. The teresting to see what happens in other develop-
country revised its laws in 1987 to allow product ing countries that, under the TRIPS Agreement,
patents. By the end of the 1980s, Korean laws and must move immediately to Stage 3 in IP systems.
policies largely conformed to the requirements A broader survey of the development of IP sys-
that TRIPS would eventually impose. tems in Korea is available in Lee, et al.6 While we
As with the development of biotechnology lack sufficient data to make any unequivocal con-
R&D capability, Korea completed Stage 1 of its clusions, it is worth noting that Korea was able
IP system in about 1990. It acceded to the TRIPS to move forward by addressing all six innovation
Agreement in 1995 and further revised its IP components.
laws in 1997–98 to reach full compliance with
TRIPS. The World Trade Organization (WTO)
conducted a trade policy review of Korea in 2000 4. Conclusion
and concluded that “protection of [intellectual The framework shows that IP is an important
property] rights has been strengthened by the signing component of innovation in pharmaceutical de-
of the new treaties, increased international coopera- velopment, but it is only one of six. As the analy-
tion, and stricter enforcement.”5 sis of biotechnology shows, the regulatory system
Unlike the United States, universities and is also a very important component. Above all,
research institutes in Korea were not major however, the above analysis demonstrates that
sources of technology for the country’s industry developing countries will pass through the four
during the 1980s and most of the 1990s. Most stages of development as they increase their capa-
companies wishing to obtain new technology bilities in biotechnology innovation. Such prog-
had to look outside the country. In the United ress is possible only by attending to each of the six
States, on the other hand, the Bayh-Dole legisla- components of innovation. A key question that
tion had gone into effect in 1980, and universi- the framework highlights is what impact the im-
ties invested heavily in efforts to manage new IP mediate movement of IP systems to Stage 3 will
that they developed. This included not only the have on countries that are still in Stage 1 or 2 of
out-licensing of patents for inventions made by pharmaceutical innovative capability. Will it hin-

Mahoney
der or help their progress? We lack the data need- Acknowledgments

ed to assess the impact of this TRIPS requirement This chapter draws extensively on the following pa-
per: Mahoney R, K Lee and M Yun.. 2005. Intellectual
for moving from Stage 1 to Stage 3. But the case
Property, Drug Regulation, and Building Product
study of Korea shows that it was able to under- Innovation Capability in Biotechnology: The Case of
take a wide range of initiatives that helped it to Hepatitis B Vaccine in Korea. Innovation Strategy Today
advance in biotechnology. The country addressed 1(2): 33–44. www.biodevelopments.org/innovation/in-
all six components of innovation. In particular, dex.htm
it made its IP systems compatible with those of Richard T. Mahoney, Director, Vaccine Access, Pediatric
more developed countries and thus compatible Dengue Vaccine Initiative, International Vaccine Institute,
with TRIPS. At least with respect to vaccines, San Bongcheon-7dong, Kwanak-ku, Seoul 151-818,
Korea has experienced considerable success in Republic of Korea. rmahoney@pdvi.org
biotechnology. We conclude that TRIPS should
not inhibit efforts to enhance biotechnological
1 The term innovative developing countries has been
capabilities. It may actually promote such efforts. introduced by Dr. Charles Gardner, Associate Director,
Conversely, arguments that TRIPS is inimical to Health Equity, The Rockefeller Foundation.
the interests of developing countries seem prema- 2 Lee K, CS Lim and DH Park. 2003. The Role of the
ture at best. At worst, they are counterproductive Industrial Property Rights in the Technological
Development of Korea. World Intellectual Property
because they may lead countries to seek higher
Organization: Geneva.
levels of biotechnology capability ineffectively:
3 Mahoney R, A Pablos-Mendez and S Ramachandran.
They will not be able to participate in interna- 2003. The Introduction of New Vaccines into Developing
tional trade (other than as importers) because Countries III: The Role of Intellectual Property. Vaccine
their products will not be accepted in markets 22 (5–6):786–792.
that observe IP rights. ■ 4 www.uspto.gov.
5 WTO. 2000. Trade Policy Review: Korea 2000. World
Trade Organization: Geneva. www.wto.int/english/
tratop_e/tpr_e/tp138_e.htm.
6 See supra note 2.

CHAPTER 1.3
IP Management and Deal Making for Global Health

Outcomes: The New “Return on Imagination” (ROI)
JOHN FRASER, 2006 President of AUTM and Executive Director,
Office of IP Development & Commercialization, Florida State University, U.S.A.
ABSTRACT life, and increasing productivity in the economy.

The benefits of technology transfer are everywhere ap- This innovation explosion began in the United
parent, and perhaps the best news—as this Handbook’s
States with the passage of the Bayh-Dole Act,
compilation of case studies demonstrates—is that these
benefits are already reaching developing countries. Build- which allowed universities and public research in-
ing on the success of the U.S. Bayh-Dole Act, countries stitutions to patent inventions based on publicly
everywhere are seeking to better utilize the research ca- funded research and then license the inventions to
pacities of their universities and public research institu- the private sector. The goal was to move inventions
tions. The growth of such technology transfer initiatives
is inspiring, as are the innovative varieties of partnerships from the laboratory onto store shelves by attracting
that have developed to ensure that the world’s poor ben- the private investments needed for commercializa-
efit from the global intellectual property system. tion. In the words of one of its authors in the U.S.
Senate, “The Bayh-Dole Act more than fulfilled our
hopes and dreams. Many, many lives are the better for
1. Introduction the success our universities, small businesses and non-
Technology transfer works. Evidence of its suc- profit organizations have had as a result of this law. It
cess is everywhere and even unavoidable. We ben- simply works.” Indeed, it is no accident that the rest
efit from it when we get into a car and buckle up, of the world is copying the Bayh-Dole model. The
when we sweeten our coffee with saccharin, and European Union, Japan, China, India, and many
when we search the Internet using Google™. And other countries hope to tap their own cutting-edge
we all enjoy better health because of the success university research to develop new products. And,
of technology transfer: Allegra®; Taxol®, Trusopt®, as the following case studies demonstrate, the ris-
pap smears, hepatitus B vaccine, the carcinoem- ing tide of innovation has the capacity to improve
bryonic antigen immunoassay for colon cancer, the quality of life for people in both developed and
insulin, the Rheo-Knee (the high-tech replace- developing countries.
ment knee), a nontoxic drug therapy for Chagas
disease, and the nicotine patch are just a few of
the health care innovations based on early inven- 2. Technology transfer
tions in university laboratories. by the numbers
In addition to educating the next generation One way to look at how technology transfer is
and creating new knowledge, universities are con- changing the world is to consider the statistics
tributing to saving lives, enhancing the quality of (culled from the AUTM Licensing Survey™ which
Fraser J. 2007. IP Management and Deal Making for Global Health Outcomes: The New “Return on Imagination” (ROI). In
Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT
Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. J Fraser. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-
cial purposes is permitted and encouraged.

FRASER
regularly surveys U.S. and Canadian members). promote leadership excellence in academic tech-
In fiscal year 2004, U.S. institutions:1 nology transfer.
• spent US$40 billion in research and develop- More specifically, among AUTM members:
ment • 65% are based in academic technology
• issued 4,783 licenses transfer offices (TTOs)
• managed 27,322 active licenses • 35% work outside of academia, in corpo-
• facilitated 462 new spinout companies, rate and service sectors
bringing the total since 1980 to 4,543 • 80% reside and work in the United States
• 9% live in Canada
Each of the 27,322 licenses reflects a one- • 11% live in other parts of the world
to-one relationship between a U.S. academic
center and a company focused on a product It is evident that, though relatively small in
development project. While reflecting the fact number, this varied global network of profession-
that such innovations are increasingly an en- als is effecting change throughout the world.
gine of the “knowledge economy,” what is re-
ally impressive about these numbers is the myr-
iad ways academic technology transfer impacts 4. The technology transfer spinout
people—through new products that save lives, Rather than asking existing companies to de-
enhance quality of life, and increase economic velop university-based products, universities and
productivity. their faculties are increasingly turning to a new
Those of us who are involved in technology mechanism—the spinout company. This is a new
transfer have some idea of how far-reaching and company typically created to produce and market
valuable this work is, but even we cannot fully intellectual property developed at a university by
realize the scope of the impact of technology one of its employees. In fiscal year 2004, AUTM
transfer. As technology transfer expands inside reported 462 new U.S. companies had been
developing countries, creative mechanisms are formed in this way. More than 4,443 spinout
emerging to further its impact and bring it to companies have been reported since 1980. These
bear on global health outcomes. The Association companies seek public and private funding (from
of University Technology Managers (AUTM) venture capital companies) to grow and put prod-
has increased its efforts to spotlight some of ucts in the marketplace.
the products that have originated at universi-
ties around the world. The Better World Proj- 4.1 Social responsibility: public–private
ect (BWR) is an ongoing series of publications partnerships for product development
and an online database.2 With two publications Product development partnerships (PDPs) are a
showcasing 125 products, BWR includes an relatively recent phenomenon. They are similar to
electronic database of stories that document spinout companies in that they are tightly focused
the outcomes of academic technology transfer organizations created to develop products for ne-
in human terms (new editions are due out in glected diseases in developing countries with the
March each year). aim of reducing the disease burden and improv-
ing health. Several PDPs have licensed university
innovations to include the technologies in their
3. The Association of University product development efforts. PDPs were set up as
Technology Managers virtual product-development companies for such
Another conspicuous sign of the growth of tech- infectious diseases as tuberculosis, HIV, and malar-
nology transfer is the continued growth of AUTM. ia. The companies are supported by philanthropic
Currently, the organization brings together more funds, employ corporate expertise, are structured
than 3,500 technology transfer professionals, in to reduce costs, and are driven by the urgent
more than 30 countries, to define, develop, and need to make an impact. As the following cases

CHAPTER 1.3
studies involving PDPs reveal, they are marked by Our understanding of what we do as technol-
creativity, a trait that will be invaluable as these ogy transfer officers is changing. Traditionally, the
organizations move through clinical trials, address mission of the TTO was to bring university-gener-
manufacturing products, and face the critical issue ated intellectual property into public use as rapidly
of distribution and patient compliance. as possible. The TTO did this through corporate
partnerships that protected academic freedoms
4.2 Creativity for diseases in the developing and, in many cases, generated a financial return to
world: Venture Philanthropy the university, inventors, and their departments.
Venture Philanthropy was developed over the same TTOs still serve these functions. But over the
period as were PDPs. The mission of Venture Phi- years, academic technology transfer has evolved to
lanthropy is to align good science with good busi- serve a broader purpose: to enhance the reputation
ness for developing new and improved drugs. In of academic institutions and to help them achieve
several cases, individual serial entrepreneurs whose their missions of education, research and commu-
families have been stricken by disease have created nity outreach by facilitating research relationships
disease-specific foundations, raised foundation with the private sector for the benefit of all.
philanthropic and individual donations, and ap- Anyone who reads subsequent pages of this
plied the entrepreneurial business model approach Handbook, case studies that document the success
to disease research. For example, the Milken Insti- of technology transfer, will feel the same enthusi-
tute3 has been instrumental in educating people asm and hope for the future that technology trans-
and in highlighting best practices. Its recently fer officers feel. Today, problems can be tackled
published report4 offers innovative financial solu- that yesterday appeared intractable. And let me
tions offered to help solve the serious decline in say to my fellow technology transfer officers: we
funding for early-stage biomedical research. should hold our heads high when we talk about
our work and our mission. When someone asks
you “What do you do?” be ready to tell them, “As
5. Cause for enthusiasm: the big a technology transfer professional, I help make the
news about the big picture world a better place.” If they ask what financial re-
While some voices continue to raise objections turn on investment (ROI) you hope to make, tell
about the fairness of the global IP system, oth- them, “Oh, ROI—you mean ‘Return on Imagi-
ers are seizing new opportunities provided by the nation.’ Let me show you what is possible.”
system to improve the lives of the poor in the Then give them a copy of this Handbook, and
developing world. The evidence is clear: creative point to the successes in these case studies! ■
work is raising our expectations and allowing
us to pursue hopes that seemed like unattain- John Fraser, 2006 President of AUTM and Executive
Director, Office of IP Development & Commercialization,
able utopian dreams before technology transfer
Florida State University, Suite 109, Westcott Building, Co-
released the power of human imagination. The peland Avenue, Tallahassee, FL, 32306, U.S.A. jfraser@
University has always been the site of such vi- research.fsu.edu
sionary imaginations, and it is fitting that a new
age of potentially greater global equity has been
1 AUTM 2005. AUTM Licensing Survey.™ FY 2004. Associ-
envisioned in its classrooms and laboratories. In-
ation of University Technology Managers: Northbrook,
deed, the age of technology transfer is changing Illinois. www.autm.net.
the perception and importance of these univer- 2 Visit the Web site at www.betterworldproject.net.
sity-connected activities. Measures of the success 3 www.milkeninstitute.org.
of academic technology transfer have broadened
4 Financial Innovations for Accelerating Medical
beyond economics to include numbers of lives Solutions [Financial Innovations Lab Report, Vol. 2]
saved, reductions in the disease burden, im- Milken Institute, October 2006. www.milkeninstitute.
provements in the quality of life, and increases org/publications/publications.taf?function=detail&ID
=580&cat=finlab.
in productivity.

CHAPTER 1.4
Ensuring Developing-Country Access to

New Inventions: The Role of Patents and the Power
of Public Sector Research Institutions
Lita Nelsen, Director, M.I.T. Technology Licensing Office, U.S.A.
ABSTRACT paradox is to consider an extreme case: if all the

If universities adopt sound licensing practices, the univer- medicines and vaccines needed for diseases in
sities will not only help stimulate investment in research
developing countries existed today, the patent
on diseases that primarily afflict the poor in developing
countries, but also ensure that the products of the re- system might be unnecessary. The absence of
search are affordable and widely available in those coun- patents, some experts suggest, would presumably
tries. Ensuring global access is one of the central goals of allow for maximum competition, driving prices
intellectual property management. But universities con- down and thereby maximizing affordability and
front two main obstacles in their efforts to achieve the
goal. First, university administrators, technology transfer availability.
officers, and business people are too often unaware of But for many of the diseases of developing
both the need to ensure access to new health technologies countries, few drugs or preventatives exist; in
in developing countries and the manner in which patent- some cases none exists. Patent protection can
ing and licensing practices can be an integral component
provide the necessary incentive to encourage in-
of global access strategies. Second, there is only a short
history of experience in incorporating such concerns in dustry to use its skills and resources to discover,
negotiating licenses, so no best practices have yet evolved. develop, test, ensure quality control of, manufac-
This chapter offers a few possible approaches to ensuring ture, and distribute new drugs and vaccines. Few
broad access to university inventions while preserving in- companies—if any—would embark on the long
centives to development, including patenting inventions
in a select list of developing countries. The chapter con- trail of new-drug discovery and development,
cludes by urging all of the players in this field to build if they could not be protected by patents from
upon their own experience and to take creative risks in competitors.
the pursuit of new solutions. Thus, patents are neither inherently bad
nor inherently good with regard to this purpose,
but—like all tools—must be used wisely.
1. Introduction Research institutions, such as universities,
From a humanitarian point of view, a patent sys- medical schools, and other nonprofit institutions
tem presents a paradox. How can a system de- engaged in biological and medical research (col-
signed to restrict access to technologies, including lectively referred to as “universities” in this chap-
medical technologies, also be used to maximize ter), have a special role to play regarding the use
availability of needed medicines and vaccines at of patents for developing and distributing drugs
affordable prices? One way of looking at that and vaccines for developing countries. These
Nelsen L and A Krattiger. 2007. Ensuring Developing-Country Access to New Inventions: The Role of Patents and the Power
of Public Sector Research Institutions. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
book of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available
online at www.ipHandbook.org.
© 2007. L Nelsen and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Internet

Nelsen & Krattiger
institutions are often the source of the core tech- Universities and research institutions hope
nology and, occasionally, lead compounds that for some financial return from their patents, but
could be developed into drugs and vaccines. contrary to widely held beliefs, this return is sel-
Despite the avowed public purpose of their dom large. On average, U.S. universities receive
technology transfer activities, universities have licensing royalties equivalent to only 2%–4% of
recently come under criticism for using patents their research budgets. Most universities believe
in a way that could inhibit (and in very few that the primary purpose of their technology
cases, has inhibited), the distribution of medi- transfer activities is either (1) to induce invest-
cines at accessible costs to developing countries. ment in developing technologies to bring prod-
Critics argue that by granting exclusive licenses ucts to public use, (2) to aid local economic de-
to developed-country pharmaceutical compa- velopment through spinout companies based on
nies, the universities are allowing the pharma- licenses to their technology, or (3) both.
ceutical companies, sometimes, to prevent local Given their commitment to encouraging the
companies from producing and selling drugs, development of new technologies via patenting,
potentially at affordable prices—thus effectively universities need sophisticated policies and pro-
denying life-saving drugs to poor people in these cedures in licensing to ensure that the poor will
countries. have access to medicines based on the universi-
Although nonprofit research institutions ties’ technologies. Potentially, the access policies
are not often involved in these issues, (in part developed by universities may—if the policies
because the fraction of medically related patents are practical, properly implemented, and publi-
owned by these institutions is small), their vis- cized—become “norms” that will be more widely
ibility, coupled with the universities’ public re- adopted by the private sector.
sponsibility, is causing university technology Awareness about these issues is new; tech-
transfer offices to modify their licensing practices niques for addressing the problem are only just
for patents relevant to healthcare in developing emerging, and there is no consensus yet on best
countries. practices. The remainder of this chapter addresses
Some thinkers have suggested that the best some potential solutions.
thing universities can do to ensure access is to
cease patenting medically related inventions and
place everything in the public domain. But doing 2. Raising awareness
so would be both unrealistic and counterproduc- The first task in encouraging effective licens-
tive. Patents have been shown to be a powerful ing policies and practices is to raise awareness of
tool for directing investment into the develop- the issues (discussed in section 1 above) in the
ment of technologies that would otherwise lie research institution community. Technology
fallow. University inventions are usually at such transfer officers need to become aware of devel-
an early stage (embryonic is a term commonly oping country health-care needs and the univer-
used to describe them) that investment in de- sities’ responsibilities with respect to those needs.
velopment involves substantial risk. Neither the Given the general commitment of universities to
technical practicality nor the market acceptabil- transfer technology to promote public welfare,
ity of the invention is proven. And many more this awareness alone will go a long way toward
inventions fail to reach than do reach the mar- preventing the inadvertent granting of licenses
ket—particularly in the medical field. Patents that lack consideration for the health needs of
are an essential way for companies to manage the developing countries. Senior administrators and
risk, and the use of patents is even more impor- researchers also need to become more aware of
tant for medicines and vaccines, where the costs the issues involved so that these professionals
of development and particularly of clinical tri- will acknowledge the broader value of licensing
als require much larger investments and much terms that may be somewhat less profitable from
greater risk. an economic standpoint, but that may address

CHAPTER 1.4
urgent medical problems in poor parts of the need to exercise care when licensing university
world. Finally, consistent university policies on technology.
these issues will raise awareness inside the com-
panies universities work with, making such com-
panies more readily accepting of licensing terms 3. Suggested approaches
that address these issues.
Awareness is already growing. In the United 3.1 Considering where to file patents
States, the Association of University Technology When a research institution patents and licenses
Managers (AUTM) began to publicize this issue out a technology, usually the institution can—if
to its members in 2003. This organization is hav- it insists—continue to own the patent after li-
ing a substantial impact on the understanding of censing. (This is the practice in most U.S. univer-
technology transfer professionals with respect to sities.) The institution can then control, by con-
these concerns: more than 90% of technology tract with the licensee, which countries the patent
transfer professionals from nonprofit research will be filed in. Determining a strategy of where
institutions in the United States and Canada to file, however, is not easy.
belong to AUTM, along with several hundred
professionals from other countries. An AUTM 3.1.1 Prohibition-of-filing strategy
Special Interest Group, formed in 2003, has Where a drug or vaccine in question has a large
evolved into the Technology Managers for Global developed-country market, one possible strategy
Health (TMGH),1 which is partially supported is to prohibit the patent from being filed in de-
by MIHR (the Centre for the Management of IP veloping countries. Most of the licensee’s profits
in Health Research and Development). TMGH’s would presumably come from markets in de-
purpose is to raise awareness about global health veloped countries—with or without developing
issues and, with AUTM, to compile a collection country patents. The loss of potential revenue
of best-practice policies and licensing terms that from developing countries (which in any case
can be distributed to AUTM members and oth- could not afford to purchase large quantities of
ers. The interest shown on the part of the greater the medicines at developed country prices) would
AUTM membership is especially encourag- be negligible, and the licensee mostly likely
ing. At its 2006 annual meeting, the opening would not be substantially disadvantaged by this
plenary session of AUTM was on “Innovative approach. The absence of patents in the develop-
Policies and Practices in Technology Transfer: A ing world, however, could allow “generic” com-
Global Health Perspective.” The meeting agenda petitors to produce the drugs in those countries
included a program of education with several at low prices.
workshops on global-health technology transfer This strategy will be effective only if:
issues. • The developed country market for the
Through its guidelines on the patenting and medicine is large. If the developed country
licensing of research tools, the National Institutes market is only a specialty “travelers’ market”
of Health (NIH) have helped alert universities and the primary demand for the medicine
to the need for thoughtful policies in exclusive is in developing countries (malaria vaccines
licensing.2 The NIH wants to make certain that are a good example), this strategy may not
researchers in the health arena have access to re- be acceptable to the licensee company.
search materials without undue hindrance by • The drug or vaccine is relatively easy to
patents, and so NIH has issued guidelines for manufacture and does not rely on special
patenting and licensing research tools. The two know-how possessed only by the licensee
objectives—fostering access to medicines and company (including valuable regulator
making research materials widely available—of- dossiers). This is more likely with simple
ten merge in the minds of technology transfer chemical drugs than with biological drugs
professionals, making them more aware of the (including vaccines), whose techniques for

Nelsen & Krattiger
production and purification may be beyond can be purchased—particularly if there is

the capabilities of most developing country no private travelers’ market that can sup-
manufactures. Also, if the drug is easy to port higher prices.)
manufacture, then safeguards must be in • adequate systems for quality control and
place to avoid parallel imports.3 regulatory approval to ensure consistent,
• The research institution owns the core pat- high-quality products in the absence of de-
ent for the drug or vaccine, while other “sec- veloped country regulatory controls
ondary” patents, owned by the licensee, are • a belief that the legal systems in the non-
not critical to developing and manufactur- manufacturing countries will be strong and
ing the medicine. If secondary patents are consistent enough to allow the supplier to
critical and the licensee chooses to file them enforce its patent rights and to maintain its
in developing countries, then attempts by monopoly for a reasonable period of time
the university to provide its own technol- • a willingness of governments and NGOs to
ogy free of charge may be moot. The only accept prices that are high enough for sup-
benefit would be to shelter the university pliers to recoup research and development
from criticism. Theoretically, it is also pos- costs
sible for the university to demand in its
licensing agreement that the licensee not
file such secondary patents in developing 3.1.3 Licensing strategies
countries, but it is doubtful that the uni- Research institutions have the most control over
versity would have the negotiating power optimizing the use of their inventions at the time
to make that demand—particularly if the of licensing. It is before the invention is licensed
university’s invention, at the time it is li- that the university can best ensure that the in-
censed, is still far from a product. vention will be used to advance—or at least not
hinder—solutions to developing country health
needs.
3.1.2 When patent filing in developing The first decision is whether to grant (1) a
countries may be beneficial for access fully exclusive license, (2) an exclusive license
When the demand for a drug or vaccine is pri- limited by product type, (3) an exclusive license
marily (or exclusively) in developing countries limited by geographical territory, or (4) a nonex-
and there are no alternative products, the prima- clusive license.4 Considering two extreme cases is
ry problem is to develop a sufficiently profitable illuminating:
market to provide an incentive for the private sec- • Where the invention is a tool for discovery
tor to invest in R&D. The only other alternative that is useful to many without significant
is for governments or nongovernmental organiza- development, then nonexclusive licensing
tions (NGOs) to fund all of the research, devel- is probably most appropriate for developed
opment, clinical testing costs, and manufacture. country use. Patents in developing coun-
But having a public sector entity develop a com- tries will essentially be unnecessary. (Many
mercially viable product is usually impossible. universities will also require that the patents
Patents may provide an incentive to the pri- not be asserted against nonprofit research
vate sector to invest by aggregating the develop- institutions in any country, thus allowing
ing world market into a single, larger market. To free access by such institutions.)
be successful, this strategy relies on: • Where the patent covers the core invention
• sufficient available resources for buying the of a potential new drug or a vaccine that re-
product once it is developed (Governments quire many years and tens, if not hundreds,
and NGOs may have to step in to supply of million dollars of investment, an exclu-
money to the public sector of low-income sive license may be the best strategy. In such
developing countries so that the product a case, patenting in selected developing

CHAPTER 1.4
countries may be an important element in manufacturing the product is simple, this

a strategy to ensure global access. strategy may work, but when the product
requires substantial company know-how
Exclusive licensing places a large responsibil- and background technology, the “victory”
ity on the university to negotiate license clauses in forcing a sublicense of the patent alone
that ensure both development of the product may be a hollow one. This is particularly
and rapid distribution to developing countries true for complex biological drugs and many
at affordable prices. Not every member of the vaccines. The university should therefore
university technology transfer community is yet negotiate clauses that make sublicensing as
conscious of this requirement. Best practices have attractive as possible, so that the company
not yet been established for such negotiations, will cooperate fully in the venture. A paper
and so strategies need to be based on evolving ex- by Friedman and colleagues7 describes such
perience. A few situations, we know in retrospect, a strategy by the Pharmacia Company. The
were clearly mistakes—experiences we can now company enthusiastically sublicenses the
learn from. Some better, but still experimental patent along with its know-how and exerts
strategies include: some control over the quality of the prod-
• development of milestones. As a condi- uct. The benefits to the company are pri-
tion for a company maintaining a license, marily to its reputation, with a justifiable
the university requires that the company pride in the good that is done, but allow-
devote at least a certain reasonable mini- ing sublicensing also protects the company
mum of resources (money or staff time) to from the criticism of not meeting the needs
developing the technology. The university of the poor in developing countries.
may also require certain success milestones
(for example, first clinical trials by a certain
date, product on the market by a certain 4. Conclusion
later date, and so forth).5 However, success University technology transfer professionals are
milestones are particularly difficult to nego- becoming more aware of their obligations to en-
tiate for very early-stage technology. sure that the poor have access to medicines based
• requirement of delivery of product for on university technologies. To a large extent,
developing countries. The university may universities are embracing this obligation in the
require the company to begin testing and hope that well-crafted patent and licensing poli-
distributing the product for developing cies can be powerful tools to provide such access.
countries simultaneously, or nearly simulta- But there are no clear-cut mechanisms, nor many
neously, with its introduction to developed precedents to guide professionals in this endeavor.
countries. This is particularly important This chapter presented just a few of the strategies
for vaccines, for which the trickle-down that research institutions can pursue in their quest
theory6 has sometimes deprived developing to provide developing countries with access to
countries of suitable product for decades. new medicines. Each of these strategies has been
• control over pricing in developing coun- tried, but they are all relatively new and will need
tries. This is usually set at a small percentage further refinements. This can only be achieved,
over cost (so-called cost-plus pricing). This however, in actual negotiations between research
may be particularly relevant where there is a institutions and companies. New approaches will
large—and presumably profitable—market also certainly develop in the future. None of these
as in the developed world. efforts will be effective unless both research insti-
• sublicensing. If the company cannot deliver tutions and companies first become more aware
the product or deliver it at acceptable prices, of their obligations to the poor in developing
then the university may require the compa- countries. Awareness is only the first step, how-
ny to sublicense the patent to others. When ever, for none of these strategies will thrive unless

Nelsen & Krattiger
they meet the needs of both the research institu- 1 See www.tmgh.org.
tions and the companies that are developing new 2 NIH. 2005. Best Practices for the Licensing of Genomic
technologies to improve human health. Building Inventions: Final Notice. Federal Register 70(68): 18413–
415. www.ott.nih.gov/pdfs/70FR18413.pdf.
upon the knowledge and successes we already
possess, we must not only strive for novel, cre- 3 See, also in this Handbook, chapter 15.4 by D Matthews
and V Munoz-Tellez.
ative solutions but also take reasonable risks in
4 See, also in this Handbook, chapter 11.8 by SL Shotwell.
the pursuit of these much-needed solutions. n
5 See, also in this Handbook, chapter 2.7 by J Oehler.
6 Trickle-down theory relates to a product that may at
first be so expensive that only wealthy people can
Lita Nelsen, Director, M.I.T. Technology Licensing Office,
afford it. The theory states that over time, however, the
Massachusetts Institute of Technology, Five Cambridge
price will fall until it is available to the general public.
Center, Kendall Square, Room NE25-230, Cambridge,
In other words, the benefits trickle down.
MA, 02142-1493, U.S.A. lita@mit.edu
7 Friedman MA, H den Besten and A Attaran. 2003. Out-
Anatole Krattiger, Research Professor, the Biodesign Licensing: A Practical Approach for Improvement of
Institute at Arizona State University; Chair, bioDevel- Access to Medicines in Poor Countries. Lancet 361: 341–44.
opments-International Institute, and Adjunct Professor, www.fightingmalaria.org/pdfs/Lancet%20Article.pdf.
Cornell University. PO Box 26, Interlaken, NY, 14847,
U.S.A. afk3@cornell.edu

CHAPTER 1.5
Genomics, Ethics, and Intellectual Property

Gary E. Marchant, Professor, Sandra Day O’Connor College of Law, Arizona State University, U.S.A.
ABSTRACT to adequately consider and conform to these in-

Ethical concerns and controversies about patenting are fluences can result in an eruption of controversy,
playing an increasingly prominent role in the develop-
disruption, and opposition. At the same time, ex-
ment and applications of the biosciences. Despite the
growing importance of ethical issues, there is currently no cessive caution and hewing to the most extreme
consensus or clarity on the ethical principles that should views and positions has the potential to impede
guide patenting of human, animal, and plant genes and the scientific, economic, and developmental ben-
cells. The three major areas of contention are: (1) whether efits of life-science research and innovation.
some or all patents on genes and cells are unethical per
se, based on concerns such as commodification, dignity, This chapter does not attempt to fully expli-
and similar concepts; (2) how tissue samples are col- cate or resolve the many ethical issues relating to
lected, particularly in reference to the principles of prior life-science patents. Rather, its more modest goal
informed consent and benefit sharing; and (3) how pat- is to briefly describe the various ethical contro-
ents are used to restrict access to medical and agricultural
versies and landmines related to the patenting of
use of biotechnology innovations. Given the lack of any
agreed guiding principles for navigating these issues, pol- genes and other biological materials, and to dis-
icy-makers, decision-makers, scientists, and users of bio- cuss how such issues are being resolved or man-
technology have no choice but to address these contested aged in practice. The major controversies can be
ethical concerns using a case-by-case approach. grouped into the following three categories: (1)
whether some or all biotechnology patents are
1. INTRODUCTION unethical per se; (2) the manner in which the
Over the past three decades, much ink has been patented invention was obtained or discovered;
spilt about the ethics of patenting in the life sci- and (3) how the patent is used.
ences. Unfortunately, these dialogues and debates
have produced very little clarity and consensus
on the ethical principles and practices that should 2. ETHICS OF PATENTS
apply to patenting of biological materials. Policy- A threshold question is whether biological patents
makers, decision-makers, companies, scientists, are per se unethical. Some individuals, groups,
and product end users therefore must navigate cultures, and nations adhere to a position that
through a complex web of unsettled legal prin- any patenting of human, animal, or plant genes
ciples, moral arguments, social norms, and po- and tissues is unethical. Various ethical argu-
litical influences that collectively represent the ments have been advanced against any patenting
ethical landscape for patents in this field. Failure of genetic or related biomedical innovations. One
Marchant GE. 2007. Genomics, Ethics, and Intellectual Property. In Intellectual Property Management in Health and Agricul-
tural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA:
Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. GE Marchant. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

MARCHANT
of the most common arguments is that patent- Others argue that while there may indeed be
ing commodifies life-forms. A related critique important ethical and policy concerns with some
is that living materials are naturally occurring, biotechnological inventions, the patent office is
and thus isolation and description of “nature’s not the appropriate forum to address those con-
handiwork” should not qualify as patentable cerns, if only because patent examiners have no
subject matter.1 Other ethical concerns include specialized training in ethics and policy. Yet an-
fears that patenting will facilitate and accelerate other argument is that eliminating patent protec-
applications and commercialization of biotech- tions from biotechnology inventions would make
nology that are themselves viewed to be unethi- those innovations less rather than more ethical,
cal by some, that patenting will lead to greater in part by making new technologies less trans-
animal suffering, and that patenting undermines parent as companies rely more on trade secrets in
the dignity of humans and other species by mak- place of patents and their requirement for public
ing their genes and cells subject to ownership by disclosure.10
others.2 A blanket prohibition on any patents of
A prominent expression of this deontologi- genes or other biological materials is inconsistent
cal opposition to biotechnology patents was a with the Agreement on Trade-Related Aspects
statement, issued by almost 200 religious lead- of Intellectual Property Rights (TRIPS), which
ers in 1995 opposing any patents of human or requires countries to provide IP protection for
genetically engineered animal tissues, that as- most biotechnology products. Thus, any exist-
serted that “[w]e believe that humans and ani- ing and prospective nation-state member of the
mals are creations of God, not humans, and as such World Trade Organization (WTO) is unlikely to
should not be patented as human interventions.”3 try to adopt or enforce a generic prohibition on
Another much-publicized denunciation of gene biological patents. While advocates against any
patenting was the 2000 statement of the French patenting may advance the political and ethical
Justice Minister, Elisabeth Guigou, that human arguments summarized above against all patent-
gene patents are contrary to the ethical norms of ing, such arguments will have little or no legal
France. The Council for Responsible Genetics force and relevance.
issued a Genetic Bill of Rights, which contends More relevant will often be arguments that
that “all people have the right to a world in which specific patents or types of patents are unethical.
living organisms cannot be patented, including For example, the TRIPS agreement allows WTO
human beings, animals, plants, and all of their countries to exclude bioengineered animals from
parts.”4 patentability. Thus, each nation must individu-
While some organizations and individuals ally decide whether it will extend its patent laws
denounce patenting of living materials on some to animals, and these debates generally focus on
or all of the grounds identified above, others de- ethical arguments about animal rights and com-
fend the patentability of genes and other living modification of life.
materials on ethical grounds.5, 6, 7 For example, More generally, the TRIPS agreement specif-
the United Nations Educational, Scientific, and ically provides that nations may elect to include
Cultural Organization (UNESCO) International a provision in their patent laws that deny patents
Bioethics Committee concluded that the “law for specific innovations and inventions that are
on intellectual property serves useful purposes, has a not ethical. For example, the European Union has
foundation in ethical principles and universal hu- an ordre public, or public morality clause that de-
man rights, and often contributes to the benefit of nies patent protections to inventions that are con-
humanity.”8 Moreover, religious leaders are not trary to public morality. Other nations, includ-
unified in their opposition to patents for genes ing the United States, have declined to include
and other living tissues, with many prominent such a morality clause, and the U.S. Patent and
religious organizations and individuals expressly Trademark Office claims that it does not have the
or implicitly supporting such patents.9 authority to deny otherwise valid patents based

CHAPTER 1.5
on the morality or ethical characteristics of the knowledge. Any attempts to patent products
underlying invention. based on traditional knowledge is likely to gen-
The U.S. courts have also disavowed any erate considerable controversy, as demonstrated
role in reviewing the ethical or policy aspects of by the disputes that erupted over patents issued
patents. In approving the first patent of a living for basmati rice, neem, and tumeric, all of which
organism in the United States, the U.S. Supreme were subsequently abandoned or revoked in re-
Court stated: sponse to a chorus of objections.15 The bottom
[W]e are without competence to entertain these line is that any attempt to patent products that
arguments… The choice we are urged to make is a are derived from traditional knowledge are likely
matter of high policy for resolution within the leg- to generate considerable opposition and contro-
islative process after the kind of investigation, ex- versy, which may only be avoided if the biological
amination, and study that legislative bodies can material is collected consistent with the principles
provide and courts cannot. That process involves the of prior informed consent and benefit-sharing
balancing of competing values and interests, which discussed in the next section.
in our democratic system is the business of elected
representatives. Whatever their validity, the conten-
tions now pressed on us should be addressed to the 3. OBTAINING BIOLOGICAL SAMPLES
political branches of the Government, the Congress Another area of ethical controversy over some bio-
and the Executive, and not to the courts.11 technology patents relates to the manner in which
the biological samples used for the patentable dis-
In jurisdictions that recognize a morality ex- covery were collected. In most human genetic re-
ception to patents, controversial patents are sub- search, the prevailing scientific norm is that donors
ject to challenge under such clauses, both during of tissue for research retain no property or other
initial application, and in subsequent post-is- rights in their cells or genes.16 This means tissue
suance challenges. For example, challenges to donors receive no financial compensation for their
European patents for the BRCA1/2 breast cancer samples (other than reimbursement of their out-of-
genes and the oncogene mouse have been chal- pocket expenses), are given no share of any profits
lenged under the ordre public clause several years or revenues that may result from any commercial
after the original patents issued, which resulted products developed using the donated tissues, and
in the patents being narrowed but not rescind- have no patent rights to any patentable discoveries
ed.12 The European Union’s ordre public clause that may result from research using their tissues.
also prohibits patents related to human cloning, The legal and property rights of local populations
modifying human germ lines, using human em- and national governments with regard to animal
bryos for commercial purposes, and genetically and plant specimens collected within their terri-
engineering animals in ways that cause suffering tory and used for a patented discovery are uncer-
without a substantial medical benefit to humans. tain and often disputed. At the international level,
In other cases, challenges under the ordre pub- some of the most inflamed controversies have in-
lic clause to biotechnology patents have failed.13 volved claims of biopiracy in which scientists from
One criticism of the ordre public provision is that an industrialized nation seek patents based on
the European Patent Office has failed to articulate human, animal, or plant materials collected from
a clear definition and criteria for the provision’s other, less-developed nations. Two specific issues
application, resulting in case-by-case analyses that that have been at the forefront of these ethical de-
do not always use consistent approaches.14 bates about the collection of biological samples are
No issue has generated more outrage and prior consent and benefit sharing.
concern than attempts to patent products and
processes based on traditional knowledge. The 3.1 Prior consent
1992 Convention on Biological Diversity encour- Prior consent refers to the procurement of ad-
ages nations to respect and protect traditional vance approval from the relevant entities before

MARCHANT
taking biological samples. One issue relating to criticized the patent application as “immoral, con-
prior consent is who must provide such consent. trary to the Guaymi view of nature, and our place
The consent may need to be given by the specific in it.” The United States subsequently dropped
individuals from whom the tissue is taken (in the the patent application in response to the contro-
case of human samples), from the local commu- versy. The lesson from these examples is that any
nity, tribe, or local government in the region from patent application based on tissues from identifi-
which the samples would be taken, and from the able populations, such as indigenous tribes, may
national governmental authorities. Controversies be subject to significant controversy if prior in-
have arisen when only some but not all of these formed consent is not obtained from the person
three levels (individual, local, and national) of de- or persons providing the tissue samples as well as
cision-makers have provided prior consent. For the tribal authorities and, perhaps also, the na-
example, the U.S. National Institutes of Health tional government.
(NIH) sought a patent in 1991 for a cell line de- The content and form of the information
rived from a member of the Hagahai, an isolated provided in the prior consent has also been con-
tribe in Papua New Guinea, that had a high fre- troversial. In particular, must the consent process
quency of a gene related to leukemia. The focus include disclosure that the collected material may
of the ensuing international controversy over this be used to secure a patent? According to one critic
patent application, which was subsequently aban- of current consent procedures, “over the past thirty
doned in response to the pressure, was whether years, blood, tissue, and other bodily fluid samples
the NIH was required to obtain informed con- have been collected from individuals and used in ge-
sent separately from the individual donor, the netic research without the person’s consent or knowl-
Hagahai tribe, and the Papua New Guinea gov- edge. If a lucrative gene was found, it was patented.
ernment.17, 18 Once a gene is identified and patented, its availabil-
Another example of an international contro- ity is often severely restricted, even to the people who
versy over the alleged lack of appropriate prior provided tissue samples and funding for the genetic
informed consent relates to the Guaymi Indians, research.”21
the largest indigenous tribe in Panama.19, 20 The European Union’s Group of Advisers on
Thousands of Guaymi tribal members are in- the Ethical Implications of Biotechnology has en-
fected with an HIV-like virus known as the dorsed the need for prior consent before using a
Human T-Lymphotropic Virus Type 2 (HTVL- donor’s tissue to develop a patentable invention:
II). The U.S. Centers for Disease Control and The ethical principle of informed and free con-
Prevention (CDC) undertook a research project sent of the person from whom retrievals are per-
to investigate infection in the early 1990s, and formed must be respected. This principle includes
subsequently the U.S. Department of Commerce that the information of this person is complete and
applied for a patent claiming a cell line isolated specific, in particular on the potential patent appli-
from blood taken from a 26-year old Guaymi cation on the invention which could be made from
woman being treated for leukemia in Panama. the use of this element. An invention based on the
The United States claimed that the woman gave use of elements of human origin, having been re-
oral consent in the hospital (although the woman trieved without respecting the principle of consent,
was reportedly illiterate, unschooled, and quite will not fulfil the ethical requirements.22
sick, which raises questions about the effective-
ness of the informed consent). However, the fo- In its directive on patenting of biotechnology
cus of the ensuing controversy was that the tribe inventions, the European Union carried forward
was never informed of, nor asked to consent to, this recommendation in Recital 26, which pro-
the removal of the blood sample to the United vides “Whereas if an invention is based on biologi-
States, the establishment of cell lines using those cal material of human origin or if it uses such mate-
samples, or the patent application. The presi- rial, where a patent application is filed, the person
dent of the Guaymi General Congress strongly from whose body the material is taken must have

CHAPTER 1.5
had an opportunity of expressing free and informed researcher successfully identified the gene, but,
consent thereto, in accordance with national law”23 without informing the parents who had donated
However, because this statement is in the recitals tissue samples to the research, the researcher’s em-
of the directive, it is not legally binding but only ployer (Miami Children’s Hospital) patented the
hortatory. There are also practical problems with gene, and the genetic test based on the gene, and
a requirement for prior consent in this context— began charging a modest licensing fee to clinics
the original researchers, or subsequent research- that had starting using the newly discovered ge-
ers who may have access to the tissue, may not netic test. The families and various support orga-
have the intent or knowledge at the time of tissue nizations were outraged by these actions and sued
collection that they will be pursuing a patent ap- the hospital alleging various legal claims includ-
plication based on that tissue. In addition, except ing conversion, failure to provide informed con-
for rare cases (including in Moore v. The Regents sent, unjust enrichment, and breach of fiduciary
of the University of California discussed below), duty. The federal district court dismissed most of
most patentable inventions resulting from hu- the families’ claims, but concluded that the un-
man tissue are based on findings using large num- just-enrichment claim was sufficiently viable to
bers of samples, complicating and attenuating the go forward, and the case subsequently settled.26
requirement for prior consent on future patents This case, like the Moore case before it, demon-
from each individual tissue donor. strates that a physician or researcher may have a
The most famous—some would say infa- legal duty to inform tissue donors of their intent
mous—court case on this issue is Moore v. The to pursue patents using the donor’s tissue, but
Regents of the University of California decided by even if such disclosure is not legally mandated,
the California Supreme Court in 1991.24 Moore the failure to obtain prior informed consent from
had his spleen removed by doctors at the UCLA tissue donors runs the risk of provoking ethical
Medical Center as part of his treatment for can- controversies that can result in bad publicity and
cer, but unbeknownst to him, his doctors used expensive, time-consuming litigation.
the removed tissue to create a potentially lucrative The ethical duty of informed consent is less
patented cell line. The doctors did not disclose established in the context of plant and animal
their intentions to Moore that they would pat- samples compared to human tissue collection,
ent his cells without sharing any of the proceeds, but there has been considerable momentum to-
nor did they request his permission to do so. ward recognizing such a duty in recent years.
Even more egregiously, they affirmatively misled The 1992 Convention on Biological Diversity re-
Moore into returning to the hospital on several quires informed consent from the appropriate na-
subsequent occasions to collect additional tissue. tional authorities as a condition of access to plant
The California Supreme Court rejected Moore’s or animal genetic resources. Several nations have
argument that he continued to own his cells after adopted their own laws requiring prior informed
they were removed from his body, but the court consent to the collection of plant and animal re-
refused to dismiss Moore’s claim that his doctors sources.27 Several recent international studies and
failed to provide adequate informed consent by proposals have been published on this subject in
not disclosing their potential financial interest in recent years, but the legal and ethical status of
Moore’s cells. informed consent requirements for nonhuman
A more recent U.S. case raised similar issues, biological materials continues to be hotly debated
but this time in the research context rather than and uncertain.
the clinical setting. Parents of children with the
inherited Canavan disease convinced a medi- 3.2 Benefit Sharing
cal researcher to attempt to isolate the gene re- A second major issue is whether entities that col-
sponsible for the disease, and provided tissue lect tissue samples that are used to patent a prod-
samples from affected children and their families uct are ethically obliged to share the economic
and helped to raise funds for the research.25 The benefits of their discoveries with the individuals

MARCHANT
or population from whom the samples were tak- The Convention also recognizes in Article 1 the
en. The Human Genome Organization (HUGO) principle of “fair and equitable sharing of the ben-
adopted a Statement on Benefit Sharing with re- efits” of biodiversity. The Treaty on Plant Genetic
gard to human genetic research in 2000, which Resources for Food and Agriculture, negotiated
states: “in the interest of justice, the last decade under the Food and Agriculture Organization
has witnessed an emerging international consensus (FAO) of the United Nations and concluded in
that groups participating in research should, at a 2001, goes further and establishes the principles
minimum, receive some benefit.”28 The statement of “facilitated access” and “sharing of benefits” for
suggests that profit-making research institutions the commercial or scientific uses of the nation’s
“should dedicate 1-3% of their after-tax net prof- resources by out-of-country entities.33 Of course,
its to healthcare infrastructure and/or humanitar- these treaty obligations are only mandatory for
ian efforts to benefit communities donating genetic nations that have ratified the treaty, and many
samples.” For nonprofit institutions, “immediate prominent nations including the United States
health benefits as determined by community needs and some European nations have yet to ratify the
could be provided.” Similarly, Article 19 of the 2001 treaty. In addition, many individual nations
International Declaration on Human Genetic have adopted their own laws restricting access
Data provides that: “Benefits resulting from the use to biological materials within their borders that
of human genetic data, human proteomic data or usually require some form of benefit sharing and
biological samples collected for medical and scientific prior consent. By one recent count, more than 40
research should be shared with society as a whole and nations have enacted such laws since 1993.34
the international community.”29 Despite the endorsement of benefit sharing
An important precedent for benefit sharing in the various statements and international agree-
in human genetic research is the ill-fated Human ments described above, benefit sharing remains a
Genome Diversity Project (HGDP), which sought controversial and uncertain principle. One prac-
to collect genetic samples from as many human tical problem is that many scientific researchers
populations as possible on the planet. Although are not provided funds in their research grants for
the project was never implemented, largely be- providing economic compensation to individu-
cause of ethical critiques and controversies about als or populations providing the tissue samples.
the project,30 it did adopt precedent-setting ethi- Another problem is that there is uncertainty in
cal guidelines that recognized an ethical duty for many cases in identifying who should decide how
benefit sharing. 31 The guidelines specify that “a the benefits are allocated within populations.
fair share of the financial rewards shall return to the When the samples are taken from a discrete com-
sampled populations” when the research results in munity or tribe with a recognized governance
commercial products. The suggested mechanisms structure, the allocation of the benefits is usually
for returning such payments to the donors in- not problematic in that the existing local govern-
clude (1) paying “a set percentage royalty … for the ment can take responsibility for using and dis-
benefit of the sampled populations” or (2) negotiat- tributing the benefits, but when the population
ing “a reasonable financial payment with a trustee is more dispersed or more difficult to clearly de-
for the sampled populations, with the proceeds for fine, the distribution of benefits becomes more
the population’s benefit.” difficult. Finally, there is an ethical objection that
With regard to food and agricultural prod- paying significant financial benefits to individual
ucts, the 1992 Convention on Biological Diversity tissue donors may unduly induce some individu-
clearly recognized that sovereign states have the als to participate in research.
authority to regulate the collection and use of ge- In sum, while some legal rules and precedents
netic resources within their territory by provid- address the issues of prior consent and benefit
ing in Article 15 that “the authority to determine sharing in certain limited contexts, these issues
access to genetic resources rests with the national are primarily ethical issues at the present time,
government and is subject to national legislation.”32 in the absence of applicable laws. At their core,

CHAPTER 1.5
the largely unresolved ethical debates on these gene patents studied, 14 had been licensed, and
issues represent a concern with the fairness and all the licenses were exclusive.39 The American
distributional aspects of biotechnology research College of Medical Genetics has adopted a po-
and commercialization, and are important factors sition statement advocating broad licensing of
that should be considered in the context of any patents on genes with clinical implications and
research project or program involving the collec- that “[l]icensing agreements should not limit access
tion of biological samples from plants, animals, through excessive royalties and other unreasonable
or human populations. terms.”40
Other commentators are concerned that the
“upstream” patenting of research tools and genes
4. USE OF PATENTS will create a “tragedy of the anticommons” that
The final major area of controversy associated with will result in excessive and overlapping proprie-
patents of biological materials is the use (or mis- tary hurdles that will impede scientific research.41
use) of such patents after they have issued. Perhaps A recent survey of 1,240 university geneticists
the most common concern is that the availability found that patenting and commercialization of
of the patented invention is unduly restricted or research may be impeding the scientific ideals of
costly due to high licensing fees, exclusive licens- openness and sharing, with 73% of respondents
ing, or similar access-limiting strategies by the claiming that withholding of data by colleagues is
patent owner.35 Such practices may inhibit access slowing progress in their field.42
to the benefits associated with the patented tech- Yet another argument is that some biotech-
nology by entities with limited funding, includ- nology patent holders are exploiting their patent
ing public research institutes, patients, farmers, rights to provide greater market power and profits,
some healthcare providers, university researchers, to the detriment of patients, farmers, and other
and similar entities. This restricted availability potential end users of the patented technologies.
could adversely affect, in particular, subsistence For example, some farmers and public interest
agriculture, medical research, and health care. groups have alleged that Monsanto’s patents on
For example, critics allege that Myriad genetically modified crops such as the herbicide
Genetic’s patents on the BRCA1 and BRCA2 tolerant Roundup Ready® technology are being
breast-cancer genes, and the nearly US$3000 used to promote sales of Monsanto’s Roundup
licensing fee per use it charges, adversely affects herbicide through license agreements that re-
scientific research and health care.36 This high quires farmers who buy Roundup Ready® seeds
licensing fee and monopoly prevent some non- to also use Monsanto’s Roundup® rather than
profit and other clinical-care units from offering competing brands of the herbicide glyphosate.
a genetic test for these mutations, particularly for In several cases, lawsuits have been filed against
patients without health insurance or the means to Monsanto for “patent misuse,” but to date these
pay for such tests, and may also burden or restrict legal claims have been unsuccessful,43 leaving the
scientific research related to hereditary breast can- issue to be debated in the ethical realm.
cer, although the company provides a substantial As with all other ethical issues relating to bio-
discount in the license fee to university and non- technology patenting, the alleged harmful effects
profit researchers.37 of patenting on scientific research and healthcare
A 2003 survey of 132 directors of diagnostic are not uncontroverted. Many biotechnology and
laboratories found that 25 percent had stopped pharmaceutical companies consider their patents
performing a medical test because of a patent or to be the lifeblood of their business, without which
license and 53% stopped research efforts because they could not raise and invest the substantial
of a patent or license.38 The practice of exclusive amounts of money needed to develop innovative
licensing also limits access to important scien- products that can enhance human health. Some
tific tools, materials, and procedures. A survey independent analyses have concluded, contrary
in the late 1990s found that out of 27 disease to some of the arguments summarized above, that

MARCHANT
the benefits of patenting outweigh the costs in biomedical and agricultural technologies. In a
the context of both scientific research and health few limited contexts, ethical concerns have been
care,44 or that the problems feared from biological translated into legal rules that specify a clear
patents have largely not manifested.45 course of conduct, but those situations are the
Some commentators have suggested that exception. In most cases, ethical concerns about
companies and other patent holders can take gene patents have not been incorporated into
steps to minimize these consequentialist argu- laws, and the ethical issues remain largely unre-
ments against patenting, including not enforcing solved and hotly debated. The lack of clear ethical
patents against university researchers and charg- principles and guidelines creates a problem for ac-
ing reduced licensing fees for clinical testing by tors in this field. As the U.S. Office of Technology
nonprofit clinics and hospitals.46 Other policy ap- Assessment recognized many years ago:
proaches that have been suggested for addressing Uncertainty about how courts will resolve dis-
these concerns include requirements for compul- putes between specimen sources and specimen users
sory licensing, prohibition of exclusive licensing, could be detrimental to both academic researchers
liability exemptions for clinical uses of patented and the infant biotechnology industry… [R]egardless
materials and tests, an expanded experimental-use of the merit of claims by the different interested par-
exemption, the development of patent pools, and ties, resolving the current uncertainty may be more
open-source approaches to biomedical research. important to the future of biotechnology than resolv-
A related and relatively new issue is the use of ing it in any particular way.50
patent rights to promote certain ethical or political
objectives. For example, Myriad Genetics, which In the absence of greater ethical consensus
has the exclusive patent rights to the BRCA1/2 and clarity, decision-makers must navigate the
breast-cancer genes in the United States and some ethical minefields of biotechnology patents on a
other jurisdictions, refuses to allow the patent to case-by-case basis, seeking to avoid the ethical hot
be licensed for prenatal testing for these genetic spots that will likely trigger controversy, disrup-
markers.47 This is an example of the patent right tion, and opposition, while avoiding being para-
being used to achieve a policy outcome—that is, lyzed into inaction by the matrix of conflicting
preventing prenatal testing (and presumably fol- ethical viewpoints and positions that exist. n
low-up abortion in some cases) for cancer-suscep-
tibility traits.
One group of researchers has suggested that GARY E. MARCHANT, Professor, Sandra Day O’Connor
College of Law, Arizona State University, P.O. Box 877906,
patent licensing could be used as a “moral toll-
Tempe, AZ, 85287-7906, U.S.A. gary.marchant@asu.edu
booth” to ensure the ethical use of biotechnol-
ogy technologies.48 Under this proposal, patent
holders could be held liable for the unethical use 1 Merz J, Cho M and D Leonard. 1997. Disease Gene Pat-
enting Is a Bad Innovation. Molecular Diagnosis 2: 299–
of genetic inventions. The authors suggest “that
304.
a patent holder could be expected to ensure that a
2 Dresser R. 1988. Ethical and Legal Issues in Patenting
licensee of that invention be required to meet emerg- New Animal Life. Jurimetrics 28: 399–435.
ing legal and ethical norms associated with the use 3 Cited in Sagoff M. 1998. Patented Genes: An Ethical
of the technology, such as the requirement to provide Appraisal. Issues in Science & Technology Spring 1998.
fully informed consent or genetic counseling where p. 37–41.
appropriate.”49 4 Council for Responsible Genetics. 2000. The Genetic
Bill of Rights. www.gene-watch.org/programs/bill-of-
rights/bill-of-rights-text.html.
5 McGee G. 1998. Gene Patents Can Be Ethical. Cambridge
5. Conclusion Quart. Healthcare Ethics 7: 417–21.
Ethical issues and controversies about biotechnol-
6 Resnik DB. 2001. DNA Patents and Human Dignity. J. of
ogy patents are a significant, and growing, factor Law, Medicine & Ethics 29: 152–63.
in the development and implementation of

CHAPTER 1.5
7 See supra note 3. Sharing. www.hugo-international.org/hugo/benefit.html.

8 UNESCO International Bioethics Committee. 2002. 29 UNESCO. 2003. International Declaration on Human
Ethics, Intellectual Property and Genomics. www. Genetic Data. portal.unesco.org/en/ev.php-URL_
eubios.info/UNESCO/ibc2002ip.pdf. ID=17720&URL_DO=DO_TOPIC&URL_SECTION=201.
9 Cole-Turner R. 1995. Religion and Gene Patenting. html.
Science 270: 52. 30 Resnik DB. 1999. The Human Genome Diversity Project:
10 Caulfield TA and ER Gold. 2000. Genetic Testing, Ethical Ethical Problems and Solutions. Politics & Life Sci.
Concerns, and the Role of Patent Law. Clinical Genetics March 1999. p. 15–17.
57: 370–75. 31 North American Regional Committee of the Human
11 Diamond v. Chakrabarty, 447 U.S. 303 (1980). Genome Diversity Project. 1997. Proposed Model Ethical
Protocol for Collecting DNA Samples. Houston Law Rev.
12 Cyranoski D. 2004. High-Flying Patents Get Their Wings 33: 1431–73.
Clipped in Europe. Nature Medicine 10: 882.
32 Convention on Biological Diversity. 1992. www.biodiv.
13 Dworkin G. 1997. Should There Be Property Rights in org/convention/convention.shtml.
Genes? Phil. Trans. R. Soc. Lond. B. 352: 1077–86.
33 FAO. 2001. International Treaty on Plant Genetic
14 Nuffield Council on Bioethics. 2002. The Ethics of Resources for Food and Agriculture. www.fao.org/AG/
Patenting DNA: A Discussion Paper. cgrfa/itpgr.htm.
15 Arewa OB. 2006. TRIPS and Traditional Knowledge: 34 Safrin S. 2007. Chain Reaction: How Property Begets
Local Communities, Local Knowledge, and Global Property (draft manuscript).
IP Frameworks. Marquette Intellectual Property Law
Review 10: 155–80. 35 Andrews LB. 2002. Genes and Patent Policy: Rethinking
IP Rights. Nature Reviews Genetics 3: 803–8.
16 Marchant G. 2005. Property Rights and Benefit Sharing
for DNA Donors? Jurimetrics 45: 153–78. 36 Rimmer M. 2003. Myriad Genetics: Patent Law and
Genetic Testing. European Intellectual Property Rev.
17 WIPO. 2006. Bioethics and Patent Law: The Cases of 25(1): 20–33.
Moore and the Hagahai People. WIPO Magazine Issue
5, October 2006. p. 16–17. 37 Ibid.
18 Taubes G. 1995. Scientists Attacked for “Patenting” 38 Cho MK, S Illangasekare, MA Weaver, DGB Leonard and
Pacific Tribe. Science 270: 1112. JF Merz. 2003. Effects of Patents and Licenses on the
Provision of Clinical Genetic Testing Services. J Mol
19 Ching KH. 1997. Indigenous Self-Determination in an Diag. 5: 3–8.
Age of Genetic Patenting: Recognizing an Emerging
Human Rights Norm. Fordham L. Review 66: 687–730. 39 Schissel A, JF Merz and MK Cho. 1999. Survey Confirms
Fears about Licensing of Genetic Tests. Nature 402: 118.
20 Wu AO. 2000. Surpassing the Material: The Human
Rights Implications of Informed Consent in 40 American Conference on Medical Genetics. 1999.
Bioprospecting Cells Derived from Indigenous People Position Statement on Gene Patents and Accessibility
Groups. Washington U. Law Quart. 78: 979–1003. of Gene Testing. www.acmg.net/resources/policies/
pol-015.asp.
21 Andrews LB and J Paradise. 2005. Gene Patents: The
Need for Bioethics Scrutiny and Legal Change. Yale J. 41 Heller MA and RS Eisenberg. 1998. Can Patents Deter
Health Policy, Law & Ethics 5: 403–12. Innovation? The Anticommons in Biomedical Research.
Science 280: 698–701.
22 E.U. Group of Advisers on the Ethical Implications
of Biotechnology. 1996. Ethical Aspects of Patenting 42 Campbell EB, et al. 2002. Data Withholding in Academic
Inventions Involving Elements of Human Origin. Genetics: Evidence from a National Survey .JAMA
ec.europa.eu/european_group_ethics/docs/opinion8_ 287(4): 473–80.
en.pdf. 43 Monsanto Co. v. Scruggs, 459 F.3d 1328 (Fed. Cir. 2006).
23 European Union. 1998. Directive 98/44/EC of the 44 Resnik DB. 2003. Are DNA Patents Bad for Medicine?
European Parliament and of the Council of 6 July Health Policy 65: 181–97.
1998 on the Legal Protection of Biotechnological 45 Caulfield T, RM Cook-Deegan, FS Kieff and JP Walsh.
Inventions. 2006. Evidence and Anecdotes: An Analysis of Human
24 Moore v. The Regents of the University of California. Gene Patenting Controversies. Nature Biotechnology
1991. 793 P.2d 479, cert. denied, 499 U.S. 936 (1991). 24: 1091–94.
25 Marshall E. 2000. Families Sue Hospital, Scientist for 46 Hemphill TA. 2003. Preemptive Patenting, Human
Control of Canavan Gene. Science 290: 1062. Genomics, and the U.S. Biotechnology Sector: Balancing
26 Greenberg v. Miami Children’s Hospital Research Inst., IP rights with Societal Welfare. Technology in Society 25:
264 F. Supp. 2d 1064 (S.D. Fla. 2003). 337–49.
27 WIPO, supra note 17. 47 See supra note 21.
28 HUGO Ethics Committee. 2000. Statement on Benefit- 48 Gold ER and TA Caulfield. 2002. The Moral Tollbooth:

MARCHANT
A Method That Makes Use of the Patent System to

Address Ethical Concerns in Biotechnology. Lancet 359:
2268–70.
49 Caulfield T, ER Gold and MK Cho. 2000. Patenting
Human Genetic Material: Refocusing the Debate.
Nature Rev. Genetics 1: 227–31.
50 Office of Technology Assessment. 1987. New
Developments in Biotechnology 1: Ownership of
Human Tissue and Cells. Government Printing Office:
Washington, DC. p.27.

2
SECTION
Specific Strategies and Mechanisms

for Facilitating Access to Innovation
CHAPTER 2.1
Reservation of Rights for Humanitarian Uses

ALAN B. BENNETT, Associate Vice Chancellor, Office of Research, University of California, Davis;
and Executive Director, PIPRA, U.S.A.
ABSTRACT to ensure that the licensor can continue to meet

An explicit reservation of rights in a commercial tech- other institutional objectives such as education,
nology license can ensure that the licensor’s institutional
research, and public service. In the case of uni-
objectives to support humanitarian applications of its
technology are not inadvertently blocked or sidetracked versity research, this typically includes the goal
by overly broad terms in the commercial license. Many of ensuring that future noncommercial research
universities routinely use a reservation of rights to guaran- is not blocked and, increasingly, that humanitar-
tee continued use of licensed technologies within the on- ian uses and applications of the technology are
going research or educational programs of the university.
Clauses included in license agreements to reserve rights for not blocked.1 This chapter will briefly address a
humanitarian use of technology are still rare, but aware- single issue—that of creating an explicit reserva-
ness is increasing of the utility and importance of such tion of rights in a commercial technology license
clauses, particularly as philanthropic-research sponsors be- to ensure that institutional objectives to support
gin to require grantees to ensure that results and discover-
humanitarian applications of its technology are
ies will be made available for humanitarian purposes. The
structure of a clause to reserve rights for humanitarian use not inadvertently sidetracked by an overly broad
ideally both expresses the philosophical intent of the li- commercial license. Furthermore, the regular use
censee and clearly defines the boundaries of humanitarian of this type of reservation-of-rights clause provides
use, particularly in relation to commercial use. a means to regularly articulate an institution’s
commitment to manage technologies for the
broadest public benefit.
1. Introduction
The reservation of certain rights in commercial
license agreements is a means for the technol- 2. Reservation-of-rights clause
ogy provider (the licensor) to declare its explicit License agreements broadly define the terms un-
intent to reserve or retain certain rights over the der which a technology provider (licensor) will
technology—to not grant those rights under the transfer intellectual property and/or tangible
license—in order to help ensure that the terms property to a technology user or developer (li-
of the license will not block other specific goals censee), usually for commercial development. In
that the licensor may have. Such goals are typi- many cases, the license agreement is nonexclu-
cally noncommercial and therefore do not di- sive or it carefully defines the use of the technol-
rectly impair the licensee’s ability to commercial- ogy for a specific field or a specific geography.
ize the technology, but they may be important In such cases, the licensee does not grant—but
Bennett AB. 2007. Reservation of Rights for Humanitarian Uses. In Intellectual Property Management in Health and Agricul-
© 2007. AB Bennett. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

BENNETT
instead retains—rights to the technology in all reservation-of-rights clause is perhaps the most
areas other than those defined within the scope common type used in university license agree-
of the license, and therefore a specific reserva- ments, although even this straightforward and
tion of rights may not be necessary. However, reasonable term still is not used by many univer-
for some technologies and in some technol- sities in their exclusive license agreements.
ogy sectors—including biotechnology—broad Clauses in university license agreements that
exclusive licenses are often required to induce reserve rights for humanitarian use of the tech-
follow-on investment in research and develop- nology are an exception, rather than a rule, but
ment. In these cases it can be important for the awareness of the utility and potential importance
licensee to explicitly reserve rights to ensure that of such clauses is increasing. Today there are
its noncommercial institutional objectives are examples of research sponsors and programs—
not blocked by the exclusive terms of the com- such as philanthropic foundations—that require
mercial license. grantees to ensure that research results and dis-
For example, universities frequently incorpo- coveries will be made available for humanitar-
rate a clause that reserves rights to carry on re- ian purposes. Based on this type of sponsor re-
search using licensed patents and/or technology. quirement, grantees who execute a commercial
This has become increasingly important since the license to any technology developed under the
Madey v. Duke University2 ruling effectively nar- research agreement would thus be required to
rowed, beyond any practical use, the research ex- include a clause that acknowledged this existing
emption codified in U.S. patent law for university obligation and reserved rights for humanitarian
research.3 This lack of a research exemption in the purposes.
United States has created the unusual situation
where a university invention, if licensed exclusive-
ly, may be unavailable for ongoing research even 3. The structure of a
in the very laboratory where the invention itself reservation of rights
was made. To address this situation, many univer- A reservation of rights for humanitarian uses can
sities in their exclusive license agreements now re- be a very simple statement expressing the philo-
serve rights for the use of inventions within their sophical intent of the licensee. For example, at
own institution or, even more broadly, within all the Donald Danforth Plant Science Center all re-
academic or nonprofit research institutions. search and license agreements include a statement
The University of California and Stanford that the “Company and Danforth Center shall dil-
University routinely incorporate clauses into their igently and in good faith negotiate the terms of a
exclusive license agreements (Box 1). This type of worldwide license, making provision for preserving
Box 1: Sample Reservation of Rights in Exclusive Licensing Agreements
The University of California

Nothing in this Agreement will be deemed to limit the right of The Regents (the University)… to
make and use the Invention … and associated technology and allow other educational and nonprofit
institutions to do so for educational and research purposes.
Stanford University
Stanford retains the right, on behalf of itself and all other nonprofit academic research institutions,
to practice the Licensed Patent and Technology for any purpose, including sponsored research and
collaborations. Licensee agrees that, notwithstanding any other provision of this Agreement, it has
no right to enforce the Licensed Patent against any such institution.

CHAPTER 2.1
the availability of the intellectual property (IP) for desired geographies. Such a definition should
meeting the needs of developing countries.”4 While have flexibility to allow the expansion of the geo-
this has the advantages of being simple and en- graphical list. In addition, if such a geographical
suring that the licensee is on notice with regard definition of humanitarian uses is used, then the
to the intention of the licensor, the statement issue of use and sales outside of this defined ter-
may not provide sufficient definition of “meeting ritory should be explicitly addressed.
the needs of developing countries” for the licensor Commercial purposes. Because the reserva-
to assess the extent to which this statement may tion of rights for humanitarian uses is designed
affect its commercial markets. As a consequence, to be used in the context of a commercial license
more elaborate clauses have been crafted in ef- and, specifically, to segment the markets for a
forts to clearly define the boundaries of humani- technology between commercial and humanitar-
tarian uses, particularly in relation to commercial ian uses, it may be important to define the scope
uses. of commercial uses as well.
3.1 Definitions 3.2 Reservation of rights

The definitions are the most critical component The reservation of rights is the operative paragraph
of a reservation of humanitarian use rights. The of the clause, and its structure will rely upon and
key definitions are: follow the above definitions. The reservation of
Humanitarian purposes. There are several rights needs to clearly articulate what rights are
approaches used to define humanitarian purpos- being reserved and should leave no doubt that the
es: by income level, by uses (subsistence or com- reserved rights may be granted to other appropri-
mercial), and by geography. Each approach has ate companies or organizations that can fulfill the
its own set of limitations. Using a definition that humanitarian objectives. This may be a topic of
equates humanitarian uses with subsistence uses has discussion in license negotiations, largely because
been adopted for some agricultural applications it is likely to be an unfamiliar term to a commer-
but will probably not be applicable in the health cial licensee.
sector, since few technology applications can be
achieved without significant investment by a
commercial partner (this is becoming increas- 4. Standard Clauses
ingly true in agricultural innovations as well). There are relatively few examples of standard-
Where subsistence uses are part of the definition, ized reservation-of-rights clauses, because they
it may be important to define income levels of are likely to be crafted individually to meet spe-
the subsistence “users.” This criterion has been cific situations. However, as an object lesson, here
applied in the case of the humanitarian license for are two examples, one developed for agricultural
Golden Rice5 but could raise difficult practical is- technology licenses and one developed for health
sues for compliance or monitoring. Alternatively, technology licenses.
humanitarian uses can be defined geographically The Public Intellectual Property Resource of
by specifying all uses of the technology within de- Agriculture (PIPRA) has crafted a standard res-
veloping countries. ervation of humanitarian-use-rights clause that
Developing countries. If humanitarian uses encourages its members to include in commercial
is defined geographically then an explicit defini- licenses for agricultural technologies, particularly
tion of developing countries is needed. For examin exclusive licenses. The clause (Box 2) may serve
ple, developing countries can be defined as those as a model or starting point for similar license
listed by the World Bank or other international clauses that seek similar objectives.
agencies. While this definition can effectively The Office of Technology Licensing at the
segment the commercial and humanitarian uses University of California, Davis crafted a reserva-
of a technology, the current lists of develop- tion-of-rights clause intended for a commercial
ing countries may not capture the entire set of license of a health technology (Box 3). Likewise,

BENNETT
Box 2: PIPRA’s Reservation of Rights for Humanitarian Uses
Definitions.
“Humanitarian Purposes” means (a) the use of Invention/Germplasm for research and
development purposes by any not-for-profit organization anywhere in the World that has the
express purpose of developing plant materials and varieties for use in a Developing Country, and
(b) the use of Invention/Germplasm for Commercial Purposes, including the use and production
of Germplasm, seed, propagation materials and crops for human or animal consumption, in a
Developing Country.
“Commercial Purposes” means to make, have made, propagate, have propagated, use, have used,
import, or export a product, good or service for the purpose of selling or offering to sell such
product, good or service.
“Developing Country” means any one of those countries identified as low-income or lower-middle-
income economies by the World Bank Group at the time of the effective date of this agreement
and all other countries mutually agreed to by Licensor and Licensee (the current list of countries
is typically given in an appendix to the agreement).6
Reservation of rights.
Notwithstanding other provision of rights granted under this agreement, University hereby
reserves an irrevocable, nonexclusive right in the Invention/Germplasm for Humanitarian
Purposes. Such Humanitarian Purposes shall expressly exclude the right for the not-for-profit
organization and/or the Developing Country, or any individual or organization therein, to export
or sell the Germplasm, seed, propagation materials or crops from the Developing Country into a
market outside of the Developing Country where a commercial licensee has introduced or will
introduce a product embodying the Invention/Germplasm. For avoidance of doubt, not-for-profit
organization and/or the Developing Country, or any individual or organization therein, may export
the Germplasm, seed, propagation materials or crops from the Developing Country of origin to
other Developing Countries and all other countries mutually agreed to by Licensor and Licensee.
Box 3: Reservation of Rights for Humanitarian Use:

University of California, Davis
1.40 “Humanitarian Purposes” means (a) the use of Licensed Products covered under Compound
Patent Rights (“Compound Products”) for research and development purposes by any
organization or other third party, anywhere in the world that has the express purpose of
developing the Compound Products for use in an Economically Disadvantaged Country,
and (b) the use of the Compound Products by any organization or other third party for
Commercial Purposes in an Economically Disadvantaged Country.
1.41 “Commercial Purposes” means to make, have made, use, have used, import, or export a
product, good, method, or service for the purpose of selling or offering to sell such product,
good, method, or service.
1.42 “Economically Disadvantaged Country” (“EDC”) means all countries listed on the United
Nations Conference on Trade and Development list of “Least Developed Countries” in effect
as of the Effective Date of this Agreement which are set forth on Appendix I hereto.
2.14 In any license to the Licensee, Licensee’s commercial use of the Compound Patent Rights to
make, use, sell, offer for sale and import Compound Products in EDCs will be royalty free and
the Licensee will be required to give away the Compound Products for free or at cost.
(Continued on Next Page)

CHAPTER 2.1
it may serve as a model or starting point for simi- 1 The broader topic of humanitarian access to health and
lar license clauses that seek such an objective. agricultural innovations and a discussion of strategies
to ensure broader access are also addressed in this
Handbook in various chapters, most notably chapter
2.2 by AL Brewster, SA Hansen and AR Chapman. For
5. Conclusions specific aspects of the topic, see in this Handbook,
chapter 12.1 by RT Mahoney.
It has recently been suggested that national pub-
lic policy guidance is needed to support measures 2 (307 F.3d 1351 [Fed. Cir. 2002]) .
that require that publicly funded research results 3 Ludwig SP and JC Chumney. 2003. No Room for
Experiment: The Federal Circuit’s Narrow Construction
be managed in a way that preserves the oppor- of the Experimental Use Defense. Nature Biotechnology
tunity to mobilize new technologies to meet hu- 21:453.
manitarian needs of the world’s poorest people in 4 Beachy R. 2003. IP Policies and Serving the Public.
addition to meeting the commercial needs of the Science 299:473. See also in this Handbook, chapter
developed world.7 In the absence of such national 17.10 by K Schubert.
policies, voluntary measures can still be taken to 5 Brewster AL, AR Chapman and SA Hansen. 2005.
Facilitating Humanitarian Access to Pharmaceutical
ensure that research results, new discoveries, and
and Agricultural Innovation. Innovation Strategy Today
patented inventions are not unnecessarily blocked 1(3):203-216. www.biodevelopments.org/innovation/
from serving humanitarian purposes and meet- index.htm.
ing the needs of the world’s poor. For public re- 6 web.worldbank.org/WBSITE/EXTERNAL/DATASTATIS
search institutions, a reservation of humanitarian TICS0,,contentMDK:20420458~menuPK:64133156~
pagePK:64133150~piPK:64133175~theSitePK:239419,
rights in commercial technology licenses is one 00.html. Last updated by the World Bank July 2006.
mechanism to help it meet its mission to serve
7 Boettiger S and AB Bennett. 2006. Bayh-Dole: If We
the public benefit through both commercial and Knew Then What We Know Now. Nature Biotechnology.
humanitarian channels. n 24:320–24.
Alan B. Bennett, Associate Vice Chancellor, Executive

Director, PIPRA, Office of Research, University of California,
Davis, 1850 Research Park Drive, Davis, CA, 95616,
U.S.A. abbennett@ucdavis.edu
Box 3 (continued)
2.15 Notwithstanding other provision of rights granted under this Agreement, The Regents
[the university] hereby reserves the right to license the Compound Patent Rights to any
third parties for solely Humanitarian Purposes. Such licenses for Humanitarian Purposes
will expressly exclude the right of the third party licensee to export or sell the Compound
Products from an EDC into a market outside of the EDC where Licensee has introduced or
will introduce a Compound Product and where Patent Rights exist. In any such license, the
third party licensee’s commercial use of the Compound Patent Rights to make, use, sell,
offer for sale and import Compound Products in EDCs will be royalty free and the third
party licensee will be required to give away the Compound Products for free or at cost.
For avoidance of doubt, the third party licensee may be permitted to export Compound
Products from the EDC of origin to other EDCs and all other countries mutually agreed to
by The Regents and Licensee.

CHAPTER 2.2

and Agricultural Innovation
AMANDA L. BREWSTER, Program Associate, Science & Intellectual Property in the Public Interest (SIPPI), American
Association for the Advancement of Science (AAAS), U.S.A. (Presently: Policy Officer at the Wellcome Trust, London, U.K.)
STEPHEN A. HANSEN, Project Director, Science & Human Rights Program,
American Association for the Advancement of Science (AAAS), U.S.A.
AUDREY R. CHAPMAN, Joseph M. Healey Endowed Chair, University of Connecticut Health Center, U.S.A.
ABSTRACT and distribution of products in agriculture and

Because certain patenting and licensing strategies can in- health. During the past 25 years, there has been
hibit the development and dissemination of products for
an unprecedented increase in the scope, level, role,
developing countries, intellectual property management
strategies need to be developed that can help remove some and geographic and subject-matter coverage of IP
of these obstacles. It is equally important to apply creative protection.1 Strong patent protection is intended
patent management strategies that actively promote access to contribute to increased research investments and
to needed products in developing countries. Care must be a favorable climate for technology transfer. But it
taken, however, to ensure that patents on research inputs do
not discourage or unreasonably increase the cost for prod- may not always produce these effects. In fact, IP li-
uct development that targets needs in small or unprofitable censing practices may inhibit access to IP-protected
markets. The American Association for the Advancement of knowledge, research tools, and products.
Science project on Science and Intellectual Property in the The unmet medical and agricultural needs
Public Interest convened a working group to explore these
of developing countries are vast. Reflecting the
issues in 2004. This chapter draws upon the expertise of
that group to identify licensing strategies that are effective technological and financial disparity between de-
in promoting humanitarian access to health and agricul- veloped and developing countries, low- and mid-
tural product innovations and expanding their use among dle-income countries account for less than 10%
poor and disadvantaged groups, particularly in low-income of worldwide research and development expendi-
countries. The chapter encourages more public sector IP
managers to understand and employ strategies that will tures.2 And despite increasing levels of investment
achieve these goals and seeks to help private sector licensees in pharmaceutical R&D during the past 30 years,
to understand the rationale behind and potential benefits only 1% of new compounds marketed have been
of such strategies. Indeed, humanitarian licensing strategies for developing-world diseases.3 Recent research
should more and more become the norm by contributing to
the development and dissemination of essential medicines
has identified some increase in innovative activ-
and agricultural technologies for developing countries. ity related to diseases specific to poor countries,
though this activity “remains extremely low rela-
tive to pharmaceutical research overall,”4 and has
resulted, in large part, from increased public R&D
1. Introduction funding for global health.4, 5 Similarly, private sec-
tor agricultural research is more likely to focus on
1.1 Patents and neglected markets specialty crops of interest to developed countries
Intellectual property (IP) rights play an increasingly than on staple crops that are important to re-
important role in the development, manufacture, source-poor farmers in developing countries.6
Brewster AL, SA Hansen and AR Chapman. 2007. Facilitating Humanitarian Access to Pharmaceutical and Agricultural Inno-
vation. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krat-
tiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. AL Brewster, SA Hansen and AR Chapman. Sharing the Art of IP Management: Photocopying and distribution
through the Internet for noncommercial purposes is permitted and encouraged.

BREWSTER, HANSEN & CHAPMAN
1.2 Background and related initiatives around 45 patents associated with Golden Rice
Our discussion of strategies builds on the initia- are owned by approximately 30 companies and
tives, experience, and proposals of other organi- public institutions in the United States, and only
zations for the management of IP. The United a few patents are held in developing countries.9
Nations Millennium Project Task Force on The inventors of Golden Rice licensed their in-
Science, Technology, and Innovation recom- ventions related to golden gice to Greenovation, a
mended expanding mechanisms for inventors biotech spinout company from the University of
to make their ideas available royalty free for uses Freiburg, which is owned by the inventors them-
that meet the needs of poor countries, noting in selves. Greenovation then exclusively licensed its
its final report that “only a handful of mecha- Golden-Rice-related patents to AstraZeneca, PLC
nisms are designed to promote such activities.”7 (now Syngenta). Subsequently, Syngenta entered
However, beginning in the 1980s, and expand- into a license agreement with the inventors that
ing through the 1990s and the early years of the allowed them, and Syngenta, to license Golden
21st century, an increasing number of organi- Rice technologies to developing countries. Other
zations have been using IP management prac- companies holding Golden-Rice-related pat-
tices to promote the health and food security ents also agreed to the same arrangement. That
of underserved populations. These include the arrangement allows both Syngenta and the in-
Program for Appropriate Technologies in Health ventors to grant licenses—with the right to sub-
(PATH) and the Population Council, as well as license—to any bona fide research organization
various other public and public/private partner- for the development of Golden Rice. The rice can
ships, such as the International AIDS Vaccine be used royalty free and allows farmers to earn
Initiative, the Global Alliance for TB Drug as much as US$10,000 per year from its sale.
Development, the Global Vaccine Initiative, the Higher sales would require farmers to acquire a
Diseases of the Most Impoverished Program commercial license from Syngenta.10 The example
of the International Vaccine Institute, and the of Golden Rice illustrates that it is possible to
Centre for the Management of Intellectual make IP available for research and commercial-
Property in Health Research and Development ization in developing countries.
(MIHR). International entities (for example, Yale University offers another example of hu-
the World Health Organization [WHO]) have manitarian IP management. It holds a key patent
undertaken humanitarian licensing, as have na- on stavudine (d4T), a widely used HIV/AIDS
tional entities such as the U.S. National Institutes antiretroviral drug. Yale renegotiated its exclusive
of Health (NIH), which now includes humani- license with Bristol-Myers Squibb Co. to incor-
tarian clauses in its licensing agreements as ap- porate renegotiated humanitarian terms, allowing
propriate. Several governmental organizations the drug to be subsequently licensed for generic
in developing countries, such as the Council for production in South Africa. The university also
Scientific and Industrial Research of India, are negotiated a price cut, immediately reducing the
beginning to undertake humanitarian licensing. price of d4T in Africa to 1/30th of the price in the
Agricultural organizations with relevant experi- United States. When the generic product came
ence include the African Agricultural Technology on the market, it further reduced the price by as
Foundation8 (AATF), the International Service much as 40%.
for the Acquisition of Agri-biotech Applications Other examples of humanitarian IP manage-
(ISAAA), and the institutes of the Consultative ment include Cornell University’s transfer of ring-
Group on International Agricultural Research spot-virus-resistant papaya to Thailand, as well
(CGIAR). as several projects brokered by the International
One of the most noted examples of hu- Service for the Acquisition of Agri-biotech
manitarian IP management involves vitamin- Applications (ISAAA). The latter include local
A-enriched Golden Rice. Although developed varieties of potato transferred from Monsanto
mainly with public sector funding and research, Co. to Mexico, as well as ring-spot-virus-resistant

CHAPTER 2.2
and delayed-ripening papayas transferred from Like typical drug companies, health-focused
Monsanto and Syngenta, respectively, to Southeast PPPs often develop a portfolio of candidate
Asia.11 Finally, a recent agreement between Gilead products, hoping that a few will be safe and ef-
Sciences and the South African drugmaker Aspen fective enough to treat their focal condition.
Pharmacare is another example of humanitarian Examples of PPPs that develop pharmaceuticals
IP management for health products. Gilead will are listed in Box 1.
allow Aspen to produce generic versions of the If a university has already licensed IP to a
HIV/AIDS antiretrovirals Truvada® and Viread®, company, renegotiating to provide access for a
and university inventors who own foundation- PPP can be costly and difficult—even if the PPP
al patents for both drugs have agreed to waive seeks to develop the invention into a noncom-
royalties in the developing countries served by peting product. However, the university can take
Aspen.12 steps at the beginning of the technology transfer
process to facilitate the use of its invention for
1.3 Intended audience developing products that serve the poor. If a tech-
This paper is written primarily for licensors, par- nology does not interest commercial licensees,
ticularly university-based technology transfer university IP managers can seek PPPs or other
managers and public sector intellectual property nontraditional license partners to develop it for
managers and, secondarily, for the staff of intel- neglected markets. To be able to take advantage
lectual property departments in corporations with of these opportunities, it is very important for
which these entities may enter into agreements or universities to establish policies and guidelines to
who may themselves decide to adopt some of the manage university-generated IP for humanitarian
following strategies. Foundations or agencies that use and applications.
fund research and that may wish to encourage or Why should universities and public sector in-
require their grantees to engage in humanitarian stitutions take advantage of these opportunities to
IP management are another important audience. promote humanitarian use? Most universities and
public sector research institutions seek to contrib-
1.3.1 Public sector ute to the wellbeing of humankind through their
Universities and public sector institutions play patenting and licensing activities. For example,
key roles in the development of medicines and each of the top four university recipients of U.S
agricultural products. Their roles are generally patents in 200416 states public benefit as an ex-
early in the process, and because university-based plicit goal in its patent policy:
research is most often upstream, final products • University of California (424 patents).
based on their research often involve significant “It is the intent of the President of the
development by others. The manner in which University of California, in administering
public sector researchers make their “upstream” intellectual property rights for the public
technologies and research tools available can benefit, to encourage and assist members of
influence whether populations in developing the faculty, staff, and others associated with
countries have access to the end products of this the University in the use of the patent system
research.13 with respect to their discoveries and inven-
In recent years a number of nonprofit pub- tions in a manner that is equitable to all
lic/private partnerships (PPPs) have formed with parties involved.”17
the mission of developing health and agricultural • California Institute of Technology (135
products for markets that are neglected by tradi- patents). “It is the policy of the Institute that
tional for-profit R&D companies. These PPPs are such patents be used for the public benefit. If
typically funded by foundations or public sources there are innovations or discoveries that result
and may receive in-kind support, or in some cases in the filing of patent applications and the
direct funding, from private companies. acquisition of patents, the Institute intends to
serve the public interest by prudent and ap-

Box 1: PPPs That Develop Pharmaceuticals

Aeras (Aeras Global TB Vaccine Foundation)
www.aeras.org
Children’s Vaccine Programme at PATH

www.childrensvaccine.org
CONRAD
www.conrad.org
DNDi (Drugs for Neglected Diseases Initiative)

www.dndi.org
FIND (Foundation for Innovative New Diagnostics)

www.finddiagnostics.org
Gates Foundation/University of North Carolina Partnership for the Development of New Drugs
www.ippph.org/index.cfm?page=/ippph/partnerships/name&thechoice=show&id=85&typobj
=0
Global Microbicide Project

www.gmp.org
Global Vaccines Inc.

www.globalvaccines.org
Human Hookworm Vaccine Initiative at Sabin Vaccine Institute

www.sabin.org/hookworm_slides.htm
IAVI: International AIDS Vaccine Initiative

www.iavi.org
Infectious Disease Research Institute

www.idri.org
iOWH (Institute for OneWorld Health)

www.oneworldhealth.org
IPM (International Partnership for Microbicides)

www.ipm-microbicides.org
MMV (Medicines for Malaria Venture)

www.mmv.org
MVI (Malaria Vaccine Initiative)

www.malariavaccine.org
PATH (Program for Appropriate Technology in Health)

www.path.org
PDVI (Pediatric Dengue Vaccine Initiative)

www.pdvi.org
PneumoADIP (Pneumococcal Vaccines Accelerated Development and Introduction Plan)

www.pneumoADIP.org
TB Alliance (Global Alliance for TB Drug Development)

www.tballiance.org
Source: Compiled from Gardner and Garner14 and Merz.15

CHAPTER 2.2
propriate efforts to transfer the technology to Public funding agencies also seek to promote
those who will facilitate public use.”18 public benefit. The mission of NIH, for exam-
• Massachusetts Institute of Technology (132 ple, is to support biomedical research to extend
patents): “It has long been acknowledged that healthy life by reducing illness worldwide. NIH
the primary functions of a university are edu- therefore seeks to understand and overcome the
cation, research, and public service. It is in the obstacles hindering the public availability of in-
context of public service that M.I.T. supports ventions made by NIH scientists. To this end,
efforts directed toward bringing the fruits of NIH engages in a variety of forms of humanitar-
M.I.T. research to public use and benefit.”19 ian licensing and humanitarian-use agreements.21
• University of Texas (101 patents): “It is the Many other public sector actors and universities
objective of this policy to encourage the devel- are also interested in “doing the right thing” in
opment of inventions and other intellectual terms of promoting access, but they often do not
creations for the best interest of the public, the know how to proceed.22
creator, and the research sponsor, if any, and We anticipate that at least some types of
to permit the timely protection and disclosure humanitarian IP strategies will have little or no
of such intellectual property by development, impact on licensing revenues for the technol-
commercialization after securing available ogy creators. Whether that will be the case may
protection for the creation, by publication, or depend on whether humanitarian licensing be-
both.”20 comes commonly practiced and accepted. It may
be important for a university or research insti-
tute’s administration to commit to humanitarian
Box 2: Developing a Low-Cost Malaria Treatment

Strategy employed: Agreeing on IP management conditions in advance
A research group sponsored by the Medicines for Malaria Venture (MMV) has developed a
promising, low-cost malaria treatment known as OZ277 /RBx11160. MMV supported collaboration
between scientists at the University of Nebraska, Swiss Tropical Research Institute, Monash
University, and the F. Hoffman-La Roche, Ltd. to develop OZ. The drug incorporates some chemical
features of the plant-derived antimalarial artemesin, but can be produced through synthetic
chemical processes, making it significantly cheaper. Patents covering OZ have been assigned to
MMV, and MMV has engaged the Indian drug manufacturer Ranbaxy to further develop it. Upon
regulatory approval, Ranbaxy Laboratories, Ltd. will distribute OZ at low cost in malaria endemic
countries. MMV facilitated arrangements for patent, royalty, and pricing structures to benefit
those in need by establishing an IP management plan with its collaborators in advance. Below
are excerpts from the Statement of MMV Collaborative Principles:
MMV’s central objective is to ensure the sustainable and continuous generation of appropriate
new malaria medicines that are accessible to all of those in need in developing countries at the
lowest prices practicable.
MMV requires intellectual property rights on a royalty-free basis to the relevant intellectual
property, in the field of malaria, and developed through the collaboration.
MMV will seek the right to the relevant background intellectual property necessary to achieve
the objectives identified herein.
MMV would not normally have a desire to retain any interest in relevant intellectual property
rights for use outside the field of malaria or to constrain such use by its collaborators.
Source: MMV and JC CraftMedicines for Malaria Ventures. Statement of MMV

Collaboration Principles. Personal communication, J. Carl Craft, Chief Scientific Officer, MMV.23

IP management as an extension of the institu- 2. Humanitarian licensing strategies

tion’s public mission (Box 2). This might enable In this section we discuss some successful strat-
technology licensing officers to risk sacrificing egies and some new proposals for managing IP
small amounts of licensing revenue when there is to facilitate humanitarian use and applications.
an opportunity to enhance product development These include case studies in which IP owners
initiatives for the poor. In addition, institutional have used nontraditional IP management tech-
administrations can foster approaches among niques to promote the development of products
technology licensing officers that would enhance for neglected markets. In this section, we describe
such product development initiatives when fi- general approaches to licensing and some specific
nancial promise is low. license features that a patent owner can use when
transferring technology to a commercial entity.
1.3.2 Private Sector
Why address intellectual property managers in 2.1 Identifying the intended beneficiaries
the commercial sector? Most technologies devel- Rights reserved or obligations set out to facilitate
oped by universities and public sector institutions access in developing countries will need to specify
are at early stages of development and require pri- the intended beneficiaries. In the end, all human-
vate companies to invest more in research and itarian licensing efforts should strive to benefit
development to create practical applications. underserved people in developing countries by
Universities generally license these early-stage providing greater access to needed technologies.
technologies to the private sector. The success However, defining this population or identifying
of humanitarian licensing therefore depends on the institutions that could serve this population
the willingness of private sector actors to accept with the licensed technology may require dif-
certain conditions and requirements that would ferent approaches, depending on the particular
increase access later in the product development technology and requirements of the primary li-
and marketing stages. censee. Below are some options for defining the
We think there are two reasons that commer- beneficiaries of humanitarian license terms.
cial licensees may support humanitarian licensing. A developing country can be defined in a
First, commercial entities usually expect major fi- number of ways, for example, by reference to
nancial returns in developed world markets, but the United Nations list of least developed coun-
developing country markets are often considered tries, by locale, or by reference to lists provided
unprofitable. Hence, many types of humanitarian by the Organisation for Economic Co-operation
licensing may not harm the financial interest of and Development (OECD) countries, the World
the commercial licensee. Moreover, a corporation Bank, or the Food and Agriculture Organization
may advance its reputation for social responsibil- (FAO). Beneficiary countries may also be mu-
ity and win greater esteem from the public by actually agreed to by the contracting parties, who
cepting humanitarian licensing. may also need to decide whether the agreement
Multinational companies have already will cover middle-income as well as low-income
shown a willingness to segment their markets countries.
and offer concessionary terms to facilitate ac- In addition to or in place of defining a list
cess to their products in poor countries. A num- of countries covered by the reservations and/or
ber of examples have been highlighted already, exemptions in a humanitarian license, negotia-
including AstraZeneca, Bristol-Myers, Gilead, tors may wish to further define the population
Monsanto, and Syngenta. Activities by Chiron in those countries that would be covered. The
Corp., GlaxoSmithKline, Pioneer International, intended population might be “the poor,” “those
Inc. (affiliate of E. I. du Pont de Nemours and in need,” subsistence farmers, populations in geo-
Company), and Roche are mentioned later. graphically underserved regions, or a particular
market segment.

CHAPTER 2.2
A market segmentation, or dual market, ap- using nonexclusive licensing, it is free to subse-
proach is often used to target intended benefi- quently license the technology for humanitarian
ciaries and is involved in many of the strategies applications. Sometimes a commercial licensee
discussed in this paper. With this approach, an insists upon an exclusive license, in which case
exclusive license might give a private sector en- public sector licensors may limit the exclusive
tity the sole right to use a technology in profitable license to developed-country markets (as dis-
markets, while allowing others to use the technol- cussed later) or for specific product applications.
ogy at no cost or reduced royalties to serve market
segments that do not interest the private sector. 2.3 Transferring technology to
In the licensing arrangements for Golden public-private partnerships (PPPs)
Rice, a humanitarian-use clause was used to seg- When it is clear that a technology could benefit
ment access to an agricultural technology, com- neglected markets (for example, a low-cost HIV
mitting the owners of key proprietary compo- diagnostic or an agricultural trait important for
nents to donating their technology to the poor. subsistence agriculture), university technology
Negotiations over how exactly to define and make managers may be able to transfer the technology
operational such “donations” are ongoing. These to a nonprofit corporation for product devel-
negotiations focus on defining the humanitarian- opment either on an exclusive or nonexclusive
use market and ultimately on the precise wording basis. The business models of PPPs vary. Some
of the humanitarian-use clause. This humanitar- conduct in-house product development; others
ian-use clause will determine who qualifies as a manage collaborative development by public
beneficiary of royalty-free access to Golden Rice and private sector labs (Box 3). The transfer of
and exactly how they would benefit.24 technology could take forms ranging from di-
Although market segmentation strategies rect licensing or donation of a patented inven-
have been employed successfully,25 certain chal- tion to contributions of know-how or scientific
lenges remain, namely the containment of the IP expertise.
within the targeted markets. In addition to the Another possible model is an arrangement in
humanitarian transfer of products to the intend- which a commercial licensee focused on markets
ed populations, many developing countries may in affluent countries makes the technology avail-
also have emerging private markets for the same able to a PPP on concessionary terms for market-
goods. Markets that would not be attractive to ing or development for poor countries. In order
large companies may nevertheless present niche to minimize transaction costs for the PPP, it is
opportunities for smaller companies. Market seg- highly preferable for the university to engage with
mentation might be most successful where non- the nonprofit developer before completing nego-
commercial markets can be sharply delineated by tiations with the commercial licensee.
region, which makes it easier to exclude spillovers University technology managers can also fa-
to nontargeted markets.26 In addition, market cilitate nonprofit product-development efforts
segmentation often requires intense negotiation, by offering PPPs ownership of patents that the
the development of trust between partners, and university no longer wishes to maintain. Even
the capacity to enforce agreements. when a technology does not appear to have a
clear application for developing regions, it may
2.2 Nonexclusive licensing prove useful for some aspect of the PPP’s work to
In nonexclusive licensing, in addition to the pri- develop products for these regions.
mary license agreement, the licensor retains the
freedom to license the technology to other par- 2.4 Transferring technology to
ties. Some institutions (for example, NIH) seek companies in developing countries
to use nonexclusive licensing or to license to mul- Technology managers may seek commercial part-
tiple companies whenever possible. If a university ners in low- or middle-income countries to devel-
can accomplish technology transfer to a company op technologies that address conditions specific to

those regions. These companies are likely to have patented technology itself, such as manufactur-
greater interest in developing products that meet ing expertise and regulatory data. In the rare case
the needs of these countries than commercial that a university holds IP that needs little addi-
entities in wealthier countries. They may also be tional development, it could essentially make the
able to develop, produce, and distribute products out-licensing arrangement itself by licensing the
at much lower cost than typical partners in the patent to a name-brand pharmaceutical company
United States or other industrialized countries. (as opposed to a company specializing in the pro-
duction and marketing of generics) for wealthy
2.5 Out-licensing markets and to generic manufacturers for pro-
Out-licensing is primarily executed by drug com- duction in developing countries. It may be more
panies that are already producing name-brand difficult, though not impossible, to encourage the
versions of a patented drug, but universities could sharing of manufacturing expertise and regula-
negotiate with corporate licensees to ensure that tory information.
out-licensing to generic companies takes place.
Under the out-licensing approach, drug patent 2.6 Conditions in funding agreements
holders award nonexclusive licenses to generics Foundations, government agencies, and other
manufacturers, allowing them to produce cheap organizations can require that funded work be
copies of drugs for sale exclusively in designated licensed under humanitarian terms by inserting
poor countries. The generic makers are prohibited conditions into funding agreements. Establishing
from selling products in the patent holder’s devel- humanitarian IP management conditions in
oped country markets, and they may be required advance can simplify later negotiations, help
to modify their packaging so as to discourage re- researchers and IP managers plan ahead, and
importation by making the generic versions easier increase the prospects of success (Box 4). The
for customs officials to identify. Generic produc- Rockefeller Foundation has crafted language to
ers pay a royalty to the patent holder, and are include in research agreements for this purpose,
encouraged to compete on price. An advantage offering a model for ways that funders can increase
of this semicooperative approach is that generic humanitarian access to the research supported by
makers in developing countries can get more in- their grants. The Rockefeller Foundation requires
formation from the patent holder than just the grantees, whether or not they claim or obtain
Box 3: CDA Malaria Treatment
Strategy employed:
PPP-sponsored product development and preferential pricing requirement
The WHO Tropical Disease Research program, the Medicines for Malaria Venture (MMV), and
GlaxoSmithKline have formed a partnership to build upon the two-drug antimalarial LapDap™
by adding artesunate to the combination. The new therapy will be called CDA, for its ingredients
chloroproguanil, dapsone, and artesunate. The original LapDap was conceived by scientists
from the Wellcome Trust Laboratory in Nairobi and the University of Liverpool, then brought to
market by a public/private partnership involving MMV, British universities, the Wellcome Trust,
GlaxoSmithKline, and the U.K. Department for International Development. It was approved by
the U.K. Medicines and Healthcare Products Regulatory Agency in 2003. Under the agreement for
developing the new triple-drug combination, it will be made available at preferential prices to the
public sector in malaria endemic countries.
Source: TDR News.27

CHAPTER 2.2
patents or other proprietary rights in their dis- development and marketing plan to facilitate de-
coveries, “to license or otherwise make available veloping country access to licensed products, the
the Discoveries to third parties in the commercial implementation of which it monitors through
and public sectors (to the extent permitted under the agreed-upon benchmarks.29
MTAs) for the purpose of furthering the creation,
reproduction, modification, and/or sale of the im- 2.8 Performance milestones
proved end product.” A milestone is a performance requirement on the
part of the licensee. Milestones are often used in
2.7 Humanitarian conditionality public/private partnerships and sponsored re-
in licensing agreements search agreements to measure a project’s progress
Licensing conditions may require the licensee to and success. An example of a humanitarian licens-
do specific good things to benefit disadvantaged ing milestone might be a requirement that on or
populations. These conditions are sometimes re- before the date of the first phase of a clinical trial
ferred to as white knight clauses. These may infor a new drug, the licensee will have identified a
clude marketing a product in developing nations generic manufacturer in a middle-income country
at a reduced royalty or price, donating materials to produce the licensed technology at a reason-
for clinical trials, or cooperating with a humani- able price for developing countries. Subsequently,
tarian licensee in a specified way (for example, by if this milestone is not met, other provisions and
providing clinical or field trial results). A licensor reservations in the agreement would be activated,
could also insert language requiring the licensee for example, loss of exclusivity, sublicensing, ex-
to make products developed from improvements ercise of march-in rights, and even termination of
to the technology available in low- and middle- the agreement.
income countries at a reduced cost.
NIH often uses these clauses in its agree- 2.9 Ensuring accessibility through pricing
ments to ensure that the licensee undertakes To help ensure access to products, the licensor
specific actions to benefit the public sector (for may require that any product developed and
example, mandating the supply-back of licensed brought to the market be distributed at a rea-
products or services, health education programs, sonable price. Despite the inherent difficulties
indigent access programs, reduced royalties for in defining what is reasonable, price is a readily
developing countries, biodiversity compliance for measurable condition that is easier to monitor
natural products, and other means of ensuring than more broadly defined requirements con-
developing country access for licensed products). cerning access.30 This model could be expanded,
NIH also requires licensees to create a worldwide whereby licenses to companies include an appro-
Box 4: Developing a Portable HIV Diagnostic
Strategy employed: Condition in funding agreement
When technology transfer officers at Massachusetts General Hospital and the University of Texas
were licensing a prototype HIV diagnostic device to a start-up company, the requirements of the
foundation funders allowed the foundations to grant additional licenses to entities capable of
meeting charitable objectives in LDCs. Since it is a portable device, the technology could provide
an inexpensive, practical means of diagnosing HIV in resource-poor settings.
Source: Foskett, Menapace and Basu.28

priate balance of incentives to the licensee and also need rights for commercial use in low- and
market access for the poor. Licensees might be middle-income regions. Although the reserva-
required to meet certain milestones, such as gov- tion may be defined as humanitarian use, licen-
ernment procurement targets in defined coun- sors may wish to consider additional, more spe-
tries, and at prices that are deemed appropriate cific reservations as described below.
for that market. Here, an appropriate price may
be defined as the cost of production plus a small 2.11 Research exemption
profit, usually in the 5%–10% range prior to One of the several goals of humanitarian IP
being allowed to commercialize the product in management is to encourage research to de-
more lucrative markets.31 To ensure that an ap- velop products appropriate to the needs of the
propriate price is reached and maintained, the developing world. To this end, licensors could
licensor may include contractual language that opt to insert into licensing agreements a re-
mandates the submission of manufacturing cost search exemption clause that exempts specified
reports and product cost calculation details on a categories and types of research from patent
regular basis.32 infringement in using its proprietary technolo-
gies, (for example, to develop products that
2.10 Reserving rights in license agreements broadly benefit the public or the population of
It is important to think through how the hu- poor countries). The University of California
manitarian-purpose licensee will actually use the technology transfer office has begun to insert
technology and to reserve an appropriate set of such research exemption clauses into licensing
rights and exemptions. For example, the negotia- agreements.33 Other universities already re-
tors will certainly want to consider the scope of serve research rights for academic institutions
research rights and, depending on the particular in their standard exclusive licensing agreements
technology and application, the scope of inter- (for example, Stanford, whose standard license
national trade rights. The humanitarian licensee language is reproduced in Box 5). Such a clause
might need the right to carry out research or could facilitate humanitarian use of the tech-
manufacture within the commercial licensee’s nology if it also reserved rights for nonprofit re-
territory, so long as the research is done only for search institutions developing products for use
developing nation needs or the manufacture for in developing countries.
export to developing nations. The commercial
licensee may then wish to be protected against 2.12 Sublicenses for developing countries
re-export into its primary commercial market. Unless provided for in the agreement, a licens-
As noted earlier, the humanitarian licensee may ee generally does not have sublicensing rights.
Box 5: Stanford Reservation of Academic

Research Rights in Standard License Agreement
Strategy employed: Reservation of research rights
3.4 Retained Rights. Stanford retains the right, on behalf of itself and all other nonprofit academic
research institutions, to practice the Licensed Patent and use Technology for any purpose,
including sponsored research and collaborations. Licensee agrees that, notwithstanding any
other provision of this Agreement, it has no right to enforce the Licensed Patent against any such
institution. Stanford and any such other institution have the right to publish any information
included in the Technology or a Licensed Patent.
Source: Stanford Office of Technology Licensing.34

CHAPTER 2.2
Should the parties agree to allow sublicensing, If it is likely that the commercial licensee will
the main agreement should specify the rights develop improvements to the technology, it
and obligations of the licensee with respect to would be wise to require that the licensee grant
the sublicensee(s). In allowing for sublicenses, back nonexclusive rights to those improvements.
consideration should be given to the possibility This would ensure that they would be available
of the original licensee entering into sublicenses later for a humanitarian purpose licensee. The
inconsistent with the humanitarian goals of the same might go for access to test results or regu-
agreement. This should be restricted. It is gen- latory data. If either party is concerned about
eral practice for the licensor to hold the licensee liability issues, there might be, for example, re-
responsible for assuring that the sublicensee ful- quirements for any humanitarian licensee to be
fills all the requirements of the principal license. adequately insured or to be operating in com-
The best way to ensure that the sublicensee has pliance with relevant regulations.
obligations comparable to the licensee’s is for
the licensor to draft the sublicense terms. The 2.14.3 Amending existing agreements
licensor can thus be certain that all the humani- While the goal of this document is to promote
tarian requirements within the primary agree- humanitarian licensing from the outset, when
ment are included. agreements already exist they can be amended
or revised to meet humanitarian needs. There
2.13 March-in rights are several examples of successful renegotia-
A licensor may wish to reserve march-in rights if tions. For example, the humanitarian license
the humanitarian purposes or milestones embod- mentioned earlier between Yale University and
ied in the agreement are not met (for example, Bristol-Myers Squibb was actually the result of
revoking a license or sublicensing to third parties a renegotiation of their license for the AIDS
in order to ensure access). drug d4T, which permitted generic d4T to be
made and used in South Africa. There are also
2.14 Treatment of future rights examples from the agricultural sector in which
in license agreements parties successfully addressed barriers posed by
a worldwide exclusive license between a uni-
2.14.1 Reach-through clauses versity and a company. In one case, a compa-
Reach-through clauses attempt to reach beyond ny insisted that no license was required to use
the licensed technology and to ensure that the the licensed technology in a certain country. It
licensee treats new technologies, developed stated this in a letter that permitted the univer-
through use of the licensed technology or un- sity to transfer a gene construct directly to the
der a cooperative agreement, honoring the same country. In general, renegotiating license terms
kinds of development obligations covered by the is not desirable because it increases transaction
original license. This type of clause is often used costs, delays projects, and may not always suc-
by public–private partnerships to encourage the ceed. However, while there are clear benefits to
development of specific technologies that benefit addressing these issues up front wherever possi-
developing nations while allowing the private ble, the fact that an agreement has already been
sector partner to benefit in the developed world. concluded should not discourage participants
Licensors can also help make inventions more from revisiting the agreement when an unfore-
available to populations in need by insisting on cer- seen need arises.
tain terms when licensing inventions to commercial
partners. Opportunities to transfer technologies to
be developed by public–private partnerships or by 3. Proposals for new approaches
other organizations can also be pursued. for humanitarian licensing of IP
Two new proposals conclude our discussion of
2.14.2 Grant-back clauses specific strategies for humanitarian licensing: (1)

considering a shorter length for an exclusive li- provides that any party may pursue research
cense and (2) equitable access licensing. anywhere in the world using the university tech-
nology and licensee improvements without pay-
3.1 Shorter lengths of license exclusivity ing a royalty, if the research targets a neglected
Instead of granting exclusive licenses that match the disease.37
term of the patent, the licensor can grant licenses
for shorter periods, allowing access by multiple
licensors over the life of the patent. There may 4. Next steps for AAAS Humanitarian
be practical complications to this approach, since IP Management Initiative
universities often receive patent-cost reimburse- This document emphasizes the importance of
ments from licensees, which in turn require ex- managing public sector IP to facilitate humani-
clusivity until expiration of the patent term. tarian use and applications. It seeks to raise
Granting short-term exclusive licenses would awareness about some of the techniques that have
likely require the university to bear all the costs been pursued so far, and we are optimistic that
related to maintaining and enforcing the patent, additional approaches will emerge as more insti-
which it could only afford to do if the patent itself tutions undertake IP management with humani-
was bringing in significant licensing revenues. In tarian use and applications in mind. We certainly
that case, the university may be reluctant to end do not mean to preclude other options.
its licensing relationship with the high-revenue Even if technology managers adopt humani-
licensor.35 tarian IP management strategies in the construc-
tion, negotiation, and formalization of legal
3.2 Equitable access licensing agreements, they will also need to connect with
Universities can also make use of an equitable development partners who can utilize the pro-
access license to create enabling conditions for tected technologies to serve unmet needs in de-
competition in low- and middle-income coun- veloping countries. In some cases, these partners
tries. An equitable access license (1) ensures free- may not yet exist. But when they do, it will be
dom to operate for any party that manufactures important to establish simple, efficient ways for
and distributes the licensed technology and any them to identify technologies that public sector
derivative products in low- and middle-income institutions are willing to share.
countries and (2) minimizes administrative We believe that the number and variety of
overhead and political contingency by initiat- technologies being managed with humanitar-
ing a self-enforcing open licensing regime. In ian goals in mind will continue to increase, and
such a license, a university and licensee agree so the Science and Intellectual Property in the
that any licensed technology, as well as licensee Public Interest (SIPPI) project plans to explore
improvements (including improvement patents ways to increase the transparency of license terms
and registration data), to be sold in low- or mid- covering these technologies, thus making this
dle-income countries will be openly licensed to information more widely available to potential
any company that meets Good Manufacturing beneficiaries.
Practice standards.36 This arrangement allows In continuing its work on humanitarian li-
multiple producers (including producers in censing, the SIPPI project will identify ways to
high-income countries) to compete to produce encourage the use of humanitarian licensing
low-price products for sale only in low- and practices and increase the transparency of license
middle-income countries simply after notifying terms covering technologies in health and agricul-
the parties to the license. tural innovation, thus making that information
The Equitable Access License developed more widely available to potential beneficiaries.
by Universities Allied for Essential Medicines It is pursuing the following interrelated activities
(UAEM) includes a humanitarian research clause as a means to advance the use of humanitarian
to encourage research on neglected diseases. It licensing strategies.

CHAPTER 2.2
Promoting the use of humanitarian licens- Richard Mahoney, IVI; Duncan Matthews, Queen Mary
ing practices. In collaboration with the Centre Intellectual Property Institute, University of London;
Luis Salicrup, Office of Technology Transfer, NIH; Joelle
for the Management of Intellectual Property in
Tanguy, Global Alliance for TB Drug Development; and
Health Research and Development (MIHR), Jacob Werksman, then at The Rockefeller Foundation;
SIPPI plans to identify and develop approaches AAAS Staff: Audrey Chapman, Stephen Hansen, and
for encouraging technology managers to adopt Amanda Brewster. A staff member from Eli Lilly and Co.
humanitarian licensing models. That will be attended the first meeting of the working group. We also
appreciate the inputs of the following people for their
accomplished through a wide range of outreach comments in later stages of its drafting: Nalini Anand,
activities that will include holding workshops NIH; Usha Balakrishnan, University of Iowa; J. Carl Craft,
to coincide with meetings of the Association Medicines for Malaria Venture; Amy Kapczynski, Yale
of University Technology Managers and the University; Richard Mahoney, IVI; Duncan Matthews,
Queen Mary Intellectual Property Institute, University
Association of American Universities, and host- of London; Jake Werksman, The Rockefeller Foundation;
ing a series of meetings on this topic at the AAAS and Katherine Woo, Institute for OneWorld Health.
headquarters in Washington, D.C., as well as at An extended version of this paper was published
SIPPI’s annual meeting. by Brewster AL, AR Chapman and SA Hansen. 2005.
Developing a Web-based clearinghouse. We
and Agricultural Innovation. Innovation Strategy Today
will develop and implement a Web-based clear- 1(3):203–216. www.biodevelopments.org/innovation/
inghouse of technologies that are available for index.htm
humanitarian licensing for product development.
The clearinghouse will be designed as an openly Amanda L. Brewster, Program Associate, Science &
Intellectual Property in the Public Interest (SIPPI), American
accessible database listing technologies available Association for the Advancement of Science (AAAS), 1200
for humanitarian use. It will identify the owner of New York Ave., NW, Washington, DC, 20005, U.S.A.
the technology and provide information as to the Presently: Policy Officer at the Wellcome Trust, London.
specific licensing terms for each listed technology, U.K. amanda.brewster@gmail.com
including type of license, field of use, and the in-
Stephen A. Hansen, Project Director, Science & Human
tended beneficiaries for the use of the technology. Rights Program, American Association for the Advancement
In addition to facilitating access to technologies, of Science (AAAS), 1200 New York Ave., NW, Washington,
the clearinghouse will allow technology transfer DC, 20005, U.S.A. shansen@aaas.org
managers to submit detailed information about
Audrey R. Chapman, Joseph M. Healey Endowed Chair,
new technologies and, similar to the creative com- Medical Humanities, Law, and Ethics, Department of
mons model, will supply online tools to build spe- Community Medicine and Health Care, University of
cific humanitarian licenses for those technologies. Connecticut Health Center, 263 Farmington Avenue,
This model will allow the clearinghouse to con- Farmington, CT, 06030-6325, U.S.A. achapman@uchc.edu
tinue serving its intended purpose over the long
term. ■
1 CIPR. 2002. Commission on Intellectual Property
Rights. Integrating Intellectual Property Rights and De-
velopment Policy. Final Report of the Commission on
Acknowledgements Intellectual Property Rights, p. 2. DFID: London. www.
This work was supported by grants from the MacArthur iprcommission.org.
and Rockefeller foundations. The authors would like 2 Ibid.
to thank all members of the SIPPI Working Group on
Humanitarian Licensing for input on earlier drafts of 3 Shetty P. More Creative Thinking Needed on Drug
R&D. (editorial) 3 May 2005 SciDev.net. www.scidev.
this paper. Members of the working group included:
net/content/editorials/eng/more-creative-thinking-
Nalini Anand, Fogarty International Center, NIH; Usha
needed-on-drug-rd.cfm.
Balakrishnan, then at University of Iowa; John Barton,
Stanford Law School; Alan Bennett, University of 4 Lanjouw J and M MacLeod. 2005. Statistical Trends
California, Davis, and PIPRA; Cathy Garner, Manchester: in Pharmaceutical Research for Poor Countries.
Knowledge Capital; Robert Horsch, then at Monsanto Commissioned by the WHO Commission on Intellectual
Company; Amy Kapczynski, Yale University; Anatole Property, Innovation, and Public Health. www.who.int/
Krattiger, Arizona State University and Cornell University; intellectualproperty/studies/stats/en/index.html. The
authors found an increase in indicators of innovative

activity (patenting and bibliometric citation) related to org/data/articles/20-2_spring-2005_2-benkler.pdf.

some diseases specific to developing countries between 14 Gardner C and C Garner. 2004. Technology Licensing
1980 and 2002, but only the subset still in need of better, to Nontraditional Partners: Nonprofit Health Product
low-cost treatments. The authors found a downtrend Development Organizations for Better Global Health.
in innovative activity among the subset for which www.mihr.org/?q=taxonomy_menu/1/6.�
treatments already exist. The authors suggest that
although the increase in innovation coincides in part 15 ��
Merz JF. 2005. ��
Intellectual Property and Product
with the introduction of stronger patent protection in Development Public-Private Partnerships. WHO
developing countries, increased public R&D funding for CIPIH. www.who.int/intellectualproperty/studies/
global health and political developments is likely to have intellectual_property/en/.
made significant contributions over the same interval. 16 U.S. Patent and Trademark Office. USPTO Releases
Still, drug innovation targeting developing countries List of Top 10 Universities Receiving Most Patents in
remains a tiny fraction of drug innovation overall. 2004. www.uspto.gov/web/offices/com/speeches/05-
5 Moran M. 2005. A Breakthrough in R&D for Neglected 18.htm.
Diseases: New Ways to Get the Drugs We Need. PLOS 17 ucop.edu/ott/patentpolicy/patentpo.html.
Medicine 2 (9). The author reports an increase in
18 www.ogc.caltech.edu/patent Policy.htm.
neglected-disease drug development projects since
the year 2000, including activity by multinational 19 web.mit.edu/tlo/www/guide.4.htm.
companies, small companies, and public-private 20 The University of Texas System: Rules and Regulations
partnerships (PPPs). She observes that “commercial of the Board of Regents, Series: 90101. www.utsystem.
incentives were largely irrelevant to the decision by edu/ogc/intellectualProperty/polguide.htm.
multinational companies to reenter the neglected
disease field, while small companies involved in 21 Salicrup L, RF Harris and ML Rohrbaugh. 2005.
neglected disease R&D were indeed responding to Partnerships in Technology Transfer: An Innovative
commercial drivers. In most cases, the involvement or Program to Move Biomedical and Health Technologies
planned involvement of PPPs was crucial to company from the Laboratory to Worldwide Application. IP
involvement, commercial or otherwise.” Strategy Today, 12:1–12. www.biodevelopments.org/ip/
ipst12.pdf.�
6 See the discussion of these issues on the Web site of
PIPRA. www.pipra.org/purpose.htm. 22 See supra note 13, at p.7.
7 UN Millennium Project. 2005. Innovation: Applying 23 Medicines for Malaria Ventures. “Statement of MMV
Knowledge in Development. Task Force on Science, Collaboration Principles.” Personal communication,
Technology, and Innovation, p. 170. J. Carl Craft, Chief Scientific Officer, MMV. See also
“Ranbaxy and MMV Achieve Potential Breakthrough
8 See, also in this Handbook, chapter 17.18 by R Y Boadi in Malaria, Drug Enters Human Trials Phase.” Ranbaxy
and M Bokanga. Lab. Press Release, 18 August 2004. www.ranbaxy.com/
9 Contrary to the often-quoted 70-plus patents, Kryder, newsroom/pressrelease_det.asp?sno=169.
Kowalski and Krattiger (see below) clearly showed 24 See supra note 11, at p. 18.
that the 70-plus patents included patent applications
and patent families in different countries. Only 45 25 For example, a license by Monsanto to the Kenya
unique patents were identified at the time. Kryder Agricultural Research Institute allows for unrestricted
RD, S Kowalski and AF Krattiger. 2000. The Intellectual use of certain Monsanto technology and know-how for
and Technical Property Components of Pro-Vitamin A the development of virus-resistant sweet potatoes in
Rice (GoldenRice™): A Preliminary Freedom-to-Operate Kenya and Africa. Other agreements allow for the use
Review. ISAAA Briefs 20. p. 74. www.isaaa.org. of insect resistance in maize transferred by Syngenta
to Africa but cannot be used outside of the region;
10 A Krattiger. 2006. Cornell University. Personal IRRI negotiated the rights for use of a stem-borer-
communication. resistant gene for rice from Plantech for all developing
11 Lybbert TJ. 2002. Technology Transfer for Humanitarian countries as defined by the UN. (Byerlee D and K
Use: Economic Issues and Market Segmentation Fischer 2001.Accessing Modern Science: Policy and
Approaches, IP Strategy Today, 5:18. www. Institutional Options for Agricultural Biotechnology
biodevelopments.org/ip. in Developing Countries, IP Strategy Today, 1:14. www.
biodevelopments.org/ip.
12 Gilead Press Release. 25 April, 2005. Gilead Sciences and
Aspen Pharmacare Sign Letter of Intent to Establish 26 See Byerlee and Fischer at supra note 25.
Nonexclusive Licensing and Distribution Agreement 27 TDR News No. 72. 2004. Artesunate combinations are
for Antiretrovirals Truvada and Viread in Developing coming: partnership develops LapDap plus artesunate.
World Countries. www.gilead.com/wt/sec/pr_700521. www.who.int/tdr/publications/tdrnews/news72/
13 Kapczynski A, S Chaifetz, Z Katz and Y Benkler. lapdap.htm.
2005. Addressing Global Health Inequities: An Open 28 Foskett H, R Menapace and S Shah Basu. 2003.
Licensing Approach for University Innovations. Berkeley Developing Inventions for Neglected Diseases. Poster
Technology Law Journal 20:1–84. See page 3. btlj.boalt. Presentation, AUTM annual meeting.

CHAPTER 2.2
29 Rorbaugh M. 2005. Technology Transfer to Benefit licensees to public sector health services worldwide as
Public Health in LDCs. Global Health & Technology well. www.conceptfoundation.org.
Transfer Meeting (presentation made 15 March), NIH 32 See, also in this Handbook, chapter 2.7 by J Oehler.
Office of Technology Transfer.
33 See, also in this Handbook, chapter 2.1 by AB Bennett.
30 See supra note 13, at 9.
34 otl.stanford.edu/industry/resources/exclusive.pdf.
31 The Concept Foundation (CF) has been a pioneer
in licensing that helps to ensure access through 35 U Balakrishnan. 2004. University of Iowa. Personal
appropriate pricing mechanisms. It has partnered communication.
with 10 different PPPs with pharmaceutical companies 36 The World Health Organization has established a
worldwide. It has licensed technology to nine detailed set of Good Manufacturing Practice (GMP)
manufacturer in five developing countries. CP has standards, and many individual countries maintain
had products manufactured in eight countries and their own GMP requirements for regulatory approval.
made available in more than 30 developing countries.
37 Kapczynski A, S Chaifetz, Z Katz and Y Beukler. 2005.
Its first product, Cyclofem®, an injectable hormonal
Addressing Global Health Inequities: An Open Licensing
contraceptive, was made available to public sector
Approach for University Innovations. Berkeley Technology
health services in 1993. Since then, over 140 million
Law Journal 20:2. btlj.boalt.org/data/articles/20-2_
doses of Cyclofem have been manufactured and
spring-2005_2-benkler.pdf.
distributed by CF licensees worldwide. Around 16
million HIV rapid tests have been distributed by CF

CHAPTER 2.3
Ensuring Global Access through

Effective IP Management:
Strategies of Product-Development Partnerships
Robert Eiss, Chief Executive Officer, MIHR, U.K.
Kathi E. Hanna, Senior Vice President, Section Head, Scientific Reports and Proceedings, Styllus LLC, U.S.A.
International Vaccine Institute,Republic of Korea
ABSTRACT 1. Introduction
In the last decade, product development partnerships Infectious diseases such as HIV/AIDS, tuberculo-
(PDPs) have become significant components of efforts to
sis (TB), and malaria are among the world’s lead-
develop and disseminate therapies for diseases in the de-
veloping world. PDPs seek to fill a gap left by the private ing killers, affecting the poorest people in the most
sector—a gap that leaves 90% of the world’s disease burden impoverished countries. Yet affordable and acces-
with only 10% of the world’s research money—through sible interventions are frequently unavailable to
innovative, comprehensive partnership strategies that tap them. Moreover, neglected diseases such as leish-
into the strengths of both the private and public sectors.
This chapter, based on the proceedings of a conference titled maniasis and Chagas’ disease kill or disable mil-
Ensuring Global Access through Effective Management lions of people in the developing world every year.
of Intellectual Property in 2006, provides an overview of Treatment options for these diseases are either in-
the history and approaches of numerous PDPs. The chap- adequate or nonexistent because of a lack of public
ter is anchored by reports from eight different PDPs and
funds and private sector incentive to research and
aims toward explaining what potential problems to guard
against, what does not work, and—above all what does develop new drugs and vaccines. This lack of R&D
work—when the public sector plugs into the dynamism of has created what some call the 10/90 gap; less than
the private sector to try to meet the health and agricultural 10% of global health R&D spending worldwide is
needs of developing countries. Recognizing that there is no focused on diseases or conditions that account for
single business model, PDPs employ a common toolbox to
manage intellectual property for global health outcomes. It 90% of the world’s disease burden.1
includes defining a discrete territorial market; establishing Focusing science and technology innova-
distinct structures for public sector and private sector mar- tion on tackling these diseases is a necessary, but
kets; determining field of use in a strategic manner; estab- not sufficient, condition for progress. Improving
lishing royalty rates to optimize incentives; and providing
for access to the developed technology in the event that
global health will also require concerted efforts
the research/industry partner abandons the project. Other by academic and industrial scientists, technology
key areas of discussion, where parallels between PDPs exist, developers, IP (intellectual property) experts, in-
include global-access strategies, pricing issues, the impor- vestors, government officials, policy-makers, and
tance of market segmentation, production capacity, stra-
public-health officials. Partnerships are needed,
tegic early-stage licensing, the IP landscape, and systemic
challenges. Collectively, PDPs have broadened the creative not only to develop the products and strate-
understanding of practical ways to resolve the public-policy gies for delivering interventions to populations
dilemma of balancing private incentives to generate needed most in need, but also to forge IP and technol-
R&D investment with the goal of access to those in need. ogy transfer agreements that will protect private
Eiss R, KE Hanna and RT Mahoney. Ensuring Global Access through Effective IP Management: Strategies of Product-De-
velopment Partnerships. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best
Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.
ipHandbook.org.
© 2007. R Eiss, KE Hanna and RT Mahoney. Sharing the Art of IP Management: Photocopying and distribution through the

EISS, HANNA & MAHONEY
interests while simultaneously promoting public models that borrow frequently from the private
health. Mahoney and Morel have named this new sector. Moreover, in some cases PDPs have re-
era, “the Era of Partnerships.”2 They argue for an invented R&D approaches for preventing and
innovation framework having six components: treating human diseases. Unlike traditional R&D
1. Development and expansion of national agreements, PDPs must make deals that extend
health delivery systems, including an at- well beyond the scope of traditional commercial
tractive, domestic, private-sector market agreements, stipulating access conditions to en-
for health products sure that the product reaches the target popula-
2. Development of manufacturing capability tion. These terms and conditions frequently focus
for health products on the strategic use of intellectual property and
3. Development of a drug and vaccine regula- often have to address such issues as market seg-
tory system mentation, pricing, and distribution.
4. Development of an IP regulatory system The experiences of PDPs have shown that
5. Development of R&D capability by the several factors are driving some companies to
public and private sectors work collaboratively and to share disease-related
6. Development of international trade sys- intellectual property. These factors include cor-
tems for health products, including global porate social responsibility and strategic consid-
procurement funds erations, such as positioning in emerging mar-
kets. An additional incentive is the potential that
The authors note that the components are R&D projects with PDPs may have relevance for
comprehensive in that they cover all the areas nec- commercial compounds. For example, MMV
essary to innovate successfully.3 All of the compo- carries out joint studies on malaria tetracycline
nents are dynamically linked and attention to all resistance with industrial partners, which benefits
is required, since the failure of one component their commercial anti-bacterial research.
will almost certainly guarantee failure for the PDPs are an increasing and innovative group
whole effort. Thus, though the IP system is only of organizations. The diverse experiences of PDPs
one component of innovation, it is a necessary can help inform the makeup and negotiation of
component. Product development partnerships R&D partnerships and lead to better agreements
(PDPs) must therefore attend to all the compo- dealing with the various forms of IP. Several PDPs
nents of innovation, including intellectual prop- are reaching a new mature phase, with products in
erty, in the quest to ensure global access.4 clinical development for poverty-related diseases.
The emergence of PDPs over the past decade These PDPs have designed workable solutions to
has provided a unique mechanism, a hybrid pub- ensure access and affordability, from planning
lic/private approach, by which to generate new production that will meet the size of demand, to
products for the neglected diseases of poverty. addressing issues of end-user acceptability. PDPs
PDPs employ a variety of strategies to achieve are pioneering a new form of social contract to
goals (for example, creating new technologies promote the development of health products
and ensuring that the developed technology is where commercial incentive is lacking.
available and affordable to as many beneficiaries To promote and facilitate discussion among
as possible in the developing world). The most those who have embarked on or are developing
basic challenge is to provide access to needed plans for PDPs, the Centre for the Management
technologies and pay close attention to how the of Intellectual Property in Health Research and
technology is to be distributed or marketed, while Development (MIHR) and the Aeras Global
simultaneously offering appropriate incentives to TB Vaccine Foundation, in partnership with the
private sector partners to encourage the commit- Bill and Melinda Gates Foundation, convened a
ment of research, development, and manufactur- meeting titled Ensuring Global Access through
ing resources. To do this, PDPs are both chart- Effective Management of Intellectual Property
ing new territory and employing management in 2006.5 It built on a similar joint meeting held

CHAPTER 2.3
in 2004, also involving around 50 participants 30 years, drugs for tropical diseases and TB ac-
including senior management, legal counsel, count for only 1.3%. The organization itself does
program officers, and business development pro- not conduct research and scientific work to devel-
fessionals from institutions and organizations in- op drugs. Instead, it capitalizes on existing, frag-
volved with PDPs.6 mented R&D capacity, especially in the develop-
This chapter summarizes presentations made ing world, and complements it with additional
at the meeting by representative PDPs. Their sto- expertise as needed. According to Dentico, the
ries illustrate the diversity of approaches used in DNDi policy advisor, this integrative approach
making R&D agreements and managing intellec- helps cut costs.
tual property in the context of global health. The The group builds its portfolio by identifying
structure of these agreements defines and is influ- medical needs and R&D opportunities and then
enced by the relationships among the partners. As seeking letters of interest to conduct R&D proj-
Oehler noted: ects. Current projects by academic and industrial
By the nature of their business model, the laboratories are focused on identifying new drug
commercial interests of private sector companies candidates for tropical diseases, such as trypano-
are, on the whole, oriented toward maximizing somiasis, which afflicts over 66 million people
profitability. It is not justified to expect that pri- in 36 countries of Sub-Saharan Africa. Other
vate sector business will automatically ensure best projects involve developing products that sim-
services to the public sector and focus the genera- plify and reduce the length of malaria treatments.
tion and use of intellectual property toward maxi- Participating partners provide funding, phar-
mized public-sector benefits. maceutical development, in vitro and molecular
To prepare for a situation where the original studies, development of analytical models, ani-
targets of a license agreement are delayed or are mal toxicity testing, and clinical trials, all under
not achieved, and to avoid the situation where pro- DNDi coordination and management. This col-
jected public-sector benefits are delayed or are not laborative mode of operation blends centralized
realized, it is good practice to establish contractual management, which gives a clear project-specific
milestones that regulate target achievement under focus, and decentralized operations, which mimic
the license and to set incentives to keep to timelines modern drug companies.
and performance accordingly. This allows licensor DNDi has also built regional networks of
and licensee(s) to focus resources on their efforts to scientists actively involved in the research of new
perform as was agreed upon in the first place.7 drugs for neglected diseases in Asia, Africa, and
Latin America. These regional networks, coordi-
nated by DNDi regional liaison officers, are vital
2. PDPs in action to the success of DNDi. They are able to collect
data on available regional expertise, capacity, and
2.1 Collaborative research with patients’ needs, and they actively advocate for
centralized IP management: DNDi DNDi by encouraging scientists to submit pro-
Nicoletta Dentico noted that several PDPs fo- posals to DNDi.
cus on creating R&D partnerships to achieve DNDi negotiates intellectual property and
outcomes that would otherwise be impossible. knowledge dissemination agreements to obtain
For example, in 2003, seven organizations from the best possible conditions for patients and to
around the world joined forces to establish the ensure that the fruits of DNDi-sponsored re-
Drugs for Neglected Diseases initiative (DNDi).8 search will be readily available and affordable in
Among the seven were five public-sector institu- developing countries. Exclusive rights, titles, and
tions, one humanitarian organization, and one interest in the results of a given research project
international research organization. are retained by DNDi, including but not limited
DNDi was created in response to the fact to any resulting patents on any inventions. DNDi
that of all the new drugs developed over the past decides on the best way to make the results of a

research project available to the public, including which aims to deliver medicines to the world’s
by putting the results in the public domain with neediest populations.
no limitations. According to Katherine Woo, the strategy is
In addition, DNDi may choose a number to assemble an experienced team of pharmaceuti-
of IP management options: (1) apply for pat- cal scientists to identify the most promising drug
ent protection to protect some or all of the out- and vaccine candidates—often, the most prom-
puts of a research project, (2) keep such outputs ising drug candidates are those that have been
confidential, or (3) take any other measures that discarded for lack of a viable market. Once such
would promote DNDi’s mission (such as publicly candidates are identified, iOWH focuses on de-
disclosing the results). To ensure that DNDi can veloping them into safe, effective, and affordable
make full use of the results of a research project, medicines. The group then partners with compa-
DNDi asks partners to grant a nonexclusive, nies, nonprofit hospitals, and organizations in the
worldwide, royalty-free, irrevocable license to use developing world to complete the requisite ani-
any background IP rights that may be needed to mal studies, conduct clinical trials, secure qual-
develop and commercialize a compound devel- ity manufacturing in disease endemic countries,
oped during the course of a research project. obtain regulatory approval, and distribute newly
According to the experience of DNDi, forg- approved therapies.
ing agreements with North American universities The group’s strategy, according to Woo, is
is often a lengthy process: the average negotiating based on the assumption that pharmaceutical
time with academic entities in the United States R&D to create the new medicines for the develop-
and Canada is eight months, whereas the aver- ing world need not involve huge costs. By partner-
age negotiating time in Europe is four months. ing and collaborating with industry and research-
Dentico added that PDPs could provide useful ers, securing donated intellectual property, and
collaborative R&D models to borrow from and to relying on and using the scientific and manufac-
create precedents for improving the current R&D turing capacity of the developing world, needed
environment. This is especially the case for filling vaccines and drugs can be delivered affordably and
needs not adequately addressed by government ineffectively. The PDP’s goal is to provide the bridge
vestment, which often focuses on the earliest stages between novel bench science and its conversion
of research. Unlike some other PDPs, DNDi fo- into applications for the developing world. For ex-
cuses much of its efforts at the public sector level. ample, industrial scientists are brought together to
In addition, DNDi wages public information cam- assist university scientists on late-stage processes,
paigns that urge citizens to advocate governments such as high-throughput screening and lead opti-
to fund research on diseases of the poor. mization of potential new drugs.
Carrying basic scientific research forward
2.2 Bridging academe and industry through through product development requires the par-
social entrepreneurship: iOWH ticipation of many groups; however, one partner
Often characterized as the first nonprofit phar- ultimately must take responsibility and be held
maceutical company in the United States, the accountable if new drug development is to be
Institute for OneWorld Health (iOWH) is an- successful. In many cases iOWH serves as that
other example of a PDP focused on finding global development partner. It takes responsibil-
new drug candidates for the developing world. ity for markets in the least developed countries
Katherine Woo, director of scientific affairs at (dual market opportunities) and obtains resourc-
iOWH, pointed out that the focus of the comes from private foundations and governments to
pany is to remove the profit element from the fund the development costs of taking a new drug
business plan and to build a global organization through to market in the developing world. In
with core competencies in R&D and regulatory addition, iOWH provides international regula-
approval for new drugs. A defining feature of tory expertise to increase the number of countries
iOWH is its social entrepreneurial component, in which important new drugs are marketed.

CHAPTER 2.3
The company interprets global access as af- the research consortium have agreed to common
fordable prices, a sustainable supply, and en- provisions relating to IP management and owner-
gaged distributors. It directly controls pricing as ship, including access provisions. IAVI is provided
much as possible and attempts to maintain maxi- with license rights to program intellectual proper-
mum flexibility to engage downstream partners ty, and certain background intellectual property,
(for example, by offering royalty-free licenses). and is responsible for diligently pursuing further
Negotiations on geographic coverage for market- development. Future licensing revenues are to be
ing, public sector price and exclusivity consider- shared among all members, with the expectation
ations can be complex and protracted. that no royalties will be received from develop-
As a nonprofit corporation, OneWorld ing country sales. Key to the effective functioning
Health provides a tax deduction for the project- of the consortium are the close working relation-
ed future value of donated intellectual property. ships among its members.
However, iOWH seeks exclusive licensing to pro- IAVI also has had several vaccine development
tect investment by philanthropy. Woo emphasized programs; it is currently conducting human clini-
that iOWH tries to avoid being surprised in its cal trials of three vaccine candidates in the United
IP management strategy and that they are always States, Europe, Africa, and India. Although con-
on the lookout for intellectual property that has sistency in IP management is sought, flexibility
the potential to discourage important research in in the approach to IP ownership, management,
developing countries. When the IP requirements and licensing is also important. Ownership may
of a partner become too burdensome or onerous, be determined by inventorship, by ownership of
the group sometimes walks away from the deal background intellectual property, or by funding.
and searches for another partner. License rights to program intellectual property
may be exclusive or nonexclusive, and they may be
2.3 Managing intellectual property worldwide or restricted to certain geographic sec-
in a research consortium: IAVI tors. With respect to partnerships in which IAVI’s
Some PDPs serve as enabling bodies to create partners control the intellectual property or license
incentive systems, modes of operation, and ne- rights, and thus are responsible for manufacturing
gotiators for IP management. The International and distributing a future vaccine, IAVI’s contracts
AIDS Vaccine Initiative (IAVI) focuses on spur- require that the partners make access commit-
ring R&D for the development of safe, effective, ments for the developing world (relating to price,
and accessible preventive AIDS vaccines for use quantity, and availability) and provide IAVI with
throughout the world. Labeeb Abboud observed remedies, such as march-in rights, to ensure that
that, in addition, IAVI is involved in advocacy products developed through the consortium are
work, seeking to secure and sustain global, na- made available to people in need.
tional, and local community involvement and There are a number of challenges that arise in
commitment for the development of an AIDS the contracting process, as well as in the manage-
vaccine. Efforts focus on the developing world, ment of the ongoing relationships with partners.
where the epidemic is most severe. Some of the greatest challenges are in the IP area,
IAVI is supporting research into several key, with regard to due diligence, management (when
unresolved questions of vaccine development. to file and where), meeting the requirements of
Among other projects and lines of investigation, donors (including audits), and establishing termi-
their effort involves a consortium of academic and nation rights.
industrial research laboratories focusing on HIV-
neutralizing antibodies, mechanisms of protec- 2.4 Tailoring IP provisions for each
tion, and vector design. The consortium currently agreement: Aeras Foundation
has 16 members located in the United States and The Aeras Global TB Vaccine Foundation, found-
Europe. IAVI negotiates the joint work plan and ed in 1997, is an international nonprofit PDP
provides a governance structure. The members of working toward developing a vaccine against TB,

both at Aeras facilities and in collaboration with sale in developing countries and public markets
academic/industrial partners. Rita Khanna, the in EECs. If the partner is not able to meet the
foundation’s legal counsel, explained that Aeras demand of vaccine for distribution by Aeras, then
actively pursues and helps fund joint-develop- the partner must transfer the rights to Aeras or
ment activities with leading TB vaccine develop- to a mutually acceptable third party. Should the
ers around the world. It also develops candidate partner breach the contract, Aeras would nego-
vaccines in its own laboratory. Aeras’s partners tiate a license to continue commercialization for
with other groups in order to develop vaccine developing countries and EECs.
candidates and field sites for clinical development A second type of agreement has many of the
and to ensure vaccine supply. Aeras’ partners in- same provisions, except Aeras and the partner
clude companies in nine countries, academic lab- have a royalty-free, coexclusive license to distrib-
oratories in eight countries, and five foundation ute and sell in developing countries with a right to
or government partners. It is the goal of Aeras to grant one sublicense. In this scenario, the collabo-
develop, test, characterize, license, manufacture, rator has the exclusive right to commercialize in
and distribute at least one new TB vaccine within developed countries and EECs. In addition, Aeras
10 years. has a royalty-free license for EECs if the partner
Aeras takes promising research and early-de- has not pursued regulatory approval within three
velopment candidates through preclinical regula- years of regulatory approval in an industrialized
tory requirements; clinical phase one, two, and country. The partner has manufacturing rights for
three studies; process development; manufactur- the first five years only. Should the partner breach
ing; and release. The overarching scientific strat- this contract, Aeras has a nonexclusive license to
egy is to improve the current, widely used bacille continue development in the licensed territories
Calmette-Guérin (BCG) vaccine—which has or the right to select an alternative manufacturer.
limited efficacy—and boost the current BCG vac- In similar agreements, Aeras has negotiated
cine with either a recombinant TB protein plus terms in which the collaborator may use a “rea-
adjuvant or a recombinant viral vector making sonable commercial effort” to manufacture and
TB antigens. Prime-boost regimens of this sort supply the product. In addition, the collaborator
have proven to be the most powerful inducers of may provide the vaccine at two-tier differential
immune responses and protection against TB in pricing in public and private markets. In this sce-
animal models. nario, no IP rights are granted to Aeras.
The focus of Aeras’s IP management strategy, Other agreements focus on license rights:
according to Khanna, is to ensure global access Aeras has a nonexclusive license in EECs in one
to any resulting vaccine. Aeras has executed nu- case and an exclusive, worldwide license in anoth-
merous research collaborations, licensing, and er case. In these types of agreements, Aeras owns
other agreements with commercial and academic improvements and pays license fees, patent pros-
partners. In one joint development collaboration, ecution costs (past and future), minimum annual
the partner owns the background intellectual royalties, milestone payments, and royalty on net
property, while the ownership of new intellectual sales. These agreements typically include royalty-
property is determined by inventorship. Aeras stacking terms.
has a royalty-free, sublicensable exclusive license In a clinical trial agreement, Aeras retains
to distribute and sell in developing countries and rights in intellectual property relating to clinical
public markets in emerging economy countries trials, although there is joint ownership of intel-
(EECs), and the partner has a royalty-free, sub- lectual property resulting from epidemiologi-
licensable exclusive license to commercialize in cal studies. In a sponsored-research agreement,
developed countries and private markets in EECs. Aeras provides funding for the research and has
The partner has the first right to negotiate—and an exclusive, first right to negotiate an exclusive
right of first refusal—to an exclusive manufac- or nonexclusive, royalty-bearing license to make,
turing contract to supply Aeras with vaccine for use, and sell any patentable inventions conceived

CHAPTER 2.3
and reduced to practice during the term of and of compounds that are highly active against the
in the performance of the research supported by malaria parasite.
Aeras. In another sponsored-research agreement, Because much of MMV’s focus is on later-
Aeras owns all rights, title, and interest in and to stage issues, it already is discussing with collabo-
any intellectual property, material, data, and re- rators provisions for pricing agreements, negotiat-
cords derived from performance of research sup- ing third-party rights, and ensuring that sufficient
ported by Aeras. quantities of the drug are available once devel-
Many of these agreements contain other key oped. Provisions for handoff are discussed and
provisions related to confidentiality, publishing negotiated well in advance. All parties must un-
rights, patent enforcement and infringement, derstand the goals, the need for speed, and a clear
indemnification, liability and insurance, law and view of the regulatory pathway in each country
jurisdiction, dispute resolution and arbitration, where drugs are being tested. MMV negotiates
and termination. time limits for late-stage clinical trials and filings.
Products are registered and launched immedi-
2.5 Ensuring access to new drugs: from ately following regulatory approval. In addition,
aspiration to operation at MMV deals with collaborators include requirements for
Richard Wilder noted that while many PDPs quality assurance.
focus on early-stage efforts to discover and de- MMV manages the ownership and licensing
liver new drugs for neglected diseases, few have of intellectual property so that the partners’ in-
reached the point of delivery. Indeed, planning terests are reflected in the terms of agreements.
for the access and delivery of new drugs in dis- Depending on the situation, MMV might own
ease-endemic countries cannot be accomplished the intellectual property outright, retain licenses
by one PDP working alone. to the intellectual property, or place conditions
The efforts of Medicines for Malaria Venture in its agreements that, if not met, will transfer IP
(MMV) are focused on both delivery and R&D. rights back to MMV. Sometimes MMV’s owner-
Formed in 1999, MMV is a nonprofit organiza- ship of IP rights is unnecessary because the group
tion created to discover, develop, and deliver new is working with a company to both discover and
antimalarial drugs through effective public–pri- develop a promising compound as an antima-
vate partnerships. MMV brings together global larial. In those cases, the company might retain
public health organizations, the pharmaceutical ownership of the IP rights for use in meeting
industry, government ministries, research institu- their obligations to MMV to develop and bring
tions, and foundations to combine their expertise an antimalarial to market.
and resources to ensure the needed research, de- MMV’s agreements specify the conditions
velopment, and release of antimalarial drugs. that have to be met, including price specifica-
Currently, MMV is managing more than 20 tions and access requirements (for example, ac-
projects that are in various stages of drug R&D, cess milestones). The experience of MMV sug-
and several in Phase Three clinical trials, with gests that setting access milestones should not be
reports that good progress is being made. The done too late in the process, when time pressures
group’s goal is to register at least one new antima- are heightened. Pricing agreements, moreover, are
larial drug before 2010 and to maintain a sustain- particularly challenging because of the division of
able pipeline of antimalarials that can meet the markets in many countries where MMV is work-
needs of the more than 2.4 billion people at risk. ing. And difficulties can arise if the price issues
These goals are bolstered by MMV’s ground- are driven too far in advance. An advance com-
breaking collaboration with nearly 40 public mitment to a set price ceiling can, for example,
and private institutions around the world. In deter investment. If a partner company cannot or
particular, MMV entered into discussions with will not meet the conditions of the agreement,
pharmaceutical companies conducting antican- MMV requires that IP rights be returned so it can
cer therapy research that led to the development seek another partner. However, the focus of deals

is not on IP rights per se, but rather on the ability access to the compound for research purposes.
of MMV to ensure that new antimalarial drugs Importantly, the compounds in development re-
under development are brought to market and main proprietary. Thus, a grant-back license to
made affordable and accessible to those who need the owner of a compound typically is required
them in the developing world. From MMV’s perfor modifications to the compound. Grant-back
spective, IP rights are merely a tool to help bring licenses of products or formulations are subject to
partners together toward a common goal. negotiation.
According to Model, one of the more impor-
2.6 Securing candidate products tant aspects of negotiations involves defining what
through creative licensing: IPM constitutes a resource-poor country. In his experi-
The International Partnership for Microbicides ence, each partner has its own list of countries;
(IPM) is a nonprofit PDP established in 2002 there is often disagreement over whether certain
to prevent HIV transmission by accelerating the countries, such as China, India, and Brazil, qual-
development and availability of safe and effec- ify as resource-poor. However, so far IPM and its
tive microbicides for use by women in develop- partners have succeeded in reaching agreement
ing countries. Paul Model explained that IPM’s on this issue. In some cases, IPM has obtained
basic strategy involves the licensing of active worldwide rights, recognizing that compounds
compounds from commercial pharmaceutical are still proprietary and ensuring that products
companies for development as microbicides. IPM will be made available on an “affordable basis.”
already has announced compound licenses with Other important issues involve territory and
Johnson & Johnson/Tibotec, Merck, and Bristol access. Some granting organizations are particu-
Myers-Squibb. IPM has found that larger phar- larly concerned about access to results of funded
maceutical companies are more likely to grant research. IPM has encountered complex “public
licenses on a no profit/no loss basis. sector pricing regimes” in grant agreements that
IPM promotes the rapid development and are similar to those proposed to several other or-
delivery of safe and effective microbicide prod- ganizations. These may present inconsistencies
ucts by pioneering best-practices approaches to: with the structure of the licenses that IPM has
• screen compounds and design optimal been able to negotiate with commercial pharma-
formulations ceutical companies. IPM strives in all cases to
• develop clinical trial sites and conduct clin- reach agreement on affordable-basis criteria in all
ical trials agreements. These criteria include no compen-
• identify appropriate regulatory pathways sation for intellectual property or development
for microbicide products costs, manufacture at lowest reasonable cost con-
• establish manufacturing and distribution sistent with quality, and recognition that IPM’s
capacity to ensure rapid access to a micro- rights under its licenses are limited. Although
bicide as soon as it becomes available some collaborators are initially resistant to these
or other terms, peer pressure and the desire to do
IPM also funds, co-funds, or leverages re- the right thing are frequently the motivating fac-
sources to support the drug development projects tors in closing a deal.
of other entities. In some cases, however, the most
efficient approach is for IPM to take the lead in 2.7 Deal making with a marketed
developing, testing, and conducting clinical tri- product: TB Alliance
als of promising microbicide compounds. In this Two billion people—one-third of the global pop-
role, IPM is the technology developer and receives ulation—are infected with Mycobacterium tuber-
a nonexclusive license from the owner of the com- culosis. More than eight million people develop
pound that is royalty free and permits distribution active diseases every year and two million people
on an affordable basis in resource-poor countries. die from the disease. Existing drugs are 40 years
Rules and procedures are, however, imposed on old and impose a daily regimen that is long and

CHAPTER 2.3
cumbersome, which slows the control of the dis- the partnership will register moxifloxacin for a
ease and promotes the rise of drug-resistance. In TB indication. Both parties are committed to
addition, TB/HIV co-infections are fueling each making the product affordable and accessible to
other, and multidrug-resistant TB (MDR-TB) patients in the developing world. Nearly 2,500
and extremely drug resistant TB (XDR-TB) cases TB patients are being enrolled in trials in Brazil,
are on the rise. Canada, South Africa, Spain, Tanzania, Uganda,
Gerald Siuta explained that the Global the United States, and Zambia.
Alliance for TB Drug Development (TB Alliance) Bayer has committed to donating moxi-
is a not-for-profit, product-development partner- floxacin to each clinical trial site, covering the
ship that aims to accelerate the discovery and/or costs of regulatory filing, and providing moxi-
development of affordable, new TB drugs. It is floxacin at an affordable price for patients with
hoped that such drugs will shorten treatment and TB in the developing world. The TB Alliance
be easier to take, be more effective against drug- has committed to coordinate and help cover the
resistant strains, be appropriate for patients with costs of the clinical trials, ensure coordination
HIV-TB co-infection, and be capable of improv- of information and results for registration goals,
ing the treatment of latent infection. and leverage substantial support from the U.S.
In its first five years, the TB Alliance has Centers for Disease Control and Prevention, the
built the most robust TB drug pipeline in his- Orphan Products Development Center of the
tory, helping to fill a gap left by the private sector. U.S. Food and Drug Administration, and the
Any new drug regimen must be more than just European and Developing Countries Clinical
highly effective and easy to use; it must also be Trials Partnership.
universally affordable, adopted, and accessible. A crucial aspect of the deal was ensuring that
According to Siuta, this “AAA” goal guides all de- Bayer’s market for moxifloxacin was protected.
cisions on project selection and development, as At the same time, if a TB indication is approved,
well as concurrent work to influence the policy there is a potential for dual markets in which
and regulatory environments to foster appropri- there would be separate pricing and distribution
ate pricing in developing countries, ensure that plans.
new drugs are incorporated into existing treat-
ment programs, and facilitate procurement and 2.8 A focus on diagnostics: FIND
distribution to those patients who most need the Herbert Clemens discussed The Foundation for
drugs. Innovative New Diagnostics (FIND), launched
One of two TB Alliance’s projects now in the in 2003 at the World Health Assembly in Geneva.
clinical phase is the testing of moxifloxacin for the FIND is a nonprofit organization based in
treatment of TB. Moxifloxacin is a fluroquino- Switzerland and dedicated to the development of
lone antibiotic already approved in 104 countries rapid, accurate, and affordable diagnostic tests for
to treat respiratory and skin infections. It is novel poverty-related diseases in the developing world.
in that it kills mycobacterium TB through DNA FIND aims to provide a bridge that can ef-
inhibition. Moxifloxacin has been shown to re- fectively link academic research and the diagnos-
duce treatment time by two months when substi- tic industry to the specific needs of developing
tuted for isoniazid. Moreover, it is safe when used countries. The agency provides this bridge by le-
in combination with antiretrovirals. veraging the strengths of its diverse partners to
In October 2005, the TB Alliance and Bayer develop technological platforms for diagnosing
Healthcare announced a partnership to coordinate poverty-related diseases in the public, as well as
a global clinical trial program to study the poten- the private, health sector. Working in close collab-
tial of moxifloxacin to shorten the standard six- oration with the Special Programme for Research
month treatment of TB. Clinical trials will assess and Training in Tropical Diseases (TDR) of the
the efficacy and safety of moxifloxacin as a front- United Nations Children’s Fund, the United
line agent for the treatment of TB. If successful, Nations Development Program (UNDP), the

World Bank and the World Health Organization financial, and information barriers that limit
(WHO), the diagnostics industry, and other orga- their involvement.
nizations, the Foundation develops and validates BIO Ventures for Global Health (BVGH)
affordable, novel diagnostic tests for diseases in combines expertise in industry, in investing, and
high-burden countries. It is leveraging new tech- in policy to bridge biotechnology and global
nologies that have revolutionized the simplicity, health. It operates on the assumption that be-
speed, and accuracy of diagnostic tools for identi- cause technology platforms are already built and
fying diseases in the developed world. “money is already sunk,” there is good reason to
FIND conducts its business essentially as take advantage of the existing infrastructure for
a spinout venture and has project portfolios in creating medicine for diseases of the developing
the areas of malaria, TB, and sleeping sickness. world.
Although it is involved in project management BVGH was spun out of the Biotechnology
at all levels—financial, administration, strategic Industry Organization (BIO) and is supported
planning, business development, communica- by the Bill and Melinda Gates Foundation and
tions, information technology, and legal servic- The Rockefeller Foundation, as well as by leading
es—FIND focuses on the middle spectrum of biotechnology companies. Earl noted that with
product development. FIND leverages its invest- more than 4,000 companies and 270 approved
ments to secure affordable pricing in developing products on the market, the biotechnology in-
countries, thus helping to ensure equitable access dustry has created an extraordinarily diverse set
to diagnostic products for those most in need of of high-technology platforms for drug discovery,
them. and thus is well situated to take on the challenges
Clemens noted that although FIND has IP of global health.
expectations for each project, there is a high de- BVGH’s approach is market based: it seeks to
gree of good faith among collaborators. IP own- create or facilitate economic incentives and mar-
ership generally rests with the partner. At the ket mechanisms. Its approaches include: (1) iden-
end of a project, FIND negotiates with the col- tifying targets for the development of new drugs,
laborator on how to dispose of the intellectual vaccines, and diagnostics; (2) identifying market
property. opportunities for neglected diseases through a se-
One of the most challenging issues is dealing ries of disease-specific business cases; (3) working
with market segmentation. Of the 193 countries with companies to build global health strategies
in the world, only 25% are developed, and many that optimally employ their core capabilities; and
have dual markets, so FIND must arrive at pric- (4) expanding access to information and resourc-
ing agreements that satisfy both the market re- es, providing opportunities to exchange informa-
quirements of a sponsor (unit product cost plus tion, facilitating new partnerships, and securing
mark up) and FIND’s own access requirements financing for the most persuasive projects.
According to Earl, the biotechnology indus-
2.9 Biotechnology investment try is made up of three tiers. Top-tier companies
in global health: BVGH are the largest and “act like pharmaceutical com-
Christopher Earl observed that biotechnology panies.” These companies are in the process of
companies lead the world in developing new building social responsibility models within their
health care products, often for “orphan dis- organizations. Second-tier companies are insti-
eases,” conditions for which the development tutionally backed. They are “preprofitable,” their
of drugs in not commercially viable or that are investors are “tough,” and company strategies
rare. However, few companies have focused on are still focused very much on opportunity costs
developing treatments for neglected diseases. and avoiding potential loss of focus. The third
While many biotechnology industry leaders are tier consist of very small companies, essentially
dedicated to contributing to advances in global “mom and pop” operations. The second tier com-
health, their companies often perceive market, panies are often the best targets for BVGH efforts

CHAPTER 2.3
because they have the infrastructure in place, have overall portfolio of public sector technologies is
financial backing, and yet are not committed to highly fragmented across multiple institutions
a binding, long-term R&D plan. Moreover, if and technology categories. Information about
a PDP already has pathways for production or existing technologies and where rights are held
manufacturing, it reduces the opportunity costs is difficult to find. In addition, more intellectual
for such companies in that they can transfer their property has been licensed to the private sector,
technology directly to the effort without high sometimes under terms that are confidential and
costs. often that provide exclusive rights to the licensee.
In brokering deals between PDPs and bio- Since applied research and crop genetic improve-
technology companies, the innovation should be ment is a derivative process based on preexisting
in the product, not in the deal. Anytime one can plant material, each incremental improvement
use existing agreements as models for moving for- that involves biotechnology can bring with it a
ward, time and costs will be minimized, both of number of intellectual property and germplasm
which are at a premium for PDPs and midsize constraints, which accumulate in the plant mate-
biotechnology companies. rial. As a result, it has become more difficult for
public sector researchers to access technologies to
2.10 An agricultural model for cooperative fulfill their missions, especially with regard to de-
IP management: PIPRA veloping sustainable agriculture for the develop-
The Public Intellectual Property Resource for ing world.
Agriculture (PIPRA) is not a PDP, but rather an The development of vitamin A-enhanced
initiative by universities, foundations, and non- rice, or “Golden Rice,” illustrates the conse-
profit research institutions to make agricultural quences of the complex IP ownership of agri-
technologies more easily available for the devel- cultural biotechnology. Golden Rice provides
opment and distribution of subsistence crops for dietary vitamin A when consumed. Thus, it offers
humanitarian purposes in the developing world direct health benefits to millions of poor children
and for specialty crops in the developed world. in developing countries, where vitamin-A de-
Alan Bennett explained that although the IP ficiency causes 500,000 cases of blindness each
stakes are low in agriculture, the social and hu- year, and is a contributing factor in over two mil-
man health stakes are quite high. Traditionally, lion premature deaths each year. However, when
discoveries in public research institutions and ag- the time came to prepare this product, many of
ricultural universities were seen as “public goods” the techniques used by the researchers were pat-
that flowed directly down the chain of public in- ented in some countries, and some of the ma-
stitutions to farmers and businesses. This system terials had been used informally, or under legal
formed the basis for crop improvements and a agreements that restricted further dissemination.
robust seed industry in developed countries while There were 70 proprietary technologies involved,
significantly increasing food production in several including 40 issued patents in the United States
developing countries. and more than a dozen material transfer agree-
In the past few decades, however, changes in ments (MTAs). Although these issues have now
U.S. patent law and university technology trans- been largely resolved through the cooperation of
fer programs have resulted in an increasing use of the private and public sector, much effort was ex-
the patent system to protect agricultural innova- pended to overcome these barriers.
tions. In many cases, dominant patents held by As a result of this and other cases, PIPRA was
the public sector were licensed for private use. formed to help public sector agricultural-research
Companies then adopted and often improved institutions achieve their public missions by en-
discoveries from public sector institutions and suring access to the intellectual property they
turned them into crop varieties for commercial need to develop and distribute improved crops.
markets. However, because of the many public Two PIPRA programs of relevance are focused on
institutions conducting agricultural research, the IP best practices and management. One program

is exploring and clarifying the implications of Although their business models vary, PDPs
public sector IP licensing practices and is seek- employ a common set of strategies to manage
ing a series of best practices that will encourage intellectual property for global health outcomes,
the commercial development of publicly funded usefully summarized by Antony Taubman of the
research innovations. At the same time, PIPRA World Intellectual Property Organization. These
will also retain rights that public research institu- include:
tions need to fulfill their mission of research for • defining a discrete territorial market (sepa-
the broader public benefit. rating industrialized markets from develop-
Another PIPRA program involves building ing countries, or focusing on target mar-
an IP database. Currently, the database contains kets), allowing investments and earnings
over 6,600 patents and patent applications from from Organisation for Economic Co-op-
39 different countries. Using the database, these eration and Development markets to sub-
patents are searchable with respect to various sidize product availability in developing
parameters, including licensing status. The data countries
represents the agricultural portfolios of 27 par- • establishing distinct structures for public
ticipating universities and nonprofit research in- sector marketing, social marketing, and
stitutions. The goal of the database is to inform private markets (for example, more open
public sector researchers about their freedom licensing for the public sector balanced by
to operate (that is, clear all IP barriers to bring- exclusivity over lucrative markets)
ing a new product to market). The software also • determining field of use in a manner that
finds ways to invalidate patents and minimize the enables the covered technology or prod-
chances of patent blocking. Use of the database uct to extend to indications for conditions
and PIPRA’s analytical services are free for aca- of prevalence in industrialized countries,
demic research and humanitarian purposes. where feasible, as an investment incentive
• establishing royalty rates in a manner that
benefits the party requiring the greatest
3. Key Lessons incentive
Many different models exist for identifying can- • providing for access to the developed tech-
didate drugs, vaccines, and technologies, from nology in the event that the research/indus-
owning inventions to finding new uses or mar- try partner abandons the project or does
kets for already-marketed products or abandoned not service a particular sector, including
product lines. After patents have been issued, the background and foreground intellectual
IP issues and liability concerns become simpler to property, product development know-how,
manage, since there will be an increasing amount and regulatory approval data
of safety data available. Partners owning the in-
tellectual property are able to provide the back- If the industrial partner bears some of the
ground technology and expertise, setting condi- risk, because of early-stage involvement either
tions for licensing and access. through investment or conduct of R&D, then
There is no single business model that PDPs IP issues, such as agreements about royalties,
ought to pursue. PDPs vary from virtual organi- licenses, and access, must be resolved early on.
zations that contract all aspects of product devel- These issues can be quite complex. The differ-
opment, to universities and firms, to PDPs that ent levels and forms of contribution by the part-
have developed considerable international capac- ner will influence the extent of and flexibility
ities and expertise in product management and of the terms. If multiple partners are involved,
regulatory affairs. Regardless of the type, all PDPs each with background intellectual property and
negotiate diverse ranges of agreements, including, expectations for foreground intellectual prop-
sponsored-research contracts, know-how and pat- erty, then royalty-stacking provisions may be
ent licenses, and distributorship agreements. required.

CHAPTER 2.3
3.1 Preparing for access pricing to the public sector, territory and exclu-
As PDPs plan for access, they face a series of prac- sivity; regulatory work and time to market; royal-
tical and conceptual challenges to ensure supply, ties and terms; and termination of the licensing
an affordable price, and effective delivery once agreement.
the product is successfully developed. An analysis
prepared for WHO’s Commission on Intellectual 3.2 Pricing issues
Property Rights, Innovation and Public Health A key consideration in access negotiations is tar-
by Jon Merz, indicates that many PDP R&D get pricing. PDPs typically require the product
contracts defer downstream issues related to man- to be made available at affordable or reasonable
ufacturing and distribution to future resolution. pricing, which may lead to complex negotiations
Operational challenges face PDPs with regard to about how to calculate price, or consideration
pricing to the public sector, market segmenta- of available price discriminate models. Price set-
tion, market sizing, ensuring the lowest sustain- ting requires both parties to know in advance
able cost of production, and quality control, as the technical details of production, marketing,
well post-launch issues, such as pharmacovigi- and distributions costs. A clear framework to
lance and product liability. compute manufacturing cost is required. Since
Specifying requirements and strategies for ac- many PDPs enter negotiations based on early-
cess early on is critical so that unsurmountable stage discoveries, stipulating price in a contrac-
hurdles or costly delays are not encountered once tual arrangement could be a risky or impractical
the product is developed. Indeed, experience proposition. In most instances, the cost of the
demonstrates that even where certain products final product is the cost of production plus a
have been developed for distribution in develop- reasonably negotiated mark-up. Assessments on
ing countries, uptake has been sluggish or stalled what constitutes an affordable price are complex,
due to a variety of downstream constraints. This since they take into account the epidemiology of
has been the case, for example, with the combina- the disease, purchasing power of those affected,
tion antimalarial Coartem; praziquantel, for the and government financing schemes, among oth-
treatment of schistosomiasis; and the slow uptake er factors. In comparison to drugs, where one
of hepatitis B vaccines. Some PDPs, especially can project costs once a compound is identified,
those that face inadequate delivery systems in tar- pricing is more difficult with vaccines because
get countries (regarding deployment of microbi- one does not know in advance what the accept-
cides or HIV vaccines, for example), have identi- able price will be or what a government might
fied preparation for access as a core aspect of their support. There was general agreement that pric-
mission and have begun to document their needs. ing done too far in advance can deter industry
Moreover, the GAVI Accelerated Development partners and discourage extended R&D com-
and Introduction Plans are forging approaches for mitments. Approaches to calculating price are a
the phased introduction of selected vaccines.9 In priority topic for focused exchange among PDPs
some cases, PDPs also may be able to work with and relevant experts.
access public–private partnerships in fields where
they exist (e.g., Roll Back Malaria Partnership), 3.3 Market segmentation
especially with regard to pricing and financ- Market segmentation has emerged as a common
ing mechanisms and delivery networks in target issue in negotiation. Although there are com-
countries. mon sources for differentiating countries (for
An important tool in intellectual property example, World Bank income data), challenges
management is the detailed development of emerge with the division of rights in so-called
contractual milestones in licensing intellectual mixed-payer markets, such as Brazil and India. As
property from public to private sector, including more agreements are pursued, it would be useful
provisions for performance review and modifi- to generate descriptive case studies on price tier-
cations, when required. Key milestones include ing and its effectiveness at segmenting domestic

markets. A correlative need is to prevent arbitrage social goals. AUTM is considering new initiatives
or leakage between public and private markets. in performance metrics, which potentially could
facilitate academic licensing to PDPs, if measure-
3.4 Production and capacity issues ments incorporate global health or global access
Production also must be addressed. PDPs pose a considerations.
new business model with new challenges, (for ex- In some instances, negotiations with small
ample, convincing a party to build a factory with biotechnology firms are comparably difficult.
uptake, rights, and options for manufacturing and Such firms are sometimes concerned that sharing
operations that are uncertain). Identifying exist- platform technologies for use in the development
ing facilities is a strength for some PDPs. Those of noncommercial products may weaken com-
working in vaccines, however, have a greater chal- mercial positions. The types of outreach initiatives
lenge in that for regulatory reasons, they must undertaken with universities may equally benefit
find a purpose-built factory for every vaccine. small biotechnology companies (for example,
While excess capacity can typically be absorbed through dissemination of case studies). A key
for drug manufacturing plants, the same is there- challenge is to demonstrate creditable demand to
fore not the case for vaccines. Thus, the price of encourage risk taking by corporate partners. In
a vaccine is linked to the cost of production and several areas (HIV, pneumococcal, and rotavirus
investment in the manufacturing plant. vaccines), useful modeling work is being pursued
Another critical issue is projecting and assur- to assess demand and its implications for financ-
ing capacity commitments as products approach ing mechanisms.
the large-scale processing stage. Some therefore
suggest that in some cases there should be public- 3.6 Negotiating the IP landscape
ly dedicated capacity for manufacturing and that PDPs practice due diligence and, where needed,
PDPs should enter into deals with that expecta- engage in IP mapping exercises to ensure freedom
tion in mind. to operate. IP assembly issues are becoming more
challenging, due to the increasing need for pro-
3.5 Early-stage licensing prietary tools. This is especially the case for broad
In negotiations with universities, several PDPs umbrella or vaccine component patents, where a
note challenges with in-licensing the needed tech- variety of technologies may be required to express
nologies from academic institutions. Universities or purify an antigen, bolster immunity, or devise
may overvalue inventions or lack flexibility. a delivery system. Related problems include roy-
However, through the efforts of organizations alty stacking and lack of ownership of intellectual
such as MIHR and PIPRA, many universities property to cross license.
are becoming increasingly able to use IP tools Responses to patent thickets include li-
to promote access in developing countries, such cense mapping and exploring creative licensing
as through the use of humanitarian licensing schemes. There is an emerging range of IP man-
provisions. agement tools that can be applied, depending on
There are several constructive actions that the particular needs of the scientific challenge.
could assist the PDPs, including the establish- However, more systematic efforts are needed to
ment of inventories of IP rights held and a sur- identify where and when current or emerging IP
vey of the licensing status in key global health management strategies might best be considered
fields. A prototype database is being developed and to facilitate their application. The challenge
at the U.S. National Institutes of Health (NIH), may be to identify the specific technology plat-
based on the U.S. Federal Interagency Edison da- forms around where public and private sector
tabase of invention reports. At the institutional product development interests strongly coincide.
level, there is growing interest among technology It is also important to identify the key institutions
transfer offices to operate against performance to bring together to discuss such a consortium-
expectations aligned with both economic and based approach. Negotiating the patent landscape

CHAPTER 2.3
and access to research tools is a general challenge • developing and disseminating case studies
for the scientific community. However, creative of various IP approaches related to market
models in the health sciences may find the most segmentation, tiered pricing, and royalties
fertile ground in the context of global health • pursuing focused workshops on common
products, since they represent noncommercial, or issues such as pricing, product liability, ear-
“low margin,” R&D. ly-stage licensing, and sponsored-research
agreements with academe, or IP assembly
3.7 Systemic challenges and freedom to operate
The workshop emphasized the broader systemic • organizing inventories of IP rights held and
needs of the PDPs, including distribution chal- the licensing status of these IP rights in key
lenges within countries with poor infrastructures. global health fields
Reducing the time gap between development and • encouraging academic licensing practices
implementation also will require the continued that make products more accessible to
development of an international clinical trials impoverished populations and provisions
system that engages local investigators, commu- within research sponsorship agreements
nities, ethical review committees, and regulatory that are responsive to the special require-
bodies in low- and middle-income countries. It ments of PDPs
will require adequate systems for quality con- • supporting IP mapping and/or IP-land-
trol and regulatory approval to assure consistent, scape analysis for products of particular
high-quality products in the absence of first-world priority, or disseminating such landscapes
regulatory control, and legal systems within man- where available
ufacturing countries that enable the supplier to • instituting training programs and personnel
effectively support its patent rights. To reach their exchanges to build research and technology
goal, PDPs will need greater engagement of the management competencies and partner-
scientific community and funding agencies in op- ships in low- and middle-income countries
erational and health-services research, including • encouraging needed market analysis, such
mode and cost of delivery, patient acceptability as estimates of need, to engage corporate
and compliance, dosage and toxicity, and meth- interest
ods to adapt interventions to local conditions and
integrate them into existing services. It is clear that many PDPs have matured
over the past few years, progressing along the
continuum from R&D to dissemination. Many
4. Conclusions have secured funding and negotiated successful
Workshop presenters broadly endorsed the use- deals, sometimes with numerous partners. Most,
fulness of bringing together diverse groups of however, are still in the early stage of product de-
practitioners to address the challenges of IP man- velopment, and few have reached the threshold
agement for global health outcomes. The value of product completion and distribution. Thus,
of such a platform increases as the numbers of there are no real outcomes to measure at this
practitioners and institutions associated with time. Moreover, deals are highly contextual. Still,
PDPs expand. There is value in continuing broad although best practices will continue to emerge
discussion, as well as in more focused discussion and be refined, a set of best principles or working
with respect to specific issues, such as calculat- tenets for ensuring product access and availability
ing price. From discussions at the workshop ideas has clearly been established. In all cases, the role
emerged in regard to a number of actions that of intellectual property in PDP agreements is to
could both contribute to a wider understanding provide incentives for private investment in pub-
of issues surrounding intellectual property: lic health and to structure and define the nature of
• developing best practice standards and dis- the relationship among the partners with regard
seminating these widely to how rights will be shared or exercised. There

is nothing particularly novel about the terms of 5 25 and 26 July 2006 at the Aeras facility in Rockville,
agreements reached by PDPs; rather, it is their Maryland, U.S.A. The meeting included representatives
of PDPs, industry, and academe, who shared their
totality as a public/private hybrid that sets them perspectives on IP issues, partnership strategies, and
apart. Collectively, the PDPs are broadening our value propositions or incentives in deal making. The
creative understanding of practical ways to resolve involvement of corporate and academic partners
the public-policy dilemma of balancing private helped facilitate discussions about the dynamics
that shape and direct successful public-private
incentives to generate needed R&D investment partnerships. For example, there is a strong interest
with the goal of access to those in need. ■ on the part of the PDPs in building knowledge
among university technology managers of the special
needs and requirements of the PDPs as nonprofit
enterprises. Correspondingly, PDPs can learn from
Robert Eiss, Chief Executive Officer, MIHR, Oxford Centre
university technology offices how to more effectively
for Innovation, Mill Street, Oxford, OX2 OJX, U.K. robert. negotiate sponsored research or early-stage licensing
eiss@mihr.org agreements with universities, given the requirements
and needs of academic environments.
Kathi E. Hanna, Senior Vice President, Section Head,
6 To view the 2004 MIHR report, see: www.
Scientific Reports and Proceedings, Styllus LLC, 36
globalforumhealth.org/filesupld/ippph/dealmaking.
Washington St., Suite 220, Wellesley, MA, 02481, U.S.A.
pdf. The 2006 meeting, like its predecessor, provided
khanna@styllus.org
a platform for exchanging emerging best practices
in structuring and negotiating product development
Richard T. Mahoney, Director, Vaccine Access, Pediatric agreements for technologies needed in developing
Dengue Vaccine Initiative, International Vaccine Institute, countries. Presentations centered on case studies
San Bongcheon-7dong, Kwanak-ku, Seoul 151-818, of several PDPs to illustrate terms, conditions, and
Republic of Korea. rmahoney@pdvi.org strategies that may be employed to help ensure
product availability and access. Topics included:
1 Global Forum for Health Research. 1999. The 10/90 segmentation of markets, pricing, negotiating with
Report on Health Research. Geneva: Global Forum for universities, liability issues, ownership and use of
Health Research clinical trial and regulatory data, partnerships with
emerging suppliers, and technical assistance needs to
2 Mahoney R and CM. Morel. 2006. A Global Health
ensure technology transfer. Discussions were focused
Innovation System. Innovation Strategy Today 2(1): 1–12.
on best practices for deal making in various contexts,
www.bioDevelopments.org/innovation.
from understanding complementarities of missions to
3 Other activities such as financing and capacity building negotiating contract language.
are crosscutting means to address the components.
7 See, also in this Handbook, chapter 2.7 by J
They are not components of innovation in and of
Oehler. See also Kaplan W. 2005. www.who.int/
themselves.
intellectualproperty/studies/W.Kaplan2.pdf.
4 See also Mahoney RT, A Krattiger, J Clemens and R
8 See, also in this Handbook, chapter 17.9 by J Banerji and
Curtiss III. 2007. The Introduction of New Vaccines
B Pecoul.
into Developing Countries IV: Global Access Strategies.
Vaccine (in press). 9 www.gavialliance.org.

Chapter 2.4
Patenting and Licensing Research Tools

CHARLES CLIFT, London, U.K.
ABSTRACT a diagnostic method, or a new crop variety. In

Research tools encompass a wide range of resources, in- short, anything that a researcher needs to use or
cluding genes/gene fragments, cell lines, monoclonal an-
access in the course of research—such as an as-
tibodies, reagents, animal models, growth factors, combi-
natorial chemistry and DNA libraries, clones and cloning say, a genomic database, an animal model, crop
tools such as polymerase chain reaction, methods, labo- germplasm and so on—may be classified as a
ratory equipment and machines, databases and computer research tool.1 Research tools are defined by
software. Access to research tools is integral to advancing the U.S. National Institutes of Health (NIH)
progress in biotechnological R&D, in both the biomedical
and agricultural sciences. However, a complex web of re- as the full range of resources that scientists use
search tool patents has arisen as a result of the revolution in in the laboratory, including “cell lines, monoclo-
molecular biology and coincident changes in public policy nal antibodies, reagents, animal models, growth
and patent law. These patents can pose a potential block factors, combinatorial chemistry libraries, drugs
to accessing research tools. For developing countries, sev-
and drug targets, clones and cloning tools (such
eral approaches can be formulated and then implemented
in order to overcome potential problems associated with as PCR), methods, laboratory equipment and ma-
research tools. These include changes in patenting poli- chines, databases and computer software.” 2 To
cies, research exemptions in patent law to reduce the risk this definition, one should add genes and gene
of infringement in R&D, compulsory licensing to allow fragments.
access to upstream technologies, and institutional adapta-
tions to facilitate access to needed technologies, such as The classic statement on the possible con-
guidelines intended to promote more appropriate behav- sequences of protection by intellectual property
ior by participants in the system. With carefully formu- (IP) rights of research tools in biomedical re-
lated, multitiered approaches, research tool patenting and search was made by Heller and Eisenberg:
licensing (and its possible impact on innovation in health
and agricultural research) may be effectively managed.
… the recent proliferation of intellectual prop-
erty rights in biomedical research suggests a dif-
ferent tragedy, an “anticommons” in which people
underuse scarce resources because too many owners
can block each other. Privatization of biomedical
1. Introduction research must be more carefully deployed to sustain
Research tools are difficult to define precisely. both upstream research and downstream product
They may be described, broadly, as any tangible development. Otherwise, more intellectual prop-
or informational input required in the pro- erty rights may lead paradoxically to fewer useful
cess of discovering a drug, a medical therapy, products for improving human health.3
Clift C. 2007. Patenting and Licensing Research Tools. In Intellectual Property Management in Health and Agricultural In-
novation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis,
U.S.A. Available online at www.ipHandbook.org.
© 2007. C Clift. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommercial
purposes is permitted and encouraged.

CLIFT
Similar concerns have been expressed about to government march-in rights. This was based
agricultural research, for example by Boettiger on the premise that implementation of the Bayh-
and Bennett.4 Dole Act would hasten innovation, facilitate the
commercialization of research, and thereby move
new and innovative products into the marketplace
2. Research tools: key events more quickly. As a result universities themselves
There are three key events of relevance to the global have become key players in the development
debate on the pros and cons of patenting research and patenting of new biotechnology inventions,
tools, all of which date from 1980, or thereabouts. most of which are in the nature of research tools
rather than final products. Increasingly universi-
2.1 Event one: the revolution in ties have developed extensive patent portfolios in
molecular biology both agricultural and biomedical technologies.
The revolution in molecular biology has fostered Subsequently, most of the developed world has
the development of wholly new branches of sci- pursued similar policies to the United States in
entific investigation, such as proteomics (the sci- promoting the commercialization of the products
ence of proteins expressed by genes), which has of university research.
transformed the way research is conducted, as
well as widened, enormously, the potential for
scientific advances to address fundamental hu- 3. Research tools: Implications
man problems in health and agriculture. Many and challenges
of the immediate products of such research are The more technologically advanced developing
intermediate or platform technologies of use to countries, including Brazil, India and China, have
other researchers, but not (with certain exceptions in recent years pursued essentially similar policies
such as diagnostic tests) final products capable of to the United States in promoting the commer-
application by medical practitioners or farmers. cialization of the products of university research.
But developing countries, even those with a rela-
2.2 Event two: the Chakrabarty case tively well-developed scientific and medical infra-
The landmark 1980 U.S. Supreme Court deci- structure, face very different circumstances from
sion, Diamond v. Chakrabarty,5 established that those in the United States and other developed
genetic inventions (in this case a genetically en- countries. Although most developed countries
gineered bacterium capable of breaking down have tried to emulate Bayh-Dole policies in differ-
crude oil) were patentable subject matter under ent ways, the success of such policies in the United
U.S. law. The application of the patent system in States owes much to institutional arrangements
this way facilitated the development of a viable specific to the United States and is based on its
business model for the biotechnology industry. unique higher education system and history of in-
With the development of potentially revenue- teractions between universities and businesses.7
earning products, often a long way off for many An emphasis on patenting and licensing by
companies, they could nevertheless raise money, universities as the chief means by which technol-
or realize value (for example, via licensing, assign- ogy transfer occurs, as compared to publication
ment, or other forms of acquisition) through the and open knowledge sharing, may have negative
patents taken out on research tools or other up- implications for research in the area of public
stream genetic technologies.6 health or agriculture, as well as other areas. Since
revenue prospects will be greater for products
2.3 Event three: the Bayh-Dole Act that would have a market in a developed coun-
The 1980 Bayh-Dole Act amended the patent try, this promise may further distort the alloca-
code in the United States, granting universities tion of research funding away from the specific
permission to patent inventions resulting from public health problems of developing countries.
government-funded (federal) research, subject Therefore, care must be taken to ensure that

CHAPTER 2.4
research priorities, particularly those that could Patent and Trademark Office, and guidelines pro-
directly benefit poor people, are not distorted by duced by NIH to encourage good patenting and
the quest for larger licensing income. licensing practices, appear to have further reduced
Concerns about access to research tools ap- the threat of breakdown and access restrictions,
ply both to the public and private sectors. In the although the environment remains uncertain. It
public sector, for example, one university may wish is clear, however, that these various working so-
to access the patented technology of another for lutions involve costs in terms of either time or
research. Universities may wish to access private money or both.9
sector technologies, and vice versa. Private sector Furthermore, a recent study in the U.S. of re-
companies may experience difficulties in access- searchers in academia, government and nonprofit
ing each others’ technologies. organizations, and industry suggests that difficul-
Some see one university paying another to ties in gaining access to materials (for example, data
license a technology as perverse when most re- or cell lines) through Material Transfer Agreements
search in universities is publicly funded, even (MTAs) may have more significant implications
if the university is privately funded. But this is for the conduct of research than patenting itself.10
a logical consequence of introducing patenting A critical finding is that industry researchers
into the university arena. In the United States, experience significantly greater delays and diffi-
in the Supreme Court case Madey v. Duke,8 the culties in accessing proprietary technologies than
Court found that, since the “business” of Duke academic researchers. In large part this is because
University was research and teaching, there was industry researchers work, self-evidently, in a
no exemption from patent infringement in its more commercial environment, are more patent
research, as the use of the patented invention aware than academics, and more liable to respect
was in furtherance of that business. The profit or the patent rights of others and to assert their own
nonprofit status of the user was not a critical fac- rights with respect to their own proprietary tech-
tor for the court. Although not part of the court’s nologies (including research tools). By contrast,
judgment, the implication was that as universities while commercial activity and pressures have be-
were now enthusiastic users of patents and licens- come much more widespread in academic circles,
es, and litigated to enforce their patent rights, it and patenting is common, researchers are less
would therefore be inconsistent for universities to aware of patent issues, more likely not to check
seek exemptions for the use of third-party patent- whether the technologies they use are protected,
ed inventions for R&D in their own programs. and less likely to assert their own rights against
other academic researchers.
Another recent report from the Committee on
4. The reality of research tools IP Rights in Genomic and Protein Research and
Innovation reached the following conclusion:
4.1 Biomedical research …the number of projects abandoned or delayed
In developed countries the evidence to date, which as a result of difficulties in technology access is re-
mainly comes from the United States, suggests ported to be small, as is the number of occasions in
that researchers in both the public and private sec- which investigators revise their protocols to avoid in-
tor have found various ways of coping with the tellectual property issues or in which they pay high
new environment of patented research tools. costs to obtain intellectual property. Thus, for the
In biomedical research, working solutions time being, it appears that access to patented inven-
include licensing, inventing around patents, in- tions or information inputs into biomedical research
fringement (often informally invoking a research rarely imposes a significant burden for biomedical
exemption), developing and using public tools, researchers. For a number of reasons, however, the
and challenging patents in court. Changes in the committee concluded that the patent landscape,
institutional environment, such as the tightening which already is becoming complicated in areas such
of gene patenting rules introduced by the U.S. as gene expression and protein-protein interactions,

CLIFT
could become considerably more complex and bur- crop research, differs from biomedical research.
densome over time.11 The size of the sector, and of the potential com-
mercial market, is much smaller than in medi-
Accordingly the committee made recommen- cine. There is also a tradition of public sector
dations that addressed “an increasingly problematic institutes taking research right through to the
environment for research in genomics and proteomics point of commercialization (at least in tradi-
as more knowledge is created, more patent applica- tional breeding programs), whereas in medicine
tions are filed, and more restrictions are placed on commercialization is overwhelmingly a private
the availability of and access to information and sector activity.
resources.” The advent of biotechnology and the spread
A special case is that of genetic diagnostic of gene patenting is one reason why the private
tests, which may be used either clinically or in sector in agricultural research has come to be
the course of follow-on research. They, therefore, dominated by a few large companies. In particu-
have a dual nature, both as a final product, and lar, the existence of a large number of overlapping
as a discovery tool. A survey of over 100 labora- patents for relatively important technologies has
tories in the United States concluded that patent- been a powerful incentive for merger and acquisi-
ing and licensing practices in this field had had a tions, as well as strategic alliances. For example,
negative impact on clinical use and the develop- patents on the Bt gene which can confer insect
ment of further genetic tests.12 resistance on a wide range of different crops are
These survey results relate to mainstream re- strategically important for the whole industry.
search of potential commercial value. Furthermore, Controlling or denying access to strategic tech-
it is likely that transaction costs could weigh more nologies is both commercially important to their
heavily on those working with limited resources on owners and, correspondingly, liable to adversely
projects focusing on specific diseases particularly affect research on crops where the commercial
affecting developing countries. On the other hand, market is small (for example, subsistence crops in
some public–private partnerships (for example, the developing countries).
Global Alliance for TB Drug Development) say With respect to IP, research tools and agri-
that their philanthropic mandates can be useful cultural research, a recent survey concluded that
in encouraging companies to license their IP more evidence:
easily, and more cheaply, than would be likely in a …suggests that the effects on research of lack of
wholly commercial exchange. It is, therefore, dif- access to needed technology have been more serious
ficult to draw valid, general conclusions from the on average for biotechnologists working on agricul-
evidence currently available. ture than for those focused on human health. This
There is also very little empirical evidence of might reflect the smaller set of promising technologies
the impact of research tool patents in the biomedi- in agriculture and the lower level of resources avail-
cal field in developing countries themselves. More able to help scientists surmount or invent around
experience and empirical research are needed. The roadblocks. 13
impact of such patents may be more significant in
developing countries than in developed countries, It also seems to be the case that patented ge-
as research institutions or companies in developing netic crop material (such as the Bt gene) is viewed
countries generally lack the legal and negotiating as having more commercial value than many of
capacity to engage in complex negotiations and the research tools used in biomedical research.
lack the organizational flexibility and funds to pay Thus, whereas patent holders may disregard in-
license fees, if required by patent holders. fringements in upstream biomedical research, or
think it not cost effective to sue for infringement,
4.2 Agricultural research in the case of more downstream agricultural re-
The institutional context for agricultural research this may not be so.
search, by which in this context we mainly mean

CHAPTER 2.4
5. Addressing the research less-stringent interpretation of patentability but

tools challenge would need to be mindful of the possibility of
Developing countries have a number of possible restrictions on their widespread use.
options, at the level of policy and practice, to If patents are granted, they can limit the
address the possibility that proprietary restric- scope of the claims to what has actually been in-
tions will unduly limit the use of research tools. vented. Patenting policy in biotechnology should
Possible approaches used or considered to address aim to facilitate R&D of healthcare products and
this issue include the following: new agricultural crops. Unlike some other coun-
• changes in patenting policies tries, France and Germany have introduced rules
• research exemptions in patent law to reduce that limit the scope of patent protection for hu-
the risk of infringement in R&D man gene sequences to the specific use disclosed
• compulsory licensing to allow access to up- in the patent application, thus excluding protec-
stream technologies tion for future, as yet undiscovered, uses.14 These
• institutional adaptations to facilitate access rules were introduced because broad protection
to needed technologies, such as guidelines may disadvantage those wishing to build on the
intended to promote more appropriate be- invention, while narrower claims may facilitate
havior by participants in the system their downstream use.
5.1 Patenting policies 5.2 Research exemptions

Countries may adopt different approaches to The TRIPS agreement allows the use of limited ex-
patenting. On the one hand, the Agreement on emptions under Article 30, which has a possible ap-
Trade-Related Aspects of Intellectual Property plication to the research tool issue as well as others:
Rights (TRIPS) in Article 27 (1) obliges coun- Members may provide limited exceptions to the
tries to grant patents across all fields of technology exclusive rights conferred by a patent, provided that
provided that the technology is new, involves an such exceptions do not unreasonably conflict with a
inventive step (or is nonobvious,) and is capable of normal exploitation of the patent and do not unrea-
industrial application (or is useful). On the other sonably prejudice the legitimate interests of the pat-
hand, the agreement allows various exclusions ent owner, taking account of the legitimate interests
from patentability, such as discoveries of natural of third parties.
phenomena (which could include genes) that do
not meet the patentability criteria. In most of Europe, exemptions exist for acts
Governments may choose whether or not to performed privately, for purposes that are noncom-
allow the patenting of genetic material. Plants and mercial, and for experimentation on the subject mat-
animals may be excluded from patentability, exter of the invention, even for commercial purposes.
cept for microorganisms, and nonbiological and In the United States, by contrast, there are no
microbiological processes. The TRIPS agreement equivalent statutory exemptions, even for non-
does not specify how countries should define what commercial or research uses. In the past, however,
an “invention” is, or how the criteria of patent- the courts have generally recognized some scope
ability should be interpreted. Nor does it actually for “making or using of a patented invention merely
refer to genes, or genetic material, at any point. for experimental purposes, without any intent to de-
The desirability of restricting patentability rive profits or practical advantage… .” In 2002, as
of genetic discoveries in this way will need to be noted above, the case of Madey v. Duke essentially
assessed according to the circumstances of each ended this informal research exemption.15
country. For instance, countries that are mainly There is an active debate in several coun-
users of research tools patented abroad might tries about the appropriate scope of any re-
promote the use of such tools by limiting their search exemption. In 2004, the U.S. National
patentability. Other countries, with more ad- Academies of Science (NAS) published a report
vanced capacities in genomics, might favor a on the U.S. patent system recommending that

CLIFT
the introduction of a formal research exemption economic interest compared to the original inven-
for noncommercial purposes.16 This recommen- tion claimed in the patent or plant variety right.
dation was repeated in the subsequent report on
genomic and proteomic research.17 5.4 Institutional adaptations
Thus, there is a broad spectrum of ways in Various initiatives have been considered or imple-
which the research exemptions allowed under mented to adapt or modify institutional practices
the TRIPS agreement are implemented in dif- around patenting and licensing.
ferent countries, and how these are interpreted One example of adaptation to the changing
by courts. The essential point, in this context, is technical environment was the announcement in
how to ensure that follow-on research that may 2001 by the U.S. Patent Office of new guide-
be important to innovation in the fields of health lines on expressed sequence tags (short pieces
and agriculture is not inhibited. The appropriate of DNA that help to identify when particular
scope of the research exemption must be consid- genes are being expressed in cells). These guide-
ered in this light. lines tighten the specifications regarding what
constitutes “utility,” and provide guidance to
5.3 Compulsory licensing patent examiners about how to apply the util-
In most countries, the law allows governments ity criterion to biotechnological inventions. In
to issue compulsory licenses on a number of such cases, patentability can be established only
grounds, including in circumstances where the if the patent application discloses a specific, sub-
development of a research field of importance to stantial and credible utility.18 It was intended that
public health or agriculture could be inhibited by this new standard would prevent patents being
the actions of particular patentees. For example, granted on inventions for which only a specula-
in the United Kingdom there are extensive pow- tive application is disclosed. The introduction of
ers in the Patent Act that, although rarely used, these tighter criteria may be one reason, among
can remedy such situations. Section 48A (1) of others, why patent applications in this area have
the act, for instance, covers: declined recently.
refusal of the proprietor of the patent to grant Countries may also consider guidelines or oth-
a licence or licences on reasonable terms … the ex- er means to encourage or mandate patenting and
ploitation … of any other patented invention which licensing policies that promote innovation. In the
involves an important technical advance of consider- United States, NIH, as the principal funder of aca-
able economic significance in relation to the inven- demic biomedical research, took the lead in pub-
tion for which the patent concerned was granted is lishing in 1999 principles and guidelines on sharing
prevented or hindered. biomedical research resources. These sought to pro-
mote the widest possible dissemination of research
Similar provisions exist in many other coun- tools developed with NIH funds, in the interests
tries. In the United States, the Patent Act does of accelerating scientific discovery and facilitating
not provide for compulsory licensing as such, but product development. At the same time NIH con-
there are similar march-in rights, as part of the sidered that “reasonable restrictions on the dissemina-
Bayh-Dole amendments, only where federal fund- tion of research tools are sometimes necessary to protect
ing of an invention is involved (Section 203). legitimate proprietary interests and to preserve incen-
In the European Union, the 1998 tives for commercial development.” 19
Biotechnology Directive, which has been imple- In 2005, NIH introduced voluntary guide-
mented in national law by many member states, lines (“best practices”) on the patenting and li-
contains provisions that allow for compulsory licensing of genetic inventions funded by NIH
censing of patents or plant variety rights if prior grants. On patenting, the guidelines said it should
negotiations with the owner are unsuccessful, be considered whether:
provided that the resultant invention constitutes …significant further research and develop-
significant technical progress of considerable ment by the private sector is required to bring the

CHAPTER 2.4
invention to practical and commercial application. Some U.S. universities are indeed experi-
Intellectual property protection should be sought menting with new licensing arrangements. For
when it is clear that private sector investment will be instance, Stanford University proposes wording,
necessary to develop and make the invention widely along the following lines, as a standard means of
available. By contrast, when significant further re- establishing freedom for universities, public sec-
search and development investment is not required, tor research organizations or, indeed, organiza-
such as with many research material and research tions such as public–private partnerships to be
tool technologies, best practices dictate that patent able to use particular technologies that it licenses
protection rarely should be sought. exclusively to a third party:
Stanford retains the right, on behalf of itself and
On licensing, the guidelines provided a all other nonprofit academic research institutions, to
more extensive set of principles that support practice the Licensed Patent and use Technology for
nonexclusive licensing as a general rule. Where any purpose, including sponsored research and col-
exclusive licensing might be necessary to promote laborations. Licensee agrees that, notwithstanding
further development, the guidelines suggest that any other provision of this Agreement, it has no right
care should be taken to license only in the spe- to enforce the Licensed Patent against any such insti-
cific area where the licensee is working, to avoid tution. Stanford and any such other institution has
blocking off other areas of research that may use the right to publish any information included in the
the same technology. In addition, they said con- Technology or a Licensed Patent.24
sideration should be given to including specific
provisions to protect further research and public The organization Universities Allied for
health. For instance, a license could reserve the Essential Medicines has been set up in the United
right for the invention to be used in nonprofit States to explore how universities can help ensure
research organizations for either research or edu- that biomedical end products, such as drugs, are
cational uses.20 Boettiger and Bennett argue that made more accessible in poor countries, and to
since the NIH guidelines appear to be working increase the amount of research conducted on ne-
well, they should be applied across the board glected diseases, or those diseases predominantly
where federal funding is involved, keeping in affecting people who are too poor to constitute a
mind, specifically, the situation in agricultural market attractive to private sector R&D invest-
biotechnology.21 ment. The organization recognizes that university
Guidelines on the licensing of genetic inven- scientists are major contributors in the drug-de-
tions have also been produced by the Organisation velopment pipeline and that universities have an
for Economic Co-operation and Development avowed commitment to advancing the public
(OECD).22 Apart from the text of the guidelines, good.25 The organization has developed a model
an appendix contains a useful list of Web links to equitable access license to further these aims.26
model agreements on various aspects of licensing A body of technology managers called the
and material transfers. Technology Managers for Global Health has
The international network of agricultural re- been formed, as a subgroup within the influential
search centers, that is, the Consultative Group on Association of University Technology Managers
International Agricultural Research (CGIAR), in the United States, to press for similar sorts
has a policy on IP, with the underlying principle of arrangements to those promulgated by the
to “take every possible measure to facilitate access Universities Allied for Essential Medicines and
to research products for the public benefit, in par- others. In conjunction with the Centre for the
ticular in developing countries,” while recognizing Management of Intellectual Property in Health
also that there will be exceptional circumstanc- Research and Development (MIHR), a co-spon-
es when taking out patents may be necessary sor of this Handbook, the Technology Managers
for the various centers to pursue their specific for Global Health has published a booklet provid-
objectives.23 ing case studies of academic licensing to product

CLIFT
development partnerships for treatments for dis- obtaining rights to patented technology through
eases affecting developing countries particularly.27 one-stop licensing mechanisms; the distribution
Another initiative seeks to draw on the suc- of risks associated with research and develop-
cess of the Open Source Initiative (OSI) which ment; and the elimination of blocking patents or
has developed a more or less proven research stacking licenses, and the consequent encourage-
model, based on a general public license that ment of cooperative efforts. Patent pools, there-
makes modifications of a software program freely fore, could be most useful for technologies par-
available to others to use or develop further. The ticularly relevant to developing countries, because
important aspect of this approach is that it mobi- the lack of strong market incentives may enable
lizes innovative effort from a range of developers agreements that would otherwise be more dif-
at little cost. ficult to engineer. Low-margin research directed
CAMBIA, a nonprofit organization based in toward problems of poor people might be pro-
Australia, both undertakes research in molecu- moted. Patent pools have also been proposed for
lar biology in agriculture directed at the needs the development of vaccines, which is appropri-
of developing countries and also seeks to over- ate given the large number of products owned by
come the problems of fragmented technologies different entities and, consequently, the
by developing patent and technology databases complexity of identifying, tracking, and obtain-
and innovative licensing techniques that draw on ing licenses for patented technologies.
the experience of OSI. CAMBIA has prepared a Patent pools have been established in the con-
model license28 that has the objective of creating sumer electronics industry, specifically in relation
a common pool within which improvements can to the broad adoption of industry standards. The
be freely shared. On the other hand, the terms of biotechnology industry, however, is very different
this license may conflict with the existing licens- from the electronics industry. An OECD report
ing terms of other technologies, which should noted:
form part of the common pool. …the pharmaceutical biotechnology industry
The Public Intellectual Property Resource may be fundamentally different from the electron-
for Agriculture (PIPRA), the other co-sponsor ics sector. It is not an industry in which defining
of this Handbook, is an organization comprising standards is important, and assuring interoperabil-
universities, foundations, and nonprofit research ity of technologies is not very important, especially
institutions, which aims to make agricultural tech- not in the development of therapeutics. A company’s
nologies more easily available for the development worth is tightly tied to its intellectual property and
and distribution of subsistence crops for humani- fosters a “bunker mentality.” There are likely to be
tarian purposes in the developing world. PIPRA disagreements among partners over the value of the
seeks, through a variety of activities, including the different patents in a pool, and dominant players
compilation of patent and licensing databases, to may not have a strong incentive to join the pool. If
mitigate problems arising from the fragmentation a limited field of application and essential patents
of proprietary technologies and materials among can be defined, the patent pool model is worthy of
different institutions. It has also proposed a draft consideration in biotechnology…31
license to facilitate research relevant to developing
countries.29 The suitability of the patent pool for biotech-
Another institutional approach is the poten- nology patents certainly requires further study, as
tial use of patent pools. In 2000, a report by the does the role of government in promoting them.
U.S. Patent Office on patent pools and biotech- For these reasons, and others, patent pools in
nology patents concluded that the “use of pat- biotechnology have not developed as a response
ent pools in the biotechnology field could serve the to fragmented patent ownership. In agricultural
interests of both the public and private industry, a biotechnology in particular, cross-licensing and,
win-win situation.”30 Among the benefits cited ultimately, mergers and acquisitions are the
for this approach to licensing were: efficiency in common response.

CHAPTER 2.4
6. Conclusions 1 Walsh JP, A Arora and WM Cohen. 2003. Research Tool

While no specific guidance or conclusions can Patenting and Licensing and Biomedical Innovation.
In Patents in the Knowledge-Based Economy (eds. WM
cover the specific circumstances of policy-mak- Cohen and SA Merrill). The National Academies Press:
ers, researchers, universities, research institu- Washington, DC. pp. 285–340.
tions, foundations or other organizations in given 2 NIH. 1998. Report of the National Institutes of Health
developed or developing countries, the sev- (NIH) Working Group on Research Tools. www.nih.
eral guidelines, enumerated below, might gov/news/researchtools/#backgrnd. See, also in this
Handbook, chapter 14.2 by S Kowalski; Aljalian NN.
help to conceptualize a starting point within a 2005. The Role of Patent Scope in Biopharmaceutical
broader framework: Patents. B.U. J. Sci. & Tech. L. 11:1–6.
• Developing countries need to consider im- 3 Heller M and RS Eisenberg. 1998. Can Patents Deter
plementing patent legislation, consistent Innovation? The Anticommons in Biomedical Research.
Science 280:698–701.
with TRIPS, that meets their objectives, in
particular with respect to genetic discoveries. 4 Boettiger B and AB Bennett. 2006. Bayh-Dole: If We
Knew Then What We Know Now. Nature Biotechnology
• Countries need to consider in their own 24:320–23. www.cambia.org/daisy/bios/2012/version/
legislation what form of research exemption live/part/4/data.
might be appropriate, in their own circum- 5 Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ
stances, to foster research and innovation in 193 (1980).
health and agriculture. 6 Upstream refers to technologies early in the research
• Countries should consider providing in process and downstream to the later stages, likely to
be making use of upstream technologies.
their legislation powers to use compulsory
7 Mowery DC and B Sampat. 2004. The Bayh-Dole Act
licensing, in accordance with the TRIPS
of 1980 and University-Industry Technology Transfer: A
agreement, where this power might be use- Model for Other OECD Governments? London Business
ful as one of the means available to promote, School, Strategic and International Management
inter alia, research that is directly relevant Seminar Paper. www.london.edu/assets/documents/
PDF/Mowery_paper.pdf.
to the health and agriculture problems of
8 Madey v. Duke University, 307 F.3d 1351, 64 USPQ2d 1737
developing countries. (Fed. Cir. 2002).
• Countries should seek through patent-
9 See supra note 1.
ing and licensing policies to maximize the
10 Walsh JP, C Cho and WM Cohen. 2005. Patents,
availability of innovations, including re- Material Transfers and Access to Research Inputs in
search tools and platform technologies, for Biomedical Research. Final Report to the National
the development of products for human Academy of Sciences’ Committee on Intellectual
Property Rights in Genomic and Protein-Related
health and agriculture.
Inventions: Washington, DC. tigger.uic.edu/~jwalsh/
• Public funding bodies should introduce policies WalshChoCohenFinal050922.pdf.
for sensible patenting and licensing practices, 11 National Research Council. 2006. Reaping the Benefits
for technologies arising from their funding, of Genomic and Proteomic Research: Intellectual
to promote downstream innovation. Property Rights, Innovation, and Public Health. The
National Academies Press: Washington, DC.
• Public research institutions and universi-
12 Cho MK, et al. 2003. Effects of Patents and Licences
ties in developed countries should seriously
on the Provision of Clinical Genetic Testing Services.
consider initiatives designed to ensure that Journal of Molecular Diagnostics 5:3–8.
access to R&D outputs relevant to the 13 Wright B and P Pardey. 2006. Changing Intellectual
health concerns of developing countries, Property Regimes: Implications for Developing Country
and to products derived therefrom, are Agriculture. Int. J. Technology and Globalisation. 2:93–114.
facilitated through appropriate licensing 14 European Commission. 2005. Report from the
policies and practices. ■ Commission to the Council and the European
Parliament. Development and Implications of Patent
Law in the Field of Biotechnology and Genetic
Engineering. European Commission: Brussels. eur-lex.
Charles Clift, 18 Parsons Green Lane, London, SW6 europa.eu/LexUriServ/site/en/com/2005/com2005_
4HS, U.K. charlesclift@tiscali.co.uk. 0312en01.pdf.

CLIFT
15 See supra note 8. 24 otl.stanford.edu/industry/resources/exclusive.pdf.

16 Merrill SA, et al. 2004. A Patent System for the 21st 25 Kapczynski A, et al. 2005. Addressing Global Health
Century. National Academy Press: Washington, DC. Inequities: An Open Licensing Approach for University
17 See supra note 11. Innovations. Berkeley Technology Law Journal 20:2. btlj.
boalt.org/data/articles/20-2_spring-2005_2-benkler.pdf.
18 U.S. Patent and Trademark Office. 2001. Utility
Examination Guidelines. US Federal Register: Alexandria 26 www.essentialmedicine.org/EALPrimer.pdf.
66:1092–99. www.uspto.gov/web/offices/com/sol/ 27 MIHR. 2006. Academic Licensing to Global Health Product
notices/utilexmguide.pdf. Development Partnerships. MIHR: Oxford. www.tmgh.
19 NIH. 1999. Sharing Biomedical Research Resources: org/assets/MIHR-TMGH%20Sequel%20Booklet.pdf.
Principles and Guidelines for Recipients of NIH Research 28 www.bios.net/daisy/PELicense/751.
Grants and Contracts. US Federal Register: Washington. 29 www.pipra.org/docs/HumResLanguagePIPRA.doc.
64: 72090–96. ott.od.nih.gov/pdfs/64FR72090.pdf.
30 Clark J, J Piccolo, B Stanton and K Tyson. 2000.
20 NIH. 2005. Best Practices For The Licensing of Genomic Patent Pools: A Solution to the Problem of Access in
Inventions. U.S. Federal Register: Washington, DC. Biotechnology Patents. U.S. Patent and Trademark
70:18413–15. www.ott.nih.gov/pdfs/70FR18413.pdf. Office: Alexandria. www.uspto.gov/web/offices/pac/
21 See supra note 4. dapp/opla/patentpool.pdf.
22 OECD. 2006. Guidelines for the Licensing of 31 OECD. 2002. Genetic Inventions, Intellectual Property
Genetic Inventions. OECD: Paris. www.oecd.org/ Rights and Licensing Practices—Evidence and Policies.
dataoecd/42/21/2491084.pdf. OECD: Paris. www.oecd.org/dataoecd/42/21/2491084.pdf.
23 ICRISAT. 2002. Policy of the ICRISAT on Intellectual
Property Rights. The International Crops Research
Institute for the Semi-Arid Tropics: Hyderabad. www.
icrisat.org/ip_management/policy.htm.

CHAPTER 2.5
Valuation and Licensing in Global Health

Ashley J. Stevens, Associate Director, Institute for Technology Entrepreneurship and Commercialization,
School of Management, and Director, Office of Technology Transfer, Boston University, U.S.A.
ABSTRACT approved, the drugs are sold at legal, patent-

Since 1999, two trends have transformed the landscape of protected, monopoly prices based on the
treating endemic diseases in the developing world: (1) the
benefits the drugs provide to patients.
establishment of highly effective drug development pub-
lic private partnerships, which have secured substantial • In the generic sector, drugs that are nearing
amounts of philanthropic funding to develop new drugs the end of their patent protection term are
for developing countries and (2) the emergence of tiered prepared for market and, when patents ex-
pricing for drugs that are under patent protection and pire, sold competitively at commodity prices
that treat diseases in both the developed and the develop-
ing world. As a result, the options have increased for both based on the cost of production.
academic institutions and companies for developing new
therapies for low- and middle-income countries. This According to the Generic Pharmaceutical
also means that traditional bilateral licensing arrange- Association, using IMS health data, generics ac-
ments will be replaced by multimember networks that
counted for 56% of all prescriptions dispensed in the
bring together the necessary skills for R&D, regulatory
work, intellectual property (IP) management, produc- United States in 2005, but less than 13.1% of every
tion, and distribution and marketing. New licensing ap- dollar spent on prescription drugs. Generics cost, on
proaches will be needed to ensure that IP issues facilitate, average, 30% to 80% less than their branded coun-
rather than hinder, such collaborations and transactions. terparts.2 Prices for generic drugs are typically 10%
This chapter presents evidence that suggests that all par-
ties to such transactions should strive for a no profit–no to 20% of their prepatent expiration price and are
loss financial model in order to maximize humanitarian cost based (that is, the price is based on a mark up
benefits. over the cost of production).3 Analysis of the finan-
cial results of publicly traded generic-drug companies
shows that these companies typically operate with a
1. Two Pharmaceutical Industries: gross margin—the amount by which sales exceed the
Two Pricing Philosophies cost of goods sold—of around 50%.4 This margin
In developed countries, the pharmaceutical in- covers the companies’ general and administrative
dustry consists of two quite separate and largely costs, marketing and selling costs, and profits.
nonoverlapping sectors:1
• In the research-driven sector, new drugs are
developed and tested through clinical trials. 2. Drug prices in developed Countries
Typically, a new drug application (NDA) The United States has had a love–hate rela-
is filed with the FDA; when the NDA is tionship with the research-driven sector of the
Stevens AJ 2007. Valuation and Licensing in Global Health. In Intellectual Property Management in Health and Agricultural
Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis,
© 2007. AJ Stevens. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

STEVENS
pharmaceutical industry almost from its incep- U.S. Representative Oren Harris, introduced
tion. Consumers love the new life-saving medica- companion legislation in the U.S. House of
tions that the industry has been able to discover, Representatives, and the combined bill became
but they hate the prices resulting from the patent- known as the Kefauver-Harris Amendments to
protected monopoly. the Antitrust Act. Hearings went on for seven
The issue first emerged in the late 1940s, months, in the face of strong opposition from
with the launch of the tetracycline family of anti- the Pharmaceutical Manufacturers Association
biotics.5 This was the first family of antibiotics to and the American Medical Association, and the
be discovered by the U.S. pharmaceutical indus- legislation may well have died were it not for the
try itself. The first antibiotics—penicillin, strep- thalidomide catastrophe, which demonstrated
tomycin, and neomycin—had been discovered the critical need for a much more rigorous review
in academic laboratories (penicillin at St. Mary’s of new drugs. The Kefauver-Harris Amendment
Hospital in London, U.K. and Oxford University passed, though without the compulsory licens-
with the critical process scale-up under war- ing provision. And while it started the process of
time conditions led by the U.S. Department of FDA reform, no action was taken at that time to
Agriculture6 and streptomycin, and neomycin at control pricing.
Rutgers University7). All were licensed non-exclu- The only substantive action the United
sively and the resulting competition caused prices States has taken to control drug prices has
to fall rapidly. been the Drug Price Competition and Patent
By contrast, thanks to the patent protection Term Restoration Act of 1984, more common-
they enjoyed, prices for tetracyclines remained ly known as the Hatch-Waxman Act. This leg-
high. However, eventually competition came islation greatly facilitated the development of
from overseas. At that time, Italy was the “rogue a vigorous generic drug industry. Companies
state” of pharmaceutical patents, and through received an exemption—the Section 271(e) re-
bids by an Italian company for a U.S. military search exemption of the patent laws—allowing
procurement of tetracyclines, the government them to make and use (but not to sell) a drug
became aware of the high profit margins on the during its period of patent protection, for pur-
patented drugs. This discovery led to hearings fo- poses of developing data to prove that a new
cused on the pharmaceutical industry led by U.S. version of the drug was equivalent to the pat-
Senator Estes Kefauver, Chairman of the Senate ented version. The company could then file an
Antitrust and Monopoly Subcommittee, from Abbreviated New Drug Application (ANDA)
1959 to 1963. Kefauver correctly identified that with the FDA and be ready to put its gener-
the pharmaceutical industry was making enor- ic version of the drug on sale as soon as pat-
mous profits on the new generation of antibiot- ents expired. Absent this research exemption,
ics. Disclosures of price markups of thousands of a drug company would enjoy a de facto year
percents led to sensational headlines across the or two of additional exclusivity, since generic
country and to widespread public outrage. He producers would not be able to make and use
identified a number of other problems in the in- the drug for testing until the patent had actu-
dustry, notably the lack of any requirement for ally expired.
systematic testing for the safety and efficacy of Despite these legislative changes, drug pric-
new drugs and the industry’s freedom to advertise es remain a major issue in the United States. The
new drugs with the flimsiest of scientific support problem was exacerbated when the products of
for their claims. the biotechnology industry were introduced in
Kefauver drafted a law to increase regula- the mid-1980s. These had substantially high-
tion of the industry. The report included re- er production costs than those of traditional
quirements for demonstration of safety and ef- (small-molecule or simple chemical) drugs,
ficacy and for compulsory licensing of patents resulting in prices of thousands of dollars per
three years after product launch. His colleague, year per patient, an order of magnitude higher

Chapter 2.5
than traditional drugs, already perceived to be these companies have, for the most part, ignored
high priced. More recently, orphan drugs such as tropical diseases. One study showed that of the
Genzyme’s Ceredase® for Gaucher’s disease and 1,339 new drugs introduced between 1975 and
some cancer treatments are even more costly, 1999, only 13 addressed tropical diseases, and
costing as much as US$300,000 per patient per only three addressed tuberculosis, which still
year. takes an enormous human toll in the developing
A combination of third-party payers for the world. A later study identified that even these 13
insured and compassionate-access programs for drugs were poorly suited to the needs of the de-
the uninsured has allowed the generally high- veloping world.9
priced drug market to persist in the United Fortunately, serendipity has sometimes
States. In Canada, Europe, and Japan, however, worked to help the developing world. For in-
a combination of single purchaser systems and stance in the early 1980s, the animal health
legislative activities have led to lower prices division of Merck (now Merial, Inc.) devel-
than those in the United States, although prices oped an antiparasitic called ivermectin (Ivomec
for drugs in these countries are still well above Plus Cattle Injection®), to treat gastrointestinal
the costs of production. The opportunity for roundworms, lungworms, sucking lice, mange
American citizens to purchase the same patent- mites, cattle grubs, and adult liver flukes in
ed drugs in Canada or online at low cost has ag- cattle. Ivermectin also had a large market for
gravated the concern of patients over high drug use in treating lungworm infection in dogs and
prices in the United States. This has made an cats. In addition, the drug was found to effec-
impression on the Congress and local govern- tively treat two human parasitic diseases in sub-
ment officials. Saharan Africa:
• Onchocerciasis, commonly known as river
blindness, is a nematode infection trans-
3. The Developing World and mitted through the bite of black flies. The
Two-Tier Pricing disease causes intense itching, disfiguring
In the developing world, situations have var- dermatitis, eye lesions, and, over time,
ied widely. Countries such as India, Argentina, blindness.
and Brazil encouraged the development of the • Lymphatic filariasis, commonly referred to
generic-drug industry by recognizing only phar- as elephantiasis, coexists with river blind-
maceutical process patents. Thus, drugs whose ness in a number of African countries and
composition of matter was patent-protected also occurs in a small number of Latin
in the United States and Europe could legally American countries.
be produced in these countries by a company
that could develop a novel production process. Merck developed ivermectin under the trade-
However, countries without their own generic- name Mectizan® for registration to treat humans
drug industries could afford only to import for these conditions, but it was the UNICEF-
drugs whose patents had expired and were sub- UNDP-World Bank-WHO10 Special Programme
ject to generic competition. for Research and Training in Tropical Diseases
The second issue for developing countries is that subsequently conducted the extensive trials
that the diseases that afflict them tend to be very needed to establish the safety of mass adminis-
different from those that afflict the developed tered Mectizan® for eradication or control pur-
world, although more recently it has become ap- poses. Merck then created a donation program
parent that the “diseases of the poor are not the only that has donated enough Mectizan® to treat over
diseases of the poor.”8 While Western drug compa- 40 million patients a year since 1987.
nies have set out to discover and develop drugs to GlaxoSmithKline (GSK) donates a treat-
treat the diseases of the developed world, through ment for parasitic worms, albendazole, which
which they are able to earn an attractive return, is co-administered with Mectizan®.11 These

STEVENS
programs have had a major impact on rates of confirmed that LAV and a virus he had
infection for these diseases. identified and called human T-cell lympho-
tropic virus III or HTLV-III were identi-
cal and that it was the etiologic agent of
4. AIDS AIDS.15
• In 1985, a diagnostic test was developed, li-
4.1. AIDS in the developed world censed, and put into routine use for screen-
The uneasy status quo in the pharmaceutical indus- ing blood donations.
try fell apart with the AIDS crisis and the political • In 1987, Retrovir (AZT), the first drug that
activism that emerged from it. The crisis created a was effective against HIV, received FDA
demand for access to effective, new drugs. approval.
The response to the emergence of HIV/AIDS • In 1992, a second antiretroviral drug,
represents a triumph for basic scientific research Hivid (ddC, discovered by NIH scientists
in the U.S. and Europe, largely funded by gov- and marketed by Roche), was approved and
ernment, and its integration with the pharma- combination therapy was started.
ceutical and biotechnology industries. While it • In 1996, Invirase (saquinavir; marketed
now appears that the first person to die of AIDS by Roche) the first drug of a second class
was an inhabitant of the Democratic Republic of of drugs, the protease inhibitors, was ap-
the Congo who died in 195912 and that the HIV proved and “triple therapy” was launched.
virus was slowly spreading and infecting people
during the 1970s, (a U.S. teen who died in 1969 With triple therapy, HIV infection was trans-
and a Norwegian sailor who died around 1976 formed from a delayed death sentence, to the ex-
have also subsequently been shown to have been tent that opportunistic infections or Kaposi’s sar-
infected with HIV13) it was not until 1981 that coma could be treated, into a chronic condition
physicians in San Francisco and New York started whose victims could enjoy a reasonable quality of
noticing an unusual incidence of a rare cancer, life for longer and longer periods as the drug regi-
Karposi’s sarcoma, and of a rare form of pneu- men improved. HIV was only the second viral
monia, pneumocystis carinii pneumonia, or PCP, disease for which an effective treatment (as op-
in the gay community. It was only then that it posed to a prophylactic vaccine) had been discov-
became clear that a new disease was emerging.14 ered, the first having been the use of Acyclovir to
Although a new Republican administration treat herpes simplex in 1982.
took office in early 1981 that was unsympathetic
to the gay community, investigators at the U.S. 4.2. The impact of AIDS on the developing world
National Institutes of Health (NIH) quickly re- The incidence and impact of AIDS in the de-
alized the risk posed by HIV. Scientists at NIH veloping world, particularly sub-Saharan Africa,
recognized the virus’ unique ability to infect and dwarfs anything seen in the developed world. In
destroy the human immune system. As a result, some countries today, a third or more of the adult
NIH quickly devoted substantial resources to population is infected with HIV. While preva-
fighting HIV and, together with the Centers for lence in some Asian countries remains low, the
Disease Control and Prevention (CDC), included sheer size of the population of India or China
funds for investigating its epidemiology in Africa. means that there are an enormous number of in-
Progress in fighting the disease was rapid: fected people in these countries, official denials
• In 1983, Luc Montagnier of the Pasteur notwithstanding.
Institute in Paris identified a putative in- As AIDS began to be well-controlled in de-
fectious agent, which he called lymphade- veloped countries thanks to highly active antiret-
nopathy-associated virus or LAV. roviral therapy (the “triple cocktail” or HAART)
• In 1984, Robert Gallo of the National in the mid- to late-1990s, the developing world
Cancer Institute in Washington, D.C., started to demand the same access to these life-

Chapter 2.5
saving medications. But there was a critical dif- A year after the launch of the initiative,
ference between AIDS and other diseases. There only three countries—Senegal, Uganda, and
simply were no older, patent-expired drugs avail- Rwanda—had reached specific agreements with
able from generic manufacturers to provide to the WHO. Antiretroviral therapy cost US$1,000
developing world. The disease was new, and the to US$1,500 per patient per year through this
drugs to treat it even newer, so the drugs were initiative, which is around 10% of U.S. prices.
all still under patent protection and would be for Then Medecins Sans Frontiéres (MSF) entered
years to come. AZT’s patent would be the first to the debate. Everything changed in February 2001,
expire, in 2005. when the Indian generics manufacturer Cipla
Brazil invoked public-health-crisis measures offered to supply MSF with triple cocktail pills
included in the Agreement on Trade-Related for US$350 per patient. Cipla offered to supply
Aspects of Intellectual Property Rights (TRIPS), African governments with the pills for US$600 per
which allowed it to override international patents patient per year, US$400 below the Accelerating
and make AIDS drugs in its state-owned phar- Access price. Cipla’s initiative demonstrated that
maceutical factories and make them available to most pharmaceutical companies only applied for
HIV-infected Brazilians under a free-drug pro- patents in South Africa. Only GSK, Boehringer-
gram. Between 1997 and 2002, the cost of treat- Ingelheim, and Agouron tended to apply for
ing an AIDS patient in Brazil fell from US$6,500 patents throughout Africa.
to US$1,500 per year,16 and the number of deaths In 2001, 39 pharmaceutical companies filed
from AIDS was reduced to half. suit against the South African government to en-
Conditions in Africa were desperate. There force their IP rights and prevent Medecins Sans
was no capacity to do what Brazil had done, and Frontiéres from buying Cipla’s products.
the cost of importing AIDS drugs at developed-
world prices, at an annual per patient cost that was 4.3 Yale University and Zerit
many multiples of average per capita GDP, meant A pivotal catalyst for change was Amy Kapczynski, a
very few people were able to receive treatment. In first-year student at Yale Law School in early 2001.
2001, 25 million people in Africa were infected A seemingly innocuous decision made at
with HIV, but only 25,000—just 0.1% of the in- Yale in 1987—one that most academic institu-
fected population—were receiving HAART.17 tions would make without hesitation even today
In December 1997, the Mandela govern- without thinking twice about it—backfired and
ment passed amendments to the South African became a major issue in the debate about global
Medicines Act to break patents and to allow the health and fair access to medicines. Yale’s fateful
manufacture or importation of generic versions. decision was to allow the licensee of one of their
In 1999, the World Health Organization (WHO) drugs to decide in which countries to apply for
raised the issue of patents in the pricing of AIDS patent protection.
medications in developing countries. The story began in the early 1960s at the
In response, six major pharmaceutical com- Detroit Institute of Cancer Research (now the
panies—Merck, Bristol-Myers, GSK, Pfizer,18 and Barbara Ann Karmanos Cancer Institute), where
Boehringer-Ingelheim—approached WHO in Jerome Horowitz, working on the then-prevalent
2000 with an offer to lower prices on AIDS drugs theory that cancer was caused by viruses, synthe-
in Africa. The initiative was called Accelerating sized a number of compounds that would inhibit
Access. In return, the companies asked that DNA replication in the expectation that they
WHO help distribute the drugs. Discussions be- would be effective against cancer. Some of the
gan and progressed slowly. Individual companies compounds Horowitz synthesized included:
started various philanthropic initiatives, primarily • AZT
focused on education, research, and community • ddC
outreach, but critics were not assuaged and con- • ddI
tinued to demand lower prices for drugs. • d4T

STEVENS
The theory was incorrect for the overwhelm- first recruit to this cause was possibly one of the
ing majority of types of cancer, so the compounds most embarrassing to Yale—William Prusoff,
were not effective and were shelved. the inventor of Zerit. Then Kaczynski turned to
When the HIV epidemic emerged, Horowitz’ Michael Merson, Dean of Yale’s School of Public
work resurfaced. Several of his compounds were Health, who formerly headed the AIDS program
evaluated against HIV and found to be effective. of WHO.
AZT (Burroughs Wellcome), ddC and ddI ( both On February 14, 2001, MSF wrote to Yale
discovered by the NIH) were all discovered by and asked if it “would consider the importation
evaluating the efficacy of Horowitz compounds of generic versions of stavudine for use in provid-
against HIV ing treatment free of charge to people with HIV/
Tai-Shun Lin and William Prusoff of Yale AIDS unable to afford treatment an infringement
University worked with another Horowitz com- of your intellectual property rights,” and if not, if
pound, d4T (stavudine), with funding from Yale would “issue a voluntary license to allow the
NIH and Bristol-Myers Squibb (BMS), to eval- importation and use of generic stavudine in South
uate d4T’s effectiveness against HIV. BMS re- Africa.”
ceived an exclusive option to exclusive license to On February 28, 2001: Yale replied, deny-
any patents that emerged from the work. Prusoff ing the request on legal grounds, because it had
and Lin found d4T to be effective, and Yale filed granted an exclusive license to BMS. Kapczynski
for a method-of-treating patent on December then put reporters at the Yale Daily News on the
17, 1986 (U.S. patent No. 4,978,655 was even- trail of the story. The student paper published
tually issued on December 18, 1990). Bristol- its first story on the subject on March 2, 2001,
Myers Squibb exercised its option and signed a which served to mobilize opinion on campus.
license January 12, 1988. As is normal in aca- A group of students in the graduate student
demic licenses, Yale gave BMS the right to file union—which had already been campaigning
in foreign countries, with Yale identified as the against Yale’s relationship with corporate spon-
assignee, and the company filed corresponding sors—circulated a petition calling on the school
applications in major western countries, such as to ease its patent. The group collected 600 sig-
Europe, Japan, and Canada. Critically, the com- natures from students, professors, and researchers
pany decided to include South Africa, Mexico, on campus. The students also assailed Yale for its
and Egypt in its filings. close ties with BMS—the company had donated
BMS commenced clinical development of US$250,000 to the school in 1999. Kapczynski
stavudine and received FDA approval on June carried out legal research on campus and tried,
24, 1994. The product was trademarked Zerit®. unsuccessfully, to get a copy of the license agree-
In 2001, 13 years after the license had been ment. She provided the information she discov-
signed, the South African patent made Zerit ered to MSF.
too expensive for most South African AIDS On March 9, 2001, MSF responded to Yale
patients, particularly those living in the poor- suggesting that Yale’s own policy stated that a key
est areas (typically the townships). Because objective of their technology transfer program
South Africa is the commercial gateway to Sub- was intended to be “the benefit of society in general”
Saharan Africa, Zerit was similarly unavailable and pointing out that d4T was not reaching those
everywhere else on the continent. who needed it in South Africa. Finally, MSF also
Zerit was on the list of essential medicines suggested that Yale had the ultimate power over
compiled by Toby Kasper, the head of the Access their patent and could breach their contract with
to Essential Medicines Program for MSF. He had BMS if need be.
met Amy Kapczynski at an AIDS conference in Two days later, The New York Times ran a
Durban in July 2000 and immediately realized story “Yale Pressed to Help Cut Drug Costs in
that Amy could help put pressure on Yale for a Africa.” The impact was almost immediate. On
better license deal from within.19 Kapczynski’s March 14, 2001, BMS issued a statement that

Chapter 2.5
“The Company will ensure that its patents do not does not propose any model languages or stan-
prevent inexpensive HIV/AIDS therapy in Africa. dard approaches.
The patent for Zerit, rights to which are owned by Others, however, have put forward such
Yale University and Bristol-Myers Squibb, will be suggestions. With its considerable experience in
made available at no cost to treat AIDS in South both developing and licensing neglected disease
Africa under an agreement the Company has re- treatments,23 the NIH has developed a set of white-
cently concluded with Yale.” In June 2001 Bristol- knight-model licensing provisions (see Box 1).
Myers signed an “agreement not to sue” with A set of provisions has also been developed
Aspen Pharmacare, South Africa’s leading generic at Boston University (BU) (see Box 2). They are
manufacturer. meant for use as a starting point to discuss prod-
So, in less than two years, the world pharma- ucts that have markets in both the developed
ceutical paradigm had been turned upside down. and the developing world. The provisions utilize
“Two tier” pricing, whereby drugs could in the a nonassert approach to manufacture for sale in
future be sold at generic prices in developing developing countries.
countries during the period of patent protected If the products envisioned by a partner-
exclusivity had been established. There is some ship would only have relevance in the develop-
evidence that the pharmaceutical industry, or at ing world, then the role of IP protection may
least its vaccine sector, has started to accept the only be to provide an incentive for a develop-
concept of tiered or segmented pricing according ing country manufacturer to obtain a license to
to ability to pay.20 develop the product, and a second source ap-
proach may provide sufficient safeguards. BU’s
model provisions for these approaches are given
5. The Appropriate Licensing in Boxes 2 and 3.
Approach? These licensing principles remain valid, even
The Yale lesson discussed above shows that every though traditional one-to-one licensing models
license to a drug or vaccine candidate with the are not adequate for the complex networks that
remotest potential for treating developing world have evolved over the past five to seven years
needs must include fair-access licensing provi- and have transformed the prospects for effec-
sions from the outset. This is because after the tive and affordable therapies for the develop-
license is executed, the university cedes to the li- ing world. The emergence of drug development
censee control of both the development strategy public-private-partnerships (PPPs), which have
and the patenting strategy.21 secured large amounts of philanthropic funding
The objectives of a licensing program for from the Bill and Melinda Gates Foundation,
drugs with the potential to treat developing coun- The Rockefeller Foundation, and so forth, have
try diseases should be: transformed drug development for neglected
• to maximize the possibilities that the drug diseases:24
will be developed • Large companies have been motivated
• to structure the arrangements so that tiered to contribute their drug-discovery skills
pricing will result, with the poorest coun- and resources because they are secure in
tries having access to drugs at the lowest the knowledge that others would be re-
prices sponsible for funding late-stage clinical
development.
An excellent review of potential licens- • Small companies have secured funding to
ing approaches and structures was published develop technologies with dual-market
by the open-access online journal Innovation uses, with the PPPs securing license rights
Strategy Today in a special issue jointly pub- for developing countries at zero or low roy-
lished with the American Association for the alty rates, and the small company retaining
Advancement of Science.22 However, the article rights for use in developed countries.

STEVENS
• Academic institutions have had a new need to make such filings, and only for material
channel to advance their neglected disease agreements—those affecting 10% of company
discoveries. sales or 5% of company assets.
• Developing country pharmaceutical com- These restrictions mean that the transactions
panies have found their production and discussed here are unavailable from SEC sources;
distribution skills in demand. the examples that follow are all based on volun-
tary disclosures. Because the underlying agree-
In addition, the PPPs have had the financial ments are unavailable and because the examples
clout to insist on affordability conditions as part are based on third-party accounts, these third-
of the transactions they have negotiated. party accounts are reported here generally verba-
tim from the cited sources (sections 6.2 through
6.12 of this chapter).
6. License Terms for Developing In the course of researching this article, the
Country Markets author was surprised at the lack of transparency in
As has been discussed in many forums, it is pos- what was expected to be the most transparent sec-
sible to obtain copies of a substantial number of tor of licensing. PPPs, companies, and academic
license agreements from public filings with the institutions that were approached to discuss trans-
Securities and Exchange Commission (SEC).25 actions they had publicly announced having en-
However, only development-stage companies tered into all expressed an unwillingness to reveal
that are publicly traded, or that have filed reg- details, even when it was made clear that the infor-
istration statements to become publicly traded, mation would be used to create a guide for others.
Box 1: National Institutes of Health: Excerpts of White Knight Provisions
Within six (6) months of New Drug Application/Biologic License Application approval in the United
States or its equivalent in Europe, Licensee shall send a written report to the Public Health Service
detailing the potential Public Sector market to fulfill the public health need for the approved drug or
vaccine in Developing Countries, including the impact of any approved competing drug or vaccine.
The report shall also include Licensee’s proposed amendment to the Commercial Development
Plan, Appendix E [not included here], and the Benchmarks and Performance, Appendix D [not
included here] to address the needs for Licensed Products in Developing Countries. Licensee will
diligently consider if it is possible from a commercial and technical point of view, to satisfy said
potential Public Sector market, either directly with Licensee’s own resources and/or through
joint ventures with third parties. Acceptance of this report and amendment is required by PHS in
writing; such acceptance will not be unreasonably denied.
“Public Sector” means the government of a Developing Country, or any entity empowered by the
government of a Developing Country to act for said government in matters applicable to this
Agreement, organizations within the United Nations system including the World Health Global
Organization and UNICEF, and other nonprofit agencies which may purchase drugs or vaccines for
delivery, manufacture and/or sale in Developing Countries.
“Developing Country” means countries eligible for support from the Global Fund for Children’s
Vaccines (GAVI) or successor organization, which at the effective date of this Agreement are those
countries with a Gross National Product of less than US$1,000 per capita per year, and at the
effective date of this Agreement include the countries listed in Appendix G [not included here].
Source: Stephen Ferguson, NIH, personal communication.

Chapter 2.5
Box 2: Boston University’s Nonassert Approach

1. Include in the “WHEREAS” clauses:
WHEREAS, University and Licensee acknowledge that it may serve the public good to make
certain drugs available at affordable prices to Non-Market Countries in certain circumstances,
with appropriate safeguards to Licensee’s economic interests in other markets.
2. Include in the “Definitions”:

Market Countries shall mean:
(a) All current and future member countries of the Organisation for Economic Cooperation
and Development (OECD), presently consisting of Australia, Austria, Belgium, Canada,
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy,
Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal,
Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States; and
(b) All current and future members of the European Union; and
(c) Russian Federation, Republic of China (Chinese Taipei), Korea, Malaysia and Singapore.
Amend the definition of Net Sales to exclude sales of products made pursuant to the Non-Suit
provision of Section [XX; not given here] from the calculation of Net Sales
Non-Market Countries shall mean all countries other than Market Countries.
Public Sector shall include:
(a) The sovereign government of a country;
(b) Agencies of the United Nations, the World Health Organization, and the World Bank;
(c) Organizations which are members of the International Committee of the Red Cross
and Red Crescent;
(d) International charitable agencies (also known as Non-Governmental Organizations or
NGOs), including but not limited to Oxfam, Medecins Sans Frontiéres, and so forth;
(e) Organizations substantially supported by philanthropic organizations including but
not limited to the Bill and Melinda Gates Foundation, the Rockefeller Foundation, and so
forth, specifically including global product development and distribution public-private
partnerships.
Trade Dress shall mean the physical appearance of Product as sold in any Market Country by
Licensee, including but not limited to such characteristics as shape, color, flavor, tradename,
trademark, service mark, etc.
3. Include in the “Grant” clauses:

Non-suit: University and Licensee on behalf of themselves and any successors-in-interest to the
Intellectual Property covenant that they will not, before or after the date of this Agreement,
assert any claim of infringement (including direct infringement, contributory infringement,
and inducing infringement) of the Intellectual Property against any person or entity that sells
or offers to sell the Licensed Product to Public Sector entities for use in Non-Market countries, or
any entity that manufactures or otherwise makes the Licensed Product for sale to Public Sector
entities for use in Non-Market countries, or any person or entity that uses the Licensed Product
in a Non-Market country, to the extent such claims relate to or arise out of such manufacture,
sale or offer to sell.
Notwithstanding any other provision herein, this non-suit provision shall not apply to Products
that bear any element of the Trade Dress used by Licensee in any of the Market Countries, or
to Products that have not gained regulatory approval from either the U.S. Food and Drug
Administration (FDA), the European Agency for the Evaluation of Medicinal Products (EMEA) or
been pre-qualified by the World Health Organization pre-qualification scheme.

STEVENS
6.1 Compulsory licensing models However, the license terms require the licensee to
Several approaches to establishing fair license share with the university all of the know-how nec-
terms (and, as will be discussed in Section 6.2 essary to make, use, and sell the licensed products
below licensing structures themselves) for devel- in developing countries, so that the university
oping country markets have looked to compulsory can, in turn, transfer that know-how to the devel-
licensing principles for guidance. Such approach- oping country licensees. The developing country
es, authorized under the TRIPS Agreement, talk licensees will, likewise, share any know-how they
about “adequate remuneration” to the patent develop with the university. Universities Allied
holder but without offering specific guidelines.26 for Essential Medicines formalized this approach
A comprehensive review of the issues of compen- as the Philadelphia Consensus Statement at their
sation in compulsory licensing has been under- annual meeting in Philadelphia in October 2006
taken by Scherer.27 and provided a mechanism for individuals and
For much of the 1970s and 1980s, Canada organizations to sign on.
had an extensive compulsory pharmaceutical li- The structure the EAL would establish pro-
censing policy. In general, Canada required the vides the ideal mechanism for providing low-cost
recipient of a compulsory license to pay the pat- drugs to developing countries, but it is a utopian
ent holder a 4% royalty on the licensee’s sales price. standard that will likely create a strong disincen-
After the Doha Round of WTO, Canada was tive to large companies to take out licenses to
the first country to implement the TRIPS com- develop academic technologies. A 1% or 2.5%
pulsory licensing principles to supply countries royalty on sales in developing countries in which
that could not produce drugs for their own use. the target per patient cost is in cents rather than
Canada has continued to use a 4% royalty rate, dollars is unlikely to provide a sufficient incen-
adjusted for the gross domestic product (GDP) tive for them to provide all of their production
of the country, so that in the poorest countries, a know-how to the licensing university. Spinouts
royalty rate of 0.2% would apply.28, 29 are probably equally likely to resist these terms
because of their potential to scare away poten-
6.2 Equitable access license tial downstream partners. In addition, the EAL
Universities Allied for Essential Medicines, which would put a considerable administrative bur-
grew out of Amy Kapczynski ‘s student col- den on the university’s technology transfer of-
leagues (see section 4.3 above), has endorsed an fice managing these various flows of confidential
Equitable Access and Neglected Disease License30 know-how. The EAL would therefore likely vio-
(EAL) created by a working group at Yale. The late the first of Hippocrates’ maxims as applied
EAL proposes a US$50,000 fee plus a 5% roy- to academic licensing: First Do No Harm.
alty for licenses to sell in countries defined by the As of this writing (February 2007), a signifi-
World Bank as “middle-income countries” and cant number of individuals and not-for-profits
a US$5,000 fee and a 2% royalty on sales in the operating in the global health arena have signed
World Bank’s “low-income countries. These fees on to the Philadelphia Consensus Statement.
would be split 50:50 with the primary licensee. Noticeably, no universities have signed on as
Box 3: Boston University Second Source Approach

1. Include in the “Grant” clauses:
Second Source: University may, at any time after the first anniversary of Licensee’s receipt of the
first regulatory approval to sell Licensed Products, start to qualify a supplier for up to one third of
annual requirements of Licensed Products.

Chapter 2.5
corporate entities, and only one person with cur- 6.4 Institute for OneWorld Health—
rent, and one person with prior executive author- Celera Genomics
ity for academic licensing were listed as initial The Institute for OneWorld Health (iOWH)
signatories. is a not-for-profit drug company founded by
Victoria Hale, a former employee of Genentech
6.3 Global Alliance for TB Drug and winner of a McArthur Foundation Genius
Development—Chiron Award in 2006. The company sources drug
In one of the first drug development deals candidates for the treatment of diseases in
between a drugmaker and a nonprofit orga- developing countries from universities and
nization, the Global Alliance for TB Drug drug companies and then seeks philanthropic
Development announced that it had licensed donations to fund clinical development.
PA-824, a compound effective against M. tuber- In 2002, iOWH licensed Celera Genomics’
culosis, from Chiron Corp.31 PA-824 was discov- CRA-3316 as a potential new treatment for
ered and protected by PathoGenesis Inc., which Chagas’ disease. CRA-3316, formerly known
was subsequently acquired by Chiron. Chiron as APC-3116, is a cysteine protease inhibitor.
has provided a worldwide exclusive license to Development has been started in collabora-
the TB Alliance for PA-824 and all its analogs, tion with NIH.33 Celera licensed CRA 3316
in return for a modest, one-time licensing fee to iOWH royalty free because, according to
(modest, that is, compared to the industry av- Wayne Montgomery, who heads intellectual
erage of US$1 million to US$3 million)32 and property at Celera, “the drug would have gath-
yearly threshold R&D investments by the al- ered dust otherwise.”34
liance to ensure rapid progress. All preclinical
R&D on PA-824 is subcontracted to commer- 6.5 Institute for OneWorld Health—University
cial clinical research organizations (CROs; paid of California Berkeley—Amyris
by the TB Alliance), and project management Biotechnologies35
(paid by the NIH) is conducted by the Research In December 2004, the Bill and Melinda Gates
Triangle Institute, a not-for-profit that conducts Foundation awarded a five-year product de-
contract research for the NIH and others. If and velopment grant to iOWH to create a three-
when development is successful, Chiron has the way partnership between iOWH, a university
option of buying back the OECD rights by re- (University of California, Berkeley), and a for-
imbursing the TB alliance for all development profit company (Amyris Biotechnologies, Inc.).
costs. The TB alliance would retain rights in all Using synthetic biology, industrial fermentation,
developing country markets. The deal includes and chemical synthesis, the goal of this project
“an expansive commitment” to affordable pric- is to significantly reduce the cost of artemisinin,
ing. The agreement has a grant-back clause that a key precursor in the production of artemis-
allows Chiron to reenter the TB drug develop- inin combination therapies (ACT) for malaria.
ment process, within a specific time period, in Artemisinin is chemically converted to one of
wealthy countries. The deal also includes manu- several derivatives that are then combined with
facturing options for the company. other drugs to make an ACT.
Though it has not proceeded beyond the Artemisinin is currently extracted from
laboratory, the compound, called PA-824, has wormwood plant, which is supplied by farmers
been shown to be effective against drug-resis- in Vietnam and China (and more recently from
tant strains of M. tuberculosis in tests carried Africa). Seasonality and availability of the plant
out in vitro. Researchers believe PA-824 may contribute to the drug’s high price. The project,
be powerful enough to considerably shorten funded by the Gates foundation, hopes to elimi-
the current short-course-treatment time of six nate the need for plant extraction by utilizing
months, which would enable more people to a platform technology of “synthetic biology”
complete treatment. developed by Jay Keasling at UC Berkeley. The

STEVENS
goal is to lower the cost of artemisinin-contain- of artemisinin, and alternative uses of the
ing drugs ten-fold by producing a consistent, platform worldwide. UC Berkeley further
reliable, high-quality supply of artemisinin in shall grant similar licenses to Amyris for
microbes. intellectual property developed under the
The US$42.6 million grant was divided three-part collaboration agreement.
among the three parties: US$8 million to UC • Amyris shall grant iOWH a royalty-free
Berkeley for continued basic research; US$12 mil- license for intellectual property developed
lion to Amyris for applied research on the fermen- under the three-part collaboration agree-
tation and chemical processes; and US$22.6 mil- ment for the manufacture of artemisinin-
lion to iOWH to perform the required regulatory based malaria treatments used in the devel-
work and lead the implementation of the product oping world.
development strategy for the developing world.
UC Berkeley’s role focuses on the engineering of Royalties
drug-precursor-producing microbe. Amyris’s ef- • The license from UC Berkeley to iOWH is
forts span the engineering of the production mi- royalty free.
crobe to optimizing the semi-synthesis of the drug • The license from UC Berkeley to Amyris is
through fermentation and novel downstream royalty free for the developing world ma-
synthetic chemistry. The role of iOWHs includes laria market (development for iOWH), and
developing a commercialization strategy based on royalty bearing for the developed world and
a thorough understanding of worldwide regula- nonmalaria indications in the developing
tory requirements and an analysis of the current world.
ACT manufacturing supply-chain and distribu-
tion models. This one grant enables activities in all Patents
three areas of development. It creates an integrat- • Patent costs for UC Berkeley’s preexisting
ed team of partners, each applying its expertise to patents are shared between iOWH and
streamline translation from bench to bedside. The Amyris.
financial terms of the partnership are as follows: • UC Berkeley patents on intellectual prop-
License Grant(s) erty arising from the collaborative research
• The arrangement is governed by a three- may be filed by UC Berkeley and licensed
party collaboration agreement and two to iOWH and/or Amyris under the prear-
license agreements (from UC Berkeley to ranged terms mentioned above. Costs are
each of Amyris and iOWH). shared by the licensee on a pro rata basis.
• UC Berkeley granted iOWH a royalty-free UC Berkeley has no obligation to file an
license for the manufacture of artemisinin- application if it does not have a commit-
based malaria treatments used in the de- ment by a licensee to pay patent costs.
veloping world. UC Berkeley further shall • Patents that are the sole property of Amyris
grant royalty-free licenses to iOWH for and/or iOWH may be filed by Amyris
intellectual property developed under the and/or iOWH as the case may be, at their
three-party collaboration agreement for use own expense.
in manufacturing artemisinin-based malar- • Logistics of filing and payment of costs on
ia treatments used in the developing world, jointly owned intellectual property will be
and iOWH is to establish partnerships for negotiated in good faith by the joint own-
ACT manufacture and distribution. ers when such joint intellectual property
• UC Berkeley granted Amyris licenses to arises. If the joint owners cannot agree,
develop the manufacturing process for the and if iOWH has an ownership interest
developing world malaria market. Amyris in a joint property, then iOWH may file
also has licenses for the developed world and prosecute on behalf of the owners at its
malaria market, nonmalaria indications own expense.

Chapter 2.5
6.6 Aeras Global TB Vaccine Foundation— generally well tolerated, but treatment may result
Vanderbilt University36 in certain usually mild side effects, including nau-
On May 4, 2006, Aeras and Vanderbilt University sea, diarrhea, and dizziness. In vitro and in vivo
announced an exclusive license agreement for a studies have demonstrated moxifloxacin activity
TB vaccine based on technology developed at against Mycobacterium tuberculosis. Investigators
Vanderbilt. The technology enhances the abil- at Johns Hopkins discovered that substitution of
ity of the Bacille Calmette-Guérin (BCG) vac- moxifloxacin for isoniazid in the reduced treat-
cine to trigger immune-system responses. Under ment time (two months shorter in mice) of the
the agreement, Aeras will use the technology to TB treatment regimen. The treatment regimen
modify the BCG vaccine and will guide the new included rifampin, pyrazinamide, and either
vaccine through clinical trials. The license agree- moxifloxacin or isoniazid.
ment grants Aeras exclusive rights for developing In October 2005, the TB Alliance and Bayer
a TB vaccine. If a successful vaccine results from Healthcare AG announced a partnership to co-
the use of this technology, then Aeras will manu- ordinate a global clinical development program
facture the new vaccine at its facility in Rockville, to study the potential of moxifloxacin to shorten
Maryland. Vanderbilt retains rights to the tech- the standard six-month treatment of TB by two
nology as a delivery system for other uses. This to three months. The trials will evaluate whether
could potentially include new vaccines or immu- the substitution of moxifloxacin for one of the
notherapies against other diseases from HIV and standard TB drugs (ethambutol or isoniazid)
malaria to cancer. eliminates TB infection faster than the current
The Vanderbilt technology, called proapop- standard therapy. If successful and approved by
totic BCG, is designed to weaken the BCG the respective regulatory agencies, a new, shorter
bacterium. It is a version of BCG with genetic regimen could be available in the next five years.
modifications designed to inhibit the bacterium’s The Phase II/III clinical trial program spans
ability to stop the programmed cell death of a four continents and will enroll close to 2,500
patient’s immune cells. These modifications are patients with TB. The trials will take place in
likely to result in a vaccine that provides better, Brazil, Canada, South Africa, Spain, Tanzania,
longer-lasting protection against TB and may Uganda, the United States, and Zambia. If the
prevent progression to active TB among people trials are successful, the partnership aims to reg-
with compromised immune systems. The finan- ister moxifloxacin for a TB indication. Upon
cial terms are as follows: regulatory approval, the partnership is com-
• Grant: Aeras obtained an exclusive license mitted to making it affordable and accessible in
in its field of use. developing countries where TB patients need it
• Field of Use: Aeras has an exclusive license most.
to the TB field; Vanderbilt retains rights in For this project, Bayer will donate moxifloxa-
other fields. cin for each trial site and will cover the costs of reg-
• Payments/Royalties: The license is royalty ulatory filings; the TB Alliance will coordinate and
bearing (including stacking terms) along help cover the costs of the trials, seeking to leverage
with milestone payments. support from the U.S. Centers for Disease Control
• Patents: Patent costs paid by Aeras. and Prevention (CDC), the Orphan Products
Development Center of the U.S. Food and Drug
6.7 Global Alliance for TB Drug Development— Administration, and the European and Developing
Bayer Healthcare AG37 Countries Clinical Trials Partnership. In May 2006,
Moxifloxacin is an antibiotic first approved in the TB Alliance received a US$104 million grant
1999 and currently used in 104 countries to treat from the Bill and Melinda Gates Foundation. The
certain bacterial respiratory, skin, and intraab- grant will be used, in part, to fund Phase II and III
dominal infections. It has been used by more than trials of moxifloxacin with the goal of showing the
47 million patients worldwide. Moxifloxacin is efficacy of moxifloxacin in reducing TB treatment

STEVENS
times by two months by 2010. The financial terms • Predetermined sharing of revenues among
for this development project are: all collaborators.
• Field of Use: Tuberculosis drugs. • Other provisions include diligence, gover-
• Payments/Royalties: Products will be made nance, publications, patent management,
available in developing countries at cost, and process for adding new members.
for use against tuberculosis.
• Patent strategy: Patents previously issued. 6.9 Medicines for Malaria Venture (MMV)—
GlaxoSmithKline (GSK)
6.8 International AIDS Vaccine Initiative— At the 2003, World Economic Forum’s Africa
Neutralizing Antibody Consortium Economic Summit in Durban, South Africa,
The mission of the International AIDS Vaccine Medicines for Malaria Venture (MMV) and GSK
Initiative (IAVI) is to ensure the development announced a joint portfolio of projects:
of safe, effective, accessible, preventive HIV/ • Fab I—Fatty acid biosynthesis I
AIDS vaccines for use throughout the world. • Falcipains—Cysteine protease inhibition
Central to IAVI’s mission is to improve access • 4(1H)-pyridones—backups
to a vaccine for the developing world,38 which • PDF—Peptide deformylase inhibitor [ter-
requires speed of development, as well as avail- minated in March 2005]
ability and affordable pricing. IAVI uses a large
portion of its resources to conduct R&D to The main objective is to subsidize the so-
design, manufacture, and test promising HIV/ cio-economic and public health benefit for the
AIDS vaccine candidates. developing world. Any successful medicines dis-
In July 2002, IAVI announced the forma- covered as a result of this initiative will be made
tion of the Neutralizing Antibody Consortium available in endemic areas on a not-for-profit
(NAC), a five-year, multimillion dollar research basis. Research work will take place at the GSK
program to develop a preventative HIV/AIDS drug discovery unit in Tres Cantos, Spain, which
vaccine that fills a critical gap not addressed by GSK has dedicated to research on diseases of the
most HIV/AIDS vaccines undergoing clinical tri- developing world. The center has a team of 50
als. The original NAC consisted of four founding permanent staff with particular expertise in drug
institutions. Today, the NAC includes an interna- discovery. The Tres Cantos Center is fully inte-
tional group of 15 laboratories, funded by IAVI, grated into the GSK R&D organization, which
representing academia, government, and not-for- provides expertise and infrastructure for all as-
profit research organizations. The financial terms pects of drug discovery and development. GSK
for the NAC are: will contribute funding, staff with drug discovery
• IAVI funds individual research work plans expertise in malaria, and state-of-the-art facilities.
for NAC principal scientists; in some cases MMV contributes funding for malaria drug dis-
restricted grant monies are used for select- covery projects by subsidizing the employment of
ed research projects. These carry special additional scientists to join the existing staff at
compliance terms that apply specifically Tres Cantos and expertise from its expert scien-
to that project. tific advisory committee (ESAC).
• IAVI manages intellectual property
on behalf of the NAC. IAVI rights include: 6.10 Harvard University—Medicine in Need
- option for exclusive license to program In November 2006, Harvard announced that
intellectual property in the field it would license a new aerosolized tuberculosis
- option for nonexclusive license to back- vaccine invented by Professor David Edwards
ground intellectual property to Medicine in Need (MEND), a Cambridge
• IAVI pays for certain patent costs related nonprofit founded by the inventor.39 Sales to de-
to program inventions and background veloping countries will be royalty free, while sales
inventions. to developed countries will be royalty bearing,

Chapter 2.5
but Harvard will return a large proportion of PPPs will need to provide the necessary invest-
the royalties back to MEND. Edward’s work ments for the construction of dedicated produc-
was funded by a US$7.6 million grant from tion facilities.
the Bill and Melinda Gates Foundation, which
stipulated as part of the grant that Harvard
would have to license the technology to MEND 7. Conclusions: Toward Appropriate
and that Harvard could not take royalties from Valuation Structures
MEND’s sales to the developing world. The The comparisons above clearly show that the right
Gates Foundation has also used this strategy in valuation formula is to ask for the licensee(s) in
its Grand Challenge Grants. developing countries to take over responsibility
for future patent costs and to ask for no upfront
6.11 Coley Pharmaceutical Group, Inc.— fees, no milestone payments, and no running
Gates Foundation royalties. Any financial return to the university
Coley Pharmaceuticals Group, a publicly trad- will be derived from opportunities in developed
ed biotechnology company based in Wellesley, countries. Indeed, if a university’s objective tru-
Massachusetts, has agreed to license VaxImmune ly is to get drugs that have been discovered at
to the Bill and Melinda Gates Foundation for use rich universities in developed countries, using
in conjunction with a vaccine for postinfection “other people’s money,” whether governmental
malaria. VaxImmune is a TLR9-agonist designed or philanthropic, to the worlds’ neediest people
to enhance both antibody levels and potent killer as cheaply as possible, then true leadership re-
T-cell immune response to infection or tumors. quires that those same universities not start off
The agreement is a no-profit/no-loss arrangement, the process by putting their hands out and say-
in which all clinical development is performed by ing, “We have to charge a royalty.”
the Institute for Tropical Diseases Research, funded Universities are under no obligation, under
by the Gates foundation, while Coley receives no Bayh-Dole or any other law or regulation, to
royalties or other payments. Coley has partnered charge a royalty. The message communicated by
VaxImmune with GSK for cancer and infectious asking for a royalty—even the modest rates sug-
disease vaccines and with Novartis Vaccines and gested by the analysis above—would be inappro-
Diagnostics for infectious-disease applications. It priate and inconsistent with the public mission
will receive royalties on any commercial applica- of the university. Doing so would cost the moral
tions of the technology that emerge from the Gates high ground and weaken universities’ ability to
foundation collaborations.40 lead in this humanitarian endeavor.
Clearly, internal consensus between the
6.12 Unattributed transactions research community, academic leadership, and
Various sources41 quote royalty rates of no more technology transfer offices within the university
than 3%–5% of sales for those companies that is needed. The researchers who put their time
do insist on obtaining a financial return on sales and effort into developing a drug or vaccine to
of drugs to the poorest of the poor. Procurement treat developing country diseases will certainly
costs for finished products are described as typi- be happy with this approach, as Yale’s experi-
cally being at cost of production or cost of pro- ence with William Prusoff shows. The dean of
duction plus 3%–5%, with agreements having the school of public health is a suitable avenue
not been reached when a margin of 15% over to the administration, if one is needed, as Amy
cost was demanded. However, what was not clear Kapczynski also found at Yale. The develop-
was how overhead, corporate costs, and cost of ment and public relations offices should be in-
capital were allocated. At some point, there will volved to ensure that the institution’s objectives
need to be some incentive provided if private cap- are properly portrayed and that the institution
ital is to be utilized and for-profit entities are to receives the appropriate recognition for its hu-
become dependable suppliers, or alternatively the manitarian efforts.

STEVENS
The technology transfer professional’s nego- 10 UNICEF being The United Nations Children’s Fund,
tiating skills will be called into play when nego- UNDP the United Nations Development Program, and
WHO the World Health Organization.
tiating for the rights and financial terms for any
11 www.filariajournal.com/content/5/1/11/abstract.
potential uses of the technology in developed
12 aids.about.com/od/newlydiagnosed/a/hivtimeline.htm.
countries and for spinout technologies. If there
are none, it should be a simple negotiation, with 13 www.avert.org/origins.htm.
indemnification provisions likely to be the most 14 www.avert.org/his81_86.htm.

contentious issue. ■ 15 profiles.nlm.nih.gov/MV/Views/Exhibit/narrative/
aids.html.
16 Deshpande R. 2006. AIDS in Brazil. Ricardo Reisen
de Pinho. Harvard Business School Case 9-506-062.
Acknowledgments
harvardbusinessonline.hbsp.harvard.edu/b02/en/
The author thanks Gerald Keusch, for critically reviewing
home/index.jhtml?topicSection=gen.
the manuscript and making many helpful suggestions,
and Robert Eiss, Mary Moran, Mark Rohrbaugh, Sandra 17 Spar D. 2002. Life, Death, and Property Rights: The
Shotwell and Gerry Siuta for helpful suggestions, sources, Pharmaceutical Industry Faces AIDS in Africa. Nicholas
and comments. Bartlett. Harvard Business School Case 9-702-049,
June 13, 2002, harvardbusinessonline.hbsp.harvard.
edu/b02/en/home/index.jhtml?topicSection=gen.
ASHLEY J. STEVENS, Associate Director, Institute for
18 Pfizer eventually withdrew.
Technology Entrepreneurship and Commercialization,
School of Management and Director, Office of Technology 19 Source: archive.salon.com/news/feature/2001/05/01/
Transfer, Boston University, 595 Commonwealth Avenue, aids/print.html.
Boston, MA, 02215, U.S.A. astevens@bu.edu 20 See, for example, Meeting the Challenges of
Manufacturing and Delivering Affordable Vaccines.
Remarks of Jean Stéphenne, president and general
1 Novartis has decided to participate in both sectors and manager, GlaxoSmithKline Biologics, at BioVision 2005,
has recycled the name of one of its predecessor com- Lyon, France.
panies, Sandoz, to be the focus for this effort. 21 Indeed, Yale reportedly may be in for more bad press
2 www.gphaonline.org/Content/NavigationMenu/ over the successor to d4T. Yale announced in June
AboutGenerics/Statistics/default.htm. 2006 that it had licensed ed4T, a new and improved
version of d4T, to Tokyo-based Oncolys BioPharma.
3 The first company to receive ANDA approval for a (www.thecrimson.com/article.aspx?ref=515702).
drug receives six months of coexclusivity after patent However, according to Universities Allied for Essential
expiration with the patent holder. Prices come down Medicines, the license agreement does not contain a
fairly rapidly with this first entrant, but typically come provision ensuring that developing world HIV patients
down substantially further after six months when will have access to the drug.
other companies can launch their own generic versions
of the drug. 22 Brewster AL, AR Chapman and SA Hansen. 2005.
4 For example, Mylan, Teva, Watson, and Barr Labs. and Agricultural Innovation. Innovation Strategy Today
5 Pearson M. 1969. The Million Dollar Bugs. Hudson Press: 1 (3). www.biodevelopments.org/innovation/ist3.pdf.
New York. 23 See, for example, Salicrup LA, RF Harris and ML
6 Lax E. 2004. The Mold in Dr. Florey’s Coat : The Story of Rohrbaugh. 2005. Partnerships in Technology
the Penicillin Miracle. John MacRae Books: New York. Transfer: An Innovative Program to Move Biomedical
and Health Technologies from the Laboratory to
7 Ryan F. 1993. The Forgotten Plague: How the Battle
Worldwide Application. IP Strategy Today no. 12. www.
Against Tuberculosis Was Won—and Lost. Little, Brown:
biodevelopments.org/ip/ipst12.pdf.
Boston.
24 For a comprehensive account of the emergence and
8 Frenk J. 2006. Bridging the Divide: Global Lessons from
impact of PPPs, see supra note 9.
Evidence-Based Health Policy in Mexico. Lancet 368:
954–61. 25 Stevens A. 2003. Sources of Comparable Licensing
Terms. In Technology Transfer Practice Manual, 2nd
9 Moran M, AL Ropars, J Guzman, J Diaz and C Garrison.
Edition. Association of University Technology Managers,
2005. The New Landscape of Neglected Disease
Northbrook, Ill.
Drug Development. London School of Economics
and The Wellcome Trust. September 2005. www. 26 See, for example, Article 31.
t h e g e o rg e i n s t i t u t e . o rg /s h a d o mx /a p p s / f m s / 27 Scherer FM and J Watal. 2002. Post-TRIPS Options for
fmsdownload.cfm?file_uuid=8103EC91-AA42-C19E- Access to Patented Medicines in Developing Countries.
182D-A6F3A789A7DC&siteName=iih. Journal of International Economic Law 5(4):913-939,

Chapter 2.5
drawing on Working Group 4 of the Commission 35 www.tmgh.org/case-studies-treatment-for-malaria.php.

for Macroeconomics and Health of the World Trade 36 www.tmgh.org/case-studies-better-tuberculosis-
Organization, 2001. vaccine.php.
28 See supra note 25. 37 www.tmgh.org/case-studies-tuberculosis.php.
29 See also Outterson K. 2005. Nonrival Access to 38 www.tmgh.org/case-studies-aids-vaccine.php. The
Pharmaceutical Knowledge. WHO Commission on members of the NAC are: The Scripps Research Institute,
Intellectual Property Rights, Innovation, & Public the University of Pennsylvania School of Medicine,
Health. 3 January. Weill Medical College of Cornell University, Dana Farber
30 www.essentialmedicine.org/EAL.pdf. Cancer Institute, Harvard Medical School, University of
31 Verbatim from Fuhrmans V. 2002. A Hard Sale: Chiron Wisconsin, Center d’Immunologie de Marseille, the
and Non-Profit Group Agree on Drug-Development University of Oxford, University of Minnesota, The
Deal. Wall Street Journal 1 February 2002. new. Children’s Hospital of Philadelphia, Global Vaccines,
tballiance.org/newscenter/view-innews.php?id=482. Inc., Oregon Health & Science University, and the Dale
and Betty Bumpers Vaccine Research Center of the
32 See supra note 9. National Institute of Allergy and Infectious Diseases.
33 w w w.asbmb.org/ASBMB/site.nsf/web/88F1B8 39 www.thecrimson.com/article.aspx?ref=515702.
F34BE6C08885256CA300618731/$FILE/ASBMB+Today
0402.pdf. 40 Arthur Krieg, CTO, Coley Pharmaceutical Group.
Personal Communication.
34 www.forbes.com/2003/09/12/cz_zm_0910one
world.html. 41 See supra note 8.

CHAPTER 2.6
Open Source Licensing

Janet Hope, Project Director, Co-operative Intellectual Property Management, Centre for Governance of Knowledge
and Development, Research School of Social Sciences, Australian National University, Australia
ABSTRACT
This chapter provides an introduction to open source In fact, the only context in which the term
software licensing. The chapter seeks to demystify the
open source has a generally accepted definition is
concept of open source so that intellectual property (IP)
owners and managers can decide whether an open source in software development.1 This chapter uses the
approach is worth pursuing. The chapter explains the term in as far as possible the same sense as it is
principles of free and open source software licensing and used in the software context but suggests that the
outlines the decisions that an innovator must make when underlying IP management approach could be
deciding which strategy to use for developing a new in-
novation. Also explained are the differences between open applied in other contexts.
source and public domain, and between the uses of the Conventional software development is some-
terms copyleft and academic to describe open source li- times termed cathedral building because it pro-
censes, as well as the incentives (financial and otherwise) ceeds according to the hierarchical directions of
for open source licensing. Finally, the author identifies
one or more software architects (the word archi-
important considerations regarding the possibilities for
open source licensing in fields other than software detect is derived from words meaning “chief build-
velopment, particularly biomedicine and agricultural er”). Conventional software is usually protected
biotechnology. through IP rights, as a strategy to exclude some or
all prospective users of the technology.
By contrast, open source software develop-
1. Introduction ment projects, such as those that produced Linux,
Open source software has had remarkable tech- Apache, and BIND, are decentralized and self-or-
nological and commercial success. Since the late ganized. Open source software development is an
1990s, many people have been interested in ap- evolutionary process: the contributions of self-se-
plying the principles of open source to other lected project participants are subjected to trial-
fields, including biomedicine and agriculture. and-error testing in diverse use environments,
The term open source is sometimes used very and the resulting information influences further
broadly to mean any approach to intellectual asset development. This mode of production has been
management that entails a higher level of trans- termed “the bazaar” and is also known as collective
parency, or greater access to information, than is or commons-based peer production.2
usual in a proprietary setting. This broad use of In order for open source software develop-
the term is of little value to IP managers because ment to work, would-be users and developers
it is too imprecise. must be authorized to access the source code. In
Hope J. 2007. Open Source Licensing. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
© 2007. J Hope. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

HOPE
the conventional “proprietary” approach to soft- The OSD’s definition could be summed up even
ware development, source code is not freely avail- more concisely: in open source software licens-
able for two reasons: (1) source code is treated ing, anyone, anywhere, and for any purpose must
as a trade secret and (2) the original expression be allowed to copy, modify, and distribute the
contained in a program’s source code is subject software (either for free or for a fee) and, there-
to copyright protection. To enable open source fore, must be allowed full access to the software’s
development, therefore, the software owner must source code.6
(1) refrain from keeping the source code secret
and (2) grant an IP license to others so that they 2.2 The free software definition (FSD)
have the legal right to access and manipulate The OSI is not the only de facto standard-setting
copyright-protected aspects of the code. body in the field of free and open source soft-
Open source licensing should not, in theory, ware licensing. Others include the Free Software
pose any antitrust problem (at least in jurisdic- Foundation (FSF)7 and the Debian Linux
tions where the relevant test takes into account community8.
substantive effects on competition), because its According to the FSF’s Free Software
effects are fundamentally pro-competitive.3 Definition (FSD), software “freedom” is the
freedom to use, copy, study, modify and redis-
tribute both modified and unmodified copies
2. WHAT IS Open source? of software programs, all without having to pay
for or otherwise obtain specific permission. To
2.1 The open source definition (OSD) give practical effect to this freedom the licensor
An open source software license is one that con- must allow users access to the software’s source
forms to the latest version of the open source defi- code.9
nition (OSD), published on the Web site of the Clearly, the FSD is very similar to the OSD.
Open Source Initiative (OSI), a nonprofit cor- There are ongoing debates about the differences
poration established in 1998 by a small group of between what constitutes free software and open
programmers who wanted to promote the wider source software, but in fact the two are virtually
adoption of open source licenses.4 Licenses that identical: with very few exceptions, free software
conform to the OSD are permitted to carry a reg- conforms to the OSD, and open source software
istered certification mark. conforms to the FSD.10
A summary of the requirements of the OSD
is that in order for a software license to be open
source, licensees must be free 1) to use the soft- 3. The process of developing
ware for any purpose whatsoever; 2) to make cop- a licensing strategy
ies and distribute them without paying royalties Open source licensing is just one kind of IP
to the licensor; 3) to prepare derivative works and strategy. Figure 1 depicts the process of choosing
distribute them, also without payment of royal- which licensing strategies (if any) to use.
ties; 4) to access and use the source code; and 5) The first thing to do when formulating an
to use the open source software in combination appropriate strategy for exploiting new technol-
with other software, including proprietary (that ogy is to make a careful cost-benefit analysis of all
is, non-open source) software.5 An open source the possible avenues for development.
license may not restrict the number of products This analysis will require certain
a licensee is allowed to distribute, the identity or considerations:
geographic location of the recipients, or the price • The first decision. If the technology is to
the licensee asks them to pay. Optionally, these be disseminated rather than kept in-house,
same guidelines may be stipulated to apply to cer- resources must be committed to market-
tain improvements or other downstream uses of ing the technology, demonstrating and
the original software. improving its usefulness, and establishing it

CHAPTER 2.6
within extended research and development born out of altruism or ideology: it can in-
networks.11 stead be born out of healthy self-interest.
• The second decision. If an innovator de- • The third decision. If an innovator decides
cides to disseminate the technology, it is on a nonproprietary strategy, the innova-
not always advantageous for him or her to tion can be licensed on an open source basis
restrict public access to it. Sometimes, an in- or placed in the public domain: that is, the
novation can be freely offered to the public innovator can refrain from obtaining any
and still generate at least as much economic IP or other property rights at all. Licensing
advantage for the innovator as would a pro- an innovation is costly and time-consum-
prietary strategy. Nonproprietary strategies ing and should be considered only if there
can be more advantageous to the research is good reason to obtain or retain owner-
community, society as a whole, and the in- ship of the technology.
novator. Open source licensing generally • The fourth decision. After choosing an
creates fewer transaction costs and is inher- open source approach, an innovator must
ently more transparent than a proprietary choose between an academic open source
licensing strategy. The decision to follow a license and a copyleft-style license (both
nonproprietary strategy does not have to be terms are defined in a later section). If the
Figure 1: Decision Tree to Determine the Type of License
New Technology
Disseminate Keep in-house
Non-proprietary Proprietary
Public domain Open source
Academic/BSD-style
Copyleft license
license
Narrow copyleft Broad copyleft

obligation obligation

HOPE
main objective is to encourage widespread In some contexts, claiming ownership over an

adoption of the technology in its current innovation may also create a negative effect with
state, the more permissive academic license respect to ongoing collaborations. It may create
is likely to be preferable. If the main objec- ill will among prospective users and decrease the
tive is to guarantee access for the innova- chances that a technology will be widely adopted
tor or others to improved versions of the or improved. Such negative effects are especially
technology, or to other innovations built likely when the ownership claim is particularly
upon it, a copyleft-style license is worth broad (as in the case of the non-coding DNA se-
considering. quence patents or junk DNA)12 or when user-de-
• The fifth decision. If the innovator developers have a strong belief that the technology
cides on a copyleft-style license, the final ought to be in the public domain (as in the case
decision must be how broad or narrow of human genome project sequence data).13
the copyright obligation is to be. The nar-
rowness or broadness of a copyright ob- 4.2 The advantages of open
ligation may be thought of as the reach source over public domain
of the copyleft “hook.” Although the dia- There are several circumstances in which an open
gram depicts this decision as a binary one, source strategy might have advantages over a pub-
in fact, possible formulations of copyleft lic domain approach as a way of encouraging the
obligations form a spectrum. The reach of widespread adoption and ongoing development
the copyright hook should be dictated by of an innovation.
the licensor’s assessment of prospective li- One situation in which an open source ap-
censees’ incentives to contribute to ongo- proach may be useful is where inventors have au-
ing development. tomatic ownership rights over some part of the
relevant technology. Some biological innovations
This remainder of this chapter will explore incorporate tangible material components (such
the nonproprietary options that are available to as cell lines or germplasm) that are owned by the
the innovator, with a special emphasis on the var- inventor regardless of whether active efforts are
ious types of open source licensing. made to protect the innovation. Similarly, soft-
ware programs, data, or written protocols that are
incorporated into biological innovations are au-
4. Open source versus public domain tomatically subject to copyright protection pro-
Once an innovator has decided to disseminate his vided they meet statutory criteria. In such cases,
or her technology in a nonproprietary fashion, he a license may help to reduce the transaction costs
or she must decide between open source licensing of transferring the technology to other prospec-
and placing the innovation in the public domain tive users because the license clarifies the owner’s
(also known as straightforward publication): that intention to make the technology available on
is, foregoing IP protection altogether. open source terms. (This is analogous to Creative
Commons’ objective of facilitating the dissemi-
4.1 The advantages of public nation of cultural material by helping copyright
domain over open source owners to specify which rights are reserved.)14
The primary advantage of straightforward pub- A second situation in which an open source
lication or dissemination of a new technology license may be preferable to straightforward pub-
over an open source approach is that it does not lication from the perspective of the innovator is
require the innovator to obtain or maintain IP a situation in which there is a proliferation of
protection. Depending on the type of IP right, overlapping IP rights or the field of innovation is
protecting IP can be costly in terms of time and especially competitive or litigious. While even an
resources. It also has the disadvantage of contrib- open source license has the drawback of adding
uting to the proliferation of IP rights. to the complexity of the IP landscape, failure to

CHAPTER 2.6
assert ownership over a technology before making alternative to abandoning the patent altogether.
it available for public use sometimes means that In such circumstances the full cost of obtaining
someone else can patent the technology and pur- and maintaining IP protection has little bear-
sue a proprietary exploitation strategy to the det- ing on the decision to go open source, because
riment of the innovator and other potential users. the majority of these costs have already been
In this case, patenting followed by open source incurred.
licensing of an innovation is a form of defensive
disclosure that may be more reliable than other
defensive disclosure mechanisms as a means of 5. Incentives for open
protecting against subsequent patent claims. source development
Third, IP ownership gives an innovator the Why would any rational, self-interested IP owner
right to set terms of use and exclude anyone who decide to adopt an open source license? Many
will not abide by those terms. For example, in a people think of open source licensing as an al-
copyleft-style arrangement, follow-on innova- truistic exercise, or alternatively, as a strategy pur-
tors must make some improvements available sued for the sake of purely personal rewards, such
to others on the same liberal terms as the initial as fun or a sense of belonging to a community.
innovation was made available to them. Another This is an unnecessarily limited view.
example is the litigation deterrent clause found
in many licenses (both open source and propri- 5.1 Direct financial incentives
etary), which terminates the licensee’s rights if he An open source license must permit the shar-
or she sues the licensor (for example, for infringe- ing and distribution of the technology without
ment of one of the licensee’s patents). charging any royalty. In this context, a royalty is
Finally, IP rights may facilitate certain path- any ongoing payment that is linked to the use
ways to development even if they are licensed on of the technology (for example, a percentage of
open source terms. The existence of IP protection profits on products generated using a technology,
signals to potential investors that the innovator is or a regular payment whose amount depends on
disciplined and has financial backing and that the the number of people who are given access to the
innovation is worth supporting. technology), not a one-time payment. Therefore,
although open source licensors cannot charge
4.3 Combining proprietary licensing, open royalties, they can charge a one-time fee that is as
source, and public domain high as the market will bear.15
There is nothing to stop an open source licensor Of course, the fact that an open source soft-
from offering a technology under both propri- ware license must guarantee its licensees’ freedom
etary and open source licenses. This approach, to make copies of the licensed software and dis-
known as dual licensing, generates a surprising tribute them to others without having to make
amount of income for many open source software additional payments to the licensor means that
programmers, some of whose customers prefer, the price of the technology tends to be driven
and are willing to pay for, a more conventional down to the marginal cost of reproduction and
licensing arrangement. Thus, the commercial distribution—for software, close to zero. Keep
application of an open source license does leave in mind that while the inexpensiveness of open
some room for recovery of the costs of protecting source software production relative to convention-
the relevant IP. al proprietary production is an inherent feature
It is possible to adopt a nonproprietary strat- of the open source model, the low price of open
egy at a relatively late stage in an innovation’s source software to consumers (and hence the low
life cycle, perhaps when the amount of propri- rate of return to licensors in the form of license
etary licensing revenue the innovation generates fees) is a consequence of market forces that may
begins to decline. In this case, granting an open not exist with respect to other types of technol-
source license to the innovation may be a sensible ogy. For example, because the marginal cost of

HOPE
reproduction and distribution may be quite high easier to compare and verify data that originated
for technologies that are less highly codified than in many different laboratories.
software or are embedded in tangible objects the As the market expands, revenues from sales,
production costs of which are sensitive to econo- one-off licenses, and dual licensing may be
mies of scale, fewer distributors may come for- enough to offset the opportunity cost of adopting
ward to compete with the original licensor, and a nonproprietary licensing strategy. At the same
licensees may be more willing to pay the licensor time, the demand will increase for complemen-
for extra “copies” of the technology than is the tary products and services, including technology
case in the software context.16 This means that training, technical support, customization ser-
there may be more opportunities for a licensor to vices, hardware or wetware supplies, proprietary
profit directly from the sale of non-software open data-analysis software, and so on. Many successful
source technologies. commercial open source software ventures turn a
profit by providing complementary products and
5.2 Indirect financial incentives services. Perhaps the most striking example is that
Most of the incentives for open source licens- of IBM: a substantial investment in open source
ing are indirect rather than direct. Sections 4.3 software production provides IBM with access to
and 4.4 describe incentives relating to cost sav- a better operating system that makes its primary
ings, productivity gains, and reputational capital. commercial offering, server hardware, more valu-
However, one of the most important effects of able to consumers.
open source licensing is to expand the user base
for a technology, thereby expanding the market 5.3 Non-financial incentives for
for complementary goods and services. individual researchers
There are several reasons why an open source Computer programmers are often motivated
license tends to increase user numbers. In the first to contribute to open source software develop-
place, a technology that is distributed according ment by incentives that are not strictly monetary
to open source terms is often more attractive to (though they can be translated into monetary re-
users because it is more affordable and available wards in the employment market): the possibility
than its proprietary counterparts and because its of enhanced personal reputation and the oppor-
availability is not dependent on any particular tunity to learn new skills.17
supply chain. At first glance, such nonmonetary benefits
Next, open source technology is malleable. may seem irrelevant to the biomedical or agri-
Licensees can make modifications to the tech- culture fields, where decisions about research
nology and access the means for doing so. The investments are commonly made at an institu-
malleable nature of the technology creates mar- tional rather than an individual level. However,
kets not just for the technology itself, but also for individual researchers in both of these fields can
associated maintenance services, upgrades, and decide, to some extent, how and where they will
adjustments. direct their own or their laboratory’s resources.
These market-expanding effects are especially Such self-determination is common for academic
pronounced for technologies with strong network researchers, but is also evident in biotechnology
effects (that is, technologies that become more and pharmaceutical companies, many of which
valuable as more people adopt them, which in allow staff to spend some designated fraction of
turn increases their popularity): this includes not their time on personal research projects in order
only information and communication technolo- to encourage creativity, increase job satisfaction,
gies but also many biomedical and agricultural and, it is hoped, generate new commercial op-
technologies. For example, a microarray reader portunities for the company.18 Researchers with
that displays data in a particular format becomes some creative freedom might decide to partici-
more useful if a number of scientists use the same pate in open source development under appro-
reader: the uniformity of data output makes it priate funding and employment conditions. The

CHAPTER 2.6
same is true for the many open source software of pre-empting such tragedies by establishing a
developers who are not hobbyists but, instead, robust commons for basic or fundamental tech-
professionals whose contributions form part of nologies whose value is likely to be enhanced by
their employment.19 cumulative innovation. In situations where an
anticommons problem already exists, nonpro-
5.4 Institutional incentives prietary strategies can have a beneficial tipping
effect, because the greater the number of nonpro-
5.4.1 Intrainstitutional incentives prietary tools in any given tool kit, the greater the
It is to an organization’s advantage to build a incentive of everyone in the field to invest in de-
reputation for cutting-edge technological innova- veloping substitutes for the remaining proprietary
tion, and to keep its researchers sharp by allow- technologies for the sake of achieving freedom to
ing them to participate in a range of projects, operate with the tool kit as a whole.
regardless of their projected commercial value.
Furthermore, open source development encour-
ages the development of a productive, collabora- 6. Different types of
tive environment. open source licenses
5.4.2 Interinstitutional incentives 6.1 Copyleft licenses

In both biomedicine and agriculture, the locus of A copyleft, or reciprocal, license allows the user to
innovation is often not the individual company modify and redistribute a software program at
or university but the network of diverse collabora- will. The licensee’s obligation under a copyleft
tions among organizations.20 Open source licens- license is to make relevant downstream technolo-
ing offers a way of sharing the costs and risk of gies available to all comers (including the original
technology development among many prospec- licensor) under the same terms as provided by the
tive users: in other words, open source develop- original license. No one (including the original li-
ment can be a form of precompetitive collabo- censor and his or her licensees) obtains any special
ration. As users and developers collaborate on a privilege regarding any next-generation technol-
project, technological applications multiply and ogy, such as a right to preview any improvements
diversify, and robust and reliable tools are created. or exclusive sublicensing rights to any improve-
Bruce Perens, author of the OSD, points out that ments. The point of a copyleft license is to create
the same groups of companies often have a low an ever-growing pool of downstream innovations
rate of success of proprietary consortium software that remain freely accessible to all comers.23
development but a high rate of success with large However, a copyleft license is not always the
open source projects; he suggests that the inher- best way for innovators to guarantee themselves
ent fairness of open source licensing encourages access to future improvements in the technology.
effective collaboration between parties with dif- Instead, prospective licensors should carefully
ferent interests.21 consider how they can best encourage licensees to
Open source licensing is not primarily a contribute to a technology commons.
means of dealing with existing “anticommons When deciding whether or not to use a
tragedies,” that is, bargaining failures among own- copyleft license, the innovator should take into
ers of multiple complementary IP assets.22 Unless account the attitudes, needs, and constraints of
the technology in question is a killer app—a prospective users, as well as the other tools that
software term for any tool that renders obsolete they are likely to use in conjunction with the
all others in its class—the terms on which it is technology. For example, if licensees use tools
licensed, whether open source or otherwise, can that are subject to proprietary intellectual prop-
have little impact on existing reach throughs, erty licenses, the conditions imposed by owners
royalty-stacking provisions, and other restrictive of that intellectual property may conflict with
licensing terms. Rather, open source is a means the copyleft obligation to make downstream

HOPE
innovations freely available. Furthermore, it is based on previous contributions (a phenomenon

possible to trigger a cycle of cumulative innova- known in the software industry as a code fork),
tion even if users do not perfectly comply with for any reason at all.24 The possibility of forking
the copyleft ideal, provided there is a critical mass means that technologies can still be improved even
of user-developers who do. if their initial innovators have lost interest in the
A copyleft-style obligation is probably neces- technologies or have lost the capability to develop
sary only if potential contributors are likely to be them. In practice, forking is rare, largely because
seriously put off by the existence of free riders, it is difficult to persuade others to abandon the
those who let others put in the time and mon- old project in order to start on a new one. It is
ey for research and development and then help often easier for dissenters to continue working on
themselves to the results. Even then, an innovator the original project and then invest some of their
should take care to explain to his or her licens- own resources adapting its output to their specific
ees why such an obligation is necessary. Under needs rather than abandon the original project al-
no circumstances should an open source license together. However, in formulating the definition
restrict licensees’ freedom to take development in of improvements in a copyleft license, the licen-
new directions, with or without the licensor’s ap- sor (or his or her agent) must avoid restricting the
proval. The strength of open source is, after all, freedom to fork development.
its ability to harness the creativity of diverse user- Thus, the two most important aspects of a
contributors who are allowed to work in relative copyleft-style license are: (1) the definition of
freedom. “improvements” (or an equivalent term) which
If it is decided to adopt a copyleft license, determines which follow-on innovations must be
the licensor has two main ways of tailoring the licensed on the same terms as the initial licensed
license terms to maximize the incentives of pro- innovation; and (2) the definition of “external
spective contributors. Not every modification, deployment” (or equivalent), which determines
improvement, or new application of a technology under which circumstances the aforementioned
that has been licensed on copyleft terms must be obligation must be fulfilled. These may be ad-
made available on those same terms. In the first justed by the licensor to create a copyleft license
place, only derivative works that are externally that strikes the appropriate balance of incentives
deployed—that is, sold or otherwise distributed to contribute to any given project.
outside the boundaries of the licensee’s organiza-
tion—are subject to the reciprocal obligation un- 6.2 Academic licenses
der a copyleft license. Another type of open source license is the aca-
Second, even if a downstream innovation is demic or BSD-style license (named after the
externally deployed, it still may not fall within Berkeley software distribution license, the old-
the definition of improvements in a particular est license in the OSI’s list of approved licenses).
copyleft license, because different licenses have These licenses do not require users to make ex-
broader or narrower definitions. The only real ternally deployed improvements available to the
check on the licensor’s discretion with respect licensor on the same terms as the original tech-
to the breadth of this definition, apart from the nology; in some cases, the downstream user’s
willingness of other contributors to accept the only obligation is that he or she must give the
license terms, is the scope of the licensed intel- innovator credit for the innovation. According to
lectual property. A licensor who seeks to control Larry Rosen, the difference between copyleft and
that which he or she does not own may run afoul academic open source licenses is that the former
of competition laws. are employed by generous sharers of IP freedoms,
In this connection, a trap for would-be whereas the latter are employed by generous do-
copyleft-style licensors to be aware of is that an open nors of IP freedoms.25
source license must grant the licensee the freedom An academic license can achieve some of the
to create a new collaborative-development project goals of open source as effectively as can a copyleft

CHAPTER 2.6
license. Indeed, where the licensor’s primary goal the international haplotype mapping (HapMap)
is to encourage widespread adoption of the ini- project,29 the Biobricks Foundation,30 Tropical
tial innovation, an academic-style license may be Diseases Initiative (TDI),31 Science Commons,32
more effective because a copyleft license could and Biological Innovation for Open Society
deter potential licensees who want to be able to (BIOS).33
commercialize their own improvements on a pro- Many open source software licenses are
prietary basis. drafted as generically as possible so that as many
people as possible can use them, as templates, for
as little cost as possible. It would be helpful, of
7. Open source in fields course, if the life sciences had open source prec-
other than software edents or template licenses—or, for that matter,
Although most of the examples given here come a voluntary licensing standard, equivalent to the
from the software industry, the principles of open OSD, or a set of best-practice guidelines. Such
source can be applied to other fields as well. Open tools would not only help prospective licensees
source technology could be especially useful in decide whether a biomedical or agricultural tech-
niche markets that are too small to be profitable nology license is genuinely “open source”(thereby
for companies that make off-the-shelf, proprietary helping them judge whether it is likely to achieve
technologies. Importantly, open source technolo- the positive collaborative outcomes for which
gies can be tailored to serve small agricultural and open source licensing is valued) but would also
pharmaceutical markets in developing countries help prospective licensors set universally benefi-
(where small may refer either to the numbers of cial terms for technology transfer.
potential users or the amount that potential users These tools, however, do not yet exist. In
can afford to pay). developing such tools, the biomedical and agri-
cultural research and development communities
7.1 Biological innovations could learn a lot from the experiences of software
Open source can have a place even in fields domi- developers. However, it may turn out that bio-
nated by proprietary strategies, such as the life technology—which is a far more technologically
sciences. Open source tools are important—and diverse field than computer programming, and
growing ever more important—to life sciences re- which relies on expensive, time-consuming, and
search and development. Many of the most valu- complicated patents rather than automatic no-
able and widely used enabling technologies in the cost copyrights—simply does not lend itself to
field are bioinformatics software programs, li- the use of template licenses.
censed on terms that are open source in the strict- Therefore, for the present, at least, IP manag-
est sense. A good starting point for readers inter- ers should be wary of uncritically imitating ex-
ested in exploring the possibilities of open source isting attempts to formulate open source licenses
software for biomedical and agricultural applica- for non-software technologies, both because these
tions is the Web site of the Open Bioinformatics licenses are not generic enough to be appropriate
Foundation.26 in all contexts and because some may not truly
What about open source licensing for non- embody the principles that make open source
software biotechnologies? Starting as early as 1999, work. Instead, prospective licensors and their ad-
a variety of life-sciences initiatives have conscious- visors should develop tailored strategies.
ly adopted one or more open source principles
in attempts to overcome some of the challenges 7.2 Examples of open source in
posed by an increasingly complex IP landscape. molecular diagnostics
These initiatives include a Canadian proposal for The following examples reveal how open source
a General Public License for plant germplasm,27 a licensing could be advantageous in both the pub-
draft license (never adopted) for human genome lic and the private sector even outside the soft-
project sequence data,28 the data access policy of ware context.

HOPE
7.2.1 Case #1: A nonprofit setting developing and patenting new technologies, the
Suppose that a clinical scientist working in a not- company generates more revenue through patent
for-profit setting (a university or hospital labora- licensing. Second, the company’s research agenda
tory) discovers a genetic mutation that seems to enhances the company’s reputation as a high-tech
correspond with the occurrence of an inherited organization, which in turn attracts new cus-
disease in one of his or her patients’ families. tomers. Because of its small size, the company’s
Using standard molecular biology tools, the sci- stand-alone research capacity is limited, so it
entist creates a diagnostic test and confirms the makes a point of pooling resources with other
discovery. Imagine that the diagnostic test is pat- research organizations. However, competition is
entable, but, because there are probably tens or fierce among small companies that want to forge
hundreds of mutations associated with the dis- alliances with the most desirable partners from
ease, the new test will detect only a fraction of industry and the nonprofit sector, so our imagi-
these mutations. As a result, the test has limited nary company is always looking for ways to en-
value. hance its capacity for cutting-edge research and
Clearly, the utility of this diagnostic test— to advertise its excellent track record of scientific
and hence the utility of the service the scientist’s collaborations.
lab provides to patients, their families, and the If the genetic test mentioned above were to
community as a whole—would be enhanced if be licensed under a copyleft-style license, the
the new test could be combined with previously company would gain access to any new versions
existing tests for other mutations associated with of the test—which are likely to be more reliable,
the same disease. The utility of the new test would easier to perform, and more comprehensive than
also be enhanced by increased use: the more peo- the old ones—without having to pay exorbitant
ple who use the test, the more likely that systemic fees to other developers or having to deal with
errors would be detected and corrected, and the restrictive licensing terms. The better the test be-
greater would be the cost-effectiveness, for regula- comes and the cheaper it is for people to use, the
tors, of enforcing best-practice standards for the larger the market will be for associated products
test. and services (for example, test kits and genetic
In this case, a copyleft-style open source li- counseling). If the company is known as the pro-
cense might be the most sensible way to protect ducer of a cheap, effective test, the company’s
the new genetic test. Such an approach would reputation will improve; the enhanced reputa-
ensure that users do not have to pay license fees tion, in turn, will lead to greater demand for
to subsequent developers in order to gain ac- its contract research services and, perhaps also,
cess to the most comprehensive version of the greater demand for access to the company’s gene
test. patents. Further, a better standing in the indus-
try will make it easier for the company to attract
7.2.2 Case #2: A for-profit setting and keep excellent employees and research part-
Suppose now that our hypothetical scientist works ners. Meanwhile, the experience of leading an
for a small company that operates on a mixed-rev- open source project would give the company a
enue business model. Some of the company’s rev- chance to acquire, and demonstrate, experience
enue comes from the development and marketing in collaborative research.
of diagnostic tests for use in hospitals, physicians’ Note that although open source develop-
offices, and in the home. More revenue comes ment makes sense for the two hypothetical cases
from data analysis and contract research services. outlined here, open source may not always be
The rest of the revenue comes from licensing its appropriate. There are no hard-and-fast rules
collection of gene patents. about whether or not the benefits of an open
The inventor’s company also conducts broad- source approach will outweigh the costs, so each
ranging R&D activities that are economically situation must be evaluated on a case-by-case
important to the company in two ways. First, by basis.

CHAPTER 2.6
8. Conclusions 8 www.debian.org. For a history of free and open source

Much work remains to be done before open software, see also Levy S. 2001. Hackers: Heroes of the
Computer Revolution. Penguin: New York; Weber. 2004.
source licensing is fully integrated into the bio- The Success of Open Source. Harvard University Press:
medical and agricultural spheres, and this chapter Cambridge, MA.
has done no more than scratch the surface of the 9 The free software definition is online at www.gnu.org/
topic. Ideally, those who are interested in explor- philosophy/free-sw.html.
ing nonproprietary exploitation strategies in the 10 For more information on “Debian-free licenses,” see
life sciences will continue discussions that will www.debian.org/legal.
eventually lead to the creation of open source 11 For a discussion of this process in the context of the
development of hybridoma technology, see Cambrosio
standards and open source license templates.
A and P Keating. 1998. Monoclonal Antibodies:
Until then, prospective licensors in the life scienc- From Local to Extended Networks. In Private Science:
es must be prepared to independently interpret Biotechnology and the Rise of the Molecular Sciences
the lessons of open source software licensing. n (ed. A Thackray). The Chemical Sciences in Society
Series. University of Pennsylvania Press: Philadelphia.
pp. 165–181
12 For a discussion on these, see, for example, Nottenburg
Acknowledgements
C. 2004. Analysis of “Junk DNA” Patents. Cougar Patent
I would like to acknowledge the contributions of the
Law: Seattle and CAMBIA. Canberra. lorac.typepad.com/
Handbook’s editors to both the style and content of this patent_blog/files/simons_patents_analysisf.pdf.
article. A more comprehensive discussion of this topic is
also available at http://rsss.anu.edu.au/~janeth. 13 According to Sir John Sulston, the possibility of
alienating key collaborators was the main reason a
copyleft-style license was not adopted for human
JANET HOPE, Project Director, Co-operative Intellectual genome project sequence data.
Property Management, Centre for Governance of
Knowledge and Development, Research School of Social 14 See Creative Commons’ Web site, creativecommons.org.
Sciences, Australian National University, Canberra ACT 15 In Larry Rosen’s words: “[W]hatever they charge for,
0200, Australia. janet.hope@anu.edu.au you only have to pay once.” Larry Rosen, Personal
Communication. March 2003.
1 Thanks to considerable scholarly attention in recent 16 Codified refers to the nature of the information
years, a broad consensus regarding the essential fea- incorporated into a technological artifact. Highly
tures of open source development is gradually emerg- codified knowledge is organized and easily reproduced
ing. A good starting point for interested readers is and transferred. Uncodified information, on the
Demil B and X Lecocq. 2006. Neither Market nor Hier- other hand, consists of undeveloped ideas and/
archy nor Network: The Emergence of Bazaar Gover- or unarticulated know-how. Any biotechnology
nance. Organization Studies 27:1447-1466. that includes living material is likely to be highly
2 See E.S. Raymond. 1998. The Cathedral and the Bazaar. First uncodified because living systems are so complex.
Monday 3(3); Benkler Y. 2002. Coase’s Penguin, or, Linux Similarly, a laboratory technique that can only be
and the Nature of the Firm. Yale Law Journal 112:369. reliably performed after hands-on training from an
experienced practitioner is also uncodified.
3 Feldman RC. 2004. The Open Source Biotechnology
Movement: Is it Patent Misuse? Minnesota Journal of 17 For an empirically verified list of motivations to
Law, Science & Technology 6(1):117-168; Boettinger, S. contribute to open source development, see Kim EE.
and Burk, D. 2004. Open Source Patenting. Journal of 2003. An Introduction to Open Source Communities. Blue
International Biotechnology Law 1:221. Oxen Associates. www.blueoxen.org/research/00007/
BOA-00007.pdf.
4 The full text of the OSD is available online at
www.opensource.org. 18 Drews J. 1999. In Quest of Tomorrow’s Medicines: An
Eminent Scientist Talks about the Pharmaceutical
5 Rosen L. 2004. Open Source Licensing: Software Freedom
Industry, Biotechnology and the Future of Drug Research.
and Intellectual Property Law. Prentice Hall: New Jersey.
Springer-Verlag: New York. pp. 229–232.
pp.8-11.
19 See supra note 17.
6 Rosen L., et al. 2003. Live from Silicon Valley, Views of
Open Source Practitioners, p.39. In Legal Issues Relating 20 Powell WW. 2001. Networks of Learning in Bio-
to Free and Open Source Software (eds. B. Fitzgerald & technology: Opportunities and Constraints Associated
G. Bassett), Volume 1 of Essays in Technology Policy and with Relational Contracting in a Knowledge-Intensive
Law. Queensland University of Technology School of Field. In Expanding the Boundaries of Intellectual
Law: Brisbane. Property: Innovation Policy for the Knowledge Society
(eds. RC Dreyfuss, D Zimmerman and H First). Oxford
7 www.fsf.org/.
University Press: Oxford, U. K. pp. 251–266.

HOPE
21 Perens B. 2005. The Emerging Economic Paradigm the Ontario Agricultural College, University of Guelph.
of Open Source. First Monday. Special Issue #2: Open A copy of the proposal is available from the author on
Source — 3 October 2005. Online at firstmonday.org/ request.
issues/special10_10/perens/index.html. 28 The proposal to publish genome sequence data under
22 Heller MA and S Eisenberg. 1998. Can Patents Deter a copyleft-style license is described by the then-director
Innovation? The Anticommons in Biomedical Research. of the Sanger Centre in Sulston J and G Ferry. 2002. The
Science 280: 698–701. Common Thread. Random House: London. pp. 211–213.
23 A copyleft license is formally similar to a grant-back, 29 For a post-case analysis of the HapMap data access
a type of license provision that in the patent context policy, see Gitter D. 2007. Resolving the Open Source
has sometimes been regarded with suspicion by Paradox in Biotechnology: A Proposal for a Revised
competition authorities. See Boettiger S and D Burke. Open Source Policy for Publicly Funded Genomic
2004. Open Source Patenting. Journal of International Databases. Houston Law Review 43 (forthcoming).
Biotechnology Law 1: 221. However, it is functionally 30 Baker D. 2006. Building a Fab for Biology. Scientific
distinct because it requires improvements to be made American 294: 44–51; Endy D. 2005. Foundations for
available on the same terms to all, thereby creating Engineering Biology. Nature 438: 449-453.
a level playing field between the initial licensor and
follow-on innovators. 31 See Maurer S, et al. 2004. Finding Cures for Tropical
Disease: Is Open Source the Answer? Public Library of
24 Bedell K. 2004. Open Letter to Sun from Eric Raymond. Science: Medicine 1(3):e56. See also, the TDI Web site at
O’Reilly ONLamp.com, www.oreillynet.com/onlamp/ www.tropicaldisease.org.
blog/2004/11/open_letter_to_sun_from_eric_r.html.
32 sciencecommons.org/.
25 See supra, note 5. p.104.
33 Dennis C. 2004. Biologists Launch Open Source
26 www.open-bio.org. Movement. Nature 431:494.
27 This proposal was developed by Tom Michaels, then of

CHAPTER 2.7
Using Milestones in Healthcare Product Licensing

Deals to Ensure Access in Developing Countries
Joachim Oehler, Chief Executive Officer, Concept Foundation, Thailand
ABSTRACT healthcare and biotechnology result from R&D

When public–sector organizations and public–private in public–sector research centers and interna-
product development partnerships (PDPs) manage intel-
tional organizations. By adequately managing
lectual property (IP), they need to balance the commercial
interests of private–sector manufacturers with the public the resulting IP, the public–sector can benefit
sector’s mission to obtain access to products at the lowest from its R&D investments by making the most
possible cost. An important tool for achieving this bal- modern healthcare products available to the de-
ance is the detailed definition of contractual milestones, veloping world, eliminating significant barriers
which should clearly specify the terms for pricing to the
public sector, territory and exclusivity, regulatory work, to access.
and time to market. Milestones should not, however, be
cast in stone. Based on detailed analyses of market condi- 1.1 The importance of contracts
tions, milestones need to remain adjustable throughout and milestones
the life of the contract. When well defined, milestones
For parties entering into agreements of any
can be used to ensure the availability of the most modern
healthcare products to the developing world. After all, for kind, the primary assumption of contractual re-
the public sector, successful IP management is defined by lationships is that the principal subject of their
how many poor people a product will reach, how easily deal will be realized successfully. Obviously, this
it will be available to them, and who and how many will is not always a safe assumption, and when un-
be able to afford the product. Accordingly, out-licensing
intellectual property from public–sector-based organiza- foreseen events prevent the partners from reach-
tions to private–sector partners requires the licensor to ing their goals, contracts differ considerably in
actively guard public–sector interests. the quality and substance of the remedies they
provide. Too many contractual relations go sour
because partners rush into agreements without
1. Introduction carefully thinking about contingencies.
When public–sector organizations and pub- Without an early elaboration of contin-
lic–private product development partnerships gency plans and crisis management, this honey-
(PDPs) manage intellectual property, they need moon trap is why many contractual agreements
to balance the commercial interests of pri- contain unclear, foggy language and omit defini-
vate–sector manufacturers with the mission of tive, detailed, and enforceable conditions. Such
the public–sector to provide access to products conditions should address not only the con-
at the lowest possible cost. Many of the impor- tractual rights but also the obligations of each
tant inventions oriented toward public needs in partner and the specific countermeasures to be
Oehler J. 2007. Using Milestones in Healthcare Product Licensing Deals to Ensure Access in Developing Countries. In In-
tellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT
© 2007. J Oehler. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

OEHLER
taken should one party run into difficulties in These govern the goals of the license contract and
fulfilling its part of the deal. Instead, “best ef- set incentives for keeping to timelines and perfor-
forts clauses” or provisions for consultations to mance targets. They encourage both the licensor
solve problems case by case are used, so as not to and licensee(s) to focus resources on their efforts
spoil the initial enthusiasm of making the deal. to perform as initially agreed.
When unforseen events occur, that can be a sure But milestones should not be fixed or inflex-
recipe for disaster, especially if the mechanisms ible. They need to remain adjustable through-
to settle disputes over differing opinions about out the lifetime of a license contract because of
contractual performance are unclear. potential changes in project development, the
A typical contract specifies the subject mat- market environment, and other factors that
ter, the duration and terms, and the rights and cannot be completely anticipated. When it
obligations of each party under the agreement. comes to the detailed specifications of individu-
Licensing agreements between two organiza- al milestones, it does not really matter if one is
tions identify, among many issues, the nature choosing an absolute or a relative goal, or which
and scope of the intellectual property or prod- definition is finally settled upon. What matters
uct that is being licensed, the territorial grant to is to get the commitment of the private–sector
the licensee where the licensed product would company to recognize public–sector targets. To
be made available, and the financial obligations do this, a working set of adequate milestones
of the licensee. should be put in place, and periods for perfor-
A practical example is the use of technical mance assessment of the private–sector contract
know-how, or the results of scientific research, partner should be defined. And when new, solid
that represents the particular intellectual prop- evidence requires a change of rules to keep both
erty of a licensor and is to be licensed out to a the product and the public sector’s goals alive,
commercial company able to create a product both parties should be open to revisions. Such
from the intellectual property and distribute it results-oriented milestones require intensive
to consumers and users. The interests of both preparations, detailed knowledge of the pro-
parties in the arrangement are straightforward cesses related to developing and marketing the
and mutually advantageous—it is a win-win product, realistic forecasting of product poten-
situation. This ordinary, idealistic assump- tial, persistence in quantitative forecasting and
tion prevails at the beginning of any licensing establishing a master plan for the entire product
deal. All too often, however, reality thwarts the roll-out, and a mission-driven mindset to estab-
goals of the initial agreement. Planned goals are lish optimum goals for the public sector.
missed, or forecasts wrong, and the contractual Additionally, it is useful to spell out the level
partners are left with only a subset of the origi- and conditions of fines (monetary or otherwise)
nal targets. to be paid when a partner does not fulfill its ob-
Too often, the public sector forgets that the ligations. This should include a mechanism to
commercial interests of private-sector companies prevent prolonged periods of quarreling over
are oriented toward maximizing profitability. differing opinions and disagreements over per-
Accordingly, it should not be expected that pri- formance. Otherwise, product development or
vate-sector businesses will automatically provide marketing efforts could cease, which would ulti-
the best services to the public sector or that they mately hurt the public sector.
will focus on the generation and use of intellec- Most milestones cover:
tual property to maximize public–sector benefits. • pricing to the public sector
To prepare for situations when the original tar- • territory and exclusivity
gets of a license agreement are delayed or not • regulatory work and time-to-market
achieved, and to avoid situations when projected • royalties
public–sector benefits are delayed or unrealized, it • terms and termination of the license
is good practice to establish contractual milestones. agreement

CHAPTER 2.7
1.2 Public–private partnerships: closing manager should identify the capabilities that are
the medicines access gap in developing relevant to a particular public–private partner-
countries ship and turn these capabilities into specific val-
The role of public–private partnerships (PPPs), ue propositions that will help the private–sector
or, in the context of health, more and more partner realize its commercial goals. No poten-
frequently public-private product development tial benefit to the public sector, however, should
partnerships (PDPs), as an innovative approach be sacrificed. In this context, it is especially im-
to the discovery, development, and distribu- portant to overcome the common phenomenon
tion of health products, drugs, and vaccines of further marginalizing the poor in the small
for developing countries has been emphasized and smallest countries of the developing world.
repeatedly in various publications. In fact, more Market attractiveness governs priorities in a
than 90 PPPs have been established worldwide.1 commercial environment, but in a public–sec-
However, the accomplishments of PPPs/PDPs tor context, the poor in the smallest countries
are rarely publicized, partly because most of have the highest needs for accessing affordable
these entities are relatively young. Half of these products. As the experiences of the Concept
partnerships have been established since 1999. Foundation reveal, the public sector successfully
Since normal times to market range from no less manages its intellectual property when it bridges
than ten to around 12–15 years, on average, in these ostensibly opposing interests.
a pharmaceutical R&D or healthcare environ- The R&D process for developing new drugs,
ment, the time in existense of these partner- vaccines, and diagnostics for diseases that afflict
ships has been relatively short. It is still possible the poor is a crucial step toward ultimately erad-
to begin to gauge, however, the success of these icating these diseases. Many PPPs/PDPs con-
ventures. centrate their efforts on product development,
One example of a PDP is the Concept and the largest product-development PPPs/
Foundation,2 established in 1989 through the PDPs have successfully raised (in combined fig-
initiative and funding of the World Health ures) more than half a billion U.S. dollars in re-
Organization’s Special Programme of Research, cent years to fund their R&D efforts. However,
Development, and Research Training in Human product delivery is an equally important, if not
Reproduction (WHO/HRP), the World Bank, more decisive, factor for access to medicines,
and United Nations Population Fund (UNFPA), and most product-development PPPs/PDPs are
PATH/PIACT,3 and The Rockefeller Foundation. not working to ensure that their products can
The mission is “to provide access to top quality re- be delivered to the local healthcare infrastruc-
productive-health products for developing countries ture. Indeed, product-development PPPs/PDPs
at lowest possible prices in order to realize maximum have little experience with the downstream
public-sector benefits through the management of issues involved in bringing products to such
intellectual property and technology transfer for markets.
contraceptives and pharmaceuticals that otherwise But PPPs/PDPs face numerous downstream
would not be available to the public sector with concerns associated with handling and financ-
the intended quality and prices.” The Concept ing the introduction and launch of new products
Foundation has accumulated extensive experi- including:
ence managing health technologies develop- • adequacy of healthcare infrastructure
ment and technology transfer in the pursuit of • disease surveillance
rolling out new technologies in the developing • compliance monitoring
world. • education and training of health workers
Successful PPPs/PDPs are built on value and medical staff
propositions, from the public sector to the pri- • improving healthcare facilities
vate sector, that take advantage of the inherent • physical distribution networks
capabilities of the former. The public-sector IP • satisfactory supply volumes

OEHLER
• adequate volume forecasting since what is obvious for a person with a public
• minimizing product waste at the point of sector background may be different for a poten-
treatment tial partner. Do not leave obligations and con-
tractual performance to best efforts and com-
As is well known from experiences in the mon sense! It is much better for both partners to
pharmaceutical industry, successful marketing specify in writing exactly what the public sector
and distribution of a new medicine is a significant, wants to achieve with a commercial partner. The
decisive part of its cost structure. While nobody document should detail exactly when and how
would expect the need to create market demand the objective will be achieved and specify penal-
(in other words, investing marketing dollars) for ties for failure to meet objectives. If the agree-
products to fight diseases of poverty (these mar- ment specifies only best efforts and unspecified
kets exist!), huge investments are needed to com- performance, disaster threatens!
pensate for the inability of the poorest regions to To manage intellectual property for maxi-
pay for both modern, effective products and for mized benefits to the public sector, the expec-
all downstream tasks related to effectively sup- tations of the public sector to obtain products
plying and distributing these medicines. In ad- at the lowest possible prices, with excellent
dition, costs for surveillance programs to guaran- quality, and in sufficient quantities must be
tee successful outreach to all who need treatment balanced with the expectations of private sec-
must be included. Product development pub- tor companies to generate a satisfactory rate of
lic–private partnerships lack the experiences to return.
address these downstream issues. Important value propositions for pharma-
These efforts must include achieving the ceutical companies are:
lowest possible manufacturing costs so that pref- • Save time to market. An earlier market
erential pricing can be provided to public health entry means higher market share oppor-
services, establishing sustainable manufacturing tunities for the company and, ultimately,
with a continuous system for monitoring qual- more sales. Example: Pharmaceutical or
ity, and creating a business model that is finan- clinical research, using an existing net-
cially attractive to private pharmaceutical com- work of public sector institutions in paral-
panies thereby overcoming the expected poor lel speeds the generation of results needed
returns of operating in public sector markets. for drug regulatory approval by saving the
The PPP/PDP business model of the Concept lead time required to approach new, unfa-
Foundation has helped to realize these goals. It miliar trial sites and train in GCP (good
takes into account the downstream issues sur- clinical practices).
rounding product delivery and successfully uti- • Save resources. Reduced need for inter-
lizes contractual milestones to achieve the prin- nal company resources means a lower cost
cipal goal of closing the medical-product access burden for the licensee and improves the
gap in developing countries. bottom line. On the other hand, when
investment levels are maintained, more
parallel activities are possible with the
2. The great divide in business same amount of resources, helping to in-
models: Industry and crease the company’s commercial output.
the public sector Example: Existing public sector distribu-
No matter how well public sector players think tion networks, formal or informal, allow a
they understand industry, the discussion between product to reach a large public sector mar-
the public sector and industry is a cross-cultural ket very quickly without the costly build-
event. In such a cross-cultural environment, up of a supply chain.
there is nothing more dangerous and conducive • Save investments. A reduced need for
to misunderstandings than to assume the obvious, investments means better cash flow

CHAPTER 2.7
utilization within the company, which is sold and that, as a result, the private sector com-
very important for investors. pany, as licensee, obtains the exclusive rights to
marketing and sales of the product in this ter-
Any plan for a value proposition must deal ritory. However, in real life, this does not nec-
specifically with the nature of the partnership, essarily mean that public sector benefits have
and a successful proposal must present an au- been maximized. Some key questions need to be
thentic and actual value to a potential partner. answered:
These authentic, actual values must be based on • How well will we reach smaller countries
the set of capabilities that the public sector orga- with our product?
nization can offer—this is precisely the platform • How well will we reach rural populations
for the creation of value—and based on what in developing countries that normally re-
private sector partner needs could be met by the main underserved?
public sector. Such genuine values include the • Who will benefit from obtaining the prod-
examples above: save time to market, save re- uct at a special public sector price?
sources, and save investments. As these demon- • How can we ensure that we will obtain the
strate, one must look behind the immediate and product at prices affordable to public sec-
apparent face value of individual capabilities tor agencies?
in the public sector to be able to identify and
compose the true value of such contributions. The principal way to address these issues is
Indeed, an authentic value proposition is more to set contractual milestones that prevent the
often composed of several contributions from marginalization of the poor in smaller coun-
various capabilities than a single value factor. tries, regulate public sector access, and set the
Understanding all the specific values when geographic coverage for all countries in a terri-
just beginning to approach potential licensing tory (even in countries and regions that are not
partners is essential—especially those values that interesting enough to generate sizeable returns
drive an industry and are particularly important on investments and would therefore normally
for the potential licensee. A detailed analysis of not be served). Finally, there must be a clear
these values and their alignment with existing framework for computing manufacturing costs,
public sector capabilities helps to identify the and this cost calculation must be available to the
value propositions that public sector organiza- public sector partner.
tions can offer their private sector partners. Due to commercial pressures, putting the
private sector and its commercial interests be-
fore those of the public sector is an inherent
3. The most important milestones danger. Such prioritizing usually reflects at-
Maximizing public sector benefits through IP tempts to simplify the private sector partner’s
management has three key aspects: participation because of fears about failing to
1 definition of the geographic coverage for make a deal. While simplifying agreements is
marketing the product (that is, territory) good practice, establishing specific contractual
2 the claim for product exclusivity by the milestones and clarifying them under the terms
private sector licensee of an agreement are not necessarily complica-
3 the definition of the preferred public sections. Success requires focusing on which areas
tor price or other public sector benefit to target and which issues to exclude. A tight
focus will guarantee the simplicity of the provi-
These may seem very straightforward. It is sions and regulations without overburdening an
easy to imagine that the partners in a license agreement.
arrangement would agree on a set price for the When it comes to public sector benefits,
product for public sector distribution, agree on simply making a product available at market
the countries in which the product could be prices or quickly placing it on the market does

OEHLER
not indicate progress. Success is instead defined business environment may change significantly,
by how many poor people the product will and resources that originally were available for
reach, how easily it will be available to them, dealing with the product may have been partial-
and who and how many will be able to afford ly redirected to other, possibly more profitable,
the product. The goal is to reduce morbidity products and projects. Markets that initially
and mortality. For the public sector, this is the seemed attractive may have lost their appeal
ultimate aim of product development. The nec- compared to other opportunities since recog-
essary achievements for obtaining this outcome nized by the company.
need to be clearly specified as milestones in an Changes in the business environment and the
agreement. We will next take a closer look at ter- focus of the business may affect the licensee’s com-
ritory, exclusivity, and pricing. mitment to serve the public sector as originally
envisioned for the entire area. To ensure availabil-
3.1 Territory and field-of-use ity and access to the product in the public sector’s
A typical license agreement will specify the grant territory, it is only prudent to use the license grant
of the license. Language such as: “LICENSOR to obligate the licensee to sell the product in that
grants COMPANY the rights to manufacture area—not just as a right of the licensee. This can
and sell the PRODUCT into the PRIVATE be accomplished in various ways:
SECTOR and PUBLIC SECTOR markets of • By separating the grant of the rights to
the TERRITORY” is commonly used. The manufacture the product from the obliga-
terms LICENSOR, COMPANY, PRODUCT, tion to sell the product into all countries of
PRIVATE SECTOR, PUBLIC SECTOR, and the territory (Emphasis here should be on
TERRITORY are used according to the defini- all countries in the territory.)
tions in the introductory “Whereas” chapter to • By attaching milestones to the execution
the agreement.4 of the sales rights for the product (Only
Under this wording, the license grant is es- after showing defined success according
tablished as a right of the licensee to the prod- to the milestones would the licensee be
uct. However, the license grant does not specify granted additional sales rights for other
the obligation to sell into the territory. This is countries.)
a very important issue of practical IP manage- • The rights of the public and private sec-
ment for public sector benefits. While it is rea- tor to sell the product could be dealt with
sonable to assume in the case of a one-product, in separate regulations that prioritize the
home market manufacturer that the licensee will public sector organization’s goal of intro-
introduce the product into this (single) market, ducing the product into the public sector
it is not necessarily true that a licensee will in- at a satisfactory level (to be defined by an
troduce the product into all markets of a mul- adequate milestone) in one country, be-
ticountry territory, especially the public sector. fore additional rights to markets—public
This failure to reach all the desired markets may and private—in other countries would be
result from various factors that were not known granted. The license grant could specify,
or were underestimated when the license agree- for example, the rights of a Brazilian man-
ment was established. ufacturer to produce and sell the product
Between the signing of a license agreement in Brazil, the home market, and the rights
and the commercial roll-out of the product, a to sell it in other Latin American coun-
considerable period of time may be needed for tries, once certain conditions are met. A
product development, manufacturing scale- wide range of options for these conditions
up, and regulatory approval. Depending on are available and could be specified in the
the capabilities of the licensee, this time peri- license agreement, such as:
od may well extend over several years. During - Market share. licensee will gain the
this time, the company’s business and the rights to sell into other countries after

CHAPTER 2.7
establishing a market share of 20% in especially to the public sector, due to various,
the specific market segment, as reported possibly hidden, reasons. The company could
by IMS.5 walk away from its responsibilities to serve a
- Market position. licensee will gain the particular country. In this case, the private sec-
rights to sell into other countries after tor company would not be violating the license
positioning the product among the top- agreement, since the milestones had not already
three products within its category in the been mutually defined and negotiations about
Brazilian market, as measured by ana- new milestones had failed.
lyst reports. On the other hand, priorities and milestone
- Sales volume. licensee will gain the definitions may change over time in a fast-mov-
rights to sell into other countries after ing business environment. Indeed, they might
an annual sales volume of five million not be considered valid after several years into
units is realized in the Brazilian market, the lifetime of a license agreement. This is a
as measured by cumulative sales reports common concern when it comes to defining
from distribution agents. priorities and milestones, especially among ad-
- Public sector penetration. licensee will vocates of real-time implementation. Given the
gain the rights to sell into other coun- need to eventually define priorities and mile-
tries after the total output/annual out- stones, to protect public sector access to the
put into the public sector in Brazil has product everywhere as far as possible, and to
reached ten million units, as measured avoid the inherent dangers of leaving important
by procurement orders from public sec- parts of an agreement initially undefined pend-
tor agencies. ing a later mutual understanding, it is close to
irresponsible to skip over these definitions and
In addition to the milestones for gaining omit them from the initial version of the signed
the rights to sell in additional countries, the re- license agreement. One can provide for a regular
maining countries in the licensed territory could update of the details of these conditions, when a
be prioritized in order of importance for the li- changed environment requires them, for exam-
censee, and eventually the licensor as well. Each ple, by calls for revisions. At that time, however,
country on the list would then be characterized it would be up to the licensee to demonstrate
by individual milestones that the company must the need for changes and to prepare a detailed
reach before it could sell in an additional coun- proposal of what to change and how to change
try. These country priorities and milestone defi- it. Unless the proposed changes bring up com-
nitions should be set when signing the license pelling reasons for the licensor, original priori-
agreement, with the option to revise the priorities and milestones would prevail. The originally
ties and milestones after a certain period. defined public sector goals would remain in
It is unwise to leave country priorities or force without alteration and the licensee would
milestone definitions open and uncovered for still be required to honor these goals.
the sake of higher flexibility (for example, set- Initially defining contractual priorities and
ting the next country priority shortly before detailed milestones is, of course, a painstaking
reaching the last defined milestone in the actual process that requires intensive preparations to
country of activity or a similarly flexible model ensure that essential aspects of the public sec-
that postpones decision-making). Reaching tor’s objectives are not overlooked. This desk
consensus about country priorities and mile- research and information collection is essential
stone definitions might become more and more for adequately preparing license agreements that
difficult for the licensor and licensee, especially serve public sector interests. For initial negotia-
the closer the country of choice is to the bottom tions between parties, the terms of a licensing
of the priority list. The licensee might then no agreement should be rolled-out in all related
longer desire to sell in a particular country, and details, even though it may be difficult and

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resource-intensive to formulate all of them. The It is good practice to evaluate the request
tendency to postpone detailing specifications, for exclusivity with respect to the public sector
or calls from the contract partner to omit the benefits that a potential licensee could deliver.
necessary detail in order to simplify and quickly Again, it is unreasonable to expect that a private
reach an agreement is a trap. It does not allow sector company would concentrate major re-
the parties to establish the necessary framework sources on serving the public sector when there
for an efficient and effective public sector-ori- are no specific obligations in the license agree-
ented licensing arrangement. If it is impossible ment or milestones are inadequate or undefined.
to reach an agreement on staggered priorities Since the request for exclusivity is made to pro-
with detailed milestones in the beginning of the tect the commercial potential of a market place,
contract relationship, how can these differences the public-sector partner has the right in a quid
be ironed out later? pro quo to ensure the protection of public-sec-
tor needs. It is especially important for the pub-
3.2 Exclusivity lic sector partner to understand what kind of re-
One of the first things that companies ask for is sources—in terms of quality and quantity—the
exclusivity. It is important to link such requests private sector company will make available and
with specific milestones, such as: mobilize for the public sector segment of the ex-
• volume of sales reached in certain markets clusive territory. This understanding should be
after a certain time period from launch or clearly stated in the license agreement.
from the signing of the agreement
• level of market share reached against 3.3 Pricing for the public sector
competition A key issue for the public sector in develop-
• level of market share established in a new ing countries is product affordability. Prices
market segment, measured against the to- must ensure the widest possible availability.
tal product potential Prices, however, are calculated differently in
• level of coverage of different regions in a the pharmaceutical industry than in the public
large market or across different countries sector.
of a region Pharmaceutical companies commonly use a
• latest product launch date into a market retrograde calculation scheme. They base prod-
that will secure product/technology ex- uct prices on the perceived purchasing power of
clusivity for the company, in general, for the target segment in a market. Manufacturing
a selected territory costs are not a major factor for the price calcu-
lation. Overhead and marketing costs are usu-
Specifying penalties and fines for the licens- ally higher than production costs and need to be
ee if these milestones are not reached is just as well offset by product pricing. To a large extent,
important as setting the specific milestones. The adequate product positioning into affluent mar-
penalties could be: kets determines achievable margins and operat-
• temporary increase of royalties on private ing profitability.
sector sales until the milestone condition In contrast, the public sector mostly uses
has been reached the cost-plus model for price determination.
• loss of exclusivity for the product or tech- Manufacturing and organizational infrastruc-
nology and conversion to a nonexclusive ture contribute significantly to costs. Sales and
license, in general, or for a specific region marketing costs are kept at the lowest possible
• loss of exclusivity and territory to a levels so as not to increase the product’s price.
competitor A reasonable, but small, rate of operating profit
• payment of a fine, in a predefined amount, is added on top of these costs to determine the
for failure to introduce a product into a product price. With the purchasing power of the
country under exclusivity for the licensee. public sector under severe limitations, a price

CHAPTER 2.7
determination along the lines of a cost-plus 3.4 Regulatory work and time-to-market
model is the method of choice. Pharmaceuticals are subject to drug regulatory
An effective license agreement needs to em- approval by health authorities, and the time
ploy a detailed cost-calculation model. Its aim required for the regulatory approval process in-
should be to understand all directly and indi- creases the time it takes for a product to reach
rectly attributed product costs that contribute to a market. It is good practice to stipulate in the
final cost. By applying the model and marking license agreement when the licensee must bring
up the ex-factory product price with a mutually the product forward to registration. It is also
accepted profit margin for sales into the pub- best to specify within what time period after
lic sector, a reasonable platform for determin- signing the license agreement the licensee has to
ing the lowest possible public sector price can forward a complete registration filing to the rel-
be achieved. For indirect costs, it is necessary evant authorities. For a multicountry territory,
to find out if the cost burden on the product specifying the sequence of registration filings in
is fairly allocated. In the end, of course, private the various countries and the maximum time al-
sector pricing of the product is entirely up to the lowed between individual filings is vital.
discretion of the manufacturer and not a public It is also advantageous to specify how much
sector concern. time may pass between registration approval and
It is good practice to mandate the an- the product launch in the public sector. This
nual submission of manufacturing cost reports prevents the unusual, but realistic, scenario in
and product cost-calculation details. Furthermore, which a licensee sits on its rights and doesn’t uti-
the licensor should reserve the right to have these lize them for the benefit of the public sector.
cost reports independently audited.
Should a manufacturer be unable to match 3.5 Avoiding the marginalization
expected price levels for the public sector when of the poor in small countries
the company begins manufacturing, a definite For commercial companies, large markets domi-
timeline should be set to reach those levels. nate priorities and occupy the top spots of ter-
Adequate penalties should be in place to cover ritorial ranking, while small countries regularly
such cases. While a license agreement cannot be occupy the bottom. This is because market at-
a tool to force a manufacturer to sell a product tractiveness rules priorities in a commercial
below cost, a detailed agreement based on the environment. The needs of the poor and of
manufacturing cost-calculation model and the public sector agencies in small countries are not
overall pricing structure for the product will normally attractive markets for companies that
eliminate related concerns. are expecting to generate sizeable commercial
The licensor should define which public sec- returns from their manufacturing and market-
tor organizations could obtain the product at the ing efforts. A licensor must ensure that product
preferred price. For pharmaceutical products, it access is not limited just to larger markets and
should be clearly defined whether these pub- that small countries will be covered in order to
lic sector organizations can be only ministries avoid further marginalizing the poor.
of health, government purchase organizations, When it comes to the territorial grant of a
public sector hospitals, and similar institutions license agreement aimed at maximizing public
or if nongovernmental agencies with charitable sector benefits, the licensor must thoroughly
functions, social marketing organizations in a consider this particular issue. The prospect of
country, international organizations with a hu- substantial profits from product sales in the
manitarian mission, and other institutions are private markets of any territory is an important
also potential beneficiaries. The license should issue for deciding to award the licensee com-
define how these agencies and organizations mercial advantages under the license agreement.
would be informed about the availability of a However, the territorial grant must cover not
preferred public sector price for the product. only large countries and their sizeable private

OEHLER
markets—as main incentive that the public sec- market share percentage reached after a certain
tor would be reached as well—but also small time from product launch is one good target
countries and their public sector markets that figure. Other possibilities would be to 1) define
the private sector partner would not normally the sales growth reached in the first years on the
cover. An effective territorial grant must contain market or 2) to use the sales volume after one,
a mix of large and small markets to balance the three, or five years on the market to characterize
commercial potentials for the licensee against the expected—and initially agreed upon—suc-
the humanitarian needs of the public sector. cess rate. The licensor could specify, for example,
Only the licensor can guard these public sector that the product should be among the top-three
interests. products within the specific market segment in
It is good practice, therefore, not to grant its third year of introduction.
sales rights in large countries to a single licensee In the private sector, competitiveness is an
without including an obligation to serve the important factor for measuring the success of
public sector and markets in the smallest coun- any product. Licensees need to achieve the high-
tries. If a single licensee cannot cover all of a est levels of competitiveness in private sector
region’s markets, the entire region should be markets in order to be able to reach their com-
appropriately segmented to ensure that two or mercial objectives. This in turn would support a
more licensees each get a profitable share and very competitive manufacturing cost structure,
that the public sector in the smallest countries which ultimately would provide the public sec-
will be served. As outlined above, this goal tor with the lowest possible cost. Measuring pri-
needs to be adequately supported by specific vate market targets is therefore, also an adequate
milestones. way to express public sector goals.
The up-front definition of territorial mile- Another way to set milestones for perfor-
stones is often skipped, or neglected, to the mance in the public sector is to set sales volumes
public sector’s disadvantage. One very common in the private and public sectors in relation to
reason for this is that the primary needs of the each other. A powerful milestone definition, for
public sector are spread over a wide territorial example, specifies that public sector sales reach
area and/or over a variety of minority groups in 40% (or any other agreed upon ratio) of the
dire need of services. Satisfactory coverage re- sales volume for the private market within three
quires detailing a multitude of distinctive pri- years after product launch.
orities and characteristic milestone definitions, With respect to the availability of the prod-
a burden squarely placed on the initial license uct in the public sectors, it is essential to spec-
partners—especially the licensor. ify expected launch dates for the product. For
One strategy for expanding territories is for example, the license agreement could stipulate
the licensor to generate sales to public sector that the product be made available in the public
agencies in countries that are not covered by the sector not later than two years after the signing
initial territory grant but that need the product of the agreement. Should a product require ini-
very much. This approach has the following ad- tial sales in the private market for any reason,
vantage: the licensee can focus on the obligations an adequate requirement for public sector intro-
and related milestones under the license agree- duction could be “not later than X years after pri-
ment without facing multiple targets, while the vate-sector launch.” For multicountry territories,
licensor serves public sector agencies outside the specific requirements for each country would
territory and potentially establishes other useful need to be established and defined.
partnerships. If desired, this additional market Remedies for unmet milestones need to
may be assumed by the licensee. be part of the license agreement. One effective
Setting a quantitative goal for public sector remedy is to significantly increase royalties on
sales needs special consideration. The licensor private market sales when a milestone has not
could use absolute or relative target figures. The been reached.

CHAPTER 2.7
4. Conclusions: tough milestones • detailed knowledge of markets

for a tough industry • realistic anticipation and forecasting of
Finally, some thoughts about milestones for the product potential
cautious few who feel uncomfortable with the • persistence in quantitative forecasting and
idea of setting tough milestones in a tough inin establishing a master plan for the entire
dustry. In a process-oriented sense, milestones product roll-out
represent and define the outcome of standard • a mission-driven mindset to establish the
operating procedures (SOPs) for organizations optimum public sector goals and to pre-
that have voluntarily subjected themselves to cer- vent the public sector from losing out to
tification procedures, such as ISO. Why should commercial thinking
the public sector not also define such SOPs and
specific outcomes for the important targets of a Finally, it is crucial to recognize that pub-
license agreement? lic–private partnerships are not a magic solution
However, one of the underlying assump- per se for tasks that have not been well specified!
tions for everything outlined above is that mile- In this sense, public–private partnerships are a
stones are not cast in stone. Milestones should poor substitute for specific, well-defined targets.
be and need to remain adjustable throughout In fact, successful public–private partnerships
the lifetime of a license agreement to respond are built upon specific, well-defined targets. n
to changes in the project, changes in the mar-
ket environment, and other factors that cannot
JOACHIM OEHLER, Chief Executive Officer, Concept
be anticipated. When it comes to the detailed Foundation, Thailand Science Park, Klong 1, Klong
specifications of individual milestones, it does Luang, Pathumthani 12120, Thailand. joehler@concept-
not really matter if one is choosing an absolute foundation.org
or a relative goal, or which definitions are finally
selected. What matters is getting a private sec-
1 See www.ippph.org for a complete list.
tor company to commit to accepting public sec-
2 www.ConceptFoundation.org.
tor targets. To accomplish this, it is important
3 PIACT, the Program for the Introduction and
to have a working set of adequate milestones in
Adaptation of Contraceptive Technology, is a
place, to define review periods for performance predecessor of PATH.
assessment by the contract partner, and to be 4 For a broader discussion on field-of-use licensing, see
ready to be open to, and to accept, milestone the chapter 10.3, also in this Handbook, by SL Shotwell.
revisions when new, solid evidence requires a Also, the chapter by M Olson, also in this Handbook.
change of rules to keep the product and public 5 IMS is an international company that publishes
reports on pharmaceutical sales by conducting
sector goals alive.
pharmacy audits and other means.
Such result-oriented milestones require:
• intensive preparation
• detailed knowledge of processes related to
product development and marketing

CHAPTER 2.8
Facilitating Assembly of and Access to

Intellectual Property: Focus on Patent Pools
and a Review of Other Mechanisms
ANATOLE KRATTIGER, Research Professor, the Biodesign Institute at Arizona State University;
Chair, bioDevelopments-International Institute, and Adjunct Professor, Cornell University, U.S.A.
STANLEY P. KOWALSKI, Franklin Pierce Law Center, U.S.A.
ABSTRACT agricultural and health innovations become more

This chapter reviews different forms of IP (intellectual and more complex. The use of patent pools can
property) “assembly” mechanisms (royalty-collection
be one way to achieve IP assembly. However, pat-
agencies, information clearinghouses, technology clear-
inghouses, open-source innovation clearinghouses, honest ent-pool formation is complex and often costly;
brokers, and other forms of facilitators, IP management it requires special economic, business, and legal
services, IP commercialization agents, the services of mer- considerations, and it is but one option to facili-
chant banks and venture capital enterprises, and patent tate assembly and access.
pools). Emphasis is placed on patent pools, which are vol-
untary agreements between two or more patent owners to One aspect of IP management is obtaining
license one or more of their patents to one another or to freedom to operate (FTO) for a given product in
third parties. Although there are many forms of patent a given market.1 Assembling intellectual property
pools, such arrangements fundamentally consist of the is therefore an essential step in innovation man-
interchange (cross-licensing) of rights to essential patents
agement. But having FTO alone does not bring a
by a number of entities, as well as an agreed framework
for out-licensing the pooled intellectual property to each product to market, much less provide the product
other and/or to third parties, including an agreed-pricing to the poor in developing countries. In this con-
and royalty-sharing scheme. text, the value of patent pools must be carefully
There are both benefits and risks associated with pat- considered on a case-by-case basis, and, hence,
ent pools. Benefits include greater ease with respect to
resolving patent conflicts, making assembled patents in the appropriateness of a patent pool for any giv-
the pool available to others, and resolving disputes over en technological innovation will require careful
blocking patents. Risks include antitrust liability. Under analysis and consideration. This analysis will nec-
certain circumstances, patent pools have application in essarily include legal, business, operational, and
the area of humanitarian licensing as instruments of as-
sembly of intellectual property.
strategic considerations. Furthermore, it is im-
portant to remember that a patent pool simplifies
the assembly of intellectual property, but does not
in itself do much or necessarily lead to technology
1. Introduction transfer or market access and distribution.
The importance of IP (intellectual property) Before discussing patent pools in detail, the
“assembly” is becoming increasingly evident as chapter will provide a brief overview of IP assem-
the biotechnological components, both meth- bly options and mechanisms. This broader per-
ods and materials, that are used in the R&D of spective will therefore place patent pools within
Krattiger A and SP Kowalski. 2007. Facilitating Assembly of and Access to Intellectual Property: Focus on Patent Pools and
a Review of Other Mechanisms. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of
Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
© 2007. A Krattiger and SP Kowalski. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

KRATTIGER & KOWALSKI
a context of available IP assembly tactics and ex- from individual CDs. Each time a song is played,
plain the advantages and disadvantages of each. a percentage of the revenue goes to the publisher
of the CD and to the artist. In the United States,
the American Society of Composers, Authors, and
2. IP assembly: mechanisms and Publishers (ASCAP), composed of over 170,000
options in perspective artists and publishers of every kind of music, pro-
A complex mix of factors drives technologi- tects the rights of its members by licensing and
cal innovation, but they essentially boil down distributing royalties for the nondramatic pub-
to national policies, international agreements, lic performances of their copyrighted works.3
and market dynamics. Innovation is the starting ASCAP makes giving and obtaining permission
point for making inventions commercially and to perform music simple for both creators and us-
socially useful, but innovation alone will not lead ers of music, and its licensees encompass all who
to technological products that can produce goods want to perform copyrighted music publicly.
or services. An invention must be assembled by
putting together the patents and other forms of 2.2 Information clearinghouses
intellectual property from third parties. In-licens- The term clearinghouse derives from banking in-
ing is the best-known mechanism for intellectual stitutions and refers to the mechanism by which
property assembly, and patent pools are a com- checks and bills are exchanged among member
plex form of licensing. But other mechanisms are banks so that only the net balances need to be
also standard corporate approaches, including: transferred in cash. Today, the term has much
• mergers and acquisitions (M&As) broader meaning and includes any mechanism
• strategic alliances (collaborations, joint whereby providers of goods, services, or infor-
ventures, corporate partnerships) mation are matched. The CBD (Convention on
• licensing (principally IP bundles compris- Biological Diversity) clearinghouse4 for biodiver-
ing an entire range of inventions required sity aims to promote and facilitate technical and
to practice, also called freedom to operate) scientific cooperation, develop a global mecha-
nism for exchanging and integrating information
By itself, however, the assembly of IP will not on biodiversity, and develop the necessary human
make an invention commercially useful; many and technological network. Information clearing-
other steps are required, ranging from regula- houses also provide entry to a country’s biotech-
tory to the access of know-how. From a broader nology (for example, Finland5), as do training
perspective, assembly and licensing can be fa- clearinghouses that offer training for biotechnol-
cilitated through a range of mechanisms. These ogy technicians (for example, BioLink6), and in-
are summarized in Table 1. In the context of dustry links, updates, news, and job markets (for
this Handbook, the range of mechanisms listed example, BioPortfolio7).
also include capacity-building services that more
broadly deal with technology transfer. 2.3 Technology clearinghouses
A comprehensive Web-based clearinghouse can
2.1 Royalty collection agencies lower the transaction costs and increase partici-
In its simplest form, a license collection agency pation. In practice, however, such gains have not
is a mechanism whereby one entity collects roy- been realized with IP exchanges. This is because
alties on behalf of its members for a small fee. the applications specified in patents are highly
In this situation, the members make deals and heterogeneous, often difficult to define, and
set royalty rates, either bilaterally or multilater- can only be valued after considerable experi-
ally. The multilateral system is best known in the mentation and refinement has taken place and
music business. Many restaurants and bars, for then only within the technological application.8
example, have jukeboxes with hundreds of CDs However, IP exchanges are not very common.
where customers insert money and select songs Few of them are complete enough to allow a

CHAPTER 2.8
Table 1: Summary of IP Assembly Mechanisms and Options
Type of Mechanism or Service Characteristics Examples
Royalty collection agencies: Useful if licensing industries American Society of

Collection of royalties for a small are already established; can be Composers, Authors,
fee by one entity on behalf of its created by industry itself and Publishers;
members British Society of
Plant Breeders
Information clearinghouses: Useful for the exchange of BioBin, BINAS; portals

Broad term denoting a specific information related to to countries or
mechanism matching providers an activity or industry; does not industries biotech,
of goods, services, or info. facilitate tech transfer per se training programs
Technology clearinghouses: Appropriate for general Virtual trading floors,

1. Web-based IP auctions and purpose technologies, platform patent auctions
licensing, including business- technologies, bundles; limited
to-business ability to spread tech transfer
further
2. Public-sector initiatives Appropriate for development; Public Intellectual

dealing with training, good furthers tech transfer Property Resource for
practices, and the bundling of Agriculture (PIPRA)
technologies
Open-source innovation Potentially appropriate for open- Barry Nalebuff and

clearinghouses: source licensing and diffusion of Ian Ayres “Why Not?”
Web sites on which anyone can tangible research materials or HalfBakery
post ideas or inventions, and
anyone is allowed to turn the
ideas into products
Brokers and other forms Appropriate for charting new African Agricultural
of facilitators: territory and bringing public and Technology
Typically focused on creating private actors closer Foundation (AATF);
public–private partnerships, Global Alliance
providing “managed” tech for Vaccines and
transfer Immunization (GAVI)

Table 1 (continued)
Type of Mechanism or Service Characteristics Examples
IP management services: Good for addressing systemic Law firms,

Comprises a wide range of issues; establishes new modes of management
entities, both public and interaction consultants, global
private, assisting institutions in nonprofit entities
managing their IP assets (for example, MIHR),
and academic
training
IP commercialization agents: Highly effective business model; BTG Ltd.; certain

1. Commercial entities dedicated useful to learn from their specialized law firms
to commercialization of third- experiences and adapt to serve
party intellectual property nascent private sectors.
2. Mixed commercial and public- Useful to learn from their Concept Foundation,
good objectives experiences and adapt the model for example
to other biotech sectors
Integrated commercial services: There could be a need for a Merchant Banks;

A range of services for M&As, nonprofit merchant-bank-type venture capital
spinouts, including IP audits, institution to provide services to investment services
business valuation, due diligence small/medium size enterprises
Patent pools: Pooling unlikely to change the Internal, company-

A voluntary agreement between underlying structural barriers to specific pools;
two or more patent owners to technology transfer; difficult to portfolio pooling,
license one or more of their establish because industry players cooperative
patents to one another or third have divergent strategic interests; pooling, third-party
parties in partial/modified form, effective aggregations, forced
for tech transfer pooling
Other public technology transfer Range from education and training institutions, to
and financing mechanisms consortia in health, and to certain specialized UN
programs (including South–South transfers)
Company-to-company Some of the most ubiquitous and efficient systems

arrangements: of technology transfer, rarely requiring public sector
collaborations, joint ventures, assistance; different government policies either
strategic partnerships, and encourage or thwart them
corporate partnering
Source: Krattiger.2

CHAPTER 2.8
prospective licensee to assemble all the needed Barry Nalebuff and law professor Ian Ayres,
licenses to obtain freedom to operate (FTO). In to prove that innovation is a skill that can be
addition, actually negotiating with a company taught. One hotly debated idea at the site in re-
often not only allows for cross-licensing but also cent months is the so-called “reverse 900 num-
for the transfer of know-how or trade secrets. ber”—where telemarketers pay people to accept
And finally, IP owners typically use their patent calls. Their system of innovation is growing on
portfolios as a strategic tool, a practice not con- the Web10 and deploys economics, game theory,
ducive to wide licensing. Merely clicking on a psychology, and contract law to argue that inno-
Web link, downloading a standard license, and vation can be routinized and institutionalized.
wiring money is rarely sufficient for technology Another Web initiative, called HalfBakery,11
transfer to occur. allows anyone to post ideas for innovative prod-
The Public Intellectual Property Resource ucts and services. Anyone can turn the ideas into
for Agriculture (PIPRA),9 on the other hand, as a marketable products if they wish, without the
managed IP exchange initiative involving univer- need for licenses. The service quickly gained in-
sities, foundations, and nonprofit research insti- ternational fame when what may have appeared
tutions, seeks to make agricultural technologies as “half baked ideas” were turned into commer-
more easily available so that subsistence crops for cially successful products, though none, as yet, in
humanitarian purposes in the developing world the area of health and agriculture.
and specialty crops in the developed world can This mechanism should not be confused with
be more rapidly developed and distributed. The open-source licensing.12 With software, open-
rationale for PIPRA is that intellectual property source licensing is essentially the licensing of in-
is often unwillingly encumbered. Universities, ventions without patent protection—the only
for example, typically grant worldwide exclusive requirement is that any licensee must agree to
licenses. Changing these licensing policies and make available to others any improvements in the
retaining the rights for humanitarian uses in the invention or technology. Applying this established
developing world would make it much easier to mechanism of open source from software to bio-
transfer intellectual property and tangible prop- technology, where source code has no real equiva-
erty (TP) from universities to the developing lent, has not worked as yet. New terminology
world. might be appropriate, such as distributed, inter-
PIPRA brings together public sector institu- net-based collaboration or “non-proprietary peer-
tions to collaborate and bundle their licensed and production of information-embedding goods.”13
unlicensed technologies, as “shared technology One attempt to implement open source is the
packages,” making the technologies more readily Biological Innovation for Open Society (BiOS).14
available to member institutions for commercial Essentially, BiOS is a specific form of a patent li-
licensing or for designated humanitarian or spe- cense. It is really another way to describe a pat-
cial use. As part of this effort, a database of patent license with some novel terms. To what extent
ented agricultural technologies is being developed BiOS will foster innovation remains to be seen.
to inform researchers about FTO, allowing them
to modify their research plan to include more li- 2.5 Honest brokers and other
censable technologies (IP and TP) or public ones. forms of facilitators
PIPRA is also currently exploring the creation of Honest broker is a term often used in peace negoti-
a patent pool. ations but it has also been used by nonprofit orga-
nizations engaged in public–private partnership
2.4 Open-source innovation clearinghouses building. One institution that had its foundation
One special category of clearing houses is worth as an honest broker is the International Service
mentioning, the open-source innovation clear- for the Acquisition of Agri-biotech Applications
inghouse. Consider a Web site initiated by two (ISAAA).15 During the 1990s, it operated primar-
Harvard Business School professors, economist ily as a facilitator, matching available technologies

to meet identified needs, brokering technologies, the Boston Consulting Group, and Ernst &
and building capacity by transferring knowledge Young. These commercially oriented entities are
and know-how between companies in developed discussed in the next section, but let us first focus
countries and the public sector in developing on the nonprofit players in this field. A new orga-
countries. ISAAA addressed other constraints in nization headquartered in the United Kingdom,
biotechnology transfer, such as regulatory issues. the Centre for the Management of IP in Health
In the last few years, the organization has shifted R&D (MIHR),18 essentially acts as a service to
its strategy toward knowledge sharing. public sector organizations in developing coun-
A similar, more-recent institutional mecha- tries (and some private ones) to manage their
nism is the African Agricultural Technology intellectual property (in-house–generated, in-li-
Foundation (AATF).16 Like PIPRA, AATF is censed, and to-be in-licensed) more authorita-
emerging from a Rockefeller Foundation initia- tively. It assumes that health programs that man-
tive. AATF recognizes that new and unique pub- age intellectual property well are more effective at
lic–private partnerships are needed to remove mobilizing resources, technologies, and partners
many of the barriers that have prevented small- to deliver improved health care to the poor.
holder farmers in Africa from gaining access to
existing agricultural technologies. Focusing on 2.7 IP commercialization agents
the creation of these public–private partnerships, Many types of “consulting” services fall broadly
it seeks to dramatically improve access to agricul- within this category, but only one institution is
tural technologies, materials, and know-how, at solely dedicated to the profitable commercializa-
the same time promoting efforts to create sustain- tion of third-party intellectual property in the
able markets. fields of health, medicine, and other biotechnolo-
A similar organization in human health bio- gies: BTG Ltd.,19 formerly known as the British
technology is the Global Alliance for Vaccines Technology Group. Perhaps the world leader in
and Immunization (GAVI).17 Created in 1999, it commercializing novel technologies, BTG op-
functions as a broker for private and public sec- erates globally with a focus on Europe, North
tor entities committed to expanding the use of America, and Japan. The firm combines a strong
vaccines in the developing world. International commercial focus with a deep understanding of
organizations, governments, vaccine industry, how to develop innovation, enhance intellectual
research institutions, and major philanthropists property, and achieve critical development mile-
collectively form a dedicated partnership serving stones. Clients include public research centers
the shared GAVI objectives. It includes as a sub- and global technology companies, from start-
sidiary, or financial arm, the Vaccine Fund, which ups to multinational companies. It functions as
sponsors GAVI’s objectives in poorer countries. a retainer for technology innovators, charging
The alliance also has programs to stimulate the fees and sharing in revenues generated from its
vaccine industry to develop and supply vaccines services.
that are vital to low-income countries. GAVI acts In addition to services in several areas, the
more at the product transfer level, whereas ISAAA company seeks licenses for the technologies they
and AATF function somewhat further upstream. manage. This includes assistance in seeking ven-
ISAAA initially also aimed at charting new terri- ture capital, the management of startups around
tory and creating models (which are more time platform technologies, and R&D funding to
consuming) rather than transferring large quanti- ensure that the technologies in BTG’s portfo-
ties of technologies. lio become commercially viable. To accomplish
this, BTG acquires or in-licenses promising
2.6 IP management services technologies, assists in patent protection of in-
The best-known IP management services are law ventions, forms alliances to advance inventions
firms that specialize in patenting and licensing through an R&D phase, and develops technol-
and management consultants, such as KPMG, ogy marketing strategies. In effect, BTG pools

CHAPTER 2.8
necessary technologies centered on the core in- from education and training institutions (for ex-
novations it manages, in order to increase the ample, universities across the world), to interna-
value of its portfolio. On the development side, tional agricultural research centers (for example,
the most prominent enterprise is the Concept the CGIAR), to health consortia (for example, the
Foundation,20 headquartered in Thailand, which Program for Appropriate Technology in Health
provides a mechanism to turn intellectual prop- [PATH]), or the many specialized UN programs.
erty, developed or owned by international or- Company-to-company arrangements (including
ganizations, into competitive and cost-effective collaborations, joint ventures, strategic partner-
products to be distributed at the lowest possible ships, and corporate partnering) are some of the
cost, especially into the public sector healthcare most ubiquitous and efficient systems of technol-
channels of developing countries. This intellec- ogy transfer.
tual property is typically owned in the form of
data from medical research and clinical trials,
data from pharmacological studies, manufactur- 3. Focus on Patent Pools
ing instructions, and so on. In some cases, the in- A patent pool is “an interchange of patent rights by
tellectual property owned by international orga- several companies. Either one or more of the patent
nizations such as the World Health Organization owners, or some separate entity, has the right to li-
(WHO) is enhanced through IP donations from cense others under the pooled patents.”22 In essence,
pharmaceutical manufacturers earmarked for a patent pool is a voluntary agreement between
public sector healthcare services in the develop- two or more patent owners to license one or more
ing world. The licenses are negotiated by highly of their patents to one another or to third par-
experienced foundation staff led by a former se- ties. In other words, they are “the aggregation of
nior executive in pharmaceuticals. intellectual property rights which are the subject of
cross-licensing, whether they are transferred directly
2.8 Merchant banks by patentee to licensee or through some medium, such
The term merchant bank was developed hundreds as a joint venture, set up specifically to administer
of years ago to describe well-financed organiza- the patent pool.”23 And further, �“The rationale for
tions that sought high returns on their invest- patent pools is simple: by reducing the number of nec-
ments in return for predictable risk (which was essary transactions and by simplifying patent land-
also the original idea of a limited-liability com- scapes, they can reduce transaction costs and facilitate
pany). Today’s investment bank services include technology transfers. Patent pools have the obvious
IP audits, business valuation, due diligence, and but important advantage of considerably reducing
fairness opinions,21 acting as a confidential advi- the number of licences that need to be negotiated.”24
sor in preparing divestiture, managing the entire Although there are many forms of patent
process of initial public offerings (IPOs), market- pools, such an arrangement fundamentally con-
ing divestitures, finding acquisition targets, struc- sists of the interchange (cross-licensing) of rights
turing transactions, providing financing, facilitat- to essential patents by a number of companies,
ing financing, and refinancing existing debt. as well as an agreed framework for out-licensing
Merchant Banks are essentially full-service the pooled intellectual property to third parties,
centers for M&As, financial management, agree- including an agreed-pricing and royalty-sharing
ments, required government filings, antitrust is- scheme. Patentees can provide licenses directly to
sues, valuations, due diligence, and so on. Their licensees, or licenses can be provided indirectly
services are crucial for any type of business, large via a licensing entity that is specifically authorized
or small. to administer the patent pool.25 “A key difference
between a patent pool and a cross-licensing agree-
2.9 Other technology transfer mechanisms ment is that, in the former, the patent owners agree
It would be negligent to fail to mention other to license to third parties that do not themselves con-
types of technology transfer facilitators, ranging tribute patents to the pool.”26

3.1 The main pros and cons significant positive affect on facilitating access to
Patent pools are “competitively beneficial in that innovations, yet, it is important to recognize that
they may help resolve patent conflicts, make assem- a pool may not be the only way to achieve these
bled patents in the pool available to others, or resolve objectives, and that, in the overall context of best
disputes over blocking patents. On the other hand, practices in IP management, there may be other
a patent pool is a horizontal agreement among com- equally effective approaches.
petitors and carries the potential for abuse and as Patent pooling has been more focused in
a cover for an anticompetitive cartel.”27 Hence, a the realm of DVD technologies, where it makes
patent pool, depending on how it is organized sense to generate revenue through sales and not
and implemented, represents a potential double- licensing. Such patent pools help to clear block-
edged legal sword: able to cut through patenting positions. But with regard to patent pools for
thicket blockages to facilitate access to critical public-health initiatives, it appears that there is
technological innovations, yet also potentially less likelihood that companies will give up their
honed in such a way that antitrust issues arise. In exclusive IP rights, depending, of course, on the
other words, patent pools can facilitate access by technologies under consideration. This is because
overcoming IP obstacles via assembly of patents pools tend to arise organically because the own-
or can inhibit access via monopolization of iners of intellectual property are mutually stymied;
tellectual property (complete with inequitable re- this, for example, has not yet happened for vac-
munerations) and shielding of invalid patents.28 cines. The technology is not at the same level of
In addition, from a practical perspective, it maturity as in the DVD industry. Patent pools
is important to know what patent pools can, and are especially useful for developing industry stan-
cannot, facilitate. For example, patent pools serve dards. Hence, although patent pools have been
the assembly of intellectual property, not the successfully implemented in various industries
transfer of technologies per se. Although the U.S. (notably electronics), their application to health
Department of Justice (DOJ) along with the U.S. and agriculture may still be, relatively speaking,
Federal Trade Commission (FTC) have observed premature. The pros and cons are summarized
that “by promoting the dissemination of technol- in Table 2.
ogy, cross-licensing and pooling arrangement are
often procompetitive,” it is critical to understand 3.2 Organization and establishment
that, in the context of technology transfer and Organizing and establishing a patent pool is not
collaboration with developing country partners, a simple matter.30 It is a long, complex, multistep
patent pools would mainly assist with licensing in- process, with many technical, legal, and business
tellectual property. That is, such developing coun- challenges. It therefore requires the interdisciplin-
tries would not necessarily benefit equally from ary coordination of efforts by attorneys, scientists,
sharing know-how, show-how, and trade secrets. business professionals, and other experts. Setting
Hence, patent pools can serve certain purposes up a successful patent pool therefore requires or-
and confer benefits, but they are not an IP man- ganization and planning, based on sound infor-
agement panacea. mation and solid analysis. These conditions hav-
Still, a patent pool can have advantages: in- ing been met, the operational, business and legal
tellectual property can be licensed through an aspects of the pool can be effectively managed
efficient one-stop shop, stacking licenses can and successfully executed.
be eliminated, patent litigation can be averted, A ten-step checklist for setting up a patent
and institutionalized exchanges of otherwise pool would include the following considerations:
proprietary know-how (trade secrets) can be fa- 1. Determining the validity of the patents to
cilitated.29 Significant research and administra- be pooled
tive costs would decrease dramatically. Speed and 2. Determining the essentiality of the patents
efficiency would be greatly increased. A patent being considered for inclusion in the pool
pool is an IP management tactic that can have a 3. Patent analysis by an independent expert

CHAPTER 2.8
4. Nonexclusive licenses to the pool 2. Patent and scientific experts identify essen-
5. Licensees must be free to develop and use tial technologies
alternative technologies 3. Patent experts identify patents and
6. Grant-back licensing provisions, from li- patentees
censees to licensors, on improvements to 4. Working group set up by counsel
essential patents and with reasonable terms, 5. Initial agreement among patentees to move
should be available on a nonexclusive basis forward with pool development
7. Royalties should be distributed among the 6. Further evaluation of patents by both sci-
licensors according to a formula set forth entists and patent experts
in the patent pool agreement 7. Agreement on patent-pool conditions
8. Royalties paid to the pool by licens- 8. Signing of patent-pool consortium
ees should be fair, reasonable, and agreement
nondiscriminatory 9. Antitrust analysis and evaluation as per
9. Sensitive business information must be the jurisdictions under consideration (for
safeguarded example, the United States, Europe, and
10. Appropriate dispute resolutions, prefer- Japan)
ably, independent and neutral, should be 10. Execution of patent-pool agreement
part of the patent-pool agreement
Patent pools are set up by the patent holders,
A ten-step procedure for setting up a patent who function both as shareholders of the pool
pool would include the following activities: and also as financiers of the designated licensing
1. Observation of a potential patent thicket authority (if the patentees themselves do not func-
that could be overcome by an appropri- tion as the actual licensors). The patent holders,
ately structured patent pool
Table 2: Summary and the Pros and Cons of Patent Pools
Pros Cons
Integrates complementary Difficult to agree on the value of

technologies individual patents contributed to a pool
Reduces transaction costs Complex to set up and avoid antitrust

problems (collusion and price fixing)
Clears blocking positions
May inflate licensing costs through
Avoids costly infringement nonblocking or unnecessary patents
litigation
Complex when many patents are
Promotes the dissemination of under litigation, as is the case with
technology biotechnology
Levels the playing field May shield invalid patents and thus
prevent much technology from entering
the public domain

therefore, establish and retain authority over the • forced pooling. For example, rarely en-
licensing provisions.31 forced compulsory licensing and the pool-
ing forced by the U.S. government shortly
3.3 Examples of pools after the radio was invented
One of the first such patent pools was created for
the manufacturing of sewing machines in the mid- 3.4 Patent pools in biotechnology
19th century.32 Other examples of early patent pools In biotechnology, unlike in much of the electron-
include aircraft manufacturing, glass manufactur- ics industry, standard setting is not really an issue,
ing, and radio technology. In each case, the pool which may explain why patent pools have not
contributed significantly to industry standards (for been necessary for the biotechnology industry to
example, radio waves). More recently, patent pools commercialize products (for example, in the de-
were created to enable standard settings in DVDs, velopment of drugs and vaccines). Nonetheless,
video games, and MPEG2 video-compression as the biotechnology industry continues to grow
technology. Interestingly, private and public sector and mature, and with specific sectors becoming
participants formed the latter in 1997: Columbia commercially focused, there may be fundamen-
University, Fujitsu, General Instrument, Lucent, tal challenges that can be effectively addressed via
Matshushita, Mitsubishi, Philips, and Sony. patent pooling.
Typically, however, patent pools are consti- For example, the issue of “research tools” in
tuted by members who each contribute patents the life sciences has led to a call for patent pooling
in their respective fields. Whether or not devel- in the U.S. companies, and institutions involved
oping country institutions will qualify to become in biotechnology research are encountering wide-
members of patent pools will, naturally, depend spread delays due to the near-universal patent-
on their respective potential contributions. ing of research techniques that were traditionally
The following types of patent pools exist available in the public domain. Uncertainty over
today: the prospective costs of licenses, royalty stacking
• internal, company specific. For example, that creates uncompetitive costs, delays in obtain-
DuPont combining technologies through ing licenses, and the differing definitions of pure
internal development or Syngenta comple- research versus product development across differ-
menting its internal portfolio with outside ent territories are all inhibiting biotechnology
technology through licensing and M&As; R&D in many areas.
critical challenge is to keep internal innova- Similarly, one of the biggest public concerns
tion ongoing and tightly managed voiced against the PTO for its practice of granting
• portfolio pooling. Internal technology sup- of patents for inventions in biotechnology, par-
plemented with third-party technologies, ticularly in genomics, is the difficulty of accessing
for example, Microsoft; critical challenge is patented inventions for basic biological research
to have a dynamic team handling in-licens- and R&D. One solution to this constraint is to
ing and aligning strategies closely with the form patent pools, a mechanism successfully im-
overall corporate strategy plemented by other industries.
• cooperative pooling. Companies agree to In a rapidly changing field such as biotech-
combine their technologies and allow them nology, patent pools can have significant pro-
to be managed by a separate entity, typi- competitive effects and may improve an indus-
cally for standard-setting purposes; critical try’s ability to survive. For developing countries,
challenge is to avoid antitrust issues patent pools may eventually become even more
• third-party aggregations. For example, important because companies can easily obtain
strategy practiced by BTG Ltd.; critical the licenses required to practice a particular tech-
challenge is to work around antistacking nology, which reduces transaction costs and facili-
provisions that are very common in bio- tates the rapid deployment of new applications in
technology licenses health and agriculture. Hence, there is no reason

CHAPTER 2.8
that a novel type of patent pool, centered on pref- institutions, and so there will be far fewer licensees.
erential licensing terms to developing countries, Most importantly, however, the commercial products
could not be established. in which the licensed technology will be embedded
Still, when considered from the perspective do not yet exist and will be developed by the licensees
of the overall biotechnology industry, while pat- after extensive R&D efforts. Therefore, the licensing
ent pools may be very useful for assembling IP re- policy of the SARS patent pool might be quite differ-
lated to platform technologies that need to estab- ent from other modern patent pools.33
lish industry-wide standards (for example, DVD,
MP3), the value of patent pooling is much less However, the use of patent pools in biotech-
when industry interests are not aligned (still ma- nology will likely increase as sectors of the indus-
turing industries), which, indeed, is the general try mature into focused, identifiable technologies
case with biotechnology. Hence, in the context of and products/services (as has been the case in the
R&D in many biotechnological applications, for electronics industry). One area where this ap-
example, with respect to vaccines—an evolving pears to be the case is diagnostic genetics, that
field with no platform and with no technology is, disease-specific (for example, breast cancer and
clearly in the lead—industry interests can hardly cystic fibrosis) diagnostics. This indeed appears to
be considered aligned. Indeed, if a technology has be an example of a rapidly emerging area of the
not matured to the stage where industry standards biotechnology industry where patent pools might
can even be contemplated, then a patent pool be applicable and advantageous. Unlike the gen-
would likely not be the favored option. At these eral area of genomics, which is broadly diverse,
earlier stages in the R&D of innovative technolo- diagnostic genetics is commercially focused on
gies, few companies will have an interest in giving identified diseases with clear industry standards
their rivals preferential access to their technolo- (mutations for analysis), and the players in the
gies. Companies also typically become cautious field share common goals. Hence, patent pools,
about antitrust issues when a patent pool is sug- narrowly constructed to address the diagnosis of
gested, which might also hinder participation. specific polymutational diseases (for example,
As an illustrative example of the current situ- cystic fibrosis), could have great utility in over-
ation with (at least most of ) the biotechnology coming IP thickets that inhibit access to advances
industry and the potential for using patent pools, in genetic diagnostics.34
Gaulé��
draws our attention to the recent SARS Those who advocate patent pools as a solution
outbreak: to a general problem with assembling intellectual
Shortly after the severe acute respiratory syn- property related to biotechnological advances in
drome (SARS) outbreak in February 2003, patent health and agriculture should keep in mind that
applications covering sequences of the genome of they embody many challenges; for example, in ad-
the SARS coronavirus were filed by several research dition to the presence, or lack thereof, of industry
teams around the globe. Some have argued that this standards, patent pools are expensive to establish
may result in a complex, uncertain IP situation that and maintain. Hence, unless a given technology
could delay the development of SARS vaccines and reaches a certain economic threshold, there is no
diagnostic tools. As a result, the four parties known financial incentive to establish a patent pool. The
to own key patent applications (CDC) have ex- economic feasibility of a pool is determined by:
pressed their willingness to form a patent pool and • number of pool participants
enable wide access to the SARS genome. But con- • number of patents held by each pool
sider the differences between the SARS patent pool participant
and the consumer electronics pools. The SARS patent • likelihood of a patent being useful for a
pool will not be in an industry characterized by all- given platform
important network effects or be closely linked to a • number of patents required to assemble a
standard. For the moment, the licensors are not ver- viable platform
tically integrated firms but universities and public • market value of the assembled platform

• cost to assemble and maintain the pool • The excluded firms cannot effectively com-
pete in the relevant market for the good in-
As the biotechnology industry continues corporating the licensed technologies.
to grow and mature, the applicability of patent • The pool participants collectively possess
pools will also likely increase. market power in the relevant market.
• The limitations on participation are not
3.5 Legal concerns reasonably related to the efficient devel-
One reason why patent pools are often ap- opment and exploitation of the pooled
proached with caution is because U.S. antitrust technologies.
law has the reputation for precariously situating
patent pools on the borderline between allowed Anticompetitive effects may also occur if the
monopolies and antitrust violations. Although the pooling arrangement deters or discourages par-
legalities of forming patent pools exceed the scope ticipants from engaging in research and develop-
of this chapter, it is worth noting that the U.S. ment that is more likely when the arrangement
Department of Justice (DOJ) along with the U.S. includes a large fraction of the potential research
Federal Trade Commission (FTC) have published and development in an innovation market.
guidelines for patent pool applications and require The DOJ has applied these guidelines in
an opportunity to review applications for them.35 considering and approving three proposed patent
The PTO has summarized the DOJ/FTC pools. Its first review set forth the following ad-
patent pooling antitrust guidelines, and this ditional guidelines:
serves as a concise template for understanding the • The patents in the pool must be valid and
potential antitrust implications of patent pools.36 not expired.
When making antitrust determinations, courts • These can be no aggregation of competitive
consider these guidelines as part of a multifactor technologies and setting a single price for
weighing “rule of reason” analysis.37 What follows them.
is a brief excerpt from the PTO paper. • An independent expert should be used to
Since 1979, the FTC has had a similar proce- determine whether a patent is essential to
dure, in which businesses may seek FTC advisory complement technologies in the pool.
opinions concerning proposed business practices. • The pool agreement must not disadvan-
These procedures led to Justice Department and tage competitors in downstream product
FTC policies in the IP licensing area, and in 1995, markets.
these agencies issued Antitrust Guidelines for the • The pool participants must not collude on
Licensing of Intellectual Property, “IP Guidelines,” prices outside the scope of the pool, for ex-
which sets forth their enforcement policies in this ample, on downstream products.
area. The IP Guidelines specifically address pooling
arrangements involving IP owners and their rights. Currently, the guidelines have been “collapsed”
into the following two overarching questions:
In particular, the IP Guidelines state that IP 1. Whether the proposed licensing program is
pooling is procompetitive when it: likely to integrate complementary patent rights
• integrates complementary technologies And if so:
• reduces transaction costs 2. Whether the resulting competitive benefits
• clears blocking positions are likely to be outweighed by competitive
• avoids costly infringement litigation harm posed by other aspects of the program
• promotes the dissemination of technology
The IP Guidelines also discuss that excluding 4. Conclusions

firms from an IP pool may be anticompetitive in Patent pools have received much attention in
these circumstances: recent years as a possible solution to the patent

CHAPTER 2.8
thicket. This review shows that patent pools are 1 See Section 14 in this Handbook, titled Freedom to
indeed one possible option, but others should Operate and Risk Management.
also be considered. Organizing and establishing 2 Krattiger AF. 2004. Financing the Bioindustry and
Facilitating Biotechnology Transfer. IP Strategy Today
a patent pool is not a simple matter. It is a long, No. 8, 2004. www.bioDevelopments.org/ip.
complex, multistep process, with many techni-
3 www.ascap.com/index.html.
cal, legal, and business challenges involving the
4 www.biodiv.org/chm/.
interdisciplinary coordination of efforts by attor-
5 www.vyh.fi/eng/environ/bdclearh/gene/biotech.htm.
neys, scientists, business professionals, and other
6 www.bio-link.org/resCurriculum.htm.
experts. Setting up a successful patent pool there-
fore requires organization and planning, based on 7 www.bioportfolio.com.
sound information and solid analysis. 8 Graff G and D Zilberman. 2001. Towards an Intellectual
Property Clearinghouse for Agricultural Biotechnology.
As procompetitive arrangements, patent pools IP Strategy Today No. 3, 2001. pp 1–13. www.
are aimed at IP assembly. They seek to resolve pat- bioDevelopments.org.
ent conflicts (reducing litigation), to settle dis- 9 See also the brief note titled About MIHR and About
putes over blocking patents (accelerating product PIPRA in the first pages of this Handbook.
development and FTO), and to facilitate arrange- 10 www.whynot.net/. See also Nalebuff BJ and I Ayres.
ments for licensing patents in the pool to outside 2003. Why Not? How to Use Everyday Ingenuity to
Solve Problems Big and Small. Harvard Business School
members (accelerating the setting of standards and Press: Boston, Mass.
reducing licensing transaction costs). They exploit
11 www.halfbakery.com.
economies of scale by integrating the technical
12 See, also in this Handbook, chapter 2.6 by J Hope.
complementarities of the pool members.
13 Yochai Benkler, Yale University. As cited by The
From a legal perspective, pools require care- Economist. An open-source shot in the arm?
ful antitrust considerations to avoid potential, 10 June, 2004.
perceived, or real anticompetitive behavior by 14 www.bios.net.
pool members or, more importantly, by the pool 15 www.isaaa.org.
itself. From an operational perspective, only es- 16 See, also in this Handbook, chapter 17.18 by RY Boadi
sential patents can be included in a pool. And fi- and M Bokanga. www.aatf-africa.org.
nally, from a business perspective, the interests of 17 www.vaccinealliance.org.
the various IP holders need to be aligned in order 18 www.mihr.org.
to bring them to the table (pools are invariably 19 www.btgplc.com.
voluntary arrangements). n
20 www.conceptfoundation.org.
Acknowledgements
21 A fairness opinion provides an independent, objective
analysis of a proposed deal’s financial aspects from
Portions of this chapter were prepared under a proj-
the point of view of one or more of the parties to the
ect supported by a grant to MIHR from the Sasakawa
transaction. Any number of factors in deals involving
Peace Foundation, Japan. Other portions were supported
both public and private companies can trigger the
through a consultancy (by the first author of this chapter) need for a fairness opinion. These documents are
for the United Nations Industrial Development organi- frequently used to protect the interests of company
zation (UNIDO). Significantly extended versions of the directors, stockholders, investors, and involved parties
two projects are available for Web download.38 with any kind of fiduciary responsibility. Fairness
opinions are often requested in deals involving public
offerings, leveraged buyouts, or major refinancing/
Anatole Krattiger, Research Professor, the Biodesign restructuring.
22 McCarthy JT, RE Schechter and DJ Franklyn. 2004.
opments-International Institute, and Adjunct Professor, McCarthy’s Desk Encyclopedia of Intellectual Property;
Cornell University, PO Box 26, Interlaken, NY, 14847, Third Edition. Bureau of National Affairs, Inc.:
U.S.A. afk3@cornell.edu Washington, DC.
Stanley P. Kowalski, Franklin Pierce Law Center, 2 White

23 Klein JI. 1997. An address to the American Intellectual
Property Law Association on the subject of cross-
Street, Concord, New Hampshire, 03301. U.S.A. spk3@
licensing and antitrust law. Reprinted at www.usdoj.
cornell.edu and skowalski@piercelaw.edu
gov/atr/public/speeches/1123.htm.

24 Gaulé P. 2006. Towards Patent Pools in Biotechnology? 34 ��

Ebersole, TJ, MC Guthrie and JA Goldstein. ��
2005. Patent
Innovation Strategy Today 2(2): 123–34. www. Pools and Standard Setting in Diagnostic Genetics.
biodevelopments.org/innovation/index.htm. Nature Biotechnology 23(8): 937–38.
25 ��
Van Overwalle G, E Van Zimmeren, B Verbeure and 35 U.S. Department of Justice and Federal Trade
G Matthijs. 2006.
��
Models for Facilitating Access to Commission, Antitrust Guidelines for the Licensing of
Patents on Genetic Inventions. Nature Reviews Genetics. Intellectual Property. 6 April 1995. www.usdoj.gov/atr/
vol. 7, pp: 143–48. public/guidelines/0558.pdf.
26 See supra note 23. 36 Clark J, J Piccolo, B Stanton and K Tyson. Patent Pools:
27 See supra note 21. A Solution to the Problem of Access in Biotechnology
Patents? U.S. Patent and Trademark Office. 5 December
28 See supra note 24. 2000. www.uspto.gov/web/offices/pac/dapp/opla/
29 Ibid. patentpool.pdf
30 The information used in this section is adapted from 37 See supra note 21.
the article of Verbeure B, E Van Zimmeren, G Matthijs 38 Krattiger A, S Kowalski, R Eiss and A Taubman. 2006.
and G Van Overwalle. 2006. Patent Pools and Diagnostic Intellectual Property Management Strategies to
Testing. Trends in Biotechnology 24(3): 115–20. Accelerate the Development and Access of Vaccines
31 See supra note 24. and Diagnostics: Case Studies on Pandemic Influenza,
Malaria and SARS. Innovation Strategy Today 2(2):67-
32 Merges RP. 1999. Institutions for Intellectual Property
122. www.biodevelopments.org/innovation/index.htm.
Transactions: The Case for Patent Pools. www.law.
See also supra note 2.
berkeley.edu/institutes/bclt/pubs/merges.

3
SECTION
The Policy and Legal Environment

for Innovation
CHAPTER 3.1
The Courts and Innovation

Pauline Newman, Judge, U.S. Court of Appeals for the Federal Circuit, U.S.A.
ABSTRACT of property ownership, including intellectual

Established and enforceable rules of law can provide just property (IP). The second is to protect property
and expeditious resolution of the disputes that are inevi-
rights from illegal disposition by guarding against
table in vigorous commerce. But in the rapidly evolving
subject matter of biotechnology, this science can bring to civil wrongs and crimes. The third is to provide
court issues for which there is no precedent and about and enforce the rules of exchanges and transfers
which there is no consensus. The rule of law, however, is of property: the laws of contracts and sales and
vibrant, adapting to the evolving contexts of science and competition. In addition, legal systems establish
technology. In today’s era of rapid technological change,
jurisprudence provides the stability of the law, while re- rules for entering and leaving commercial activity,
flecting the social implications of the science. But the such as corporate law and bankruptcy law, and
scientific and technologic issues of today, such as arise in rules that promote competition and innovation,
IP disputes, must also be correctly decided to promote a such as antitrust and IP law. In the development,
uniform and predictable application of the law that pro-
management, and transfer of technology, effective
motes commercial stability adequate to support industrial
innovation and the national interest. legal systems provide stability and predictability
of national and international force. This concept
is globally applicable: strengthening the rule of
1. Introduction law has broad-ranging implications for every
The role of courts in technology development, country and organization. In regard to IP laws,
protection, transfer, and commercialization, in which partake of so many interrelated policies,
biotechnology as in all fields, is a combination of understanding how the courts balance conflicting
the traditional role of courts in dispute resolution policies can provide useful guidance to business,
and the common-law role of courts in the evolu- technology managers, and scientists.
tion of law. In a national and world economy that Litigation in the fields of today’s biological
is increasingly technology based and yet governed advances takes us to the edge, not only of science,
by jurisprudence reflecting cultural norms, new but also of conflicting policies—often at the limit
fields of science and technology propel the courts of judicial experience. Justice Holmes said, “The
into proceedings and decisions of economic and life of the law has not been logic: it has been ex-
societal impact. perience.” Human experience absorbed science
With respect to commerce and trade, legal and technology into the common law and its
systems have been described as having three mis- basic concepts of property, human responsibility,
sions. The first is to establish the rights and rules and fairness. But litigation of disputes concerning
Newman P. 2007. The Courts and Innovation. In Intellectual Property Management in Health and Agricultural Innovation: A
Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Avail-
able online at www.ipHandbook.org.
© 2007. P Newman. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

Newman
science and technology is bringing new challenges The growth of the biotech industry is a testament
to the search for justice through truth—the foun- to judicial vision, for the U.S. Patent Office had
dation of judicial systems. refused to patent Dr. Chakrabarty’s modified bac-
Judges do not create national policy or in- terium that was designed to digest oil spills. It was
dustrial policy; such policy finds its origins in the the Court of Customs and Patent Appeals and the
cultures of nations, and its sustenance in the laws Supreme Court that held otherwise.
of nations. Yet policy comprehension is essential Another example is seen in the U.S. Court
to judicial decisions. When technology and biol- of Appeals for the Federal Circuit, created for the
ogy are involved, then the jurisprudential over- purpose of revitalizing technologic innovation in
view (as well as the decision of individual cases) a faltering economy. The industrial and scientific
can affect the nation’s economy and the public communities had recognized that national policy,
interest. It will additionally have an even broader as implemented in the courts, was inadequately
global impact. This Handbook arises from the supporting industrial innovation, a failure attrib-
premise that developing the products of science uted to an inadequate understanding of the re-
and technology is of profound public benefit, a lationships among scientific research, technologic
benefit that requires both scientific and industrial advance, and commercial investment. The ad-
participation. This is a many-faceted concept, yet verse effects included a negative balance of trade,
today we exist in an era of such pervasive scien- retrenchments in industrial R&D, mass layoffs of
tific and technological advance that the develop- scientists and engineers, sparse capital formation,
ment of these benefits, and their movement into stagnation in productivity, and loss of interna-
commerce and among nations, warrant our most tional competitiveness.
concerned efforts. Judicial misunderstanding of the system of
patents and its purposes and processes was a pri-
mary problem. As a result, patents were not viewed
2. The Courts and as reliable support for commercial investment, for
Technologic Advance they could be litigated in circuit after circuit until
The courts implement the rules by which society they fell. And the Justice Department’s “nine no-
chooses to be governed. A reliable mechanism of no’s” of patent licensing were a further disincen-
dispute resolution eases the path to sustainable tive to technology transfer. During the economic
technologic advance, economic growth, and en- recession of the late 1970s, the retrenchment of
suing public benefit. Established and enforceable investment in new technologies was so severe that
rules of law can provide just and expeditious reso- dramatic remedies were accepted—including the
lution of the disputes that are inevitable in vig- first major change in the federal judicial structure
orous commerce. In the rapidly evolving subject in a hundred years.2
matter of biotechnology, this science can bring to Thus the federal judicial system was restruc-
court issues for which there is no precedent and tured to provide a national appellate court that
about which there is no consensus. In such areas, would receive all patent appeals throughout the
legal issues arising from developments in science nation, whether from the district courts, the
and technology often reach the courts for primary International Trade Commission, or the Patent
resolution, and the decision can affect both eco- Office.3 The hope was that a single appellate court
nomic and technologic advance. would better understand, and correct, the policy
An example is seen in the U.S. Supreme Court’s misperceptions that had led to a judge-made re-
decision in the Chakrabarty case in 1980,1 when duction of the patent incentive for investment in
despite predictions of the dire consequences of au- technologic advance. The goal was a uniform and
thorizing patents on life forms, the Court opened predictable application of the law that would pro-
the nation’s economy to industrial biotechnology, mote commercial stability adequate to support in-
enabling commercialization of this nascent field, dustrial innovation. The change was not without
to the human benefit that is today bearing fruit. vigorous controversy, but it was implemented

CHAPTER 3.1
with the congressional leadership of Wisconsin • the measure of damages is to make the in-
Representative Robert W. Kastenmeier and sena- jured party whole, as for other torts
tors Robert Dole and Patrick Leahy. It was an ex- • patents are presumed valid, as the statute
traordinary and creative action to change the na- requires
tion’s court system as an incentive to technologic • proof of inequitable conduct in patent
advance. And the effect of this juridical change prosecution requires both materiality and
was dramatic, as entrepreneurial business as well deceptive intent
as established industry returned to developing • preliminary injunctions in patent cases are
new and improved technological products. decided on the same criteria as in other
The change in industrial activity based on a fields (as recently clarified by the Supreme
strengthened patent incentive surpassed the most Court4)
optimistic expectations. One rarely sees so direct a
relationship between judicial structure and com- The court, in its first years, developed ob-
mercial vigor. jective standards for determination of obvious-
ness (this topic is at present under review by the
Supreme Court), applied the same law to the
3. The Evolving Patent Jurisprudence Patent Office and to the courts, eliminated appel-
The legal framework of technology movement late forum shopping, and generally restored the
into public availability through market forces effectiveness of the patent system as support for
partakes primarily of the law governing all com- industrial innovation. Much media attention was
merce. As for all laws, the overarching consid- given to the “new strength” of patents.
eration is the national interest. Patent law is Subsequent decisions of the Federal Circuit
designed to serve as an incentive to promote and the Supreme Court were geared toward refin-
technologic research and industrial commercial- ing the law and adding precision, for many deci-
ization, not only to bring to the public the ben- sions depend more on the science and technology
efits and conveniences of new technologies, but than on the letter of the law. To this end, the court
also to achieve a vigorous combination of indus- adjusted the roles of judge and jury in interpret-
trial products and employment and trade. These ing patents. The Markman5 case, assigning the in-
societal and economic policies undergird the laws terpretation of patent claims to the judge instead
of intellectual property. of the jury, has affected trial procedures as well
Starting about two decades ago, the U.S. as the content and interpretation of patents. This
Court of Appeals for the Federal Circuit methodi- decision and its implementation are still not free
cally undertook to restore the patent law to the of controversy. Another controversial decision,
legal mainstream. In decisions applying across all Festo,6 reduced the patentee’s access to unclaimed
areas of technology, the court implemented the technological equivalents, generally limiting pat-
patent statute and revived dormant legal princi- entees to what they actually described. The main
ples. Some examples are the rulings that emphasis of these decisions is the enhancement of
• summary judgment is as available in patent predictability of patent scope, an emphasis that
cases as in any other has led to requiring more technical description by
• consent judgments and settlement agree- the inventor and often more development of the
ments in patent cases are not contrary to inventive subject matter. The balance between a
public policy rigorous-notice function of patent claims and the
• an assignor can be estopped from challeng- cost of protecting the innovator against imitators
ing the validity of an assigned patent, as who use the inventive concept but manage to skirt
others are estopped who transfer property the claims warrants an objective evaluation of the
for value benefits and obstacles presented by this direction
• infringement is a wrong and subject to rem- of the law, as the interested communities seek the
edy like other torts optimum policy and its legal implementation.

Newman
New issues of law are constantly arising, for with policy concerns. The ongoing scientific ad-
developments in biological science and their ap- vances in biology and genetics come to court in
plication present factual situations that do not many guises: there are issues of criminal behavior,
easily fit into precedent, such as questions of pat- employment, insurance, and medical and product
entable subject matter, or the nature and conduct liability, as well as intellectual property. No matter
of scientific research. Such questions reach the how finely tuned a judge’s judicial intuition, no
courts when disputes arise; as, depending on the matter how wise and benevolent, cases that turn
facts of the case, the courts try to implement the on findings of science or technology cannot al-
law in line with statute, precedent, and a judicial ways be decided using the judge’s traditional tools
balance of practical economics, research incen- of reasoned analysis, an instinct for credibility,
tive, and fairness. With each judicial decision, and worldly experience.
precedent adds its weight to one or another com- How then can the truths of science and tech-
peting policy, for there are many facets to the legal nology be found in the courtroom? The just reso-
and economic theory of intellectual property. For lution of issues that turn on such findings presents
example, some theorists see patents primarily as a profound challenge to the administration of jus-
an economic tool; some as founded on principles tice. Despite this concern, most judges prefer not
of natural right and fairness. Some are concerned to depart from the procedures of the adversary
lest the patent law impede the flow of ideas and system—not as a matter of principle but of expe-
knowledge; others suggest that without patents, rience. Judges learn that not all scientific questions
fewer ideas and less knowledge would be gener- have clear answers; we have learned that scientific
ated, and even less used for public benefit. Much truth is often a matter of the honest but divergent
of the controversy concerning the role of patents viewpoints of scientist witnesses and that many
arises, I believe, from vested interests that em- of the questions of science and technology that
phasize one or another of the purposes and uses come to court do not have a firm answer. Scientific
of patent systems, as the courts apply a one-law- facts are not like the traditional facts of lawsuits,
fits-all structure to service the public and national based on the human components of recollection
interests. and credibility. In traditional judicial fact finding
there are gradations of truth or falsity, questions
of weight and value of evidence. What judges call
4. Adjudicating Issues of “facts” are matters on which there is a difference
Science and Technology of opinion, while scientific facts are supposed to
Judicial interpretation and application of every be objective and absolute. The problem is that for
aspect of IP law is challenged by the complexity issues in litigation the scientific answer is often
of science and technology. In Thomas Jefferson’s unknown at the time of the lawsuit. By requiring
day, an educated person could understand every the judge to decide questions that the scientists
known technological aspect of life. Today we liti- have not decided—and perhaps cannot decide—
gate questions whose scientific framework strains on the present state of knowledge, the side with
even persons within the corresponding discipline. the burden of proof simply is penalized.
These include the classical areas of technological Yet there is a natural partnership between
applications of law, such as medical causation and jurisprudence and science, for both enhance our
product liability, as well as environmental issues understanding of natural law. Both the law, and
and patent infringement; these questions also in- the science it deals with, progress along irregular
clude new issues of constitutional and personal pathways, via incremental steps in diverse direc-
and commercial rights that flow from new scien- tions, sometimes with false starts and often en-
tific knowledge and its applications. countering dead ends, building on the past until
The scientific issues in litigation are rarely the present presents a coherent and stable body
straightforward, and they tend to fall in incom- of knowledge. Justice Felix Frankfurter called
pletely explored areas and are often intermingled the decision-making process the “correlation of

CHAPTER 3.1
imponderables,” a term never more apt than in uncertainty into areas whose strengths lie in their
the evolving fields of biotechnology. reliability. Yet new questions are constantly aris-
The rule of law is vibrant, adapting to the evolving, or old questions in new contexts, such as the
ing contexts of science and technology. In today’s question of whether there is, or should be, a re-
era of rapid technological change, jurisprudence search exception to the use of another’s patented
provides the stability of the law, while reflecting the invention. No one really worried about that ques-
social implications of the science. But the scientific tion until science, particularly biological science,
and technologic issues of today, such as arise in IP reached the stage where the boundary between
disputes, must also be correctly decided. basic and applied research was blurred or lost.
For determining the reliability of scientific For the new biology, in general the law has
and technologic evidence, the Supreme Court lagged the science. Law usually lags social change.
has exhorted judges to apply the same standards The evolution may be too slow for the enlarging
as the scientific community. That is not easy, for issues of biology and genetics, as well as the devel-
although judges can readily understand the meth- oping issues of biodiversity and agri-biotechnol-
odology of science, it is the science itself that is ogy. As we ponder the legal and policy aspects of
daunting. Habits of logical thinking, precision of these new sciences (for example, with respect to
reasoning, are common to science and law, each advances in genetic science), constitutional prin-
an elegant intellectual blend of theory and testing ciples arise. Is the preservation of human diver-
that leads the mind through complexity. Although sity—including the sick, or the ugly, or the mo-
as judges we do not test our theories in the labo- ronic—a constitutional question? Justice Holmes
ratory, we do test them against the accumulated is still criticized for ruling that “three generations
knowledge and wisdom of the past. This is the of imbeciles is enough.”7 Would he be criticized
tradition and strength of the common law, as it for ordering remedy in the womb—or for deny-
continually adapts and is usefully and effectively ing such remedy? The cases in court often inspire
applied to the new biology. thinking about the foundations of the law, as well
as the historical and social and economic policies
of the law.
5. What about the Future? Disputes arising in the biological sciences are
A major problem in judicial decision-making is likely to encounter the uncertainties of this juris-
how to achieve practical justice for the high-tech, prudence, for the new biology raises new issues in
science-based issues of today’s disputes. The prob- the context of commerce and the interaction of
lem goes beyond the laws of intellectual property, public and private interests. I encourage you who
for many issues that reach the courts (for example, are engaged in the creation and dissemination of
in environmental law, communications technol- these sciences to think about what the law should
ogy, product liability, forensics and other criminal be, so that together we may seek the optimum
issues) turn on questions of science and technol- legal framework for today’s and tomorrow’s scien-
ogy of a complexity that did not exist even a few tific and technologic advances. ■
years ago. These issues require full access to the
rule of law, with its protection of the public inter-
est and private rights, its safeguards to litigants, Pauline Newman, Judge, U.S. Court of Appeals for the
Federal Circuit, National Courts Building, 717 Madison
its concern for legislative intent, its openness, its
Place NW, Washington, DC, 20439, U.S.A. NewmanP@
checks and balances. Its justice. cafc.uscourts.gov.
The rule of law contemplates a living law,
adapting to changing contexts while benefiting 1 Diamond v. Chakrabarty, 447 U.S. 303 (1980).
from the experience of the past. Judges must un- 2 The Bayh-Dole Act, discussed elsewhere in this
derstand the social and economic fabric of the Handbook, was also implemented at this time, as
statutes and precedent that we apply. It is essential part of the larger purpose of revitalizing commercial
development of the products of academic science.
to preserve a stable jurisprudence, lest we build

Newman
See also, in this Handbook, chapter 3.3 by GD Graff and customs cases, and several other areas of national
chapter 3.2 by R Nugent and J Keusch. appellate jurisdiction.
3 This patent-related jurisdiction was initially about 4 eBay v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006).
12% of the Federal Circuit’s assignment, for the plan 5 Markman v. Westview Instruments, Inc., 517 U.S. 370
was to assure diversity and breadth of experience and (1996).
responsibility. The number of patent-related cases has
since increased, but they are still a minority of the 6 Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535
court’s assignment, which includes claims against U.S. 722 (2002).
the government, childhood vaccine injury cases, tax 7 Buck v. Bell, 274 US 200 (1927).
cases, Native American claims, veterans appeals, Fifth
Amendment property takings, international trade and

CHAPTER 3.2
Global Health: Lessons from Bayh-Dole

RACHEL A. NUGENT, Senior Health Program Associate, Center for Global Development, U.S.A.
GERALD T. KEUSCH, Provost and Dean for Global Health, Boston University Medical Center
and School of Public Health, U.S.A.
ABSTRACT drugs, vaccines, and medical devices for a broad

Public sector institutions help deliver public health goods. range of illnesses and conditions has skyrocketed.
By extension, universities that receive public research
But current laws and practices may mismeasure
funds must deliver a benefit to the public that goes be-
yond licensing a discovery to the private sector for devel- the benefits of publicly funded health research by
opment. In the United States, 25 years of experience with relying too closely on a private sector yardstick.
the Bayh-Dole Act, which governs the use of intellectual Furthermore, in an increasingly global world—
property (IP) derived from public research, offers both where the risk of disease and the benefits of re-
lessons and warnings for developing countries currently
establishing their own IP systems. Bayh-Dole successfully search can come from any corner—the society
created a large body of IP from publicly funded research. that benefits from public sector health investment
Absent a strong profit motive for the private sector, how- should be the global society. The “public benefit”
ever, the Act has been much less successful at producing aspect of U.S. federal research investments should
public goods for health. Current practice undervalues
thus include the poor in societies inside as well
the “public benefit” aspect of the mandate, especially for
the poor. Possible ways to address this mandate would be as outside of the United States, and IP laws and
for public sector entities (and their academic partners in practices should be changed to enhance the ben-
the biomedical sciences) to invest some of their earnings efit of our investments.
from licensing publicly funded discoveries into programs Out of an estimated US$106 billion in
for neglected diseases of the poor. IP rights from public
funded research could also be leveraged in negotiating health R&D expenditures globally, about 50%
licensing agreements with the private sector to address is estimated to come from public sources.1 In the
these neglected diseases. IP laws and institutions should United States, most public funding of biomedical
be designed to encourage such sharing. The public and and behavioral research is through the National
academic research sectors should also seek a new compact
with the private sector aimed at reducing the burden of
Institutes of Health (NIH), whose spending
disease affecting the poor. on research is approximately US$28 billion in
2006. Those numbers dwarf the amount of pub-
lic research funding in developing countries,
1. Introduction but developing country R&D investment will
In the past 50 years, the intensity of research continue to grow, along with IP derived from
and the pace of discovery in the biomedical and it. As IP systems evolve in developing countries,
health fields have accelerated dramatically in the they should avoid or reduce barriers to the de-
United States, in both the public and private sec- velopment of health and medical products for
tors. As a result, the number of safe and effective the poor.
Nugent RA and GT Keusch. 2007. Global Health: Lessons from Bayh-Dole. In Intellectual Property Management in Health
and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K.,
and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. RA Nugent and GT Keusch. Sharing the Art of IP Management: Photocopying and distribution through the Internet

NUGENT & KEUSCH
Only in the past decade has global atten- creative options for extending the benefits of
tion focused on the health needs of poor and biomedical research to poor countries or global
marginalized populations in developing coun- beneficiaries are then proposed for the public sec-
tries.2 This new attention has opened to public tor and universities. A few of these options could
view the system of protections for IP and trade also be adopted by developing-country research
embodied in national rules and in the global funders and universities.
Trade-Related Aspects of Intellectual Property Indeed, there are several ways for public in-
Rights (TRIPS) Agreement. Moreover, recent de- stitutions to increase the resources and tools de-
bates over access to drugs for low-income popu- voted to public health needs in the developing
lations in developing countries have highlighted world. At the upstream end, public institutions
the controversies found in the often arcane details could direct funds toward research in developing
of the patent system and IP laws.3 The media of- countries and their diseases; they could also part-
ten portray these debates as a struggle between ner with private and nonprofit entities wishing
rich and poor countries, big drug companies and to do the same. At the downstream end public
sick people, or insensitive bureaucracies and car- institutions could directly render assistance to de-
ing relief organizations. While such portrayals veloping country institutions in building research
may gain the attention of the public and of poli- capacity, provide products to users in poor coun-
cy-makers, they at best oversimplify and at worst tries, reduce barriers to the transfer of technology,
obscure the true nature of the problems, and thus or partner with industry and academia to expe-
create further barriers to finding solutions. dite the development of products from research.
The economic, legal, and policy arrange- Most of these steps also apply to fields outside of
ments that move innovation from research labs health and medicine.
to consumers are the same ones that erect barriers
between those same labs and the poor. The main
economic barrier is the high cost of developing 2. Public sector investment
a product from a basic discovery. The main legal in health research
barrier is a complex ownership system, one that It is generally acknowledged that publicly sup-
goes too far in protecting the interests of those ported basic research invaluably contributes to
who invest in research and development. Finally, the development of new medical technologies.
there is a policy barrier: the inability to balance Creating such benefits is part of the mission of
the competing interests of the scientific com- the U.S. National Institutes of Health (NIH).
munity, consumers, and industrial development, Moreover, the U.S. Congress and the NIH lead-
all of which vie for advantage in the increasingly ership recognize the direct connection between
lucrative world of health care products. As IP sys- global health improvement and the health and
tems evolve in developing countries, they should well being of U.S. citizens. Public research agen-
avoid repeating mistakes and act to reduce barri- cies, such as the NIH, have a clear commitment
ers to development of health and medical prod- from Congress to provide global benefits from
ucts for the poor. their research. NIH has therefore allocated some
This chapter outlines several ways that public of its resources for research and research train-
and university decision makers can reorient their ing related to specific developing country health
IP strategies to remove these barriers. It first con- needs (for example, HIV/AIDS, tuberculosis,
siders the rationale for government investment malaria, tobacco-related illness, cognitive devel-
in biomedical research, and then explains what opment, and others). It has also advanced such
kind of public benefits should be expected from efforts through technology transfer negotiations
that investment. The chapter then examines the with private companies developing the discover-
key U.S. laws governing technology transfer from ies of NIH laboratories.
federally funded research and provides a synopsis It is worth emphasizing that about 90% of
of the legislative context of their passage. Some NIH research funds support extramural research,

CHAPTER 3.2
the vast majority in universities. Control of tech- publication, and professional networks. Privately
nology from that research was placed in the hands funded researchers, however, are under no obli-
of universities by the Bayh-Dole Act of 1980. gation to make their findings available to other
Therefore, by far the greatest impact of any in- researchers or to the public and indeed may in
novation in intellectual property (IP) manage- some instances be prevented from doing so by
ment comes from decisions made by university company policies.4 This difference is illustrated
presidents and their technology transfer officials. in the approaches of the publicly funded hu-
They determine how IP derived from publicly man genome project and the privately funded
supported research is used. Most of the following sequencing research. The former placed the data
suggestions are meant for their special consider- in the public realm in real time via the Internet,
ation. Similar arrangements, of course, could be whereas the latter did not—though the private
adapted in developing countries. sector could still benefit from the publicly funded
program’s findings.
2.1 Rationale for public sector investment Third, publicly supported research can fill
in biomedical research knowledge gaps not addressed by private industry.
Several arguments have been put forth to jus- Because the public sector is based on incentives
tify the government’s role in funding research. other than the profit motive, government research
Although this discussion mostly focuses on bio- can set priorities based on society’s needs, scientific
medical research, the same arguments apply to promise, and other factors that—when no market
other sectors. First, funding basic research is a for a product exists—are not of paramount con-
classic example of the role of the government to cern to the private sector. Therefore, the choice
provide public goods, as applications for health of whether to develop new ideas into products is
are built on the foundation of fundamental largely left up to the private sector. The implication
knowledge. Because the market typically under- of this is that technology development from pub-
invests in fundamental knowledge creation and lic research by and large gets rationed according to
utilization, government support of basic bio- the priorities of the private sector, typically from
medical and health research is an efficient use of a “return on investment” perspective. Admittedly,
society’s resources. Furthermore, it is important there are tensions across these public and private
that the public sector continues to invest lest sector interests. However, in the United States
the increasing expenditures of the private sector these divergent paradigms are sorted out through
unduly control access to basic knowledge. The a multi-agent lobbying and vetting process that
fruits of publicly funded research—whether in occasionally produces disagreement but is gener-
genomics, developmental biology, aging, emerg- ally accessible and transparent.
ing infectious diseases, molecular virology, can- One important consequence of this third
cer, or other fields of science—benefit the public point is that publicly funded research can address
in many ways. These benefits are delivered, not fundamental questions without undo concern
only in the form of new medical technologies, for the immediacy of its application. When pat-
but also in ways unspecified and unforeseen. An ents are derived from federally supported science
example of the latter is the NIH’s investment in they are in fact generally for early-stage technol-
basic retrovirology, which paved the way for an ogy—often processes and materials to be used by
early understanding of the nature of HIV. other researchers.5 Rarely does a discovery occur
Second, public funding of research ensures in federal labs that does not require years of ad-
that data is available to scientists at the earliest ditional funding to enter into the market. This is
possible time. Academic research careers depend why public and private investments in biomedical
on research productivity, often expressed as the research are mutually dependent: a public sector
“publish or perish” dictum. Publicly funded re- invention is usually brought to market by private
search discoveries are often placed immediately sector product development. Still, inherent in
in the public domain through presentations, this relationship is the reservation of the choice of

NUGENT & KEUSCH
whether to develop new ideas into products being up-front investments. In the health sciences, this
largely left up to the private sector. The implica- may be particularly true of research for products
tion of this is that technology development from that target diseases of the poor or of developing
public research gets rationed according to the pri- nations (for example, tropical and parasitic dis-
orities of the private sector. eases) or that are more appropriate for delivery
and application in developing country health sys-
2.2 Balancing public and private tems. One hopeful note in the past five years has
research investment been the substantial expansion in R&D invest-
The synergistic relationship between the public ment in neglected diseases of the poor via public/
and private sectors is generally highly efficient private partnerships (PPPs): between 2000 and
and productive; however, the potential of this ar- 2004, R&D expenditures from public/industry
rangement to create public goods from the invest- nonprofit partnerships grew from US$23 million
ment of the public sector is by no means certain. to US$44 million per year.7
In principle, the case can be made that beyond To help balance the above interests, the NIH
the support for the research itself, public agencies has created guidelines for sharing research tools.8
have a role to ensure that the benefits of basic re- It is also tracking inventions produced from NIH
search get delivered to the public. How it can best investments that result in therapeutic drugs or
carry out this role, however, is not obvious. Under vaccines. FDA-approved therapeutic drugs and
current arrangements, the public sector has lim- vaccines developed with technologies from the
ited capacity and experience in the downstream intramural research programs at NIH are report-
steps of developing and delivering products to ed on the NIH Web site.9 Eventually this system
consumer markets. These steps are not only costly will document the public health outcomes of any
but are also not aligned with the public sector’s commercial technology developed with NIH
comparative advantage. support. These steps may be worth emulating as
The public sector, therefore, requires two developing countries establish their own systems
kinds of investment: one enhances private sector for tracking the results of their research invest-
investment by supporting basic research that will ments. But while this system will produce valu-
eventually lead to private sector product develop- able information about the benefits of research
ment; the other augments the private sector by investments, it is still an a posteriori exercise.
investing in those areas that are unattractive for
private sector investment. Both avenues are essen-
tial for the public sector to pursue, and shifting 3. IP laws and public
public health needs require the frequent rebalanc- research investment
ing of priorities. A successful research endeavor creates IP, but when
The conundrum for public research agencies does this ownership enhance the public good?
is that however large their public funding may The status and ownership of IP derived from gov-
appear, their resources are still limited relative to ernment-funded research in the United States is
scientific opportunity. They must prioritize re- framed by a series of public laws that establish
search investments and are often unable to take the current principles and procedures used by
a technology far enough to determine how much the U.S. government and its private partners. For
public benefit might be derived from the full, purposes of this discussion, the most important
vigorous exploration of its potential. The cost of laws date from a quarter-century ago, although
fully developing a new technology is great, and the laws have been amended and enhanced in
the rate of attrition—explorations that end with- minor ways since then. These are the Stevenson-
out a product or a profit—is very high.6 Wydler Technology Innovation Act (P.L. 96-480)
This underlies the crucial concern that pertaining to intramural research in government
some explorations end prematurely because the laboratories, and the Bayh-Dole Act (officially
estimated market is too small to justify the needed Amendments to the Patent and Trademark Act,

CHAPTER 3.2
P.L. 96-517), pertaining to extramural research this by creating a uniform licensing system for
outside of government laboratories.10 Both Acts all federal agencies, reducing the steps needed
were passed in 1980 to stimulate greater use of to grant licenses, and providing incentives for
technologies developed through government industry to invest risk capital in product com-
support. Their legislative history is instructive for mercialization from federal patents. Most impor-
understanding the public benefit the laws were tantly, Bayh-Dole allowed universities and small-
designed to create. business government contractors to receive title
to inventions derived from government support,
3.1 History of Bayh-Dole and rather than the prior arrangement in which gov-
Stevenson-Wydler acts ernment was the sole holder of the patent. It also
In the mid-1970s, Congress became concerned allowed the grantees and contractors to license
about the failure to use federally owned patents to the technology developed under these patents for
encourage product development stemming from use by small business and private industry.13 The
federally funded R&D. At the time, only 5% of Stevenson-Wydler Act effectively allowed federal
the 28,000 patents retained by the U.S. govern- labs conducting intramural research to exercise
ment had been licensed for use, whereas 25%– the same privileges.
30% of industry patents were being applied.11 The effect of these new statutes was to trans-
These circumstances prompted Congress to infer the ownership of IP and the benefits derived
quire into how federal research was transformed from it. They allowed companies to license and
into usable technology. Congress concluded that develop products based on the discoveries of fed-
the barriers were too great and the incentives too erally funded university research with full legal
small for academia or the private sector to develop protection from competition. According to the
technology from the patents produced with gov- Congressional Research Service, “Proponents of
ernment research support. At the time, there was this approach contend that these benefits are more
no discussion about public sector involvement in important than the initial cost of the technology to
downstream activities. the government or any potential unfair advantage
The main barrier to the use of federally pat- one company may have over another in their deal-
ented technology was believed to rest with the ings with the federal departments and agencies.”14
unwillingness of the responsible agencies to grant Interestingly, the Bayh-Dole legislation ini-
exclusive licenses for companies to use the pat- tially proposed a formula for repayment to the
ented technology and invest in product devel- taxpayers of the government investment when a
opment. An exclusive license would allow one patent yielded commercialized technology. This
company to have a monopoly in the invention provision was dropped in the final stages of pas-
produced with government funds as an incen- sage because of disagreements over technical as-
tive to develop and test the product. Companies pects of the repayment mechanisms.15 While the
complained also that even the attempt to obtain legislative history demonstrates that there was
nonexclusive licensing was an excruciatingly slow widespread acceptance of the principle of a right-
process. Federal agencies imposed many paper- ful return to the public from private sector use
work requirements and other burdens on their of publicly funded technology, it was the details
licensees in an apparent effort to protect the pub- of implementation that ultimately defeated its in-
lic’s interest in the invention. It became clear to clusion in the bill.16
Congress that private companies would not ac- Nonetheless, the legislation was passed with
cept the risk and expense of developing technol- several clauses intended to ensure that the mo-
ogy for the marketplace without some exclusive nopoly powers granted to patent holders and li-
rights and without a more streamlined way to censees would not be abused. These clauses have
obtain patent rights across agencies.12 been the subject of much debate among IP spe-
The Bayh-Dole and Stevenson-Wydler acts cialists and are a cause of anxiety for the private
were intended to rectify this situation. They did sector, which is concerned about when and with

NUGENT & KEUSCH
what justification they would be invoked by the to invoke the government-use clause in pursuit of
government. The legislation expressed Congress’s its mission.
view that the use of discoveries from federal re- The second clause, the so-called march-in
search to improve health was clearly in the public right of government, has attracted greater at-
interest, even if it must be carried out by govern- tention and has been more extensively explored.
ment action. It has been formally tested just once, in a case
The Bayh-Dole law states the intention “to in which the NIH declined to initiate march-in
ensure that the Government obtains sufficient rights proceedings, thereby disallowing the petitioner
in federally-supported inventions to meet the needs use of the technology.21 This test case provided
of the Government and protect the public against the opportunity for both the government and
nonuse or unreasonable use of inventions…”17 The affected parties (who were primarily third-party
means to achieve that goal were codified in the recipients of government research funds or pro-
following provisions that reserve certain rights for spective licensees) to indicate their views on how
the government: restrictive the march-in rights should be.22 The
• The right to a nonexclusive, nontransfer- debate centered on questions of what constitut-
able, irrevocable, paid-up license to prac- ed timely delivery and how critical the public
tice for or on behalf of the United States health or safety need had to be to in order to
throughout the world.18 warrant government action. The voluminous
• “March-in” rights that enable the gov- record produced for this petition demonstrated
ernment to require the licensee or pat- that universities and industry were extremely
ent holder to grant use rights to another concerned that the march-in provision would
user with due compensation under special undermine licensing rights under Bayh-Dole.
circumstances. The special circumstances It also demonstrated that petitions for march
envisioned in this clause refer to lack of in would prompt a full-blown legal procedure,
use within an agreed-upon time frame imposing both time and financial costs on any
or special health or safety needs that are potential petitioner.
not being met by the licensee or patent
holder.19 3.2 Twenty-five years after Bayh-Dole
and Stevenson-Wydler
The first clause, allowing government use The laws that govern the disposition and use of
of the technology, has been narrowly interpret- technology derived from U.S. government invest-
ed to refer only to a true government purpose. ment in health R&D must be judged first and
This interpretation has not been fully litigated foremost by how well they have met their original
and therefore it is likely that private pharmaceu- legislative intent. Assessments of the impacts of
tical companies remain concerned that changes the Bayh-Dole Act and related legislation suggest
in its interpretation could expand to threaten that the laws performed as Congress intended.23
their economic interests. This provision could Most independent analyses have concluded that
theoretically allow the government to practice the acts greatly increased technology transfer from
the technology—or contract with a third party researchers to private industry in the biomedical
to have the technology practiced—for authorized sciences, improved the governmental patenting
government purposes. Because the mission of the and licensing process, and made available to the
NIH is “to secure, develop and maintain, distribute public products that improve their health and
and support the development and maintenance of well being.24 Thus, the goal of greater private sec-
resources needed for research,” some have suggested tor utilization of the research output by federally
that there appears to be a limited scope for NIH funded scientists seems to have been achieved.25
action in this regard.20 However, the Department Simultaneously, research universities expe-
of Health and Human Services might, due to its rienced significant upheavals as agendas and re-
public health mission, have a clearer justification searcher time focused more and more on revenue

CHAPTER 3.2
opportunities. In the two and a half decades since billion in research expenditures for the same year,
passage of the Bayh-Dole Act, the major U.S. and over 10,000 new patent applications filed.27
research universities have developed highly pro- Much has changed in the 25 years since
ficient offices of technology transfer, staffed by the Bayh-Dole and Stevenson-Wydler acts were
professionals who deal with patents and licens- passed. Not the least of these changes is an in-
ing. Through this infrastructure, these universi- creasing concern for global health, a concern
ties have come to expect financial rewards from arising from a recognition that the health issues
their research efforts in the form of royalties and of poor country populations and the U.S. popu-
fees from patents and licenses. In the eyes of some lation are connected, as are the health of poor
university officials, this income flow is justified as country populations and their economic and
partial compensation for the costs incurred dur- social prospects. For example, the devastating
ing the conduct of federally supported research— impact of HIV/AIDS and the limited use in im-
an enterprise most universities believe costs them poverished developing countries of technologi-
more than the infrastructure support provided cal advances for diagnosis and management of
with federal grants. this infection and its complications is very much
Yet there is no guarantee of financial returns in the news today. As a consequence, many
from research, and most universities have long countries are trying to figure out how to deliver
operated without this extra income. They still do, health technology to poor and technologically
albeit there are consequences on investments in marginalized populations. In the process, ques-
expansions of faculty and facilities. The intent tions are being raised about the balance of in-
of Bayh-Dole was not to produce supplemental terests between the use of new technology to re-
revenue streams to universities. Rather, it was to duce threats to health and the ownership rights
engender innovation and increase the use of tech- to that technology.
nology for economic development. Universities
do accept their responsibilities to contribute to 3.3 Current debates
the public good, but these have generally focused The obligations to a larger, more global pub-
first on university, state, and national health is- lic—and the rights of this public—are raising
sues, in that order. Most universities have either critical questions: just who is the public and
not addressed or achieved a balance between en- what return on the investment is due the public?
trepreneurship and the generation, use, and dis- Debate continues about how to ensure the avail-
semination of knowledge for the public good. ability of effective treatments to all in need while
Recent analysis concludes that, although more ensuring that research partnerships with industry
university technology transfer operations have be- remain viable and productive. Public research
come profitable over time, many universities do and research funding agencies such as NIH, the
not earn profits from licensing the results of re- academic community, and industry will be chal-
search.26 The occasional blockbuster technology lenged to consider how to interpret and apply IP
has produced large royalties for a few universities laws and regulations in the context of how a pat-
holding patent rights, and some others generate ent or a license, granted or denied, will affect the
a few million dollars annually. Most universities, public good. Not only are economic, legal, and
however, are still barely in the technology devel- policy issues involved, but there are also complex
opment business. Out of almost 1,500 licenses ethical and social considerations created by deci-
executed during 2004, only 1.5% (67) generated sions to apply IP laws.
more than US$1 million in revenues. In 2004, The controversial nature of IP for biomedi-
US$1.4 billion in earnings from licenses and cal research is illustrated in public debate and in
US$1.2 billion in royalties was reported by the proposals in recent sessions of the U.S.
196 U.S. institutions that responded to an annual Congress:28
survey of university research technology offices. • disputes over competing claims to IP devel-
The survey respondents reported about US$41 oped under government/industry ventures

NUGENT & KEUSCH
• delays in negotiating Cooperative Re- sector partners to increase global public goods for
search and Development Agreements health. Many of these actions could also be adapt-
[CRADAs] because of issues related to ed, by implementing IP rules and procedures, for
dispensation of IP use in developing countries.
• controversies over the rights of drug com-
panies to set prices on drugs developed in 4.1 Action within the research enterprise
part with federal funding Strengthen capacity for research in developing
• uncertainties due to the increasing mix of world. Increasing funding for research in devel-
funding sources among government, founda- oping countries is, if sustained, one of the most
tions and the private sector, and the portion direct ways to create a global benefit and ulti-
of IP that represents the public good return mately increase access to the results of scientific
• problems obtaining technologies for re- research for the world’s poor. Such funding can
search developed in the private sector for also lead to collaborations between developed
use in federal laboratories (A more general and developing country scientists, creating more
problem of access to research tools has not sustainable research environments and the oppor-
been considered by Congress.) tunity for human capacity building and research
infrastructure development.
This list of issues is not exhaustive and raises Government research awards can contain
more questions than answers. Moreover, each provisions requiring researchers to train develop-
could be—and indeed most have been—the sub- ing country scientists in these highly successful
ject of a rousing debate and the occasion for a laboratories. In the health sciences, for example, a
flurry of letters, testimony, articles, op-ed pieces, portion of the royalties from the NIH intramural
and books. One place to start searching for ways program is returned to the lab that discovers and
to increase the return to the public—both global invents new technology—this also applies to uni-
and U.S.—of the public investment in research versity labs that produce patentable inventions.
is to review the arrangements currently or poten- These funds could be devoted to training new sci-
tially in use to deliver these benefits. entists. In addition, the same opportunities could
be provided in developing countries.
Academic/industry partnerships. Both
4. The public sector and global within and apart from the university research en-
health research vironment, the relative importance of private sec-
There are several ways that government research tor funding has increased. Private companies are
funders can increase the resources and tools de- now estimated to spend three times as much on
voted to the public health needs of the developing biomedical research as the NIH, most of it within
world. At the upstream end they can direct funds their own research laboratories.29 However, in-
toward research on specific diseases; they can also dustry-funded university research is also growing.
partner with private and nonprofit entities wish- It is unclear how involved industry is in academ-
ing to do the same. At the downstream end they ic biomedical research at present, although one
can directly provide products to users in poor source indicates that a small portion of private
countries, reduce barriers to the transfer of tech- R&D (about 12%) is conducted within U.S.
nology, or partner with industry and academia academic institutions.30 Whatever the magnitude
to expedite the development of products from of industry’s involvement, it is large enough to
research. Some of these steps could be adopted possibly blur the distinction between the objec-
by academic recipients of public funds, especially tives of universities and private industry, and it
those that actively develop IP ownership derived has caused some to question university motives
from public research funds. for carrying out research.31
The following specific actions could be taken The nature of science and its conduct has
by public funders and their academic and private also changed since Bayh-Dole was instituted.

CHAPTER 3.2
Few academic or public research organizations and their need to maintain a competitive posi-
have the particular combination of scientific tion vis-a-vis the private sector to retain expertise
know-how, application tools, and commercial- has been jarred repeatedly in the past few years.
ization potential that it takes to turn ideas into Developing country institutions are particularly
real deliverable products. Public/private part- challenged by the lure of greater research oppor-
nerships are increasingly looked to as the mode tunities and higher salaries and benefits for their
of operation for future biomedical research top and young scientists in the U.S.
that rapidly develops products. Nowadays, the The following list suggests how public invest-
complementary human capital and financial re- ment can use technology transfer more effectively
sources of the public sector, academia, and in- to create global public-health goods. The list also
dustry are all needed to bring scientific inquiry makes the important point that all possibilities
to fruition. The power of the Gates Foundation should be open to discussion among committed
to influence this process is a major new force and interested parties—including policy-mak-
shaping this landscape. ers and research leaders in the developing world.
In recent years, new approaches have been Many of the suggestions are derived from NIH
devised to sweeten the pot and bring new players experiences, but they could be applied far more
into the development of health technologies for widely. Most importantly, the engagement and
the poor. These include public/private partner- involvement of all stakeholders is essential, with-
ships such as MIHR (Centre for the Management out this it will be impossible to change current
of Intellectual Property in Health R & D,) estab- operating principles. Change will not be accom-
lished in 2002 precisely to address public sector plished by fiat.
needs in IP management. It provides a forum for 1. A straightforward way to deliver social
multiple public and private entities to improve the dividends from research is to write provi-
management of health IP for the benefit of devel- sions into licensing agreements. On an ad
oping countries through information exchange, hoc basis, NIH has incorporated voluntary
training, defining best practices in licensing, and provisions for public benefits into license
help in developing norms for IP management.32 agreements with private industry. As a re-
MIHR is working with developing countries to sult, many licenses granted by NIH include
help them bridge the gaps between what the pub- a public benefit of some sort.34 The types
lic and private sectors can provide in addressing of public benefits called for in these purely
global health needs.33 voluntary arrangements include education-
Many universities prominent in health real Web sites, product donations, and drug
search are also seeking to balance their financial delivery to needy communities. The initia-
objectives, their charge to advance scientific dis- tive has been palatable because no specific
covery, and their dissemination of the benefits level of benefit or outcomes is requested in
of those discoveries to the public. Universities in the license provisions. It appears, however,
both developed and developing countries could that the public benefit delivered through
explore how to create research partnerships with this approach has been, at best, modest.
one another and with the private sector that Public-benefit provisions in licens-
achieve a public benefit goal, while still meeting ing agreements could state a specific aim
the profit motive of private companies. to benefit poor countries. Both publicly
funded research agencies and university
4.2 Technology transfer options technology transfer offices could increase
The evolution of technology transfer practices the use of such provisions. If employed
since Bayh-Dole has placed public sector insti- in developing country licensing agree-
tutions and research universities in a difficult ments, the provisions could ensure the
position. The delicate balancing of their scien- delivery of drugs or technologies to the
tific interests, their responsibilities to the public, poor by whatever direct mechanism the

NUGENT & KEUSCH
commercial partner prefers (for example, the company in the country—a win-win
drug donations or reduced prices), or situation.
even indirectly through a nonprofit or- The economics of bringing products to
ganization. For instance, a reasonable market in developing countries differs from
proportion (however difficult it is to de- those in developed countries.36 Human
termine the meaning of reasonable) of the clinical trials are the most costly phase of
royalties to a university from the license product development; this phase is also
would be placed within a foundation es- when most experimental technologies fail.
tablished to support global public-health Developing countries have the opportunity
goods. It is necessary to recognize that the to streamline procedures for carrying out
funds available for diversion are meager, clinical trials, including establishing more
if they exist at all, at most universities. rational and less time-consuming institu-
2. The private sector lacks interest in many tional review board (IRB) processes. Other
available technologies because of its per- components of the R&D process that
ceived lack of profitability. Therefore, ways generally cost less in developing countries
to increase profitability need to be explored. are legal, marketing, and regulatory fees.
One method open to the public sector and Also, the medical research companies in
academic institutions is to bundle technol- developing countries may be more willing
ogies developed in their laboratories. This to take risks than are those companies in
would require companies to license anoth- the United States. Moreover, both compa-
er, less profitable technology for develop- nies and their government regulators may
ment in order to obtain a license for more be more strongly motivated by the clear,
lucrative technologies. This is consistent urgent need for improved diagnostics and
with the paramount aim of the Bayh-Dole therapeutics.
Act to get technologies used. Developing country markets can also be
So far in the United States, there have segmented: the technology could be pro-
been few takers for this type of arrange- vided at low or no cost to the poorest coun-
ment, and its impact will likely be small. tries through a subsidy mechanism (market
The argument is that bundling may help li- pull), at a sustained rather than reduced
cense less-attractive technologies, although price in middle-income developing coun-
it will not make them more profitable for tries, and at a higher price as the market
companies to develop. However, in a de- develops. Such an arrangement would be
veloping country setting, the economics of consistent with economic theory, in which
bundling may be different. For instance, price discrimination can increase market ef-
if the public institution can help identify ficiency and equity.37 It actually resembles
a large buyer to take the initial output, a the pricing methods that pharmaceuti-
profitability threshold might be reached cal companies currently use in developed
if the price from the bulk purchaser met country markets and could make some
minimum average cost of production at technologies suddenly more financially at-
the appropriate scale. A private company tractive. For this approach to work, mea-
wishing to expand its capacity in a devel- sures must be taken to ensure that there is
oping country could anticipate potential no parallel importation or smuggling from
profits.35 Merck reached such a level when the low price to the higher price nations.
it chose to produce recombinant hepatitis This is a difficult goal, but one that might
B antigens in China for that market. It be expedited through TRIPS to allow trade
even built a state-of-the-art plant to pro- in generics among developing countries.
duce vaccine. This led to widespread use A variant of this approach would be
of the vaccine in China and a foothold for for technology transfer offices (TTOs) to

CHAPTER 3.2
work more with nonprofit organizations government could arrange it much more
to deliver technology, instead of seeking easily.
commercial avenues. NIH currently uses 4. Delivering technologies for developing
CRADAs to work with the World Health country use through multiple-use licensing
Organization (WHO) and nongovern- is too rarely used. This approach identifies
mental organizations (NGOs) (for ex- and licenses basic technology for specific
ample, PATH) to move malaria drugs and fields of use (for example, a cancer vaccine)
other less-profitable technologies into use. and requires the same (or another) company
The overriding concern for a CRADA is to do parallel development of the same tech-
whether the organization can carry out the nology for another field of use (for instance,
necessary R&D to develop a product. The an HIV vaccine). In the existing regulatory
current fully capitalized cost (including framework, an expansion of this approach
post-approval R&D costs) to the private would require renegotiating existing li-
sector to develop one drug is estimated censing agreements and would certainly
to be nearly US$900 million. And with be strongly resisted by licensees. However,
more than eight years required for the in an open playing field such as exists in
clinical and approval phases of develop- some developing countries, it could become
ment alone, nonprofit organizations just common.
do not have the capacity to sustain such an 5. A radical approach open to the U.S. gov-
investment.38 However, as already noted, ernment but not to universities is to exert
it is extremely difficult to make such esti- march-in rights on already-licensed NIH-
mates because the necessary information is derived technology to meet special health
not in the public domain; it is likely that or safety needs that are not being satisfied.
goals can be achieved at much lower cost This option, referred to as compulsory li-
in developing countries , and this can be censing, should be retained by develop-
put to the test. ing country governments in case of public
3. In an effort to increase the licensing of health emergency—and it should be used
vaccine technology in selected developing when necessary, and never frivolously.
countries, the NIH is now requiring com- 6. Finally, all activities—from early-stage de-
panies seeking to license NIH technology velopment to manufacture and distribu-
to produce a plan to market the technology tion—could theoretically be performed by
in developing countries within two years of a government agency, university, or con-
regulatory agency approval. They can either tractor. For instance, government research
opt to deliver the product themselves or ini- institutions could move their own involve-
tiate a joint venture with another company. ment further down the development pipe-
The goal is to use the potential profits from line to include whatever steps would be
sales in developed countries to encourage needed to get the product ready for uptake
companies to manufacture for the devel- by a private or nonprofit entity. Although
oping world at or near cost, although the this is clearly not a priority for a research
expense of adding manufacturing capacity agency such as NIH, there are already some
or the opportunity cost of shifting exist- programs to develop medications at NIH
ing production to this product should be instead of relying on the private sector. It
factored in. Another way to achieve access is worth emphasizing that, within the con-
and affordability for the poor is by manu- text of the Bayh-Dole Act in the United
facturing in developing countries at lower States, by far the greatest impact from IP
cost than in the United States.39 This sort innovations will come from decisions made
of a tie-in is difficult to accomplish from by university presidents and their technol-
the United States, but a developing country ogy transfer officials. They control how IP

NUGENT & KEUSCH
derived from publicly supported research duciary responsibility to stockholders due a

is used. return on investment for success in product
If universities decide to adopt any of these development. None-the-less, policy-makers
options, the decision, in our view, should should insist that, as a condition of receiving the
come from a consultative process among protections of patents and licensing, companies
all interested parties, including public re- and universities must pay some “dividend” back
search agencies, developing country repre- to the public. This dividend could be indirect
sentatives, potential funding partners, and and used to support further research to address
industry. Universities and their faculties needs the market alone does not satisfy. Further,
would have to embrace the moral and so- policy-makers should retain the government’s
cial imperative of enhanced delivery mech- right to exercise a technology license on behalf
anisms and become full partners in the of the public, as well as full march-in rights.
means selected to achieve them. Because The government should be prepared to exercise
most of the relevant technology is devel- these rights in the event of a real public-health
oped by a small subset of research-intensive emergency or in the event that the private sec-
universities, it would not be necessary to tor licensee fails to develop or bring to market
bring all universities on board; instead, a a product that has potential public benefit. The
focus on the leaders would establish stan- government must accept its responsibility to en-
dards that others could follow. The process sure that the public’s investment pays returns to
would be strengthened if developing coun- the public. As it turns out, the option for gov-
tries joined and were led, for example, by ernment action itself will likely provide compa-
a multinational organization such as the nies with a strong incentive to make products
Inter-Academy Medical Panel. available in the market. Government should also
embrace principles of segmented markets and
tiered pricing for vulnerable populations in the
5. Conclusion U.S. and abroad—the poor, the elderly and the
vulnerable in particular. In this way, the govern-
5.1 Considerations for senior policy-makers ment accepts its responsibility to ensure that the
Economic development, drugs for the poor, break- public investment pays returns.
through technologies for the world’s most com-
mon diseases, and scientific advances for treating 5.2 For presidents of universities
tropical diseases are legitimate social goals for all In their approach to IP laws, the academic com-
nations. But these goals vie for limited financial munity is faced with complex ethical and social
and expert resources and are not always compat- issues. If partnerships are to promote research
ible with each other. Policy-makers must ensure that leads to global benefits, there should be
that the public’s investment in research is reward- agreements that explicitly commit all of the part-
ed. A system should spur economic development ners to this goal at the outset. Creative financ-
and creative innovation, as was the intent of the ing and IP sharing arrangements will have to be
Bayh-Dole Act. Just as importantly, the IP system developed. And scientists will need to prioritize
should clearly articulate and codify an overarch- the delivery of global benefits. Similarly, univer-
ing social goal. sity officials will have to fully embrace the larger
It is understood that subsidies to research role of universities in society and in the global
universities in the form of indirect costs in community. Leadership must come from the
grants funded by the government may not cover very top of the institution, for example valuing
the actual cost of supporting research infrastruc- applied research and including the creation of
ture, and that industry risks capital in R&D for global public goods among the criteria for aca-
products that fail somewhere along the path, demic advancement.
and that this has implications in terms of fi-

CHAPTER 3.2
Many universities prominent in health re- but a nonexclusive license should be insisted upon
search are seeking to balance their financial ob- if that is likely to move a promising technology
jectives, their commitment to scientific discovery, to market sooner), maintaining a very low paper-
and the dissemination of benefits to the public. work and expense burden for private (including
PIIPA (Public Interest Intellectual Property nonprofit) companies wishing to license govern-
Advisors) is one example of how U.S. universi- ment-funded technology and insisting on explicit
ties can use their stock-in-trade to serve the global public-benefit clauses. Technology transfer offi-
public need by offering expertise and training.40 cers should report such efforts and their potential
PIIPA is a newly formed consortium of universi- impact to the President him/herself.
ties and companies that provides pro bono legal
and professional assistance about IP issues to en- 5.4 For a university scientist
tities in developing countries, including govern- Individual researchers in the United States have
ments and universities. established product development companies in
There are many ways that universities can large numbers, and developing country research
help meet global public health needs. They can scientists and their institutions will feel pressure
include including public benefit clauses in their to do the same. When considering a research col-
licenses to the private sector, investing part of laboration with a scientist from the United States,
their royalty stream in a foundation, ensuring developing country scientists should be certain
that returns to the university itself are used that they receive equitable treatment in whatever
in part to support capacity building and ap- IP ownership arrangements are made. While IP
plied research of global relevance, establishing protection is often necessary to convince indus-
an “ethical” investment fund,41 licensing tech- try to move discovery into product development,
nologies to nonprofits or others who would something neither academia nor government, for
develop and manufacture for poor countries, that matter, do with distinction, not every dis-
or bundling technologies to encourage the de- covery should or need be protected. Scientists
velopment of medicines aimed at diseases of should be capable of participating in these dis-
the poor. Research universities or public fund- cussions. Developing country scientists should
ing agencies could unilaterally adopt any or all also resist the excessive protections that are some-
of these options, but a multilateral approach times placed on research output in the United
would have far greater public awareness and States—protections that delay and sometimes
public health impacts. Ideally, this approach prevent discoveries from being published and
would be an international, multi-institutional shared in the scientific community. It is very im-
effort. portant for developing country researchers to get
the professional exposure and opportunities that
5.3 For the technology transfer officer scientific publication can offer. Narrow-minded
The job of the TTO is to create the incentives efforts to establish property rights can inhibit
needed to move discovery into the product devel- those benefits.
opment arena, motivating academic researchers
not by the sole promise of high profits—which 5.5 A global vision
rarely appear—but by applying royalty toward Creating and delivering global public health
the support of research in the inventor’s laborato- goods is much more difficult than creating and
ry, and by balancing some financial reward to the delivering national public health goods. Yet we are
inventor with the satisfaction of seeing his or her committed, in the words of Tennyson, “to strive,
work used for public benefit. Although not the to seek, to find, and not to yield.” To change the
responsibility of the technology transfer officer, current reality will require a coalition of univer-
the latter can become so. This will require creat- sity officials, government, industry, foundations,
ing opportunities for various forms of licensing and NGOs to identify priorities and opportuni-
(including exclusive licensing where appropriate, ties and then collectively carry them out.

NUGENT & KEUSCH
4 Thursby and Thursby report that 27% of university

Although IP has clearly spurred the devel- research licensed by industry allows for prepublication
opment of technologies that promote the public deletion of information from research papers; 44% of
health of wealthier nations, the impact of IP in them allow for publication delays of about 4 months,
on average (see Thursby J and M Thursby. 2003.
promoting global public health goods is mixed Intellectual Property, University Licensing and the
at best. Although the fundamental premise of IP Bayh-Dole Act. Science 301: 1052).
protection—that it acts as a spur to innovation 5 Seventy-five percent of licensed inventions from
and a reward for risk-taking—applies equally to universities are “proof of concept” (see Jensen R and M
all industries, some characteristics of the health Thursby. 1998. Proofs and Prototypes for Sale: The Tale
of University Licensing. National Bureau of Economic
care industry set it apart from other fields where Research: Cambridge, MA). This means that most
IP is important. Quite simply, in health care, the university inventions are at an early stage of development
outcomes of technology development and its at time of license and require further involvement from
the inventor to reach the commercial stage.
availability are matters of life and death.
In 2002, The Economist observed “Rich coun- 6 One rule of thumb is that one of 5,000 drug candidates
discovered in labs will be commercialized, Business
tries should accept that considerations of how IP Week, July 9, 2001. p. 96.
rights affect poor countries are not just a concern
7 Moran M and J Guzman. 2005. Drug R&D for Neglected
of overseas aid agencies but play a part in broader Diseases: Are Public Funds Appropriately Distributed?
trade and economic relations too.”42 This chapter chap. 2. Global Forum For Health Research: Geneva.
builds upon the truth of that insight. Indeed, if 8 Nass S and B Stillman (eds). 2003. Large-Scale
Bayh-Dole were being debated today, then surely Biomedical Science: Exploring Strategies for Future
Research. National Academies of Science, Washington,
the economic development objectives at the core
DC. p. 168.
of the legislation would take on a much broader
9 ott.od.nih.gov/about_nih/fda_approved_products.html.
meaning. ■
10 Stevenson-Wydler established technology transfer as a
federal agency mission, creating rules by which federal
agencies could license discoveries for commercial use
Rachel A. Nugent, Senior Health Program Associate, Center and receive royalties and fees. Bayh-Dole extended
for Global Development, 1776 Massachusetts Ave NW, these powers to other organizations performing
Washington, DC 20036, U.S.A. rnugent@cgdev.org federally sponsored research, including universities.
See Congressional Research Service (various) and supra
Gerald T. Keusch, Provost and Dean for Global Health, note 11 for further details about federal patent law.
Boston University Medical Center and School of Public 11 U.S. General Accounting Office. 1998. Technology Transfer,
Health, 715 Albany St., Boston, MA, 02118 U.S.A. Administration of the Bayh-Dole Act by Research
keusch@bu.edu Universities. RCED 98-126, Washington, DC. p. 3.
12 Ibid.
1 Global Forum for Health Research. 2006; Monitoring 13 A 1983 presidential directive extended licensing rights
Financial Flows for Health Research 2005. Global Fo- to large businesses.
rum for Health Research: Geneva. www.GlobalForum- 14 CRS. 2000a. Patent Ownership and Federal Research and
Health.org. Development (R&D): A Discussion on the Bayh-Dole Act
2 This attention has been prompted significantly by the and the Stevenson-Wydler Act. RL30320, December 11.
World Bank’s publication of Investing in Health, which Congressional Research Service: Washington, DC. p. 11.
was the World Development Report of 1993 (World 15 National Institutes of Health. 2001. NIH Response to
Bank. 1993. Investing in Health. World Development the Conference Report Request for a Plan to Ensure
Report 1993. The World Bank: Washington, DC). The Taxpayers’ Interests Are Protected. NIH, Washington,
concern has been reinforced by the expanded activities DC. p. 10. www.nih.gov/news/070101wyden.htm.
of the Bill and Melinda Gates Foundation for global
public health, as well as the development of many 16 Prompted by persistent Congressional concerns about
other partnerships for public health. returns to taxpayers from federal research, NIH later
attempted to impose a policy of “reasonable pricing”
3 See extensive media coverage in 2001 of the South on the technology developed from certain types of
Africa AIDS drug controversy, Brazil’s decision to issue federal research. The private sector refused to comply
compulsory licenses for AIDS drugs, and the stalemate with this arrangement and it was eventually dropped.
subsequent to the November 2001 WTO meeting in Doha, Reference is made to NIH Cooperative Research and
Qatar, over drug access in public health emergencies. Development Agreements (CRADAs); see supra note 15
for discussion.

CHAPTER 3.2
17 35 U.S.C. § 202. Academic-Industry Relationships in the Biomedical

18 35 U.S.C. § 202(c)(4). Exclusivity grants the licensee the Sciences. Presented at NIH Economics Roundtable on
sole right to use the IP, which serves essentially as a Biomedical Research: Bethesda, October 19.
monopoly. Nonexclusive rights allow the grantee to 31 See for example: Bok D. 2002. The Commercialization of
use the IP, but they do not provide the right to be the Higher Education. Princeton University Press: Princeton,
only user. NJ; Kennedy D. 2005. Bayh-Dole: Almost 25. Science 307:
19 35 U.S.C. §.203(1). 1375; Krimsky S. 2003. Science in the Private Interest.
Rowman & Littlefield: Lanham, MD.
20 McGarey B and A Levey. 1999. Patents, Products and
Public Health: An Analysis of the CellPro March-In 32 Mission statement and partners in MIHR can be
Petition. Berkeley Technology Law Journal 14(3): 1114. viewed at www.mihr.org.
21 CellPro Petition to DHHS, March 3, 1997, cited and 33 See also Widdus R and K White. 2004. Combating
discussed in McGarey and Levey (see supra note 20). Diseases Associated with Poverty: Financing Strategies
CellPro petitioned for a license to practice a stem-cell Associated with Public Health and the Potential Role
separation technique developed by a researcher at of Public/Private Partnerships. The Initiative on Public/
Johns Hopkins University. CellPro had not been able Private Partnerships for Health, Global Forum for
to negotiate a license agreement with Johns Hopkins Health Research: Geneva.
or the existing licensee but had used the technology. 34 Ted Roumel, former deputy director of OTT/NIH.
It was found guilty of willful infringement on the Personal communication, June 2001.
Johns Hopkins patent. CellPro argued in its petition 35 It is important to note that many existing purchase
for government march in that Johns Hopkins and the arrangements through WHO and nonprofits are on
licensee had failed to commercialize the technology off-patent medicine and technology. Thus, the bulk
in a timely fashion and that public health and safety purchase through a competitive bidding process
needs were not being met. The NIH rejected both by WHO for TB drugs allowed a 30% lower unit
grounds of the petition. More recently, NIH was price through the purchase of generic drugs from
petitioned in 2004 to march in due to steep price manufacturers based in The Netherlands and India
increases imposed by Abbott Labs on ritonavir, an (The New York Times, June 22, 2001).
HIV/AIDS drug developed in part from public funds.
NIH declined the petitioner’s request. www.aamc.org/ 36 Light D. 2005. Basic Research Funds to Discover
advocacy/library/washhigh/2004/060404/_4.htm. Important New Drugs: Who Contributes How Much?
chap. 3 in Global Forum for Health Research: Geneva.
22 Both the timeliness clause and the public health and
safety clause were tested in the CellPro case. 37 Efficiency is maximized with an arrangement of
perfect price discrimination (in which each buyer
23 National Academy of Science. 2001. Board on Science, pays his maximum price), but can also be improved by
Technology, and Economic Policy; Committee on using block pricing according to the willingness to pay
Intellectual Property Rights in the Knowledge-Based of different market segments. This pricing scheme is
Economy, Workshop and Related Papers. April. NAS: referred to as Ramsey pricing.
Washington, DC www7.nationalacademies.org/step/
STEP_Projects_Intellectual_Property_Rights.html. 38 Tufts Center for the Study of Drug Development.
Outlook 2004. csdd.tufts.edu/InfoServices.
24 CRS. 2000b. R&D Partnerships and Intellectual
Property: Implications for U.S. Policy. 98-862 STM, 39 The domestic manufacturing requirement in the law
Updated December 6. Congressional Research Service: can be waived and applies only to U.S. sales.
Washington DC. p. 11. 40 For information about PIIPA, see www.piipa.org and
25 See supra note 4. Gollin M. 2003. Answering the Call: Public Interest
Intellectual Property Advisers. Paper presented at
26 See supra note 4. the Biodiversity and Biotechnology Conference,
27 AUTM 2005. AUTM Licensing SurveyTM: FY 2004. Washington University School of Law, St. Louis, MO,
Association of University Technology Managers: April 4–6, 2003.
Northbrook, IL. www.autm.net. Note that figures 41 Ethical investment funds or other financial tools are
include royalties and fees from all patents and licenses. recommended among the “Top 10 Biotechnology”
In comparison, NIH royalties from intramural licensing approaches for improving global health by a
were US$52 million in fiscal year 2000. commission of the Joint Center for Bioethics at the
28 See supra note 24. University of Toronto (see Daar AS, H Thorsteinsdottir,
29 Goldberg R. 2001. In Changing Times, NIH, NSF Look DK Martin, AC Smith and PA Singer. 2002. Top Ten
Outdated. Trendspotter (May). www.genomeweb.com. Biotechnologies for Improving Health in Developing
This includes product development expenditures. Countries. Nature Genetics 32: 229–32).
30 Blumenthal MD and M David. 1995. Capitalizing 42 The Economist. 2002. September 14. p. 14.
on Public Sector Research Investments: The Case of

CHAPTER 3.3
Echoes of Bayh-Dole? A Survey of IP and

Technology Transfer Policies in Emerging
and Developing Economies
Gregory D. Graff, Research Economist, PIPRA, U.S.A., and Visiting Research Fellow, Department of Agricultural
and Resource Economics, University of California, Berkeley, U.S.A.
ABSTRACT range of sophistication and expertise, both across and

Seeking to drive economic growth within the knowl- within countries of all three tiers. Higher capacities for
edge economy, governments have increasingly sought to institutional intellectual property management appear to
commercialize the results of publicly funded research. be more closely associated with levels of R&D expendi-
The ability to use intellectual property (IP) as a tool to ture than with the existence or absence of national poli-
encourage and facilitate commercialization hinges on cies that allow or encourage institutional ownership. The
three fundamental policy concerns: protection, owner- implication is that intellectual property management at
ship, and management capacity. This chapter surveys the institutional level grows in tandem with strong R&D
the policies and practices across an array of emerging and the capacity for the local economy to commercialize
and developing economies, including Argentina, Brazil, the technology.
Chile, China, Ethiopia, India, Indonesia, Jordan, Kenya,
Malaysia, Mexico, the Philippines, Poland, Russia, South
Africa, Tanzania, Uganda, and Vietnam. In regard to the 1. Introduction
availability of intellectual property protections, the sur-
As governments in countries with emerging and
vey finds that countries can logically be sorted into three
tiers. The first tier contains the most innovative countries, developing economies confront the issues of
those with an active intellectual property system used vig- globalization and technological advance, many
orously by domestic patentees. The second tier consists have focused on how domestic universities and
of countries actively seeking to become more innovative, research institutes can promote economic growth
with intellectual property systems that are only beginning
to be used by domestic patentees. The third-tier countries by supporting and seeding innovation in the pri-
are those with limited or nascent intellectual property vate sector. Such institutions have traditionally
systems and virtually no domestic patentees. Almost all served two core missions: to educate the elites of
first tier innovative countries, about half of second-tier the workforce and to conduct applied or adap-
countries, and no third-tier countries have formally ad-
dressed the question of intellectual property ownership
tive research to address domestic economic and
through national policy. Among those that have, how- social needs. Institutions in developing coun-
ever, the survey finds a wide range of policy approaches tries are also often concerned with carving out a
used to address the question of intellectual property own- place for the country within the global scientific
ership, including patent law, labor law, government pro-
community.
curement or contract law, and laws governing national
R&D or innovation systems, as well as rulings by min- Increasingly, government officials in devel-
istries of science and technology or ministries of higher oping countries are under pressure to democra-
education. With regard to institutional intellectual prop- tize higher education and fund a broader range
erty management capacity, the survey finds a very broad of research and development priorities. At the
Graff GD. 2007. Echoes of Bayh-Dole? A Survey of IP and Technology Transfer Policies in Emerging and Developing Econo-
mies. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krat-
© 2007. GD Graff. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

GRAFF
same time, commercializing innovation is being in a synergistic process with each part supporting,
emphasized as a core mission of publicly funded and supported by, the others, just as the differ-
research. To advance this mission, the tools of patent parts of an ecosystem co-evolve. This chapter
enting, technology transfer, and venture creation provides brief sketches of the national policies
are increasingly deployed. Indeed, in countries governing university and public sector technology
like China and India, student numbers are swell- transfer by means of intellectual property, looking
ing, rates of publication in prestigious interna- at how the three basic policy questions have been
tional journals are climbing, academic patents are addressed around the world. From these observa-
growing, and the number of start-up companies tions, we can distill general trends in legislative,
is increasing. Like other areas of development regulatory, and institutional reforms from around
policy, academic innovation may be an area in the world.
which developing countries can leapfrog directly
to the standards and practices of the knowledge
economy. 2. Primary areas of policy affecting
National systems of innovation are not made technology transfer
overnight; they evolve over generations. Those
economies that are today actively seeking to ex- 2.1 Availability of IP protection
pand the private economic impact of their pub- The first policy question is whether private-
licly funded R&D are building upon the legacies property rights can be claimed over the intangi-
of past investment in their institutions and in ble results of research. This issue is governed by a
the human capital that is the very source of in- country’s intellectual or industrial property laws.
novation. Today’s challenge is to adapt the policy Some degree of global standardization has been
environment to improve the social rate of return achieved through multilateral agreements. The
on those investments. This can be achieved by in- Paris Convention of 1883 ensures that foreign
creasing the flow of technologies into the private inventors from signatory countries are treated as
sector. It is therefore important to understand nationals. The Patent Cooperation Treaty (PCT)
how technology transfer from universities and of 1970 provides a common patent application
public research institutions is affected by national clearinghouse for inventors wishing to file for
policies. The three fundamental policy questions patents in multiple countries. The Agreement on
that any country must answer are: Trade-Related Aspects of Intellectual Property
1. To what extent are intellectual property (TRIPS) of the WTO, adopted in 1994 and
(IP) protections available? entered into force in 1995, stipulates minimum
2. To whom can/should the ownership of IP standards for members of the WTO. In ad-
those property rights be assigned? (To dition, provisions or conditions for IP protec-
the government or third-party sponsor of tion are often the subject of bilateral trade agree-
the research? To the institution where the ments. Influential centers of trade such as the
work was conducted, or to the individual United States and the European Union exert a
inventor?) harmonizing influence on the national policies
3. What capacity, in the form of dedicated in- of trade partners with whom they have con-
frastructure, programs, or other resources, cluded bilateral trade agreements. These trade
will be provided to identify, protect, and leaders often set standards for IP protection that
commercialize new technologies and to are even higher than the conditions set forth in
support industrial development and tech- TRIPS. In the specific area of newly bred plant
nology-based entrepreneurship activities? varieties, the Union for the Protection of New
Plant Varieties (UPOV) Convention, adopted
IP is just one part of an economy’s system of in 1961 and revised in 1972, 1978, and 1991,
innovation. The research base, the legal IP regime, has established international standards for plant
and the institutional infrastructure all co-evolve variety protection (PVP). Each revision of the

CHAPTER 3.3
treaty outlined increasing levels of protection These commonly specify that inventions made in
that countries can decide to adopt. the natural course of employment are to become
Even if domestic IP rights are not available the property of the employer, although conditions
for a newly invented technology, the inventor may be put in place, such as requiring additional
does have the option of filing in other countries compensation for the employee-inventor. In some
where IP rights may be granted. It is common countries, particularly in continental Europe and
for inventors around the world to minimally file Scandinavia, an exemption to labor law has been
in the major triad of the United States, Europe, historically granted to university faculty, dubbed
and Japan. the “professor’s exemption.” This exemption gives
faculty the right to take ownership over any intel-
2.2 Ownership of intellectual property lectual property resulting from the research they
The second policy question concerns the locus conduct at the university.
of ownership of intellectual property that results
from work done at publicly funded organizations. 2.2.3 Laws of funded or contracted research
Legislative reforms have been introduced in many Government funds or contracts, including those
countries seeking to systematize and promote granted for the conduct of research, often carry re-
the commercialization of technologies. Many quirements for the recipients of those funds or for
of these efforts have taken inspiration from the the parties to that contract. In some (increasingly
experience of the United States under the Bayh- rare) cases, a government may explicitly require
Dole Act of 1980, which harmonized the variety that the results of research funded by the govern-
of U.S. government agency IP ownership poli- ment be made freely available to the public, thus
cies. The Bayh-Dole Act specifically focused on prohibiting any private IP claims. In other cases,
the rules concerning the disposition of IP rights a government may itself take ownership of IP
over inventions that result from federally funded rights over the results of research. Alternatively, a
research. It effectively limited the government’s government may choose to devolve the rights of
role in ownership, vesting ownership rights to the ownership, either to the institution that hosted
organization where the invention is made, along the research or to the individual inventor. The pri-
with responsibilities and conditions for how the mary justification of the latter two policies is that
intellectual property is to be managed. It is pos- putting the IP rights into the hands of the host
sible, however, for other areas of law, including institution or the inventor properly aligns private
patent law and labor law, to shape how universi- economic incentives to encourage inventions and
ties manage intellectual property.1 entrepreneurial activity. The premise is that eco-
nomic activity governed by the market will better
2.2.1 IP, industrial property, or serve the economy and consumers—while at the
patent laws and regulations same time generating rewards and incentives for
IP or patent law often provides conditions for the institutions and researchers based on the actual
disposition of patent rights between the individ- market impact of their contribution.
ual inventor, the institution that employs him or
her, and a designated assignee of the rights, which 2.2.4 Laws and regulations of
can be either the employing institution or a third the national R&D system
party. Governments in many countries are taking specif-
ic steps to develop national innovation or R&D
2.2.2 Labor or employment systems supported by an integrated set of policies
laws and regulations covering the creation of new research institutions,
Employment laws and regulations can stipulate increased research funding, management of hu-
the privileges, rights, and responsibilities of em- man resources, and the provision of grants and
ployees, including the disposition of rights to in- subsidies. These policies might include tax incen-
ventions made during the course of employment. tives for industry R&D and institutions along

GRAFF
with funds to support venture investment and While national laws and regulations provide
entrepreneurship. As part of the integrated policy, a legal framework within which universities and
there may be rules for the provenance of intellectual public research institutes operate, these are ulti-
property created within the national system. mately implemented by the staff dedicated to the
management of technology commercialization.
2.2.5 Ownership questions in the absence of Institutional policies can be slow to take shape,
domestic policies and dedicating resources, establishing offices,
In cases when IP rights are not available in an and deploying staff takes time and commitment.
inventor’s home country, the question of owner- However, while universities develop or adapt for-
ship may still arise, in particular the ownership mal policies, rules, and regulations, the informal
of available foreign IP rights, whether it be by norms and practices within the academic culture
the individual inventor, their government, their are equally crucial. Once policies and capacity are
employing institution, or a third-party assignee. established at the institutional level, an effective
Importantly, in the absence of laws specifi- IP management program can take up to ten years
cally enabling or restricting ownership of intel- to develop and mature into a self-sustaining en-
lectual property, universities and public research terprise that is supported by the academic com-
institutions are free to establish their own policies munity. These capacity developments are often
and practices. This is the situation in many coun- most visible in the creation of offices or units for
tries, including developed countries such as the IP management, technology transfer, or commer-
U.K. Such openness can allow a research insti- cialization, and in the volume of patents, licensing
tution greater IP management flexibility. On the deals, or spinouts coming from the public sector.
other hand, the lack of a specific national policy
on IP ownership often indicates a lack of coordi-
nation or transparency. 3. Current policies in
emerging economies
2.3 IP management capacities
The third fundamental policy question concerns 3.1 Argentina
the provision for IP management and technol- IP protection. Argentina’s current patent law, the
ogy commercialization. Merely providing for the Law on Patents and Utility Models No. 24.481
existence of private-property rights over intellec- was adopted in 1995, amended by Law No.
tual assets is not enough. Public institutions need 24.572 in 1995, and harmonized in 1996 by
more than rights to own intellectual assets; they Executive Decree No. 260.96. Argentina joined
need to develop the infrastructure and expertise the WTO and became signatory to TRIPS in
required to manage these intellectual assets and 1995, which entered into force in Argentina on
engage in productive commercial relationships 1 January 2000.3, 4 Under Article 100 of the new
with private companies and investors. Even in Law on Patents, pharmaceutical products became
high-income countries such as the United States, patentable as of 2000 (with patent applications
institutional developments took a decade or more accepted as of 1995). Article 6 of the new Law
to spread through universities. While universities on Patents, however, clearly stipulates that plants,
were left to create infrastructure and expertise on animals, and indeed “all classes of living materials
their own in the United States, many other coun- and substances existing in nature” cannot be pat-
tries have pursued policies that range from pro- ented. Article 7 reinforces this, excluding from
viding subsidies to universities to set up technol- patentability “the totality of biological and genetic
ogy transfer offices (TTOs)—Denmark is a good material existing in nature…”5 Patents are admin-
example—to establishing national networks or istered by the Instituto Nacional de la Propiedad
central offices to coordinate and assist universi- Industrial (INPI).6
ties in developing their technology transfer opera- Plant varieties are protected in Argentina
tions (such as Chile).2 under the 1973 Law No. 20.247 on Seed and

CHAPTER 3.3
Phytogenetical Creation (the Plant Varieties salaries for most university-based scientists in the
Law). Argentina joined UPOV in 1994, as en- country. TTOs of individual institutions may es-
acted by Law No. 24.376 on the Protection New tablish individual agreements with CONICET
Varieties of Plants.7, 8 for the assignment and management of particular
In 2004, the National Agency of Scientific inventions. CONICET does not, however, have a
and Technologic Promotion announced an ini- general policy on handling joint inventions.12
tiative to help researchers, both in industry and Institutional capacities. As a result of owner-
government laboratories, to pay for foreign pat- ship laws, there is both some IP management and
ent filings, in an effort to boost the rate of do- coordination capacity at the government level.
mestic patenting (in many jurisdictions, domes- TTOs exist at some universities, and IP manage-
tic filing is a prerequisite for foreign filing). In ment is also contracted out to third-party man-
2000, 145 patents issued by Argentina went to agement companies or centers. Among the most
residents of Argentina, while 1,442 went to for- developed programs are:13
eign residents.9 • University of Quilmes
Ownership. The 1990 Law on the Promotion • University of Cordoba
of Technological Innovation No. 23.877 and the • University of Litoral
1995 Law on Higher Education No. 24.521 pro- • Inis Biotech (the TTO for Instituto Leloir)
vided certain conditions for institutional owner- • Some capacity for IP management is central-
ship and transfer of intellectual property result- ized at CONICET, within its Directive for
ing from the work of researchers.10 The 1990 law Science and Technology Links (Dirección
allows national research institutions to establish de Vinculación Científico Tecnológica).
or outsource TTOs, but leaves the question of This lists on its Web site more than 60 pat-
internal distribution of income up to institu- ents registered in Argentina, 12 registered
tional policy. It allows for researchers to receive in other Latin American countries, and
income beyond their government salaries from four registered in the European Union, the
technology commercialization activities. The law United States, and Canada14
also provides for government funding of TTOs • The Constituyentes Technology Pole (Polo
for collaborations with (preferably small) busi- Tecnológico Constituyentes) was created
nesses and establishes a fund for this purpose. In in 1997 to facilitate technology transfer
the 1995 law, Article 59 establishes the financial for several research institutions, includ-
autonomy of national universities and their right ing the National University of General
to seek additional sources of revenue from the San Martín (UNSAM), the Atomic
provision of services, products, contributions, Energy Commission, (Cómision Nacional
fees charged, and any other resources, including de Energia Atómica - CNEA), and the
technology transfer and commercialization. The National Institute of Industrial Technology
law also allows national universities to form or (Instituto Nacional de Tecnología Industrial
own corporations.11 - INTI)
However, the 1995 Law on Patents and
Utility Models (24.481, modified by 24.572) es- The Secretary of University Policies, which is
tablished that the ownership of inventions made part of the Ministry of Education, has established
by employees in the course of their jobs goes to a Technology Network (Red de Vinculacion
the employer, in most cases. But the law also re- Tecnologica) that holds meetings and provides
quires the distribution of a share of the income to general information. Its main mission is to main-
the inventor, and for researchers at national uni- tain professional networks.
versities, it, in effect, gives joint ownership to the
university and the centralized agency CONICET 3.2 Brazil
(Consejo Nacional de Investigaciones Cientificas IP protection. Brazil has a long history of IP rights,
y Tecnicas), which manages employment and pays having first introduced a system of protection in

GRAFF
1809. Brazil was also an original signatory to (free inventions), and inventions that combine
the Paris Convention in 1884. Beginning in the both (mixed inventions). Universities thus need
1950s, Brazil pursued an aggressive science and to establish the type of inventions on a case-by-
technology policy designed in part to engen- case basis and can take title to those made in the
der economic development under an import- course of employed work. According to Article
substitution development policy. The previous 93 of the Law on Industrial Property and spelled
Industrial Property Code (Law No. 5.772), dat- out in Presidential Decree No. 2.553, of April
ing from 1971, supported this policy by exclud- 1998, inventors who are employees in public in-
ing patent protection for certain areas of tech- stitutions are to receive remuneration from the
nology, such as pharmaceuticals and chemicals. income created by the patent, as an incentive or
Following political and economic reforms, IP bonus for inventing. The exact share to be dis-
laws changed significantly in the 1990s. Brazil tributed is left to institutional policy, but is not
became a founding member of WTO and thus to exceed one-third of the value of the invention.
a signatory to the TRIPS Agreement in January Terms of IP ownership and revenue sharing are
1995. The Law on Industrial Property No. further spelled out in implementing orders of the
9.279 of 1996 entered into force in May 1997 Ministry of Science and Technology, No. 88, of
to implement TRIPS. It has since been amended 1998, and the Ministry of Education and Sport
several times. Patents are administered in Brazil (No. 322 of April 1998).20
by the National Institute of Industrial Property Institutional capacities. As early as 1982, un-
(Instituto Nacional da Propriedade Industrial der the former military regime, a central office for
- INPI).15 Article 10 of the Law on Industrial technological innovation was established at the
Property excludes from patentability materials National Council for Scientific and Technological
existing in nature: “all or part of natural living Development to promote innovation at uni-
beings and biological materials found in nature, versities and encourage technology transfer to
even if isolated therefrom, including the genome Brazilian industry. Thereafter, 12 Technological
or germplasm of any natural living being, and Innovation Centers were established at Brazilian
natural biological processes.”16, 17 universities to protect intellectual property and
Plant varieties are protected under Law No. facilitate the university–industry interface. Today,
9.456, adopted in April 1997, and implement- more than 30 universities and research institutes
ed by Decree No. 2.366, in November 1997. operate TTOs.21 Among the largest and most ex-
They are also protected by the Ordinances of the perienced are:
Ministry of Agriculture No. 503, in December • the Agency for Innovation at Unicamp
1997, and No. 8, in June 1999. Brazil has been a (Inova Unicamp)22 at the State University
member of UPOV since May 1999.18 of Campinas (Unicamp)23
In 2002, Brazil issued 666 patents to resi- • the USP Agency for Innovation (Agência
dents of Brazil and 1,366 to foreign residents.19 USP de Inovação)24 at the University of Sao
Ownership. For purposes of invention Paolo
ownership, researchers at universities and pub- • the Brazilian Agricultural Research
lic research institutes are not considered, under Corporation (Empresa Brasileira de
Brazilian law, to be different from other kinds of Pesquisa Agropecuária - EMBRAPA),25
employees. The Law on Industrial Property gives which adopted an institutional IP policy in
inventors the right to apply for a patent, but gives 1996 and opened its IP Secretariat in 1998
employers the right to ownership of an inven- to handle intellectual property and tech-
tion by an employee that is “hired to invent,” nology transfer26
according to the terms of their employment • the Technology Development Support
contract. The law thus differentiates between in- Center (Centro de Apoio ao Desenvolvim-
ventions made in the course of employed work, ento Tecnológico - CDT), created in 1989
inventions made separately from employed work at the University of Brasília, and among the

CHAPTER 3.3
earliest university centers for technology employees to completely waive the portion of IP
transfer 27, 28 rights due to them as inventors. Major Chilean
• the Secretariat for Technology Development research funding sources (such as FONDEF and
(Secretaria de Desenvolvimento Tecnológico CONICYT) now require IP protection of results
- Sedetec) at the Federal University of Rio by those organizations receiving funding, includ-
Grande do Sul, formed by merging the oping universities.35
erations of a TTO and an incubator net- Institutional capacities. Among leading
work in 200029 Chilean organizations with an organizational ca-
pacity for IP management are:
Patenting by Brazilian public sector institu- • University of Concepción, with its Center
tions has grown dramatically. In 2003, the top for Industrial Property (Unidad de
seven universities plus EMBRAPA received 153 Propriedad Industrial)36
patents in just one year.30 In contrast, over the 15 • In 2003, the University of Chile formed
years between 1980 and 1995, all Brazilian uni- the Central Commission for Industrial
versities and EMBRAPA received just 264 pat- Property (Comisión Central de Propiedad
ents combined.31 Industrial)37
• Fundación Chile, which coordinates inno-
3.3 Chile vation and entrepreneurship projects based
IP protection. IP protection over technological upon Chilean R&D, provides expertise and
inventions in Chile is based upon the Industrial resources for IP management38
Property Law (No. 19.039) of 1991. A 2005 • NEOS, a consulting company located in
modification (No. 19.996) brings Chilean law Santiago, provides professional IP services
into line with the minimum requirements in for universities in Chile39
TRIPS and the IP requirements in the bilateral
free-trade agreements concluded with the United 3.4 China
States and the European Union. Chile has been a IP protection. IP law is widely viewed in China
member of the WTO and a signatory to TRIPS as a western import, with a first patent law adopt-
since 1995. However, Chile is not a member of ed relatively recently in 1984 and a copyright law
the PCT. In Chile, patents are administered by adopted in 1990. While protection and enforce-
the Department of Industrial Property. 32, 33, 34 ment under these has been of ongoing concern
Plant varieties are protected in Chile under the for outsiders, the internal political climate has
Rights of Breeders of New Varieties of Plants (No been shaped by the desire to join WTO and the
19.342) of April 1997. Chile joined UPOV in growing prowess of Chinese companies in science
1996. and technology. It is largely these internal forces
In 2000, Chile granted 32 patents to resi- that led to the strengthening of the patent law in
dents of Chile and 569 to foreign residents. 1992 and in 2001.
Ownership. The Industrial Property Law New plant varieties are protected under
(No. 19.039) regulates the ownership of intel- the Regulation on the Protection of New Plant
lectual property resulting from work conducted Varieties, implemented in 1997. China joined
under contract or employment. A section spe- UPOV in 1999.40
cifically on universities stipulates that IP rights In 2004, China granted 18,241 patents to
derived from the work of university employees residents of China and 31,119 patents to foreign
belong to the university or its designee, since residents.41
that inventive or creative work is understood to Ownership. As early as 1985, just five years
be part of the job obligation. However, certain after Bayh-Dole passed in the United States, pro-
limitations on the assignment of IP ownership visional regulations issued by the State Council
are set by workers’ rights provisions in Chilean on Technology Transfer gave Chinese universi-
labor law, namely that universities cannot ask ties the right to manage and use the inventions

GRAFF
of university researchers, even though owner- 3.5 Ethiopia

ship formally remained with the State.42 The IP protection. Ethiopia is an example of a coun-
government, however, has only recently encour- try still largely outside of the global IP system.
aged universities to assert such rights. China Ethiopia has a basic patent code, created in 1995
adopted its Act for Promotion of Technology by Proclamation No. 123 Concerning Inventions,
Transfer in 1996, later reinforced by the Decision Minor Inventions, and Industrial Designs, and
on Reinforcing Technological Innovation and instituted in 1997 by Regulation No. 12. The
Realizing Industrialization of the State Council stated purpose is to encourage local innovation
in 1999 and by the Opinion on Exerting the (mostly minor adaptations of existing technolo-
Role of Universities in Science and Technological gies) and transfer in foreign technologies. The
Innovation issued jointly by the Ministry of proclamation precludes the patenting of plants,
Education and the Ministry of Science and animals, and essentially biological processes.49
Technology in 2002.43 The latter is often called The country is an observer but not a signatory
the “Chinese Bayh-Dole Act.” In 2003, the to WTO, and is thus not bound to compliance
Ministry of Education again clarified the rights with TRIPS. Ethiopia protects copyright under
of IP ownership by institutions undertaking re- its civil code.50
search sponsored by the government in its Key PVP was introduced in February 2006 by
Points on Promoting Science and Technology of Proclamation No. 481, Plant Breeder’s Rights.51
Universities.44 In 2000, the Ethiopian Intellectual Property
Institutional capacities. Internal organiza- Office received just seven patent applications
tional capacity for IP management is most readily and granted just one, to a foreign resident. In
found at leading universities, such as: the same year it granted 19 industrial designs,
• Tsinghua University, with probably the 12 to residents of Ethiopia and seven to foreign
most well-developed university TTO in residents.52
China45 Ownership. There is no national framework
• Beijing University and an apparent lack of clarity or transparency
about the terms and conditions under which
The number of patent applications from public research institution or individual inventors
across the full range of Chinese universities is might be owners of any IP rights.
significant. It quadrupled in the four years from Institutional capacities. The largest research
1999 (with 988 applications) to 2002 (with 4,282 organizations in the life sciences are Addis Ababa
applications).46 For comparison, U.S. universities University, Alemaya University, the Ethiopian
reported total patent applications increasing less Health and Nutrition Research Center, the
than two fold between 1999 (with 8,457 appli- Ethiopian Agricultural Research Organization,
cations) and 2002 (with 12,222 applications).47 the National Veterinary Institute, and the
However, some caution should be taken in inter- International Livestock Research Institute (ILRI),
preting these figures, since the practice of patent- all producing locally or regionally marketable re-
ing by Chinese academics appears to have been search results. Only the Ethiopian Agricultural
adopted as something of a proxy for published Research Organization has an IP unit in forma-
research. In fact, inventorship on patents is wide- tion. The rest have no IP management units, and
ly admitted as a criterion for academic promo- their scientists and staff have a very low level of
tion. Significantly, far fewer Chinese university awareness and knowledge about IP rights. The
patents are being licensed or commercialized. Ethiopian Intellectual Property Office has re-
Still, Tsinghua University reports having spun off ceived only a handful of patent applications from
more than 38 companies, generating annual sales university researchers in Ethiopia, (primarily in
of US$1.8 billion and actively incubating more agriculture, pharmaceuticals, and mechanics)
than 200 companies at the Tsinghua Science Park and only one from the Ethiopian Agricultural
during 2003 alone.48 Research Organization.53

CHAPTER 3.3
3.6 India and the National Research and Development

IP protection. India’s history with IP law is deeper Council (NRDC) are also involved in technology
than that of many developing countries. The first transfer activities.59
patent law was adopted in 1856, and by 1911 Most academic intuitions still lack IP man-
Indian patent law conformed to the standards agement capacity, with the exception of the lead-
of developed countries. Copyright, trade secrecy, ing Indian Institutes of Technology (IITs) and a
and design laws have been in place equally as long. few other universities. TTOs or centers are now
However, patent law was relaxed in 1970 under found at:
the import-substitution industrial policy, which • IIT New Delhi
encouraged economic development through the • IIT Bombay
reverse engineering of western technologies. Since • IIT Kharagpur
adopting market-oriented reforms and seeking • IIT Kanpur
WTO membership in the 1990s, reform in IP • IIT Guwahati
law has been rapid. India joined the WTO and • IIT Roorkee
became signatory to TRIPS in 1995. Patent law • IIT Chennai
was strengthened in 1999 and again in 2002 to • Delhi University
become compliant with TRIPS.54 Legislation that • Govind Ballabh Pant University of
passed in 2005 reinstated the patenting of phar- Agriculture & Technology, Pant Nagar
maceutical compounds, reversing legislation from • Bidhan Chandra Krishi Vishwavidyalaya
1970 that limited patenting to the processes for • Jadavpur University60
the manufacture of pharmaceuticals.55 Today, an
elite cadre of Indian pharmaceutical companies Only a small portion of the 277 Indian
has emerged with the capacity to engage in glob- universities listed by the Association of Indian
ally competitive R&D, significantly influencing Universities have functioning TTOs.61 In April
India’s internal IP policy debate. 2005, a professional association for technol-
Plant varieties are covered by the Protection ogy transfer was launched—the Society for
of Plant Varieties and Farmers’ Rights Act of Technology Management (STEM).62 In April
2001.56 India has not joined UPOV. 2006, the Minister of Science and Technology
In 2004, India granted 851 patents to resi- announced plans to set up an Indian Institute for
dents of India and 1,466 to foreign residents.57 Intellectual Property Management.63
Ownership. In 2000, the Ministry of Science
and Technology issued a ruling that gave title to 3.7 Indonesia
intellectual property to those institutions that IP protection. Intellectual property is a relatively
receive funding from the Ministry. While this is new concept in Indonesia. Indonesia signed the
not a legislated policy, it signaled a milestone in Paris Convention in 1950. It joined WIPO in
an ongoing trend of shifting technology transfer 1979. Industrial Designs were introduced by Law
activities away from the government to research No. 5, Concerning Industry, in 1984. Patents
institutions. This trend has been underway since were introduced by Law No. 6, Patent Law, in
at least 1995.58 1989 and amended by Law No. 13 in 1997.
Institutional capacities. The bulk of intel- Indonesia has been a member of WTO and a sig-
lectual property and technology transfer expertise natory to TRIPS since 1995.64, 65
in the public sector remains located in govern- In Indonesia, a plant variety can be protected
ment agencies, particularly in the Council for by a patent if it fulfils the basic requirements for
Scientific and Industrial Research (CSIR), the patentability. In addition, in 2001 the Indonesian
Department of Science and Technology (DST), parliament passed a Plant Variety Protection Act,
and the Department of Biotechnology (DBT). based on the UPOV 1991 standards, to estab-
The Ministry of Science and Technology, the lish a PVP system.66 Indonesia has, however, not
Indian Council of Medical Research (ICMR), joined UPOV.

GRAFF
In 1996, Indonesia granted 16 patents to of all relevant legislation and supporting regu-
residents of Indonesia and 615 to foreign resi- lations to outline areas that could be improved
dents.67 In 2003, however, Indonesia granted by an explicit act promoting commercialization.
2,902 patents, including both residents and This legal and regulatory review will lead to spe-
nonresidents.68 cific improvements in their technology transfer
Ownership. The 2002 Law No. 18, titled infrastructure.74
National Systems for Research, Development, Institutional capacities. Few universities or
and Application of Technology, stipulates that research organizations have had time to adapt
institutions and universities in Indonesia should to the new IP legislation, and thus far only the
establish units for IP management and that they Royal Scientific Society, the premier government
may use the income derived from the exploitation research institution, reports having established its
of intellectual property.69 Technology Transfer Centre.75
Institutional capacities. There are now, at
least nominally, over 90 IP management units at 3.9 Kenya
institutes and universities throughout Indonesia. IP protection. The application of IP regimes is
Leading centers of public sector IP management not deeply rooted in the history of Kenya or in
include: other countries of eastern Africa, and the coun-
• more than 30 research institutes of the try has typically responded to colonial influ-
Agency for Agricultural Research and ence or international developments. Kenya first
Development (AARD) have their technol- introduced its Patent Registration Ordinance
ogy transfer needs handled by Kekayaan in 1914, which was modeled and dependent
Intellectual dan Alich Teknologi (KIAT), upon the British system. However, the Industrial
established in 1999 Property Act of 1989 established the first inde-
• Indonesian Institute of Science (LIPI) pendent patent system in Kenya. Kenya joined
• University of Indonesia the WTO and became signatory to TRIPS
• Bandung Institute of Technology in 1995. The 1989 Act was superseded by the
• Bogor Agricultural University (IPB)70 Industrial Property Act of 2001, which set up the
Kenya Industrial Property Institute (KIPI)76 as an
3.8 Jordan autonomous office to administer patents, utility
IP protection. Jordan joined the WTO in 1999, models, trademarks, and service marks. Section
as the 136th member of the WTO. It became a 26 of the Industrial Property Act includes stan-
member and signatory to TRIPS in April 2000. dard TRIPS exemptions from patentability:
The Patents of Invention Law No. 32 was adopted methods for treatment of human or animal,
in 1999. In 2001, Jordan signed the U.S.-Jordan diagnostic methods, any drugs or compounds
Free Trade Agreement, which led to further necessary to combat threats to public health, and
IP reforms. Patents are issued by the Industrial plant varieties.77
Property Protection Directorate (IPPD) of the PVP was established in 1972 by the Seeds
Ministry of Industry and Trade.71, 72, 73 and Plant Varieties Act and implemented un-
Plant varieties are protected under the Plant der the Seeds and Plant Varieties Regulations of
Varieties Law No. 24 of 2000. Jordan acceded to 1994. Kenya acceded to UPOV in 1999 under
UPOV in October 2004. the terms of the 1978 Act. PVP is administered
In 2004, Jordan granted four patents to by the Kenya Plant Health Inspectorate Service
residents of Jordan and 56 patents to foreign (KEPHIS), under the Ministry of Agriculture
residents. and Rural Development.78
Ownership. Jordanian law is flexible in its In 2001, Kenya granted no patents to resi-
approach to commercializing technology devel- dents of Kenya and 33 patents to foreign resi-
oped in public sector institutions. Currently, a dents. That year just two applications were re-
high-level comprehensive review is underway ceived from residents of Kenya.79

CHAPTER 3.3
Ownership. A national policy for IP owner- amended several times, both before and after
ship, beyond that stipulated in the employment Malaysia joined the WTO and signed TRIPS in
and inventorship clauses of the Industrial Property 1995. The Patents Act excludes from patentabil-
Act, is largely irrelevant because public sector re- ity the same life-science subject matter excluded
search institutions make up most of the R&D inin TRIPS, including plant and animal varieties,
frastructure in Kenya. Many were founded with a essentially biological processes, and methods of
mandate for conducting innovation and product medical diagnosis and treatment. Since the 1983
development, since R&D is almost nonexistent Act, Malaysia has allowed product patents on
in the private sector. Thus, public institutions are pharmaceutical and agricultural chemical com-
neither prohibited nor mandated to take owner- pounds. The Intellectual Property Corporation of
ship; they are left to themselves to adopt institu- Malaysia Act of 2002 (Act No. 617) established
tional policies and capacities to assert ownership, the Intellectual Property Corporation of Malaysia
as long as the institutions operate according to as the new patent office. Malaysia joined the PCT
the basic requirements of national IP law. in August 2006.86
Institutional capacities. The development of The Protection of New Plant Varieties Act
institutional IP management capacity has been of 2004 (Act No. 634) is largely compliant with
motivated partly by reports that the University of UPOV, even though Malaysia has not yet joined
Nairobi, the premier university in Kenya, has had UPOV.87
to forego IP rights for some innovations due to a In 2003, Malaysia granted 31 patents to resi-
lack of clear policy and structures. These innova- dents of Malaysia and 1,542 patents to foreign
tions included a fermented milk product, a beer residents.88
product, a disease-resistant pea variety, a pesticide Ownership. Under the Patent Act of 1983,
compound, a database of medicinal plants, and a employers, including publicly funded research in-
potential AIDS vaccine.80 The following research stitutions, are the rightful owners of intellectual
institutions are currently engaged in developing property created by employees in the course of
IP policies and creating IP offices: employment. However, there have been recent
• University of Nairobi has recently adopted ministerial examinations of IP ownership issues
an IP policy that establishes an internal in cases where government funding is involved.
TTO.81 In 2003, the government announced the Second
• Moi University has established Moi National Science and Technology Policy, which
University Holdings Ltd., a fully owned included the following clauses:
subsidiary with a TTO to manage the uni- • “to promote adoption of sound research man-
versity’s intellectual property.82 agement practices including intellectual prop-
• Jomo Kenyatta University of Agriculture erty management and commercialisation of
and Technology (JKUAT) has drafted an research outputs in all PRls [public research
IP policy and employs one IP manager. institutes] and universities.”
• At Kenya Agricultural Research Institute • “to enhance the management of intellectual
(KARI) a legal officer manages intellectual property rights including patent advisory and
property. other services.”
• The International Livestock Research • “to review existing legislation or to develop
Institute (ILRI) adopted an IP policy in new legislation related to policy.”89
1998 and has an IP office at its Nairobi
center.83, 84, 85 In 2004, Malaysia’s Ministry of Science,
Technology, and Innovation (MOSTI), at the
3.10 Malaysia prompting of the prime minister, began a review of
IP protection. Malaysia instituted a range of IP incentive systems to attract and retain Malaysian
laws in the 1980s, including the Patents Act of scientists, including the availability of R&D fa-
1983 (Act No. 291). The Patents Act has been cilities, financial assistance, and venture capital.90

GRAFF
The Ministry also considered IP policy options and Innovation Management Centre
similar to those in the United States under the (RIMC), which was formed in 2005 out
Bayh-Dole Act.91 The government then indicated of the previous Research Management
that it would instead pursue a policy of three-way Unit established in 2003.98 Some IP com-
IP rights sharing: the government, research insti- mercialization services are also offered by
tute, and inventor would all jointly own research the Centre for Technology Transfer and
results.92 In a March 2006 announcement, the Consultancy (CTTC), formed in 1993 to
head of MOSTI announced, “research work un- facilitate collaboration between university
dertaken with government grants should be jointly experts and local industry.99
owned by the Government, the respective university, • The Malaysian Palm Oil Board (MPOB) has
as well as the scientists involved.”93 been one of the most successful organizations
Institutional capacities. Most universities in the country in using intellectual property
and institutes established their internal IP policies to commercialize technology.100 MPOB of-
under the Patent Act of 1983, asserting institu- fers an extensive list of technologies available
tional ownership of inventions made by employ- for transfer and commercialization, with
ees and managing them accordingly. Currently, licensing managed by the Licensing and
17 out of the 45 or so universities in Malaysia Enforcement Division.101, 102, 103
have established TTOs.94 IP management offices • The Malaysian Agriculture Research and
found at leading universities and research insti- Development Institute (MARDI) has a siz-
tutes include: able technology transfer and commercializa-
• University of Malaya’s Technology Transfer tion unit and list of technologies available
and Commercialization Unit (UPTK) for transfer and commercialization.104, 105
was founded in 1998 as part of the uni-
versity administration, but in 2001 it was 3.11 Mexico
transferred to the university’s Institute of IP protection. Mexican patent law has been
Research Management and Consultancy in place since the early 1800s. Today, intellec-
(IPPP), which handles the full range of re- tual property protection is governed under the
search interactions with industry. Industrial Property Law, adopted in 1994 and
• At Universiti Sains Malaysia (USM), the amended in 1997 and 1999.106 Mexico joined
Research Creativity and Management the WTO and signed TRIPS in 1995. Mexico’s
Office (RCMO) handles many issues re- Industrial Property Law excludes from patent-
lated to R&D relations with industry, inability any essential biological process for the pro-
cluding IP marketing.95 Some aspects of duction, reproduction, and propagation of plants
patenting and commercialization are also and animals; biological and genetic materials as
handled by the Corporate and Sustainable found in nature; animal species; the human body
Development Division (BPLK).96 and its living components; and plant varieties.107
• Univeristi Teknologi Malaysia (UTM) is the Patents are administered by the Mexican Institute
premier engineering institute in Malaysia. for Industrial Property (Instituto Mexicano de la
In 1993, the university created a Bureau of Propriedad Industrial).108
Innovation and Consultancy to promote Mexico protects plant varieties through the
technology commercialization within its 1997 Federal Law on Plant Varieties (Ley Federal
Research and Consultancy Unit, which has de Variedades Vegetales), under regulations imple-
managed research relations with industry mented in 2000 by the Ministry of Agriculture.
since 1981.97 Mexico joined UPOV in 1997, but joined under
• Universiti Malaysia Sarawak (UNIMAS) the terms of the 1978 Act.109
has recently established the new Intellectual In 2004, Mexico granted 162 patents to
Property and Commercialization Unit residents of Mexico and 6,677 patents to foreign
(IPMCU) within the university’s Research residents.110

CHAPTER 3.3
Ownership. In Mexico, Article 163 of the • Instituto Tecnológico de Estudios

Federal Labor Law (Ley Federal del Trabajo), Superiores de Monterrey (ITESM) has en-
adopted in 1970 and reformed in 1998, gov- gaged in several projects involving technol-
erns the ownership of inventions made by ogy transfer in aerospace and expert systems
employees.111 The law indicates that results of engineering
research are owned by the employer, who has • CINVESTAV is engaged in a number of
the right to exploit patents. The employee, biotechnology projects and has mediated
however, is to be given additional compensa- transfers of proprietary biotechnologies.
tion, and in some cases the right of ownership.
In all cases, the employee’s name is listed as in- 3.12 Philippines
ventor. The Industrial Property Law, Article 14, IP protection. IP protection has a somewhat
reflects these protections of the employee. The deeper history in the Philippines than in some of
2002 Law of the National Council of Science its neighboring Asian countries. After achieving
and Technology (Ley de Ciencia y Tecnología), independence from the United States in 1946 at
Articles 47–59, discusses invention ownership the end of World War II, the Philippines provid-
in cases where the national science council ed for the protection of inventions, utility mod-
(CONACYT) finances research and develop- els, and industrial designs under the Republic Act
ment in universities or any other nongovern- (No. 165) of 1947. Borrowing heavily from U.S.
mental organizations and in the 60 or so public patent law, it provided 17 years of protection from
research institutes and agricultural R&D centers the date the patent is granted and recognized pri-
in Mexico. In both cases, the ownership of the ority based on “first to invent.” The Philippines
results is determined according to the policies joined the WTO at its founding in 1995 and be-
of the organization where the research is car- came a signatory to TRIPS. IP law was brought
ried out. Many organizations, like universities into compliance with TRIPS provisions in 1998
and large companies, have policies that indicate with Republic Act (No. 8293), the Intellectual
that the ownership of research results goes to Property Code of the Philippines. This changed
the institution, but in most cases the inventor patent terms to 20 years from date of filing and
will get some share of the financial benefits. recognized priority based on first to file. The Act
Usually in the case of universities, the research- also created the Intellectual Property Office of
ers are named as the inventors on the patent but the Philippines. In accordance with TRIPS pro-
sign full ownership rights over to the university. visions, the Act treats as non-patentable plants,
Within universities, the distribution of benefits animals, and essentially biological processes for
follows the terms of an internal agreement or the production of plants and animals.114
institutional policies.112 Republic Act (No. 9168) of 2002, titled Act
Institutional capacities. Development of to Provide Protection to New Plant Varieties,
institutional IP policies and discrete offices of provides for sui generis protection of plant vari-
IP management is minimal, but includes the eties and established the National Plant Variety
following: Protection Board. The Philippines is not a mem-
• At the National Autonomous University of ber of UPOV.115
Mexico (UNAM), the General Counsel’s In 2003, the Intellectual Property Office
Office oversees IP policy and management. of the Philippines granted 11 patents to resi-
However, according to a critique in Nature dents of the Philippines and 1,160 patents to
Biotechnology, “there is no support, even at nonresidents.116
the university level, for patenting: the level of Ownership. The Philippines has no enabling
technology transfer is low… UNAM has nei- legislation to give ownership of inventions to uni-
ther sufficiently trained personnel, nor, appar- versities or research institutes, effectively leaving
ently, the interest to fight for its share on the them free to develop their own institutional IP
patents.”113 ownership policies.

GRAFF
Institutional capacities. Policies and offices government had some effects, with Poland join-
for IP management are being developed both ing the PCT only in 1990. Poland became a sig-
centrally and at leading research institutions: natory to TRIPS along with WTO membership
• The Department of Science and Technology in 1995. The Industrial Property Law of 2000
(DOST) has developed IP guidelines and (in force since August 2001) brought Polish pat-
the Technology Application and Promotion ents and trademark law into compliance with
Institute (TAPI) to provide centralized TRIPS, and its amendment in 2002 brought
services in technology transfer for pubic Polish law into harmony with E.U. directives on
institutions.117 biotechnology intellectual property, including
• A central University Intellectual Property patentability of biological materials, methods,
Office (UIPO) for the University of the and uses.121
Philippines was established in 1997 to co- The Law on Seed Industry of 1995 conforms
ordinate offices at its six semiautonomous to UPOV, of which Poland has been a member
campuses.118, 119 since 1989.122
• IP and technology transfer needs of faculty In 2004, Poland granted 778 patents
at the University of the Philippines, Diliman to residents of Poland and 1,016 to foreign
campus, is served by an intellectual property residents.123
section within the Research Dissemination Ownership. The Industrial Property Law,
and Utilization Office (RDUO) of the Article 11(3) stipulates that an employer or a
Office of the Vice Chancellor for Research contractor is the rightful owner of an invention
and Development. produced under work for hire or contract, unless
• The University of the Philippines, Manila, otherwise agreed upon by the parties involved.
the main medical research university, has This gives universities flexibility to arrange for
an intellectual property rights office in the ownership through terms of employment and
Office of the Vice Chancellor for Research. research agreements.124 In recent years the Polish
• The University of the Philippines, Los government has been shifting R&D spending
Baños, has an intellectual property rights away from relatively inefficient industry research
office in the Office of the Vice Chancellor institutes and state-owned companies and toward
for Research and Extension. universities.125 This shift in funding, however, has
• The Philippine Rice Research Institute not been accompanied by any new policy specifi-
(PhilRice) of the Department of Agriculture cally affirming or denying institutional ownership
created a TTO in 2004. of IP rights resulting from research conducted
• The International Rice Research Institute with state funds.
(IRRI) adopted an IP policy in 1994 that Institutional capacities. In practice, univer-
specifies that IP protection will only be sities own the intellectual property resulting from
used selectively to serve the needs of farm- research they conduct.126 IP management offices
ers in developing countries. IRRI coordi- in Poland are still developing and are found most-
nates intellectual property for some biotech ly at the leading universities, including:
projects for other institutions with which it
partners. • The Wroclaw Center for Technology
Transfer (WCTT) formed in 1995 at the
Thus far, only a few dozen patents have issued University of Wroclaw.127
to public sector institutions in the Philippines.120 • The Technology Transfer Center (Centrum
Transferu Technologii - CTT) formed
3.13 Poland in 1997 at the Cracow University of
IP protection. Poland’s IP system is relatively Technology.
mature, with the Polish Patent Office formed in • The Centre of Innovation, Technology
1918. However, the intervening years of socialist Transfer, and University Development

CHAPTER 3.3
(CITTRU), formed in 2003 at Jagiellonian Federation is still only an observer to the WTO
University.128 and is thus not bound to compliance with
• The Technology Accelerator and the Inno- TRIPS.
vation Center at the University of Lodz129 The Russian Federation provides for PVP
formed in 2003 through a mentoring col- under the Law on Protection of Achievements in
laboration involving technology commer- Plant Breeding, adopted in 1992 when the range
cialization and entrepreneurship established of new IP legislation was introduced. In 1998,
between the University of Texas at Austin Russia became a member of UPOV under the
and the University of Lodz. This was an terms of the 1991 Act.135
offset commitment under an agreement be- In 2005, Russia issued 19,447 patents to resi-
tween Lockheed Martin and the Polish Gov- dents of Russia and 3,943 to foreign residents.136
ernment for the purchase of F-16 fighters. Ownership. Attempts were first made to
• Poland has four regional Innovation Relay clarify the question of ownership by public re-
Centres (IRCs) hosted at university tech- search organizations in 1998 with the Decree of
nology centers, such as the IRC South the President No. 863 “On state policy for the in-
Poland, which is coordinated by the CTT troduction of the results of scientific and technolog-
at Cracow University of Technology.130 ical activity and objects of intellectual property into
The IRC Network was established by the economic turnover,” and implemented in 1999 by
European Commission in 1995 and now Resolution No. 982 “On the use of the results of
consists of 71 regional centers through- scientific and technological activity.”137, 138 While
out Europe. It seeks to support innovation stating in principle that a research organization
and transnational technology cooperation might take IP rights over inventions made un-
through coordinated activities and a com- der work funded by the federal budget, in effect,
mon technology database. the policies gave the Russian government first
right to any intellectual property by giving the
3.14 Russia government rights to any military, dual-use, or
IP protection. Russia has a history of intellectual other technologies deemed “of use to the State,”
property that dates to the time of the czars. The and by requiring all inventions made under
first patent law was adopted in 1812, and then re- federal funding to be recorded with the federal
formed in 1896.131 During the Soviet period, the government. These conditions meant that very
State effectively exercised monopoly power over few publicly funded inventions were reported
all technological innovations, including those and that few patents were sought through offi-
arising from universities and research institutes, cial channels.139 A fundamental shift in the gov-
with a Committee on Inventions and Discoveries ernment’s position, which provided clarity over
issuing authorship certificates to inventors.132 the rights of the organization conducting the re-
In 1991, the U.S.S.R. Law on Inventions radi- search, only came about in the 2003 revision of
cally departed from the Soviet system, creating the Patent Law. Article 9 states that the right to
a form of patent protection that gave exclusive patent an invention created under state funding
rights of ownership to inventors. In 1992, follow- belongs to the contracted research organization,
ing the establishment of the Russian Federation, unless the research agreement specifies that the
a range of IP legislation was adopted, including right belongs to the government.140
the Patent Law of 1992. The Committee for Institutional capacities. Despite the State
Patents and Trademarks was created, and in 1996 centralization and lack of formal IP rights un-
it was changed to the current Federal Service for der the Soviet system, some attention was paid
Intellectual Property, Patents, and Trademarks to developing mechanisms for the administrative
or ROSPATENT.133 In 2003, the Patent Law management of technology transfer at the institu-
was amended to bring it into alignment with the tional level. While technology transfers were free
provisions of TRIPS.134 As of 2006, the Russian of charge, they did occur between public research

GRAFF
organizations and state companies in the Soviet South Africa signed the TRIPS agreement in
Union and in other Soviet bloc nations. 1995. Patent Amendment Act No. 58 of 2002
As a result, a significant number of univer- was largely responsible for bringing the provi-
sities and research institutes today have well-de- sions of the Patents Act into line with TRIPS re-
veloped technology transfer policies and offices quirements. The Act excludes from patentability
in place. In addition, a number of private, third- “any variety of animal or plant or any essentially
party companies and centers have emerged to biological process for the production of animals
coordinate technology transfer services for mul- or plants.”151 Patents in South Africa are adminis-
tiple clients, including universities, institutes, and tered by the Companies and Intellectual Property
companies, within particular regions or particular Registration Office (CIPRO).152
fields of technology. Leading examples include: Plant varieties are protected in South Africa
• the intellectual property and technology under the Plant Breeder’s Rights Act No. 15 of
transfer department of the St. Petersburg 1976. South Africa became a member of UPOV
State University, founded in 1967 as the in 1977 and still adheres to the 1978 Act.
Patent and Licensing Department (PLD) In 1995, the last year in which data was re-
of the university141 ported to WIPO, 5,549 patent applications were
• the Puschino Center for Technology Transfer received from residents of South Africa, and
of the Puschino Scientific Center142 5,501 patent applications were received from for-
• the Innovation and Technology Center of eign residents.153
the University of Nizhny Novgorod143 Ownership. The patent law of South Africa
• the Patent Service Center of the Saratov contains IP ownership terms typical of many
State University144 countries, but it does not detail public sector
• the Obninsk Center for Science and employers’ rights of ownership or provide terms
Technology, which manages technology for publicly funded research.154 However, a na-
transfer and business development proj- tional policy for the ownership of patent rights
ects for the Institute of Physics and Power by public research organizations is currently in
Engineering (IPPE), as well as for R&D development.155 In the absence of such policies,
centers in the Russian Ministry of Atomic the question of ownership has historically been
Energy and the Russian Ministry of Science shaped by institutional IP policies. But these are
and Technology. 145 not uniform across or within institutions. While
• the Urals Regional Technology Transfer most universities prefer to take ownership of in-
Center 146 tellectual property whenever possible, a relatively
• the Southern Center for Technology high level of their research funding (about 58%)
Transfer 147 comes from industry contracts, which typically
stipulate industry control of IP rights resulting
In 2005, a professional association for tech- from the funded project.156 As a result, most uni-
nology transfer was launched in Russia and oth- versities maintain flexible policies and relinquish
er former Soviet republics, called the Eurasian ownership of intellectual property as needed to
Association of Technological Transfer Managers obtain industry research funding.157
(EATTM).148 The National R&D Strategy of 2002 con-
tained language recommending improved protec-
3.15 South Africa tion and commercialization of intellectual prop-
IP protection. IP law in South Africa historically erty from public research.158
derives from U.K. law. South Africa’s first Patents In 2006, draft legislation embodying these
Act (No. 37) of 1952 was modeled on the British recommendations was proposed: the Framework
Patents Act of 1949.149 It was superseded by the for Intellectual Property Rights from Publicly
Patents Act No. 57 of 1978, which is in force Financed Research. The Framework is largely
today, though amended at least eight times.150 modeled on the U.S. Bayh-Dole Act. It seeks to

CHAPTER 3.3
unify IP policies across different government 3.16 Tanzania

agencies that fund R&D and gives primary IP protection. Like other east African coun-
rights and responsibilities over intellectual prop- tries, Tanzania inherited a colonial IP system
erty to the funded research organization. The from the U.K., including the Patent Registration
draft legislation also retains certain privileges for Ordinance 217 of 1931. The patent ordinance
the government to use protected technologies was superseded by the Patent Act No. 1, adopted
and gives preference for licensing to domestic in 1987 and implemented in 1994. Tanzania
companies.159 joined the WTO and became signatory to
Institutional capacities. In order to sup- TRIPS in 1995, but under the terms for devel-
port their important funding relationships with oping countries it had until 2006 to become
industry, a cadre of elite research universities in fully compliant with its provisions. In 1997,
South Africa has developed significant IP policies under the Government Executive Agencies Act
and internal capacities for IP management. These No. 30, the Business Registrations and Licensing
include:160 Agency (BRELA) was established to administer
• University of Stellenbosch has a technology industrial property. Tanzania has been a mem-
transfer officer in the Office of Research ber of the African Regional Industrial Property
and has established Unistel, a wholly Organization (ARIPO) since 1983.164, 165
owned subsidiary, to commercialize re- Tanzania is not a member of UPOV, but in
search through start-up companies. compliance with its obligations under TRIPS,
• University of Cape Town (UCT) has a well- it adopted the Plant Breeder’s Right Act No.
developed IP policy and an office called 22 in 2002 to provide protection for new plant
UCT Innovation with a staff that handles a varieties.166
range of activities, including management In 1989, the last year for which data were
of research contracts, protection of intellec- reported, Tanzania granted 23 patents, all to for-
tual property, and technology commercial- eign residents.167
ization and entrepreneurship. Ownership. Similar to other African nations,
• University of Pretoria and the Council for the Patent Act serves as the policy for IP owner-
Scientific and Industrial Research (CSIR), ship. Public sector research institutions make up
the national research agency, have col- most of the R&D infrastructure in Tanzania; pri-
laborated to form a private company, the vate sector R&D is almost nonexistent. The pub-
Southern Educational Regional Alliance lic institutions are neither specifically prohibited
(SERA) Ltd., to handle licensing and com- nor mandated by law to take ownership, but are
mercialization for both institutions. left to adopt institutional policies and capacities
• The South African Medical Research to assert any ownership under the terms of na-
Council has a technology commercial- tional IP law.
ization unit called the MRC Innovation Institutional capacities. Several of the lead-
Centre.161 ing universities and research institutes have taken
the first steps to establish institutional IP policies
With the pending advent of the Framework, and are just beginning to set up IP management
the government has also proposed a centralized offices:168
office, the Innovation Fund Commercialization • Sokoine University of Agriculture, the first
Office (IFCO), to assist public institutions with institution in Tanzania to develop an insti-
IP management and to help cover some of the tutional IP policy, adopted in December
costs associated with IP protection.162 2003
In 2002 a regional association for technol- • Dar es Salaam Institute of Technology
ogy transfer professionals was launched, called • Tanzania Industry Research and Develop-
the Southern African Research and Innovation ment Organization
Managers (SARIMA).163 • Tropical Pesticides Research Institute

GRAFF
3.17 Uganda • The Ugandan Industrial Research Institute,

IP protection. After independence in 1962, which is very active in collaborating with
Uganda maintained a patent system inherited local industry, has a single liaison officer in
from the U.K. until the Patents Statue No. 10 charge of IP issues.
was adopted in 1991. Subsequently, the Patents • Makerere University, the oldest and largest
Act, Chapter 216 was passed and regulations university in Uganda, has no IP manage-
were implemented in 1993. Section 3 created ment policy or office.
the Office of the Registrar of Patents and a pat-
ent registry office to administer the granting of 3.18 Vietnam
patents. Uganda was a founding member of the IP protection. Chapter II of Part Six of the
WTO and became signatory to TRIPS in 1995. Civil Code of 1995, on intellectual property
The Patents Amendment Act No. 7 of 2002 and technology transfer, covers industrial prop-
brought Uganda into the PCT mechanism, but erty and was the first legislation to introduce IP
Uganda is still developing legislation to bring protections and include basic TRIPS provisions.
patent law into full compliance with TRIPS. Decree No. 63/CP of the Government, pro-
Uganda has been a member of the African mulgated in October 1996, contained detailed
Regional Industrial Property Organization regulations concerning Industrial Property.173
(ARIPO) since 1978.169, 170 Enacted in November 2005 and entered into
Although not a member of UPOV, Uganda force in July 2006, the new Intellectual Property
is a member of the Organization of African Unity Law has introduced comprehensive TRIPS-
(OAU), which has advocated a separate set of compliant IP standards, with the decrees and
standards for PVP in African countries. Uganda circulars needed to implement this law likely
passed the Agricultural Seeds and Plants Act in to be out by the end of 2006.174 Vietnam en-
1994 to provide for the registration of new plant tered into a bilateral free trade agreement with
varieties. the United States in 2004, which obliges it to
In 2001, Uganda granted no patents to resi- protect U.S. intellectual property. Vietnam also
dents of Uganda and 34 patents to foreign resi- joined the WTO in December 2006, bringing
dents. That year only two patent applications with it the formal commitment to comply with
were received from residents of Uganda.171 TRIPS obligations.
Ownership. No specific requirements, con- Vietnam introduced PVP in 1995. However,
straints, or distinctions are made in Ugandan law only the new Ordinance on Plant Varieties of
regarding the ownership of intellectual property March 2004 made it a workable system. PVP
by public sector research institutions or owner- is also included in the new Intellectual Property
ship of intellectual property from work funded by Law of 2006. Vietnam’s membership in UPOV is
the Ugandan government. As such, universities slated for late 2006.175
and research institutes are left to adopt institu- In 2005, Vietnam issued 17 patents to resi-
tional policies and capacities to assert IP owner- dents of Vietnam and 756 to foreign residents.176
ship under the terms of national IP law. So far, only about 14 instances of PVP have been
Institutional capacities. IP management granted in Vietnam, almost all going to foreign
in Ugandan institutions is, at best, embryonic, entities. There are currently 18 new applications
with the following developments reported for the for PVP, with some coming from domestic com-
country’s leading research institutions:172 panies and universities.177
• The Uganda National Council for Science Ownership. In general, property rights are
and Technology (UNCST) has plans to de- still weak in Vietnam. There are few mecha-
velop an IP management policy and office nisms in Vietnam to clarify and ensure the
that could serve as a central advisor on IP rights of ownership over technology created at
management issues for R&D institutions universities and research institutes.178 The situ-
that lack such capacity. ation is further complicated because, despite

CHAPTER 3.3
increasing autonomy, universities are still in 4. Trends and Conclusions

many respects regarded as part of the State ap- The 18 countries examined above provide a rep-
paratus.179 Industry is also still in the process of resentative cross-sampling of emerging and devel-
being privatized, and in most cases the State still oping economies. They represent an enormously
holds a large minority stake in, if not outright broad cultural, social, and economic landscape.
control of, private companies. Still, trends are discernable in the three areas
Institutional capacities. Currently, univer- reviewed: the availability of IP protections, the
sity researchers and administrators in Vietnam ownership of intellectual property over publicly
do not have much understanding of intellectual funded research, and the institutional exercise of
property. Their organizations largely lack IP man- IP rights.
agement capacity, although some are beginning
to seek patents and plant variety protections. 4.1 Trends in IP protection
Leading research institutions in the life sciences Trends in the availability of IP rights follow sev-
are beginning to orient toward intellectual prop- eral fundamental determinants. The first is the
erty as a tool for technology transfer. These insti- domestic science and technology capacity in the
tutions include: public and private sector and the level of eco-
• The Institute for Biotechnology of nomic development, both of which serve to drive
the Vietnam Academy of Science and the formation of IP policies and the use of the
Technology, which does not yet have a IP system by residents. A second and somewhat
formally adopted IP policy, has registered correlated determinant is the history of IP laws
about 20 patents. Inventions and royalty within the country; this factor is more difficult to
distributions are decided on a case-by-case measure than the first. Some countries have had
basis. systems in place for over a century, particularly
• Hanoi Agricultural University’s Science in Europe (Russia and Poland) and those that
Management Office has handled IP is- were major European, and particularly British,
sues for its researchers. Estimates are that colonies (India and South Africa). This leaves a
university faculty members have registered legacy of IP practices, even if IP rights have not
three or four patents and six to seven trade- been extensively used or enforced. Third, nation-
marks, largely on new crop varieties.180 al agreements, in particular TRIPS and UPOV,
• The Institute of Agricultural Genetics of have driven IP legislation in virtually every coun-
the Ministry of Agriculture and Rural try reviewed.
Development states that technology trans- Roughly three tiers emerge when gauging
fer is an important goal of new research the robustness of domestic IP systems (Table 1).
projects, particularly technology transfer to The first tier consists of a handful of countries
farmers, but it has not registered intellec- that have functioning IP policies and institu-
tual property over any inventions. tions, along with substantial numbers of domes-
• The University of Technology of Hanoi: In tic patent applications. These countries include
the last five years, 20 of the leading techni- the most-advanced innovators among emerging
cal and agricultural universities in Vietnam and developing economies, such as Brazil, China,
have signed 13,000 contracts worth VND India, and Russia.
1,188 billion (approximately US$74 mil- These countries all generate something in the
lion). From 2000 to 2004, 22 Technology range of 3,000 to 30,000 science and engineer-
and Equipment Fairs, called Techmarts, ing articles per year. Their national patent offices
were held in Vietnam, through which uni- grant 1,000 to 30,000 patents per year. Crucially,
versities and research institutes sold more residents account for at least 50% of patent re-
than 2,000 technology contracts worth cipients, signifying a significant level of domes-
up to VND 4,000 billion (approximately tic innovation that is generated by national IP
US$250 million).181 systems.

GRAFF
Table 1: Determinants and Indicators of the Status of National IP Systems
Per Number of Number of Date of Date(s) patent Ratio of

capita science & Date Date Date
globally first law amended Patents to residents/ resident
GDP by engineering joined of PVP joined
Country top-ranked patent for TRIPS patents to foreigners (yr) to
PPP, articles, TRIPS law UPOV

universities184 law compliance foreign
2005182 2003183
United States 41,399 211,233 168 1789 1995 - 1930 1981 84,271/80,020 (2004) 1.05
Russia 11,041 15,782 2 1812 - 2003 1992 1998 19,447/3,943 (2005) 4.93
China 7,198 29,186 8 1984 2001 1992, 2001 1997 1999 18,241/31,119 (2004) 0.59
a a
TIER South Africa 12,161 2,364 4 >1925 1995 2002 1976 1977 5549 /5501 (1995) 1.01
1
Poland 12,994 6,770 3 >1925 1995 2000 1995 1989 778/1,016 (2004) 0.77
India 3,320 12,774 3 1856 1995 1999, 2002 2001 - 851/1,466 (2004) 0.58
Brazil 8,560 8,684 4 1809 1995 1996–1997 1997 1999 666/1,366 (2002) 0.49
Argentina 14,108 3,086 1 >1875 1995 1996–2001 1973 1994 145/1,442 (2000) 0.10
Mexico 10,186 3,747 1 >1850 1995 1997,1999 1997 1997 162/6,677 (2004) 0.02
Chile 11,936 1,500 1 >1850 1995 2005 1997 1996 32/569 (2000) 0.06
TIER Indonesia 4,459 178 0 1989 1995 1997 2001 - 16/615 (1996) 0.03
2 Malaysia 11,201 520 2 1983 1995 2000 2004 - 31/1,542 (2003) 0.02
Jordan 5,095 263 0 1999 1999 1999, 2001 2000 2004 4/56 (2004) 0.07
Vietnam 3,025 216 0 1995 2006 2005 2004 2006 17/756 (2005) 0.02
Philippines 4,923 179 0 1947 1995 1998 2002 - 16/1,437 (2004) 0.01
Ethiopia 823 99 0 1995 - - 2006 - 0/1 (2000) 0.00
TIER Kenya 1,445 258 0 1914 1995 2001 1972 1999 0/33 (2001) 0.00
3 Tanzania 723 86 0 1931 1995 - 2002 - 0/23 (1989) 0.00
Uganda 1,501 90 0 >1950 1995 - 1994 - 0/34 (2001) 0.00
a
Patent applications filed.
CHAPTER 3.3
The second tier contains the bulk of middle- • ownership clauses in patent law
income countries that have recently developed • ownership clauses in labor law
or improved their IP policies but that still grant • national R&D system laws
most of their patents to foreigners. These include • ministerial rulings
countries like Argentina, Indonesia, Malaysia, and
Mexico. These countries have some research capac- In several countries (Jordan, Malaysia, South
ity, evidenced by the generation of 300 to 3,000 Africa) new policies are currently under review or
science and engineering articles per year. Their na- exist in draft form. In a number of other coun-
tional patent offices are functioning, granting sev- tries, no explicit policy addresses IP ownership
eral hundred to several thousand patents per year. by universities or research institutes under public
Crucially, however, domestic inventors are receiv- funding. In these cases, ownership questions are
ing less than 10% as many patents as foreigner ap- typically covered by the general ownership clauses
plicants. Thus, the patent system is primarily being of patent law, without specific reference to uni-
used to protect imported technologies. Still, com- versities or research institutes, publicly funded
panies and governments are typically seeking ways R&D, or technology transfer.
to better exploit the IP system’s R&D efforts.
The third tier consists of the lowest-income 4.3 Trends in institutional IP management
countries, in which there is neither a strong IP The more than 80 specific institutions named in
system in place nor a great number of domes- this survey have all to some degree developed an
tic patents applicants. These include countries IP policy and management infrastructure. They
like Ethiopia, Kenya, Tanzania, and Uganda. In cover many of the leading research universities
this survey, all of the representatives of the third and institutes in the countries surveyed. Many
group are in Sub-Saharan Africa. These countries more IP management programs, in hundreds of
have little research or technological capacity, gen- other emerging and developing countries, could
erating less than 300, and on average less than not be mentioned here. Still, the range of strength
100, science and engineering articles per year. and sophistication in this representative sample is
Their national patent offices are not very active, vast. Some operations efficiently review hundreds
granting less than 50 patents per year. Most sig- of technology disclosures and file dozens of pat-
nificantly, no patents are granted to domestic in- ent applications a year; in others, IP policy is in
ventors, only to foreigners. draft form and no action has been taken to imple-
ment an IP management system.
4.2 Trends in IP ownership policies If anything, strong, sophisticated institu-
On the question of ownership over inventions tional IP management is most strongly correlated
developed from government-funded research, with the underlying determinants of scientific
policies appear to be converging on the practice and technological capacity, including, most im-
of giving the rights and responsibilities of own- portantly, the amount spent annually on R&D at
ership to research institutions, with some flex- universities and in the public sector. Institutional
ibility for exceptions depending on the national IP management is more weakly correlated with
context. This convergence typically stems from the adoption of national-level policies explic-
strengthening IP protections and/or increasing itly encouraging IP ownership by public sector
government spending on R&D, but it also grows research institutions. In a number of cases, the
out of an awareness of global policy trends and a practice of IP management has preceded policy
desire on the part of governments to enhance the changes governing IP ownership.
impact that their spending on R&D will have on
economic development. 4.4 Conclusions
The mechanisms through which policies on While the call for policy reforms modeled on
ownership of intellectual property arise are more the U.S. Bayh-Dole Act has been made around
diverse (Table 2). These include: the world, the particular policy reforms and

GRAFF
Table 2: Specific Policies on Ownership of Intellectual Property Arising from Research Funded by the Government
Country Year Policy specific to ownership of intellectual property

United States 1980 Patent law: ownership of inventions made under federal government funding (Bayh-Dole Act)
Russia 2003 Patent law: ownership of inventions made under government contract
China 1985 State Council on Technology Transfer regulations
2002 Ministry of Education and Ministry of Science & Technology joint ruling: university ownership and
transfer of intellectual property
TIER
1 Poland - -
South Africa In process Legislation on national research system: ownership of inventions made under government funding
Brazil 1996 Patent law: ownership of inventions by employer, with terms of revenue sharing for public-sector employers
India 2000 Ministry of Science & Technology ruling: ownership under ministry funding
Argentina 1990 Law on national research system: universities and institutes establish TTOs
1995 Patent law: ownership of inventions by employer
Mexico 1998 Labor law: ownership of inventions by employers
2002 Law on national research system: ownership of inventions to be determined by policy of the institution
Chile 1991 Patent law: section on university ownership and transfer of inventions
TIER
2 Indonesia 2002 Law on national research system: universities and institutes to establish TTOs
Malaysia In process Ministry review of incentive system for scientists, including ownership of intellectual property
Jordan In process High-level commission review of all relevant legislation and regulations for technology transfer
Vietnam - -
Philippines - -
Ethiopia - -
TIER Kenya - -
3 Tanzania - -
Uganda - -
CHAPTER 3.3
2 See also, in this Handbook, chapter 6.4 by Carlos

proposals exhibited in developing and emerging Fernandez.
economies have varied. In some, the Bayh-Dole 3 WTO. 2001. TRIPS Council. Review of Legislation-
model is clearly discernible, but in many others Argentina, IP/Q4/ARG/1. Council for Trade-Related
the approaches to reform are more specifically Aspects of Intellectual Property Rights, 14 December.
World Trade Organization: Geneva.
adapted to local legal, political, and economic sit-
uations. Some national policies, such as those of 4 WIPO. 2006. WIPO Guide to Intellectual Property
Worldwide: Country Profiles, Argentina. World
China or those emerging in South Africa, clearly Intellectual Property Organization: Geneva. www.wipo.
attempt to institute stronger IP protections in the int/about-ip/en/ipworldwide/country.htm.
economy and to emulate Bayh-Dole in the public 5 INPI. 2006. Law on Patents for Inventions and Utility
sector. But many others merely make perfunctory Models (Ley de Patentes de Invención y Modelos de
Utilidad) 24.481 as modified by Laws 24.572 and 25.859.
efforts at conforming to TRIPS and only borrow
Institutio Nacional de la Propiedad Industrial: Buenos
the basic idea of encouraging institutional owner- Aires.
ship of IP. Some national policies set institutional 6 www.inpi.gov.ar.
ownership and management of IP as the default 7 See supra note 3.
option among several possible modes of technol-
8 See supra note 4.
ogy commercialization. Others provide it as one
9 Roman V. 2004. Argentina to Back Scientists’ Patent
alternative among multiple options, without a Bids. SciDev.Net, 17 May.
clearly defined preference. This survey noted one 10 Ares X. 2006. The Legal Framework for Technology
general trend: that strong IP protections and the Transfer in Argentina. Unpublished manuscript.
institutional capacity to manage them grow in Stanford University Office of Technology Transfer:
tandem, driven primarily by the amount of R&D Stanford, Calif.
being conducted and, secondarily, by the ability 11 Ibid.
of the local economy to absorb new technologies 12 Ibid.

into existing industry or an entrepreneurial sec- 13 Ibid.
tor. These insights may offer lessons for policy- 14 www.conicet.gov.ar/VINCULACION/quees.php.
makers and practitioners seeking to use IP as part 15 www.inpi.gov.br.
of an integrated strategy to drive economic devel- 16 WTO. 2004. TRIPS Council. Review of Legislation-Brazil,
opment through the public financing and com- IP/Q4/BRZ/1. Council for Trade-Related Aspects of
Intellectual Property Rights, 24 February. World Trade
mercialization of innovation. n
Organization: Geneva.
17 Chamas C. 2002. Management of Intangible Assets at
Brazilian Universities. Paper presented at the DRUID
Author’s Note: By their nature, the policies and in- conference on Industrial Dynamics of the New and Old
stitutions reviewed in this chapter are constantly evolv- Economy—Who Is Embracing Whom? Copenhagen,
ing and changing. The author invites any corrections, 6–8 June.
updates, and additional information, including policy
18 WIPO. 2006. WIPO Guide to Intellectual Property
studies or institutional case studies. New information
Worldwide: Country Profiles, Brazil. World Intellectual
will be used to update future reviews on this topic and
Property Organization: Geneva. www.wipo.int/about-
may be added to the online version of the IP Handbook at
ip/en/ipworldwide/country.htm.
www.IPHandbook.org.
19 Ibid.
Gregory D. Graff, Research Economist, PIPRA, Plant 20 See supra note 17.
Sciences, Mail Stop 5, University of California, Davis, CA 21 Lahorgue M, M Ritter de Santos and J Carvalho de
95616, U.S.A. gdgraff@ucdavis.edu; and Visiting Research Mello. 2005. The Economic Development Mission in
Fellow, Agricultural and Resource Economics, 340 Giannini Brazilian Universities. Paper A136 presented at the 5th
Hall, University of California, Berkeley, CA, 94720, U.S.A. Triple Helix Conference, Turin, Italy, 18–21 May.
ggraff@are.berkeley.edu. 22 www.inova.unicamp.br/.
23 For a detailed case study on Unicamp, see also, in this
Handbook, chapter 17.16 by Rosana C Di Giorgio.
1 OECD. 2003. Turning Science into Business. Organisation
for Economic Co-operation and Development (OECD), 24 www.inovacao.usp.br/.
Paris. 25 www.embrapa.br/English/portfolio/mostra_pasta.

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26 Maredia KM, FH Erbisch and M J Sampaio. 2000. Northbrook, Ill. www.autm.net.

Technology Transfer Offices for Developing Countries. 48 See supra note 43.
Biotechnology and Development Monitor 43:15–18.
49 Belete W and H Geletu. 2005. Assessment Report
27 www.cdt.unb.br. on the Development of Intellectual Property Rights
28 See supra note 21. Guidelines for Research in Higher Learning Institutions
29 See supra note 21. in Ethiopia. In Institutional Management of Intellectual
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30 See supra note 21. in East Africa: Country Case Studies (eds., J Bananuka, C
31 Da Motta e Albuquerque E. 2000. Domestic Patents Mugoya and J Komen) BIO-EARN Intellectual Property
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32 Flores J, P Acevedo and C Fernandez. 2005. Legal Property Organization: Geneva. www.wipo.int/about-
Framework for Technology Transfer in Chile. ip/en/ipworldwide/country.htm.
Unpublished manuscript. Unidad de Propiedad 51 Feyissa R. 2006. Farmers’ Rights in Ethiopia: A Case
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39 www.neos.cl.
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57 WIPO. 2006. WIPO Patent Report: Statistics on
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42 Kneller R. 1999. Ownership Rights to University
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43 Gong K. 2005 Technological Innovation and Social
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66 ABSP. 2003. Biotechnology Research and Policy Worldwide: Country Profiles, Malaysia.World Intellectual
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Biotechnology Support Project, Michigan State ip/en/ipworldwide/country.htm.
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68 See supra note 65. 88 See supra note 86.
69 Erbisch F. 2006. Intellectual Property Management in 89 MOSTI. 2000. Malaysia’s Science & Technology Policy
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80 NCST. 2002. Development of Institutional Intellectual www.unimas.my/centres/cttc/index.html.
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102 Ibid.
81 www.uonbi.ac.ke/ippolicy/responsibilities.html.
103 MPOB Licensing. Malaysia Palm Oil Board. 161.142.157.2/
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main.php?Content=vertsections&SubVertSectionID=1.

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106 WIPO. 2006. WIPO Guide to Intellectual Property tx_picturedb/dw2006-1684.pdf.
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Property Organization: Geneva. www.wipo.int/about- Indicators 2006. National Science Foundation: Arlington
ip/en/ipworldwide/country.htm. Virginia.
107 Ley de la Propiedad Industrial, Chapter 2, Article 16. 127 www.wctt.pl/index.php.
108 www.impi.gob.mx. 128 www.cittru.uj.edu.pl/ang/index.html.
109 Members of the International Union for the Protection 129 at.uni.lodz.pl/ahtml/onas.html.
of New Varieties of Plants. UPOV. November 2006. 130 www.transfer.edu.pl/index.php?lang=EN.
www.upov.int/en/about/members/index.htm.
131 Historical note, Federal Service for Intellectual
110 WIPO. 2006. WIPO Patent Report: Statistics on Property, Patents, and Trademarks (Rospatent). Russian
Worldwide Patent Activities. World Intellectual Federation. www.fips.ru/ruptoru/histor_ros.htm.
Property Organization: Geneva. www.wipo.int/ipstats/
en/statistics/patents/patent_report_2006.html. 132 Zolotykh N. 2003. Legal Regulation of Protection and
Commercialization of Intellectual Property Created by
111 Kelley PJ. 2002. Mexico: Basic Labor Law Concepts, Russian Public Research Organizations. Turning Science
Non-Competes, Non-Disclosures, and Employee into Business. Organisation for Economic Co-operation
Inventions. Fredrikson & Byron, P.A.: Minneapolis, Minn. and Development (OECD). pp. 153–66.
www.fredlaw.com/articles/international/Mexico.pdf.
112 RQ Ramírez. Personal communication, 22 June 2006.
134 Felitsyna S. 2003. Russia: Recent Amendments to the
113 Possani LD. 2003. The Past, Present, and Future of Patent Law. Managing Intellectual Property May.
Biotechnology in Mexico. Nature Biotechnology 21:
582–83. 135 Members of the International Union for the Protection
of New Varieties of Plants. UPOV, November 2006.
114 WTO. 2004. TRIPS Council. Review of Legislation- www.upov.int/en/about/members/index.htm.
Philippines, IP/Q4/PHL/1. Council for Trade-Related
Aspects of Intellectual Property Rights. World Trade 136 WIPO. 2006. WIPO Guide to Intellectual Property
Organization: Geneva. Worldwide: Country Profiles, Russia. World Intellectual
115 WIPO. 2006. WIPO Guide to Intellectual Property ip/en/ipworldwide/country.htm.
Worldwide: Country Profiles, Philippines. World
Intellectual Property Organization: Geneva. www. 137 See supra, note 132.
wipo.int/about-ip/en/ipworldwide/country.htm. 138 Development of Technology Transfer Legal Base in the
116 Ibid. Russian Federation. Eurasian Association of Technology
Transfer Managers (EATTM). www.eattm.net/en/
117 www.tapi.dost.gov.ph. index.php?page=catalog&pid=100026.
118 Maredia KM, FH Erbisch, and MJ Sampaio. 2000. 139 See supra note 132.
Technology Transfer Offices for Developing Countries.
Biotechnology and Development Monitor no 43. pp. 140 See supra note 138.
15–18. 141 unipat.pu.ru.
119 See supra note 69. 142 pctt.psn.ru/.
120 See supra note 69. 143 www.itc.unn.ru.
121 Twardowski T. 2005. Legal and Social Aspects of 144 www.sgu.ru/patents_department.
Biotechnology in Poland. Acta Biochimica Polonica
145 www.ocst.ru.
52(3): III–V.
146 www.urctt.ru/main.php.
122 Members of the International Union for the Protection
of New Varieties of Plants. UPOV, November 2006. 147 www.cttufo.kubsu.ru/.
www.upov.int/en/about/members/index.htm. 148 www.eattm.net/en/.
123 WIPO. 2006. WIPO Patent Report: Statistics on 149 WTO. 1998. Review of Legislation in the Fields of
Worldwide Patent Activities. World Intellectual Patents, Layout-Designs (Topographies) of Integrated
Property Organization: Geneva. www.wipo.int/ipstats/ Circuits, Protection of Undisclosed Information and
en/statistics/patents/patent_report_2006.html. Control of Anti-Competitive Practices in Contractual
124 Industrial Property Law, Consolidated Text of the Act. Licenses: South Africa. Document no. IP/Q3/ZAF/1. 2
Patent Office of the Republic of Poland. www.uprp.pl/ October 1998. World Trade Organization: Geneva.
formularze/ustawa2000_gb.htm. 150 South Africa Patent Act No. 57 of 1978, as amended.
125 Kijenska I. 2006. Barriers in Innovation and Technology www.cipro.co.za/Home/.

CHAPTER 3.3
151 South Africa Patent Act No. 57 of 1978, section 25(4)(b). 170 Tumushabe G and D Akol. 2005. Report of the
152 www.cipro.co.za/Home/. Biotechnology Policy Background Study on Product
Development Partnerships in Uganda. In Institutional
153 Patent Applications by Office (1883 to 2005): Breakdown Management of Intellectual Property in Biotechnology
by Resident and Non-resident. WIPO Statistics. Research and Development in East Africa: Country Case
w w w.wipo.int /ipstats/en/statistics/patents/ Studies (eds. J Bananuka, C Mugoya and J Komen). BIO-
source/123_years_pat_appl_filings_table.csv. EARN. October 2005: 95-111.
154 The Patent Act of 1978, section 59. 171 See supra note 169.
155 Wolson R. 2005. Towards the Establishment of a 172 Salazar S. 2005. Capacity Building for Intellectual
Vibrant South African Biotechnology Industry: Will the Property Management in Four BIO-EARN Network
Recent Policy Interventions Achieve Their Objectives? Countries. In Institutional Management of Intellectual
International Journal of Biotechnology 7(1/2/3):147–60. Property in Biotechnology Research and Development
156 Garduno E. 2004. South African University Technology in East Africa: Country Case Studies (eds. J Bananuka, C
Transfer: A Comparative Analysis. International Mugoya and J Komen). BIO-EARN. October 2005: 4–15.
Intellectual Property Institute. Washington, DC. 173 WIPO. 2006. WIPO Guide to Intellectual Property
January. Worldwide: Country Profiles, Vietnam. World
157 See supra note 154. Intellectual Property Organization (WIPO). www.wipo.
int/about-ip/en/ipworldwide/country.htm.
158 South Africa’s National R&D Strategy. June 2002.
Department of Arts, Culture, Science, and Technology, 174 L Kilgour. 2006. Assessing Needs for Agricultural
Government of South Africa. www.chet.org.za/papers/ Intellectual Property Management Support in
rdstrat.pdf. Vietnam. Public Intellectual Property Resource for
Agriculture (PIPRA), October 2006.
159 For more details on the content and expected impacts
of the impending policy change, see also, in this 175 Ibid.
Handbook, chapter 17.7 by R Wolson. 176 See supra note 173.
160 This part is largely based on Garduno, see supra note 177 See supra note 174.
155.
178 Nguyen PQ. 2006. The Role of Universities and
161 innovation.mrc.ac.za/index.htm. Institutions in Supporting Small and Medium-Sized
162 See supra note 155. Enterprises with Regard to the Intellectual Property.
Paper presented at the EC-ASEAN Intellectual Property
163 www.sarima.co.za/.
Rights Co-operation Programme (ECAP II) seminar on
164 Kasonta J S, G S Shemdoe and P C Chuwa. 2005. IP for SMEs, Hanoi, Vietnam, 15–18 March.
Current National Policy Framework on Intellectual
179 Nguyen VH and NC Tran. 2006. The Role of Academic
Property Management and Capacity Building in
Institutions in Economic Development: The Case
Tanzania. In Institutional Management of Intellectual
of Vietnam. Paper presented at the Research Policy
Property in Biotechnology Research and Development
Institute, Lund University. www.fpi.lu.se/_media/en/
in East Africa: Country Case Studies (eds. J Bananuka,
research/universidad06-vietnam.pdf.
C Mugoya and J Komen). BIO-EARN. October 2005:
62–81. 180 See supra note 174.
165 Wangwe S. 2002. Country Case Study: Tanzania. For M. 181 See supra note 178.
Leesti and T. Pengelly, Institutional Issues for Developing 182 International Monetary Fund. World Economic Outlook
Countries in IP Policy-Making, Administration Database. September 2006.
and Enforcement. Study Paper 9. Commission on
Intellectual Property Rights, 2002. 183 National Science Board. 2006. Science and Engineering
Indicators 2006. National Science Foundation:
166 See supra note 164. Arlington, Virginia.
167 WIPO. 2006. WIPO Guide to Intellectual Property 184 According to World University Rankings. Times
Worldwide: Country Profiles, Tanzania. World Higher Education Supplement, 5 November 2004; and
Intellectual Property Organization: Geneva. www. Academic Ranking of World Universities 2005. Institute
wipo.int/about-ip/en/ipworldwide/country.htm. of Higher Education. Shanghai Jiao Tong University,
168 See supra note 164. Shanghai, China. 2005. ed.sjtu.edu.cn/rank/2005/
ARWU2005TOP500list.htm.
Worldwide: Country Profiles, Uganda.World Intellectual

CHAPTER 3.4
Technology Transfer Snapshots

from Middle-Income Countries:
Creating Socio-Economic Benefits through Innovation
SUSAN K. FINSTON, Principal and Founder, Finston Consulting, LLC, U.S.A.
ABSTRACT patent rights that give them exclusive use of their

This chapter examines the outcomes of technology trans- own innovations for a limited period of time.
fer policies adopted in the past 20 years by five middle-in-
Patent rights are essentially “negative” rights: that
come countries: Brazil, India, Ireland, Israel, and Jordan.
The outcomes in those countries suggest that nations is, they allow one party to exclude others from
whose governments enable the assimilation of new tech- gaining benefit from an inventor’s work, but, of
nologies grow faster, create more jobs, and reduce poverty course, they cannot ensure that the invention will
levels. The outcomes suggest also that a mixture of gov- be profitable. In return for the patent right, the
ernment and market strengths are needed to efficiently
use technology transfer. Without this balance, technology inventor discloses information in the patent that
transfer will have limited effects. would enable a person who is “skilled in the art”
(that is, knowledgeable in the field of the inven-
tion) to understand and replicate the invention
for him- or herself. Patents thus seek to serve both
1. Introduction the inventor’s and the community’s interests.
The founders of the United States understood the We can see this dual effect in the case of a
importance of innovation and took pains to pro- well-known American. George Washington was
mote and protect it in the U.S. Constitution: a mill owner and operator eager to improve his
The Congress shall have power to lay and collect mill’s productivity. He was interested in new ag-
taxes, duties, imposts and excises, to pay the debts and ricultural technologies, particularly in the Evans
provide for the common defense and general welfare Mill System, patented by the prolific inventor
of the United States; but all duties, imposts and ex- Oliver Evans (U.S. Patent No. 3), and now rec-
cises shall be uniform throughout the United States; ognized as the first mass production process. As
… to promote the progress of science and useful arts, president, Washington reviewed and signed all
by securing for limited times to authors and inven- of the patents issued in 1790; and as the owner
tors the exclusive right to their respective writings and of the Mount Vernon Gristmill, Washington was
discoveries. (U.S. Const. article I, § 8, cl. 8) one of the first to license the new technology.
This automated mill produced high-quality flour
The same principles embodied in this using two men instead of six; the mill operated
Constitution are used around the world today continuously and turned out greater quantities of
to encourage research and development. For ex- flour than the traditional process in a fraction of
ample, inventors and developers can apply for the time. In addition to Washington, within two
Finston SK. 2007. Technology Transfer Snapshots from Middle-Income Countries: Creating Socio-Economic Benefits through
Innovation. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A
Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. SK Finston. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

FINSTON
years, over a hundred other U.S. mills were us- transfer is anything that increases the capacity
ing the new Evans technology. Evans’ invention of people to benefit economically and/or socially
changed U.S. mills forever and boosted U.S. ag- from innovation.
ricultural exports to Europe. It benefited not just Technology transfer is a complicated process,
Evans but the entire country, including George and the journey from exploratory research to suc-
Washington.1 cessful product can be a long one. R&D falls into
Another example, predating Bayh-Dole, three categories or phases:
involving the contrasting paths of penicillin • The primary objective of basic research is
and streptomycin underscores the importance the advancement of knowledge for its own
of incentives to ensure commercialization of sake. This type of research is exploratory or
science. Penicillin was first discovered in 1928, investigative and is often driven by the re-
and is often cited as a laudable case where the searcher’s curiosity, interest, and hunches.
innovator, Dr. Louis Pasteur, did not seek a pat- • The primary objective of applied research is
ent or licensing for the drug. As a result, how- to answer specific questions that have prac-
ever, there was no commercial development of tical ramifications. These questions may or
penicillin, for more than a decade, until World may not arise out of basic research. Applied
War II necessitated scale-up and mass manu- research can be exploratory, but is usually
facture of the drug.2 In contrast, streptomycin, more focused.
developed by Dr. Salman Waksman at Rutgers • In commercial development, ideas arising
University in the 1930s, was on a faster track, from basic and/or applied research are used
enabled by an early exclusive licensing agree- to create a product intended for commer-
ment with Merck.3 cial sale.
Then as now, a climate that encourages the
adoption of new technologies will also encourage An example of an R&D process that in-
increased rates of job creation, lower poverty lev- cludes all three phases is the discovery and de-
els, and create greater opportunities for economic velopment of pharmacogenetic drugs: decoding
growth. We live in an unprecedented era, how- the human genome (basic research) led to the
ever, when the investment assets of companies are identification and isolation of particular en-
increasingly intangible, and particularly suited zymes (applied research), which in turn led to
to forms of IP protection.4 Microsoft® founder the development and testing of drugs (commer-
Bill Gates concludes that the nature of the global cial development). This example suggests that
economy increases the need for incentives to in- governments have a significant role to play in
novation given “the economic competition between identifying which areas of innovative research
nations going forward, particularly with regard to can and should be promoted (the initial re-
the rapid innovation and development in emerging search on the human genome was a public ef-
countries … We need incentive systems that drive fort). Governments also have a role in moving
that innovation in an appropriate manner, because inventions from the theoretical level to the ap-
we can no longer compete exclusively on the basis of plied level (government-funded research drives
cost of labor.”5 This chapter looks at how technol- a good deal of this movement) and in provid-
ogy transfer policies have affected countries from ing incentives to encourage the development of
three different regions (the Middle East, Asia, and new products and processes arising out of ap-
Europe) in the past 20 years. plied research (for example, forms of intellectu-
al property). But as research moves further from
basic research toward product development, the
2. What is technology transfer? government’s role in directing this process di-
Technology transfer is the process of developing minishes. For the most part, the market distrib-
practical applications from the results of scientific utes investment resources much more efficiently
research. Defined more broadly, technology than the government.

CHAPTER 3.4
3. What factors promote facilitate not just a nation’s research abilities but
technology transfer? its overall economy. Drawing on his experience in
The core elements of a robust technology transfer Bangladesh, David Sack, observed that:
system are: [W]ell-qualified local scientists generally prefer
1. a durable government commitment to science to remain in their home country if they can find
education, research, and related infrastruc- meaningful employment in institutions where they
ture. Governments create an enabling envi- can be productive. Well-functioning institutions con-
ronment for science and technology by in- tribute to “brain-gain,” thus increasing the scientific
vesting in education and training (both at and economic resources of a country as a whole.7
home and abroad, at secondary and univer-
sity levels), funding basic and early applied No matter what stage of development a coun-
research, and improving technology-related try is in, its government can train scientists and
physical infrastructure. encourage them to remain at home by promoting
2. broad rule-of-law protections, including a sensible, well-functioning technology transfer
strong IP protections. Rule-of-law protec- system. The remainder of this chapter provides
tions give individuals the ability to enter brief profiles of five middle-income countries
into enforceable agreements or contracts whose governments, over the past two decades,
with others; they promise predictable and have supported science and education, created
timely judicial remedies in case these agree- effective IP protections within a broader frame-
ments or contracts are breached. work of strong rule-of-law protections, and used
3. reliance on market forces as the engine for the market to efficiently distribute investments
technology transfer. Market-oriented policies in commercialization. These countries have de-
encourage risk taking and increased private veloped successful innovation-intensive sectors
sector investment. like biotechnology and information technology
that have, in turn, produced widespread social
These three pillars of technology transfer are and economic benefits. The experiences of these
like the three legs of a stool: all are necessary, and countries can provide all of us with valuable les-
none of them is sufficient by itself. However, it sons and insight into how to harness effectively—
can be difficult to provide all three simultaneously. and fairly—the power of technology transfer.
In the mid-20th century, the U.S. government
thought it strongly supported science, rule-of-law 4.1 Brazil
protections, and market incentives, but it did not The strength and durability of the Brazilian gov-
grant private rights to publicly funded inventions. ernment’s commitment to science education and
The effect of this was to greatly weaken market infrastructure are impressive. The State of São
incentives for investing in new technologies. Such Paulo Research Foundation (Fundação de Amparo
rights only became part of the U.S. technology à Pesquisa do Estado de São Paulo, also known as
transfer regime with the passage of the Bayh-Dole FAPESP) has supported basic scientific research
Act of 1980.6 Once government-funded scientists and graduate education at several universities in
were allowed to engage with those who had the São Paulo for the last half-century. The federal
skills needed to bring products to market, an ex- Ministry of Health has funded two major pub-
plosion of innovation ensued, bringing remark- lic research institutes: the Instituto Butantan and
able new products in health, agriculture, and other the Oswaldo Cruz Foundation. In recent years,
fields. the Instituto Bhutantan has been recognized for
its role in the development of a hepatitis B vac-
cine.8 The Oswaldo Cruz Foundation has a long
4. Technology transfer profiles and distinguished history, including historic
The power of technology transfer is available to health and sanitation campaigns against bubon-
people everywhere, and it is a power that can ic plague, yellow fever, and small pox,9 and the

FINSTON
foundation most recently announced advances in be focused on basic research (which functions as
development of an algae-based microbiocide for a kind of “seeding” for innovations). Applied re-
use against HIV/AIDS.10 search and research focused on commercializing
However, Brazil lacks market-based incentives an innovation should rely more on investments
to drive private capital into commercial develop- from the private sector to ensure maximum ef-
ment. As Michael Ryan observes, “The Brazilian ficiency and economic growth.
public sector has made substantial investment into
university and public laboratory research, thereby 4.2 Israel
establishing the potential for biomedical technology Israel is another state with a commitment to long-
innovations, but the lack of private sector R&D ca- term investment in science and infrastructure.
pabilities and lack of public-private linkages has tra- Recent investment data show that at least 50%
ditionally prevented technology from being commer- of science funding in Israel comes from the State
cialized into the marketplace.”11 Partly due to these of Israel and international public sector sources.16
weaknesses in its technology innovation system, Each of Israel’s ministries includes a chief scien-
the country’s economic growth in the 1970s and tist,17 and Israel’s primary and secondary schools
1980s faltered.12 Currently, two-thirds of R&D have a strong basic science curriculum.18
spending in Brazil is funded directly by the gov- Israel is a world leader in areas related to
ernment (for comparison, only one-third of R&D information and communications technology.
spending in the United States is funded directly by These technological areas do not require capital
the government), and only 18% of scientists and investments to the same high degree as biotech-
technicians work in the private sector.13 The dyna- nology and are characterized by short lead-times
mism and flexibility of market forces were stymied and low regulatory barriers to market entry. In
by the government’s decisive intervention in the fields such as biotechnology, however, Israel is
innovation process, and the resulting inefficiencies not as innovative. As Avi Molcho observes, “Israel
contributed to slow economic growth. is among the world leaders in many fields of tech-
Currently, a number of reforms are under- nology. It is a hub for innovative technologies in
way in Brazil to encourage private sector invest- communications, semiconductors, information tech-
ment in R&D activities. As a result, there are nology, and medical devices—innovation that has
more international patent applications being been translated into commercial success. While the
filed by Brazilian companies through the World same, if not greater, degree of innovation is found in
Intellectual Property Organization (WIPO) Israeli life sciences research, this has yet to be trans-
Patent Cooperation Treaty,14 and new products formed into a more mature biotechnology start-up
are beginning to enter the market.15 This trend industry.”19 In fact, Israel’s patent prowess appears
should strengthen the economy and provide formidable: “Israel ranks first worldwide in the pro-
Brazil’s people with more and better products in portion of life-science patents to the total number
every economic sector. of patents written by Israeli inventors. The country
According to Ryan, Brazil was not alone in ranks fourth in total number of biopharma patents
giving a dominant role to government in the pur- granted, in terms of patents per capita, and 12th in
suit of scientific and technological development. the absolute number of biopharma patents.”20 Alla
He cites a number of large developing countries Katsnelson suggests that this is because patents
that had also followed a policy of state-led eco- are underutilized: “Israeli life-sciences patents com-
nomic development. Many of these have since re- prise almost a third of the country’s total patents.
vamped policies to promote greater private sector What seems to be lacking is the ability to turn all
investment in the commercialization of new tech- this life-sciences-focused intellectual property into
nologies. These include China, Mexico, Egypt, biotech products.”21
India, and Turkey. The lesson here is not that gov- The Milken report cites the lack of sufficient
ernment should not provide funding to develop market incentives for commercialization of sci-
new technologies but that such funding should ence, 22 while others point to relatively weak levels

CHAPTER 3.4
of patent protection and data exclusivity.23 Some Trade Agreement.30 Jordanian pharmaceutical
identify the market dominance of the generic companies are beginning to invest more in research
pharmaceutical manufacturer Teva,24 as one rea- and product development. For example, local
son why Israel has not strengthened market and/ Jordanian companies Triumpharma and Advanced
or IP incentives for international biotechnology Pharmaceuticals are both investing in research to
companies to enter or remain in the market. produce and patent drug delivery mechanisms. In
Interestingly, Israel has maintained weaker addition, two new clinical research organizations
levels of IP protection at the same time many have been established in the last three years.31
of its neighbors, including Bahrain, Jordan, Today, Jordan exports its pharmaceutical products
Morocco, Saudi Arabia and the United Arab to over 60 markets worldwide.
Emirates (UAE), have strengthened their IP sys- In addition, Jordan has adopted market-
tems through WTO accession, bilateral free trade friendly policies that are attractive to interna-
agreements and/or unilateral reforms.25 tional pharmaceutical companies. Major in-
Whatever the reason or combination of rea- ternational pharmaceutical companies, such as
sons, Israel continues to suffer from a dearth of Organon, Novartis, and Aventis, have worked
private clinical biotechnology research. David with new Jordanian clinical research organiza-
Haselkorn succinctly notes, “Not one single [multi- tions and Jordanian hospitals to conduct clini-
national pharma] company has developed an R&D cal trials. Since 2000, Jordanian companies have
center here.”26 The Milken Institute goes farther, established licensing relationships with phar-
stating that the Israeli biotechnology sector is in maceutical companies from Italy, Japan, Korea,
decline, “as measured by the amount of venture Italy, Switzerland, the United Kingdom, and the
capital funding.”27 United States. These foreign companies often rely
on their Jordanian partners to provide marketing
4.3 Jordan and distribution expertise in the Middle East. In
Until the early 1990s, the Hashemite Kingdom return, Jordanian companies benefit from foreign
of Jordan was best characterized as an aid- and investment by gaining a broader product base for
remittance-based economy, with an estimated per sale, both at home and into export markets, and
capita gross domestic product (GDP) of about for the in flow of know-how and technology.32
US$800. Over the past 15 years, however, the The government of Jordan continues to in-
Jordanian government has increased its commit- vest in science and technology. Areas of invest-
ment to science education and infrastructure, im- ment include: natural products development;
proved its IP laws and the enforcement of those early diagnostics using monoclonal antibodies;
laws, and adopted a model of economic planning applied microbiology in food; production of
that relies on the private sector for job and wealth biogas, biofertilizers, pesticides, and yeast; and
creation. The impact of these changes has been the development of new biotech equipment.
profound: the country has become more integrat- Moreover, Jordan has recently established the
ed into the world economy and enjoyed a more King Hussein Cancer Center and Biotechnology
than five-fold increase in per capita GDP since Institute with support from the U.S. National
the mid-1980s, reaching US$4,700 in 2006.28 Institutes of Health through the Cancer
The growth of Jordan’s export-led pharmaceu- Biomedical Informatics Grid program.
tical industry is particularly remarkable. In 2001,
production in the pharmaceutical sector totaled 4.4 India
US$180 million; in 2002, it was US$210 mil- When it comes to adopting technology-friendly
lion; and in 2003, it reached US$275 million.29 policies, few countries have faced as many chal-
This was achieved both through higher levels of lenges as India. R. A. Mashelkar, recently retired as
domestic IP protections and through trade ben- the Director General (1995-2006) of the Council
efits provided by the World Trade Organization of Science and Industrial Research (CSIR), an
(WTO) and the United States–Jordan Free early and persistent advocate for India’s adoption

FINSTON
of technology transfer policies, calls India’s his- valuable clinical research dossiers (a protection
tory with such policies “a series of missed bus- known as data exclusivity).39
ses,” in terms of lost opportunities for leveraging India is engaged in a cooperative internal di-
India’s intellectual assets in the global knowledge alogue about how to implement these IP reforms.
economy.33 The Indian government continues to promote
Many have cited India’s confidence in bio- India as a global biotechnology R&D hub, and
technology as rooted in its earlier success in the the country has become a primary global loca-
information technology (IT) sector. It is less well tion for preclinical and clinical R&D. Most
known, though, that patent protection also fu- recently, the 2006 Ernst and Young European
eled India’s original IT success, in the form of Attractiveness Survey placed India among the
Dr. Sam Pitroda’s software patents.34 In 1980, top five countries as a pharmaceutical and bio-
prominent nonresident Indian and software pharmaceutical R&D destination. Commercial
guru Pitroda sold his first U.S. company and biotechnology, which crossed the billion-dollar
brought the profits to India to support his dream mark in 2005, has now reached nearly US$1.5
of installing telephones throughout rural India.35 billion, with 36% annual growth.
Telecommunications has been widely recognized
in India as foundational to the entire industry sec- 4.5 Ireland
tor known as “Information and Communications Over the past 20 years, Ireland has gone from
Technology (ICT),” as well as the related sub-sec- “net brain-drain” to “net brain-gain” by system-
tors known as “Business Process Outsourcing atically adopting pro-technology transfer policies
(BPO)” (which include back-office operations and becoming a major importer of foreign direct
for multinational corporations, and call centers, investment in the area of life science. Ireland of-
among others) , and BioInformatics (the analytic fers strong patents and data exclusivity for terms
processing of data generated as part of clinical re- of up to 11 years. There is substantial government
search in the life sciences and provided India’s support for science education and technology-re-
initiation into biotechnology).36 Pitroda’s soft- lated infrastructure, and the government’s cor-
ware patents helped him to made his first fortune porate regulatory policies ensure greater market
and provided the resources he needed to bring te- orientation in terms of increased moderation in
lephony to rural India, laying the foundation for labor policies,40 reduced corporate taxation,41 and
India’s IT revolution. other reforms:
Now the government of India is preparing to Foreign direct investment in Ireland has been
introduce comprehensive technology transfer leg- attracted by low rates of corporate tax. Today, Ireland
islation in 2007. Under the bill, academic inven- has one of the world’s lowest rates of corporation tax,
tors and their institutions would share royalties, with the maximum rate for trading profits being
and academic entrepreneurs will be encouraged to 12 percent. Other factors that help attract biophar-
file patents to gain both increased research fund- maceutical companies to Ireland include the ready
ing for their institutions and individual benefits availability of the required specialist skills. Output
for themselves, in the form of royalties. 37 The law from the third-level institutions is being continually
would also include key mechanisms to bench- refined to meet the sector’s needs. Further, the consid-
mark patentable research undertaken by Indian erable growth in the Irish economy over the past ten
academic and research institutions with support years has seen very significant repatriation of skilled
from the government of India.38 In the past year, people. In addition, Ireland is seen as a desirable ex-
product patent protection has been adopted and patriate location with a minimum of bureaucratic
implemented in several fields, including pharma- obstacles and an excellent educational system that
ceuticals. Patent processing reform has improved facilitates family relocation. The free movement of
efficiency and reduced patent review times, and, labor within the enlarged European Union has fa-
increasingly, domestic companies are recommend- cilitated the swift acquisition of a further pool of
ing that India adopt protection for commercially skilled people.42

CHAPTER 3.4
As a result, Ireland has become more attractive ton’s gristmill, see www.mountvernon.org/visit/plan/
to foreign investors for biotechnology and other index.cfm/pid/806/.
high technology sectors43 and is also winning the 2 Public Broadcasting Service. A Science Odyssey: People
and Discoveries. www.pbs.org/wgbh/aso/databank/
global competition to attract and retain well-edu-
entries/bmflem.html.
cated, creative workers.44 More than 170 compa-
3 “An agreement was drawn up with Merck whereby the
nies employ 35,000 people in Ireland’s chemi- company provided chemical assistance, experimental
cal, pharmaceutical, biopharmaceutical, medical animals for pharmacological evaluation of
device, and diagnostics industries.45 Together, antibiotics, and large-scale equipment for producing
any promising discoveries. In return, Waksman
these sectors generated more than US$52 billion assigned Merck any patents resulting from research
in exports in 2005. Ireland’s per capita income in his laboratory. Should any of the patents prove
has grown from about US$5,000 in 198646 to commercially successful, Merck was to pay the Rutgers
US$43,600 in 2006,47 a level of per capita in- Foundation a small royalty.” acswebcontent.acs.
org/landmarks/antibiotics/trials.html. Streptomycin
come that is comparable to that of the United is broadly recognized as one of the important early
States and the United Arab Emirates. antibiotics. In addition to being the first effective
chemotherapeutic treatment for tuberculosis, it
also showed effectiveness against typhoid fever,
cholera, bubonic plague, tularemia, urinary tract
5. Conclusion infections, and others. As Dr. Waksman recognized
Technology transfer can improve lives by intro- the importance of the new drug, he became
ducing innovations that directly contribute to uncomfortable with the agreement giving Merck
exclusive rights, and Merck agreed to a renegotiated
improved public health, nutrition, and communi- non-exclusive license and was granted a rebate on
cations. Less obviously, but more importantly, the royalties to compensate the company for the cost of
policies that promote technology transfer—such as development of streptomycin. “Merck was praised for
its generosity and Rutgers made licensing agreements
an emphasis on personal rights and education— with other drug companies.”
also promote economic development. Ideally, any
4 See Brief of Amicus Curiae BayhDole25, Inc., supporting
positive changes in political and economic climate respondent in Microsoft vs. AT&T, pp. 14–16.
will create a self-perpetuating cycle: an improved 5 26 January 2004 Keynote address by Bill Gates,
economic environment and a general increase in Chairman and Chief Software Architect, Microsoft
education levels will lead to improved public health, Corporation, at the Enterprising Britain Conference,
London, UK. www.hm-treasury.gov.uk/documents/
which will in turn strengthen the economy.
enterprise_and_productivity/enter_conf/ent_
The above overview strongly suggests that entconf_gates.cfm.
such technology transfer works best when there 6 For and extensive discussion of the debate over the
is strong, consistent government support of basic issue of allowing exclusive rights to private actors to
research—including science education and tech- commercialize publicly funded research outcome, see
BayhDole at 25: A Survey of the Origins, Effects, and
nology-related infrastructure—and robust IP pro- Prospects of the Bayh Dole Act. www.bayhdole25.org/
tection. Government policies should also strive to resources.The author of this chapter is a founding board
encourage market guidance and private sector in- member of BayhDole25, a not-for-profit organization
vestment in applied research and commercializa- that promotes technology transfer in developing and
developed countries through education and outreach
tion efforts. In this way, the strengths of the gov- activities. For more background and information on
ernment and of the market can be synergistically this organization, see www.bayhdole25.org.
applied to improve the lives of all of us. ■ 7 Sack DA. 2005. Letters: International Gaps in Science
Publications. Science 309 (5739): 1325–1326.
8 Ferrer M et al. The Scientific Muscle of Brazil’s Health
SUSAN K. FINSTON, Principal and Founder, Finston Biotechnology. Nature: Biotechnology 22(Suppl.):DC9,
Consulting, LLC, 3514 30th Street, NW, Washington, DC, DC10. www.nature.com/naturebiotechnology; see also
www.swissbiotechassociation.ch/files/countryprofile/
20008 U.S.A. susan@finstonconsulting.com
Ferrer%20u.a.%20Scientific%20Muscle%20of%20Braz
ils%20.
1 For more background on Oliver Evans, the mechanized
flour mill and other inventions, see www.greenbank- 9 See supra note 9. Historic background on the first
mill.org/oliverevans.html. For more about Washing- hundred years of Oswaldo Cruz Foundation (originally

FINSTON
founded as the Federal Serum Therapy Institute). capitalmarketsreport2005final.pdf. Teva remains

World Health Organization (WHO) at www.who.int/ among the largest generic pharmaceutical producers
tdr/publications/tdrnews/news65/oswaldo-cruz.htm. in the world, employing 25,000 people worldwide,
10 Algae Gel to Combat HIV Infection. BBC News, with a total of $5.3 billion in global sales in 2005. See
29 January 2007. news.bbc.co.uk/go/pr/fr/-/2/hi/ supra note 21, p. 185.
health/6266527.stm. 25 See www.ustr.gov/Trade_Agreements/Section_Index.
11 Ryan M. 2006. Brazil’s Quiet Biomedical Innovation html for bilateral free trade agreements in the Middle
Revolution: Drugs, Patents, and the “10/90 Health East/North Africa region and related IP provisions. In
Research Gap.” Creative and Innovative Economy addition, two governments, Jordan and Saudi Arabia,
Center, George Washington University Law School: adopted enhanced protection for intellectual property
Washington, DC. protection as part of their WTO TRIPS accession,
including strong patent protection, data exclusivity,
12 See supra note 5, p. 3 and linkage between patent offices and regulatory
13 See supra note 5, p. 5 (citing a 2005 FAPESP report). bodies to prevent marketing of infringing products. For
Jordan see http://www.wto.org/English/thewto_e/
14 Brazil leads Latin America in terms of resident patent
countries_e/jordan_e.htm; for Saudi Arabia see http://
applications filed in the Patent Cooperation Treaty.
www.wto.org/English/thewto_e/acc_e/a1_arabie_
Though it still lags behind China and India, Brazil is in
saoudite_e.htm. The UAE unilaterally ratcheted up its
the top 20 patent offices for global PCT filings. WIPO
levels of patent and data protection starting in the
Patent Report: Statistics on Worldwide Patent Activities,
2000–2002 period. See Haider L. United Arab Emirates:
2006, p. 7. www.wipo.int/ipstats/en/statistics/
Agreement Set to Boost Research. Managing IP. www.
patents/. In 2004, Brazilians filed 280 PCT International
managingip.com/Page=10&PUBID=34&ISS=20608&S
Applications. Ibid. p. 37.
ID=588197&TYPE=20.
15 See supra note 5, pp. 5–10.
16 www.ilsi.org.il/industry_financing_history.asp.
27 Citing the 19th annual Ernst & Young biotechnology
17 www.science.co.il/ChiefSci.asp. report, which concludes that the medical devices
18 www.science.co.il/SciencePolicy.asp. sector received more investment in 2004 than did
biotechnology. See supra note 21, p. 185.
19 Molcho A. 2005. Meeting the Challenges of Israeli
Biotechnology. Israel Venture Capital Journal. 8 March 28 For 1980s data see: Sullivan P. 1999. Globalization: Trade
2005. www.altassets.com/casefor/countries/2005/ and Investment in Egypt, Jordan and Syria Since 1980.
nz7289.php. Arab Studies Quarterly (ASQ), 21: p. 35-72.
20 DeVol R, et al. 2006. Mind to Market: A Global Analysis of For 2006 data see CIA. The World Factbook: Jordan.
UniversityBiotechnologyTransfer and Commercialization, www.cia.gov/cia/publications/factbook/geos/jo.html.
The Milken Institute, September 2006, p. 188. 29 Ryan M. 2004. Establishing Globally Competitive
www.milkeninstitute.org/pdf/mind2mrkt_2006.pdf. Pharmaceutical and Bio-Medical Technology Industries
21 Katsnelson A. 2005. When will Israeli Biotech Grow in Jordan: Assessment of Business Strategies and The
Up? Bioentrepreneur. www.nature.com/bioent/ Enabling Environment. International Intellectual
bioenews/092005/full/bioent882.html. Property Institute, Georgetown University McDonough
School of Business: Washington, DC.
22 Ibid at p. 186–88.
30 The growth in bilateral U.S./Jordan trade flows
23 See USTR 2006 “Special 301” Priority Watch List. provides a general example of the benefits of greater
w w w. u s t r. g o v / D o c u m e n t _ L i b r a r y / Re p o r t s _ integration into the world economy through the
Publications/2006/2006_Special_301_Review/ WTO and the U.S./Jordan Free Trade Agreement.
Section_Index.html?ht. (Retaining Israel on the IP black- When the FTA was signed in 2000, the bilateral trade
list for implementing weak protection for commercially flow was not much more than a trickle: total bilateral
valuable clinical dossiers and curtailing patent term trade between the United States and Jordan was
restoration for time lost due to bureaucratic delay roughly US$385 million, where U.S. exports to Jordan
in patent review, USTR “continues to urge Israel to accounted for approximately 80% (US$310 million) of
strengthen its data protection regime in order to the total. U.S. Trade Balance, by Partner, 2000, United
promote increased bilateral trade and investment in the States International Trade Commission. swpat.ffii.
field of pharmaceuticals and other knowledge-based org/gasnu/us/usjdfta.txt. In contrast, the bilateral
sectors.”) trade flow exceeded US$1.7 billion for the first nine
24 The dominant market position of Teva is illustrated by months of 2006, 2006 Jordan Economic and Trade
its outsized presence on the Tel Aviv Stock Exchange Bulletin, cited in 16 Washington Trade Daily, 20. 26
(TASE), on which the market value of the company January 2007. Jordanian exports to the United States
is the largest of any company in Israel and stands have increased 91% since 2001. Ibid. A second general
at five times that of the next largest company, Bank area of benefit is the increased level of foreign
HaPoalim. See Israeli Ministry of Finance. 2005. direct investment in Jordan since WTO accession,
Capital Market Annual Review. www.mof.gov.il/beinle/ which grew from US$627 million in 2000 to US$2.4

CHAPTER 3.4
billion in 2002. Haider L. 2007. United Arab Emirates: 39 Jyotha Datta PT. 2006. Domestic Producers of Herbal
Agreement Set to Boost Research. Managing IP. Products Seek Data-Exclusivity, Hindu Business Line,
www.managingip.com/Page=10&PUBID=34&ISS=2 12 September 2006. www.thehindubusinessline.
0608&SID=588197&TYPE=20. com/2006/09/13/stories/2006091302850300.
31 See supra note 15. htm. See also Finston S. 2006. Data Exclusivity
Brooks No Delay. Hindu Business Line, 18 July 2006.
32 See supra note 15. www.thehindubusinessline.com/2006/07/18/
33 “Dr. Mashelkar has often been called a ‘dangerous stories/2006071800221100.htm.
optimist’; so it was no surprise when he suggested that 40 Glyn A. 2005. Labor Market Success and Labor Market
instead of being rueful of the ‘missed bus’ we should Reform: Lessons from Ireland and New Zealand Fighting.
work on the opportunities offered by the waiting buses Unemployment. February, 2005. www.ingentaconnect.
of the knowledge economy.” Information Pasteboard, com/content/oso/1050685/2005/00000001/000000
#IP 428/20–26 Nov 2000. www.nal.res.in/oldhome/ 01/art00006.
pages/ipnov00.htm.
41 Ireland’s low corporate tax rates include 12.5% on
34 “In fact, I spent my childhood without knowing how to trading profits and an exemption for patent income,
use a telephone set. And I never used a telephone till I “U.S. Multinationals Overseas Profits: Ireland’s patent
went to the U.S. to pursue my education in electrical income tax-exemption may fund over 5% of Irish
engineering. The reason: I came from a poor background, Government annual spending in 2006,” FinFacts
and those were the days when telephones were locked Ireland, 21 November 2005. www.finfacts.com/
in wooden boxes and considered an elite possession, irelandbusinessnews/publish/article_10003995.
so I never got a chance to use one. I left for [the] USA shtml.
in 1964 with less than $400 in my pocket. I cherished
a dream and returned to India in 1984 to realize it as 42 McCarthy S. 2004. Ireland’s Biotech Boom. BIO-IT
a multi-millionaire with over 50 patents.” The Thursday World, citing Ireland’s top ranking by the 2004 Harvard
Interview/ Sam Pitroda. 30 January, 2003, 09:01. sify. Business Online Global Creative-Class Index, as well as
com/news/internet/fullstory.php?id=12568313. the Kearney AT. 2004. Offshore Location Attractiveness
Index, which ranked Ireland fourth in the world for
35 Pitroda viewed telephones as just as critical to India’s people and skills, and third for business environment.
modernization efforts as clean water, and his Public www.bio-itworld.com/issues/2006/april/si-ireland/.
Call Offices created a million jobs and began to change
the status of the girl child. Ibid. 43 See supra note 42.
36 Bhattacharya M. 2003. Background paper submitted to 44 See Florida R and I Tinagli. 2004. Europe in the
the Committee on India: Vision 2020 . Telecom Sector in Creative Age, February 2004, p.5 (noting that Ireland
India, Vision 2020, p. 11. www.ictregulationtoolkit.org/ is outpacing all other European states in attracting
en/Document.1613.html. creative, well-educated and productive workers in the
21st century.) www.creativeclass.org/acrobat/Europe_
37 Remarks of Minister Kapil Sibal, 28 October 2006, in_the_Creative_Age_2004.pdf.
at Hi-Tech Pune (also cited by Joshi R. 2006. Patent
Rewards. Business India [December 31], page 30). 45 See supra note 42. (“Together these sectors generated
Where IT Meets BT, Pune, Maharashtra India, www. more than $52 billion in exports in 2005. Nine of the
hitechpunemaharashtra.com. See also “Patent world’s top 10 pharmaceutical companies have major
Rewards,” Business India, December 31, 2006, p. 50 (“A operations in Ireland.”)
new law is being written to ensure that scientists in 46 Ireland’s per capita GNP was US $4,970 in 1984 dollars,
government-run laboratories will get a share in royalty World Bank World Development Report 1986, p. 181.
when their innovation brings commercial dividends.) 47 CIA. 2007. The World Factbook: Field Listing; GDP per
38 Ibid. (Business India) (Quoting Montek Singh Ahluwalla, capita (PPP), 2007. www.cia.gov/cia/publications/
Deputy Chairman of India’s Planning Commission: factbook/fields/2004.html.
“We need to restructure our universities to make them 48 See supra note 47. For 2006 per capita GDP of the U.S.
incubation centers for research.”) was U $43,500 and the U.A.E was US $49,700.

CHAPTER 3.5
Benchmarking of Technology Transfer Offices and

What It Means for Developing Countries
Anthony D. Heher, Director, Associates for Economic Development, South Africa
ABSTRACT major technology transfer and commercializa-

At universities in both developed and developing coun- tion support programs have been launched in
tries, increasing emphasis has been placed on promoting
Australia, Japan, the United Kingdom, and many
technology transfer. Unfortunately, technology transfer is
sometimes undertaken for the wrong reasons, especially other countries. The high-profile successes of rela-
in the mistaken belief that technology transfer will lead to tively few institutions have, however, generated
substantial additional income for the institution. While it unrealistic expectations. Additionally, it is not
is important to protect intellectual property arising from always clear that the success, measured in terms
research and to actively promote the transfer of research
results, generating income should not be the primary ob- of income earned from commercialization, is pro-
jective in the transfer of technology. This is particularly portional to the magnitude of the investment in
important for health science, where there is a risk that research. Without a well-funded, high-quality re-
research results, if not properly protected, will be inac- search system, it is highly unlikely that a technol-
cessible to private or public entities seeking to use the
ogy transfer program will contribute significantly
research for public benefit.
International technology transfer benchmark data to economic or social development. Moreover,
can be used to understand the implications of promot- it is doubtful whether other countries can easily
ing technology transfer and the likely outcomes of a tech- emulate the performance of the United States,
nology transfer initiative. The benchmarks indicate that due to differing social and economic conditions.
average income to an institution, after eight to ten years
of activity, is likely to be a modest 1%–2% of annual The income-earning potential of technology
research expenditure. The income is, moreover, highly transfer activities can, in fact, be a hindrance to
uncertain and variable. Institutional and public sector effective programs. Technology transfer needs to
managers must understand the nature of this income and be undertaken for good reasons, apart from the
the dynamics of the technology transfer process in order
to manage this emerging discipline effectively, because
possibility of earning income. In health sciences
unrealistic expectations can lead to dysfunctional policy and agriculture, in particular, appropriate IP (in-
decisions. The data and dynamic model presented in this tellectual property) protection may be essential
paper are intended to promote better decisions. to effectively exploit research results and ensure
that the benefits are widely available to society.
Whether exploitation of research is for commer-
1. Introduction cial or humanitarian uses, effective and appropri-
The successful technology transfer programs of ate transfer of knowledge is still required, in ad-
universities in Canada and the United States have dition to the normal academic requirements to
prompted other countries to emulate them, and publish.
Heher AD. 2007. Benchmarking of Technology Transfer Offices and What It Means for Developing Countries. In Intellectual
Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L
© 2007. AD Heher. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

Heher
However, even with comparable investments highlight the need for skilled technology transfer
in research, the performance of individual insti- professionals. If a country is to profit from its in-
tutions is highly variable and unpredictable. This vestment in research, then training and capacity
is true even for institutions that are comparable in building at the institutional and national levels
size and maturity. A large portfolio of patents and are key requirements.
licenses is required to give a reasonable probabil-
ity of a net positive income. A large portfolio may
be possible at a national level but is problematic 2. Research and innovation
in smaller countries, and even more so for smaller value- chain benchmark data
institutions. Because the benefits of the innova- Universities and research institutions in North
tion system are captured largely at the national America have been benchmarking the research
level, institutions need public sector support to and innovation value-chain for a number of
reduce the institutional risk necessary to develop years.1 This data covers each step in the value
profitable investments. chain, including expenditure on research; num-
Technology transfer is, of course, only one el- bers of invention disclosures, patents, licenses,
ement of the overall research and innovation val- and spinout companies; income from licensing;
ue-chain. All elements must function effectively and expenditure on IP protection. A few other
for an institution to derive economic and social countries are following a similar approach, facili-
benefits from its research. In addition to a strong tating cross-country comparisons. (A selection of
research system, a university must offer academics the data is shown in Table 1.)
adequate incentives to encourage their participa- To assist with comparisons across countries,
tion, particularly with regard to the crucial initial benchmarks are generally converted to normal-
step of invention disclosure. Universities must ized values. The most commonly used approach
possess adequate institutional capacity to take an is to normalize in terms of total research expen-
idea, evaluate it, appropriately protect intellectual diture, converted to equivalent U.S. dollars. This
property, and then seek a path to commercializa- approach is called the adjusted total research
tion through licensing or a spinout. expenditure (ATRE). The most commonly used
It is widely recognized that monetary re- reporting basis is per US$1billion ATRE or
turns are not, and should not be, the primary US$100 million ATRE. Table 2 presents normal-
motivation for engaging in technology transfer. ized values of the raw data in Table 1 based on
Increasingly, it is a public research organization’s US$100 million ATRE. For simplicity, only se-
social responsibility to ensure that research re- lected variables are shown. This normalized data
sults are effectively transferred in a timely manner can be considered typical data for a small- to mid-
into the public domain for the good of society. sized U.S. university or a large university in a de-
The production of graduates and publication of veloping country.
research results remain the most important ways The normalized data shows a remarkably con-
of affecting knowledge transfer; the more direct sistent pattern across different countries (summa-
transfer of knowledge through technology trans- rized in Table 3). While there are variations from
fer is, however, an essential adjunct. Far from year to year and from country to country, they
undermining conventional approaches, effective are relatively small and statistically insignificant
technology transfer can support and enhance tra- compared to the variations between institutions
ditional knowledge transfer. in one country.
Technology transfer affects a society’s eco- The data presented in Tables 1, 2, and 3 is
nomic well being directly and indirectly. In this for all research disciplines, as no desegregation
chapter, both the conditions necessary for deriv- to field of research was undertaken by any of the
ing economic benefit and the factors that influ- countries that conducted the survey. Although
ence the performance of a technology transfer such results would be interesting, there is a lack
office (TTO) are outlined. The data and models of clear definition of the different fields, even

CHAPTER 3.5
within one country, let alone across countries, 2000. Excluding medical research institutes and
making classification difficult. However, it is considering only universities, the figure is slightly
well recorded that medical and health-related lower, at around 3%. The available figures for the
research constitutes around 50% of all research United Kingdom, Australia, and Canada are also
expenditure. An analysis of individual results of plotted in Figure 1. Again ignoring anomalous
commercialization efforts also shows that health- figures in 2000/2001, averages are in the vicin-
related products make up around 50% of tech- ity of 1% to 1.5%. Interestingly, no evidence yet
nology transfer outputs, so the available evidence exists of other countries having the same rising
indicates it is likely that the data for all fields is trend that was observed in the United States in
broadly representative for health sciences. Given the early years. Whether a similar trend will oc-
that a relatively small proportion of total research cur in the years ahead, or whether there is a sys-
is devoted to agricultural research, it is not possi- tematic difference between the United States and
ble to make similar conclusions about technology other countries, is still unclear.
transfer in the agricultural sciences. Indications The average data set is misleading, however,
are, however, that it is likely to follow a similar and the full data set, showing individual institu-
pattern; there is little evidence that one field of tions, needs to be scrutinized. The AUTM data
research has significantly different results from is excellent in this respect, as is the Australian
another in terms of average performance, as indi- survey. It is unfortunate that cultural norms in
cated in Table 3. Europe tend to hide individual performance, as
A widely used proxy for the overall perfor- this impedes an understanding of the data.
mance of the technology transfer system is the to- The characteristic distribution of this data is
tal license income earned per year as a percentage illustrated in Figure 2, which shows the returns of
of the total research expenditure. This measure is all reporting U.S. universities in rank order. The
used in this chapter, and elsewhere, but it must be data is more easily understood when plotted on a
remembered that the measure is a proxy for a com- logarithmic scale, as shown in Figure 3. The dot-
plex system and does not, by itself, tell the whole ted line in Figure 3 shows the approximate trend
story. License income as a percentage of research line for U.S. data. Figure 4 shows the same data
expenditure is often referred to, for simplicity, as for Canadian universities and Figure 5 shows
the “return” from an investment in technology the date for Australian universities, both with
transfer. The concept represents one form of re- the U.S. trend line superimposed. The distribu-
turn, with returns to the economy through direct tion of returns is remarkably consistent in these
and indirect benefits being equally, if not more, three reporting countries. The data for the United
important. The benefits to society, particularly in Kingdom shows a similar trend, but cannot be
health and agriculture, are often far more impor- displayed in the same way because individual in-
tant than any financial return the institution may stitutional performance is not reported.
earn. The difficulty, however, is that the institution Table 4 summarizes the returns for the
bears the costs of undertaking technology transfer, United States, Canada, Australia, and the United
particularly, in terms of IP protection costs. The Kingdom in three bands. The first is for all report-
benefits, in contrast, may be enjoyed by the wider ing universities, the second for the lower 95%,
society, or even by another country. excluding the upper 5%, while the last row shows
Over the years that data has been collected, the performance of the lower 50%. Excluding
the trend in total license income is instructive the upper 5% removes eight universities in the
(the graph is shown in Figure 1). In the United United States, two in Canada, one in Australia,
States, the value has increased from 1.5% in and five in the United Kingdom.
the first year of surveys by the Association of The affect of the skewness of the returns is
University Technology Managers (AUTM) in evident: 95% of universities have returns of less
1991 to around 3.5% in recent years, ignoring than half the averages, while 50% earn only very
the anomalous peak during the dot-com boom in small amounts from technology transfer. This

Heher
has important implications whether TTOs earn • The rate at which disclosures are converted
enough to cover operating costs or if they need into a patent or license varies from 30% to
to be subsidized. (This is discussed in more detail 50%. This is a relatively close correspon-
below.) dence with differences explainable by differ-
An important reason for undertaking bench- ent national policies and support measures.
marking is the understanding and insight that • The spinout-company rate shows a similar
the process fosters. This is what Lundvall2 calls range, explainable by the greater emphasis
a learning-by-comparing approach, and it is es- on company formation in Europe and in
pecially important when using benchmarks in the United Kingdom, in contrast with the
a different environment. Inherently, long-time emphasis in the United States on licensing.
delays make innovation-system benchmark data The United Kingdom and Europe gener-
particularly difficult to collect and interpret. A ated four to six times more spinout com-
good understanding of the origins and structure panies in 2000/2001, but the number had
is necessary to avoid misuse of the data. The mod- dropped in 2002, reflecting a much more
el that has been developed here assists with the difficult venture-capital environment after
interpretation of the raw benchmark data and the the dot-com bust.
underlying processes it reflects. • A recent report in the United Kingdom,
Analysis of the data is complicated by the however, has asserted that the reported
existence of a few exceptional cases. In Australia, rate of spinout-company formation is 50%
for example, the omission of a single equity trans- more than the real rate. If true, this would
action in 2000 changed the income earned by make the United Kingdom data more com-
over 50%; while in 2001 and 2002, one univer- parable to other countries and illustrates
sity accounted for 66% of all income earned. In the importance of clear definitions when
Canada, omission of two universities had a simi- collecting benchmark data.
lar impact, while in Europe omitting two uni- • It is noteworthy that the total percentage of
versities reduced the income by 70%. The affect invention disclosures that result in either a
of a few large transactions makes measuring and license or a spinout is roughly similar in all
interpreting the benchmark data more difficult, countries examined, at around 30% to 40%.
particularly for projections and comparisons. • The staffing of TTOs shows interesting
Some observations, with respect to the coun- variations. The United States averages four
try average data, are relevant: staff (per US$100 million ATRE), whereas
• The invention disclosure rate of 40 to 50 Australia and Canada have eight to ten staff
disclosures per US$100 million ATRE (per US$100 million ATRE). This reflects
(or US$2 million to US$2.5 million of economies of scale in the United States,
research expenditure per invention disclo- as the average number of staff per institu-
sure) is remarkably consistent across coun- tion is similar. Staffing levels in the United
tries and over time. The most recent U.K. Kingdom, however, are six times higher
data set is an exception and would seem than the United States per ATRE. This
to indicate a difference in policy approach, reflects the emphasis on spinout-company
with the invention disclosure rate increas- formation (known to be much more peo-
ing by nearly 50% from 2001 to 2002. ple-intensive than licensing) in the United
Not all disclosures are equal, however, and Kingdom and the strong national support
in some instances a higher disclosure rate schemes that are in place.
would appear to indicate a lower “quality” • The cost of operating a TTO can be esti-
of disclosure, as indicated by the fact that mated from the reported staffing levels and
a smaller percentage of the disclosures are salary survey results, formal or informal. As
converted to license or spinout opportuni- shown in Table 5, these budgets fall into
ties, as shown in Table 2. two categories and three groupings. For the

CHAPTER 3.5
United States, Canada, and Australia, the typically six to ten years elapses from the mo-
budget for a small university is about 1% to ment of invention disclosure to the time when
2% of total research expenditure and 0.2% significant income can be generated from a li-
to 0.5% at the larger institutions. U.K. cense. These delays are depicted in Figure 6, and
universities typically have budgets approxi- the impact of these delays is illustrated in Table
mately double these figures. 7 and Figure 7.
• The average returns shown in Table 4, cou- This phasing makes interpretation of the
pled with the typical budgets shown in Table benchmark data difficult, because data for a par-
5, enable an estimate of the profitability of ticular year depends on activities that happened
the various classes of offices. These results many years earlier. The total license income in
are shown in Table 6. In the United States any one year, for example, depends on the accu-
and Canada, the bottom 50% of all univer- mulated sum of invention disclosure and patent-
sities operate at a loss, and only the 50% to ing activities from prior years and is independent
95% group are operating at a break-even or of the disclosure rate in that particular year. For
slightly profitable level. Only the top 5% ease of analysis and reporting, ratios are used to
are very profitable. It is this skewness that measure the relationship between variables that
contributes to the all-too-common expec- may in fact be years apart. In a steady-state envi-
tations of unrealistic performance. In the ronment, these ratios are correct, but the dynamic
United Kingdom and Australia, only a few relationship must be understood.
universities are profitable, with over 95% The data presented in Table 2 is therefore
operating at a loss. primarily useful as a steady-state approximation,
particularly when used to make projections for
The similarity in performance among coun- a new institution or a country just establishing
tries with different innovation systems and an innovation system. Misunderstanding these
cultures indicates that the creative innovation dynamics can contribute to false expectations of
process is inherently similar regardless of the en- returns that are more properly based on observa-
vironment. The single biggest factor that dwarfs tions of essentially steady-state data from mature
all others is the expenditure on research, and it systems.
appears that no innovation system is significantly The dynamic model combines knowledge of
different with respect to the effectiveness with the phasing of the value chain and the time du-
which ideas are generated and transformed. ration of the various steps with the steady-state
This is not to imply that active innovation benchmark data in Table 2. The primary purpose
support systems are not required. All the coun- of the model is to provide estimates of the likely
tries examined and reported in the benchmarks rate of return and cash-flow forecasts (institution-
in Table 2 have strong systems of support and al and national) of alternative innovation-system
are actively involved in training and developing scenarios. As the parameters of any particular in-
capacity to manage the research and innova- novation system are not known in advance (and
tion process. Without such capacity, it is highly are difficult to measure even in retrospect), the
unlikely that the performance of any institution, main use of the model is as a “what-if tool” to ex-
region, or country will come even close to match- plore alternative approaches and understand the
ing the average benchmarks.3 impact of policy decisions.
Table 7 illustrates one possible model based
on a hypothetical institution expending US$100
3. Phasing of the million in research expenditure per year for 20
innovation-value-chain years. (The model is currency independent and
The benchmark data is masked by the long de- whether this is US$ or any other currency makes
lays inherent in the technology transfer process. no difference to the rate of return.) The model
Each step in the value chain takes a few years; has also been used for actual institutions, where

Heher
past and future research expenditure is known or “The economic impact of the licensing of
can be forecast. Any available data on past inven- technologies developed at academic institutions
tion disclosures, patents, or licenses can be used is remarkable. The responses from member in-
as initial conditions; the model can incorporate stitutions estimate that the licensing of innova-
as much past data as is available to generate tions made at academic institutions contributed
forecasts. over [US]$40 billion in economic activity and
Figure 7 shows the results of using a range supported more than 270,000 jobs in Fiscal Year
of parameters to represent the three main TTO 1999. In addition, business activity associated
operating models, called the income, service, with sales of products is estimated to generate
or economic models. The choice of office op- [US]$5 billion in United States tax revenues at
erating model depends on institutional and the federal, state, and local levels.”4
national policy, and upon capabilities and re- Despite contention over specific claims of
sources. In practice, a mix of models is normal. economic impact, it is widely accepted that the
Each model can be defined by a set of innova- process is of economic benefit in all countries that
tion value-chain operating parameters. These have active innovation systems and promote uni-
parameters enable the future performance of an versity technology transfer. The many countries
office (or country) to be calculated, including that are investing resources in technology trans-
investment outlay required, patent prosecution fer development confirm that there is widespread
costs, time to break even, and potential internal confidence that the investment is worthwhile and
rate of return (IRR). The IRR is the estimated generates a positive return.
return to the institution from investing in es- With considerable justification, developed
tablishing a TTO, including staff costs and IP countries use the overriding argument that,
protection expenses. when a research program is already in place,
The importance of the model is not the ac- technology transfer can result in significant ad-
curacy of its predictions, which will, of course, ditional benefits for a small additional cost (as
be no better than the underlying parameters and shown in Table 4). But in developing countries
assumptions underpinning their use. The prima- with smaller economies, less-developed innova-
ry benefit is in understanding the dynamics and tion systems, and many competing demands for
relatively long timescales involved in technology resources, the situation is less clear. The bench-
transfer. The model can thus help avoid unrealis- mark data shows that the volume of innovation
tic expectations and can also provide the basis for activities arising from research is directly pro-
a series of intermediate benchmarks that can help portional to the amount of research funding. If
ensure that the innovation system is moving in additional investment in research is proposed on
the right direction. Invention disclosure, for ex- the grounds that it supports economic growth,
ample, is clearly an important early indicator to some justification for this needs to be shown (for
measure both the health and the vibrancy of the example, that there will be a positive return from
research system. that investment).
While there is some financial benefit to the in-
stitution performing the research, the benefit is, at
4. Economic-impact estimation best, around 1% to 2% of research expenditure, as
The ability to calculate, or even estimate, the eco- shown in Tables 2 and 3, and is generally between
nomic impact of technology transfer activities has 0.5% and 1.5%. Income generation from tech-
been actively debated for a number of years. The nology transfer is therefore clearly not an adequate
statement below from the AUTM licensing sur- reason for an institution to invest in research. The
vey for fiscal year 1999 has been disputed, and in financial benefits of technology transfer activities
subsequent years AUTM has refrained from mak- are captured primarily at the national economic
ing claims in the survey, suggesting instead on the level through business creation, with national re-
need for ongoing research. turns arising from direct and indirect economic

CHAPTER 3.5
effects. The data makes a compelling case for pub- entrepreneurial talent and opportunities from states
lic funding, not only of research itself, but also of with less support, resulting in a loss of economic
technology transfer activities. benefits accruing to the states where the research
Even when the public sector invests funds was undertaken. This migration constitutes a leak-
in research (whether for economic development age of benefits from states with less-well-developed
reasons or otherwise), a research institution must entrepreneurial environments to those with a more
invest in technology transfer activities over an ex- nurturing environment. If leakages from poorer to
tended period (eight to ten years) before a posi- richer states in the United States (in terms of entre-
tive return can be expected. The highly uncertain preneurial support) have an impact in the United
and variable nature of the returns compounds States, the effect in developing countries is likely to
these difficulties. Indeed, measuring the national be even more pronounced.
economic impact of technology transfer is diffi- Figure 8 illustrates these concepts in an ex-
cult and has been the subject of intense discus- ample projecting the returns arising from the
sion and debate. A simplistic model has been technology to an investment in research illustrat-
developed to illustrate the concepts and motivate ed in Figure 7. These projections are, of course,
the development of more comprehensive models sensitive to the assumptions made. The model
(the approach used here follows that described by shows, for example, that a positive national IRR
Pressman5). can only be achieved if the indirect multiplier ef-
Universities report that the typical average fects are at least three to four times more than the
royalty rate, from which license revenues are de- direct effects. This reinforces the need for a more
rived, is within the range of 2% to 4%. Direct in-depth understanding of innovation system
business activity generated by technology trans- dynamics so that these effects can be understood
fer activities is therefore of the order of 25 to 50 and measured.
times the revenue received by the licensing insti- What is clear from the model is that the direct
tution. Using an appropriate multiplier (typically returns resulting from technology transfer are far
1.5 to 2.0), the overall direct economic impact from adequate to justify additional expenditure on
can be estimated. This is not strictly an economic research. In developing countries, the debate on
model. It is an estimate of the multiplier effects whether higher expenditure on research is justified
that are required to obtain a positive return. More is intense and the model illustrates the need for
work is needed to determine the actual multiplier more in-depth analysis and better economic data.
effects that occur or are achievable. In addition to
these benefits, the pre-production benefits associ-
ated with technology transfer activities have been 5. Variability of benchmarks
shown to be significant.6 and returns
This economic return is the direct return from The benchmark data from individual institutions
the activities measured and managed by the insti- (from all countries and over hundreds of institu-
tutions’ TTOs. There is strong evidence that the tions) shows a very high variability from year to year
entrepreneurial culture resulting from the focus on and from institution to institution. This variabil-
technology transfer results in many other benefits ity is observed on all measures in the value chain:
that are neither captured nor measured by the in- invention disclosures, patents, licenses, spinout
stitution, but which have an impact on the local companies, and income. The variations are up to
economy.7 These are the indirect multiplier effects. two orders of magnitude, even for institutions that
Whether similar benefits will accrue in developing in other respects are similar. Some of these trends
countries is difficult to say and requires more re- were illustrated in Figures 2, 3, 4, and 5. Analysis
search. Certainly, the factors noted by Tornatzky of the data by income, size of the institution, ma-
generate cause for concern. He noted that states turity, or size of the TTO indicates that none of
with strong entrepreneurial support (such as these variables is strongly correlated with efficiency
Massachusetts and California) tend to draw or performance measures. The only significant

Heher
correlation is that innovation output measures are countries where peer learning is absent. Strong
proportional to the volume of research, as mea- professional networks are critical, and these need
sured by expenditure on research. Even this figure to be promoted and developed.
is proportional only in aggregate over a large port- Sherer and Harhoff11 performed an in-depth
folio, with strong institutional variations. study on innovation returns. Based on their analysis
Figure 9, for example, shows the variation of eight large patent portfolios in both the United
in invention disclosure rate in terms of millions States and Germany, the researchers concluded:
of dollars of research expenditure per invention “Our empirical research reveals, at a high level
disclosure, as a function of both the age of the of confidence, that the size distribution of private
office and the magnitude of research expenditure. value returns from individual technological innova-
Although in aggregate over time and across coun- tions is quite skew—most likely adhering to a log
tries the figure is relatively constant, at the insti- normal law. A small minority of innovations yield
tutional level very strong variations occur, irre- the lion’s share of all innovations’ total economic val-
spective of the size or maturity of the institution. ue. This implies difficulty in averting risk through
The European, United Kingdom, and Australian portfolio strategies and in assessing individual orga-
surveys show a similar distribution, so this is not nizations’ innovative track records. Assuming simi-
unique to the United States. lar degrees of skewness in the returns from projects
Figure 10 shows the variation in license in- undertaken under government sponsorship, public
come (as a percentage of research expenditure) for sector programs seeking to support major technologi-
U.S. and Canadian institutions. The graphs con- cal advances must strive to let many flowers bloom.
firm the theoretical model presented above and The skewness of innovative returns almost surely per-
demonstrate the ten-year lag before significant sists to add instability to the profit returns of whole
revenue is generated. But even after this portfo- industries and may extend even up to the macroeco-
lio-establishing period, returns to offices of simi- nomic level. Although much remains to be learned,
lar size and experience vary greatly. some important lessons for technology policy have
This high variability in returns has been not- begun to emerge.”
ed and studied.8,9,10 The variability in innovation
returns appears to be inherent to the nature of in- The AUTM data confirms that this skewness
novation, but the variation in returns in early inis even more apparent in university portfolios,
termediate benchmarks (for example, invention with an average of only one in 200 licenses gener-
disclosure rates) is not affected by the same fac- ating more than US$1 million in revenue.12 This
tors. While still variable, this variability is less in- concurs with Sherer’s data: of the eight portfolios
herent and more manageable. Economic returns he analyzed, the three from universities all had
are determined by an unpredictable set of market higher levels of skewness than the industry port-
factors, while the intermediate benchmarks are folios. This skewness is of particular relevance to
more controllable by the institution and TTOs. smaller institutions and countries.
Institutional commitment, coupled with skilled, This disparity in outcome, which can oc-
experienced staff, can significantly contribute by cur even between institutions of similar size, ca-
identifying opportunities and motivating inven- pability, and investment, can lead to problems.
tion disclosure, and, of course, by managing all Without an in-depth understanding, the bench-
the subsequent steps in the value chain. marks can result in dysfunctional policy decisions
The impact that skilled staff could have on at both national and institutional levels.
the overall innovation process and benchmark
figures is a topic for further research. If best prac-
tices could be identified and disseminated, they 6. Implications for
could potentially increase innovation returns sub- developing countries
stantially. This is particularly relevant to smaller, Data on the actual performance of developing
more-isolated offices, and offices in developing countries is not available, or at least none has

CHAPTER 3.5
been discovered in the course of conducting this One argument that carries some weight is
research and making presentations in a number that the high levels of industry-sponsored re-
of countries.13 A limited set of data, which has search in South Africa and other countries with
been obtained by personal contact with a number a similar pattern of funding, represent consider-
of institutions, is available for South Africa. This able informal technology transfer embedded in
data is shown in Table 8, together with projec- research contracts. The true performance of these
tions of the possible outcome if South Africa was institutions, therefore, may be much higher than
operating within the international ranges sum- is indicated by the simple “AUTM-like” technol-
marized in Table 3. ogy transfer indicators.
If South Africa was to attain an innovation Whether the benchmarks from countries
performance similar to comparable institutions with large, well-developed research and innova-
elsewhere, the entire South African higher-edu- tion systems will scale to smaller countries is at
cation research system could be expected to present unknown. More detailed analysis and
generate 200 to 300 invention disclosures per measurement are required to determine appropri-
year. After seven to ten years, such a disclosure ate benchmarks and to construct a more robust
rate should lead to a portfolio of around 500 ac- and accurate economic impact model.
tive licenses, two of which would be likely to be
generating revenue of greater than US$1 million
per year, with total revenue of US$5 million to 7. Conclusions
US$10 million per year. The similar relative performance of higher-edu-
Furthermore, the distribution of returns cation technology transfer systems in developed
would almost certainly be skewed, even among countries indicates that the creative innovation
the five or six major research universities, let alone process is inherently similar and that no one
the 15 smaller institutions. A few institutions are country is significantly better in terms of the ef-
likely to perform relatively well, while the major- ficiency with which ideas are generated and trans-
ity are likely to operate at a net loss, even after ferred. The impact of a technology transfer pro-
ten or 15 years. Furthermore, the skewness and gram is determined primarily by the magnitude
variability of returns means that it is not possible of the expenditure on research and the length of
to predict who is likely to succeed and who will time the program has been in operation, provided
be considered to have “failed.” Given the finan- active innovation programs exist and well-trained
cial constraints that exist in higher education technology transfer professionals are in place.
institutions, continued institutional support for These are essential requirements if institutions
technology transfer is likely to be a risk, unless and countries aspire to attain international norms
external support or stimulus is provided. of performance.
In the United States, the Bayh-Dole act of To avoid unrealistic expectations of the ben-
1980 provided a major stimulus for technology efits of technology transfer in smaller countries
transfer, but the difficulty of using a similar mea- and institutions, this data set must be under-
sure in South Africa is illustrated by the funding stood. Effective models of the innovation system,
differences. In the United States, the proportion preferably based on local data, can help predict
of research from federal funding is 61%, while budget requirements, the possible return on in-
industry contributes only 9% of total research vestment, and the timescales to attain these goals.
funding.14 In South Africa, industry funding is Measurement of the local innovation system
58% and government funding makes up 28% of should commence at the earliest possible stage,
total research funding.15 This funding pattern has because early indicators (such as the invention
implications for IP generation and ownership, as disclosure rate) can provide insight into how the
well, and is an example of the differences that remainder of the value chain is likely to develop.
need to be considered when making projections The long time-period required for individual
based on international benchmarks. institutions to derive benefits, and the fact that

Heher
the benefits are largely to the national economy, ��

DTI. 2001. The Higher Education Business Interaction
indicate that appropriate national support mea- Survey. Department of Trade and Industry: London.
sures are needed to encourage innovation devel- Tornatzky LG. 2000. Building State Economies by
Promoting University-Industry Technology Transfer.
opment and to overcome institutional resistance
National Governors Association: Washington, DC.
in resource-constrained environments. Using an
Zeitlyn M and J Horne. 2002. Business Interface Training
innovation-system model (where appropriate) Provision (BITS) Review, Final Report for the Department
to evaluate and quantify alternatives, further re- of Trade & Industry, London, UK. Oakland Innovation
search is needed to determine the most effective and Information Services Ltd.: Cambridge. http://www.
auril-cpd.org/links/publicdocs/bitsreview.pdf.�
support measures.
4 AUTM Licensing SurveyTM:��
Fiscal Year 1999. Association
Institutions and innovation systems need to
of University Technology Managers. Northbrook, Ill.
take into account the skewness and inherent vari- www.autm.net.
ability of innovation returns. In the early stages, 5 Pressman L. 2002. What is Known and Knowable about
more emphasis needs to be placed on intermedi- the Economic Impact of University Technology Transfer
ate benchmark measures and less on such tradi- Programs? Research Universities as Tools For Economic
Development. Council on Research Policy and Graduate
tional measures as license revenues and spinout-
Education, NASULCG Annual Meeting, Chicago.
company formation. ■
6 Geist D. 1995. Pre-Production Investment and Jobs
Induced by Technology Licensing: The M.I.T. Method.
Acknowledgments Technology Licensing Office. Massachusetts Institute
This research has drawn heavily on work done by many of Technology: Cambridge.
colleagues. The sterling, unglamorous work of hundreds
7 See Tornatzky at supra
�� note 3.
of AUTM members in performing the licensing survey
each and every year for the past 12 years is noted with 8 See AUTM 2000, 2001 and 2002. AUTM Licensing
particular thanks. Without that data, many of us who are SurveyTM: Fiscal Years 1999, 2000, and 2001. Association
new to the profession would be fumbling in the dark. of University Technology Managers: Northbrook, Ill.
The surveys sent to me by colleagues in United Kingdom, www.autm.net.
Canada, Europe, and Australia have filled out an interest- 9 Sherer, FM and D Harhoff. 2000. Technology Policy for
ing story. If I have misrepresented the data in any way in a World of Skew-Distributed Outcomes. Research Policy
making comparisons, I apologize. 29: 559.
The research work on which this paper was based was 10 Marsili O and A Salter. 2003. Is Innovation ‘Democratic’?
supported in part by USAID from contract 674-0321-C- Skewed Distributions and the Returns to Innovation
00-8016-22. This support is acknowledged with thanks. in Dutch Manufacturing, Holland. ECIS-Eindhoven
This chapter is based on a paper published in the Journal Centre for Innovation Studies. Eindhoven University of
for Technology Transfer. It draws on the data presented in Technology: Eindhoven.
that paper but presents a number of new results. 11 See supra note 9.
12 AUTM. 2002. AUTM Licensing SurveyTM: Fiscal Year
Anthony D. Heher, Director, Associates for Economic 2001. Association of University Technology Managers��:
Development, 7 Fairview Road, Constantia 7896, Cape Northbrook, Ill. www.autm.net.
Town, South Africa. Tony.Heher@afed.co.za 13 If any reader knows of benchmark data from countries
other than those presented, the author would be
pleased to be notified. The research on which this
1 See AUTM Licensing SurveyTM. Association of University
chapter is based is ongoing and the opportunity to
Technology Managers. Northbrook, Ill. www.autm.net.
extend the work to include data from other countries
2 Lundvall BÅ and M Tomlinson. 2001. Learning-by- is welcome.
Comparing—Reflections on the Use and Abuse of
14 ��
See supra note 12.
International Benchmarking. In Innovation, Economic
Progress and the Quality of Life (G Sweeney, ed.), chap. 15 CENIS. 2002. South African S&T Indicators (2002).
8. Elgar Publishers: Denmark. Centre for Interdisciplinary Studies. University of
Stellenbosch: South Africa.
3 Comprehensive descriptions of the necessary support
functions are given in:

Table 1: Technology Transfer Benchmarks from Selected Countries; Summary of Key Data
USAa Canadaa U.K. b Australiac

2001 2002 2003 2001 2002 2003 2001 2002 2001 2002
CAD (billions) AUD (billions)
Research expenditure - - - 3.2 3.6 - - 2.60 2.80.
- in US$b (ATRE)d $27.6 $31.7 $34.8 $2.1 $2.5 $2.5 $2.6 $3.1 $1.90 $2.10
Invention disclosures 11,259 12,638 13,718 933 1,175 1,282 1,402 2,238 541 521
Patents, filed 5784 6,509 7,203 415 422 425 743 1098 401 459
Patents, issued 3,179 3,109 3,450 162 172 179 276 347 112 121
Licenses, executed 3,300 3,739 3,846 333 362 448 383 648 176 223
Licenses, active 22,937 - - 1,412 1,715 - - 1,616 - -
Licenses, yielding income 7,715 8,490 8,976 - 738 891 403 635 270 235
License income ($m) $827 $959 $963 $54.6 $32.8 $39.7 $26 $33 $33.6 $30.1
Net legal fees ($m) $79 $96 $176 $3.2 $4.3 $7.5 $13 $16 $3.0 $3.5
Start-ups, total 494 364 348 68 49 58 175 158 46 45
Start-ups, still operating 2,514 - - - 493 - - - 98 110
Staff, professional 524 613 654 89 113 139 461 752 111 101
Staff, support 546 624 665 95 122 137 - - 54 53
Note: Data is for all responding institutions for each year indicated, so year-on-year absolute numbers are not comparable.
a Association of University Technology Managers (AUTM) FY 2001, 2002 and 2003 surveys. Data is for universities only in U.S. and only in Canada.
b UNICO-NUBS Survey on University Commercialisation 2001 and UNICO/AURIL-NUBS Survey 2002 (Performed for UNICO by Nottingham University Business School).
c Australian Research Council, National Survey of Research Commercialisation, Years 2001 and 2002 (universities only).
d ATRE stands for Adjusted Total Research Expenditure equivalence in U.S. dollars.

CHAPTER 3.5
Heher
Table 2: Adjusted Total Research Expenditure (All Per $100m)

U.S.A. Canada U.K. Australia
2001 2002 2003 2001 2002 2003 2001 2002 2001 2002
Research expenditure ($b ATRE) $27.6 $31.7 $34.8 $2.1 $2.5 $2.5 $2.6 $3.1 $1.9 $2.1
Invention disclosures 41 40 39 44 48 50 54 72 28 25
Patents, filed 21 21 21 20 17 17 29 35 21 22
Patents, issued 12 10 10 8 7 7 11 11 6 6
Licenses, executed 12 12 11 16 15 18 15 21 9 11
Licenses, active 83 - - 67 70 - - 52 - -
Licenses, yielding income 28 27 26 - 30 35 16 20 - -
Start-up companies, total 1.8 1.1 1.0 3.2 2.0 2.3 6.7 5.1 2.4 2.1
Start-up companies, still operating 9.1 - - - 20.0 - - - 5.2 5.2
Staff, professional 1.9 1.9 1.9 4.2 4.6 5.5 17.7 24.3 5.8 4.8
Staff, support 2.0 2.0 1.9 4.5 5.0 5.4 2.8 2.5
Disclosures to:
licenses 29% 30% 28% 36% 31% 35% 27% 29% 33% 43%
start-ups 4% 3% 3% 7% 4% 5% 12% 7% 9% 9%
licenses + start-ups 34% 32% 31% 43% 35% 39% 40% 36% 41% 51%
License income 3.0% 3.0% 2.8% 2.6% 1.3% 1.6% 1.0% 1.1% 1.8% 1.4%
a
Legal expenses as % total res exp 0.3% 0.3% 0.5% 0.2% 0.2% 0.3% 0.5% 0.5% 0.2% 0.2%
Legal expenses as % of licence incomeb 10% 10% 18% 6% 13% 19% 51% 48% 9% 12%

a Net expenses (spent-reimbursed) as % of total research expenditure.
b Net expenses (spent-reimbursed) as % of license income.
Note: Data are normalized and all curencies expressed in equivalent U.S. dollars.
CHAPTER 3.5
Table 3: Research and Innovation Value Chain
Typical Ranges per $100m ATRE

Invention disclosures 40 – 50
Patents 20 – 30
Licenses 10 – 15
Spinout companies 1–5
Income $1m – $3m
(1% – 3% of research expenditure)
Table 4: Average Returns in 2002

(License Income as % of Total Research Income)
Group U.S. Canada Australia U.K.
All universities 3% 1.60% 1.50% 1.10%
Lower 95% 1.60% 0.80% 0.60% 0.55%

No. of universities excluded
8 2 1 5
from average
Bottom 50% 0.28% 0.23% 0.08% 0.02%
Note: “Group” refers to university rankings by percentage of license income, as indicated in Figures 2–5.
Table 5: Typical Technology Transfer Office Budgets

(As % of Total Research Expenditure)
Budget Budget
University size
(U.S./Australia model) (U.K. model)
Small 1%–2% 2%–3%
Medium 0.5%–1% 1%–2%
Large 0.2%–0.5% 0.5%–1%
Table 6: Likely Outcomes (Estimated Budget vs. Likely Income)

Group U.S. & Canada U.K. & Australia
Bottom 50% (of all universities) Loss Large loss
50%–95% Break even–profitable Loss
Top 5% (of all universities) Very profitable Profitable
Note: “Group” refers to university rankings by percentage of license income, as indicated in Figures 2–5.

Heher
Table 7: Institutional and National Effects on Technology Transfer
Institutional Years
Parameter Year 1 2 3 4 5 6 7 8 9 10 11 12 ….. 20
parameters lag

Research ($m) 100 100 100 100 100 100 100 100 100 100 100 100 - 100
Disclosures ($m) 8.0 13 13 13 13 13 13 13 13 13 13 13 13 - 13
Patents 40% 1 0 5 5 5 5 5 5 5 5 5 5 5 - 5
Average patent cost ($m) 0.2 0 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 - 1.0
Licenses, total 20% 2 0 0 3 3 3 3 3 3 3 3 3 3 - 3
Licenses, active period - 7 0 0 0 0 0 0 3 3 3 - 0
Licenses, cumulative # 0 1 1 4 6 9 11 14 16 19 19 19 19 - 19
Royalties ($m) 0.2 3 R 0.0 R 0.0 R 0.0 0.2 0.2 0.7 1.2 1.7 2.2 2.7 3.2 3.7 - 3.2
Spinouts, total 10% 3 0 0 0 1 1.3 1.3 1.3 1.3 1.3 R 1.3 R 1.3 R 1.3 - R 1.3
Income from sale of

3.0 6 R 0.0 R 0.0 R 0.0 R 0.0 R 0.0 R 0.0 R 0.0 R 0.0 R 0.0 R 3.8 R 3.8 R 3.8 - R 3.8
spinout ($m)
Total income ($m) R 0.0 R 0.0 R 0.0 0.2 0.2 0.7 1.2 1.7 2.2 6.5 7.0 7.5 - 7.0
Office costs, salaries, and

0.3 15% 0.3 0.3 0.3 0.3 0.3 0.4 0.5 0.6 0.6 1.3 1.3 1.4 - 1.3
overheads
IP costs ($m) - - 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 - 1.0
Net income - - 0.0 -1.3 -1.3 -1.1 -1.1 -0.7 -0.3 0.1 0.6 4.2 4.6 5.0 - 4.6
Cumulative income - - 0.0 -1.3 -2.6 -3.7 -4.9 -5.6 -5.8 -5.7 -5.1 -0.9 3.7 8.7 - 42.8

Table 7 (continued)
Institutional Years
Parameter Year 1 2 3 4 5 6 7 8 9 10 11 12 ….. 20
parameters lag
IRR to institution - - 0% 0% 0% 0% 0% -3% 8% 14% - 24%
Income (% of research) - - -1.3% -1.1% -1.1% -0.7% -0.3% 0.1% 0.6% 4.2% 4.6% 5.0% - 4.6%
Economic impact
- - - -
estimates
Turnover at average
3% - 0.0 0.0 0.0 6.7 6.7 23.3 40.0 56.7 73.3 215.0 231.7 248.3 - 231.7
royalty rate
GDP Multiplier 1.5 0.0 0.0 0.0 10.0 10.0 35.0 60.0 85.0 110.0 322.5 347.5 372.5 - 347.5
Tax revenue direct 30% 0.0 0.0 0.0 3.0 3.0 10.5 18.0 25.5 33.0 96.8 104.3 111.8 - 104.3
Indirect mulitplier 4 0.0 0.0 0.0 40.0 40.0 140.0 240.0 340.0 440.0 1290.0 1390.0 1490.0 - 1390.0
Tax revenue indirect 25% 0.0 0.0 0.0 10.0 10.0 35.0 60.0 85.0 110.0 322.5 347.5 372.5 - 347.5
Net income -100.0 -100.0 -100.0 -90.0 -90.0 -65.0 -40.0 -15.0 10.0 222.5 247.5 272.5 - 247.5
IRR - national - - - - -3% 3% - 14%

CHAPTER 3.5

Heher
Table 8: Projections of TTO Activity for South Africa
International Current (2004) Projections

ranges (based if at
(from Table 3) on five international
universities) norms
US$194m ZAR2b
Research expenditure (ATRE) per US$100m per US$100m US$500m
Invention disclosures (total) 40–60 23 200–300
Patents filed 20–30 6 100–150
Licenses 10–15 4 60–100
Start-ups 1–5 3 5–20
Patent budget (as % income) 0.2%–0.5% 0.30%
License income 1%–2% of total 0.1% of total US$5m–US$10m
Size of staff 4–20 9 20–100
Note: Projections are based on likely ranges from international benchmarks.
Figure 1: License Income

(1991–2004 for U.S., 2000-2003 for Other Countries)
4.5%
All U.S.
4.0% U.S. Universities
Canada
License Income (% of Research Income)
3.5% Australia
U.K. Universities
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

CHAPTER 3.5
Figure 2: License Income for U.S. Universities for FY 2002

40%
30%
20%
10%
0%
All Universities (141) in Order by Percentage License Income
Figure 3: License Income for U.S. Universities for FY 2002

(Logorithmic plot)
100.00%
10.0%
US Trend
1.00%
0.10%
.01%

Heher
Figure 4: License Income for Canadian Universities for FY 2002

(Logorithmic plot)
100.00%
10.00%
US Trend
1.00%
0.10%
0.01%
Figure 5: License Income for Australian Universities for FY 2002

(Logorithmic plot)
100.00%
10.00%
US Trend
1.00%
0.10%
0.01%

CHAPTER 3.5
Figure 6: Typical Phasing of the Value Chain
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years
Provisional
Final patent granted
Disclosure
License negotiated
License negotiated
License negotiated
Figure 7: Impact of Policy Choices on Performance

200
Service model (S)
Income model (I)
150 Economic model (E)
Cumulative Income (US$m)
IRR economic model -13% 3% 13% 20% 24%

100
IRR income model 2% 22% 33% 40% 44% 47% 48%
IRR service model -1% 7% 12%

50
-50
Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15

Heher
Figure 8: Estimation of National Internal Rate of Return (IRR)
20%
Assumptions:
15% Average royalty rate 3%

GDP Multiplier 1.5
Tax revenue direct 30%
IRR (%)
Indirect Multiplier 4
10%
Tax revenue indirect 25%
5%
0%
1 3 5 7 9 11 13 15 17 19
Years
-5%
Figure 9A: Disclosure Rate vs. Age of Office

$10
$8
$6
$4
$2
$0
1975 1980 1985 1990 1995 2000
Year TTO Established

CHAPTER 3.5
Figure 9B: Disclosure Rate vs. Research Expenditure

$10
Research/Disclosure (US$m)
$8
$6
$4
$2
$0
$10,000,000 $100,000,000 $1,000,000,000
Research Expenditure
Figure 10A: TTO Age as a Determinate of Licensing Income (U.S.)

30
Average Income
25
Median Income
License Income (US$m)
20
15
10
0
Before 1971 1971-1980 1981-1985 1986-1990 1991-1995 1996-2000
Source: IIPI Report on South African University Technology Transfer: A Comparative Analysis, Jan 2004.

Heher
Figure 10B:TTO Age as a Determinate of Licensing Income (Canada)

License Income (% of Research Income) 20%
15%
10%
5%
0%
1980 1985 1990 1995 2000

CHAPTER 3.6
Public Sector IP Management in the Life Sciences:

Reconciling Practice and Policy—
Perspectives from WIPO
Antony Taubman, Acting Director and Head, Global IP Issues Division, Life Sciences Program,
World Intellectual Property Organization, Switzerland
Roya Ghafele, Economic Consultant, Global IP Issues Division, Life Sciences Program,
World Intellectual Property Organization, Switzerland
ABSTRACT 1. Overview and context

This chapter reviews the options for effective public sec-
tor management of intellectual property (IP) in the life
1.1 Toward policy-rich practice and
sciences, focusing on the need for a judicious, pragmatic
choice of options along two axes: (1) deployment of practice-informed policy
exclusive rights over technology and (2) use of market Researchers, technology managers, and intellec-
mechanisms to bring a new technology to the public. tual property (IP) advisors who work in the life
The essence of public sector IP management is finding sciences and who use the IP system are not oper-
the right settings along these two axes that will deliver
tangible outcomes in line with defined public-interest ating in a policy-neutral, strictly technical envi-
objectives. Experience shows that ex ante assumptions ronment. An overarching public interest in life-
about how to gain optimal leverage from exclusive rights, sciences innovation means that the accumulated
and the appropriate degree of reliance on market mecha- impact of many seemingly independent, individ-
nisms, are unlikely to serve a public sector IP manager
ual choices will in fact have implications for how
well. In clarifying objectives and the practical means of
achieving them, pragmatic coordination between the the IP system is perceived by policy-makers and
practical and policy levels is essential. Public sector IP will therefore help to determine policy directions.
managers are more likely to be assessed against public The practical choices made when managing IP
interest expectations than their private sector colleagues. rights therefore ultimately influence public policy
In IP management in the life sciences, policy and prac-
tice are ultimately two sides of the same coin; practi- debate. Indeed, given public expectations for life-
tioners cannot hope, expect, or plan to operate outside sciences innovation, choices over when and how
the broader policy perspective. Policy-makers therefore to exercise IP rights are inevitably assessed from a
need to consider the actual practice of IP management policy point of view.
when assessing a policy framework for innovation in
the life sciences. IP managers should be open to using
Practitioners need to be sensitive to the poli-
legal mechanisms flexibly for inclusion, or exclusion, as cy environment and alert to the debates that swirl
required to achieve their goals. Finally, managers should around two related aspects of public concerns:
seek mechanisms to pragmatically structure and promote (1) the impact of life-sciences developments in
partnerships with those who have the resources necessary
themselves and (2) the impact when intellectual
to bring life-sciences innovation to the public. Such part-
nerships may be centered in the public, philanthropic, or property is applied to life-sciences innovation.
private sectors, but more likely fall into a hybrid mix of While this may frustrate legally trained practitio-
these categories. ners, how the IP system is used, and the perceived
equities of access to the benefits of a life-sciences
Taubman A and R Ghafele. 2007. Public Sector IP Management in the Life Sciences: Reconciling Practice and Policy—Per-
spectives from WIPO. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Prac-
tices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.
ipHandbook.org.
© 2007. A Taubman and R Ghafele. Sharing the Art of IP Management: Photocopying and distribution through the Internet

TAUBMAN & GHAFELE
technology, can affect public perceptions of the of individual choices, not just from the abstract
legitimacy of that technology. Juma and Konde process of shaping a legislative framework This
write: is most directly illustrated by the experience of
Resistance to new technologies is likely to be re- managing rights held by public sector institutions,
duced by changing perceptions of access to the new which can be held more immediately responsible
technologies as well as to their markets. This has not than their private sector counterparts for securing
been the case with agricultural biotechnology, which tangible benefit gains directly from public invest-
involves worldwide exports with the potential for ment in research and development. Thus, we see
product displacement, while leaving wide margins the emergence of public sector IP management
of uncertainty for technology followers.1 as a distinct subset within the broader discipline
of IP management. For instance, pharmaceutical
Moreover, the policy debate cannot oper- public-private partnerships “must be as aggressive
ate in isolation from the practical realm. Policy- in the way they use IP as any commercial unit, but
makers need a robust, practical understanding of for a different purpose—namely to pursue their so-
the technologies concerned, of the nature of life- cial objective of getting quality, affordable products
sciences innovation, of the overall trends in the to developing country patients.”2
IP landscape, and of the real-world impact of the The optimal implementation of IP rights re-
actual exercise of IP rights. Only then can policy- quires a practical understanding of the full range
makers effectively balance concerns about equity of options for exercising exclusive rights and a ca-
of access with the proper exercise of exclusive pacity to assess and implement those options as
rights. Optimal policy choices require the widest part of a broader strategy. IP rights are exclusive
range of distilled, neutral empirical information in their formal legal character, but the modes of
about the use of intellectual property in relation exercising such rights are highly diverse and will
to key life-sciences technologies. Indeed, the ex- correspond to an institution’s broader objectives.
perience of practitioners contributes valuable in- A predetermined license template, for example,
sights needed to guide and buttress policy debate will not lead to best practice in IP management
over the future of life-sciences innovation. in the life sciences, because its use may effectively
foreclose the full range of choices available and
1.2 Resolving the paradox: public preempt the objective assessment of the implica-
interest through private rights tions of each option. A good manager will instead
Reconciling the public policy role of the IP system judiciously use IP mechanisms to leverage the re-
with the management and exercise of private IP sources needed and obtain the freedom to oper-
rights addresses the central paradox of IP policy: ate, while prudently assessing the likely impact of
what legal exclusions from the public domain are various forms of IP rights exploitation.
required to promote the public interest? And how Workable public sector–management models
can those exclusive rights, once granted, be best do not normally entail an exclusive reliance on re-
deployed for IP law to function as a public policy lease into the public domain nor on wholly exclu-
tool? Life sciences concern the basic human needs sive licensing. While it is rare to see a life-sciences
of food, health, and a safe environment. How product delivered without some engagement of
then can IP rights be best managed to promote private sector actors responding to market signals,
public welfare by making available the fruits of it is usually misleading to set the full product de-
life-sciences innovation and spurring economic velopment pipeline wholly in the public or private
development? These benefits arise not from the sectors. Given especially the necessarily stringent
mere presence of a formal system of assessing, regulatory environment confronting the life sci-
granting, and enforcing IP rights, but from the ences and the need to garner resources for the full
judicious, skillful application of these legal mech- product development process, investments will
anisms in practice. Positive welfare gains from likely draw on both public and private resources.
IP mechanisms emerge from an accumulation Therefore, rather than employing simple public/

CHAPTER 3.6
private or open/exclusive labels, the full range of of accessible new life-sciences technologies, she or
options available to public sector IP managers can he is likely to have to assess the full range of op-
be more usefully analyzed along two continuums: tions across these two spectra when formulating
(1) degree of exclusivity, ranging from defensive a practical strategy. These options are presented
publishing in the public domain through open schematically in Figure 1 (which is also further
source or commons-based constructs, and nonex- discussed in section 4.2 below).
clusive and exclusive licensing, to direct exploita-
tion of exclusive rights; and (2) degree of market 1.3 The meaning of global
engagement, from pure research, through mak- intellectual property
ing some use of private resources in the develop- Participation in the international patent system
ment pipeline, to various modes of outsourcing continues to grow and diversify in three overlap-
product development and the dissemination of ping ways, each with direct ramifications for the
a proven life-sciences technology, including spi- field of public sector IP management:
noffs and transfer of rights to private firms. Even 1. Greater geographical and cultural diversity.
if a public sector IP manager’s core responsibility Membership in the Patent Cooperation
is to deliver welfare gains to the public in the form Treaty (PCT) has shifted from an early
Figure 1: Public Interest IP Management Goes Beyond Licensing Arrangements
$ $
Commercial collaboration— “Traditional”
“cross-licensing, patent pool, private sector pipeline
joint venture, etc.”
$
Market orientation
Open source with

private sector
development pipeline
$ $
“Traditional” Public–private partnership
public sector with cross subsidization
research from market product
Exclusivity/leverage over technology
Source: A Taubman3

TAUBMAN & GHAFELE
preponderance of developed and transi- from a small base, so the actual impact will be
tional economies to a clear majority of de- felt over time as international activity translates
veloping countries. In terms of the actual into distinct national rights. It is certain, how-
use of the system, patent applicants from ever, that government agencies and other public
the developed world continue to predomi- sector institutions in developing countries will be
nate, but current trends reveal double-digit increasingly responsible for managing a growing
growth, sustained over five years or more, stock of life-sciences intellectual property result-
on the part of certain key developing coun- ing from investment of public resources, or from
tries. This trend, if sustained in the medium combined private and public sector inputs. These
term, would significantly shift the center of governments will assume the task in light of their
international patent activity. PCT interna- overarching responsibility to promote the public
tional applications received from develop- interest through the management of this intel-
ing countries in 2005 rose 24.8% com- lectual property. Doing so entails working on
pared to 2004, and constituted 6.9% of all a broader canvas than the mainstream manage-
filings. China, Mexico, and the Republic of ment of intellectual property the essential focus
Korea are among those countries register- of which is to promote commercial outcomes.
ing double-digit percentage increases in use Such social or institutional responsibilities
of the PCT.3 (Figure 2) require that public sector IP managers develop
2. Greater use of the system by public sec- and apply practical skills to manage intellectual
tor and not-for-profit entities. In the property effectively. They may need to look be-
life-sciences domain, these are as di- yond conventional, private sector methodologies
verse as India’s Council of Scientific and to find appropriate ways of managing intellec-
Industrial Research, Empresa Brasileria tual property to ensure the desired public inter-
de Pesquisa Agropecuaria (Embrapa), the est outcomes. These might include ensuring the
Korea Research Institute of Bioscience development and effective dissemination of new
and Biotechnology, the International technologies to the public (for example, new
Aids Vaccine Initiative, the Medicines for pharmaceuticals), promoting economic and social
Malaria Venture, and Cambia. development, creating skilled jobs, or enhancing
3. Growth in use of the system in life-scienc- urgent research funding.
es technologies stronger than the general Effectively managing public interest IP is a
trend. For instance, PCT publications in task that requires judgment and acute sensitivity,
the technical field represented by IPC Class acutely so in life-sciences domains. It requires ad-
A61K (Preparations for Medical, Dental, vanced skills. There is a wide spectrum of possible
or Toilet Purposes) rose 5.1% in 2005. approaches, and there are many distinct objectives
In the next highest field (G06F—Electric that may be pursued. IP management to produce
Digital Data Processing) the growth rate public health outcomes is particularly demand-
was 4.6%.4 ing, yet vitally important for the public interest.
Public sector users of the patent system who 1.4 Choices for public sector IP management
are working in the life sciences face practical While often debated in abstract terms, the impact
questions about how to manage a patent estate of IP laws and IP rights is ultimately determined
to advance their institutional objectives. While by a series of practical, yet critical, choices. For
this has been the subject of a longstanding de- the public sector, these choices are increasingly
bate in the developed world, it is increasingly a guided by IP management policies. Tom Ogada
practical issue for developing countries as well. has categorized these choices in terms of:
The rate of public sector patenting in life-sciences • Who owns the intellectual property gen-
research in developing countries is growing expo- erated by government-funded research
nentially. These countries are, of course, starting activities?

CHAPTER 3.6
• How will revenues/benefits from the com- • To what extent will the institution encour-
mercialization of intellectual property be age research commercialization through
shared between the researcher/inventors, entrepreneurial activity?
the department, the institution, and gov- • How will the costs of IP protection and
ernment funding providers? maintenance be paid?
• Which, if any, government rights/stipula- • How should any invention disclosure pro-
tions are attached to the commercialization cedure be managed?
of intellectual property generated under • How will conflicts of interest between
government-funded research? teaching/research duties and commercially
• In the case of privately funded research, who driven projects be handled?
will own any resulting intellectual property?
• Will spinout companies or licensing con- To assist public sector IP managers and
tracts be used to transfer technology to the policy-makers in making these decisions, Ogada
private sector for commercialization? has authored Guidelines on Developing Intellectual
• Who will manage IP assets, including the Property Policy for Universities and R&D
negotiation of licenses and royalty sharing? Institutions in African Countries.5 Other relevant
Figure 2: PCT Applications of Select Research Centers

in India, the Republic of Korea and South Africa
180
160
Number of PCT Applications in a Year
140
120
100
80
60
40
20
1998 1999 2000 2001 2002 2003 2004 2005 2006
Korea Research Institute of Bioscience and Biotechnology

Council for Scientific and Industrial Research, South Africa
Council of Scientific and Industrial Research, India
Source: PCT Patent Statistics, 2006.

TAUBMAN & GHAFELE
World Intellectual Property Organization custodian countries derive social and economic
(WIPO) resources include: benefits from these vital feedstocks for life-science
• Successful Technology Licensing. This booklet, research. Accordingly, delivering on the promise
written for use by business managers, technol- of life-sciences innovation requires outcomes tai-
ogy managers, and scientists who deal with lored to the circumstances of individual countries.
licensing questions, aims to help its readers This means democratizing innovation to address
negotiate win-win licensing agreements, in neglected diseases that disproportionately afflict
which all parties receive and exchange ap- the developing world, or to respond to the agro-
proximately equal benefits and value. nomic, environmental, and nutritional context of
• Exchanging Value—Negotiating Technology developing country agriculture.
Licensing Agreements: A Training Manual. Many developing countries possess the hu-
This text focuses on the practical business man capital necessary for life-sciences innovation,
needs and concerns of nonspecialists who and they seek the practical pathways to realize this
have to deal with licensing in or licensing potential, not only from the point of view of eco-
out of technology. The manual includes an nomic development, but also from the broader
outline for a program schedule and practical perspective of public welfare. For instance, local
guidelines for creating and managing teams/ health practitioners have extensive practical expe-
groups for conducting mock negotiations. rience in traditional knowledge systems, as heirs
(These are from a five-day practical workshop of generations of “clinical trials.” In dealing with
on negotiating technology licenses, includ- endemic diseases, the knowledge reserves of the
ing a case study on tuberculosis vaccines.) health practitioners need to be drawn on more
• Advanced Distance Learning Course on systematically as part of a sustainable, bottom-
Biotechnology and Intellectual Property. This up approach to development. The recent launch
addresses aspects of patenting biotechno- of the South African Indigenous Knowledge
logical inventions and the plant breeder’s Systems (Box 1) places traditional knowledge
rights systems, as well as IP in research and policy squarely in the context of innovation pol-
development, and the management and icy and the equitable sharing of benefits.
practical use of IP rights.
2.2 Innovation and intellectual
property—the practical context
2. Biomedical innovation Debate continues over the overall role and impact
and development of IP protection in relation to meeting the twin
goals of fostering innovation and promoting the
2.1 Capturing the benefits of effective dissemination of the fruits of innova-
indigenous innovation tion.8 Adopting the approach of this Handbook,
Concentrating on technology transfer as a key this chapter does not enter into the debate be-
innovation strategy, mainstream discourse on in- yond pointing out that the policy context is a
novation and development tends to cast develop- highly dynamic one, greatly influenced by feed-
ing countries as recipients of technology produced back from the actual and perceived impact of the
elsewhere. While access to foreign technology is accumulated choices of IP managers. It is clear
clearly integral to development, it is increasingly that the effectiveness of the patent system for at-
important to focus directly on capturing the in- taining these objectives depends on its practical
digenous innovation potential of developing coun- context, which can be addressed on three levels:
tries.6 Given that developing countries hold signif- 1. the regulatory and administrative level (dis-
icant traditional knowledge and genetic resources, cussed in more detail below)
this arguably applies in the life sciences more than 2. the level of skills and capacity (As a com-
in any other field. At least one of the lessons of plex policy mechanism, the patent system
the biopiracy debate is the need to ensure that requires skilled operators.)

CHAPTER 3.6
3. the level of individual users of the system: debate. Effective functionality depends on de-
applicants, opponents, licensees, advisors, ploying three special skill sets:
and advocates, with a special focus here on 1. The legal and policy skills required to draft
public interest users and implement suitable legislation and
policy mechanisms within the framework
At the regulatory and administrative level, of international standards but also tailored
the key elements of a practically effective system to national needs and priorities
include: 2. The technological know-how and legal
• patent quality, construed here as the great- skills required to draft patent documenta-
est possible convergence between actual tion and to objectively assess the validity
patenting outcomes and the public inter- and legitimate scope of patents in patent
est as delineated in the principles of patent examination and judicial processes
law, especially the conventional criteria for 3. Technological management skills, includ-
patentability ing valuation of disclosed innovations
• the transparency, clarity, and predictability in light of institutional goals (not just in
that effective administration provides in terms of commercial value), assessment of
terms of the practical accessibility of timely potential technology development and dis-
patent information, the clarity of scope and semination pathways, and the formulation
title, and functional patent quality of patenting and licensing strategies
• practical equity of access to the system, so
that the skew of accessibility that favors al- As a rough generalization, capacity‑building
ready dominant private sector players can processes in developing countries have tended to
be reduced focus on each of these skill sets in turn, beginning
• persuasive deterrents and remedies against with a top-down legislative perspective. This has
the misuse of patent rights once granted been most conspicuous in the decade of the im-
plementation of the Agreement on Trade-Related
2.3 System functionality and the capacity Aspects of Intellectual Property Rights (TRIPS).
to make the system function This sequence of shifting priorities for capacity
In sum, much of the public welfare impact of the building reflects a natural evolution from a legalis-
system and actual delivery of equity depend on tic view of implementation and a reactive, or defen-
system functionality—not merely on the formal sive, posture followed by a greater concentration on
legal settings that form the focus of international building administrative and institutional capacity,
Box 1: Traditional Knowledge and Innovation in South Africa
South Africa’s Indigenous Knowledge Systems (IKS) Policy aims at “positive synergy between South
African IKS and the South African National System of Innovation” through:
• the creation of a legal benefit-sharing framework

• the establishment of a formal recording system for IK
• legislation to ensure minimum standards in information and material transfer agreements
with respect to IK research
• the promotion of IK links with the science base by means of targeted funding instruments
• amendments to patent legislation to enforce IK prior art declaration
Source: WIPO.7

TAUBMAN & GHAFELE
to the current growing emphasis on strategies that actual availability of vital life-sciences technolo-
practically and proactively capture direct benefits gies, the public sector IP manager has fundamen-
from indigenous research capacity and comparative tally important responsibilities. IP management
advantage in knowledge resources. This Handbook is a practical craft, not a rigid legal discipline,
is emblematic of the culmination of this last trend. difficult to capture in terms of checklists and
But capacity building must continue on these three licensing templates. This section reviews best
tracks in parallel, mutually informing and reinforc- practice for public sector IP managers in life-sci-
ing one another, especially in the life sciences. In ences technologies. The discussion focuses on two
particular, the practical view from the bottom up broad categories of responsibility: policy-orient-
should inform the view from the top down in a reed, or systemic, and outcome-oriented, or practi-
spectful dialogue between policy-conscious practical. Experience has shown that early assumptions
tioner and practically informed policy-maker. about the right mix of exclusivity or openness of
access, and the right proportion of a reliance on
2.4 The policy impact of effective users public resources and an engagement of private
Clearly, it is the central role and responsibility of interests, are unlikely to be effective or even de-
administrators to promote the effective and efficient fensibly fair. Public sector research programs that
functioning of the system as a system. But users are routinely consign publicly funded research to the
not just customers of the system; they function as public domain can attract just as much criticism
active agents engaged in safeguarding patent quali- as those programs that seek excessive exclusivity
ty: “users” have responsibilities as patent applicants, in the management of public-funded intellectual
as patent opponents, as litigants, and as licensors property. Inattentively letting research outcomes
or licensees. Adversarial legal processes have shaped fall into the public domain can allow richer and
much of the important detail of patent law. The more nimble private interests to benefit dispro-
costs and limitations of the existing administrative portionately from access to this publicly funded
and legal systems have led to calls to more system- knowledge. Public sector IP management must
atically include a user perspective on patenting out- therefore be viewed with a strong pragmatic, em-
comes.9 The growth in life-sciences patent filings by pirical perspective. Accordingly, an outcome-ori-
government agencies and public sector institutions ented approach to public interest IP management
may lead to further blurring of the boundaries be- includes:
tween administration and knowledge management • promoting an in-house invention disclo-
within public sector agencies and to the implemen- sure under effective confidentiality rules
tation of a broader, more holistic array of innova- • analysis of disclosures in the light of institu-
tion policy settings. Ideally, the responsibility to ef- tional objectives
ficiently manage IP portfolios will be understood in • assessment of technologies against priori-
relation to the broader responsibility to contribute ties, categorizing them for public domain
to public policy outcomes. This extra layer of opera- release or defensive publication, for open
tional and ethical complexity creates a distinct chal- licensing, for nonexclusive licensing, or for
lenge for the public sector IP manager. Managers of a strategic in-house focus
private sector IP portfolios in the life sciences may • review of the obstacles to the effective use
need to consider ethical and social constraints, such and dissemination of the new technology,
as professional ethics and corporate social respon- including resource limitations, regulatory
sibility programs, but this chapter concentrates on obstacles, and constraints on freedom to
the public sector manager. operate in target markets, noting that de-
veloping countries generally have greater
2.5 The public sector IP manager freedom to operate due to the relatively low
as a system user levels of patenting
Since the informed, judicious management of life- • formulation of strategies, and identifica-
sciences IP is the most realistic way of boosting tion of potential partnerships, that aim to

CHAPTER 3.6
bring a life-sciences innovation to targeted institutional goals, ranging from specific

groups, which entails considering commer- R&D expertise to research financing
cial, technological, and regulatory issues, as • a policy asset, used to influence choices of
well as an assessment of external require- technology partners, including private sec-
ments that include background intellectual tor partners in public–private partnerships,
property, project management capacity, and to promote humanitarian or cross-sub-
technological and manufacturing capacity, sidized access to life-science technologies in
regulatory process capacity, and investment developing countries or in other beneficiary
capital groups
• leveraging intellectual property holdings
to: The public sector IP manager in the life sci-
- promote the dissemination of techno- ences may also need to consider the public-policy
logical knowledge expectations placed upon her or him, explicitly,
- ensure the availability of improvements, implicitly, or even retrospectively. She or he
further applications, and derivatives of should, in particular, consider the following poli-
licensed technology cy-oriented or systemic responsibilities:
- secure access to regulatory data and • influencing positive innovation patterns,
background/platform technology promoting the effective collaboration and
- reserve rights for third-party use in hu- open dissemination of upstream research
manitarian applications findings, both for the inherent value of the
- reserve exclusively licensed rights in the knowledge as a public good and as a means
event that licensees fail to meet public of promoting the widest possible applica-
interest performance criteria (such as tion of upstream biotechnologies, such as
low-cost or cross-subsidized distribution research tools, diagnostic tools, and genetic
to target markets) modification technologies
- safeguard grant-back of background in- • promoting analysis, adaptation, and up-
tellectual property, project intellectual take of practical-innovation structures that
property, or regulatory dossiers in the make effective use of diverse resources, such
event that licensees fail to meet public as strategic partnerships with other public
interest performance criteria institutions, public–private partnerships,
- bolster institutional research capacity, and open collaborative mechanisms
through licensing fees, partnerships, ac- • good-faith participation in the patenting
cess to research tools and other platform process, focusing on strategic and systemic
technologies outcomes, rather than on the tactical use of
the system, and actively promoting patent
In the hands of the public sector IP manager, quality
an IP portfolio is not necessarily viewed purely as • fostering an interdisciplinary approach to
a commercial asset, although commercial valua- public policy formulation in the life sciences
tion and product development and dissemination and a comprehensive view of the innovation
will normally be essential. An IP portfolio also process within the broader policy context
functions as: • promoting open licensing models for re-
• a transactional asset, used to promote, expe- search or for humanitarian uses in pub-
dite, and clarify the formation of technolo- lic health and agricultural development
gy partnerships, and to define and structure programs for the benefit of developing
specific contributions and expectations in countries
partnerships
• an institutional asset, used to leverage ac- Exemplifying the crossover between policy
cess to necessary resources to achieve and practice is the humanitarian licensing of

TAUBMAN & GHAFELE
medical and agricultural research generated by desired outcomes. The efficiency and effective-
universities or other public research institutions. ness of IP management needs to be measured
“Humanitarian licensing” describes a range of against broader objectives, including its ability
public policy licensing strategies. These might to complement innovation policy and public in-
include providing an open license to developing vestment in R&D infrastructure. Optimal use of
country technology users to sell derivative prod- intellectual property in the life sciences requires a
ucts back to commercial markets, as in the case of well-managed IP system, clear policies about the
agricultural biotechnology. Humanitarian licens- ownership of intellectual property generated by
ing might also mean establishing reach-through the public sector or from public sector inputs, ad-
rights reserving access to derivative innovations equate R&D resources and infrastructure, tech-
(for example, for use in licensing early-stage phar- nology transfer centers at universities and other
maceutical research). These practices may be seen research institutes, and mechanisms to bring re-
as a movement to promote certain technology li- search outcomes to the market. We focus on three
censing norms, even to create de facto exceptions elements in particular:
to patent rights in the life sciences. They might 1. Setting the regulatory and policy
also be imagined as a suite of practical options framework
for public sector technology managers to deploy 2. Building functioning public institutions
in pursuit of institutional objectives. But the 3. Managing public–private partnerships
movement towards humanitarian licensing or re-
serving rights for humanitarian use still begs im-
portant questions at the core of public sector IP 3.1 The examples of Jordan and Indonesia
management:
• How does the deployment of exclusive rights 3.1.1 Overview
over life-science technologies promote the This section reviews information gathered in field
public welfare, and when is deployment of interviews with practitioners in biomedical in-
exclusivity contrary to humanitarian goals novation in two disparate developing countries:
(the exclusivity axis)? Jordan and Indonesia. Despite fundamental dif-
• To what extent, and how, should public ferences in size, structure, resources, and geopo-
sector IP managers engage private interest litical context, Indonesia and Jordan have both
and private sector resources to draw tech- set up IP strategies to promote the social benefits
nologies through a demanding product of domestic biomedical innovation. The countries
development process, and when will hu- have sought the right institutional framework to
manitarian interest be enough to impel a link IP policy and IP management for the ad-
product through the product pipeline (the vance of public welfare. Indonesia is the fourth
market axis)? most populous country in the world and, after
Brazil, is host to the greatest range of biodiversity
See Box 2 for a recent exchange that high- worldwide. Jordan, with four million inhabitants,
lights the broader range of options open to pub- is a relatively small country with little biodiver-
lic interest IP managers who have objectives that sity, few natural resources, and no oil reserves.
extend beyond the simple commercialization of Both countries have strong potential for bio-
research. medical innovation. Indonesia’s opportunities are
linked to the natural medicines market. Jordan’s
pharmaceutical industry is the country’s second
3. Public Policy IP Management largest export earner, after textiles.
in the Life Sciences Jordan’s pharmaceutical industry is making
IP management is not an end in itself, but an es- a structural shift from focusing solely on generic
sential part of a wider array of policy tools that manufacturing to promoting biomedical inno-
need coordinated implementation to achieve vation. Six out of 12 Jordanian pharmaceutical

CHAPTER 3.6
Box 2: Alternatives to Commercialization in Public Sector IP Management:

Four Points of View
According to Tom Ogada, who is responsible for putting in place a formal policy for dealing with
IP issues at Moi University, “an institutional IP policy serves to promote the generation, protection,
and commercialization of IP rights. Universities and R&D institutions are key generators of IP assets,
but there are many stakeholders involved in the process—researchers, students, private sponsors,
technology transfer units, national patent offices, the public, and so on. An IP policy is needed
to harmonize the conflicting interests of the various stakeholders.” Thus, a university’s IP policy
should aim to “create an environment that encourages and expedites the dissemination of new
knowledge for the greatest public benefit, while protecting the traditional rights of scholars to
control the products of their scholarly work. It should ensure that the financial or other benefits of
commercialization are distributed in a fair and equitable manner that recognizes the contributions
of the inventors and the institution as well as other stakeholders. It should promote, preserve,
encourage, and aid scientific investigation and research. It should sensitize students to IP and tap the
creativity of the young. It should create incentives for researchers to conduct research and provide
rewards for intellectual capital. In developing country universities, it should also stimulate research
efforts to find solutions for pressing problems, such as medicines, clean water, and energy.”
Dana Bostrom, Industry Alliances Office, University of California, Berkeley, adds that “most
university technology transfer offices do not have a primary goal of revenue generation. Professor
Ogada captures the goals of technology transfer well, including: promoting the dissemination of
knowledge, and assuring stakeholders that risks, benefits and credit are distributed equitably. The
Association of University Technology Managers (AUTM) does not tend to use revenue generation
as an indicator of benefit. Rather, [AUTM] uses information about how the university distributes
revenue received under licenses to benefit the university community; how products which are
brought to market benefit everyone; and how innovative, university-led licensing programs can push
an industry or technology forward (among other measures). A blanket give-it-away approach, on
the other hand, usually benefits large companies, who are able to create and patent improvements
to the “free” intellectual property more rapidly than other organizations or individuals. For
developing economies, or early-stage technology of all kinds, “free” can come with a heavy cost.
Although free intellectual property can still achieve the best outcomes for everyone, this strategy is
best determined on a case-by-case basis. Without resources to sustain a free commons, often only
those with resources can benefit from what was released. More than 500 new products became
available last year as a result of licenses from U.S. and Canadian academic technology transfer
efforts. More intangibly, universities benefit from the interaction with companies, to see how
academic thinking and solutions can be applied to commercial problems. Ironically, universities
also benefit from our academic community’s greater awareness of intellectual property; we live in
a world where intellectual property plays a greater role, and companies, in their interactions with
universities, demand greater accountability. Ultimately, universities are increasingly being asked to
demonstrate to their community the benefit they provide in the knowledge economy.”
Gavin Moodie, Principal Policy Advisor at Griffith University, Australia, notes that “the
fundamental question for a public university’s IP policy should not be: ‘How can the commercial
potential of the property be maximized?’ but ‘How can the transfer of new ideas be maximized?’
Commercializing intellectual property is only one way—and often the worst way—to transfer new
ideas. Concentrating on commercializing intellectual property encourages universities to overvalue
their property, leading to protracted negotiations using lawyers and other intermediaries, which
frustrates rather than facilitates the free flow of ideas necessary for research and innovation to
flourish. Revenue from licensing intellectual property in fields other than biotechnology is a trivial

TAUBMAN & GHAFELE
Box 2 (continued)
proportion of university revenue. And, of course, licensing revenue isn’t all surplus or “profit”—
with their business development managers, IP lawyers, and accountants, commercialization
units are very expensive. They also impose heavy indirect costs on researchers who must explain
their research and its implications to intermediaries. Joshua B. Powers reported in The Chronicle
of Higher Education (September 22, 2006) that more than half of U.S. universities consistently
lose money on technology transfer. And as the Australian policy and management consultant
John Howard observes, researchers and research organizations will, except in very rare
situations, earn more from being paid for their work input in contracts and consultancies than
from licenses and royalties flowing from intellectual property or from income earned in spinout
companies. I therefore suggest that—with the exception of biotechnology—public universities
simply give away most intellectual property as a contribution to the general good. This could
be subject to universities including in their IP licensing agreements a standard “blockbuster” or
“jackpot” clause that provides that should their intellectual property contribute to blockbuster
revenues of, say, $50 million over 10 years, there would be a sharing of revenue determined by a
nominated commercial arbitrator.”
Bernardo Marcos Diez, Secretariat for Technology Transfer (New Technologies Research Group),
Faculty of Law, Universidad Nacional de Mar del Plata, Argentina, advised that the Governing
Council of the University had “recently approved a regulation which defines the scope, players,
and procedures regarding the protection of any intellectual creation resulting from scientific or
cultural research carried out within the university and/or with third parties. We have adopted an
active IP awareness policy to reach those involved in this process, from the researchers, teaching
staff, and students, to members of the decision-making bodies. We are running conferences in
the different academic units in order to explain the objectives, implications, and advantages
of IP protection, as well as of technology transfer between the university and external social/
commercial milieu. We have also applied to join the WIPO University Initiative in order to appoint
a coordinator and benefit from relevant IP reference materials. So we are in the early phase of
what will be a lengthy process, but one which, it is already clear, will bring economic, scientific
and developmental benefits, not only to our university, but also to our broader society.”
Source: WIPO Magazine.10

CHAPTER 3.6
companies have now developed patent portfo- on a broader base than the traditional focus of
lios, several of which are potential blockbusters private firms.
(remarkably, until recently most of these com-
panies made no use at all of the patent system). 3.1.2 Setting the regulatory framework
Indonesia is taking several measures to bolster its IP law and practice cannot be viewed in isolation
overall innovation strategy. It is, for instance, pro- from the broader regulatory context. This is es-
moting awareness among public research institu- pecially true in the field of life sciences, which is
tions and the private sector of the opportunities concerned with needs as basic as health, food, and
in the natural medicines market. This market of- the environment. Public interest IP management
fers annual growth rates as high as 20%. in biomedical innovation therefore needs to rec-
These countries are steadily increasing their oncile public health needs with commercial goals,
IP holdings on indigenous research activities, ideally helping to harness private sector resources
particularly in the critical areas of the life sci- to achieve public welfare outcomes.
ences: medical and agricultural research. As they Indonesia and Jordan have effective IP leg-
do, broad public interest issues arise. How can islation in place, and both have undertaken ex-
or should private firms be encouraged to man- tensive legislative programs to bring their laws
age their IP holdings to contribute optimally into compliance with the TRIPS Agreement.
to national social and economic development? Indonesia also adhered to the PCT in 1997, and
Additionally, how can public sector or public- Jordan has entered a bilateral trade agreement
funded IP estates be best managed to safeguard with the United States, which has implications
the public interest by capturing and equitably for Jordan’s IP laws. In both countries, IP policy
distributing the benefits of innovation? Finally, has been developed in an interdisciplinary way,
what broader institutional settings are needed to as part of a broader public policy mix, rather
bolster public welfare outcomes from research? than as a narrow, specialized discipline. Jordan’s
A public interest IP management perspective Ministry of Planning is responsible for coordi-
can help technology transfer centers at public nating public policies regarding innovation, and
research institutions find answers to these ques- for measuring Jordan’s global competitiveness
tions. Additionally, effective IP management en- in achieving this goal. Jordan’s main innovation
courages public–private partnerships that address policy, King Abdullah II’s Vision 2020, proposes
humanitarian goals, in particular, the creation of the strategic use of IP mechanisms to achieve
affordable new medicines. society’s goals. Likewise, Indonesia coordinates
The experiences of both Indonesia and intellectual property across policy portfolios, in
Jordan illustrate the broader need for appro- cooperation with the Ministry of Research and
priate domestic institutional settings in order the Directorate General of Intellectual Property,
for the countries to be able to reap the benefits which screens research grants given to public re-
of biomedical innovation. Their experiences search institutions and conducts patent searches,
of Indonesia and Jordan also reveal the im- supplementing the conventional literature review.
portance of the interplay between investment Indonesia also provides funding to patent appli-
in institutional infrastructure and the more cants to make patent protection more affordable
diverse and tailored approaches to managing to local companies and public research institu-
intellectual property within a public interest tions, which is one way to address the issue of
paradigm. The discipline of IP management practical equity in access to the IP system.
has focused on the needs of firms. However, Jordan is reviewing possible legislative ini-
the high level of public concern with capturing tiatives regarding the management of intellec-
public benefits from life-sciences research un- tual property generated in public institutions.
derscores that countries, and public sector in- Indonesia has passed laws that give ownership
stitutions, also need to make strategic decisions over intellectual property generated within
about the deployment of intellectual property public research institutions to the institutions

TAUBMAN & GHAFELE
themselves. This regulatory measure has been ac- 3.2 Managing public–private partnerships
companied by the establishment of technology Life sciences R&D is often characterized by up-
transfer offices (TTOs). Ten TTOs were created stream, or basic, research conducted by public
throughout the country with modest start-up sector or academic researchers. Public sector in-
capital. The offices have confounded some expec- stitutions then depend on the private sector to
tations by establishing successful business opera- take life-sciences innovations through the devel-
tions in recent years. The Technology Institute of opment pipeline to yield finished products. Thus,
Bandung, for example, has struck international life-sciences innovation pathways are increasingly
licensing agreements and research collaborations characterized by an array of public–private part-
with local companies that are actively seeking to nerships. Those conducting early research and
meet local needs. One public-private partnership those investing in the product development phase
resulted in the development of a new machine for will naturally have different approaches to the re-
harvesting local agricultural crops. lationship. But because life-sciences research has
such a strong public interest element, close atten-
3.1.3 Building accountable and tion has been paid to how to manage intellectual
effective public institutions property for specific public interest outcomes.
The benefits of the regulatory framework will Public sector research institutions are learning
depend on establishing public institutions that to pursue the option of leveraging their IP hold-
are both accountable to the public and effective ings to ensure adequate returns from public in-
in serving it. These obligations go beyond the vestment in research, whether those returns are
traditional institutional objectives of IP offices conceived in terms of narrow financial benefits or
concerning administration of the patent system. broader social ones. And public sector IP manag-
Their responsibilities broaden into a wider policy ers are trying to ensure that promising innova-
role in the knowledge economy. IP mechanisms tions are not left on the shelf for want of practical
are actively harnessed to promote the overarch- mechanisms to garner the necessary resources—
ing public interest. In both Indonesia and Jordan, finance, expertise, regulatory approval capacity,
the IP office reports to the ministries responsible product development, and manufacturing know-
for commerce and industry. This helps align IP how. TTOs, situated within universities, have
policy with the countries’ overall economic and also discovered the dual goal of helping to meet
trade policy objectives. As in all countries, there humanitarian needs and to mediating between
are important choices to be made between the academics and the market, which ultimately may
value of administrative independence, self-suf- determine a society’s capacity to nurture innova-
ficiency and direct accountability to political tion based growth.
masters, and the benefits of linkages to a major The interaction between the public and the
policy ministry that can encourage high-level private sector in health innovation can result
political attention to IP policy-making. In both in philanthropic achievements that also satisfy
Jordan and Indonesia, the IP offices focus on the business interests. Successful examples of this in
operational challenges of using limited resources the field of public health include the Medicines
to serve diverse stakeholders. The two offices dif- for Malaria Initiative, the Drugs for Neglected
fer in size: Indonesia currently deals with a higher Disease Initiative, PATH, One World Health,
patent filing rate (4,303 applications in 2005); it and the Bill and Melinda Gates Foundation.
was reported that Jordan had 200. But Indonesia Publicly funded innovation provides an ad-
confronts a problem experienced in many devel- ditional mission and incentive system for busi-
oping countries–that of finding and retaining nesses. A tension is usually perceived to arise
suitably qualified technical staff to deal with the between research and development. Research
increasingly complex field of life sciences, effec- is often guided by the search for new insights;
tive examination capacity being one important market interests are generally of secondary rel-
safeguard of patent quality. evance. In development, however, the market is

CHAPTER 3.6
the defining element, since the substantial costs productivity in health-related innovation, con-
and risks associated with the development of new cluding that such activity can bring a new sense
products and services can often only be justified of urgency and reality to the public sector.12 In
by expected earnings.11 Currently, research tends Sweden, for example, 10% of articles on health-
to be concentrated in the public sector, whereas related innovation are coauthored by scientists
development is most often left to business. The working in the private sector.13 Government
relationship between research and development funding for such exchanges can provide a useful
is usually mediated by the protection and subse- push to such initiatives. Austria illustrates how
quent exchange of intellectual property between such a program can operate. In Austria, academ-
the public and private sectors. This means that it ics have the opportunity to spend a year or two
is crucial to establish equity and negotiating sym- in a company and then return to their university.
metry between these sectors, bridging between They are guaranteed their post and granted fund-
distinct sets of goals and cultural settings. By ing for the exchange.
using the IP system, public research institutions To obtain the best outcomes for public
avoid giving away valuable knowledge without health, researchers and institutions must under-
maintaining some leverage over how it is devel- stand the value of intellectual property, commu-
oped and disseminated, and without securing nicate the worth of their intellectual property to
an adequate return, whether that return is in the potential trading partners, negotiate attractive
form of money or social return. In this way, intel- licensing agreements, and enter agreements that
lectual property provides a mechanism to achieve will generate appropriate returns. IP manage-
equity with the private sector. ment comprises several components, including
Motivating researchers to patent innovation the prioritization and identification of research
judiciously is an essential part of participating targets, decisions as to whether and which form
in the IP system, and institutions need to raise of IP protection to seek, and methods to gain the
awareness about the necessity and advantages of attention of prospective investors/buyers of the
an active but selective patenting strategy. Incentive product.
structures for academics often help to pave the Technology transfer centers within public re-
way from the research lab to the TTO. One way search institutions fill an important role in secur-
to achieve this is to allow academics to generate ing IP rights. They help researchers understand the
additional revenues from consulting agreements, need for intellectual property, give support in the
royalties, and licensing agreements. Clearly, this application for IP protection, and help to transfer
should not provide businesses the opportunity research results to the market. As in many other
to dictate the research agenda of public research developing countries, the staff at these centers
institutions, nor should it compromise the funda- needs IP management training. In fact, a train-
mental freedom of research. Institutional policies the-trainers program is often needed to enhance
need to protect these values. Nevertheless, relax- IP management competencies. An exchange with
ing the institutional restrictions on the interaction IP management centers in the developed world
between the public sector and business in health- may, in this context, be beneficial.
related innovation might allow public research To accomplish all of this, researchers and pub-
to generate new questions and find alternative lic institutions need to identify potential licens-
approaches to a subject. Engagement in product ees, facilitate research collaboration, pool patents,
development in health-related innovation has and avoid unnecessary duplication. Other ways
proven to be a valuable experience that enhances of encouraging public–private partnerships in-
the quality of basic research. Faculty, for example, clude commissioning research projects, operating
might develop innovative insights while resolving joint research studies, financing doctoral studies
problems encountered in industrial consulting. with industrial laboratory funds (with due regard
Mansfield found that coauthorship by indus- to the needs of the doctoral student to publish
try and academics increased the overall research results), encouraging faculty consulting work,

TAUBMAN & GHAFELE
and creating spinout companies. Establishing IP licensing agreements, to those that assist pri-
research clusters, in which public and private marily with applying for IP protection or helping
sector researchers and institutions work on com- raise awareness about intellectual property among
mon research projects, provides opportunities researchers. The statutes of Indonesia’s technology
to exchange both tacit knowledge (know-how) transfer offices suggest very clearly that intellectu-
and formal knowledge (such as publications and al property held by public institutions should be
patents). Through the provision of a clear, trans- licensed under a public interest paradigm.
parent regulatory framework and publication of In Jordan, there are several examples of fac-
basic research, anticompetitive problems can be ulty–private sector biomedical R&D collabora-
avoided. tive projects, but the emphasis so far has been
From a health-equity point of view, the ef- on research led by the private sector. Discussions
fectiveness of licensing agreements will depend reportedly continue regarding a suitable frame-
on the conditions negotiated in these agreements work for the ownership of innovation created in
and the overall innovation market. Licensing can the public domain. The Royal Scientific Society
lessen competition and raise anticompetition is- of Jordan has an applied, rather than a research,
sues, even when there is no cumulative aspect. orientation.
Exclusive licensing arrangements may hamper Jordanian universities do not have TTOs to
public health if the cost reduction of one mar- administer patent applications or negotiate licens-
ket participant forces competitors to exit the ing agreements. However, companies increasingly
market, or if the licensing agreement facilitates refer to universities as subcontractors for specific
collusion.14 biomedical tests. So far, the universities provide
Indonesia and Jordan both report positive skilled labor and conduct some basic research.
experiences with public–private partnerships in These activities appear to promise more institu-
biomedical innovation. Indonesia has developed tionalized partnerships and the beginning of a rela-
an excellent framework for public–private part- tionship between academia and the private sector.
nerships. The Indonesian Science Foundation
(LIPI) may be taken as a best practice example
of public interest IP management. LIPI provides 4. Conclusions: Reconciling policy
IP courses for its researchers, has developed its and practice
own in-house IP policy, and manages an active
technology transfer center that has already issued 4.1 Exclusivity or inclusion: public
several licenses. LIPI has also entered into allianc- or private interest?
es with research institutions abroad, such as the The long history of patent law and patent policy
Max Planck Institute, with whom jointly gener- has been a dynamic record of attempts to recon-
ated intellectual property is jointly owned. cile two complementary goals:
Technology transfer centers in Indonesia 1. The promotion of innovation by directing
are attached to research institutions, such as resources toward beneficial research and
public universities or research organizations. development
These technology transfer centers use different 2. The practical and equitable availability of
names, such as Gugus HaKI (IP Units), Sentra the fruits of innovation
HKI (IPR Centers), Klinik HKI (IPR Clinics), Public interest IP management in the life sci-
IPR Management Office, or IPR, and Licensing ences is itself a search for practical means of achiev-
Office. With the exception of the Eijkman ing these twin goals. It seeks first to garner neces-
Institute, all major public research institutions sary resources and then to focus them on finding
dealing with biomedical innovation have their technological solutions to neglected needs in the
own technology transfer center. The extent of the public health and agricultural domains. The tangi-
activities carried out by these centers varies from ble and intangible resources required for IP devel-
the most advanced, which provide assistance on opment include know-how, research, and product

CHAPTER 3.6
development capacity, clinical or field trial exper- ect have demonstrated, private sector players may
tise, regulatory infrastructure, background/plat- see commercial advantage in deploying nonexclu-
form technologies, and the investment of public sive IP management structures, particularly for
and private capital. IP management strategies will technologies that are considered precompetitive.
be effective if they help to apply these resources No single template is likely to be anything but an
toward unmet needs. This requires finding these indicative guide or catalog of options. Ultimately,
resources via new private resources (such as incen- good practice is good policy: the same exclusive
tives and market interventions) and via new public right may be viewed very differently if it is held
resources (additional funding and infrastructure by a private firm, by a public sector agency, or by
development). IP managers must also work to a private charity. Equally, the exclusive right will
better apply existing resources by leveraging access be viewed very differently depending on how it is
to technologies and by drawing on private sec- deployed in practice.16
tor development skills and R&D infrastructure,
indigenous research and innovation capacity, and 4.2 Fostering interdisciplinary IP policies
traditional medical knowledge. Indonesia and Jordan provide complementary
It is tempting to argue that the traditional and contrasting examples of the role of judicious
conception of two distinct public and private institutional settings in promoting investment in
spheres in the life sciences is breaking down. But life-sciences research, tailored to the social and
it is more accurate to characterize it as a form of economic needs of developing countries. A coun-
evolution, a broadening of the scope of inter- try’s capacity to set up an effective institutional
action, and the creation of a far-broader policy framework for public-interest-minded intellec-
canvas that can accommodate more geographical, tual property is the decisive factor. Used in an ef-
cultural, and economic diversity in the use of the fective, informed and judicious manner, it creates
patent system. Figure 1 (see section 1.2 above), a positive link between the exercise of exclusive
as discussed earlier, illustrates the options for IP commercial rights and a fairer distribution of
management in pharmaceutical product develop- the benefits of technological advancement, with
ment. The figure illustrates how workable mecha- strategies carefully tailored to a country’s level of
nisms for bringing new biomedical innovations wealth or economic development. ■
to the public may require (1) a range of strategic
choices to engage or eschew market mechanisms
Disclaimer
to various degrees in order to secure the necessary This chapter does not represent the views of WIPO, its
resources and freedom to operate, rather than Secretariat or its Member States, and is intended to pro-
electing a wholly “public” or “private” technol- vide only technical-level contributions to assist in the re-
ogy development and dissemination model, and view of options for public sector IP management in the
life sciences.
(2) deployment of exclusive rights afforded by IP
protection to greater or lesser degrees of exclu- Antony Taubman, Antony Taubman, Director (a/g)
sivity and openness, ranging from direct exclu- and Head, Global IP Issues Division (former Traditional
sive exploitation or exclusive licensing, through Knowledge Division) and Life Sciences Program, World
Intellectual Property Organization, 34, chemin des
a range of options of decreasing exclusivity, to
Colombettes, 1202 Geneva 20, Switzerland. Antony.
simple public-domain disclosure. Taubman@wipo.int
Though it may seem counterintuitive, some
public sector technology-development strategies Roya Ghafele, Economist, Life Sciences Program, Global IP
may require exceptional degrees of exclusivity. This Issues Division, World Intellectual Property Organization,
34, chemin des Colombettes, 1202 Geneva 20, Switzerland.
may be useful, for example, when seeking access to roya.ghafele@wipo.int or ghafroia@yahoo.com
a private sector compound library or when nego-
tiating access to an existing regulatory dossier. In
contrast, as the SNP consortium (single-nucleo- 1 Juma C and V Konde. 2002. The New Bioeconomy. In-
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7 WIPO. 2006. Intergovernmental Committee on 13 Goldfarb B and M Henrekson. 2002. Bottom-up versus
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Traditional Knowledge, and Folklore. Document No. University Intellectual Property. SSE/EFI Working Paper
WIPO/GRTKF/IC/9/11. www.wipo.int/edocs/mdocs/ Series in Economics and Finance No. 463.
tk/en/wipo_grtkf_ic_9/wipo_grtkf_ic_9_11.doc. 14 Gallini N and S Scotchmer. 2000. Intellectual Property:
8 Yi Qiang provides evidence that patents do foster When Is It the Best Incentive System? Innovation Policy
innovation in countries with sufficiently high levels and the Economy No. 2.
of education and social, political, and economic 15 Taumban A. 2007. The International Patent System and
freedom; however, the author remains cautious about Biomedical Research: Reconciling Aspiration, Policy
conclusions of the innovation potential of patents in and Practice. American Association of Pharmaceutical
developing countries. Other scholars (Gallini, Horwitz, Scientists Journal. In press.
and Lai) have demonstrated that patents only foster
innovation to a certain extent, after which patenting 16 Taubman A. 2006. The Case of Myriad. WIPO Magazine,
becomes counterproductive (“inverted U-shape”). no. 4.

CHAPTER 3.7
Developing Countries and TRIPS: What Next?

Robert Eiss, Chief Executive Officer, MIHR, U.K.
Kanikaram Satyanarayana, Chief, IP Rights Unit, Indian Council of Medical Research, India
ABSTRACT 1. Background
This chapter provides an overview of the current and The Agreement on Trade-Related Aspects of
potential impact of the Agreement on Trade-Related
Intellectual Property Rights (TRIPS), under
Aspects of Intellectual Property Rights (TRIPS) on
low- and middle-income countries. The chapter also WTO (World Trade Organization), mandates a
summarizes the findings of a meeting in New Delhi, minimum set of IP (intellectual property) pro-
India and explores the legitimacy of concerns about tection for patented pharmaceutical products.
TRIPS. Access to health products relies on many fac- TRIPS raises questions about how new global
tors, including the successful innovation of new tech-
nologies. Innovation, in turn, is a complex process, in- standards for patent protection will affect innova-
volving many factors (intellectual property [IP] is just tion, R&D investment, and product availability,
one) that influences product availability and price. especially for developing economies with signifi-
Pointing to the growth of global and national pub- cant innovative capacities in health R&D (such
lic–private product-development partnerships (PDPs),
as Brazil, China, India, and South Africa). To ex-
the chapter highlights one way these countries are seiz-
ing opportunities—and reveals how important effec- plore these issues, the Indian Council of Medical
tive IP management has become for them. Focused on Research (ICMR), in India, and the Centre for
high-priority diseases such as AIDS, malaria, and TB, Management of Intellectual Property in Health
PDPs require the development and implementation Research and Development (MIHR), based in
of sophisticated IP management policies and practices
in both developed and developing countries in which the United Kingdom, convened an international
PDPs operate. Finally, the chapter discusses the pos- meeting in New Delhi in December 2005, titled
sible role of compulsory licensing and parallel trade. “Living with TRIPS: Innovation of New Health
The value of these flexible options, provided by TRIPS, Technologies for the Poor.” This chapter summa-
is yet undocumented and successfully implementing
them represents a significant challenge. Crucially, coun-
rizes the findings of that meeting. A full report
tries have considerable freedom to control the effects of has been published elsewhere.1
TRIPS on the availability of new health technologies. Attention has focused on India because of
The countries can do this most effectively by building its established strengths in generic-drug pro-
capacity for IP management and by formulating poli-
duction, large prospective market for low-cost
cies and practices, for courts, patent offices, and other
institutions, that favor the poor. medicines, and potential cost advantages as an
R&D base for multinational firms. These factors
make India a bellwether for gauging the impact
of TRIPS on health-product innovation and ac-
cess. Vigorous debates in India and elsewhere
Eiss R, RT Mahoney and K Satyanarayana. 2007. Developing Countries and TRIPS: What Next? In Intellectual Property Man-
agement in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.).
MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. R Eiss, RT Mahoney and K Satyanarayana. Sharing the Art of IP Management: Photocopying and distribution
through the Internet for noncommercial purposes is permitted and encouraged.

EISS, MAHONEY & SATYANARAYANA
preceded the implementation of TRIPS, and played a key role in determining prices for HIV
it is timely to follow up on some of the ques- antiretrovirals in Brazil, India, South Africa, and
tions raised in that debate. Will TRIPS lead to other countries.
monopolies on new drugs where, previously, Accordingly, the price effects of implementing
imitation was possible? Will TRIPS encourage TRIPS should be monitored closely, both in coun-
foreign investment for the health industry or tries with strong generic industries and in coun-
create external constraints? Will TRIPS lessen tries relying on imports of generic substitutes. But
interest, by developing country firms, in diseases there are other underlying structural impediments
of the poor where markets are uncertain, or will to access besides price. These include the equity
it motivate the development of innovative drugs and efficiency of health-care financing and drug/
against priority diseases in these countries? And vaccine distribution systems, the availability of evi-
will international product-development part- dence-based analysis to improve current practice,
nerships (PDPs) that are now generating a pipe- and local community involvement. An instructive
line of drugs for poverty-related diseases find it and often-cited example of delivery failure is the
easier to form partnerships with institutions and uneven access to medicines on the World Health
emerging suppliers in developing countries? Organization’s (WHO’s) list of essential drugs, of
which less than 5% are on-patent. To accurately
measure access requires carefully considering the
2. Putting TRIPS in context historical and social contexts of drug delivery.
Conclusively documenting the benefits or costs Apart from the potential effects of patents on
of TRIPS for developing countries may be impos- post-TRIPS pricing and availability, the compar-
sible. Innovation is a dynamic process influenced ative therapeutic benefits of new chemical entities
by many external variables. These include the lev- over available generics will have health implica-
el of government support for science and technol- tions. So, in assessing TRIPS over time, the rate
ogy, government programs to promote trade, the of pharmaceutical innovation will be a key vari-
capabilities of national drug-regulatory agencies, able in measuring the health impact of strength-
and government efforts to enhance competencies ened patent regimes.
in these and other areas. Despite the difficulties IP management skills will need to be devel-
of measuring the effects of TRIPS, we can at least oped so that TRIPS can be adapted to a nation’s
point to historical precedent, which suggests that advantage. Developing countries that choose to
strengthening intellectual property will increase invest in science and technology must, of neces-
foreign direct investment and flows of technology sity, address IP issues to participate in the interna-
transfer, as long as essential preconditions exist tional marketplace. IP competencies will enable
(namely, supportive R&D environments, effec- these countries to gain access to emerging tools,
tive judicial systems to enforce patent law, and technologies, and resources. Indeed, an acute need
viable domestic and export markets). And while exists to establish policies and procedures and to
definitive measurements cannot be obtained at train staff in effectively managing intellectual
this time, it is possible to determine the most im- property. Priorities include training in contract
portant trends to measure. negotiation, statutory protection, patent search-
Perhaps the most controversial issue suring and filing, technology valuation and business
rounding TRIPS is its impact on the price and strategy development, as well as the development
availability of new medicines. If patents are ob- and implementation of IP policies and strategies
tained and enforced in developing countries, at the institutional level, especially within public
TRIPS could reduce the availability of copies of research institutions and universities. To provide
patented medicines, thus adversely affecting a de the most useful and most accurate information,
facto price control on medicines in these coun- evaluations of the costs and benefits of TRIPS
tries. The manufacture of products that were should consider investments in capacity building
unprotected by patents led to competition that as an important variable.

CHAPTER 3.7
3. Emerging strategies especially as firms seek academic ties to enhance

to reach the poor their R&D base in drug discovery. Importantly,
Assessing the implications of TRIPS for the de- when the public sector invests in product devel-
velopment of new products to treat diseases of opment, it can control the intellectual property
poverty is difficult. Technology transfer and inno- to help benefit the poor (for example, by setting
vation, in general, are strongly viewed as ways to conditions for how the covered technology is to
strengthen an economy; clearly, however, emerg- be distributed or marketed).
ing pharmaceutical industries can do more than Equally important, the new global IP stan-
generate new knowledge, skilled labor, and mar- dards have emerged just as public–private prod-
kets. These industries can address social objectives uct-development partnerships (PDPs) are pio-
by developing health-related products to meet lo- neering creative forms of IP management. PDPs
cal needs. But will the emerging pharmaceutical use intellectual property as a negotiating tool for
industries in Brazil, China, India, and elsewhere developing high-quality, affordable therapeutics
become sources of new medicines for diseases that and vaccines for diseases of the poor. For exam-
disproportionately affect low- and middle-in- ple, the Medicines for Malaria Venture (MMV)
come nations? Early evidence suggests the answer has formed technology partnerships to develop
is no. Pharmaceutical firms in India are focusing an artemisinin-derived lead compound for ma-
globally, exploiting their strengths to develop or laria. In explaining the success of the partnership,
improve therapeutic drugs for well-characterized MMV points to its pragmatic approach to col-
medical conditions that exist in robust global laboration with the private sector, an approach
markets. For example, based on projected sales made possible by the effective identification and
growth, Ranbaxy Laboratories aspires to increase management of intellectual property. Indeed,
its percentage of revenue from sales to member each PDP must adapt its IP strategies to the con-
countries of the Organisation for Economic Co- tributions of its public sector and industrial part-
operation and Development (OECD) from 20% ners. Nonetheless, PDPs share the common goal
in 2000 to 70% in 2007 (presentation at inves- of constructing deals that both provide incentives
tors conference in Mumbai, September 2004). to the private sector and meet the social objec-
The public sector predominantly remains tives of the public sector. These deals are achieved
responsible for promoting the development of through negotiated agreements on territorial
new technologies to meet local needs. For ex- markets, pricing structures for public and private
ample, the government of India is addressing this markets, or field of use, among other areas. The
task by promoting investment in drug develop- synergistic relationships of PDPs are represented
ment through several innovative schemes, such in Figure 1.
as increased R&D tax benefits and subsidies to
support industry–university partnerships. The
New Millennium Indian Technology Leadership 4. TRIPS and public-health
Initiative, for example, supports local technology safeguards
partnerships between publicly supported R&D TRIPS also raises issues related to compulsory li-
institutes and industrial companies. Among censing and parallel trade.2 These public-health
health-related activities, the program supports safeguards are provided under the TRIPS agree-
the development of new targets, drug delivery ment and were reinforced by the Doha Ministerial
systems, bioenhancers, and therapeutics for la- Conference. In December 2005, the WTO
tent mycobacterium tuberculosis to better man- Council permanently adopted a key policy on
age India’s high disease-burden of tuberculosis. compulsory licenses that had existed as a waiver
Researchers are also working to identify gene- since 2003. The waiver has significantly improved
based drug targets for prevalent cancers in India. the ability of developing countries without man-
The program may serve as a model for supporting ufacturing capabilities to import patented drugs
local public–private partnerships in other regions, from sources other than the originator company.

EISS, MAHONEY & SATYANARAYANA
The waiver will become a formal part of the agree- 5. Conclusions

ment after WTO members ratify it. Issues discussed at the New Delhi conference
Production under compulsory licenses, how- and the analysis of those issues, presented in
ever, presents some operational challenges. First, this chapter, have raised important consider-
companies need to secure adequate know-how ations for countries adapting to the TRIPS
from the original manufacturer, or from else- Agreement:
where, to recreate products. Second, the prod- • Intellectual property is one of several inno-
ucts must reach markets that are large enough to vation determinants in health R&D; when
enable compulsory licensees to recoup develop- assessing impact, intellectual property
ment and production costs. While compulsory must be considered in the context of other
licenses are potentially beneficial tools, develop- competencies.
ing countries can use other ways to help ensure • Creatively managed, a global IP regime
that intellectual property does not create barriers can be used in the public interest to im-
to access. These include both conventional licens- prove the access of poor populations
ing arrangements and, notably, the enactment of to new medicines and public health
laws to permit and regulate the government’s use interventions.
of patented inventions. Other options include • Countries aspiring to use TRIPS to national
the actions of patent courts to protect the public advantage must build institutional IP capa-
interest, the thoughtful management of genetic bilities and policies in order to participate
resources and traditional knowledge, and the ju- in the global marketplace and benefit from
dicious framing of competition law and policy. emerging technologies.
In sum, the international IP standards man- • TRIPS enables countries to establish na-
dated by TRIPS allow member nations consider- tional patent policies and practices that both
able discretion to enact laws and provisions that meet treaty obligations and address nation-
both meet treaty obligations and support national al economic needs and social values. ■
innovation policies and development priorities.
Figure 1: Relationships within PDPs in Bringing

Products to Developing Countries
PDP Input PDP Gets

• Funds • Availability
• Background IP • Affordability
• Product requirements • Access
• Disease expertise • IP in ‘feld’
• Link to public sector • Markets in low–and
institutions middle–income countries
Joint R&D
Pharma Input Pharma Gets
• IP • Markets in high–income
• R&D capability countries
• Marketing knowledge • IP outside ‘Field’
• Manufacturing capability • Public relations benefit
• Regulatory capacity • Development of

technology

CHAPTER 3.7
Robert Eiss, Chief Executive Officer, MIHR, Oxford 1 Eiss R, K Satyanarayana and RT Mahoney. 2006. Living
Centre for Innovation, Mill Street, Oxford OX2 OJX, U.K. with TRIPS: Innovation of New Health Technologies for
robert.eiss@mihr.org the Poor. Innovation Strategy Today 2 (1):13–16. www.
biodevelopments.org/innovation/index.htm.
Richard T. Mahoney, Director, Vaccine Access, Pediatric 2 See also, in this Handbook, chapter 15.4 by D Matthews
Dengue Vaccine Initiative, International Vaccine Institute, and V Munoz-Tellez.
San Bongcheon-7dong, Kwanak-ku, Seoul 151-818,
Republic of Korea. rmahoney@pdvi.org
Kanikaram Satyanarayana, Chief, IP Rights Unit,

Indian Council of Medical Research, Ramalingaswami
Bhawan, Ansari Nagar, New Delhi, 110029, India. kani-
karam_s@yahoo.com

CHAPTER 3.8
The TRIPS Agreement and Intellectual Property

in Health and Agriculture
JAYASHREE WATAL, Counselor, Intellectual Property Division, World Trade Organization, Switzerland
ROGER KAMPF, Counselor, Intellectual Property Division, World Trade Organization, Switzerland
ABSTRACT Rights (TRIPS) and the policy work done by the

This chapter sets out the provisions of the Agreement World Trade Organization (WTO) with respect
on Trade-Related Aspects of Intellectual Property Rights
to intellectual property (IP) in health and agri-
(TRIPS) as related to intellectual property in health and
agriculture and the policy work done in the World Trade culture, as of July 2006. The chapter discusses
Organization (WTO). The first part focuses on matters re- WTO programs aimed at enhancing capacities in
lated to public health, including the protection of patents the developing world with respect to the TRIPS
and undisclosed information. An overview is given of the Agreement.
three key instruments addressing the flexibilities available
to Members of the WTO: the Doha Declaration on the The WTO came into existence in January
TRIPS Agreement and Public Health, the Decision on the 1995. Its 149 current Members account for over
Implementation of Paragraph 6 of this Declaration, and 97% of world trade, and around 30 other coun-
the Protocol amending the TRIPS Agreement. The second tries are negotiating membership. Decisions are
part looks into TRIPS provisions relevant to agriculture
made through the consensus of the entire WTO
and sets out the issues reviewed in the Council for TRIPS
with respect to optional exclusions to patentability and the membership, and the TRIPS Agreement applies
protection to be given to plant varieties. The second part to all Members.
also addresses work related to the relationship between The TRIPS Agreement establishes minimum
the TRIPS Agreement and the Convention on Biological levels of protection that each government has to
Diversity (CBD), including the suggested introduction of
a disclosure requirement into the patent system, as well as provide to the IP of fellow WTO Members. By
the protection of traditional knowledge. In addition, two establishing these minimum levels, the WTO
issues relating to geographical indications are taken up, seeks to strike a balance between the long-term
namely, the ongoing negotiations on the establishment of benefits and possible short-term costs to society.
a multilateral register of geographical indications for wines
and spirits, and the extension of the higher level of pro-
Society benefits in the long term when IP protec-
tection currently available for wines and spirits to other tion encourages creation and invention, especially
products. To complete the picture, the third part discusses when the period of protection expires and the
WTO programs aimed at enhancing capacities in the de- creations and inventions enter the public domain.
veloping world with respect to the TRIPS Agreement.
The Agreement contains provisions enabling
governments to reduce short-term costs (for ex-
ample, through various exceptions to the rights
1. Introduction conferred). The WTO’s dispute settlement sys-
This chapter describes provisions of the Agreement tem is available to resolve disputes between WTO
on Trade-Related Aspects of Intellectual Property Members about compliance with TRIPS rules.
Watal J and R Kampf. 2007. The TRIPS Agreement and Intellectual Property in Health and Agriculture. In Intellectual Proper-
ty Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen,
et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. J Watal and R Kampf. Sharing the Art of IP Management: Photocopying and distribution through the Internet for

WATAL & KAMPF
The Agreement covers five broad issues1: microorganisms) and essentially biological pro-
• how basic principles of the trading sys- cesses (other than nonbiological and microbio-
tem and other international IP agreements logical processes) for the production of plants or
should be applied animals. However, any country excluding plant
• how to give adequate protection to IP varieties from patent protection must provide
rights an effective sui generis system of protection.
• how countries should provide for those Moreover, the whole Provision is subject to re-
rights to be adequately enforced in their view four years after the Agreement comes into
own territories force (Article 27.3(b)).
• how to settle IP disputes between Members A product patent must confer the following
of the WTO exclusive rights on the right holder: making, us-
• how to accommodate transitional ar- ing, offering for sale, selling, and importing the
rangements during the new system’s patented product. Process patent protection must
introduction give exclusive rights not only over use of the pro-
cess but also over products obtained directly by
the process. Patent owners shall also have the
2. Relevant provisions of right to assign, or transfer by succession, the pat-
the TRIPS Agreement ent and to conclude licensing contracts (Article
The TRIPS Agreement requires Member coun- 28). Members may provide limited exceptions to
tries to make patents available for all inventions, the exclusive rights conferred by a patent, pro-
whether products or processes, in all fields of vided that such exceptions do not unreasonably
technology without discrimination, subject to conflict with a normal exploitation of the patent
the normal tests of novelty, inventiveness, and and do not unreasonably prejudice the legitimate
industrial applicability. The Agreement also re- interests of the patent owner, taking into ac-
quires that patents be available and patent rights count the legitimate interests of third parties, as
enjoyable without discrimination as to the place well (Article 30). Finally, the term of protection
of invention or whether products are imported or available shall not end before the expiration of a
locally produced (Article 27.1). Although many period of 20 years counted from the filing date
aspects of the TRIPS Agreement could poten- (Article 33).
tially bear on health or agriculture, the sections Members shall require that an applicant for
on patents, test data protection, and geographical a patent shall disclose the invention in a manner
indications are perhaps the most relevant. sufficiently clear and complete for the invention
There are three permissible exclusions from to be carried out by a person skilled in the art.
patent grant. One is for inventions contrary to Members may require the applicant to indicate
ordre public or morality; this explicitly includes the best mode for carrying out the invention
inventions that are dangerous to human, ani- known to the inventor at the filing date or, where
mal, and plant life or health or that are seriously priority is claimed, at the priority date of the ap-
prejudicial to the environment. The use of this plication (Article 29.1). If the subject matter of a
exclusion is subject to the conditions that the patent is a process for obtaining a product, the ju-
commercial exploitation of the invention must dicial authorities shall have the authority to order
also be prevented and that this prevention must the defendant to prove that the process to obtain
be necessary for the protection of ordre public or an identical product is different from the patent-
morality (Article 27.2). ed process, where certain conditions indicating a
The second exclusion is for inventions that likelihood that the protected process was used are
are diagnostic, therapeutic, and surgical meth- met (Article 34).
ods for the treatment of humans or animals Compulsory licensing and government use
(Article 27.3(a)). The final exclusion is for in- without the authorization of the right holder
ventions that are plants and animals (other than are allowed, but they are subject to conditions

CHAPTER 3.8
aimed at protecting the legitimate interests of a region or locality in that territory, where a
the right holder. Mainly contained in Article 31, given quality, reputation, or other characteris-
these conditions include the obligation not to, tic of the good is essentially attributable to its
as a general rule, grant such licenses unless an geographical origin. The TRIPS Agreement re-
unsuccessful attempt has been made to acquire a quires a standard level of protection to be avail-
voluntary license on reasonable terms and condi- able for all geographical indications (Article
tions within a reasonable period of time. The re- 22). In essence, interested parties must have the
quirement to pay adequate remuneration in the legal means to prevent geographical indications
circumstances of each case, taking into account from being used to mislead the public or in a
the economic value of the license, must also be way that constitutes unfair competition. Article
observed, as must a requirement that decisions 23 provides a higher level of protection for geo-
be subject to judicial or other independent re- graphical indications for wines and spirits: sub-
view by a distinct higher authority. Another im- ject to a number of exceptions, they have to be
portant condition is that such use must be made protected even if use would not cause the public
predominantly to supply the domestic market. to be misled or constitute unfair competition.
Some of these conditions are relaxed when com- Information supplied by Members shows that
pulsory licenses are employed to remedy practices countries employ a wide variety of legal means
that have been established as anticompetitive by to protect geographical indications: ranging
a legal process or in cases of emergency or public from specific geographical indications laws to
noncommercial use. trademark law, consumer protection law, and
The TRIPS Agreement also contains pro- common law. The TRIPS Agreement and cur-
visions to protect undisclosed information. rent work in the WTO’s TRIPS Council takes
The Agreement requires that a person lawfully account of that diversity.
in control of such information must have the In some cases, however, geographical indica-
possibility of preventing it from being disclosed tions do not have to be protected or the protec-
to, acquired by, or used by others without his tion can be limited. Among the exceptions that
or her consent in a manner contrary to hon- Article 24 allows are: continuous use of the geo-
est commercial practices. “Manner contrary to graphical indication for at least 10 years preced-
honest commercial practices” includes breach of ing 15 April 1994 or in good faith prior to that
contract, breach of confidence and inducement date; pre-existing trademark rights; and when a
to breach, as well as the acquisition of undis- name has become a common (or “generic”) term
closed information by third parties who knew, for describing that type of product.
or were grossly negligent in failing to know, that
such practices were involved in the acquisition
(Article 39.2). In addition, undisclosed test data 3. Clarifications and flexibility
and other data that governments require to be regarding TRIPS and public health
submitted as a condition of approving the mar- On the issue of TRIPS and public health (includ-
keting of pharmaceutical or agricultural chemi- ing access to patented medicines), the WTO has
cal products that use new chemical entities must adopted three instruments:
be protected against unfair commercial use. • The Doha Declaration on the TRIPS
Members must also protect such data against Agreement and Public Health, November
disclosure, except where necessary to protect the 2001
public, or unless steps are taken to ensure that • The Decision on the Implementation of
the data are protected against unfair commercial Paragraph 6 of the Doha Declaration on
use (Article 39.3). the TRIPS Agreement and Public Health,
For the purposes of the TRIPS Agreement, Geneva, August 2003
geographical indications identify a good as • A Protocol amending the TRIPS Agreement,
originating in the territory of a Member, or December 2005.

WATAL & KAMPF
3.1 The Doha Declaration on the TRIPS licensing, but this is only to indicate that, in these
Agreement and public health circumstances, the usual condition that an effort
The Doha Declaration on the TRIPS Agreement must first be made to seek a voluntary license
and Public Health2 responded to concerns about does not apply. The Declaration makes it clear
the possible implications of the TRIPS Agreement that each Member has the right to determine
for public health, in particular, access to patent- what constitutes a national emergency or other
ed medicines. As mentioned earlier, the TRIPS circumstances of extreme urgency. It also declares
Agreement allows countries to take various kinds that public health crises, including those relating
of measures to qualify or limit IP rights, includ- to HIV/AIDS, tuberculosis, malaria, and other
ing for public health purposes. However, some epidemics, can represent such circumstances.
doubts had arisen as to whether the flexibility in With regard to the exhaustion of IP rights
the TRIPS Agreement was sufficient to ensure and a Member’s right to permit parallel imports,
that it supported public health. It was unclear the TRIPS Agreement states that a Member’s
whether it promoted affordable access to existing practices in this area cannot be challenged un-
medicines, while supporting research, and devel- der the WTO dispute settlement system. The
opment into new ones. Declaration makes clear that the effect on exhaus-
The Declaration responds to these concerns tion of the provisions in the TRIPS Agreement
in a number of ways. First, it emphasizes that the is to leave each Member free to establish its own
TRIPS Agreement does not and should not pre- regime without challenge—subject to the general
vent Members from taking measures to protect TRIPS provisions that prohibit discrimination
public health. It reaffirms the right of Members to on the basis of the nationality of persons.
use, to the full, the terms of the TRIPS Agreement For Members of the WTO that are least de-
that provide flexibility for this purpose. Through veloped countries, the Declaration agrees to pro-
these important declarations, all WTO Members vide them with an extension of their transition
have signaled that they will not seek to prevent period until the beginning of 2016 for protect-
other members from using the provisions. ing and enforcing patents and rights in undis-
Second, the Declaration makes clear that closed information with respect to pharmaceuti-
the TRIPS Agreement should be interpreted and cal products. This was given legal effect through
implemented in a way that supports the right of a Decision of the TRIPS Council that extended
Members of the WTO to protect public health the transition period for least developed countries
and, in particular, to promote access to medi- until 1 January 20163 and another Decision of
cines for all. Further, it highlights the importance the General Council that waived the exclusive
of the objectives and principles of the TRIPS marketing rights provisions of Article 70.94 for
Agreement regarding the interpretation of its the same period. In 2005, the TRIPS Council
provisions. These statements thus provide impor- extended, to July 2013, the time given for these
tant guidance to both individual Members and, countries to implement other provisions of the
in the event of disputes, WTO dispute settlement TRIPS Agreement.5
bodies. While emphasizing the flexibility in the
Third, the Declaration clarifies some of the TRIPS Agreement to take measures to promote
flexibilities contained in the TRIPS Agreement. access to medicines, the Declaration also recogniz-
It makes clear that each Member is free to de- es the importance of IP protection for developing
termine the grounds upon which compulsory li- new medicines and reaffirms the commitments of
censes are granted. This is a useful corrective to WTO Members in the TRIPS Agreement.
views often expressed in some quarters that some
form of emergency is a precondition for compul- 3.2 Paragraph 6 of the Doha Declaration
sory licensing. The TRIPS Agreement does refer In paragraph 6, the Doha Declaration recognized
to national emergencies or other circumstances of the problem of countries with insufficient or no
extreme urgency in connection with compulsory manufacturing capacities in the pharmaceutical

CHAPTER 3.8
sector in making effective use of compulsory licens- operation of the system and that only coun-
ing. Such countries could, under normal TRIPS tries with insufficient domestic capacity im-
rules, import under a compulsory license as there is port under it, and to provide for safeguards
no special problem with Members issuing compul- against the diversion of products to markets
sory licenses for importation as well as for domestic for which they are not intended.
production. The problem, however, was whether
sources of supply from generic producers in other 2. A waiver of the obligation under Article 31(h)
countries to meet such demand would be avail- of the TRIPS Agreement on the importing
able, particularly given Article 31(f) of the TRIPS country to provide adequate remuneration
Agreement, according to which production under to the right holder in situations where remu-
a compulsory license in those other countries must neration in accordance with Article 31(h) is
be “predominantly for the supply of the domestic mar- being paid in the exporting Member for the
ket of the Member.” The problems facing countries same products. The purpose of this waiver is
with insufficient capacities in the pharmaceutical to avoid double remuneration of the patent
sector in accessing sources of supply were expected owner for the same product consignment.
to increase as some countries with important ge-
neric industries were coming under an obligation 3. A waiver of the obligation under Article
to provide patent protection for pharmaceutical 31(f ) of the TRIPS Agreement on any de-
products as from 2005. veloping or least developed country that is
In order to solve this problem, the WTO party to a regional trade arrangement at least
General Council adopted on 30 August 2003 a half of the current membership of which is
Decision6 that waives in certain circumstances made up of countries presently on the United
Article 31(f ) and (h) of the TRIPS Agreement. Nations list of least developed countries. The
This Decision was adopted in the light of a purpose of this waiver is to enable such coun-
Chairman’s statement7 that set out several key tries to better harness economies of scale for
shared understandings of Members on how the the purposes of enhancing purchasing power
Decision would be interpreted and implemented. for, and facilitating the local production of,
The Decision covers any patented pharmaceutical pharmaceutical products.
products, or pharmaceutical products manufac-
tured through a patented process, needed to ad- The above Chairman’s statement was designed
dress public health problems recognized in para- to meet the concerns of those who feared that the
graph 1 of the Doha Declaration on the TRIPS Decision was too open ended and might be abused
Agreement and Public Health, including active to undermine the benefits of the patent system.
ingredients necessary for the manufacture of phar- It recognizes that the paragraph 6 system set out
maceutical products and diagnostic kits needed in the Decision should be used in good faith to
for their use. The Decision grants three waivers protect public health and not to pursue industrial
from the obligations set out in subparagraphs (f ) or commercial policy objectives. It addresses some
and (h) of Article 31 of the TRIPS Agreement concerns relating to the risk of diversion, and it sets
with respect to pharmaceutical products, subject out ways in which any differences arising from the
to certain conditions. The three waivers are: implementation of the system can be settled expe-
1. A waiver of the obligation of an exporting ditiously and adequately. The Decision also records
Member under Article 31(f ) of the TRIPS that the 33 most-advanced countries have agreed to
Agreement to the extent necessary for the pur- opt out of the system as importers, including since
poses of production and export of the needed their accession to the European Communities,
pharmaceutical products to those countries the 10 acceding countries.8 In addition, 11 other
that do not have sufficient capacity to manu- Members have agreed to use the system only as
facture them. This waiver is subject to cer- importers in situations of national emergency or
tain conditions to ensure transparency in the other circumstances of extreme urgency.9

WATAL & KAMPF
The Decision went into effect on 30 August A review of Article 27.3(b) began in 1999
2003, and since then a number of Members have as required by the TRIPS Agreement. The top-
modified their laws/regulations to enable exports ics raised in the TRIPS Council’s discussions
under their legislation. As of July 2006, Canada, included:
Norway, India and the European Communities • how to apply the existing TRIPS provi-
have notified the WTO of these modifications.10 sions on whether or not to patent plants
and animals, and whether they need to be
3.3 A Protocol amending the TRIPS Agreement modified
Paragraph 11 of the August 2003 Decision called • how to handle moral and ethical issues (for
for the TRIPS Council to prepare an amendment, example, to what extent invented life forms
based, where appropriate, on the Decision that should be eligible for protection)
would replace its provisions. Agreement on such • how to deal with the commercial use of tra-
an amendment was reached on 6 December 2005, ditional knowledge and genetic material by
when the General Council adopted a Protocol those other than the communities or coun-
amending the TRIPS Agreement and submitted tries where these originate, especially when
it to WTO Members for acceptance. In substance, these are the subject of patent applications
the amendment closely tracks the August 2003 • how to ensure that the TRIPS Agreement
text. The Decision on the amendment was also and the Convention on Biological Diversity
taken in the light of a rereading by the General (CBD) support each other.
Council Chairman of the statement of August
2003. The Protocol will enter into force upon With respect to the protection of plant vari-
acceptance by two thirds of the Members. The eties, the meaning of effective protection for new
waiver provisions of the August 2003 Decision plant varieties has been a part of the discussion
remain applicable until the date on which the under this review.11 The discussion has includ-
amendment takes effect for a Member. ed consideration of the kind of flexibility that
should be available (for example, allowing tradi-
tional farmers to continue to save and exchange
4. Work on TRIPS provisions seeds that they have harvested). It is widely agreed
relating to agriculture that, while the standards of protection under the
UPOV Convention would be considered ade-
4.1 Article 27.3(b) quate for TRIPS purposes (with some differences
As mentioned earlier, Article 27 of the TRIPS of view about whether the 1978 or 1991 version
Agreement defines which inventions govern- is the most appropriate point of reference), WTO
ments are obliged to make eligible for patent- Members are not bound to apply UPOV stan-
ing and what they can exclude from patenting. dards as long as they can ensure effective protec-
Inventions that can be patented include both tion of plant varieties.12 The privilege of farmers
products and processes, and should generally to replant, on their own holdings, propagating
cover all fields of technology. Part (b) of para- material of protected plant varieties that have
graph 3 allows governments to exclude some been harvested is not in dispute, but no conclu-
kinds of inventions from patenting (for exam- sion has yet been reached about how much further
ple, plants, animals, and other “essentially biolog- the flexibilities might go and be consistent with
ical ” processes—but microorganisms and non- TRIPS. There is no authoritative guidance in the
biological and microbiological processes have to WTO on these matters. However, the responses
be eligible for patents). However, plant varieties of some Members to a questionnaire about do-
have to be eligible for protection either through mestic implementation of Article 27.3(b) are
patent protection or a system created specifically contained in a TRIPS Council document.13
for the purpose (“sui generis”), or a combination Following the 2001 Doha Ministerial
of the two. Conference, the review of Article 27.3(b) has

CHAPTER 3.8
been accompanied by parallel work on the rela- indications). The General Council is to review
tionship between the TRIPS Agreement and the progress and take any appropriate action no later
CBD, as well as on protecting traditional knowl- than 31 July 2006.
edge and folklore.14 In the TRIPS Council sessions and at other
discussions relating to the relationship between
4.2 Biodiversity and Traditional Knowledge the TRIPS Agreement and the CBD,16 Members’
Discussions on the relationship between the positions fall into three broad categories. First, a
TRIPS Agreement and the CBD first began group of developing countries propose to amend
in the WTO in the Committee on Trade and the TRIPS Agreement to make obligatory dis-
Environment in 1995. They were brought into closure in patent applications of (a) the origin
the TRIPS Council through the built-in review of of biological resources and/or traditional knowl-
Article 27.3(b) in 1999. In the Doha Ministerial edge used in the claimed invention, (b) evidence
Declaration under paragraph 19, the ministers in- of prior informed consent under the relevant
structed the Council for TRIPS “to examine, inter national laws/regulations/procedures, and (c)
alia, the relationship between the TRIPS Agreement evidence of fair and equitable benefits sharing
and the Convention on Biological Diversity, the pro- with those holding such resources or knowledge.
tection of traditional knowledge and folklore.” The Second, the European developed countries are
Hong Kong Ministerial Declaration of December willing to envisage some measure of disclosure of
200515 calls for the TRIPS Council to continue source or origin within the patent system, but not
this work and for the General Council to report of access or benefit sharing. Those who agree with
on it to the next ministerial meeting. the disclosure approach differ on several other
In paragraph 12, the Doha Ministerial aspects, such as whether the requirement should
Declaration also addressed the question of out- be mandatory or voluntary, and under what in-
standing implementation issues (that is, out- strument (the TRIPS Agreement or the Patent
standing issues and concerns raised by develop- Cooperation Treaty of the World Intellectual
ing countries about some existing WTO rules, Property Organization [WIPO]). There is also
including a number relating to biotechnology, disagreement about the legal effects of wrongful
biodiversity, and traditional knowledge). With disclosure or nondisclosure (invalidation of the
regard to these issues, the work has focused on patent or outside the patent system under civil/
the relation between the TRIPS Agreement and criminal law).
the CBD. Some countries want a solution to the Third, other WTO Members are opposed to
their related concerns to be negotiated as part a disclosure requirement but are willing to engage
of the ongoing Doha Round of trade negotia- substantively on the issue of how the shared ob-
tions. Other WTO Members contend that there jectives in these areas, such as the avoidance of
is no negotiating mandate on this matter and erroneously granted patents and compliance with
that it would not be appropriate to create one. national access and benefit–sharing regimes, can
Consultations on this issue have been held un- most effectively be realized. They hold the posi-
der the auspices of the Director General of the tion that a national-based approach using tailored
WTO since the end of 2002. The Hong Kong national solutions, including contracts, is suffi-
Ministerial Declaration of December 2005 pro- cient to ensure that the objectives of the CBD
vided for the consultative process to be intensified in relation to access and benefit sharing are met.
further and for the Director General to report to They believe that it would be neither helpful nor
each regular meeting of the Trade Negotiating desirable to involve the patent system.
Committee (TNC) and the General Council. The TRIPS Agreement has no specific provi-
This issue is one of the two outstanding imple- sions regarding traditional knowledge. Members
mentation issues explicitly referred to in the text are obliged to protect traditional knowledge
of the Hong Kong Declaration (alongside that of when it falls under covered IP rights, and they
the extension of the protection of geographical are free to introduce a sui generis law to protect

WATAL & KAMPF
it, as long as that does not conflict with TRIPS. governments choosing to participate in the sys-
They can similarly implement Article 8(j) of the tem would have to consult the database when
CBD (to respect, preserve, maintain knowledge, deciding on the protection of geographical indi-
innovations and practices of indigenous and locations and trademarks for wines and spirits in
cal communities and encourage the equitable their own countries. Non-participating Members
sharing of benefits). Quite detailed work is going would be encouraged, but not obliged, to con-
on in the WIPO Intergovernmental Committee sult the database. At the other end of the spec-
on Intellectual Property, Genetic Resources, trum, the European Communities propose a
Traditional Knowledge, and Folklore. The ques- TRIPS amendment to establish a system under
tion of the appropriate forum for fleshing out the which the registration of a geographical indica-
details of the subject comes up repeatedly in the tion should lead to rebuttable presumptions of
TRIPS Council discussions. Some want to wait its protectability, except where a reservation has
for WIPO to develop an appropriate framework been lodged within a specified period, for exam-
so that it can be determined to what extent such ple, 18 months. Permitted grounds for a reser-
protection can be included in TRIPS. Finally, as vation would include when a term has become
indicated above, the focus in the TRIPS Council generic or when it does not meet the definition
is presently on the relationship between the of a geographical indication. In the absence of
TRIPS Agreement and the CBD, which covers any reservation, a Member could not refuse pro-
some aspects of traditional knowledge. tection on these grounds after the term has been
registered. These proposals, together with a com-
4.3 Geographical indications promise proposal from Hong Kong, China, have
Two issues relating to geographical indications are been set forth side by side in a WTO Secretariat
debated under the 2001 Doha Work Program: document.19
the establishment of a multilateral register of geo- Important differences remain, particularly
graphical indications for wines and spirits and the on two key issues: (1) the extent to which legal
extension of the higher Article 23 level of protec- effects at the national level should be consequent
tion beyond wines and spirits. on the registration of a geographical indication
for a wine or a spirit in the system and (2) the
4.3.1 Multilateral register question of participation, including whether any
The agreed aim of the multilateral system of no- legal effects under the system should apply to all
tification and registration that is currently under WTO Members or only to those opting to par-
negotiation is to facilitate the protection of geo- ticipate in the system. The Special Session has
graphical indications for wines and spirits. Work also discussed a range of other points, including
was initiated as early as 1997 and is mandated questions of costs and administrative burdens
under TRIPS Article 23.4 and paragraph 18 (the for WTO Members, particularly for developing
first sentence of the Doha Declaration). The ne- countries.20
gotiations on this matter are being conducted in a
Special Session of the council for TRIPS. 4.3.2 Extension
Two main lines of argument have been Article 22 requires protecting geographical indi-
advanced in the negotiations. The “joint pro- cations for all goods. The issue here is whether
posal” of Argentina, Australia, Canada, Chile, to expand the higher level of protection under
Dominican Republic, Ecuador, El Salvador, Article 23, currently required only for wines and
Guatemala, Honduras, Japan, Mexico, New spirits, to other products, including agricultural
Zealand, Paraguay, Chinese Taipei,17 and the products and foodstuffs, handicrafts, and indus-
United States18 suggests that the Council for trial products.
TRIPS should decide to set up a voluntary sys- Paragraph 18 of the Doha Declaration notes
tem under which notified geographical indica- that the TRIPS Council will handle work on ex-
tions would be registered in a database. Those tension under paragraph 12 of the Declaration,

CHAPTER 3.8
which deals with implementation issues. As in- prepared by the WTO Secretariat.23 The issues
dicated earlier, WTO Members interpret para- include, among others, those relating to the pro-
graph 12 differently. Many developing country tectable subject matter (definition and eligibility),
and European Members argue that the so-called potential implications for administrative costs
outstanding implementation issues are already and burdens, and the impact of extension on (1)
part of the “single undertaking” and therefore are producers in and outside the area designated by
also part of the negotiating agenda of the Doha geographical indications, (2) the relationship be-
Round. Others argue that these issues can only tween trademarks and geographical indications,
become negotiating subjects if the TNC decides and (3) consumers.
to include them in the talks—and so far it has
not done so. Presently, the topic is the subject of
consultations under the auspices of the WTO 5. Transfer of technology
Director General. At the Hong Kong Ministerial Article 7 of the TRIPS Agreement reflects the ob-
Conference, ministers requested the Director- jective that the transfer of technology should be
General to intensify consultations on all out- promoted by the protection of IP. Some develop-
standing implementation issues, including the ing countries have expressed the view that more
extension of the protection of geographical indi- needs to be done to “operationalize” this notion.
cations, and 31 July 2006 was set as the deadline The TRIPS Agreement calls for more proactive
for the General Council to review progress and measures to promote technology transfer and dis-
take any appropriate action.21 semination in the case of the least developed coun-
With regard to the substance of the TRIPS tries. Article 66.2 obligates developed countries to
Agreement, Members remain divided, but there provide incentives for the transfer of technology to
is a willingness to continue discussing the issue. these countries. The effective monitoring of this
The proponents consider, among other things, obligation through regular reporting and TRIPS
that progress on geographical indications would Council reviews was the subject of a political agree-
make it easier for them to agree to a significant ment at Doha that was turned into the TRIPS
deal in agriculture. The proponents see the higher Council Decision of February 2003.24 Reports un-
level of protection as a tool to enhance rural de- der this new mechanism, submitted at the end of
velopment, support quality production, and en- 2003, 2004, and 2005, are being studied by the
able them to improve the marketing of products Members that are least-developed countries.
by differentiating them more effectively from
other competing products. Consequently, the lat-
est proposal from the European Union calls for 6. Technical cooperation and
the TRIPS Agreement to be amended so that all capacity building programs
products would be eligible for the higher level of Article 67 of the TRIPS Agreement obligates de-
protection in Article 23.22 To meet the concerns veloped country WTO Members to provide, on
of other countries, the exceptions in Article 24 request and according to mutually agreed terms
would also apply, adapted as necessary. Opponents and conditions, technical and financial coopera-
argue that the existing level of protection pursu- tion in favour of developing and least-developed-
ant to Article 22 is adequate. They caution that country Members. This cooperation includes as-
providing enhanced protection would be burden- sistance in preparing laws and regulations for the
some and disruptive to existing, legitimate mar- protection and enforcement of IP rights, as well
keting practices, that the interests of prior trade- as the prevention of their abuse. The coopera-
mark right holders and other third parties may be tion also includes support for the establishment
affected, and that considerable costs may result or reinforcement of domestic offices and agencies
from the need to re-label their products. relevant to these matters, including the training
The issues raised and the views expressed in of personnel. On the basis of annual reports from
this debate have been compiled in a document developed-country Members, each autumn the

WATAL & KAMPF
TRIPS Council reviews the technical cooperation Acknowledgments

that is being provided.25 We are grateful to Adrian Otten, Director of the WTO’s
Intellectual Property Division, who provided very helpful
Considerable assistance is also provided by
comments.
other intergovernmental organizations, notably
WIPO, UPOV, the World Bank, and the WHO. The paper has been prepared strictly in a personal capacity.
Such organizations are annually invited to share The views expressed must not be attributed to the WTO,
information on their activities with the TRIPS its Secretariat, or any of its Member governments.
Council.26 In addition, the WTO Secretariat’s
Jayashree Watal, Counselor, Intellectual Property
technical cooperation program includes activities Division, World Trade Organization, Switzerland, Centre
related to the TRIPS Agreement.27 These activi- William Rappard, Rue de Lausanne 154, 1211 Geneva,
ties seek to help Members understand their rights Switzerland. Jayashree.Watal@wto.org
and obligations—including the options and flex-
Roger Kampf, Counselor, Intellectual Property Division,
ibilities—under the TRIPS Agreement and rel-
World Trade Organization, Centre William Rappard,
evant decisions of WTO bodies. The cooperation Rue de Lausanne 154, 1211 Geneva, Switzerland. Roger.
program encourages Members to participate fully Kampf@wto.org
in the ongoing work of the WTO on TRIPS mat-
ters and emphasizes the importance of ensuring
complementarity and cooperation with other in- 1 For more details, see www.wto.org/english/tratop_e/
tergovernmental organizations, in particular the trips_e/trips_e.htm#WhatAre.
WIPO and the WHO. 2 Document WT/MIN(01)/DEC/2.

These activities include regional workshops 3 Document IP/C/25, June 2002.
on topical issues under discussion, examination, 4 Document WT/L/478, July 2002.
or negotiation in the TRIPS context, in particular 5 Document IP/C/40.
TRIPS and public health, biotechnology, tradi- 6 ��
Documents WT/L/540 and Corr.1.
tional knowledge, biodiversity, and geographical 7 ��
Contained in paragraph 29 of document WT/GC/
indications. These regional workshops, as well as M/82.
specialized workshops held in the regions and 8 The Czech Republic, Cyprus, Estonia, Hungary, Latvia,
Geneva, also aim to provide information that will Lithuania, Malta, Poland, the Slovak Republic, and
Slovenia.
assist developing-country Members in implementing
9 Hong Kong, China; Israel; Korea; Kuwait; Macao, China;
and making effective use of the mechanism set
Mexico; Qatar; Singapore; Chinese Taipei; Turkey; and
out in the Decision on Paragraph 6 of the Doha the United Arab Emirates.
Declaration on the TRIPS Agreement and Public 10 Notifications about the use of the system will be
Health. Upon request by developing- country accessible through a dedicated Web page on the WTO
Members, the WTO Secretariat regularly orga- Web site: www.wto.org/english/tratop_e/trips_e/
public_health_e.htm.
nizes national seminars or workshops devoted to
IP matters. TRIPS issues also figure prominently 11 See document IP/C/W/369/Rev.1, paragraphs 51–60
available at www.wto.org/english/tratop_e/trips_e/
in broader WTO training courses, seminars, and art27_3b_e.htm.
workshops held in Geneva and in developing 12 See document IP/C/W/369/Rev.1, paragraphs 61–66
countries. An important new component of the available at www.wto.org/english/tratop_e/trips_e/
Secretariat’s capacity-building activities is the an- art27_3b_e.htm.
nual joint WIPO/WTO colloquiums for teachers 13 Document IP/C/W/273/Rev.1, available at www.wto.
of intellectual property in Geneva, for partici- org/english/tratop_e/trips_e/art27_3b_e.htm.
pants from developing countries. This program 14 Secretariat summary notes of the work done on these
issues (IP/C/W/368/Rev.1, IP/C/W/369/Rev.1, IP/C/
seeks to enhance the capacity for teachers to train W/370/Rev.1) are available at www.wto.org/english/
IP personnel in their own countries, by providing tratop_e/trips_e/art27_3b_e.htm.
teachers with expertise on international aspects 15 Document WT/MIN(05)/DEC.
and allowing them to provide informed policy 16 Summarized in Secretariat paper IP/C/W/368/Rev. 1.
advice to their governments. ■

CHAPTER 3.8
17 In the WTO accession document, Chinese Taipei is 23 Document WT/GC/W/546, document TN/C/W/25.
referred to as Separate Customs Territory of Taiwan, 24 ��
Document IP/C/28.
��
Penghu, Kinmen and Matsu.
25 The most recent reports can be found in document
18 Document TN/IP/W/10 and Add.1. IPC/W/445 and addenda.
19 Document TN/IP/W/12. 26 The most recent information documents are in
20 See Chairman’s report on the work done in 2005, document IPC/W/456 and addenda.
document TN/IP/14. 27 The most recent information can be found in document
21 Paragraph 39 of document WT/MIN(05)/DEC. IP/C/W/454.
22 Document TN/IP/W/11.

CHAPTER 3.9
U.S. Laws Affecting the Transfer

of Intellectual Property
HOWARD BREMER, Counsel Emeritus, Wisconsin Alumni Research Foundation, WARF, U.S.A.
ABSTRACT The Congress shall have Power—

This chapter provides an overview of some of the legisla- to promote the progress
tive bills that have profoundly affected the evolution of
Of Science and useful arts, by securing
technology transfer and intellectual property (IP) rights
in the United States. The chapter references provisions of for limited Times
the specific bills as codified in U.S. law and explains their To Authors and Inventors the exclusive
goals and historical circumstances. While not an exhaus- Right to their Respective Writings
tive presentation of all of the bills that have contributed and Discoveries.
to laws governing IP, the codification references will pro-
vide a useful starting point for those researching the ap-
plicability of the laws to particular situations.
2. U.S. patent systems
The U.S. patent system finds its origin in the U.S.
Constitution (art. I, § 8, cl. 8). The system de-
1. Introduction scribed therein is the primary vehicle for transfer-
In the United States, the fundamental basis for ring IP from the university and nonprofit sectors
the transfer of technology as property lies in the to the private sector or, as is often the case, from
U.S. Constitution. In an effort to protect the the government to the private sector. Within its
rights of its more creative citizens, the framers of scope, the clause includes trademarks and copy-
the Constitution struck a compromise position: rights. Indeed, all of these elements—patents,
creators of intellectual property (IP) would own trademarks, and copyrights—are classified as in-
it and be able to exclude others from using it for tellectual property and in the United States have
a limited period of time. After this time period the imprimatur of personal property rights. The
expired, the right to use the IP was extended terms and provisions governing these forms of
to all. By agreeing to accept the “disclosure in- IP are codified in various statutes: U.S. Code,
ducement theory” of advancing science and the title 35 for patents (35 U.S.C.); U.S. Code, title
arts, the framers also allowed a creator of IP to 15 (15 U.S.C.), chapter 22 for trademarks; and
deny others the use of that property for a lim- U.S. Code, title 17 (17 U.S.C.) for copyrights.
ited period of time in exchange for disclosing Detailed regulations governing the application of
the nature of the property to all. The conveyed these statutes are found in title 37 of the Code
right is expressed in article I, section 8, clause 8 of Federal Regulations (37 C.F.R.), chapters
of the U.S. Constitution: I and II. These laws and regulations outline
Bremer H. 2007. U.S. Laws Affecting the Transfer of Intellectual Property. In Intellectual Property Management in Health
© 2007. H Bremer. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

BREMER
the obligations for obtaining and maintaining IP in part 404, and those pertaining to inventions
protection and for asserting the property rights made by government employees are set forth in
that the laws convey. part 501.
The Bayh-Dole Act also embraces any novel
2.1 Specific legislation variety of plant that is or may be protected under
Two pieces of legislation, both of which were the Plant Variety Protection Act, which is codi-
passed in 1980, are of particular interest. The fied in title 7 of the U.S. Code (7 U.S.C.), chap-
first gave the government authority to engage in ter 57, and includes sections 1545 and 2353 of
the transfer of federally owned or federally origi- title 28 (28 U.S.C. §§ 1545 and 2353), amend-
nated technology. The second gave the governments to title 27, sections 1551 and 1562 (27
ment statutory authority to patent and license U.S.C. §§ 1551 and 1562) (the Federal Seed
federally owned inventions and was instrumental Act), and sections 1338 and 1498 of 28 U.S.C
in enhancing the nonprofit sector’s technology (28 U.S.C. §§ 1338, 1498).
transfer function—especially for universities. Because the Bayh-Dole Act depends upon
The first law was the Stevenson-Wydler Act. the U.S. patent system to transfer technology
Its reach expanded by amendments over a pe- from the nonprofit, university, and small business
riod of years, the law is codified in title 15 (15 sectors, it is axiomatic that changes in the patent
U.S.C.), chapter 63 of the U.S. Code, under the system and in the regulations governing that sys-
heading “Technology Innovation.” Its funda- tem can affect the ability to protect and transfer
mental purpose was to promote the utilization of technology.
technology owned by the federal government and
generated with its help. The act accomplished its 2.2 Patents and antitrust laws
purpose by aiding the transfer of that technology Many people classify patents as monopolies, a
to the private sector and to state and local gov- view that brings into sharp focus the issue of an-
ernments. The act initially called for setting aside titrust laws and patents, particularly the right of
0.5% of each federal laboratory’s budget to fund the patent holder to exclude. The passage of an-
technology transfer activities; a later amendment titrust legislation in the United States was driven
required “sufficient funding to support technol- by the growth and expansion of business and
ogy transfer activities.” the efforts of competitors to stabilize markets
The second law was the Patent and Trademark through price and quota arrangements. These
Amendment Act of 1980—known as the Bayh- activities made it clear that growing industrial
Dole Act. The terms and provisions of this act, combinations and monopolies would have to be
as amended by the Trademarks Clarification Act controlled.
of 1984, are codified in title 35 of the U.S. Code As a result, in 1890 the Sherman Act was
(35 U.S.C. § 200–212). The Bayh-Dole Act passed (codified at 15 U.S.C. §§ 1–7). The
changed the presumption of title in and to in- Clayton Act (codified at 15 U.S.C. §§ 12–29
ventions made, in whole or in part, with federal and 29 U.S.C. § 52) followed in 1916. As a
monies at nonprofit organizations—including supplement to the Sherman and Clayton acts,
universities and small businesses—from the gov- the Federal Trade Commission Act was passed in
ernment to those entities. For the first time, the 1914, amended in 1980 and1994, and reautho-
law established a uniform federal patent policy rized in 1996 (codified at 15 U.S.C. §§ 41–58).
and provided the first statutory authority for the The Sherman Act prohibits the restraint of
U.S. government to take title to and hold patents trade and monopolies. Antitrust law and patents
through its agencies. The regulations pertaining oppose each other because according to the act,
to the Bayh-Dole Act are found in the Code of patents can contribute or be a part of an attempt
Federal Regulations, title 37 (37 C.F.R.), part to restrain trade or to establish a monopoly of
401; those regulations pertaining to the licensing “any part of the trade or commerce between the sev-
of government-owned inventions are set forth eral States (of the United States) or with foreign

CHAPTER 3.9
nations.” Specifically, the substantive governing • Section 7. …[N]o corporation engaged in [in-
provisions are: terstate] commerce shall acquire, directly or
• Section 1. Every contract, combination in indirectly, the whole or any part of the stock or
the form of trust or otherwise, or conspiracy, other share capital and no corporation subject to
in restraint of trade or commerce among the the jurisdiction of the Federal Trade Commission
several States, or with foreign nations, is de- shall acquire the whole or any part of the assets of
clared to be illegal.… another corporation engaged also in commerce,
• Section 2. Every person who shall monopo- where in any line of commerce in any section of
lize, or combine or conspire with any other the country, the effect of such acquisition may be
person or persons, to monopolize any part substantially to lessen competition, or to tend to
of the trade or commerce among the sever- create a monopoly.
al States, or with foreign nations, shall be
deemed guilty of a misdemeanor. The early historical perception that patents
and antitrust principles are antithetical has been
It should be noted that under section 1, re- ameliorated over the years; today they are rec-
straint of trade requires action by two or more ognized as complementary tools that enhance
parties, but monopolization requires action by competition. Nevertheless, the inherent right-
just one party. to-exclude conveyed by a patent forecloses third
In contrast to the broad language of the parties from practicing the invention patented,
Sherman Act, the Clayton Act focuses on more and patents can be used for various kinds of
specific trade abuses: price discrimination, the conveyances. (For example, patents can be the
acquisition of one corporation by another, re- basis for exclusive, partially exclusive, or non-
strictions forbidding a purchaser of goods to exclusive licenses, bailments, or actual sales.)
deal in the goods of competition, and the use Attention must be paid to the nature of those
of interlocking directorates among large cor- conveyances and to the context within which
porations. The relevant, specific statutory lan- and purpose for which they are generated and
guage is: will be used. At present, patents, per se, are not
• Section 3. …[I]t shall be unlawful for any per- viewed as conveyers of market power. But when
son engaged in [interstate] commerce, in the coupled with other assets, or when patents are
course of such commerce, to lease or make a sale acquired in order to build a monopolistic posi-
or contract for sale of goods, wares, merchan- tion (other than through internal research and
dise, machinery, supplies or other commodities, development efforts), patents do contribute to
whether patented or unpatented, for use, con- market power. When combined with apparent
sumption or resale within the United States or predatory practices that restrain trade, such a po-
any Territory thereof or the District of Columbia sition can invite antitrust scrutiny. For example,
of any insular possession or other place under the a violation of the Clayton Act would occur if a
jurisdiction of the United States, or fix a price purchaser were forced to purchase certain mate-
charged therefore, or discount from, or rebate rials or supplies from a specified supplier to the
upon, such prices, on the condition, agreement exclusion of a competitor—this is referred to as
or understanding that the lessee or purchaser a tying arrangement. In terms of antitrust issues,
thereof shall not use or deal in the goods, wares, this arrangement would be viewed as extending
merchandise, machinery, supplies or other com- the scope of a patent by restricting the use of the
modities of a competitor or competitors of the patented invention to goods necessary for its op-
lessor or seller, where the effect of such lease, sale, eration but not part of the patented invention.
or contract for sale on such condition, agreement For example, the license (or franchise) under the
or understanding may be to substantially lessen patent might require the purchase of nonpatent-
competition or tend to create a monopoly in any ed items from the licensor as a condition for the
line of commerce. license itself. Without the element of coercion,

BREMER
however, the parties are free to enter into such application so ordered in a special group in
a supply agreement. the examining corps, but the patent will not
be issued until the restriction has been lifted.
2.3 Export Administration Regulations and Corresponding applications can be filed and
International Traffic in Arms Regulations prosecuted in other approved countries to the
The Department of Commerce administers the point of acceptance, but the patent itself will
Export Administration Regulations (EAR) to pro- not be issued. With the patented technology
tect trade, while the Department of State adminis- embargoed, the technology itself would fall un-
ters the International Traffic in Arms Regulations der the EAR or ITAR.
(ITAR) to protect national security. The regulations Inasmuch as they embrace transfers of con-
apply not only to the transfer of physical items to trolled information (including technical data,
persons and/or entities outside the United States, physical items—inclusive of scientific equip-
but also to the transfer of technology—whether ment—and verbal, written, electronic and/or
or not it is associated with a physical item. The visual disclosures of controlled scientific and
regulations also cover disclosure to foreign per- technical information), the EAR and ITAR
sons while in the United States of technical data can affect university research and development,
or information on controlled items, as well as to as well as university technology-transfer func-
the training and offering of services involving con- tions, via patent licensing and/or other means.
trolled equipment to foreign persons. Because of the tradition of academic freedom
The EAR can be found at title 15, sections and the open nature of research and develop-
730–74 of the Code of Federal Regulations. ment in U.S. universities, the EAR and ITAR
EAR regulations apply to and regulate the ex- can be more difficult to administer; nevertheless,
port of goods and related technology on the universities must comply with the regulations.
Commodity Control List (15 C.F.R. § 774, Although EAR and ITAR cover virtually all of
supplement 1). The ITAR can be found at 22 the same science and engineering fields that uni-
C.F.R. 120–30. The regulations control the versities research and develop, compliance tends
export of articles, services, and related techni- not to be viewed as essential. This is partly be-
cal data that are inherently military in nature. cause of the open environment of universities.
Regulated items are specified in the Munitions Control is more difficult, and neither the EAR
List at 22 C.F.R. 121. nor the ITAR require an export license to dis-
Additionally, the regulations restrict the ex- close technical information to foreign nationals
port of goods and technology that could hamper in the United States inside classes, laboratories,
the economic vitality of the United States or that or conferences, or in publications, if the infor-
might contribute to the military capability and mation is in the public domain. Information is
potential of its adversaries. Because of global ter- considered to be in the public domain if it is, at
rorism, the latter has been particularly empha- least in part, published and generally accessible
sized in recent years. to the public through unlimited and unrestricted
IP, as represented by patents, know-how, distribution. This public-domain exemption,
trade secrets, and copyright can also be affected however, may not apply to all information that a
by EAR and ITAR. The Patent and Trademark university generates. There are circumstances in
Office asserts some control over the export of which a specific export license may be required
sensitive technology by issuing export licenses— or, particularly where a secrecy order has been
in most cases, automatically, during the early imposed, export of the information and/or tech-
consideration of a patent application, or upon nology is illegal.
request from the applicant. In some cases, the Ancillary to the EAR and ITAR is the Treasury
office will impose a secrecy order on a patent Department Office of Foreign Assets Control
application that contains sensitive materials. (OFAC). OFAC acts under presidential war-
In such cases, an applicant may prosecute the time and national emergency powers and has the

CHAPTER 3.9
authority of specific legislation to prohibit transac- 35 U.S.C. § 3710(a). The purpose of CRADAs
tions, including the provision of services, and freeze is to promote technology innovation in govern-
foreign assets under U.S. jurisdiction of targeted ment-operated federal laboratories and govern-
persons and entities. Individuals may not provide ment-owned, contractor-operated laboratories
technologies or services to countries on OFAC’s across all federal government agencies. The
list of embargoed entities or to specially desig- specific authorization language at 35 U.S.C. §
nated persons without first obtaining licenses from 3710(a) is reproduced below:
OFAC and the state or commerce department. (a) General authority. Each Federal agen-
cy may permit the director of any of its
2.4 The Cooperative Research and Technology Government-operated Federal laboratories,
Enhancement Act of 2004 and, to the extent provided in an agency-ap-
In 2004, the U.S. Congress passed the proved joint work statement or, if permitted
Cooperative Research and Technology by the agency, in an agency-approved an-
Enhancement Act, (CREATE Act). The law is nual strategic plan, the director of any of
codified at 35 U.S.C. § 103(c) and applies to its Government-owned, contractor-operated
any patent (including reissued patents) granted laboratories—
on or after December 10, 2004. The law was (1) to enter into cooperative research and de-
designed to overrule a judicial decision that velopment agreements on behalf of such
held that confidential information derived agency (subject to subsection (c) of this
from another individual (termed secret prior art) section) with other Federal agencies; units
could render an invention obvious and thereby of State or local government; industrial
preclude patentability of the invention. Since organizations (including corporations,
such an exchange of information tends to occur partnerships, and limited partnerships,
most frequently where researchers, engaged by and industrial development organiza-
different entities, are collaborating on a given tions); public and private foundations;
research project, the decision was construed to nonprofit organizations (including uni-
have a “chilling effect” on collaborative research versities); or other persons (including li-
among different entities. The CREATE Act en- censees of inventions owned by the Federal
ables two or more entities to obtain and sepa- agency); and
rately own patents containing claims that are (2) to negotiate licensing agreements under
not patentably distinct from each other (where section 207 of title 35, United States
one claim in one patent would be “obvious” in Code, or under other authorities (in the
view of a claim in the other patent). To involve case of a Government-owned, contractor-
the provisions of the CREATE Act, the col- operator laboratory, subject to subsection
laborative research must have been conducted (c) of this section) for inventions made or
under a Joint Research Agreement that was in other intellectual property developed at the
effect on or before the claimed invention was laboratory and other inventions or other
made, the claimed invention must have been intellectual property that may be volun-
made as a result of activities undertaken within tarily assigned to the Government.
the scope of the agreement, and the application
for patent for the claimed invention, initially or Under a CRADA, the involved labora-
by amendment, must have disclosed the names tory may grant, or agree to grant, in advance
of the parties to the agreement. to a collaborating party patent licenses, or
assignment, or options thereto, in any inven-
2.5 Cooperative Research and tion made, in whole or in part, by a laboratory
Development Agreements employee under the agreement for reasonable
Authority for Cooperative Research and compensation (35 U.S.C. § 3710a(b) enumer-
Development Agreements (CRADAs) is found at ated authority).

BREMER
2.6 Department of Energy/Nuclear Regulatory trade.” Such issues fall under the aegis of the
Commission inventions and atomic weapons International Trade Commission. The provi-
The laws pertaining to this subject are codified at sions under subsection (a), titled “Unlawful
title 42 U.S. Code, beginning with section 2014 activities; covered industries; definitions,” are
and continuing with section 2181 (42 U.S.C. self-explanatory and are reproduced in Box 1.
§§ 2014–181). The law specifically prohibits Moreover, 19 U.S.C. § 2242 requires the
the granting of any patent for any invention or identification of countries that deny adequate
discovery for the utilization of special nuclear protection or market access for IP rights before
material or atomic energy in an atomic weapon; suitable action can be taken by the U.S. Trade
the law revokes any patent granted for such an Representative to counter, correct, or suspend
invention or discovery. The prohibition extends the benefits afforded in trade and related activi-
even further to state that no patent granted shall ties to such a country. (The authorization for ac-
confer any rights with respect to any invention tions available to the Trade Representative can
or discovery insofar as it is used in the utilization be found at 19 U.S.C. § 1526(c).)
of special nuclear material or atomic energy in
an atomic weapon. 2.9 Small Business Innovation
Development Act of 1982
2.7 National Aeronautics and Codified at 15 U.S.C. § 631, et sequens, the
Space Administration Small Business Innovation Development Act
The property rights for inventions made under (SBIR) was intended to strengthen the role of
the aegis of the National Aeronautics and Space small, innovative firms in federally funded re-
Administration (NASA) or in contracts issued search and development and to utilize federal
by NASA are codified at 42 U.S.C. § 2457. research and development as a base for tech-
Generally, inventions made in the performance nological innovation. An important feature of
of any work under a contract with NASA shall the SBIR is the directive for federal agencies
be the property of the United States. The provi- to set aside a portion of each agency’s funding
sions of 42 U.S.C. § 2457c extend beyond the for small business R&D. The Bayh-Dole Act
obligation arising under contract with NASA to allows small businesses to retain title to inven-
all patents that “have significant utility in the tions made, in whole or in part, with federal
conduct of aeronautical and space activities sub- funds. SBIR enhances the position of small
ject to a patent applicant’s positive action to dis- business.
pute ownership by the United States.” A right
of appeal presents an opportunity to obtain a 2.10 Small Business Technology Transfer Program
waiver of rights by NASA (42 U.S.C. § 2457f ). The Small Business Technology Transfer Program
Even if the agency waives its right of ownership (STTR) (15 U.S.C. § 638) supplements the
in a given patent, the government will, never- SBIR program. STTR requires a set-aside for
theless, retain or receive an irrevocable, nonex- applicable agencies to support cooperative re-
clusive, nontransferable, royalty-free license to search-and -development projects involving
practice the inventions of such patent on behalf small businesses and a nonprofit research insti-
of the United States or any foreign government tutions. STTR provides the latter with the op-
pursuant to any treaty or agreement with the portunity to call upon the funding federal agen-
United States. cy for technical assistance. IP rights between the
United States and the recipient small business
2.8 IP and international trade are required to be set forth in the funding agree-
The applicable law under the general heading of ment, along with any right to carry out follow-
IP and international trade can be found at 19 on research.
U.S.C. § 1337 under “unfair practices in import

CHAPTER 3.9
Box 1: Unlawful activities; covered industries; definitions
(1) Subject to paragraph (2), the following are unlawful, and when found by the Commission to
exist shall be dealt with, in addition to any other provision of law, as provided in this section:
(A) Unfair methods of competition and unfair acts in the importation of articles (other than
articles provided for in subparagraphs (B), (C), (D), and (E) into the United States, or in the
sale of such articles by the owner, importer, or consignee, the threat or effect of which
is—
(i) To destroy or substantially injure an industry in the United States;
(ii) To prevent the establishment of such an industry; or
(iii) To restrain or monopolize trade and commerce in the United States.
(B) The importation into the United States, the sale for importation, or the sale within the
United States after importation by the owner, importer, or consignee, of articles that—
(i) infringe a valid and enforceable United States patent or a valid and enforceable
United States copyright registered under title 17, United States Code; or
(ii) are made, produced, processed, or mined under, or by means of, a process covered by
the claims of a valid and enforceable United States patent.
(C) The importation into the United States, the sale for importation, or the sale within
the United States after importation by the owner, importer, or consignee, of articles
that infringe a valid and enforceable United States Trademark registered under the
Trademark Act of 1946.
(D) The importation into the United States, the sale for importation, or the sale within the
United States after importation by the owner, importer, or consignee, of a semiconductor
chip product in a manner that constitutes infringement of a mask work registered
under chapter 9 of title 17, United States Code.
(E) The importation into the United States, the sale for importation, or the sale within the
United States after importation by the owner, importer, or consigner, of an article that
constitutes infringement of the exclusive rights in a design protected under chapter 13
of title 17, United States Code.
(2) Subparagraphs (B),(C), and (D) of paragraph (1) apply only if an industry in the United States,
relating to the articles protected by the patent, copyright, Trademark, mask work, or design
concerned, exists or is in the process of being established.
(3) For purposes of paragraph (2), an industry in the United States shall be considered to exist if
there is in the United States, with respect to the articles protected by the patent, copyright,
Trademark, mask work, or design concerned—
(A) significant investment in plant and equipment;
(B) significant employment of labor or capital; or
(C) substantial investment in its exploitation, including engineering, research and

development, or licensing.
(4) For the purposes of this section, the phrase “owner, importer, or consignee” includes any agent
of the owner, importer, or consignee.

BREMER
3. Conclusions agencies. The effects of the legislation may be

This overview of the laws and regulations gov- temporary or permanent, another reason for
erning IP in the United States provides a general understanding not just the statutes, but also the
orientation to the goals and historical concerns motivation and reasoning behind them. ■
of the legislation. As these goals and concerns
change, so will the laws addressing IP rights.
Moreover, issues surrounding IP rights are ad- Howard Bremer, Counsel Emeritus, WARF-Wisconsin
dressed in many pieces of legislation, including Alumni Research Foundation, 614 Walnut St. 13th floor,
authorization bills for funding various federal Madison, WI, 53726, U.S.A. hwbremer@warf.org

CHAPTER 3.10
Compulsory Licensing:
How to Gain Access to Patented Technology
Carlos María Correa, Center for Interdisciplinary Studies of Industrial Property and Economics (CEIDIE),
Law Faculty, University of Buenos Aires, Argentina
ABSTRACT a considerable amount of time and money were

Voluntary patent licenses are often difficult for institu- required to obtain permission to use it. A repre-
tions to obtain, particularly those in developing coun-
sentative of the program notes:
tries. This chapter discusses why, how, and by whom
compulsory patent licenses may be obtained and used. Why does the IP landscape for MSP-1 not
The main focus is on patented research tools rather than sort itself out through traditional channels such
patented end products. as technology transfer and the courts? Developers
who want assurance of the rights to use MSP-1
would have to obtain licenses from no less than
1. Introduction eight organizations.Though theoretically pos-
Some scientific discoveries and inventions, partic- sible, a licensing transaction of this type would
ularly in biotechnology, have no obvious practical take years, require significant staff time, and cost
application; to use the metaphor of a river, we hundreds of thousands of dollars in attorney fees.
might say that they are patented at a point up- While companies routinely make such efforts on
stream from practical application. Broad patent behalf of commercial products, the economics
claims often hamper the development of down- of malaria vaccines make developers more reluc-
stream applications.1 For instance, in the United tant to invest in such cumbersome technology
States, DNA sequences (genes) are legally consid- acquisition.2
ered to be chemical compounds and can there- Several studies in the United States3 and else-
fore be patented. The gene’s functions, even those where4 have examined the potential impact of re-
that are not yet known, can therefore be exploited search tool patents. Although the U.S. National
only by authorization of the patent owner. Academies of Sciences found that private com-
One example of the problems that can oc- panies and research institutions in developed
cur when downstream researchers need to use up- countries are generally able to deal with the com-
stream discoveries is the case of antigen MSP-1, plexities of patent law, it warned that “the patent
an important candidate for the development of an landscape, which already is becoming complicated in
antimalaria vaccine. The Program for Appropriate areas such as gene expression and protein-protein in-
Technology in Health (PATH), which is work- teractions, could become considerably more complex
ing to develop such a vaccine, found that the and burdensome over time.”5 A Swiss survey on the
antigen was protected by more than 20 partially obstacles to research stemming from patent pro-
overlapping patents. Extensive negotiations and tection found that a majority of companies and
Correa CM. 2007 Compulsory Licensing: How to Gain Access to Patented Technology. In Intellectual Property Management
in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR:
Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. CM Correa. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

CORREA
institutions favored the creation of either an ex- Cornell University’s transfer of papaya-rings-
ception for the clinical use of the patented subject pot-virus-resistant papaya to Thailand; several
matter or the granting of compulsory licenses.6 projects brokered by the International Service
Small companies and research institutions for the Acquisition of Agri-biotech Applications
will likely be more adversely affected by upstream (ISAAA); and the agreement between Yale
patents than will large companies or institutions. University and Bristol-Myers Squibb regarding
Entities in developing countries that lack the le- the patent on stavudine (d4T), a widely used
gal, financial, technological and negotiating ca- HIV/AIDS antiretroviral drug. Humanitarian IP
pacity to engage in complex negotiations, may be management could be expanded to involve re-
significantly constrained. For instance, a survey search and experimentation as well as the transfer
of 103 Indian pharmaceutical companies revealed of patented technologies.
that the most common reason firms decided to
abandon R&D projects was because of restricted
access to patented upstream technologies.7 2. Patents and downstream
Some initiatives are being considered that research
would allow low-income countries access to tech- A compulsory license is an authorization given by
nology under special conditions. The Science and a “national authority” to a natural or legal person
Intellectual Property in the Public Interest proj- for the exploitation of the subject matter pro-
ect (SIPPI) of the American Association for the tected by a patent; the consent of the patent title
Advancement of Science (AAAS)8 has promoted holder is not necessary. Compulsory licenses may
the idea that technology managers in developed be required to import or produce a given product,
countries should include legally enforceable pro- or to use a patented technology for research. They
visions in licensing agreements to preserve the are especially important when there are no close
possibility of sharing protected technologies substitutes for a product or process and a research
with third parties for humanitarian reasons in exception is not available or is too narrow.13
developing countries.9 Compulsory licenses are granted in order to
Patented upstream technology can create bar- attain various public-policy objectives, such as: to
riers to agricultural research,10 unless the use of address emergencies and public-health needs, to
the protected subject matter is permitted under counteract anticompetitive business practices, or
a research exception or otherwise consented by to permit the exploitation of a patent in cases of
the patent owner. Golden Rice, which has been lack of working thereof.
genetically modified to contain pro-Vitamin A The right to use compulsory licenses was
or beta-carotene, is a tool for combating vitamin recognized in the World Trade Organization
A deficiency in developing countries. Syngenta (WTO) Agreement on Trade-Related Aspects of
Seeds AG negotiated access to all major technolo- Intellectual Property Rights (TRIPS) in 1994.14
gies necessary for Golden Rice production11 and The Doha Declaration on the TRIPS Agreement
then granted the inventors of Golden Rice the and Public Health (the Doha Declaration), ad-
right to sublicense breeding institutions in devel- opted by the 4th WTO Ministerial Conference
oping countries, free of charge, provided that the in November 2001,15 confirmed, inter alia, that
rice would be used only for subsistence farming each WTO member was free to determine the
and not for commercial purposes. Subsistence grounds under which it would grant compulsory
farming has been defined as any farm not gener- licenses.16
ating income more than US$10,000 from the sale In the United States, compulsory licenses
of rice. Syngenta is not interested in commercial- have been widely used for government use and in
izing Golden Rice in developed countries, where settlements for antitrust cases.17 Countries such as
vitamin A deficiency is almost unheard of.12 Zambia and Zimbabwe have recently issued com-
Other examples of��
removal of patent barriers pulsory licenses to facilitate access to cheap medi-
through “humanitarian IP management” include cines; others, such as Malaysia and Indonesia, have

CHAPTER 3.10
issued government-use provisions for the same 3.3 Prior negotiation of a voluntary license
purpose. A public non-commercial use provision Except in the case of emergency, anti-competi-
is somewhat different from a compulsory license tive practices, and government use, the potential
for commercial production. Public non-commer- compulsory licensee must first request a volun-
cial use provisions, which exist in many countries, tary license on reasonable commercial terms from
authorize a government department to exploit, the patent owner.21 Such “reasonable commercial
by itself or through a contractor, a patented in- terms” must be consistent with standard com-
vention, without the consent of the patent right mercial practice and must ultimately be in accor-
holder, as long as such exploitation is to provide dance with the requirements set by national law
a public service and for noncommercial purposes. and by the competent authority. If such a volun-
Other countries, such as Brazil and South Africa, tary license is denied, the potential licensee may
have threatened to grant compulsory licenses in apply for a compulsory license—though it may
order to obtain cheaper medicines.18 A compul- be necessary to prove that the patent owner has
sory license is likely to be less advantageous to the refused to grant a voluntary license within a rea-
patent owner than a voluntary license. It is there- sonable time period.
fore to the advantage of patent owners to price Many patents for research tools are held by
their products fairly and grant voluntary patent universities—where the initial invention has of-
licenses with reasonable terms and conditions. ten been made—that sometimes decline to pro-
Compulsory licenses may be needed when vide voluntary licenses to certain applicants or
patents restrict the freedom to operate (FTO) 19 are unable to do so. The reasons for this may be
in a given field of R&D. Such licenses are subject multifold. One reason may be that the university
to several conditions, notably that the licensee has already granted an exclusive license; another
must remunerate the patent holder. These condi- reason may be that the university is in licensing
tions are examined in section 3 below. negotiations with another party. Determining
reasonable commercial terms when the patent
owner is a university is also difficult. However,
3. Compulsory licenses for research there are many universities with extensive experi-
ence in these matters, and their standard practices
3.1 Who can apply? may serve as models. This is certainly one reason
National laws normally allow companies, non- why universities should be encouraged to retain
governmental organizations, and research institu- humanitarian-use rights.22
tions to apply for compulsory licenses. In some
countries, licensees must first demonstrate that 3.4 How should the application be made?
they have the technical or economic capacity to National laws govern both the substantive re-
utilize the license properly. quirements and the relevant procedures for ob-
taining a compulsory license.
3.2 When can a compulsory
license be applied for? 3.4.1 The appropriate authority
Some types of compulsory licenses, such as those In most countries, compulsory licenses are grant-
granted to remedy abuses, for example, lack of ed by the government’s executive branch. In oth-
working, cannot be granted until��
four years after ers, such authority lies with the judiciary branch.
the date of filing of the patent application or three The services of legal professionals are not gener-
years from the date of the grant of the patent, ally required, but may be advisable.
whichever date comes second.20 These terms do
not apply when the compulsory licenses are grant- 3.4.2 Grounds for the application
ed on other grounds, such as when public
��
health is The appropriate authority should be provided
at stake, in emergency situations, or where neces- with a reasoned justification for the application.
sary to remedy anti-competitive practices. The application should, to the greatest extent

CORREA
possible, specify the legal provisions and grounds • The 1998 Japan Patent Office (JPO)
on which it is sought. Requests must abide by the Guidelines (for government-owned drug
restrictions set by national law.23 patents) specify royalties that amount to
The application should specify the scope and 2%–4% of the generic product price; this
duration of the requested compulsory license. An amount can be increased or decreased by as
application may request access to all of the sub- much as 2%, for a range of 0%–6%.
ject matter covered by a patent, or it may request • The 2001 United Nations Development
access to only certain elements of a patent, or cer- Programme (UNDP) Human Development
tain uses of a patented invention. Report proposed a base royalty rate of 4%
To avoid the trouble of having to file future of the generic drug price. This can be in-
license extensions, it is advisable to request the creased or decreased by 2%, for a range of
license for the full remaining term of the patent. 2%–6%, depending upon various factors
(how innovative the medicine is, or the role
3.4.3 Identification of the applicant of governments in paying for research and
The applicant, if not a natural person, will nor- development).
mally have to submit copies of the relevant stat- • In accordance with the WTO Decision of
utes or bylaws. In addition, any person represent- 30 August 2003, the 2005 Canadian gov-
ing the applicant will have to demonstrate his or ernment established royalty guidelines for
her capacity to do so. Depending on national law, compulsory licensing of patents to coun-
the applicant may also have to provide evidence tries that lack the capacity to manufacture
of sufficient economic or technical capacity to medicines. The royalty rate (between 0.02%
utilize the compulsory license (information about and 4% of the price of a generic drug) is
personnel, funding, activities, partnerships, pub- determined by a country’s rank in the UN
lications, and so on). Human Development Index. For most de-
veloping countries, the royalty rate is less
3.4.4 Identification of patents than 3%. For most countries in Africa, the
The identification of the patents involved can be rate is less than 1%.
determined by indicating the product or tech- • The tiered-royalty method is unusual in
nologies at stake. The compulsory license ap- that the royalty rate is based upon the price
plication may refer to all patents relating to the of a brand-name drug, not the generic
products or technologies the applicant seeks to equivalent, in the high-income country in
exploit. In other words, one application can re- which the patent is owned. The base royalty
quest the rights to many patents. In the United (4% of the brand-name price) is adjusted
States, there have been cases in which compulsory to account for relative income per capita or,
licenses were even granted for both current and for countries with a particularly high bur-
future patents.24 den of disease, relative income per diseased
person.
3.4.5 Conditions of the
compulsory license These guidelines are used to determine roy-
Remuneration. Governments have considerable alty rates for products, not research tools. For re-
discretion to define the level and kind of remu- search tools, royalty payments may be lower since
neration that the patent owner should receive. no products are yet on the market.
The general rule is that remuneration should be With regard to agricultural technology, a
adequate, taking into account both the particu- relevant precedent may be the determination
lar circumstances of each case and the economic of 1,1% of the net sales of products within the
value of the compulsory license.25 Following are Multilateral System in the context of the stan-
some of the methods that have been used to cal- dard material transfer agreement adopted, in
culate remuneration:26 June 2006, by the Governing Body of the FAO

CHAPTER 3.10
International Treaty on Plant Genetic Resources products that were developed under compulsory
for Food and Agriculture.27 licenses. This is one reason for further invest-
Finally, the act granting a compulsory license ments in capacity building and the establishment
should specify time of payment, basis for the cal- of strong institutional networks. n
culation of fees or royalties, currency of payment,
the bank account where the payment will be de-
posited, and other relevant details. Carlos María Correa, Center for Interdisciplinary Studies
of Industrial Property and Economics (CEIDIE), Law
Other conditions. In all cases, a compulsory
Faculty, University of Buenos Aires, Av. Figueroa Alcorta
license will be nonexclusive:28 that is, the patent 2263, 1st floor (1425), Buenos Aires, Argentina. ceidie@
owner or other voluntary or compulsory licensors derecho.uba.ar, and quies@sion.com.
may simultaneously exploit the patented inven-
tion or research tool. According to some national
laws, the license may be revoked if not utilized 1 Steil B, DG Victor and R Nelson. 2002. Technological In-
novation and Economic Performance (A Council on For-
within a certain term. Moreover, a compulsory eign Relations Book). Princeton University Press: Princ-
licensor can request that a license be terminated, eton and Oxford, p.�� 21.
if and when the circumstances that first necessi- 2 Intellectual Property Rights and Vaccines in Developing
tated the license cease to exist and are unlikely to Countries. Meeting report. Geneva, World Health
recur.29 Organization, 2004 (WHO/IVB/04.21). www.who.int/
vaccines-documents/DocsPDF05/Dip-789-screen.pdf.
Quoted in Commission on Intellectual Property Rights,
3.4.6 Appeal Innovation, and Public Health (CIPIH). 2006. Public
A compulsory license may be delayed if the pat- Health, Innovation and Intellectual Property Rights,
World Health Organization. p. 77.
ent owner appeals the validity of the license or the
level of remuneration that it grants.30 For this rea- 3 In a seminal contribution on this issue, Heller and
Eisenberg stated: “… the recent proliferation of
son, in some countries, a license can be put into intellectual property rights in biomedical research
effect even while appeal procedures are pending. suggests a different tragedy, an anticommons in
which people underuse scarce resources because too
many owners can block each other. Privatization of
biomedical research must be more carefully deployed
4. Conclusions to sustain both upstream research and downstream
The problems generated by patent infringement product development. Otherwise, more intellectual
on downstream use of inventions, especially in property rights may lead paradoxically to fewer useful
products for improving human health.” (Heller M and
developing countries, can be minimized through RS Eisenberg. 1998. Can Patents Deter Innovation?
a number of approaches. Countries should adopt The Anticommons in Biomedical Research. Science
and enforce strict criteria of patentability and 280: 698–701). See also Tran C. 2006. WARF Stem Cell
Patents Challenged: Research Could Get Faster and
broad exceptions for research. If patents on re- Cheaper If the Patents Are Narrowed, Some Scientists
search tools limit FTO, the first step should be Say. The Scientist. 10 October 2006.
to negotiate voluntary licenses on reasonable 4 See, for example, Cho MK, S Illangaskekare, MA Weaver,
terms and conditions, particularly as this may al- DGB Leonard and JF Merz. Effects of Patents and
low for the licensing of knowledge not disclosed Licences on the Provision of Clinical Genetic Testing
Services. Journal of Molecular Diagnostics 2003: 3–8.
in the patent. If it cannot be achieved, or proves
5 National Research Council. 2006. Reaping the Benefits
too cumbersome or costly to do so, the next
of Genomic and Proteomic Research Intellectual
step should be to apply for compulsory licenses. Property Rights, Innovation and Public Health. The
Applicants need to be certain that they have the National Academies Press: Washington, DC. www.nap.
capacity to exploit the licenses and the financial edu/books/0309100674/html/.
ability to remunerate the patent holder or pat- 6 Thumm N. 2005. Patents for Genetic Inventions: A
Tool to Promote Technological Advance or a Limitation
ent holders. Nonprofit research institutions may for Upstream Inventions? The International Journal
often find this particularly difficult because even of Technological Innovation and Entrepreneurship 25:
with a compulsory license, commercial partners 1410–17.
will need to be in place to produce and distribute 7 See Sampath G. 2005. Breaking the Fence: Can Patent

CORREA
Rights Deter Biomedical Innovation in “Technology 15 ��

WT/MIN(01)/DEC/W/2, 14 November 2001. www.wto.
Followers”? Maastricht, UNU/INTECH, Discussion Paper org (full text in Annex I).
Series No. 2005-10. www.intech.unu.edu/publications/ 16 Paragraph 5 (b): “Accordingly and in the light of
discussion-papers/2005-10.pdf (CIPIH, p.77). paragraph 4 above, while maintaining our commitments
8 See sippi.aaas.org/. in the TRIPS Agreement, we recognize that these
9 See also, in this Handbook, chapter 2.2 by A Brewster, AL flexibilities include: b. Each Member has the right to
Chapman and SA Hansen. grant compulsory licenses and the freedom to determine
the grounds upon which such licenses are granted.”
10 The effects of patents, although territorial in nature,
may extend beyond the territory of cultivation and reach 17 ��
See, for example, Correa C. 1999. Intellectual property
derivatives of patented plants or genes. Monsanto, for rights and the use of compulsory licences: options
instance, does not have a patent on Roundup Ready® for developing countries. Trade-Related Agenda,
soybean in Argentina, which is exporting processed Development and Equity, Working Papers. Geneva,
soybean flour to European countries. In Argentina, South Centre; Reichman J and Hasenzahl C. 2002. Non
the original Monsanto materials have been used in voluntary licensing of patented inventions: history,
breeding since 1996, and around 160 local varieties TRIPs, and Canadian and United States Practice. Bridges
containing the gene have been developed and (UNCTAD/ICTSD) Vol. 6, No. 7.
registered by third parties. Although Monsanto, did 18 See supra note 2, CIPIH, p. 135.
not oppose the commercialization of those varieties, 19 FTO may be achieved through inventing around,
it has filed requests to the customs authorities of nonassert covenants, opposition to the grant of a
several European countries (where Monsanto does patent or invalidation thereof. For a comprehensive
have patent protection for Roundup Ready® soybeans) discussion on the various options for obtaining FTO,
demanding that the importation of soya flour see in this Handbook, chapter 14.1 by A Krattiger.
produced in Argentina be prevented, and has initiated
litigation against European importers. See also Correa 20 ��
See Article 5A of the Paris Convention for the Protection
C. 2006. La disputa sobre soja transgénica. Monsanto of Industrial Property.
vs. Argentina, Le Monde Diplomatique/El Dipló, Buenos 21 See Article 31(b) of the TRIPS Agreement.
Aires, April 2006.
22 See, also in this Handbook, chapter 2.1 by AB Bennett.
11 See for example, Kryder D, SP Kowalski and AF
23 If the permitted grounds are too narrow, a request for
Krattiger. 2000. The Intellectual and Technical Property
compulsory license may fail. For instance, the free trade
Components of pro-Vitamin A Rice (GoldenRice™): A
agreement between the United States and Jordan
Preliminary Freedom-to-Operate Review. ISAAA Briefs
(2000) limited the grounds on which compulsory
No 20. ISAAA: Ithaca, NY. www.isaaa.org/kc/bin/isaaa_
licenses can be granted as follows: “Neither Party
briefs/index.htm.
shall permit the use of the subject matter of a patent
12 www.goldenrice.org/Content2-How/how9_IP.html. without the authorization of the right holder except in
13 In some jurisdictions, research or experimentation the following circumstances: (a) to remedy a practice
exceptions may allow follow-on research on an determined after judicial or administrative process to be
invention, but not with it��
. This distinction is commonly anti-competitive; (b) in case of public non-commercial
accepted under European law. See, for example, Cornish
�� use or in the case of a national emergency or other
W. 1998. Experimental Use of Patented Inventions in circumstances of extreme urgency, provided that such
European Community States. International Review of use is limited to use by government entities or legal
Industrial Property and Copyright Law, 2. no.7; Correa
�� entities acting under the authority of a government; or
C. 2005. International Dimension of the Research (c) on the ground of failure to meet working requirement,
Exception, SIPPI Project, AAAS, Washington, D.C. sippi. provided that importation shall constitute working.”
aaas.org/intlexemptionpaper.shtml. In the United (Article 4.20).
States, research without the authorization of the 24 ��
Correa C. 1999. Intellectual
��
property rights and the
patent owner is narrowly admitted for scientific use of compulsory licenses: options for developing
purposes only. The Federal Circuit Court of Appeals held countries. Trade-Related Agenda, Development, and
in Madey v. Duke that regardless of whether a particular Equity, Working Papers, South Centre, Geneva. Available
institution or entity is engaged in an endeavor for at www.southcentre.org.
commercial gain, so long as the act is in furtherance of
25 Article 31(h) of the TRIPS Agreement. The obligation to
the alleged infringer’s legitimate business and is not
pay a remuneration is waived in the case of a compulsory
solely for amusement, to satisfy idle curiosity, or for
license granted under the system established by the
strictly philosophical inquiry, the act does not qualify
WTO Decision of 30 August 2003 (incorporated as
for the very narrow and strictly limited experimental
Article 31bis of the TRIPS Agreement, but still subject to
use defense. Moreover, the profit or nonprofit status of
ratification) to import pharmaceutical products in cases
the user is not determinative (64 U.S.P.Q. 2d 1737 (Fed.
where the importing country has established that it lacks
Cir. 2002).
sufficient manufacturing capacity in pharmaceuticals.
14 See ��
Article 31 of the TRIPS Agreement available at www. Payment in these cases will only take place under the
wto.org. compulsory license granted in the exporting country.

CHAPTER 3.10
26 Lo��
ve J. 2005. Remuneration Guidelines for Non-Volun- 28 Article 31(d) of the TRIPS Agreement.
tary Use of a Patent on Medical Technologies. World 29 Article 31(g) of the TRIPS Agreement.
Health Organization: Geneva. (WHO/TCM/2005.1), p
83–85. 30 The TRIPS Agreement specifically provides that “the
legal validity of any decision relating to the authorization
27 Correa C. 2006. Considerations
��
on the Standard of such use shall be subject to judicial review or other
Material Transfer Agreement under the FAO Treaty on independent review by a distinct higher authority in
Plant Genetic Resources for Food and Agriculture. The that Member” (Article 31(i)).
Journal of World Intellectual Property 9(2): 137–65. See
also the text of the adopted standard agreement at
ftp://ftp.fao.org/ag/cgrfa/gb1/SMTAe.pdf.

CHAPTER 3.11
The Role of Clusters in Driving Innovation

PETER W. B. PHILLIPS, Professor, Department of Political Studies, University of Saskatchewan, Canada
Camille D. Ryan, Postdoctoral Fellow, Faculty of Communication & Culture, University of Calgary, Canada
ABSTRACT Theory and evidence suggest that competing,

The promise of biotechnology relies on new science that innovative companies and their related industries
is increasingly complex and specialized and depends on
will tend to concentrate in a few locations. Most
sophisticated, global intellectual property rights systems.
This complexity requires a more open system of knowl- innovation involves a lot of learning-by-doing,
edge sharing than previous research and development which creates a barrier for imitators who want to
programs. Studies suggest that successful innovation use the innovation: they can do so only after they
requires developing clusters of institutions, businesses, have gone through their own learning process.
and personnel. “Location, location, location,” the battle
cry for property realtors everywhere, is increasingly be- Furthermore, the cumulative impact of learning-
coming the key phrase in studies of innovation dynam- by-doing creates stronger competition in more-
ics and knowledge-based growth. Offering an overview innovative companies and sectors, thus erecting
of recent research on clusters in Canada, this chapter barriers to less-innovative actors. While basic
suggests that governments have an important role to
science and inventions (usually codified through
play in the process of cluster formation and that ensur-
ing a mix of “local buzz” and “global reach” is part of the scientific journals and patents) can often be trans-
recipe for success. ferred at low or no marginal cost, know-how and
experience are very difficult to transfer across long
distances. Applied science (know-how) does spill
over to others in the sector, but estimates suggest
1. Introduction that the spillover benefits of tacit knowledge are
Biotechnology has changed the discussion about limited to between ten and 100 miles of the epi-
research and development in agriculture and center. This pattern is frequently seen in the inno-
medicine. In the past, research tended to be dis- vation corridors of Silicon Valley, Boston’s Route
tributed widely to meet agronomic and human 128, and Austin in the United States, Cambridge
health needs, but now we are seeing agglomera- in England, Bangalore in India, and Saskatoon in
tions forming around the research, development, Canada.
and commercialization of globally mandated Grossman and Helpman1 argue that techno-
technologies and products. Governments view logical spillovers limited to a specific location (due,
this change as an opportunity to invest in and for example, to climate or industrial structure)
create comparative advantages or as a threat to create an opportunity for endogenously gener-
their competitive status and ability to access new ated comparative advantage. According to the au-
technologies. thors, countries that engage in technology-related
Phillips PWB and CD Ryan. 2007. The Role of Clusters in Driving Innovation. In Intellectual Property Management in Health
© 2007. PWB Phillips and CD Ryan. Sharing the Art of IP Management: Photocopying and distribution through the Internet

PHILLIPS & RYAN
competitive activity can produce comparative have applications in medicine, agriculture, extrac-
advantage over time. If technological spillovers tion, processing, and the environment. Despite
are geographically concentrated, then the initial some major obstacles, many scientists and policy
and sequentially established conditions will af- advisors see great potential in modern, molecu-
fect subsequent economic growth. Grossman lar-based biotechnology, especially through the
and Helpman further argue that, as a result, the new capacities to genetically modify plants and
high-technology share of GDP and exports will be to detect and treat disease. In 2001, Daar and
greater in first movers than elsewhere. In the ex- colleagues4 undertook a Delphi survey of more
treme, a country that inherits even a small techno- than 30 scientists and bioethicists from around
logical lead could come to dominate world mar- the world to identify the top ten technologies
kets for high-technology products. A productivity that could address a wide range of problems in
differential then becomes self-sustaining. the developing world. The list included eight
Gilpin2 argues that the new theories of eco- biomedical applications: molecular technologies
nomic growth create a new role for the state. for affordable, simple diagnosis of infectious dis-
Governments can generate growth, and numer- eases; recombinant technologies to develop vac-
ous countries and regions have sought to do just cines against infectious diseases; technologies for
that. By some counts, all large industrial econo- more-efficient drug and vaccine delivery systems;
mies, almost all major cities around the world sequencing pathogen genomes to understand
and many smaller countries, cities, and regions their biology and to identify new antimicrobi-
have decided to invest in and nurture some form als; female-controlled protection against sexually
of a biotechnology cluster. There are literally hun- transmitted diseases, both with and without con-
dreds of putative biotechnology clusters around traceptive effect; bioinformatics to identify drug
the world right now. targets and to examine pathogen-host interac-
tions; recombinant technology to make therapeu-
tic products such as insulin and interferon more
2. Biotechnology, health, affordable; and combinatorial chemistry for drug
and agriculture discovery. It also included one agricultural use:
Some 40% of the world’s market economy is based genetically modified crops with higher yields and
upon biological products and processes—mainly increased nutrients that resist biotic and abiotic
food, protein and fiber production, and human stresses, and an environmental application: tech-
health.3 The security and the supply of food and nologies for sanitation, clean water, and bioreme-
fiber are threatened by increasing consumer de- diation. If realized, these technologies would go a
mand, shrinking cultivable land, limited water, long way towards addressing the biggest food and
and diminishing returns on existing technologies. health challenges of many developing countries.
Further, while great strides have been made in ex-
tending and improving the quality of life, disease
remains a constant daily threat in many countries. 3. Life-science innovation systems
Food-supply insecurities and unchecked disease One opportunity or constraint, depending on how
go hand in hand in many low-income developing one looks at it, in achieving a better future is the
economies, yielding a dismal, Malthusian outlook relationship of innovation systems to life science
for a large portion of the world’s population. research, development, and commercialization.
Biotechnology has potential to transform In the classical model of innovation, relatively
food production and health. A number of key small groups of researchers (either in public labo-
scientific discoveries since 1970 in the fields of ratories or in private research groups) engaged in
genomics and proteomics (for example, gene se- a mostly self-contained, linear process of research
lection, gene splicing, and metabolic profiling) and development, a process that ultimately led to
have opened up vast novel avenues of research, commercialization through direct or contracted
on new plants, animals, and microbes, that could production and marketing. This type of structure

CHAPTER 3.11
was exemplified by the research departments at and Japan) either amended their own patent
Consolidated Edison, 3M, and Xerox, where ful- laws or issued judicial decisions extending rights.
ly dedicated research staff were given the freedom This IP rights system has been extended globally
to investigate and invent new products for com- through the adoption of the Agreement on Trade-
mercialization by the host company. Related Aspects of Intellectual Property (TRIPS)
Much of the early life-science research also of the World Trade Organization (WTO), which,
conformed to this model, except that it was often in 2006, began to require that all member states
carried out in public laboratories (for example, (virtually all countries) offer patents, plant breed-
the discovery of insulin by Banting and Best at ers rights, or some other sui generis system of pro-
the University of Toronto in 1922, the discovery tection for IP embodied in living matter. Private
of the structure of DNA for which Watson and (and public) inventors have adapted rapidly to
Crick at Cambridge University received a Nobel this new regime, patenting almost all of their
Prize, and the creation of low-erucic acid, low inventions (including the tools of discovery and
glucosinolate rapeseed in Canada). While these the resulting products). By 2005 there were an
individual efforts drew upon knowledge gener- estimated 58,000 patents relating to biotechnol-
ated by others, most of them operated in relative ogy tools and products in the United States, and
isolation, with little formal or informal exchange a confusing array of rights claimed or allocated in
of information during the discovery phase. This other countries around the world. The increased
“standing on the shoulders of giants” model has role of profit seeking and the extensive use of for-
generally been the basis for research efforts since mal IP rights mechanisms such as patents have
the scientific and industrial revolutions of the created barriers to the free exchange of knowl-
seventeenth century. While the model may have edge, which is now heavily scrutinized.
been appropriate in earlier times, since many in- The specialization of science and the fragmen-
novations were simply the product of inventors’ tation of IP rights have forced scientists to col-
ingenuity, in more recent years, many institu- laborate and network more extensively to achieve
tions, companies, and industries have used a dif- research results (the Human Genome Project rep-
ferent strategy to develop and exploit life science resents one type of widespread research network).
inventions. Networks of institutions and researchers have
Indeed, the global life-science research ef- evolved to handle the transfer, acquisition, and
fort has been significantly transformed. Two use of various forms of knowledge. Increasingly,
specific trends have led to this change. First, this research programs are not simply standing on
new science has become increasing complex and others’ shoulders but instead are working side-by-
specialized, which makes it increasingly difficult side through formal or informal collaborations
for isolated or independent scientists to realize or research networks. Sometimes these structures
breakthroughs or to pursue comprehensive re- have grown organically; sometimes they have
search programs. Instead, teams or networks of been actively supported and encouraged by gov-
researchers pursue investigations. Second, intel- ernment. Typically, they operate above the level
lectual property (IP) rights have been extended of the company or the organization but below
into new subject areas and new jurisdictions. The the global level; they are inherently regional and
United States started the process by extending supraorganizational.
patents through the Chakrabarty case in 1980 to
living, single-celled organisms; patents were then
extended through a series of subsequent decisions 4. Networked knowledge
to whole plants, animals, and many human organs Networked knowledge exhibits three important
(but not the whole human being). Patent grant- attributes. First, it comes from a nonlinear re-
ing on living matter was internationalized over search system, perhaps best illustrated by a chain-
the past 20 years as other countries (for example, link model of innovation.5 In essence, a chain-link
Australia, Canada, the European Union [E.U.], system embeds the traditional linear development

PHILLIPS & RYAN
process in a series of feedback loops. At the core, who, at times, may hold back the flow of crucial
new technology or product development still enabling information, expertise, and knowledge.
goes through a relatively linear process, begin- Know-who knowledge is seldom codified; instead,
ning with identification of the potential market, it often accumulates within an organization or, at
and involving successive efforts to design, adapt times, in communities where a cluster of public
and adopt a new technology or product to the and private entities are all engaged in the same
market need. But, unlike the linear model, where type of research and development. These clusters
many of these steps were taken inside a closed often exchange technologies, biological materials
R&D system (either inside a single company or and resources, and pursue common staff training
involving only a few, formally aligned partners), or cross-training opportunities.
the chain-link now involves extensive search and Third, each of the above-mentioned types of
discovery functions, with innovators often going knowledge is likely to be subject to some form
out beyond their own system to seek out exist- of exchange costs. Different types of knowledge
ing knowledge or to undertake or commission are likely to be delivered by different actors.9
research to solve specific problems in the innova- Depending on the nature of the knowledge
tion process. At the root, such a system depends (whether it is easily codified as well as the cost
on the efficacy and efficiency of the relationships of exchanging it), the exchange may be an arms-
that link the often disparate actors together. length market transaction (for example, contracts
Second, multiple types of knowledge are in- or spot markets) or may involve nonmarket or-
volved in such a system. Malecki6 identifies four ganization (for example, intracompany transfer,
distinct types of knowledge: “know-why,” “know- development and use in the public sector or via
what,” “know-how,” and “know-who.” Each type collective institutions).
of knowledge has specific features.7 Know-why re- The public sector is optimally structured
fers to scientific knowledge of the principles and to create know-why scientific knowledge for
laws of nature. It is almost always derived from the public good. Private companies and mar-
research efforts undertaken in publicly funded kets are generally well suited to managing
universities and nonprofit research institutes and codified knowledge, often in the form of pat-
is subsequently codified, published, and made ents. Collective organizations are often best for
accessible in academic or professional journals. delivering knowledge, such as know-how and
Know-what refers to knowledge of techniques; know-who.10 Different domains, moreover, fa-
usually it can be codified and transferred through vor different formal or informal IP mechanisms,
the commercial marketplace. Know-how refers to according to organizational objectives and abili-
the combination of skills, analytical capacity, and ties. Academics developing pure science empha-
intellectual, educational, and physical dexterity of size publication and the use of copyright, while
individuals and systems to effectively combine the actors developing technology look to patents
know-why and know-what to innovate. This ca- and trade secrets to protect interests. Collective
pacity is often learned through education and tech- institutions use less formal, open, pooled or net-
nical training and perfected by doing. This makes worked knowledge, controlling access through a
it more difficult to codify and also more difficult shared language, a common culture, and exten-
to transfer to others. Finally, know-who, which sive collective experience.11
“involves information about who knows what and In sum, to understand networks and net-
who knows how to do what,”8 is becoming increas- worked knowledge, we must consider the nature
ingly important in biotechnology-based industry. of the knowledge being developed and used, the
The breadth of knowledge that is required to in- transactional forms mediating the exchanges,
novate has expanded to such extent that collabo- and the institutional structure of the relation-
ration has become indispensable. In today’s con- ships that manage the development and use of IP.
text, know-who also requires knowledge of—and Increasingly, networks or communities of innova-
access to—private-sector knowledge generators tors are locating in aggregated clusters.

CHAPTER 3.11
5. Cluster theory been applied widely to economic and industrial

“Location, location, location,” the battle cry for policy around the world.
property realtors everywhere, is increasingly be- Cluster theory is now a fabric of many
coming the key phrase in studies of innovation threads drawn from economic geography, re-
dynamics and knowledge-based growth. Theories gional economic innovation systems, national
about how innovation occurs, and more specifi- innovation systems, and knowledge transfer and
cally about how and why companies and other social networks. While there is no consensus on
actors co-locate in clusters, are incomplete but a complete theoretical explanation for clusters, a
continue to evolve. As our understanding of in- few threads are becoming common to most ex-
novation grows, so does our ability to direct its planations of the phenomena. These return to the
revolutionary power. basic observations by Marshall,13 who identified
Widely used both in the academic literature three clear and straightforward sources of exter-
and among economic development practitioners, nal economies (Krugman14 calls them “centripetal
the term cluster is helpful. The Oxford English forces”) that explained the location of some indus-
Dictionary defines the generic term to mean try: knowledge spillovers, related and supporting
a “group of similar things, especially such as grow industry, and specialized labor markets.
together.” Although companies and various not- Much of the literature on clusters focuses on
for-profit entities in the same sector or product the potential for external economies to develop
market have been observed since the beginning from information spillovers. Beyond the basic
of recorded economic history to locate themselves economies of scale in knowledge-based industry,
in specific geographic regions (rather than spread- external factors can significantly influence the in-
ing out evenly across the geography or economy), dustry due to “mysteries being in the air.”15 The
the search for ways to encourage clustering has literature on “national systems of innovation” (ini-
only recently begun. Economists first began to tiated by Lundvall16) posits that such systems in-
develop models to explain such agglomerations volve “that set of distinct institutions which jointly
in the 1700s. By the mid-1800s, economists were and individually contribute to the development and
beginning to develop new theories and undertake diffusion of new technology and which provide the
intensive analyses of the phenomena. While that framework within which governments form and im-
work continued on and off into the 1900s, the plement policies to influence the innovation process.
rise to dominance of the neoclassical economic As such it is a system of interconnected institutions
paradigm after 1950 pushed these studies (and to create, store, and transfer the knowledge, skills,
related policy prescriptions) to the margins. and artefacts which define new technologies.”17 In
That all changed in the 1990s. Beginning in other words, innovation now involves and gener-
the early part of the decade, economists began ates significant externalities—innovators increas-
to refocus their attention on the microeconomic ingly rely on an array of formal and informal col-
foundations of growth. After a decade of stagfla- laborators, and the efficacy of those relationships
tion, new “conservative” governments shifted to will determine their ability to successfully launch
a low-inflation macroeconomic stance and be- a new innovation. Mowery and Oxley18 point out
gan to look for new microeconomic options to that these systems must include more than the
accelerate productivity and economic growth. research actors. They also require public programs
Michael Porter’s well-timed release in 1990 of the intended to support technology adoption and
Comparative Advantage of Nations12 reintroduced diffusion, as well as an array of laws and regula-
the concept of clusters, this time in a paradigm tions that define IP rights and manage discovery,
that posited that local competition is the primary production, and marketing.
dynamic behind cluster development and sustain- Studies have focused mostly on the role of
ability. This concept dovetailed with the shift in universities in innovation systems. The traditional
strategies by governments. Since then, the general role of a university is to generate and diffuse basic
concept of “similar things… growing together” has or explorative knowledge and to develop a skilled

PHILLIPS & RYAN
academic and technical labor force. However, systems of innovation. One, typified by the
these traditional roles (in terms of knowledge- computer software industry, is based on flexible
generation activity and culture) are evolving. As networks of small- and medium-size companies,
Cooke19 argues, a strong local science base needs often co-located in distinct industrial districts
to be complemented by a thick entrepreneurial (such as Silicon Valley). These companies were
culture in both the regional business and academic both very volatile and growing rapidly. The oth-
communities. Brown and Duguid20 suggest call- er type of system, which perhaps better reflects
ing these connections “communities of practice.” current biotechnology systems, is based on
Not surprisingly, measuring such connections is universities, public research laboratories, and
complex and difficult because such knowledge is large firms performing and commercializing
often tacit and nebulous. R&D—called “the triple helix” by Etzkowitz
A similarly large amount of research has con- and Leydesdorff.24 It has been further argued
centrated on evaluating extensive local and regional that, regardless of the prevailing model, no
networks of related and supporting industry (of- institution can be self-contained in its techno-
ten called “backward linkages”) and their access to logical activities.25 All companies, large or small,
large, sophisticated markets (“forward linkages”). have to rely on knowledge from other sources.
Porter21 analyzed 2,500 potential clusters around Systems that support a company’s ability to ac-
the world based on the strength and value of their cess, absorb, and use external knowledge can be
arrays of forward and backward linkages. The critical to the growth of companies, sectors, and
Innovation Systems Research Network, a consor- regions. This is especially so in the early stages
tium of scholars examining 27 clusters in Canada, of a technology’s development or when a tech-
similarly evaluated the importance of industrial nology has a rapidly changing knowledge base,
and supply-chain relationships on competitive- as is the case with biotechnology.
ness and innovation. While these studies have Critics argue that the term cluster is vague
shown that linkages are important, the evidence is and has become mere rhetoric. Markusen26 ar-
still out on whether the linkages are a causal factor gues that the cluster literature involves “fuzzy
or are a result of effective innovation. concepts” based on “scanty evidence” that produc-
Finally, a number of researchers have ates “wimpy policy.” According to the OECD, the
tempted to evaluate the role of labor market definition of a cluster “provides little guidance
dynamics for growth. These studies argue that for narrowing the scope of inquiry in a meaning-
when local labor markets expand and special- ful way.”27 Similarly, according to Martin and
ize, this creates incentives both for companies Sunley,28 “[Clusters have been] accepted largely
to co-locate and for specially skilled employees on faith as a valid and meaningful way of think-
to migrate to those locations. This reduces the ing about the national economy, as a template or
searching and negotiating costs for operating in procedure with which to decompose the economy
the region. In addition, these labor force dynam- into distinct industrial-geographic groups for the
ics sustain and support the flow of knowledge purposes of understanding and promoting com-
among actors. Zucker, Darby, and Brewer,22 for petitiveness and innovation.” Finally, some critics
example, looked at the role of research stars such argue that clusters can be interpreted to imply
as high-impact academic researchers that were rising self-sufficiency, which may work against
concentrated geographically, concluding that the economic benefits of specialization and
agglomerations of stars are positively correlated open trade based on comparative advantage.
with greater local innovation. Stars appear to
provide valuable signaling functions for capital
markets to facilitate commercialization of new 6. Cluster practice
technologies and products. No matter how vague the term, this has not pre-
Metcalfe23 notes that Malerba’s 1991 study vented its rapid adoption. Economic development
of Italy identified two discrete, independent agencies in developed and developing countries

CHAPTER 3.11
have applied Porter’s generalized approach to signifying their status as an innovation cluster
clusters, customizing it to their particular geopo- (for example, BioBelt, BioValley, and Innovation
litical region. More than 1,100 clusters have been Place). Ryan and Phillips discovered that most
examined in recent years,29 but few of these have clusters were based on a core of biomedical re-
examined the research components of health or search. In those that claimed to have an agri-
agriculture, and only three major studies have fo- food focus, the effort was often only a small,
cused on clusters in the life-science area. relatively insignificant adjunct to the core. There
Ryan and Phillips,30 for example, identified are very few established clusters dedicated to ag-
and categorized 14 life-science clusters in seven ricultural or agricultural biotechnology other
countries in 2001, concluding that life-science- than Canada’s Innovation Place in Saskatoon,
based innovation clusters vary in scope and scale Saskatchewan; the Agri-Food Quality Cluster in
across the regions of Australia, Europe, and Guelph, Ontario; and perhaps Adelaide Centre
North America (see Table 1). Some clusters are in Australia. In each case, a large percentage of
discrete communities in which development and the primary and supporting (private and public)
preservation are driven by clearly defined pub- actors are directly involved in food quality and
lic policy. The communities often have names agricultural biotechnology.
Table 1: Selected Life Science Clusters
Private Ag/ag-
Number
Country Region sector biotech
of actors
presence component
Innovation Place, Saskatoon,

115 73% 29%
Saskatchewan
Canada
Agri-Food Quality Cluster (AFQC),
41 76% 49%
Guelph, Ontario
Connecticut Bioscience Cluster 110+ 98% 1%
The Research Triangle Park (RTP),

United Raleigh-Durham and Chapel Hill, North 145 92% 3%
States Carolina
BioBelt, St. Louis, Missouri and Illinois 1,183 90%+ 24%
Biotech Beach, San Diego, California 700 90%+ 3%
Innovation Triangle, Edinburgh, Dundee

428 95% 2%
and Glasgow, Scotland
Europe
BioValley, France, Germany, and
459 90% 6%
Switzerland
Qbio, Brisbane, Queensland 43 42% 5%
BioHub, Sydney, New South Wales 28 75% 18%
Australia Bio21, Melbourne, Victoria 24 0% 4%
Adelaide, South Australia 25+ 65% 44%

80–
Perth, Western Australia 27 20%
90%
Source: Adapted from Ryan and Phillips. 31

PHILLIPS & RYAN
Cluster models appear to be very different.32 facilitating spinouts. This has been variously cited
The United States focuses on commercial out- as the reason for limited local expertise in biotech-
comes and investment attraction, placing key nology financing.
multinational companies (some might call them It is not yet clear whether London, Ontario
national champions) at the center of their re- has a distinct biotechnology cluster or whether
gional clusters. In Europe, the public sector (uni- the activity there is merely an extension of the
versities and large research institutes) is the main Toronto cluster. With an established biomedi-
driver. Canada’s key clusters tend to be commu- cal-devices competency that started in the 1970s,
nity led, while Australia appears to use a blend of London would appear to be an early-stage, emerg-
cluster approaches. Phillips and colleagues33 ex- ing biotechnology cluster focused on biopharma-
amined the seven Canadian biotechnology-based ceutical applications. Linkages among local actors
clusters studied through the Innovation Systems appear to be weak, with most acknowledging that
Research Network.34 These seven communities they are more connected to actors in the Toronto
represent a wide range of size, scope, foci and core than they are to one another.
histories (table 2).35 The Vancouver cluster, which focuses largely
Consisting of both large pharmaceutical and on biomedical biotechnology, is essentially a re-
small biotechnology companies, the Montreal search community with the University of British
cluster is the largest biotechnology cluster in Columbia (UBC) at the core. UBC and, to a
Canada. It benefits significantly from provincial- much lesser extent, Simon Fraser University, are
government programs and national research labs. home to almost 80 research stars who produce
Recent surveys identified 351 actors: 130 in hu- a wide array of IP. While there have been some
man health, 26 in human nutrition, 12 in agri- spinouts from UBC, more than two-thirds of
cultural biotechnology; and seven environmental which have survived at least five years, the prime
companies; 171 service and supporting enter- focus of the cluster is on developing IP rather
prises; one government lab; and four related uni- than products. Government and industrial sup-
versities. As of 2002, 29 companies in Montreal port has not fundamentally altered the cluster.
had patented 234 locally invented technologies, Early research suggests that lifestyle may be one
but 89% of the patents were owned by the eight of the critical factors that sustains the university
largest companies. Growth in the region since and attracts both companies and individuals to
1999—when only 14 companies had 66 patents the region.
in total—has been explosive. The Saskatoon cluster is almost purely an
The Toronto cluster is a two-part cluster: one agricultural-biotechnology cluster, focused pre-
part is dedicated to core biotechnology activities dominantly on oilseed crops. While the univer-
and the other to biomedical devices. Anchored sity is home to the largest number of researchers
by the Medical and Related Sciences (MaRS) in the community, many of the stars and much
Discovery District, the University of Toronto (U of of the IP that is developed and used have come
T), and the Health Network have also been identi- from federal labs. NRC’s Plant Biotechnology
fied as primary knowledge generators. A concen- Institute (NRC/PBI), the focus of considerable
tration of companies is situated downtown while research collaboration, appears to share leadership
some skilled workers are concentrated in peripheral with the local industry association, AgWest Bio.
regions. It appears that once firms or organizations While the cluster is research focused, it has suc-
move from exploration to exploitation activities, ceeded in commercialising world-first genetically
they move to the neighboring cities of Etobicoke modified plants, vaccines, and inoculants. Recent
or Mississauga to take advantage of lower costs. public investment in the university—including
This contributes to weak network coherence, al- the Canadian Light Source Inc. (CLSI) synchro-
though Mississauga appears to be more cohesive. tron project and various genomics projects—has
While the U of T has a significant number of stars, the potential to change the direction of the cluster
it has historically been considered unsuccessful in over the coming years.

CHAPTER 3.11
Table 2: Comparison of Canadian Biotechnology-Based Clusters
Preliminary
Cluster Focus Core actor(s) Stars
observations
Montreal Pharmaceutical A handful of generic 70 • provincial government

and biotechnology and multinational- leads in terms of
enterprise patent progressive policies
drug companies • 15 spinouts University
of Montreal
Toronto Biotechnology Medical and Related 47 • concentrated in

and biomedical Sciences (MaRS) Toronto at exploration
Centre; University stage; moved to
of Toronto; and the peripheral regions
Health Network (Etobicoke) at
exploitation stage
• limited network
coherence
London Biotechnology / University of 5 • early-stage

biomedical devices Western Ontario; biotechnology cluster
(established in Robart’s Research • cluster or merely TO
1970s) Institute; and Lawson ‘cohort’?
Health Research • transportation
Institute considered a weakness
Vancouver Biotechnology University of British 80 • producer of IP, not

Columbia products
Saskatoon Agricultural National Research 45 • research based

biotechnology Council-Plant • new investments in
Biotechnology genomics, Canadian
Institute; AgWest Bio Light Source Inc.,
and University of
Saskatoon may
change direction
Ottawa Biomedical and Gamma Dynacare 6 • more than 40 research

biotechnology (Ottawa Life Sciences institutes
Technology Park) • 18,000 people
employed in life
sciences
• 15–20 spinouts
Halifax Pharmaceuticals, none min. • a variety of

health, companies, with little
nutraceuticals, product focus
information • not clearly a cluster
technology, and • weak networks
biomedical

PHILLIPS & RYAN
The evidence available to date suggests that, economy (“global reach”). A local buzz and glob-
based on the traditional definition of the con- al reach, or entrepôt, approach would highlight
cept, neither Ottawa nor Halifax are clusters. the balance needed between local, regional, na-
While Ottawa appears to have a large number of tional, and global capacities. Phillips38 analyzed
research institutes, its identifiable biotechnology the stocks, flows, and accomplishments of the
cluster is quite small. As of 2002, there were only Saskatoon innovation system through the mech-
47 actors: 30 small biotech companies, six gov- anism of an entrepôt model. It looked at the
ernment labs, one connected university, and ten community’s capacity to create knowledge, use
service/support organizations. Only two of the knowledge, and commercialize new products.
Ottawa-based companies had generated patents Saskatoon’s claim to fame is arguably the devel-
by 2002, and the University of Ottawa had only opment of canola (based on its record as the lead
a few stars and limited success with patents (11 as innovator and early adopter of all new traits over
of 2002). Meanwhile, Halifax hosts a variety of the past 40 years). Analysis showed, however,
companies with little or no market focus. Actors that a significant share of the applied research
are not focused on any specific technology or to develop the processes used in the creation of
product application. Instead, some actors are in those varieties has been done in other countries.
the heath sector (devices, pharmaceuticals, infor- Moreover, much of the application-based re-
mation technology, and neutraceuticals), while search (for example, uses for new oils) is happen-
others work on horticulture, environmental ap- ing elsewhere. This suggests that Saskatoon has
plications, and food quality. There is currently no actually operated in a niche of this global, knowl-
obvious anchor organization, and actors in the edge-based industry—as an entrepôt undertak-
region are loosely connected. In contrast to most ing and assembling the know-why, know-how,
other clusters, this one has seen little investment and know-who of varietal breeding and primary
in infrastructure in the past few decades. Local production—but that the bulk of the activities
surveys suggest that there has been little or no up- and downstream of that stage in the produc-
success in facilitating technology transfer, which tion system are now, and may continue to be,
has led to limited engagement between business carried on elsewhere. Figure 1 illustrates the re-
and academic scientists. lationships between the global industry and the
This review of Canada’s clusters offers a num- Saskatoon entrepôt.39
ber of insights into cluster practice. Although bio-
technology-based industries have common, “deep-
er science” aspects, they appear to differ widely in 7. Clusters and IP management
terms of organization. The significant differences Research is increasingly generating networked
in size (Montreal versus Saskatoon), market focus knowledge. This new asset potentially has new
(core biotech in Vancouver versus medical devices economic and commercial value, but it faces a
in Toronto), and cohesion (strong in Saskatoon new set of complex relationships and transaction
and Montreal but weak in other centers) suggest costs. Recent research into cluster structures in
that the way in which the cluster is organized—its the Saskatoon-based agricultural-biotechnology
position in a product or technology life cycle and cluster suggests that one driver for agglomera-
how its actors interact—can vary widely. tion may be the development of a cost-effec-
Phillips36 examined the dynamics of the tive, efficacious system of IP management. This
Saskatoon-based ag-biotechnology cluster by fo- community has been host to a number of highly
cusing on knowledge flows. Wolfe and Gertler37 competitive multinational companies, has pat-
suggest that a more-sophisticated approach to ented many critical life-science inventions, and
clusters is to consider them as regional systems has delivered a number of world-first technolo-
of innovation that embody local interdependen- gies to the marketplace. Its experiences offer
cies (what Wolfe and Gertler call “local buzz”) some insights into another possible objective of
and engagement with the broader international clusters.

CHAPTER 3.11
In a perfect world with full information likely. Furthermore, it tends to be difficult to

and no transaction costs, complete contracts to measure the often-tacit inputs to research pro-
finance and undertake common research would grams. Attributing respective contributions to
be optimal. However, we know that transac- success in the discovery process is also tricky. In
tion costs (especially with highly fragmented IP addition, any resulting outputs often have very
rights) are nontrivial, and that the probability of specific uses, which makes them hostage to their
having a commercial success in any given project potential users. These factors can lead to a classic
is relatively low (usually, less than 10% of proj- case of “hold up,” whereby investors may not be
ects return the costs of investment). Hence, as willing to invest because their bargaining power
transaction costs rise, full contracts become less after any research breakthrough would be very
Figure 1: The Saskatoon Biotechnology Entrepôt

and Its Global Connections
Saskatoon RSI
Germplasm
Global
know-how
Global 100%
know-why
50%
70% How
Global
Why know-who
Global
know-what Who 50%
88% What
Assembly of new Exported

plant varieties 50% varieties
100%
Commercial Commercialization of
services new plant varieties
33%
66%
Exports of
raw and
Global new Production of semi-processed
plant varieties new varieties 80% product
33%
Source: Phillips 2002 36

PHILLIPS & RYAN
low.40 While long-term contracts would be one of know-how knowledge and providing a vis-
way to resolve this conundrum, few contracts ible, efficient point of entry for nonresidents to
will be negotiated for one-time projects. An al- access know-how and know-who capacity. The
ternate solution is to use social capital (for ex- public institutes also provide a home base for
ample, norms and relationships) in a community research stars, which, according to Zucker and
or cluster. In essence, by using the cluster as the colleagues,44 reduces the search costs for other
basis for a research relationship, the difficulties of researchers and subsequent commercialization.
negotiating one-time deals can be overcome: the The largest single geographic concentration of
research community operates as if it is engaged in stars and near-stars in the canola research world
repeated exchanges. Participants in a cluster thus is located in Saskatoon, where 11 out of 69,
often will not negotiate each deal as if it were or 16%, of the top scientists live and work.45
a one-time event. Rather, they would be willing Phillips and Khachatourians46 report that mul-
to leave some terms and conditions unspeci- tinational enterprises (MNEs) and smaller com-
fied, on the (usually justified) assumption that panies in Saskatoon were primarily attracted by
the strength of overall community relationships the presence of key personnel in collaborating
would reduce the probability that any company and competing organizations. Although the
or actor would act with guile. public and private institutions have changed in
The Saskatoon-based agri-food research clus- recent years, the social capital built up appears
ter gives a sense of how clusters or regional systems to continue to sustain collaborative activities.
of innovation can lower transactional costs.41 This
community is credited with a series of world-mar-
ket firsts (for example, agrobacterium technologies) 8. Lessons for development
and product firsts (for example, herbicide-tolerant and IP management
canola and flax). It took the lead in the develop- Knowledge-based development is inherently dif-
ment of the concept for a National Agricultural ferent from traditional industrial development.
Genome Centre (which, although unsuccessful While a traditional industrial strategy that pro-
in reaching that particular goal, ended up promoted infant industry via protection made some
viding a model for Genome Canada) and leads sense in the industrial world, it is not clear wheth-
four major genomics agri-food projects. Most of er it has any value in a knowledge-based world.
these initiatives were developed without formal This emerging global pipelines/local buzz
ex ante contracts; instead, leaders in the commu- cluster model of innovation poses some serious
nity developed the projects under the assumption challenges for development policy. Much of the
that any gains and losses would be apportioned current biotechnology-development effort has
equitably, or at least that any short-term losses a strong mercantilist orientation that focuses
would be compensated by future joint projects. on self-sufficiency. Governments at all levels in
This apparent altruism is nothing more than an many countries are actively using their tax and
extension of the community’s business model, as fiscal policy to encourage more local R&D and
Phillips and Khachatourians42 and Phillips43 show to attract global companies to relocate their
in their examinations of how Saskatoon became a R&D programs so that higher-value exports can
national center for the generation, transmission, be generated and imports replaced. This often
and consolidation of noncodified knowledge in involves preferential support for national cham-
the agricultural biotechnology industry. At the pions or exclusive deals to encourage MNEs to
core of this community are Agriculture and Agri- relocate their activities. Usually governments do
food Canada and the National Research Council. this without considering the corresponding rela-
Both have extensive arrangements with each tionships and interactions that knowledge-based
other, public universities, and private companies, companies require to succeed. If innovation can
which allow them to learn from their collabora- be thought of as limited to within a company or
tions, thereby adding further to the local stock within a regional or national community, then

CHAPTER 3.11
such a narrow approach might have some chance Peter W.B. Phillips, Professor, Department of Political
of succeeding. But the increasing complexity and Studies, University of Saskatchewan, 9 Campus Drive,
Saskatoon, Saskatchewan, S7N 5A5, Canada. peter.phil-
fragmentation of knowledge and IP rights in
lips@usask.ca
the biotechnology sector suggests there likely is
no single center that can effectively develop new Camille D. Ryan, Postdoctoral Fellow, Faculty of
biotechnologies or applications. Networking and Communication & Culture, University of Calgary, 2500
partnerships are going to be the order of the day. University Drive, Calgary, Alberta, T2L 2K7, Canada.
cami.ryan@ucalgary.ca
And, if innovation is truly global, as appears to be
the case in many of the life sciences, then narrow,
mechanistic, self-sufficiency strategies may either 1 Grossman G and E Helpman. 1991. Innovation and
simply fail or prove counterproductive. Growth in the Global Economy. The MIT Press: London.
One key to success in these circumstances 2 Gilpin R. 2001. Global Political Economy: Understanding
will be to invest in the institutions and mecha- the International Economic Order. Princeton University
Press: Princeton.
nisms that encourage the development of and
3 Gadbow RM and TJ Richards (eds). 1990. Intellectual
access to the four knowledge factors (know why, property rights—global consensus, global conflict?
know what, know how and know who), which Westview Press, Boulder, CO.
provide the foundation of a research economy. 4 Daar A, H Thorsteinsdottir, D Martin, A Smith, S Nast
A number of strategic options might be appro- and P Singer. 2002. Top Ten Biotechnologies for
priate. First, effective mechanisms to protect and Improving Health in Developing Countries. Nat Genet.
32 (2): 229–32.
legally transfer IP across international boundar-
5 ��
Klein S. and N Rosenberg. 1986. An Overview of
ies are the price of admission to collaborations.
Innovation. In The Positive Sum Strategy: Harnessing
Second, clusters that are open to new knowledge, Technology for Economic Growth (eds. ��
R Landau
��
and N
IP, and highly qualified personnel and compa- Rosenberg) National Academy Press: Washington, DC.
nies will likely be more successful in creating and pp. 275–306.
commercializing new biotechnologies or related 6 Malecki E. 1997. Technology and Economic Development:
The Dynamics of Local, Regional and National
products. Third, simply declaring that a region Competitiveness. Longman: Toronto.
is a cluster is not enough. There must be some
7 Organisation of Economic and Cooperative
regional investment in infrastructure, as well as Development (OECD). 1996. ��
The Knowledge-
openness and/or support for the emergence of Based Economy. ��
Paris: OECD. www.oecd.org/
one or more anchor institutions. While private dataoecd/51/8/1913021.pdf.
companies may have the greatest drive for com- 8 Ibid.

mercial development, governments often have 9 Phillips P. 2005. The Challenge of Creating, Protecting
only limited direct influence on their location and Exploiting Networked Knowledge: IP Management
Challenges in Genome Canada. In Crossing Over (ed. E.
and operation. Governments can strengthen Einseidel). University of Calgary Press.
their hand by considering how their universities 10 Ryan C and P Phillips. 2003. Intellectual Property
or public research labs can be used to anchor the Management in Clusters: A Framework for Analysis?
community. Ultimately, the goal should be to In Clusters Old and New: The Transition to a Knowledge
Economy in Canada’s Regions, Kingston and Montreal.
create some platform to generate mysteries in the
McGill: Queen’s University Press for the School of Policy
air. Whatever forms this platform takes, it will Studies, Queen’s University: Kingston and Montreal.
need to generate both local buzz and tap into 11 Ibid.
global pipelines. 12 Porter M. 1990. The Comparative Advantage of Nations.
In short, innovation clusters are very attrac- Free Press: New York.
tive economic development and IP management 13 Marshall A. 1890. Principles of Economics. Macmillan:
tools, but they must be nurtured with an appreci- London.
ation for their partial and incomplete nature. Part 14 Krugman P. 1998. What’s New about the New Economic
of a global innovation system, they cannot thrive Geography? Oxford Review of Economic Policy 14 (2):
7–17.
if cut off from the lifeblood of that system—ideas,
skilled labor, and collaborative platforms. ■ 15 See supra note 12.

PHILLIPS & RYAN
16 Lundvall B. 1992. National Systems of Innovation. Scottish Enterprise Network. 2000. The Clusters
Towards a Theory of Innovation and Interactive Learning, Approach.www.scottish-enterprise.com/publications//
Pinter: New York. pp. 342. shareddocs/social_economy_and _clusters.pdf.
17 Metcalfe J. 1995. Technology Systems and Technology Sölvell O, G Lindqvist and C Ketels. 2003.
�� The
Policy in an Evolutionary Framework. Cambridge Cluster Initiative Greenbook. The Competitiveness
Journal of Economics 19: 25–46. Institute, September. www.ivorytower.se/dldocs/
18 Mowery D and J Oxley. 1995. Inward Technology Transfer GreenbookSep03.pdf.
and Competitiveness: The Role of National Innovation Van der Linde C. 2002. Findings from the Cluster Meta-
Systems. Cambridge Journal of Economics 19: 67–93. Study. Institute for Strategy and Competitiveness,
19 Cooke P. 2002. Multilevel Governance and the Harvard Business School. www.isc.hbs.edu/
Emergence of Regional Innovation Network Policy. MetaStudy2002Prz.pdf.
In Knowledge Economies: Clusters, Learning and Co- Innovation Systems Research Network (ISRN). 2004.
Operative Advantage. Routledge: New York and London. Clusters in a Cold Climate: Innovation Dynamics in a
pp. 50–70 Diverse Economy (D Wolfe and M Lucas, eds.). McGill-
20 Brown J and P Duguid. 2000. The Social Life of Queen’s University Press for the School of Policy Studies,
Information. Harvard Business School Press: Boston. Queen’s University Press: Kingston and Montreal.
21 See supra note 12. 30 Ryan, C. and P. Phillips. 2004. Knowledge Management
in Advanced Technology Industries: An Examination
22 Zucker L, M Darby and M Brewer. 1998. Intellectual Human of International Agricultural Biotechnology Clusters.
Capital and the Birth of U.S. Biotechnology Enterprises. Environment and Planning C, Government and Policy.
American Journal of Economics 88 (1): 290–306. London, England.
23 See supra note 17. 31 Ibid.
24 Etzkowitz H and L Leydesdorff. 2000. The Triple Helix: 32 Ibid.
University-Industry-Government Relations. European
Society of the Study of Science and Technology Review 33 Phillips P, J Parchewski, T Procyshyn C Ryan, J Karwandy
14. 14–19. and J Kihlberg. 2004. Agricultural and Life-science
Clusters in Canada: An Empirical and Policy Analysis.
25 See supra note 17. Final project report for AAFC Study of the Saskatoon
26 Markusen A. 1999. Fuzzy Concepts, Scanty Evidence, Cluster, 30 March. www.agbio-management.org.
Policy Distance: The Case for Rigour and Policy 34 See Innovation Systems Research Network, supra note 29.
Relevance in Critical Regional Studies. Regional Studies
33 (9): 869–84. 35 Adapted from reference in supra note 30.
27 See supra note 7. 36 Phillips P. 2002. Regional Systems of Innovation as

a Modern R&D Entrepôt: The Case of the Saskatoon
28 Martin R and P Sunley. 2002. Deconstructing Clusters: Biotechnology Cluster. In Innovation, Entrepreneurship,
Chaotic Concept or Policy Panacea? Journal of Economic Family Business and Economic Development: A Western
Geography 3: 1. Canadian Perspective (J. Chrisman et al., eds.) University
29 See, for example: of Calgary Press. pp. 31–58.
ACOA. 1997. Prospects for Growing Knowledge-based 37 Wolfe DA and MS Gertler. 2004. Clusters from the
Industrial Clusters in Atlantic Canada. Atlantic Canada Inside and Out: Local Dynamics and Global Linkages.
Opportunities Agency. Urban Studies 41 (5/6): 1055.
KPMG, DRI McGraw-Hill, IMPAX Policy Services. 1996. 38 See supra note 36.
Building Technology Bridges: Cluster-based Economic 39 See supra note 36.
Development for Western Canada. Ottawa. 1 (section 3.4).
40 Milgrom PR and J D Roberts. 1992. Economics of
Nordicity Group Ltd. 1996. Regional/Local Industrial Organization and Management. Prentice-Hall:
Clustering: Theory and Lessons from Abroad. National Englewood Cliffs, New Jersey.
Research Council. Government of Canada.
Economic Development Administration (EDA), U.S.
Department of Commerce. 1997. Cluster-Based Economic 42 Phillips P and G Khachatourians (eds). 2001. The
Development: A Key to Regional Competitiveness. Biotechnology Revolution in Global Agriculture:
Prepared by Information Design Associates (IDeA) with Innovation, Invention and Investment in the Canola
ICF Kaiser International. www.eda.gov/ImageCache/ Sector. CAB International: London.
EDAPublic/documents/pdfdocs/1g3_5f5_5fcluster_ 43 See supra note 36.
2epdf/v1/1g3_5f5_5fcluster.pdf. 44 See supra note 22.
Roelandt T and P den Hertog (eds). 1998. Cluster 45 See supra note 36.
Analysis and Cluster-Based Policy in OECD Countries:
Various Approache; Early Results and Policy Implication. 46 See supra note 42.
The Hague/Utrecht. p. 5.

CHAPTER 3.12
What Does It Take to Build a Local Biotechnology

Cluster in a Small Country? The Case of Turku, Finland
KIMMO VILJAMAA, Research Affiliate, University of Tampere, and Consultant, Advansis Ltd., Finland
ABSTRACT Biotechnology, one of the most prominent

There seem to be new biotechnology initiatives spring- new industrial sectors, is typically a very spatially
ing up in almost every country and every region, no mat-
clustered industry. Biotechnology companies are
ter how big or small. This is the case for both developed
countries and many developing countries. At the same often located close to major universities, hospi-
time, many studies seem to suggest that the industrial dy- tals, and research centers, and are sometimes as-
namics of the biotechnology sector strongly favor only a sociated with supportive bigger companies inter-
few globally important locations. These are characterized acting with small- to medium-sized enterprises.
by well-established relations between small R&D compa-
nies and the presence of venture capitalists, big multina- Moreover, the biotechnology sector usually makes
tional corporations, and service providers. The tendency extensive use of external services in R&D—test-
of biotechnology clusters to form in certain locations ing, financing, and marketing—which also tend
raises some questions. Can all these new initiatives be to be located close by.
successful? Can biotechnology research clusters develop
Biotechnology activities also tend to con-
and prosper on a smaller scale? The aim of this chapter
is to discuss ideas for building successful biotechnology centrate strongly in specific areas of the globe.
clusters in less-developed places. Using the example of A few local concentrations (such as Cambridge,
Turku, Finland, the chapter analyzes how public policy Massachusetts, and San Francisco/San Jose,
and local activity can “fill the gaps” in the innovation California, both in the U.S.A.) are globally domi-
system, thereby facilitating the emergence of a biotech-
nology industry. Although this case study is from a de- nant.1 In the past, biotechnology has been very
veloped country, many developing countries face similar much dominated by the United States and, to a
challenges to those Turku has faced. lesser extent, by the United Kingdom.2 But the
past decade has seen a huge increase in biotech-
nology-related development in many other places.
1. Introduction Countries, regions, and cities all over the world
The economic literature of the past decade has of- have realized that biotechnology is the next big
ten argued that innovation is the most important thing following the success of information and
source of competitiveness, especially for high- communication technologies (ICT).
tech industries working within global markets. At Previous studies have shown that the indus-
the same time, it is widely known that particular trial dynamics of the biotechnology sector, espe-
industries tend to cluster in certain areas and that cially in biopharmaceuticals, strongly favor only a
the clustering of knowledge is an important rea- few globally important clusters characterized by
son for this phenomenon. well-established relations between small R&D
Viljamaa K. 2007. What Does It Take to Build a Local Biotechnology Cluster in a Small Country? The Case of Turku, Finland.
In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger,
RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. K Viljamaa. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

VILJAMAA
companies, venture capitalists, big multination- The recent rise of biotechnology in Turku is
al corporations, and service providers. It would largely due to the fact that it has drawn on de-
seem to be at least difficult, and perhaps entirely cades-old capabilities across a variety of sectors in
impossible, to develop an industry when some or food processing, pharmaceuticals, and materials
most of these factors are missing. Nevertheless, sciences. Furthermore, local development activi-
the biotechnology industry is growing in many ties and a national science and technology inno-
places that may at first seem unfavorable: in de- vation program have encouraged development.
veloped countries like Finland, but also in many It remains to be seen whether or not biotech-
developing countries such as India, China, Brazil, nology will continue to prosper in Turku. However,
and South Africa.3 this study finds that active policy measures can al-
This chapter analyzes how public policy and low smaller, more peripheral places to attract the
local activity can “fill the gaps” in the innovation interest of biotechnology entrepreneurs.
system so that it is possible for a biotechnology
industry to emerge and grow in seemingly unfa-
vorable places. The basic questions I will answer 2. The biotechnology industry
are: What policies and institutions best support In this chapter, “biotechnology” refers to a broad
the knowledge generation and dissemination range of life sciences (biosciences) and their uti-
processes of high-tech industries in smaller, more lization in medicine, primary production,5 in-
peripheral, or less developed regions? In other dustry, and services. Biotechnology is a set of
words, what are alternative ways of developing powerful tools that employs living organisms
a favorable environment for the emergence and (or parts of organisms) to make or modify prod-
development of a local biotechnology concentra- ucts, improve plants or animals, or develop mi-
tion? What sorts of relationships between local croorganisms for specific uses. The Organisation
actors encourage the development process? for Economic Co-operation and Development
My argument is that it is possible, at least (OECD) defines biotechnology as “the applica-
to some extent, to compensate for vital resourc- tion of science and technology to living organisms as
es that may be missing in small economies and well as parts, products, and models thereof, to alter
clusters. However, there seem to be several basic living or nonliving materials for the production of
conditions for success. First, there has to be a sub- knowledge, goods and services.”
stantial local knowledge base (often a university). The development of biotechnology can be
Second, the national or regional innovation sys- divided into three phases. Early first-phase bio-
tem must compensate for any missing resources technology includes traditional animal and plant
(public venture capital, R&D funding, services, breeding techniques, as well as the use of yeast in
and so on). Third, a network of capable local ac- making bread, beer, wine, and cheese. The second
tors (public or private) must develop and strategi- phase started in the 1940s when biotechnology
cally direct a local innovation system. was introduced into modern industry. Modern,
To support the argument that it is possible to or third-phase, biotechnology includes the indus-
compensate for missing vital resources, the chap- trial use of recombinant DNA, cell fusion, novel
ter analyzes the recent development of the bio- bioprocessing techniques, and bioremediation.
technology industry in Turku, Finland. The de- This phase started in the 1970s, when new tools
velopment of the biotechnology sector in Finland for modifying the genetic structure of living or-
during the past fifteen years has been largely due ganisms were introduced.6
to active national innovation policies. In terms of Interestingly, new advances in the biosciences
numbers of biotech firms, Finland ranks tenth in have blurred the boundaries between historically
Europe.4 The biotechnology industry in Turku has separate disciplines. Biology has begun to overlap
grown thanks to local activity, and Turku itself is with other fields, such as medicine, chemistry,
home to the second-largest concentration of bioinformatics, and physics, thereby increasing the
technology-related activities in Finland. need for interdisciplinary research and bringing

CHAPTER 3.12
different industries closer to each other. Many and Maskell13 there are at least three factors that
new technologies developed for molecular biology traditionally encourage spatial clustering:
research, such as high-throughput DNA sequenc- 1. Reduced costs of producing and maintain-
ing, protein structure determination, and gene ex- ing a dedicated infrastructure and other
pression analysis on “DNA chips,” are also used in collective resources
ecology, agriculture, forestry, and the biotechnol- 2. Well-functioning markets for specialized
ogy and pharmaceutical industries.7 skills
The nature of an industry greatly influ- 3. Reduced interaction costs for co-located
ences how it develops in any given location. trading partners
Biotechnology is very demanding in terms of In the last few decades, researchers have tried
R&D. Bioscientific research is also time-consum- to explain the relationship between the spa-
ing and requires methods and instrumentation tial clustering of firms and the innovation
that are rapidly evolving and expensive.8 Because process. Several different approaches have
the cost of R&D is so high, funding becomes es- been developed, including innovative mi-
pecially crucial for both universities and industry. lieu, new industrial spaces, spatial clusters
Furthermore, many biotechnology innovations of innovation, regional innovation systems,
are based on basic research, which means that the and learning regions.14 The topic has be-
time from innovation to market is very long. come more relevant in recent years because
Cooke9 has observed that the focus of knowl- technological change and globalization have
edge creation has changed. In the past, the world led to intrinsic economic changes.
of pharmaceutical R&D was dominated by large Globalized markets, increased competition,
multinational companies (MNCs). However, and the development of information and
there is growing evidence that university or public communications technologies have forced
laboratory research with associated spinouts and companies to find new ways of increas-
dedicated biotechnology firms (DBFs) are now ing their competitiveness. Furthermore,
responsible for most knowledge generation and new scientific developments are occurring
exploitation, while global MNCs are specializing all the time. This combination of external
in distribution and marketing. The combination pressures and opportunities makes for a
of two factors—spatially highly concentrated very turbulent corporate environment.15
R&D and global marketing and distribution Companies respond to these pressures in
strategies—means that the innovation system in two ways: by specializing and by innovat-
biotechnology has become both highly regional- ing. They outsource in areas where they
ized and highly globalized. The tendency of bio- are weak and try to maximize the profits
technology activities to congregate means that of their core competencies through innova-
local clusters of biotechnology activities are an tion. Both of these strategies tend to create
important unit of analysis. local as well as global connections. Many
services and external functions have to op-
erate locally. This is typically because of the
3. On industry clustering economics of scale that local clustering of
and knowledge associated actors brings; economies of time
This chapter focuses on local concentrations of and smaller transaction costs are generated
biotechnology-related activities. The first stud- by trust and easy face-to-face interaction.
ies on the economics of territorial agglomeration Firms can increase their competitiveness
were in the nineteenth and early twentieth centu- by sharing an infrastructure and by shar-
ries: the works of Marshall.10,11,12 Traditional anal- ing supplier and service networks. In or-
ysis of spatial clustering tries to analyze the advan- der to facilitate knowledge generation and
tages that firms get by locating near to each other transfer, companies locate themselves near
(localization economies). According to Malmberg knowledge sources and each other so they

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can make better use of local knowledge This chapter also investigates the process of
spillovers16 and informal types of social in- cluster formation and the conditions that enable
teraction that form the basis for innovation a local biotechnology cluster to emerge and grow.
and learning. Much of the conventional wisdom regarding suc-
The fact that knowledge, learning, and in- cessful industry clusters is based on studies of fully
novation are important if an industry is to functioning innovation systems such as Silicon
retain its competitiveness suggests a fourth Valley.19 However, the conditions under which
advantage to spatial clustering: mature clusters operate are not, in many cases,
4. Facilitation of knowledge spillovers, learn- present at the creation of new clusters. The history
ing, and adaptation of each cluster is unique, suggesting that cluster de-
Local industrial structure with many firms velopment is either path-dependent or heavily in-
competing in the same industry or collabo- fluenced by chance historical events.20 The current
rating across related industries tends to be economic strengths of a particular region are often
dynamic, flexible, and innovative; the ex- based on developments and activities that took
istence of a local culture facilitates knowl- place over the course of several decades. Examples
edge transfer. The co-location of firms cuts of this phenomenon are the Research Triangle
the expenses of identifying, accessing, and Park in North Carolina, U.S.A.,21 Silicon Valley,
transferring knowledge.17 There are several U.S.A.,22 and Oulu and Tampere, in Finland.23
reasons why innovation capability is related New clusters often develop thanks to pre-ex-
to spatial clustering: isting local expertise in related fields. Many places
• new knowledge. Usually difficult to with ICT centers were founded in areas that al-
codify and therefore difficult to trans- ready had expertise in electronics (for example,
fer. New knowledge is best transferred in Silicon Valley and Oulu). Therefore, it is im-
through repeated and frequent face-to- portant to understand both regional assets and
face contacts. Innovation is therefore fa- the cluster formation process in order to develop
cilitated by geographical proximity. policies that will support emerging clusters.
• knowledge exchange. Can happen Feldman and Francis24 have concluded that
through knowledge spillovers. On the cluster formation appears to be characterized by
other hand, most actors are unwilling to three general stages.25,26 In the initial stage, there
share crucial information when there is a are typically few, if any, spinout companies, but
danger that it could end up in the hands there are some needed assets such as large com-
of competitors. Knowledge exchange panies and universities. An exogenous shock that
may happen as a result of long-term co- lowers the opportunity cost for entrepreneurship
operation with universities and research (such as a merger and acquisition or a change in
institutions. the funding environment) tends to encourage ac-
• the availability of a high-level work- tive entrepreneurship and the subsequent appear-
force. A very important requirement for ance of new spinout companies.
innovation. The mobility of labor, espe- The second stage is typically characterized by in-
cially in Europe, is lower than the mobil- creased interaction between entrepreneurs and their
ity of other resources, and so labor tends environment.27 In this stage, the cluster self-orga-
to concentrate in certain regions. nizes in order to better serve its own needs. Various
institutions may be created to support the cluster,
All these knowledge-related factors are im- and these institutions may, in turn, stimulate further
portant because biotechnology typically has a innovation and promote localized learning.28
much greater need for basic research and a highly In the final stage, the success of the first
educated workforce than does any other industry. spinouts and the synergy between them gener-
It also tends to collaborate more with universities ate new possibilities for other firms in the same
than do most other industries.18 field. At the same time, an enhanced innovation

CHAPTER 3.12
environment develops around the cluster (con- most easily found within a larger concentration
sisting of universities, technology centers, local of related activities.34
policy-makers, service providers, and so on). At What Cooke and colleagues call “exploi-
this final stage of cluster formation, a critical mass tation knowledge”—that is, the knowledge of
of resources provides locational advantages. how to use basic research for practical applica-
tions—is found in clusters for several reasons. As
small DBFs rely on research scientists to translate
4. Innovation and industry noncodified knowledge so that it can be further
structure in biotechnology developed into commercial products or services,
The geographical concentration of biotechnology people with experience in both research and in-
is also the concentration of knowledge. Universities dustry tend to be magnets for new companies.
and R&D institutions are local concentrations of In many cases, special services also play an
knowledge and expertise, and they can poten- important role. Business services and specialized
tially provide a workforce for local firms. Many expert services tend to locate close to key custom-
knowledge spillovers are local, either because they ers and thereby make these locations more attrac-
are based on tacit knowledge or because people tive to new companies. I suggest that even if R&D
are usually well informed about developments in- companies trade very little knowledge with each
side their own local knowledge base. For example, other, they interact quite a bit with companies in
Jaffe and colleagues29 show that most knowledge fields like business expertise and services.
was used within a 50-mile radius of the university Biotechnology companies tend to be located
from which it originated. Also, the successful de- close to major universities, hospitals, research cen-
velopment of biotechnology, especially in the early ters, and sometimes supportive larger companies
phases, seems to require a considerable amount of that interact with small- to medium-sized enter-
tacit knowledge, which itself often relies on short- prises. At least initially, most new ideas and spin-
distance or face-to-face interaction.30 outs seem to originate from universities. However,
The local existence of high-level knowledge Feldman argues that even though universities
and research seems to have more of an effect on seem to be necessary for the development of bio-
the development of biotechnology clusters than tech research clusters, the mere existence of a large
do local knowledge spillovers. According to knowledge base is not always enough.35 Orsenigo
Cooke and colleagues,31 the biosciences do not argues that the existence of a strong scientific base
typically make wide use of informal local tacit does not guarantee that new companies will start
knowledge and face-to-face exchanges, informal up or that an industry will emerge.36 There is also
networks, or other indirect region-specific assets no firm correlation between the number of spin-
that are often referred to as untraded interdepen- outs and either university financing or the num-
dencies.32 Because biotechnology techniques are ber of patents applied for.37
so specific and specialized, there is typically not As a biotechnology research cluster develops
much knowledge transfer through social ties or from the “science stage” to commercial application,
networking between firms. In the early phases of the cluster may become dependent on a few bigger
the creation of biotechnology clusters, localiza- anchor firms. Larger companies can act as pools
tion effects seem to be due to the so-called star of skilled labor and demand special inputs such
scientists who are invaluable to R&D and tend to as specific products and services that may benefit
locate near their home universities.33 smaller spinouts.38 Large established companies
Another factor in the creation of biotechnol- can also act as sources for new entrepreneurial ac-
ogy research clusters is the increasingly multidis- tivity in the form of spinouts or outsourcing.
ciplinary nature of biotechnology R&D. In many The mechanisms of co-location and spatial
cases, development work requires a heterogeneous clustering seem to be especially strong in the
set of cognitive skills and, therefore, a need for biotechnology industry. However, the pres-
transdisciplinary network relationships that are ence of favorable conditions (for example, a

VILJAMAA
strong science base and a working labor mar- According to Cooke,41 because research
ket) is insufficient to explain why an industry tends to concentrate near the key magnets (that
develops in a particular region. Favorable condi- is, universities or public research institutes), it
tions in a particular locale may encourage the favors the development of a localized “biosci-
establishment of an industry, but its growth is ences knowledge value chain.” (Agglomerations
determined by other factors: its structure, tech- that are more than mere clusters of commercial
nological change, economic factors, and changes firms with some links to local knowledge centers
in the institutional base and local development are called “megacenters,” which seem to be few
policies. and far between.) At the same time, the global
“biotech boom” means that many countries and
4.1 Typical characteristics of successful regions are investing in biotechnology. This leaves
biotechnology clusters us with some questions: How successful can these
Many studies and strategy papers have analyzed initiatives be? Is it possible for smaller and more
the factors that are needed for the biotechnology peripheral biotechnology clusters to survive?
sector to prosper, and most of them have come The development of a smaller biotechnology
to similar conclusions. They emphasize the role research cluster in Turku, Finland, offers some an-
of a strong science base, a skilled workforce, sup- swers to these questions. The primary data consist
portive infrastructure, and the availability of ser- of detailed, interviews and analyses of industry sta-
vices and financing. A British study39 identified tistics; the policy documents of national, regional,
the following factors for successful biotechnology and city governments; and previous studies of the
clusters: development of industrial activities in Turku, es-
• a strong science base pecially those conducted between the mid-1980s
• an entrepreneurial culture and 2004. Over a six-month period in 2002, 36
• a growing company base detailed semistructured interviews were conducted
• the ability to attract key staff with academics (scientists), policy-makers at vari-
• the availability of financing ous levels, CEOs or R&D heads of companies,
• appropriate premises and R&D infra- city officials, and actors in intermediary organi-
structure zations, such as economic development agencies
• the close proximity of business support and hybrid organizations for sectoral growth.
services and large companies in related
industries
• a skilled workforce 5. The case of Turku: development of
• effective networks (for example, associa- a small biotechnology cluster
tions and cluster councils) Turku is home to the second largest concentra-
• supportive (national, regional and local) tion (after Helsinki) of biotechnology activities in
government policies Finland.42 Other regions with dedicated centers for
biotechnology development are Oulu, Tampere,
Although many industries benefit from the and Kuopio. There are also many Finnish universi-
factors listed above, they apply especially well ties engaged in biotechnology-related research and
to biotechnology. Biotechnology is a science- education. The period 1996–2000 saw the sharpest
driven business,40 which means that clustering rise to date in the number of new biotech firms in
often occurs in close proximity to key knowl- Finland. Turku underwent a similar growth spurt,
edge centers, usually universities or public re- with most new biotechnology companies emerg-
search institutes conducting top-level research. ing during the 1990s.43 Biotechnology companies
Because this knowledge is very often tacit and that were started in the period 1998–2000 can be
tied to individual researchers or research groups, broadly categorized as biomedicine (37%), diag-
effective utilization requires close interaction nostics (31%), biomaterials (13%), and “other”
between actors and multilevel partnerships. (19%).44,45 However, during the past few years,

CHAPTER 3.12
industry growth has almost stopped, and the num- research in biotechnology-related fields has been
ber of companies has remained relatively constant. on par with top research around the world. The
The Turku region is especially strong in bio- establishment of spinouts owes much to strong
pharmaceuticals, but its firms are also involved in academic links with the United States. When
diagnostics, biomaterials, and functional foods. the molecular biology revolution occurred in the
In March 2006, there were approximately 80 1970s, many Ph.D.s and M.D.s from Turku did
biotechnology-related companies in Turku, em- their postdoctoral research work in some of the
ploying approximately 3,000 people. Two large best American laboratories. During their time
pharmaceutical companies, Schering and Orion, abroad, they witnessed the birth of commercial-
conduct R&D in Turku, as do a number of smaller ized biotechnology firsthand and saw the many
drug discovery companies, such as Tie Therapies, ways that academics can become involved in the
Hormos Medical (a subsidiary of QuatRx), and business of medical biotechnology. A few leading
Juvantia Pharma Ltd. These firms, along with the researchers subsequently returned to Turku and
universities and service companies, form a rela- became intimately involved in the establishment
tively tight drug-development network. of both the Center for Biotechnology and several
Although the growth of biotechnology in promising start-ups.
Turku has been very rapid, the roots of the in-
dustry are much older. The first drug companies 5.1 Strong national support for biotechnology
(Leiras [a Nycomed Co.] and Farmos Ltd.) were research and business
established in the 1940s, as was Wallac Inc. (now The Finnish model for supporting biotechnol-
part of the PerkinElmer group). These mid-sized ogy has been described as a “science-led strat-
companies cooperated with the universities when egy from above.”48 In Finland, the national in-
such cooperation was not common practice in novation system has played a significant role in
Finland. A good example of this is the diagnostic developing the biotechnology sector. Various
company Wallac, which already cooperated with government agencies support science-based and
universities in the 1960s. Interactions with uni- resource-intensive businesses. The Academy
versity researchers were institutionalized in many of Finland funds basic research: TEKES (the
ways, and this culture seems to have diffused to Finnish Funding Agency for Technology and
other companies.46 At the time Wallac also need- Innovation) funds applied research, develop-
ed a steady supply of professional employees, and ment, and knowledge transfer; VTT Technical
the university cooperation provided a good op- Research Center conducts applied and contract
portunity for them to develop this resource. research; and Sitra (the Finnish National Fund
Older, larger companies have provided lo- for Research and Development) used to provide
cal expertise in business and development activi- venture capital funding for small high technology
ties, as well as labor pools for new spinouts. In firms particularly in the 1990s.49 Furthermore,
fact, many key people in the universities and the public programs, such as the regional Centers
smaller companies have worked for these larger of Expertise, coordinate and focus resources in
companies at some point. Many ideas have also key industries in many cities. Many of the in-
been exported by individual workers leaving their stitutions and organizations affiliated with the
jobs and establishing new start-ups or by dedi- national biotechnology innovation system are
cated spinout strategies of larger companies. located in the Helsinki region.
Several studies have noted that in biotech, In the late 1980s, the Ministry of Education
the performance, strength, and width of the sci- started the first biotechnology research program.
entific base are perhaps the most important fac- Since then, public funding in the form of vari-
tors affecting industry development.47 Indeed, ous research and technology programs (especial-
Turku’s scientific knowledge base did not emerge ly those provided to universities by The Center
overnight: it has been developing since the of Excellence) and public venture capital have
1960s or 1970s. Moreover, the level of scientific all increased tremendously. Roughly 40% of the

VILJAMAA
national R&D budget is spent on the bioscienc- (FNT) was established. This was a very informal
es. TEKES has invested some US$90 million, or organization, composed of approximately 30
27% of the total amount spent on biotechnology people, most of them drawn from industry and ac-
in Finland. The Ministry of Education has also ademia. The FNT was originally formed to estab-
created new centers of excellence in universities. lish Turku’s first technology center, DataCity.52
These efforts have paid off: in 2000, nine of the The Turku Technology Center Ltd. region-
26 most highly ranked university departments in al development company is owned by the city
Finland were in the field of biotechnology. of Turku (90%). It consists of two subsidiaries
In Turku, the impact of the national science (100% ownership): Turku Bio Valley Ltd. and
and technology policy has been remarkable. Partly ICT Turku Ltd. The second stage of the tech-
because local actors have been active in national nology center, BioCity, was built in 1989, after
development programs, the newly dedicated uni- DataCity achieved some success. People with dif-
versity research units have received a lot of public ferent needs joined for a common cause: the real
funding. Public venture capital has also played a estate business saw a new business opportunity;
big part in the growth of new firms. However, biotechnology firms saw an opportunity to gain
in Turku, national institutions have been used more contacts and influence by cooperating with
as resources for local activity rather than initiat- universities; and universities saw an opportunity
ing new activities themselves. Turku was not very to obtain better resources for research and edu-
visible in the biotechnology industry (compared cation. Because city governments played a cen-
with, for example, Helsinki) until the late 1980s. tral role in planning five of the seven technology
In 1987, the Ministry of Education launched a parks existing in Finland in 1989,53 it is interest-
new biotechnology research program that was ing that the city of Turku did not participate in
Helsinki centered, despite the fact that Turku had the planning of BioCity.
a biotechnology sector that was not much smaller BioCity has been very important to Turku’s
than Helsinki’s. The Turku research community biotechnology cluster. It was not merely a physi-
protested this “injustice,” and local informal cal structure but an ambitious new concept. Its
initiatives, designed to increase the visibility of founders wanted to create synergy between in-
Turku’s biotechnology activities, were instrumen- dustry and academia by gathering a critical mass
tal in developing a local biotechnology cluster.50 of researchers in various fields.54 This critical
mass was achieved by establishing new facilities
5.2 Local networks and local initiatives and labs that were jointly administrated by the
facilitate cluster building University of Turku and Åbo Akademi. The uni-
The development of Finnish biotechnology has versities entered the project not so much because
been aided not only by national policies but also they shared the founders’ vision but because they
by the local efforts of actors in business, academia, were suffering from a lack of resources. Today, the
university administration, and city governments. BioCity Turku research community consists of
Individuals have promoted change, whether or more than 50 research groups and more than 500
not they had strategic support from their own in- people working in different fields.
stitutions; this is important to note because the A recession in Finland in the early 1990s
role of individuals as instigators of change has of- made local actors and the Turku city government
ten been overlooked.51 look for new industries to develop. Compared
The first changes in Turku’s innovation net- with other mid-sized cities in Finland, like Oulu,
work occurred in the mid 1980s. Particularly Tampere, and Jyväskylä, Turku became active in
important was the first dedicated project for im- the local economic development quite late. This
proving biotechnology research, the South-West was partly because of the local industrial struc-
Finland Biotechnology Project (SWB), started ture—the impacts of economic restructuring
in the mid 1980s. At approximately the same in the 1970s and 1980s were not as severe as in
time (1986), the Foundation of New Technology many other cities. The Finnish recession and the

CHAPTER 3.12
collapse of the Russian markets, which were im- • infrastructure. Generally, the infrastructure
portant for many local industries, also made local for both research and business is very good.
authorities pay more attention to economic de- The public sector (especially the City of
velopment. Since then, the city of Turku has been Turku) has recently supported the building
very active in promoting new industries, particu- of new infrastructure. This has been crucial,
larly biotechnology, and investing in infrastruc- since university funding has been tight.
ture. The government has encouraged life-sci- • business support services and large com-
ences research and commercialization in Turku, panies in related industries. Larger compa-
partly because the city did not have pre-existing nies do not use local services very much.
information-technology-related skills and indus- Many specialized services are in Helsinki
try like many other midsize cities in Finland. and abroad. There are some good local ser-
Local authorities have supported the nation- vices but the number is still quite small.
al Center of Expertise program, which organizes • a skilled workforce. The local universities
cooperation within the biotechnology sector in have so far provided an adequate source
Turku. In general, local actors have taken advan- of new employees. The region’s traditional
tage of opportunities provided by national and strengths in pharmaceuticals and diag-
regional policies regarding science and technol- nostics provide some experienced people,
ogy. The use of biotechnology as a leading theme though not enough. The city is too small
in city marketing should not be underestimated. to provide an adequate labor pool. There is
also a lack of local business expertise.
5.3 Turku as a biotechnology cluster • effective networks. Local networks work
Turku has created a successful biotechnology effectively. Many of the networks arose vol-
cluster, but substantial efforts have been needed untarily from local needs and have there-
to guarantee its success. Below is an analysis of fore been very active as opposed to policy-
the aforementioned factors for successful biotech- led network initiatives, which often turn
nology clusters, as they apply to Turku: out to be rather artificial. Networks linking
• a strong science base. In recent interna- Turku with the rest of the globe are quite
tional evaluations, Turku’s science base was extensive and important for research and
highly rated. commercialization.
• an entrepreneurial culture. Although many • a supportive policy environment. National
new companies have been created, there is policy has been very important in providing
no strong entrepreneurial culture. financing for both research and commercial
• a growing company base. The company development. Local policy is increasingly
base has grown rapidly in many fields in supportive of infrastructure. University
the latter part of the 1990s, but there have policies have neither helped nor hindered.
not been many new DBFs in the past few
years. Turku has been able to overcome the weak-
• the ability to attract key staff. So far, em- nesses mentioned above for two reasons: strong
ployees have come from within Finland. national support and the ability of local actors
Many companies have noted that Turku is to exploit both internal and external resources.
too small to be attractive. The factors contributing to Turku’s success can be
• the presence of investors. Missing are summarized as follows:
MNCs and international venture capi- (A) A strong science base with local and
tal (VC), though domestic VC (especially international networks
public) has made up for a lack of interna- • Expertise from older, medium-sized
tional VC. Recently, VC money has been companies provided the cluster with the
less available and there have been substan- experience and skills that new univer-
tial problems in attracting financing. sity-based start-ups often lack.

VILJAMAA
• Early on, companies established long- problem, however, is that Turku lacks many parts
term relationships with university re- of the value chain. There are few services, venture
searchers, thereby developing a culture capitalists, and big MNCs with expertise in com-
of collaboration. mercialization and marketing. This is a problem
• Pre-existing scientific networks and because external links are usually more difficult
cutting-edge research in medicine, bi- and costly to maintain than internal ones, espe-
ology, and chemistry compensated for cially for small companies.
the lack of local expertise and local in-
stitutions, such as business support ser-
vices, banks, consultancies, and venture 6. Discussion AND CONCLUSIONS
capital funds. Strong research ties to the A small, peripheral biotechnology cluster can
United States, for example, have been prosper under the right conditions. First, a strong
very important. local science base must already exist. Second,
• The difficulty of recruiting foreign em- there must be a way to compensate for any miss-
ployees has been at least partially coming links in the value chain. Turku has been fairly
pensated for by the expertise of Finnish well able to provide adequate conditions for its
researchers who have spent time abroad. biotechnology industry. Although its biotechnol-
(B) National policies ogy cluster is young, quite small, and in many
• Extensive research funding and educa- ways peripheral, its development has been suc-
tion supports the science base. cessful because of the region’s strong science base
• The TEKES technology programs sup- and well-established strengths in medicine and
port R&D. diagnostics. Both national innovation policies
• Public VC partly compensates for a lack and strong local initiatives have been important
of foreign VC. in overcoming obstacles.
• Local centers of expertise facilitate Several lessons can be learned from the
networking. Finnish experience. First, a good educational sys-
(C) Local initiative tem is important. There are many ways to com-
• Local initiative has led to improved in- pensate for missing links in the value chain, but it
frastructure, as well as improved organi- is extremely difficult to build new entrepreneurial
zation in universities and R&D firms. activity in biotechnology without a good local
• The success of Turku has been crucial in knowledge base.
influencing national policy-makers to Second, human capital formation (in the form
invest in biotechnology. of educated people and research groups) should
• BioTurku has brought various actors to- be drawn mostly from the local pool, though it
gether, thereby improving the integrity is often necessary to bring in experienced people
of the local biotechnology cluster. to work in R&D. It is difficult for developing
countries to compete with major research centers
Despite its relative success in compensating in Europe and the United States. However, bio-
for the missing success factors, Turku still faces technology requires the best available scientific
problems. First, its small size makes it difficult knowledge and expertise. If it is difficult to attract
to maintain local services. Lack of foreign VC is people from abroad, locals should go abroad to
also a potential problem, because public support study, conduct research, and build international
for biotechnology is limited. Technology trans- networks. It is easier to attract expatriates than it is
fer mechanisms are still underdeveloped, even to attract foreigners.
though there are close connections between uni- Third, the development of clusters is path-de-
versity researchers and companies. In addition, pendent and based on previous historical events
universities do not have a clear strategy for capi- and existing capabilities. It is extremely difficult
talizing on biotechnology research. The biggest to build new clusters from scratch. It is therefore

CHAPTER 3.12
advisable to match research activities and start-up ments. There also remain the perennial questions
formations to the existing strengths of the region. of how much a government should invest, and
In many countries, this may mean concentrating how much it would be ready to invest, in a new
on specific fields, such as agriculture or health industry sector such as biotechnology. Success in
care, in which local expertise is strong. A strong such endeavors is not guaranteed. ■
health care system is important for the develop-
ment of biotechnology because it is a consumer
of local products, a source of new ideas, and an Acknowledgements
The chapter is based on a study by Smita Srinivas and
environment for testing and clinical trials. It is
Kimmo Viljamaa55 for the Local Innovation Systems
also important to make good use of the R&D Project (LIS), led by the M.I.T. Industrial Performance
capacity and expertise of existing companies and Center and funded by the Finnish Agency for Technology
universities. Many successful clusters in emerging and Innovation (TEKES). The study is also part of the
technologies have been created around older but project The Invisible Dynamics of the Urban Development
Processes: Emerging Patterns of Networks, Knowledge,
related industries. For example, the biotechnolo- Images and Power [ID-UD], funded by the Academy of
gy industry was created around pre-existing food Finland (No. 78071).
and medical industries in Turku, and the semi-
conductor industry was created around a pre-ex- KIMMO VILJAMAA, Research Affiliate, Research Unit for
Urban and Regional Development Studies, University of
isting electronics industry in Silicon Valley.
Tampere, 33014 Tampere, Finland, kimmo.viljamaa@uta.
Fourth, local and national policy support fi and Consultant, Advansis Ltd., Itälahdenkatu 22 A b,
of emergent industries is important, especially if 00210 Helsinki, Finland. kimmo.viljamaa@advansis.fi
there are problems with the innovation support
system. This support can take many forms: sub-
stituting public services for missing private ser- 1 Cooke P. 2002. Towards Regional Science Policy? The
Rationale from Biosciences. Prepared for Conference
vices, supporting research, building up a work-
on Rethinking Science Policy: Analytical Frameworks
ing education and research system, creating a for Evidence-Based Policy, SPRU, University of Sussex,
favorable legal and economic environment for 21–23 March 2002.
new start-up companies, and working to prevent 2 Breschi S, F Lissoni and L Orsenigo. 2001. Success and
“brain drain.” Failure in the Development of Biotechnology Clusters:
The Case of Lombardy. In Comparing the development
Fifth, the role of individuals, especially in the of Biotechnology Clusters (ed. G Fuchs). Harwood
early stages of cluster formation, should not be Academic Publishers (forthcoming).
underestimated. The Finnish experience demon- 3 Thorsteinsdóttir H, U Quach, DK Martin, AS Daar and
strates that local networks of key individuals in- PA Singer. 2004. Promting Biotechnology in Developing
crease the capabilities of the cluster as a whole and Countries. Nature Biotechnology. vol. 22, Supplement.
help different actors achieve consensus. Support 4 Critical I. 2006. Comparative study for EuropaBio.
Critical I Ltd. www.finbio.net/download/criticali-2006.
for key individuals in enterprises, universities, pdf.
and research institutes is therefore important, and 5 Primary production refers to agriculture, forestry and
networking should be promoted. fishing.
There is indeed hope that smaller and more 6 Tulkki P, A Järvenisvu and A Lyytinen. 2001. The
peripheral biotechnology clusters can prosper. Emergence of Finnish Life Sciences Industries, Sitra
However, it is also clear that strong, well-de- Report Series. Helsinki.
signed policy support is needed to overcome the 7 Biotechnology in Finland. 2002. Impact Of Public
Research Funding And Strategies for the Future
various setbacks that these small clusters tend to Evaluation Report. Publications of the Academy of
face. Of course, there still remains the question Finland. November 2002.
of how this should be accomplished. So far, the 8 See supra note 7, p. 15.
“Finnish way” has worked quite well, but it is 9 See supra note 1.
always difficult to determine how well policies 10 Malmberg A and P Maskell. 2001. The Elusive Concept
and practices will work in the future or how well of Localization Economies: Towards a Knowledge-
they will work in other institutional environ- based Theory of Spatial Clustering. ISRN working

VILJAMAA
papers 2.10.2002. May 2001. www.utoronto.ca/isrn/ www.dti.gov.uk/files/file14008.pdf.

working_papers.htm. 27 See supra note 19.
11 Moulaert F and F Sekia. 2003. Territorial Innovation 28 Maskell P and A Malmberg. 1999. The Competitiveness
Models: A Critical Survey. Regional Studies vol. 37 (3): of Firms and Regions, ‘Ubiquitication’ and the
289–302. Importance of Localized Learning. European Urban and
12 Simmie J. 2001. Innovation and Agglomeration Theory. Regional Studies 6:9–25.
In Innovative Cities (ed. J Simmie). Spon Press. Taylor & 29 Jaffe A, M Trajtenberg and R Henderson. 1993.
Francis. Geographic Localization of Knowledge Spillovers as
13 See supra note 10. Evidenced by Patent Citations. Quarterly Journal of
14 See supra note 11. Economics, 108:577–598.
15 Schienstock G and T hämäläinen. 2001. Transformation 30 Zucker L, M darby and M Brewer. 1998. Intellectual
of the Finnish Innovation System: A Network Approach. Human Capital and the Birth of U.S. Biotechnology
Sitra Report Series 7. Helsinki. Enterprises. American Economic Review 88(1):290–306.
16 The concept of knowledge spillover is based on the 31 Cooke P, D Kaufmann and C Levin. 2003. The Biosciences
notion that knowledge cannot be totally appropriated Knowledge Value Chain and Comparative Incubation
and, therefore, knowledge may spill over across Models. Paper prepared for Regional Studies
organizations. This is especially true when different Association Conference on Reinventing Regions in
organizations work closely in the same fields or have the Global Economy 12-15 April 2003. Scuola Superiore
shared networks. Labour mobility, close observation, Sant’ Anna, Pisa, Italy.
and information leakages typically provide knowledge 32 Storper M. 1995. The Resurgence of Regional Economies,
spillovers. Ten Years Later: The Region as a Nexus of Untraded
17 See supra note 11. Interdependencies. European Urban and Regional
Studies 2:161–221.
18 Cohen W, R Nelson and J Walsh. 2002. Links and
Impacts: The Influence of Public Research on Industrial 33 See supra note 28.
R&D. Management Science, 48 (1):1–23. 34 Orsenigo L, F Pammolli and M Riccaboni. 2001.
19 Feldman M and Francis J. 2004. Homegrown Solutions: Technological Change and Network Dynamics: Lessons
Fostering Cluster Formation. Economic Development from the Pharmaceutical Industry. Research Policy
Quarterly, May 2004 18 (2):127–137. 30:485–508.
20 Kenney M and U Von Burg. 1999. Technology, 35 Feldman M. 2002. The Locational Dynamics of the U.S.
Entrepreneurship and Path Dependence: Industrial Biotech Industry: Knowledge Externalities and the
Clustering in Silicon Valley and Route 128. Industrial Anchor Hypothesis. Plenary Paper for DRUID’s New
and Corporate Change 8:67–103. Economy Conference, June 2002. 4.4.2003. www.druid.
dk/conferences/summer2002/Papers/Feldman.pdf.
21 Link AN. 2002. From Seed to Harvest: The History of the
Growth of Research Triangle Park. Chapel Hill: University 36 Orsenigo L. 2001. The (Failed) Development of a
of North Carolina Press. Biotechnology Cluster. The Case of Lombardy. Small
Business Economics 17: 81-82.
22 Sturgeon TJ. 2000. How Silicon Valley Came to Be.
In Understanding Silicon Valley: The Anatomy of an 37 See supra note 35.
Entrepreneurial Region, p.15-47. Stanford University 38 See supra note 19.
Press: Stanford, California. 39 Biotechnology Clusters. Report of a team led by Lord
23 Sotarauta M and K Viljamaa. 2003. Mitkä tekijät tekevät Sainsbury, Minister for Science. Department of Trade
kasvukeskuksesta kasvukeskuksen? In Tulkintoja and Industry. August 1999. Internet Article 3.2.2003.
kaupunkiseutujen kehityksestä ja kehittämisestä. Kooste www.dti.gov.uk/biotechclusters/bioclust.pdf.
usean tutkimuksen tuloksista. (Interpretations about 40 Cooke P. 2003. The Evolution of Biotechnology in Three
development of city-regions: Compilation of several Continents: Schumpeterian or Penrosian? European
studies; eds. M Sotarauta and K Viljamaa). pp. 33–64. Planning Studies 11 (7):757–763.
The Finnish Association of Graduate Engineers. TEK ry.
Cityoffset Oy, Tampere. 41 See supra note 1.
24 See supra note 19. 42 Part of this section is based on: Srinivas S and K
Viljamaa. 2003. BioTurku: “Newly” innovative? The Rise
25 Bresnahan T, A Gambardella and A Saxenian. 2001. of Bio-Pharmaceuticals and the Biotech Concentration
“Old Economy” Inputs for “New Economy” Outcomes: in Southwest Finland. M.I.T. IPC Local Innovation
Cluster Formation in the New Silicon Valleys. Industrial Systems Working Paper 03-001.
and Corporate Change 10:835–860.
43 Orava M, M Brännback, M Renko, S Suoniemi, S
26 DTI. 2003. A Practical Guide to Cluster Development: A Söderlund and P Wiklund. 2001. Turun bioalan
Report to the Department of Trade and Industry and riskianalyysi [Risk analysis of the Bioindustry in Turku].
the English RDAs by Ecotec Research & Consulting. Innomarket, Turku School of Economics and Business
Department of Trade and Industry: London. Administration. FINBIO.

CHAPTER 3.12
44 Finnish Bioindustries 28 November 2003. www.finbio. 53–70.

net. 51 Walcock SM. 2002. Analysing an Innovative
45 Turku Biotechnology Strategy. 2004. Bio Turku. Environmnet: San Diego as a Bioscience Beachead.
Unpublished policy document. Economic Development Quarterly 16 (2): 99–114.
46 See supra note 42. 52 See supra note 50.
47 See supra note 2. 53 Höyssä M. 2001. Teknologiakeskusta tekemässä.
48 See supra note 1. Biocity-hankkeen vaiheet ideasta osaamiskeskuksen
osaksi. [Making a technology park] Unpublished study.
49 See www.research.fi for a more thorough description
of the Finnish national innovation system. 54 See supra note 50.
50 BRuun H, M Höyssä and J Hukkinen. 2001. Networks 55 See supra note 44.
of Ephemeral Empowerment: The Birth of a
Biotechnology Centre in Turku, Finland, Technology,
Society, Environment February 2001. Helsinki University
of Technology Laboratory of Environmental Protection,

CHAPTER 3.13
The Activities and Roles of M.I.T. in Forming Clusters

and Strengthening Entrepreneurship
LITA NELSEN, Director, M.I.T. Technology Licensing Office, U.S.A.
ABSTRACT helped to build this entrepreneurial cluster and

This chapter describes the structure, policies, and operations have benefited from it.
of the Technology Licensing Office at the Massachusetts
Nevertheless, other organizations can
Institute of Technology (M.I.T.). The chapter emphasizes
the licensing office’s role in generating spinout companies learn from our experiences, and M.I.T.’s
and considers the importance of the biotechnology cluster Technology Licensing Office1 is both honored
within the state of Massachusetts and it’s surrounding re- and pleased to help in the transfer of technology-
gions. Also discussed is M.I.T.’s approach to ensuring that transfer practices.
licensing procedures maximize access to medicines and
vaccines arising from M.I.T.’s research.
1.1 History and mission
M.I.T.’s Technology Licensing Office is one of
the most active university patent and licensing
1. Introduction offices in the country. M.I.T. has had more than
The Massachusetts Institute of Technology 1,500 issued U.S. patents in its portfolio, many
(M.I.T.) is probably not a direct model for uni- with foreign counterparts.
versities and research institutes just beginning M.I.T.’s technology licensing endeavors
their technology-transfer activities, whether in follow the mandate of the U.S. Congress who,
the United States or in developing countries. in 1980, gave to universities title to inventions
Instead, the institute is an example of what can be developed with federal funds through the Bayh-
achieved by a mature organization that has built Dole Act. Technology licensing from univer-
its patent portfolio and technology-transfer skills sities was greatly accelerated by Bayh-Dole,
over the course of half a century. We, at M.I.T., which allowed universities to own the patents
live in an entrepreneurially advanced city, where arising from federally funded research, to grant
technology-based companies originating from exclusive licenses, and to charge royalties that
university research inventions have become an could be shared with inventors. Since nearly
important part of the Massachusetts area’s econo- 90% of the basic research funds in U.S. univer-
my. M.I.T. and the other major research institu- sities comes from U.S. federal funds, the new
tions in the area, such as the Whitehead Institute law drastically changed the face of university
for Biomedical Research, Harvard University, technology transfer.
Massachusetts General Hospital, Brigham and The theory behind the law’s application
Women’s Hospital, and Boston University, have to university research was based on Congress’
Nelsen L. 2007. The Activities and Roles of M.I.T. in Forming Clusters and Strengthening Entrepreneurship. In Intellectual
Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney,
L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. L Nelsen. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

NELSEN
understanding of the embryonic nature of uni- Whitehead Institute for Biomedical Research.
versity discoveries and inventions. Since universi- This research leads to more than 500 new inven-
ties do not develop products, early investment by tions per year. These inventions and software are
industry is needed to turn university findings marketed through M.I.T.’s Technology Licensing
into commercial realities. Typically, such invest- Office. The core of this office is a group of techni-
ment involves high risk, since neither the prac- cally trained and business-oriented people. They
ticality of the inventions nor their market utility work with industry, venture capital sources, and
has been proven. Patents, and particularly exclu- entrepreneurs to find the best ways to commer-
sive licenses, can be used as incentives for first cialize new technologies.
mover companies to make the investment: if the The Technology Licensing Office at M.I.T.
product were to succeed, the patent would pro- began its operations many decades ago as the
tect the initial investor from competition for a Patent, Copyright, and Licensing Office. It was
period of time, rewarding the initial risk taking. reorganized in 1986 and became the Technology
Finally, the law provided an economic in- Licensing Office. It is administered by the Vice
centive for both universities and their research- President for Research/Associate Provost and is
ers to patent their inventions and to participate now part of the academic arm of the university.
in the technology-transfer process. Although Its mission statement declares that:
the royalties gained from technology transfer The mission of the M.I.T. Technology Licensing
are only a very small contribution to univer- Office is to benefit the public by moving results of
sity budgets (averaging about 3% of university M.I.T. research into societal use via technology li-
research budgets for U.S. universities), there is censing, through a process which is consistent with
enough economic return to support the pro- academic principles, demonstrates a concern for the
cess—and considerable incentive for individual welfare of students and faculty, and conforms to the
researchers. More importantly for the biotech- highest ethical standards.
nology industry, the technology-transfer process
is an organized, effective method of transferring This process will benefit the public by cre-
university findings via protected IP for the pur- ating new products and promoting economic
pose of forming a protected technology dowry development.
for new companies. Investors in most technolo- It will help M.I.T.:
gy companies—and certainly in such high-risk/ • show tangible benefits of taxpayers support
high-investment fields as biotechnology—must for fundamental research
have proof of the exclusive rights to patents and • attract faculty and students
other forms of IP by the company before they • generate industrial support of research
will invest. • generate discretionary income
Consequently, we use licenses to our IP • generate new job opportunities for
to stimulate the development of our inven- graduates
tions into products that serve the public good.
Through our patenting, licensing, and copy- We will continue to be a world-class
right protections, we encourage companies to model of excellence in university technology
take the necessary risks to develop our inven- licensing.
tions into products and/or services that benefit
humanity. Royalties derived from licenses sup- 1.2 Staffing
port further research and are shared with inven- The Technology Licensing Office is staffed by:
tors. These, in turn, provide incentives for fur- • Director Lita Nelsen, chemical engineer-
ther innovation. ing background (BS, MS, MBA) with 20
Each year, more than US$1.2 billion in years experience in industry in the fields
sponsored research is conducted on the campus of medical devices, membrane separations,
of M.I.T., at the Lincoln Laboratory, and at the and biotechnology

CHAPTER 3.13
• Associate Director Jack Turner, electri- 2. The role of the Technology

cal engineering background (BS) with 18 Licensing Office in THE BUSINESS
years of experience in industry COMMUNITY
• seven technology licensing officers, all
with degrees in engineering or science, 2.1 The “virtual incubator” for spinouts
each with one to two decades of industrial Twenty to 30 new companies are spun out from
experience; each is responsible for one of M.I.T. each year. All of them are based on M.I.T.
the seven technology areas: biotechnol- inventions and are built upon licenses to our pat-
ogy, chemistry, medical devices, semicon- ents and software. The companies based on our
ductors, communications, software, and biomedical inventions form an important part of
nanotechnology the biotechnology cluster in the Massachusetts
• four technology licensing associates, all area (see section 3 below).
with BS degrees in science and little or no Our formal role in starting up new compa-
other experience; associates assist the tech- nies is confined to filing patents and negotiat-
nology licensing officers ing license agreements with the companies, and
• legal personnel: one corporate attorney, one although we will often take equity shares in the
junior lawyer, and one legal assistant; these company as partial payment of royalties, we do
staff members provide advice on licensing not take board seats on the company or any man-
and particularly on corporate structure, agement role. The purpose of these restrictions is
manage outside attorneys for litigation, to keep the company clearly separate from the
and manage M.I.T.’s trademark and end- university. We believe this separation is necessary
use software licensing; patent prosecution for the university to concentrate on its mission of
is handled by outside attorneys and patent basic discovery research, dissemination of knowl-
agents edge, and education. Through these policies, the
• financial and computer systems personnel: management of technology transfer essentially
one financial manager, two accountants, becomes a by-product of the academic process
one programmer, and one desktop support and will not distort the long-range mission of the
administrator institution.
• office management and clerical support: We can only achieve this mission through
office manager, compliance manager (gov- clear and transparent conflict-of-interest policies
ernment reporting), three secretaries, a re- and procedures (see Box 1). The conflict-of-in-
ceptionist, a files manager, and a file clerk terest rules may seem unusually strict, but this
careful approach is necessary because of the very
1.3 Numbers of patents and licenses large number of companies spun out (more than
M.I.T. currently holds about 1,500 active U.S. 250 since 1987). Management that allows excep-
patents and many corresponding foreign patents. tions to the rules would not be possible given
About 150 U.S. patents are issued to M.I.T. each this large number. Our task is not to use these
year. We have about 600 active licenses and issue rules as deterrents but to efficiently and cre-
around 100 new licenses every year. atively craft arrangements within the rules. Put
The gross annual revenue of the office is about differently, our operating motto is “A firm wall
US$40 million. Net revenue is about US$10 mil- between university and industry—but a wall with
lion (after patent expenses, personnel expenses, and many doors.”
distribution of a portion of royalties to inventors). We do not formally incubate these spinouts;
The majority of our licenses are to existing we do not invest M.I.T. money in any of these
companies—both small and large. But about companies; we do not allow the companies to use
25% of the licenses are to new spinout compa- M.I.T. laboratory facilities; and we do not write
nies, which are specifically formed to develop a their business plans nor do we participate in their
licensed technology. management.

NELSEN
Box 1: M.I.T.’s Conflict-of-Interest Rules for Spinout Companies

(Last Revised February 2005)
1. Faculty member may consult but not be a line officer in any company. Consulting activities
should not use university resources and should not use students.
2. Faculty member must distinguish direction of research at university from responsibilities at

company in which he/she owns equity.
3. The university will not accept sponsored-research grants from the company if the faculty
member owns equity.
4. No confidentiality of research results (anytime). All research must be publishable.
5. Only patents, copyrights and tangible property can be licensed for compensation (no know-
how or trade secret licensing can be done since this would preclude open publication).
6. Faculty members may not conduct the license negotiations (nor attend the negotiations).
7. Consulting is third-party, between the faculty member and the company. No tie-in with the
license.
8. Only very minimum commitment of future inventions (those dominated by previously

licensed patents). No pipelining of improvements.
9. Faculty member/founder who holds equity signs Conflict Avoidance Statement promising:
• Not to accept research support from company
• Not to suppress dissemination of research findings
• Not to use students on company-related work at M.I.T.
10. Arm’s length relationship between the university and the company
• No M.I.T. monetary investment in the company
• No board seat
• Equity managed by Treasurer of M.I.T.—not the Technology
Licensing Office
11. Technology Licensing Office enforces diligence terms, payment of patent costs, other license
obligations just like any other company. No special status for M.I.T. spinouts.
12. Yearly departmental overview of faculty outside professional activities.
Common sense: Emphasis on the spirit (not just the letter) of the rules, administered by people
with judgment and authority.

CHAPTER 3.13
Our informal role, however, is much broader. allows them to think unconventionally and take
We call it a “virtual incubation” function, which risks—including the risk of joining (or forming)
encourages and accelerates the formation and an entrepreneurial company.
growth of our spinout companies. The initial Our education of these students (and of their
license agreement itself includes contract terms “big brothers and big sisters” in graduate school)
that help. Our financial terms are quite generous stresses the fundamentals of science, rather than
for the first few years of operation, reflecting our short-term applications. The students are in-
understanding that new companies are often cash volved in leading-edge research projects early in
poor. Similarly, our royalties on products are low, the course of their studies. We seek to produce
because we know that the company will have to graduates who will have leadership capabilities
make substantial investments and develop and based on a solid grounding in science and a fa-
contribute substantial IP of its own before the miliarity with the state of the art.
product can be successfully commercialized. Role models in business are an important
An important part of the license agreement— influence on these students during their years at
both for us and for the company—is that which M.I.T.. Many of the professors and many alumni
defines the milestones, or diligence terms. These re- who visit campus—and not a few of the students’
quire companies to raise minimum amounts of friends—have started companies based on M.I.T.
capital and achieve progress in product develop- technology. These entrepreneurs expose students
ment. Milestones related to raising capital assure to entrepreneurial thinking. The presence of
us that the outside market finds the company strong role models is important for developing an
worthy of investment and that sufficient capital entrepreneurial culture; the plethora of such role
will be raised to fund product development. models at M.I.T. and in the Boston/Cambridge
Our virtual incubation incorporates many area leads others to think that “I can do it too”—
other functions. We meet with inventors, help- and offers resources for advice and strategy.
ing them to define the direction of the company Finally, our culture at M.I.T. stresses that
and their own career aspirations. We introduce risk taking is necessary for achievement. And,
them to consultants, potential executives, and importantly, that “failure is a learning opportu-
other advisors who can help them formulate their nity—not a black mark.” We assume that our
business strategy and write business plans. And, students are good enough to take risks and suc-
because of our long relationships with sources of ceed. They have sufficient talent, energy, and self-
investment capital, we can introduce inventors to confidence to recover rapidly from failure and to
venture capitalists and angel investors who may learn from failure to become more effective in
be willing to invest in the new companies. their next endeavor. A willingness to take risks
and the ability to learn from failure are critical
2.2 The role of students in for entrepreneurship.
entrepreneurship at M.I.T.
The admission criteria for prospective M.I.T. 2.3 Interaction with the business community
students, particularly those for undergraduates, A key part of the technology-transfer function at
contribute to the entrepreneurial spirit at the in- the university is to develop and maintain a wide
stitute and the ultimate impact of our graduates range of contacts with the surrounding business
on the economy. In evaluating candidates for ad- community and to leverage these resources to
mission as undergraduates, we look not only for help build our spinout companies. Our model
academic achievement (such as high grades and for spinning out companies depends on a ma-
strong standardized test scores), but also for a cer- ture, entrepreneurial community surrounding
tain quality of potential leadership—an intensity the university.
and focus that fosters achievement and also influ- The geographic area of M.I.T. is the
ences others. Young people who are strong po- Cambridge/Boston area, which in many ways
tential leaders often possess a self-confidence that provides an infrastructure of support for spinout

NELSEN
companies. High technology companies have been 20% of the total number of U.S. biotechnology
regularly spawned here for more than 40 years. companies. Almost all of these companies started
As a result, there are many executives, lawyers, as small, entrepreneurial companies within the
accountants, consultants, real estate managers, last two decades, the majority having been formed
and other professionals who are experienced at within the last 12 to 15 years. According to data
working with new companies. And the commu- from the Massachusetts Biotechnology Council,
nity is well connected. Networking organizations, these companies now employ more than 30,000
such as the M.I.T. Enterprise Forum and the people. In addition, there are more than 220
Massachusetts Biotechnology Council (MBC), medical device companies in the area that employ
keep people in contact with one another. an additional 25,000 people.
Finally, the community has developed
“knowledgeable money”: investors who contrib- 3.1 Key elements for a biotechnology cluster
ute to spinout companies not only funds, but wis- It all starts with early fundamental support of
dom, guidance, and connections to management basic research by the U.S. government. Leading
talent, business development opportunities, and research institutions make the discoveries, devel-
follow-on money. A new breed of high-technol- op the IP, and train the scientists that form the
ogy angel investors—former entrepreneurs who biotechnology companies. Where the research
founded and cashed out from successful compa- institutions cluster, the new companies eventu-
nies—is now bringing wisdom, connections, and ally form. The process continues with alliances
experience, along with money. developing between biotechnology companies
There are also venture capital funds that and large pharmaceutical companies, which will
specialize in technology-based spinouts. Many often provide necessary testing, manufacturing,
even subspecialize in biotechnology and have and distribution of the drugs discovered by the
partners and associates with MD and PhD de- biotechnology companies.
grees in biology who are experienced in the bio- For a robust cluster to form, the area needs
technology industry. investment capital (and experienced investors),
executive talent, trained scientists, and a host of
supporting professionals—lawyers, accountants,
3. The biotechnology cluster: real estate professionals, and others—who un-
experiences from Massachusetts derstand biotechnology entrepreneurship and
It is helpful for those who are involved in technol- can help fledgling companies establish themselves.
ogy transfer to be in proximity to others with sim- Good airports are critical, and local communities
ilar issues and challenges. The Boston/Cambridge that are attractive to highly talented personnel and
area is one of the three main biotechnology clus- their families create a competitive advantage.
ters in the United States. (Biotechnology clusters The Boston/Cambridge area of Massachusetts
are geographical regions where a disproportion- has an unusually large concentration of world-
ately large number of biotechnology companies class research institutions (universities and re-
are located.)2 The other two biotechnology clus- search hospitals) funded in large part by the U.S.
ters are: government—particularly the National Institutes
• the San Francisco Bay Area of northern of Health (NIH)—to perform basic discovery
California research in biology and biomedicine. Together,
• the San Diego/La Jolla area of southern Massachusetts research institutions received more
California than $2.1 billion in NIH research grants in fis-
cal year 2003, approximately 10% of the national
Many factors have led to the formation and total.
growth of the Massachusetts cluster, with research From this research comes much of the
institutions playing a critical role. This cluster of “feedstock” for new biotechnology companies:
more than 280 companies accounts for almost new discoveries, IP, knowledgeable scientific

CHAPTER 3.13
advisors for new companies, and, importantly, At some point venture capital moves in.
well-trained scientists to staff the new companies. At the start of the Massachusetts biotechnol-
ogy cluster, there was little indigenous ven-
3.2 The self-feeding cluster ture capital. Most venture capital money came
Even with a base of world-class university research from investment funds located in New York,
and its resulting technology and IP, getting a clus- California, and other states. With the growth
ter started is difficult—there is no simple formula of high-tech clusters in Massachusetts (both
for doing so. But once started, a cluster begins to biotechnology and telecom), many of these
feed itself in a virtual cycle. The biotechnology funds opened new offices in Massachusetts, and
cluster feeds itself through: many new venture funds were formed locally.
• role models. These are people who have Currently, the majority of new company financ-
founded companies and can offer examples ings in Massachusetts are led by venture funds
of success and advice to new entrepreneurs. with offices in Massachusetts.
• management/founders. Often new com-
pany management is recruited from other
companies in the area. People who were 4. Conclusions
employees of early companies in the cluster
acquire the skills and interests to become 4.1 The importance of clusters
founders of new companies. New compa- Many elements contribute to the success of a
nies also can recruit other skilled personnel biotechnology cluster. Its origin and continued
from the older cluster companies. health depend on a continuing source of state-of-
• retention of new graduates. A cluster of the-art science, usually provided by universities
biotechnology companies in an area en- and research hospitals funded for basic research.
courages new graduates from nearby uni- The source of this funding probably needs to be
versities to seek employment in the area, from government: no private institutions can af-
consolidating skills. ford to fund sufficient speculative basic research
• infrastructure support. The area’s patent to sustain the flow of discoveries necessary to sup-
attorneys, lawyers, accountants, recruit- port a cluster’s growth.
ers, real estate managers, consultants, and Effective technology transfer is also neces-
equipment suppliers develop special skills sary. The legal infrastructure for transferring in-
in biotechnology as they respond to the ventions from universities must be in place (and
needs of the cluster. relatively nonbureaucratic), and sufficient funds
• technology transfer. As the universities must be available for universities to file patents
and other research institutions become and protect their IP.
more experienced in dealing with bio- The formation of new companies also re-
technology companies and biotechnology quires a business infrastructure in the communi-
startups, they become more effective in ty. A simple legal system for company formation,
starting new companies that strengthen consulting, accounting, and legal professionals to
the clusters. Successful technology licens- advise the company—as well as adequate physi-
ing and spinouts lead to revenue, which cal space—are all necessary. Good transportation
funds the filing of more patents and more into the area is important, since investors and
opportunities. business partners need to visit the company. And
• angel investors. Local angel investors bol- investment capital is, of course, critical.
ster the process, since they can offer their Most of all, the formation of companies and
skills and experience in addition to their the subsequent development of clusters requires
money. As clusters mature, founders of the talented people: world-class researchers to lead
early companies frequently become inves- the discovery, trained and talented technology-
tors in new companies. transfer professionals, entrepreneurial company

NELSEN
founders, scientists and managers to staff the tries and may prohibit our licensees from doing
companies, and knowledgeable investors who so—or we may refrain from granting exclusive
can both fund and guide the company. All will licenses in developing countries unless we feel
need the support of a variety of professionals in exclusivity will enhance development and access.
the community. It takes a whole community to Other agreements could require preferential pric-
build a biotechnology cluster—but once built, ing for the public sector of developing countries.
the cluster can achieve a self-sustaining life that There are no rigid written policies guid-
strengthens itself and the community. ing the way we handle technologies; instead, we
leave our options open, creatively crafting agree-
4.2 The importance of policies for ensuring the ments to maximize access. However, the number
availability of products for the poor of technologies arising from our research that are
M.I.T. usually files patents only in North America, relevant to neglected diseases is relatively small,
Europe, and Japan (though occasionally we file in since we do not have a medical school nor a
China, Singapore, Republic of China, and Korea school of public health. Our experience with such
for the electronics field). Thus, the biomedicine- technologies is relatively scant, as is our experi-
related patents we file are not often likely to affect ence in crafting such agreements. We discuss our
the development and distribution of medicines approach to those technologies in greater detail in
and vaccines in developing countries. another chapter. ■
We are, however, mindful of the issues sur-
rounding the development and distribution of
new health-related products for developing coun- LITA NELSEN, Director, M.I.T. Technology Licensing Office,
Massachusetts Institute of Technology, Five Cambridge Center,
tries, and we consider both our patenting proce-
Kendall Square, Room NE25-230, Cambridge, MA, 02142-
dures and our licensing terms when working with 1493, U.S.A. lita@mit.edu
relevant technologies. For example, it may some-
times be advisable for patents to be filed in some
1 web.MIT.edu/tlo/www.
developing countries so that local companies in
those countries can protect their investments in 2 See also in this Handbook, chapter 3.12 by K Viljamaa
and 3.11 by PWB Phillips.
further developing our technology. In other cases,
3 See, in this Handbook, chapter 1.3 by L Nelsen and A
we may choose not to file patents in those coun- Krattiger.

CHAPTER 3.14
Building Research Clusters: Exploring Public Policy

Options for Supporting Regional Innovation
Peter W. B. Phillips, Professor, Department of Political Studies, University of Saskatchewan, Canada
Camille D. Ryan, Postdoctoral Fellow, Faculty of Communication & Culture, University of Calgary, Canada
ABSTRACT and capital markets, or knowledge spillovers from

Governments at all levels are showing great interest—and competitors and collaborators.1
some are spending lots of money—in developing research
Some analysts estimate that the benefits of
clusters that they hope will benefit their local and nation-
al economies. Clusters are complex, however, and this scale, scope, and—perhaps most importantly—
chapter aims to help policy-makers maximize their ben- tacit knowledge spillovers are usually limited to
efits. The chapter offers a taxonomy of countries and their between 10 and 100 miles of the epicenter of a
potential for cluster development and explains a five-stage community. Given that the cities, regions, and
process for realistic cluster building. Stage one assesses ca-
pacities, resources, and opportunities. Stage two involves countries that host these clusters would likely
choosing an anchor strategy. In stage three, organizational benefit, all levels of government are greatly inter-
and institutional leaders are identified to take the lead in ested in doing whatever is appropriate to spur lo-
developing the cluster. In stage four, proactive tactics are cal development of these clusters.
chosen. Stage five identifies the cluster’s lifecycle and the
While analysts do not agree about much,
strategies needed to sustain it. Cluster building is knowl-
edge-based development, which is inherently different they generally accept that clusters are complex.
from traditional industrial development. For one thing, Subject to industrial evolution, changes in global
cluster building requires global links. Companies and markets, the knowledge bases that drive them,
skilled employees are less interested in fiscal incentives, and the geopolitical forces that influence their
public infrastructure, or other government support than
in the innovation community and its networks. development and success, clusters are diverse and
their characterizations are open to interpretation.
Additionally, clusters go through cycles. There
are periods when they require high reinvestments
1. Introduction (public, private, or both) of money, time, and re-
Theory suggests that competing companies and sources. At other times they provide high payouts.
their related industries often concentrate in a No one cookie-cutter approach or measure can be
few locations and generate higher value, more employed to develop and manage a cluster.
jobs, and more innovation than companies that Assuming that the cluster is a dynamic phe-
do not locate near clusters with companies in nomenon and subject to a lifecycle, a number of
related businesses. Ultimately, those that do are important factors come into play when assessing
benefiting from some traded or untraded interde- and supporting innovative capacity. This chapter
pendencies: economies of scale in related or sup- first examines a taxonomy of countries and their
porting industries, economies of scope in labor potential for cluster development. It then looks
Phillips PWB and CD Ryan. 2007. Building Research Clusters: Exploring Public Policy Options for Supporting Regional Innova-
tion. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krat-
© 2007. PWB Phillips and CD Ryan. Sharing the Art of IP Management: Photocopying and distribution through the Internet

PHILLIPS & RYAN
at a five-stage process for cluster building. Stage his approach can be applied to examine, not only
one involves using an array of common analytical the disparities between developed and developing
tools to assess a candidate for a cluster: these tools countries, but also disparities within and between
include an overview of discrete measures along developed countries as well.
with some more general analytical tools, such Morel and colleagues3 present a taxonomy to
as social network analysis and emerging markets assess economic strength and innovation capacity
analysis. Stage two involves choosing one of the in health and health-related organizations. Six di-
strategic options. Stage three identifies and mo- mensions (manufacturing capacity, domestic mar-
bilizes actors or organizations within the region ket, export market, R&D, IP system, and drug
(public, private, and others) to take a lead in the regulatory system) are explored across three stages
cluster. Stage four involves choosing from a set of development that, in combination, are used to
of proactive tactics for encouraging companies measure the capacity for developing countries to
to cluster. Stage five identifies the lifecycle of the progress in terms of innovation. We have adapted
chosen cluster and the strategies needed to sustain this taxonomy to assess the capacities of different
the initiative. groups of nations for supporting cluster develop-
ment and growth (see Table 1).
Most countries can be relatively cleanly as-
2. The context signed to one of Mashelkar’s four quadrants.
According to Mashelkar,2 building indigenous Quadrant I countries consist of leading indus-
technological capacity, in any context, requires a trial nations, such as the United States, Canada,
number of conditions: a conducive policy environ- Australia, Japan, and E.U. countries. Quadrant II
ment, entrepreneurship, promotion of a culture countries, which have relatively low per capita in-
of innovation, access to technology (where neces- comes but high innovative capacity, include Korea,
sary, through international technology transfer), China, Brazil, India, and some eastern European
an educated and skilled workforce, and a “learn- countries. Quadrant III includes resource-rich
ing by doing” mentality. Although Mashelkar and resource-dependent countries such as those
explores indigenous technological capacity ex- in the Middle East. Finally, Quadrant IV consists
clusively from a developing country perspective, of developing nations, such as those in southeast
Table 1: Taxonomy for Determining Nation/State Cluster Capacity
Quadrant I Quadrant II Quadrant III Quadrant IV

countries countries countries countries
Economic strength high low high low
Innovative capacity high high low low
Comprehensive cluster policies advanced emerging n/a n/a
Incidence of formalized clusters high moderate low/none low/none
moderate moderate to
Degree of specialization high low
to high low
Source: Adapted from Mashelkar4 and Morel5 and colleagues.

CHAPTER 3.14
Asia countries, Sub-Saharan Africa, and south economic development by emphasizing indus-
and central America. trial exports.
Quadrant I countries rank highly in terms The middle quadrants (II and III) include
of economic strength and science and technol- countries that have low to medium capacities
ogy capacity: by most measures they have the in terms of economic strength and innovation.
lion’s share of the clusters and are the most ag- Clusters, if present, often exhibit low techno-
gressive supporters of cluster development. A logical or industrial application. The exception
closer look at the United States shows that there is Korea. Although categorized as a Quadrant
are more than 160 clusters identified across 25 II country, it has developed significant cluster
states, with cluster activity ranging from nar- capacity in such specialized areas as movies and
rowly defined categories such as oil and gas (for animation, information technology, and digital
example, Louisiana) or gun manufacturing (for media.16 Similarly, China and India are growing
example, South Dakota) to more broadly based in terms of economic strength and innovative
categories such as biotechnology6 or life sciences.7 capacity. In India, the United Nations Industrial
Moreover, nine state legislatures in the United Development Organization (UNIDO) and the
States have either written into law, or at the very national government support over 350 small-
least recommended, that the State apply a clus- scale industry (SSI), rural and artisan-based clus-
ter approach to economic development,8 while ters. India has also had some acknowledged suc-
seven other states9 have nonlegislated, cluster- cess in creating world-class clusters in Bangalore
based economic development strategies in place. in biomedical research and software engineer-
In contrast, while Canada has no formalized na- ing.17 Some Middle Eastern countries, although
tional cluster policy,10 most of the provinces have ranked high in terms of economic strength, are
examined and attempted to support clusters in often solely dependent upon the extraction and
their jurisdictions; there would appear to be at processing of natural resources such as oil and
least 25 clusters or emerging clusters in nine sec- petrochemicals; scientific and technological ca-
tors across Canada.11 In Australia, a national clus- pacity is limited in these countries.18
ter policy has been proposed that advocates for In short, while clusters are both stronger
strategic, proactive polices rather than the current and more prevalent in Quadrant I countries, all
laissez-faire approach, but the program has yet to countries have the potential to benefit from clus-
be formally implemented.12 ters. Every region needs to evaluate its capacities
On the opposite end of the continuum, and opportunities, make strategic choices about
Quadrant IV nations rank low in terms of eco- which areas to nurture, choose specific tactics,
nomic strength and innovative capacity. This is and identify and support indigenous leadership.
due to a range of limitations, including weak in- Such choices, moreover, will need to be tailored
frastructure and incomplete IP regimes. However, to the capacities and opportunities of the indi-
some cluster activity is emerging. Several small vidual countries and regions.
artisan or trade-type clusters (for example, the
garment industry in Kenya) have emerged in 2.1 Step 1: Evaluation
Sub-Saharan African regions,13 but these clusters The first and most important step in developing
are characterized as low in terms of specialization clusters is to assess capacities, resources, and op-
and are often composed of networks of “petty portunities. Given the importance of planning,
commodity producers.”14 Another approach has the tools are surprisingly weak. No one tried-
been to create export-processing zones. Mauritius and-true acid test for cluster capacity or potential
was the first African country to establish an ex- exists. A number of methods have been used—
port-processing zone (EPZ) in the early 1970s.15 ranging from ad hoc to formalized consulting and
Meanwhile, in Asia, despite the financial crisis of opinion formation, to valuing or analyzing cluster
the 1990s, countries such as Indonesia, Malaysia, capacity through descriptive or institutional anal-
and Thailand have encouraged significant ysis, to empirical, statistical analyses of detailed

PHILLIPS & RYAN
industrial data—but to truly understand or evalu- Both of the above approaches can be used by
ate the potential efficacy of a cluster likely requires a all countries in all quadrants. As data becomes
blend of quantitative and qualitative approaches. available (often only as a country becomes more
Given that clusters are to some extent self-de- developed), a number of other approaches can
fining, one approach often used is to convene an be used, including location quotient measures,
industrial, expert, or community forum to iden- shift/share analyses, and emerging-industry clus-
tify common interests and opportunities. While ter analyses.
useful for identifying actors, or at least companies The location quotient (LQ) measures com-
that would willingly participate, these processes petitiveness by comparing a region’s relative share
are simply a starting point. In the first instance, of a particular activity to the share of that activity
they will likely determine whether the necessary in some reference economy. This identifies spe-
number of interested/engaged actors can foster cializations in a given regional economy. A com-
effort to develop a cluster. The processes can also monly utilized economic-analysis method, it was
be valuable for identifying the scale and scope of developed in part to offer a slightly more com-
current traded or untraded interdependencies, as plex model to input/output analysis.20 A location
well as for planning future development that may quotient of less than one indicates that there is
either require or generate greater connections in lower share of activity or nominal competitive-
a community. They often run the risk, however, ness within that region—in other words, the area
of becoming either subject to groupthink (where has less than its share of activity or is less com-
everyone goes along with the most important or petitive than the larger region or country. A loca-
loudest participant) or unfocused debates about tion quotient equal to one indicates the area has a
what is, is not, could be, or should be happen- share of activity in accordance with its share of the
ing locally. Every process needs to move beyond base. Finally, a location quotient greater than one
rhetoric. Depending on local capacities, two main indicates that the area is more competitive rela-
approaches have been tried. tive to other regions or the nation-state as whole.
One common analytical approach is to look The location quotient can be applied similarly to
at the institutional composition and leadership of regional wage levels relative to national or state
the industry, supply chain, technology, or market. levels. Additionally, the measure may be used to
Generally speaking, clusters always represent a highlight policy impacts (for example, federal
high concentration of people and activity within funding initiatives or support of science and tech-
a particular region. Thus, a quantitative analysis nology) within a cluster or region. If a location
of clusters would use measures that reflect those quotient for support activities is significantly less
concentrations relative to benchmarks or other than one, but the LQ for the cluster is greater
regions. A foundational theory that underlies any than one, then there may be a case for reallocat-
number of quantitative approaches is central place ing effort more in line with natural competitive-
theory, a geographical theory that seeks to explain ness. The Boston Consulting Group adapted this
the size and spacing of human populations. The methodology and examined year-to-year changes
theory relies on the notion that centralization is a in location quotients to test the specialization of
natural principle of human order and that nested regions in particular industrial sectors. It arranged
hierarchies of people and institutions will fol- the results into four categories of clusters: stars
low this principle.19 In the context of that the- (specialized with increasing specialization), ma-
ory, many communities will seek to identify the ture (specialized with decreasing specialization),
community’s array of industry (for example, lead- emerging (unspecialized with increasing special-
ing companies and suppliers), supply chain (the ization) and transforming (unspecialized with
linked suppliers ranging from input industries decreasing specialization). This methodology was
through production to transportation, wholesale, then used to analyze Indiana’s cluster data: of the
and retail trade), and functional actors (finance, 15 Indiana-based clusters identified, most were
marketing, research, and labor services). categorized as stars or “transforming.”21

CHAPTER 3.14
Shift/share analysis is another technique used patterns of interaction and knowledge-exchange

to determine how much of an area’s employment flows within a network. It shows how knowledge-
change is due to the nature of the national econ- intensive work is done and can illustrate complex
omy, the industrial mix, and local competitive- communication channels within a network. As a
ness. This approach makes it possible to separate tool for analysis, SNA views “actors and actions …
growth into three components: national growth, as interdependent” units and acknowledges that
industrial structure, and regional competition.22 the “relational ties” between actors are “channels
The shift/share analysis tool is composed of three for transfer or flow of resources.” It can also pro-
components or equations. First, the national vide “opportunities for or constraints on individual
growth component measures the effect of nation- action,” which is antithetical to more traditional
al growth on a given local economy. Second, the economic approaches.28 SNA helps to identify
industrial mix component identifies the relative boundary spanners, gatekeepers, and knowledge
growth or decline of local industries as compared bottlenecks, as well as under- and overutilized
to overall economic performance. Third, the dif- individuals or organizations. So many things are
ferential shift component measures the change coordinated in networks (for example, work-
in the local economy that is attributed to local place environments, clubs, and memberships)
economic advantages, such as natural resources, that SNA appears to have almost universal ap-
or disadvantages, such as low wages. Shift/share plication. Indeed, multiple levels of analysis can
analysis was used to analyze the composition of be employed: the dyad, the node itself, or even
the growth of the southern United States in the the entire network. The entire incidence matrix
1980s.23 More recently, shift/share analysis has (agent by agent or agent by event) can become
been used to assess the competitiveness level of the target of analysis, or it can merely become one
Singapore’s exports.24 variable in an adjacency matrix to explore correla-
Emerging cluster analysis is a broader tool. tions between variables.
It begins by using employment levels to identify A number of measures inherent in SNA help
a dominant industry or a fast-growing, emerg- to illustrate realities that cannot otherwise be ob-
ing industry. The measure compares employment served in the social setting. Density measures how
and wage changes in an area’s cluster over a de- many potential linkages within a social setting
fined period of time with the larger region, state, (that is, pairings of different actors) are actually
province, or even the nation. Overall, if the net operational. Theory suggests that some nontrivial
change in employment and/or wages is greater amount of density is required, but that too dense a
than or equal to 100%, the cluster is considered community can stifle innovation and change. The
to be emerging. However, if the change is be- concept of centrality refers to the importance of
tween zero and 99%, the cluster is considered to particular actors and the hierarchical nature of an
be relatively stable. A cluster is considered mature entire network. In general, centrality measures are
when the percent change is less than zero.25 used to “… describe and measure properties of ‘actor
Social networks analysis (SNA) is yet another location’ in a social network.”29 Centrality (applied
diagnostic tool for cluster analysis. It is primarily to the node level) is a family of three measures,
used to collect and analyze data about relation- each answering a different theoretical question.
ship patterns among individuals, though it does High degree centrality refers to a high number of
not simply examine the economic consequences ties and the level of power or informal leadership
of those relationships. According to Wellman, it capacity of an actor, agent or node. High closeness
is a powerful method for “explaining variances in centrality builds upon high-degree centrality but
resources, social behavior and socio-economic out- also looks to the nature of the distance between
comes.”26 SNA is guided by a focus on the dialec- nodes. Betweenness centrality identifies the critical
tical relationships between agents, nodes, and ac- route for flows in the network and the dominant
tors. It makes the invisible work visible.27 When node or agent that has more close relationships to
applied to knowledge management, it can identify other dyads. In terms of centrality, it is not just

PHILLIPS & RYAN
how many connections an agent or node has, but These discrete measures and analytical ap-
how central its connected actors or agents are.30 proaches have been employed to varying degrees
The power of a node or actor can be measured in a number of regions or countries around the
as a function of its position within a given net- world. Table 2 provides a provisional assessment
work.31 The eigenvector measure is useful for this of analytical approaches and measures used to ana-
analysis. An actor or agent who is high on eigen- lyze regional competencies across a select number
vector centrality is connected to many actors who of regions worldwide. Upon closer examination,
are themselves connected to many actors, thus it appears that when multiple clusters are ana-
multiplying their risk and/or opportunity: this is lyzed within a region, more analytical approaches
their power indicator.32 While the data require- are required or undertaken. Also, specialized or
ments for SNA can be large, there are a number knowledge-based clusters often demand a more
of generally available proxies. Co-publications complex blend of analytical methods. For ex-
(bibliometrics) and co-patents (technometrics) ample, Minnesota’s (low technology) industrial
are often used as proxies for social interactions clusters were analyzed using location quotients
among agents.33 and input/output analysis alone, while Iowa’s
Table 2: Cluster Analysis Methods across Select Countries and Regions
industry analysis
I/O or descriptive
intensiveness
Shift/Share
knowledge
Emerging
quotient
Location
analysis
analysis
SNA
Cluster(s) or region(s) of interest
med
Indiana (1) (multiple) √ √ √
to high
Iowa (2) (multiple) high √ √ √ √
low to
Pennsylvania (3) (multiple) √ √ √
high
Minnesota (4) (multiple) low √ √
low to
Canadian communities (50+ cmas) (5) √
high
Calgary wireless cluster (6) high √ √
Mississauga’s ICT cluster (7) high √ √
Quebec photonics cluster (8) high √ √
Saskatoon’s canola research cluster (9) high √ √
low to
Singapore’s export industry (10) √
high
Sources: See endnotes for full list of sources.34

CHAPTER 3.14
more-advanced technological clusters were ana- of clusters appear to emerge and succeed where
lyzed using a combination of approaches. SNA there are a number of highly competitive compa-
appears to be less commonly used as a cluster nies or competing supply chains that rely on the
analysis approach, at least partly because the pro- economies of scope and scale delivered by related
cess can be resource and time intensive and fre- and supporting industries. Porter emphasizes that
quently requires gathering primary data, which is the most successful clusters of this type have ei-
often not pragmatic from a practitioner’s point of ther a direct local or a strong link to demanding,
view. Past practice suggests that input/output and leading-edge consumers. Few centers in the world
institutional or descriptive-based analyses are the (especially in Quadrants II–IV but even in some
most commonly used approaches for exploring of the more-advanced Quadrant I countries, such
clusters. Additionally, the location quotient ap- as Australia, Canada, and New Zealand) can meet
pears to be the quantitative tool most commonly this criterion. In this sense, these types of clusters
used in this selection of regions or clusters. have a greater chance of success in Quadrant I na-
No matter what approach or tool is used tions, such as the United States, European Union,
to analyze a given cluster, the efficacy of such and Japan, all of which have large, wealthy, and
measures depends upon the quality of the data. demanding (that is, trend-setting) indigenous lo-
Knowledge-based industries in particular, such cal markets.
as biotechnology, often are not adequately re- The product/market, flagship company, and
flected in data collected through North American value chain models are all variations on cluster-
Industry Classification System (NAICS) codes. ing focused around a technology, product supply
Furthermore, there is no consensus on where to chain, or product market. As companies in these
draw lines or pull together multiple codes to best types of clusters seek greater efficiencies, they be-
represent a cluster. Cluster boundaries, particu- gin to formally and informally acknowledge their
larly in advanced technology sectors, cannot be local and regional interdependencies with other
defined by conventional product-based industrial competing and completive companies. Over
or sectoral boundaries. This limitation is particu- time, various types of nontrade interdependencies
larly important with respect to biotechnology. arise, which strengthen the collective. This model
has perhaps more applicability to a wider range
2.2 Step 2: Choosing a cluster strategy of countries because all economies, regardless of
Table 3 outlines a chronological typology of clus- their local capacity, are fundamentally linked to
ter definitions, beginning with Porter’s industrial a technology, product, or market through some
approach. Different cluster approaches will have form of supply chain or industrial structure. The
a different set of requirements, a different mix of difference in the three approaches is who takes the
leaders and tactics, and will fit better with some lead. In the product/market cluster there often is
categories of countries than others. Economic de- no single formal leader; instead, varying combi-
velopment agencies in developed and developing nations of companies and civic leaders will work
countries have usually applied Porter’s generalized to build the needed infrastructure, scale, and
approach to clusters, customizing it to the par- scope to realize the cluster’s potential. A number
ticular geopolitical region (see chapter 3.12 for of clusters actually have sole leadership vested in a
examples). Indeed, despite the lack of consensus flagship company or national champion. The val-
about what a cluster does and how it operates, ue chain model usually vests leadership in some
Porter’s version of a cluster has been rapidly ad- “integrator.” This can vary widely depending on
opted by practitioners from all over the world. the nature of the supply chain: it can be the larg-
Porter’s industrial managerial characteriza- est enterprise in the chain; a logistics, wholesale,
tion focuses heavily on the local and regional or retail actor; the owner of some key technology,
relationships between competing and collaborat- infrastructure, or product in the chain; or it can
ing companies, often without any specific indus- be a leader of some industrial, technical, research,
trial, product, or technological core. These types educational, or financial organization. This type

PHILLIPS & RYAN
Table 3: Chronological Typology of Cluster Definitions and Examples
Cluster type Definition/description Example(s)
Industrial/managerial a geographic concentration of competing Italian textile

characterization and cooperating companies, suppliers, service districts, Third
providers, and associated institutions Italy36
based on industrial interdependence (supply

and demand linkages)
Product/market focus characterized as networks of production of Italian footwear

strongly interdependent companies, knowledge cluster
producing agents, and customers linked to each
other in a value-adding production chain Australian wine
cluster
Flagship/company Multinational-enterprise-ledclusters/anchor; Monsanto-led

act as flagships St. Louis, Missouri,
BioBelt Cluster
Value chain (horizontal includes final market producers, and first-, Silicon Valley
and/or vertical) second-, and third-tier suppliers that directly
and indirectly engage in trade (A value chain Boston Life
cluster is an industry cluster identified as an Sciences Cluster
extended input/output or buyer/supplier
chain. The cluster comprises multiple sectors or
industries.)
system of market and nonmarket links between

geographically concentrated companies and
institutions (The links enable cooperation
among suppliers and competitors on business
processes, purchases, investments, strategies,
and technical research.)
Networks most salient in a domain between the Biovalley (borders

flexibility of markets and the visible hand of France, Switzerland,
organizational or political authority and Germany)
Innovative entrepôt geographic specialization in a few linked Saskatoon canola

stages in the innovation supply chain (for research cluster
example, research, development, gestation, and (Canada)
adaptation)
Source: Adapted from Phillips37

CHAPTER 3.14
of model would appear to be scalable to all of the countries. Scale is less important than focus and
categories. strong networking. The challenge of this model,
Finally, some clusters are defined by their role however, is that it requires the capacity for a high
in developing useful knowledge. The networked degree of trade in people, knowledge, technolo-
model is increasingly common in large centers in gies, and products, making it less attractive to
Europe and the United States. Examples include Quadrant III and IV countries where there re-
world-scale universities (for example, Stanford/ main significant economic, legal, social, cultural,
UC Berkeley in San Francisco), critical research and physical barriers to the flows necessary for
infrastructure (CERN in Switzerland), and of- such a model to work.
ten the head offices and research centers for large
multinationals. Malerba38 identified two discrete, 2.3 Step 3: Finding institutional and
independent systems of innovation that would fit organizational leaders
the networked model. Typified by the computer Actors provide varying levels of leadership based
software industry, one system is based on flexible on the dominant activity of different stages of the
networks of small- and medium-sized companies, industrial life cycle. Key actors in most clusters are
often co-located in distinct industrial districts (for often the university, public sector research labo-
example, Silicon Valley), and coordinated by a ratories and institutions, and the private sector.
range of commercial venture-capital corporations The first two categories of clusters—Porter’s in-
and angel investors. Companies in these commu- dustrial managerial model and the product, mar-
nities tend to be significantly volatile and rapidly ket, value chain approach—tend to be led by pri-
growing. The other type of system, which perhaps vate companies, while more innovative networks
better reflects the biotechnology world, is based or entrepôts will have varying arrays of leaders,
on the universities, public research laboratories, depending on the rate of innovation. Zilberman
and large companies that perform and commer- and colleagues40 undertook a conceptual analysis
cialize R&D. While clearly attractive, this model of agricultural biotechnology, proposing a five-
has limited scope to expand beyond the largest stage linear development process (including dis-
agglomerations. These are currently in the United covery, development, gestation, production, and
States, the European Union, and Japan (and per- marketing), with different actors (universities,
haps in the larger research centers at Melbourne, public labs, and corporations), taking the lead at
Australia, and Toronto, Canada). In time, howev- different stages. In early stages, public labs and
er, it could be attractive, especially to Quadrant II universities tend to lead, with corporations doing
countries with large populations (such as China, little beyond marketing any resulting products.
India, and Brazil), which are increasingly focused The model suggests that as the technology ma-
on adopting, adapting, and increasingly develop- tures, corporations contribute more and increas-
ing new technology. ingly take the lead.
An alternate “innovative entrepôt” model be- Almost all scholars and practitioners agree
ing adopted by some smaller, research-intensive that competitive, profit-seeking companies are at
communities concentrates on a narrower range of the core of any cluster. While some clusters seem
inventive areas and seeks to fashion some com- to be able to operate without a clear dominant
parative advantages by being an expert in some- player, many scholars have noted that some of
thing in a particular location. While this model39 the strongest clusters are formed around mul-
requires most of the elements of the larger net- tinational enterprises (MNEs).41 Rugman and
worked clusters, it relies on small, nimble, highly D’Cruz42 argue that MNEs frequently act as flag-
specialized networks to create a comparative ships to lead, direct, coordinate, and manage stra-
advantage for the region. This has particular ap- tegic, value-added activities of collaborative com-
peal to many communities because it does not panies in combined business and social networks.
require the scale of the networked model, and it According to their research, 14 of the world’s 20
can be adapted and adopted realistically in most largest international MNEs (defined by revenues

PHILLIPS & RYAN
and global presence) were largely home-based Robert Mondavi altered the face of the wine in-
organizations with strong regional strategies and dustry when he founded the wine cluster in the
networks. Gassman and Gaso43 argue that regard- Napa Valley in California. Wine producers were
less of whether the MNE is home-based or not, already in the region, but most guarded their op-
it can act as a broker of knowledge in a cluster. erations with secrecy. Mondavi opened the doors
Some MNEs contribute information in disem- of his winery to tourists, customers, and competi-
bodied forms: they set up “listening posts” in tors alike, effectively transforming the regional
many regions around the world and distribute in- wine industry into an open platform of pooled
formation. Other MNEs transfer knowledge em- knowledge and diverse products that eventually
bodied in new technologies, new processes, and spelled success for the region.48
new products. Regardless of the method, compa- Finally, collaborative leadership has been an-
nies are a necessary condition for a cluster. other powerful tool in some regions. For exam-
The regional university can also directly or ple, the BioValley network (located in the Rhine
indirectly drive the evolution and success of a valley where France, Germany, and Switzerland
technology cluster. According to Niosi and Bas,44 meet) was initiated in 1996 following the merg-
innovation in emerging technologies and indus- er of Ciba-Geigy AG and Sandoz AG, both of
trial clusters can be spurred indirectly through Basel, Switzerland, to form Novartis AG. The re-
decentralized, horizontal policies that include gion had lost jobs from the merger, so advocates,
the creation of both government laboratories both key individuals and existing organizations,
and research universities. A source for skilled la- led revitalization efforts. The original BioValley
bor, the university acts as a magnet (directly and concept, developed by Georg Endress and Hans
indirectly) for “stars” and business. Moreover, Briner, was to re-create the region as a “Silicon
its publications can be a conduit for local and Valley” dedicated to biotechnology and chemical
nonlocal knowledge exchanges. The traditional technologies.
role of a university is to generate and diffuse basic Cooperation or collaboration among public/
or explorative (know-why) knowledge and gener- private actors and individuals is important for the
ate a skilled academic and technical labor force. innovation process. Cross-fertilization through
However, these traditional roles are evolving. As partnerships, either in projects or in efforts to
Cooke45 argues, a strong local science base needs build innovative regions, alerts the public sector
to be complemented by a rich entrepreneurial cul- to market demands and provides companies with
ture not only within the regional business com- access to basic research.
munity but also within the academic community.
He further suggests that “… the science base is a 2.4 Step 4: Choosing tactics
magnet, even if only indirectly ... for biotechnology While many purposive, directed strategies can
business.” This is supported in previous research, help, perhaps a cluster’s most important require-
which found that the existence of a diversified, ment is that the economic and business climate
mainly academic, knowledge base is a prerequi- support market efforts. Because clusters involve
site for successful, localized innovative activity both traded and untraded interdependences
in knowledge-based sectors like biotechnology.46 that can thrive only with strong underpinnings
Niosi suggests also that universities are a founda- for market and social activity, centrally planned
tional element of the “virtuous cycle” embedded markets are unlikely to develop a true cluster.
within the cluster phenomenon—star scientists Minimally, a country needs to have the legal and
become entrepreneurs and spinout commercial social structures that create certainty for what
ventures.47 would otherwise be risky transactions: the rule
Regional leadership is not limited to just or- of law; effective and efficient mechanisms to
ganizations and companies. Key individuals can protect and adjudicate property; the lowest pos-
be ambassadors or civic entrepreneurs for regions sible barriers for entering or exiting any of the
and/or act as catalysts for change. For example, key input and output markets; the ability to trade

CHAPTER 3.14
domestically and internationally; and effective A second common model is to build poten-
tax, regulatory, and trade rules. Moreover, clusters tially attractive infrastructure on the assumption
tend to thrive best when at least a base investment that “if we build it they will come.” Unfortunately
has been made in education, training, and general for many of these ventures, infrastructure is only
community infrastructure. Clusters do not go in a minor attraction: “You will build it and they will
search of the lowest cost site; rather, they locate not come.” Increasingly, infrastructure needs to
where things can get done. Unfortunately, such be tailored to the specific needs of a user, so if it
basic conditions are absent in many regions of the is built on speculation, it often can be far more
world, but especially in Quadrant IV countries. costly than if it is built to suit. Having said that,
Any proactive measures to create a cluster with- industrial actors often cite infrastructure, in the
out most if not all of these basic preconditions form of labs, incubators, and sophisticated ma-
would likely be useless. In some instances, one chinery that benefits a wide range of users, as a
or more of these foundational conditions may be key reason for their presence in a community. The
missing (or weak) and a cluster might emerge, physical plans for any infrastructure may be less
but generally proactive efforts will only succeed if important in the long run than the business mod-
markets can function. el. An operator of infrastructure—be it a research
Beyond ensuring an appropriate climate, an park, special laboratory, or experimental facil-
almost limitless array of proactive investments ity—will need to tailor the terms of access and
can nurture one or more cluster types. Some are use to ensure that highly volatile and competitive
more appropriate for some types of cluster than research and development programs are able to
others. (Of course, there is no guarantee that the access the facilities at the right time and under
efforts will create the benefits envisaged.) A favor- the right terms (for example, clearly defined IP
ite tactic is to start with a cluster’s core actors. All rules). In research today, timing and terms are of-
successful clusters appear to have a hub or anchor. ten more important than cost. Nevertheless, there
Depending on whether the cluster is industrial/ is no single infrastructure set that is necessary or
managerial or product, technology, or supply- sufficient to make any cluster work.
chain-focused, this could be a set of competing Some think money is the key to the problem:
companies, a leading company, a university, a If only more programs were created and more
public laboratory, or an industry association. If money made available, a cluster would emerge.
an anchor does not already exist, most regional It is true that money drives activity, but not all
planners and politicians will instinctively think of activity is desired. While in theory money is fun-
an investment-attraction program; virtually every gible—it shouldn’t matter where it comes from—
jurisdiction in the world has someone marketing in practice money comes with strings attached.
their location as a place to do business. But while Who provides it and under what conditions can
expectations are often high, prospects are poor. influence what others are able to accomplish with
Few companies are truly mobile. Most that are it. MNEs and other for-profit companies provide
mobile would need inducements: large subsidies the lion’s share of capital in almost all markets,
that could have a higher impact in other areas and so engaging profitable operating enterprises is
that, in the end, would add little to job creation almost a prerequisite for creating a sustainable
and wealth generation in the long term. In the cluster. During growth phases, however, public
absence of an obvious anchor, it usually makes and private venture capital can be a critical con-
more sense to build on potential local candidates tributor to the success of new technologies, prod-
than to try to lure others with subsidies. In lieu of ucts, and ventures. In the early stages of research,
a dominant companies, regions have sometimes public funding tends to dominate, with private
been able to nurture Porterian or supply-chain capital taking over as technologies, products, and
type models, as long as they have been able to tap processes mature and get closer to the market. In
into distribution systems that provide access to fact, public funds at later stages can be both good
global markets. and bad. Government decision-making processes

PHILLIPS & RYAN
(designed to ensure accountability and transpar- to legally protect IP. Second, there must be open
ency) are generally inimical to effective and ef- and accessible labor markets for skilled and edu-
ficient financing: many companies ultimately cated workers. Third, an institutional platform,
supported by government grants or subsidies find such as a major national laboratory, a university,
the benefits are dissipated by slow decisions and or a big research institute/program, is needed for
inflexible terms. Furthermore, governments often community-based interaction and synergies to
have difficultly exerting the same influence as pri- develop. These provide the foundation for ab-
vate investors. For example, it is hard for most sorbing global knowledge. Other elements, such
governments to change management in a venture as preferential financing and specialty commer-
they have invested in or to divest or write down cial services, may be important but appear to be
their equity. Public funds tend to be most effec- second-order requirements.
tive when they are partnered and leveraged with Ultimately, many theorists and practitioners
private funds or private management skills (for are looking to “people policies” to nurture clus-
example, microcredit systems and public/private ters. People are at the heart of generating new
venture pools with private management). ideas and technologies, people lead and work in
Locations lacking an anchor, an irresistible companies and institutions, and people are the
piece of infrastructure, and unlimited financial core of networks. Some clusters seek to build
resources often look to their public research insti- up their local talent by creating new educational
tutes or universities, especially in the early stages and skills training programs focused on the mar-
of developing a new technology area. Particularly ket needs of their local companies and clusters.
with knowledge-intensive industries such as bio- Others work on building bridges to attach gradu-
technology, universities’ public investment in ating students to the local labor market. These
R&D facilities is arguably a crucial precondition programs range in focus from technical train-
for a knowledge-based innovation system. Their ing, entrepreneurial training, and mentoring to
capacity to create social capital, nurture and sup- specialized advanced research techniques. Some
port stars, and provide a basis for collaboration clusters seek to attract highly skilled, educated,
and innovation—while harder but not impos- motivated, and experienced stars from elsewhere
sible to measure—is ultimately the real value of to populate their community and provide new
such investments. As previously mentioned, the ideas and leadership. Florida and Gates50 have
regional university can drive (directly and indi- suggested that the most vital and vibrant commu-
rectly) the evolution and success of a technology nities in the United States and Canada are those
cluster. Niosi and Bas49 assert that universities do that value and support tolerance and talent. They
four main things: they generate know-why knowl- suggest that creative, entrepreneurial people will
edge; they provide skilled, educated labor; they tend to vote with their feet and move to com-
draw (directly and indirectly) stars and business; munities with the most accommodating lifestyle.
and they facilitate local and nonlocal knowledge Other researchers suggest that good climate, cul-
exchanges (for example, publications and joint ture, civic amenities, tax levels, and other qual-
research). Many argue that a university’s most im- ity-of-life measures are vital to creating a cluster.
portant output is the base that it provides for the There is, however, some contradictory evidence:
“absorptive capacity” of an economy. While the attraction to clusters may be less about quality
university is vital, it will only be able to perform of life and more about the depth of local labor
this function in conjunction with a number of markets (for example, the potential of there be-
other essential elements. First, there must be an ef- ing more than one employer for one’s specialized
fective mechanism to both practically and legally skills in the area) and the nature of the job (for
transfer knowledge. At a minimum, this requires example, one that is on the cutting edge of a tech-
a domestic research community with interna- nology or market).51
tional collaborations, companies with proprietary A closely related people-policy strategy is
technologies, and an appropriate national system to target local stars in a community. Zucker

CHAPTER 3.14
and colleagues52 have noted that in the U.S. Successful clusters continue to focus on innova-
biotechnology field, academic and professional tion (rather than on production efficiencies),
research stars (that is, those with a significant which requires sustained investment in R&D.
number of patents or publications) appeared to The cycle of investment and return in clusters
be instrumental in attracting major peer-reviewed has been explored also by Davis and Schaefer,55
grants, were key players in translating knowledge who outline a five-stage evolutionary process. In
between academic and applied research, and were the first stage, assets are accumulated, with in-
major contributors to the spinout of many new vestments often coming from the public sector
biotechnology companies. These stars assisted (for example, the recent worldwide infusion in
other researchers and industry. When the stars genomics research). In the following stage, as-
became affiliated with new spinouts, this signaled sets are converted into business resources through
the presence of an opportunity to the market- entrepreneurial effort. Next, the cluster is estab-
place. Some regions have attempted to collect lished and companies grow by exploiting new re-
more clusters of stars by collecting research exper- sources and capabilities in external markets. Then
tise in national centers of excellence in public labs as production and markets mature, collective
or universities. These regions and stars have also efficiencies are realized. Finally, various market
provided added incentives for the scholars and and non-market selection processes lead to lo-
scientists to engage in more external activities, cal specialization. Crone offers a more formally
on public and private boards and commissions, delineated and stylized five-stage cluster-devel-
or through consulting work. Similarly, many opment model: precluster, protocluster, emerg-
communities promote or nurture civic entrepre- ing cluster, established cluster, and restructuring
neurs. Often in university, industry, or industry or renewal states.56 According to Crone, these
associations, these individuals undertake efforts stages are not intended to constitute a determin-
to defend, explain, or inform the entire cluster istic life cycle model but to serve as an analytical
to its members and others outside. These civic tool. Rosenfeld57 alludes to yet another life cycle
entrepreneurs are highly valued—they will often model in his exploration of clusters and cluster
personify and coalesce a cluster’s spirit and aspira- policy in less favored regions of the European
tions. The regional entrepreneurial culture is also Union. According to Rosenfeld, clusters progress
considered important, but it is not clear whether from an embryonic stage through growth and
it is an independent variable or is simply deter- maturity until they finally decay. The embryonic
mined by local economic development. stage is stimulated through innovations, inven-
tions, or inward investment. During the growth
2.5 Step 5: Sustaining a cluster stage, markets develop sufficiently to spinout and
through its life cycle attract imitators and competitors; entrepreneur-
Clusters appear to have life cycles. Sometimes ship is also cultivated. In the maturity stage, the
strong centripetal forces pull activity to the activities of the cluster have become more rou-
community (for example, through knowledge tine. More imitators enter the market, and lower
spillovers and economies of scale and scope); at costs become the key competitive advantage. The
other times, centrifugal forces will dominate (for decay stage is when products or processes become
example, diseconomies and congestion costs).53 expendable and are easily substituted in the mar-
Lundvall54 offered a neo-Schumpeterian model ketplace by more cost-effective alternatives.
of industrial development that explains localiza- Just as in the industrial life cycle, clusters dif-
tion patterns based on the degree of technological ferentiate according to scale, scope, character, and
development: innovative clusters have the high- activities. Regardless of how a cluster is character-
est incentive to agglomerate, but markets become ized, it is still likely to be subject to the evolu-
concentrated and profits stagnate as benefits de- tionary dynamics of markets. At any given point
cline, costs rise, and products are standardized. in the developmental cycle—cluster or indus-
Sustaining a cluster, therefore, is not ensured. trial—activities must shift. Different actors take

PHILLIPS & RYAN
on differentiated roles. At some points, activities encourage greater local R&D or to attract global
may be concentrated or centralized within one companies to relocate their R&D programs into
institution. At other times, activities may be car- their jurisdiction. This often involves preferential
ried out collectively by a number of actors work- support for national champions or exclusive deals
ing in collaboration. Such responses to global to encourage MNEs to relocate their activities.
market signals and industry developments must Usually governments do this without consider-
be orchestrated to avoid the declining stage of in- ing the corresponding relationships and interac-
dustrial development or the decay of a cluster. tions that knowledge-based companies require
to succeed. If innovation can happen within a
company, companies, or a regional or national
3. Conclusions community, then such a narrow approach might
Cluster strategies would appear to be high-risk, have some chance of success. But if innovation
high-return economic policies. While not all is truly global, as appears to be the case in many
types of clusters are appropriate for all coun- of the life sciences, then narrow, mechanistic self-
tries, most countries could attempt at least one sufficiency strategies may either simply fail or be
or more options. If thoughtfully and prudently counterproductive. This is why both companies
undertaken, the investments in analysis, strat- and skilled employees are more interested in the
egizing, building local leadership, and pursuing innovation community than in fiscal incentives,
various tactics would generate positive social republic infrastructure, or other government sup-
turns even if a sustainable cluster did not devel- port. By extension, a mercantilist policy that dis-
op. Indeed, most of the options appropriate for courages global links could not only fail to attract
clusters are also just good economic policy. One global companies but could also drive out local
point that anyone interested in economic devel- companies or researchers as they seek access to the
opment should keep in mind is that most sectors global community. ■
are becoming more knowledge intensive. Even in
low specialized areas, such as garment industries
Peter W. B. Phillips, Professor, Department of Political
in developing nations, technologies are being Studies, University of Saskatchewan, 9 Campus
adopted to increase productivity and flexibility. Drive, Saskatoon, Saskatchewan, S7N 5A5, Canada.
In short, while clusters are attractive economic peter.phillips@usask.ca
development tools, they must be nurtured with
Camille D. Ryan, Postdoctoral Fellow, Faculty of
an appreciation for their partial and incomplete Communication & Culture, University of Calgary, 2500
nature. Fundamentally, they are part of a global University Drive, Calgary, Alberta, T2L 2K7, Canada.
innovation system, and cannot thrive if cut off cami.ryan@ucalgary.ca
from the lifeblood of the system—ideas, skilled
labor, capital, and competing and collaborating 1 For an in-depth discussion of the theory of clusters
companies and organizations. and how they work, see, also in this Handbook, chapter
Knowledge-based development is inherently 3.11 by PWB Phillips and CD Ryan.
different from traditional industrial development. 2 Mashelkar R.A. 2005. Nation Building through
While infant industry protection made some sense Science and Technology: A Developing World
Perspective. 10th Zuckerman Lecture, The Royal
in the industrial context, it is not clear whether it Society, London. Innovation Strategy Today 1 (1): 16–32.
has any value in a knowledge-based world. The www.biodevelopments.org/innovation/ist1.pdf.
imperatives of innovation pose some serious chal- 3 Morel C, D Broun, A Dangi, C Elias, C Gardner, RK Gupta,
lenges for development policy. Many current J Haycock, T Heher, P Hotez, H Kettler, G Keusch, A
development efforts have a strong mercantilist Krattiger, F Kruetz, K Lee, R Mahoney, RA Mashelkar,
H Min, S Matlin, M Mzimba, J Oehler, R Ridley, P
orientation, with a focus on self-sufficiency. In Senanayake, H Thorsteinsdottir, P Singer and M Yun.
an effort to generate higher-value exports or to 2005. Health Innovation in Developing Countries to
replace imports, governments at all levels in many Address Diseases of the Poor. Innovation Strategy Today 1
(1): 1–15. www.biodevelopments.org/innovation/ist1.pdf.
countries are using their tax and fiscal policy to

CHAPTER 3.14
4 See supra note 2. industrycluster/clusterprojectnwia.PDF.

5 See supra note 3. 21 Nolan C. 2004. Industry Clusters: Part of Indiana’s
6 Arizona, Delaware, Maine, Missouri, Nebraska Strategic Planning Toolkit. Incontext State of Indiana
(emerging), Oregon, Washington, and West Virginia. and Indiana University Partnership for Economic
Development. www.incontext.indiana.edu/2004/sep-
7 Louisiana, Michigan, and Pennsylvania. See also Akundi oct04/news.html.
KM. 2003. Cluster-based Economic Development,
Part 1: A Survey of State Initiatives. Research Corner 22 Niemi AW. 1985. Gross State Product and Comparative
no. 4; July. Business and Industry Data Center: Austin, Economic Growth in the Southeast, 1950–80.
Texas. www.bidc.state.tx.us/researchcorner/Archives/ 23 Seyfried W. 1996. Examining the Economic
Issue4/PART1_BandwagonEffect.pdf. Competitiveness of the Economics of the Southern
8 Connecticut, Kentucky, Louisiana, Maine, Oregon, United States. www.westga.edu/~bquest/1996/
Pennsylvania, Rhode Island, Texas, and Washington. seyfried.html.
9 Arizona, California, Delaware, Indiana, Iowa, 24 Chern TS, P Wilson and HS Chuan. 2002. Assessing
Massachusetts, and Tennessee Singapore’s Export Competitiveness through Dynamic
Shift-Share Analysis. Occasional Paper, no. 23. Economic
10 Canada has prioritized the identification and Policy Department Monetary Authority of Singapore.
facilitation of 10 key clusters by 2010 in its Innovation www.mas.gov.sg/resource/download/MASOP023-
Strategy. ed.pdf.
11 Wolfe DA and Gertler MS. 2004. Clusters from the 25 See supra note 20.
Inside and Out: Local Dynamics and Global Linkages.
Urban Studies 41(5/6): 1055. 26 Policy Research Initiative/Social Sciences and
Humanities Research Council/Statistics Canada (PRI/
12 McPherson L. 2001. Clusters Policy: A Future Strategy for SSHRC/StatsCan). 2004. Measuring Social Capital
Australia. Innovation: Management, Policy & Practice 4 through Analysis of Social Networks. Barry Wellman,
(1-3): 54–69. University of Toronto. Session I: Expert Workshop on
13 Brautigam D. 2003. Local Entrepreneurship in the Measurement of Social Capital.
Southeast Asia and Sub-Saharan Africa: Networks and 27 Mead SP. 2001. Using Social Network Analysis to
Linkages to the Global Economy. In Asia and Africa in Visualize Project Teams. Project Management Journal.
the Global Economy. (ed. E Aryeetey) www.unu.edu/hq/ 32 (4): 32-38.
academic/Pg_area4/Brautigam.html.
28 Wasserman S and K Faust. 1994. Social Network
14 Pedersen PO. 1997. Clusters of Enterprises within Analysis. Cambridge University Press: Cambridge.
Systems of Production and Distribution: Collective
Efficiency and Transaction Costs. In Enterprise Clusters 29 Ibid., at 169.
and Networks in Developing Countries. (eds. MP van 30 According to Bonacich, power is a function of centrality
Dijk and R Rabellotti). Frank Cass: London. pp 11–29. plus the centrality of others, weighted by the distance
15 EPZs originated in the Republic of China (see supra and number of walks between the central node and
note 13). other agents. See Bonacich P. 1972. Factoring And
Weighting Approaches to Status Scores and Clique
16 Korea Foundation for International Cooperation of Identification. Journal of Mathematical Sociology 2:
Science & Technology (KICOS). 2005. Industrial Clusters 113–120.
in Korea. www.kicos.or.kr/eng/03_korea/korea_02_
04.asp. 31 It is important to qualify the term power. Power can
be endowed or it can be “referential” in nature, built
17 UN Industrial Development Organization (UNIDO). up over time based upon a sound track record of good
2005. The UNIDO Cluster/Network Development performance.
Programme: India. www.unido.org/en/doc/4308.
32 The attenuation level, or beta coefficient, reflects the
18 See supra note 2. nature of power levels. Centrality and being connected
19 The concept was originally founded by Christaller to central actors is not always positive. For instance,
(see Christaller W. 1972. How I Discovered the Theory an agent that wishes to maintain a monopoly
of Central Places: A Report about the Origin of Central position would choose to be connected to multiple,
Places. In Man Space and Environment (eds. PW English nonconnected actors in order to maintain a power
and RC Mayfield) Oxford Univ. Press. pp. 601–610; Lösch position.
A. 1954. The Economics of Location: A Pioneer Book in 33 Coenen and colleagues use both to analyze regional
the Relations Between Economic Goods and Geography. differences between the Scanian and Saskatoon
Translated from the Second Revised (1944) Ed. by regions (see Coenen L, J Moodysson, CD Ryan, B Asheim
WH Woglom with the assistance of WF Stolper. Yale and PWB Phillips. 2006. Knowledge Bases and Spatial
University Press: New Haven, Conn. Patterns of Collaboration: Comparing the Pharma and
20 Definitions sourced Northwest Iowa Developers Agro-Food Bioregions Scania and Saskatoon. Industry
Coalition. 2005. Regional Industry Cluster Report. and Innovation: in press). Similarly, bibliometric analysis
Iowa Trends. www.iowaworkforce.org/trends/ has been used to contrast and compare agricultural

PHILLIPS & RYAN
biotechnology clusters. Other proxies can be used called the “Third Italy.” The concept started to be used
as well. For instance, Ryan and Phillips employ an in the late 1970s when it became apparent that while
activity-based analytical approach, qualifying linkages little economic progress was in sight in the poor South
between Saskatoon-based actors as research-based, (Second Italy), the traditionally rich Northwest (First
financial, or exchange of high-quality personnel, just Italy) was facing a deep crisis. In contrast, the Northeast
to name a few (see Ryan CD and PWB Phillips. 2004. and centre of Italy showed fast growth, which
Knowledge Management in Advanced Technology attracted the attention of social scientists. In a number
Industries: An Examination of International Agricultural of sectors where small companies predominated,
Biotechnology Clusters. Environment and Planning, groups of companies clustered together in specific
Government, and Policy 22(2): 217–32.) regions seemed to be able to grow rapidly, develop
34 Sources for Table 2: niches in export markets, and offer new employment
opportunities.
(1) see supra note 21;
37 Adapted from Phillips and colleagues (see (9) of supra
(2) see supra note 20; note 34).
(3) York County Economic Development Corporation. 38 Malerba F. 1993. Italy:The National System of Innovation.
2004. Industry Cluster Analysis Baseline Report In National Innovation Systems (ed. RR Nelson). Oxford
(1995–2001 data). York County Economic University Press: New York and Oxford. pp 230–60.
Development Corporation:York,Pennsylvania.http://
www.ycedc.org/images/ClusterAnalaselineReport. 39 Phillips P. 2002. Regional Systems of Innovation as
pdf; a Modern R&D Entrepôt: The Case of the Saskatoon
Biotechnology Cluster. In Innovation, Entrepreneurship,
(4) Munnich LW, M Bau and L Berkwitz. 1996. Family Business, and Economic Development: A Western
Southeastern and South Central Minnesota Canadian Perspective (ed. J. Chrisman, et al.) University
Industry Cluster Study. On Behalf of the Initiative of Calgary Press. pp. 31–58.
Fund of Southeastern and South Central Minnesota.
www.hhh.umn.edu/img/assets/9140/southeast_ 40 Zilberman D, C Yarkin and A Heiman. 1997. Agricultural
industry_cluster.pdf; Biotechnology: Economic and International
Implications. Paper presented at the XXIII International
(5) Katz S and M Bordt. 2003. Community Innovation: Conference of Agricultural Economists. Food Security,
Industrial Specialization in Canadian Cities. Diversification, and Resource Management: Refocusing
Working Paper no. 013. Science, Innovation and the Role of Agriculture, Sacramento, August 10–16.
Electronic Information Division (SIEID). www.
s t at c a n . c a /e n g l i s h /re s e a rc h / 8 8 F 0 0 0 6 X I E / 41 Rugman AM and A Verbeke. 2001. Subsidiary-Specific
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Management Journal 22 (3): 237–50; Dunning J. 2001.
(6) C-Prosperity. 2001. C-Prosperity Regional Diagnosis. Global Capitalism at Bay? Routledge: London.
Calgary Promote, Calgary, Alberta. 26 September,
2001. www.calgary-promote.com/html/sections/c- 42 Rugman AM and J D’Cruz. 2000. Multinationals as
prosperity.html; Flagship Firms: Regional Business Networks. Oxford
University Press: Oxford.
(7) Petovello L. 2005. Mississauga: A Leading
Canadian ICT Cluster. Presentation for ITAC 43 Gassman O and B Gaso. 2004. Insourcing Creativity
Ontario’s 2005 IT Partnering Forum. September with Listening Posts in Decentralized Firms. Creativity
13. www.itacontario.com/whos-who/2005/ and Innovation Management 13 (1): 3–14.
05MississaugaIPresentation.pdf; 44 Niosi J and TG Bas. 2001. The Competence of Regions
(8) Keroack M, M Ouimet and R Landry. 2004. The - Canada’s Clusters in Biotechnology. Small Business
Photonics Cluster in Quebec: A Social Network Economics 17: 31–42.
Analysis. In Clusters in a Cold Climate: Innovation 45 Cooke P. 2002. Multilevel Governance and the
Dynamics in a Diverse Economy (eds. DA Wolfe and Emergence of Regional Innovation Network Policy.
M Lucas) School of Policy Studies, McGill-Queen’s Knowledge Economies: Clusters, Learning and
University Press: Montreal and Kingston. pp. 114–37; Cooperative Advantage. Routledge: New York and
(9) Phillips P, J Parchewski, T Procyshyn, C Ryan, J London. pp. 50–72.
Karwandy and J Kihlberg. 2004. Agricultural and 46 Zeller C. 2001. Clustering in Biotech: A Recipe for
Life-Science Clusters in Canada: An Empirical and Success? Spatial Patterns for Growth of Biotechnology
Policy Analysis. Final project report for AAFC Study in Munich, Rhineland, and Hamburg. Small Business
of the Saskatoon Cluster, 30 March. at www.agbio- Economics 17: 123–41.
management.org; 47 See supra note 44.
(10) see supra note 24. 48 Hansen A. 2002. Leveraging Civic Entrepreneurs. The
35 Porter, M. 1990. The Comparative Advantage of Nations. Competitiveness Institute (TCI) 5th Annual Conference.
New York: Free Press. Cairns, Australia. October 9–11.
36 The interest in SME clusters has been fueled 49 See supra note 47.
particularly by the experience of what has come to be

CHAPTER 3.14
50 Florida R and G Gates. 2001. Technology and Tolerance: 55 Davis C and N Schaefer. 2003. Development Dynamics
The Importance of Diversity to High Technology of a Startup Innovation Cluster: The ICT Sector in New
Growth. www.brook.edu/dybdocroot/es/urban/ Brunswick. In Clusters Old and New: the Transition to a
techtol.pdf. Knowledge Economy in Canada’s Regions. (ed. D. Wolfe)
51 Phillips P and G Khachatourians (eds.). 2001. The McGill-Queen’s University Press: Montreal. pp. 121–60.
Biotechnology Revolution in Global Agriculture: 56 Crone M. 2005. Entrepreneurial activities and
Innovation, Invention and Investment in the Canola technology-based cluster development. Institute for
Sector: London. Small Business and Entrepreneurship 28th National
52 Zucker L, M Darby and M Brewer. 1998. Intellectual Conference, Blackpool, 1-3 November. www.qub.
Human Capital and the Birth of U.S. Biotechnology ac.uk/schools/SchoolofManagementandEconomics/
Enterprises. American Journal of Economics 88 (1): 290– Research/ResearchGroups/Management /Staff/
306. DrMikeCrone/Uploads/Filetoupload,22801,en.pdf.
53 Krugman P. 1998. What’s new about the new economic 57 Rosenfeld S. 2002. Creating Smart Systems: A Guide
geography? Oxford Review of Economic Policy 14 (2): to Cluster Strategies in Less Favored Regions. Report
7–17. generated for the Directorate General for Regional
Policy and Cohesion of the European Commission. April.
54 Lundvall B. 1992. National Systems of Innovation: europa.eu.int/comm/regional_policy/innovation/pdf/
Towards a Theory of Innovation and Interactive Learning. guide_rosenfeld_final.pdf.
Pinter: New York. p 342.

4
SECTION
The IP Toolbox
CHAPTER 4.1
The Statutory Toolbox: An Introduction

John Dodds, Founder, Dodds & Associates, U.S.A.
ABSTRACT IP rights protection is even enshrined in the

This chapter presents the main forms of statutory intel- Constitution of the United States of America:
lectual property (IP) protection with emphasis on utility
The Congress shall have power … to pro-
patents, trademarks, geographical indications, copyright,
and trade secrets. Basic questions with regard to who can mote the progress of science and useful arts, by
get protection, the subject matter of each form of protec- securing for limited times to authors and inven-
tion, statutory requirements, and certain exceptions. The tors the exclusive right to their respective writings
chapter concludes with short sections on institutional as- and discoveries … .1
pects including employee agreements, how to mark the
protected intellectual property, how to integrate the vari- By this clause the Constitution grants the
ous rights, and how to identify infringement. The authors rights to patent and copyright protection. Even
conclude that the form of protection chosen for a given though trademarks are not expressly protected
invention should be guided by the mission of the institu- by the Constitution, trademarks have a long his-
tion (whether public or private), the purpose of the work
tory of use and protection in the United States
it conducts, and the nature of the invention, or other IP,
that will be subject to IP rights protections. and globally. Likewise, trade secret protection has
long been accepted as a means for protecting IP
rights. Other forms of IP protection include plant
1. Introduction: What is breeders’ rights.
intellectual property? What makes these forms of IP protection
Intellectual property (IP), sometimes called in- particularly useful is that they have been able to
tangible property is any product of the human adapt to the changing times. Even if the present
mind or intellect. Intellectual property can there- technologies are different from the technology
fore be almost anything: a technical invention that was protected in Thomas Jefferson’s day, the
or an improvement of an earlier invention; it means to protect are similar. But the essential
can be a unique name or logo, design, method, nature of patents was “invented” well before the
software, database, domain name, a chapter in a Constitution was written. They emerged in me-
book (like this chapter), or an entire book (like dieval Europe where first rights were granted to
this Handbook). The broad area of intellectual individuals for what they owned, using a remu-
property is subdivided into different types, each neration or an award as a means to encourage in-
clearly defined and protected through statutes dividuals to generate “property desired by them-
or laws, which then can be protected by differ- selves.” A more formal system of patents was born
ent means. In the United States, for example, in the Venetian Republic where the first patent
Dodds J and A Krattiger. 2007. The Statutory Toolbox: An Introduction. In Intellectual Property Management in Health and
© 2007. J Dodds and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Internet

DODDS & KRATTIGER
was granted in 1443 to a manufacturer of con- agrees to disclose in the patent application, the
veyors for loading and unloading ships.2 Two cen- invention in detail as well as the best mode of
turies later, in 1623, the British Crown passed a practicing the invention. The disclosure is pub-
patent law, then called the Statute of Monopolies. lished normally 18 months after the filing but, at
This law defined basic concepts that continue to the latest, when the patent issues. Disclosing the
influence to this day the interpretation of patents invention to the public will help others to invent
around the world. further, thus pushing technology forward for the
In the United States, the first patent law was benefit of the society.
adopted in 1790, shortly after the Constitution In the United States, there are three different
was ratified. The first U.S. patent was signed kinds of patents: utility patents, design patents,
by President George Washington on July 31, and plant patents. Plant patents are essentially
1790 and was issued to Samuel Hopkins (of specific to the United States. In addition to these
Pennsylvania) for his improvement of the pot- types of patents, several counties provide addi-
ash manufacturing process. The invention saved tionally utility model protection. Utility models
what was then the country’s leading export are also called petty patents. Basically they allow
industry. the right holder to prevent others from com-
In the following chapters we will look briefly mercially using the protected invention during a
at issues related to the protection of intellectual limited time period. Therefore, a utility model is
property; Table 1 provides an overview of the basically similar to a patent. The main difference
main tools of IP protection. We especially focus is that the requirement of nonobviousness, or in-
on the law in the U.S., though in general terms, novative step, is not as stringent for utility mod-
similarity exists throughout many parts of the els as it is for patents. Moreover, the duration of
world. Where international agreements regulate the protection given by utility models is shorter
IP protection, that is noted. In national laws than that given by patents. The duration depends
there are differences: some countries give broad- on the country; usually the protection is between
er protection to intellectual property, others, seven and ten years. In Estonia and Finland, for
narrower, but basically the forms of protection example, an invention can be protected by utility
are similar, especially in member countries of the model for ten years, at most.
World Trade Organization (WTO), which ad- In the United States, a utility patent can be
here to the Agreement on Trade-Related Aspects filed as a provisional or a nonprovisional applica-
of Intellectual Property Rights (TRIPS). tion. A provisional patent application is a lower-
cost first patent application, which does not have
to contain any claims. A provisional patent ap-
2. Patents plication has a pendency of 12 months from the
date of its filing. A provisional patent application
2.1 What is a patent? cannot mature to an issued patent but it gives the
A patent, which usually refers to a utility patent, inventor an early filing date, and the term patent
can be granted to anyone who invents a new and pending is applicable. In order to benefit from the
useful process, machine, article, manufacture, early filing date of the provisional application, a
composition of matter, or any new and useful nonprovisional patent application has to be filed
improvement thereof. A utility patent is usually before the end of the 12 months pendency of the
granted for a period ending 20 years after the fil- provisional application. It is possible to extend
ing date. A patent gives the inventor a right to the period of patent life up to 21 years by first
exclude others from making, using, offering for filing a provisional application and then later a
sale, or selling the invention in the country where nonprovisional one.4
the patent is issued or importing the invention A design patent can be granted to anyone who
to the country where the patent is issued. In ex- invents a new, original and ornamental design
change for being granted a patent, the inventor for an article of manufacture. A design patent is

Table 1: What is the intellectual property of your business?
Means of protection What can be protected How to protect Term of protection The rights of the owner
Patents Any useful, novel, and Submit a patent application 20 years from filing of the Right to exclude others
nonobvious invention; priority application; for from making, using,
design patents can be design patent, 14 years manufacturing, selling, and
filed on new, original, or from the date of issuance. offering to sell
ornamental design
Trademarks Words, phrases, and logos Use or have a bona fide Unlimited duration as long Right to exclude others from
that can distinguish the intent to use and apply for as the mark is in use; the using the mark and other
goods and services from a federal registration mark has to be renewed marks so similar they cause
those of others every tenth year confusion
Copyright Literary works, software, Apply for federal Life of the author plus 70 Right to prevent
dramatic works, music, registration years unauthorized copying or
pictures, sound recordings, public performance
architectural works, movies
Trade Secrets Any technical or business Keep secret; no registration Unlimited duration as long Right to prevent unlawful
information that is secret available as the subject matter is use
and that gives the holder secret
an advantage over a
competitor who does not
have the information
Note: An overview and introduction of protections available for plants are treated elsewhere in this Handbook. 1

CHAPTER 4.1
DODDS & KRATTIGER
granted for a period of 14 years from the date of The Patent Cooperation Treaty (PCT) is an
issuance. international treaty harmonizing patent applica-
Certain countries provide protection called tion procedures in its member countries. Through
registered or industrial designs, which is similar to a PCT patent application, the inventor can get a
the U.S. design patent. In some countries, indus- filing date with one application in all the member
trial design provides protection of up to 25 years. countries. Thirty months after the filing, the ap-
Since April 2003, one can also get a Community plicant has to decide in which member countries
Design in the European Union, which protects he or she actually wants and needs a national pat-
the design in all the member countries of the ent. The benefit of PCT application is that there
European Union for up to 25 years. is no need to file separately in all the countries;
Plant patents are a form specific to the United the procedure can be done by one application.
States. A plant patent can be granted to anyone Moreover, the PCT system gives the inventor ap-
who invents or discovers and asexually reproduces proximately 30 months to shop around before
any distinct and new plant variety. Tuber-propa- deciding in which countries a national patent
gated plants are excluded from plant-patent pro- would be relevant.
tection. For sexually reproduced (by seeds) or tu- All the PCT applications will be published 18
ber-propagated plants, one can get protection via months from the filing if not abandoned before
the Plant Variety Protection Office administered that. Usually, a U.S. patent application is published
by the U.S. Department of Agriculture. Several 18 months after the filing, if nonpublication is not
countries provide protection to sexually repro- specifically requested. The applicant is entitled to
duced plant breeds through plant breeders’ rights.5 request nonpublication if the application is not
It is important to note the distinction between and will not be a subject of filing in any country
plant patents and utility patents on plants.6 publishing the patent application 18 months after
filing. Nor may the invention be subject to a PCT
2.2 Who can get a patent? application. When the patent has issued it will be
According to the law in perhaps any country published. Due to the publishing policy of PCT,
with patent law, only the inventor can apply for some inventors prefer to file a U.S. patent and re-
a U.S. patent. However, if the inventor is dead, quest no publishing, thereby keeping the inven-
a legal representative can make the application. tion secret until the patent issues.7
Similarly, if an inventor assigned the right to his
or her employer or any third party, that entity 2.4 First to file versus first to invent
may file for the patent. In any case, it is impor- The United States is the only country in the
tant that the true inventors are named in the pat- world not applying the first-to-file concept.
ent application. If there is more than one inven- In the United States a patent is granted to the
tor, the inventors apply for the patent jointly. A party that first invented. Because of this concept
person who contributed to the invention only the U.S. patent system is known for its interfer-
financially cannot be a joint inventor. None of ence practices. Interference is a proceeding con-
the inventors needs to be a U.S. citizen or live ducted before the Board of Patent Appeals and
in the United States in order to be entitled to a Interferences to determine priority on inven-
U.S. patent. tion between a pending application and another
pending application or unexpired patent. The key
2.3 U.S. and “international” (PCT) patent elements of determining priority are the date of
applications conception, the date of reduction to practice, and
A patent is territorial. This means that there is no diligence or lack of it.
such a thing as a world patent. A U.S. patent is
valid only in the United States and the owner of a 2.5 Subject matter of patents
U.S. patent therefore can, based on the U.S. pat- In the United States, statutory subject matter of
ent, only claim rights in the United States. a patent is defined as “any new and useful process,

CHAPTER 4.1
machine, manufacture, or composition of matter or mean that the knowledge is accessible to the pub-
any new and useful improvement thereto.”8 lic. An oral presentation may be enough to make
The Supreme Court acknowledged through the knowledge accessible to the public. Used in
legislative history that Congress intended that this clause means publicly accessible use. A ma-
statutory subject matter includes “anything under chine that is operated in an open field is publicly
the sun that is made by man.”9 accessible use even if no one sees the machine,12
The Supreme Court has specifically identi- but a machine in a windowless building where
fied three categories that are not patentable. Laws no one can enter without swearing to secrecy has
of nature, natural phenomena, and abstract ideas been ruled not to be public use.13 Printed publica-
do not fall into any statutory class and they are, tion has been very broadly interpreted to mean
therefore, unpatentable. Furthermore, items from all material accessible to the public in tangible
these categories are not patentable according to form.14 Oral communication is excluded, but if
the national legislations of many other countries. copies of a paper were distributed at a conference,
Some national laws give further provisions for they would be publications. However, if those re-
nonpatentable subject matter. For example, India ceiving the copies were asked to keep the content
does not allow patents on agricultural methods. of the communication secret, the paper would
The European Union and many other countries not be a publication.
do not allow patents on methods to treat a hu- An invention is not patentable “if the inven-
man condition or surgical methods. tion was patented or described in a printed publica-
Mathematical algorithms as such are abstract tion in this or a foreign country or in public use
ideas when they stand alone and are not reduced or on sale in this country, more than one year prior
to a practical application. However, when an ab- to the date of the application for the patent in the
stract idea is reduced to a practical application, the United States.”15 This section creates the one-year
practical application of the abstract idea can be a grace period, during which the inventor may de-
useful, concrete, and tangible result and therefore velop the invention further, market it, and pre-
patentable.10 In the United States, such applica- pare a patent application.
tions of mathematical algorithms are increasingly It is noteworthy that the U.S. patent sys-
patented as business-method patents. Business- tem is different from systems of the most other
method patents are, however, not allowable in countries because of this grace period. In most
several countries; for example, the European other countries the inventor would lose the rights
Patent Office does not currently examine applica- to patent if the invention were published before
tions disclosing a business methods. filing the patent. In European countries, for ex-
ample, a public disclosure is an absolute bar to
2.6 Statutory requirements for patentability patentability. Japan gives a six-month grace pe-
riod for filing a patent if the public disclosure was
2.6.1 Novelty a presentation at a scientific meeting.
Because patents are granted to promote the prog-
ress of the useful arts, a product or process is not 2.6.2 Utility
patentable unless it is new. A product or process The purpose of granting patents is to promote the
is not new if all the claimed elements are pres- progress of the useful arts. Therefore, in order to
ent expressly or inherently in a single piece of rel- be patentable an invention has to be useful. For
evant prior art. If a single piece of relevant prior a product or process to be useful it must, at least,
art contains all the claimed elements, it is said to work, although it does not have to work perfectly
anticipate the product or process. An invention is or even better than any competing products or
not new and therefore not patentable, if “it was processes. However, products or processes that
known or used by others in this country or patented are working but can be used, for example, only
or described in a printed publication in this or a for- for immoral or illegal purposes are not consid-
eign country …”11 Known has been interpreted to ered useful. Also, products and processes that

DODDS & KRATTIGER
are regarded as useless are not considered useful. marks, and certification marks. Collective marks
A process for producing a steroid that had no are trademarks or service marks that are used by
known use, for instance, was found to be not use- a member of cooperation, an association, or oth-
ful and therefore not patentable.16 er collective group or organization. One type of
collective mark is a membership mark. These are
2.6.3 Nonobviousness not trademarks in the ordinary sense. Membership
A new and useful product or process is not patent- marks do not indicate the origin of the good or
able unless it was nonobvious when it was made. service. The purpose of a membership mark is,
The nonobviousness requirement is included in rather, to indicate that the user of the mark is a
Section 103 of the Patent Act. Different from the member of a particular organization.
novelty determination, the nonobviousness de- There are generally three types of certification
termination does not include a strict identity remarks. First, there are marks that certify that the
quirement. Therefore, prior art that does not dis- good or product is from a certain geographic re-
close all the elements of the claim at issue might gion; for example Cognac for the distilled brandy
be relevant when determining obviousness. When from a certain region in France. Second, there are
making a decision of obviousness, the examiner marks that certify that the goods or services meet
has to determine the level of ordinary skill in the certain standards, for example, quality standards or
art at the time the invention was made. safety standards. Third, there are marks that certify
that a member of a union or other organization per-
2.7 Experimental-use exemption formed the work or labor on the goods or services
U.S. patent law does not have a written research- and that the performer meets certain standards.
exemption clause, but current practices are based In addition, one can register a trade dress of a
on case law, that is, on court decisions. The basic good or service. Trade dress can, for example, be
rule says the patentee shall not be allowed to pre- product design, packaging, or color. Trade dress
vent experimentation using a patented product or of a service can be, for example, the overall look
process for bona fide research activities designed of restaurant.
to further scientific knowledge. The most effective way to get trademark regis-
However, the experimental-use exception tration is to choose a mark that is fanciful or arbi-
is very narrow, such that any research aimed at trary. An example of a fanciful mark is EXXON—a
commercialization (with even the slightest com- made-up word—something that does not mean
mercial implication) will not fall under the ex- anything in itself. An example of an arbitrary
emption and will hence be subject to infringe- mark is Apple used by Apple Computer—an exist-
ment liability. ing English word that itself has no connection to
computers.
A mark that resembles another mark already
3. Trademarks and Related Rights in use in the United States cannot be registered
A trademark is a word, phrase, symbol, design or a because of the likelihood of customer confusion.
combination of those items, that distinguishes the Therefore, before filing a trademark registration
source of one’s goods or services from the goods it is important to perform a trademark search to
or services of others. A trademark can be valid discover whether the mark or a similar one is al-
only when it is used in, or in connection with, ready in use.
goods or services in the course of commerce. An important element of trademark law is
There are various types of marks that can be the naked licensing doctrine. Quality assurance
registered with the Patent and Trademark Office. In and protection of the public is a central purpose
addition to trademarks17 and service marks (marks of the trademark law. Therefore, an indispensable
that indicate a specific service, such as a rental condition of a valid trademark license is that the
or leasing service), the Trademark Act provides licensor controls the nature and quality of the
for registration of collective marks, membership good or service sold by the licensee under the

CHAPTER 4.1
mark. Naked licensing results when the licensor • literary works

does not adequately supervise the quality of the • musical works, including words accompa-
licensee’s products or services. Naked licensing nying music
can be regarded as abandonment of a mark and • dramatic works
therefore leads to cancellation of registration. • pantomimes and choreographic works
• pictorial graphic and sculptural works
• motion pictures and other audiovisual
4. Geographical indications works
A geographical indication is a sign used on goods • sound recordings
that have a specific geographic origin and possess • architectural works
qualities or a reputation that are derived from
that place of origin. Geographical indications are A copyright protects an original work and al-
defined in the TRIPS agreement as a type of in- lows the author an exclusive right to:
tellectual property. WTO members provide legal • reproduce the work exclusively
means for interested parties to prevent the use of • prepare derivative works
a geographical indication that indicates or sug- • distribute copies or phonorecords by sale,
gests that a good originates in a geographical area transfer of ownership, lease, rent or lend
other than the true place or origin in a manner • perform the work publicly
that is misleading to the public or constitutes an • display
act of unfair competition.
Most commonly, a geographical indica- An original work of authorship is immedi-
tion consists of the name of the place of origin ately protected by copyright after it is fixed in a
of the goods. Agricultural products typically have tangible medium. The duration of a copyright
qualities that derive from their place of produc- protection on or after 1978 is that of the author’s
tion and are influenced by specific local factors, lifetime plus 70 years. If there are two or more
such as climate and soil. Examples of geographi- authors, the term is 70 years after the death of
cal indications are Idaho (potatoes) and Roquefort the last surviving author. If the creation is a work
(cheese). for hire, and the works are created anonymously,
Whether a sign functions as a geographical the duration is 95 years from publication or 120
indication is a matter of national law and con- years from creation, whichever is shorter.
sumer perception. The TRIPS Agreement does Only the author, or those deriving rights
not require that a WTO member extend protec- from the author, can claim the copyright. A copy-
tion to a geographical indication if that geograph- right requires no registration or publication to be
ical indication is the generic name for the goods protected, but a copyrightable work is protected
in that member country. Therefore, the word automatically when the creation is fixed in a tan-
champagne is not registrable as a geographical in- gible form.
dication in the United States, because champagne Importantly, federal copyright registration is
is a generic term, in the United States, meaning a a legal formality intended to make a public re-
light-colored wine with bubbles. cord of the basic facts of a particular copyright.
The United States offers robust protection Copyright registration may be filed at any time
for geographical indications, generally through during the life of a work. Even if registration is
registration as a certification mark. not a requirement for protection, registration
brings several advantages. For example, before
an infringement suit may be filed in the court,
5. Copyright registration is required for a work of U.S. ori-
A copyright is a type of intellectual property pro- gin. Moreover, if registration is filed within five
tection for authors of original works. Generally years of publication of the work, the registration
the categories of works that are protected are: will establish prima facie evidence, in court, of

DODDS & KRATTIGER
validity and of the facts stated in the copyright unconditionally to another. Alternatively, the
certificate. Registration makes available to the owner can license the rights exclusively or non-
copyright owner statutory damages and attorney exclusively. If, at the time of creation, the authors
fees, in case of an infringement suit, if the regis- intend to combine their contributions into insep-
tration was made three months after publication arable or interdependent parts, the work is con-
of the work or prior to an infringement of the sidered joint work and the authors are considered
work. Registration also enables the U.S. Customs joint copyright owners. Each copyright owner has
Service to protect the copyright owner against an equal right to exploit her or his rights. In such
importation of infringing copies. a case, a company can license or get an assign-
To be copyrightable, a work has to be original ment for the copyright of the whole work from
and in a fixed medium. This means that a work only one of the authors. If at the time of creation
has to be the independent creation of an author the authors did not intend their works to be part
and that it has required a modest quantum of cre- of an inseparable whole, the fact that their works
ativity. Being in a “fixed medium” means that the are later put together implicates the work as a col-
creation is in a tangible form: a short story is writ- lective work. In such a case, each author owns a
ten down, a song is recorded, and so on. A pure copyright in only the material she or he added to
idea or concept cannot be copyrighted without the final product. In this case, the company needs
description or illustration. to have an agreement with each of the authors to
An important question is whether software convey the copyrights.
and databases can be protected. The last decades It should be noted that in countries of the
have seen a revolution in knowledge manage- European Union, greater protection of data-
ment, library services, and information-resource bases is provided than in the United States. The
database configurations. The use of integrated European Union Database Directive adopted by
computer networks and the ability to produce the European Parliament in 1996 sets out two
and distribute information have had far-reach- rights for the makers of databases:
ing implications for IP (intellectual property) • the right to prevent unauthorized acts of
protection. In order to demonstrate IP laws and extraction from a database
their application, another chapter discusses these • the right to prevent unauthorized acts of
aspects together with respect to geographic infor- reutilization of the contents of a database
mation systems and remote sensing.18
As mentioned earlier, the author of a work The first right is similar to that provided un-
owns the copyright. In a case of work for hire the der the U.S. Copyright Act. With this right the
employer is regarded as the author and, therefore, directive provides protection to a database but not
the employee does not own the copyright. A work to the underlying data, and the right is limited
for hire is defined in copyright law as a work pre- to databases containing a sufficient degree of cre-
pared by an employee, within the scope of his or ativity in the selection or arrangement of the data.
her employment, or a work specially ordered or The second right, however, provides for a sui ge-
commissioned for use as a contribution to a col- neris right that prohibits the extraction or reuti-
lective work, a part of a motion picture or other lization of any database in which there has been a
audiovisual work, a translation, a supplementary substantial investment in obtaining, verification,
work, a compilation, an instructional text, a test, or presentation of the data contents. Under this
answer material for a test, or an atlas, if the par- second right, there is no requirement for creativi-
ties expressly agree in a written instrument signed ty or originality. The protection is available for 15
by them that the work shall be considered a work years from creation of the database. If substantial
made for hire. changes are made to the content of the database,
Copyright protection subsists from the time the modified database will be protected a new
the work is created in fixed form. The owner term of 15 years. Protection under the directive
of a copyright can assign all his or her rights is available only to nationals of member countries

CHAPTER 4.1
of European Union. Other countries will obtain foreign copyright law is less restrictive than the
such protection only if they offer comparable U.S. code, so the work may still be protected even
protection to databases of a European national though in the United States the work would be in
and if a bilateral agreement is reached. the public domain.
In the U.S. Copyright Act, there is a fair
use exception that states that use of an author’s
original creation is authorized for the purposes 6. Trade secrets
of criticism, comment, news reporting, teaching,
scholarship, or research. Fair use takes into con- 6.1 What can be a trade secret?
sideration the purpose and character of the use, Trade secrets are an important and widely used
the nature of the copyrighted work, the amount business asset in the United States. Both small
and substantiality of the portion used in relation and large businesses rely on trade secret protec-
to copyrighted work as a whole, and the effect of tion, often without even realizing it. It has been
the use on the potential market. There are four estimated that 90 percent of inventions are pro-
aspects to the fair-use exception: tected by trade secrets.
1. Classroom use. Certain educational estab- There are various kinds of trade secrets. The
lishments are allowed to publicly display most popular example of a trade secret is the for-
and perform others’ works in the course mula for Coca Cola, which has been kept suc-
of face-to-face teaching activities. But this cessfully in secrecy now for more than 100 years.
exemption applies only to the use of legally In addition to chemical formulas or processing
acquired works. methods, trade secrets can involve software, ac-
2. Copying in a library. In academic and counting records, customer lists, plant designs,
research institutions, copying limited por- and so on. Although trade secrets may overlap
tions of certain copyrighted works19 is not with patentable subject matter, they go well be-
an infringement, provided that libraries (or yond that.
their users) make single copies of the works, A generally accepted definition of a trade
provided that all of the following apply: secret appears in the 1939 Restatement of Torts.
− only individual articles (for example, of a The subject matter of a trade secret must be se-
book) or small portions of a larger work cret. Matters of public knowledge or of general
be copied knowledge in an industry cannot be appropri-
− the copies become the property of the ated by anyone as a secret, nor can matters that
person making the copies are completely disclosed by the goods one markets
− the copies are used for private study, be trade secrets. Therefore, a trade secret is known
scholarship, or research only in the particular business in which it is used.
− the copying is not done for commercial
advantage 6.2 How are trade secrets protected?
− the library displays prominently a notice Intentional theft of trade secrets can constitute a
warning of copyright restrictions in ac- crime under both federal and state law. The most
cord with requirements published by the significant federal law dealing with trade secret
U.S. Copyright Office20 theft is the Economic Espionage Act (EEA) of
1996.21 The EEA applies not only to thefts that
Finally, it should be noted that no “interna- occur within the United States, but also to con-
tional copyright“ exists. But since most countries duct outside the United States, if the thief is a
offer protection to foreign works under simplified U.S. citizen or corporation, or if any act in fur-
international copyright treaties and conventions, therance of the offense occurred in the United
a rule of thumb is that if a work could be pro- States. All of the 50 U.S. states have enacted trade
tected as a U.S. domestic work, it is protected as secret laws, most of which are some version of the
a foreign work. There are cases, however, where Uniform Trade Secret Act (UTSA).

DODDS & KRATTIGER
6.3 To file a patent or to keep a trade secret? employee knowing the trade secret begins
Before filing a patent one should always consider his or her own business basing it on the
the possibility of keeping the invention in secre- trade secret
cy, because there are situations when one of these 3. Cases in which a trade secret is disclosed
two protection methods is more useful than the during licensing negotiations, and the li-
other. censee later refuses to pay royalties but con-
There is no limitation in the time that a trade tinues to use the trade secret22
secret can protect the invention. On the contrary,
a patent is normally enforceable for a period of
20 years after the filing. If the subject matter is 7. Ownership of Rights
easy to keep in secret, if there will be no products Ownership of rights is an important question with
being marketed that could be used to reverse en- regard to licensing and transfer of the rights to
gineer the trade secret, then keeping trade secret another party. It may be that there are some rights
might be worth considering. belonging, for example, to an employee of an or-
Sometimes it is very difficult to prove that ganization, that might interfere with the interest
someone has infringed a patent. For example, in- of the organization to license the rights further.
fringement of a patent on a laboratory method In order to prevent misunderstandings related to
might be difficult to prove, and, therefore, keep- such situations, it is worthwhile to think how the
ing the method as a trade secret might be a better technology was created: Did the organization hire
means of protection. a consultant? What were the conditions of the
In order to be patentable an invention has agreements? Who sponsored the research? Where
to be useful, novel, and nonobvious. There are are the inventors now?
no such requirements for trade secrets. The only
“usefulness” requirement for a trade secret ac- 7.1 Ownership of patent rights
cording to the Restatement of Torts § 757, is that Employed to invent. As a general rule, the inventor
“it confers the owner an opportunity to obtain an owns the patent rights to the subject matter of his
advantage over competitors who do not know or use or her invention, even if the inventor conceived it
it.” Therefore, an improvement or a variation of a or reduced it to practice during his or her employ-
method, for example, can be a trade secret, but it ment. The main exception to this rule is the em-
might not be patentable. The field of trade secrets ployed-to-invent-exception. An employer owns the
is much wider than that of patents. invention of the employee if the employee was em-
ployed to invent something or to solve a problem.
6.4 Misappropriation of trade secrets Shop right. When an employee makes an
Based on the definition given in the 1939 invention or discovery that is outside her or his
Restatement of Torts, one who discovers a trade employment, but she or he uses the employer’s
secret properly, for example, by analyzing a com- resources, the invention may be owned and pat-
mercial product embodying the secret, reverse ented by the employee, but the employer has a
engineering the secret, or by independent inven- shop right to the invention. A shop right is a roy-
tion, is free to disclose it or to use it in his or her alty-free, nonexclusive, nontransferable, implied-
own business without liability to the owner. The in-law license granted to an employer to use the
cases rising from trade secret misappropriation employees patented invention.
are basically of three types: A shop right exists for the life of a patent,
1. Cases in which a trade secret is learned regardless of whether the employment contin-
by improper means, as through industrial ues or not. The employer having a shop right
espionage can make, use, and sell articles embodying the
2. Cases in which an employee knowing a trade patented invention. The employer may, however,
secret is hired by a competitor to whom the not sell articles outside his or her normal range
employee discloses the trade secret, or the of business.

CHAPTER 4.1
Joint inventors. In the Code of Federal should be numbered and filled consecutively, with
Regulations, the term joint inventor is defined as no intervening pages left blank. Someone able to
one who “must have made a contribution, individ- understand the work, but not participating in it,
ually or jointly, to the subject matter of at least one should witness all of the entries.
claim of the application.” To be legally named as an
inventor, a person must have contributed to the 8.2 Employee agreements
discovery of the way of obtaining the wished-for Employees make the majority of inventions pat-
results. Creating the idea of the general wished- ented in the United States. Therefore, it is im-
for result desired is not, by itself, sufficient to portant for an organization to establish practices
constitute joint invention. related to inventions made by its employees.
It is important to remember that any patent Employee agreements often contain clauses that
with a named inventor who cannot meet the legal require protection of trade secrets and confiden-
test for the minimal requirement of inventorship tial information, require the employee to assign
will lead to that patent becoming invalidated. inventions to the employer, require the employee
Similarly, if all joint inventors are not named, the to cooperate in disclosing inventive activity, and
patent is invalid. require the employee to cooperate in patent-pros-
In absence of an assignment of the patent, ecution activities. Employee agreements can also
the joint inventors are co-owners of the patent. include trailer clauses requiring the employee to
Each of the co-owners has all the rights of a pat- assign inventions made for a certain period after
ent owner. This means that each of them may leaving employment.
make, use, or sell the patented invention without Some states have recently enacted state stat-
the permission of or the need to account to the utes attempting to prevent an employer from
other joint owners. abusing his or her unequal bargaining power. The
statutes are limiting the type of inventions that
7.2 Ownership of copyright an employer can contractually require an inven-
As a general rule, a person who creates a work is tor to assign.
the author and therefore owns the rights to the
work. However, a work made for hire is an excep- 8.3 Marking the protected intellectual
tion to this rule. If an employee within the scope property
of his or her employment prepares a work, the Patent marking. Patent law gives a patent owner
employer and not the employee is considered to an option to mark the patented product. Marking
be the author. the product is not required, but owner failure to
mark a patented product may raise a risk that the
owner would not be able to collect damages from
8. Protecting the Organization’s IP infringers during the time the product was not
marked. An appropriate way to make the mark-
8.1 Notebook keeping ing is: U.S. Patent No 5,555,555 or U.S. Pat.
Under U.S. law, a patent is granted to the first to No. 5,555,555. After obtaining a filing date one
conceive the idea for an invention, not to the per- can also use the marking: Patent Pending or Pat.
son who first files a patent application. Because Pending.
of the first-to-invent concept, a notebook must Trademark marking. The designation TM
be able to serve as essential evidence of the date indicates that a particular word, symbol, or logo
of conception. In a case of interference, the note- is considered by its user to function as a trade-
book might also be essential for proving diligence mark. Similarly, the designation SM indicates a
in developing the invention after the conception. service mark.
For these purposes proper notebook keeping is When a mark becomes registered with the
important.23 All notebook entries should be made U.S. Patent Office, the designation should change
with permanent ink. The pages of the notebook from TM or SM to the registered-mark symbol,

DODDS & KRATTIGER
. Instead of this symbol, the mark owner can be no room for trade secret if one has filed a
use the designation Registered in the U.S. Patent patent.
and Trademark Office or Reg. U.S. Pat & TM off. This, however, is not the case. One can have
A marking Registered trademark is not appropriate a patent and also keep trade secret. One very
because it could be misleading by not indicating common situation is that after filing a patent, the
where the mark is registered. It is important to invention has been developed further and after
indicate that the mark is registered with the U.S. filing, the development is kept secret. The pat-
Patent and Trademark Office, because the law ent law requires the inventor to disclose the best
provides that the owner of the mark is precluded mode known when the patent is filed, but there
from recovering profits and damages unless it can is no requirement to disclose any improvements
be established that the defendant had actual no- made later. In addition, sometimes trade secrets
tice of the registration. can be “negative know-how.” For example, in-
Copyright marking. The copyright symbol, formation learned during research and develop-
, or the designations Copr. and Copyright are the ment that shows some formula or process does
proper legal notices for copyright protection. The not work can be kept as a trade secret. It has
copyright notice is usually included directly on been estimated that 80 percent of all license and
the product or product label and typically takes technology transfer agreements cover proprietary
this form: know-how or trade secrets.
 ABC Corporation 2007. Importantly, trademarks can prolong the pro-
or tection of a patented good. The life of a patent is
© MIHR and PIPRA. All Rights Reserved. usually 20 years, while there is no limit to the life
of a trademark as long as it is used. Many compa-
Failure to include the notice of copyright nies use trademarks to prolong the protection of a
once was, but is no longer, fatal to the owner’s patented good. During the lifetime of the patent,
rights. Before the United States acceded to the the product is well protected, but if the company
Berne Convention, the author lost his or her has also trademarked the product, the public will
rights if failing to include notice of copyright. recognize the patented product also after expira-
It is still good practice, however, to include the tion of the patent. When filing a trademark for a
traditional copyright notice where applicable. patented product, the applicant should, however,
Very often a copyrighted work carries the notice remember that one cannot get trademark protec-
All Rights Reserved, in addition to the copyright tion for any functional features.
symbol. This is because the All Rights Reserved
designation is required under the Buenos Aires
Copyright Convention, which is important in 10. IP Infringement
several South American countries. Patent infringement can be either direct or indirect.
Direct infringement is either literal or it takes place
under the Doctrine of Equivalents. Direct infringe-
9. Integration of IP rights ment occurs when a party makes, uses, offers to sell,
A question that often comes up is whether a or sells any patented invention, within the United
party can one have a patent and a trade secret States, or imports the patented invention in the
simultaneously? At first sight it might seem that United States during the patent term without the
patents and trade secrets would exclude each patentee’s authorization during the term of patent.
other: patent application will become public, at An infringement is literal when every limita-
the latest, when the patent is issued, and trade tion recited in any claim in the patent appear in
secret has to be kept in secrecy. Furthermore, the alleged infringing product or process. If the
the patent law requires the patent applicant to alleged infringing product or process is missing
disclose the best mode of the invention in the on one of the claim limitations, there is no literal
patent application. It seems as if there would infringement.

CHAPTER 4.1
In a case where the accused product or pro- John Dodds, Founder, Dodds & Associates, 1707 N Street
cess is missing a component or step of the claims, NW, Washington, DC, 20036, U.S.A. j.dodds@doddsasso-
there can still be direct infringement, if the ac- ciates.com
cused product or process has a component or step Anatole Krattiger, Research Professor, the Biodesign
that is insubstantially different from the missing Institute at Arizona State University; Chair, bioDevel-
one. Such a case is known as infringement under opments-International Institute, and Adjunct Professor,
the Doctrine of Equivalents. In such a case, the Cornell University, PO Box 26, Interlaken, NY, 14847,
alleged infringing device (or method) substantial-
ly performs the same function, in the same way,
with the same result as the patented invention. 1 Article I, Section 8, Clause 8.
In addition to direct infringement, the pat- 2 Some 30 years later, in 1474, the first patent law was
enacted, called the “Inventor Bylaws,” also in Venice.
ent law describes indirect infringement. Indirect
infringement can be either induced infringement 3 See, also in this Handbook, chapter 4.4 by JP Kesan, and
chapter 4.6 by J Dodds, A Krattiger and SP Kowalski.
(knowingly aiding another in an act of infringe-
4 See, also in this Handbook, chapter 10.2 by RL Cruz.
ment; aiding and abetting infringement) or a
5 See, also in this Handbook, chapter 4.7 by M Blakeney.
contributory infringement (knowingly selling an
article that has no other use than as part of a pat- 6 See Dodds et al., supra note 3.
ented invention).24 7 See, also in this Handbook, chapter 10.7 by AM

Schneiderman; chapter 10.8 by R Yin and S Cunningham;
A copyright is infringed if the defendant cop- and chapter 10.6 by AS Viksnins and AM McCrackin.
ied from the plaintiff’s copyrighted work. A plain-
8 35 U.S.C. 101.
tiff can prove copying through direct evidence of
9 Diamond v. Chakrabarty. 447 U.S. 303 (1980).
copying, or through circumstantial evidence that
10 State Street Bank v. Signature Financial Group. 47 U.S.P.Q.
the defendant had access to the plaintiff’s work 2d 1596. This case was the most important case to
and the work is substantially similar to the work establish the concept of business-method patents. As
of the plaintiff. a result, during fiscal year 2001, the U.S. Patent Office
was expecting to receive about 10,000 business-
method patent applications. This was in a year the
U.S. Patent Office issued only 433 business-method
11. So I have intellectual property. patents.
Now what? 11 35 U.S.C. § 102(a).
Evidently, intellectual property is really only use- 12 Rosaire v. Baroid Sales. Div. 218 F 2d 72.
ful if indeed the invention is used, applied, and 13 Kimball Int’l Inc. v. Allen Organ. Co. 212 U.S.P.Q. 584.
incorporated into a productive process. This can 14 Ritter v. Rohm & Haas Co. 271 F. Supp. 313.
be done either by those who own it or by au- 15 35 U.S.C. 102(b).
thorized third parties, called licensees. Inventing
16 Brenner v. Manson, 383 U.S. 519 (1966).
something new is important. Protecting such an
17 See, also in this Handbook, chapter 4.3 by W Needle.
invention might also be important. But bringing
18 See, also in this Handbook, chapter 4.8 by J Dodds, S
an invention from “bench to bedside” is undis- Somersalo, SP Kowalski and A Krattiger.
putedly the most important. For this, IP protec-
19 Musical works, graphic, pictorial or sculptural works,
tion might not always be the most efficient way as motion pictures, or other audiovisual works are not
other chapters in this Handbook suggest.25 Equally included in this exception.
important are the complex decisions regarding 20 Note that libraries may make copies of entire works if
when, to whom, and how to license intellectual the work cannot be obtained after a reasonable search
and at a reasonable price. This exemption is also the
property in order to optimize both economic and
basis of the fair-use doctrine that libraries may copy
humanitarian value.26 Suffice it to say that the and place materials on course reserve.
form of protection chosen for a given invention 21 18 U.S.C. §§ 1831–1839.
should be guided by the mission of the institution 22 For further information on trade secrets, especially
and the purpose of the work conducted, as well as the licensing of trade secrets, see, in this Handbook,
by the specific subject of the invention. n chapter 11.4 by KF Jorda.

DODDS & KRATTIGER
23 See, also in this Handbook, chapter 8.2 by JA Thomson.

24 See, also in this Handbook, chapter 17.26 by M
Goldman.
25 For example, see, in the Handbook, chapter 10.1 by S
Boettiger and C Chi-Ham.
26 See Sections 2 and 10 in this Handbook.

CHAPTER 4.2
How to Read a Biotech Patent

Carol Nottenburg, Principal/Patent Lawyer, Cougar Patent Law, U.S.A.
ABSTRACT starting from the date on which the application

This chapter provides an annotated description of a sam- for the patent was first filed. Extensions of the
ple U.S. patent. The U.S. patent is a convenient model
patent term may be available in cases of regula-
because its format is well laid out and is similar to the
required formats of patents granted in other major juris- tory or patent office delays that were imposed be-
dictions, including Europe. fore a product is commercialized. Significantly, a
patent grant is only legally binding in the country
in which it was awarded.
Introduction
A patent is an exclusionary grant of intellec-
tual property (IP) rights, typically awarded by 2. Patent publication
a government through a patent office, and ef- Box 1 (at the end of this chapter) contains the
fective for a limited period of time. Article 28 front page of U.S. Patent No. 6,551,586,1 and
of the Agreement on Trade-Related Aspects of Box 2 contains extracts of U.S. Patent No.
Intellectual Property Rights (TRIPS), bind- 5,723,765 (hereafter referred to as “the ’765
ing for member countries of the World Trade patent”).2 A cursory review of the ’765 patent
Organization (WTO), states that a patent owner reveals that it has three main sections:
has the right “to prevent third parties … from the • a front page, which presents bibliographic
acts of: making, using, offering for sale, selling or information (Box 2a, also at the end of this
importing” the protected product. If the protect- chapter),
ed invention is a process, the owner can prevent • text, which describes the invention (Box
third parties not only from using the process, but 2b), and
also from using, offering for sale, selling, or im- • claims, starting in column 35 (Box 2c),
porting “at least the product obtained directly by which define the limit of the protected
that process.” It is important to note that under invention.3
TRIPS the patent owner does not have the right
to practice her or his invention, only the right to 2.1 Cover Page
prevent others from practicing it. The cover page primarily contains bibliographic
The TRIPS Agreement requires the time information, historical facts about prior patent
limit of the patent (patent term) to be at least applications, and identifying elements, none of
20 years. Most countries allow a 20-year term, which has any legal import for interpreting the
Nottenburg C. 2007. How to Read a Biotech Patent. In Intellectual Property Management in Health and Agricultural Innova-
tion: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A.
© 2007. C Nottenburg. Sharing the Art of IP Management: Photocopying and distribution through the Internet for non-
commercial purposes is permitted and encouraged.

NOTTENBURG
patent. The bracketed number adjacent to each have signed over the rights to the inven-
data subsection is used by the patent office for tion. Typically, an inventor who is also an
internal identification purposes. employee in a company or university is ob-
At the top of the cover page is the vital iden- ligated to formally assign invention rights
tification of Patent No. 6,551,586 (Box 1): to the employer. In the United States, such
[12] nature of the publication. In this case, assignment documents are recorded by the
United States Patent and, below, the first patent office and are publicly accessible,
inventor’s name, Davidson et al.4 once the patent application is published.
[10] patent number. In the United States, the The identity of the owner of a patent is
patent number is sequentially assigned by public knowledge, but the identity of those
the patent office. Prior to early 2000, the who have licensed a patent is not necessar-
patent number was the only publication ily available to the public.
number.5 [21] application number. Assigned by the pat-
[45] date the patent was issued. This date (in ent office
this case, Apr. 22, 2003) is important for [22] filing date of the subject patent applica-
two reasons: (1) if the patent was not pub- tion. If there are no related U.S. applica-
lished as a patent application, then this is tion data (see below), this date is used to
the date it became public knowledge and determine the beginning of the 20-year
thus prior art for non-U.S. jurisdictions;6 patent term.
and (2) in the case of applications filed [63] related applications. It is from these re-
in the United States prior to the General lated applications that the patent claims
Agreement on Tariffs and Trade (GATT) priority. The United States is unusual in
treaty (8 June 1995), as in this example, it allowing applications to be refiled, either
is the date that initiates the patent term.7 with or without new disclosure. A refiled
application is called a continuation, or, if it
The remainder of the front page presents the contains new disclosure, a continuation-in-
main bibliographic data: part. U.S. Patent 6,551,586 was filed on
[54] title of the patent. Should be representative 27 November 1998 (field 21); however, an
of the content, is written by the inventors earlier application filed on Jan. 29, 1996
or their attorney and has no impact on the (serial number 08/593,006) contained at
interpretation of the patent. In many cases, least some of the disclosure of the subject
the title is wishful thinking. patent; in other words, this patent is a con-
[75] inventor(s)’ name(s) and place(s) of resi- tinuation-in-part of the earlier application.9
dence. For patent purposes, the order of As the patent term begins from the filing
the names is not important; the applicant date of the earlier application, this patent
determines the order, not the patent office. expires on 29 January 2016.
In the United States, the inventors and their [60] provisional applications. The filing date
assignees (see below) can independently of a provisional application does not af-
practice or license all of the patent rights fect the patent term, but it is critical for
without the permission of the other inven- considering prior art that might affect
tors. It is important to note that Australia patentability.
and Europe, among other countries, have [51] International Patent Classification (IPC)
the opposite rule: an inventor cannot prac- code. A combination of letters and num-
tice or license patent rights without the bers.10 A patent application’s IPC code is
permission of the other inventors. assigned by the national or regional patent
[73] assignee(s) and his/her/their place(s) of office that publishes it. The IPC is an indis-
business.8 An assignee is an owner of the pensable tool for patent-issuing authorities,
patent because an inventor or inventors potential inventors, attorneys, and others

CHAPTER 4.2
concerned with the application or develop- d. background of the invention

ment of technology. e. summary of the invention
[52] U. S. Classification Code. Assigned by the f. description of the drawings
U.S. Patent Office. g. detailed description of the invention
[58] field of search. Contains the U.S. classifica- h. listing of relevant nucleotide and peptide
tion codes that the examiner used to per- sequences
form searches for prior art. i. claims defining the scope of the invention
[56] references. Subdivided into U.S. patent
documents, foreign patent documents, and 2.3 Background of the invention
other publications that the examiner con- The background is typically drafted for the patent
sidered when evaluating the patentability examiner and a jury audience, in case the patent
of the claimed invention.11 is ever litigated. It compares selected art in the
[no number] examiners. The names of the field with the current invention and explains why
primary examiner at the patent office and the current invention is necessary. As one can see
the assistant examiner (if any). from downloading the full patent (and the extract
[74] attorney, agent, or firm. Representatives of on Box 2b), a large part of the background of the
the inventor or assignee. ’765 patent explains the technologies of several
[57] abstract. A short description of the inven- relevant references.
tion written by the applicant(s). The ab-
stract enables the patent office and the 2.4 Summary of the invention
public to quickly determine the content of The summary of the invention is distinct from the
the patent. Although the “abstract shall not abstract and summarizes the scope of the inven-
be used for interpreting the scope of the tion (the claims). It often discusses the advantages
claims,” courts have taken it under consid- of the invention or explains how it solves prob-
eration on one or two occasions.12 lems existing in the art.
[no number] number of claims and draw- The summary of the ’765 patent discusses
ings. In this patent, there are eight claims the invention as embodied in the claims. It also
and 13 drawings. describes the specific advantages of the invention
(see, for example, col. 1, lines 61–64; col. 2, lines
2.2 Text of the patent 1–6; and col. 2, lines 51–54; not shown here).
The text of the patent is also called the disclosure The inventors believe that the advantages of their
(In the United States, it may also be called the invention include: positive control of gene expres-
specification). According to the TRIPS Agreement, sion by an external stimulus without the need for
the invention must be disclosed “in a manner suf- continued application of the stimulus, the ability
ficiently clear and complete for the invention to be to grow plants under various conditions with ex-
carried out by a person skilled in the art” (Article pression of different phenotypes, and the ability
29.1). Each country specifies its own require- to develop seed where a trait is desirable only in
ments; the U.S. Patent Office requires a written the first or in subsequent generations.
description of the invention, a so-called enable-
ment, and a so-called best mode.13 2.5 Detailed description of the invention
The layout of the patent varies somewhat The detailed description of the invention is the
from country to country. The United States and most substantial section of the patent. It is made
Europe have a similar required layout, except that up of two sections: the first section (col. 2, line
(b) and (c) below are unique to the United States: 58–col. 8, line 40) explains the invention and how
a. title of the invention to practice it; the second section (col. 8, line 43
b. cross-reference to related applications to col. 20, line 33) provides specific examples of
c. statement regarding federally sponsored re- the invention. Many new readers mistakenly as-
search, if applicable sume that examples are intended to delineate how

NOTTENBURG
the invention must be practiced or used, but this sequences). These paragraphs support the scope
is not the case. The examples are merely meant of the inventors’ claim. In col. 6, lines 47-60,
“to illustrate, but in no way to limit, the claimed the inventors define “lethal gene,” then provide
invention.” While examples are not required by a single example (saporin-6, which acts by cleav-
the patentability statutes, in practice the enable- ing the large ribosomal RNA molecule and thus
ment requirement is difficult, if not impossible, inhibiting protein synthesis). Overall, the disclo-
to satisfy for biotechnology inventions without sure in this patent is relatively thin.
examples. The next four paragraphs (col. 7, line 49–col.
Paragraphs 1 and 2 describe the broadest 8, line 29) discuss the techniques that can be used
concept of the invention, explaining how DNA to transform the target plant (col. 7, lines 62-65).
constructs are used to create transgenic plants This is a classic style of patent drafting and clearly
and then describing how the invention works to indicates that the actual method used for trans-
control gene expression. formation is not critical. Other methods of in-
Paragraphs 3–11 (col. 4, lines–1-39) set forth troducing the DNA constructs are described in
some definitions of key terms. Definitions are ex- paragraphs 21–23.
tremely important in interpreting the scope of Finally, paragraph 24 (col. 8, lines 30–40)
the claims. For example, this patent defines the discusses suitable plant species. The inventors do
term “plant-active promoter” as “any promoter that not believe that the process they describe need be
is active in cells of a plant of interest.” The pro- limited to particular species.
moter can be derived not only from plants, but The next section presents the examples.
also from viruses, bacteria, fungi, and so on. This Typically, the examples show how one or more
list only provides examples of sources from which specific embodiments of the invention could be
promoters can be derived and the inventors do put into practice. The examples may or may not
not intend it to be exhaustive. be based on successful experiments performed
The next three paragraphs (col. 4, line 10– by the inventors. If the experiments have been
col. 5, line 47) describe preferred embodiments performed, the examples are called “working” ex-
of the invention. These are usually more limited amples; if not, the examples are called “prophetic”
versions of the broadest concept. They provide a examples and are always written in the present or
“safety net” for the inventors in case the broader future tense. In the ’765 patent, examples 1–6
concept is not patentable. (Box 2c) describe the cloning of three DNA se-
In paragraph 12 (col. 4, line 10), the pre- quences: (1) a lethal gene, saporin-6, under control
ferred embodiment is a “transiently-active proof a late embryogenesis promoter, and separated
moter” (active only in late embryogenesis) and by a blocking sequence, LOX; (2) a tet repressor
a “gene linked to this promoter” that is a “lethal gene under the control of a CaMV 35S promoter;
gene.” The next two paragraphs describe an em- and (3) a CRE (recombinase) gene under the con-
bodiment in which a pair of transgenic plants is trol of a tetracycline-derepressible 35S promoter.
crossed to produce progeny that display an al- Examples 7–10, which describe the introduction
tered phenotype, and an embodiment in which of the constructs into plants and activation of the
the recombinase is linked to an inducible pro- system are written in a future tense because the
moter. In addition, the paragraph provides a few relevant experiments were not performed as of the
examples of inducible promoters. filing date of the application.
The next several paragraphs (col. 5, line
48–col. 7, line 48) define and give examples of 2.6 Sequence listing
some of the important elements of the claim The sequence listing includes all nucleic acid
(transiently active promoters, genes whose ex- molecules mentioned in the patent application
pression results in a detectable phenotype, lethal that are comprised of at least 10 nucleotides and
genes, blocking sequences, repressor and re- all peptide sequences comprised of at least four
pressible promoters, and recombinase/excision amino acids.

CHAPTER 4.2
2.7 Claims Furthermore, there are two kinds of claims:

The claims must “particularly point out and dis- independent and dependent. An independent
tinctly claim the subject matter which the appli- claim (for example, claims 1, 10, 19, 28, 37, 46,
cant regards as his invention.”14 The claims define and 55) includes all necessary limitations and
the boundaries of the patent owner’s right against does not depend on nor include limitations from
possible infringement. any other claim. Curiously, although dependent
Each claim must be written as a single sen- claim is defined in the patent rules of the United
tence. A claim is presented in two parts, the pre- States, independent claim is not. U.S. patent rules
amble and the body, with a transition word or state that a dependent claim must “refer[s] back
phrase between them. to and further limit[s] another claim or claims.”16
• The preamble is an introductory statement Moreover, a dependent claim “shall be construed
that names the subject of the claim. For ex- to include all the limitations of the claim incorpo-
ample, the preamble of claim 1. is: “A method rated by reference.”17
for making a genetically modified plant.” Claim 4. of the ’765 patent is an instructive
• The body of the claim describes the ele- dependent claim. Since claim 4. depends upon
ments or steps that compose the claimed claim 1., the transiently active promoter is lim-
subject. In claim one, the body of the claim ited to the LEA promoter. All other elements of
consists of the steps of “stably transforming claim 1. remain intact and are not limited any
…” and “regenerating …” further.
Dependent claims serve several very impor-
The transition words or phrases between tant purposes. In the first place, they help with
the preamble and the body of the claim indi- so-called claim differentiation: in patent law, no
cate whether the claim encompasses at least the two claims can have the same scope. Therefore,
listed elements or steps or whether the claim en- the transiently active promoter in claim 1. must
compasses only the listed elements or steps. The encompass more than the LEA promoter men-
transition word comprising means “including the tioned in claim 1.; otherwise, claims 1. and 4.
following elements but not excluding others.”15 In would have the same scope. Dependent claims
claim one of the ’765 patent, comprising is used are also written to protect specific embodiments
in two places: (1) in the preamble (“A method... of an invention. Should the main claim fail in a
comprising …”) and (2) in the body (“a … DNA court case, a dependent claim may still stand. In
sequence comprising …”). If someone were to use addition, it is easier for a jury to have the alleged
the patented method with small changes—addi- infringing activity clearly spelled out.
tional steps or a DNA sequence with additional
elements, for example—he or she would still be
infringing on the claim. 3. Conclusion
In contrast, the transition “consisting of ” Patent documents contain substantial information
limits the claim scope to the recited elements or that has value to researchers, even if infringement
steps. If the claim were “a DNA sequence con- isn’t an issue. While many patent documents are
sisting of ACGTGC,” a person would be able to readily available on the Internet for free—gener-
make the DNA sequence “ACGTGCTA” with- ally from patent offices—they may not always be
out infringing on the claim. capable of being understood or appreciated. One
The meaning of the transition phrase con- reason for inaccessibility is that patent applica-
sisting essentially of falls somewhere between the tions are written in a special style that does not
other two. It indicates that the patent does not follow the conventions of scientific or technical
regulate the use of variables that do not affect literature. To understand a patent document, a
the basic and novel characteristics of the meth- roadmap helps until the route is familiar.
od or product. It is not often used in biotech- This chapter provides a roadmap for read-
nology patents. ing a patent document. The various sections of a

NOTTENBURG
document are explained in view of their purposes. not claimed are prior art against other U.S. applications
The purposes especially delineate the amount and and patents, as of their filing date. 35 U.S.C. § 102(e).
type of reliance that can be made of each of the 7 Before the GATT treaty implementation, the patent
term in the United States was 17 years from the date of
sections. Each section contains its own set of use-
issuance. Under GATT, the patent term is 20 years from
ful information. The importance of the claims is the earliest claimed priority date.
paramount for knowing the boundaries of the 8 An assignee in the United States is called an applicant
patent right, however, interpreting claims re- in the rest of the world.
quires more of a roadmap than this chapter pro- 9 Priority applications determine both patent term and
vides. Even without a full appreciation of claim which prior art can be applied in a patent examination.
boundaries, much information may still be ob- A particular claim has a priority date as of the earliest
application that contains the patentable subject
tained from patent documents. ■ matter. Art available after the priority date cannot
be cited against the claim. In practice, U.S. examiners
rarely determine the priority date of a claim, whereas
Carol Nottenburg, Principal/Patent Lawyer, Cougar European examiners frequently review priority
Patent Law, 814 32nd Ave. South, Seattle, WA, 98144, applications to determine priority dates of claims.
U.S.A. carol.nottenburg@cougarlaw.com 10 The IPC system is a hierarchical classification system
administered by the World Intellectual Property
Organization. For more information on international
1 patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO1&S classifications and IPC, see WIPO’s Web site at
ect2=HITOFF&d=PALL&p=1&u=%2Fnetahtml%2FPT www.wipo.org.
O%2Fsrchnum.htm&r=1&f=G&l=50&s1=6,551,586. 11 In the United States, each individual associated with
PN.&OS=PN/6,551,586&RS=PN/6,551,586. the filing and prosecution of a patent application (for
2 patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO1&S example, inventor, patent attorney, assignee) has a
ect2=HITOFF&d=PALL&p=1&u=%2Fnetahtml%2FPT duty to disclose all material information to the patent
O%2Fsrchnum.htm&r=1&f=G&l=50&s1=5,723,765. office.
PN.&OS=PN/5,723,765&RS=PN/5,723,765. 12 37 C.F.R. 1.72(b).
3 More typically, patents contain four sections with 13 The written description shows that the inventor has
drawings comprising the last section. the invention in mind. The enablement describes the
4 In the United States, a patent application must be invention clearly enough that one skilled in the art
filed for in the name of the inventors. In most of the can understand it, make it, and use it without undue
rest of the world, patent applications can be filed for experimentation. In the best mode, an inventor
in the name of the inventors or in the name of the discloses the most effective method of practicing or
assignee(s). using the claimed invention. The patent office does
5 Patent applications are generally published 18 months not ask applicants whether or not they have disclosed
after the earliest priority application date. Depending the best mode, a question which usually only arises
on the country, the publication number may or may during litigation.
not differ from the patent number. If the numbers 14 35 U.S.C. § 112.
are the same, a suffix is usually used to denote the 15 Equivalent words are having and including, but most
status of the application. For example, in Europe, the practitioners use comprising because it has become a
publication and patent numbers are the same, but the standard term of art.
suffix A is used to indicate an application and B is used
to indicate an issued patent. 16 37 C.F.R. 1.75(c).
6 In the United States, inventions that are disclosed but 17 See supra note 16.

CHAPTER 4.2
Box 1: Sample Front Page of Issued U.S. Patent

NOTTENBURG
Box 2a: Front Page of Patent No. 5,723,765

CHAPTER 4.2
Box 2b: Extract of Patent No. 5,723,765 Describing the Invention

NOTTENBURG
Box 2c: Extract of Patent No. 5,723,765 Containing the Claims

CHAPTER 4.3
Trademark Primer
WILLIAM NEEDLE, President and Founder, Needle and Rosenberg PC, U.S.A.
ABSTRACT 1. INTRODUCTION
Trademarks, in the broadest sense, encompass a range This trademark primer is intended both to provide
of indicators for goods and/or services, including ser-
a general understanding for technology transfer
vice marks, collective marks, certification marks, trade
names and trade dress. A trademark, which may be a practitioners and to introduce a protection tool
name, symbol, feature, or design, functions as an indi- for those who might, in the future, need to license
cator of source and identifies and distinguishes a good trademarks for their own inventions or those of
or service, enabling customers to ascertain the quality others. As trademarks are a distinct, legal form of
of the good (or service) based on the trademark. Unlike
other forms of intellectual property rights (for example, intellectual property (IP), a working knowledge of
copyrights and patents), the rights extended by trade- trademarks will be useful for individuals who are
marks are not generated from the creative activity of active in the field of technology licensing.
an author or inventor, but rather via their use in com- While trademarks, patents, and copyrights
merce, and it is the customer’s association of the trade-
all are referred to as IP, they do, of course, serve
mark with a specific product (or service) that is the key
factor in establishing rights. The relative effectiveness different functions: patents protect inventions,
of a trademark depends on its degree of distinctiveness. trademarks protect unique product or service
By way of classifying trademarks, a hierarchy based on identifiers, and copyrights protect original artistic
strength of protection, from fanciful to merely descrip- or literary works. While the meaning of inven-
tive, has been established. Whereas fanciful trademarks
are inherently distinctive because they are terms invent- tion is generally known, the distinction between
ed solely for a specific purpose (for example, Kotex), a trademark and a copyright is often confused.
descriptive marks (for example, Chap-Stick) must ac- As an example, the contents (for example, for-
quire secondary meaning to become protectable. In the mat, photos, text) of a periodical are protected
United States, trademarks are protected by both state
and federal laws. Although federal trademark registra-
under copyright law, but the title of a publication
tion is not necessary to assert trademark rights, it af- (such as Newsweek) is protected under trademark
fords many advantages and benefits to the owner, and law. More information about these topics can be
hence is by far the preferred means of protection. It is found on the World Wide Web.1
important to remember, however, that trademarks must
Unlike patents and copyrights, trademarks
always be maintained, protected, and correctly used.
Their strength, and therefore value, is directly linked to (often called brands or marks) are regulated under
public perception. federal and state laws. A mark may be registrable
Needle W. 2007. Trademark Primer. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook
of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online
at www.ipHandbook.org.
Editors’ Note: We are most grateful to the Association of University Technology Managers (AUTM) for having allowed us
to update and edit this paper and include it as a chapter in this Handbook. The original paper was published in the AUTM
Technology Transfer Practice Manual (Third Edition, Part IV: Chapter 2.4).
© 2007. W Needle. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

NEEDLE
in the United States under the federal trademark golden arches, the five interlocking
legislation known as the Lanham Act (Title 15 of Olympic rings)
the U.S. Code of Federal Regulations). Federal • a combination of a word or words plus a
registration provides protection throughout the symbol, pictorial representation, or de-
United States. A mark may also be registrable in sign (the word Nestea plus its design, the
individual states; registration in a particular state phrase Cabbage Patch Kids plus its design
is enforceable only inside that state. Registration [see Figure 1])
is not required to establish rights in a mark; ac- • numerals, letters, or combinations thereof
tual use in commerce is all that is necessary. A (Levi® 501® Original Jeans, IBM®, V8®
federal application can be filed in the U.S. Patent [juice made by Campbell Soup Co.])
and Trademark Office (PTO) based only upon a • the shape of a container or other packag-
good-faith intent that the mark will be used in ing (Coke’s bottle shape, the conical shape
interstate commerce, but a registration will not of the top of a Cross pen, the shape of
issue until actual use of the mark occurs in inter- Toblerone chocolate packaging)
state commerce. Unregistered marks are protect- • color (The Home Depot’s orange, Owens
able under common law but only in the market Corning pink insulation)
area in which they are actually used. • sound (MGM’s lion roar, NBC’s chimes)
• scent (“the high impact, fresh flower fra-
grance reminiscent of Plumeria blossoms”
2. TERMINOLOGY owned by Celia Clarke, doing business as
Clarke’s OSEWEZ)
2.1 Trademark
A trademark, or brand name, is any word, name, 2.2 Service mark
symbol, device, or any combination of these ele- A service mark is similar to a trademark; however,
ments that is adopted for use in commerce by a the service mark is used in the sale or advertising
manufacturer or businessperson to (1) identify the of services, rather than goods. A service mark is
company or person’s goods or products, (2) distin- used to identify the services of one person and
guish those goods from goods manufactured or sold to distinguish them from the services of others,
by another person or company, and (3) indicate (McDonald’s® and Office Depot®). Service marks
the source of the goods carrying the trademark. are afforded the same legal protection as trade-
Examples of what may function as a trademarks and are registrable in the same manner and
mark include the following: have the same effect.
• a word or group of words, such as a slogan
(Tide®, Cabbage Patch Kids®, Don’t Leave 2.3 Trade name
Home Without It®) Normally, the name of a business entity is not
• a logo, symbol, pictorial representation, or registrable unless it is also used as a trademark
design (Nike’s Swoosh symbol, McDonald’s or service mark, that is, in conjunction with the
Figure 1: Sample Trademark

CHAPTER 4.3
goods and/or services of the business entity. A trade site, it is being used to identify the source of spe-
name is usually identified by its ending in the term cific services and, therefore, is acting as a service
Company/Co., Corporation/Corp., Incorporated/ mark. Similarly, the domain name Amazon.com
Inc., or Limited/Ltd. (for example, McDonald’s also functions as a service mark because it, along
Corp. [trade name] versus McDonald’s® restau- with the service mark Amazon®, is used in advertis-
rants [service mark]). Trade name infringement is ing to designate the source of the services.2
actionable under federal and state laws.
2.6 Certification marks
2.4 Trade dress Certification marks certify that products or servic-
Trademark protection has been expanded by courts es manufactured or provided by others have cer-
beyond words, slogans, symbols, and other devices tain qualities. Vidalia® of Vidalia onions provide
to protect distinguishing, albeit unregistered, fea- an example. According to Georgia’s Department
tures of products. While trade dress originally referred of Agriculture, “The certification mark is intend-
exclusively to a product’s packaging or dressing that ed to be used by persons authorized by the certifier
was not protectable by registration, the concept has and will certify that the goods in connection with
grown to include product designs, for example, the which it is used are yellow Granex type onions and
decor of a chain of Mexican restaurants (“a festive are grown by authorized growers within the Vidalia
eating atmosphere having interior dining and patio onion production area in Georgia as defined in the
areas decorated with artifacts, bright colors, paint- Georgia Vidalia Onion Act of 1986.”3
ings, and murals”) and even sales techniques, such
as Original Appalachian Artworks’ simulation of 2.7 Collective marks
adoption procedures and provision of birth certifi- Collective marks are used by members of a group or
cates for the Cabbage Patch Kids® dolls. organization to identify the goods it produces or
To recover damages for trade dress infringe- services it provides. An example of a collective mark
ment, a plaintiff must prove by a preponderance is ILGU® (International Ladies Garment Union).
of evidence that (1) the trade dress has obtained
secondary meaning in the marketplace (that is,
that the primary significance of the trade dress, in 3. SELECTION AND ADOPTION OF A MARK
the minds of the public, is to identify the prod-
uct’s source rather than the product itself ); (2) the 3.1 Types of marks
trade dress of the two competing products is con- A hierarchy of marks exists within this protection
fusingly similar; and (3) the appropriated features system, with the more distinctive marks being af-
of the trade dress are primarily nonfunctional. forded a wider scope of protection than the less
distinctive ones. The order of marks from most
2.5 Domain names distinctive to least distinctive is: fanciful mark,
A domain name is a name that identifies one or arbitrary mark, suggestive mark, and descriptive
more Internet addresses and is part of the URL mark (see Figure 1). It is best to select a mark that
for a Web site (examples are .com, .org, and .net). is fanciful, arbitrary, or suggestive. As one might
Domain names do not act as marks in identifying expect, the more distinctive the mark, the better
the source of goods or services, however, where the chance of protecting and registering it.
a domain name is used as something other than A fanciful mark is one that is created solely for
merely an address, it becomes a trademark or a ser- the purpose of functioning as a mark and has no
vice mark. For example, in Amazon.com, the do- other meaning. Examples are Xerox®, Pentium®,
main name (.com) is functioning as a service mark Kodak®, Exxon®, Clorox®, Kotex®, and Polaroid®.
because .com is part of the identity of the service of An arbitrary mark is one that comprises
the Amazon.com Web site. For example, when the a common word or symbol that is arbitrarily
term Google® is used on the home page of Google applied to the goods or services in question
or is used in advertising or promoting the Web such that the word or symbol does not describe

NEEDLE
or suggest the product. Nor would the words denoting only one source (product or service) and
normally be associated with the product. the term is synonymous with that product or ser-
Examples are Command® (hair-care prod- vice (and, thus, functions as a mark), rather than
ucts), Shell® (gasoline), Apple® (computers), Ice merely being a descriptor of the goods or services.
Cream® (chewing gum), Guess?® (jeans), and Courts will often look to the following when de-
Die-Hard® (batteries). ciding whether a term is merely descriptive:
A suggestive mark is one that suggests, but • the amount and manner of use of the term
does not describe qualities or functions of a par- in advertising
ticular product or service. If the qualities are not • the volume of sales of products/services
instantly apparent from the mark, but with an bearing the mark
exercise of imagination could convey the char- • the length and manner of the term’s use
acteristics or qualities of the product or service, • the results of consumer surveys
the mark is “suggestive.” Examples are Crosstalk®
(software), Stronghold® (nails), 7-Eleven® (retail Marks that have been found to be merely
store services), Coppertone® (tanning products), descriptive include: Chap-Stick® (chapped lip
Rapid Shave® (shaving cream), Gleem® (tooth- treatment), Shear Pleasure® (beauty salon), Hair
paste), Roach Motel® (roach bait), Woolite® (wool Color So Natural Only Her Hairdresser Knows
cleaner), and Honey Maid® (graham crackers). for Sure® (hair coloring), Beef and Brew® (res-
Arbitrary, fanciful, and suggestive marks are taurants), Hour after Hour® (deodorant), and
inherently distinctive and are given a high de- Raisin-Bran® (cereal). To illustrate, the term bril-
gree of protection. liant would be merely descriptive for diamonds,
A merely descriptive mark generally affords suggestive for furniture polish, and arbitrary for
the narrowest scope of protection. The descrip- applesauce.
tive mark immediately identifies or brings to Finally, generic terms are the common name
mind the characteristics, qualities, ingredients, of a class of things and are, by definition, inca-
functions, composition, purpose, attribute, use, pable of indicating source and can never function
or other features of a product or service. A merely as a trademark or service mark (examples of ge-
descriptive mark is not protectable because the neric terms are blended whiskey, computer software,
word or words comprising the merely descriptive mouse, disk, or keyboard).
mark should be available for all competitors to In some cases, generic terms are those that,
use. It is sometimes difficult to distinguish a sug- at one time, functioned as trademarks but
gestive mark from a merely descriptive mark. A that, as a result of widespread use, lost their
merely descriptive term is protectable only when ability to function as a source identifier and
it holds a secondary meaning or distinctiveness, came to mean, to the general public, the prod-
that is, the consumer accepts and recognizes it as uct itself (specifically) rather than merely one
Figure 2: Types of Marks
Generic Merely Descriptive Suggestive Arbitrary Fanciful

s s s s s
Weakest Protection Strongest Protection

CHAPTER 4.3
manufacturer’s brand or version of the product. The companies will search the federal reg-
Such loss of distinctiveness in a trademark, so- ister and pending application records as well as
called genericide, happens when a mark, via phone directories, yellow pages, industrial direc-
misuse, becomes a generic term (for example, tories, and state trademark registers in an effort
Frigidaire® becomes equivalent with refrigera- to determine if a particular mark or a similar
tor) and thus, ceases to indicate the source and mark is already in use.
falls into the public domain where it is thereaf- Also, if use of the mark is contemplated in
ter owned by no one. any foreign countries, the trademark and ser-
Such former trademarks are numerous, in- vice mark records of those countries should
cluding: aspirin, cellophane, cola, cornflakes, cube be searched. Searching of trademark records
steak, dry ice, escalator, high octane, kerosene, lano- of countries such as Canada (File 127), France
lin, linoleum, mimeograph, Murphy bed, nylon, (File 657), Germany (File 672), and the United
raisin bran, refrigerator, shredded wheat, thermos, Kingdom (File 126) can be performed on the
trampoline, yo-yo, monopoly, and zipper. As an ex- Trademarkscan database.
ample, the term escalator was first used as a trade-
mark (Escalator® [moving stairs]) but, over time, 3.2.2 State trademark records
the public stopped using the term as a trademark The Trademarkscan database (for state records,
(an adjective, or modifier, such as in Escalator® File 246) can be utilized to search the trademark
stairs) and started to designate any moving stairs, and service mark records of all states.
regardless of the manufacturer, as escalator and Related information can be accessed using
thus, the trademark term became the name of Internet searches. Network Solutions’ Web site12
the product. provides a convenient search tool to determine if
a proposed mark is being used in a domain name
3.2 Preadoption investigation and who owns it (the “WOSIT” button). One
Once a mark is selected, but prior to its use, a can also use a browser to search for directly con-
thorough search should be undertaken to de- flicting Web sites or for business names across the
termine whether the mark is available for both country. The following sites are useful for such
use and federal registration. Sources of informa- searches:
tion on existing registered marks are discussed • Big Book13
below. • Switchboard14
• GTE Superpages15
3.2.1 Records of the U.S. Patent and • World Pages16
Trademark Office • ZIP217
A prospective trademark user is charged with con-
structive notice of any identical or confusingly 3.3 Misconceptions
similar mark that is federally registered. A search Below is a list of some common misconceptions
of the PTO records can be conducted online on about trademark protections:
the PTO database,4 by hand in the office records, • The fact that an individual has incorporat-
or by means of the Trademarkscan® database5 (File ed, qualified to do business under a name,
226)6 of Dialog services. Also, File 116 (brand or registered the name in the assumed
names) of Trademarkscan can be searched. name records of a particular state does not
Private search companies undertake record automatically bestow to that individual
searches for a fee. These companies include: the right to use the name as a mark.
• Thompson & Thompson7 • A person does not have an absolute right
• Dialog8 to use his or her own name as a trade-
• Questel/Orbit9 mark or service mark (for example, Old
• Micropatent10 McDonald would likely be barred from
• Corsearch11 using his surname as a trademark and

NEEDLE
service mark for his own national chain of (2) on services when it is used or displayed in
fast food hamburger franchises). the sale or advertising of services and the
• Registration in one state (or jurisdiction) services are rendered in commerce, or the
of a mark for use as a trademark or service services are rendered in more than one State
mark does not necessarily allow use of the or in the United States and a foreign coun-
mark elsewhere. try and the person rendering the services is
• Even though a mark appears in an aban- engaged in commerce in connection with
doned application or an expired registra- the services.
tion, the owner of that mark may still be
using it, and, thus, have protectable com- 4.2 Advantages of registration
mon law rights against a subsequent user. Registration of a mark on the Principal
Register18 of the U.S. Patent Office allows
an owner to:
4. REGISTRATION OF A MARK IN THE PTO • prevent registration of the identical or
confusingly similar marks
4.1 Process • secure injunctive relief and damages
It is not necessary to obtain either a state or fed- against infringers nationally in federal
eral registration to be able to protect a mark, as court (whereas unregistered marks may
rights in a mark are based upon use, not regis- be protectable only in the specific market
tration, of the mark. Generally, the owner of where they are used)
a mark is considered to be the first person or • assert the registration in federal court as
company to use a mark, or to file an intent- prima facie evidence of the validity of
to-use application in the PTO, for a particular the registration, of the ownership of the
product or service or for related products and mark, and of the right to exclusively use
services. However, registration of a mark in the the mark in commerce
PTO is highly recommended, as registration • have the mark treated as incontestable af-
confers significant nationwide benefit upon the ter five years’ use
owner, even if the actual use in commerce of the • eliminate the defense of innocent adop-
mark is limited to a small geographic area—the tion by anyone using the mark after the
term commerce is broadly construed to mean date of registration, thereby affording na-
any commerce that may lawfully be regulated tionwide protection to registered marks,
by the U.S. Congress. regardless of the areas in which the mark
The Trademark Act (15 U.S.C. § 1127) is actually used
defines use in commerce as follows: • prevent the importation of goods bearing
The term use in commerce means the bona infringing or counterfeit marks by record-
fide use of a mark in the ordinary course of trade, ing the mark with U.S. Customs
and not made merely to reserve a right in a mark.
For purposes of this Act, a mark shall be deemed to 4.3 Actual use versus intent-to-use
be in use in commerce: applications
(1) on goods when (A) it is placed in any A dual-application system exists in the PTO that
manner on the goods or their containers permits the filing of trademark/service mark ap-
or the displays associated therewith or on plications based upon an intent to use the mark,
the tags or labels affixed thereto, or if the as well as applications based on actual use of the
nature of the goods makes such place- mark in commerce. However, while an applica-
ment impracticable, then on documents tion may be filed based on a bona fide intent to
associated with the goods or their sale, and use the mark, the applicant will still have to make
(B) the goods are sold or transported in actual use of the mark in commerce before the
commerce, and mark can be registered.

CHAPTER 4.3
The intent-to-use procedure encourages the • the strength or weakness of the

early filing of an application because, while the plaintiff’s mark
application is pending, the applicant will have the • similarity of the marks in sound (for ex-
benefit of constructive-use priority. Thus, subject ample, SO found confusingly similar to
to the mark actually being registered, the appli- Esso), appearance (Old Forester infringed by
cant will have prior rights in the mark against Old Foster), or meaning (Tornado for wire
all others nationwide (except for those who used fencing held confusingly similar to Cyclone
the mark before the application was filed, or who [wire fencing])
filed an earlier application, or who had priority • similarity of the product or services
based on a foreign application). • likelihood that the prior owner will bridge
the gap between the parties’ respective
4.4 Term of a federal registration products or services
Federal trademark/service mark registrations are • presence or absence of actual confusion (ac-
valid for a period of ten years and are renewable tual confusion obviously being the best test
for ten-year periods as long as the mark remains of whether there is a likelihood of confusion
in actual use. occurring between two conflicting marks)
Additionally, between the fifth and sixth year • defendant’s good faith in adopting the mark
from the date of a federal registration, the regis- • sophistication of the potential purchasers
trant must file a declaration or affidavit that the (buyers of expensive goods may be more
mark is still in use as of that date (as of the sixth discerning purchasers and less likely to be
year after registration). An affidavit of use must confused between two similar marks for the
also be filed in the year prior to the end of each same goods)
registration term. Failure to file such a statement • channels of trade (the goods/services are
will cause the registration to be canceled by the sold, or are not sold, in the same mar-
PTO. keting channels to the same general class
of customers)
4.5 State registrations • similarity of the advertising media
A state registration does not confer the same
rights and benefits as a federally registered mark.
For example, a state registration is enforceable 6. THE “CARE AND FEEDING” OF MARKS
only within that state while federal registration Trademarks and service marks are valuable assets,
provides nationwide protection and constructive so their proper use, maintenance, and protection
notice.19 Usually there is no need to seek a state should be a paramount concern of the owner. It
registration if the mark is registered in the PTO. is critical to avoid misuse of a trademark, which
A state registration should be obtained only if the can destroy the legal significance of the mark, for
mark is not registrable in the PTO. example, misuse leading to genericide, with the
unfortunate outcome of a valuable trademark
becoming a generic term. There is also the neces-
5. INFRINGEMENT OF A MARK sity of maintaining trademarks so as to avoid any
Protection of a mark, whether registered or possibility of creating unfavorable commercial
not, involves actions against other marks that impressions; solid, strong, and maintained trade-
are likely to cause confusion. For a trademark marks are source indicators that attract business.
owner to prevail against an accused party, nei- Proper usage for trademarks and service marks
ther the respective marks nor the respective will go a long way to protect marks and prevent
goods or services need to be identical. Instead, genericide:
likelihood of confusion (the test for trademark • Always use the mark as a proper adjective that
infringement) is determined by considering the modifies a noun, such as Cabbage Patch Kids®
following factors: dolls, Levis® jeans, Xerox® copy machines.

NEEDLE
• Never use a mark in the possessive form, in will (that is, the owner’s reputation for quality in
the plural form, or as a verb. connection with the goods or services sold un-
• Avoid prefixes, suffixes, additions, or dele- der the mark). An assignment of a mark without
tions of the mark. the accompanying good will is an assignment in
• Distinguish the mark in use from sur- gross21 and is invalid. Also, an intent-to-use ap-
rounding text such as a distinctive typeface, plication cannot be assigned as there is nothing to
quotation marks, all capital letters or, at the assign until the mark is in actual use.
very least, capitalize the first letter of each
word of the mark.
• For marks registered in the PTO, use the 8. CONCLUSIONS
symbol of registration, namely, , or the When properly managed, maintained, protected,
®
phrase Registered in the U.S. Patent and and used, trademarks are a valuable form of IP
Trademark Office or Reg. U.S. Pat. Tm. Off. rights. In a comprehensive and coordinated IP
• For unregistered marks, use either the in- strategy, trademarks can augment other forms
formal notice TM or SM (or the corre- of IP rights protection, for example, patents
sponding symbols) or an asterisk indicating and trade secrets, and therefore should not be
A trademark/service mark of XYZ Company. overlooked as additional options in a layered IP
portfolio. A single product, such as crop variety,
The following ditty was a prize-winning sub- can have multiple forms of IP rights protection,
mission at the Coca-Cola Co., which should be kept including patents, trade secrets, and trademarks.
in mind to promote the proper usage of any mark: It is therefore important to understand what a
Three laws bind the Kingdom of Coke. trademark is, how to select a strong mark and es-
This trio must never be broke: tablish rights, the importance of registration, and
The “C” should be tall, the necessity of policing the trademark, whether
Not possessive at all, to maintain the integrity of licensees or to identi-
And the plural should never be spoke. fy potential infringers. Finally, strong trademarks
are distinct and specific indicators of source.
Protecting this function, an owner never wants to
7. LICENSES find his or her mark in a dictionary. That would
Never allow a third party to use your mark with- mean the mark had joined the ranks of the unfor-
out entering into a written license agreement, tunate victims of genericide, like the yo-yo. ■
which, at a minimum, enables you to monitor
and control the nature and quality of the goods
or services in connection with which the mark is WILLIAM NEEDLE, President and Founder, Needle and
Rosenberg PC, Suite 1000, 999 Peachtree Street, Atlanta,
being used by the licensee. Otherwise, you may
GA, 30309, U.S.A. bneedle@needlerosenberg.com
end up with a naked license,20 which could nega-
tively affect the distinctiveness of your mark, pos-
sibly leading to the de facto abandonment of the 1 For copyright information, go to www.copyright.gov;
for patent information, go to www.uspto.gov/main/
trademark. Also, provide in any license agreement
patents.htm. The U.S. Patent and Trademark Office has
for the licensee to notify you of potentially in- a very informative Web site at www.uspto.gov/web/
fringing marks so that you may police your mark, menu/tm.html.
as unauthorized uses of your mark will similarly 2 See www.uspto.gov/web/offices/tac/notices/
negatively influence your scope of protection. guide299.htm.
An assignment of a mark must be in writing 3 Registration No. 1,709,019.
and, whether registered or not, must include “the 4 www.uspto.gov.
good will of the business associated with the mark” 5 http://library.dialog.com/bluesheets/htmlaa/bl0246.
or the assignment is invalid. The basis for this pro- html.
vision is that a mark is merely the symbol of good 6 See library.dialog.com/bluesheets/html/bl0226.html.

CHAPTER 4.3
7 www.t-tlaw.com. specified in the certificate, subject to any conditions or

8 www.dialog.com. limitations stated in the certificate.” 15 u.s.c. § 1057 (b).
9 www.questel.orbit.com/patents/. 19 Constructive notice is a notice to the public of the

registrant’s claim of ownership of the mark.
10 www.micropat.com/trademarkwebindex.html.
20 Naked licensing means the licensing of trademarks
11 www.corsearch.com. without that trademark owner’s retaining the right
12 www.networksolutions.com. to approve the said use of the mark in connection
with the licensee’s goods or services. As a result, the
13 www.bigbook.com.
trademark would be deemed abandoned (Barcamerica
14 www.switchboard.com. International USA Trust v. Tyfield Imports, Inc., 289 F.3d
15 www.superpages.com. 589-598 [9th Cir. 2002]).
16 www.worldpages.com. 21 Assignment in gross: A mark is a symbol of the mark

owner’s goodwill in the goods or services associated
17 www.zip2/com. with the mark. The rule both under the common law
18 A trademark or service mark may be registered with the and the Lanham act is that a mark cannot be assigned
united states patent and trademark office on either the apart from the goodwill in the mark. An assignment in
principal or supplemental registers. Arbitrary, fanciful, gross is an assignment of a mark without the associated
and suggestive marks are on the principal register, goodwill. This rule is intended to protect the public
while suggestive marks with secondary meaning are on from the deception that might arise if the assigned
the supplemental register: “A certificate of registration mark becomes associated with goods or services
of a mark upon the principal register provided by this of a different nature or quality than was previously
act shall be prima facie evidence of the validity of the the case. An assignment in gross is invalid, and the
registered mark and of the registration of the mark, assignee acquires no rights by such an assignment. See
of the registrant’s ownership of the mark, and of the www.inta.org/index.php?option=com_content&task=
registrant’s exclusive right to use the registered mark in view&id=174&itemid=132&getcontent=1.
commerce on or in connection with the goods or services

CHAPTER 4.4
The Statutory Toolbox: Plants

JAY P. KESAN, Professor and Director, Program in Intellectual Property & Technology Law, University of Illinois, U.S.A.
ABSTRACT general, a patent grants an inventor of a novel,

Different forms of intellectual property protection are nonobvious, and useful invention an exclusive
available for agri-biotech inventions: utility patents, plant
monopoly of fixed duration in exchange for
variety protection, plant patents, trade secrets, geographic
indications, trademark, and copyright. Each form has its public disclosure of the invention. Patent and
own strengths and weaknesses. In general, stronger protec- related regimes offer the strongest IP protection.
tions require meeting more stringent requirements. The It is not mutually exclusive, and concurrent
three most important regimes for agri-biotech inventions protection under multiple regimes is permitted.
are utility patents, plant variety protection, and trade se-
crets. A careful consideration of the relative demands and This section describes the utility patent, plant
benefits of each regime will allow custom-tailored ap- variety protection, and plant patent regimes,
proaches to suit the needs of the inventor and the nature exploring the advantages and disadvantages of
of the invention. each regime.
2.1 Utility patents

1. Introduction The first regime, the utility patent, provides the
Several intellectual property (IP) regimes protect most extensive coverage for inventions. In the
agricultural biotechnology. They may be used context of agricultural biotechnology, the util-
alone or in combination. In general, the easier it ity patent may be obtained to protect everything
is to obtain a particular form of IP protection, from genetically modified seeds and geneti-
the weaker the protection it affords. Conversely, cally modified plants, to transformation meth-
the more robust the protection, the more strin- ods. Under the U.S. statute governing utility
gent are the requirements for obtaining it. This patents:
chapter provides an overview of the various forms Whoever invents or discovers any new and
of IP that are available for protecting agricultural useful process, machine, manufacture, or composi-
biotechnology innovation. tion of matter, or any new and useful improvement
thereof, may obtain a patent thereof, subject to the
conditions and requirements of this title.1
2. Patent and related regimes
Patent and somewhat patent-like IP protection Plants are eligible subject matter for utility
regimes provide the most important protection patent protection under the category of “compo-
for agricultural biotechnology innovation. In sitions of matter.”
Kesan JP. 2007. The Statutory Toolbox: Plants. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. JP Kesan. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

KESAN
2.1.1 Scope of protection was in public use, was described in a printed pub-
In the United States, utility patents grant a broad lication, or was covered in a preexisting patent. In
right to exclude others from making, using, offering the United States, there is a one-year grace period
to sell, selling, or importing into the United States, on the bar on public use and printed publication.
the patented invention.2 Unauthorized exploitation Second, an invention must be useful, that is, ca-
of the patented invention by others within the pat- pable of providing a specific benefit.5 Failure to
ent term constitutes patent infringement. The broad identify a specific use for a gene sequence renders
scope of protection afforded by utility patents pro- the gene sequence ineligible for patent protec-
vides great flexibility for tailoring protection to vari- tion. Finally, an invention must be nonobvious,
ous plant innovations. that is, the invention is not obvious to a person of
Utility patents may cover individual compo- ordinary skill in the art. The nonobvious require-
nents of a plant, including the plant’s genome, ment takes into account the scope and content of
cells, cell culture, and tissues, as well as methods the prior art and the level of ordinary skill in the
for making the plant. For example, Monsanto, an pertinent art. Patent may be denied if the inven-
agrichemical corporation, holds U.S. patents on tion is a combination of previously known com-
Roundup Ready® soybeans, which are genetically ponents A, B, and C, and the idea to combine
modified to withstand the company’s broad-spec- the components A, B, and C were obvious to a
trum herbicide, Roundup®. The company creates person of ordinary skill in the art.
Roundup Ready® soybeans by inserting a gene At minimum, a patent application must
sequence that allows the plant to survive the her- contain specifications and at least one claim. In
bicide. Monsanto’s utility patents allow the com- the specifications, an applicant must disclose in
pany to claim protection not only for methods writing what the applicant believes he or she has
of producing the Roundup Ready® soybeans, but invented. The specifications must describe the
also for the DNA molecule that encodes the her- invention in sufficient detail to enable others of
bicide-resistant trait, for the herbicide-resistant ordinary skill in the pertinent art to practice the
plant cell, for the seed of the herbicide-resistant invention.6 For example, in an application claim-
plant, and for the final Roundup Ready® soybean ing DNA as the invention, a description of the
plant itself. DNA is adequate if it includes a definition of the
A utility patent may also cover multiple va- physical properties, formula, chemical name, or
rieties at once. And if the applicant meets the structure of the claimed invention; a description
disclosure requirements discussed below, the that merely states that DNA is involved in the
patent can cover an entire species or genus. invention falls short of the requirement. In situ-
Moreover, the scope of the protection is broader ations where the starting materials required to
than the specific plant variety developed. Under practice the invention are not readily available to
the patent law’s doctrine of equivalents, trivial the public, the applicant may also be required
variations to an invention that may not fall to place the materials in a depository in order
within the literal terms of the claims of the pat- to fulfill the enablement requirement. The writ-
ent may nevertheless infringe as an equivalent of ten description of the invention must also reveal
the claimed invention. what the inventor believes is the best way to
practice the invention.
2.1.2 Requirements for obtaining The claims in a patent define the boundaries
a utility patent of a patentee’s right to exclude. The patent appli-
To obtain the protection of a utility patent, an cation must therefore describe what the inventor
applicant must meet the highest threshold for ac- claims as his invention, by including
quiring IP protection: an invention must be new, …one or more claims particularly pointing out
useful, and nonobvious.3 First, it is considered new and distinctly claiming the subject matter which the
if it is not already known to the public.4 An in- applicant regards as his invention.7
vention fails to meet the novelty requirement if it

CHAPTER 4.4
Ideally, claims should be both broad enough of the U.S. Department of Commerce. The PTO
to afford the patentee a wide scope of protection, receives and examines applications and has power
and narrow enough to avoid invalidation by the to grant patents if it is convinced that the inven-
prior art. In general, claim language that contains tion is new, useful, nonobvious, and meets other
fewer limitations provides broader patent pro- conditions and requirements as set forth in the
tection than claim language that includes many statute.8 The first step in acquiring a patent is to
limitations. Consider the following two simpli- file a patent application with the PTO. Thereafter,
fied claims for a bucket: a series of communications between the applicant
A claim that reads: and the PTO follows. Six months to two years
A bucket comprising a wooden circular bottom, after the filing date of the patent application, the
wooden side walls, and a stainless steel handle PTO will send communications to the applicant
provides narrower protection than a claim that known as an Office Action. This communication
reads: notifies the applicant of whether the claims have
A bucket comprising a bottom, side walls, and been allowed and provides reasons for rejections of
a handle claims. The applicant then has a chance to respond
A competitor’s metal bucket with a square to the PTO within a time specified in the Office
bottom would fall outside the claim language of Action, typically three months. The applicant may
the first example, but would infringe the second amend the application to overcome the rejections.
example by falling within its claim language. Two to six months after the PTO receives the ap-
Additionally, claims may be classified as either plicant’s response to the Office Action, the PTO
independent or dependent. Independent claims may send another Office Action to the applicant
generally are the broadest claims and do not re- or it may send a Notice of Allowance. A Notice of
fer to any other claim in the patent. Dependent Allowance indicates that the PTO has allowed all
claims, on the other hand, incorporate other of the claims in the application. A patent will issue
claims by reference and add additional limita- after the applicant pays an issue fee.
tions. Consequently, dependent claims provide a Once granted, utility patent protection lasts
narrower scope of protection than independent for a term of 20 years, measured from the date the
claims. Consider the following example: patentee filed the application. It is not subject to
I claim: exemptions from enforcement. During the term
1. a bucket comprising a bottom and side of the issued patent, the patent holder must pay
walls periodic maintenance fees to the PTO.
2. the bucket of claim 1 further comprising a
handle b) International patent protection: The Patent
3. the bucket of claim 2 wherein the bottom Cooperation Treaty (PCT).9 In the current glob-
and side walls are wooden al economy, an inventor may wish to procure pat-
4. the bucket of claim 2 wherein the bottom ent protection for his or her invention in more
is circular than one country. A patent confers rights, how-
ever, only in the jurisdiction in which the pat-
In this example, claim 1 is the independent ent application was filed. Outside of the country
claim. Claims 2 through 4 are the dependent where the patent is issued, others are free to use
claims that rely on claims that have come before. the invention without incurring patent infringe-
Ultimately, a patent covers only what the applicant ment liability. A patent that issues in the United
describes and claims in the patent application. States, for example, confers no automatic patent
protection for the invention in France. To protect
2.1.3 Procedure for obtaining a patent an invention internationally, an inventor must se-
a) Patent protection in the United States. In the cure a patent in each country in which he or she
United States, utility patents are administered by desires protection.
the Patent and Trademark Office (PTO), an arm

KESAN
Many nations have adopted international 2.2 Plant variety protection

agreements that make the process of obtaining While utility patents provide the most robust pro-
multiple patents easier. One of these agreements is tection for plant innovation, only a few countries
the Patent Cooperation Treaty (PCT). The PCT, afford utility patent protection for agricultural
administered by the World Intellectual Property biotechnology. A more common regime is plant
Organization (WIPO), is an international agree- variety protection, also known as plant breeder’s
ment that streamlines the process of securing rights. In general, plant variety protection pro-
patents for an invention in multiple countries. A vides a sui generis form of IP protection to breed-
patent applicant may seek simultaneous patent ers of new varieties of plants.
protection in multiple countries by filing a single
application and designating the countries where 2.2.1 International protection: UPOV–
protection is desired. While PCT does not alter The International Convention for the
the substantive requirements of patentability in Protection of New Varieties of Plants
each country, it does eliminate the duplicative ef- Many countries with a system for protect-
fort wasted in filing separate patent applications ing new varieties of plants have based it on the
for the same invention. International Convention for the Protection of
An inventor who wishes to take advantage of New Varieties of Plants (UPOV Convention).10
the PCT, first files an application in his or her Originally adopted in Paris in 1961 with the ob-
home patent office, designated the Receiving jective of providing IP protection for new plant
Office. The home office conducts an initial prior varieties, the UPOV Convention has undergone
art search and gives the applicant the opportunity several revisions, first in 1972, again in 1978, and
to request an international preliminary exami- most recently in 1991. The International Union
nation. The preliminary examination, while not for the Protection of New Varieties of Plants
binding, indicates the patentability of the inven- (UPOV), an intergovernmental organization
tion, which may assist the applicant in deciding headquartered in Geneva, Switzerland, adminis-
whether to commit to an expensive filing abroad. ters the UPOV Convention.
In the next step, called the “national stage,” an The UPOV Convention defines a minimum
applicant has 30 months to convert the PCT ap- scope of protection that enables plant breeders to
plication into parallel patent applications in the prohibit the unauthorized exploitation of their
countries in which he or she desires patent pro- protected variety. Under the UPOV Convention,
tection. From there, the patent application pro- the authorization of the breeder of an eligible
cess proceeds according to the procedures estab- plant variety is required to produce or reproduce,
lished by each designated country. condition for the purpose of propagation, offer
for sale, sell, export, import, and stock the propa-
2.1.4 Rights of the inventor gating material of the protected variety. Where the
A patent grants its owner the right to exclude plant breeder has not had a reasonable opportuni-
others from making, using, offering for sale, and ty to exercise his or her rights as to the propagat-
selling the patented invention without the patent ing material, the same rights are extended to the
owner’s permission. Patents are personal property harvested material of the protected variety. The
and therefore may be licensed or assigned to oth- rights also attach to varieties “essentially derived”
ers, including companies. An assignment transfers from the protected variety, varieties “not clearly
the rights of the patent from the current owner to a distinguishable from the protected variety,” and
new owner. In contrast, a license grants a revocable varieties that “require the repeated use of the pro-
permission to engage in conduct that would other- tected variety.”11 The Convention explains that
wise constitute patent infringement without trans- “essentially derived varieties” are those that
ferring ownership of the patent. Licenses may be …may be obtained, for example, by the selec-
either exclusive (issued strictly to one licensee) or tion of a natural or induced mutant, or of a soma-
nonexclusive (issued to several licensees at once). clonal variant, the selection of a variant individual

CHAPTER 4.4
from plants of the initial variety, backcrossing, or 2.2.2 Protection in the United States: The Plant
transformation by genetic engineering.12 Variety Protection Act (PVPA)
The United States is a member of UPOV, having
To obtain plant variety protection, UPOV implemented the UPOV Convention in 1981.
must examine an application to ensure that the Plant variety protection certificates, issued by
proposed variety meets the conditions for protec- the Plant Variety Protection (PVP) Office of
tion. To qualify for UPOV protection, a plant the U.S. Department of Agriculture (USDA),
variety must be: supply patent-like protection for new varieties
(i) distinct from existing, commonly known of seed-bearing plants and may be obtained to
varieties, protect new plant varieties. Governed by the
(ii) sufficiently uniform, Plant Variety Protection Act (PVPA), rights are
(iii) stable, and granted to
(iv) new in the sense that they must not have [T]he breeder of any sexually reproduced or
been commercialized prior to certain dates tuber propagated plant variety (other than fungi
established by reference to the date of the or bacteria) who has so reproduced the variety,
application for protection13 […] subject to the conditions and requirements of
this Act.14
Once granted, UPOV dictates that plant
breeder’s rights shall last for at least 20 years; for The PVPA protects discrete varieties from
trees and vines, the term should endure for no unauthorized exploitation by others. Following
less than 25 years from the date of the grant. the UPOV Convention, a PVP certificate grants
UPOV also defines acts that are exempt from its holder the right to exclude others from sell-
the plant breeder’s rights. The plant breeder’s per- ing, offering for sale, reproducing, importing or
mission is not required for acts done privately and exporting the protected variety, and from using
for noncommercial purposes, experimental use of the protected variety to produce (as distinguished
the protected variety, and acts done for the pur- from to develop) a hybrid or different variety. As
pose of breeding other varieties. In addition to per the UPOV Convention, protection under the
the compulsory exceptions, an optional excep- PVPA extends not only to the protected plant
tion allows farmers to save harvested seeds for variety, but also to “essentially derived varieties,”
replanting. narrowly defined in the PVPA to include two
Member nations of the UPOV Convention generations of derivation. The PVPA defines the
agree to adopt all measures necessary to im- term as a variety that:
plement the plant breeder’s rights as outlined • …is predominantly derived from another
in the Convention and to extend to foreign variety (referred to in this paragraph as the
nationals the same rights it provides to its own “initial variety”) or from a variety that is pre-
citizens. Implementation of the Convention dominantly derived from the initial variety,
entails the establishment of legal remedies and while retaining the expression of the essential
enforcement mechanisms for breeder’s rights, characteristics that result from the genotype
as well as the designation of an authority en- or combination of genotypes of the initial
trusted with the power to grant such rights to variety
applicants. UPOV provides the basic frame- • is clearly distinguishable from the initial
work for plant variety protection. However, variety
since countries are free to tailor their laws • except for differences that result from the
to domestic circumstances when implement- act of derivation, conforms to the initial
ing the provisions of the UPOV Convention, variety in the expression of the essential
different countries have adopted slightly dif- characteristics that result from the genotype
ferent versions of the plant variety protection or combination of genotypes of the initial
regime. variety. 15

KESAN
Inclusion of essentially derived varieties provide a description of the variety, and must de-
within the limits of the breeder’s rights guards posit seed in a repository.
against acts that border on blatant copying. To qualify for protection under the PVPA, a
Essentially derived varieties delineate a zone of plant variety must be new, distinct, uniform, and
protection around the protected variety that stable. The statute defines each of these terms.
captures plants produced by inducing minor First, a variety is “new” if “the variety has not been
changes to a protected variety. As an example, sold or otherwise disposed of to other persons” for
a hybrid variety of corn produced from a pro- more than one year before the date the applicant
tected variety may exhibit cosmetic differences filed the application for PVP.19
that make the hybrid distinct from its parent; Second, a variety is “distinct” if
but as an essentially derived variety, the hybrid … the variety is clearly distinguishable from
nevertheless falls within the scope of PVP pro- any other variety the existence of which is publicly
tection for the parent. known or a matter of common knowledge at the
As required by the UPOV Convention time of the filing of the application. 20
guidelines, the PVPA includes several excep-
tions that shield certain acts from infringe- Moreover,
ment liability. Private noncommercial use of a … [t]he distinctness of one variety from an-
protected variety does not constitute infringe- other may be based on one or more identifiable
ment.16 Saving seed for replanting “a crop for use morphological, physiological, or other character-
on the farm” and sale of such seeds “for other istics (including any characteristics evidenced by
than reproductive purposes” also do not consti- processing or product characteristics, such as mill-
tute infringement.17 Also, the PVPA explicitly ing and baking characteristics in the case of wheat)
provides a research exemption. The statute states with respect to which a difference in genealogy may
that “use and reproduction of a protected variety contribute evidence.21
for plant breeding or other bona fide research shall
not constitute an infringement of the protection Third, a variety is “uniform” when
provided under this Act.”18 … any variations are describable, predictable,
and commercially acceptable.22
Furthermore, though not an exemption from
infringement liability, the PVPA is subject to a Finally, a variety is “stable” if
requirement that allows the secretary of USDA to … the variety, when reproduced, will remain
declare a compulsory license allowing use of the unchanged with regard to the essential and distinc-
protected variety for two years, in exchange for tive characteristics of the variety, with a reasonable
a royalty, if such action is deemed necessary for degree of reliability commensurate with that of vari-
the public interest to maintain a sufficient food eties of the same category in which the same breeding
supply. The many exceptions to the PVPA allow method is employed.23
others, under certain circumstances, to exploit a
protected plant variety without the owner’s au- Once a plant protection certificate issues,
thorization and therefore diminish the strength the term of protection lasts for 20 years from
of plant variety protection. the date of issue of the certificate, or 25 years
As a trade-off for the narrower scope of pro- in the case of a tree or vine.24 Unlike utility pat-
tection, the PVPA demands a lower threshold for ents and plant patents, which must issue under
obtaining protection. Unlike the utility patent, an individual inventor’s name, a plant variety
the PVPA does not call for rigorous disclosure protection certificate may issue in the name of
of the claimed invention, nor does it impose a a corporation, which allows a corporation to file
nonobvious requirement. Instead, applicants for under its own name. Additionally, as a require-
a plant variety protection certificate must show ment for maintaining PVP, the certificate holder
that the variety qualifies for protection, must must periodically replenish the repository of

CHAPTER 4.4
seeds of the protected plant variety. The PVPA therefore its Achilles’ heel. The asexual reproduc-
does not, however, require payment of mainte- tion requirement effectively limits infringement
nance fees for the certificate. When compared to the narrow circumstance where stock from the
to a utility patent, the scope of protection under patentee’s original parent plant is obtained and
the PVP regime is limited. But one advantage asexually reproduced. Independent breeding of a
of the PVPA is the immediacy of protection: as variety that closely resembles the subject of a plant
soon as a plant variety protection application patent escapes infringement liability. So too does
is filed and the fee is paid, provisional protec- seed propagation and sexual crosses of the plant,
tion attaches to the plant variety. By marking since such acts fall outside the scope of plant pat-
the seed with protection notices “Unauthorized ent rights. Because its scope of protection is
Propagation Prohibited” or “Unauthorized Seed exceptionally narrow, a plant patent ordinarily
Multiplication Prohibited,” the seed owner ac- should not be the sole source of protection for a
quires protection prior to the issuance of the plant innovation.
plant variety protection certificate.25 The requirements for obtaining a plant pat-
ent are, arguably, the least strict of the three pat-
2.3 Plant patents ent and patent-like regimes. In the United States,
Plant patent protection is the narrowest of the the Patent and Trademark Office administers
three patent and patent-like IP regimes available both plant patent and utility patents. Like a util-
to agricultural innovation. The scope of protec- ity patent application, a plant patent application
tion extends only to asexually reproduced plant must meet the patent law’s nonobvious require-
varieties. In general, the U.S. statute grants plant ment. Applications for plant patents must also
patents to one who fulfill a disclosure and claiming requirement. The
… invents or discovers and asexually reproduces plant patent disclosure requirement may be met
any distinct and new variety of plant, including cul- by a description that “is as complete as reasonably
tivated sports, mutants, hybrids, and newly found possible”28 and a color drawing of the plant. Plant
seedlings, other than a tuber propagated plant or a patents need not disclose how to make or use the
plant found in an uncultivated state…26 claimed invention. The claiming requirement re-
stricts the plant patent to a single claim to the
For example, a person who discovers and whole plant.
asexually reproduces a new pineapple variety Plant patent protection shares some of the
may obtain plant patent protection. If he or requirements for PVPA protection, but there are
she later discovers a second variety of pineapple some differences. Like plant variety protection, a
that is separated from the first by a single trait, variety must be new and distinct—new, mean-
the second variety may also obtain plant patent ing that the plant variety was not sold or used
protection. more than one year prior to the application date,
The plant patent regime affords protection and distinct meaning that the characteristics of
against unauthorized asexual reproduction of the variety are clearly distinguishable from those
protected plant varieties. A plant patent grants of existing varieties. Unlike plant variety protec-
its holder “the right to exclude others from asexu- tion, however, plant patents do not require that
ally reproducing the plant, and from using, offering the plant variety be uniform and stable. Whereas
for sale, or selling the plant so reproduced, or any of PVPA protection is unavailable for plants that do
its parts…”27 To qualify for plant patent protec- not breed true, such plants may receive protec-
tion, a plant must be produced asexually, through tion under a plant patent.
means such as grafting, cutting, budding, layer- If the requirements are met, the PTO issues
ing, and inarching. a plant patent, which offers a term of protection
The cornerstone of plant patent protection of 20 years from the date of patent application.
is asexual reproduction, but asexual reproduction Like a utility patent, there are no exceptions to
also severely limits the protection afforded and is enforcement. Also like a utility patent, the patent

KESAN
holder must pay periodic maintenance fees to the trade secrets for a very long time indeed. However,
PTO. trade secret protection can end at any time, since
once the underlying information is no longer a se-
cret, the trade secret protection disappears. Loss of
3. Other forms of trade secret protection may result from disclosure,
IP protection in plants successful reverse engineering, or independent
development by others. Unlike patent protec-
3.1 Trade secrets tion, trade secret protection provides no recourse
Along with utility patents and plant variety protec- against one who reverse engineers or independent-
tion, trade secret protection represents another es- ly discovers the same matter. This uncertainty of
sential tool for protecting plant innovation. Most protection is the risk borne by one who chooses
significantly, trade secret protection is available for trade secret protection.
inventions that do not otherwise qualify for pro- In the context of plant innovation, trade
tection under a patent or patent-like regime. secret protection is a mixed bag. For seed com-
In general, the purpose of trade secret protec- panies, protecting plant varieties under trade
tion is to uphold commercial morality by prevent- secrets alone may prove difficult. Maintaining
ing the unauthorized use and disclosure of secret the secrecy of information is challenging be-
information, while leaving other parties free to cause crops are grown in open fields and seed
independently develop the same matter. The sub- is sold on the open market with no assurances
ject matter protected by a trade secret coincides of confidentiality. Hybrid seed varieties are the
with the subject matter protected under patent easiest to maintain as a trade secrets. Since the
regimes. Typically, protection attaches to infor- exact characteristics of the parental lines of a
mation that is used in business, gives a competi- hybrid cross are difficult for others to ascer-
tive advantage, and has been kept confidential. tain, the owner of the hybrid plant variety may
Unlike patents, trade secret protection arises maintain the parental lines as a trade secret and
instantly and requires no formal application or re- sell only the seed resulting from the cross of the
view process. Once trade secret protection is estab- parental lines. Trade secret protection might
lished, it grants recourse against one who wrong- also be employed to protect know-how, or the
fully acquires the secret information. To recover methods and techniques of the plant breeder.
for trade secret misappropriation, however, the Additionally, trade secret protection may be
trade secret owner must show that the information used to protect an invention during the patent
was protected by reasonable measures to ensure examination period in order to protect an in-
the secrecy of the trade secret. The requirement vention until a patent issues.
of maintaining the confidentiality of the informa- Most importantly, trade secret protection is
tion is critical: trade secret protection evaporates if instrumental for protection of innovations that
the underlying information is no longer a secret. do not otherwise qualify for protection under
The cost of maintaining a trade secret is therefore patent and patent-like protection regimes. Trade
largely the cost of maintaining secrecy measures. secret protection extends to the same subject mat-
Keeping a trade secret may involve continuous and ter covered by patents and requires only secrecy.
costly expenditures on measures to prevent the un- Consequently, trade secret protection is vital for
authorized use or disclosure of the information. protecting matter where patent and patent-like
Unlike other IP regimes, trade secrets provide protection is unavailable.
protection for an indefinite period rather than for
a fixed term of protection. So long as the underly- 3.2 Geographic indications, trademark,
ing information continues to be a secret, the infor- and copyright protection
mation remains protected as a trade secret. Some To a much lesser extent than patents (and to some
trade secrets, most notably the secret formula for extent trade secrets), the protection provided
the beverage Coca-Cola, have been maintained as under geographic indications, trademark, and

CHAPTER 4.4
copyright may also be used to protect plant in- 4. Conclusion

novations. The first of these three, the geographic In the context of agricultural biotechnology, sev-
indications regime, is not traditionally protected eral IP regimes are available to provide protection
under U.S. law, but is recognized under a treaty of for plant innovation. The three most important re-
the World Trade Organization. Geographic indi- gimes are utility patents, plant variety protection,
cators communicate to consumers the association and trade secrets. Through careful consideration of
between a product and the territory from which it the relative demands and benefits of each regime
originates, which may indicate the product’s qual- in terms of the protection it offers for different
ity, reputation, or other characteristic. The most types of plant innovation, individual approaches
prominent example of geographic indicators is may be custom-tailored to suit the needs of the
the designation given to wines, for example cham- inventor and the nature of the invention. ■
pagne and Bordeaux. Geographic indicators may
be used to differentiate among plants originating
Jay P. Kesan, Professor and Director, Program in Intellectual
from different territories. Property & Technology Law, University of Illinois, 504
The second regime, trademarks, focuses on E. Pennsylvania Ave., Champaign, IL, 61820, U.S.A.
communicating to the consumer the association kesan@uiuc.edu
between a product and the source of the product,
1 35 U.S.C. § 101
such as its manufacturer. This may reflect on the
product’s quality or authenticity. Trademarks may 2 35 U.S.C. § 271(a)
differentiate one plant breeder’s product from an- 3 35 U.S.C. §§ 102–103

other breeder’s products, stopping competitors 4 35 U.S.C. § 102
from using the good name a plant breeder has 5 35 U.S.C. § 101
built in its popular varieties. The leading inter- 6 35 U.S.C. § 112
national treaties governing trademark protec- 7 35 U.S.C. § 112
tion include the Paris Convention, the Madrid 8 35 U.S.C. §§ 102–103
Agreement, and the Madrid Protocol, all of which 9 See also in this Handbook, chapter 10.7 by AM
are administered by WIPO. Schneiderman.
The last of the regimes, copyright, protects 10 The acronym UPOV originates from the French name
works “fixed in any tangible medium of expres- for the organization, Union internationale pour la
Protection des Obtentions Végétales.
sion.”29 Copyright may be used to protect works
of authorship such as descriptions of processes, 11 “International Convention for the Protection of New
Varieties of Plants,” art. 14, 19 March 1991, available at
training materials, and brochures, as well as ar- www.upov.int/en/publications/conventions/1991/w_
tistic renderings of plant varieties and other an- up911_.htm.
cillary materials. While copyright protects the 12 See note 11.
expression of an idea, the copyright does not 13 UPOV, “International Union for the Protection of
protect the underlying idea itself. Anyone is New Varieties of Plants: What It Is, What It Does,”
www.upov.int/en/about/pdf/pub437.pdf.
free to use the ideas contained in a copyrighted
work. Therefore, while a copyright may protect 14 7 U.S.C. § 2402(a)
the written expression that describes a new plant 15 7 U.S.C. § 2401(a)(3)

variety, the copyright does not offer protection 16 7 U.S.C. § 2541(e)
for the plant variety itself. Internationally, the 17 7 U.S.C. § 2543
minimum substantive standards of protection for 18 7 U.S.C. § 2544
copyrights are set forth in the Berne Convention, 19 7 U.S.C. § 2402(a)(1)
a multinational agreement established in 1886, 20 7 U.S.C. § 2402(a)(2)
and in the Agreement on Trade Related Aspects of 21 7 U.S.C. § 2401(b)(5)
Intellectual Property Rights (TRIPS Agreement), 22 7 U.S.C. § 2402(a)(3)
an agreement administered by the World Trade 23 7 U.S.C. § 2402(a)(4)
Organization.

KESAN
24 7 U.S.C. § 2483(b)
25 7 U.S.C. § 2567
26 35 U.S.C. § 161
27 35 U.S.C. § 163
28 35 U.S.C. § 162
29 17 U.S.C. § 102(a)

CHAPTER 4.5
Plant Breeders’ Rights: An Introduction

William H. Lesser, Susan Eckert Lynch Professor of Science and Business,
Chair of the Department of Applied Economics and Management, Cornell University, U.S.A
ABSTRACT anywhere else, until many centuries had passed.

Based on the averages, there is a good chance that your Plants are one example of this. Food, fiber, and
country has decided to fulfill its TRIPS (Trade-Related
ornamental crops (F1 hybrids excepted) carry in
Aspects of Intellectual Property Rights) Agreement com-
mitments by selecting an “effective sui generis system” over themselves the ability to regenerate true to form,
patents for plants, something more commonly known as whether sexually or asexually. Anyone hold-
plant breeders’ rights. This chapter attempts to explain ing a seed or a cutting immediately possesses all
what plant breeders’ rights are by describing the organi- the skills of the master to recreate the variety of
zation and function of the plant breeders’ rights system.
Covering the objectives, scope, protection requirements, plant from which the seed or cutting came. Yet
and examination provisions, the chapter compares the not until 1930 (the U.S. Plant Patent Act) did
plant breeders’ rights system with the patent system and legal restrictions apply to the use of plant ma-
attempts to clarify specific puzzling issues. These include terials for regenerative purposes, and even then
concerns that the latest UPOV Act does not address farm-
protection only applied to asexually propagated
er seed savings (the choice is left to individual countries,
with virtually all countries choosing to allow seed saving). plants (excluding tubers). An additional 30 years
Plant breeders’ rights are less puzzling once the intent and passed before a harmonized format for legisla-
structure of the system are understood. The system is, in tion covering IP protection for all plant varieties
fact, one with very specific, if narrow, objectives. emerged. That is the International Convention
for the Protection of New Varieties of Plants, or
UPOV in its French acronym, an international
1. Introduction treaty first adopted in 1961 and revised several
Guild members in mid-15th century Venice, times, the latest in 1991. The form of intellectual
averse to direct competition from former ap- property created by UPOV is known widely, if
prentices, passed a law prohibiting the apprentice informally, as plants breeders’ rights (PBR). This
from entering the trade until about 18 years had chapter describes the acts and modes of opera-
lapsed. That edict, according to intellectual prop- tion of PBR under UPOV-compatible national
erty (IP) historians, marked the origins of pat- legislation. While every effort is made here to
ents. Indeed, the duration of a patent (20 years be complete and accurate, it would be impos-
from date of filing the application) is said to be sible discuss all of the considerations needed to
modeled after that apprenticeship period in long- appreciate every possible contingency. Persons
ago Venice. Yet some easily copied creations were wanting to learn more should refer to the text
not granted similar IP protection, in Venice or of UPOV and other official documents, such as
Lesser WH. 2007. Plant Breeders’ Rights: An Introduction. In Intellectual Property Management in Health and Agricultural
© 2007. WH Lesser. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

LESSER
at the UPOV Web site.1 The Handbook chapter only a single sentence refers to PBR. Article
PBR in the Developing World, discusses the ef- 27.3(b) reads, in part, that WTO members must
fects of PBR laws and the available alternatives at provide plant variety patents, “an effective sui ge-
the national level. neris system,” or both. Most countries new to pro-
tecting plants are opting for PBR over patents.
PBR is clearly a sui generis system, but what con-
2. What are Plant Breeders’ Rights? stitutes “effective” is less clear.
PBR is a patent-like system that allows the plant
variety owner to prohibit specific unauthorized
uses of the variety. PBR laws apply only to plants, 3. What Role Does UPOV Play?
and hence are among the class of sui generis sys- If PBR is based on national law, what role does
tems, that is, special purpose systems. Laws ap- UPOV, an international convention, play?
plying to computer chips (that is, mask works … Essentially, UPOV establishes a framework law
the set of templates used to manufacture chips) that may be adopted by countries into their own
form another sui generis system. In fact, sui gene- national laws. After having done so, a country
ris systems have been applied to everything from could submit its national law to the governing
aeronautics to Xerox® machines. These systems body of UPOV for evaluation and, if the law was
differ significantly from patent laws. The differ- found to have similar critical elements, the coun-
ences between the two systems—and the similari- try could become a UPOV-signatory nation. In
ties—are explained below. practice, there is usually an informal assessment
PBRs, like patents and other forms of IP law, done by UPOV prior to final diplomatic submis-
are forms of national legislation. That is, protec- sion. UPOV does provide a mechanism for har-
tion applies only in countries where protection monizing national laws and providing standard-
has been sought and granted. Thus, the owner of ized definitions/interpretations of terms. UPOV
a sunflower variety protected in the United States also requires nondiscrimination against foreign
would have no legal control over how that vari- applicants of other Union members (National
ety was used inside Canada. Critically, however, Treatment, Article 4 of 1991 Act). However, that
the variety owner could prevent the importation Article has largely been supplanted by the geo-
into the United States of the variety, including (in graphically broader national treatment require-
most cases but depending on the specific coun- ments of TRIPS (Article 3). UPOV member states
try’s sui generis laws with regard to plant varieties) have training and other technical support avail-
grain, plants, plant parts, and, in some countries, able to them, although an annual membership fee
even manufactured products produced using the based on national income is imposed. Countries
protected variety. In the case of a U.S. PVP-pro- can and do have PBR systems without joining
tected sunflower variety, the variety owner could UPOV, but little is known about their opera-
not prevent it from being planted, grown, har- tion and few countries have implemented them.
vested, or sold inside Canada, but U.S. PVP-pro- Since its inception, UPOV has adopted four acts
tected sunflower seed, sunflower meal, sunflower (1961, 1972, 1978, and 1991). Members may
oil, and similar products could be prevented from at their discretion adopt a more recent Act, but
entering the U.S. stream of commerce. older acts are closed. Presently, the 1991 Act is
PBR under the TRIPS Agreement (Agreement the only one now open to new members. There
on Trade-Related Aspects of Intellectual Property are some important differences between the 1978
Rights) is a component of the World Trade and 1991 acts, to which essentially all current
Organization (WTO). Signatories of WTO (cur- members belong. These differences are discussed
rently about 150) are committed to comply with below. All terms and references here refer to these
the TRIPS requirements of a harmonized mini- acts. There are some national-level differences,
mum level of IP rights protection. Although the but for the most part identifying them involves a
TRIPS text is quite exhaustive in most regards, greater level of detail than is possible here.

CHAPTER 4.5
4. How do PBRs Work? geneous landraces rarely satisfy the uniformity

PBR systems, like other IP systems, have three and stability requirements for PBR protection,
major components: so a conflict in practice seldom arises. This does
1. Definition/identification of protectable sub- not mean that a landrace is specifically excluded
ject matter from PBR protection, or that one could not be
2. Requirements that must be met to receive protected. Rather, the UPOV protection re-
protection quirements demand more specific attention to a
3. Rights of the variety owner landrace (such as backcrossing), so the issue of
whether, or not, landraces qualify for PBR pro-
4.1 Identifying what can be protected tection actually seldom arises. As to UPOV, it
As a sui generis system, protection is limited to is quite evident that the system is intended for
plant “varieties,” but this term lacks a standard planting materials, whether they are food crops
definition. The definition in the 1991 Act (Article or horticultural varieties, that will be sold on a
1(vi)) reads in part: commercial basis.
a plant grouping . . . Another area of potential overlap is with
• defined by the expression of the character- the offering of patents and PBR for a plant. The
istics … TRIPS Agreement specifically allows patents for
• distinguished … by the expression of at plants, and, in the United States, both forms of
least one of the said characteristics and protection have been available for some time. The
• [having] suitability for being propagated matter has, however, not been so straightforward
unchanged in E.U. countries, due to the adoption of the
European Patent Convention (EPC). The EPC
Beyond its technical relevance, this defini- (Article 53(b)) excludes protection for “plant or
tion is significant since it departs from the lan- animal varieties,” raising the question of just what
guage of earlier acts. The 1978 Act lacked any the appropriate definition of variety is. Rulings
such definition, while the 1961 Act (Article 2.2) on this question have seesawed back and forth
refers to a variety as “any cultivar, clone, line, for decades, but the current (and likely sustain-
stock, or hybrid which is capable of cultivation….” able) rule is that a plant variety is in a fixed form
Certainly, one purpose for defining variety is to regarding all of its characteristics. An invention
distinguish what is protectable under UPOV that is applicable to a number of varieties is not
from those “plant genetic resources” that fall a plant variety and is thus patentable. This inter-
under the Convention on Biological Diversity pretation, while not binding in other countries, is
(CBD). As a general matter, a plant variety under of relevance since Article 53(b) wording has been
UPOV would also be a plant genetic resource as adopted into the patent laws of a number of other
defined by the CBD. Furthermore, the interna- countries.
tional convention typically (but not universally)
allows the more recent convention to supercede 4.1 Protection requirements
the prior one. The CBD was ratified in 1992 and To be eligible for protection under UPOV-based
went into effect in 1993. However, the CBD laws, a variety must be (Article 5, 1991 Act,
(Article 16.2) does provide for the “adequate and Article 6, 1978 Act):
effective protection of intellectual property rights,” • new
so PBRs would seem to operate independently of • distinct
national laws enacted under the CBD, although • uniform
exceptions could arise. There might be conflict, • stable
for example, over traditional farmer-bred variet-
ies, often referred to as landraces. Landraces are These requirements are often abbreviated
certainly genetic resources and, arguably, plant as DUS. Newness (or novelty) requires that the
varieties. However, as a practical matter, hetero- applicant variety has not been “sold or otherwise

LESSER
disposed of to others” for more than one year in

the country of application or for four years (six To those activities, the 1991 Act (Article
for trees or vines) elsewhere. This requirement 14.1) added the following activities for which
assures that the public is not giving away exclu- permission of the owner must be given:
sivity rights to something already available, while • production or reproduction
recognizing that some limited use or testing will (multiplication)
typically be required prior to application. • conditioning for the purposes of
Uniformity and stability necessitate a certain propagation
amount of backcrossing, so that the variety repro- • exporting
duces true to form across individual plants (unifor- • importing
mity) and across generations (stability). Stability • stocking for any of [these] purposes
and uniformity serve the important function of
making a variety identifiable after propagation. The specificity of these rights enhances the
The two also serve important commercial needs. ability of the rights owner to exclude access, the
UPOV has sometimes been criticized for promot- only right granted by PBR and other IP rights
ing genetic uniformity through the stability and systems. For example, under the 1991 Act, it is
uniformity requirements. The text reads “suffi- sufficient to show unauthorized reproduction,
ciently uniform in its relevant characteristics” (Article while the 1978 Act required proof of intent to
8, 1991 Act) and “stable [in] its relevant character- “commercial[ly] market” the material. Similarly,
istics” (Article 9, 1991 Act). That is, stability and under the 1991 Act (Article 14.2) protection is
uniformity are required only to a degree, and only extended to “harvested materials, including entire
in certain characteristics. The requirements are plants or parts of plants.” This means, for example,
variable and limited, beyond which a protectable that the blooms from an unauthorized propaga-
variety can be as heterogeneous as is feasible from tion of a rose variety overseas can be barred access.
the prospective of UPOV. Commercial require- Under the 1978 Act (Article 5.4), such an exten-
ments may necessitate broader uniformity, but this sion of protection was optional. Finally, under
is not relevant to UPOV. Rather, distinctness is the Article 14.3 in the 1991 Act, a signatory country
driving characteristic: “A variety shall be deemed may choose (but is not required) to extend pro-
to be distinct if it is clearly distinguishable from any tection to “products made directly from harvested
other variety whose existence is a matter of common material of the protected variety.”
knowledge at the time of the filing of the application” Two important exceptions to these rights
(Article 87, 1991 Act). The wording in the 1978 exist. First, protected varieties may be used for
Act (Article 6.1(a)) is nearly identical, except for breeding and experimental purposes (Article
the inclusion of “by one or more important charac- 15.1, 1991 Act and Article 5.3, 1978 Act). This
teristics.” That is, the variety must be distinguish- is a right mandated by UPOV, and typically re-
able by one or more characteristics, such as flavor, ferred to as breeders’ rights. The freedom to use the
color, or virus resistance. What characteristics are variety resulting from the breeder’s effort, how-
considered to be distinguishing ones is a matter of ever, differs between the two acts. It is an impor-
national interpretation. tant and arcane enough issue to warrant separate
treatment.
4.3 Rights of variety owner The second major exception to the rights
Under the 1978 Act (Article 5.1), the permission listed above is the right of a grower (farmer) to
of the owner is required for: retain the crop as a seed source for a subsequent
• production, for purposes of commercial season. This right is absolute under the 1978
marketing Act because, as there is no commercial market-
• offering for sale or offering marketing rights ing involved, it is not prohibited. The 1991 Act
to reproductive or vegetative propagating (Article 15.2) makes this right (typically known
material as the “farmer’s privilege”) optional. This Article

CHAPTER 4.5
is sometimes misconstrued as the elimination of United States, where growouts are rarely under-
the farmer’s privilege, when what it really does is taken. Instead, the claim of the applicant is essen-
allow each nation to choose. At present, almost tially taken at face value. Moreover, distinctness
all countries have chosen to retain the farmer’s may be claimed in any characteristic, including
privilege. A notable distinction is the European in those of no practical value. Improper claims
Union, which requires farmers to pay a royalty on of distinctness are resolved in court between the
saved seed. “Small” farmers are exempted. Note parties. To date there have been few if any court
also that this right is completely different and cases resulting from improper claims. From an
separate from Farmers Rights as defined by the economic perspective, the U.S. approach is sim-
Food and Agriculture Organization of the United pler and less costly, while allowing more rapid
Nations (FAO). access to new varieties. Because a variety is pro-
Under UPOV, the PBR protection period is a tected, however, does not necessarily mean it has
minimum of 15 years, which extends to 18 years agronomic merit. Cosmetic breeding (“cosmetic”
for woody plants under the 1978 Act (Article 8). traits do not contribute to the productivity of the
The 1991 Act (Article 19.2) extends the periods crop, for example, flower color for pulses) raises
to 20 and 25 years respectively. costs, although the proliferation of available vari-
eties would reduce their market prices. Choosing
4.3.1 Testing (examination) methods a single approach, or choosing to adopt a combi-
According to the 1991 Act, “Any decision to grant nation system, is a significant national decision.
a breeder’s right shall require an examination for The U.S. approach does rely more on an efficient
compliance with the [protection] requirements” and transparent court system, something not
(Article 12, 1991 Act). The wording of Article 7, available everywhere. To emphasize that point, a
1978 Act, is similar. Signatory countries nonethe- study done of Argentina’s PBR act (one of the first
less have substantial latitude in how to conduct in a developing country) determined that such a
the examination. The distinctness requirement system of PBR would not be effective until the
does, however, require a comparison with “any rights could be adequately enforced.
other variety whose existence is a matter of common
knowledge at the time.” Thus, at a minimum, a 4.3.2 Initial and dependent varieties
national examination system must maintain (or The 1991 Act (Article 14.5) does add a signifi-
have access to) a large database of variety descrip- cantly new component: that of essentially derived
tions, both protected and not protected, includ- varieties. This component provides an exception
ing varieties used both inside and outside the to breeders’ rights: protected materials may still be
country. Beyond that, countries exercise consid- used in a breeding program, but if the resultant
erable flexibility. The E.U. nations, for example, variety is judged to be essentially derived, it can-
carry out a two-year field trial where the applicant not be commercialized without the permission of
variety is compared to an established reference va- the initial variety’s owner. Before considering the
riety. Distinctness is recognized only in specified technical aspects of this article, it is perhaps help-
characteristics by crop, and sometimes a quanti- ful to consider several justifications. If the back-
tative basis is defined by a “crop committee.” For ground or development breeder spends 15 years
example, an onion variety may be distinct in re- breeding disease resistance from a wild relative
sistance to sprouting if 3% fewer sproutings oc- into a commercial variety, then under the 1978
cur than in the reference variety after X months Act provisions, the resultant variety could be used
of storage. As a variation of this approach, some as a basis of subsequent breeding, and within a
countries (such as Canada) require the applicant few years competitive varieties would appear. The
to conduct the growouts (field evaluation of the development breeder would then have difficul-
variety) under the supervision of the plant variety ty recovering the costs of the 15 years of work,
office. Most PBR offices are within a ministry of meaning that, as a practical matter, background
agriculture. Using the opposite approach is the breeding would have to be left to the public

LESSER
sector. The owner of a leading commercial variety 5. How do PBRs Compare

would be in a similar situation regarding the in- with Patents?
sertion of a genetically modified trait by another There are more similarities than differences be-
party. Under the 1978 Act, if herbicide resistance tween patent and PBR systems. Both operate by
had been produced by cross-breeding patented temporarily privatizing something that would
genes into that leading commercial variety, then otherwise have been freely available in the public
the resulting genetically modified herbicide-resis- domain. A fee can be assessed for access as well as
tant variety could be commercialized, with noth- for any rewards derived through market sales. In
ing owing to the original variety owner. Yet that their particulars, however, critical differences exist
original variety owner would be prevented from between PBRs and patents.
using the patented genes in its breeding program,
thus producing a distinct asymmetry of rights. 5.1 Protection requirements
Article 14.5 is intended to correct this imbalance Protection requirements for patents include nov-
by establishing two levels of protection: elty, inventive step (nonobviousness under U.S.
• Initial varieties are those on which essen- law), and utility (or industrial application). The
tially derived varieties depend. If the initial concept of novelty in the two systems is simi-
variety is protected, these essentially derived lar, although most patent systems operate with
varieties can be bred from an initial variety absolute novelty, or no prior public disclosure.
but not commercialized without permission Inventive step in the patent system is similar to
from the variety owner. Essentially derived the distinctness requirement in the PBR system.
varieties are often referred to informally as Patents have always operated with a dependency-
dependent varieties. If the background-bred type system similar to the initial variety concept
variety were an initial variety, any minor in the 1991 UPOV Act, except that in the patent
derivative varieties would be dependent system there are no statutory (text-based) state-
and, in practice, could expect to pay roy- ments about the dependency relationship or how
alties. UPOV (Article 14.5(b), 1991 Act) dependency might be achieved. A dependent pat-
uses terms such as “predominately derived.” ent could, for example, be an improvement on
• Other varieties retain the expression of the an existing product or process or a new use for
“essential characteristics.” Essentially derived an existing product. The new product/new use
varieties may be produced in a number of could be protectable in its own right, so that nei-
ways, including by selection, back-crossing, ther owner could use the other invention without
or transformation by genetic engineering. permission. These details are worked out between
Several UPOV-associated committees have interested parties.
used words such as “the preponderance of ge- The utility requirement, stated as simply as
netic material.” Just how initial and derived possible, means that some use for the product
varieties are distinguished can be quite crit- must be identified. When applied to patents for
ical, but this may not be clearly determined genes and gene fragments, the utility requirement
until there are actual decisions settling dis- has raised serious issues that generally do not exist
putes revolving around this issue. We do for PBR. Protected varieties, as noted, are intend-
know that many national PBR offices are ed for sale and, under many examination systems,
treating the matter as an infringement, that must display some practical merit. Uniformity
is, the self-identified initial-variety owner is and stability have no comparable requirements
left to sue the purported dependent-variety under patent law.
holder, and it is up to the courts to resolve
the counterclaims. This approach relieves a 5.2 Protectable subject matter
national office from having to making diffi- With respect to protectable subject matter, the
cult distinctions, but could prolong the pro- patent and PBR systems are quite different from
cess of identifying operational definitions. each other. Under patent acts, everything is pat-

CHAPTER 4.5
entable except for identified exceptions. One 6. Conclusions

common exception is for “plant and animal vari- Although some legal ambiguity does still ex-
eties.” PBRs cover all genera and species, with cer- ist within PBR legislation, the objectives of the
tain minimums under the several acts, as follows: system are specific, and the laws and provisions,
• 1978 Act (Article 4): on adoption, three if clearly understood, are manageable. The PBR
rising to at least 24 genera or species within system shares several features with more conven-
eight years tional patent systems, but the two systems differ
• 1991 Act (Article 3): for new members on in several crucial respects. As a sui generis system,
adoption, at least 15 genera or species, rising PBR laws apply only to plants and plant materi-
to all genera and species within ten years als. But they work, like patents, to prohibit unau-
thorized use of these materials.
5.3 Other components UPOV establishes a framework to guide
PBR systems are distinct from patents in allow- signatory nations in adopting PBR provisions
ing an option, under the 1991 Act, for farmers to in their own national laws. The acts have been
save seed for subsequent seasons. Under patents, amended several times; currently, most nations
such actions would constitute infringement. The are operating under either the 1978 or the 1991
breeder’s right is statutory with PBR and hence is versions.
relatively clear in its scope. National patent sys- To be eligible for protection, a plant variety
tems do allow some research on patented inven- must demonstrate novelty, distinctiveness, uni-
tions, but the form and extent of research allowed formity, and stability. If protected, a potential
is based on case law and so this is more difficult to user must seek permission from the owner before
assess. The difference in this matter between pat- producing, selling, importing, or exporting the
ents and PBR is one of clarity alone; however, this variety or, in some cases, products made from or
makes research use under PBR a more clear-cut with that variety. A few important exceptions to
process than for patented inventions. Provisions this apply; for example, a breeder’s exemption al-
for farmer’s privilege (where allowed) and breed- lows researchers to use the variety for experimen-
ers’ rights are generally considered to give hold- tal purposes, and farmers are generally allowed to
ers of PBR certificates weaker protection than do retain the variety for seed. In an important new
patents. This helps explain why, where the choice component of the 1991 Act, if research produces
is available, commercial breeders often prefer pat- a variety judged to be essentially derived from a
ents, or patents plus PBR, over PBR alone. protected variety, it cannot be commercialized
Patents are, however, typically far more costly without the permission of the initial variety’s
to apply for and to maintain. The difference is owner. ■
not in the application fees structure, which may
in fact be lower for patents, but rather, a patent
usually requires an attorney’s assistance to prepare William H. Lesser, Susan Eckert Lynch Professor of Science
and Business, Chair of the Department of Applied Economics
the application. PBR applications are typically
and Management, Cornell University, 155 Warren Hall,
completed by the breeders. Adding the elaborate Ithaca, NY, 14853, U.S.A. whl1@cornell.edu
translation requirements under some patent laws,
and the annual maintenance fees can also make
patenting a costly process, compared with PBR. 1 www.upov.int.

CHAPTER 4.6
Plants, Germplasm, Genebanks, and Intellectual

Property: Principles, Options, and Management
JOHN DODDS, Founder, Dodds & Associates, U.S.A.
ANATOLE KRATTIGER, Research Professor, the Biodesign Institute at Arizona State University,
STANLEY P. KOWALSKI, Visiting Scholar, The Franklin Pierce Law Center, U.S.A.
ABSTRACT global food production will have to increase to

In ever-increasing numbers, institutions are establishing more than 3,000 million metric tons from the
technology transfer offices (TTOs). These offices serve a
current 1,800 million metric tons. At the same
variety of functions, all of which must be integrated to
cost effectively transfer technologies and to benefit the in- time, productive farmland is, and will continue
stitutions. A critical function of the TTO is to proactive- to be, diverted at an increasing rate to nonfarm
ly manage intellectual property (IP) issues pertinent to uses, and access to water will continue to be a ma-
crops. Crops can be covered by more than one form of IP jor limiting factor for agricultural productivity.
rights protection, often simultaneously. These rights pro-
tections include trademarks, trade secrets, plant and util- To address the challenge of meeting the
ity patents, and plant variety protection (PVP). Closely needs of the world’s growing population, plant
related is the importance of careful and organized gene- breeders are developing improved plants that
bank management, a critical component of an overall IP can produce more, while using less land and less
and tangible property management system. PVP provides
water. As trained professionals whose endeavor is
one type of protection that allows TTOs to responsively
serve clients and generate revenue. PVP is a form of IP developing plants that are genetically equipped to
rights protection for crops with potentially global appli- produce higher yields of quality products, plant
cations, and either a PVP office, or a PVP subsection in breeders will contribute significantly to meeting
the TTO, would be wisely established by an institution. these challenges. While producing higher yields,
In addition, this chapter provides important information
to assist in establishing a national PVP office and in the these improved plants will also be more resistant
selection and implementation of various types of IP rights to pests and diseases, so they can potentially re-
protection for crops and germplasm. duce the need for large (and expensive) applica-
tions of fertilizers and crop protection chemicals.
Finally, these plants reduce the need for additional
1. Introduction irrigation from precious water resources, thereby
Plants affect people’s everyday lives in terms of contributing to further conservation.
quality and cost—the cost of food, feed, fiber, The breeding of new plant varieties is thus
fuel, and other necessities. Plants provide raw an economically important activity that con-
materials for industry, such as vegetable oils, rub- tributes in many different ways to the social
ber, and drugs and other health care items. By and economic well-being of societies. In many
2020 the Earth’s population is likely to reach 9 cases, new plant varieties are absolutely essential
billion. To meet the increasing demand, annual for human survival. However, there are many
Dodds J, A Krattiger and SP Kowalski. 2007. Plants, Germplasm, Genebanks, and Intellectual Property: Principles, Op-
tions, and Management. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best
Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
© 2007. J Dodds, A Krattiger and SP Kowalski. Sharing the Art of IP Management: Photocopying and distribution through
the Internet for noncommercial purposes is permitted and encouraged.

DODDS, KRATTIGER & KOWALSKI
challenges associated with crop breeding. For of the accessions. This process may entail
example, experience has shown that a breeder simple selection.
has difficulty recovering his financial investment • gene. The fundamental physical and func-
when he sells his initial supplies in the first years tional unit of heredity. A gene is an ordered
of a new variety’s life. The breeder’s competitors sequence of nucleotides in a particular po-
can secure supplies of propagating material and, sition, on a particular chromosome, encod-
in a short time, be in a position to compete with ing a specific functional product.
the breeder, thus profiting from the many years of • genebank. A genebank is a special facility
effort invested by the breeder. In this way, the re- that stores living samples of the diversity of
wards of the plant breeder’s innovative efforts can crop varieties and their wild relatives. These
be rapidly lost to himself or herself. The initial samples are usually in the form of seeds or
phase of protection is therefore critical, because other plant parts. Some of the plants that
developing new varieties in most plant species genebanks hold are extinct in the wild. The
may take between ten and 20 years. value of the genetic resources conserved
These new varieties are crucial to the needs in genebanks encompasses not only their
of modern society. They contribute to a varied current use value and expected future use
diet and provide for a wide choice of ornamental value, but also the option value associated
and amenity plants. Generating sufficient variety, with the flexibility to respond to some un-
however, requires substantial investment in crop known future events.
breeding programs. Accordingly, many countries, • genetic resource. Often used as a synonym
while continuing to invest in public sector plant to germplasm, this is a seed, plant, or plant
breeding research, have established open free- part that is useful in crop breeding, research,
market systems in which exclusive rights of ex- or conservation because of its genetic attri-
ploitation (patent-like protections) are granted to butes. Genetic resources are maintained for
the breeders of new varieties of plants. the purposes of studying, managing, or us-
This chapter presents a general overview of ing the genetic information they possess.
the types of IP protections that are available for • improved material. An elite breeding line.
plants. It then focuses on plant variety protection • landrace. A population of plants, typically
(PVP) as one key example of plant IP rights pro- genetically heterogeneous, commonly de-
tection, an option that can be broadly applied to veloped in traditional agriculture from
the needs of developing countries. many years of farmer-directed selection and
specifically adapted to local conditions.
• public domain. Public ownership status of
2. Definitions information not protected by patents or
Before discussing some specific issues in relation copyrights.
to crops, germplasm, and genebanks, it is impor- • wild species. A species that has not been sub-
tant to have a common understanding of what is ject to breeding with intent to alter them
meant by certain words: from their wild state.
• breed. To develop new or improved strains
of organisms, chiefly through controlled
mating or pollination and the selection of 3. IP issues that AFFEct genetic
offspring for desirable traits. resource management
• breeding line. Genetic group that has been It is useful to recall that plant breeding is a knowl-
selected and bred for special combinations edge-based activity. Consequently, it is a nonex-
of traits. haustive activity. In other words, the results of ap-
• enhancement. The process of improving plying the knowledge are not decreased if shared
germplasm accessions by breeding, while re- with others. What is lost in sharing, however, is
taining the important genetic contributions market value. In other words, a plant breeder who

CHAPTER 4.6
has invested millions of dollars over many years propagation. Discovery itself, however, does not
cannot extract value if others appropriate the new constitute breeding.
variety and sell it at the mere cost of seed produc- The PVP Act (PVPA), enacted in December
tion. The free distribution of varieties provides of 1970 and amended in 1994, provides legal IP
the breeder with no incentive to invest. IP sys- rights protection to developers of new varieties
tems remedy this situation by providing a level of of plants that are sexually reproduced (by seed)
protection to breeders. or are tuber propagated. Bacteria and fungi are
IP rights is a broad term for the various rights excluded. The PVPA is administered by the U.S.
that the law provides for the protection of eco- Department of Agriculture.
nomic investment in creative effort. The principal A Certificate of Protection is awarded to an
categories of IP protections relevant to agricultur- owner of a variety after an examination shows that
al research are patents, plant variety rights, trade the variety is new and distinct from other variet-
secrets, copyrights, and trademarks. ies and is genetically uniform and stable though
successive generations. The term of protection is
3.1 Patents 20 years, for most crops, and 25 years for trees,
Patents are a statutory form of protection that shrubs, and vines. The owner of a U.S.-protected
allows an inventor rights of exclusivity on the variety has exclusive rights to multiply and mar-
sale or use of his or her invention for a lim- ket the seed of that variety.
ited period of time, in a particular territory, The characteristics of the PVP systems are
in exchange for a full public disclosure of the summarized in Table 1 and are compared both
invention. to plant patents and utility patents. A detailed
In the case of plants, there are two forms discussion of PVP and its global applicability is
of patenting. The first is called a plant patent. published by Blakeney
��
and colleagues.1
It applies only to materials that are asexually
propagated, such as pineapples and bananas. 3.3 Trade secrets
The second is called a “utility patent.” This does U.S. trade secret laws have been used to protect
not protect the plant per se, but rather the inin-house breeding materials, such as the inbred
vention that is embodied in the plant (for ex- lines of maize used as parents of hybrids. These
ample, a method for conferring insect resistance laws do not, however, protect against indepen-
through the incorporation of resistant genes into dent discovery or reverse engineering of products
the plant). by the purchasers.
It should be remembered, moreover, that ge-
3.2 Plant variety protection netic resources have a dual property nature: they
Plant variety protection (PVP) is another form of are physical material (tangible property) that may
IP protection for plants. PVP gives the breeder be associated with human-made improvements
exclusive rights to a new and distinct plant variety (IP). This dual nature is the reason for genetic re-
so that the breeder can exploit it. sources to be, on the one hand, physical property
The breeder is defined by the 1991 UPOV in the form of germplasm and, on the other hand,
(International Union for the Protection of New IP in the form of modified genetic information
Varieties of Plants) Convention as the person constituting inventions, trade secrets, and new
who bred, or discovered, and developed a variety. plant varieties.
Therefore, protection is not limited to breeders
who produce a variety as a result of crossing par- 3.4 Copyrights
ent plants and selecting from the progeny. The Copyrights are becoming more important for pro-
term breeder also includes a person who discov- tecting IP in the field of plant breeding because
ers a mutation and converts that discovery into the databases that hold information about plant
a cultivated variety by a process of selective genes can often be copyrighted. Such copyrights

Table 1: Comparison of Plant Variety Protection Systems
Action or TRIPS Compatible Utility Patents Plant Patent Act PVP Act3
UPOV 78 UPOV 91
stipulation Patent Law2 (since 1985; United States) (since 1930; United States) (since 1970; United States)
Varieties of selected Asexually reproduced plants,

All plant species and enabling Plant genotypes not normally found
Protects genera and species as Varieties of all genera and species including cultivated, mutant, and Sexually reproduced plants
technologies in nature
listed hybrid
Uncultivated and tuber- First-generation hybrids,

Excludes
propagated plants uncultivated plants
Novelty, distinctness, Novelty, distinctness, uniformity, Novelty, utility, nonobviousness, Distinctness, uniformity,
Requires Novelty, inventiveness, enablement Novelty, distinctness, stability
uniformity, stability stability enablement stability
Description of novel characteristics Description of novel

Enabling disclosure, best mode As complete as possible
Disclosure and genealogy, enabling disclosure, characteristics and
disclosure, deposit of novel material photographs or drawings
deposit of novel material genealogy, seed deposit
Varietal claim, generic claims, claims

to plant genes, gene transfer vectors,
Claims Not determined Single varietal claim Single varietal claim
processes for producing plants, and
so on
Prevents others from making

Prevents others from
Prevents others from producing or the patented product, using the
importing or selling, sexually
Prevents others from reproducing, conditioning for the patented process, or using, offering Prevents others from making, using,
Prevents others from asexually or asexually reproducing,
producing for commercial purpose of propagation, offering for sale, selling or importing for or selling claimed invention, or from
Rights reproducing, selling, or using distributing without proper
purpose, offering for sale, for sale, selling or other marketing, those purposes the patented selling a component of the claimed
claimed plant notice, producing a hybrid
marketing importing, exporting, stocking for product or the product obtained by invention
or new variety, using the
any purposes detailed above the patented process (extends to
claimed plant
harvested material)
Exemptions for breeding except

Exemptions for developing
where new variety is essentially
Exemptions for breeding Breeders’ rights and farmers’ rights, Does not protect sexual a new hybrid or variety and
derived; optional farmers’
Exemptions and for farmers to save in principle compatible with TRIPS reproduction of claimed plant; for farmers’ saving and sale
exemption and only for use on same
own seed mandatory but not yet tested does not protect plant products of seed; compulsory license
farm and subject to a license and/or
provision
fee; private use and research
Protected while application is
15 years for most crops 20 years from effective filing date 20 years from effective filing date
Duration of 20 years for most crops (25 years for pending, plus 20 years from
(20 years for grapevines 20 years from date of filing (after 8 June 1995); 17 years from issue (after 8 June 1995); 17 years from
protection grapevines and trees) issuance date for most crops
and trees) date (prior to 8 June 1995) issue date (prior to 8 June 1995)
(25 years for vines and trees)
First to file in the United
Priority First to invent in the United States First to invent in the United States States or another UPOV
member country
Double Protection by both patent Protection allowed by both patents

protection and PVP not allowed and PVP
Source: Modified from Krattiger and Potter. 4

CHAPTER 4.6
do not, however, affect trade in products devel- for allowing the registration of descriptors for
oped using the protected information. indigenous materials. These descriptors are re-
viewed as part of the examination process for
awarding a PVP certificate.
3.5 Trademarks
Trademarks can be used to protect brand names, 4.2 Material transfer agreements
such as Monsanto’s Roundup Ready®. But trade- When genetic resources are transferred, it is in-
marks protect only the names and other symbols creasingly common for them to be accompanied
denoting products or technologies, not the tech- by an MTA. Such a document forms a contractual
nologies themselves. Still, trademarks may give relationship between the shipper and the recipi-
customers a proof of quality, and so they may be ent. It is common for MTA agreements to attach
as important as variety protection. terms and conditions regarding both the approved
use of genetic resources and the rights to owner-
ship of such materials or their derivatives.
4. “Non-IP” matters AFFEcting MTA agreements can appear in a number of
genetic resources management forms. While the most common is a conventional
As indicated above, there are tangible property sheet of paper, it is also possible for the material
rights that have a bearing on the ownership of to come with language included on the bag. The
genetic resources. The Convention on Biological use of so-called bag-tag language is becoming in-
Diversity (see below) affirmed the sovereign rights creasingly common. At issue, however, is whether
of nations over their genetic resources. Such own- the “shipper” who applies the MTA language ac-
ership is a tangible property right on the owner- tually owns title to the materials and has the right
ship of the actual material. to allocate ownership rights.
There exist, however, a number of other
non-IP matters that affect the day-to-day lives
of genetic resource specialists working in the 5. International treaties
field. These most typically include indigenous Generally, plant genetic resources are governed by
knowledge issues and access to and transfer of national, regional and international laws, which
materials. regulate ownership, access, and benefit sharing.
Internationally, these concerns are regulated by
4.1 Indigenous knowledge treaties such as the CBD, the International Union
The formal IP system of patents, PVP, copy- for the Protection of New Varieties of Plants
rights, and so on is based on a set of statutory (UPOV) Convention, the International Treaty
(legislative) rules. The current system allows of Plant Genetic Resources, and the Agreement
so-called prior art to be used as a way of deter- on Trade-Related Aspects of Intellectual Property
mining whether novelty exists with regard to an Rights (TRIPS).
invention. The current formal system does not
adequately allow for indigenous knowledge to 5.1 The Convention on Biological Diversity (CBD)
form the basis of prior art or allow indigenous The CBD is the central instrument related to
people to be the inventors or breeders. This has international biodiversity. It broadly delimits
led to significant controversy in the international the rights of states and other relevant actors over
community. Both WIPO (World Intellectual biological resources and affirms the sovereign
Property Organization) and UPOV are actively rights of states to exploit their own resources
reviewing and debating this topic to try to devel- pursuant to their own environmental policies.
op a mechanism that would prescribe a role for The sovereign rights of states over their own bio-
such knowledge within the formal system. One logical resources are limited by the recognition
noteworthy example within a national program that these resources are a common concern of
is the PVP Office of the Philippines’ mechanism humankind.

The Convention also provides a broad frame- genetic resources, with minimal procedural and
work for member states’ policies concerning administrative costs. Initially, the treaty applies
access, development and the transfer of technolo- to 35 crops and some 80 forages that are un-
gies. It also acknowledges the necessity for all par- der the control of member governments and
ties to recognize and protect IP rights in this field. that are not subject to IP rights. Thus, the treaty
The Convention further recognizes both the de- includes practically all the crops that humanity
pendence of local communities on biological re- depends on for its food supply. The treaty in-
sources and the roles that these communities play vites all holders of listed plant genetic resources
in the conservation and sustainable use of these re- to join the multilateral system. The list itself can
sources. Finally, it points to the need for equitably be changed with the consensus of the parties to
sharing the benefits that arise from the use of tra- the treaty.
ditional knowledge, innovations, and practices. The multilateral system is intended to be ef-
ficient, effective, and transparent. It aims to ease
5.2 UPOV access, not only to plant genetic resources for
The UPOV Covention is the only international food and agriculture, but also to information
treaty focusing on PVP. It recognizes not only the about those resources, so that any benefits that
rights of individual plant breeders who have de- may arise from their use can be shared fairly and
veloped or discovered plant varieties that are new, equitably.
distinct, uniform, and stable, but also accords cer- In this context, it is worth dwelling��
briefly on
tain rights to farmers. Under the 1978 version of the difference between farmers’ rights and farmers’
the Convention, farmers are permitted to reuse exemption/privilege. Because the terms are often
propagating material from the previous year’s har- used interchangeably, there has been significant
vest, and they can freely exchange the seeds of pro- confusion regarding their use. Farmers’ rights
tected varieties with other farmers. Plant breeders is a term developed by FAO under the Revised
are also allowed to use protected varieties to breed Undertaking for Plant Genetic Resources.
and commercialize other new varieties. Resolution 5/89 of the treaty states, “…rights
The latest revision of the Convention, ad- arising from the past, present and future contribu-
opted in 1991, has further strengthened the tions of farmers in conserving, improving and mak-
rights of commercial plant breeders. These revi- ing available plant genetic resources.” Resolution
sions include the obligation for member states to 3/91 states that these rights are to be “implement-
provide protection to all plant genera and species. ed through an international fund on plant genetic
Furthermore, it extends breeders’ rights to all seed resources that will support plant genetic conserva-
production of a protected variety, even though tion and utilisation programmes, particularly, but
countries can decide on their own internal laws not exclusively, in the developing countries….”
regarding this issue. In some cases, the revision The difference is further elaborated in the
grants to commercial breeders the rights to the FAO Treaty. However, no specific future action
harvested material of the variety and extends pro- is targeted here; instead, the treaty gives voice to
tection to varieties that are “essentially derived” a general equity objective. These areas are still the
from a protected variety. subject of much debate, and the mechanism with
which to ensure both participation and benefit
5.3 The International Treaty on Plant Genetic sharing has not yet been elucidated.
Resources for Food and Agriculture The concept of farmers’ exemption or farm-
The International Treaty on Plant Genetic ers’ privilege in PVP legislation, on the other
Resources for Food and Agriculture was adopted hand, hinges on the notion that a farmer has a
by consensus of the member states of the United right to “fair use” of his or her own produced
Nations Food and Agriculture Organization seed. Most national legislations embrace this no-
(FAO) in November 2001. The Treaty envisions tion of fair use, as do UPOV’s model laws, and
a multilateral system to facilitate access to key allow farmers to use seed produced on their own

CHAPTER 4.6
farms for further sowing. Only if the farmer sells cates the rights that the owner is giving to the
or trades the seeds is an infringement of the PVP genebank in terms of using and distributing
holder’s rights committed. Article 15 of UPOV such materials.
1991 states that: In-house materials may include those acquired
a) [Compulsory exception] The breeder’s right prior to the CBD. These may be in the form of
shall not extend to: genebanks, botanic gardens, and so on. While the
(i) Acts done privately and for non-com- ownership of in-house materials is still conten-
mercial purposes; tious, the law is clear that such materials may be
(ii) Acts done for experimental purposes; used freely without prior permissions. It is very
[…] important here to distinguish between “genetic
resources” collected in nature and “improved
b) [Optional exception] Notwithstanding materials.” IP rights will attach only to the latter.
Article 14, each Contracting Party may, Indeed, a sound knowledge of the biology of the
within reasonable limits and subject to the materials and the ownership and legal rights as-
safeguarding of the legitimate interests of the sociated with them is essential.
breeder, restrict the breeder’s right in relation Outgoing materials are those materials the
to any variety in order to permit farmers to genebank manager distributes to others, either
use for propagating purposes, on their own for research, direct use, or for use in improve-
holdings, the product of the harvest that ment programs. This is often when problems
they have obtained by planting, on their arise. Carefully using appropriate MTAs is the
own holdings, the protected variety or a va- most effective way to deal with these issues. The
riety covered by Article 14(5)(a)(i) or (ii). MTA should reflect a range of matters: interna-
tional law, policy of the organization, nature of
5.4 The TRIPS Agreement the material, nature of the recipient, nature of the
TRIPS was the result of an initiative by developed acquisition of the material, and conditions relat-
countries to introduce more stringent IP rights ing to incoming MTA on the material (see ex-
trade rules. The agreement sought to extend the amples included in this Handbook).
security of IP rights internationally. Article 27.1 Genebank management has recently become
of the TRIPS Agreement implies that patents a very sensitive issue. An organized, stepwise ap-
may be available in biotechnology fields, a posi- proach is vital for effectively managing a genebank
tion that Article 27.3 consolidates with regard to and for avoiding difficulties. Potential ownership
granting IP rights in biotechnology, particularly issues about genetic resources must be clearly ana-
as it relates to plants. lyzed, and documentation procedures for the ac-
quisition and distribution of such materials must
be effective and thorough.
6. Specific issues related to The legal issues surrounding genebanks have
genebank management changed dramatically over the last decade. Such
A genebank manager addresses both the many changes will continue, and genebank manag-
technical aspects relevant to the use of genetic ers must be alert to the effects of these changes.
resources and issues related to the ownership When appropriate, managers should seek profes-
of genetic resources. As outlined below, these sional advice about how these changes affect their
issues usually come in different phases of the respective institutions. Genebank managers must
work. not, however, lose sight of their crucial social role:
In accordance with the CBD, incoming they guard and preserve the basic building blocks
material must be acquired with the consent of upon which human survival and food security de-
the nation that “owns” these resources. This pend. They work not only for this generation but
is achieved through a germplasm acquisition for generations to come.
agreement (GAA) or an MTA that clearly indi-

7. PVP: IP protection for crop inventive nature of the product and/or process to
varieties be filed. Finally, the new variety name is usually
PVP addresses a specific need that applies broadly trademarked. (For more information about the
across the globe, in both developed and develop- U.S. PVP system, see section 3.2.)
ing countries. So-called PVP regimes are imple- The model law of UPOV, and effectively of
mented in order to: all national legislatures, also allows a government
• provide breeders (both public and private to issue a compulsory use license. In effect, if a
sectors) with an opportunity to receive a country has a compelling need to multiply a pro-
reasonable return on past investments tected variety, then the government can issue a li-
• provide an incentive for continued or in- cense for its use. The PVP holder would, however,
creased investment in future breeding still have the legal right to be given a reasonable
research royalty payment.
• recognize the legal right of the innovator to To qualify as a protected variety, the plant va-
be recognized as such riety coming out of a breeding program must be
• acknowledge his or her economic right to able to demonstrate:
remuneration for his or her efforts • distinctness
• uniformity
In order to foster these laws and agreements • stability
within the global economy, UPOV was formed
through a union of states. These states agreed to The way in which these criteria are met is de-
grant exclusive exploitation rights to the breeders scribed in more detail in section 7.3 below.
of new plant varieties on an internationally har-
monized basis. UPOV developed a set of model 7.1 PVP application process
laws that provided a general legislative framework PVP application forms and the supporting docu-
for PVP. Indeed, some provisions of TRIPS re- mentation, such as the UPOV crop guides, will
fer to the use of UPOV standards as an effective guide the applicant (and examiner) through the
mechanism for complying with WTO standards. steps of describing the history, breeding origin,
One very effective aspect of this arrangement is and variety, making seed deposits, paying fees,
the provision for mutuality, which allows cross and, if all is as required, obtaining a PVP certifi-
protection between jurisdictions for states that cate. If application materials exist, the relevant
are members of the UPOV system. Countries ministry of agriculture will have them; if applica-
often use the model law produced by UPOV as tion materials are not available, this chapter pro-
a framework for developing their own legisla- vides information to help develop them.
tive standards. This is not to say that the system Anyone who is the owner, breeder, de-
is wrinkle free. For example, the differences be- veloper, or discoverer of a unique cultivar of a
tween protected varieties and other forms of plant sexually reproduced or tuber-propagated plant
genetic material (including genetic resources and may apply for PVP. This applies to any citizen
landraces) has yet to be established. in any UPOV member country. The applicant
The U.S. system is a useful model and be- may be an individual, a public institution, or a
cause of the UPOV system’s efforts toward har- corporation.
monization, most of the provisions in the U.S. The protection works by prohibiting a per-
PVP system are consistent with those in other ju- son from selling, marketing, offering, delivering,
risdictions. It should be noted that many jurisdic- consigning, exchanging, or exposing the variety
tions have patent laws allowing for the protection for sale without explicit consent of the owner. In
of plants. This is complementary to the PVP leg- addition, a person is prohibited from soliciting
islation. It is possible, and increasingly common an offer to buy the variety, or transfer or possess
in the United States, for protection to be taken on it in any manner. It is also illegal to import or ex-
the variety, and, in addition, for a patent on the port the variety, sexually multiply it, propagate it

CHAPTER 4.6
by tuber, use the variety in producing (as distin- distinctness. In the United States, the PVP office
guished from developing) a hybrid, or condition does not perform tests to confirm the distinct-
the variety for the purpose of propagation. It is ness of a variety. That responsibility rests with the
worth adding here that plant parts (flowers, pol- applicant.
len, and so on) are also protected. This is critical For uniformity, a statement must report
in reviewing infringement actions to determine the level of variability in any characteristic of
where the material has been used. the variety. Variation, which is predictable, de-
scribable, and commercially acceptable, may be
7.2 Exemptions allowed.
In general, there are two exemptions to the For stability, a statement of genetic stability
protection provided: 1) a research exemption is required, showing the number of cycles of seed
and 2) a farmer’s exemption (also called farmer’s reproduction for which the variety has remained
privilege).5 unchanged in all distinguishing characteristics.
A research exemption allows for breeding to Special mention should be made of essential-
develop a new variety; a farmer’s exemption allows ly derived materials. Good examples are so called
for the saving of seed for the sole use of replanting “sports.” If PVP protection has been obtained on
the farmer’s land. However, if the farmer sells or a potato variety that has a red skin after decades of
trades the seeds, he infringes on the rights of the breeding, and then someone selects a field sport
PVP holder. The controversies surrounding this with a white skin, the new white skin material
provision turn largely on the definition of terms. is determined to be essentially derived from the
It should be noted that neither plant patents nor original variety and will be protected under the
utility patents provide these exemptions. 1991 UPOV act.
7.3 Examination standards 7.4 Enforcement

The owner must prove the distinctness, uni- The owner of a protected variety may bring civil
formity, and stability of the new variety. The bur- action against persons infringing on his or her
den is entirely on the applicant. rights, and the owner may ask a court to issue an
For distinctness, the applicant may: injunction to prevent others from further viola-
• list the single variety he or she believes is tions. The owner of the protected variety must
most similar to the new variety and de- bring suit in such cases—the USDA will not take
scribe how the new variety differs from it that action. In the United States, IP protection
• list a group of varieties that are similar to for plants is provided through plant patents, PVP,
the new variety and describe how it differs and utility patents. Plant patents provide protec-
from varieties within that group tion for asexually reproduced (by vegetation) va-
• describe how the variety differs from all rieties excluding tubers. PVP provides protection
other known varieties in the crop kind for sexually (by seed) reproduced varieties includ-
ing tubers, F1 hybrids, and essentially derived va-
The PVP office maintains databases of both rieties. Utility patents currently offer protection
public and private varieties of crops. The exam- for any plant type or plant parts. A plant variety
iner uses these and other sources to determine can also receive double protection under a utility
which, if any, varieties are indistinguishable from patent and PVP.
the new one. If the examiner finds varieties that
appear to be indistinguishable from the applica- 7.5 Contents of a complete application and
tion variety, the applicant will be notified that exhibit forms
supplemental data is necessary. To obtain addi- A PVP application consists of a completed and
tional data, applicants may perform additional signed form that includes Exhibits A, B, C, and E
field or greenhouse replications and may use (Exhibit D is optional):
DNA profiling and other analyses to substantiate A) Exhibit A (Breeding History)

B) Exhibit B (Statement of Distinctness, pre- or photographs (prints) of seed and plant com-
viously called “Novelty Statement”) parisons that clearly indicate distinctness.
C) Exhibit C (Objective Description)
D)Exhibit D (Additional descriptive 7.5.3 Exhibit C: Objective Description of Variety
Information) The PVP office has prepared forms for the appli-
E) Exhibit E (Statement of Ownership) cant to provide a botanical description of the va-
riety for most crops. These forms list the botanical
Also required is a sample of at least 2,500 un- characteristics for a kind of crop and the degree
treated viable seeds, capable of propagating the of expression of each characteristic. These forms
application variety, and, for a tuber-propagated also provide a list of recommended varieties that
variety, verification that a viable cell culture will the applicant should compare to the application
be deposited. A check for the filing fee is also variety. The applicant needs to complete the form
required. for his or her variety as thoroughly as possible.
7.5.1 Exhibit A: Breeding History 7.5.4 Exhibit D: Optional Supporting

The applicant is required to provide the Information
following: The applicant may provide additional informa-
• full disclosure of the genealogy back to tion, specimens, and/or materials in support of
publicly known varieties, lines, or clones, the claims of the application.
including the breeding method
• details of subsequent stages of selection and 7.5.5 Exhibit E: Statement of Ownership
multiplication used to develop the variety The applicant is required to furnish a statement
• statement of uniformity reporting the level for the basis of the applicant’s ownership. The
of variability in any characteristics of the PVP office has prepared a form to simplify this
variety (commercially acceptable variability requirement. The form also includes a statement
is allowed) to verify that the applicant is eligible to file for
• statement of genetic stability showing the PVP in the United States.
number of cycles of seed reproduction for
which the variety has remained unchanged 7.6 Steps needed to start and operate
in all distinguishing characteristics a national PVP office
• information about the type and frequency You may be reading this chapter because you are
of variants observed during reproduction in the process of setting up a PVP office. If that
and multiplication is the case, then the topics below will help you ef-
• information about the frequency of off- fectively and efficiently establish the office.
types (in other words, impure lines) ob- The basic operation of this office and its ac-
served or known to occur tions can be translated into the following steps:
1. Setting up the office. The initial setting up
7.5.2 Exhibit B: Statement of Distinctness of the office will have a physical component
The applicant is required to give a summary of (obtaining the necessary space, equipment,
the variety’s distinctness, stating clearly how the and other physical resources) and a legis-
application variety may be distinguished from all lative component (setting up the laws and
other varieties in the same crop. If the variety is regulations, and examining guidelines).
most similar to one variety or group of varieties, 2. Appointing the staff. A registrar for the
the applicant must (1) identify these varieties and PVP office, a number of examiners, and
state all differences objectively, (2) attach statisti- support staff, both clerical and technical,
cal data for characters expressed numerically and will need to be appointed.
demonstrate that these are clear differences and 3. Training the staff. The PVP office staff
(3) submit, if helpful, seed and plant specimens needs to be trained in both the technical

CHAPTER 4.6
processes related to the examination and cation with senior policy-makers. The
the legal and clerical matters related to is- act and regulations will need legislative
suing and registering the certificate. action, and they must also be consistent
4. Establishing the formal procedure. The of- with other domestic laws. Regulations
fice must set up formal procedures, such as will also often need to comply with WTO
law enactment, rule approval, and exami- requirements.
nation standards. 13. Storing deposits. Facilities must be
5. Notifying the public that the office is func- arranged for storing exhibits of the
tional. Once the PVP office is functional, materials.
staff must inform the public that they may 14. Preparing certificates. A format and style
avail themselves of the services the office must be established for the production and
provides. registration of PVP certificates.
6. Distributing information and application 15. Dealing with disputes. The legislation and
material. As part of the public awareness regulations will usually contain provisions
campaign, staff should make information allowing for applicants who are refused a
and forms publicly available. In an increas- PVP certificate to appeal the decision either
ing number of jurisdictions, application through the PVP office and/or through the
forms are available online at the PVP office judicial system.
Web site. 16. Sample deposits. An appropriate, adequate
7. Informing and educating the public system must be in place for applicants to
about how to apply. Attorneys and agents deposit seed or plant materials. This facility
may need to be educated about the actual may belong to the ministry of agriculture
mechanics of preparing and submitting in most countries or may be managed by
applications. a related organization. The facility should
8. Receiving application. The filing date is a meet appropriate international seed stor-
critical component of the application pro- age guidelines and have adequate mecha-
cess, and detailed rules should inform ap- nisms for safekeeping/security of the seed
plicants about the application filing date. samples.
9. Reviewing the applications. This is the
heart of the process. Applications are re-
viewed (1) for compliance with general ap- 8. Conclusions
plications standards and (2) for technical It is clear that a PVP regime effectively harmo-
content. nized across different countries would significant-
10. Examinations standards and their applica- ly lower the costs for users, and hence increase re-
tion. The 1991 UPOV act, the rules, and turns on plant-breeding investments. This would
possibly the examiner’s manual provide an undoubtedly lead to more varieties and more
objective set of standards that can be ap- choices for farmers. A costly regime, on the other
plied to particular applications. The impor- hand, discourages smaller national companies
tance of such objectivity for the credibility from filing for PVP protection and increases the
of the system cannot be overstated. cost of participating in foreign markets that, in
11. Communicating with the client. Effective turn, favors large multinational companies with
communication with the applicant is abso- the resources and infrastructure to operate across
lutely essential. All correspondence must be multiple national regimes.
consistently dated, numbered, and sent by All of the IP protection mechanisms dis-
registered or certified mail. cussed in this chapter depend upon enforcement
12. Communicating with policy-makers. by national governments. If a law is only as good
When establishing the office, it will be as its enforcement, then a regulatory body such
crucial to keep in very close communi- as a PVP office is only as good as the people who

implement the regulations. In order to reinforce 1 Blakeney M, JI Cohen and S Crespi. 1999. Intellectual
national policy initiatives in many countries, a Property Rights and Agricultural Biotechnology. In
Managing Agricultural Biotechnology. Addressing
comprehensive, in-depth training program is Research Program Needs and Policy Implications (ed. JI
recommended to equip personnel with the infor- Cohen). pp. 209-227. CAB International Press; Blakeney
mation and experience required to establish the M. 1999. Agricultural Research and the Management
of Intellectual Property. In Managing Agricultural
long-term health of a PVP system. This training
Biotechnology. Addressing Research Program Needs
could be combined with a coordinated effort to and Policy Implications (ed. JI Cohen). pp. 228-40. CAB
regionalize the PVP system through jointly train- International Press.
ing administrators from a number of countries, 2 Modified from Helfer LR. 2002. Intellectual Property
which would increase cooperation and harmoni- Rights in Plant Varieties: An Overview with Options for
National Governments FAO Legal Papers Online, No. 31.
zation within the region. www.fao.org/Legal/Prs-OL/lpo31.pdf.
Of course, different people within the system
3 The initial PVP Act of the United States was not UPOV
require different training. As a starting point, all compliant, but in 1980 the United States acceded to
participants, whether officers, management, or UPOV 1978 and later to UPOV 1991. A further jump in
even individuals in breeding companies, need to investment was seen after 1986 when the U.S. Patent
and Trademark Office established that plant varieties
be brought to a certain minimum level of com- were patentable subject matter.
petence in the application of the regulations. A
4 Krattiger AF and RH Potter. 2002. The Status of Plant
general program, such as a Web-based training Variety Protection Issues in the Asia-Pacific Region: An
course or other distance-learning approaches, Overview. Asian Seed 9(5): 17–20.
could help to achieve this goal. For management 5 Farmer’s exemption or farmer’s privilege should not
staff, tailored workshops could be used to expose be confused with “Farmer’s Rights”. Farmer’s rights
is a concept that became popular during the 1980s
staff members to areas of conflict and to increase through the FAO Revised Undertaking for Plant
their knowledge of the importance of PVP in the Genetic Resources (Resolution 5/89) in an attempt
development of plant breeding businesses. These to recognize and reward the “…rights arising from
the past, present and future contributions of farmers
courses and workshops could be augmented by
in conserving, improving and making available plant
an internship program, in which selected indi- genetic resources…” (see www.fao.org/docrep/X0255E/
viduals would be given more intensive training x0255e03.htm for a detailed history). The term now
through collaboration with public and private constitutes a central element in the International
Treaty on Plant Genetic Resources for Food and
institutions from countries with well-established Agriculture where it is called “Farmers’ Rights.” ftp://
PVP systems. These highly trained individuals ftp.fao.org/ag/cgrfa/it/ITPGRe.pdf.æ
could form a core group that would then further
develop staff expertise. ■
John Dodds, Founder, Dodds and Associates, 1707 N

Street NW, Washington., D.C., 20036, U.S.A. j.dodds@
doddsassociates.com

opments-International Institute; and Adjunct Professor,
Cornell University. PO Box 26, Interlaken, NY, 14847,
Stanley P. Kowalski, Visiting Scholar, The Franklin Pierce

Law Center, 2 White Street, Concord, NH, 03301, U.S.A.
spk3@cornell.edu or skowalski@piercelaw.edu

CHAPTER 4.7
Plant Variety Protection, International

Agricultural Research, and Exchange of Germplasm:
Legal Aspects of Sui Generis and Patent Regimes
MICHAEL BLAKENEY, Director, Queen Mary Intellectual Property Research Institute, University of London, U.K.
ABSTRACT Given the state of technology in 1883, the

This chapter outlines the range of plant variety protec- inclusion of these agricultural subjects within the
tion regimes that currently exist internationally, includ-
Paris Convention was for the purpose of protect-
ing the International Convention for the Protection of
New Varieties of Plants, the Convention on Biological ing trademarks and indications of source.
Diversity, the Agreement on Trade-Related Aspects of The first inclusion of biological agricul-
Intellectual Property Rights, and the International Treaty tural innovations in an IP statute was in the
on Plant Genetic Resources for Food and Agriculture. The U.S. Plant Patents Act of 1930, which created
chapter commences with a history of intellectual property
laws affecting plant breeding and the genetic modification a sui generis system confining protection to
of plants. It explores the trend toward the harmonization asexually reproduced plants, so confined be-
of international standards and concludes with an examina- cause of the view that sexually reproduced va-
tion of the impact of these developments upon germplasm rieties lacked stability.1 The Act also excluded
exchange, international agricultural research, and food
tuber-propagated plants principally because of
security.
a concern that protecting such plants would
lead to monopolies in basic foodstuffs such as
1. Intellectual property rights potatoes.2 Applicants for plant patents were
and agriculture required to asexually reproduce the plant for
The first international intellectual property (IP) which protection was sought, to demonstrate
convention was the 1883 Paris Convention for the stability of the characteristics of the plant
the Protection of Industrial Property. In this in- being claimed. Section 161 required that new
strument, agriculture was envisaged as an area of varieties be “distinct.” The statute did not de-
enterprise in which property rights could be se- fine this requirement, although the Senate
cured, thus Article 1(3) of the Paris Convention Committee report accompanying the act stated
declared that: that “in order for a new variety to be distinct it
Industrial property shall be understood in the must have characteristics clearly distinguishable
broadest sense and shall apply not only to industry from those of existing varieties” and that it was
and commerce proper, but likewise to agricultural not necessary for the new variety to constitute
and extractive industries and to all manufactured or “a new species.”3
natural products, for example, wines, grain, tobacco Legislation similar to the Plant Patents Act
leaf, fruit, cattle, minerals, mineral waters, beer, was adopted in Cuba in 1937, in South Africa in
flowers, and flour. 1952, and in the Republic of Korea in 1973.
Blakeney M. 2007. Plant Variety Protection, International Agricultural Research, and Exchange of Germplasm: Legal As-
pects of Sui Generis and Patent Regimes. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. M Blakeney. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

BLAKENEY
2. International standards for scheduled for 1972. Within the first 19 years of
sui generis pVP its life, the UPOV Convention had attracted the
As with other categories of IP, a key role in the accession of only 12 states. A reason identified for
inclusion of agricultural innovations within the the reluctance of states to adopt the Convention
international regulatory regime was played by in- was the stringency of its provisions, in particu-
dustry associations. The Congrès Pomologique de lar the obligation of states to select either patent
France, held in 1911, had called for special pro- or UPOV-style protection for plant varieties,
tection for plant varieties. This agitation contin- but not both. Article 2 of the Convention was
ued in the 1920s and 1930s, culminating in the amended to permit the accession of countries,
founding, in Amsterdam in November 1938, of like the United States, which had laws allowing
the International Association of Plant Breeders for for the double protection of varieties under both
the Protection of Plant Varieties (ASSINSEL). At patent and UPOV-style sui generis laws. The list
its Semmering Congress in June 1956 a resolution of genera, annexed to the 1961 Convention was
of ASSINSEL called for an international confer- removed. This list had contained mainly species
ence to promulgate an international system for from temperate climates. Under the new Article
the protection of new plant varieties. In February 4, member states agreed to apply the Convention
1957, the French government issued invitations to at least five genera, rising to 24 genera within
to 12 western European countries4 to attend a dip- eight years. Additionally, a grace period was in-
lomatic conference in Paris in May of that year to troduced to permit the marketing of varieties for
consider establishing such a system. Participation up to 12 months prior to submitting an applica-
was limited by the French to those states who were tion for plant variety protection (PVP).
known to have similar concerns to it on this sub- A further broadening of the UPOV
ject. The conclusions of the 1957 Paris conference Convention occurred with the 1991 revision. The
were set down in its Final Act, adopted in May 1991 Act requires states to protect at least 15 plant
1957. This recognized the legitimacy of breeders’ genera, upon becoming members, and to extend
rights and established as the preconditions for pro- protection to all plants within 10 years (Article
tection that a variety had to be distinct from pre- 3(2)). In response to demands from breeders in
existing varieties and sufficiently homogenous and developed countries, the 1991 Act removed the
stable in its essential characteristics. The act de- prohibition against dual protection. The 1991 Act
fined the rights of the breeder and acknowledged recognized breeders’ rights to use protected variet-
the principle of the independence of protection. ies to create new varieties. However, this excep-
At the second session of the conference, held in tion is itself restricted to such new varieties as were
Paris in late 1961, the International Convention not “essentially derived” from protected varieties
for the Protection of New Varieties of Plants, or (Articles 14(5) and 15). The drafters added this
Union pour la Protection des Obtentions Végétales restriction to prevent second generation breeders
(UPOV), was adopted. Article 4(1) applied the from making merely cosmetic changes to existing
Convention to “all botanical genera and species,” varieties in order to claim protection for a new
but it was envisaged that the Convention would variety. The concept of essential derivation has,
have a gradual introduction. A list of 13 genera however, proved highly controversial in practice.
was annexed to the Convention: wheat, barley, Breeders have been unable to agree on a defini-
oats or rice, maize, potato, peas, beans, Lucerne, tion of the minimum genetic distance required
red clover, ryegrass, lettuce, apples, and roses or for second generation varieties to be treated as
carnations. Article 4(3) required each member not essentially derived from an earlier variety and
state, upon entry into force of the Convention, thus outside of the first breeder’s control.5
to apply it to at least five genera from this list and, From the perspective of farmers, probably
within eight years, to all the listed genera. the most contentious aspect of the 1991 Act was
Article 27 of the 1961 Convention provid- the limitation of farmers’ rights to save seed for
ed for its periodic review, with the first revision propagating “on their own holdings” the product

CHAPTER 4.7
of the harvest that they obtained by planting a varieties. As was mentioned above, seed saved by
protected variety on their own holdings, “within a farmer from harvested material and treated for
reasonable limits and subject to the safeguarding the purpose of sowing a crop on that farmer’s own
of the legitimate interests of the breeder” (Article land is considered not to be an infringement by
15(2)). Unlike the 1978 Act, the 1991 version of legislation based on UPOV 1991.
the farmers’ privilege does not authorize farmers Legislation may also provide that PBRs are
to sell or exchange seeds with other farmers for not infringed when propagating material is used
propagating purposes. This is criticized as incon- as a food, food ingredient, or fuel, or for any other
sistent with the practices of farmers in many de- purpose not leading to or involving the produc-
veloping nations, where seeds are exchanged for tion or reproduction of propagating material.
purposes of crop and variety rotation.6 Also, it may be provided that PBRs are ex-
A number of developing countries have re- hausted following the sale of propagating mate-
sisted the adoption of the 1991 Act as the stan- rial by a grantee unless there is a multiplication of
dard for PVP laws. The foreign ministers of the the material after the sale.
Organization for African Unity issued a statement
at a January 1999 meeting calling for a morato- 3.3 Duration of plant breeders’ rights
rium on IP protection for plant varieties until The general duration of PBRs, provided by leg-
an Africa-wide system had been developed that islation implementing UPOV 1991, is to be 25
granted greater recognition to the cultivation years in the case of trees and vines and 20 years
practices of indigenous communities. for any other plant type. This duration period
commences on the date of grant of PBRs in the
variety. Where a plant variety is declared to be es-
3. The UPOV System sentially derived from an initial variety, the total
In most countries the implementation of duration of protection for the dependent or es-
the UPOV Convention requires domestic sentially derived variety generally can last for no
legislation. longer than the duration of the protection of the
initial variety.
3.1 Scope of plant breeders’ rights
Generally, the plant breeders’ rights (PBRs) con- 3.4 Application for plant breeders’ right
ferred by domestic legislation modeled on UPOV Eligible applicants are usually plant breeders who
are defined as the exclusive right to do or to li- are citizens or residents of the country in which
cense the following acts in relation to propagating they are applying for the permit, if the variety is
material of the plant variety: bred in the country. On the other hand, a coun-
• produce or reproduce the material try might permit anyone, domestic or foreign, to
• condition the material for the purpose of apply for a variety under the country’s laws.
propagation Ineligible applications will generally involve
• offer the material for sale varieties previously sold in the country.
• sell the material
• import the material 3.5 Form of application
• export the material The form of application for PBRs will be pre-
• stock the material for all of the purposes scribed by the national legislation. It will provide
described above that an application must contain:
1. the name and address of the applicant
3.2 Exceptions 2. the name and address of the agent, if any,
Excepted from these rights, under the UPOV making the application on the applicant’s
Convention, are acts performed privately and for behalf
noncommercial purposes, for experimental pur- 3. a statement to that effect if the applicant is
poses, or for the purpose of breeding other plant the breeder of the variety

BLAKENEY
4. if the applicant is not the breeder of the va- notification obligations apply when an applica-
riety, details of the applicant’s right to make tion is rejected.
the application
5. a brief description, with a photograph, if 3.8 Variation of application
appropriate, of a plant of the variety suf- After an application for PBRs has been accepted,
ficient to establish a prima facie case that but before concluding the examination of that
the variety is distinct from other varieties of application, the authority or official may permit
common knowledge an applicant to vary an application, subject to the
6. the name, and any proposed synonym, for payment of a prescribed fee.
the variety An application is usually permitted to be
7. particulars of the location at which and the withdrawn by an applicant at any time. If this
manner in which the variety was bred, in- occurs after public notice of the application, the
cluding particulars of the names by which authority or official must, as soon as is practical,
the variety is known and sold in the coun- give public notice of the withdrawal.
try and particulars of any PBRs granted in
the country or in another country that is a 3.9 Detailed description of the plant variety
signatory to the UPOV Convention Whenever it is practical, but not later than 12
8. particulars of any application for, or grants months after an application has been accepted, or
of, rights of any kind in the variety in any within such further period granted by the author-
other country ity or official, the applicant is usually required to
9. the name of an approved person who will give a detailed description of the plant variety to
verify the particulars of the application and which the application relates. Failure to supply
who will supervise any test growing of the this description will result in the application be-
variety required under Section 37 of the ing deemed to have been withdrawn. The detailed
Act and who will verify a detailed descrip- description must be in writing and in an approved
tion of the variety; and form, containing particulars of:
10. such other particulars, if any, as are required 1. the characteristics that distinguish the plant
by the approved form. variety from other varieties, the existence
of which is deemed a matter of common
3.6 Application fee knowledge
An application fee will usually be prescribed un- 2. any test growing carried out
der the legislation. 3. any test growing outside the country that
tends to establish that the variety will, if
3.7 Acceptance or rejection grown in the country, be distinct, uniform
The authority or official that is responsible for and stable; and
the administration of the relevant law will be 4. other such particulars that may be
required to decide, as soon as is practicable af- prescribed.
ter an application is filed, whether to accept or
reject the application. Where the authority or 3.10 Objection to an application for PBRs
official is satisfied that the application is prior in The administering authority is usually obliged to
time to any other application and that it com- give public notice of the detailed description as
plies with the requirements of the legislation soon as is practicable after it has been received.
and establishes a prima facie case for treating A person may object to an application for PBRs
the plant variety as distinct from other varieties, if they can establish that their commercial in-
the application must be accepted. Upon accep- terests would be affected by the grant of PBRs
tance, the applicant must be notified that the to the applicant and that the authority cannot
application has been accepted and public notice be satisfied that the various substantive require-
of the acceptance must also be given. Similar ments of the law have been met by an applicant.

CHAPTER 4.7
The objection must set out the particulars of the 3.14 Declarations of essential derivation
manner in which the person believes his or her Where a person is the grantee of PBRs over a par-
commercial interests would be affected and the ticular plant variety (the initial variety) and an-
reasons why the person considers that the author- other person is the grantee of, or has applied for,
ity cannot be satisfied that the various substantive PBRs in another variety (the second variety) the
requirements of the law have been met. grantee of PBRs in the initial variety may seek
a declaration that the second variety is an essen-
3.11 Inspection of application and objections tially derived variety of the initial variety. A plant
A person may, at any reasonable time, inspect an variety is defined to be an essentially derived vari-
application for PBRs over a plant variety, or an ety of another plant variety if:
objection lodged in respect to that application. 1. it is predominantly derived from the other
Upon payment of a prescribed fee, a copy of an plant variety
application or an objection to an application is to 2. it retains the essential characteristics that
be provided. result from the genotype or combination of
genotypes of that other variety; and
3.12 Test growing of plant varieties 3. it does not exhibit any important (as dis-
In the case of an application that has been ac- tinct from cosmetic) features that differen-
cepted, or an objection to such application, or tiate it from that other variety.
a request for revocation of PBRs, the authority
may require a test growing, or a further test grow- The application for essential derivation
ing, of the variety. In such case, notice may be must be in an approved form and contain such
required to be provided to all relevant persons. information relevant to establishing a prima fa-
The notice, in addition to telling the applicant, cie case of essential derivation. If the authority
objector, or grantee of the authority’s decision, is satisfied, or not satisfied, as the case may be,
must specify the purpose of the test growing and that a prima facie case has or has not been estab-
may require the person to supply the authority lished, the applicant and the grantee of PBRs in
with sufficient plants or propagating material and the second variety must be informed and pro-
with any necessary information to permit the au- vided an opportunity to rebut the prima facie
thority to arrange a test growing, or to make ar- case. The authority may order a test growing
rangements for an approved person to supervise in order to rebut a prima facie case of essential
the test growing and to be supplied with plants derivation.
or propagating materials. The expense of a test
growing must be borne by the applicant, objec- 3.15 Grant of PBRs
tor, or person requesting revocation of the PBR. Where an application for PBRs in a plant variety
Provision may be made for a test growing outside is accepted, the law will provide that following
the country of a plant variety that was bred out- examination of the application. The authority
side the country. must grant the right to the applicant where it is
satisfied that:
3.13 Provisional protection 1. there is such a variety
Where an application for PBRs is accepted, the 2. the variety is registrable within the law
applicant is taken to be the grantee of that right 3. the applicant is entitled to make the
from the date that the application is received application
until the application is disposed of. During this 4. the grant of that right is not prohibited by
period of provisional protection, the applicant is the law
prevented from commencing any infringement 5. the right has not been granted to another
action with respect to the PBRs, until such time person
as the application is finally resolved in the appli- 6. the name of the variety complies with
cant’s favor. Section 27

BLAKENEY
7. propagating material of the variety has been of PBRs over a plant variety or by a declaration
deposited for storage, at the expense of the of essential derivation. In the event of revocation
applicant, in a genetic resource center ap- or surrender of PBRs, particulars of revocation
proved by the authority or surrender will usually be entered in the PBRs
8. a satisfactory specimen plant must be sup- Register and published.
plied to a prescribed herbarium; and
9. all fees have been paid. 3.18 Compulsory licensing
National laws usually require the grantee of PBRs in
PBRs are granted by the issue of a certificate a plant variety to take all reasonable steps to ensure
in approved form. reasonable public access to that plant variety. This
requirement is considered to be satisfied if propa-
3.16 Effect of a grant of PBRs gating material of reasonable quality is available
If a person is granted PBRs over a plant variety, to the public at reasonable prices, or as gifts to the
the grantee will take precedence over any other public, in sufficient quantities to meet demand. For
person who was entitled to make an application the purpose of ensuring reasonable public access,
for the right in the variety. Such person is not pre- the law may permit the relevant authority to license
vented, however, from applying for a revocation an appropriate person to sell propagating material
of rights or to seek administrative review of the of plants of that variety, or to produce propagat-
authority’s actions in relation to the grant of PBR ing material of plants of that variety for sale, during
or to request the authority to make a declaration such period as the authority considers appropriate
that the variety over which rights were granted and on such terms and conditions (including the
was essentially derived from another plant variety. provision of reasonable remuneration to the grant-
Where it has been determined that another per- ee) as the authority considers would be granted by
son was entitled in law or equity to an assignment the grantee in the normal course of business.
of the right to make an application for the PBRs, A person may make a written request to the
that person may be entitled to an assignment of authority for the grant of a license where a per-
the PBRs. son considers that a grantee is failing to ensure
Where the relevant Minister for Agriculture reasonable public access to a plant variety and
considers it appropriate, PBRs may be granted that failure affects that person’s interests. The re-
subject to conditions. The Minister would prob- quest must set out particulars of the alleged fail-
ably take the advice of any Plant Breeders’ Rights ure and of the effect upon the person’s interests.
Advisory Committee established under the law. The authority is then usually required to provide
the grantee an opportunity within a prescribed
3.17 Revocation period to satisfy the authority that the grantee is
There may be provision for the revocation of providing reasonable public access to a plant vari-
PBRs, or a declaration that a plant variety is es- ety, or that he or she will comply within a reason-
sentially derived from another plant variety, if the able period of time. Where the authority decides
authority becomes satisfied that facts had existed to grant a license, a public notice will be issued
that, if known before the grant of the right or the identifying the variety, detailing the particulars of
making of the declaration, would have resulted in the license that is proposed to be granted and an
the refusal to grant the right or make the declara- invitation to persons to apply for a license. The
tion. Revocation may also result from a failure to authority is usually required to consider all appli-
pay prescribed fees. Within a prescribed number cations and publicly notify the proposed licensee,
of days of the decision to revoke, the grantee or as well as notifying each of the applicants.
transferee of PBRs may be provided with particu-
lars of the grounds of proposed revocation. 3.19 Infringement of PBRs
Applications for revocation may be made by Generally speaking, PBRs in a plant variety are
a person whose interests are affected by the grant infringed by an unauthorized person:

CHAPTER 4.7
1. performing acts that are included in the protection of agricultural and horticultural in-
PBRs novations. However, a seed-saving exception for
2. claiming the right to perform one of those farmers was included as a public policy safeguard,
acts; and an early reflection of food security concerns. Such
3. using the name of a registered variety in a safeguard does not generally exist in patent stat-
relation to another plant or another plant utes, and this absence was an inducement for seed
variety. companies to shift their attention to the patent
system as a means of protecting their innovations.
An infringement will not occur where the act This shift in attention also coincided with the de-
complained of is exempted from the operation of velopment of modern biotechnologies.
the law. A defendant in an action for infringe- Patent protection was not originally consid-
ment of rights may counterclaim for revocation ered to be a particularly effective system for the
of the rights on the grounds that the variety was protection of plant varieties. Prior to the develop-
not a new plant variety or that facts existed that ment of modern biotechnology, the breeding of
would have resulted in the refusal of the grant of a new variety could not be said to involve an in-
those rights. ventive step, and such innovations as were made
could be considered to be obvious rather than
3.20 Remedies inventive. However, with the extension of patent
In an infringement action, a nominated court protection to recombinant DNA methods for
may grant an injunction subject to any terms producing transgenic plants and their resulting
that the court thinks fit and, at the option of the products, patents have been assuming increasing
plaintiff, either damages or an account of profits. significance in PVP. The broader ambit of patent
Where a person satisfies the court that at the time rights is one particular advantage of this form of
of the infringement he or she was not aware of IP protection, covering, as it does, plants, seeds,
that right, and had no reasonable grounds for sus- and enabling technologies. Plant variety rights
pecting the existence of the right, it may refuse to are highly specific to the variety, and their scope
award damages or order an account of profits. is limited by reference to the physical (propagat-
ing) material itself, combined with the descrip-
3.21 Administration tion of the variety given in the documentary
Most laws provide for the establishment of the grant of the rights.
Office of the Registrar of Plant Breeders’ Rights,
which is responsible for the general administra- 4.1 European prohibitions on patentability
tion of the Act and for the maintenance of the Article 53(b) of the European Patent Convention
Register of Plant Varieties. (EPC) excludes plant varieties, as well as “es-
The office of the Registrar will usually issue sentially biological processes” from the scope of
an official Plant Varieties Journal in which all patentable subject matter. This raises, in the first
public notices are to be published. instance, the definitional distinction between
plants and plant varieties. The UPOV Convention
3.22 Genetic resource centers and herbaria defines plant variety in terms of a plant group-
The law may provide for the nomination of ge- ing within a single biological taxon of the lowest
netic resource centers for the storage and mainte- known rank. The grouping can be:
nance of germplasm material. • defined by the expression of characteristics
(such as shape, height, color, and habit) re-
sulting from a given genotype or combina-
4. Patents on plants, varieties, seeds, tion of genotypes
and other propagating material • distinguished from any other plant group-
As mentioned above, PVP laws were developed ing by the expression of at least one of these
in response to industry calls for sui generis characteristics

BLAKENEY
• considered as a unit with regard to its suit- Plant.12 The application concerned a patent
ability for being propagated unchanged containing claims to transgenic plants compris-
ing in their genomes specific foreign genes, the
The first consideration of the distinction be- expression of which resulted in the production
tween plant and plant variety by the Technical of antipathologically active substances, and to
Board of Appeal of the European Patent Office methods of preparing such plants. The EPO had
(EPO) occurred in 1984 in the Ciba-Geigy de- denied registration. The denial was supported by
termination.7 This case concerned a plant that the Technical Board of Appeal on the ground that
had been treated with a chemical compound to Article 53(b) denied the patentability of an in-
confer on the plant a degree of protection from vention that could embrace plant varieties.
the toxic side effects of certain herbicides. The In its decision in December 1999, the
Examination Division had refused the patent Enlarged Board of Appeal indicated that it would
application on the basis of Article 53(c). This favor the application because, in substance, it
was reversed by the Technical Board of Appeal, did not involve an application for a plant variety.
which, applying the definition of plant variety This determination contains some useful guid-
in the UPOV Convention, stated that “Article ance on the legal definition of plant varieties. The
53(c) prohibits only the patenting of plants or their Enlarged Board of Appeal noted that the defini-
propagating material in the genetically fixed form tions of plant variety in the UPOV Convention
of the plant variety… Plant varieties in this sense and the Council of the European Union (EU)
are all cultivated varieties, clones, lines, strains and Regulation on Community Plant Variety Rights
hybrids.”8 In this case the claims covered merely refer to “the entire constitution of a plant or a set of
the application of a chemical treatment and not genetic information,” whereas a plant defined by
plant varieties as such. a single recombinant DNA sequence “is not an
This approach was applied by the Technical individual plant grouping to which an entire con-
Board of Appeal in the case Lubrizol (Hybrid stitution can be attributed.” The Enlarged Board
Plants)9 where the Board held that “the term plant observed that the claimed transgenic plants in the
varieties means a multiplicity of plants which are application were defined by certain characteristics
largely the same in their characteristics (that is, homo- that allowed the plants to inhibit the growth of
geneity) and remain the same within specific toleranc- plant pathogens. No claim was made for anything
es after every propagation or every propagation cycle resembling a plant variety. The board noted that
(that is, ‘stability’).”10 The Board then ruled that as in the case of PBRs, an applicant had to develop
the hybrids in issue were not stable, they did not a plant group, fulfilling in particular the require-
fall within the excluded category of plant varieties. ments of homogeneity and stability, whereas in
The European Directive on the Legal Protection the case of a typical genetic engineering inven-
of Biotechnological Inventions (the Directive) per- tion, a tool was provided whereby a desired char-
mits the patentability of inventions concerning acteristic could be bestowed on plants by insert-
plants, where “the technical feasibility is not confined ing a gene into the genome of a specific plant.
to a particular plant … variety.”11 Patent claims can The board observed that the development of spe-
therefore be made with respect to plant groupings, cific varieties was not necessarily the objective of
or as stated in Recital 31 to the Directive, inventors involved in genetic engineering.
Whereas a plant grouping which is character-
ized by a particular gene (and not its whole genome) 4.2 Patentability outside of Europe
is not covered by the protection of new varieties and Outside of Europe the prohibition against the
is not excluded from patentability even if it com- patenting of plant varieties is absent. In the
prises new varieties of plants. United States, for example, the Federal Circuit
resolved any potential conflict between patent
This qualification was addressed by the protection and protection under the Plant Variety
Technical Board of Appeal in Novartis/Transgenic Protection Act in its decision in Pioneer Hi-Bred

CHAPTER 4.7
International Inc. v. J.E.M. Ag Supply Inc.13 The patentability but that plant varieties might be
defendants objected that Pioneer had obtained patented. The Novartis determination, among
both patent protection and certificates of protec- others, argues that the addition or modification
tion under the Plant Variety Protection Act for of genetic material to confer disease resistance is
the same seed-produced varieties of corn. The de- not the creation of a new plant variety. If the view
fendants argued that the enactment of the Plant of the majority in Schmeiser that the patenting of
Variety Protection Act had removed seed-pro- a cell confers exclusive patent rights over a plant
duced plants from the realm of patentable subject in which that cell is included, then the Article
matter in the Patents Act. The Federal Circuit 27.2(b) exception becomes meaningless.
rejected this argument noting that the Supreme The Joint Communication of the African
Court held that “when two statutes are capable of Group to the TRIPS Council17 suggested that
coexistence, it is the duty of the courts ... to regard Article 29 of the TRIPS Agreement seemed to
each as effective.” be the most suitable for an appropriate modifi-
The patenting of plant varieties in Canada cation to deal with the issue of patenting plant
was upheld by the recent Canadian Federal variety rights, by including the requirements for
Court of Appeal case of Monsanto Canada v. equity, disclosure of the community of origin of
Schmeiser.14 This case concerned the cultivation the genetic resources and traditional knowledge,
by a farmer of canola that contained chime- and demonstration of compliance with applicable
ric genes conferring tolerance to glyphosphate domestic procedures. Thus the Group suggested
herbicides. Monsanto had patented the canola that Article 29 be modified by adding the follow-
and had marketed these genes in its product ing as paragraph 3:
Roundup® Ready Canola. Schmeiser had cul- Members shall require an applicant for a pat-
tivated canola derived from plants on his land ent to disclose the country and area of origin of any
that he claimed had developed the tolerance biological resources and traditional knowledge used
from wind-borne genetic pollination. The trial or involved in the invention, and to provide confir-
court found that cultivation of a plant was not mation of compliance with all access regulations in
an infringement of patented genes contained in the country of origin.
that plant; however, the majority of the Federal
Court of Appeal agreed with Monsanto that this 4.3 IP and the research exemption
was infringing use. Plant breeders have tended to stress the necessity
Counsel for Schmeiser raised the moral ques- of being able to freely access genetic material, in-
tion of whether it was right to manipulate genes cluding that which is IP protected. This is why
in order to obtain better weed control or higher the UPOV Convention contains a broad breeders’
yields. The Federal Court of Appeal ruled that his exemption. Patent law tends to have a much nar-
was a question for the parliament to consider and rower research exemption, and it is often limited
that the court’s job was to “interpret the Patents to noncommercial scientific or experimental use.
Act as it stands.”15 The majority explained that, The narrowness of the research exception in
“Under the present Act, an invention in the domain patents law is illustrated by the recent U.S. deci-
of agriculture is as deserving of protection as an in- sion in Madey v. Duke University,18 which held that
vention in the domain of mechanical science. Where a university that undertook commercial research
Parliament has not seen fit to distinguish between contracts could not avail itself of the defense. The
inventions concerning plants or other inventions, ambit of the experimental research exception in
neither should the courts.”16 patents law in the United Kingdom was examined
As the minority judge pointed out that in Monsanto v. Stauffer.19 In that case, Stauffer had
the Agreement on Trade-Related Aspects of developed a market variant, called Touchdown®,
Intellectual Property Rights (TRIPS) of the of Monsanto’s successful patented weed-killer
World Trade Organization (WTO), in Article Roundup® for which Stauffer had obtained provi-
27.2(b), permits the exclusion of plants from sional clearance from relevant authorities. In order

BLAKENEY
to obtain final clearances, Stauffer had established (CBD), administered under the United Nations
tests at its own research farm and also organized Environment Programme (UNEP), to regulate
a series of tests outside the farm, where interested access to their genetic resources, and in doing so
parties could observe the results. Monsanto moved have restricted the free flow of those resources.
for an interlocutory injunction, on the grounds This practice may well be detrimental to those
of patent infringement, which was granted by the countries and others, in terms of long-term food
patents court, negating the ground that tests done security.21
outside the research farm to check the product But beyond the issues of how specific IP
in different soil and climatic conditions amounts rights privatize genetic material needed for
to an experimental use. The Court of Appeal, breeding is the association of IP rights with the
although it agreed that tests done outside could privatization of agricultural research, the shrink-
not qualify for an experimental-use exception, ex- age of nonproprietary public sector research,
empted all trials carried out at Stauffer’s research and the increased concentration of ownership
farm and at laboratories and greenhouses in the of breeding material, research tools, and tech-
United Kingdom. The Court limited the inter- nologies in the hands of a small number of giant
pretation of the word experimental in accordance corporations.22 Not only does this privatization
with the size, scale, recipient, and methodology of trend toward greater restriction on access reduce
the experiment. This case has raised uncertainty the free circulation of breeding material, but it
as to how far university researchers can apply the can also make public policy aimed at enhancing
experimental-use exception to agricultural field food security harder to put into practice. This is
trials.20 true because it is much more difficult for gov-
Another illustration of the relative narrow- ernments to influence companies than the public
ness of the experimental-use exception in patents institutions they partly or wholly fund.
law, compared with PVP laws, is that while a
protected plant variety is covered by a single ti- 4.4 Ethical issues relating to the
tle, plant-related biotechnological inventions are patentability of life-forms
likely to be protected by a patent and, in some There is a substantial body of literature on the
cases, several patents. The patents may cover not ethical implications of permitting the propertiza-
just plants, but also seeds, genes, and DNA se- tion of the “building blocks of life” or at least to
quences. The effect of patents is to restrict access “reduce the value of life and nature to the merely
to the patented “products.” It has been argued economic.” The Joint Communication of the
that “locking up” genetic resources with patents African Group to the TRIPS Council on tak-
is a bad thing because innovation in plant breeding forward the review of Article 27.3(b) of the
ing is cumulative and depends on being able to TRIPS Agreement,23 stated that patents on life-
use as wide a stock of material as is possible. The forms were unethical and “contrary to the moral
International Treaty on Plant Genetic Resources and cultural norms of many societies in Members
for Food and Agriculture (the Treaty) introduced of the WTO.” The Joint Communication invoked
a number of provisions to deal with this concern. the exception in Article 27.2 for protecting ordre
The provisions are laid out below. public and morality as justification for outlawing
Apart from patents, the restrictions on access patents on life-forms.
to breeding material may have causes other than An important question for which empirical
IPRs. For one thing, some countries have cho- work is required concerns the impact of oligop-
sen to provide exception for certain categories of olization in the biotechnology market on the
plant genetic resources they consider to be stra- capacity of international institutions to provide
tegically important from the Multilateral System public goods to developing countries in the ag-
to be set up under the Treaty. Also, some devel- ricultural sector. The proprietization of enabling
oping countries have been exercising their rights technologies, as well as genetic resources, raises
under the Convention on Biological Diversity concerns about the capacity of the public agri-

CHAPTER 4.7
cultural research system to fulfill its public-good proper forum for discussing the advantages and
mission in contributing to the elimination of food disadvantages of genetic engineering. Similarly, in
insecurity. As Drahos observed, “in biotechnology Novartis/Transgenic Plants30 the Extended Board
and agriculture, it is likely that much research will of Appeal of the EPO considered the debate over
end up as an international rather than public good genetic engineering to be too controversial for the
and that it will be distributed according to complex board to sustain Greenpeace’s opposition to the
licensing structures.”24 patent. The Extended Board of Appeal noted that
In addition to the possible adverse impacts the Directive was an indication that the European
this market concentration might have upon the Parliament considered there to be some benefit in
vigor of competition, the market dominance of genetic engineering.
these private corporations also has an important
influence upon the sort of biotechnological re-
search that is undertaken. For example, to what 5. PVP, plant genetic resources, and
extent will the dominance of private corporations the TRIPS Agreement
in biomedical and agricultural research direct that Access to the plant genetic resources of a country
research toward northern concerns and away from is governed by an evolving composite of national
southern health problems25 and southern food legislation pursuant to CBD, TRIPS, UPOV, and
priorities?26 Will the owners of IP rights in key en- the Treaty.
abling technologies make them available to public The interrelationship between these instru-
research institutions on affordable terms?27 ments has been addressed by the Council on TRIPS
Article 27.2 of the TRIPS Agreement per- pursuant to its review of Article 27.3(b), which
mits members to disallow the exploitation of in- commenced in 1999. At a March 2001 meeting of
ventions “which is necessary to protect ordre public the Council on TRIPS, the chairman set out a list
or morality, including to protect human or plant life of key issues that had arisen in the review of Article
or health or to avoid serious prejudice to the environ- 27.3(b) (IP/C/M/26). These included:
ment… .” Member states would have to show that • technical issues relating to patent and PVP
the commercial exploitation of the specific inven- under Article 27.3(b)
tion would be contrary to ordre public or moral- • technical issues relating to the sui generis
ity. In light of the interpretation and application protection of plant varieties
of the equivalent provision within the European • the relationship to the conservation and
Patent Convention, and recently reinforced in the sustainable use of genetic material
Directive, it is unlikely that this exception would • the relationship with the concepts of tradi-
permit a general exclusion of living material from tional knowledge and farmers’ rights
patentability. It is also questionable whether pat-
ent offices are the proper bodies to adjudicate Article 27.3(b) of the TRIPS Agreement per-
the application of moral and ethical issues to the mits the exclusion from patentability of :
patent system.28 In any event, the patent offices plants and animals, other than microorganisms,
have abstained from exercising moral judgments and essentially biological processes for the production
in this area. Thus, for example, in Greenpeace v. of plants and animals, other than nonbiological and
Plant Genetic Systems NV,29 in an opposition to microbiological processes. However, Members shall
an application for a patent directed to transgenic provide for the protection of plant varieties either by
plants engineered to be resistant to the herbicide patents or by an effective sui generis system or by any
Basta®, Greenpeace argued that it was immoral, combination thereof.
and therefore in breach of Article 53(a) of the
European Patent Convention, to “own” plants However, Article 27.3(b) provides no guid-
that were the common heritage of humankind. ance on what is meant by effective, the debate in
The Appeal Board of the EPO sustained the the TRIPS Council having focused upon which
Examination Division’s view that it was not the sui generis systems satisfy the obligation. A sui

BLAKENEY
generis option in the IP context is usually taken to • What is a patentable invention for the pur-
refer to a specially coined IP right, outside of the poses of Article 27.3(b)?
traditional categories of IP protection. UPOV has • What are microorganisms for the purposes
advanced its system as the principal workable ex- of Article 27.2?
ample of a sui generis PVP system. It is interesting • What are plant varieties for the purposes of
to note that the drafters of the TRIPS Agreement, Article 27.3(b)?
who felt free to import into the agreement provi- • Should there be a research exception in re-
sions from other named international instruments, lation to patents over plant material?
such as the Paris, Berne, and Rome conventions
and the Washington Treaty on Integrated Circuits, 5.1.1 What is a patentable invention?
desisted from specifically importing provisions IP law attempts to draw a distinction between
from the UPOV Convention in the area of plant inventions and discoveries. The latter are not
varieties. protectable. This distinction may be made in the
The failure of the drafters of TRIPS to define relevant legislation. For example, European laws
what was meant by sui generis leaves considerable based on the Directive, which specifically provides
scope for nations in the range of legislation that in Article 3.2 that “Biological material which is iso-
they may implement in compliance with this pro- lated from its natural environment or produced by
vision. One option is to include the benefit-shar- means of a technical process may be the subject of an
ing and informed-consent provisions of the CBD invention even if it previously occurred in nature.”
in a UPOV-style statute. A problem with doing so Of course, it is equally open to a court or a
is that although the CBD provisions would apply legislature to rule or provide that genetic material
in the countries that introduce them, they will not is not patentable, even in its isolated or purified
apply in countries that do not introduce them. In form, on the grounds that it is a mere discovery.
the countries that do introduce the provisions and Indeed, nothing in the TRIPS Agreement obliges
also adopt an approach based on UPOV 1991 or countries to deem the isolation of genetic mate-
patents, there is no guarantee of benefit sharing and rials to be inventions. A number of developing
informed consent, or even of the right to save seed. countries exclude the patentability of genetic
The Doha Ministerial Declaration of November materials (Mexico), or of materials existing in na-
2001, in Clause 19, provided: ture (Argentina, Brazil, and the Andean Group
We instruct the Council for TRIPS, in pursuing Decision 486).
its work programme including under the review of
Article 27.3(b), the review of the implementation of 5.1.2 What are microorganisms for the
the TRIPS Agreement under Article 71.1 and the work purposes of Article 27.3(b)?
foreseen pursuant to paragraph 12 of this Declaration, Article 27.3(b) permits WTO Members to ex-
to examine, inter alia, the relationship between the clude from patent protection plants, animals, and
TRIPS Agreement and the Convention on Biological essentially biological processes for the production
Diversity, the protection of traditional knowledge and of plants and animals. Members are specifically
folklore, and other relevant new developments raised not permitted to exclude from patent protection
by Members pursuant to Article 71.1. In undertaking microorganisms and nonbiological and micro-
this work, the TRIPS Council shall be guided by the biological processes. The language used in Article
objectives and principles set out in Articles 7 and 8 of 27.3(b) implies that a clear distinction can be
the TRIPS Agreement and shall take fully into account made between plants and animals on the one
the development dimension. hand and microorganisms on the other. However,
there is no commonly accepted definition of mi-
5.1 Technical issues relating to patent croorganism, either in science or in patent office
and PVP under Article 27.3(b) practice. The lack of any definition permits great
The following technical issues are suggested by variations between members in practicing this
the terminology of Article 27.3(b): exclusion.

CHAPTER 4.7
The practice of patent offices in developed Sui generis systems are generally defined as
countries suggests that there is no perceived need those that fall outside of the traditional categories
for a definition: the key issue for protection being of IP protection and are created to deal with a
not its subject matter, but whether or not the in- unique category of creativity. The UPOV system
vention meets the patent-granting criteria. has been urged by the industrialized group of
An invention involving biological material countries as the principal workable example of a
will be regarded as lacking an inventive step if sui generis PVP system. In excess of 50 states have
it: (1) merely identifies the biological material; acceded to the UPOV Convention.
and/or (2) merely identifies the natural function Developing countries in the TRIPS Council
of the biological material. An invention will dem- have argued that the TRIPS Agreement is in ten-
onstrate an inventive step if it takes the form of a sion with the CBD, particularly with the provi-
significant technical application of an identified sions in the latter convention concerned with
function of the biological material. This technical informed consent to biological materials and eq-
application must go beyond a mere simple rep- uitable benefit sharing following access.
lication of the natural function of the biological A communication to the WTO from Kenya,
material, and the technical application must rep- on behalf of the African Group, to assist the prep-
resent a significant technical advance on the prior arations for the 1999 Ministerial Conference,
art. What about processes and uses? suggested that:
An invention involving biological material “After the sentence on plant variety protection
will be regarded as being capable of industrial ap- in Article 27.3(b), a footnote should be inserted stat-
plication if it can be shown that the invention is ing that any sui generis law for plant variety protec-
capable of being used in a manner that provides a tion can provide for:
demonstrable public benefit. Public benefit means (i) the protection of the innovations of indig-
that the invention must be capable of being used enous and local farming communities in
in a manner conducive to public health and to developing countries, consistent with the
social, environmental, and economic welfare. Convention on Biological Diversity and
the International Undertaking on Plant
5.1.3 What is a plant variety for the Genetic Resources;
purposes of Article 27.3(b)? (ii) the continuation of the traditional farming
As noted above, a crucial issue in the establishment practices including the right to use, exchange
of a sui generis regime would be the definition of and save seeds, and sell their harvest;
the protected subject matter. Article 27.3(b) of (iii) preventing anti-competitive rights or prac-
the TRIPS Agreement requires the protection of tices which will threaten food sovereignty of
“plant varieties,” but does not provide (as in the people in developing countries, as is permit-
case of inventions) a definition thereof. Therefore, ted by Article 31 of the TRIPS Agreement.
national laws have ample room to determine what
is to be deemed a plant variety for the purposes of This African proposal is reflected, in part, in
protection. Which are the possible definitions? clause 19 of the Doha Ministerial Declaration of
The law may require certain characteristics for a November 2001 mentioned above.
protected variety that may not be essential for a In order to help countries devise an ap-
scientific definition. propriate sui generis system, the International
Plant Genetic Resources Institute (IPGRI, now
5.2 Technical issues relating to the sui generis Bioversity International) came up with a list of
protection of plant varieties. key questions that decision makers should take
Article 27.3(b) provides no guidance on what into account.31 These are as follows:
is meant by effective, the debate in the TRIPS • What kind of domestic seed industry exists?
Council having focused upon which sui generis • What kind of public breeding sector
systems satisfy the obligation. exists?

BLAKENEY
• What kind of seed supply system is in acknowledgment of plant variety rights obviously
place? benefited industrialized countries that were active
• To what extent is farm-saved seed used in in seed production. In exchange for this conces-
the country? sion, developing countries won endorsement of
• What is the current capacity of breeders? the concept of farmers’ rights. A further resolu-
• What do local breeders want to do in the tion in 1991 recognized the sovereign rights of na-
next 5–10 years? tions over their own genetic resources. Agenda 21,
• Are external inputs to agriculture low or promulgated at the Rio Earth Summit in 1992
high? called for the strengthening of the FAO Global
• What are the country’s production needs System on Plant Genetic Resources. Resolution 3
and objectives? of the Final Act to the CBD noted that the ac-
• What is the country’s biotechnology cess to ex situ germplasm collections, such as
capacity? those maintained by the CGIAR, and the realiza-
• What are the goals and realistic expectation of farmers’ rights were the province of the
tions of the biotechnology sector? Undertaking. The 1993 FAO Conference called
• What kinds of strategic alliances will the on member states to harmonize the Undertaking
country want to enter into in the next 5–10 with the CBD. Negotiations for revision of the
years and how involved will other countries Undertaking to take account of both the CBD and
be? the TRIPS Agreement commenced in November
1994 and were consummated with the adoption
The fact that the answers to these questions of the Undertaking as the Treaty.
will vary widely from one country to another sug-
gests that, as with patents, one size is unlikely to 6.1 The main objectives and innovations
fit all. of the Treaty
The objectives of the Treaty are stated in Article 1
to be “the conservation and sustainable use of plant
6. The International Treaty genetic resources for food and agriculture and the
on Plant Genetic Resources fair and equitable sharing of the benefits arising out
for Food and Agriculture of their use, in harmony with the Convention on
Plant genetic resources for food and agriculture Biological Diversity, for sustainable agriculture and
(PGRFA) were freely exchanged by the inter- food security.”
national agricultural research institutes of the Article 4 of the Treaty requires signatories
Consultative Group on International Agricultural “where appropriate” to “promote an integrated ap-
Research (CGIAR), as well as by their national proach to the exploration, conservation and sustain-
counterparts, on the basis that they were “the com- able use of plant genetic resources for food and ag-
mon heritage of humankind.” This principle was riculture.” Article 10.2 contains the agreement of
embodied in the International Undertaking on the Contracting Parties to “establish a multilateral
Plant Genetic Resources for Food and Agriculture system, which is efficient, effective and transparent,
(the Undertaking) adopted by the Food and both to facilitate access to [PGRFA] and to share, in
Agriculture (FAO) Conference in 1983. The a fair and equitable way, the benefits arising from
Undertaking was adopted as a nonbinding con- the utilisation of these resources, on a complemen-
ference resolution. In subsequent years the prin- tary and mutually reinforcing basis.” Facilitated ac-
ciple of free exchange was gradually narrowed cess to PGRFA is to be provided in accordance
by the impact of IP rights upon agriculture. In with the conditions prescribed in Article 12.3.
November 1989, the 25th Session of the FAO Paragraph (d) of this provision provides that the
Conference adopted two resolutions providing an recipients “shall not claim any intellectual property
“agreed interpretation” that plant breeders’ rights or other rights that limit the facilitated access” to
were not incompatible with the Undertaking. The PGRFA, or their “genetic parts or components,” in

CHAPTER 4.7
the form received from the Multilateral System. the Centres’ germplasm collections that fell with-
This, of course, does not prevent IP rights being in Annex I list that were collected after the entry
claimed in relation to germplasm that is modified into force of the Treaty.
by the recipient.
Article 13.1 recognizes that benefits accruing 6.2 Farmers’ rights and food security
from facilitated access to PGRFA shall be shared Article 9 of the Treaty implements the proposal
fairly and equitably under this Article. Article 13.2 that was developed under the Undertaking for
envisages that this sharing of benefits includes the recognition of farmers’ rights. The policy
the exchange of technical information, access to behind this recognition is stated in Article 9.1,
technology, capacity building, and the sharing of namely that:
monetary benefits from commercialization. The Contracting Parties recognize the enormous
Article 28 provides that the Treaty would en- contribution that the local and indigenous com-
ter into force 90 days after accession by 40 coun- munities and farmers of all regions of the world,
tries. Until that date, the Undertaking would particularly those in the centres of origin and crop
remain operative. Having acquired the necessary diversity, have made and will continue to make for
accessions in March 2004, the Treaty entered into the conservation and development of plant genetic
force in June 2004. resources which constitute the basis of food and agri-
The establishment of the Multilateral System culture production throughout the world.
was the principal innovation introduced by the
Treaty. This asserts the primacy of national sov- The principal contribution of traditional farm-
ereignty over biological resources, but, in fact, ers to agrobiodiversity has been their conserva-
imposes limitations on countries on their ability tion of landraces, which are crop varieties that are
to restrict access to other states. Facilitated access primitive cultivars, developed by local farmers to
has to be provided to the crops, listed in Annex I, deal with the local climate and diseases and to ca-
that account for a significant part of human nu- ter to local tastes and food-preparation practices.32
trition. Member states are obliged to make avail- This development may involve the interbreeding
able all passport data and, subject to applicable of locally occurring undomesticated plants with
law, any other associated nonconfidential descrip- cultivated plants, as well as the exchange of differ-
tive information. In relation to material that is ent genotypes among farmers and farms.33
under development by farmers or breeders at the
time when access is requested, the Treaty gives the 6.3 Traditional knowledge and food security
country of origin the right to delay access dur- A significant contribution has been made by the
ing the period of development. Two compromises knowledge of indigenous peoples and traditional
were necessary to secure this right of access: first farmers in the development of new crop types
is the limitation imposed by Article 12 upon re- and biodiversity conservation. These groups have
cipients seeking IP rights in material obtained been an important agency in the conservation of
under the Treaty; second is the right of donors plant genetic resources and the transmission of
to receive some form of benefit sharing. Benefit- these resources to seed companies, plant breeders,
sharing mechanisms under the Treaty include the and research institutions. The contributors have
exchange of information, access to and transfer of not typically been paid for the value they have
technology, capacity building, and the sharing of delivered, whereas breeders and seed companies
benefits arising from commercialization. have resorted to IP rights to recover their devel-
The CGIAR Centres signed agreements with opment expenditures.
the FAO in 1994, placing the acquisitions to The economic value of biological diversity
their germplasm collections after that date under conserved by traditional farmers for agriculture
the trusteeship of the FAO. Under the Treaty, is difficult to quantify. It has recently been sug-
new agreements were invited to determine that gested that “the value of farmers’ varieties is not
the access provisions of the Treaty would govern directly dependent on their current use in conven-

BLAKENEY
tional breeding, since the gene flow from landraces An assumption of Article 9.1 is that the land-
to privately marketed cultivars of major crops is very races used by traditional farmers are a dynamic
modest”34 because “conventional breeding increas- genetic reservoir for the development of new vari-
ingly focuses on crosses among elite materials from eties and for the transmission of desirable genetic
the breeders own collections and advanced lines de- traits. The traditional knowledge of local and in-
veloped in public institutions.” On the other hand, digenous communities is similarly perceived. As a
those collections and advanced breeding lines are means of remunerating these groups for their past
often originally derived from germplasm contrib- contributions to the development of plant genet-
uted by traditional groups. ic resources for food and agriculture production,
An increasingly significant economic value of there can be little argument, except about the
biodiversity is the extent to which it provides a quantum and distribution of this remuneration.
reservoir of species available for domestication, as Inevitably, any calculation of the equitable
well as genetic resources available for the enhance- share that traditional farmers and indigenous
ment of already domesticated species. The mod- communities might enjoy under a farmers’ rights
ern biotechnological revolution has enabled the or traditional knowledge regime will be arbitrary.
engineering of desirable genetic traits from useful However, the IP system is no stranger to arbitrary
local species. It is estimated that about 6.5% of calculations, thus the 20-year length of a patent
all genetic research undertaken in agriculture is term is intended to provide an opportunity for
focused upon germplasm derived from wild spe- the compensation of all inventors, whatever the
cies and landraces.35 area of technology. Similarly the 25-year exclu-
Traditional knowledge is particularly im- sivity, which the UPOV Convention provides for
portant in the development of farming systems new varieties of trees and vines, takes no account
adapted to local conditions and farming prac- of variations in R&D costs between the different
tices. This may enable the utilization of marginal varieties.
lands, contributing to food security by enabling The principal ways in which plant genetic re-
access to food in remote areas, as well as contrib- sources are translated into food and agriculture
uting to the management of the environment by production is through plant breeding and plant
preventing erosion, maintaining soil fertility, and patenting. Standing at the heart of a farmers’
maintaining agricultural biodiversity. rights regime is the concept of equitable benefit-
Farmers in subsistence systems have tended to sharing with farmers for their contribution to
utilize a diverse selection of crop species in order innovations in plant breeding and plant patent-
to assure their annual harvests and thus to guaran- ing. It is estimated that about 6.5% of all genetic
tee a minimal level of production and to prevent research undertaken in agriculture is focused
food shortage. Seed production in many instances upon germplasm derived from wild species and
has been on the collection of and domestication landraces.36
of locally known wild varieties. Modern agricul- Article 9.2 of the Treaty envisages that “the
tural practices depend on crop species that pro- responsibility for realizing Farmers’ Rights, as they
mote productivity and resistance to disease that relate to Plant Genetic Resources for Food and
can only be maintained with the continuous input Agriculture, rests with national governments” and
of new germplasm. The diversity of landraces and that national legislation should include measures
the associated information on their specific quali- relating to:
ties contribute invaluable information to formal • protection of traditional knowledge rele-
breeding processes. It has been noted that the loss vant to plant genetic resources for food and
of biological diversity is paralleled by the loss of agriculture
traditional knowledge. Where a plant variety be- • the right to equitably participate in sharing
comes extinct, then the entire body of knowledge benefits arising from the utilization of plant
about its properties is condemned to irrelevancy. genetic resources for food and agriculture

CHAPTER 4.7
• the right to participate in making deci- ment of food security in developing countries re-
sions, at the national level, on matters requires a package of policies that address the sup-
lated to the conservation and sustainable ply, distribution and consumption aspects of the
use of plant genetic resources for food and food chain. The FAO has noted that the policy
agriculture options that are available to poor countries are
constrained by a number of factors including: (1)
Article 9.2 obliges the Contracting Parties to limited resources for public spending programs;
the Treaty “to take measures,” subject to their na- (2) the dilemma between remunerative prices for
tional legislation to protect and promote farmers’ producers and prices that a large number of poor
rights. The content of these rights is defined in the households can afford, thus making the option
balance of that provision and embraces the proof border protection less attractive despite high
tection of traditional knowledge, equitable benefit bound tariffs; (c) major constraints on foreign
sharing, and the right to participate in decision exchange availability leading to pressure to boost
making. The Treaty leaves open the legal context production of export crops.38
within which farmers’ rights are to be enacted. Where IP could make its greatest contribu-
Finally, Article 9.3 provides that the Article tion is in the incentivization of beneficial agri-
shall not be interpreted “to limit any rights that cultural innovations. Historically, the strongest
farmers have to save, use, exchange, and sell farm- incentives have been those arising from the mar-
saved seed/propagating material.” keting of hybrid seeds that provide higher yields,
National legislation on farmers’ rights tends with the commercial benefit to the seed marketer
to combine one of the versions of UPOV with that the seeds of the offspring cannot be used by
some of the access principles of the CBD. The the farmer because these seeds do not breed true-
African Model Legislation for the Protection of to-type. As is discussed above, the evidence for
the Rights of Local Communities, Farmers and incentives to breeding research for crop plants
Breeders, and for the Regulation of Access to is limited—in developing countries even more
Biological Resources, which was adopted by the so—whether PVP and patenting will be useful in
Organization of African Unity (OAU), Heads of encouraging a national seed industry. Barton sug-
States Summit at Ouagadougou in June 1998, gests that a developing country “is probably best-
adopts a sui generis regime based on UPOV 1991. off adopting minimum compliance with TRIPS,
However, most national statutes prefer access leg- which requires at least some form of sui generis pro-
islation combined with UPOV 1978 (for example, tection for plants—although there is the possibility
the Andean Community’s Common System on that a number of nations with similar agricultural
Access to Genetic Resources, 1996; Costa Rica’s conditions could combine their markets in some way
Biodiversity Law of 1998; India’s Community that encouraged private investment. Moreover, use
Intellectual Property Rights Act of 1999; Kenya’s of UPOV-style laws might help in commercializing
Seeds and Plant Varieties Act of 1975). varieties developed by the public sector.”39
The question of whether a developing coun-
try will adopt a sui generis PVP system or a pat-
7. Assessment of the relationship ent-based system, to comply with Article 27.3(b)
between IP and food security of the TRIPS Agreement will depend upon the
The role of IP in eliminating food insecurity technological sophistication of agricultural re-
has to be placed in its proper policy perspective. search in that country. ■
Development experience over the last 50 years
attributes rural poverty and food insecurity in
developing countries to development strategies Michael Blakeney, Director, Queen Mary Intellectual
Property Research Institute, Center for Commercial Law
that overlooked the importance of the develop-
Studies, University of London, 13-14 Charterhouse Square,
ment of the agricultural sector, particularly the London, EC1M 6AX, U.K. m.blakeney@qmul.ac.uk
production of staple foods.37 Thus the enhance-

BLAKENEY
1 Williams SB. 1983. Intellectual Property Aspects of Plant TRIPS Agreement. The World Economy 23:733.
Variety Genetic Engineering: View of an American 26 Alston J, G Pardey and J Rosenboom. 1998. Financing
Lawyer. UPOV. Genetic Engineering and Plant Breeding Agricultural Research: International Investment
23. Patterns and Policy Perspectives. World Development
2 Senate Report accompanying S.4025. Report No. 315. 26:1045.
71st Cong. (2d Session). 27 Leisinger KM. 1999. Ethical Challenges of Agricultural
3 See supra note 1, cited by J Rossman. 1935.The Preparation Biotechnology for Developing Countries. In Agricultural
and Prosecution of Plant Patent Applications. J. Patent Biotechnology and the Poor (eds. GJ Persley and MM
Office Society 632. Lantin). Proceedings of an International Conference,
4 Austria, Belgium, Denmark, Finland, Germany, Italy, the Washington, DC, October 1999. CGIAR.
Netherlands, Norway, Spain, Sweden, Switzerland, and 28 Ford R. 1997. The Morality of Biotech Patents: Differing
the United Kingdom. Legal Obligations in Europe? European Intellectual
5 Helfer L. 2001. Legal Study on Intellectual Property Property Review 6:315; Llewelyn M. 2000. The
Rights in Plant Genetic Resources. FAO: Rome. Legal Protection of Biological Material in the New
paragraph 1.1.1.4. Millennium: The Dawn of a New Era or 21st Century
Blues. Bio-Science Law Rev. 4:123.
6 Leskien D and M Flitner. 1997. Intellectual Property
Rights and Plant Genetic Resources: Options for a Sui 29 OJ EPO 8/1995 545.
Generis System. Issues in Genetic Resources No. 6. IPGRI: 30 Decision G0001 of 20 December 1999.
Rome 60. 31 IPGRI. 1999. Key Questions for Decision-makers:
7 Case T 49/83 [1984] O.J. EPO 112. Protection of Plant Varieties under the WTO Agreement
8 Ibid, at pages 114–115. on Trade-Related Aspects of Intellectual Property
Rights. IPGRI: Rome.
9 Case T320/87 [1990] O.J. EPO 71.
32 Brush SB. 2000. Ed. Genes in the Field: On-Farm
10 Ibid., at page 79. Conservation of Crop Diversity. IPGRI, IDRC: Rome, and
11 Directive on the Legal Protection of Biotechnological Lewis Publishers.
Inventions, Article 4(1) para.2, 98/44/EC [1998] O.J. 33 Wright P. 1998. Intellectual Property and Farmers’
L213/130. Rights. In Agricultural Values of Plant Genetic Resources
12 [2000] O.J. EPO 511. (eds. R Evenson, D Gollin and V Santaniello). FAO/CEIS/
CABI: Wallingford.
13 200 F.3d 1374 (Fed. Cir. 2000), cert. granted, 148 L. Ed. 2d
954 (2001) 34 Correa C. 2000. Options For The Implementation of
Farmers’ Rights at The National Level, South Centre,
14 2004 SCC 34, Decision. January 20, 2004.
Trade-Related Agenda, Development and Equity
15 Ibid., paragraph 93. Working Papers, No. 8. December 2000, citing Wright
16 Ibid., paragraph 94. P. See supra note 33, at p. 228.
17 WTO Doc., IP/C/W/404, 20 June 2003. 35 McNeely R. 2001. Biodiversity and Agricultural
Development: The Crucial Institutional Issues. In
18 307 F.3d 1351 (Fed. Cir. 2002). Tradeoffs or Synergies? Agricultural Intensification,
19 [1985] RPC 515 CA. Economic Development and the Environment (eds. DR
Lee and CB Barrett). CABI:Wallingford. p. 399–404.
20 Loughan P. 1996. Intellectual Property, Research Workers
and Universities. European Intellectual Property 36 Ibid. at pp. 399–408.
Review 6:351. See also Faye, DJ. 2005. Exploitation of 37 FAO. 2000. The State of Food and Agriculture: Lessons
research tools in plant biotechnology: Access through from the Past 50 Years. FAO: Rome.
application of the experimental use exception (Part II).
www.pharmalicensing.com/articles/disp/1113234094_ 38 FAO. 2001. Incorporating Food Security Concerns in a
425a9aae5f6f8. Revised Agreement on Agriculture. FAO Round Table on
Food Security in the Context of the WTO Negotiations
21 Fowler C. 2002. Sharing Agriculture’s Genetic Bounty. on Agriculture (20 July 2001). Discussion paper no. 2.
Science 297:157.
39 Barton J. 2003. Nutrition and Technology Transfer
22 Herdt RW. Enclosing the Global Plant Genetic Policies. UNCTAD/ICTSD: Geneva.
Commons. Paper prepared for delivery at the China
Center for Economic Research, 24 May, 1997.
23 IP/C/W/404, 20 June 2003.
24 Drahos P. 2002. The Rights to Food and Health and
Intellectual Property in the Era of “Biogopolies.”
European Intellectual Property Review.
25 Watal J. 2000. Pharmaceutical Patents, Prices and
Welfare Losses: Policy Options for India Under the WTO

CHAPTER 4.8
IP and Information Management: Libraries, Databases,

Geographic Information Systems, and Software
Susanne Somersalo, IP Specialist and Patent Agent, Dodds & Associates, U.S.A.
Stanley P. Kowalski, Visiting Scholar, The Franklin Pierce Law Center, U.S.A.
Anatole Krattiger, Research Professor, the Biodesign Institute at Arizona State University,
ABSTRACT and Remote Sensing (RS). GIS/RS is a particu-

The last decades have seen a revolution in knowledge larly interesting example of intellectual property
management, library services, and information resource
because it combines and interfaces a series of dif-
database configurations. The use of integrated computer
networks and the ability to produce and distribute infor- ferent component parts: hardware, software, and
mation have had far-reaching implications for IP (intel- other protectable components (including maps,
lectual property) protection. In order to demonstrate IP survey data, aerial photographs, information from
laws and their application, this chapter will use, as its land records, and so on). Each of these compo-
primary example, Geographic Information Systems and
Remote Sensing (GIS/RS), a technology that presents in- nents may carry its own IP protections and restric-
teresting and complex IP issues. tions through various licenses. As a result, the final
product will also have various IP protections and
restrictions attached to it. In other words, GIS/
RS systems are affected by IP issues in relation to
1. Introduction databases and software, as well as in relation to
The management of databases and library vol- the technologies that create entirely novel sets of
umes is becoming increasingly complex. In many data. These are not always straightforward: for one
organizations, library staff are responsible for the thing, many different intellectual property and li-
storage and retrieval of information, as well as the censing terms appear to have overlapping mean-
development of new books or articles. Library ings. Box 1 at the end of this chapter provides a
staff face ever-increasing challenges regarding the list of the most common technical and legal terms
intellectual protection (IP) rights that apply to encountered in the context of data, databases,
these various materials. GIS, and software.
IP is a term that refers to creations of the In almost all countries, various forms of IP
mind: inventions; literary and artistic works; protection are available for the protection of data
and symbols, names, images, and designs used in and data-related products. These are copyrights,
commerce. U.S. law allows for various sorts of IP trademarks and trade secrets. Thus:
protection. • Symbols, names, and images used in com-
Much of this chapter focuses on a technol- merce can be protected by trademarks.
ogy that creates a unique IP management chal- • Creative works can be protected by
lenge: Geographic Information Systems (GIS) copyrights.
Dodds J, S Somersalo, SP Kowalski and A Krattiger. 2007. IP and Information Management: Libraries, Databases, Geograph-
ic Information Systems, and Software. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
© 2007. J Dodds, et al. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

DODDS, SOMERSALO, KOWALSKI & KRATTIGER
• Information can be protected by keeping it private work is not in the public domain, and
a trade secret. therefore one using the government publication
may still need permission, or license, to use such
GIS/RS is protected by copyrights and trade- private portions of the publication.
marks and, to some extent, trade secrets.
2.2 Fair use exemption
Section 107 of the U.S. Copyright Act states that
2. Copyright and the public domain an author’s original creation is subject to “fair
A copyright protects an original work and allows use”: that is, the work can be used in special cases
the author the exclusive right to: without permission for purposes of criticism,
• reproduce the work exclusively comment, news reporting, teaching, scholarship,
• prepare derivative works or research. This exemption is one of the most
• distribute copies by sale, transfer of owner- important copyright limitations. De facto fair use
ship, lease, renting, or lending should never be assumed. Fair use is determined
• perform the work publicly on a case-by-case basis, taking into consideration
• display the work the purpose and character of the use, the nature
of the copyrighted work, the amount and sub-
Generally, the types of works that are pro- stantiality of the portion of the work used in re-
tected by copyright are: literary works; musical lation to the work as a whole, and the potential
works (including accompanying words); dramat- effect of the use on marketing and distribution of
ic works; pantomimes and choreographic works; the work.
pictorial, graphic, and sculptural works; motion
pictures and other audiovisual works; sound re- 2.3 Copyright registration
cordings; and architectural works. Copyright is automatically granted at the creation
of a work. Registration of the copyright with the
2.1 Public domain U.S. Copyright Office is not necessary, but a copy-
Works in public domain are not protected by right cannot be enforced, or damages collected for
copyright and are publicly available. They may improper use, unless it is registered. Currently, the
be used by anyone, anywhere, any time, without cost for registering a copyright is $30.
permission or license. A work may enter into the
public domain if its term of copyright protection 2.4 Copyright duration
has expired. In the United States, works of the In the United States, a work that is created and
U.S. government are all in public domain (Title fixed in tangible form for the first time on or after
17 U.S.C. § 105); they cannot be protected by 1 January 1978, is automatically protected from
copyrights. However, U.S. government employees the moment of its creation for the lifetime of the
may produce copyrighted work not created during author, plus an additional 70 years after the au-
the course of their official duties. If U.S. govern- thor’s death. In case of a joint work, the term lasts
ment works are disseminated in foreign countries, for 70 years after the last surviving author’s death.
such works may be copyrighted to the extent al- For works made for hire, and for anonymous
lowed by the domestic laws of those countries. works, the duration of copyright is 95 years from
It is very important to note that authors are publication or 120 years from creation, whichever
not required to give notice that their work is is shorter. A work that was copyright registered or
copyrighted. Therefore, it is the responsibility of published with a copyright notice before 1 January
the potential user to determine whether or not a 1978 can be protected at most for 95 years from
work is in public domain. This may become an the date of securing.
issue for example in a case where a private work It is important to note that duration of copy-
has been included in a government publication right varies somewhat from country to coun-
by permission of its author. Under U.S. law, such try. In European Union member countries the

CHAPTER 4.8
copyright, generally speaking, protects the work authors are considered joint copyright owners.
for the lifetime of the author plus 70 years. In Each copyright owner has an equal right to ex-
Japan the protection is generally lifetime plus 50 ploit her or his copyrights. A company can li-
years. In Mexico the protection is lifetime plus cense or obtain an assignment for the copyright
100 years. of the joint work from only one of the authors.
If, on the other hand, at the time of creation the
2.5 First sale doctrine authors did not intend their works to be parts
The first sale doctrine, codified at 17 U.S.C. 109, of an inseparable whole, the resulting work is
limits the rights of copyright holders to control considered a collective work and the authors are
the distribution and display of copies of their considered collective copyright owners. A col-
works. The owner of a particular copy is entitled lective copyright owner only owns copyrights
to “sell or otherwise dispose of the possession of for the material that she or he added to the final
that copy” and to “display the copy publicly ... to product.
viewers present at the place where the copy is lo-
cated.” Therefore, the first sale doctrine gives the 2.7 Work for hire
copyright owner the right to control only the first A work for hire is defined in copyright law as
sale of the work. The owner of a lawfully made that which is prepared by an employee within the
copy may in turn dispose of it by any means. The scope of his or her employment, or a work spe-
first sale doctrine is the legal basis for public li- cially ordered or commissioned for use as a con-
braries, which lend copies that they have previ- tribution to a collective work, a part of a motion
ously purchased. The first sale doctrine does not, picture or other audiovisual work, a translation, a
however, allow anyone except the copyright own- supplementary work, a compilation, an instruc-
er to make more copies. The Digital Millennium tional text, a test or the answer key to a test, or an
Copyright Act of 1998 authorizes the creation of atlas. The parties must expressly agree by signing
digital copies for archival and preservation pur- a written instrument that the work shall be con-
poses nonprofit libraries and archives. The right sidered a work made for hire.
to distribute such copies requires authorization In academic environments, the terms of em-
from the copyright owner. ployment typically require inventors to assign ex
ante their patentable inventions (but not neces-
2.6 Copyright ownership sarily their copyrightable works) to the univer-
Generally speaking, the author of a work owns its sity. If a company hires consultants who are also
copyright. In case of work for hire, the employer academics, it is important that their consultancy
is considered to be the author and the owner of contracts explicitly state that the contracting in-
the copyright. stitution owns all work done by the consultant.
In the case of GIS/RS, if all work (including The following is an example of such a clause:
aerial photography and geographical data entry) Property and Property Rights. Consultant
is completed by the employees of a company agrees that any computer programs, software,
under the terms of their employment, then the documentation, copyrightable work, discover-
work-for-hire requirements would be fulfilled ies, inventions, or improvements developed by
and the company would own any relevant copy- Consultant solely, or with others, resulting from
rights. It is important that companies have writ- the performance of Services pursuant to this
ten agreements (with appropriate work-for-hire Agreement, are the property of Contractor, and
language) with any independent contractors that Consultant agrees to assign all rights therein to
they hire. Contractor. Consultant agrees that the Services
If, at the time of creation, the authors in- constitute a Work for Hire as such term is used
tend to combine their contributions into an and defined in the Copyright Act. This provision
inseparable or interdependent whole, the re- shall survive expiration and termination of this
sulting work is considered a joint work and the Agreement.

2.8 Assigning and licensing copyright the requisite originality for being protectable un-
The owner of copyright may transfer the copyright der the Copyright Act was a telephone catalog, for
wholly or partially to another party. A transfer is which the telephone company has simply selected
usually done by an assignment or by licensing. names and arranged them in alphabetical order.
With an assignment the copyright owner sells his Such a database is not original or creative and
or her rights to the assignee, while with a license would not warrant protection.1 It is, however,
the copyright owner retains the ownership but important to note that there is no requirement of
grants the licensee a right to use the copyright- novelty; therefore, the data or information that is
ed material according to the limitations in the used for the compilation may well be known. The
agreement. way to select, organize, and arrange the informa-
It is important to realize here that copyright tion has, however, to amount to some minimal
includes numerous rights (for example, a right to originality or creativity.
reproduce the work, a right to prepare derivative Copyright Act Section 102(b) reads, in part:
works, and a right to distribute copies). Therefore, “in no case does copyright protection for an original
the copyright owner can transfer the copyright via work of authorship extend to any idea, procedure,
an assignment or a license partially or wholly. The process, system, method of operation, concept, prin-
copyright owner may, as well, transfer the copy- ciple, or discovery, regardless of the form in which it is
right on an exclusive or a nonexclusive basis. The described, explained, illustrated, or embodied in such
transfer of exclusive rights is not valid unless that work.” This clause has been interpreted to mean
transfer is in writing and signed by the owner of that the individual data in a database are not pro-
the rights. Transfer of a right on a nonexclusive tected under the Copyright Act. Therefore, even
basis does not require a written agreement. if a database may be copyrighted, a user may use
As an example, the author and copyright data extracted from it. However, the original data/
owner of a database, could transfer to a compa- images that were used to develop the new work
ny a right to copy and distribute the database. must not be passed to any third party or used in
However, the author could also transfer a right a way inconsistent with the terms and conditions
for another company to make a derivative work under which they were given. In order to prevent
using the database. Either of these rights granted such use, the copyright owner usually includes
could be exclusive or nonexclusive ones. Probably preventing clauses into the licensing agreements.
both of them would be made via a license.
Works by the U. S. government, including 2.10 Maps
maps, are not eligible for U. S. copyright protec- Even if a map’s geographical features are not protect-
tion. A map, in pictorial form, would not lose able by copyright law, the map may still be original
its copyright protection if its information were to enough to warrant copyright protection, depend-
be digitized and stored in an electronic database. ing on what information it includes, from which
However, a geographical information system sources the information was collected, and how the
whose data have never existed in a coherent pic- information is represented in pictorial form.
torial form would be considered a compilation.
2.11 Photographic Images
2.9 Databases GIS/RS may use aerial photographs instead of
A compilation is only copyrightable if its facts maps. A photograph may be protectable under
have been selected, coordinated, or arranged in the Copyright Act if it exhibits a certain amount
such a way that the resulting work, as a whole, of uniqueness. The U.S. Court of Appeals, 11th
constitutes an original work of authorship (joint Circuit, has stated that copyright law protects
work, see Section 2.6). Copyright is meant to “the selection of lighting, shading, timing, angle
reward originality, not effort. Therefore, not all and film” of a photograph.2 Copyright protection
databases are protectable under copyright law. does not, however, extend to physical facts the
An example of a compilation that did not have photograph expresses.

CHAPTER 4.8
3. Trade secrets 4.2 Licensing

Under U.S. law, spatial databases are granted Both copyrights and patents can be licensed for
fewer IP protections than even the most mun- commercialization. Some software licenses in the
dane cloak-and-dagger international spy novel. United States are combined copyright-and-patent
Therefore, keeping the database a trade secret licenses. Generally, copyright-alone licenses for
may be the best way to protect it. A generally software are of limited value unless the program
accepted definition of trade secret appears in the in question is very large and was developed over
1939 Restatement of Torts. The subject matter of many years and is therefore difficult for a user to
a trade secret must be secret, and only known to replicate.
those involved in the particular business in which A number of different types of licenses are
it is used. Matters of public knowledge or of gen- applicable to software:
eral knowledge in an industry cannot be appro- • end-use licenses. The licensee may use the
priated by anyone as his or her secret. Matters software but not distribute it. These licenses
that are completely disclosed by marketed goods are almost always nonexclusive. The licen-
cannot be trade secrets, either. sor may or may not provide a source code.
• nonexclusive distribution licenses. The li-
censee may distribute the software, either as
4. IP protection for software code or in hardware form (such as a semi-
conductor). The licensor usually provides a
4.1 Protection source code.
A software program is potentially covered by two • exclusive distribution licenses. The licensee
types of statutory IP protection:3 will distribute the software to end-users and
• The software code is protected by copyright will also improve and support the software.
• The algorithm of the software, if original, is The licensor always provides a source code.
protectable in the United States (but not in • open-source licensing. The software is
most other countries) by patent provided free to users, usually over the
Internet. There are many different forms
Because software algorithms cannot be copy- of open-source licenses, each with different
righted, it is possible for a third party to repro- restrictions on use.4 Two of the most com-
duce the flow and function of the software pro- mon are described below:
gram and (provided he or she did not derive the • minimally restrictive. The licensee may
new code from the original code) legally use and use, improve, sell, and even establish pro-
sell the resulting software. prietary rights to any improvements he or
Patents may offer better protection from she makes to the software, provided that he
competition, but they have several drawbacks: or she acknowledges the licensor’s owner-
• Patents are expensive to file and prosecute ship of the copyright.
(and software patents are often even more • quite restrictive. The licensee may use and
expensive than the average utility patent). improve the software, but any improve-
Depending on the number of countries ments or modifications to the software
where patent protection is sought, the cost must be made available to other licensees
of a patent may amount anywhere from under the same conditions. Any licenses
$10,000 and beyond. the licensee grants to his or her improve-
• The algorithm must be demonstrably ments must carry the same obligations and
original. restrictions for the licensees; that is, the
• The patent laws of most countries do not rights granted originally to the licensee who
cover software. made improvements to the originally copy-
• By the time the patent is issued, the pro- righted product has to flow through to the
gram may well have become obsolete. improved versions.

4.3 Collaboratively developed software The Uniform Computer Information

Software created for later distribution or com- Transaction Act (UCITA) standardizes the rules
mercialization is a special case. Software programs for licensing digital information, including soft-
often have a number of authors and frequently ware. UCITA is, however, very controversial
incorporate software that was written by third and at this point only two states (Virginia and
parties and obtained either formally (through Maryland) have implemented it.
license agreements or open-source licensing) or
informally (such as through colleagues). 4.4 Shrink-wrap and click-wrap licenses
Technology transfer offices should make sure Shrink-wrap and click-wrap licenses are com-
ahead of time that they are legally able to license mon in software licensing. Shrink-wrap licenses
software programs, especially if they hope to are enclosed in the plastic shrink-wrap packaging
grant exclusive licenses. In order to determine the of software products; they inform the buyer that
legality of licensing, the following questions must if he or she does not agree with the terms of the
be considered: agreement, he or she should return the software
• Does the potential licensor own the copy- and its packaging to the retailer. Click-wrap li-
right for the primary software program? censes appear on the screen before the software
Are all authors obliged to assign their copy- installation begins, and typically read: “Before
rights to the potential licensor? To ensure downloading this software, you must read and agree
this, the potential licensor should: to the following license terms and click the ‘I Agree’
- have in place clear policies that delineate button to accept.” In the United States, these types
under which circumstances students and of licenses are enforceable.
employees must assign their copyrights
to the licensor
- have written agreements with any other 5. International aspects
authors (such as consultants or students) Sometimes, data is obtained from multiple juris-
that software produced under the con- dictions, each with its own laws. IP protection
sulting arrangement will be assigned to for databases is stronger in Europe than it is in
the potential licensor the United States. The European Union Database
• Is there any code in the program that was Directive, adopted by the European Parliament
written by a third party? If so, the licensor in 1996, grants two rights to the makers of
should: databases:
- find out from whom or what the code 1. The right to prevent unauthorized use of
was obtained and whether copyright per- the database
mission has been granted by this party; 2. The right to prevent unauthorized acts of
learn what restrictions, if any, have been extraction and reutilization of the contents
imposed on making and/or distributing of a database
derivatives of the software that incorpo-
rate the original code The first right, which is similar to that pro-
- if the code was obtained from an open vided under the U.S. Copyright Act, protects da-
source, determine what type of open- tabases that are sufficiently original in their selec-
source license was involved and what tion or arrangement of data. This right does not,
restrictions have been imposed on the however, protect the data itself.
distribution of the code The second right is a sui generis right that
prohibits the extraction or reutilization of any
Technology transfer offices should take steps database that has required a substantial effort
to educate creators of commercializable software to obtain, verify, or present. Under this second
about ownership issues. A lack of knowledge about right, there is no requirement for creativity or
IP rights may lead to an unmarketable product. originality.

CHAPTER 4.8
A database is protected for 15 years from the hypothetical examples of the various IP issues
date of its creation. If substantial changes are made that emerge from library and database issues, and
to the content of the database, the modified data- Box 3 offers examples from software development
base will be protected for an additional 15 years. and use. ■
Protection under the directive is available only to
nationals of member countries of the European
John Dodds, Founder, Dodds & Associates, 1707 N Street
Union. Other countries will obtain such protec-
NW, Washington, D.C., 20036, U.S.A. j.dodds@doddsas-
tion only if they offer comparable protection to sociates.com
databases of European national and if a bilateral
agreement is reached. Susanne Somersalo, IP Specialist and Patent Agent,
Dodds & Associates, 1707 N Street NW, Washington, DC,
20036, U.S.A. s.somersalo@doddsassociates.com
6. Conclusions and two Stanley P. Kowalski, The Franklin Pierce Law Center, 2
hypothetical situations White Street, Concord, NH, 03301, U.S.A. spk3@cornell.
Library and database management professionals edu and skowalski@piercelaw.edu
are faced with a wide range of IP issues regarding
who owns what and how and by whom various Institute at Arizona State University; Chair, bioDevel-
media can be used. There is no need to obtain opments-International Institute; and Adjunct Professor,
permission to use a work if it is in public domain Cornell University. PO Box 26, Interlaken, NY, 14847,
or if a license or agreement allows the intended U.S.A. afk3@cornell.edu
use. Nor is it necessary to obtain permission to
use facts from a copyrighted source, because the 1 Feist Publications Inc. v. Rural Telephone Service Com-
Copyright Act does not protect facts. However, pany Inc. 499 U.S. 340 (1991)
charts, graphs, or figures that use these facts may 2 See Leigh v. Warner Bros., Inc. 212 F.3d 1210,1215. [11th Cir.
be copyrighted. It is extremely important to know 2000]
who the owner of a copyrighted work is: the po- 3 This section is based on a text graciously supplied by
tential user needs to know whether it is a work Lita Nelsen, Director, M.I.T. Technology Licensing Office.
for hire or a collective work. Also, it is important 4 Further details on open-source licensing can be
obtained from the Open Source Initiative at www.
to carefully inspect the terms of any licensing
opensource.org.
agreement in order to determine what rights the
5 www.uspto.gov/web/offices/tac/notices/examguide4
licensee will have. In order to place these criti- -06.htm.
cal conclusions into perspective, Box 2 presents

Box 1: Common Technical and Legal Terms Related to IP and Information

author. either the person who creates a copyrightable work or the employer of the person who
creates a copyrightable work as a work for hire (see Section 2.7) (The word author in copyright
law includes not only writers of novels, plays, and treatises, but also those who create computer
programs, arrange data in telephone books, choreograph dances, take photographs, sculpt stone,
paint murals, write songs, record sounds, and translate books from one language to another.)
book. a printed literary composition
collective work. a work, such as an issue of a periodical, anthology, or encyclopedia, in which a
number of contributions, each a separate and independent work in itself, are assembled into a
collective whole
compilation. as defined by Section 103 of the Copyright Act, “a work formed by the collection and
assembling of preexisting material or of data that are selected, coordinated, or arranged in such a
way that the resulting work as a whole constitutes an original work of authorship”
copyright assignment. the giving away or selling, by the copyright owner, all rights to the
copyright
copyright license. a license by which an owner retains ownership to a copyright but allows
another person to use or sell the copyrighted material under defined conditions (for example, for
a certain purpose, for a certain period of time, or inside a limited geographical area)
copyright. an intangible, incorporeal right granted by statute to the author (or originator, in the
case of certain literary or artistic productions), whereby he or she is invested for a specified period
of time with the sole and exclusive privilege of multiplying, publishing, and selling copies of the
work
creative works. works in which the content does not change, whether the work is in printed,
recorded, or electronic form (Materials such as books, sound recordings, downloadable songs,
downloadable ring tones, videocassettes, DVDs, audio CDs and films, are usually single creative
works. Creative works that are serialized, that is, the mark identifies the entire work but the work is
issued in sections or chapters, are also considered single creative works. A theatrical performance
is also considered a single creative work, because the content of the play, musical, opera, or similar
production does not significantly change from one performance to another.5)
data. organized information often collected for a specific purpose and generally used as the basis
for adjudication in case of litigation
database or data bank. a computer-readable compilation of data and/or information, arranged
for ease of search and retrieval
design. the visual ornamental characteristics embodied in an article of manufacture
electronic copy. a computer-readable copy of data or information
facts. a statement or assertion of verified information about something that is the case or has
happened (From a more legal perspective, a fact is an actual thing or happening [which must be
proved at trial by presentation of evidence and which is evaluated by the finder of fact].)
Geographical Information System (GIS). a computer system capable of assembling, storing,
manipulating, and displaying geographically referenced information
image. a reproduction of the form of a person or object, especially a sculptured likeness (An image
can be an original visual image or a copy of the original image; for example, it can be a digital
image of a painting or a digital image made from a slide of the painting printed in a book.)
joint work. collaboration between two or more authors in which their contributions are joined
into a single cohesive work.
continued on next page

CHAPTER 4.8
Box 1 (continued)
patent license. an agreement between licensor and licensee allowing the licensee to practice the
invention with agreed provisions while the licensor retains the ownership of the patent
photograph. an image, especially a positive print, recorded by a camera and reproduced on a
photosensitive surface
public domain. the realm in which there are no laws that restrict a work from use by the public
at large
text. the body of a printed work, as distinct from headings and illustrative matter (on a page) or
from front and back matter (in a book)
trade secret. any valuable business information that is not generally known and is subject to
reasonable efforts to preserve confidentiality
transfer of copyright. the transfer of any or all of the copyright owner’s exclusive rights or any
subdivision of those rights (Transfers of copyrights are normally made by contract; usually by a
license or an assignment.)
work. something that has been produced or accomplished through the effort, activity, or agency
of a person
work for hire/work made for hire. a work prepared by an employee within the scope of his or her
employment or a commissioned work that all parties agree in writing to treat as work for hire
(The real person, partnership, or corporation for which the work is prepared is considered to be
both the author and the owner of copyright from the moment the work is created.)

Box 2: Hypothetical Example: Library and Database Issues
Let us imagine that a librarian is in the process of assembling a work that recounts and reflects
upon a research institution’s 50-year history. In order to complete this project, the librarian will
use various materials that may or may not carry IP restrictions:
(A) photographic images stored in the institution’s archives for 20–50 years
Although the organization has had physical custody of these images for as long as 50 years,
they are still protected by copyright.
(B) photographic images taken by staff members and donated to the library
If the photos were taken in the course of the employee’s duties, they are the property of the
institution. If taken outside of work, they may have been given to the institution with attached
terms and conditions.
(C) photographic images of the institution taken by a commercial photographer
The commercial photographer may have issued a use license to the institution, thereby
preventing further use of the images.
(D) articles written by staff members, some of whom are now retired
If the articles were written during the course of an employee’s duties, they are owned by
the institution. If they were written after the employee’s retirement, the following questions
should be asked: Did the employment or separation contracts assign copyright to one party
or another? Is the information contained in the article based on knowledge that the author
acquired while an employee?
(E) a foreword written by a retired director general, who has been awarded a Nobel Prize
The author owns copyright over the document and should sign a waiver or copyright
assignment document so that the material can be legally used.
(F) reproduction of key research articles published by scientists in peer-reviewed journals
It is very likely that the peer-reviewed journals requested and were granted the copyright over
the authors’ material; the institution will therefore need permission from the owners of the
journals to reproduce these articles. Such requests are almost always granted so long as there
are no clear competition issues identified.
(G) a text written by professional media consultants on the history of the institution
The consultants should sign contracts indicating that all intellectual property developed
during the term of the consultancy is property of the institution.
(H) data (generated by the institution’s employees in cooperation with colleagues around the
world) showing that the institution is still producing Nobel-Prize-quality data
Care must be taken that the disclosure of data does not infringe on the IP rights of the
scientists or their institutions. The terms of the agreement with the external scientists (there
had better be one!) may also limit the institution’s data ownership and distribution rights.
(I) a special 50-year anniversary logo
The logo may be trademarked.
In many cases, the most important IP protection is common sense. If the probability of a dispute
over IP infringement is extremely low, the institution might choose to judiciously cut corners.
The institution can, of course, seek protection for the final document, regardless of whether it is in
print or electronic form. However, the IP protection of the final document must not infringe upon
the IP ownership of its collective authors.

CHAPTER 4.8
Box 3: Hypothetical Example: Software Issues
Now, let us consider another example: a GIS/RS project to create maps that will assist in cultivating
new plant varieties, conducted by an employee of a research university. In order to develop the
project, the principal researcher has to deal with various types of materials, each with its own IP
restrictions.
(A) a soil map of country X (obtained from government X)
The U.S. government does not, of course, have copyright on the maps it produces; this may
or may not be the case for the IP laws of country X. It will be necessary to draw up a material
transfer agreement (MTA) that delineates the specialist’s rights of use. The agreement might
include a reach-through clause that gives the government of country X rights over new
materials created through the project.
(B) a meteorological dataset (purchased from the Meteorological Office of country X)
The principal researcher should check to make sure that there is no specific language in the
license that would prohibit commercial use of the dataset (a research-only license) or restrict
its distribution.
(C) photographic images of the area of interest (from a commercial source)
As mentioned above, purchased materials almost always come with restrictions; see the
previous paragraph.
(D) information on the agricultural performance of a certain plant variety (obtained from an
international development organization)
Just because information comes from an international development organization does not
mean that it is not protected. The organization may require potential users of this information
to sign a material transfer agreement.
(E) a topographical map of country X (obtained informally from a collaborating scientist)
Informally shared information usually leads to IP conflicts. The employer of the collaborating
scientist may have ownership rights to the map. If the employer is a U.S. university, it will
probably protect its intellectual property and sell information only when it sees fit to do so.
There is also a chance that the government of country X has rights to the map.
(F) a software program bought by the principal researcher, using university grant money
The software may have been licensed with an “educational use only” license
(G) data collected in the field by the principal researcher
Since the principal researcher is a university employee, the university may claim ownership
over any data he or she collects.
(H) a data manipulation algorithm developed by the principal researcher during the course of his
or her employment
As mentioned above, the university may claim ownership over the algorithm, since it was
developed during the course of his or her duties as an employee of the university.

CHAPTER 4.9
Data Protection and Data Exclusivity in

Pharmaceuticals and Agrochemicals
CHARLES CLIFT, London, U.K.
ABSTRACT pharmaceutical industry data, albeit disputed by

The chapter discusses the meanings of data protection some, have suggested that the average total de-
and data exclusivity in the context of the provisions of
velopment cost of a new drug is on the order of
the Trade-Related Aspects of Intellectual Property Rights
agreement. In addition, it outlines the relationship be- US$800 million, of which about 60% would be
tween data exclusivity and patent protection and briefly incurred in the conduct of trials (a substantial
reviews the possible costs and benefits of introducing data portion of these trials would be required for reg-
exclusivity laws. Finally, the chapter explains that coun- ulatory approval).1 In agrochemicals, it has been
tries need to consider the costs and benefits when nego-
tiating bilateral trade agreements that might require the estimated that the average development cost is
introduction of these laws. more than US$180 million.2
Because of the size of the required investment
in clinical test data, the pharmaceutical and ag-
1. Introduction rochemical industries argue that the use of such
The development of a new drug or agrochemi- data by third parties (other than the regulatory
cal, such as a pesticide, usually requires extensive authority) must be prevented. If the regulator,
testing, inside the laboratory or in the field, on relying on test data provided by the originator
animals, humans, plants, or the environment, de- company at great expense, allows an equivalent
pending on the nature of the drug or chemical. product to enter the market, originator compa-
The way in which these tests are undertaken are, nies would have no incentive to incur the heavy
at least in the later stages, governed by rules set by costs necessary to bring new products to market
the regulatory authorities. These rules are designed in the first place. In practical terms, a rule that
to ensure the safety, quality, and efficacy of prod- prevents use of the data by a third party (or the
ucts being developed for use by humans or in the regulator relying on that data to approve a third
environment (in the case of agrochemicals). In the party’s generic product) also has the effect of pro-
United States, for instance, this regulatory author- viding exclusivity to the originator product. This
ity is the Food and Drug Administration (FDA) for is principally because the cost of replicating the
medicines and vaccines and is the Environmental investment in trials to satisfy regulatory require-
Protection Agency (EPA) for agrochemicals. ments would be sufficiently prohibitive to deter
Meeting the requirements, which is nec- a potential competitor. In the case of medicines,
essary for permission to place products on the even if the cost were not prohibitive, there are
market, involves a considerable cost. Studies on also ethical concerns about repeating trials (that
Clift C. 2007. Data Protection and Data Exclusivity in Pharmaceuticals and Agrochemicals. In Intellectual Property Manage-
ment in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.).
© 2007. C Clift. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommercial
purposes is permitted and encouraged.

CLIFT
include an untreated control group) with a drug 1. To protect data on new chemical entities,
known to be efficacious. the collection of which involved consider-
This chapter seeks to explain the quite com- able effort, against unfair commercial use
plicated issues related to data protection and data 2. To protect such data against disclosure, ex-
exclusivity and how they are treated in different cept where necessary to protect the public
jurisdictions. Particular consideration is given to 3. To protect such data against disclosure, un-
the position of developing countries who are con- less steps are taken to ensure that the data is
templating, or being obliged to contemplate, data protected against unfair commercial use
protection or exclusivity regimes.
The first obligation is simply about protect-
ing data submitted to regulatory agencies against
2. What is the difference between unfair commercial use. No time limit is specified.
data protection and data Examples of unfair commercial use could include,
exclusivity? for example, the government itself using the data
The modern debate about data protection and data for a commercial purpose or various kinds of dis-
exclusivity largely derives from differing interpre- honest commercial behavior. The World Intel-
tations of what the agreement on Trade-Related lectual Property Organization (WIPO)3 provides
Aspects of Intellectual Property Rights (TRIPS) a set of model provisions on protection against
says on the subject. unfair competition.
The relevant article (Article 39(3)) says: The second and third obligations concern
Members, when requiring, as a condition of protecting data against disclosure to third par-
approving the marketing of pharmaceutical or of ties, in the case of one or another exception.
agricultural chemical products which utilize new Although there is some lack of clarity, arising
chemical entities, the submission of undisclosed test from the generality of the wording, about when
or other data, the origination of which involves a disclosure would be justified by the exceptions
considerable effort, shall protect such data against (particularly in the third case), the essential
unfair commercial use. In addition, Members shall point is that the obligation creates a presump-
protect such data against disclosure, except where tion that the regulatory authority would not dis-
necessary to protect the public, or unless steps are close data, without due reason, to a third party.
taken to ensure that the data are protected against Again, no time limit is specified. The purpose of
unfair commercial use. avoiding disclosure is to avoid unfair commer-
cial use. The third obligation implies, therefore,
There are unreconciled views on what this para- that disclosure is acceptable provided it can be
graph, the subject of protracted discussion when ensured that disclosure will not lead to unfair
the agreement was negotiated, means in practice. commercial use.
It is important to note that Article 39, as a Most observers regard what is referred to in
whole, constitutes the section of the agreement TRIPS Article 39 as “data protection,” dealing as
“protection of undisclosed information” that re- it does with the protection of undisclosed infor-
lates broadly to what are generally known as trade mation or trade secrets. Article 39(3) does not
secrets. Article 39(2) is a general clause about create new property rights, nor a right to prevent
World Trade Organization (WTO) members’ reliance on the test data submitted by an origina-
obligations with respect to trade secrets. Article tor for the marketing approval of an equivalent
39(3) covers such obligations in the particular product by a third party, except where unfair
case where such trade secret data are submitted commercial practices are involved. The article is
to governments or government agencies as a pre- an articulation of widely accepted legal precepts
condition for obtaining marketing approval. regarding trade secrets and unfair competition,
Article 39(3) essentially imposes three obli- not an invitation to create a new intellectual
gations on governments: property right for test data.

CHAPTER 4.9
However, industry groups and some devel- In addition, the United States provisions for
oped countries, for example, the United States agrochemicals allow for a further five years of ex-
and the European Union, have argued that Ar- clusivity during which the originator data may be
ticle 39(3) requires countries to create a regime relied on to approve a generic product, provided
of “data exclusivity,” a form of time-limited in- compensation for the use of the data is paid to
tellectual property right. In the United States the originator.
and countries in the European Union a data In summary, a data exclusivity regime re-
exclusivity regime for both medicines and ag- lates to how long the regulatory agency may be
rochemicals was adopted prior to the TRIPS prevented from relying on originator’s data to
agreement (for example, in 1984 in the United approve the products of potential generic com-
States and in 1987 in the European Union, for petitors. Data exclusivity does not relate to the
medicines). For a period of five years from mar- question of disclosure to third parties and trade
keting approval of an originator product, no secrets dealt with in TRIPS Article 39(3) (and
other company may seek regulatory approval in 39(2)) in which no time limits are specified.
the United States of an equivalent product based
on data submitted by the originator company
without the latter’s approval. During the period 3. Data exclusivity and patents
of exclusivity, regulators cannot use (rely on) the If the patent period has expired, or there is no
originator’s data to approve a generic product, patent on a product, data exclusivity will act in-
even if the product is demonstrated to be exactly dependently to delay the entry of any generic
equivalent in chemical composition and in its companies wishing to enter the market until the
behavior within the body. period of data exclusivity is over. It should be not-
The European Union now provides more ex- ed that in most cases the period of data exclusiv-
tensive exclusivity, up to 10 years, for medicines. ity may have no material effect if it is within the
Unlike TRIPS provisions for data protection, patent period, because exclusivity is protected by
data exclusivity regimes often extend beyond new the patent.
chemical entities. For instance, in the United However, the data exclusivity right is a
States only chemical entities never previously ap- much stronger right than a patent because, un-
proved are entitled to exclusivity for a five-year like patent law, there are no exceptions or flex-
period, but new uses or indications of an already ibilities that allow governments to tailor the law
approved entity are also entitled to exclusivity for to national circumstances. For example, there is
three years. In the European Union, exclusivity no ability for governments to provide the equiv-
is provided to new medicinal products, not just alent of a compulsory license, or data exclusivity
new chemical entities. Details of the European may act as a barrier to compulsory licensing of a
Union and United States regimes are described patent on the same product by preventing mar-
in Sanjuan.4 keting authorization for a compulsory licensee.
In the United States, agrochemicals have Data exclusivity is attractive to originator com-
been entitled to a ten-year exclusivity period; panies because unlike a patent, data exclusivity
the period is five years for medicines. This dif- is automatic (rather like copyright). No fees are
ference exists because the act that introduced incurred for application or maintenance of the
data exclusivity for medicines in 1984 (known as right, and there is more limited scope than ex-
Hatch-Waxman) also introduced a provision al- ists in patent law for legal challenges, which are
lowing for patent extensions of up to five years to expensive to mount and to defend. For these
compensate for the loss of patent life in meeting reasons pharmaceutical companies are strong
regulatory requirements (principally the time lost proponents of data exclusivity regimes. What-
compiling the test data required by the FDA). ever the benefits, which depend on exclusivity
Thus the term of data exclusivity for medicines extending beyond the patent term, the costs to
was reduced as a trade-off. these companies are very low.

CLIFT
4. Costs and benefits introduced TRIPS-compliant laws in 2005 on

The claimed benefits of data exclusivity relate, to the expiry of its transitional period allowed under
a great extent, to the additional incentives offered TRIPS). In addition, even where there are pat-
to companies in the long and expensive process ent laws, companies may not have considered
of pharmaceutical R&D. Data exclusivity gives the market sufficiently valuable to justify the ex-
companies an incentive to extend the original use pense and administrative cost of securing patents.
of the product (for example, to a wider popula- In that case, the introduction of data exclusivity
tion, by age or geography, or in new indications laws may bring into exclusivity drugs that would
for therapeutic use) where, for one reason or an- otherwise be open to generic competition. The
other, no patent protection is available. Data ex- perceived absence of strong patent protection
clusivity provides an additional opportunity for in India, even after the law was revised in 2005,
originator companies to recoup their investments and the presence of a large number of products
where marketing approval is given late in the pat- without patent protection due to the absence of
ent life, so that the protection afforded extends product patent protection before 2005, is a major
beyond patent expiry. Experts argue that data reason why the international pharmaceutical in-
exclusivity offers benefits to domestic innovators dustry lobbied very hard for a strong data exclu-
in developing countries, and, in particular, that it sivity regime in India. By contrast, Indian com-
provides incentives for research to identify new panies focusing principally on generics argued for
uses for existing unpatented products and for a weaker data protection regime.5
originator companies to introduce products into
developing countries, since, in effect, exclusivity
would protect the companies from generic com- 5. Bilateral trade agreements
petition. Earlier drafts of the TRIPS agreement, which was
On the other hand, in developing countries in negotiation for nearly a decade before coming
where there is little or no innovative research ca- into force in 1995, contained, in addition to lan-
pacity, the benefits of data exclusivity are likely to guage closely following the final form of Article
be limited. In those circumstances, data exclusivity 39(3), text reflecting the U.S. five-year data ex-
would not promote R&D and the benefits to the clusivity regime, which had been enacted in 1984
companies themselves, and a potential addition in the Hatch-Waxman Act. The North American
to the R&D incentive, would be small because of Free Trade Agreement (NAFTA6), which was
the limited market potential in most developing agreed in 1992, contained a close equivalent of
countries. However, data exclusivity would allow Article 39(3) followed by a paragraph prevent-
additional periods of exclusivity for originator ing the regulator from relying on the originator’s
products, and it therefore would correspondingly data for a reasonable period, normally meaning
delay the onset of generic competition. Specifical- not less than five years.
ly, exclusivity would preclude possible reductions From the point of view of supporters of
in the cost of medicines in the developing country, data exclusivity, the TRIPS agreement was,
keeping healthcare costs higher. therefore, in this particular respect, something
Data exclusivity is likely to have the largest of a backward step. Although supporters of
effect in countries where, for historical or other data exclusivity argued that exclusivity, taking
reasons, there are many products with no current account of the negotiating history, was what
patent protection that may gain rights to exclu- TRIPS Article 39(3) really meant, most observ-
sivity. For example, in many developing coun- ers have noted that the fact that a specific clause
tries there are numerous medicines that are not on data exclusivity along the lines of NAFTA
patented (even if they are patented in developed was omitted from the final agreement indicated
countries). This is often the case in developing the opposite. If TRIPS had meant to sanction
countries where TRIPS-based laws have only re- “data exclusivity,” it would have done so explic-
cently been introduced (for example, India only itly, as does NAFTA.

CHAPTER 4.9
The United States in particular has sought, in context of pharmaceuticals and agrochemicals.
post-TRIPS negotiations, to insert the language The protection of commercially valuable data
of NAFTA on data exclusivity, or even stronger held by governments is a duty of government,
provisions, in negotiating bilateral free-trade formalized in the TRIPS agreement, essentially
agreements with developing countries. Coun- to protect such data against unfair commercial
tries that have reached such agreements include use. Data exclusivity, by contrast, is a time-
Bahrain, Jordan, Morocco, Chile, the Dominican bound form of intellectual property protection
Republic, and the countries of Central America. that seeks to allow companies to recoup the cost
Negotiations are ongoing with Thailand, Ecua- of investment in producing data required by the
dor, Peru, and Columbia. regulatory authority. The effect of data exclusiv-
Most United States bilateral treaties involve ity is to prevent the entry of generic competitors,
agreement to the five-year rule as it is followed in independent of the patent status of the product
the United States. In other cases, such as the Cen- in question. The costs and benefits of data ex-
tral American Free Trade Agreement (CAFTA), clusivity depend on the particular economic cir-
approved in 2005, the five-year rule applies also to cumstances of countries. In developing countries
a product approved in another party to the agree- with little innovative capacity, the benefits may
ment—that is, marketing approval in Country A be less obvious than the costs in terms of reduced
deters generic entry in country B for a period of competition in the market for medicines or ag-
five years. If the originator seeks marketing ap- rochemicals. These costs and benefits need to be
proval in Country B within five years, there will considered in the context of bilateral trade agree-
be an additional five years of data protection in ments, particularly with the United States, where
Country B from the time of obtaining marketing data exclusivity is likely to be part of the package
approval, providing a maximum exclusivity of up of intellectual property measures governments
to 10 years. CAFTA also obliges parties to pro- are asked to accept. ■
vide extensions to the patent term on the grounds
of unreasonable delays in granting a patent (for Charles Clift, 18 Parsons Green Lane, London, SW6 4HS,
example, five years from filing) or unreasonable U.K. charlesclift@tiscali.co.uk
delays in procuring marketing approval.
Developing countries need to consider the 1 DiMasi J, Hansen R and Grabowski H. 2003. The Price
of Innovation: New Estimates of Drug Development
extent to which the demands for data exclusivity Costs. Journal of Health Economics 22:151–185.
in bilateral trade agreements reflect the lobby-
2 CropLife International. 2004. Position Paper: On the
ing of the pharmaceutical industry in developed Protection of Safety and Efficacy Data for Existing and
countries, particularly the United States, where New Crop Protection Chemicals. CropLife International:
there are close and legally institutionalized links Brussels. www.croplife.org/librarypositionp.aspx?wt.
ti=Position%20papers.
between the industry and negotiators, in partic-
3 WIPO. 1996. Model Provisions on Protection against
ular through the Industry Trade Advisory Com- Unfair Competition. World Intellectual Property
mittee on Intellectual Property Rights (ITAC- Organization: Geneva www.wipo.int/cfdiplaw/en/
15). This Committee evaluates successive free trips/doc/unfair_competition.doc.
trade agreements as to whether or not they meet 4 Sanjuan JR. 2006. U.S. and E.U. Protection of
the objectives of U.S. intellectual property-based Pharmaceutical Test Data. Consumer Project on
Technology: Washington, DC www.cptech.org/
industries. The committee’s objectives do not in- publications/CPTechDPNo1TestData.pdf.
clude consideration of what measures might be
5 Satyanarayana K, S Srivastava and NK Ganguly. 2006.
in the best interests of developing countries. Data Protection Issues in India. Indian Journal of
Medical Research 123:723–726. medind.nic.in/iby/t06/
i6/ibyt06i6p723.pdf.
6. Conclusions 6 NAFTA 1992. North Atlantic Free Trade Agreement.

www.nafta-sec-alena.org/DefaultSite/index_e.aspx?
This chapter has sought to explain the meaning DetailID=169#A1711.
of data protection and data exclusivity in the

CHAPTER 4.10
Regulatory Data Protection in

Pharmaceuticals and Other Sectors
Trevor Cook, Partner, Bird & Bird, U.K.
ABSTRACT incentives for undertaking such work are needed,

Generating data to secure regulatory approval in sectors, especially since no other forms of protection may
such as pharmaceuticals and agricultural chemicals in
be available for a product that regulatory agencies
which product safety and efficacy is paramount, has be-
come ever more extensive and expensive. There is thus have authorized for the market.
a need to provide an incentive to undertake such data- The protection of data generated for regula-
generation efforts by protecting the investment in them tory purposes prevents direct or indirect use of the
against free riding. Article 39.3 of the Agreement on Trade- data filed in support of a marketing authorization
Related Aspects of Intellectual Property Rights (TRIPS)
recognizes as an intellectual property right the need for by subsequent applicants seeking marketing au-
such protection in those sectors. This chapter discusses thorization for the same product. The protection
how certain jurisdictions, and in particular the European applies unless the subsequent applicant has ob-
Community, have implemented the TRIPS requirement tained the consent of the party that first filed the
involving regulatory data protection regimes. Such protec-
data and obtained the original marketing authori-
tion is not provided by the patent system, which instead
protects invention. zation. It is often uneconomic for subsequent ap-
plicants to generate their own data independently,
1. Introduction so this exclusivity effectively confers a de facto
When a company or institution spends the time right in favor of the first applicant. However, the
and money to demonstrate that a product is protection is for a limited time, so that subsequent
safe and efficacious, the investment pays off, in applicants can use it after an appropriate period.
part, by protecting the data generated through This avoids the need for repetitive testing, which
this effort. This protection has become crucial in whether on animals or people, is undesirable both
highly regulated sectors, such as pharmaceuticals from economic and ethical points of view.
and agricultural chemicals, where product safety
and efficacy are paramount. The importance of
protecting such data is reflected in their recogni- 2. Regulatory Data Protection
tion by the Agreement on Trade-Related Aspects versus Other Forms
of Intellectual Property Rights (TRIPS), Article
39.3, as intellectual property (IP) rights. The need 2.1 How regulatory data protection differs
for such protection has arisen because the testing from confidential information protection
required to secure regulatory approvals has be- Although the protection of regulatory data has its
come more extensive and expensive. Thus, greater origins in laws regulating confidential information
Cook T. 2007. Regulatory Data Protection in Pharmaceuticals and Other Sectors. In Intellectual Property Management in
Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Ox-
ford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. T Cook. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

COOK
(including trade secrets), and indeed is addressed to the originator’s file or from relying on the
in the same article of TRIPS that mandates the mere fact of the earlier authorization.3 Thus the
protection of confidential information, it is a decision of the House of Lords in the English
separate right that requires separate analysis.1 The Cimetidine case confirmed that the information
two types of IP right are different, and a balance was confidential and that a breach of confidenti-
between private and public interests struck in one ality would have occurred if the information had
should not affect how that balance is struck in the been disclosed to third parties or the informa-
other. For example, while there would seem to tion used for purposes unrelated to the function
be no compelling reason why the protection af- of the regulatory authorities. But that was not
forded to confidential information should ever be the case. Instead, the regulatory authorities had
limited in duration, the term of regulatory data been using the data to carry out the regulatory
protection ought to be limited. function. The legal decision went on to confirm
Some experts might argue that there is no that regulatory authorities have a right and duty
need for a separate legal regime to protect regula- to make use of such information. The court ob-
tory data because the data can be protected un- served that “the licensing authority should not be
der the law governing confidential information. deterred from exercising its rights and powers so as
Indeed, viewed from an English common law to ensure public safety....”
perspective, regulatory data is typically confiden-
tial in nature and is communicated to regulatory 2.2 Regulatory data protection versus patents
authorities with an obligation of confidence. Some experts argue that the protection of innova-
However, trade secrets law has proved inadequate tion in regulated areas, such as pharmaceuticals
for protecting data filed with regulatory authori- and agrochemicals, ought to be left to the patent
ties. First, the issue has not been about the disclo- system, and that no other system of protection
sure of data but about its use (although freedom is needed. This objection, however, fails to rec-
of information considerations today make a lim- ognize that proving safety and efficacy for regu-
ited measure of disclosures inevitable, which can latory authorities is a very different matter from
undermine its confidential nature.) Second, it is demonstrating that an invention is patentable.
unclear whether regulatory authorities in fact do From a regulatory perspective, much of the re-
“use” the data in a way that is subject to the law of quired expenditure of time and money is directed
confidential information, especially when officials to R&D that rarely yields patentable inventions.
merely rely on the existence of such data and do Indeed in some cases, patent protection for a
not actively refer to it. Third, even assuming that product approved by regulatory authorities may
such reliance does constitute use, is there some be very weak or impossible to obtain, especial-
“public policy” or “implied permission” defense ly when the patent protection is not for a new
that permits this use? chemical entity or other new active substance but
On this third point the various Cimetidine is instead for a new physical form, new formu-
cases,2 each of which was decided effectively on lation, new synthetic process, or new use of an
public policy or implied-permission grounds, old substance. Such “second generation” patents
demonstrated the difficulties faced by those who are at greater risk of successful attacks on their
file confidential regulatory data in the common validity, because patent validity depends less on
law countries of England, Australia, and New the work done to bring inventions to market, or
Zealand. When regulators assessed in these cas- to prove that inventions are safe and efficacious,
es an application for approval of an equivalent than on the discovery of the invention in the first
medicinal product by a generic competitor, the place. Such patent validity considerations are
original data filings could not be protected via wholly unrelated to regulatory data protection,
traditional concepts of confidential information. which may therefore provide the sole protection
The law of confidential information could not for a medicinal product. The ability of patents
prevent the regulatory authority from referring to give only limited protection—and thus to

CHAPTER 4.10
provide a limited incentive for completing the products that may be no better in practice than
important work required to secure a marketing those they replace. This robs from investments in
authorization—was recognized in the English public health since the “innovations” add no ben-
patent case Merck & Co. Inc.’s Patents.4 Having efit to the public but still require resources to be
found invalid certain patents for the medical uses spent for new research and market authorization.
of alendronate, a compound used to treat medi- Clearly, the pursuit of better IP protection in this
cal disorders of excess bone destruction, the trial case is a perverse incentive. A revised approach
judge observed: is needed, one that recognizes the differences
Accordingly I hold both patents invalid. I do between regulatory data protection and patents.
so with some regret. Merck [has] only had a few In short, the former differs from patents in three
years’ exclusive exploitation of alendronate. [The ways: (1) its apparently shorter duration; (2) the
company] must surely have had to make a very con- lack of any need to comply with conventional
siderable investment and incurred considerable risk concepts associated with patentability, such as
in bringing [the product] to market. And mankind novelty and obviousness; and (3) it protects only
is better off as a result. But the patent system does the regulated product. Table 1 lays out these dif-
not confer monopolies on those who develop obvi- ferences in more detail.
ous or old products, even if they have never been Notwithstanding the fundamental con-
exploited. A workable system for that might be a ceptual differences between the two systems of
good idea, particularly in the field of medicine and protection, some links between the systems have
analogous fields. been created. The regime in the United States
for granting authorizations for medicinal prod-
The framework for such a workable system ucts (and as required to a degree, by many bilat-
has existed for some time in the law of regulatory eral trade agreements between the United States
data protection, which in the United Kingdom and third countries) provides that, when a pat-
provided longer effective protection than did ent protects a product, in most cases the term
the patents at issue in this case.5 However, the of regulatory data protection is extended for 30
regulatory data protection system for medicinal months or longer. In Europe, however, if there is
products, at least in Europe and as mandated by no sample submission to the regulatory authori-
Article 39.3 of TRIPS, provides for only limited ties (which itself would constitute an infringing
compensation for the shortcomings of the patent act under applicable patents in Europe), the mere
system. This is because regulatory data protection application for a marketing authorization does
is available only for data filed in support of a new not constitute an act of patent infringement. In
active chemical and not (with one exception only fact, a marketing authorization may be granted
recently introduced) for data filed in support of a to any party that complies with the applicable
new indication, new formulation, or new dosing technical requirements without, thereby, infring-
schedule of an already-authorized active chemi- ing any patent6.
cal. The exception, discussed further below, ex-
tends the total period of data protection for all 2.3 Regulatory data protection versus
uses of a medicinal product by one year, if one or other forms of marketing exclusivity
more new therapeutic indications are authorized Rights protecting regulatory data need to be dis-
that are held to bring significant clinical benefits tinguished from and contrasted with other types
in comparison with existing therapies. To fail of marketing exclusivity conferred for other rea-
to protect data filed in support of a new indica- sons. Because both provide a form of market
tion, new formulation, or new dosing schedule exclusivity, the distinctions are not always very
of an already authorized active chemical has two clear.
baleful consequences. It not only discourages Internationally, one example of market ex-
development work on existing medicinal prod- clusivity that contrasts with regulatory data pro-
ucts, but also encourages work on new medicinal tection is the exclusive marketing rights conferred

COOK
under Article 70.9 of TRIPS for pharmaceuti- of orphan-drug marketing exclusivity, a second
cals and agricultural chemical products in those applicant will not be able to obtain market au-
countries that did not provide full product patent thorization even if it submits its own data. Thus
protection for such chemicals when TRIPS came orphan-product status does not simply protect
into force. regulatory data but confers true marketing
Another type of marketing exclusivity is exclusivity.
available in both Europe and the United States As is to be expected for a right that has only
for orphan medicinal products. Because of their recently been developed and is only now starting
small potential market, these products require to be analyzed in detail, there was considerable
incentives for development over and above the international variation in the protection afforded
norm. In a sense, the exclusivity for orphan to regulatory data. This was the case when the text
medicinal products could be said to protect in- of TRIPS was finalized in 1994 and it remains the
directly the data submitted by the entity that case today in 2007. In consequence, Article 39.3
secures the first such orphan-drug authoriza- leaves much latitude in relation to its national
tion, but it goes much further. During the term implementation (see Box 1).
Table 1: Patents and Regulatory Data Protection Contrasted
Patent Data Protection
Protects claimed compound and analogues, compound (and sometimes

and/or uses, and/or formulations, formulation) which has an
and/or synthetic processes authorization to market
Prevents • manufacture, sale, use, or import grant to a subsequent

of a claimed product or the direct applicant of an authorization
product of a claimed process to market based on
originator’s data
• use of a claimed process
• indirect infringement
Relevant excepted use - private and noncommercial use any use which does not
require an authorization to
- use for purposes of securing market
regulatory authorization
- experimental use relating to the

subject matter of the invention
(outside the United States)
Period of protection 20 years from application variable, but typically

5–10 years from the first
authorization to market
Requires patentability: novelty, inventive step, demonstration of safety and

sufficiency, etc. efficacy

CHAPTER 4.10
Box 1: Article 39.3 of TRIPS

Propositions as to the scope of Article 39.3 TRIPS
The importance of regulatory data protection and its international recognition as a sui generis
type of intellectual property right are embodied in Article 39.3 of TRIPS. This embodiment, together
with Article 39.1 and Article 39.2, (which are expressed in somewhat different terms and mandate
the protection of confidential information) provides:
1. In the course of ensuring effective protection against unfair competition as provided in

Article 10 bis of the Paris Convention (1967), Members shall protect undisclosed information in
accordance with paragraph 2 and data submitted to governments or government agencies in
accordance with paragraph 3.
2. Natural and legal persons shall have the possibility of preventing information lawfully within
their control from being disclosed to, acquired by, or used by others without their consent in a
manner contrary to honest commercial practices so long as such information:
a) is secret in the sense that it is not, as a body or in the precise configuration and assembly
of its components, generally known among or readily accessible to persons within the
circles that normally dealt with the kind of information in question;
b) has commercial value because it is secret; and
c) has been subject to reasonable steps under the circumstances, by the person lawfully in
control of the information, to keep it secret.
Note: For the purpose of this provision, “a manner contrary to honest commercial practices” shall
mean at a minimum practices such as breach of contract, breach of confidence, and inducement
to breach, and includes the acquisition of undisclosed information by third parties who know, or
were grossly negligent in failing to know, that such practices were involved in the acquisition.
3. Members, when requiring, as a condition of approving the marketing of

pharmaceutical or of agricultural chemical products which utilise new chemical
entities, the submission of undisclosed test or other data, the origination of which
involves a considerable effort, shall protect such data against unfair commercial
use. In addition, Members shall protect such data against disclosure, except where
necessary to protect the public, or steps are taken to ensure that the data are
protected against unfair commercial use.

COOK
To date, there have been no cases brought because in some regulatory systems the term
under the WTO (World Trade Organization) new chemical entity is in practice limited to
dispute-resolution mechanism in relation to “small molecules” (as opposed to the “large
Article 39.3 to provide guidance. Nonetheless, molecules” that designate biotechnology
the following propositions about the minimum products, such as therapeutic proteins, and
thresholds of protection that it mandates can be are usually termed new active substances in
advanced: such systems), the term ought to be regard-
• Article 39.3 addresses two issues: use of the ed as comprising new active substances.
data in its first sentence and disclosure in the However, this does not mandate the pro-
second. However the data to be protected tection of new data, no matter how much
are in each case the same. effort their origination has involved, for an
old, or already authorized, chemical entity
• In each case the data protected are required or active substance, although such protec-
“as a condition of approving the marketing tion ought to be regarded as desirable on
of pharmaceutical or of agricultural chemi- public policy grounds.
cal products,” suggesting that this does not • In each case, the origination of the data
require that data submitted for these prod- protected must “involve a considerable ef-
ucts for other purposes, or submitted as a fort.” This no doubt would cover safety and
condition of approving the marketing of efficacy data, such as that generated in the
other types of product, be protected. (The course of clinical trials for pharmaceuticals
European Community, for example, also or field trials for agricultural chemicals, but
provides for regulatory data protection in it leaves open the question of what other
other fields, such as animal feedingstuffs data should also be protected on these
and biocidal products but TRIPS does not grounds.
recognize it). • In relation to prohibited use, the use must
• In each case, the data protected are required be “unfair commercial use.” This expression
“as a condition of approving the marketing of is not defined, but clearly excludes non-
… products which utilise new chemical enti- commercial use, such as for public health
ties.” The expression new chemical entity is and safety. As to commercial use, such as
not defined. Thus this provision does not that made when a subsequent applicant re-
necessarily impose a patent standard of nov- lies on the existence of such data (whether
elty, and indeed it should not be expected or not actually referred to), or to be more
that it do so, given the different nature of accurate, when the regulatory authority as-
the right. In any event, if one were to ap- sesses the second applicant’s application in
ply a patent standard of novelty, would this light of the data provided by the original
be absolute (worldwide) or relative (local)? applicant, the issue is whether or not such
TRIPS is silent on this issue with regard use is unfair. It is in this context that such
to patents, and although over time there matters arise as the appropriate term of
has been a trend to absolute novelty, it has protection and whether or not the protec-
by no means been universally adopted. It tion should be an exclusive right or merely
should be noted that the term new chemical a remuneration right (and thus available for
entity is widely used in a regulatory context. compulsory licensing).
Accordingly, a new chemical entity could • In relation to disclosure, such data must
be regarded as an active substance approved be protected except in two cases: where it
for the first time within a particular regu- is either “necessary to protect the public” or
latory framework, since the same chemical where “steps are taken to ensure that the data
may have activity within the context of dif- are protected against unfair commercial use.”
ferent regulatory frameworks. Moreover, Thus, in these two alternative cases there is

CHAPTER 4.10
no absolute prohibition on the disclosure States provide regulatory data protection. This
of such data. The first permitted exception, honor fell to the North American Free Trade
namely that of “[necessity] to protect the Agreement (NAFTA)7, paragraphs 5 through 7 of
public” appears narrow in scope and should Article 1711 of which provide:
not properly be equated with transparency, 5. If a Party requires, as a condition for ap-
which is the principle behind disclosures proving the marketing of pharmaceutical
under freedom of information consider- or agricultural chemical products that uti-
ations. Thus in relation to disclosures for lize new chemical entities, the submission
purposes of transparency, TRIPS would of undisclosed test or other data necessary
appear to require that “steps [be] taken to to determine whether the use of such prod-
ensure that the data are protected against ucts is safe and effective, the Party shall pro-
unfair commercial use.” This would appear tect against disclosure of the data of persons
to require the regulatory authority not to making such submissions, where the origi-
treat information disclosed for such pur- nation of such data involves considerable
poses as detracting from the undisclosed effort, except where the disclosure is neces-
nature of the underlying data. Indeed, in sary to protect the public or unless steps are
the European medicinal products regime, taken to ensure that the data is protected
the Notice to Applicants expressly provides against unfair commercial use.
that the information set out in a European 6. Each Party shall provide that for data sub-
Public Assessment Report (EPAR) cannot ject to paragraph 5 that are submitted to
be used to apply for a marketing authori- the Party after the date of entry into force
zation for a medicinal product on a bib- of this Agreement, no person other than the
liographic or published data basis (see also person that submitted them may, without
Box 2 at the end of this chapter). the latter’s permission, rely on such data in
support of an application for product ap-
proval during a reasonable period of time
The Background to and Negotiating after their submission. For this purpose, a
History of Article 39.3 TRIPS reasonable period shall normally mean not
Before TRIPS came into force on 1 January less than five years from the date on which
1995, regulatory data was already protected the Party granted approval to the person
throughout the European Community and in that produced the data for approval to mar-
the United States by statutory provisions for ket its product, taking account of the na-
both pharmaceuticals and agricultural chemicals. ture of the data and the person’s efforts and
Since 1987, the member states of the European expenditures in producing them. Subject to
Community have provided protection for data this provision, there shall be no limitation
filed in support of marketing authorizations for on any Party to implement abbreviated ap-
medicinal products, and since 1991 for data filed proval procedures for such products on the
in support of marketing authorizations for plant basis of bioequivalence and bioavailability
protection products. Similarly since 1982, the studies.
United States has had its own regulatory data 7. Where a Party relies on a marketing approv-
protection provisions for pesticides, and since al granted by another Party, the reasonable
1984, such provisions for medicines. Moreover, period of exclusive use of the data submit-
as discussed earlier, in both jurisdictions the case ted in connection with obtaining the ap-
law had made plain the limitations of the law of proval relied on shall begin with the date of
confidential information as a means for protect- the first marketing approval relied on.
ing regulatory data.
Moreover, TRIPS was not the first multi- The “not less than five years” term of pro-
national agreement to mandate that its Member tection that the North American Free Trade

COOK
Agreement (NAFTA) accepts in Article 1711(6) authorization for a significant new indication for
as “reasonable” reflected, no doubt, the U.S. the pharmaceutical is secured before the eight-
position regarding pharmaceuticals,8 but such year period expires.
a term is now widely regarded on the research- In the United States, a second applicant can-
based side of the pharmaceuticals industry as not (assuming no patents cover the product) ap-
inadequate. However, the NAFTA formulation ply for such an authorization until five years af-
has a significant place in the history of regulatory ter the first marketing authorization.10 Assuming
data protection because it is the first to reflect the a typical review period of 18 months, the result
principles of regulatory data protection in treaty is a total effective protection period of six and a
language and because its language parallels that half years. However, the more usual situation is
found in TRIPS. that the relevant regulatory authority (the U.S.
Food and Drug Administration (FDA)) has been
advised that one or more patents apply to the
3. The E.U. and U.S. Implementations pharmaceutical in question, in which case the
of Article 39.3 TRIPS link between the regulatory regime and the pat-
ents regime comes into play (see section 2.2).11
3.1 Background This link exists in the United States but not in the
Although the obligations mandated under Article European Union.
39.3 are generally expressed, it is instructive to In the United States, a company wishing to
consider how they have been implemented by the market a generic version of a pharmaceutical by
world’s two major trading blocks—the European relying on the first applicant’s regulatory data
Union and the United States—especially since it must certify one of the following to the FDA: (1)
has become increasingly common for each to try no patent applies, (2) the relevant patent has ex-
to impose its own IP norms on trading partners pired, (3) approval is sought only after the patent
through regional or bilateral trade agreements. expires; or (4) there is a patent but it is asserted to
be invalid or not to be infringed. Once a generic
3.2 Pharmaceuticals manufacturer provides a certification that it con-
A variety of national regulatory data protection siders the patent to be invalid or not infringed (a
regimes for pharmaceuticals have emerged. The “Paragraph IV Certification”), the manufacturer
regimes differ both in terms of the length of pro- must notify the patentee, which then has an im-
tection and the categories of data protected. For mediate right to sue for patent infringement. A
example, European Community Member States patent infringement action filed within 45 days of
previously provided (depending on the coun- notice delays approval of the first generic authori-
try or the regulatory route followed) six or ten zation for 30 months.12 The practical result of the
years protection for data filed in support of an linkage is thus to extend the effective regulatory-
authorization for a new pharmaceutical chemical data protection period by at least 30 months to
entity, but none for data relating to a new indi- seven and a half years, even when the Paragraph
cation for an already-authorized pharmaceutical. IV certification proves to be correct and the listed
For new chemical entities authorized as phar- patent turns out to be either invalid or not in-
maceuticals in the European Community after fringed. Thus at first sight the duration of protec-
October 2005, second applicants may apply for tion in the United States for data filed in support
a marketing authorization eight years after the of an authorization for a pharmaceutical as a new
first authorization is granted, but such authoriza- chemical entity may seem less than that afforded
tion cannot be granted less than ten years after by the European Community. In practice howev-
the date of such first authorization.9 In each case er, the difference is much less, especially because
the protection runs from the first authorization of this patent linkage.
in the Community. Under the new system, the Moreover, in the United States, data based
ten-year period is extended by a further year if on new clinical investigations (other than

CHAPTER 4.10
bioavailability studies), relating to an already-au- offered to compensate the first filer of the data (in
thorized product, that are essential to a further the absence of agreement as to the level of com-
authorization (such as that required for a new in- pensation, there are provisions for arbitration),
dication) are protected for three years. Although but after this 15-year period there is no restric-
the protection for new data in support of a new tion on use. Thus the protection for the last five
indication for an old product is apparently more years of the 15-year period of protection is not
generous in the United States than in the European exclusivity but remuneration.
Community, which provides for an extension of
only one year, it is important to appreciate that in 3.4 Regulatory data protection in bilateral
the European Community the protection is ex- and regional trade agreements
tended for all indications and not just, as in the NAFTA is an example of a regional free trade
United States, for the new indication. agreement, but since the negotiation of TRIPS,
both the United States and the European
3.3 Agricultural Chemical Products Community have entered into a number of bilat-
In general, the agricultural-data protection eral trade agreements with third countries. There
systems for authorizations in the European have also been some regional trade agreements.
Community and the United States provides for Such agreements typically contain chapters ad-
a longer period of protection than for pharma- dressing IP, including regulatory data protection.
ceuticals. They also give a considerably higher The approach of the European Community Trade
level of protection for new data used in relation Agreements, such as that with the Ukraine, is sim-
to old active compounds than that mandated in ply to require the trading partner to harmonize
the pharmaceutical systems. its laws with European Community standards. In
The system in the European Community, contrast, the U.S. free trade agreements (FTAs)
subject to special provisions for products already contain specific provisions to tighten up matters
on the market when the system came into force, left vague by the TRIPS Agreement. Several FTAs
provides for ten years of Community-level pro- are in force, including one with Australia. The
tection for a new active compound.13 The system texts of several others have been finalized, and ne-
also provides ten years of protection at a national gotiations are under way on a number of others.15
level (running from the first such authorization The texts spell out the approach to be adopted
in the Community) for data filed in support of in implementing the TRIPS standards. The obli-
a formulated plant protection product contain- gations, expressed as mutual obligations, usually
ing an already authorized active compound. require the other party to adopt at least some el-
However, these periods of protection are subject ements of the U.S. implementation. This is the
to provisions intended to promote data regarding approach in the provisions concerning regulatory
vertebrates to be shared, so that duplicate testing data protection.
on animals can be avoided. Failing agreement on In most cases, the FTAs that the United
this issue, Member States are empowered to com- States has negotiated specify minimum five-year
pel sharing of such data, which typically involves periods of regulatory data protection for phar-
arbitration over compensation. As a result of maceuticals and ten-year periods for agricultural
these compulsory licensing provisions, test data chemicals. Some countries permit the granting
derived from vertebrate animals does not benefit of marketing approval based upon the existence
from exclusivity. The conferred data protection of an approval for the same pharmaceuticals in
can to this extent thus be seen as a remuneration another country. In some of these cases, the FTAs
right rather than an exclusive right. require the second country to protect the regula-
For pesticides, in the U.S. regulatory data for tory data filed in the first country for the same
old and new products is protected for a ten-year length of time as the first country does, or for
period.14 For a further five-year period, others can an independent period.16 Protection is sometimes
use the data only when the would-be users have required for test data submitted in support not

COOK
only of authorizations for pharmaceutical prod- own carefully crafted checks and balances. Each
ucts incorporating new chemical entities, but for adopts a different approach to protecting regula-
any pharmaceutical product.17 In comparison, tory data for pharmaceuticals and for agricultural
Europe offers such protection for new data filed chemicals. Each is also in the process of extending
in relation to an old active compound in a phar- its specific approach to implementing these obli-
maceutical product only when such data is filed in gations to some of its trading partners. They are
support of one or more new indications that bring doing this through trade agreements that specify
a significant clinical benefit. However, regulatory the minimum standard of IP protection that the
data protection in the European Community for parties must afford. It is important, therefore, to
data filed in support of an authorization of a new be aware of the differences between the U.S. and
pharmaceutical chemical entity is longer than the European Community systems for protecting
minimum five years required under the FTAs. regulatory data for pharmaceuticals and agricul-
Several of the FTAs also require the parties to tural chemicals, the different checks and balances
adopt the U.S. system for pharmaceutical prod- within such systems, and the reasons for and con-
ucts: the patent holder is notified of any attempt sequences of such differences. Such differences
by a second applicant generic company to apply make it dangerous to cherry-pick only certain
for a marketing authorization before patent ex- aspects of such systems, or indeed to try to merge
piry.18 Indeed, in many cases, the regulatory au- and harmonize their respective features into one
thority is prohibited from granting a marketing system, for doing so is likely to result in an up-
authorization before patent expiry.19 The impact ward harmonization that will produce a system of
of the FTA provisions requiring a link between regulatory data protection that is more stringent
marketing approval and patent protection, which than that provided by either system on its own. ■
is not mandated by TRIPS, depends very much
upon the precise mechanism involved. Some
mandate mere notification. Others mandate that Trevor Cook, Partner, Bird & Bird, 15 Fetter Lane,
London, EC4A 1JP, U.K. trevor.cook@twobirds.com
no authorization be granted while patents con-
tinue in force, the effect of which is to increase
considerably the effective period of protection. 1 Article 39.2 TRIPS mandates the��
protection for confi-
Moreover, unless they have an incentive to chal- dential information. There are, however, considerable
lenge patents in the form of their own brief pe- disparities in the manner in which countries comply
or enforce this protection (even within the European
riod of generic exclusivity as provided by the U.S Community), in the remedies conferred (for example,
system, they may be unlikely even to try, because are they are enforced in the criminal or civil courts?),
all they will achieve is to clear the path for other and in the legal bases for such laws (are they contrac-
tual or, as tends to be the case in common law juris-
generic competitors. dictions, equitable? Or are they seen as a species of
unfair competition, as tends to be the case in civil law
countries?)
4. Conclusions 2 S��
mith Kline & French Laboratories Ltd. v Attorney
Regulatory data protection provides an impor- General FSR 418 (1989), In re Smith Kline & French
Laboratories Ltd. 1 AC 64 (1990) (England), Smith Kline
tant incentive for developing safe and efficacious & French Laboratories (Australia) Ltd. v Secretary to
pharmaceuticals and agricultural chemicals. It is the Department of Community Services and Health,
an incentive that patents alone cannot provide. and Alphapharm Ltd. v Secretary to the Department
of Community Services and Health FSR 617 (1990),
The obligations in TRIPS Article 39.3 concern- relating respectively to New Zealand, England, and
ing the protection of regulatory data are broadly Australia.
expressed and permit numerous flexibilities of 3 Likewise in the United States, Ruckelshaus v Monsanto
implementation. However, the United States Co. (467 U.S. 986, 1019–20 (1984)) shows the reluctance
of the courts to impose an unqualified restriction on
and the European Union, as the two major trad- regulatory authorities’ use of the data filed with them.
ing entities, have each developed specific imple- Ruckelhaus was analyzed extensively in the Australian
mentations of these obligations, each with its Cimetidine case Alphapharm Ltd. v Secretary to the

CHAPTER 4.10
Department of Community Services and Health [1990] July 1991 concerning the placing of plant protection
FSR 617. products on the market.
4 Merck & Co. Inc’s FSR, p. 498 (2003). 14 See the Federal Insecticide, Fungicide, and Rodenticide
5 However, one of the patents in issue in this case was for Act (7 U.S.C. 136a), “Registration of pesticides.”
a new dosing schedule (seven days as opposed to one, 15 Details of those U.S. FTAs signed to date and the
with a concomitant difference in dose), and neither progress of the others can be found at www.ustr.gov/
the old regulatory data protection law in Europe, nor Trade_Agreements/Bilateral/Section_Index.html.
the current one that replaces it, protects new data in 16 For example United States-Australia FTA Article 17.10,
support of a new dosing schedule for an old active CAFTA Article 15.10, United States-Jordan FTA Article
compound, as was confirmed under the old law in the 4(22), United States-Bahrain FTA Article 14.9.
unsuccessful challenge to the grant of a marketing
authorization to a second applicant in The Queen on 17 For example United States-Jordan FTA, Article 22
the application of Merck Sharp and Dohme Limited v Footnote 10, United States-Singapore FTA, Article 16.8.
The Licensing Authority (acting by the Medicines and 18 For example United States-Chile FTA Article 17.10,
Healthcare products Regulatory Agency, and Approved United States-Singapore FTA Article 16.8(4), CAFTA
Prescription Services (U.K.) Ltd., Generics (U.K.) Ltd. and Article 15.10(3).
Arrow Generics Ltd. EWHC 710 (Admin, 2005) (Moses J,
19 For example United States-Singapore FTA, United
28 June 2005).
States-Chile FTA, CAFTA, United States-Australia FTA,
6 The earlier regulatory data protection regime in Europe United States-Morocco FTA.
as introduced by the amendments made in 1987 by
20 Namely, “any substance or combination of substances
Directive 87/21/EEC to Directive 65/65/EEC allowed
presented as having properties for treating or
Member States the option not to confer regulatory
preventing disease in human beings” or “any substance
data protection for medicinal product “after patent
or combination of substances which may be used in
expiry” and thus undermine the effect of regulatory
or administered to human beings either with a view
data protection in such countries. However, although
to restoring, correcting or modifying physiological
some countries, such as Denmark, initially availed
functions by exerting a pharmacological, immunologic
themselves of this option, they rapidly abandoned
or metabolic action, or to making a medical diagnosis.”
it. The current regulatory data protection regime
in Europe, which applies to active compounds the 21 Separate is here meant in the sense that an
application for the first marketing authorization of authorization secured under one system cannot form
which was made since November 2005, provides no the basis for securing another authorization in the
such option. other system. One exception to this is provided by
Article 3(3) of the Regulation, which allows Member
7 NAFTA was signed on 12 August 1992 and entered into
States to apply the Article 10 abridged authorization
force (subject to transitional provisions) on 1 January
procedure to grant a national authorization for a
1994.
generic medicinal product of a reference medicinal
8 Although, as observed in Section 3.2 where the product first authorized by the Community.
pharmaceutical is the subject of a patent, this can in
22 The centralized system has long been obligatory for
practice prove to be rather longer.
medicinal products produced by most biotechnological
9 For specifics of the current European Community processes, and has with effect from 20 November
system for the regulatory data protection of medicinal 2005 been obligatory also for medicinal products for
products see Box 2 of this chapter. human use containing a new active substance for the
10 See the Federal Food Drug and Cosmetic Act (21 U.S.C. treatment of AIDS, cancer, neurodegenerative disorder,
355), “New Drugs,” and in particular the amendments and diabetes, and for medicinal products that are
here introduced by the Drug Price Competition and designated as orphan medicinal products. It is optional
Patent Term Restoration Act 1984 (Hatch-Waxman for other new active substances and for medicinal
Act). products shown by the applicant to constitute “a
significant therapeutic scientific or technical innovation
11 Such declarations are listed in the so-called Orange or that the granting of authorisation in accordance
Book, the electronic version of which is available at with [the] Regulation is in the interests of patients or
www.fda.gov/cder/ob/. animal health at Community level.” This latter provision
12 There is an exception to this in the unlikely event that provides a theoretical possibility of securing an entirely
a final judgment disposes of the patent in less than 30 new period of data protection via the centralized route
months. The U.S. system also provides an incentive to in relation to an active compound that has already
be the first applicant to file a Paragraph IV Certification: been authorized via the national route.
no other such applicant can go to market until 180 23 See Article 14(11) and 89 of the Regulation, paralleling
days after the first applicant to file such a certification part of Article 10 of the Directive, as amended, and
goes itself to market or disposes of the patent in a final Article 2 of the amending Directive.
judgment.
24 See Article 6 of the Regulation, incorporating by
13 See Articles 13 and 14 of Directive 91/414/EC of 15

COOK
reference, inter alia, Articles 10, 10a and 10b of the the abridged authorization that the ECJ held to be
Directive, as amended. lawful concerned a different salt of the active moiety
25 Moreover by New Article 10(5) “… where an application to that in the originally authorized product.
is made for a new indication for a well-established 29 Whether or not such a mechanism was in effect
substance, a non-cumulative period of one year of data implicit in the old regulatory regime was the subject
exclusivity shall be granted, provided that significant pre- of a challenge to a Commission Decision under the
clinical or clinical studies were carried out in relation to old regulatory regime concerning a human growth
the new indication.” The precise application and scope hormone product in Cases T-15/04 & T-105/04 Sandoz
of this provision (which was added at the final stage GmbH v Commission of the European Communities.
of the legislative process and for which there are no However as the product in question (Omnitrop
travaux preparatoires) is yet to be established. The EMEA (somatropin)) has now received an authorization under
takes the view that the expression well-established the new regime, this litigation may well not continue.
substance means that the product no longer benefits 30 See www.emea.eu.int/pdfs/human/ewp/309702en.
from data exclusivity, and that the new period of data pdf and www.emea.eu.int/pdfs/human/bwp/
protection can be granted independently at any time 320700en.pdf for already-adopted general guidelines
after the initial protection period has expired, but can and the listing at www.emea.eu.int/htms/human/
only be granted once. biosimilar/biosimilardraft.htm for various draft
26 Case C-368/96, R v Licensing Authority, ex parte Generics guidelines including specific draft guidelines as
(UK) Ltd. 2 CMLR 181 (1999). to recombinant EPO, G-CSF, human insulin, and
27 The proviso under the old regulatory regime stated, somatropin.
“However, where the medicinal product is intended 31 C-440/93, R v Licensing Authority of the Department
for a different therapeutic use from that of the other of Health (Norgine intervening) ex parte Scotia
medicinal products marketed or is to be administered Pharmaceuticals Ltd. 3 CMLR 657 (1995).
by different routes or in different doses, the results of 32 “The Parties acknowledge that, at the time of entry
appropriate toxicological and pharmacological tests into force of this Agreement, neither Party permits third
and/or of appropriate clinical trials must be provided.” persons, not having the consent of the person that
28 In Case C-106/01, v R v Licensing Authority, ex parte previously submitted information concerning the safety
Novartis the abridged authorization that the ECJ held and efficacy of a product in order to obtain marketing
to be lawful concerned a formulation of an active that approval in another territory, to market a same or
was suprabioavailable to the formulation that had similar product in the territory of the Party on the basis
been authorized for longer than the data protection of such information or evidence of prior marketing
period but was bioequivalent to a formulation for the approval in another territory.” [Footnotes 17 and 18 in
same active that had been authorized for less than original Annex].
that period. In Case C-36/03, v R v Licensing Authority, 33 “As an alternative to this paragraph, where a Party, on
ex parte Approved Prescription Services the abridged the date of entry into force of this Agreement, has in
authorization that the ECJ held to be lawful concerned place a system for protecting information submitted
a pharmaceutical form of an active compound that was in connection with the approval of a pharmaceutical
different to the pharmaceutical form that had been product that utilizes a previously approved chemical
authorized for longer than the data protection period component from unfair commercial use, the Party may
but was the same as that for the same active that had retain that system, notwithstanding the obligations of
been authorized for less than that period. In Case C- this paragraph.” [Footnotes 17–19 in original Annex].
74/03, SmithKline Beecham plc v Laegemiddelstyrelsen,

CHAPTER 4.10
Box 2: Regulatory Data Protection for Medicinal Products

in the European Community (extracts)
Introduction
This section sets out in detail the provisions relating to regulatory data protection for medicinal
products for human use in the European Community.20 Parallel provisions, which differ with regard
to certain specifics involving regulatory data protection, apply to veterinary medical products.
The legal basis for such provisions changed as from:
• 30 October 2005, the date by which Member States were mandated to bring the
provisions of Directive 2004/27/EC amending Directive 2001/83/EC on the Community
code relating to medicinal products for human use (for medicinal products in the national
systems) into effect
• 20 November 2005, the date on which the relevant provisions of Regulation 726/2004
laying down Community procedures for the authorization and supervision of medicinal
products for human and veterinary use (for medicinal products in the centralized
Community system), and replacing those under Regulation 2309/93, comes into effect.
The relevant extracts from the Directive as amended are set out at the end of this Box. However,
it should be noted that certain aspects of the former provisions (notably the period of protection
and the nonavailability of extended protection for new uses) continue to apply to medicinal
products for which an application for authorization was submitted before such dates, and
since much of the litigation concerning the scope and effect of the old provisions informs the
interpretation of the new ones, it is appropriate also to bear in mind the old provisions when
discussing the new ones. Moreover, it is convenient to analyze these issues by reference to the
Directive, dealing with medicinal products in the national, decentralized, and mutual recognition
systems, rather than by reference to the Regulation, which deals with the generally separate,
from a regulatory perspective,21 centralized system,22 because the substantive law in each case
is the same as a result of the Regulation either repeating,23 or in some cases incorporating by
reference the relevant provisions of the Directive.24
This Box does not address the separate system of protection that may also be available in some
cases under Regulation (EC) No 141/2000 (the Orphan Medicinal Products Regulation).
General Principles
The regulatory data protection provisions for medicinal products operate by providing an exception,
after a specific period, to the requirement for someone seeking a marketing authorization for a
medicinal product to provide the results of toxicological and pharmacological tests or the results
of clinical trials for such medicinal product if such a medicinal product has already been the
subject of an authorization. Thus these provisions enable the authorization of a generic version
of an already authorized product after such period and without such data. Such an authorization
may conveniently be termed an abridged authorization.
Term of Protection
Where a medicinal product has been the subject of an authorization submitted before November
2005, then the periods of protection under the old regime (old Article 10(1)(a)(iii)) apply, by which
a product must have been authorized within the Community, in accordance with Community
provisions in force, for not less than a six or ten-year period, and be marketed in the Member
State for which the application is made. The ten-year period applies to medicinal products
authorized under the centralized procedure of the Regulation and its predecessor, throughout
the Community, and also in respect of authorizations secured nationally in those Member States
that elected to apply it, namely Belgium, France, Germany, Italy, Netherlands, Sweden and the
United Kingdom The six-year period applies to authorizations secured nationally in other Member
States. This is the regime that will continue in effect for abridged authorizations for some time
to come.

COOK
Box 2 (continued)
Where a medicinal product is the subject of an authorization submitted after October 2005, then
the periods of protection under the new regime apply. By new Article 10(1), an application for
an abridged authorization cannot be filed until a period of eight years after the first marketing
authorization in the Community has been granted, but a product so authorized cannot be placed
on the market less than ten years from the first marketing authorization in the Community.
This ten-year period is extended to 11 years when, during the first eight years, the marketing
authorization holder obtains an authorization for one or more new therapeutic indications that,
during the scientific evaluation prior to their authorization, are held to bring a significant clinical
benefit in comparison with existing therapies. The first requests for abridged authorizations
under the new regime cannot be filed before November 2013.
Variations and Line Extensions of an Already Authorized Medicinal Product:

New Indications, New Strengths, Pharmaceutical Forms, Administration Routes,
Presentations, and so on
As noted earlier, the new ten-year period of protection available to medicinal products the subject
of an authorization submitted after October 2005 will be extended to 11 years where, during the
first eight years, the marketing authorization holder obtains an authorization for one or more new
therapeutic indications which, during the scientific evaluation prior to their authorization, are held
to bring a significant clinical benefit in comparison with existing therapies.25 No such provision
existed under the old regulatory regime, it having been established in the Generics case26 that new
indications for an already authorized active did not secure a new period of protection running from
the date of authorization of such new indication, and that accordingly an abridged authorization for
a particular medicinal product could be granted with respect to all indications already authorized
for that particular medicinal product as at the date of such abridged authorization. This case also
established that new dosage forms, doses, and dosage schedules likewise did not secure a new
period of protection running from the date of authorization of such new dosage forms, doses
and dosage schedules, and that accordingly an abridged authorization for a particular medicinal
product could be granted in respect of all dosage forms, doses and dosage schedules already
authorized for that particular medicinal product as at the date of such abridged authorization.
The decision in the Generics case was based on the determination under the old regulatory
regime that the product the subject of the abridged authorization was properly to be regarded
as “essentially similar,” as the term was used in Article 10(1)(a)(iii), to the originally authorized
product, if it satisfied “the criteria of having the same qualitative and quantitative composition
in terms of active principles, of having the same pharmaceutical form and of being bioequivalent,
unless it is apparent in the light of scientific knowledge that it differs significantly from the original
product as regards safety and efficacy.” Subsequent cases under the old regulatory regime
established that even where there might not be such essential similarity, the proviso to Article
10(1)(a)27 allowed for bridging data to be filed, or for bridging data filed by the originator to be
relied on, provided that the originally authorized product and the product that is the subject of
the abridged authorization had the same active principle.28
These principles have been retained under the new regulatory regime by virtue of new Article
6 and Article 10(1). Article 6 clarifies the issues of interpretation addressed in the Novartis
and Approved Prescription Services cases by introducing the concept of the global marketing
authorization which covers “any additional strengths, pharmaceutical forms, administration
routes, presentations, as well as any variations and extensions.” Article 10(1) requires the applicant
for an abridged authorization to demonstrate that the medicinal product that is the subject of
the application “is a generic of a reference medicinal product which is or has been authorized under
Article 6 for not less than eight years in a Member State or in the Community.” The definition of
generic medicinal product under Article 10(2)(b) preserves the concept of essential similarity as
refined by ECJ case law in Generics and subsequent cases.

CHAPTER 4.10
Box 2 (continued)
New Combinations
New Article 10b replaces old Article 10(1)(b) and concerns medicinal products containing active
substances used in the composition of authorized medicinal products but not hitherto used in
combination for therapeutic purposes. In such a case, the results of new preclinical tests or new
clinical trials relating to that combination shall be provided, but it is not necessary to provide
scientific references relating to each individual active substance. The matter has not been the
subject of litigation, but it has generally been accepted that, by virtue of this provision, a new
combination has its own period of data protection calculated from the date of the first marketing
authorization for that particular combination in the Community, as if that new combination were
a new active substance.
Biological Medicinal Products

New Article 10(4) provides a framework that did not exist under the old regulatory regime.29
It would enable guidelines to be established by which biological medicinal products could be
authorized without full results of toxicological and pharmacological tests, or the results of clinical
trials, on the basis of an earlier authorization for a “biosimilar” product. The EMEA is at present
developing such guidelines, but so far the only specific guidelines that have so far been published
concern certain specified recombinant proteins.30
Bibliographic Applications
New Article 10a replaces old Article 10(1)(a)(ii) and, as before, allows for an authorization to be
sought without full results of toxicological and pharmacological tests or the results of clinical
trials but which does not refer to an authorized reference product where “the active substances
of the medicinal product have been in well-established medicinal use within the Community for a
period of at least ten years, with recognised efficacy and an acceptable level of safety”. It is under
this provision that authorization can, for example, be sought for medicinal products containing
active substances such as aspirin for the relief of pain. The narrow scope of the provision was
emphasized under an earlier version of the provision under the old regulatory regime in the
Scotia case.31
Relevant Provisions of Directive 2001/83/EC on the Community Code in Regard

to Medicinal Products for Human Use as Amended by Directive 2004/27/EC
Article 6
1. No medicinal product may be placed on the market of a Member State unless a marketing
authorisation has been issued by the competent authorities of that Member State in accordance
with this Directive or an authorisation has been granted in accordance with Regulation (EEC)
No. 2309/93.
When a medicinal product has been granted an initial marketing authorisation in accordance
with the first subparagraph, any additional strengths, pharmaceutical forms, administration
routes, presentations, as well as any variations and extensions shall also be granted an
authorisation in accordance with the first subparagraph or be included in the initial marketing
authorisation. All these marketing authorisations shall be considered as belonging to the
same global marketing authorisation, in particular for the purpose of the application of Article
10(1).
Article 10
1. By way of derogation from Article 8(3)(i), and without prejudice to the law relating to the
protection of industrial and commercial property, the applicant shall not be required to provide
the results of pre-clinical tests and of clinical trials if he [or she] can demonstrate that the

COOK
Box 2 (continued)
medicinal product is a generic of a reference medicinal product which is or has been authorised
under Article 6 for not less than eight years in a Member State or in the Community.
A generic medicinal product authorised pursuant to this provision shall not be placed on the
market until ten years have elapsed from the initial authorisation of the reference product.
The first subparagraph shall also apply if the reference medicinal product was not authorised
in the Member State in which the application for the generic medicinal product is submitted.
In this case, the applicant shall indicate in the application form the name of the Member
State in which the reference medicinal product is or has been authorised. At the request of
the competent authority of the Member State in which the application is submitted, the
competent authority of the other Member State shall transmit within a period of one month,
a confirmation that the reference medicinal product is or has been authorised together with
the full composition of the reference product and if necessary other relevant documentation.
The ten-year period referred to in the second subparagraph shall be extended to a maximum
of eleven years if, during the first eight years of those ten years, the marketing authorisation
holder obtains an authorisation for one or more new therapeutic indications which, during
the scientific evaluation prior to their authorisation, are held to bring a significant clinical
benefit in comparison with existing therapies.
2. For the purposes of this Article:
(a) “reference medicinal product” shall mean a medicinal product authorised under Article 6,
in accordance with the provisions of Article 8;
(b) “generic medicinal product” shall mean a medicinal product which has the same qualitative
and quantitative composition in active substances and the same pharmaceutical form as
the reference medicinal product, and whose bioequivalence with the reference medicinal
product has been demonstrated by appropriate bioavailability studies. The different salts,
esters, ethers, isomers, mixtures of isomers, complexes or derivatives of an active substance
shall be considered to be the same active substance unless they differ significantly in
properties with regard to safety and/or efficacy. In such cases, additional information
providing proof of the safety and/or efficacy of the various salts, esters, or derivatives
of an authorised active substance must be supplied by the applicant. The various
immediate-release oral pharmaceutical forms shall be considered to be one and the same
pharmaceutical form. Bioavailability studies need not be required of the applicant if he can
demonstrate that the generic medicinal product meets the relevant criteria as defined in
the appropriate detailed guidelines.
3. In cases where the medicinal product does not fall within the definition of a generic medicinal
product as provided in paragraph 2(b) or where the bioequivalence cannot be demonstrated
through bioavailability studies or in case of changes in the active substance(s), therapeutic
indications, strength, pharmaceutical form or route of administration, vis-à-vis the reference
medicinal product, the results of the appropriate pre-clinical tests or clinical trials shall be
provided.
4. Where a biological medicinal product which is similar to a reference biological product

does not meet the conditions in the definition of generic medicinal products, owing to, in
particular, differences relating to raw materials or differences in manufacturing processes of
the biological medicinal product and the reference biological medicinal product, the results of
appropriate pre-clinical tests or clinical trials relating to these conditions must be provided.

CHAPTER 4.10
Box 2 (continued)
The type and quantity of supplementary data to be provided must comply with the relevant
criteria stated in the Annex and the related detailed guidelines. The results of other tests and
trials from the reference medicinal product’s dossier shall not be provided.
5. In addition to the provisions laid down in paragraph 1, where an application is made for
a new indication for a well-established substance, a non-cumulative period of one year of
data exclusivity shall be granted, provided that significant pre-clinical or clinical studies were
carried out in relation to the new indication.
6. Conducting the necessary studies and trials with a view to the application of paragraphs 1,
2, 3 and 4 and the consequential practical requirements shall not be regarded as contrary to
patent rights or to supplementary protection certificates for medicinal products.
Article 10a
By way of derogation from Article 8(3)(i), and without prejudice to the law relating to the
protection of industrial and commercial property, the applicant shall not be required to provide
the results of pre-clinical tests or clinical trials if he can demonstrate that the active substances
of the medicinal product have been in well-established medicinal use within the Community
for at least ten years, with recognised efficacy and an acceptable level of safety in terms of the
conditions set out in the Annex. In that event, the test and trial results shall be replaced by
appropriate scientific literature.
Article 10b
In the case of medicinal products containing active substances used in the composition of
authorised medicinal products but not hitherto used in combination for therapeutic purposes,
the results of new pre-clinical tests or new clinical trials relating to that combination shall be
provided in accordance with Article 8(3)(i), but it shall not be necessary to provide scientific
references relating to each individual active substance.
Article 10c
Following the granting of a marketing authorisation, the authorisation holder may allow use
to be made of the pharmaceutical, preclinical and clinical documentation contained in the file
on the medicinal product, with a view to examining subsequent applications relating to other
medicinal products possessing the same qualitative and quantitative composition in terms of
active substances and the same pharmaceutical form.

COOK
Box 3: Regulatory Data Protection Provisions of the United States-Australia

FTA Articles 17.10: Measures Related to Certain Regulated Products
1. (a) If a Party requires, as a condition of approving the marketing of a new pharmaceutical product,
the submission of undisclosed test or other data concerning safety or efficacy of the product,
the Party shall not permit third persons, without the consent of the person who provided the
information, to market the same or a similar product on the basis of that information, or the
marketing approval granted to the person who submitted such information, for at least five
years from the date of marketing approval by the Party.
(b) If a Party requires, as a condition of approving the marketing of a new agricultural chemical
product, including certain new uses of the same product, the submission of undisclosed
test or other data concerning safety or efficacy of that product, the Party shall not permit
third persons, without the consent of the person who provided the information, to market
the same or a similar product on the basis of that information, or the marketing approval
granted to the person who submitted such information, for ten years from the date of the
marketing approval of the new agricultural chemical product by the Party.
(c) If a Party permits, as a condition of approving the marketing of a new pharmaceutical or

agricultural chemical product, third persons to submit evidence concerning the safety or
efficacy of a product that was previously approved in another territory, such as evidence of
prior marketing approval, the Party shall not permit third persons, without the consent of
the person who previously submitted information concerning safety or efficacy, to market
the same or a similar product on the basis of evidence of prior marketing approval in another
territory, or information concerning safety or efficacy that was previously submitted to obtain
marketing approval in another territory, for at least five years, and ten years for agricultural
chemical products, from the date of marketing approval by the Party, or the other territory,
whichever is later.32
(d) For the purposes of this Article, a new product is one that does not contain a chemical entity
that has been previously approved for marketing in the Party.
(e) If any undisclosed information concerning the safety or efficacy of a product submitted to
a government entity, or entity acting on behalf of a government, for purposes of obtaining
marketing approval is disclosed by a government entity, or entity acting on behalf of a
government, each Party is required to protect such information from unfair commercial use
in the manner set forth in this Article.
2. With respect to pharmaceutical products, if a Party requires the submission of: (a) new
clinical information (other than information related to bioequivalency) or (b) evidence of
prior approval of the product in another territory that requires such new information, which
is essential to the approval of a pharmaceutical product, the Party shall not permit third
persons not having the consent of the person providing the information to market the same
or a similar pharmaceutical product on the basis of the marketing approval granted to a
person submitting the information for a period of at least three years from the date of the
marketing approval by the Party or the other territory, whichever is later.33
3. When a product is subject to a system of marketing approval in accordance with paragraph 1

or 2, as applicable, and is also subject to a patent in the territory of that Party, the Party shall
not alter the term of protection that it provides pursuant to paragraph 1 or 2 in the event that
the patent protection terminates on a date earlier than the end of the term of protection
specified in paragraph 1 or 2, as applicable.

CHAPTER 4.10
Box 3 (continued)
4. Where a Party permits, as a condition of approving the marketing of a pharmaceutical product,

persons, other than the person originally submitting the safety or efficacy information, to rely
on evidence or information concerning the safety or efficacy of a product that was previously
approved, such as evidence of prior marketing approval by the Party or in another territory:
(a) that Party shall provide measures in its marketing approval process to prevent those other
persons from:
(i) marketing a product, where that product is claimed in a patent; or
(ii) marketing a product for an approved use, where that approved use is claimed in a
patent, during the term of that patent, unless by consent or acquiescence of the
patent owner; and
(b) if the Party permits a third person to request marketing approval to enter the market
with:
(i) a product during the term of a patent identified as claiming the product; or
(ii) a product for an approved use, during the term of a patent identified as claiming
that approved use, the Party shall provide for the patent owner to be notified of such
request and the identity of any such other person.

5
SECTION
Institutional Policies and Strategies

CHAPTER 5.1
IP Strategy
ROBERT PITKETHLY, University Lecturer, Said Business School; Fellow and Tutor in Management, St. Peter’s College;
and Senior Research Associate, Oxford Intellectual Property Research Centre, University of Oxford, U.K.
ABSTRACT this protection benefits the innovator.1 However,

This chapter gives an overview of the aims of an IP (in- such a view emphasizes too strongly the private
tellectual property) strategy and discusses management
benefits that can accrue to IP rights holders while
issues involved in implementing such a strategy. Other
chapters in this Handbook provide more-detailed infor- neglecting the important public benefits provided
mation about managing intellectual property; the purpose by an IP system. Viewed broadly, an IP rights
of this chapter is to provide an integrated framework for system has several components that contribute to
giving IP rights the balanced consideration they deserve. the system’s overall effectiveness. These roles need
to be kept in balance, so that private interests do
1. INTRODUCTION not dominate the public interest. Nor should
IP (intellectual property) strategy can mean many public interests, considered in the short term,
things. In order to understand the relevance and dominate the long-term private interests that
implications of the term, we first need to look at drive the system.
what is meant by the terms intellectual property and IP rights are beneficial in a number of ways.
strategy, how they work in combination, and the By providing incentives or rewards for innova-
implications of an IP strategy for organizations. For tion, by packaging or defining intellectual assets,
some people, it means the tactics used to manage and by diffusing technical information and con-
an IP rights program, with detailed attention to li- trolling intellectual assets, they are a powerful en-
censing, filing, and litigation strategies. For others, gine for innovation. In contrast to these utilitar-
the term refers to a general business strategy that ian functions, IP rights also can be seen to protect
uses IP rights to manage technology. Still others a natural, even moral, right of inventors to their
might assume that an IP strategy is only a concern creations, a view that has its origins in Lockean
for large for-profit corporations and irrelevant to conceptions of property.2
smaller or not-for-profit organizations. However, Whatever theoretical justifications are used to
an IP strategy, and the informed use of IP rights, is support them, the difficulty with IP systems is in
important to organizations of all sizes. striking the optimal balance between private rights
and public benefits. From a public-policy perspec-
tive, this goal is elusive, and even after several hun-
2. INTELLECTUAL PROPERTY dred years of debate by economists, political lead-
IP rights are commonly regarded as simply a means ers, and inventors, a precise way of balancing these
of protecting innovation, with the assumption that competing concerns has yet to be found.
Pitkethly R. 2007. IP Strategy. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of
Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
© 2007. R Pitkethly. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

PITKETHLY
IP systems play a significant but uncertain 2.1 Organizational roles of IP rights

role in policy measures used to encourage in- Although the different justifications for IP systems
vestment in innovation. Fritz Machlup is often and the different national strategies for implement-
cited, for example, to support the view that the ing them are worthwhile topics, this chapter has a
uncertainty inherent in the patent system makes more pragmatic goal, to help provide an under-
that system difficult both to implement and to standing of the practical implications of the vari-
abolish.3 But Edith Penrose made this same ous IP systems. Accordingly, it considers the four
point seven years earlier in her study of the in- practical roles of an IP system. These are (1) acting
ternational patent system: “If national patent as an incentive system for innovation, (2) packag-
laws did not exist, it would be difficult to make a ing intellectual assets, (3) diffusing technical infor-
conclusive case for introducing them; but the fact mation, and (4) controlling intellectual assets.
that they do exist shifts the burden of proof and An IP system’s role of providing incentives or
it is equally difficult to make a really conclusive rewards for innovation is achieved through pro-
case for abolishing them.”4 Penrose was referring tecting that innovation by restricting use by oth-
to the 19th century debate about patents, and ers. The restriction, by protecting the inventor,
Machlup and Penrose’s earlier discussion of the enables them to command monopoly prices and
19th century patent system controversy dealt, in benefit from the innovation to a greater extent
large part, with the debate over its abolition.5 than would be possible without such protection.
However, they observed in the same article that This has implications for strategy in that potential
“little, if anything, has been said for or against the restrictions on use confer control, and that con-
patent system in the 20th century that was not said trol can be exercised not just to limit but also to
equally well in the 19th.” That statement is also expand the market for an innovation.
likely to be true for the 21st century. With technology-based innovation, IP sys-
Indeed, despite the longstanding theoretical tems also help package and define intellectual as-
uncertainty about IP rights systems, they have sets. Intellectual assets, by definition, start as tacit
proved remarkably resilient in the countries that ideas, literally embodied in the inventor. IP rights,
have implemented them. It is arguable that IP and particularly patent specifications, facilitate
rights systems are, so far as we can tell, better these tacit inventions by providing a more eas-
than any of the alternatives that have been pro- ily transmissible and protectable embodiment for
posed over the years. Of course, this raises the these intellectual assets. This ability to enable pre-
possibility of interpreting IP strategy as that at viously tacit or secret information to be identified
the national not corporate level. In fact, there are and made the subject of transactions and com-
many interesting examples that could be studied munications is a critical function of Intellectual
in support of this claim.6 The U.S. Constitution, property, and this dimension of IP rights has
for example, provided for IP rights from its in- strategic implications. For example, this function
ception.7 And Japan’s rapid modernization from facilitates licensing. Kenneth Arrow’s informa-
a feudal society in the 1850s to an industrialized tion paradox, where transactions in confidential
nation by the early 1900s included the relatively information are made more difficult where trust
rapid adoption of an IP rights system.8 Even in is absent, can be eased by the use of IP rights and
the United Kingdom, the gradually evolving the laws of contract.10
patent system had a role to play in the first in- An IP system—especially a patent system—
dustrial revolution.9 Patent systems are known plays a key role in diffusing technological
to support the interests of industrialized nations, information. The threat of free riders and
and in most cases such systems also played a role competition may tempt an innovator to keep an
in encouraging early industrialization efforts. invention secret. Historically, there have been
This suggests that some form of IP strategy, at a cases, notably the Chamberlen family’s secret use
national level, is relevant to all nations regardless of obstetric forceps in their medical practice for
of their level of industrialization. more than 130 years, where society has been denied

CHAPTER 5.1
life-saving technologies because an invention was Patents were obtained by the National Research
kept secret.11 Modern analytical methods and job and Development Organization (NRDC), which
mobility make such tactics less likely today, but was then responsible for commercializing univer-
an IP system still has an important role in both sity-based inventions.13 Using the royalties derived
facilitating the publication of inventions and from licensing these patents, the two main inven-
making information easier to find. The challenge tors, Guy Newton and Edward Abraham, set up
is, of course, that an IP system must be arranged two charitable trusts, the E. P. Abraham Research
so that the rights granted to innovators do not Fund and the Guy Newton Trust, which still to-
end up costing the rest of society more by unduly day support medical, biological, and chemical re-
hindering access to other innovations. search in Oxford.
Finally, intellectual property rights may be The point behind these two stories is that, in
thought of as a means of, not just protecting, but, the first case, control and financial benefit were
controlling, the underlying intellectual assets. This effectively ceded to subsequent developers of crit-
is particularly critical when IP rights are consid- ical enabling technology. In the second case, pat-
ered from the point of view of organizations or ents were used to not only retain that control but
individuals with a concern for the public interest. also to put financial proceeds under the inventors’
The fact that IP rights give the power to prevent control—in this case, for charitable purposes. A
use means that they also give the right to license similarly significant financial decision was made
use, which enables IP rights holders to exert sig- by the NRDC many years later when it did not
nificant control over their innovations. The ex- patent the initial discovery of monoclonal anti-
tent of that control will depend on a number of bodies by Georges Köhler and César Milstein.
other factors (see section 4 below). If an organiza- In retrospect, this arguably forfeited several mil-
tion ignores or fails to obtain IP rights, it risks lion British pounds of potential royalty income.
abdicating control over an invention. In the case However, it is worth noting César Milstein’s com-
of a fundamental invention, this may have major ment about his approach to patenting and licens-
strategic implications. ing his laboratory’s work:
This point is illustrated by the different ways Within our laboratory we established a set of
in which penicillin and the subsequent cepha- principles. The public interest should come first, the
losporin antibiotics were protected by patents. scientific interest of the inventors, second, and mak-
When penicillin was discovered in 1929, chemical ing money should be considered only in the light of
product patents were not available in the United the first two priorities.14
Kingdom. At the time, some felt that the discovery
and work associated with penicillin’s production But did the first two principles receive the
should not be subject to patent protection. As a priority they could have had if there had been
result, neither penicillin itself nor the initial pro- more interest in the commercial aspects of the
duction methods were patented by the discoverer, laboratory’s work? Indeed, such principles do
Alexander Fleming, in London and the developers not preclude the use of IP rights. They simply
in Howard Florey’s team in Oxford. In contrast, suggest how the rights might be used. More im-
the crucial factor in the widespread use of penicil- portantly, the public may benefit when those
lin in the latter part of the 1940s turned out to be who are obliged to be concerned with the public
the development of bulk fermentation methods interest exercise control over their innovations.
of production, and these were patented by their Intellectual property represents one of the few
inventors in the United States.12 As a result, the means of control available to scientific and re-
potential for control over the commercialization search establishments, even for those organiza-
of penicillin largely belonged to the U.S. compa- tions not directly involved in commercializing
nies involved. Several years later, scientists from their research.
Florey’s research group in Oxford discovered and More generally, it is much more useful
developed the cephalosporin group of antibiotics. to consider IP rights as a means of control,

PITKETHLY
rather than as a barrier to be placed in the path surprise that the choices may not always be clear
of the competition. and are almost always controversial; the challeng-
es should be expected to be unexpected.
A conventional view of business strategy
3. STRATEGIC MANAGEMENT THEORY might divide the subject into a consideration of
Having considered the roles that intellectual prop- the external environment, in which the business
erty can play, the nature and scope of IP strategy competes, and the internal resources it uses to
should be considered. There are many definitions compete. In the early 1980s, studies of strategy
of strategy from a business perspective. A com- tended to concentrate more on external environ-
mon, widely applicable definition is provided by ment, including work originating in industrial
business historian Alfred Chandler: organization economics. This work, emphasizing
Strategy can be defined as the determination of barriers to entry, by authors such as Bain16 and
the long-run goals and objectives of an enterprise and Mason,17 eventually led to Porter’s work on in-
the adoption of courses of action and the allocation of dustry structure analysis.18 Porter considered IP
resources necessary for carrying out these goals.15 rights primarily as examples of barriers of entry,
though they also form “isolating mechanisms”
The word objectives is used in the plural, and necessary to preserve competitive advantage.19
it is important to realize that organizations may However, concentration on such external issues
have multiple objectives. Businesses tend to be as the choice of where to invest and compete
thought of as unidirectional, as devoted solely to made the strategic analysis of the day less di-
the pursuit of profit, or maximizing shareholder rectly relevant to IP issues. In the latter half of
value. In reality, most organizations have mul- the 1980s and 1990s, the development of the
tiple objectives and pursue more than just profit. resource-based view of companies, with their
In the case of not-for-profit organizations, this internal focus on managing the resources of an
is usually explicit. Objectives such as widening organization, gradually drew the field of strategy
access to medicines, eradicating disease, and im- closer to that of IP management.20
proving social conditions may constitute primary The resources of the organization essentially
objectives for organizations, and these objectives comprise the organization’s staff, its financial re-
may make profit seeking impossible. However, sources, any tangible assets, and the intangible or
whatever the organization and whatever the ob- intellectual assets that the organization controls.
jectives it sets for itself, the resources it has under The aim of strategy is to manage the resources
its control must still be managed to best effect. available in order to achieve the objectives set.
For a company to say it will forego profit by not Since in most cases resources are tradeable as-
bothering to exploit a resource may sound accept- sets, any organization in possession of valuable
able, if financially inefficient. For an organization resources is obliged to put those resources to the
to say it will forego the chance to save lives by not best use possible, even if they lack direct relevance
bothering to exploit a resource can hardly be seen to the organization’s immediate objectives.
in the same light. Indeed, if not-for-profit organi- A publicly acknowledged failure to make
zations opt out of the global IP system, they may the best use of a company’s assets may result in a
not be the biggest losers. This point once again bid for control of the company by those who feel
highlights the importance of intellectual property they can extract more value from resources than
and of understanding its challenge, which lies in managers have. Even with not-for-profit organi-
the need to balance the management, control, zations, not making the best use of the resources
and use of resources with the achievement of the available is a serious failure.
organization’s objectives. Intellectual property IP rights are one of an organization’s intangi-
is a resource. As such, it should not be thrown ble resources, and thus they need to be exploited
away—even with the best of intentions. As with to the fullest extent consistent with the organiza-
many aspects of intellectual property, it is no tion’s objectives. How this should be done may

CHAPTER 5.1
not always be clear, but what is certain is that no of strategic management is divided into internal
resource should just be given, or thrown, away. and external resources. On the one hand, there
One final aspect of general strategic-man- are activities external to the organization that in-
agement theory that is relevant to the study of volve interaction with other parties. On the other
intellectual property is the concept of managing hand, there are internal activities concerned with
added value. In any business where resources are management within the organization. The word
employed and processed through a value chain of strategy tends to invoke images of competitive ac-
parties—each adding some small amount of value tion, but the internal perspective on IP strategy
before the product reaches the end customer—the must not be neglected in favor of the external,
relationship between the organization and those since both are directly concerned with the value
with whom it buys and sells is crucial. Just as im- and allocation of resources.
portant is how the value created by the entire chain A further distinction to be drawn is that be-
of parties is distributed among the parties in, or tween IP strategy and IP management. This might
closely associated with, the chain. If the innova- be likened to the difference between strategy and
tor tries to capture the entire added value in the tactics; the difference is between the general prin-
business, perhaps by using particularly effective ciples and aims that govern the courses of action
IP rights, the innovator may find it impossible to (strategy) and the actual implementation of those
get any distributors to sell the product. The inno- courses of action (management).
vator might then be forced to rely on direct sales,
resulting in a loss of competitiveness. Equally, if 4.1 External IP strategy
each business or licensor involved in a production The key components of an external IP strategy
chain insists on a substantial proportion of the are the issues of exploitation and what might be
final retail price, the royalty stacking produced termed litigation, licensing, and learning. In a
may make the goods concerned uncompetitive. sense, litigation and licensing are opposites, since
While the concept of the value chain is inherent one denies and the other allows what would oth-
in a number of strategic models, whether at the erwise be an infringement of IP rights. The fact
industry level21 or business-unit level, the “value that both are choices within an IP rights holder’s
net” advocated by Brandenburger and Nalebuff range of strategies illustrates the power of con-
deals nicely with the issue of how value added is trol provided by an IP strategy. The possessor of
distributed over a network of parties involved di- an IP right has the power to stop, allow, or even
rectly, or indirectly, with a business.22 encourage the use of that right, depending on the
In considering how to exploit and appropri- strength of the IP rights concerned.
ate the benefits of a given piece of intellectual Regarding litigation, perhaps the main
property, consideration must always be given to distinction to be drawn is between litigation
how the dynamics of an industry, the access to tactics, for example, deciding in which country
complementary assets, and the strength of IP to litigate against multiple infringers or deciding
rights will affect the ability of any one party to which arguments to use. In contrast, litigation
appropriate the benefits of the innovation. strategy involves, for example, deciding whether
to resist or grant licenses to infringers, so that
litigation can be settled before it reaches court.
4. IP STRATEGY Especially where IP rights held overseas are
Having identified IP rights and how they fit into infringed, IP rights holders may be persuaded
the larger scheme of strategic management, the to solve infringement by granting licenses to
immediate question is what exactly an IP strategy convert local infringers into licensees. This may
requires beyond the general exhortation to make not, however, always be the best course of action;
the best use possible of the resource. certainly the best licensees may not always be
A simple taxonomy of IP strategy to di- found among former infringers. The infringers
vide the field is needed, just as the larger field may have deliberately infringed with the aim of

PITKETHLY
acquiring licenses on advantageous terms. Indeed, needed to exploit the technology. Leaving aside
a focus on litigation strategy may encourage the the question of whether the innovator keeps most
IP rights holder to make poor decisions about of the benefits from the innovation, the key issue
whom to grant a license. Moreover, while a is whether the innovation can be exploited to the
patentee’s options may be more limited when fullest extent by the organization at which it was
operating overseas, a litigation strategy should invented.
not be decided by the infringers but by the IP Indeed, if a new invention gives substantial
rights holder. Wherever possible, any decision advantages over existing technologies, it can be
about licensing should be driven by licensing assumed that the invention will be a technologi-
considerations rather than by a desire to avoid cal success. What cannot be known is whether
litigation. For institutions and organizations the organization inventing it will be more suc-
whose main aim is to maximize the use of their cessful than its competitors in making the inven-
innovations, litigation should be secondary—far tion widely available. Organizations with limited
behind exploitation and licensing. resources, the case for all but the very largest
When seeking to exploit intellectual proper- multinational firms, are very unlikely to be able
ty, an organization has at least three main options. to exploit new products or services quickly. This
First, it can sell the technology outright and exit means that the organization’s assets will have to
from the field (except perhaps for providing tech- be used or traded in order to acquire the needed
nical advice during a transitional period). Or it resources. Especially for smaller organizations
might choose to exploit the technology in-house, with limited staff, finances, and physical assets,
using its resources to develop and market prod- the only resource likely to be sufficiently scaleable
ucts and services. Finally, an organization could to expand to meet the resources needed for over-
choose to license-out the technology. seas exploitation will be the intellectual property
In all cases, the implications of each ap- associated with the invention.
proach must be considered. The organization The returns from out-licensing technology are
aims to make the greatest use of resources under inevitably less than the potential proceeds from
its control. In the case of intellectual assets, such exploiting those assets in-house. But licensing can
as a patented technology, a key question must be make access to markets and technical fields pos-
what resources are required to successfully exploit sible. Thus, the cost of such licensing may be well
the technology. Teece has suggested that firms worthwhile, since the amount of value added will
need more than IP rights: success in a competi- likely be substantial, relative to costs. Even for a
tive market requires strong IP rights plus access not-for-profit organization, some form of con-
to “complementary assets.”23 For most technolo- tract that effectively trades returns for opportuni-
gies, getting from laboratory to market or to the ties to exploit is all but unavoidable.
patient, recipient, or other beneficiary of the There are, however, two potential concerns
technology requires much more than just invent- with licensing agreements. Licensing is just one
ing and announcing the technology. Process de- option on a continuum of possible interactions
velopment, testing, trials, approval, production between organizations, ranging from sale, pur-
engineering, production facilities, distribution chase-through-licensing, and joint ventures and
chains, and marketing skills are just some of the alliances to full acquisition and merger of the or-
resources required to exploit a technology. Not ganizations. These options should be considered
all organizations have the needed resources. Even as alternatives to licensing if in-house exploita-
those that do have the resources may only possess tion or outright sale of the technology is impos-
them in limited markets, putting international sible. For an organization with limited resources,
exploitation beyond their reach. So, if we assume licensing may be the easiest option, but it may
that a new technology is well protected using IP not necessarily be the most efficient for maximiz-
rights, then the question remains as to whether ing control and returns available to the innovat-
the organization has the complementary assets ing organization.

CHAPTER 5.1
Outright sale involves loss of control and, TTO should construct contracts and licensing
more importantly, may fix the returns available. arrangements to take advantage of all possibili-
As an alternative to an outright sale, some form of ties. In fact, such practices should be a normal
exclusive license may be preferable, since contracts part of the responsible strategic management of
can be written to include options enabling the an organization’s intellectual assets.
innovator to benefit from unexpected increases One final aspect of licensing, equally impor-
in revenue and new opportunities to exploit the tant to not-for-profit organizations, is the issue
invention. This approach essentially applies the of learning, or technology diffusion. In a com-
concept of real options to help the organization petitive market, out-licensing by a technological
limit its downside risk, while still allowing the leader will give access, not only to the technology
organization to take advantage of any unexpected licensed, but to learning opportunities.25 Where
upside advantage. Another way of achieving this the aim is to diffuse technology as widely as possi-
real option effect is to license technology to a ble, such dual access may be a positive advantage.
spinout company formed by the organization to On the other hand, where the aim is to maintain a
develop the technology independently. Forming competitive advantage over those who might learn
a spinout, however, requires raising additional by licensing-in, it may prove a considerable disad-
financing from other sources, with the original vantage that is not outweighed by the income that
organization recouping its investment from licensing brings. Licensors of intellectual assets
the eventual capital appreciation of its shares may need to balance the effects of learning with
in the company. But the demands on those the potential revenue from licensing.
involved in the spinout are arguably greater Finally, one sometimes neglected aspect of
than those involved with exploitation either licensing concerns network externalities where
through licensing or sale. That is true because the worth of a technology to users increases the
the interests of investors, industry, and those in more users it attracts. In such cases, even in a
the organization must all be reconciled. Such a competitive situation, it may be preferable for an
spinout strategy may, however, provide higher organization to license-out or otherwise make the
returns to the organization and, because outside technology available even at low or below cost,
investment could be generated, the strategy may since this will generate a large user base and en-
enable exploitation on a scale that would have courage further adoption of the technology. (An
been impossible either by licensing or by selling organization should, of course, be aware of any
the technology to existing companies. Spinouts competition law restrictions that might be rele-
can be used by any organization, including vant.) In such cases, the reluctance to license-out
public sector organizations such as universities. the technology may actually lead to a competi-
Indeed, there are many examples of their use by tive disadvantage, even though it is thought that
technology transfer offices (TTOs).24 the innovation is being protected and exploited.
The objective of all licensing or sale of intel- Once again, the lesson here is that the control
lectual assets is for the organization to extract the that IP rights give is more important than the
maximum benefit from the innovation so that mere ability to prevent exploitation by others; too
it can achieve its objectives. This means seeking restrictive an attitude toward IP rights can act to
the maximum benefit not just for immediate an organization’s disadvantage.
opportunities but also for future opportunities,
such as overseas expansion. IP strategy cannot 4.2 Internal IP strategy
be short sighted, in terms of either markets or IP strategy involves not just external issues but
time. Just as a patent attorney drafting claims a variety of internal issues related to resources
will frame them as broadly as the prior art al- within an organization. A few of these issues that
lows, enabling the full scope of patent protection are particularly relevant to IP strategy are: valua-
to be obtained and not unnecessarily restricted tion, information, coordination, and education,
as new uses of the invention develop, means a including the management of researchers in their

PITKETHLY
roles as creators and preservers of intellectual is left unprotected and less exploitable than it
property within an organization. might have been.
The second approach is to adopt a case-by-
4.2.1 Valuation case analysis of each development, taking into ac-
The valuation of intellectual property reflects the count all the information that is available about
nature of the IP system in general. Despite the the innovation’s future prospects. The key feature
best efforts of economists, it is often arguable of such an analysis is the fact that the absence of
how valuable the IP system is for any general class current revenue early in the life of an invention
of innovations. Likewise, despite the best efforts should not count against it as much as its absence
of managers and accountants, it is often unclear later in the invention’s life. Of course, it is easy
exactly how valuable a particular intellectual to value a stable income stream once an inven-
property right is, despite the fact that deciding tion has become successful. The essence of valu-
to obtain or preserve the right implies a specific ing early-stage innovation is to be aware that such
value.26 If organizations are to go to the expense IP rights represent real options on the future extra
of obtaining and protecting intellectual property, income that might be derived from the IP rights
especially intellectual property that requires a that protect the invention.27 But calculating pat-
complex application procedure such as overseas ent values, taking such real options into account,
patent applications, then the considerable costs is not straightforward. In practice, patent attor-
have to be justified. neys and IP managers make implicit valuations
It is easy enough to justify long-established of this sort whenever they justify preserving an
legal fees to preserve an established income IP right that is currently unproductive, as long
stream, for example, from licensing a successful as they foresee some chance of it producing an
piece of intellectual property. However, far more income stream in the future.
often IP managers will be required to make deci- In terms of evaluating alternative courses of
sions about incurring costs for intellectual prop- action, some form of valuation is essential for
erty of unknown value. Such decision making in assessing the potential outcomes against the po-
the early stages of the life of a patent, for example, tential costs. Strategy is thus intimately linked to
is inevitably problematic because the decisions valuation. However, beyond such assessments,
require speculation about the invention’s future there is the more general issue of the values driv-
prospects. After all, such predictions about the ing the objectives of the organization. Issues may
future can certainly be wrong. exist where the values of the organization drive
In response, two potential approaches can decisions that are not solely based on a financial
be taken. The first is simply to adopt a portfolio analysis. That said, even where such plural stra-
management view of innovation and to assume tegic objectives and nonfinancial values are in-
that, although much expenditure on R&D and volved, financial analysis might still be a perfectly
IP protection may be wasted, there will be enough valid basis for making many IP-related decisions.
successes to more than pay for the failures. While Valuation is a critical, unavoidable element of
this approach is adopted often by larger compa- IP management and strategy. This, however, does
nies that can afford such an approach, such an not make valuation any easier to carry out reliably
approach is not easy to sustain when financial when making important strategic decisions.
pressures mount and organizations are looking
for short-term costs to cut. The consequence of 4.2.2 Information
such financial pressures are that companies oper- One of the roles of IP rights is to diffuse informa-
ating near the margins of profitability may find tion. The patent system, for example, promotes
that their IP rights coverage is patchy, reflecting the public benefit by forcing inventors to dis-
fluctuations in their financial position. In unfor- close their inventions to the world in return for
tunate cases, financial hardship coincides with the grant of patent rights. Of course, publishing
the creation of a valuable innovation, which then such information has its drawbacks. Publishing

CHAPTER 5.1
provides a source of information of great use to property in a company might come from a legal,
the organization and also of use to competitors. business, or technical background. However,
Besides publications, researchers should since it would be unusual for any one of such
conduct patent searches along with literature managers to have all the requisite skills to manage
searches. Though academic publications might intellectual property, an essential feature of good
be issued before related patent applications, of- IP rights management is good communication
ten the patent application is the only, or the first, and coordination among those who, as a group,
publication available related to a competing tech- possess the requisite skills. Communication and
nology. In addition to establishing what already coordination are key concepts to keep in mind
exists in the prior art, patent searching can give a when assembling staff to provide the skills for
very good view of the technological trajectory of the organization. These concepts are especially
organizations and thus has strategic importance important when making decisions about where
for dealing with competitors or when negotiat- to locate staff or find outsource specialists.
ing licenses or other deals. Patent and other IP- For example, locating patent attorneys near
related information thus play, not just a technical, to the R&D scientists the attorneys are meant to
but a strategic role. interact with will facilitate the process of patent-
Strategy is almost always formulated with re- ing and technology transfer. Conversely, isolat-
liance on imperfect information. Consequently, ing a specialist IP department from the strategic
any access to information that can inform deci- management of the organization will not help in-
sions is a valuable resource. tegrate the management of intellectual property
into the strategic thinking of the organization as
4.2.3 Coordination a whole. Compromises may have to be reached to
Those involved in managing intellectual prop- reconcile conflicting demands of the R&D lab,
erty need coordination, and such coordination IP legal department, and the organization’s head-
is essential to the strategic process of “allocating quarters. The aim, however, should be to enable
resources” identified in Chandler’s definition of R&D, IP law, general law, and general strategy to
strategy. The problem often encountered in the work together efficiently.
strategic management of intellectual property is
that the range of people, skills, and qualifications 4.2.4 Education
required is such that no one person or group of Finally, there must be a minimum level of IP
people can easily carry out, in an integrated way, awareness training for all staff, especially the ma-
all the tasks required. The range of skills needed jority who are not IP specialists. Such training is
will include those of legal specialists, such as pat- necessary to avoid employees compromising valu-
ent attorneys skilled in drafting and prosecuting able intellectual property because they do not
patent and trademark applications; lawyers spe- know, for example, that publication before filing a
cializing in intellectual property who can assist patent application invalidates the application. IP
with litigation or licensing contracts; and R&D training can also serve to improve communication
managers who can provide suitable incentives between researchers and IP specialists. Training
and motivation to keep personnel involved in ob- sessions can provide a forum for publicizing the
taining and protecting IP rights. Other person- organization’s policy on incentives offered to em-
nel such as licensing managers, who may not be ployees to support the process of obtaining and
legally or technically qualified but have substan- preserving IP rights. Preliminary research results
tial commercial experience, also have a significant in the United Kingdom and of the common expe-
part to play in managing intellectual property. rience of those working as in-house patent attor-
Finally, senior managers are needed to guide neys show that, while most managers have heard
and oversee the overall strategic management of patents, they have only a limited knowledge
of the organization’s intellectual property. The of more-detailed information, such as what type
person ultimately responsible for intellectual of disclosure will prejudice a patent application.

PITKETHLY
The aim of an organization’s IP awareness activ- system and spread knowledge, but also actively
ity should therefore be to dispel such ignorance promotes the use and benefits of the IP system
without trying to turn all employees into patent to potential users.
attorneys, thus ensuring that employees are rea- Such promotion can be carried nationally by
sonably equipped to preserve the organization’s IP the central government, as illustrated by the pro-
interests. motional activities of the Danish patent office28
and the traveling seminars of the U.K. patent of-
fice.29 Promotional activities can also be under-
5. INSTITUTIONAL DIFFERENCES taken at the local government level, as has been
IN IP STRATEGY shown by the Tokyo metropolitan government’s
Governments, public sector organizations, spin- IP center, which not only promotes IP aware-
out companies, small and medium enterprises ness but can even help pay for some IP work and
(SMEs), and large companies all need to pay at- applications.30 Obviously, exactly how awareness
tention to IP issues. However, the issues that each is promoted and which aspects of intellectual
will be concerned with will differ from institution property are emphasized will vary from country
to institution, as will the various IP strategies and to country. In any case, an IP system that po-
practices the institutions adopt. tential users are unaware of is guaranteed to be
ineffective, since it will serve only the interests
5.1 Governmental IP strategy of the few who are aware of the benefits.
In addition to having institutions to administer
IP laws, most industrialized nations will need 5.2 Public sector IP strategy
an IP policy, for dealing with trade-related IP IP strategy might appear to be of interest only
aspects, as part of their general trade and indus- to for-profit commercial organizations. Granted,
try policies. However, any national government the innovation-promoting role of IP rights may
intellectual property or patent office has both an be less relevant for a public sector organization in-
administrative role and an internal policy-mak- volved in R&D as a matter of government policy,
ing and promotional role. The first IP systems than for a private company seeking a commercial
in the U.K. resulted not from external trade return. However, the controlling and intellec-
pressure, but from the original goal of encour- tual-resource-management aspects of IP strategy
aging innovation. Today, battles commonly are are nonetheless highly relevant to any institu-
fought to choose between trade pressures that tion—particularly public institutions that have
protect external intellectual property and the a duty to manage their resources as best they can
perceived local, short-term advantages of mini- to achieve their public objectives. Government
mizing such protection and free riding on such services, such as health services, government re-
external intellectual property. This conflict can search departments, university research laborato-
lead to insufficient attention being paid to one ries, and other public sector institutions involved
of the original roles of IP systems: promoting in creating intellectual property will certainly
innovation and diffusion of inventions. In the need to formulate an IP strategy. They will need
face of such distractions local innovators will fail to ensure that staff are aware of the organization’s
to take advantage of the information that IP sys- valuable IP assets and that these assets need man-
tems can diffuse (for example, through patent aging and preserving as much as any other as-
information systems) and will also likely fail to sets of the organization. An IP strategy can also
be influenced by, or even aware of, innovation- help to ensure that any liabilities that might be
promoting incentives. Thus, one of the most im- incurred by the use—especially the inadvertent
portant things a government can do is to provide use—of intellectual property owned by other
an effective, enforceable system for protecting parties are minimized.
and promoting local innovation that not only Given, for example, the IP management
provides the infrastructure to administer the functions within a university or government

CHAPTER 5.1
research laboratory, an IP strategy is likely to use protected intellectual property to generate the
emphasize protecting and exploiting intellectual financial and other resources needed to grow the
property through licensing or spinout compa- business. A spin-out company may likely find it
nies.31 Noncontractual and nonlitigious aspects difficult to extract the maximum value from its
of work, such as drafting patent applications, innovations, especially if its IP rights are weak.
may be outsourced to patent attorneys in private However, as the company gradually increases the
practice. So one key role of a public organiza- resources available to it, its ability to exploit subse-
tion involved in R&D—especially collaborative quent innovations should improve. An IP strategy
R&D—will be to manage the IP elements that is not something that a small company cannot af-
govern research contracts. ford to have, but rather something it cannot afford
In the case of public or charitably funded re- to be without.
search organizations, the absence of an IP strategy
is likely to result in the organization effectively 5.4 Large-company IP strategy
giving away its IP assets to others. Ignoring the Large companies might be considered to have the
need to manage IP resources is as serious a failing simplest task when it comes to IP strategy, since
as neglecting to manage an organization’s physical they are likely to have enough resources to deal
or human resources. with IP issues promptly and, very often, in-house.
But large companies face IP strategy problems
5.3 Spinout and SME company IP strategy that smaller companies or public institutions are
Small companies, especially those in the very early unlikely to encounter.
start-up phase of their existence, may not have the First, a large company is likely to have been
resources to employ any specialist staff (such as built on the strength of its past technological
qualified patent attorneys). However, one might successes. Most forms of intellectual property
argue that companies at that stage of their exis- (apart from trademarks) have a limited lifetime,
tence have the largest portion of their overall val- so past success is no guarantee of future suc-
ue embedded in intellectual property. As such, an cess. Indeed, the ability of a company to reap
IP strategy is one of the most essential elements of large financial rewards from out-licensing previ-
a company’s overall strategy, and because of lim- ously neglected IP assets may just be a prelude
ited resources and information, the IP strategy to the company’s demise, unless some of those
will be difficult to formulate. Thus, because small proceeds from past success are invested in the
companies lack resources and the complementary future. Repeating success is never easy, especial-
assets mentioned above, these companies, includ- ly in areas where technological uncertainty can
ing IP spinouts, run the risk of failing to appro- undermine technical and commercial ability. In
priate returns from their innovations. the absence of continued investment, decline is
To counter this potential loss of advantage, inevitable, since IP rights erode and technology
smaller companies need to spend what may seem gradually becomes obsolete. No company, how-
like a disproportionate amount of their resources ever large, can afford to rest on its technological
on protecting and exploiting their intellectual laurels.
property. If necessary, these organizations should Second, communication and integration may
rely on external sources of advice and help to ac- present a challenge. One benefit of being a small
complish such protection and exploitation. A risk, company is that all the key personnel involved in
which may be unavoidable at times, is that cash IP issues probably work in the same building and
constraints may limit the ability of a company to interact with each other every day. For a large com-
protect and exploit its intellectual property. Thus, pany, especially one with a separate in-house IP
the company may be unable to reap as much of the department, IP specialists must be continuously
benefit from its innovations as it otherwise might. encouraged to communicate with those inventing
By investing in the initial innovations to ex- and exploiting innovations within the company.
tract more value from them, a small company can Moreover, the IP department must communicate

PITKETHLY
well with senior management and convince it of • providing both central and local sources of
the importance of IP management. advice and assistance with innovation ex-
A third challenge is that IP departments ploitation, especially in overseas markets
within a larger company may be tempted to fo- • providing basic education in innovation
cus on internal department interests, rather than exploitation to IP lawyers (Although they
on the interests of the company as a whole. This may be the first point of contact for IP ad-
might result in too many patent applications be- vice for many, they are generally only legal-
ing filed or excessive licensing of technology that ly and not commercially trained. Having
should instead be kept in-house. someone to whom companies could refer
None of these challenges should force larger to for specific advice would help.)
companies to outsource such IP management • organizing a network of innovation-
functions; they are just good reasons to make sure support centers to provide communal
that IP is properly managed. In terms of commu- TTO/IP advice (Infrastructure to ex-
nication alone, the benefits of keeping IP man- ploit innovations exists internationally;
agement functions in-house can be considerable the problem in many countries is getting
if IP departments are managed well. from the inventor to the overseas licens-
ee. Such centers might not be able to do
all the work of normal TTOs, but would
6. IMPROVING IP STRATEGY be able to coordinate IP exploitation
IP strategies inevitably differ with size and type and protection.)
of organization. As we have seen, the key ele- • involving external trade organizations,
ments of an IP strategy involve both external which can help market technology overseas
and internal factors. External factors include for those companies/organizations without
issues of licensing and litigation; internal fac- the resources to do so
tors include issues of valuation, information, • taking steps to enable organizations to
coordination, and education. All these aspects use, protect, and exploit nontechnologi-
of IP strategy should concern all types of insti- cal intellectual property—in particular
tutions to some extent, though emphasis will copyright and trademarks, including col-
vary. Public institutions may tend to concen- lective and certification trademarks and
trate more on licensing, information, and edu- designations of origin—even where tech-
cation. Spinouts and small companies will be nological innovation is less common or
more concerned with external issues of licens- absent
ing and litigation, and, consequently, valua-
tion. Large companies will be concerned equal- For public sector institutions and research
ly with all issues, and the companies may be laboratories, basic actions to improve IP strategy
more aware of IP issues due to their in-house might include:
IP departments. • promoting an awareness of intellectual
Each kind of institution can take basic ac- property from the innovator’s perspective,
tions to improve its own IP strategy. For govern- including its value to the institution
ments, these might include: • promoting use of the information con-
• promoting awareness of intellectual prop- tained in patent and other IP databases to
erty, from both a creator’s (potential in- inform further innovation
novators) and a user’s (potential infring- • providing sources of advice and
ers) perspective assistance with intellectual property and
• promoting use of information contained innovation exploitation, especially in
in patent and other IP databases to both overseas markets
source technology and inform further • giving a manager within the organization
innovation specific responsibility for IP management

CHAPTER 5.1
• combining the role of IP manager with from the exploitation of initial inventions
that of TTO manager in order to control are reinvested.)
the exploitation of technology produced
by the organization and to provide advice With public sector institutions and research
on research contracts with external orga- laboratory scientists activities to improve IP
nizations (This approach will work in an strategy could include:
R&D-related organization) • ensuring that laboratory notebooks are
• taking action to facilitate good communi- properly kept and that any publication is
cation between IP generators and IP man- preceded by an assessment of patentability
agers, as well as between IP managers and and commercial potential
those controlling the organization overall • ensuring that all research staff are aware
of the basics of IP law, especially that
Spinouts and other small and medium enter- publishing technology before an application
prises could undertake these actions: is filed may preclude patent protection
• promoting awareness of the basics of IP law • ensuring that all research staff are familiar
and IP exploitation among staff so that ev- with IP-related staff in the organization
eryone knows what crucial errors to avoid or, if necessary, external TTO or patent
• encouraging organizations to spend attorneys who can provide expert advice
money in order to preserve and exploit at short notice
commercially valuable intellectual prop- • ensure that all scientists entering collabora-
erty, where doing so is obviously eco- tive agreements with other institutions have
nomically justifiable such agreements vetted by IP experts before
• encouraging companies to use IP informa- they are signed
tion sources, such as patent and trademark
databases, to supplement literature searches Finally, larger companies will need to bear in
and to inform companies of competitors’ mind the following points:
activities both at home and abroad • Even though a large company may have
• enabling companies to manage and provide access to all the resources required for suc-
incentives for those inventors who are the cessful IP exploitation, these may be ren-
source of a company’s intellectual property dered useless by inadequate communica-
and who may well be the source of future tion among the various people involved.
intellectual property Action should be taken to facilitate good
• being prepared to form alliances and li- communication between IP generators and
censing deals to supplement the com- IP managers, as well as between IP manag-
pany’s resources and to exploit markets ers and those controlling the organization
earlier than would otherwise be the case, overall.
especially in the early stages of a compa- • Intellectual property should be considered
ny’s life, during which period resources both a source of technology to exploit and
are scarce (Such licensing should not be a means of exploiting technology: a “Not
so late that competitors have sunk invest- Invented Here” attitude to externally
ments into developing their own compet- sourced technology can be shortsighted.
ing technology, nor so early that the value
of the company’s technology would not be
fully appreciated or valued.) 7. CONCLUSION
• being prepared for the exploitation of a IP strategy encompasses a far greater range of is-
succession of innovations (The company’s sues than can be dealt with here. Strategic issues
ability to fully exploit its inventions should connected with intellectual property—in par-
gradually increase over time as proceeds ticular, the interaction between the strength of

PITKETHLY
3. Machlup F. 1958. An Economic Review of the Patent

IP rights and access to complementary assets, as System. Study no.15 of the U.S. Senate Subcommittee
well as the specialist nature of the skills required on Patents, Trademarks, and Copyrights. 85th Congress,
to manage it—are particular to IP management. Second session.
However, IP strategy can fit within a number of 4. Penrose ET. 1951. The Economics of the International
Patent System. Johns Hopkins Univ. Press: Baltimore.
conventional strategic-management theoretical
frameworks, particularly the resource-based view 5. Machlup F and TE Penrose. 1950. The Patent Controversy
in the Nineteenth Century. Journal of Economic History
of the company, with its consideration of intan- 10: 1–29.
gible assets as a resource of the organization, and 6. For example (though dated now), the comparison of
also game theoretical considerations of value-add- India and Japan, in Watanabe S. 1985. The Patent System
ed distribution. As with any other resource, intel- and Indigenous Technology Development in the Third
World. In Technology, Institutions and Government
lectual assets should be used to best advantage to
Policies (Watanabe S and J James, eds.). Macmillan:
pursue the organization’s objectives. Basingstoke.
IP systems are always controversial, because 7. U.S. Const. art. I, § 8, cl. 8.
they appear to be cases of means justifying ends: 8. Pitkethly R. 1993. The Formation of the Japanese Patent
they use something generally considered undesir- System, 1853–1885. MSc thesis. University of Stirling:
able (monopoly, even if temporary) to achieve Scotland, U.K.
something desirable (technical or commercial 9. MacLeod C. 1988. Inventing the Industrial Revolution:
progress). Nonetheless, IP-rights systems are The English Patent System 1660–1800. Cambridge
University Press: Cambridge.
now institutionally embedded in many societies
10. Arrow KJ. 1962. Economic Welfare and the Allocation
to such an extent that abolishing them or even
of Resources for Invention. In The Rate and Direction
weakening them would be extremely difficult of Inventive Activity: Economic and Social Factors,,
without coordinated international cooperation. Princeton University Press: Princeton, New Jersey. pp
Such cooperation is highly unlikely to occur. 609-26.
Thus, whatever views are held of the system, or- 11. Dunn PM. 1999. The Chamberlen Family (1560–1728)
and Obstetric Forceps. Arch Dis Child Fetal Neonatal Ed
ganizations have no option, for now, but to work 81: F232–F235.
as best they can within it.
12. 1946. Penicillin Its Properties, Uses and Preparations.
The following is an essential tenet for any or- The Pharmaceutical Press: London. [Andrew J. Moyer,
ganization, including not-for-profit organizations: et al. - Method for Production of Penicillin - US
that if innovators do not use the IP rights at their Patent Nos. 2,442,141; 2,443,989; UK Applications
45/13674-6]
disposal to try to influence or control the exploita-
13. Bud R. 1998. Penicillin and the New Elizabethans. The
tion of their own inventions, then others will do it
British Journal for the History of Science 31: 305–33.
for them. If this happens, the organization’s inven-
14. Milstein C. 2000. With the Benefit of Hindsight.
tions may be exploited in ways that do not conform Immunology Today 21: 359–64.
or contribute to the organization’s objectives. ■ 15. Chandler AD. 1962. Strategy and Structure. M.I.T. Press:
Cambridge, Mass.
16. Bain JS. 1956. Barriers to New Competition. Harvard
ROBERT PITKETHLY, University Lecturer, Said Business University Press: Cambridge, MA.
School; Fellow and Tutor in Management, St. Peter’s College;
17. Mason ES. 1957. Economic Concentration and the
and Senior Research Associate, Oxford Intellectual Property
Monopoly Problem. Harvard University Press:
Research Centre, University of Oxford, Park End Street, Cambridge, Mass.
Oxford, OX1 1HP, U.K. robert.pitkethly@sbs.ox.ac.uk
18. Porter ME. 1980. Competitive Strategy. Free Press:
New York.
1. For example, “A patent does not give you the right to do
make something or to do anything except to appear 19. Rumelt RP. 1984. Towards a Strategic Theory of the
in court as the plaintiff in an action for infringement,” Firm. In Competitive Strategic Management (R Lamb,
Earl of Halsbury House of Lords (20 February 1985). ed.). Prentice-Hall: Eaglewood Cliffs, pp. 556-700New
Jersey
2. Gordon WJ. 1993. Property Right in Self-Expression:
Equality and Individualism in the Natural Law of 20. Wernerfelt initially developed this view in Wernerfelt
Intellectual Property. The Yale Law Journal 102 (7): B. 1984. A Resource Based View of the Firm. Strategic
1533–1609. Management Journal 5: 171–180. But the field developed

CHAPTER 5.1
considerably in the 1990s. See ,especially, Barney J. 1991. 27. Pitkethly RH. 1999. The Valuation of Patents: A Review
Firm Resources and Sustained Competitive Advantage. of Patent Valuation Methods with Consideration of
Journal of Management 17: 99–120. Option-Based Methods and the Potential for Further
21. Such as Porter, see supra note 18. Research. Electronic Journal of Intellectual Property
Rights. www.oiprc.ox.ac.uk/EJWP0599.html.
22. Nalebuff BJ and AM Brandenburger. 1996. Co-opetition.
Harper Collins: London. 28. www.dkpto.dk.
23. Teece DJ. 1986. Profiting from Technological Innovation: 29. www.patent.gov.uk/about/about-ourorg/about-
Implications for Integration, Collaboration, Licensing, contact/events/events-ipseminar.htm.
and Public Policy. Research Policy 15: 285–305. 30. See supra note 27.
24. ISIS Innovation, Oxford University’s TLO, has a long 31. Oxford University’s technology licensing office is
record of successful spinouts: www.isis-innovation. ISIS Innovation. It has developed a long track record
com/spinout/index.html. of success in exploiting university-based research
25. Pitkethly R. 2001. Intellectual Property Strategy through a combination of licensing and the formation
in Japanese and UK companies: Patent Licensing of spinout companies (www.isis-innovation.com). See,
Decisions and Learning Opportunities. Research Policy also, in this Handbook, chapter 13.4 by T Cook.
30: 425–42.
26. For example, see work on using renewal fees to deduce
patent values. Pakes A. 1986. Patents as Options: Some
Estimates of the Value of Holding European Patent
Stocks. Econometrica 54: 755–84.

CHAPTER 5.2
IP Management Policy: A Donor’s Perspective

Zoë Ballantyne, Legal and Operations Adviser, the Wellcome Trust, U.K.
Daniel Nelki, Head of Legal and Operations, the Wellcome Trust, U.K.
ABSTRACT The mission of the trust is to foster and pro-

This chapter describes how the Wellcome Trust, a ma- mote research to improve human and animal
jor charitable funder of biomedical research, manages
health (see Box 1 for a statement of the organi-
intellectual property arising from Wellcome-sponsored
research. The trust recognizes that the development of zation’s mission and general policy). Funding by
new health technologies requires the enlightened man- the trust supports a wide range of work in the
agement of intellectual property through partnerships biomedical arena, including basic science, tech-
involving funders, scientists, institutions, and companies. nology transfer, medical humanities, and public
This chapter explains how the charitable mission of the
trust influences its decision-making process. The chapter engagement with science. In order to support
includes case studies to illustrate the concerns of the trust scientific research of the highest caliber, grant
and to identify key procedures. schemes include not only career-based schemes
for scientists, from Ph.D. studentships to fellow-
ships, but project and program grants, equipment
1. The Wellcome Trust grants, and infrastructure initiatives.
The Wellcome Trust is an independent, U.K.- The majority of trust funding goes to research-
based biomedical research charity. In the year ers in U.K. academic institutions, but the trust has
2006–2007, the trust will invest nearly US$1 bil- also always supported research for tropical diseas-
lion in biomedical research, both in the United es, particularly in developing countries. Support
Kingdom and internationally. The Wellcome schemes are available for U.K. researchers who
Trust was established in 1936 after the death wish to carry out tropical medicine research in the
of Sir Henry Wellcome. In his will, Sir Henry developing world, as well as for researchers, based
vested the entire share capital of a drug com- in developing world institutions, who are conduct-
pany he founded, The Wellcome Foundation, ing research in public health or infectious diseases.
into the Wellcome Trust. The Wellcome drug
company was absorbed, by a series of mergers,
into GlaxoSmithKline, and, in the process, the 2. IP MANAGEMENT
trust diversified its investment portfolio. The When considering IP (intellectual property)
trust no longer has a significant shareholding in management, the trust’s key aims are (1) to
GlaxoSmithKline but operates entirely indepen- ensure that intellectual property arising from
dently of the drug company. the research that it funds is prudently used to
Ballantyne Z and D Nelki. 2007. IP Management Policy: A Donor’s Perspective. In Intellectual Property Management in
Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR:
© 2007. Z Ballantyne and D Nelki. Sharing the Art of IP Management: Photocopying and distribution through the Internet

BALLANTYNE & NELKI
Box 1: Wellcome Trust Policy on Intellectual Property and Patenting
Note that the policy is currently under revision and is expected to be approved in spring 2007.1
Preamble
The mission of the Wellcome Trust is to foster and promote research with the aim of improving
human and animal health. This is the driving force behind all of the Trust’s activities, and the
basis for its policy on the protection and use of intellectual property rights. The aim of this
policy is to provide a clear statement for Trust-funded scientists on the Trust’s position on the
protection and provide a clear statement for Trust-funded scientists on the Trust’s position
on the protection and use of intellectual property through patents; and to inform other Trust
activities, particularly those relating to genomics.
In developing this policy, the Trust has considered a wide range of issues, in particular the role of
intellectual property rights in creating the best conditions for research and in translating that
research into tangible healthcare benefits. The Trust supports the appropriate protection and
use of intellectual property where this will maximise healthcare benefits and enable biomedical
research to flourish.
In order for research advances to qualify for intellectual property protection, the legal criteria
for patent protection must be fulfilled. This means that, to be patentable, the results of research
must describe an invention that is:
• novel, i.e., not described elsewhere before
• non-obvious, i.e., involving a step sufficiently inventive that most people working in that field
could not have predicted it
• capable of industrial application, i.e., described in such a way that it can be made or used.
Patents, including those covering genes and their products, are no exception, and the Trust is
supportive of these if there is sufficient information to indicate that the DNA sequences in
question can be used to develop healthcare benefits. The Trust does not support the patenting of
raw DNA sequences in the absence of such information. This is in line with EU law, which states
that a gene sequence, whether partial or complete, is only patentable when it has been isolated
and its function described.
The Trust is particularly concerned about patents and patent applications which are unreasonably
broad and opportunistic, e.g., when there is limited functional data available to support those
patent claims. The Trust may challenge such speculative patents if it believes that they are being
applied for or used in ways that could be detrimental to research or limiting to the development of
healthcare benefits.
As a charity the Trust is under an obligation to ensure that useful results from the research that
it funds are applied for the public good. Technology Transfer at the Wellcome Trust aims to bring
together researchers, universities, industry and investors to help ensure that promising lines
of research yield practical healthcare benefits. Given the importance of these issues and the
potential health gains which should flow from genomics research, the Trust will continue to keep
this policy under review.

CHAPTER 5.2
achieve health care benefits and (2) to maintain filings offer a potential limited monopoly to any
and promote a supportive environment for party who might wish to develop the intellec-
future biomedical research. The trust has tual property.
historically taken an open and innovative In some cases, of course, IP protection may
approach to IP management, some examples of not be the best way to obtain a public benefit.
this are discussed below. Instead, allowing immediate and unprotect-
Other donors, of course, will have different ed access to the research results may directly
perspectives, mechanisms, and processes for improve public health or enable other research-
achieving their respective missions. The trust’s ers to build upon the results with the aim, for
approach to managing intellectual property example, of aiding related health research
has developed in a way that the trust considers through the creation of large data sets (see also
appropriate for achieving its own objectives. This section 7.1.3 below). Alternatively, the research
chapter is not intended to set out any form of best results may be of insufficient value on their own,
practice. The authors’ aim is simply to present making patenting worthless.
experiences, from their work in technology
transfer at the trust, that might be instructive 3.1 Exploiting Intellectual Property
to other practitioners. Since part of the mission of the trust is to improve
human and animal health, translating research
successes into health care applications is essential.
3. MANAGING INTELLECTUAL PROPERTY In the vast majority of cases, further development
FROM TRUST GRANTS and investment in the results of trust-funded re-
The trust awards the majority of its grants based search are necessary for it to have a health impact.
on its standard grant conditions.2 The trust does Under the trust’s grant conditions, the host-insti-
not normally seek to own intellectual property tution has the responsibility to decide whether the
arising from the research it funds, but the trust exploitation of trust-funded intellectual property
does require a sponsored academic and research is an appropriate way to achieve public benefit. If
host-institution to establish agreements with the institution decides that exploiting the intellec-
personnel involved in the research that vest in tual property is appropriate, then before it grants
the institution any intellectual property gener- any rights to the intellectual property, it must first
ated. Under the trust grant conditions, the in- seek the agreement of the trust on this matter.
stitution must also have established systems for The trust’s consent would normally be contingent
identifying and managing intellectual property upon the institution accepting the trust’s standard
generated under a trust grant (for example, a sys- revenue and equity-sharing terms.
tem for invention disclosures and evaluation by Under the trust grant conditions, if the trust
the institution’s technology transfer office or the reasonably considers that the institution is not
equivalent function). adequately protecting, managing, or exploiting
If trust-funded intellectual property is gen- trust-funded intellectual property, the trust has
erated, the grant conditions require the host- the right to take over such activities instead. In
institution to consider whether protecting the addition, to ensure that potential grant recipients
intellectual property is an appropriate way for can adhere to the trust’s policies, the applicant(s)
that research to benefit the public.3 The usual and institution are required to disclose at the
rationale for doing so is that attracting further grant application stage whether the research will
research and development funding—which use any technology or materials that are subject
may likely be from a third-party commercial to agreements with third parties (such as com-
organization such as a venture capital company panies or other research institutions) that might
or a pharmaceutical or biotechnology compa- affect the research institution’s ability to develop
ny—requires protecting the intellectual prop- the potential trust-funded intellectual property as
erty, often through a patent filing. Such patent envisaged.

BALLANTYNE & NELKI
3.2 The consent process when establishing any IP exploitation agree-

During the consent process, the institution pro- ment. The consent process, therefore, is usually
vides as much detail as possible about the pro- straightforward, since the proposed exploitation
posed method of exploitation (such as draft li- terms will likely be consistent with the trust’s
cense terms, material transfer agreements, and objectives.
collaboration agreements). In the case of a pro-
posed transfer of intellectual property into a spin-
out company, the institution should provide the 4. EXAMPLES OF TRUST IP MANAGEMENT
draft shareholders’ agreement and the company’s
articles of association. The trust will assess on a 4.1 Material transfer agreements
case-by-case basis whether the terms set out an When a trust researcher requires biological ma-
appropriate means by which the intellectual prop- terials from a third party, the consent of the
erty can achieve a public benefit. If the proposed trust is required if the relevant material trans-
development route and associated agreement fer agreement (MTA) grants any rights over
terms are determined to be consistent with the trust-funded intellectual property. The trust
trust’s public benefit objectives, the trust will nor- has often encountered what it considers to be
mally enter into a benefit-sharing arrangement reach-through clauses in such agreements that
with the institution and with any other involved give the provider of the material a payment-
parties. This can include a percentage share of free license, for commercial purposes, to any
milestone and/or royalty payments. In the case of invention made through the recipient’s use of
spinout companies, it will usually involve a share the materials. The trust considers this unac-
of the equity of that company. ceptable in a situation in which the provider of
Because of its charitable status, the trust is the materials makes no inventive contribution
required to assess any benefit-sharing terms and to new intellectual property created by the re-
their public benefit impact. It is a fundamental cipient other than providing materials. In such
principle of English charity law that any “private situations, although a case-by-case approach
benefit” coming to an individual or company is taken, the trust will often recommend that
from a charity must be necessarily incidental to either (1) the license for such intellectual prop-
the public benefit resulting from the implementa- erty, to the provider, be limited to a nonexclu-
tion of the charity’s objectives. Accordingly, where sive, noncommercial research license, or, (2) if
the trust’s charitable funding gives rise to valu- the provider has significantly contributed to the
able intellectual property and that value is to be new intellectual property and is considered to
shared with other parties, such as the researcher, be a suitable partner for developing it further,
the host-institution, and a licensee, it is impor- the provider should be granted a time-limited
tant that those parties receive only a portion of option to negotiate a commercial, royalty-bear-
the total value of that intellectual property. The ing license (with the ability for the institution
amount should be appropriately related to the to license the invention to other partners, if
amount that the party has contributed to the cre- license terms cannot be agreed to within the
ation and further development of the intellectual time period). However, where the recipient
property. The trust must also receive an appropri- files patents on inventions that are directly and
ate share of the value of the intellectual property principally related to the materials, it is usu-
that its funding helped create. ally appropriate for the provider to be granted a
Because most of the host-institutions that nonexclusive license to use the patents solely in
receive funding from the Wellcome Trust are connection with the materials, so the provider
themselves U.K. charities (for example, univer- can continue to use its own materials. Offering
sities) and are governed by equivalent charity the provider a time-limited option to negotiate
law, the research institutions themselves will an exclusive license of such patents can be ap-
consider the public and private benefit balance propriate in many cases.

CHAPTER 5.2
4.2 Pipeline agreements Sometimes, the patent in question is rela-

Pipeline agreements usually give a company an tively broad. It may address a number of diseas-
exclusive license to all future intellectual proper- es, or it could be widely used by third parties to
ty arising from, for example, an institution’s de- develop health-care applications without an un-
partments. This type of arrangement is problem- necessarily negative impact on their respective
atic for the trust because should any trust funds markets or applications. In such cases, the trust
be going into such a department, the automatic may conclude that there is a risk that a single li-
license prevents the trust from assessing, on a censee (especially in the case of a resource-limit-
case-by-case basis, whether the proposed exploi- ed, early-stage spinout) would be unable to fully
tation plan of the new intellectual property is a exploit the patent across all applicable fields. In
suitable way of achieving a health-care benefit. addition, if licensing is not carefully handled in
The breadth of the pipeline arrangement often such cases, there is a further danger that the re-
makes it unlikely that an automatic license to a search fields would be unnecessarily inhibited.
company would be the most appropriate route Thus, the trust would normally propose a pro-
of exploitation, particularly if the company’s gram of nonexclusive licensing, or careful, selec-
resources are limited and the license field is tive field-of-use licensing as a more appropriate
much wider than that of the company’s focus. means of achieving a public benefit.
In such cases, the trust will normally agree with
the relevant institution that, prior to granting
any license of trust-funded intellectual property 5. PUBLICATIONS
to the company under the pipeline agreement, The trust grant conditions require that the results
the institution will request the trust’s approval of research funded by the trust be published in
of an exploitation plan and the license terms. an appropriate form, although it is accepted that
However, such an arrangement may be consid- publication may be reasonably delayed to allow
ered acceptable if the pipeline arrangement is IP protection. The trust sees publication as a key
appropriately narrow, the anticipated intellec- process in maintaining an active, healthy research
tual property can be well defined, the company base and allows scientists to keep up-to-date with
in question is suitably qualified and resourced the latest discoveries, makes it possible for their
to exploit the relevant intellectual property, and research findings to be challenged and tested by
revenue sharing terms with the host-institution their peers, and lets other scientists build upon and
can be agreed on in advance. benefit from the new knowledge. Indeed, in the
right circumstances, publication alone can there-
4.3 Licensing arrangements fore be a means of achieving a public benefit.
The trust commonly consents to the grant of In 2003–2004, the trust commissioned two
exclusive license, or even the assignment of a reports on the scientific research publishing mar-
patent, to a university spinout company. The ket.4 They concluded that although many scien-
trust recognizes that exclusive licensing or as- tific articles were available electronically, pub-
signment will often encourage further invest- lishers’ access policies posed potential barriers to
ment in and development of trust-funded in- dissemination, and journal subscriptions were a
tellectual property because it gives the investor heavy cost burden on institutional libraries and
or developer a competitive advantage. Where researchers. After these reports were issued, the
appropriate, the trust also uses co-exclusive li- trust added a new condition to its grants that
censing (the grant of licenses to a small num- requires all trust-funded researchers to deposit a
ber of partners—typically less than five) to bal- copy of their scientific publications relating to
ance incentives for commercial investment in trust-funded research into PubMed Central (a
product development, manufacturing, and dis- free-access, digital repository of full-text, peer-re-
tribution with wider public access to the new viewed biomedical journals that was developed by
product. and is maintained by the U.S. National Library of

BALLANTYNE & NELKI
Medicine). The trust is also part of a consortium monitoring, and prosecution are vital. As part of
composed of medical-research charities and gov- the application process for a translation award,
ernment-funding bodies that is funding and de- Technology Transfer requires information about
veloping a U.K. counterpart of PubMed Central. whether patents have already been filed, on the
This initiative aims to ensure that research is dis- technology in question, or will be filed in the
seminated as widely as possible and that both ac- course of the funding. The application also typi-
cess to articles and long-term preservation of the cally requires disclosure of information about
archive is ensured. freedom-to-operate issues related to the relevant
technology.
For translation awards in areas of particular
6. IP AND TECHNOLOGY high-strategic interest or relevance to the trust,
TRANSFER AWARDS Technology Transfer may make strategic trans-
Technology Transfer at the trust makes translation awards available. Through such awards,
lation awards to facilitate the development of Technology Transfer will often actively partici-
early-stage health-care inventions to the point pate in project management, including the man-
at which they can be further developed, usually agement of intellectual property that might arise.
by a commercial company. Funding through This involvement may even include assistance
these awards aims to fill what the trust consid- with finding commercial partners or further
ers to be the funding gap between basic research funding. Funding agreements tend to be much
outcomes in academic research and the point at more customized for strategic translation awards,
which the research is sufficiently developed to but a number of commonly used provisions have
attract investment by venture capital firms or been developed to address IP issues that may
potential commercial licensees. Trust translation arise. Two broad categories are addressed in these
awards may be made to companies, usually early- provisions: 1) keeping the research field open
stage spinouts, or to academic host-institutions. and 2) ensuring the appropriate management
Funding for spinout companies is normally in and exploitation of intellectual property for a
the form of a program-related investment. With health-care benefit:
this type of funding—permissible for chari- 1) Keeping the research field open:
ties—a “charitable investment” is made into a (a) a prohibition on enforcing trust-funded
specific research project with the primary aim of intellectual property against universities/
achieving the mission of that charity. Such fund- research institutions carrying out non-
ing provisions enable the trust to offer charitable commercial research
funds to commercial vehicles where there is an (b) the grant or reservation of a license
ongoing research and development project for for research purposes (which may be
particular health care applications. While receiv- sub-licensable) to the trust or relevant
ing a potential return on such a program-related institution(s)
investment is not the primary objective of mak-
ing such an award, it is nonetheless important 2) Ensuring appropriate management and
(for balancing public and private benefits arising exploitation of intellectual property for a
from charitable assets) for the trust to receive health-care benefit:
an appropriate share of any benefits that might (a) formation of an IP management group,
result from the program-related investment. comprising the researchers, independent
Accordingly, Technology Transfer normally experts, and representatives from the
structures its translation awards into companies trust, to provide opinion and guidance
as convertible loans rather than as grants.5 on IP strategy
Because of the critical nature of this stage (b) terms to ensure that the results of re-
of the development of a technology, appropri- search that have a potential developing
ate IP generation, identification, filing, ongoing country application are developed for

CHAPTER 5.2
such purpose and made available in the research. NITD cannot develop and commercial-
developing world ize products comprising Trust-funded IP without
the consent of the Trust and MMV. Consent, not
6.1 Case studies to be unreasonably withheld, is subject to a ben-
efit-sharing arrangement. In the event that NITD
6.1.1 Typhoid vaccine puts development on hold for certain periods, or
With Trust funding, the company Emergent fails to make any sales into developing countries
(Europe) Limited is testing its one-dose oral ty- within a certain period following launch, the Trust
phoid vaccine in healthy Vietnamese adults and and MMV have the option to take over the neces-
children in preparation for proof-of-concept and sary IP rights, to ensure that developing countries
phase III studies in the southeast Asia region. benefit from the outcomes of the research.
Emergent owns the underpinning intellectual
property in the vaccine. Typhoid has both a de-
veloped-world travellers’ market and a less-prof- 7. IP MANAGEMENT FOR
itable developing-world endemic market, so the SPECIAL INITIATIVES
Trust wanted to ensure that the developing world The trust has been involved in a number of large
market would benefit from the development of initiatives to create data resources (principally
the vaccine. Terms were therefore negotiated, DNA sequence information) for the scientific
giving timescales within which the vaccine has community. In each case, IP management has been
to be launched in developing world markets. If considered from the outset as a key aspect of the re-
launch does not take place within the relevant source. In the case of DNA sequencing, the trust’s
timescale, and there are no concrete plans to do position is that basic DNA sequence information
so within a reasonable time, the Trust can acquire should be placed in the public domain as soon as it
the rights to manufacture and sell the vaccine in is practical to do so without limitations on use.
those countries.
7.1 Case Studies
6.1.2 Drugs for malaria
The Trust, the Medicines for Malaria Venture, 7.1.1 The human genome project
and the Singapore Economic Development Board The Wellcome Trust Sanger Institute, which is
agreed to fund the Novartis Institute for Tropical largely funded by the Trust, took a major role in the
Diseases (NITD) to carry out a program of drug Human Genome Project for its part in sequencing
discovery in the field of malaria, the main aims almost one-third of the human genome. The par-
being to find a one-dose cure for Plasmodium fal- ticipants in the Human Genome Project decided
ciparum and a curative modality for Plasmodium that all the information produced by public hu-
vivax. Novartis agreed to make contributions in man-sequencing centers should be made immedi-
kind to the cost of the program. ately and freely available to the biomedical-research
NITD owns, (or in the case of intellectual community, via the Internet, without seeking any
property generated by collaborators, has rights to IP rights and without restrictions on how the in-
acquire rights to), all intellectual property gener- formation could be used. These principles were
ated during the funded program, but the Trust and enshrined in an agreement on human sequencing
MMV have a noncommercial research license to brokered at a strategy meeting sponsored by the
enable basic research on any findings of the pro- Trust in Bermuda in February 1996 and extended
gram. If NITD decides not to file or prosecute to data on other organisms at a later meeting.
such IP, the Trust and MMV may, so that valu-
able IP protection is not lost. In addition, NITD 7.1.2 The SNP Consortium
has agreed to covenants not to sue for infringe- In partnership with several large pharmaceutical
ment of the program patents any not-for-profit and technology companies, the Trust is a major
institutions that may carry out noncommercial funder of the SNP Consortium, which aims to

BALLANTYNE & NELKI
produce a high-quality map of human genetic accessing the database to agree (by clicking a box
markers, known as single nucleotide polymor- on the HapMap Web page) to the following stan-
phisms (SNPs). An SNP is a site in DNA where dard terms of access:
there is a change in a single “letter” of the DNA 1. not to restrict access to or the use of
code. Sometimes this change in a single letter can HapMap data by others
cause a visible effect or cause a disease, but even 2. not to file composition-of-matter patents
if there is no obvious effect, knowing the location on SNPs, genotypes, or haplotypes based
of the change can still be useful. The SNP map on HapMap data
may be used to identify specific genes involved 3. not to file patents containing claims to par-
in disease processes, to develop novel diagnos- ticular uses of any SNP, genotype, or hap-
tic tests, and to predict individuals’ responses to lotype data based on HapMap data unless
medical therapy. such claims do not restrict, or are licensed
As SNPs by themselves are only a small fac- on such terms that do not restrict, the abil-
tor in the development of new drugs, the map ity of others to use at no cost the HapMap
was considered to be a precompetitive resource data for other purposes
that would be of huge benefit to the biomedical 4. to share data with other licensees only un-
research community. The consortium therefore der the same license
agreed to put the SNP map into the public do-
main. Consortium members have access to the The main disadvantage of this approach was
data on the same terms as other users: there is no that HapMap data could not be shared with oth-
preferential access. To keep the SNP map freely er large-scale genomic databases. In December
available to the public, the consortium filed pat- 2004, following release of over 1 million SNPs
ent applications on SNPs as evidence of dates of by the HapMap project, a further release into the
discovery (so that these would act as prior art to public domain of 1.6 million SNPs by Perlegen
any subsequently filed patent). The patent appli- Sciences Inc. and the development of new hap-
cations would be abandoned prior to grant. lotype analysis tools, the consortium decided that
sufficient data were in the public domain to consti-
7.1.3 The international HapMap project tute prior art and that derivation of haplotypes and
The Trust, through the Sanger Institute, is a major haplotype tag SNPs from HapMap data would be
participant in the HapMap consortium, which is considered to be obvious and not patentable. The
made up of members from the United Kingdom, click-wrap license was therefore abandoned.
Japan, United States, Canada, Nigeria, and
China. The HapMap consortium aims to build a
map of haplotypes, or “blocks” of SNPs that are 8. Conclusions
inherited together in humans, to aid in pinpoint- The trust’s primary aim when considering IP
ing genetic variations associated with disease. management is whether it is an appropriate
These data represent a valuable precompetitive mechanism for achieving part of the trust’s mis-
resource for the biomedical research community, sion, namely improving human and animal
and it was decided to make SNPs and haplotypes health. Practically, this translates into a focus
available to the public as they were identified. on promoting a healthy research community
There was a concern that in the early stages of and exploitation of research for health care out-
the project, when data were not sufficiently dense comes. By encouraging exchange of research re-
to derive haplotypes, third parties could combine sults, making large-scale databases freely available
HapMap data with their own data and file patents for researchers, and discouraging restrictions on
on haplotypes. These filings could prevent the the research use of inventions, the trust aims to
HapMap Project from continuing. Accordingly, keep the research-base broad and to benefit from
data were initially released under a “click-wrap” the exchange of ideas. The role for commercial
nonexclusive license,6 which required researchers (or noncommercial) exploitation is recognized

CHAPTER 5.2
and encouraged, provided that there is a clear through partnerships of funders, scientists, insti-
health care benefit as the ultimate outcome. The tutions, and companies. ■
trust sees intellectual property as a useful tool for
achieving these aims and encourages the intel-
ligent management of intellectual property by Zoë Ballantyne, Legal and Operations Adviser, Technology
its grantees to ensure that trust-funded research Transfer, the Wellcome Trust, 215 Euston Road, London,
NW1 2BE, U.K. z.ballantyne@wellcome.ac.uk
achieves its full potential.
The trust also recognizes that, on the whole, Daniel Nelki, Head of Legal and Operations, Technology
given the inherently varied nature of research Transfer, the Wellcome Trust, 215 Euston Road, London,
and the diversity of health care applications that NW1 2BE, U.K. d.nelki@wellcome.ac.uk
may arise, potential intellectual property emerg-
ing from trust funding should be considered on 1. Please visit www.wellcome.ac.uk for the latest policy
version.
a case-by-case basis to determine how to best
2. www.wellcome.ac.uk/doc_WTD004055.html.
disseminate, protect, and develop the results.
For this reason, the trust has a devoted group, 3. Trust-funded IP includes all IP created, exemplified, or
developed in whole or in part from the research that
Technology Transfer, to manage these processes the Trust funds. Trust-funded IP does not normally
and considerations. The trust is also in the ad- include copyright in artistic works, books, articles,
vantageous position of being a significant funder scientific papers, lectures, or audio or visual aids to the
giving of lectures or teaching.
in the area of biomedical research. This position
4. The Wellcome Trust. 2003. Economic Analysis of
offers the opportunity to contribute its perspec-
Scientific Research Publishing. SQW Limited, A Report
tive as a charitable funder to both governmental Commissioned by the Wellcome Trust: London. www.
policies and institutional mechanisms for manag- wellcome.ac.uk/assets/wtd003184.pdf.
ing intellectual property. The trust’s collaborators, The Wellcome Trust. 2004. Costs and Business Models
partners, and IP developers recognize the trust’s in Scientific Research Publishing. SQW Limited, A Report
Commissioned by the Wellcome Trust: London. www.
charitable motives and are usually accommodat-
wellcome.ac.uk/assets/wtd003182.pdf.
ing to the trust’s IP policies and related goals with
5. www.wellcome.ac.uk/assets/wtx024257.doc.
respect to health impacts. This accommodation is
6. Click-wrap licenses are similar to the shrink-wrap
critical because the trust recognizes that the devel- licenses common with software. If one wants to access
opment of new health technologies requires the data online, one has to click a box that typically states
enlightened management of intellectual property something like “I agree to these terms” before one is
let through to the online database.

CHAPTER 5.3
Making the Most of Intellectual Property:

Developing an Institutional IP Policy
Stanley P. Kowalski, The Franklin Pierce Law Center, U.S.A
ABSTRACT Of course, most universities already have IP

An institutional IP (intellectual property) policy forms the policies in place in a number of areas. Faculty and
very foundation of IP management and, as such, serves as
students have an interest in publishing scholarly
the starting point for a system of institutional best prac-
tices. The IP policy should be entirely consistent with the works, and publishing carries with it copyright
mission of the institution. Whether the role of the insti- ownership issues. Most often publishers require
tution, as defined by its mission, is primarily disseminator assignment of copyright, but what about the in-
of knowledge through teaching and publication, genera- terests of the author or the institution? Lectures
tor of research, technology transfer engine, or promoter
of economic development through education and service and course curriculam are also copyrightable.
and/or through technology transfer, the institutional IP Who owns these? The faculty or the university?
policy should be drafted and enforced in a manner consis- These same concerns govern other ostensibly
tent with the mission. Doing so will bring efficiency and more-complicated IP areas. For example, univer-
clarity to IP management, since all the components of the
sities have an interest in owning or controlling
policy, including IP ownership, patenting, confidentiality,
and disclosure can be written into the policy. Moreover, the work product of nonacademic employees. Is
the intellectual property will serve the mission in a way there an operable work for hire doctrine that gov-
that strengthens the institution’s credibility, reputation, erns the country where the university is located?
and public image. If not, agreements transferring ownership to the
university must be in force.
1. Introduction These kinds of issues will grow increasingly
Establishing an IP (intellectual property) policy relevant for public sector research institutions as
is necessary for several important reasons. IP they become more involved with national and
rights, including patents, copyrights, trademarks, global IP systems. Indeed, for a university wishing
and industrial property rights attach to research, to adopt a technology transfer program structured
administrative, and scholarly (including course- around licensing, a conceptually solid, pragmatic
ware) work products. Therefore, any public sector IP policy will be an essential building block for
institution entering into research contracts with the program. It is the foundation upon which all
private sector entities will encounter IP issues. other IP activities and initiatives are built. For de-
These matters will also need to be addressed in veloping countries, putting an IP policy in place
cases involving government-funding agreements, is an especially important step for protecting their
which often carry provisions for the disposition interests. When a university in a developing coun-
of intellectual property. try commercializes an invention, an IP policy can
Kowalski SP. 2007. Making the Most of Intellectual Property: Developing an Institutional IP Policy. In Intellectual Property
Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et
al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. SP Kowalski. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

KOWALSKI
be used to establish an equitable basis for resolv- should favor faculty ownership or release of in-
ing issues related to ownership, disclosure, and tellectual property into the public domain, with
the distribution of income. In fact, the World less emphasis on IP protection. If R&D activities
Intellectual Property Organization (WIPO) has are the institution’s top priority, then the insti-
documented that universities and R&D institution should have greater control of intellectual
tutions in developed countries, and also some property (for example, more-flexible licensing ar-
countries in Asia and Latin America can generate rangements with industry, to encourage industry
significant income from sources such as: funding, or more emphasis on industry needs).
• royalties and fees from licensed patents If the institutional mission emphasizes technol-
from staff innovations and inventions ogy transfer and commercialization, then even
• consultancy greater institutional control of intellectual prop-
• research contracts erty may be most appropriate. This would involve
• sponsored research IP strategies geared towards commercialization
• university-owned companies and joint through inducing investment (exclusive licensing
ventures1 preferred), more-flexible royalty sharing with in-
ventors to induce disclosures, and choosing the
Remember that it is too late to begin formu- best commercial partners for any given technol-
lating IP policy when negotiations about IP have ogy. Finally, if the institutional mission priority
already begun. As Lita Nelsen, Director of the is economic development, then a more-balanced
Massachusetts Institute of Technology (M.I.T.) IP ownership policy that promotes technology
Licensing Office, observes, “Although policies will transfer, driven by economic development op-
change over time as the program evolves, the ma- portunities, may be preferred. Such an approach
jor issues must be decided in advance. Otherwise, might focus on licensing regional companies and
a new program is likely to stall or fail altogether encouraging local spinouts by providing incuba-
in an entangled committee indecision and policy tor facilities. Since economic policies will drive
ambiguity.”2 development and implementation of the IP pol-
icy that most supports economic growth, there
should also be built-in flexibility to accommodate
2. Matching the mission to IP policy changes in economic climate.
Certain steps should be considered when estab- An exemplary case of an organization’s mis-
lishing an institutional IP policy. Initially, admin- sion matching its IP policy can be found at the
istrators of the institution will need to assess its Drugs for Neglected Diseases Initiative (DNDi).
mission. This will involve examining not only the Its mission statement proclaims that “[t]he mis-
university’s mission statement but also prioritiz- sion of DNDi is to develop safe, effective and af-
ing the institution’s roles with respect to the mis- fordable new treatments for patients suffering from
sion. These may include: neglected diseases, and to ensure equitable access to
• disseminator of knowledge through teach- these.”3 This mission provides the framework for
ing and publication the institution’s IP policy (see Box 1).
• generator of research Note that DNDi explains how it “will pursue
• technology transfer engine creative and innovative strategies to make the fruits
• promoter of economic development of research projects readily available” in terms of its
through education and service and/or approach to managing intellectual property. This
through technology transfer type of language provides for a flexible intellec-
tual property management style that is consistent
Such considerations will help establish an in- with its core mission. Strong IP policies, such as
stitutional IP policy that supports mission priori- DNDi’s, incorporate such language to allow the
ties. For example, if the top priority is education institution to operate without being constrained
and dissemination of knowledge, then IP policy by its own IP policies.

CHAPTER 5.3
3. Forms of intellectual property/IP will need to be given to deciding which rights

rights covered should be granted back to the university (grant-
Designers of an institution’s IP policy will need backs), such as use for education and research.
to define IP categories and the IP rights covered.
Covered categories might include patents, copy-
rights, trademarks, industrial rights and designs, 4. Ownership of
plants, computer software, video, multimedia, or intellectual property
courseware. Of course, issues relating to ownership are central.
It will be important for policy designers to Such issues include the role of federal/local/state
understand the criteria the university will use to laws that directly relate to IP ownership, as well as
decide when to seek IP (generally patent) protec- the legal rights of employers/employees, contract
tion, and what happens if patent protection is not obligations, and so forth. The prevailing customs
sought. To handle the latter, a procedure for waiv- of the country where intellectual property is de-
ing title back to inventors/authors in such an event veloped also need to taken into account. There
needs to be developed. Furthermore, attention are a number of possibilities for ownership:
Box 1: Drugs for Neglected Diseases Initiative (DNDi)

Intellectual Property Policy
III. Intellectual Property and DNDi’s Work: Basic Principles
In implementing the IP strategy, DNDi will adhere to the following basic principles:
DNDi will ensure that the results of the work carried out under its auspices are disseminated
as widely as possible and its products made readily available and affordable in developing
countries. Where the acquisition of IP is not necessary to promote its mission and goals, DNDi
will make all possible efforts to ensure that the results of its work are placed and remain
in the public domain. However, it is possible that promoting DNDi’s mission and goals will
sometimes require outputs to be protected by IP (see Sections IV and V). Given the costs
involved, patenting is likely to be the exception rather than the rule. Other nonpatent types
of IP such as confidential information (“trade secrets”) and copyrights will also need to be
considered.
To make the results of its work useful and encourage the research community to engage in
additional or follow-on research in the field of neglected diseases, DNDi will seek—whenever
possible and without undermining its rationale for acquiring IP—to disseminate its research
through publications, presentations, the Internet (emulating the Human Genome Project),
and other appropriate channels.
DNDi does not seek to finance its research and operations through IP rent revenues. Although
they will constitute an exception rather than the rule, patents might be sought to strengthen
DNDi’s ability to ensure control of the development process and to negotiate with partners.
When IP is generated through DNDi-sponsored research projects, it should be used to achieve

DNDi’s mission. To this end, DNDi will pursue creative and innovative strategies to make the
fruits of research projects readily available to patients affected by neglected diseases. This
will require avoiding prohibitively costly approaches, restrictive IP strategies, or other issues
that may inhibit or delay the rapid adoption of the invention to the benefit of developing
countries.

KOWALSKI
• inventor/author owns granted an irrevocable, nonexclusive license to in-

• university owns ventions that originate with employees not hired
• company providing research funds owns to invent when such employees invent during
• government providing research funds owns working hours with the employer’s materials and
• public domain, that is, no one owns facilities.7) Such intellectual property could in-
clude publications, software, theses, works of art,
In designing an effective institutional IP pol- or student works. To address this issue, it will be
icy, the inventor’s/author’s rights for IP assigned important to ask for what purposes such a shop
to the university should be clearly defined and right is reserved. For example, would it be for in-
could include a formula for sharing cash royal- ternal use only, or, possibly, for Internet delivery
ties earned, sharing of equity interests taken by for distance learning programs?
university in a spinout, or retention by inven- An institutional IP policy should also cover
tors/authors of personal rights to use intellec- stranded IP by establishing a default for intellec-
tual property they develop (generally these are tual property not covered by the policy.8 In other
copyrights). Normally, a university would own words, what intellectual property is owned by the
“any intellectual property that is made, designed, inventor, author, or institution? Despite efforts to
discovered or created by a member of staff, stu- be clear about these matters, disputes are prob-
dents, guest researchers, etc., in the course of their ably inevitable. A carefully crafted institutional IP
employment and responsibilities or which makes policy will therefore consider establishing an IP
significant use of the institution’s resources (in- disputes-resolution committee. It is better to set
cluding institution-administered funds or R&D this up in advance of potential disputes so that it
institution-funded time, facilities, or equipment) can be used to deal with problems as they arise.
in connection with its development.”4 The policy Indeed, an IP policy should seek to harmo-
of M.I.T., for example, states that the university nize the conflicting interests of all the stakehold-
owns all intellectual property that arises under re- ers. WIPO suggests that “in order to harmonize
search grant funding or from significant use of the various conflicting interests of stakeholders
M.I.T. facilities.5 In order to avoid potential dis- and achieve broad-based objectives, an intellec-
putes, the policy should clearly state what consti- tual property policy for universities and R&D
tutes “institutional resources.” In the case of spon- institutions should address some of the following
sored research, whether private or government, issues:
the usual approach to resolving ownership issues • coverage of intellectual property policy
is to make them dependent on the terms of the • ownership of intellectual property
grant, agreement, or prevailing law. Usually, the • disclosure of intellectual property
agreement would give the university ownership. • marketing, commercialization and licens-
It would also be a good idea to specifically address ing of patents
the ownership of intellectual property that stu- • distribution of income
dents and visiting researchers generate. At M.I.T. • rights and obligations of an inventor and
faculty researchers and visiting scientists (includ- the institution
ing scientists who are assigned to M.I.T. for a • other pertinent issues9
limited period of time) must sign an Inventions
and Proprietary Information Agreement prior to Again, despite such efforts and the best in-
beginning work. It is highly recommended that tentions of all involved, conflicts of interest will
universities have such IP forms.6 likely arise. For example, the goals of sponsored
An institutional IP policy should also con- research may conflict with the aim of the univer-
sider whether the institution will reserve a shop sity to disseminate research results quickly and
right in intellectual property created by faculty, widely. Or there may be other legitimate but op-
students, and staff but not owned by the institu- posing goals between the institution and private
tion. (Under the shop right rule, an employer is interests that put researchers in conflict with their

CHAPTER 5.3
employer. Universities and R&D institutions Policy developers may want to make available for
must therefore develop policies and procedures comparison other universities’ policies in order to
for the disclosure and management of conflicts show that any suggested changes are not out of the
of interests.10 mainstream. Providing such material, and oppor-
It is also difficult to ensure compliance with tunities for informed discussion and debate as to
policies related to the disclosure of inventions. A the pros and cons of suggested changes to the IP
comprehensive review procedure is often used in policy, will ease anxieties and highlight the ben-
the private sector, but the resources and time re- efits the changes will provide. Indeed, throughout
quired for such procedures make them impracti- the entire process, it will be important to focus on
cal for the university. The best way to ensure com- the positive aspects that any changes to the policy
pliance, therefore, is to educate researchers about may bring.
the potential value—to the university and them- The IP policy will have to be “sold,” both in-
selves—of their discoveries. Enlightened self-inside and outside the institution. Educating stake-
terest has always been an effective motivator. holder communities as to what the policy is and
why it is will promote acceptance. However, to be
successful, the proper pitch must be made. This
5. Administering the IP policy will most likely involve:
Identification of who shall administer and enforce • making the policy comprehensible to the
institutional IP policy is another key ingredient reader
of the policy. Possible administrators include: • providing incentives for participants
• vice president for research • establishing IP management as a service to
• technology transfer office the community
• IP office • applying the policy with consistency
• provost • showcasing the benefits
A patent committee that will address patent One of the primary benefits of the policy will
policy issues, and make decisions on patent fil- be shared licensing revenue, and a firm, cut-and
ings, may also be established. -dried policy will be music to everyone’s ears. It
should be straightforward with very few excep-
tions. M.I.T., for example, gives the inventor(s)
6. Building, improving, and one-third of net royalties (after taking 15% for
selling the IP policy administration and any unrecovered patenting
For more mature institutions, officials, at some costs for the case). The remaining funds are shared
point, will need to assess whether to design and between academic departments and the university
implement a new policy or revise an old one. An general fund under a formula involving patenting
initial step in this assessment might be to take a costs for unlicensed cases.11 WIPO’s recommen-
snapshot of “what is” so that the effectiveness of dations are equally clear:
existing policies, contractual commitments, and 100% of the revenue goes to the institution un-
legal constraints can be determined. til all out-of-pocket expenses associated with protec-
When pursuing these efforts, it would be tion and exploitation of the patent or copyright have
wise to gain the support of the highest levels of been reimbursed. Such expenses include fees associat-
administration and to determine a path of least ed with patent filing and copyright registration and
resistance for the process, perhaps via the fac- any other continuing costs associated with licens-
ulty senate or the administrative committee. In ing and other commercialization of the intellectual
addition, it will be critical to persuade faculty of property. Thereafter, the net income is shared be-
the need to change the IP policy or to implement tween the inventor and the institution; the general
a new one. Gaining such backing will lend impor- trend is that the inventor’s percentage share decreases
tance, urgency, and credibility to the endeavor. whereas that of the institution increases as total net

KOWALSKI
revenue increases. For example, one U.S. university Technology transfer, which is a by-product
gives the inventor 50% for the first $100,000 of net of M.I.T.’s primary missions of education and
revenue, 40% for the next $300,000, 30% for the research, is conducted to fulfill institutional
next $600,000 and 25% for net income in excess of goals:
100,000. • to foster continuing public support for
basic research by showing public benefit
(namely, new products)
7. M.I.T.’s IP policy • to stimulate more industrial support for
M.I.T. provides a vigorous example of institution- research
al IP policy. The main missions of the institution • to foster community support by creating
are the dissemination of knowledge, education jobs and new companies
and research, but the institution also is commit- • to help students learn entrepreneurial
ted to public service, which involves technology attitudes
transfer, as is shown in this excerpt from M.I.T.’s • to enable faculty to see the practical results
IP policy (see Box 2). of research
M.I.T.’s IP policy on ownership of intellec-
tual property is carefully laid out. For example,
ownership of patents is either (1) assigned to 8. Special plant issues
M.I.T. if the invention occurs from sponsored The International Maize and Wheat Improvement
research or is made with significant use of M.I.T. Center’s (CIMMYT) policy on intellectual prop-
funds or facilities or (2) owned by the inventor(s) erty12 is exemplary. The policy shows how a pub-
if the inventions are made on the inventor’s own lic sector research institution involved in crop im-
time, without use of facilities, and are outside of provement seeks to achieve a balance between the
the M.I.T. programs the inventor is assigned to institutions express mission of serving the greater
work on. If appropriate, and with no outside ob- global public interest and acknowledging issues
ligations, M.I.T. will waive ownership to inven- relating to IP rights protection. The CIMMYT
tors (see Box 2). IP policy articulates these concerns, providing a
This statement from M.I.T.’s IP policy coherent, comprehensive, and comprehensible
clearly articulates the various foreseeable situa- statement that is the foundation of an institu-
tions wherein IP ownership issues might arise. tional IP policy that is consistent with and true to
Significantly, these details are all placed within the institutional mission:
the purview of the overarching institutional mis- As a publicly-funded international research
sion of M.I.T. The policy goes on to explain, for institute, CIMMYT regards its research products as
example, that, with regard to copyrights to schol- international public goods. Yet, in the current politi-
arly publications, textbooks, and course materi- cal and legal environment, producing and keeping
als, these copyrights are owned by the authors. the products of its research in the public domain,
However, M.I.T. owns “work for hire” made by free for use and development both by scientists and
staff. In other words, M.I.T. owns, by assign- farmers, have become increasingly problematic. It is
ment or as work for hire, copyrightable works in this context that CIMMYT has examined, and
developed by faculty and staff under sponsored will continue to examine, its policies and practices
research or with significant funds or facilities of in regard to intellectual property rights. CIMMYT’s
M.I.T. commitment to the resource-poor remains as strong
For ownership of mask works and tangible and passionate as ever. As a direct consequence of
research property, the policy is the same as for this commitment, CIMMYT has a responsibility to
patents. The ownership of data is not specifically be alert to changes in the political, legal and market
covered, but it is treated as M.I.T. owned un- environments. When necessary, CIMMYT must also
der the same situations as for patents and be ready to adopt new tools and strategies in order to
copyrights. keep faith with its mission.13

CHAPTER 5.3
Box 2: M.I.T.’s Policy on Intellectual Property
13.1 Intellectual Property
M.I.T. Policies and Procedures
The aim of the Institute’s policy on patents, copyrights, and other Intellectual Property is
to make available Institute technology to industry and others for the public benefit, while
providing recognition to individual inventors and encouraging the prompt and open
dissemination of research results.
13.1.1 Ownership of Intellectual Property
With the exception of student theses as described below in Section 13.1.3 (Ownership of
Copyrights in Theses), rights in patentable inventions, mask works, tangible research property,
trademarks, and copyrightable works, including software (“Intellectual Property”), made or
created by M.I.T. faculty, students, staff, and others participating in M.I.T. programs, including
visitors, are as follows:
a) Inventor(s)/author(s) will own Intellectual Property that is:
i) not developed in the course of or pursuant to a sponsored research or other agreement

(the faculty advisor, administrative officer, or the Office of Sponsored Programs contracts
administrator can advise on the terms of the agreements that apply to specific research);
and
ii) not created as a “work-for-hire” by operation of copyright law (a “work-for-hire” is defined,

in part, as a work prepared by an employee within the scope of his or her employment)
and not created pursuant to a written agreement with M.I.T. providing for a transfer of
copyright or ownership of Intellectual Property to M.I.T.; and
iii) not developed with the significant use of funds or facilities administered by M.I.T.
(“significant use” is discussed in Section 2.1.2 of the Guide).
b) Ownership of all other Intellectual Property will be as follows:
i) ownership of Intellectual Property developed in the course of or pursuant to a sponsored

research or other agreement will be determined according to the terms of such
agreement;
ii) ownership of copyrightable works created as “works-for-hire” or pursuant to a written

agreement with M.I.T. providing for the transfer of any Intellectual Property or ownership
to M.I.T. will vest with M.I.T.;
iii) ownership of Intellectual Property developed by faculty, students, staff, and others
participating in M.I.T. programs, including visitors, with the significant use of funds or
facilities administered by M.I.T. will vest with M.I.T.

KOWALSKI
Importantly, with regard to access to germ- 2. It should indicate areas of flexibility that al-
plasm resources, CIMMYT encourages the avail- low an institution to pursue creative deals
ability of such resources in a manner consistent and arrangements.
with its greater mission of serving the poor of de- 3. It should be a succinct statement, as op-
veloping countries. posed to a detailed list of procedures. The
This commitment is reiterated several times latter can be accessed elsewhere, while the
in CIMMYT’s IP policy, which is clearly articu- IP policy should be the basis of regularly
lated within the overall context of the guiding updated IP strategies and serve as a guiding
principles that establish the foundation of the principle for the management of intellec-
CIMMYT global mission (see Box 3). tual property.
This theme is repeated again in the CIMMYT
IP policy, making CIMMYT’s mission the pre- Following the above criteria will allow you to
dominant determinative factor throughout the successfully navigate the sometimes choppy seas
entire document (see Box 4). of the IP system, and the end results of such a
In addition to the provisions found in the voyage will certainly be worthwhile. n
CIMMYT IP policy, other provisions that would
be applicable to plants and IP issues are related to:
• genetically modified plants Acknowledgements
The author is grateful to Karen Hersey of the Franklin
• essentially derived varieties
Pierce Law Center, Concord, New Hampshire, for pro-
• hybrid crops (issues relating to inbred pa- viding materials that were essential for the thorough com-
rental lines) pletion of this chapter, and to Anatole Krattiger for help-
• designated and nondesignated germplasm ful discussions during the preparation of the manuscript.
as per the treaty, under the FAO
Stanley P. Kowalski, The Franklin Pierce Law Center,
• status of land races 2 White Street, Concord, New Hampshire, 03301. U.S.A.
• freedom to operate spk3@cornell.edu and skowalski@piercelaw.edu.
• access issues relating to the Convention on
Biological Diversity
1 www.wipo.int/freepublications/en/intproperty/848/
wipo_pub_848.pdf.
These issues relate directly to how crops are
2 Lita Nelsen, Director, M.I.T. Licensing Office, personal
actually improved, that is, by:
communications.
• conventional crossing of preexisting varieties
3 See, also in this Handbook, chapter 17.8 by J Banerji and
• introgression of genes from wild germplasm B Pecoul. See also the latest version of DNDi’s IP policy.
resources www.dndi.org/cms/public_html/insidearticleListing.
• genetic engineering via plant transformation asp?CategoryId=87&ArticleId=320&TemplateId=1; The
Medical Research Council of South Africa also follows
an exemplary IP policy. innovation.mrc.ac.za/ippolicy2.
pdf.
9. Conclusions 4 www.wipo.int/freepublications/en/intproperty/848/
The establishment—or revision—of institutional wipo_pub_848.pdf.
IP policies is a great tool for advancing internal 5 See supra note 2.
institutional discussions on the role and function 6 web.mit.edu/policies/13.1.html.
of intellectual property. Once finalized, an effec- 7 A shop right is “an implied-in-law nonexclusive license
tive IP policy should fulfill three fundamental of a patent from an employee to the employer. A shop
criteria: right is generally implied when an employee who is not
specifically hired to invent uses the employer’s facilities
1. It should be based on and reinforce the core to invent, usually while on the job. The shop right rule
mission of the institution the policy serves. grants to such an employer the royalty-free right to
The mission drives IP management, not use the invention of the employee. It is based on the
employer’s presumed contribution to the invention
vice versa.
through materials, time, and equipment.” (McCarthy JT,

CHAPTER 5.3
Box 3: CIMMYT Intellectual Property Policy
IV. OBJECTIVES AND OPERATING POLICIES
1. CIMMYT will manage intellectual property issues with:

• integrity;
• equity;
• responsibility; and
• accountability.
2. In the pursuit and management of intellectual property rights, CIMMYT will be

guided by:
• its mission; and
• its special responsibilities to the resource poor arising from its role as a provider of
germplasm, technologies, and information.
However, the CIMMYT IP policy does not leave the articulation of its mission and its
views on IP issues so general. The policy also specifically states how it views IP issues
within the context of the CIMMYT mission. Hence, the IP policy is built upon, and indeed
interwoven with, the mission:
IV, 4. On occasion, CIMMYT may enter into contracts that provide for the acquisition and
management of confidential materials. CIMMYT may also seek to protect the products
of its research by obtaining intellectual property protection through patents, plant
breeders’ rights, copyrights, trademarks, statutory invention registrations or their
equivalent, and/or trade secrets to serve the resource poor in the following kinds of
situations:
1. to support public and private partnerships which pursue mission-based research or

which develop and apply research results;
2. to assure ready access by others to research products developed or funded by CIMMYT;
3. to avoid possible restrictions arising from “blocking” patents and to ensure CIMMYT’s
ability to pursue its research without undue hindrance;
4. to facilitate the transfer of technology, research products and other benefits to the
resource poor including, where appropriate, through commercialization or utilization
of research products; and/or
5. to facilitate the negotiation and conclusion of agreements for access to proprietary

technologies of use to CIMMYT’s research and in furtherance of its mission.
Box 4: CIMMYT Intellectual Property Policy
IV, 8. In seeking intellectual property rights, CIMMYT will be guided by its commitment to
serve the resource poor, rather than by opportunities to obtain recurring revenues.
To the extent that financial returns are generated via intellectual property, they will
be used by CIMMYT to support its efforts to implement the FAO Global Plan for the
Conservation and Sustainable Utilization of Plant Genetic Resources for Food and
Agriculture, adopted by 150 countries in 1996.

KOWALSKI
RE Schechter and DJ Franklyn. 2004. McCarthy’s Desk 9 www.wipo.int/freepublications/en/intproperty/848/

Encyclopedia of Intellectual Property, Third Edition. The wipo_pub_848.pdf.
Bureau of National Affairs, Inc.: Washington, DC.). 10 See also in this Handbook, chapter 5.8 by AB Bennett.
8 Stranded IP is IP that is not covered by the formal 11 See supra note 2.
policy. No policy is perfect, so certainly not all IP will
be covered explicitly. If the IP is not covered, then there 12 www.cimmyt.org/Resources/Obtaining_seed/IP_
is a presumption that the university owns it, that the policy/htm/IP-Policy_Eng.htm.
creator owns it, or that it must be reported to the 13 www.cimmyt.org.
technology transfer office and a determination made
as to who owns it.

CHAPTER 5.4
Ownership of University Inventions:

Practical Considerations
B. Jean WeidEmier, Principal, Cambridge Licensing Law, LLC, U.S.A.
Several factors help to establish who owns a university Who owns an idea? A prototype? A patent? To a
invention and what rights the university may, or may not,
free-thinking university researcher, assigning in-
have. These factors include whether (1) there are express
or implied agreements to assign ownership, (2) the inventions to an employer could seem illogical. So
ventor is employed by the university, (3) the invention what can a university administrator do to mini-
was made within the scope of employment, and (4) where mize friction, between an employer and an em-
and when the invention was made. Under U.S. law, in- ployee, related to patent ownership? When is the
dividuals own their inventions, except where there is an
express agreement providing for assignment of owner- law black and white? When gray?
ship of inventions to an employer or where an implied The starting point of the law is that individu-
agreement to assign is found because the employee was als own their inventions, except: (1) where there
hired or assigned to invent or solve a specific problem or is an express agreement providing for assignment
served the employer in a fiduciary capacity. Therefore, in
of inventions to an employer; and (2) where an
addition to implementing clearly delineated policies, it is
critically important for a university to absolutely require implied agreement to assign is found because the
all employees and visitors to sign invention assignment employee:
agreements (IAAs) on their date of arrival. It is unwise to (a) was hired or assigned to invent
rely on policy statements to determine whether or not a (b) was hired or assigned to solve a specific
university employee owns his or her invention: univer-
sities should always obtain signed (express) agreements, problem
and both the employee and the technology transfer office (c) served the employer in a fiduciary (president
should retain copies. Research contracts with the govern- of a commercial company, for example)
ment and other sponsors should have a checklist item on
the existence of IAAs for the principal investigator and
other researchers (whether or not a university should
Where no written agreement exists and no
have undergraduates routinely sign IAAs is up to each implied contract to assign is found, the inventor
university). Upon termination of employment, personnel will own the invention, subject to the employ-
should be asked to sign an exit form indicating that they er’s “shop right” to use the invention if the in-
have disclosed all inventions falling within the terms of
vention was made with the employer’s resources
the IAA to the university licensing office.
or facilities. The often-discussed, but frequently
misunderstood shop right refers to an employee’s
Weidemier BJ. 2007. Ownership of University Inventions: Practical Considerations. In Intellectual Property Management
Technology Transfer Practice Manual (Second Edition, Part VI: Chapter 1.2).
© 2007. BJ Weidemier. Sharing the Art of IP Management: Photocopying and distribution through the Internet for non-
commercial purposes is permitted and encouraged.

WEIDEMIER
obligation to accord an employer a royalty-free, In addition, the university may want to remind
nonexclusive license to practice the employee’s Professor Z of any university policy that rewards
invention, if the employee, even if not specifically inventors with royalty revenue from the licensing
hired to invent, uses the employer’s facilities to of university inventions.
make the invention. In other words, a shop right
is an implied-in-law license of a patent from an 2.2 Example 2: The unreasonable
employee to an employer. What differentiates the inventor you missed
shop-right license from the agreements discussed Professor Z invented her solar light bulb under
above is that there is no assignment of patent the same circumstances as in Example 1 above;
rights from employee to employer; the employee however, the personnel clerk was out sick with
retains full title to the patent. the flu on Professor Z’s first day of work, and the
clerk’s substitute thought Professor Z only had
to sign the W-2 form. Thus, Professor Z never
2. Applying the rules signed an IAA.
But, how are these rules applied? Is a professor Because Professor Z received federal funding,
hired to invent? The following scenarios provide 37 C.F.R. § 401(14) applies regarding election
a framework for analyzing the practical applica- of title by the contractor (the university) within
tion of the above rules in the daily business of a two years of disclosure of the invention. At 37
university licensing office. C.F.R § 401.14 (f ), the regulations also require
the contractor to have written agreements with its
2.1 Example 1: The unreasonable inventor employees (other than clerical and nontechnical
The day Professor Z started work at the university, employees) requiring (1) the disclosure of all sub-
she signed a clear, unambiguous invention assign- ject inventions promptly and (2) the execution
ment agreement (IAA; see Box 1 for a sample), of all papers necessary to file patent applications.
along with his W-2 form. She signed a three-year Unfortunately, the university is in breach of its
federal contract to perform “research in the area of federal contract covering Professor Z’s invention.
solar light bulbs.” She invented a solar light bulb Professor Z has hired an attorney, whose wages
while working in her university laboratory be- are being subsidized by Professor Z’s potential li-
tween 9 a.m. and 5 p.m. on a Wednesday. She has censee, who has locked Z into a sweetheart deal.
refused to assign the invention to the university, The university scrambles to locate a copy of its
because as she says, “After all, it was my idea.” latest patent policy, which was revised and mailed
There is no question under the law that to all faculty members last year, and that states:
Professor Z must assign her invention to the uni- It is the policy of the university that individuals,
versity. In order to compel the assignment of an through their employment by university, or by par-
employee invention, pursuant to a written IAA, ticipating in a sponsored research project, or using
an employer must show: (1) that the invention university-administered funds or facilities, thereby
was conceived during the term of employment; accept the principles of ownership of technology as
(2) that the assignment was governed by a valid, stated in this policy. In furthering such undertak-
binding, and enforceable contract; and (3) that ing, all participants will sign invention assignment
all conditions in the assignment contract were agreements …
met by the employer (Mosser Industries, Inc. v.
Hagar).1 In this example, all of these elements The patent policy also stipulates that inven-
could be demonstrated. tors/authors will own inventions/materials if they
To diffuse the situation, the university could are (1) not developed in the course of or pursu-
suggest that Professor Z contact the university’s ant to a sponsored research or other agreement;
attorney or his own attorney. By seeking profes- (2) not created as a work-for-hire by operation of
sional advice, Professor Z should become con- copyright law and not created pursuant to a writ-
vinced that this issue would not be worth fighting. ten agreement with the university providing for a

CHAPTER 5.4
transfer of copyright or ownership to university; period is relevant. “An employee, who undertakes
and (3) not developed with the significant use of upon the direction of his employer to solve a specific
funds or facilities administered by university. problem within the scope of his general employment,
The university’s lawyer produces the often- is as truly employed and paid for the particular
cited case of United States v. Dubilier Condenser project as if it had been described at the outset in
Corp.,2 which states: the contract of employment” (Houghton v. United
One employed to make an invention, who States).4
succeeds, during his[or her] term of service, in ac- In Standard Parts Co. v. Peck,5 Peck was em-
complishing that task is bound to assign to his [or ployed to solve a particular problem, and a writ-
her] employer any patent obtained. The reason is ten contract required him, “to devote his time to
that he [or she] has only produced that which he [or the development of a process and machinery for
she] was employed to invent. On the other hand, if the production of the front spring now used on the
the employment is general, albeit it covers a field product of the Ford Motor company,” in return for
of labor and effort in the performance of which US$300 per month, plus several bonuses. The
the employee conceived the invention for which he contract was silent on the matter of invention
[or she] obtained a patent, the contract is not so ownership, which became the subject of the law-
broadly construed as to require an assignment of the suit. The Court found the answer “inevitable and
patent. resistless”: the “process and machinery” contracted
to be developed for the company belonged to the
Another early case brought to the university’s company, not to Peck, who was otherwise paid
attention is Solomons v. United States,3 which states: for his services.
If one is employed to devise or perfect an instru- Whether the work statement in Professor
ment, or a means for accomplishing a prescribed re- Z’s federal contract is specific enough to cover
sult, he [or she] cannot, after successfully accomplish- the development of a solar light bulb would be a
ing the work for which he [or she] was employed, question of fact under a Standard Parts rationale.
plead title thereto as against his [or her] employer. In Patent Law Fundamentals (Section 11.04,
That which he [or she] has been employed and paid Rights of Employer and Employee Inter Se), the
to accomplish becomes, when accomplished, the analysis goes one step farther; it is stated that
property of his [or her] employer. “apparently” an employer would own inventions
if an employee were “employed to plan and con-
In this example, the key question in deter- duct fundamental and practical investigations and
mining the ownership of the invention is wheth- such lead directly to an invention,” so long as the
er Professor Z was hired to invent a solar light employee’s area of activity was defined with “suf-
bulb, or whether her employment was “general.” ficient specificity.”
Actually, in this case, on the fateful day she was In Speck v. North Carolina Dairy Foundation,
hired ten years ago, no one had even remotely Inc. et al.,6 the inventors were professors and re-
considered the idea of a solar light bulb. Professor searchers who developed a secret process; they
Z was employed to teach several classes and to had not signed IAAs. They were paid by the uni-
conduct research generally on solar power. Her versity and acknowledged that the process was
first seven years of research were devoted to solar- developed at the university using university re-
powered cars. sources. The Supreme Court of North Carolina
The hired-to-invent rule clearly envisions found that, although there were no signed IAAs,
that specific job assignments can change during professors and researchers were hired to invent
the course of employment and the question of and their invention belonged to the university:
fact turns on the circumstances and current job “[T]hey developed the secret process ... while em-
assignment at the time of invention. Therefore, ployed as teachers and researchers to engage inter
the change in focus of Professor Z’s research from alia in just such research and development for the
solar cars to solar light bulbs over the ten-year University.”7

WEIDEMIER
An even more recent university case is should address such issues explicitly in an express
University Patents, Inc. v. Kligman et al.8 Dr. IAA. However, the issue of whether professors
Kligman invented a Vitamin A preparation to and university researchers, as a class, are hired to
slow the effects of skin aging. As with Professor Z, invent when pursuing their field of research was
Dr. Kligman did not sign an IAA, nor did he sign not addressed.
an invention disclosure statement. Some univer- Although involving a different central issue,
sity resources were used, though Dr. Kligman was a third case, Regents of University of Colorado v. K.
not as closely connected to the university as the D. I. Precision Products, Inc.,12 stated that “[T]he
inventors in the Speck case. Animal studies were subject of the University’s employment was research
conducted at the university by Dr. Kligman’s wife, directed towards the obtaining of patents.” This
Lorraine, pursuant to a Johnson & Johnson con- supports the concept that university professors
tract, and a clinical study was performed at the and researchers are employees hired to invent.
university’s Aging Skin Clinic. But with regard to Professor Z in our earlier
University Patents, Inc., with whom the example, the law is not settled as to whether uni-
University of Pennsylvania had contracted to versity professors and researchers are hired to in-
exploit its patents, relied primarily on the uni- vent. What is the likely outcome for Professor Z?
versity’s patent policy set forth in the employee In the university’s favor are the following points:
handbook to prove an implied contract to assign. • The failure to have Professor Z sign the IAA
Under the University of Pennsylvania’s policy, was a one-time error, not the result of a
all inventions resulting from work performed pattern of negligence.
on university time or at university expense were • All professors were recently mailed a copy
owned by the university. of the patent policy.
Pennsylvania law is unclear on the question • Professor Z’s invention fell squarely within
of whether an employee handbook can create an her federal contract’s statement of work.
employment contract. The Court applied tradi-
tional patent assignment principles to the more In Professor Z’s favor are these points:
controversial handbook concepts and found • She did not sign an IAA.
that the University of Pennsylvania’s handbook • It was her first invention, and she had never
“clearly was not communicated as a definite offer gone through the procedure before. (see
of employment.”9 The opening comments in the Mainland Industries, Inc. v. Timberland Ma-
handbook provided in part that, “we hope that chine and Engineering Corp.13)
this Handbook will serve as a useful traveler’s
guide [emphasis added],” rather than as a contrac- As a practical matter, a university should
tual legal document. tighten its process for requiring all regular em-
In April, 1991, the U.S. District Court for ployees and visitors to sign IAAs on their date of
the Eastern District of Pennsylvania concluded arrival. Before action is taken on new invention
that a “jury reasonably could find that an im- disclosures by the university licensing office, staff
plied contract to assign the patent in question was should double check the existence of such agree-
formed between Dr. Kligman and the University ments for particular inventors. Research con-
[of Pennsylvania].”10 The university conveyed and tracts, with the government and other sponsors,
enforced its patent policy in a rather lax manner should have a checklist item referencing the exis-
over the years, but the court found “[T]here is tence of IAAs for the principal investigator and
evidence, however scant, from which one could find other researchers.
that Dr. Kligman was aware of the Patent Policy
since August, 1967, and manifested an intent to be 2.3 Example 3: Saturday afternoon
bound by it.”11 The court cautioned that employ- conception at home
ers are advised not to rely on handbooks to gov- Professor Z invents the solar light bulb in her
ern the assignment of patent rights; rather, they driveway on Saturday afternoon after she incurred

CHAPTER 5.4
a minor hit on the head falling off her son’s skate- Dunmore and Percival Lowell were employed by
board. She refuses to assign the invention to the the government in the radio section of the Bureau
university because, “I invented it on my own of Standards and performed research and testing
time.” in that laboratory. In the fall of 1921, Dunmore
In this case, Professor Z properly signed the and Lowell were considering the problem of ap-
IAA on her first day of work. Ownership, in this plying alternating current to broadcast receiving
case, would depend on the exact wording of the sets. This project was unrelated to the work of the
IAA. As a matter of policy, each university must radio section and not assigned to them by any
decide what is fair and what is beyond the scope superior. The employees took on the research in-
of the IAA. A university would be most pru- dependently and voluntarily.
dent to require inventors to assign this concep- Dunmore and Lowell discovered a remote-
tion-at-home type of invention to the university. control system for airplane bombs and torpedoes
Otherwise, university sponsors would be short- and were permitted to pursue their work in the
changed by the fact that the invention was con- laboratory and to perfect the prototypes after
ceived in the driveway, even though the inventor disclosing their discovery to their section chief.
most certainly relied for years on government- Dunmore and Lowell did not sign IAAs, and no
funded background research at the university and one advised them that they would be expected to
the invention most certainly would have been in- assign their rights to the United States. Dunmore
spired, at least in part, by that research. and Lowell instead assigned the invention to the
In Mainland Industries, the inventor was Dubilier Condenser Corporation.
a salaried employee who did not work specific The Supreme Court held that the work was
hours and did not sign an IAA. He was uncer- not part of the work specifically assigned to them,
tain whether the patentable idea was conceived and therefore, the employees had title. The gov-
at home or at the office. The court stated at 665, ernment was granted the royalty-free right to
“the place where an invention is developed is not de- practice the inventions, which is known as a shop
terminative of whether the employer or the employee right: when “a servant [employee] during his [or
is entitled to a patent.” her] hours of employment, working with his [her]
As a practical matter, most likely Professor Z master’s materials and appliances, conceives and
will return to work at the university on Monday perfects an invention for which he [or she] obtains a
morning, will revamp her work schedule and list patent, he [or she] must accord his master a nonex-
of priorities toward the goal of making Saturday’s clusive right to practice the invention.”14
idea into a working prototype, and will assign In addition to the shop-right issue, Dubilier
three graduate students to start implementing the settled the question of whether the character of
idea. Professor Z is now clearly using university- service calls for different rules regarding the rela-
administered funds and facilities to develop the tive rights of the government, as the employer,
invention, and the university would own the pat- and its employees. The answer was no, the same
ent rights, under the hypothetical IAA in Box 1. principles of employer–employee apply.
These court decisions are all good news for
2.4 Example 4: The eclectic inventor Professor Z. She would probably own her tulip
Professor Z, instead of inventing a solar light bulb, bulb invention; the university would have a roy-
as a diversion from her solar projects instead de- alty-free, nonassignable right to practice it.
velops a remarkable new fertilizer for tulip bulbs, The controversy could have been avoided, had
after borrowing a colleague’s lab in the botany de- the personnel clerk been able to handle Professor
partment and two research assistants on Tuesday Z’s paperwork. If Professor Z had duly executed
afternoons. A frantic search of the records is fu- the hypothetical IAA, the university would have
tile; Professor Z never signed the IAA. owned the tulip bulb invention, because the sig-
The Dubilier case referenced in Example nificant use of university-administered funds and
2 above presented a similar set of facts. Francis facilities was covered in the standard agreement.

WEIDEMIER
2.5 Example 5: The precocious undergrad should be a matter of thoughtful policy making
Professor Z is filled with joy. After years of lectur- for each university.
ing to a sea of bored, young faces, Jane, then a
sophomore, appears in the professor’s advanced 2.6 Example 6: The better-late-than-never
solar class. While chatting after class about agreement
Professor Z’s long struggle to harness the sun’s Professor Z did not sign the IAA on her first day
power in a 60-watt light bulb, Jane asks the key of work. She invented the solar light bulb five
question, “Why not do it this way...?” Jane per- years later, and coincidentally two weeks after the
forms a simple experiment demonstrating that her discovery received an IAA form, as part of a uni-
idea will work. Professor Z puts the lab at Jane’s versity licensing office clean-up project, and she
disposal, and Jane spends every free moment for signed it.
the next year in the lab developing a prototype. The courts are divided on whether continua-
Undergraduates at the university are not tion of employment is adequate consideration for
routinely requested to sign intellectual property such an agreement when it is signed after the em-
agreements unless they are employed as research ployer–employee relationship has been formed
assistants. Jane is not in need of employment (see Mirafi, Inc. v. Murphy15). Any agreement
while at school and never signed the agreement. after the employer–employee relationship has
Students were not issued copies of the patent pol- been formed must have new consideration to be
icy, and frankly, Jane had not even considered the enforceable; Harsco Corp. v. Zlotnicki16 held that
patent-ownership issue. an agreement to cover the assignment of inven-
When Professor Z filed an invention disclo- tion to the employer, although not executed by
sure with the university licensing office citing the the employee until after he made the invention,
federal research support and naming herself and as agreement used past and present tenses and re-
Jane as co-inventors, problems arose. Jane refused ferred to entire term of employment.
to assign her invention to the university and de- Regarding General Signal Corp. v. Primary
nied that Professor Z was a co-inventor. Professor Flow Signal, Inc. et al.,17 Dezsoe Halmi was em-
Z ultimately conceded this issue after the univer- ployed by General Signal (GSC) and rose from
sity’s patent counsel defined inventorship for her, the position of draftsperson to products develop-
and all agreed that Jane was sole inventor. ment manager. Mr. Halmi was employed for 15
In this case, as in University Patents, there is years before he was asked to sign an “Employee
no signed IAA, and the university is relying solely Confidential Information and Invention
on its patent policy. Under the hypothetical pol- Agreement,” which he then signed. The agree-
icy described in Example 2, the university would ment required that he assign, to GSC, his inven-
own Jane’s invention because of her use of signifi- tions made while working at GSC and for a six-
cant funds and facilities, regardless of the lack of month period following employment.
a signed IAA. On April 5, 1983, five days after the six-
In a court battle, had Jane the financial re- month period ended, Mr. Halmi recorded the
sources to fight it, the university would have had conception of a universal flowmeter that was
an uphill battle to prevail. Jane probably could patented and then manufactured and sold by
not have been assumed to have had reasonable Primary Flow Signal, Inc., a company that Mr.
knowledge of the terms of the patent policy and Halmi established after leaving GSC.
its applicability to her, and so the university might The court found that his continuing employ-
be left with just a shop right. ment was adequate consideration for the inven-
If Jane had signed the IAA, the result would tion agreement. The court also found that:
be different; most likely the university would own The perfection of a flowmeter proved to be a
the invention because of her significant use of painstakingly intricate process involving extensive
funds and facilities. Whether or not a university testing. It is therefore difficult to believe that after
should routinely have undergraduates sign IAAs a long and distinguished career with Plaintiff, Mr.

CHAPTER 5.4
Halmi in his musing five days after the trailer clause that summer, and the invention is clearly novel and
expired for the first time came up with the idea for patentable. But he did not sign the visiting scien-
the NTV. Although the word ‘Eureka!’ has allegedly tist IAA from Professor Z’s university. His univer-
been uttered by more than one inventor over the sity is claiming ownership and produces a valid,
years, the concept at issue does not lend itself to such unambiguous IAA, which covers all inventions
sudden discovery. made during his period of employment, regardless
of where conceived or reduced to practice.
The court concluded that the idea must have Again, the university is in a bit of trouble
occurred to Mr. Halmi while employed at GSC, under its federal contract because this researcher
and, therefore, Mr. Halmi was in violation of the did not sign an IAA. Once again, the university
invention agreement. is left relying on a patent policy that states that
The university can take some steps to protect the university owns inventions made by visiting
itself from situations where the IAA is not signed scientists making significant use of funds or facili-
on the first day of employment, or for inventions ties. Professor Xcaliber may never have seen the
not reported by employees who leave the univer- patent policy document.
sity. As mentioned in Example 2, various catch The university could argue that Professor
mechanisms can be put in place to ensure that Xcaliber should have known that Professor Z’s
IAAs are on file. If it is discovered that an em- university would have some sort of patent policy
ployee has not signed an agreement, a carefully and that he should have made reasonable inquiry.
worded agreement, signed later, provides some No case law was discovered relevant to this situa-
assistance in many jurisdictions. The agreement tion, but most likely Professor Xcaliber’s univer-
should state that the consideration is the continu- sity would own the invention, with Professor Z’s
ation of employment and the continued use of university getting a shop right. This might be a
university funds and facilities, and that the en- good case to negotiate for joint ownership by the
tire term of employment is covered. Some addi- universities. Another possibility for compromise
tional consideration could be given, for example, is to recognize the contribution of both universi-
the payment of the sum of US$10. Any royalty- ties through a patent cost and license royalty-shar-
sharing right under the university’s patent policy ing arrangement. Aside from the equities on both
should also be cited. sides, as a practical matter Professor Xcaliber’s
On termination of employment, person- university may find itself on the other side of a
nel should be asked to sign an exit form that in- similar situation in the future and may want to
cludes a statement such as this: “I have disclosed generate goodwill.
all my inventions falling within the terms of the
Invention Assignment Agreement to the univer- 2.8 Example 8: The inventor who does not
sity licensing office.” play well with others
Professor Z was not asked to sign the IAA on
2.7 Example 7: The visiting scientist her first day of work but, instead, five years lat-
Professor Z corresponds regularly with her col- er during the licensing office’s clean-up project.
lege classmate Martin Xcaliber, who is a tenured She replied, “My ideas and thoughts are not for
professor at another university halfway across the sale.” Fearing that Professor Z may be upset, the
country. One hot summer day, Professor Z is feel- department head and administration instruct the
ing stultified in her work and invites Professor license office not to insist on the signing.
Xcaliber to spend some time collaborating in her Without upper-level pressure on the matter
solar lab. He is compensated through funds from of Professor Z’s job security, the licensing office
Professor Z’s federal contract. The collaboration can only argue that:
succeeds, and Professor Xcaliber breaks through • The patent policy applies in any event, and
the impasse Professor Z had been struggling with Professor Z should sign the IAA merely to
for almost a year. He reduces his idea to practice affirm.

WEIDEMIER
• Licensing of inventions would be blocked by only through research. This conclusion is unsup-
the potential of future ownership disputes ported by the case law, which does not distinguish
between Professor Z and the university. between university and commercial employees; in
• The university would take legal steps to fact, the cases of Speck v. K. D. I. Precision Products
pursue its ownership rights to inventions Inc. found specifically that university professors
made by Professor Z falling within the pat- and researchers are, by definition, hired to invent.
ent policy. The Supreme Court stated that government em-
ployees are governed by the same rules as private
industry employees in Dubilier. The logical exten-
3. Conclusions sion of Dubilier is to treat university employees,
Under the hypothetical patent policy stated the bulk of whom perform research under govern-
under Example 2, an employee of a university ment funding, equivalent to government research-
is required to assign to the university all inven- ers, and therefore, to be the treated the same as
tions made with university-administered funds commercial employees.
and facilities if the employee signed a clear and In Houghton, the employee-inventor argued
unambiguous IAA. Even if no written contract that the hired-to-invent rule should not be ap-
exists, the university may own the invention. It plied to cases in which an employer, such as the
is a question to be decided in view of the circum- government, does not seek a monopoly (the es-
stances, and the contract may be implied from sence of a patent). The Court responded vehe-
the relation of the parties. mently that:
The principles underlying this policy have It is unthinkable that, where a valuable instru-
evolved from the line of court cases that, in the ment in the war against disease is developed by a
absence of a written agreement, hold that an in- public agency through the use of public funds, the
vention belongs to an employee-inventor unless public servants employed in its production should be
the employee was hired to invent or assigned to allowed to monopolize it for private gain and levy a
solve a particular problem (Standard Parts Co. v. tribute upon the public which has paid for its pro-
Peck18). In all of the cases, an implied contract duction, upon merely granting a nonexclusive license
to assign was found, because the employee had for its use to the governmental department in which
only accomplished what he was hired to do. The they are employed.
employer also owns the invention if the inventor
owes a fiduciary duty to the company (see Great Ultimately, without a written agreement, the
Lakes Press Corp. v. Froom,19 where the relation- facts of each case determine ownership; a particu-
ship of president to company found to be one of lar professor may or may not be found to have
special trust). been hired to invent or to resolve a particular
Where no written contract and no implied problem. As with any class of employees, proba-
contract to assign is found, the inventor owns the bly no blanket statement can be made as to when
invention, subject to the employer’s shop right to university professors and researchers are consid-
use the invention if it was made with the employ- ered to have been hired to invent.
er’s resources or facilities. For managing intellectual property, inven-
One expert in IP law concluded that, “[T]he tion, and ownership issues, the best approach is
common expectations concerning university em- always to require employees and visitors in a posi-
ployment are not the same as the expectations con- tion to invent to sign IAAs as often as employees
cerning employees within private industry.”20 It is sign W-2 forms. n
this author’s opinion that the Speck court’s “classi-
fication of university faculty as persons hired to invent B. JEAN WEIDEMIER, Principal, Cambridge Licensing
is contrary to the premises upon which higher educa- Law, LLC, 124 Mt. Auburn Street, Suite 200,
tion is based.”21 The author suggests that professors North Cambridge, MA, 02138, U.S.A. Weidemier@
cambridgelicensing.com
are principally encouraged to acquire knowledge

CHAPTER 5.4
1 200 U.S.P.Q. 608 (1978). 13 218 U.S.P.Q. 662, 665 (Ore. Ct. App. 1982).
2 289 U.S. 178, 53 S.Ct. 554, 77 L.Ed. 1114 (1933). 14 (289 U.S. 178, 188).
3 137 U.S. 342, 346, 11 S.Ct. 88, 89, 34 L.Ed 667 (1890). 15 14 U.S.P.Q. 2d 1337, 1350 (W.D.N.C. 1989).
4 23 F.2d 386, 390 (4th Cir. 1928). 16 779 F.2d 906, 228 U.S.P.Q. 439 (3rd Cir. 1985).
5 264 U.S. 52, 59 (1923). 17 C.A. Nos. 85-0471B, 86-034B (D.C. R.I. 1987).
6 311 N.C. 679, 319 S.E. 2d 139 (1984). 18 264 U.S. 52 (1923).
7 319 S.E. 2d 139, 143. 19 695 F. Supp. 1440 (W.D.N.Y. 1987).
8 762 F. Supp. 1212 (1991). 20 Smith GK. 1985. The Souring of Sweet Acidophilus Milk:
9 762 F.Supp. 1212, 1228. Speck v. North Carolina Dairy Foundation and the Rights
of University Faculty to their Inventive Ideas. North
10 762 F. Supp. 1212, 1234. Carolina Law Review 63:1259.
11 Ibid. 21 See supra note 1, p. 1248.
12 488 F.2d 261, 267 (1973).

WEIDEMIER
Box 1: Invention Assignment Agreement
Name (please print or type):
In consideration of the sum of One Dollar ($1.00) and:
• my past, present, and/or future employment at UNIVERSITY; and/or
• my past, present, and/or future participation in research at UNIVERSITY; and/or
• opportunities that have been made or will be made available to me to make significant use of
UNIVERSITY-administered funds or facilities; and/or
• opportunities to share in royalties and other inventors’/authors’ rights outlined in the “Guide
to the Ownership, Distribution and Commercial Development of UNIVERSITY Technology,”
A. agree to disclose promptly to UNIVERSITY and hereby assign all rights to all inventions,
copyrightable materials, computer software, semiconductor mask works, tangible research
property and trademarks (“Intellectual Property”) conceived, invented, authored, or reduced
to practice by me, either solely or jointly with others, that:
(i) are developed in the course of, or pursuant to, a sponsored research or other agreement in
which I am a participant, as defined in Paragraph X of the UNIVERSITY Technology Policy
Guide; or
(ii) result from the significant use of UNIVERSITY-administered funds or facilities as “significant
use,” as defined in Paragraph X of the UNIVERSITY Technology Policy Guide; or
(iii) result from a work for hire funded by UNIVERSITY, as defined in Paragraph X of the
UNIVERSITY Technology Policy Guide; and
B. agree to execute all necessary papers and otherwise provide proper assistance, at UNIVERSITY’s
expense, during and subsequent to the period of my UNIVERSITY affiliation, to enable
UNIVERSITY to obtain, maintain, or enforce, for itself or its nominees, patents, copyrights, or
other legal protection for such Intellectual Property; and
C. agree to make and maintain for UNIVERSITY adequate and current written records of all such
UNIVERSITY Intellectual Property; and
D. agree to deliver promptly to UNIVERSITY, when I terminate employment with UNIVERSITY

for any reason, and at any other time as UNIVERSITY may request, copies of all written
records referred to in Paragraph C, above, as well as all related memoranda, notes, records,
schedules, plans, or other documents, made by, compiled by, delivered to, or manufactured,
used, developed, or investigated by UNIVERSITY, which will at all times be the property of
UNIVERSITY; and
E. will not to disclose to UNIVERSITY or use in my work at UNIVERSITY (unless otherwise agreed
in writing with UNIVERSITY):
(i) any proprietary information of any of my prior employers, or of any third party, such
information to include, without limitation, any trade secrets or confidential information
with respect to the business, work, or investigations of such prior employer or other third
party; or
continued on next page

CHAPTER 5.4
Box 1 (continued)
(ii) any ideas, writings, or intellectual property of my own that are not included in Paragraph
A, above, within the scope of this Agreement (please note that inventions previously
conceived, even though a patent application has been filed or a patent issued, are subject
to this Agreement if they are actually first reduced to practice under the circumstances
included in Paragraph A above).
After the date hereof, this Agreement supersedes all previous agreements relating in whole or in
part to the same or similar matters that I may have entered into with UNIVERSITY
This Agreement may not be modified or terminated, in whole or in part, except in writing signed
by an authorized representative of UNIVERSITY Discharge of my undertakings in this Agreement
will be an obligation of my executors, administrators, heirs, or other legal representatives or
assignees.
I represent that, except as identified on the reverse side hereof, I have no agreements with, or
obligations to, others in conflict with the foregoing.
Witness
Signature (to include first name in full)
Date
Note: This Agreement is completed and signed in triplicate and distributed in the following
manner: original copy to the employee’s personnel file, second copy to the employee; third copy
to the Technology Licensing Office.

CHAPTER 5.5
The Role of the Inventor in the

Technology Transfer Process
ANNE C. DI SANTE, Director, Technology Transfer Office, Wayne State University, U.S.A.
ABSTRACT manager has no real control. In addition to gain-

Without inventors, there would be no technology to ing inventor support, the technology transfer
transfer. But without technology transfer professionals,
professional must expertly handle inventor rela-
there would be limited transfer of technology. Good rela-
tions between inventors and technology transfer profes- tions, both with the technology transfer office
sionals are therefore essential for the commercialization (TTO) and within the university. The technol-
enterprise to succeed. Relationships should be established ogy transfer professional must also make sure
long before the transfer services of the technology trans- that the inventor has realistic expectations about
fer office (TTO) are required. A healthy relationship will
allow technology managers to negotiate both faculty and marketability. This chapter will describe both the
business concerns about licensing agreements. Making various roles the inventor plays in the technol-
sure that the inventor is sympathetic to the aims of the ogy transfer process and the technology transfer
TTO will also make it much easier for everyone to under- professional’s many responsibilities with respect
stand how a technology may meet market needs, recognize
to the inventor.
potential licenses, and determine whether a licensee is ful-
filling its obligations. For all of these reasons and more, a
TTO should always go the extra mile to educate, develop,
and maintain good working relationships with inventors. 2. Inventor as creator
of technology
The essential role played by the inventor is to create
1. Introduction and develop the technology that will be transferred.
The skills of the technology transfer professional No one else will understand the technology as well
are specific and unique to the profession and are as the inventor, so the inventor’s full cooperation
crucial for the management and licensing of inin disclosure and participation in the technology
tellectual property (IP). The successful transfer of transfer process is necessary. To develop the best
a technology, however, cannot be accomplished working relationship possible with the inventor,
without the inventor. The challenge for the tech- the reputation of the TTO and of the technology
nology transfer professional is to obtain full sup- transfer manager are important. Public relations
port for his or her efforts from the inventor, an within the institution are critical for sustaining
individual over whom the technology transfer these relationships and forging new ones.
Di Sante AC. 2007. The Role of the Inventor in the Technology Transfer Process. In Intellectual Property Management in
Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR:
Technology Transfer Practice Manual (Second Edition, Part V: Chapter 2).
© 2007. AC Di Sante. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

DI SANTE
The technology professional should strive to The inventor and patent counsel should inter-
ensure that the inventor hears of the TTO before act early in order to form the critical relationship
coming up with a great invention. For many rea- necessary for a solid patent application. The in-
sons,1 the technology transfer professional needs ventor must be assured of confidentiality and con-
to learn earlier, rather than later, about the inven- vinced of the value of providing a full disclosure
tion. Academic faculty are now significantly more of the technology to patent counsel. In addition
aware of the technology transfer process than they to assisting in the drafting process, the inventor
were a decade ago, but a manager should not as- is needed for inventorship determinations. For
sume that this is enough to motivate faculty to file example, many faculty equate inventorship with
invention disclosures. The inventor must be fully authorship, so they will list collaborating inven-
aware of the importance of making timely disclo- tors using the same criteria for naming authors on
sure of an invention to the technology transfer of- scientific manuscripts. Fortunately, patent counsel
fice. However, educating faculty on the hazards of can assume the role of adjudicator for inventor-
premature disclosure (including in publications) ship matters, although the TTO may be required
may mean more calls to the office about technol- to enlist the assistance of department chairs and
ogy not prime for licensing. It is easier to respond other university administrators for difficult cases.2
not yet than to explain that the big one got away. The inventor must be a willing partner dur-
The technology transfer professional is chal- ing the actual prosecution of the patent applica-
lenged to develop systems that promote early tion, as well. While the concept of nonobvious-
information delivery, while remaining conscious ness can be difficult to grasp,3 a skilled patent
of the specific academic environment of the uni- attorney will work closely with the inventor to
versity and the pressures on faculty. The proce- develop the responses necessary to overcome this
dures developed for information delivery must be type of rejection. The inventor should be encour-
relatively easy to access and use, since it is criti- aged to read the materials and provide answers
cal that the TTO receive not just timely but full to the attorney’s questions; after all, the inventor
disclosure of the invention. The technology man- knows the field better than anyone else. Most fac-
ager may also be faced with a faculty member’s ulty respond well to patent counsel’s translation
concern about confidentiality. For example, the of the rejection from “patentese” to plain English.
inventor may be willing to disclose to academic Direct questions are easier for the inventor to ad-
peers, even at another institutions, but may view dress than a general “please read and give me your
the staff in the TTO as outsiders or as admin- thoughts on this” request. While it will cost more
istrative bureaucracy. The technology transfer in attorney time to have patent counsel read, ana-
manager will need to ease these concerns to so- lyze, and develop questions to address an office
licit complete participation of the inventor in the action, the investment will prove worthwhile if
technology transfer process. needed responses are shared from the start.
Filing a patent application and having a
patent issue are not the only goals of the TTO.
3. Role in the protection process Nearly 100% of the time, the technology transfer
Once the decision to file a patent application has professional will also need the inventor to actu-
been made, the most frequent question a technol- ally transfer the technology to the licensee later in
ogy transfer professional will hear is: “How much of the process. In addition, once the patent is issued
my time will this take?” While one may be tempted and the technology licensed, the inventor may
to minimize the efforts needed, it is important take on the unofficial role of “infringement po-
to provide realistic estimates in order to prevent lice officer” by recognizing when a product is sold
unrealistic expectations. Depending on the tech- that may infringe the patent. An inventor should
nology and the detail in the invention disclosure be encouraged to report suspected infringement
document, inventor input at the drafting and fil- to the TTO, which can then assign responsibility
ing stages varies from minimal to substantial. for pursuing infringers.

CHAPTER 5.5
Developers of software and multimedia professional to perform a general SWOT analy-

should be well educated about the use of copy- sis (strengths, weaknesses, opportunities, threats)
right notices; it should be second nature for the with relatively minor market research. An inven-
appropriate notice to be placed in a new program. tor can also prove to be a good source of other
Of course, this depends on the specific copyright marketing information, such as market size, mar-
policy in effect at the institution. ket location, and competitive technology, both
Biological materials with commercial poten- in academia and industry. While any numbers
tial are another form of IP not always associated should be verified with an outside source, an in-
with patent protection. The inventor must un- ventor can be a one-stop source of market in-
derstand the difference between transfer to non- formation with which to get marketing efforts
profit research institutions and transfer to for- started.
profit institutions that may use the technology
as a product development tool. It is important 4.2 Identification of potential licensees
for the inventor to understand that the value of A manager can expect an inventor to be contact-
the material will be maintained if the release of ed by potential licensees because of the inventor’s
the material is controlled. This control does not publications, meeting presentations, and indus-
prevent the inventor from fulfilling the obliga- trial contacts. Many inventors call friends in the
tion to provide samples of the materials to those industry to discuss their research. It is important
who wish to repeat experiments, as required by to encourage the inventor to direct commercial
many scientific journals, or from meeting fed- inquiries to the TTO. The referral of these calls
eral guidelines on the dissemination of research to the technology manager will help accomplish
tools. In the management of biological materi- many objectives. First, it allows the technology
als, it is essential for the technology transfer pro- transfer professional to manage the commercial-
fessional and the inventor to design and agree ization of the technology by keeping tabs on
upon a distribution plan that maximizes com- commercial interest, allowing consideration of all
mercial potential without negatively affecting potential licensees when making final decisions.
scientific research.4 Second, it establishes early in the process who will
be the key licensee contact in making the licensing
decision. Third, it keeps the inventor from selling
4. Role in the technology the well twice. Fourth, by moving the inventor
transfer process to a secondary role in negotiations, the inventor
The technology transfer process involves many becomes insulated from licensing decisions, thus
steps, some occurring concurrently. An inventor allowing the inventor and the industrial scientist
participates at various levels in each step, although to develop and maintain a relationship based on
the degree to which the inventor is involved will the interests of science—not business. Indeed,
depend on many factors, including university the industrial scientist hopefully will become the
corporate culture and the players involved. internal champion within the licensee for the in-
novation, with the first step in this process involv-
4.1 Marketing ing the inventor.
The technology transfer professional cannot ex-
pect to understand every industrial sector, mar- 4.3 Information to the potential licensee
ket, or niche into which technologies may fit. Who provides what information to a potential li-
Most often, it is the inventor who will know censee is partly intuitive. For example, the technol-
both the academic and industrial players in ogy transfer professional generally addresses issues
the field. Additionally, the inventor may have a regarding the patent application, IP policies, and
clearer understanding of unmet market need and licensing, while technical questions, prototypes,
whether the technology addresses this need. This demonstrations, and materials for evaluation will
information may allow the technology transfer most likely come from the inventor. With regard

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to the latter, the inventor knows the technology may be important to promptly disclose this in-
best—what it can and cannot do—and thus is in formation to the company. It may be advanta-
the best position to share such information. The geous to routinely schedule discussions with the
technology transfer manager may wish to en- inventor during negotiations. Such discussions
courage the inventor to brainstorm with his/her can serve the dual purpose of a negotiation up-
industrial counterpart on issues that may come date and a technical update. Prior to signing the
up during scale-up. An inventor may become agreement, the inventor should identify exactly
nervous about providing a full disclosure of the what materials, know-how, and so on, must be
technology to industry. The technology transfer transferred to the licensee. The inventor should
professional should work with the inventor to en- also discuss with the licensee how this transfer
sure that the time is right in the review process is best accomplished. The licensee may wish to
to provide full disclosure, and that the disclosure have access to the inventor once the agreement is
can be documented in some manner. in place, for example, by hiring the inventor as a
consultant. The technology transfer professional
4.4 Licensing negotiations must stay informed of these activities and verify
An inventor’s level of participation in licensing that any obligations of the university under the
negotiations truly depends on the individual. agreement are fulfilled, and that any new rela-
The decision about how far to involve an in- tionships between the licensee and the inventor
ventor rests on the shoulders of the technology work within the framework of the license and
transfer professional. The manager must weigh institutional policies.
the inventor’s personality, interpersonal skills,
and knowledge of business negotiations, as well 4.5 Licensee diligence and license compliance
as the inventor’s understanding of office policy, Following execution of the license, the inventor is
knowledge of the licensee, and ability to func- a major source of information. It is extremely im-
tion as part of a negotiation team. The technol- portant for the TTO to develop systems to follow
ogy transfer professional should be on guard for license compliance and diligence.5 In a perfect
signs that the inventor is starting to sway to the world, the technology transfer professional would
side of the licensee during negotiations, which maintain close ties with his or her counterpart
sometimes occurs. Often, the manager can re- at the licensee. Frequently, however, the inven-
solve this by investing in discussions with the tor will have more information than anyone else
inventor to identify the underlying reason(s) for about technology development by the licensee. In
the inventor’s sympathy towards the licensee’s most cases, contact with the scientific counterpart
point of view. It is important for the inventor at the licensee is key for good information flow.
to agree to the deal breakers and to be prepared Indeed, the relationship between the inventor and
to walk away from the deal. If the inventor is the scientific counterpart may provide the insight
apprehensive of business negotiations, he/she that will help the technology manager determine
should remain on the sidelines. If this should be whether the licensee is diligently pursuing the
necessary, the technology transfer professional technology’s development. The technology trans-
still should keep the inventor updated on the fer professional should encourage the inventor to
status of license negotiations in order to man- inform the TTO of concerns about the voracity
age expectations and to preserve a good relation- of the licensee’s efforts (or lack thereof ). Specific
ship with the inventor. The inventor, in turn, information about the likelihood of meeting tech-
should be encouraged to keep the technology nical milestones is also helpful. Encourage the li-
transfer manager updated on what he/she may censee to involve the inventor (as an observer) in
have heard from contacts within the company. product development discussions. That way, the
The technology transfer professional should be inventor will stay informed and may be able to
notified of any technical updates that occur, es- help with any technical glitches that might arise
pecially during the negotiation period, since it when the licensee scales up the technology.

CHAPTER 5.5
4.6 When things go well may perceive progression from research to develop-
When there is an unqualified success in a tech- ment as a sign of an incompetent licensee.
nology transfer effort, the inventor, licensee, uni- If litigation is a possibility, the technology
versity (including the TTO), and the public all transfer professional may wish to enlist the help
benefit. The inventor might also experience fame of the university’s Office of the General Counsel
and fortune, depending on the discovery. Positive to make sure that the inventor understands the
feedback has the potential to reach other faculty process. Specifically, the inventor needs to know
and may encourage those who have not yet tested what is expected of him or her as inventor, and
the waters of the TTO to disclose an invention. what is involved in such a proceeding. Litigation
Conversely, success can also bring unwanted at- is complex and requires coordination and coop-
tention, often related to the anticipated revenue eration. Indeed, should the TTO need to litigate
stream. Disputes may arise about royalty distribu- on a matter related to a license, the technology
tions among the inventor, his or her department transfer professional and the inventor will both
head, or dean. The university’s royalty distribution benefit from having previously established a long-
policy may be challenged. If significant revenue is lasting, supportive relationship.
expected, funds traditionally earmarked for one
purpose might be considered for reallocation. A
wise technology transfer professional will remain 5. Inventor as entrepreneur
in touch with the inventor to ward off these oc- With the increased emphasis on the role of tech-
currences and/or to be available for assistance, if nology transfer in economic development activity,
needed. When challenges are raised, the TTO managers can expect a change in the relationship
may be called upon for suggestions and may be when the inventor moves into the role of entre-
engaged in the discussions, even if its preference preneur. Many factors will influence the evolving
would have been to remain neutral. relationship, including whether it is the inventor
or the TTO pushing the entrepreneurial activity.
4.7 When things go badly Regardless, it is important for the inventor to rec-
The earliest signs that a license agreement is not ognize that the technology transfer professional’s
proceeding as planned are usually given (inten- fiduciary duty is to the university. In past cases of
tionally or not) to the inventor. The technology third-party licensing, the inventor’s interests and
transfer professional, therefore, should counsel the the university’s were closely aligned. But now the
inventor to recognize trouble spots. It is a good situation is different. Be diligent in notifying the
idea to provide pointers to the inventor about entrepreneur about the university’s expectations
what to look for and when to contact the office for him or her to provide appropriate business
to relate issues of concern. Better yet, the tech- and legal support. To prevent problems down the
nology transfer professional should routinely stay road from which it may be difficult to recover, the
in touch with the inventor in order to stay aware inventor-entrepreneur must understand the uni-
of the licensee’s R&D efforts. If a license is ter- versity’s conflict-of-interest and conflict-of- com-
minated (for whatever reason), the inventor can mitment policies. The technology transfer profes-
help ensure that the institution retrieves from the sional should encourage the inventor to provide a
licensee what is due. Should the technology man- frequent flow of information to his or her depart-
ager find himself or herself in the unenviable po- ment chair and dean. Concurrently, the technol-
sition of terminating a license, the inventor may ogy transfer professional should also provide the
be instrumental in establishing breach of diligence appropriate information to the administration,
obligations. Managers should be cautious, how- department chair, and dean. The inventor-entre-
ever, of the overzealous phone call from the in- preneur must recognize that license negotiations
ventor calling for the termination of a license. For with the company must be arm’s-length negotia-
example, an inventor who has difficulty moving tions and that they often require high-level ap-
past the point of research to product development proval, which may delay the execution of the

DI SANTE
agreement for weeks. The inventor-entrepre- It is important for the technology transfer
neur has the potential to become a spokesperson professional to stay high on the inventor’s prior-
for the university’s technology transfer efforts. ity list of individuals with whom to nurture a re-
Conversely, the inventor-entrepreneur could be- lationship. Faculty, however, are not universally
come the strongest critic of such activity, depend- evaluated by the number of disclosures submitted
ing on how these relationships are managed and or patents awarded; publications and grants re-
balanced. main the priority. Remember this, and be assured
that if the technology transfer professional un-
conditionally accepts the academic environment,
6. Management issues an open, trusting relationship with the inventor
will develop over time.
6.1 Other technology transfer roles The TTO may be enlisted to function as a go-
for the inventor between, negotiator, or advocate for the inventor
The inventor participates in many other technol- with any of the above groups. This is a challenging
ogy transfer activities throughout his or her aca- responsibility, since the TTO needs to maintain
demic career that occur without the involvement its own relationship with each of these groups as
of the technology transfer professional. These ac- well. All potential outcomes and ramifications for
tivities, such as consulting, educating/graduating both the inventor and the TTO (when assuming
students, publishing manuscripts, giving confer- this role) need to be considered.
ence presentations, distributing posters, partici-
pating in a consortium, and becoming involved in 6.3 Management of expectations
sponsored research agreements, may be described A significant part of managing the relationship
as know-how transfer without a license. between the TTO and the inventor is making
While the technology transfer professional sure the inventor maintains realistic expectations.
may not be involved in any of these activities at A former colleague coined this hypothetical dis-
the start, some (if not all, at some time) will af- closure-form question: “Please indicate the value
fect the technology manager’s efforts. In these in- of this technology: Is it worth millions, billions, or
stances, it is best to take the education approach. priceless?” And while this was suggested tongue
When possible, educate faculty about the effects in cheek, the sentiment does ring true. There is
of publication or of signing away rights in con- frequently a big disconnect between the inven-
sulting agreements, and so on. Raising awareness tor and the TTO when it comes to an invention’s
about those effects means more inquiries to the marketability. The challenge faced by the tech-
TTO, but early input may prevent impossible nology transfer professional is how to tactfully
situations later. keep inventor’s expectations in line with realistic
expectations. Soliciting an opinion from anoth-
6.2 Management of relationships er party may help. For example, the technology
It is imperative for the technology transfer profes- transfer manager may wish to enlist a trusted
sional to keep in mind the numerous groups the faculty member who has experience with trans-
inventor needs to deal with in academia: patent fer technology. A patent attorney or an outside
attorneys, TTO staff, grants and contracts of- consultant can help deliver the news. Evaluations
ficers, department chairs, deans, sponsors, aca- from industrial representatives may be the only
demic collaborators, licensees, and students, to validation an inventor will accept. A manager may
name only a few. Remember, both the inventor wish to identify to whom the inventor best relates
and the technology transfer professional function and enlist them to help. It is in the best interests
within the organization’s corporate culture. In ad- of everyone to be realistic from the start. If the
dition, the university’s corporate culture may be inventor’s value perception is skewed, his or her
an island in the local culture, subject to frequent chair may also have skewed expectations, and the
analysis and possibly criticism. inventor’s dean may be overanticipating, as well.

CHAPTER 5.5
Acknowledgements
In these situations, the technology transfer office The author wishes to thank the many creative inventors
spends a great deal of time (and political capital) with whom she has had the pleasure to work with over
explaining away unrealistic expectations and re- the last 20 years. She is especially indebted to Leroy B.
defining what is reasonable to expect. Recovery Townsend, Ph.D., Professor Emeritus of the University
of Michigan, not only for helping her to understand the
from disappointed expectations may take years, motivations of the academic inventor, but also for his
and the gap between expectations and what was quick wit, insight, and friendship.
actually achieved could possibly end in an office
reorganization. Anne C. Di Sante, Director, Technology Transfer Office,
Wayne State University, 5057 Woodward Ave., Suite 6306,
Detroit, MI, 48202, U.S.A. anne.disante@wayne.edu
7. Conclusions
While the technology transfer professional is con- 1 See also in this Handbook, chapter 8.4 by D McGee.
stantly challenged to manage diverse technology, 2 Gates ER and MN Rader. 2001. Disentangling
he or she is further challenged to effectively in- Inventorship. The Journal of the Association of
University Technology Managers. vol. XIII. www.autm.
teract with a diverse group of inventors. While
net/pubs/journal/01/disentangling.html.
these complex relationships and interpersonal
3 Terry KR and JE Embretson. 2001. Patent Application
dynamics may be overwhelming at times—both Filing in the United States. AUTM Technology Transfer
for the inventor and the technology transfer Practice Manual, AUTM: Northbrook, Ill.
manager—working together can be extremely re- 4 See also in this Handbook, chapter 7.3 by AB Bennett,
warding. These interactions add an unanticipated WD Streitz and RA Gacel.
dimension to the job of the technology transfer 5 Tretheway JA and H Bremer. Monitoring the License
professional that is often enjoyable. ■ Agreement, AUTM Technology Transfer Practice Manual,
AUTM: Northbrook, Ill.

CHAPTER 5.6
Conducting IP Audits
MICHAEL BLAKENEY, Director, Queen Mary Intellectual Property Research Institute, University of London, U.K.
ABSTRACT it to be used as an asset and aiding in the

This chapter explains how important it is for a research identification of the IP of third parties. The lat-
institute to audit both the intellectual property (IP) that
ter is particularly important for the institution’s
it generates and the third party IP that its researchers uti-
lize. Such an audit will have the practical consequence ability to avoid liability for the misuse of third-
of enabling the research institute (when appropriate) to party IP.
secure ownership, maintain, and manage the IP for which
it is responsible.
2. Methodology
The usual objectives of an IP audit are to identify
1. Introduction relevant IP, establish the ownership of that IP, put
For a number of years, intellectual property (IP) in place procedures to manage the IP, and assist
rights were considered private rights and not of in the formulation and execution of the research
concern to the public research community. A �� institute’s IP policy.
number of developments have changed this per- Of course, before any of these processes can
ception. First, genetic materials have been priva- begin, the scope of the audit must be determined.
tized, limiting the genetic materials available In some cases, an audit might be done to satisfy
for public research. Second, IP rights have been donor institutions or for external accreditation.
asserted over enabling biotechnologies, which On the other hand, it might be prefatory to the
has the potential to thwart the ability of public research institution’s collaboration with the pri-
research institutions to pursue modern biotech- vate sector. In each case, those commissioning the
nological research. Third, funding for public re- audit must determine the objectives. A decision
search institutes has been reduced, making them will have to be made about who gets the results
aware of their need to take an active role in IP of the audit. It may be confined to the board, to
management. Indeed, because of the above de- donors, to management, or be made available to
velopments, public research institutes are now us- the public.
ing their IP assets to bargain for access to private The audit may be conducted through:
proprietary rights. • online surveys of senior administrative and
The first step in IP management is to con- research staff
duct an IP audit. This will identify the IP that • follow-up interviews, by phone or in per-
the institution’s researchers generate, allowing son, with those staff
Blakeney M. 2007. Conducting IP Audits. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. M Blakeney. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

BLAKENEY
• analysis of contracts, material transfer institute has international status, its powers may
agreements (MTAs) and other documents be derived from a headquarters agreement between
held at the central administration the host state, donor bodies, and the institute.
• analysis of relevant documents identified Once it has the legal power to exercise do-
through interviews minion over property, including IP, the institute
will also have the power to contract with its em-
Before the audit, it is often useful to sensitize ployees. Typically, IP clauses will be inserted in
staff about the relevance of IP to the research insti- contracts of employment or in an institute IP
tution’s operations. This can be achieved through policy or code referred to in the employment con-
workshops or distributing explanatory material, tract. The simplest of these clauses will oblige an
both of which can be done online. Surveys to employee to comply with the institute’s IP policy,
identify agreements and activities with potential which will typically be available in printed form
IP implications can also be administered online. or on the institute’s Web site.
Follow-up interviews will explore this informa- For example, Washington State University’s
tion and identify documents that need��
analysis��. IP policy states:
Of course, all of the institution’s contracts should All employees accept the terms of these policies
be scrutinized for their IP implications. as conditions of employment or gratis association.
Keeping the results of the audit confidential Employees shall agree to execute an assignment of
will be essential for securing the full cooperation their future patentable works and discoveries to the
of the institute. After all, the audit might disclose University. These policies may be modified by the
matters that the institute may find damaging to administration with approval from the Board of
its reputation. More positively, areas of education Regents after consulting with faculty and staff of
and training for staff may be identified and the the University.1
results of the audit translated into best manage-
ment practices. As indicated below, this policy obliges em-
ployees to notify their employers of any innova-
tions that might generate IP rights. For example,
3. Ownership and control of IP Texas A & M’s IP policy applies to:
(i) all persons employed by the System; and
3.1 Introduction (ii) any persons using the System facilities un-
A key goal for any IP audit is helping to establish der the supervision of System personnel, in-
the research institute’s ownership and control of cluding but not limited to visiting faculty
the audited IP. This requires examining all docu- and adjunct faculty, unless special terms for
ments relevant to: (1) the legal status of the insti- management of the work of such individuals
tute; (2) the obligations of personnel under their are negotiated by the System or the appli-
service agreements and employment contracts, to- cable System component. System employees
gether with their obligations under the institute’s should not enter into intellectual property
IP policy; (3) agreements with research collabora- agreements related to outside employment,
tors; (4) agreements with funding bodies and do- such as consulting or summer employment
nors; and (5) documents relevant to the research agreements, without affirmative notice to
institute’s status within any research network. the prospective employer that the intellec-
The ability of a research institute to assert tual property rights of the System cannot be
ownership and control over any IP depends upon subordinated to a third party consulting or
its legal capacity. In the case of an incorporated in- employment agreement.2
stitute, this will be set out in its constitution and
bylaws (memorandum and articles of association). It will be up to the institution to decide what
The laws governing the place of incorporation will to do with such IP. In some cases, IP rights might
usually govern these documents. But if the research be waived. More usually, there is a procedure to

CHAPTER 5.6
share the benefits of any exploitation of IP. The IP The headquarters agreement will usually in-
policy of Texas State University is typical: dicate the power of the institute to “receive and
In those instances where the System licenses acquire by donation, grant, exchange, devise, be-
rights in intellectual property to third parties, the quest, purchase, or lease, either absolutely or in trust,
costs of licensing, including the costs to operate and contributions of such properties, real and personal as
support a technology transfer office and departmen- may be necessary to carry out the objects and pur-
tal or institutional intellectual property advisory poses” of the institute. This provision will have no
committees, and the costs of obtaining a patent or operative effect, as the power will be conferred by
other protection for the property on behalf of the incorporation.5
Board shall first be recaptured from any royalties or
other license payments received by the System, and 3.3 Incorporation
the remainder of such income (including, but not Typically, a research institute will be incorporated
limited to, license fees, prepaid royalties, minimum under the law of the host country. This law will
royalties, running royalties, milestone payments, and contain provisions about the types of corpora-
sublicense payments) shall be divided as follows: tions and their powers. Companies are usually
• 50% to creator divided into nonprofit and profit-making enter-
• 50% to System prises, and the ownership and assets structure
With the prior approval of the Board … com- of each may differ. Invariably, the voting rights
ponent institution may include provisions in its of the company will be allocated by reference to
Handbook of Operating Procedures to adjust the al- shares. Management will consist of a board under
location of royalties set forth herein, but in no event a panel of directors and a chief executive officer.
shall the creator receive more than 50% or less than The powers of the company are usually set out in
25% of such proceeds. a constitution or a memorandum of association
and detailed in its bylaws or articles of associa-
A similar situation will apply in research in- tion. These documents should be scrutinized to
stitutes operated by government departments. In see what powers the institute has to own and to
each case the government department will have to deal with IP. The documents will also explain the
decide whether any IP generated by its employees powers of the corporation’s officers to enter into
will be made available to the employee, whether transactions on behalf of the corporation. The
it will be secured by the relevant department for procedures for terminating the existence of the
exploitation or, alternatively, made available to institute and the disposal of its assets on termina-
the wider research community. tion should also be described.
The constitutive documents of a corporation
3.2 Headquarters agreements are commonly silent about the fate of intangible
For international research institutes, the agree- property, such as IP, that is generated by the cor-
ment between donors and host governments will poration during its life. This is because IP has only
usually delineate the institute’s legal personality. relatively recently become a corporate concern.
It will usually be designated as “an autonomous, However, where the tangible property is specifi-
philanthropic, tax-free, nonprofit, nonstock, benevo- cally disposed of, it is likely that the intangibles
lent corporation.”4 There will usually be a term for will follow the same route.
which the institute is to exist, such as 50 years
from the date of incorporation, with a possibility 3.4 Charter of the institute
for renewal. It will usually be indicated who owns Public research institutes commonly indicate their
the assets of the institute at the end of the term. public service function in a governing charter. The
Should an institute establish a collection of bio- board, under the corporation’s bylaws, will usu-
logical resources from other countries, biopiracy ally promulgate such a charter. As such, the char-
objections may arise if their ownership is lost at ter will be subordinate to the general operation of
the end of the term. the articles of incorporation and confer no powers

BLAKENEY
that are greater than those defined by the articles This list of IP categories embraced by the agree-
of incorporation. ment is presumably intended to be informative and
exhaustive for the staff members who sign it:
3.5 Personnel documents • The IRRI IPR agreement obliges staff to dis-
Typically, the personnel at a public research in- close the listed categories of IP “promptly
stitute include national staff, internationally re- to IRRI.” A procedure for such disclosure
cruited staff, visiting scientists, consultants, af- should be established, identifying the per-
filiate scientists, project scientists, collaborative son or office to whom/which disclosure
research fellows, and doctoral and postdoctoral should be made.
students. Asserting ownership and control over • The IRRI IPR agreement requires that
the IP that personnel may generate will depend employees assign relevant IP to IRRI and
upon the terms of their engagement. For conve- “do all things necessary, including executing
nience, we can categorize these persons as staff documents” to assist IRRI in obtaining legal
and nonstaff. protection for its IP. This is a fairly effec-
tive means for IRRI to secure title to the IP
3.5.1 Staff generated by its staff.
The ownership and control of IP generated or • The IPR agreement also obliges staff to use
held by staff will be handled by a combination confidential information only in the perfor-
of personnel contracts and the institute’s person- mance of duties for IRRI and not to disclose
nel policies and procedures. These will usually be information to unauthorized persons both
gathered in a personnel manual. Given the grow- during employment with IRRI and for a
ing concern about IP staff, some institutes have five-year period after the termination of their
been requested to sign an IP rights statement or employment. This provision appears to ef-
a nondisclosure agreement. At the International fectively impose confidentiality obligations.
Rice Research Institute (IRRI), for example, the
statement is an IPR Agreement in which staff agree Staff includes those employed outside the in-
that “all inventions, improvements, data, processes, stitution, such as those working in the field or
technologies, discoveries and other intellectual prop- attached to other institutions. They are bound
erties” generated by them, while employed by by their employment contracts and potentially
IRRI, “that relate to the research and development by the IP policies of the external institutions for
programs of IRRI or result from tasks” assigned to which they work. The legislation of the countries
them “are the sole property of IRRI.”6 where they work may also apply. For example, a
Publication is a significant issue if a partner number of countries have enacted legislation to
desires nondisclosure and the ethos of the insti- regulate access to biological materials that might
tute is to publish its research. Premature publi- become the subject of patent applications. A re-
cation in articles, research papers, and at confer- search institute would be in breach of that law if
ences and meetings may destroy the novelty of a it filed IP applications related to biological mate-
patentable invention. This is in tension with the rial that was obtained without consent.
desire of researchers to place their scholarship into Usefully supplementing the IPR agreement
the public arena. The IP audit can be an oppor- could be a reference to any institute policy on IP
tunity to introduce staff to the impact of IP upon rights and a definition of those rights. Box 1 sets
their research. When proprietary technologies are out a comprehensive definition of IP.
licensed from the private sector, the license agree-
ment may sometimes restrict publication until 3.5.2 Non-staff
the commercial opportunities generated by the Research institutes frequently host various cat-
research have been evaluated. Nonresearch staff egories of nonstaff, such as visiting scientists, con-
and board members should also be bound by a sultants, project scientists, collaborative research
confidentiality obligation. fellows, and students. Maintaining ownership

CHAPTER 5.6
and control of the institute’s IP can be a particular approved at the board level. As a general prin-
problem where non-staff are concerned. Without ciple, the institutes emphasize the free availabil-
an agreement with them, the institute will be unity of the information, inventions, and biological
able to assert control over IP that these visitors material that they develop. Institutes are obliged,
might generate or use. Indeed, problems have aris- however, to seek IP protection to ensure the avail-
en from the uncertain status of visiting researchers, ability of advanced biological technologies or bio-
who in some instances have acquired patent rights logical materials for developing countries. Some
over the subject of their research while a visitor. institutes declare that they may seek to protect
Accommodating researchers funded by outside technologies or materials that they develop for
donors has also been an issue. Uncertainty about their client communities. Protection may also be
the ownership of the research of such donors can pursued to prevent third parties from obtaining
be clarified in the institute’s IP policy. Accordingly, IP rights over their innovations. For example, by
a number of countries commonly require nonstaff filing a provisional patent application, knowledge
to execute an IP and confidentiality agreement. about an institute’s innovations will be placed in
the public domain. This is intended to destroy the
3.6 Policy on IP novelty—and hence the patentability—of inno-
Currently, public research institutes commonly vations that are required for the benefit of devel-
formulate policies to deal with IP ownership oping countries. This will prevent such inventions
and control. The policy is usually agreed to and from being appropriated by the private sector.
Box 1: Intellectual Property
Intellectual property means information, ideas, inventions, innovations, art work, designs, literary
texts and any other matter or thing whatsoever as may be capable of legal protection or the
subject of legal rights and includes the following protections:
• patents
• confidentiality (for information which is of a kind and which has been communicated in such
a way as to give rise to a duty of confidentiality)
• copyright vesting in literary works (including computer programs), dramatic works, musical
works, artistic works, films, sound recordings, multimedia works, broadcasts, published
editions, and certain types of performances
• registered trademarks
• unregistered trademarks used or intended for use in business
• registered designs and designs capable of being registered
• rights of breeders for new plant varieties
• rights associated with designs
• rights related to databases
• other rights resulting from intellectual activity in the industrial, commercial, scientific, literary,
and artistic fields

BLAKENEY
A number of public research institutes include • copyright, database rights, and know-how
their IP policy within a policy on partnership with associated with publications, computer
the private sector. These research institutes will of- programs, and databases generated by the
ten concede that to ensure that developing coun- institute
tries have access to biotechnology-derived products • copyright databases and know-how devel-
and advanced biotechnologies, it may be necessary oped from the functional genomics research
to enter into special agreements that stipulate some undertaken at the institute
limitations on distributing derived and associated • trademarks
materials. Within the context of this policy, the in- • industrial designs
stitute may assemble a list of IP that it is willing to
share with the private sector in exchange for access 4.2 Patentable biological assets
to its IP, under mutually acceptable terms. The principal biological assets located at a scien-
tific research institute will include:
• germplasm collection
4. Identification of IP generated • DNA collection
by a research institute • biological tools for gene discovery
• enabling technologies (for example, marker
4.1 Background genes and probes)
An IP audit obviously has to identify all the IP • advanced mapping populations
generated by the research institute, whether ex- • near isogenic lines
isting in a registered or unregistered form. This • introgression lines: mutants (characterized/
requires analyzing questionnaires completed by uncharacterized); BAC library
management and research staff, as well as the • introgression lines
examination of contracts, MTAs, licenses, col- • gene pyramids
laboration agreements, memorandums of under- • advanced lines from conventional breed-
standing, collaborative work plans, employment ing: conventional lines; new plant types
contracts and other legal arrangements. This will • inbred lines for hybrids: a, b, and restorer
allow the auditor to: (1) clarify the terms under lines
which IP is being accessed; (2) determine whether • varieties/cultivars
the terms of access impose restrictions on the in- • hybrids
stitute’s ability to distribute products and services • transgenic lines
produced with the help of this IP; (3) identify
ownership of relevant IP; (4) identify the source These biological assets represent a consider-
of IP in order to identify areas in which IP access able investment by the institute, its partners, and
and ownership issues may have to be reexamined collaborators. Insofar as they contain potentially
to ensure compliance with the institute’s current patentable or licensable information, they also
IP policy; (5) assess the importance of the IP to represent various levels of added value, utility,
the institute’s activities; and (6) identify all new IP and inventiveness.
being developed at the institute (specifically, the
IP opportunities perceived by the institute, for its 4.3 Patents, utility models, and
own and third-party IP). industrial design rights
Typically, an audit will identify the following A medical or agricultural research institute is like-
main types of IP: ly to develop equipment and tools that need IP
• patents and know-how associated with the protection.
biological assets of the institute
• patents and industrial design rights 4.4 Technological know-how
• IP associated with agricultural equipment Not all IP is protected through a system of regis-
developed by the institute tration. An important unregistered category of IP

CHAPTER 5.6
in medical research is confidential information. It of confidential test data submitted to government

is often an adjunct to registered IP rights. For ex- approval agencies. Given the long approval pro-
ample, patent protection is conferred in exchange cess, particularly for pharmaceutical products, the
for the disclosure of enough information in a pat- opportunities for wrongful appropriation of such
ent application to permit the invention, which data by competitors was self-evident. Accordingly,
is the subject of the application, to be used. To Article 39 (3) provides that:
protect its competitive advantage, the applicant Members, when requiring, as a condition of
inevitably will withhold information about how approving the marketing of pharmaceutical or of
to effectively commercialize an invention. This agricultural chemical products which utilize new
information, or know-how, may include plant chemical entities, the submission of undisclosed test
design and setup, training, marketing plans, cus- or other data, the origination of which involves a
tomer lists, and accounting and survey methods. considerable effort, shall protect such data against
Similarly, a protected trademark is of limited com- unfair commercial use. In addition, Members shall
mercial utility without an associated scheme for protect such data against disclosure, except where
advertising, licensing, franchising, and marketing necessary to protect the public, or unless steps are
the goods or services under that mark. Ensuring taken to ensure that the data are protected against
the quality control of the licensed goods will usu- unfair commercial use.
ally entail the application of trade secrets.
At the center of the attempt to protect con- 4.5 Biological assets protectable
fidential information are efforts to restrain the as plant varieties
disclosure of trade secrets by former employees or New plant varieties developed by agricultural re-
researchers. A particular difficulty in these cases is search institutes may be protectable under plant
distinguishing between information that can be breeders’ rights legislation. Such varieties can
regarded as the skilled employee’s or researcher’s also be patented in the United States but not in
own expertise and other information gained dur- Europe.
ing employment, such as secret industrial formu-
lae or processes, which may properly be regarded 4.6 Rights associated with publications,
as the employer’s. Generally speaking, if the in- computer programs, and databases
formation in question can fairly be regarded as a Copyright arises in relation to publications, CD-
separate part of the employee or researcher’s stock ROMs, databases, online displays, and software.
of knowledge that a person of ordinary honesty Governing the protection of works created within a
and intelligence would recognize, the informa- country, copyright laws are territorial. But through
tion would be considered to be the property of international agreements a particular country’s
the employee. In applying this objective test, the laws can be respected outside its territory. Most
courts have tended to look, among other things, countries are signatories to the TRIPS Agreement,
at the nature of the employment, the nature of which affirms the Berne Copyright Convention
the information, and whether the information and adds some additional protection.
was capable of being isolated from other un- Most copyright laws provide protec-
protected information. Chemical formulas and tion for printed works, such as books, confer-
recipes and engineering drawings and designs ence proceedings, research reports, and jour-
are usually considered to be discrete categories of nals. Copyright protection is also available for
undisclosed information that fall within the cat- research notes, provided that these are in writ-
egory of protectable confidential information. ten form. Copyright protection is also available
National laws protecting confidential infor- for films, photographs, sound recordings, and
mation differ. Article 39 of the Agreement on CDs. Under the Berne Convention and TRIPS
Trade-Related Aspects of Intellectual Property Agreement, computer programs are treated as
Rights (TRIPS) administered by the World Trade if they were literary works. Finally, copyright
Organization (WTO) deals with the preservation protection is available for online materials and

BLAKENEY
screen displays. The period of copyright protec- procedures have to be put in place to obtain copy-
tion is conventionally 50 years from the date of right authorization and copyright indemnities.
a work’s publication.
4.6.4 Copyright databases and know-how
4.6.1 Publications The various research projects undertaken or un-
Copyright will exist in the textual material, pho- derwritten by an institute generate considerable
tographs, graphic designs, diagrams, charts, and bodies of data. Under current copyright law, raw
the compilation or arrangement of a publication. data or information is not protectable. But legis-
A research institute will publish scientific books lation is being considered in a number of coun-
(including monographs, conference proceedings, tries that would allow databases and possibly raw
manuals, and field guides); discussion papers; data itself to become the subject of sui generis, or
proceedings of conferences, meetings and work- special, IP protection. However, while raw data
shops; technical bulletins; and scientific posters. contained in databases may not be copyright
protected, the way in which information is ex-
4.6.2 CD-ROMs pressed can offer some protection. For example,
A number of different copyright interests may a passage of text, a diagram, or chart contained
arise for material on a CD-ROM. Copyright in a database may be protected by copyright.
may arise with respect to text, artistic works (such It is also possible that in certain circumstances,
as photographs, drawings, diagrams), musical where sufficient originality or creativity in the
works, sound recordings, and films, as well as arrangement of data is present, the database as
in relation to the compilation of material con- a whole may be protected by copyright on the
tained in the CD. An institute may produce CD- basis that it is a compilation. Because individual
ROMS as part of its training materials. For ex- components of the database may be protected
ample, the asynchronous Internet-based courses by copyright, there must be mechanisms and
in Experimental Design and Data Analysis and procedures to ensure that the database does not
in Agricultural English, created and administered contain material that infringes the copyrights of
by IRRI, are available on CD-ROM. When ma- others. IP rights are of particular concern when
terials have not been generated at the institute, the creation of a database is collaborative. In this
the audit should ascertain whether permission case, when copyright exists in individual entries
or clearance has been obtained from the author it may be unclear whether the copyright belongs
or original source prior to publication. The au- to one collaborator or to all the collaborators
dit should also determine whether the author or jointly. Moreover, when material is contributed
original source is acknowledged. When material from diverse sources, each collaborator may be-
appearing on CD-ROM is generated at the income liable as an infringer—even if only one of
stitute, the CD-ROM should carry a copyright the collaborator infringes the copyright of a third
notification with respect to the compilation and party.
the individual elements of the CD. To deal with some of these copyright issues,
the Document by Bioversity International recom-
4.6.3 Video materials mends that the copyright notification page con-
Video materials produced for the purpose of train- tain a general notification hyperlinked to a page
ing are copyright protectable. Thus video materi- of specific copyright notifications. These would
als produced at the institute should acknowledge identify which part, or center, of the institute owns
it as the source and carry a copyright notice. If copyright in the relevant material. The document
desired, this could be accompanied by a notice suggests the following general notification:
authorizing reproduction or copying of the ma- This site is protected by international copyrights
terial provided the institute is acknowledged as in the design of the site including the layout, ty-
the source. If videos are produced involving ma- pography, and graphics reproduced herein, and in
terial generated from outside the institute, then the expression of the information contained herein,

CHAPTER 5.6
whether as a compilation, literary or artistic work In order to provide evidence that computer
or otherwise. programs have been generated in-house, it is rec-
ommended that when institute personnel gener-
The form of the specific copyright notifica- ate such material they complete a declaration of
tions recommended in the Bioversity International originality. Such a declaration could be made in
document is: electronic form in order to facilitate and central-
Copyright [full name of copyright owner] [year ize collection and storage.
of creation of work] in [describe] as [compilation/
published edition/literary work/artistic work] or 4.7 Trademarks
otherwise. Research institutes commonly seek trademark
protection for their names and key research
4.6.5 Online materials products. The acronym and name of a research
The copyright principles that apply to printed institute, for example, could be registered in
works and CD-ROMs apply equally to online Class 16 of the Nice Trademark Classification
materials. Thus an institute would have to secure in relation to “research and educational mate-
permission and indemnities to use copyrighted rials.” Registrations can be obtained in each
material that it displays on its Web site. country in which research is undertaken. When
IP approval for hypertext links to other World an institute makes products such as seeds, these
Wide Web sites has recently raised some copy- could be registered in Class 30, in relation to
right concerns. If the institute’s home page links “[plant] variety/breeding lines.” Trademarks
to a large number of Internet resources, it should can also be sought for equipment and tools, for
be ensured that the proprietors of those online example in Class 7, which covers agricultural
resources have no objections to those linkages. equipment.
Copyright issues are also raised by mirroring
and framing. Mirroring occurs when a site is du- 4.8 Confidential information
plicated on another server. Framing occurs when Research data compiled in institute projects by
one Web site imports material from another site institute researchers may be protectable as con-
and makes it part of its own site. When such fram- fidential information. To be protected, the in-
ing or mirroring occurs, it is essential that copy- stitute has to impose confidentiality through
right clearances and indemnities are obtained. confidentiality agreements with employees and
researchers. These will inform them that the in-
4.6.6 Computer programs stitute attaches the quality of confidence to its
Copyright subsists in both source and object research data and to its research methods. For the
codes of computer programs. Where commercial- most part, a public research institute will waive
ly available programs are used or are incorporated its rights to the confidential information that it
in larger programs developed by the institute, li- generates in its research findings. However, for
censes are available from the suppliers of those agreements according to which the institute
programs. It should be noted that a license to use undertakes to share unpublished research find-
commercially available software will not necessar- ings and data with its collaborators, some en-
ily authorize the development or improvement of forcement of confidentiality agreements will be
that software. The development or improvement necessary to ensure that the research findings
of commercially available software for the pur- are shared and not dissipated. As awareness of
poses of, for example, facilitating or improving IP protocols becomes more widespread, research
the accessibility of information stored on a data- collaborators will begin to insist upon an enforce-
base will infringe the copyright unless a license to able confidentiality regime. It will be increasingly
develop the program has been obtained. Where important, therefore, to put in place mechanisms
programs are written in-house by institute em- and procedures that ensure that confidential ma-
ployees, copyright problems do not arise. terial is not publicly disclosed.

BLAKENEY
4.9 Biodiversity rights patents. In a number of developing countries, the

The Convention on Biological Diversity (CBD) use of bioprospecting agreements is becoming
seeks to establish an international program for the mandatory.
conservation and utilization of the world’s biolog-
ical resources, as well as for the “fair and equitable
sharing of the benefits arising from the utilization 5. Third-party IP
of genetic resources.” A similar policy animates the
International Treaty on Plant Genetic Resources 5.1 Patents and know-how associated
for Food and Agriculture. For example, the CBD with biological technologies
contains provisions dealing with access to genetic Most research institutes will have third-party pro-
resources. Article 15 requires contracting parties prietary technology licenses. The basis of the pro-
to “endeavour to create conditions to facilitate ac- prietary claims made by most of the licensors will
cess to genetic resources for environmentally sound be the confidentiality of the biological materials
purposes” by other contracting parties accord- or know-how that is licensed to the research insti-
ing to mutually agreed terms and conditions on tute. Additionally, patented research technologies
the basis of “prior informed consent.” A detailed may be licensed.
code of access to biotechnology is prescribed in The salient features of these licenses are:
Article 16. Access and transfer are to be “provided • permissible use of the licensed material
on terms which recognize and are consistent with confined to scientific research
the adequate and effective protection of intellectual • confidentiality of licensed material to be
property rights.” The Article provides that devel- preserved
oping countries that provide genetic resources • all information concerning improvements
shall be granted “access to and transfer of technol- in the material or inventions associated with
ogy which makes use of those resources.” In addition, the material to be reported to the licensor
Article 19.2 provides for the grant of access on a • research progress to be reported
fair and equitable basis and on mutually agreed periodically
terms to contracting parties, “particularly devel- • use of material only by identified institute
oping countries, to the results and benefits arising scientists
from biotechnologies based upon genetic resources • advance copies of manuscripts of publica-
provided by those contracting parties.” Additionally, tions to be provided to licensor
Article 8(j) of the CBD envisages that where the
knowledge, innovations, and practices of indig- The various obligations these agreements
enous and local communities are utilized, the with third parties impose emphasize the impor-
benefits arising from their utilization should be tance of an IP management facility at a research
shared equitably. institute.
A number of developing countries have in-
troduced legislation that seeks to enact the ben- 5.2 Genetic material
efit sharing provisions of the CBD. Thus, when a Medical and agricultural research increasingly
patentable invention results from institute germ- utilizes genetic material provided to an institute
plasm that is contributed by indigenous persons under an MTA or confidentiality agreement. The
or local communities, or that is collected as a re- terms of that MTA may restrict how that mate-
sult of the utilization of the knowledge of those rial can be used. For example, it may be on the
persons or communities, a compensation liability condition that IP rights are not sought in rela-
may arise. Indigenous groups and local commu- tion to that material, or that it is not used for
nities have begun to insist upon the collection of commercial purposes. Sometimes the MTA will
samples under the terms of bioprospecting agree- require that material derived from the supplied
ments, which invariably define the distribution of material should also be supplied under those con-
benefits from any royalties that may result from ditions. In each of these cases, the responsibility

CHAPTER 5.6
to observe those conditions will be imposed on could also be made available online and accessed
the institute; it will be the purpose of the audit from the institute’s Web site.
to identify these obligations and document how
they are being managed. 6.2 Office of IP coordination
On occasion, genetic material is made avail- As IP becomes increasingly significant for sci-
able informally by a scientist from a third party, entific research, establishing an IP coordination
acting without the authority of that third party. office or officer for an institute becomes more
In this case, the unauthorized use could involve important. This office, which may be within the
the research institute in liability. Consequently, research institute or located within the offices of
the audit should identify the terms of all acces- a third-party subcontractor, would be responsible
sions of third-party genetic material. for coordinating both IP administration and pro-
cedures within the institute. The IP office would
5.3 IP rights associated with equipment also be responsible for external IP liaison. The
utilized by a research institute coordination of IP procedures would include
A number of items of research equipment ob- securing the IP compliance of staff and visitors;
tained from commercial suppliers may generate ensuring the inclusion of IP provisions in relevant
IP obligations. For example the Bio-Rad Biolistic third-party agreements; ensuring the utilization
PDS-1000/He apparatus is often supplied to re- of appropriate MTAs by the institute, both as a
searchers at IRRI subject to an agreement that it recipient and distributor of germplasm and bio-
be used “for research purposes only.” The Hybaid logical tools; maintenance of a central repository
PCR Express Thermal Cycler is also subject to a of IP documents; maintenance of the institute’s
license “to practise the PCR process for internal re- IP database; and raising awareness of about IP is-
search and development.” sues. Externally, an IP coordinator could provide
an IP dimension to negotiations with research
collaborators and act as a liaison with IP officials
6. IP management structures of other institutes.
An IP audit should analyze the management of The IP coordination office would ensure that:
IP at a research institute from the perspective of • staff and visitors sign and adhere to IP and
the adequacy of the management structures and confidentiality agreements
procedures. It should also consider IP manage- • copyright permissions and indemnities are
ment in terms of the staff’s awareness of IP obli- secured for various publications
gations. Finally, the institutional mechanisms for • Copies of MTAs and other IP agreements
dealing with institute and third-party IP should are filed centrally and provided to appropri-
be examined. ate staff members
• Proper research records are made, main-
6.1 IP management culture tained, and filed
A critical feature of effective IP management is • the MTA granting procedure is coordinated
the existence of a research culture in which IP • the IP provisions of other agreements are
awareness is communicated to researchers. In supervised
order to ascertain the extent of IP knowledge • the institute’s legal advisers are updated on
and of IP management practices within an in- IP matters
stitute, questionnaires could be administered to
administrative and research staff. To supplement 6.3 Research records
the general IP consciousness-raising activities Establishing provenance for research is central to
mentioned above, it would be very useful for staff any policy of securing and exploiting the IP rights
to be provided with an IP handbook, containing that might be generated from an institution’s
a general primer on IP, as well as all relevant IP research. The practice of maintaining laboratory
documents and procedures. This IP handbook notebooks with consecutively numbered pages

BLAKENEY
that are signed at the end of each day by the su- 7. Conclusions
pervising scientist is normal in private enterprise, Modern scientific research often requires expen-
but may be alien to the research culture at a pub- ditures to enable the generation of protectable IP.
lic research institute. However, without this sort The institute will have to decide whether this IP
of management practice, it would be difficult to will be placed into the public domain or regis-
contest a first to invent dispute under patent law. tered, either to pursue commercial exploitation
Similarly, it would be difficult to identify the or to prevent its privatization by unauthorized
technological know-how brought by a scientist third parties. Before any of these actions can be
to the institute and to distinguish it from that taken, however, the research institute must iden-
which has been developed at the institute. This tify the IP that its researchers generate or utilize.
is important in delineating the respective confi- An effective IP audit is therefore an important
dential information of a staff member and the tool for supporting the research objectives of the
institute. institute. ■
6.4 Material transfer agreements (MTAs)

Guidelines and procedures for the approval of Michael Blakeney, Director, Queen Mary Intellectual
Property Research Institute, Center for Commercial Law
material transfer agreements could efficiently di-
Studies, University of London, 13-14 Charterhouse Square,
rect the management of IP in a scientific research London, EC1M 6AX, U.K. m.blakeney@qmul.ac.uk
institute. For germplasm designated under the
International Treaty on Plant Genetic Resources
for Food and Agriculture, an established procedure 1 www.wsu.edu/~oipa/FacIP.html.
already exists. Some of the Consultative Group 2 www.tamut.edu/SACS/3-2-1417-02-01.pdf.
on International Agricultural Research (CGIAR) 3 www.utsystem.edu/OGC/Intellectualproperty/2xii.
genebanks distinguish between designated germ- htm.
plasm and germplasm that they themselves have 4 See, for example: www.irri.org/publications/chandler/
developed, which is accordingly regarded as non- pdfs/Appendices.pdf.
designated. Separate MTAs are being developed 5 See, for example: www.irri.org/about/images/Memora
ndum%20of%20Understanding.pdf.
by research centers to deal with the distribution
of this material. 6 For an example of a standard research agreement
along these lines, see Oklahoma State’s template for
a sponsored research agreement at: www.vpr.okstate.
edu/Forms/Forms%202003/Spon%20Res%20Agmt.
doc.

CHAPTER 5.7
Conflict of Interest and Conflict of Commitment

Management in Technology Transfer
ALAN B. BENNETT, Associate Vice Chancellor, Office of Research, University of California, Davis;
and Executive Director, PIPRA, U.S.A.
ABSTRACT research institution is the potential for personal

The potential for personal interests to influence institu- interests (often financial) to adversely affect an
tional decisions in universities and public sector research
employee’s professional judgment when exercis-
institutions continues to grow. This is because of the in-
creasing activity in intellectual property (IP) management ing a university duty or responsibility, for exam-
and technology transfer undertaken by these institutions. ple, the direction and conduct of research. The
The activities have the potential to generate both personal potential for a divergence between an individual’s
and institutional financial gain, making conflict of interinstitutional obligations and his or her private or
est and conflict of commitment issues unavoidable. This
chapter explains the nature of these conflicts and discusses personal interests can become a conflict of inter-
the policies, regarding conflict of interest, of several uni- est: and a perceived conflict of interest can be as
versities, offering them as potential models for crafting damaging as a real one.
these indispensable policies. The potential for personal interests to influ-
ence institutional decisions is greater today be-
cause every institution is doing more in the area
1. Introduction of IP management and technology transfer, and
Universities and public research institutions have because these activities have the potential to gen-
been characterized historically by their selfless ef- erate both personal and institutional financial
forts to expand knowledge for the public good gains, conflict of interest issues are a constant
rather than for private gain. This has contributed concern. Indeed, in today’s modern research uni-
to a high level of public trust in the integrity of versities, the missions of which explicitly include
these institutions, and they are seen as providers the transfer of research to commercial partners,
of unbiased information. This institutional integ- conflicts of interest are practically unavoidable.
rity rests on the personal integrity of the people These conflicts need to be managed in ways that
employed by or associated with that institution, allow institutions to meet their technology trans-
which collectively represent the greatest asset of fer mission without compromising their integrity
the institution. Indeed, any erosion of institu- and the public’s trust.
tional integrity or of the public’s trust can have Another closely related pitfall is the pressure
devastating consequences in terms of public sup- that technology transfer and commercialization
port for the institution. activities place on employees’ primary allegiance
One significant danger with regard to com- to their institution. In an era when researchers are
promising the integrity of a university or public encouraged to actively participate in technology
Bennett AB. 2007. Conflict of Interest and Conflict of Commitment Management in Technology Transfer. In Intellectual Prop-
erty Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen,
et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. AB Bennett. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

BENNETT
transfer—and even in the development of new directions, assignment of research topics to stu-
companies—it is necessary to ensure that the em- dents, the supervision of clinical trials, or any
ployee’s primary professional loyalty is to the insti- influence over institutional IP licensing deci-
tution rather than to a private, extramural activity. sions by the researcher/entrepreneur should be
When outside activities cross boundaries in ways viewed through the lens of the institution’s con-
that compromise, or appear to compromise, the flict of interest policies. Again, it is important to
employee’s primary allegiance to the institution, note that the existence of the personal financial
a conflict of commitment exists. Because both interests should not, in themselves, but in gen-
conflicts of interest and conflicts of commitment eral the conflict should be openly disclosed and
are potential pitfalls in the technology transfer any future activities and decisions by the con-
process, both are addressed in this chapter. Some flicted individual reviewed and managed by the
universities address both conflicts in a single com- institution.
bined policy (for example, Stanford University), The potential for a researcher to have a sig-
while most treat conflicts of interest and conflicts nificant financial interest in an outside potential
of commitment in separate policies. licensee can be quite high, particularly if the
licensee is a start-up company founded by the
researcher/inventor. When the researcher partici-
2. conflict of interest related to pates in the licensing negotiations or even in dis-
IP management cussions with the institutional licensing officer,
Fundamentally, a conflict of interest is any situation the researcher is in a conflict of interest position:
in which there is a conflict between an individual’s the researcher has the potential to influence an
private interests and his or her professional obli- institutional licensing decision in which he or
gations such that an independent observer might she has a direct financial interest. In California,
reasonably question whether the individual’s pro- such a position constitutes a criminal conflict of
fessional actions or decisions are affected by his interest under the Political Reform Act of 1974.
or her private interest.1 It is important to note, a As a consequence of the Act, the University of
conflict of interest exists whether or not decisions California developed detailed guidelines and
are made that are influenced by personal interests. guidance on the disclosure and management of
The conflict only indicates the potential for mak- conflicts of interest in licensing. These guidelines
ing biased decisions—not any likelihood of doing permit participation in licensing negotiations by
so or any a priori misconduct. One should also an inventor, even when he or she has a disqualify-
note that the precise definitions of conflict of in- ing personal financial interest. As the guidelines
terest are guided by national and local laws, re- observe, such participation “is appropriate and
search sponsor policies, and institutional policies; represents a useful contribution, because the transfer
thus the definitions may vary widely depending of University technology to industry is in the pub-
on the geographic and institutional context. lic interest and is consistent with the University’s
The potential for financial conflicts of inter- mission.”3 Such participation, however, requires
est for individual researchers increases dramati- an appropriate intervening substantive review,
cally when an institution begins to actively sup- called a Licensing Decision Review, which deter-
port and promote the transfer of research results mines whether licensing decisions are inappro-
for commercial applications.2 In many cases, the priately influenced (see Box 1). Although these
commercial development of early-stage research guidelines for managing conflicts of interest in
results can be carried out best by a start-up licensing are very specific to the laws of the State
company. Typically, the university researcher is of California, they raise and consider a number
either a founder of or a consultant to the com- of important issues that are both generic and spe-
pany and has substantial financial interests in the cific to technology transfer.
company. This gives rise to a personal conflict An additional level of conflict of interest has
of interest, and any future decisions on research also emerged as a result of universities taking an

Chapter 5.7
Box 1: University of California Guidelines for a Licensing Decision Review
What is Licensing Decision Review?

Licensing Decision Review means there is a review by a noninterested person or persons before
a proposed licensing decision goes to the final decision maker for approval. The review must be
based on an independent consideration and assessment of the facts of the case. The Licensing
Decision Review body, composed of qualified staff with appropriate expertise, knowledge, and
professional judgment, must independently check the original data and analysis upon which the
selection of licensees proposed by the licensing professional and other licensing decisions were
made and make its independent recommendations concerning the decisions.
Who conducts the Licensing Decision Review?

Each University of California campus and laboratory was directed in a June 18, 2001, letter to
chancellors and laboratory directors from Provost King and Senior Vice President Mullinix to
establish a plan for conducting intervening substantive review of licensing decisions (in this case,
called Licensing Decision Reviews), whether those licensing decisions are made in the systemwide
Office of Technology Transfer (OTT) or at a campus or Laboratory Authorized Licensing Office. Each
local Licensing Decision Review plan, including the processes, mechanisms, and bodies (individuals
or committees) established to carry out Licensing Decision Reviews may accommodate local needs
and circumstances, but must be responsive to the direction provided in that letter and, consistent
with these Guidelines, must be filed with the OTT.
Source: University of California. 4
active role in IP licensing, particularly to start-up primary allegiance and professional commitment
companies. Typically, the university will accept eq- to the institutions that employ them and devote
uity in a company in lieu of upfront license issue primary energy to teaching and research. Even
fees, which gives the university itself a financial in- so, most institutions value their staff’s contribu-
terest in the company. This leads to an institution- tions to professional and public service, including
al conflict of interest. Such institutional conflicts pro bono work and paid consulting. In addition,
of interest have been particularly problematic in public institutions increasingly value the role of
research involving human subjects, so institution- employees in technology transfer and its contri-
al policies are being developed to ensure that the bution to economic development. Effective tech-
financial interests of the researcher and the institu- nology transfer inevitably requires faculty and
tion do not create a conflict of interest in enrolling researchers to actively participate in the commer-
and ensuring the safety of human research sub- cialization process, which often includes taking
jects. Stanford University’s Institutional Conflict an active role in starting up new companies that
of Interest Policy provides a concise approach to are capable of developing and exploiting univer-
ensuring that all human-subject institutional re- sity inventions. These multiple institutional goals
views include a review of whether the university create the potential for a conflict of commitment
has any financial interests in drugs or devices un- between the institution’s primary educational and
der study or financial interests in the company research mission and the institution’s interest in
that is sponsoring the research (See Box 2).5 effectively supporting economic development
and technology transfer through the external ac-
tivities of its faculty and researchers.
3. conflict of commitment related Conflicts of commitment typically require
to IP management determining the appropriate balance of time al-
Faculty and researchers working in educational location between institutional and external ac-
and research institutions are expected to give tivities—the critical test is that external activities

BENNETT
Box 2: Highlights of Stanford University’s Institutional

Conflict-of-Interest Policy
The goal of this policy is to preclude situations in which human-subjects research is carried out
at Stanford or by Stanford researchers involving organizations in which the University holds
ownership equity or rights to equity that is not publicly traded. The fundamental assumption
underlying the policy is that such situations present a significant risk to the perceived objectivity
of the research. The policy requires that the Office of the Dean of Research be informed of all such
situations and provides that, after a review of the facts and circumstances, the Associate Dean of
Research may either arrange the divestment of the University’s holdings through the Office of
Technology Licensing or, if that cannot be done, refuse to allow the research to proceed.
DISCUSSION AND DETAIL
1. Review by the Office of Technology Licensing (OTL) of all human-subjects research protocols
proposed by University Principal Investigators:
At the request of the Office of the Dean of Research, the Stanford Research Compliance
Office has established a procedure that requires all new human subjects research protocols
submitted for regular or expedited review to the IRBs to indicate (1) the nature and source(s) of
all drugs, devices, or biologics (e.g., vaccine products, gene therapeutics) which will be used in
the proposed research and (2) the source(s) of all funding to be used in supporting the research.
Per this procedure, the information provided is then reviewed by the Director of OTL to identify
situations in which the proposed research involves (1) the use of drugs, devices, or biologics
that make use of Stanford-owned intellectual property or (2) funding from nonpublicly traded
organizations in which Stanford owns equity or the right to acquire equity through a licensing
agreement.
2. Review by the Office of the Dean of Research of all protocols that might be
subject to this policy:
Per the procedure described above, the Director of OTL flags for further review by the Office
of the Dean of Research all proposed new human subjects research proposals involving the
use of drugs, devices, or biologics that make use of Stanford-owned intellectual property or
are funded in whole or in part by nonpublicly traded organizations in which Stanford holds
equity or the right to acquire equity through a licensing agreement. Based on the facts and
circumstances identified in this review, the Associate Dean of Research will (1) require OTL to
divest that equity on behalf of the University or (2) prohibit or require modifications to the
proposed human-subjects research which would remove any possibility for the University as an
institution, or any University department, to benefit as a result of the conduct or outcomes of
the proposed research. In the event the University’s financial interest is in the form of royalties
payable as a result of exclusive technology licensing rights, OTL will inform the Associate Dean
of Research, who will determine on a case-by-case basis the significance and management, if
appropriate, of the potential institutional conflict of interest.
3. Monitoring compliance:
The University’s Internal Audit Department will periodically review a sample of human subjects
research protocols to ensure that all situations in which a potential exists for institutional
conflict of interest have been properly identified and all risks to human subjects have been
properly mitigated.
4. Responsibilities of the Dean of Research:

The Vice Provost and Dean of Research is the University officer responsible for interpreting and
overseeing implementation of and compliance with this Policy. Questions may be addressed
to the Assistant Dean of Research.
Source: Stanford University.6

Chapter 5.7
should not detract from their primary institu- 4.2 Definitions

tional responsibilities. Institutions vary widely Definitions of key terms are typically provided to
regarding permissible external activities, which ensure the policy’s clarity. For example, the defi-
may reflect differing institutional priorities as nition of “significant financial interests” should
well as whether the institution is public or pri- be explicit with regard to applicable instruments
vate. Stanford University, for example, integrates of monetary value such as stocks and stock op-
both conflict of interest and conflict of commit- tions. It should also explicitly state the extent to
ment into a single policy that specifies the appro- which such interests extend to the researcher’s
priate balance of time commitment to external spouse, children, or domestic partner. Examples
activities to be approximately one day per week of terms that have been useful to define at our the
(see Box 3). University of California include:
• business entity
• clinical research
4. Structure of a conflict of • compensation
interest/commitment policy • conflict of interest
The development of institutional conflict of in- • gift
terest and conflict of commitment policies is a • intellectual property
critical step in developing technology transfer • investigator
capabilities and programs. Developing the policy • management plan
will require identifying and articulating institu- • research
tional priorities and determining the appropri- • select officials
ate balance between institutional interests and • significant financial or other interest
the interests—both internal and external—of its
researchers. In addition, the effort will require 4.3 Policy
an in-depth analysis of the requirements placed The policy statement should clearly describe ac-
on the institution by national or local laws and ceptable and prohibited activities, requirements
by the policies of agencies that sponsor research for reporting and disclosure, and processes for
in the institution. The elements of a conflict of evaluating and managing specific situations that
interest/commitment policy are outlined below; are not directly addressed by the policy.
actual policies take many forms.
4.4 Process, roles, and responsibilities
4.1 The purpose of the policy and applicability The policy should clearly describe the institu-
The preamble of the policy should reiterate the tional processes for disclosing external activities,
primary mission of the institution and indicate if there is a requirement to do so, as well as de-
in general terms how the institution views the scribing the processes for seeking a review and
balance between internal and external activities evaluation of conflict of interest disclosures. Most
and the potential for developing conflicts. For institutions have one authorized official with this
example, the Washington University in St. Louis responsibility and a committee that participates
Conflict of Interest Policy is presented, in part, in in evaluations. The policy should describe the
Box 4. processes for appointing the relevant commit-
The preamble should identify to whom the tees and identify the institutional officials with
policy applies. In some cases, the policy may be responsibility for conflict of interest evaluations
broadly applicable to all institutional staff, while and management.
in other cases different policies may be required
for teaching faculty, for clinical faculty, and for 4.5 References and links to source documents
nonfaculty staff. Whatever the case, the applica- Finally, a conflict of interest/commitment policy
bility of the policy needs to be clearly stated early does not exist in isolation but typically relies on
in the policy document. the synthesis of a number of source documents,

BENNETT
Box 3: Summary of Stanford University’s Faculty Policy on

Conflict of Commitment and Interest
1. Faculty must maintain a significant physical presence on campus (main or overseas) throughout
each quarter they are on active duty.
2. Faculty must not allow other professional activities to detract from their primary allegiance
to Stanford. For example, a faculty member on full-time active duty must not have significant
outside managerial responsibilities nor act as a principal investigator on sponsored projects
that could be conducted at Stanford University but instead are submitted and managed
through another institution.
3. Faculty must foster an atmosphere of academic freedom by promoting the open and timely
exchange of results of scholarly activities, ensuring that their advising of students and
postdoctoral scholars is independent of personal commercial interests, and informing students
and colleagues about outside obligations that might influence the free exchange of scholarly
information between them and the faculty member.
4. Faculty may not use University resources, including facilities, personnel, equipment, or
confidential information, except in a purely incidental way, as part of their outside consulting
activities or for any other purposes that are unrelated to the education, research, scholarship,
and public service missions of the University.
5. Faculty must disclose on a timely basis the creation or discovery of all potentially patentable
inventions created or discovered in the course of their University activities or with more than
incidental use of University resources. Ownership of such inventions must be assigned to the
University regardless of source of funding. The inventor will share in royalties earned.
6. Faculty must disclose to the University whether they (or members of the immediate family, as
defined below) have consulting or employment relationships with, and/or significant financial
interests (also defined below) in, an outside entity before the University will approve the
following proposed arrangements involving them between such entities and Stanford: a) gifts;
b) sponsored projects; c) technology licensing arrangements; and d) certain procurements. In
such cases, approval by the school dean will be required prior to entering into each proposed
arrangement.
7. In situations in which the objectivity of a faculty member could reasonably be questioned, the
dean of a school may establish an independent oversight committee to take steps including
(but not limited to) the following: to review the appropriateness of the proposed research to be
conducted at Stanford, to oversee the conduct of the research, and to ensure open and timely
dissemination of the research results. Such oversight committees will be required for all clinical
trials raising questions of conflict of interest.
8. On an annual basis all faculty members must certify to their school deans their compliance
with Stanford’s policies related to conflict of interest and commitment. They must also disclose
information about their (and their immediate family members’, as described below) financial
relationships with outside organizations that are sponsors of their teaching or research
programs or are otherwise involved in current, proposed, or pending financial relationships with
the University that involve the faculty member. In addition, faculty must disclose to their school
dean on an ad hoc basis current, proposed or pending situations that may raise questions of
conflict of commitment or interest, as soon as such situations become known to the faculty
member.
9. School deans shall establish procedures to ensure timely review of their faculty’s annual and ad
hoc disclosures of potential or apparent conflicts, and to ensure (in consultation with the Dean
of Research office) the appropriate management of such conflicts. Such procedures may involve
representatives from the school’s faculty as part of a reviewing body. School deans will file their
own annual disclosures and certifications of compliance with the Dean of Research.
10. The Dean of Research shall approve each school dean’s plans for implementing this policy,
interpret policy provisions in consultation with school deans, respond to faculty wishing to
appeal school deans’ decisions, and report to the Committee on Research annually on the status
of this policy and its implementation.
11. Should a faculty member wish to appeal a decision made by the Dean of Research, he or she may
present the appeal to the Provost, who will consider the case in consultation with the Advisory
Board.
Source: Stanford University.7

Chapter 5.7
Box 4: Excerpt of Washington University’s Conflict of Interest Policy

The faculty and administrators at Washington University recognize a shared responsibility to
ensure that they conduct themselves in an unbiased manner and serve the goals of the University.
It is thus the responsibility of the University and its employees to guard against conflicts of
interest that might compromise the integrity and objectivity of the University community.
It is understood that the faculty, as developers of knowledge, have a unique opportunity and
responsibility to disseminate that knowledge to the public. By adopting this Conflict of Interest
Policy, the University reaffirms the value of collaboration with industry as a means of fostering
public access to the practical benefits of University research. By adopting this Conflict of Interest
Policy, the University also (i) demonstrates its commitment to the ethical principles that guide
University research and (ii) establishes a mechanism to safeguard University and faculty integrity
and objectivity so that University/industry interactions can optimally benefit society.
Source: Washington University. 8
policies, and laws. These sources should be listed that is driven by our legal framework and by
and hyperlinked from the policy. the policies of national research sponsors. It
is likely, however, that other countries facing
very different demands for research-based
5. CONCLUSIONS economic development may find that the U.S.
In addition to the legal reasons to develop and approach does not conform to their regional and
enforce rigorous conflict of interest and conflict institutional needs. ■
of commitment policies, the fundamental
reputation of the institution rests on setting
and maintaining high ethical standards. As Alan B. Bennett, Associate Vice Chancellor, Executive
Director, PIPRA, Office of Research, University of
Johns Hopkins University’s policy states:
California, Davis, 1850 Research Park Drive, Davis, CA,
“public confidence in the University’s integrity 95616, U.S.A. abbennett@ucdavis.edu
undoubtedly ranks among its greatest assets.”9
Although technology transfer activities are only
one of many areas in which the potential for 1 Chinn J and EC Kulakowski. 2006. Conflict of Interest
in Research. In Research Administration and Manage-
conflict of interest exists, the interface between ment (eds. EC Kulakowski and LU Chronister). Jones
the mission of the university and the demands and Bartlett Publishers: Sudbury, Mass. pp 511–21.
of industry and of private sector collaboration 2 Garton JD. 2002. Conflicts of Interest and Technology
is a rich breeding ground for such potential Transfer. AUTM Technology Transfer Practice Manual,
conflicts. As an institution becomes engaged Part XIII, Chapter 2. AUTM: Northbrook, Ill.
with the private sector and with technology 3 University of California. 2001. Guidelines on Managing
Potential Conflicts of Interest in Licensing. www.ucop.
transfer, the adoption of a thoughtful conflict edu/ott/staff/ott00-05b.pdf. This and other conflict of
of interest and conflict of commitment policy is interest and conflict of commitment policies are also
essential. Not only is the policy itself an essential available via the online edition of this Handbook.
administrative tool, but the analytical process of 4 Slightly edited and based on supra note 3.
developing the policy will reveal the institution’s 5 An online tutorial on conflict of interest from Columbia
priorities. The process will also clarify what the University can be found at ccnmtl.columbia.edu/
projects/rcr/rcr_conflicts/foundation/index.
university considers the appropriate balance of
allowed and prohibited activities for achieving 6 www.stanford.edu/dept/DoR//rph/4-7.html.
the university’s mission(s). In the United 7 Ibid.
States, there has been a convergence of norms 8 www.wustl.edu/policies/conflict.html.

in conflict of interest/commitment policies 9 jhuresearch.jhu.edu/Policy_onConflict_of_Interest.pdf

6
SECTION
Establishing and Operating

Technology Transfer Offices
CHAPTER 6.1
Ten Things Heads of Institutions Should Know about

Setting Up a Technology Transfer Office
ABSTRACT 1. enhancing economic development by trans-

Technology transfer is a rewarding process for the uni- ferring new technologies to local industries
versity, researchers, students, the business community,
2. obtaining financial support from industry
the public, and the professionals who make it all happen.
Technology transfer brings new products, services, and to support university programs
jobs. But it is a complex process, one that requires sus-
tained dedication at every level. This chapter offers advice The advice offered in this chapter aims to pro-
about some of the most important policy and strategy vide to heads of a research institutes and universi-
issues: five are economic issues and five relate to imple-
mentation. The chapter concludes with a discussion of ties perspective on what challenges to expect when
technology transfer pitfalls caused by unrealistic expecta- setting up a technology transfer office. These “Ten
tions. The chapter emphasizes the role of senior manage- Things” are based on almost 20 years of experi-
ment in changing the IP (intellectual property) culture, ence in the Technology Licensing Office of the
the need for transparent conflict-of-interest policies, and
Massachusetts Institute of Technology. The ideas
the importance of sufficient autonomy and infrastructure
support for technology transfer officers. expressed in this chapter reflect also my long-time
experiences with the Association of University
Technology Managers (AUTM), including a
stint as president, during which I watched many
1. Introduction North American technology transfer programs
The widely touted success of technology trans- grow. The ideas expressed here have been influ-
fer from U.S. universities has attracted interest enced by my experiences visiting with universi-
from universities and research institutes around ties in almost 20 different countries and learning
the world. Such diverse countries as Germany, about their technology transfer activities.
the Republic of China, South Africa, the United
Kingdom, and many others have changed their
laws and policies, modeling them after U.S. prac- 2. The list of ten
tices, to allow universities and faculty members to Many items in the list of ten may surprise you
manage and transfer intellectual property (IP). In (Box 1). The economic five may sound dis-
the United States, smaller universities and research couraging even, but that is not the intention.
institutes are looking to imitate the successes of It is to encourage a realistic time frame and
their larger counterparts. Such changes are moti- the sustained investments in time and money
vated primarily by two economic interests: are needed to reap the substantial societal and
Nelsen L 2007. Ten Things Heads of Universities Should Know about Setting Up a Technology Transfer Office. In Intellectual
© 2007. L Nelsen. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

NELSEN
Box 1: Ten Things to Know about Setting up a Technology transfer Office
The economic five
1. Technology transfer will not make your university rich. A successful program will make a
small profit but will not support the university. It will, however, provide many other benefits
to the institution and the community.
2. Building a robust technology transfer program takes sustained financial investment.

Investments are required to develop a patent portfolio, attract expert talent, and train office
professionals.
3. It will likely take eight to ten years before your program stops losing money—and it may
never make your institution any substantial amount. It takes time to build an IP portfolio,
establish contacts, and develop skills in technology transfer. Following the set up, the TTO
may begin to make money.
4. It may take two decades or more before a university technology transfer program (including
entrepreneurial spinouts) substantially affects the local economy. Impact in regional
economic development takes 20 to 30 years. Expecting substantial returns in a few years
leads to underinvestment and disappointment.
5. The ultimate impact may be very large—both economically and culturally—for the university,
its graduates, and the community.
The implementation five
6. Sustained effort requires visible support—fiscal and otherwise—from senior administration.

Senior management must not only lead the way, but also sustain the effort to change the
culture of research and investment.
7. Only senior administration can set the mission, policies, and priorities for the program. Clear
mandates will help technology transfer professionals choose among competing priorities
and the ever-present trade-offs between business and academic values. These policies will
ultimately help to define the university. They need to be clearly stated, and supported from
the top, so that technology transfer professionals can make the best decisions and withstand
pressure from competing interests.
8. Clear policies on IP ownership, the roles of researchers in interactions with industry, and
other ground rules should be set up before the program begins. Working out such policies
in the middle of making deals leads to confusion and bureaucratic lethargy, slows down the
learning process, and hurts a university’s reputation for being able to consummate deals.
9. Conflicts of interest, both real and perceived, are inevitable. Clear policies and a well-
understood review and appeal process need to be put in place early. Much can be learned
from the experience of others in the technology transfer field. Again, support from senior
administration is critical.
10. Technology transfer is a talent-based business. It is difficult to find people who can speak the
two languages of academia and industry and who also have the creativity to craft agreements
that meet the needs of both sides. One should not underestimate the combination and level
of skills required. These skills and experiences are very different from those needed to conduct
research.

CHAPTER 6.1
economic benefits of a successful technology ship), thus influencing their future career
transfer program. A few TTOs have performed aspirations and ultimately impacting the
atypically and these provide exceptions to the country’s economy
principles described, especially with respect to • financial support from grateful alumni
the economic five. But these exceptions depend and other entrepreneurs who have grown
mostly on luck and planning—they cannot be wealthy from companies started from uni-
counted on. The issues are discussed in more de- versity research
tail following the list.
The sections that follow discuss more Such programs can have a major impact on
fully the promise of technology transfer, the the economy of the surrounding regions—and
economic issues and expectations involved not only directly from entrepreneurial spinout
with technology transfer, and implementation companies from the university. The entrepre-
matters. neurial ferment and capability resulting from
university spinouts leads in turn to the formation
2.1 The promise of technology transfer of many other new companies. Larger companies
There is little doubt about the ultimate potential also often move to the region to take advantage of
of university technology transfer programs when relationships with entrepreneurial companies and
it comes to accelerating the adoption of new tech- the skilled employee base.
nologies, enhancing entrepreneurship, creating
new medicines and other products, creating jobs, 2.2 Expectations in setting up a program
and adding prosperity through economic devel- Despite the promises of successful technology
opment. The clustering of high technology and transfer programs, when communities and their
biotechnology companies around major univer- universities try to start new technology transfer
sities has been well described, and AUTM and programs or to accelerate existing ones, the road
others have documented the creation of hundreds is rocky. Unrealistic expectations are a major
of thousands of jobs directly related to university cause of failure and frustration. Universities of-
licenses and startups. ten expect their programs not only to bring in in-
Within universities, robust technology dustrial sponsorship for research but to provide
transfer programs also have many important royalty income and entrepreneurial spinouts that
benefits that are quite separate from royalty will support the entire university.
income (royalty income as used here includes Unfortunately, government expectations are
royalties from licenses to university intellec- often equally unrealistic. Some governments, for
tual property and monetary return from equity example, have expected royalty income from tech-
holdings in spinout companies formed around nology transfer to replace government support of
university intellectual property). Among others, their universities. Too often, local and national
these include: governments believe that just a few years of fi-
• productive interaction with the industrial nancial support for technology transfer—coupled
community: ideas shuttling back and forth with pressures on universities to produce measur-
between the academy and the private sector, able impacts—will almost instantly create thriv-
which often increases the quality of research ing clusters of biotechnology,1 software, or tele-
• increased industrial support of university com companies akin to those in Boston, Silicon
research Valley, or San Diego.
• more willingness from central and local A more realistic picture, however, is pro-
governments to support university research vided by almost a quarter century of technology
for economic development transfer experience in the United States under
• student exposure to the world of industry the Bayh-Dole Act of 1979, which allowed uni-
and to the commercial opportunities of re- versities to own patents from federally funded
search (including training in entrepreneur- research.

NELSEN
2.2.1 Licensing income to be sustained financially for a long period

Income from royalties and equity in spinouts is of time, with the revenue shortfall justified by
measured most easily. Data from the AUTM sur- their nonroyalty contributions to the university
vey of U.S. universities (not including hospitals and community.
and research institutions for fiscal year 2002 shows Finally, it should be noted that new technol-
that total gross royalties (including income from ogy transfer programs are too often starved—
equity) for 158 universities was US$959 million. both for money to file patents and for staff. A
This from a research expenditure base of over US university frequently expects its program to
$32 billion during that year! somehow bootstrap itself into profitability and
Thus, even before subtracting expenses for expansion. An “anorexic” program, however,
patenting and staff costs, technology licensing climbs the learning curve—and reaches profit-
and spinout equity income averages less than ability—much more slowly and has a much low-
3% of the amount universities spend on research. er impact on the university and the community
And the income distribution is skewed: ten uni- along the way.
versities in the United States (6.3% of the total) Thus, the university must have a well-
account for almost 60% of the total royalty in- thought-out, long-term financial plan for build-
come for all U.S. universities. ing its technology transfer office. The plan should
The income distribution is skewed because a be based on expected benefits—both financial
good fraction of the total U.S. university income and especially, nonfinancial—and on what the
from technology licensing is from a few block- university can afford during the decade or so it
busters: single inventions that yield very high takes to build a mature program.
royalties (millions or tens of millions of dollars
per year, often for over ten years, until the patent 2.2.3 Regional economic development
expires). These blockbusters are few and far be- Governments most frequently support technol-
tween—there are no more than two or three ones ogy transfer in universities directly because they
each year in the United States. hope that entrepreneurial spinout companies
It is therefore unwise to look to technology will revivify the regional economy surround-
licensing and income from spinouts (royalties or ing the university. This is not an unfounded
equity) to support the university. hope—a number of regions have demonstrated
the success of such programs over time. But it
2.2.2. Program profitability takes time: more than ten years for more than a
Building a program to break-even profitability few spinouts to be formed, and as long as 20 to
takes time and money. Again, the North American 30 years before a substantial cluster of techno-
experience is instructive. Studies have shown that logically-based companies forms—and this only
it can take a technology transfer program eight to when such development has been purposefully
ten years or more to reach profitability, although planned and robustly supported financially. (The
most programs become profitable if the effort to Research Triangle region in North Carolina,
build them is sustained.2 U.S.A., is one such success—after about a quar-
If measured only by royalty income, uni- ter century!)
versities with smaller research bases have a Thus, government programs that support
more difficult time breaking-even. Less research technology transfer for four to five years and
means fewer inventions, lowering the statistical then expect the programs to be self-support-
probability of a blockbuster invention. Fewer ing and surrounded by a flourishing cluster
opportunities for licensing also mean that the of companies are unrealistic. It will not hap-
technology transfer staff gains less experience pen that fast. Building a regional economy
and learns the craft more slowly. Small tech- based on entrepreneurialism is a slow, gradual
nology transfer programs, therefore, may have process.

CHAPTER 6.1
3. Implementation on a daily basis—must all know the ground rules

before work can begin. The growth and learning
3.1 The role of the upper administration: process of the office will by stymied if each new
culture change invention or license-in-negotiation must be run
Founding a successful technology transfer pro- through a committee. Accordingly, policy guide-
gram means changing a culture. Researchers must lines concerning such issues as IP ownership; the
become aware of how useful and rewarding it is to rights, duties, and obligations of the faculty in
identify potentially commercializable inventions regard to technology transfer; sharing of revenue
from their research. They also need to see the and equity with inventors; use of university fa-
benefits of cooperating with industry to transfer cilities by companies; and related issues should be
such technology. For most researchers this will be clearly defined as early as possible.
a new way of thinking, and some will feel that it New offices will find that there are many
threatens the very purpose of the university. guides available from experienced universities to
This change in culture must start from above. help them write their ground rules—but only the
The upper administration needs to clearly delineate administration and faculty of the university can
the purpose and potential benefits of a technology decide which rules make the most sense for their
transfer program—not only to the individual and particular institution.
the university but to the community at large. The
administration of the university can thus allay mis- 3.4 Conflicts of interest
trust by making it clear that technology transfer Technology transfer inevitably brings conflicts of
will not be allowed to distort traditional academic interest.3 The challenge is to manage them.
principles: investigator-initiated fundamental For the university itself, conflicts may exist
research, uncensored publication, and open ex- between the goals of maximizing royalty income
change of information within the university. and promoting publication, between commit-
ments to fostering spinout companies (for ex-
3.2 Defining the mission ample, by allowing the use of university facilities,
The upper administration and the faculty must staff, or even students) and preserving university
define the mission and priorities of the technology resources or between strong IP ownership poli-
transfer office: Is it primarily to produce licensing cies or indirect cost rates and attempts to bring
income? Or industrial support of research? Is the in more research support from industry. One big
mission primarily to get technology developed for conflict of interest arises when university admin-
the public? Or is it primarily to generate startups istrations are called upon to make exceptions to
and regional economic development? long-standing policies in order to bring in a big
There are inevitably trade-offs among these program; the exception itself may be only mar-
potential primary missions. Unless priorities are ginally harmful to the university, but the will-
explicitly set, the practices of the technology ingness to make an exception for enough money
transfer office may well diverge in time from the or for a very senior person can be a dangerous
best interests of the university. Surprisingly, even precedent.
in the United States, with a quarter century of For faculty members, conflicts of interest may
experience in university technology transfer, dis- involve time commitments (often called conflict
cussions about mission and priorities rarely are of commitment). For example, conflicts may arise
held between university management and the between time spent in university teaching and re-
technology transfer office. search and time spent with the spinout company.
Faculty may also be tempted to withhold research
3.3 Setting the ground rules: data from university research efforts because of
policies and practices potential usefulness to the company for the data
The technology transfer office—and the research- to remain secret—or because of harm to the com-
ers, companies, and investors that it deals with pany publishing might cause. Using students on

NELSEN
company projects presents another potential con- • at least a minimal understanding of venture
flict of interest, as does company use of university capital, spinout formation, and smallcom-
equipment. A conflict of interest also arises when pany operation
a researcher has to decide whether his or her new • more than a passing familiarity with patent
patent belongs to the university, to him- or her- law
self, or to the spinout company. • an understanding and sympathy with how
Even a national government can find itself academia operates, academic principles,
with a conflict of interest: Does it want to sup- and the career development paths and aspi-
port basic research in its university, keeping its rations of students and professors
scientific community at a world-class level in the • outstanding written and verbal communi-
pursuit of new frontier technology for the com- cations skills in both formal and informal
ing decades, or should it shift its support to prac- situations
tical research that is more likely to quickly usher • good negotiation skills—or the innate tal-
in new transfer technologies, new spinout com- ent, intelligence, emotional control, and
panies, and regional economic development? “people skills” needed to learn them
For universities and their faculty members, • ability to deal with multiple constituencies
written policies that are well thought out and with conflicting objectives, most of whom
consistently applied can avoid many conflicts of one has no authority over
interest. There are, inevitably, gray areas or ap- • ability to deal with highly ambiguous, con-
peals for exceptions that will intensify with time fusing situations
as the technology transfer program matures. The • both the drive and creativity to solve com-
university needs to define a clear chain of complex multidimensional problems and arrive
mand for ruling on most of these issues. Only at win-win solutions
rare exceptions should find their way to oversight • drive to get the job done, or follow
committees; otherwise the process bogs down in through
the interminable wait for committees to be as- • very high personal integrity and the wis-
sembled and convened. Twenty years of experi- dom to avoid situations that get close to
ence suggests that exceptions to policy should be the line on ethics—no matter how profit-
granted very, very rarely. It is difficult in a uni- able the situation may be to the univer-
versity to make an exception for one researcher sity, a faculty member, or the licensor. A
without soon being called upon to make a simi- university’s reputation is priceless. It must
lar exception for the next one—and policies soon not be endangered by unethical behavior—
erode and become meaningless. or naiveté.
3.5 Talent And finally:

Technology transfer officers need an unusual • the willingness to work at a university sal-
combination of qualifications: ary because of the inherent satisfactions of
• an understanding of state-of-the-art re- the technology transfer job: great technol-
search (though not necessarily as a practi- ogy, complex and always-interesting issues,
tioner), often over a fairly broad range of the satisfaction of seeing new companies
technologies in a multidisciplinary uniform and new technologies reach the mar-
versity. (This usually requires a solid back- ket, and, above all, the opportunity to con-
ground in science or engineering.) tribute to the university, its students, and
• an understanding of the language of indus- the community
try (Officers must be familiar with markets,
how technology is developed into products, People who embody all of these qualifica-
accounting and finance principles, and de- tions are indeed difficult to find, but one should
cision-making processes.) not underestimate the need for a very high level

CHAPTER 6.1
of talent. My experience in hiring and supervising while bringing his or her talents to bear on the
technology transfer professionals have taught me tasks at hand. Plus, he or she can make decisions
that it is a talent-based business—some can do it and get deals done quickly, without waiting for
and some cannot. Those who can will perform multiple levels of approval at each point along the
many times better than those who cannot. They way.
will also build much better relationships with re- They must also be given adequate clerical
searchers and the business community over time, support. Clerical support seems trivial: it is not.
thereby enhancing the office’s effectiveness. Regrettably, technology transfer is not only a tal-
In choosing staff, some formal qualifica- ent-based business but also a paperwork-intensive
tions in technology and business are a sine qua business. If good computer systems and clerical
non. These qualifications, unlike personal char- help are not available, your very talented technol-
acteristics, can be easily be checked on a résumé. ogy transfer professionals will spend far too much
Whether the technical background is at a bach- of their time on clerical work—which is both
elor’s or Ph.D. level is relatively unimportant, wasteful and demoralizing. n
provided that the person is very bright and can
understand how research is done and how uni-
versities operate. Unfortunately, until the candi- LITA NELSEN, Director, M.I.T. Technology Licensing Office,
Massachusetts Institute of Technology, Five Cambridge
date has taken the job, it is difficult to determine
whether an individual has the creativity, interper- MA, 02142-1493, U.S.A. lita@mit.edu
sonal skills, ability to deal with ambiguity, and
drive to completion that the job requires. 1 See, also in this Handbook, chapter 3.11 by PWB Phillips
and CD Ryan, and chapter 3.12 by K Viljamaa.
Staff should be given sufficient clerical and
2 Brandt KD, EJ Stevenson, JB Anderson, CL Ives, MJ Pratt
infrastructure support and sufficient autonomy
and AJ Stevens. 2005. Do Most Academic Institutions
so that they can do their jobs well. Clearly written Lose Money on Technology Transfer? Boston University.
policies help define the limits of that autonomy. Poster Session, AUTM Annual Meeting, 2005.
Good training coupled with oversight supervi- 3 See, also in this Handbook, the chapter 5.7 by A
sion—but not micromanagement—allows the Bennett.
talented professional to learn and grow on the job

CHAPTER 6.2
Establishing a Technology Transfer Office

TERRY A. YOUNG, Director of Research Development, University of South Dakota, U.S.A.
ABSTRACT primary institutional focus, establishing a TTO

Technology transfer does not just happen. Transferring may not be warranted. Without a strong research
knowledge and innovation from a public research organiza-
focus, the organization would do well to find
tion to the private sector for commercial application and
public benefit requires a formal mechanism—a technology alternatives for meeting the occasional need for
transfer office (TTO)—to protect and license intellectual technology transfer services.
property. Establishing a new TTO is no trivial matter, and With more than twenty years of experi-
the decision to create one should be made within the con- ence, the international Association of University
text of a long-term plan that takes into consideration the
following questions: (1) Does “research commercializa- Technology Managers (AUTM)1 has identified
tion” align with the institution’s mission? (2) Do the qual- four key reasons for public research organizations
ity and quantity of research within the institution warrant to advance academic technology transfer:
the establishment of a TTO? (3) Is the institution willing • facilitate the commercialization of research
to make a long-term commitment to required institutional
results for the public good
changes and to adequately invest in resources and people? If
the answer to all of these questions is yes, then it is time to • reward, retain, and recruit high-quality
develop a clear TTO business plan. In this effort, a strong researchers
dose of patience will help. An often-quoted rule of thumb • build closer ties to industry
in professional circles suggests that even under the very best • generate income for further research and
circumstances, TTOs do not become successful for seven
to ten years after they are established. This chapter provides education, and, thus, promote economic
practical advice for creating a proactive TTO and also of- growth
fers historical examples from around the globe of TTO
launches. If these reasons make sense for your institu-
tion, then it may be time to set up a TTO.
1. Three fundamental questions
Before initiating a planning process for a new 1.2 Do the quality and quantity of research
TTO, a research organization must first address warrant the establishment of a TTO?
three fundamental questions. All technology transfer opportunities flow from
research. The 2003 AUTM Annual Licensing
1.1 Does “research commercialization” Survey™ indicates that, on average, one formal
align with the mission? disclosure of invention was made for every US$2
If the institution’s primary mission is education, million in research activity at research universities
or if its mission does not support research as a in the United States. One U.S. patent application
Young TA. 2007. Establishing a Technology Transfer Office. In Intellectual Property Management in Health and Agricultural
© 2007. TA Young. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

YOUNG
was filed for every US$5 million in research expen- 1.4 If the institution does not meet
ditures, and one technology transfer or licensing the four criteria, then what?
agreement was executed for every US$8.5 million If the research organization does not, in its initial
in research expenditures.2 These statistics indicate planning processes, answer yes to the fundamen-
that public research organizations review many tal questions, the following alternative models,
more innovations (disclosures of invention) than which have proven successful globally, can be
are acted upon. Clearly, substantial research is re- used:
quired to generate technology transfer opportuni- • An external organization, which can be not
ties. Using the above averages, a TTO in a public for profit or for profit, contracts with the
research organization with a research budget of institution to manage the occasional disclo-
US$100 million might expect to record 50 disclosure of invention on an ad hoc basis. There
sures of invention, 20 patent applications, and 11– are many examples of these organizations
12 license agreements per year. An institution must utilized in smaller research organizations
therefore determine whether its research volume is globally.
sufficient to warrant investing in a new TTO. • An individual or small internal office
The quality of research accomplished within could review, filter, and rank disclosed
an institution is another critical variable. This may innovations and an external for-profit
be affected by an institution’s ability to recruit and company could implement commercial-
retain world-class researchers who are at the cutting ization of the most promising opportuni-
edge of science and engineering advancements. ties. Consider the model offered by Baylor
Furthermore, pursuing basic research may generate College of Medicine Office of Technology
fewer opportunities than would applied research. If Administration and BCMT Technologies
the estimated quantity and quality of research are in Houston, Texas, both in the United
below the AUTM averages cited above, the institu- States.3
tion should use alternative means to address its oc- • One TTO could serve a consortium of
casional need for technology transfer services. several public research organizations in a
region. The Chinese Northern Technology
1.3 Is the institution willing to make Exchange Market offers a good example of
a long-term commitment to the TTO? this approach.4
Time may be the greatest predictor of success • One office, funded by the national govern-
for a TTO. In other words, the longer a TTO ment or a philanthropic institution, could
operates, the better will be its cumulative results serve as a TTO for several public research
and performance measures. This makes sense in- institutes. Examples include the U.S.
tuitively: as innovations, patent applications, and National Institutes of Health Office of
license agreements are added cumulatively each Technology Transfer5 and the Innovation
year to the institution’s portfolio, there is a greater Fund Commercialisation Office in South
chance that a fraction of these will eventually gen- Africa.6
erate returns. Technology transfer practitioners
suggest that it typically takes five or more years
for technology that is licensed to an industry 2. All go? Develop a
partner to result in a marketable product. Thus, TTO Business Plan
according to these practitioners, TTOs require When the four fundamental questions have been
seven to ten years to be successful, regardless of satisfactorily explored and a TTO has been decid-
how one chooses to measure success. Institutions ed upon, both short- and long-range plans should
should expect similar experiences and be prepared be developed, much as a for-profit organization
to subsidize the office for many years to come. A would develop its business plan. At the very least,
commitment to support a TTO is more than a an executive-summary plan addressing the essen-
two- or three-year financial obligation. tial elements should be crafted.

CHAPTER 6.2
2.1. Developing a mission statement orientation. Institutions with higher income lev-
First, the TTO should establish a transparent els from licensing are typically teaching/research
mission statement developed in concert with its hospitals at which the possibility of an outstand-
constituents (including but not limited to its ing commercial success is more realistic.
administration, inventors, and external clients, Of course, TTOs do not focus on a single
including potential industry partners). TTO mis- mission but combine their vision in ways that best
sions may focus upon three primary objectives or satisfy their own constituents. The mission state-
combinations thereof: (1) service, (2) economic ment serves as a guide for implementing these
development, or (3) income.7 goals and sets forth the activities expected from
the new TTO. A short and simple mission state-
2.1.1 Service mission ment might be: The TTO serves to assist research-
The TTO can be considered a service unit to the ers in the transfer of the institution’s research results
researcher, similar to an institution’s human re- to industry for commercial application, economic
sources office or a contracts and grants office. In development, and public benefit. TTOs must be
this model, the institution may not share with the careful to avoid “mission creep.” This can occur
office a percentage of the income from successful when TTOs are charged with managing activi-
commercialization. Instead, it fully subsidizes the ties not directly related to commercializing in-
office—just like any other internal department. novations (research administration, institutional
Researcher satisfaction typically is high because export regulation requirements, conflict of inter-
all innovations receive TTO attention and work. est compliance, and other tasks not within its
stated mission).
2.1.2 Economic development mission Finally, while TTOs are business offices
Institutions inspired by the goal of economic de- within academic institutions, the mission state-
velopment see their primary mission in terms of ments of these offices increasingly announce a
creating jobs and economic growth in the local societal role. As the managers of institutional
community—and perhaps the region, state, or innovations for commercial use, do TTOs also
nation—through spinout companies and through have a social responsibility to improve the well-
licensing to local companies. A cluster of compa- being of humanity? The answer is a resound-
nies (centers of excellence) may be created around ing YES! Social responsibility and a contribu-
a core area of technology. Significantly, a recent tion to societal wellbeing must fit within the
Milken Institute study on the high-tech economy TTO’s mission. These can easily be incorpo-
concludes that “research centers and institutions are rated into the service mission of the office and
indisputably the most important factor in incubat- the institution. Indeed, public research agencies
ing high-tech industries.” The same study found should be in full support of the United Nations’
that 29 of the top 30 high-tech clusters in the Millennium Development Goals.9 Furthermore,
United States were home to a comprehensive re- given that the current debate opposes corporate
search university.8 profit flowing to a range of important social
goals—sustainable development, the health of
2.1.3 Income mission the environment, the indigenous farmer, and
As expected, earning income from the transfer of free or low-cost treatment of AIDS, malaria,
innovations to commercial concerns is nearly al- and other diseases in developing countries of the
ways the primary focus of the operation with in- world—public research institutions must make
come as its main objective. Such institutions are sure to align themselves with societal welfare.
very selective, identifying innovations with the The TTO mission statement is a powerful place
highest potential and quickly abandoning others. to announce these aims.
Not surprisingly, this can lead to overall research- There are many ways to balance these goals
er dissatisfaction; this is not usually the case with with commercialization. One relatively simple
institutions that have a strong researcher-service way would be to carefully craft license agreements

YOUNG
to ensure that social benefits for developing coun- many institutions). Several countries in various
tries are incorporated into the grant section. For parts of the world have moved recently to the
example, a grant for an improved agricultural va- institution-owned model (Japan, Germany, and
riety could require the corporate licensee to sell the United Kingdom, for example). It seems
seed for commercial production with royalty or clear that either approach can work well.
added-value premium pricing but to indigenous However, a disturbing trend has been seen
farmers in developing countries at cost (or at least in the recent laws of various countries just enter-
without requiring them to pay royalty to the uni- ing the technology transfer arena. In some cases,
versity or the added-value premium charged by the new national laws require that the ownership
the company to commercial producers). of IP arising from sponsored research be shared
between the research sponsor and the institu-
2.2 Policies and procedures tion. Ownership is shared equally to begin with,
The system for managing innovations should but later becomes negotiable (such a provision
be easily understood, and transparent policies is stated in Brazil’s new technology transfer law
should guide the implementation of the institu- of 2005). Such an arrangement is not viable, as
tion’s mission statement. Defining the ownership these countries will find as they seek to imple-
of intellectual property (IP) resulting from insti- ment a national technology transfer regime. In
tutional research must be at the very heart of the seeking to be politically correct and not offend
institution’s policy. A disposition of ownership the country’s corporate sector, the governments
can take many forms, but the disposition must have created a situation in which neither par-
be defined clearly without question or ambigu- ty wins: the transfer of research results will be
ity. In some countries, ownership is defined by blocked by the inability of either party to main-
national law. In other countries, each institution tain exclusivity. This will create an impenetrable
holds the prerogative to determine the ownership barrier that will prevent any corporate partner
of research results: the government, the inventor, from investing the energy and money necessary
the institution, or two or more of these parties. to take an embryonic technology to market. The
In the United States, for example, each research result will be impasse; the transfer of technology
institution is free to determine how ownership will by stymied.
is allocated, with the exception (under the U.S. Obviously, policies should address a multi-
Patent and Trademark Law) that if the innovation tude of other issues that are critical to the suc-
is developed with government sponsorship, own- cess of technology transfer programs, such as roy-
ership lies with the institution. Regardless of the alty-income distribution, the disclosure process,
approach the institution chooses or is compelled assignment of responsibility for seeking patent
to adopt, technology transfer is impossible with- protection, researcher and institutional conflict
out a clearly defined, written policy concerning of interest, dispute resolution, management of li-
ownership (including written assignment of title, censees’ contractual performance, management of
when required). equity interests in spinout companies, and many
Even after more than 20 years of proactive more requirements. As examples, the policies for
technology transfer practice in North America most research-intensive universities in the United
and throughout the globe, debate continues States and in many other countries are found on
about the best model of IP ownership for aca- the AUTM Web site.10
demic institutions and other public research
organizations. The inventor-owned model and 2.3 Financing the TTO
the institution-owned model both have posi- As previously established, an institution’s new
tive and negative attributes, as seen in the ex- TTO will require subsidies for years under the
amples of success in both the United States very best of circumstances. However, as different
(institution-owned, except for the University countries have discovered, there are many differ-
of Wisconsin) and Canada (inventor-owned in ent funding models.

CHAPTER 6.2
2.3.1 Australia’s models with a well-managed business plan. As in Australia,

In Australia, public research organizations, within income may be derived from service charges levied
a relatively unregulated environment, are respon- for business-development activities that may have
sible for financing their own technology transfer little to do with managing the innovations from
operations. Two primary models have emerged: the research institute (for example, industrial con-
(1) the formation of an external company, and sultancies and other business services provided to
(2) the establishment of an internal institutional small and medium enterprises). In addition, each
department or office. Using the company model, center typically receives a percentage of the roy-
the corporation generates cash flow through a va- alty income for the technology transfer transac-
riety of related business activities such as consult- tions it manages for the public research organiza-
ing, conference management, and professional tion.12 In April 2005, the Society for Technology
development courses. The proceeds enable the Management (STEM) was formally launched as
company to support the organization’s technol- India’s professional technology transfer society, in-
ogy transfer function. In some cases, a university cluding institutional and individual members.13
has provided seed funding to initiate the compa-
ny’s operations. 2.3.3 Japan’s model
In the internal-office model, the organization In 1998, the Japanese government enacted legis-
provides funding directly to the TTO, which is lation to create government-approved university
then considered one of the organization’s cen- TTOs. Once a TTO was approved, the govern-
tral administrative functions. The amount and ment would provide two-thirds of its operating
adequacy of TTO funding depends upon how cost, up to the equivalent of US$300,000 per year
important innovation management is to the for five years; the universities or other university-
central administration and upon the TTO’s abil- related organizations were expected to match gov-
ity to demonstrate the benefits it brings to the ernment support by contributing one-third of the
institution.11 funding. At the end of the five-year period, the
TTOs were expected to be able to sustain them-
2.3.2 India’s model selves without the income streams resulting from
No formal legislation for organizing and financ- commercialization. However, when the Japanese
ing TTOs exists in India. However, during the government realized that such expectations could
last ten years, most technical universities and not be achieved, it extended its direct subsidy of
research institutes independently established or- a portion of the cost of TTO operations, includ-
ganizations to interface with industry. Such orga- ing the direct allocation of funds to secure pat-
nizations perform many of the technology trans- ent applications for selected top-tier or so called
fer activities typically assigned to TTOs in other Super TTOs. Furthermore, in 2004, Japanese law
countries. Some of these autonomous entities gave all national universities independent legal
were initiated with seed funding provided from status, allowing them to participate in these TTO
state governments or the central government. For initiatives.
example, the Indian Institute of Technology in Finally, a number of Japanese TTOs quickly
Delhi established the Foundation for Innovation discerned that the funding from the government
and Technology Transfer (FITT) with a corpus was insufficient to support their operations. They
grant equivalent to US$400,000 from the Indian therefore created associated for-profit companies
Ministry of Human Resource Development. In that facilitated the creation of spinout companies.
other cases, TTOs were formed by funds appro- Faculty members were asked to invest in these
priated by a governing board of the autonomous companies, which commercialized university
university or research institute. R&D. Now, several faculty-owned companies
In all cases, such support is provided only for associated with university TTOs exist to assist
a limited time. These organizations are expected to the commercialization of R&D through spinout
attain self-sufficiency, working as “profit centers” companies. This provides incentives for faculty

YOUNG
members to disclose their inventions, because South Africa is seeking to build strong links
they have a personal stake in the commercializa- between its emerging technology transfer system
tion company. The government and universities and its research system. This means building
realize, however, that this expanding strategy will a new culture of innovation inside the research
require new support systems, such as incubators community and ensuring that all benefits of re-
and risk capital, in order for these Japanese insti- search (including noncommercial and social
tutions to become entrepreneurial universities.14 benefits) are understood and exploited. To sup-
port this integrated approach, the Southern
2.3.4 People’s Republic of China African Research and Innovation Management
In 1998, inside China, only Tsinghua University Association (SARIMA) was formed in 2002 to
and Peking University in Beijing operated TTOs. assume the lead role in national efforts to build
Today, most public research organizations in capability in research and innovation. SARIMA
China have a TTO. These were originally sup- is supported by the government, participating
ported by the Chinese government, but as China academic institutions, and U.S. and European
moves from a state-planned economy to one that philanthropic donors.16
is more market based, this TTO funding model As part of its national strategy, the South
is changing. Most of the TTOs today operate as African government established its Innovation
associated private companies, solely owned by the Fund to promote technology innovation, which
corresponding university and initially supported has increased networking and cross-sectoral col-
with university funds. As private companies, laboration. The fund has invested South African
these TTOs are very active in business-develop- Rand ZAR650 million in more than 100 proj-
ment services, such as setting up incubators, as- ects. Many of these have produced patents and
sisting small- and medium-sized enterprises to in some cases spinout companies. Most recently,
prepare business plans, helping develop spinout the government established the Innovation Fund
company requirements, investing in new spinout Commercialisation Office (IFCO), a centralized
companies with university-based venture funds, office to provide one-stop support for protecting
and so on. Most often, the TTOs negotiate for and commercializing intellectual property rights
significant equity shares in new university spin- for all of the nation’s public research organiza-
out companies and may wholly own some spin- tions. IFCO complements existing technology
out companies. Eventually, the TTOs—often transfer offices in South African public research
called technomarts—are expected to become organizations.17
self-sufficient from their equity holdings and the
income received from licensing and other related 2.3.6 United Kingdom
business-development activities.15 Shortly after the 1998 report White Paper on
the United Kingdom’s Competitiveness, issued
2.3.5 South Africa by the government of the United Kingdom,
South Africa has made government support for many policy initiatives and government funding
research and innovation a key part of the national streams were established to stimulate cooperation
economic-development strategy. In August 2002, between the researchers at universities and the
South Africa’s government approved a new na- country’s industrial entrepreneurs. This coopera-
tional R&D strategy, and discussions continue tion significantly changed the way universities in
for implementing the new strategy, including na- the United Kingdom organize their technology
tional funding for technology transfer. Funding transfer activities. Several prominent universi-
for commercialization activities and patents is ties created separate companies to commercialize
critical, but a major capacity-building and devel- IP, especially innovations that were thought to
opment effort is under way. This effort will build have potential to serve as foundations for spinout
upon capabilities that exist in a few universities companies (university companies or UNICOs18).
and public research councils. Nonetheless, the majority of universities also have

CHAPTER 6.2
internal TTOs that collaborate closely with the four focused working groups established by the
sponsored-research office and with the UNICOs council will address the role of universities and re-
to develop industry relationships. The growth search organizations in the process of innovations
and development of TTOs have been stimulated and commercialization. This will include con-
more recently by direct government funding to sidering how to establish and finance TTO op-
universities for this third stream activity via the erations in the Russian Federation. Finally, most
Higher Education Innovation Fund in England research in the Russian Federation is conducted
and Wales (HEIF)19 and the Scottish Executive by the research centers of the Russian Academy
Expertise, Knowledge, and Innovation Transfer of Science. Many of these centers have extensive
Programme (SEEKIT).20 technology transfer operations funded internally
Initially, HEIF financial support was awarded and directly by government allocations made to
to institutions through competitive solicitation. research centers at the academy.22
Today, the government distributes HEIF funds
directly to universities through a formula funding 2.3.9 The United States
process that is based upon numerous criteria, in- No government funding for TTOs is provided to
cluding but not limited to institutional research universities inside the United States, and there are
capacity (quantity and quality) and TTO perfor- no national universities. However, the Bayh-Dole
mance measures.21 Act of 1980, enacted as PL 96-817 and codified in
the U.S. Code of Federal Regulations23 provides
2.3.7 Russian Federation a legal basis for TTO funding. The act states that
A major initiative began in 2002 to establish income recorded from commercializing govern-
TTOs in leading universities in the Russian ment-funded-research results can be utilized for
Federation. This was led by the U.S. Civilian only three purposes: (1) to fund the administra-
Research and Development Foundation (CRDF) tion of the technology transfer function (TTO),
of Arlington, Virginia, in cooperation with the (2) to provide a share of income to the inventor as
Russian Ministry of Education. The 19 universi- an incentive to participate in technology transfer,
ties participating in the so-called Basic Research in and (3) to support education and further R&D
Higher Education (BRHE) program were identi- at the institution.
fied for R&D development and technology trans- The act does not specify the percentages of
fer focus. Funding was provided primarily by the income to be allocated for these three purposes.
John D. and Catherine T. MacArthur Foundation Universities are free to determine how to allocate
through CRDF and the Russian Federation commercialization income as they see fit. Most
Ministry of Education. In 2003, CRDF and institutions have set aside a portion of the income
the Ministry held a joint competition in which stream to fund the TTO: allocations for TTO op-
BRHE universities submitted proposals to estab- erations usually range from 10% to 25%. Typically,
lish TTOs with dedicated funding. Four univer- after allocating a portion of commercialization
sities were selected by CRDF to receive funding income to support the TTO, the university di-
for TTO establishment, which provides a good rectly subsidizes the TTO from internal sources
example of financing TTOs through a third- during the first years of its operation. Then, as
party philanthropic source. The awards ranged income is realized from license agreements, the
from US$75,000 to US$150,000 and were paid subsidy required from the university for the TTO
out over three years. Most recently, the U.S. operations is reduced over time. Eventually, the
Department of Commerce and the Russian institution expects that the income stream gen-
Ministry of Education and Science executed a erated by the TTO will eventually eliminate the
bilateral agreement that included establishing need for direct university subsidy. As mentioned
the U.S.-Russian Innovation Council on High above, several years are required for a TTO to be-
Technologies. The first meeting of the council was come entirely self-supporting from the allocated
convened in Moscow in June 2005. One of the income. In a few rare cases, a TTO has become

YOUNG
self-sufficient early in its growth from a successful the simplest administrative tasks. Ideally,
project that immediately generated a large stream this individual should not be a rector, vice
of royalty income. Finally, it should be men- president, provost, or dean, but rather a sec-
tioned that other public research organizations ond-tier administrator who reports to such
in the United States (such as federal laboratories) institutional authorities.
are funded directly through a set-aside of the an- • The best communication infrastructure
nual appropriation provided to departments of possible must be in place between the re-
the executive branch of government, such as the gional TTO and the institutions it serves,
U.S. departments of defense, energy, and com- including, but not limited to, video-confer-
merce (see Federal Laboratory Consortium for encing capabilities when possible.
Technology Transfer24). • Key staff of the regional TTO must make
regular, frequent visits to each of the insti-
2.3.10 Assessing the options tutions it serves in order to have adequate
The previous examples demonstrate how TTO face-to-face contact.
funding models vary around the globe. Each • Transparency in the operations of the re-
model has developed to fit the cultural, political, gional TTO is essential. Transparency re-
and economic conditions of the corresponding quires: (1) sharing costs between served
country. Two themes are found in most interna- institutions on a negotiated and equitable
tional models: basis (if the regional office is not fully gov-
1. The TTO typically is allocated a percentage ernment supported), and (2) equal treat-
of the income stream from the commercial- ment and consideration toward all in-
ization of innovations. stitutions served by the TTO (that is, no
2. The TTO is expected to eventually become favoritism shown to any one institution).
self-supporting from this allocation of in-
come and perhaps other related income- For 13 years I directed a TTO that served
generating services. ten academic institutions within the Texas
A&M University system. At one time during
Despite a new axiom (discussed in sec- those years, the TTO sought to serve smaller
tion 2.5), many countries or regions may have Texas universities outside the A&M system.
no choice but to establish a regional or inter- The greatest challenge I found in seeking to
institutional model, for the reasons presented, manage such a broad program was that despite
with regard to the costs of establishing a TTO all efforts on the part of the TTO against it,
and the quantity and quality of an institution’s favoritism was perceived by the institutions
research results. The greater the distance from served. Such perceptions are likely unavoidable
the regional office to the institutions the office and simply must be managed. Once one of the
serves, however, the greater are the challenges served institutions records a significant success,
for identifying research results with commercial the other institutions want to know and under-
potential, protecting such results, and finding stand why they have not achieved, or are not
corporate partners for commercialization. Here achieving, similar success. Individuals who per-
are a few recommendations that, when followed, ceive that their institutions have been slighted
can diminish the negative impact of physical will frequently blame the “failure” on the TTO
distance: and its staff. Over the years, I spent many hours
• Within each institution served by a regional addressing this issue in high-level meetings with
office, an individual must be identified to act institutional officers and system-level officials,
as the institution’s liaison with the regional even though the TTO office and staff sought
TTO. (This individual would have other re- to be impartial. Thus, a regional TTO must be
sponsibilities as well.) Having a specific point prepared to address this critical issue, or the col-
of contact is necessary for coordinating even lective approach is likely to fail.

CHAPTER 6.2
2.4 Staffing the TTO International.25 Additionally, internships

Staffing a new TTO is a major challenge. Engaging are available in numerous countries, for
the right individual or individuals to operate the instance, in the United States, the Special
office often is the factor that determines failure or American Business Internship Program
success. In the United States, the number of TTOs (SABIT) is offered by the Department of
began to increase in the 1980s, and selected to di- Commerce.26 AUTM offers scholarships
rect the new TTOs were individuals from various for training, such as the Howard Bremer
backgrounds including high-level administrators, Scholarship and the Developing Economies
staff from other departments (contracts and grants Scholarships (five awards). Each of these
staff, for example), clerical staff, scientists, attor- scholarships is offered annually through a
neys, businesspeople, and so on. Significant de- competitive solicitation process.
bate went on in the 1980s and 1990s as to which • clerical support. TTO operations require
combination of skills was most desirable for direc- significant clerical and administrative sup-
tors and licensing associates to possess: scientific port. TTO activities generate tremendous
skills, legal skills, or business skills? At the same volumes of paper in the form of patent ap-
time, many offices evolved from simple one- or plication drafts, license agreements, project
two-person operations to complex operations summaries, and marketing materials, as
with many different positions to address specific well as daily correspondence with attor-
job tasks, such as general administrative manage- neys, potential licensees, and researchers.
ment, clerical support, accounting support, para- Project files and docketing systems must be
legal services, and project management (evalua- prepared to manage the progress of ongo-
tion, marketing, licensing, and so forth). ing work on each innovation, which not
For the university contemplating a new of- only requires clerical support but also ap-
fice, two would be the fewest number of positions propriate computer and electronic database
to start with: resources. The telephone rings constantly
• a director/licensing associate. In an ideal with calls from inventors and potential
world, a person charged with setting-up a corporate partners. Additionally, Web
new office should have significant business sites must be created and maintained, and
experience (marketing, management, and incoming e-mails can be overwhelming.
business development), combined with a Excellent clerical/administrative assistance
science or engineering education. Generally, for the director is essential when establish-
neither scientists nor attorneys have the ing a new TTO.
business acumen necessary to establish, or-
ganize, and manage a TTO. The director/ When helping countries and institutions
licensing associate should have excellent to establish TTOs, I have frequently heard this
communication skills to effectively market question: “Should we hire an in-house attorney
innovations and to work successfully with to file patent applications for the institution?”
both internal constituents (researchers and Generally, in-house counsel retained for the
administration) and external constituents drafting and filing of patent applications is not
(potential corporate licensees). recommended for the following reasons:
Unless the new TTO recruits an expe- • By and large, the breadth of an institution’s
rienced technology transfer professional, research is too wide to be within the techni-
the new director/licensing associate should cal expertise and knowledge of any one pat-
be trained before operations begin. There ent attorney. Furthermore, the cost of hiring
are many opportunities for workshops several attorneys with the relevant technical
and other training events internation- skills to address this breadth is not cost ef-
ally, through such organizations as AUTM fective. Exceptions to these conclusions
and the Licensing Executives Society may be Centers of the Consultative Group

YOUNG
on International Agricultural Research Many TTOs in the United States—includ-

(CGIAR) or similarly focused research in- ing the TTO of the Texas A&M University sys-
stitutions with narrower institutional re- tem—have hired an in-house paralegal specialist,
search results. rather than in-house counsel, to manage the in-
• The claims of a patent application form terface between the institution and its patent at-
the basis for products and companies. torneys engaged under contract. The paralegal is
Especially in human-health research, tens responsible for ensuring that all documents are
and even hundreds of millions of dollars properly executed and filed with the attorney
are spent to bring an embryonic technol- firm, for maintaining “suspense files” or tickler
ogy to market. Such investments depend files to provide a backup system to ensure that
upon and are protected by the strength and no filing deadlines are missed at domestic and in-
enforceability of the patent rights to the ternational patent offices, for filing copyright ap-
subject technology. An institution would plications for software and other works on behalf
be extremely shortsighted to cut its pat- of the institution and its faculty, and for main-
ent application costs by using an in-house taining a relational database of all official project
attorney made to be responsible for too documentation.
many fields of technology. Given the high
stakes, it is far better to secure the best pos- 2.5 Organizing the TTO
sible patent counsel available to draft the During the initial growth of the technology trans-
strongest claims possible for the subject fer industry in the United States in the 1980s and
invention. 1990s, TTOs were located in a variety of admin-
• Corporate licensees prefer to use the best istrative units within public research organiza-
counsel available to back their investments, tions, including (1) offices of general counsel, (2)
and they may not have full confidence in business administration offices, (3) offices of the
the capabilities of an in-house attorney. vice president for research, and (4) contracts and
• In today’s litigious world, use of outside grants offices. Over time, however, TTOs typical-
counsel creates a third-party buffer, an ly were placed within the research administrative
entity that must take responsibility for unit of the institution, which usually reports to
conducting thorough prior art claims, the vice president for research. In many cases, an
meeting filing deadlines, drafting the best individual serves as the organization’s officer for
claims possible, and managing the patent research and technology transfer, combining the
prosecution process from start to finish in functions within one administrative unit.
the most professional manner. If problems Additionally, as TTO offices grew in the
arise along the way, as they often do, the United States and other industrialized countries,
institution is best served by having the the offices diversified to create individual operat-
attorney’s firm, and not the institution, be ing divisions to manage focused tasks:
responsible for all of the constituents: the • general administrative office management
inventor, the institution, and the licensee. • clerical support
It is not advisable, when things go wrong, • project management services through a li-
for the university to be in the position of censing associate (responsible for evaluat-
defending the patent prosecution with in- ing inventions, marketing, coordinating
house counsel. industry relations, and negotiating license
• Finally, many institutions have legal coun- agreements)
sel in an office of the general counsel (or simi- • accounting services (responsible for man-
lar name) that can offer assistance to the aging general fiscal operations, as well as
TTO, from time to time, for contractual accounts receivable from licensees, and ac-
questions, contract enforcement, and other counts payable to consultants, patent attor-
legal issues. ney firms, and other service agents)

CHAPTER 6.2
• paralegal services (responsible for manag- or the ability to call, on short notice, meetings be-
ing the volumes of correspondence and tween project stakeholders—inventors, TTO staff,
carrying out discussions with patent attor- academic administrators, potential licensees, and so
ney firms, executing and notarizing legal forth. At times potential corporate partners arrive
documents, and docketing critical dates to at the TTO with little or no advance notice, and
ensure filing deadlines are met) getting the inventor to join the group for a meet-
• marketing/public relations (responsible for ing, lunch, or dinner obviously is not possible if
managing Web sites and producing bro- the individual is in a faraway city. Moreover, simple
chures, press releases, and other marketing administrative and logistical requirements in man-
materials, as well as organizing frequent aging innovation suggest that physical proximity
promotional events for researchers and is important. Consider the example of an inventor
industry) receiving a call from the attorney-of-record on a
patent application saying that the inventor’s signa-
More entrepreneurial offices may even create ture is needed on an affidavit before the end of the
divisions to establish new spinout ventures, in- day. Such a situation could only be addressed if the
cubators, university venture funds, and the like. TTO were on-site.
Obviously, new TTOs may utilize existing units
outside the office to manage some of these ac-
tivities—such as working with a university com- 3. Operations
munications office to produce marketing materi- The degree to which TTOs participate broadly
als—until such time as the growth of the office in research, technology transfer, and industry
warrants a dedicated person inside the TTO. relations varies widely from institution to insti-
As has been suggested, TTOs have taken vari- tution and from country to country. The degree
ous organizational forms, in addition to the tradi- of participation depends upon many factors, the
tional stand-alone unit or department within the most important being the entrepreneurial culture
public research organization. These include (1) of the institution and of the region or nation.
an external company owned by or closely affili- Institutional culture is determined most often by
ated with the institution to manage its technol- the attitude and degree of support from the presi-
ogy transfer activities, (2) a service or consulting dent or chancellor of the institution. Some entre-
contract with a third-party company to manage preneurial chief executive officers have expanded
occasional innovations disclosed by researchers, their initial TTO operations to include activities
(3) one office serving multiple institutions in a in support of their industry partners. This can
region under collaboration agreements, and (4) a create closer connections to the corporate sec-
government agency serving as a TTO for univer- tor, such as the development of spinout-company
sities and other research organizations in a region, business plans by a university’s college of business
state, or nation. administration; the creation of university-based
How to choose? This chapter suggests a new technology business incubators, and/or research
“TTO axiom” to help guide planners toward the and science parks; organizational venture funds,
most effective organizational form: The closer the and so on. Constituents of a new TTO, however,
TTO is physically to the scientists and researchers it expect the following minimal activities:
serves, the more effective it will be. The reverse is • Assist faculty and researchers in identifying
also true: TTO effectiveness diminishes the further research results that have commercial value
it moves physically from its customer base. This latter and document the discoveries through a
holds true even in our age of e-mail, instant text disclosure process. The disclosure-of-inven-
messaging, and other video, voice, and digital com- tion form should be simple and make it easy
munication techniques. None of these techniques for the inventor to document the discov-
can replace frequent face-to-face communication ery; more detailed information can be ob-
needed between the TTO staff and its inventors, tained through interviews and subsequent

YOUNG
interactions with the inventor. The com- basis through their professional network-
plexity of the disclosure form should never ing activities.
be a deterrent to faculty participation in the • Once one or more industry partners are
technology transfer process. identified for an innovation, negotiate
• Evaluate commercial potential of disclosed legal contracts (license agreements) with
innovations. A TTO exists to find com- these industry partners to transfer IP
mercial applications for technology and rights in the innovation in exchange for
partners to realize the commercial poten- royalties or other consideration. The goal
tial, not to judge the value of the science. is to negotiate a fair arrangement that facili-
Such evaluations may be the most difficult tates and assists the commercial partner in
of all tasks for a TTO. There are many ap- successfully developing and marketing the
proaches to invention evaluation.27 The product, rather than simply seeking to ne-
evaluation process lays the foundation for gotiate the absolute highest fees and royal-
future decisions about IP protection and ties in the agreement. Developing industry
marketing. partnerships can lead to many unexpected
• Determine whether or not to protect IP benefits, such as sponsored research, stu-
rights in the innovation; secure funding dent employment opportunities, consult-
for filing patent, trademark, or copyright ing opportunities, and even philanthropic
applications; and manage the protection donations to the institution.
process. The challenge of securing fund- • Maintain and manage administrative func-
ing for protection of intellectual property tions in support of the primary functions
internationally—especially when seeking of IP protection and technology transfer.
protection in highly industrialized coun- These functions can include accounting,
tries where the primary markets for the ex- royalty distributions, licensee performance
pected products lie—is often overwhelm- management, and patent application
ing and perhaps even impossible in many management.
developing economies because of the tre- • If the TTO decides not to pursue IP pro-
mendous expense. Yet, there may be very tection and commercialization of an in-
small or nonexistent commercial markets novation, implement a process to ensure
for the innovation in the country of origin, that others have an opportunity to pursue
which can present a serious dilemma. The protection and commercialization, if they
only solution in many cases is to first secure chose to do so. The “others” will most often
protection in the country of origin, thereby be inventors.
“buying time” under the requirements of
the Patent Cooperation Treaty (PCT)28 to
find a corporate partner to pay the patent 4. Exemplary TTOs and conclusion
costs internationally as a business expense In 2000, Dr. Louis Tornatsky conducted a study
in the license agreement. for the National Governors Association in the
• Conduct market research to identify po- United States to identify the common practices
tential industry partners, and then market of the most exemplary TTOs in the country. The
the innovations. Research has shown that study highlighted seven characteristics that were
in the United States, the primary source common to most exemplary offices:
for identification of licensees is the inven- 1. A clearly stated TTO mission
tor. In industrialized countries, inventors 2. Transparent TTO policies and procedures
typically are familiar with the market- 3. Entrepreneurial staffing and an entrepre-
place29 in their area of scientific expertise; neurial environment
they may even know their counterparts in 4. Customer-friendly relations with both inter-
industry (potential licensees) on a personal nal and external constituents by TTO staff

CHAPTER 6.2
Minneapolis, Minnesota
5. A highly supportive university administra-
8 DeVol R. 1999. America’s High Tech Economy. The Milken
tion and community (local, regional, and Institute: Santa Monica, California.
national) 9 www.un.org/millenniumgoals/.
6. Strong TTO links to potential industry
10 www.autm.net.
partners
11 Electronic communication with Claire Baxter, University
7. TTO access to risk, or venture, capital30 of Sydney, and Colin Melvin, Queensland University of
Technology, 17 November, 2002.
TTOs exist in all shapes and sizes around the 12 Electronic communication with Parameshwar P. Iyer,
world, ranging from a part-time individual at a Center for Scientific and Industrial Consultancy, Indian
small research organization, to offices with several Institute of Science, Bangalore, 22 November, 2002;
and A. K. Sengupta, Foundation for Innovation and
hundred professionals (such as the University of Technology Transfer, Delhi, 25 November, 2002.
California system), to a contracted third-party or- 13 Chandrashekhar G. 2005. Society Set Up for Managing
ganization that manages an occasional innovation Technology The Hindu Business Line. 25 April, 2005. www.
with commercial potential. Furthermore, sources blonnet.com/2005/04/25/stories/2005042501221300.
htm.
of TTO funding, the organizational structure of
the office, the scope of activities, and many other 14 Electronic communication with Akio Nishizawa,
Tohoku University, Sendai, Japan. 18 August, 2005.
operational factors vary from office to office and
15 Personal visit to China as principal investigator on
from country to country. project sponsored by U.S. State Department and
The most compelling forces that determine a Chinese State Intellectual Property Office. Intellectual
TTO’s characteristics and performance have been Property Rights and Technology Transfer Exchange
a primary focus of this chapter: the volume of re- Program, October 26–November 9, 2002.
search activity within the institution and the qual- 16 Electronic communication with Tony Heher, University
of Cape Town, South Africa. 21 November, 2002; and
ity of the research results. Research is the source Rosemary Wolson, University of Cape Town, South
from which all innovations and opportunities for Africa. UCT Innovation (Pty) Ltd. 22 August, 2005.
TTO management originate. Public research or- 17 www.innovationfund.ac.za/index.asp.
ganizations contemplating the creation of a TTO 18 www.unico.org.uk.
should always first consider whether the research 19 www.hefce.ac.uk/reachout/heif/.
quantity and quality of their institutions justify
20 www.scotland.gov.uk/library5/enterprise/seekit2-00.asp.
the endeavor. ■
21 Electronic communication with Isabell Majewsky,
Connect Midlands, University of Warwick, U.K., 21
August, 2005.
Terry A. Young, Director of Research Development, 22 Electronic communication with Marilyn Pifer, Civilian
Office of Research and Sponsored Projects, University of Research and Development Foundation, 15 August,
South Dakota, Vermillion, South Dakota, 57069, U.S.A. 2005; and personal experience as an appointed
terry.young@usd.edu. member of the U.S.-Russian Innovation Council on
High Technologies.
23 Another source of the Bayh-Dole act: (i) AUTM offers
1 www.autm.net. a description of the Act, with a link to the actual
2 The survey is published online at www.autm.net/ legislation: http://www.autm.net/aboutTT/aboutTT_
surveys/dsp.surveyDetail.cfm?pid=16. The survey can bayhDoleAct.cfm. (ii) When you click on the AUTM link,
be accessed by members of AUTM at no cost. Non- it takes you to the actual legislation at: www4.law.
members may purchase the survey on the AUTM cornell.edu/uscode/html/uscode35/usc_sup_01_35_
Marketplace at www.autm.net/shopping_cart/. 10_II_20_18.html.
3 www.ultrabiotics.com/a_team.cfm. 24 www.federallabs.org.
4 www.ntem.com.cn/. 25 www.lesi.org.
5 ott.od.nih.gov. 26 www.mac.doc.gov/sabit.
6 www.innovationfund.ac.za/index.asp. 27 See, also in this Handbook, chapter 9.3 by R Razgaitis,
and chapter 9.2 by RH Potter.
7 These concepts were first presented by Jim Serverson
at the 1999 AUTM Central Regional Meeting in 28 www.wipo.int/pct/en/texts/articles/atoc.htm.

29 Thursby J and M Thursby. 2000. Industry Perspectives
on Licensing University Technologies: Sources and
Problems. AUTM Journal, XII.
30 Tornatzky LG. 2000. Building State Economies by
Promoting University-Industry Technology Transfer.
National Governors Association: Washington D.C.
CHAPTER 6.3
How to Set Up a Technology Transfer Office:

Experiences from Europe
ALISON F. CAMPBELL, Managing Director, KCL Enterprises Ltd., U.K.
ABSTRACT The TTO’s mission should be consistent with the

Technology transfer has an important role to play in the institutional mission, and the TTO’s approach
today’s world, where access to know-how and knowledge
and activities should support and add value to the
are valuable economic commodities. A technology trans-
fer office (TTO) can be set up in many different ways. institution. The TTO and the institution should
The TTO should be tightly aligned with its supporting agree upon what adds value, because financial re-
institution’s missions and goals. Available external returns alone are an insufficient measure of value
sources will affect the TTO’s strategy and its operational for universities viewing their commercial activities
structures, so it is important to consider the TTO’s exter-
nal environment. Income generation is typically one of strategically and contextually. Long-term returns,
the main objectives for the TTO, but technology transfer such as sustained partnerships, cultural change,
is valuable also because of its capacity to facilitate innova- job creation, and societal well-being should be
tion and broker the exchange of knowledge for society’s part of the value provided by TTOs. These long-
benefit. This chapter discusses the key elements involved
term returns supplement shorter-term, more tan-
in building a TTO—from structure and staffing to ex-
ternal engagement—and how to lay the foundations for gible returns such as income, access to resources
success. A number of European models and trends are and expertise, and program delivery. This point
described to provide greater context. has been emphasized by the U.S. technology
transfer association, the Association of University
Technology Managers (AUTM) and the U.K.
1. Introduction association for technology transfer (UNICO1),
There is no “right” way to set up a technology transfer which have disseminated data and case studies of
office (TTO), but success does require considering how technology and knowledge transfer can ben-
some key issues. This chapter discusses how to estab- efit society.2
lish and run a TTO, and, drawing on experiences Deciding whether the TTO should un-
from a number of such offices, the chapter provides dertake pure commercialization or broader
case studies to illuminate these issues. Emerging knowledge transfer is important for developing
trends in funding TTOs are also discussed. an operational strategy. In a knowledge-based
economy, access to know-how and use of knowl-
edge (outside of the environment in which the
2. Foundations knowledge was gained) is a valuable commod-
Any technology transfer office should be aligned ity.3 The U.K. Research Councils define such
with and supported by the institution it serves. knowledge transfer as:
Campbell AF. 2007. How to Set Up a Technology Transfer Office: Experiences from Europe. In Intellectual Property Manage-
ment in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen et al.).
© 2007. AF Campbell. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

CAMPBELL
[T]he two-way flow of people and ideas be- from funding for local development, for example,
tween the research environment and wider economy, they have been able to secure partnerships and
[which] thereby contribute[s] to national prosperity, fund specific activities of interest to the local re-
the quality of life of U.K. citizens, and cultural en- gion. In the Aachen region of Germany, for ex-
richment of our society. Knowledge Transfer encom- ample, regional imperatives have engineered local
passes the systems and processes by which knowledge, economic development to ensure that an exhaust-
expertise and skilled people transfer between the ed traditional coal mining region transitions into
research environment (universities, centers and in- a high-technology center for innovation. Special
stitutes) and its user communities in industry, com- initiatives and funding have encouraged the de-
merce, public and service sectors.4 velopment of new businesses within the region.
The scientific institute in Julich (Fachhochschule
While the public good is always a part of a Aachen5) has been central to this redevelopment,
TTO’s agenda, some have made income genera- having been built up to offer a variety of support-
tion the prime objective. Others base their agenda ing technology-transfer services, including con-
on public benefit or economic development. De- sultancy, provision of facilities, and the brokering
ciding upon the TTO’s objectives will determine of business advice.
how the office should be configured, resourced, An early step in setting up the TTO—and
and operated. (Examples are presented at the end an essential ongoing activity—is identifying and
of this chapter.) fostering relationships with stakeholders. This
The senior management of the host insti- group will include academics, representatives of
tution must actively support establishing these the business and user community, and regional
foundations. To do so, managers will need to and governmental offices. The most important
understand the relevance of technology transfer group at the outset is the internal community.
to the institution. Understanding the TTO life Successful and meaningful technology transfer is
cycle is essential for helping the TTO office to demand driven, so it is important to understand
encourage academics to participate in technology the external partner’s needs. If the internal aca-
transfer and will help maintain support when re- demic community does not support the technol-
turns seem slow or when a partnering decision ogy transfer process, there will be scope for failure
appears unappealing on the surface. Such an un- at various stages of the process. Although time
derstanding involves vision from both partners consuming for the technology transfer manager,
in the transfer and an ongoing dialogue between he or she should be seen in the academic depart-
principals. In particular, it should be clear to all ments being served. This visibility will accelerate
parties that, while technology transfer may be an culture change and help integrate the TTO into
extra income stream, it should not be relied upon the fabric of the university. The institutional mes-
to generate significant revenue for institutional sage must be one of support and encouragement
planning. At Isis Innovation (Oxford University), for engaging in technology transfer. TTO staff
perhaps one of the best-known European exam- must work with academics at all levels to educate
ples of technology transfer success, the gross in- them in entrepreneurial behaviors at the macro
come from technology transfer is about 0.005% and micro scales. This work could include train-
of annual turnover. This is based upon annual ing in how to engage with business and respond
turnover for the University of UK£530 million, to its needs, how to act as consultants, and how
gross income from technology transfer activity of to identify partnership or licensing opportunities.
UK£2.7 million, and net income from technol- All academics will need to be aware of the intel-
ogy transfer (after the costs of undertaking the lectual property (IP) rights process, including
business), UK£260,000 (2005–2006 figures). disclosure, confidentiality, types of protection,
National and regional policies and objectives and so forth. Such awareness training may be de-
also should serve as a framework for shaping the livered by the TTO itself or in partnership with
office and directing priorities. When TTOs benefit external providers. For example, IP specialists,

CHAPTER 6.3
lawyers, and research sponsors are often willing by the institution and the community. Similarly,
to provide limited training. In the United King- staff must actively engage with businesses to bet-
dom, government funding of universities consor- ter understand market needs and gain agility in
tia has established a number of enterprise centers matching proposals with the institution.
for such training. An effective TTO is a team with complemen-
Incentive schemes for academic staff need to tary abilities. There is no one rule for the type of
be carefully considered; policies should be imple- background that TTO staff need; much can be
mented early. Experience has shown that acknowl- learned on the job and through specific training.
edging an employee’s participation in technology However, if the office will be brokering opportu-
transfer and sharing some of the financial reward nities in particular technical areas, then it is wise
are clear incentives to encouraging engagement in to recruit technical specialists. They will need to
technology transfer. Siegel and colleagues6 high- be able to use technical language with academ-
light the importance of faculty reward systems— ics and customers, understand an opportunity
along with removing cultural barriers and staffing and its applications, research areas of interest to a
the TTO, the reward system is one of the three partner, and translate their ideas into an offering
key factors for success in technology transfer. that business professionals will understand. Not
all TTOs need to be large. A core viable unit at
the outset may have three staff members, two of
3. Structuring the technology whom have business and technical skills and have
transfer office or can develop expertise in IP rights and commer-
cialization. The third staff member would provide
3.1 Personnel administrative support. Often it is hard to resist
The core element for successful technology trans- the seduction of employing specialist staff in pref-
fer is people. Technology transfer is a “contact erence to administrative staff. However, an office
sport,” so managers must have the ability to en- that does not have access to appropriate adminis-
gage with people at all levels and across national trative support will always be inefficient.
boundaries. Managers need to understand the Specialist advice can be outsourced (for ex-
potential of their offerings and be highly flexible. ample patent and legal counsel). A growing
Technology transfer managers need to be capable number of legal firms have experience with the
of engaging equally well with academics and busi- academic technology transfer sector, and they can
ness; they must be both inward and outward fac- provide a service that responds to the needs of
ing. Business skills are important but hiring an this sector—both in terms of the type and level
MBA graduate is not essential. The office should of advice and in the cost of counsel. When op-
be led, however, by an individual who under- tions have not been identified, a discussion with-
stands the details of running a business. Staff with in technology transfer networks will often reveal
work experience in the relevant business/user sec- a number of suitable choices. While most offices
tor who can appreciate its requirements and tailor use external legal advisors, a growing number of
opportunities accordingly are also very useful. To TTOs now employ in-house advisors, which may
build up an understanding of the potential for be desirable but naturally depends on whether
new opportunities, the technology transfer man- the volume and complexity of work make such
ager needs to win the confidence of academics, an appointment financially sensible.
which is why it is helpful for the TTO to be em- Free business advice—which can be useful—
bedded in the institution and for the office to be is abundantly available to TTOs. Peer advice, in-
perceived as part of the institution. Staff should cluding participation in technology transfer net-
be able to spend time with academics to better works, can be invaluable. Other sources include
understand what they can offer to the business funders of research (for example, Wellcome Trust,
and user community—as well as how these op- the Centre for the Management of Intellectual
portunities can best be developed for mutual gain Property in Health Research and Development

CAMPBELL
(MIHR), and the Bill and Melinda Gates Foun- 3.3 Managing information
dation) and government and regional bodies. When setting up an office, adequate attention
Business itself is an eager ally of the academic in- must be paid to information management. It is
stitution and the TTO. Often, experienced peo- crucial to establish business processes at the out-
ple will give their time to advise on specific issues set. Technology transfer is naturally a long-term
or to become part of an advisory group. Many are prospect, and key information on IP rights and
delighted to be asked, and few refuse to help. legal agreements must be captured, organized,
and maintained for a long time. The life of a
3.2 Building skill sets patent, for example, may last for up to 20 years.
As technology transfer has become a recognized Naturally, so will the license obligations. More-
profession within many countries, an inventory over, most litigation requiring access to initial
of best practices has accrued. There are many documents comes after a successful product is
opportunities to build core skills in the team on the market, often several years after patent
through networking, training, and literature. filing and licensing. Without adequate access
Some ways to improve the skills of the office will to records, patent positions may not be sustain-
be free, through personal networks and mentors, able and income may be lost. To develop busi-
for example. Secondments, where a member of ness, project and contact information must be
one organization spends time in another, and in- captured and shared across the organization, so
ternships with business and other TTOs are an a CRM (customer relationship management)
attractive way to bolster skills, gain understand- style of database is desirable. It can be purchased
ing, and share best practices. Such arrangements off the shelf or developed internally. Each ap-
always work two ways, and both parties in the proach has its own strengths and weaknesses. A
arrangement will normally be keen to participate. number of producers and many TTOs who have
For the most part, however, specific training is tried different systems are happy to share their
needed for a team to acquire core skills and—as expertise.
business needs and the landscape evolve—attain
new ones. In Europe, the most prominent net- 3.4 Budget
working forum is the ��
Association of European An office without an appropriate budget will
Science and Technology Transfer Professionals� struggle. As described above, technology transfer
(ASTP)7, a professional membership organiza- requires a complex combination of activities and
tion for technology transfer managers that hosts skills. All technology transfer outcomes involve a
conferences across Europe. For technology trans- transaction based on hard or soft IP rights (that
fer training, Praxis (a not-for-profit organization) is, patent or know-how). Invariably, the transac-
offers a full range of courses that are delivered by tion will be by way of a legal agreement, which
practitioners.8 Emphasizing experiential learning requires legal drafting (or use of template agree-
and networking, Praxis offers training both for ments) and negotiation skills. The transaction will
new entrants and for more experienced profes- have a financial component that must be clearly
sionals. Its courses are open to international dele- understood, and it will be based upon IP rights
gates. In the United Kingdom, UNICO has pub- and/or access to resources that will need to be
lished a series titled UNICO Practical Guides in valued and protected. This means that someone
a handy, readable format that provides in-depth must understand what elements can and need to
advice on the range of technology transfer activi- be protected. The drafting and filing of a patent
ties, from student IP rights to legal agreements application are best done in conjunction with a
and company formation.9 There are also numer- patent agent, and there is a requirement for on-
ous guides available both for purchase and free of going patent prosecution. All of these activities
charge. The MIHR Handbook of Best Practices for require funding; however, some costs may be
Management of Intellectual Property in Health10 is recovered through a business deal or by passing
a good example of the latter. them onto a partner.

CHAPTER 6.3
3.5 Business model business. Governance should be considered where

Offices tend to be departments within institu- a company is formed and may be accomplished
tions or subsidiary companies. As a department, by forming a board with nonexecutive directors
the TTO is embedded in the institution and has and/or an advisory board.
its interests clearly aligned with institutional ob- A final option is to outsource technology
jectives. TTO staff will be on par with academic transfer to an independent third party. Outsourc-
colleagues. Running technology transfer through ing minimizes investments and the risks for the
a subsidiary company, however, may encour- institution but also reduces the returns to the
age a positive perception of technology transfer institution since the partner will take the lion’s
and demonstrate the seriousness with which it share of them. Such models are usually predicat-
is viewed by the institution. A subsidiary com- ed upon income, and so the partner will likely
pany gives more operational flexibility and the pursue activities directed towards high-value, in-
ability to structure staff remuneration packages. come-generating opportunities rather than tech-
Debates over TTO staff pay and incentives are nology transfer for the broader public good.
frequent, and it is increasingly common to award
performance-related pay and bonuses for meet-
ing targets. This works well when the targets can 4. Trends in technology
be easily defined and measured and when reward transfer offices
is against outcomes rather than activities. How- The landscape of technology transfer activity is
ever, this reward system skews behavior in favor changing. As Campbell11 discusses, the United
of reaching those targets, so care needs to be Kingdom is particularly progressive. Universities
taken to ensure that reward systems are properly are creating innovative partnerships and devel-
cast to promote core business objectives. This is oping expertise in technology transfer to secure
another reason why the TTO should have clear financial investment and build future returns.
objectives that can be easily communicated to its Research funders are looking for initiatives to fill
staff—regardless of whether they are employed gaps in the technology transfer process.
by the company or by the university. As a final Sheffield University is an interesting model.
twist on the internal/external TTO, staff do not It lacked the funding needed to fulfill its tech-
necessarily need to be employed by the company; nology transfer ambitions, so the director of the
they may be employed by the university (and sub- TTO set about developing a relationship with ex-
jected to the university pay and pension scheme ternal experts, an initiative that led to establishing
structure) and then seconded to the company. a separate company: BioFusion PLC (Sheffield,
Chain of command and accountability must U.K.).12 With a ten-year exclusive agreement with
be clear. A departmental TTO should report to a Sheffield University to commercialize all Univer-
senior university staff member. A company will be sity-owned medical IP rights, BioFusion is run
responsible to a board, which may be chaired by a independently of the University and its TTO. In
university senior staff member. In either case, the 2005, BioFusion listed on the Alternative Invest-
TTO will be accountable to the university gov- ment Market (AIM) of the London Stock Ex-
erning body and will be expected to produce at change, raising UK£8.23 million. The University
least annual reports of activity. For both types of is one of the shareholders. This funding allows the
organizational structure, it will be helpful to have company to manage and fund both existing and
a group of advisors inside and outside of the in- new portfolio companies within the life sciences
stitution. The advisors can bring new experience area. BioFusion has made clear its intention to de-
to the organization and act as internal and exter- velop similar relationships within the sector. With
nal champions. Advice on the most tax-efficient the increasing interest in technology transfer as an
structures for establishing and running the TTO, area for external investment, academic technol-
for example, may help to determine whether it ogy transfer companies have been able to secure
should be treated as a department or as a separate funding when there is a clear income-generation

CAMPBELL
model. The most prominent example is Imperial managers specialize in different sectors and are
Innovations of Imperial College, London. With co-located in both Enterprises and their relevant
a solid track record in commercialization and a academic departments. Their objectives include
robust pipeline of spinout companies, Innova- developing collaborative research with business
tions (and in turn Imperial College) has benefited and promoting enterprise within King’s and ex-
from private institutional investment and intends ternally. The technology transfer team focuses on
to become a publicly listed company. Of course, the identification, management, and exploitation
this model of external funding does not work for of IP. They are skilled in patent prosecution, due
all TTOs because it applies only to those organi- diligence, and drafting and negotiating license
zations with potentially high investment returns. agreements, and are supported by a team dedi-
This will not be the case for most technology or cated to mentoring and incubating new company
knowledge transfer activities because most offices spinouts from the university. The expansion of the
are brokering partnership deals to bring cash to team has been possible through funding from the
a university for specific research rather than to university and from government, both of which
generate unencumbered income. At Imperial, recognize the increasing importance of the knowl-
knowledge transfer and research partnership de- edge economy and applied research. Particularly
velopment has remained within the institution; active in promoting knowledge transfer, the U.K.
Innovations concentrates on the cash-generating government has established a specific stream of
activities of licensing and spinouts. funding, the Higher Education Innovation Fund,
which is available to universities within England.
This has allowed many universities to develop
5. Examples of technology transfer knowledge transfer capabilities and capacity. It
office models also allows them to take some risks in finding
At King’s College London (KCL), technology and mechanisms to encourage and capture new op-
knowledge transfer is managed within one orga- portunities at the institutional level.
nization, KCL Enterprises Ltd., a wholly owned The government has been keen to encourage
subsidiary of the university. KCL Enterprises is development of knowledge transfer through the
responsible for new opportunities and research public sector research establishments within the
support, which bring all the external business fac- United Kingdom. An early leader in this sector is
ing and research funding activities together. This Medical Research Council Technology (MRCT),
combining of functions weaves the activities of a wholly owned subsidiary of the Medical Re-
the organization together and creates an extend- search Council (MRC). This technology transfer
ed, integrated team. Established 12 years ago, the company grew from a team of four MRC staff in
initial team was a small technology transfer unit 1990 to a company that currently employs more
of staff specializing in the protection and com- than 60 people and that this year saw a windfall
mercialization of college IP rights. Over time, the of over UK£140 million in income from royalty
research grants and contracts office of the univer- sales. MRCT in many ways is a unique example
sity was incorporated into the organization. The of technology transfer, but in other ways it points
company has since grown to 50 people and now the way for others to follow. MRCT became a
encompasses business development, consultancy, separate entity by merging with another applied-
work placement, marketing, technology transfer, research activity of the MRC, thus gaining staff
spinout company incubation, and research sup- and expanding its technology transfer offerings
port. The mission of the organization is to lever- to include applied-development laboratories. Its
age the intellectual capital of the university to expansion was enabled through a record of good
generate income and benefit society. The business work and the vision and support of its parent insti-
development team underpins the activities of the tution. While the amount of income it generates
company; specialist functions take on the leads is unusual, the sources of the income are typical:
appropriate to them. Eight business development a suite of related technologies and their various,

CHAPTER 6.3
carefully crafted exploitation. (This case still sup- (SNI) and the Swiss federal government provide
ports the general notion—discussed by Scherer funding to swiTT.
and Harhoff13—that big wins in commercializa-
tion come from only a few deals.) Continuing its
expansion into applied research, MRCT has de- 6. Conclusion
veloped new activities to add value and speed the TTOs can be set up in a variety of ways, but in
uptake of academic IP. One approach has been all cases it is helpful to draw on external skill re-
to create a drug discovery team that identifies sources where possible. Possessing clarity of pur-
academic IP and develops licensing leads in in- pose and building the right foundations is es-
dustry. U.K. funders and international initiatives sential for planning the operations of the TTO.
have also tried to expedite the process. For ex- Making money will always be a consideration
ample, Cancer Research Technology (CRT) has a when setting objectives, but technology transfer
drug development laboratory, and the Wellcome adds value in other important ways: as a resource
Trust offers Translational Awards for developing to facilitate innovation for the public good and
early-stage opportunities into more commercially as a way to broker the exchange of knowledge
attractive offerings. International approaches between the business and public sectors for soci-
include Medicines for Malaria Ventures, which ety’s benefit. Transferring knowledge across such
brings public, private, and philanthropic sec- disciplines as the humanities, law, and social sci-
tor partners together to fund and manage the ences is as important as transferring knowledge
discovery, development, and registration of new and technology across the applied sciences, and
medicines to treat and prevent malaria in disease- TTOs should be set up to have the flexibility
endemic countries. to accomplish this broader knowledge-transfer
A push for technology transfer in the past objective. ■
ten years has created more than 20 technolo-
gy transfer offices across Switzerland. To build
critical mass, the two universities of Bern and Alison F. Campbell, Managing Director, KCL Enterprises
Ltd., King’s College London, Capital House, 42 Weston
Zürich jointly own a subsidiary nonprofit tech-
Street, London, SE1 3QD, U.K. alison.campbell@kcl.ac.uk
nology transfer company that they established
in1999: Unitechtra. With a staff of seven and
serving two other research institutes, Unitechtra 1 For the transcript visit www.unico.org.uk/prodben.doc,
and for the slides visit www.unico.org.uk/prodben.
has a clear mission to contribute to the economy, ppt.
facilitate research uptake for the public good,
2 AUTM. 2006. AUTM Better World Project. AUTM:
develop mutual beneficial close ties with indus- Northbrook. www.betterworldproject.net.
try, motivate and retain academic staff, and, 3 Arnesse F and A Cohendet. 2001. Technology Transfer
ultimately to increase income to the institutes. Revisited from the Perspective of the Knowledge-
These objectives are pursued through activities Based Economy. Research Policy 30:1459–1478.
that include the commercialization of research 4 U.K. Parliament. 2006. Research Council Support
for Knowledge Transfer 2006. The Stationery Office
results, the negotiation of research agreements,
Limited: London. www.publications.parliament.uk/pa/
support for the creation of new spinout compa- cm200506/cmselect/cmsctech/995/99507.htm.
nies, and training and education for scientists 5 www.juelich.fh-aachen.de.
in the field of technology transfer. As a natural 6 Siegel DS, D Waldman and A Link. 2003. Assessing the
next step in the evolution of Swiss technology Impact of Organizational Practices on the Relative
transfer, in 2003 the Swiss Technology Transfer Productivity of University Technology Transfer Offices:
An Exploratory Study. Research Policy 32: 27–48.
Association (swiTT14) was formed. A network
organization, it aims to bring together TTOs 7 www.astp.net.
and specialists in the field to improve the provi- 8 www.praxiscourses.org.uk.

sion of services and to share information and 9 www.unico.org.uk.
resources. The Swiss Network for Innovation 10 Mahoney R. (ed). 2003. MIHR Handbook of Best Practices

CAMPBELL
for Management of Intellectual Property in Health.

MIHR: Oxford, U.K. www.mihr.org.
11 Campbell AF. 2005. The evolving concept of value add
in university commercialisation. Journal of Commercial
Biotechnology 11:337-349.
12 www.biofusion.co.uk.
13 Scherer FM and D Harhoff. 2000. Technology Policy for
a World of Skew-Distributed Outcomes. Research Policy
29:559–566.
14 www.switt.ch/html/information.php.

CHAPTER 6.4
How to Set Up a Technology Transfer

System in a Developing Country
Carlos Fernandez, Director, Strategic Studies, Foundation for Agriculture Innovation (FIA), Chile
ABSTRACT First, Fundación Chile set out to assess the

This chapter reports the results of a recent study of the current state of university technology transfer
current state of technology transfer in Chile, including
in Chile. Interviews and surveys were conduct-
recommendations for the development of a new technol-
ogy transfer system. Currently in Chile, few commercially ed at seven universities that together currently
viable technologies are transferred from research institu- conduct 51% of all university research proj-
tions to the private sector. This means that many univer- ects in Chile. Surveys were also conducted at
sities should review their role and implement innovative four technology transfer offices (TTOs) located
ways of contributing to society.
within business incubators associated with these
universities.
Second, a workshop was held involving
specialists from the Ministry of the Economy,
1. Introduction CORFO (Corporación de Fomento de la
In emerging economies, existing R&D capabilities Producción),3 CONICYT (Comisión Nacional de
tend to be highly concentrated within universi- Investigación Científica y Tecnológica),4 and the
ties and public research institutes. In Chile, about team of experts assembled by Fundación Chile.
85% of scientists are formally linked to universi- The first day, the workshop focused on the cur-
ties, and the Chilean government contributes an rent condition of technology transfer at universi-
estimated 80% of funds spent on R&D. ties and research institutes in Chile (see Section 2
In early 2004, the Ministry of the Economy in this chapter). The second day, the participants
entrusted Fundación Chile, a private, indepen- discussed their experiences of technology transfer
dent, nonprofit research organization located in in other countries. The participants then created
Santiago, with studying the technology transfer guidelines for technology transfer from Chile’s
units at Chile’s universities.1 The ministry’s aim universities and research institutes to its commer-
was to find ways to improve the mechanisms for cial sector.
transferring the results of R&D performed at The assessment of Chile’s current conditions
Chile’s universities and research institutes to the and the guidelines created by the workshop par-
private sector. In order to carry out this study, ticipants were used to develop a proposal for the
Fundación Chile assembled a team of six local creation of a new national technology transfer
specialists and three foreign experts.2 system (described in Section 3).
Fernandez C. 2007. How to Set Up a Technology Transfer System in a Developing Country. In Intellectual Property Manage-
© 2007. C Fernandez. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

FERNANDEZ
2. The current status of a result, both the formation of innovative compa-

technology transfer in Chile nies and the development of an entrepreneurial
culture in Chile were inhibited.
2.1 The role of universities within In Chile, around US$480 million is spent
the national R&D context annually in R&D; only about one-fifth of this
Traditionally, universities have fulfilled two pri- money comes from private sources. Universities
mary societal functions: educating students and carry out some 58% of ongoing R&D projects
conducting research. In recent years, however, in Chile; 4,800 specialists—or three out of ev-
universities have had to fulfill an additional func- ery five scientists and engineers in Chile—work
tion: promoting the commercialization of the on such projects. Only 6% of those working in
results of their research. This expansion has re- R&D do so in a private company.
quired changes, not only in policy and allocation Furthermore, no more than 13% of the na-
of resources, but also in academic culture itself. tional budget for R&D goes toward commercial
In an ideal environment, many mecha- development activities. The rest goes to basic and
nisms link the academic and business worlds. applied research projects. In contrast, about 60%
Researchers exchange information through semi- of the R&D expenditure in developed countries
nars and publications, and there are informal and supports development activities, and only 40%
formal ties between researchers in various types goes to basic and applied research.
of institutions. Additionally, academics work as In a recent study, Benavente5 suggests that
consultants and as company board members and joint activities between universities and the pri-
are involved in professional training, contract re- vate sector should receive more financing from
search, and the spinout and incubation of new government and that TTOs should to be estab-
businesses. And, of course, universities educate lished in order to promote the commercial ap-
the researchers of the future. plication of university research results.
In Chile, however, the lack of systematic
policies for technology transfer has hindered pro- 2.2 A survey of technology transfer
ductive interaction between the academic and units at universities in Chile
business worlds. This, in turn, has led to other The results of the surveys conducted by Fundación
challenges: Chile of seven universities and four technology
• There are few incentives for academic re- transfer offices are summarized in the following
searchers to participate in technology trans- nine items:
fer and commercialization. 1. IP-protection activities in universities. The
• Academic culture does not see technology concept of intellectual property embodies
transfer and commercialization as “legiti- the right of ownership protected by law to
mate” activities. intangible (that is, intellectual) works or
• The academic and business worlds have information, or representations of informa-
different ideas about technology transfer: tion such as literary works, trademarks, lo-
different short- and long-term visions, dif- gos, data, and know-how. In Chile, intellec-
ferent expectations about how resources tual property can be protected by patents,
should be used, and different priorities copyrights, trademarks, industrial designs,
when it comes to meeting shared targets. or rights for plant varieties. Like any other
goods or assets, intellectual property can be
For the past 20 years, Chile’s growth has been bought, sold, or licensed.
sustained by industries exploiting the country’s The surveyed universities were asked
rich natural resources. Technology transfer during what specific IP protection activities (such
this period mostly occurred by importing capital as signing confidentiality agreements or ap-
and by receiving foreign investment, virtually ex- plying for IP protections) they engaged in
cluding the local innovation system of Chile. As each year. Most of these activities involved

CHAPTER 6.4
agricultural, health, and energy technolo- - 38% to the researchers

gies. The total number of such activities - 15% to the research units (departments)
for all eleven institutions was fewer than - 18% to the central administration
100. Signing confidentiality agreements - 8% to the technology transfer office
accounted for almost half of the activities; - 21% to other actors
filing applications for patents accounted for The offices associated with incubators dis-
another quarter. The remaining quarter pri- tributed revenues as follows:
marily involved copyright and plant-variety - 37% to the research units and to the
registrations. Only about four confidential- researchers
ity agreements were signed per institution - 12% to the central administration
per year. - 10% to its own transfer office
2. Communications between universities and - 41% to other actors
the private sector. At 73% of the institu- 7. Networks for collaboration. The surveys
tions surveyed reported that their technol- reveal that institutions do not collaborate
ogy transfer offices (TTOs) and/or investi- with each other to any appreciable extent.
gators contacted private companies. Other For example, of the universities surveyed
methods of contacting companies included only half of them belong to networks with
publications and the Internet (55%), fairs other universities, and only two of them
and exhibitions (36%), and technology are part of networks with business organi-
brokers (27%). zations. Of the offices associated with incu-
3. Procedures for evaluating potential tech- bators, only one participates in a network
nologies. Formal evaluations (those that of research centers.
do not rely solely on the opinions of the 8. The influence of technology transfer on
research team) are the best way for uni- university researchers’ careers. Four of the
versities to determine which technologies seven universities stated that technology
should be transferred to private companies. transfer has no influence on their research-
However, only one of the seven universities ers’ academic careers. Two of the seven
surveyed claimed to have a formal proce- noted that successful technology transfer
dure for evaluating technologies. Three of may raise researchers’ salaries, and one of
the four TTOs associated with the incuba- the seven reported that it influences pro-
tors did have such a procedure. motion decisions. The technology trans-
4. Policies regarding ownership of research fer experience of potential candidates for
results. It is important to clearly define who academic jobs has no influence on hiring
owns the rights to research results. Only at any of the seven universities surveyed.
three of the seven universities surveyed had Therefore, it is not surprising that 78% of
a formal institutional policy regarding the the university investigators participating in
ownership of research results. None of the Fondef projects consider this fund only as
TTOs associated with the incubators had a source of financing for their own projects
such a policy. and Institutions.6
5. Policies regarding conflicts of interest. 9. Spinouts and startups. Over the last 19
TTOs need to have the resources to man- years, the 11 surveyed technology transfer
age potential conflicts of interest. Only two units have created a total of 28 compa-
of the eleven offices surveyed had a specific nies using the results of their institutions’
policy regarding conflicts of interest. R&D. Of these new companies, two-thirds
6. Distribution of income generated by tech- are spinouts and the rest are start-ups.
nology transfers. On average, the universi- Over 13 years, from 1991 to 2003,
ties distributed revenues from technology Fondef. has financed a total of 159 R&D
transfers as follows: projects:

FERNANDEZ
- Agriculture 37 projects central TTO. Each institution in the consortium

- Fisheries and Aquaculture 35 projects would also have a local TTO to assist in relation-
- Forestry 34 projects ships between researchers and private companies,
- Mining 17 projects as well as with technology marketing. The consor-
- Education 13 projects tium would represent the interests of the member
- Other 23 projects institutions and operate with the double aim of
A total of US$126 million was invested improving Chile’s technological capabilities and
in these projects, of which only 28% was developing a national entrepreneurial culture.
contributed, in money or in kind, by com- The consortium would be a private, nonprof-
panies or other institutions interested in it organization, governed by a board of directors
using the technologies produced by these made up of representatives from the member in-
projects. stitutions. These offices would be established us-
These 159 projects led to the creation ing public funds; once they are operational, they
of 33 companies, 13 business units, and would support themselves with fees they earn for
12 new lines of business in existing com- the services they provide.
panies. Two-thirds of these institutions are
still operating today. By the end of 2002, 3.1 A business model for the TTO system
these projects had generated an accumu- The central TTO would need to have the capacity
lated sales total of US$8.9 million. to manage 20 to 30 technology transfer projects
These results show that technologies de- annually. The TTO system would be involved in
veloped by Chilean universities lead to very these projects from gestation to final commer-
few start-ups or spinouts. cialization. The system would also be required
to participate in the analysis of about a dozen
2.3 The current state of university completed Fondef and FDI projects, in order to
technology transfer in Chile identify opportunities for the commercialization
The existence of TTOs in Chilean universities is a of the technologies they have developed.
recent phenomenon. The capabilities of these offic- The central TTO system would require an an-
es are still limited. Generally, they have small staffs. nual budget of approximately US$650,000. The
Many have yet to establish essential policies regard- member institutions would make annual con-
ing the formal disclosure and evaluation of technol- tributions based on the volume of research that
ogies, the ownership of intellectual property, and each has conducted. The TTO would also charge
conflicts of interest. Most have little experience in member institutions an ex ante fee for each proj-
such areas as technology management, IP protec- ect based on its size and complexity. Furthermore,
tion, and commercial agreement negotiation. the TTO system would receive fees from compa-
Academics are not encouraged to engage in or nies that it assists, as well as from other users of
initiate technology transfer to the productive sec- its professional services. The institutions belong-
tor. Moreover, very few university projects result in ing to the consortium also would be expected to
commercially viable innovations, so few technolo- pay annual dues for the right to participate in
gies leave the universities, and few spinouts or start- the consortium. During the system’s first three to
ups are created. Therefore, many universities see five years of operation, any additional financing
little reason to set up technology transfer offices. needed would come from public sources; how-
ever, this public subsidy would be granted only if
the TTO system continued to receive positive an-
3. A proposal for a national nual performance evaluations. The consortium’s
system of TTOs board of directors would be responsible for secur-
The participants in the cross-disciplinary working outside financing for the TTO system.
shop proposed the creation of an institutional The TTO system’s financial manage-
consortium, the members of which would share a ment would be based on annual accounting (an

CHAPTER 6.4
examination of the system’s total income and ex- • plans to disseminate and communicate the
penses) and separate accounting (an examination of results of the TTO system
the income and expenses relating to each individ- • plans to establish national and internation-
ual project). The following formula for the distri- al strategic alliances in technology develop-
bution of royalties is recommended: the university ment and commercialization
distributes one third of net income to the inventor
and another third to the inventor’s department or 3.2.2 Function of the central and local TTOs
research unit; this formula is aligned with inter- The main functions of the central TTO would be
national practices. The remaining third typically to:
goes to the university’s general fund, but may go to • evaluate the results of R&D projects ex-
other specified funds, including the TTO system’s pected to have commercial potential
own fund. Royalties would be distributed after the • apply for patents and other forms of IP
end of each fiscal year. General expenses such as protection
salaries, rent, office equipment, and general travel • market technologies
would be paid for by the TTO system’s fund. Any • provide expertise and technical assistance
project-specific expenses (such as the legal fees in- to the local TTOs
volved in a patent prosecution) would be paid for • establish national and international strate-
by royalties that accrue from the licensing of the gic alliances in areas important for success-
corresponding technology. The board of directors ful technology transfer
would review this distribution of funds annually
and modify it as necessary. The main functions of the local TTOs would
be to:
3.2 Central and Local TTOs • facilitate interactions between their in-
stitutions and industry (duties would in-
3.2.1 Contracts between central and local TTOs clude developing research contracts, iden-
The central TTO would supervise and work to- tifying collaborative research projects, and
gether with each of the local TTOs to protect consulting)
and market the technologies resulting from R&D • educate academic investigators about op-
conducted at member universities and insti- portunities and techniques for marketing
tutes. The contracts between the central and lo- research results
cal TTOs would need to include the following • stay abreast of new technologies developed
information: at their institutions and identify marketing
• Policies outlining: opportunities for these technologies
- the legal supervision of the consortium • serve as a contact point between the central
by consortium members TTO and the institution
- the ownership of intellectual property • help researchers gain funding for R&D
- the distribution of income from the de- projects
velopment of intellectual property
- conflict of interest resolution and what As the local TTO gains experience and be-
obligations each party has to the others comes more effective, it may take on other func-
• terms and conditions for the formal eval- tions, such as offering its services to other institu-
uation of inventions with commercial tions (for example, local business incubators) that
potential are not part of the national consortium.
• plans for marketing and licensing the
inventions, both domestically and 3.3 Human resources and infrastructure
internationally A fully functioning TTO system would have the
• plans for a follow-up system to track the following personnel needs, some of which could
success of inventions be fulfilled by outsourcing, either for the long

FERNANDEZ
term (as would be appropriate for the office’s legal • two or three professionals with graduate
experts) or on a short-term basis (as would be ap- degrees, preferably Ph.D.s, with at least
propriate for consultants hired to conduct market five years of professional experience in ei-
studies, for example). ther biological sciences/biotechnology or
engineering
3.3.1 Central TTO personnel • project analysts
The central TTO would need to employ skilled
individuals to fill key roles: The volume and type of R&D being carried
Director. The director would need proven out at each university or institute would determine
leadership skills; excellent ability to create net- the size of the office and the discipline(s) in which
works and establish alliances; business vision; ex- its staff members would need to specialize.
perience in technology management; knowledge
about national and local laws and regulations; 3.3.3 Office support staff and infrastructure
and an understanding of the national university The central and local TTOs would need an ad-
system, the national innovation system, and the ministrative and support staff. At minimum, each
status of local industry. In addition, the director office would need a computer for each profes-
would need a minimum of ten years’ experience sional, a printer, local and international commu-
in a relevant field, and good written and spoken nications networks, filing space for documents,
English. and the space and equipment to make formal
Program managers. International experts presentations.
recommend that the central TTO initially be
staffed by program managers. This encourages 3.4 Policies
specialization and focused searching. It also takes The TTO consortium would design collectively
advantage of the synergies that can be generated the key policies regarding the technology transfer
via networks. Program managers would need to process, and these policies would form an integral
have within their ranks: part of the consortium’s charter or proposal. They
• a Ph.D. in biological sciences and/or bio- should clearly establish the terms of IP owner-
technology with both laboratory experience ship, the distribution of income, and the resolv-
and experience in product development, a ing of conflicts of interest:
minimum of ten years of professional ex- Ownership of IP rights. The universities or
perience, and good written and spoken institutes participating in the technology transfer
English consortium would need to have uniform guide-
• a Ph.D. in the engineering sciences with lines for assigning IP ownership. Uniform practic-
broad knowledge of the product develop- es help to reduce transaction costs, increase trans-
ment process, at least ten years of profes- parency, and facilitate utilization of intellectual
sional experience, and good written and property protected by third parties. Government
spoken English agencies could encourage members to agree on
common guidelines through “codes of practice”
Project analysts. The central TTO would or by making adherence to certain guidelines a re-
need at least two economists and/or engineers. quirement for receiving funds from the state.
They would need to have completed at least some Distribution of income. Fair distribution of
graduate studies, with a minimum of five years income generated from technology commercial-
of experience in the profession, and good written ization is common practice around the world,
and spoken English. and it is a powerful incentive for the various play-
ers in the technology transfer process. There are
3.3.2 Local TTO personnel many options for how to distribute such income,
The local TTOs would need a staff composed of: and the options taken would have to depend on
• a director or manager institutional and national context.

CHAPTER 6.4
Resolving conflicts of interest. The consor- Carlos Fernandez, Director, Strategic Studies, Foundation
tium members would need to include clear policies for Agriculture Innovation (FIA), Loreley 1582, La Reina,
Santiago, Chile, carlos.fernandez@fia.gob.cl
and procedures for resolving potential conflicts of
interest in the initial proposal for the creation of
the technology transfer system. 1 Fundación Chile. 2004. Design of a Model for Technol-
ogy Transfer Applicable to Chile. The Ministry of Econo-
my sponsored this study.
3.5 Early phase
2 The selection of foreign experts began with a request
Planners/developers of the TTO consortium to the Association of University Technology Managers
would need to consider a few issues early on in (AUTM) of which Fundación Chile is a member. AUTM
the creation of the national system: is the leading professional association in technology
transfer, with about 3,200 members worldwide. The
• Skills at different levels would need to be foreign experts who were chosen have been actively
developed. involved in the design and implementation of different
• The concept of the national TTO system transfer offices—in their home countries and abroad:
Alan Bennett, Executive Director of the University of
would need public support so that the cen-
California system’s Office of Technology Transfer; Niels
tral TTO could assume a leading role by Reimers, an international consultant and formerly the
establishing its own trademark. Director of Stanford University’s Office of Technology
• Initially, the TTOs could help address their Licensing; and Pedro Palominos, Director of Spain’s
Consultoría Tecnológica de Instituto Robotiker. The
institutions’ weakness through training local team consisted of Eduardo Bitrán, Director
and educational efforts that would provide General of Fundación Chile; Sergio Burdiles, Project
them with the necessary skills. Head in Information Technologies at Fundación Chile;
Joaquín Cordua, Manager of Fundación Chile’s Human
Capital and Information Technologies Area; Carlos
Fernández, Head of Regulations for Fundación Chile’s
Agribusiness Area; Michael Moynihan, Director of
4. Conclusion Research for Biogenetic S.A.; and Gabriela Paiva, from
the law firm Paiva Associates.
A foundation of innovative technology compa-
3 CORFO is a government organization that promotes
nies and the development of an entrepreneurial
the productivity and competitiveness of the Chilean
culture will drive the development of new indus- economy. www.corfo.cl/.
try and enhance the global competitiveness of 4 Conicyt is a government organization that promotes
Chile’s economy. The author believes these goals science and technology development. www.conicyt.cl/.
can be best achieved through a TTO system such 5 www.expansiva.cl.
as the one proposed in this chapter. Such a system 6 Santibáñez E. 2003. Intellectual Property, University and
could provide a full range of technology transfer Business. Presentation at the WIPO-ECLAC Regional
functions for the main universities and research Expert Meeting on the National System of Innovation:
Intellectual Property, Universities and Enterprises.
institutes in Chile in the most economically ef- Santiago: Chile.
ficient manner. ■

CHAPTER 6.5
Practical Considerations for the Establishment

of a Technology Transfer Office
Susanne Somersalo, IP Specialist and Patent Agent, Dodds & Associates, U.S.A.
ABSTRACT It is important to define the TTO’s scope of

The establishment of a technology transfer office (TTO) is operations—as well as how it will be funded and
a complex undertaking, so it is important to decide—be-
managed—from the outset. Because several years
fore the office is established—about its operational scope,
how the office will be funded, how it will be managed, can pass before any revenues or royalties would be
and for what kind of issues the office should develop a collected from IP transfers, the office has to op-
policy. This chapter provides basic information that is erate with the highest possible efficiency. Success
indispensable for running effective TTOs. The chapter or failure will depend mostly on the human re-
explains what physical and human infrastructures are
needed, outlines the responsibilities and powers of TTOs, sources and physical infrastructure available to
emphasizes the importance of technology evaluation, and the office.
stresses the centrality of good communication and nego-
tiation skills.
2. Physical infrastructure
1. Introduction The location of the TTO is critical. An office that
The last decade has seen tremendous growth in is located close to the scientists’ workplace is most
the use of IP (intellectual property) protection efficient and the proximity will help to establish
in business ventures, particularly those concern- cooperation and trust between the scientist/re-
ing biotechnology. As a result, more and more searchers and the TTO staff. Most TTOs start
institutions are establishing technology transfer in either a research office or an administration
offices (TTOs) to assist in the legal transfer of building.
technology. These offices serve a variety of func- Elements of physical infrastructure that
tions, such as evaluating research results in regard might be required include but are not limited to:
to potential commercialization, advising on IP • office space (presumably either leased or
protection, filing and prosecuting patent applica- rented). In cases of universities, locating
tions, assisting in funding issues, conducting fea- the office on campus may make it easier
sibility studies, and so on. for scientists to contact the TTO; on the
Starting a TTO is a complex and costly en- other hand, an off-campus location might
deavor. The project must receive the support of better serve potential licensees. Such fac-
administrators and scientists, and it must get off tors as the need for confidentiality, meet-
to a dynamic, effective start and focus on those ing rooms, and so on, should be take into
who will use it. First impressions count. consideration.
Dodds J and S Somersalo. 2007. Practical Considerations for the Establishment of a Technology Transfer Office. In Intel-
lectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT
© 2007. J Dodds and S Somersalo. Sharing the Art of IP Management: Photocopying and distribution through the Internet

Dodds & Somersalo
• office furniture, including desks, chairs, fil- • administrative assistant

ing cabinets, conference tables, decoration, • licensing specialist
carpets, and so on. If budgets are very tight, • attorney (either in-house or contracted
acquiring salvaged or second-hand furni- from outside)
ture can save money. • students (often local law students)
• computer systems, including PCs, printers,
cameras, speakers, and so on. A high-speed A TTO’s daily operations touch on a num-
modem or DSL line is critical. ber of different fields. An office should therefore
• phone equipment able to handle confer- have access to external specialists for advice: an
ence calls, call transfers, and voice mail. advisory panel, hired consultants, or colleagues.
• a photocopier. If budgets are tight, se- The types of specialists that are needed usually in-
lecting a small copier or a second-hand clude, but are not limited to:
machine can save money. Remember that • patent attorneys or patent agents (depend-
photocopiers are notorious for frequent ing on the field of invention)
and inconvenient breakdowns. • general legal counsel
• general office supplies, including pencils, • licensing specialists
pens, paper and staples. Keep a good office- • marketing specialists
supplies catalog handy. Every office needs • database specialists
a good coffee and tea service; guests appre- • drawing and design specialists
ciate this simple, yet thoughtful, form of
hospitality. One of the most important skills relates to
• a library of limited scope. It is useful to communication and negotiation. An office direc-
have a few key handbooks, such as Black’s tor should possess these communication and ne-
Law Dictionary1 and McCarthy’s Desk gotiation skills:
Encyclopedia of IP.2 CD-based IP manuals • good interpersonal skills (especially impor-
can be handy references as well as being tant when interacting with inventors)
easy to use and to store; a computer could • good interaction skills for dealing with en-
be dedicated for utilizing this resource. trepreneurs in the private sector, the public
• online legal databases, both paid-service sector, and small and large businesses
(such as LexisNexis®3 and WestLaw®4) and • good spoken and written language skills
others that are free of charge.5 • formal experience in negotiation
• various software packages. A standard of-
fice package should be adequate, at least at
first. It must contain anti-virus, firewall pro- 4. The scope of the office
tection, and disk-maintenance software. With the goal of providing comprehensive IP ser-
vices as effectively as possible, the responsibilities
and powers of the TTO should be established at
3. Human infrastructure the outset.
and talents
Human infrastructure is even more important 4.1 Patenting and other protections
than physical infrastructure. A TTO needs to have Patenting work may involve searching, freedom to
employees with expertise in intellectual property, operate, filing, maintenance, and so on. If patent-
business, law, contracting, and negotiation. People ing is a key duty of your office, it may be worth-
will be needed to fill the following positions to op- while to consider hiring a patent agent. Either
erate a typical TTO: way, it is essential to have a clear understanding
• office director (usually a scientist with ex- of the various protection options including:
tensive business experience rather than a • utility or design patents
lawyer) • filing a national patent application

CHAPTER 6.5
• filing in foreign countries TTOs should consider assembling an ethics and

• filing provisional patent applications to conflicts panel to regularly review office actions.
get initial protection and later filing non- A policy development document should
provisional, national or even international guide the institution in developing its own IP
applications under the Patent Cooperation policies.
Treaty (PCT).
4.3 Licensing
Offices may need to consider the options Licensing is the heart, the essence, indeed the
case by case with each invention or the office very bread and butter of a TTO. Remember that
may have a default process for most invention the flow of information and materials is two-way:
disclosures. Some offices, for example, file a rela- some staff will access the IP of others through li-
tively cheap provisional patent application in cense agreements, and the TTO will be licensing
the United States, in each case, and then market its technologies through license agreements.
the technology for the year that the provisional
patent is valid, before spending more money on 4.4 Invention marketing
patent prosecution. If it seems that there are in- Great technologies do not sell themselves. TTOs
terested licensees, you may then file national or need good marketers and should pay them on a
international applications. This is, of course, only contingency basis. Do not underestimate the role
one strategy among many. of the inventors in identifying potential licensees.
The TTO should also consider the role of
trademarks and service marks in its operation. 4.5 Negotiations support
Product branding is a very important element Negotiation is an art form that takes skill, prac-
of global marketing, but trademark protection is tice, patience, and sharp wits. TTO personnel
often underused. It may be wise even to protect should consider taking courses to improve their
the mark of the TTO itself. Copyrights are a very negotiating skills. Alternatively, the TTO can
simple and cheap form of protection for books, hire negotiating experts. Whatever is done, TTOs
papers, and databases; the latter is becoming should watch out for legal loopholes.
common in genomics as a cost-effective form of
IP coverage. Trade secrets are the cheapest form of 4.6 Technology evaluation and assessment
coverage: they are free! Of course, relying on only One of the challenges facing any TTO, especially
trade secret protections, a TTO runs the risk that at the beginning, is deciding which inventions to
someone will reverse-engineer and IP-protect the protect, and to what extent. No office has the re-
invention so the TTO cannot use it! sources to patent all inventions, especially if they
are not likely to generate revenue for some time.
4.2 Policy development As a rule of thumb, ten invention disclosures may
It is important to have an internal office policy lead to one patent, and one license might come
that addresses the following questions: from ten patents. In other words, only 10% of
• How will licensing revenues be shared? patents provide royalties. It is critical, therefore,
• Can the office accept equity in a company that the TTO invest in only those inventions
as part of licensing-related transactions? that are both truly innovative and appear to have
• Should the office represent competing commercial value. Remember that some great
technologies? scientific advances cannot be marketed. At the
A TTO must develop a system for identifying same time, some simple inventions have huge
and dealing with possible conflicts of interest and commercial value.
questions of ethics. For example, it will need to TTOs usually have an internal committee
anticipate such questions as should a staff mem- that reviews invention disclosures for commer-
ber be allowed to license an invention to a com- cial viability and gives feedback to inventors. If
pany for whom he or she works as a consultant? the TTO manager needs to tell a scientist that

Dodds & Somersalo
his or her invention will not be patented, good • PVP fees

communication skills are critical. Obviously, the • maintenance fees
manager does not want to discourage an inventor • copyright filing fees
from coming forward again in the future with an- • issue fees
other idea that may be commercially viable. • attorneys’ fees
As a result, TTO staff should be prepared • drafting fees
to spend time, effort, and money when deciding
what to protect. The decisions should be influ- In the United States, the cost of a trade-
enced by a product’s market potential—not by mark (including attorneys’ fees) is approximately
the excellence of the science behind it nor the de- US$1,200–2,000. A provisional patent applica-
sires of the inventor. Remember, the goal is not tion costs US$2,500–8,000, and a nonprovi-
simply to patent inventions but to strategically sional application costs US$6,000–30,000. The
patent inventions with commercial potential. cost of filing and maintaining a patent globally
The TTO director must make sure he or is approximately US$500,000. The TTO direc-
she is fully aware of the TTOs legal rights before tor must keep in mind that the filing of an inter-
starting the negotiating process. It would be un- national patent will make it necessary to use the
fortunate to invest in a technology and later find services of a translator and that translation fees
out it cannot be licensed. add up fast.
4.7 Monitoring royalty incomes and potential

licensing infringements 6. Keeping up to date
Once a technology has been licensed, the TTO It is important for the TTO to keep a close eye
has to make sure that the licensee pays the royalties on developments in technology and markets. In
it has agreed to. The licensing agreement should order to stay informed, TTO employees should
give the licensor (the TTO) the right to audit the be active members of professional associations,
licensee, and this right should be exercised.6 such as the Association of University Technology
The office must also monitor potential licens- Managers (AUTM) and the Biotechnology
ing infringements. This is not an easy task: the office Industry Organization (BIO).
may have to monitor companies that are using com- Another aspect of keeping up to date relates
peting technologies, as well as minor distributors to obligations with contracts and agreements.
who might sell patented products out of ignorance. Producing and reviewing contracts and agreements
is a large part of the work of the TTO manager.
4.8 A note on confidentiality Therefore, it is important to establish a portfolio
The nature of the IP business means that all em- of standard contract and agreement templates that
ployees of a TTO must observe strict confidenti- can be customized as needed.
ality and always adhere to office policy on such It is often tempting to cut costs by using
matters as conflict of interest. These consider- standardized forms and agreements. However, it
ations should be taken into account during the is important to note that such standardized docu-
hiring process, and the office’s operations should ments are rarely drafted in favor of the person ini-
always be fully documented. tiating the deal. If standard forms and agreements
are used, a lawyer should review the final versions
and point out any specific clauses that need to be
5. Expenses further negotiated.
The costs of evaluating, protecting, and maintain-
ing IP coverage are substantial and might include
the following: 7. Office organization
• patent and trademark search fees A number of organizational matters need to be
• patent and trademark filing fees addressed in the early stages of the establishment

CHAPTER 6.5
of the TTO. These include creating a staffing plan 12. Conclusions

and an employment handbook, incorporating (if A TTO serves many masters and has a range of
necessary), and establishing procedures for han- different functions. An effective and efficient of-
dling federal and state filing requirements, taxes, fice needs employees with good business, legal,
and payroll. technical, and contracting skills. And it is impor-
• staffing plan. A coordinated and coherent tant to establish the office’s scope and to develop a
staffing plan should provide details of lines comprehensive office policy as soon as possible.
of authority, job descriptions, and work This chapter provides only a basic template
plans for each day. Early planning will pre- for a TTO. Naturally, each office will have unique
vent future headaches. needs that will need to be addressed—creativity
• employment handbook. The staff employ- and a good team spirit will make it much easier
ment handbook must state the company’s to do so. n
policies regarding confidentiality, eth-
ics, and conflicts of interest, among other
John Dodds, Founder, Dodds & Associates, 1707 N Street
topics.
NW, Washington, D.C., 20036, U.S.A. j.dodds@dodds
• procedures for federal and state filing re- associates.com
quirements. The local representative of the
Secretary of State may be able to provide as- Susanne Somersalo, IP Specialist and Patent Agent,
sistance with filing such documents as work Dodds & Associates, 1707 N Street NW, Washington, D.C.,
20036, U.S.A. s.somersalo@doddsassociates.com
permits, pension plans, occupancy permits,
fire inspection permits, and so on.
• plan for incorporation. The office may wish 1 Gardner BA, ed. 1999. Black’s Law Dictionary. West
to (or need to) become an independent le- Group, St. Paul, MN.
gal entity. In the United States, such inde- 2 McCarthy JT, RE Schechter and DJ Franklyn. 2004.
pendent offices (often called research cor- McCarthy’s Desk Encyclopedia of Intellectual Property,
3rd edition. The Bureau of National Affairs: Washington,
porations) have charitable, or “501(c)(3),” DC.
tax status. 3 www.lexis.com.
• tax strategy. It is money well spent for a
4 www.westlaw.com.
TTO to hire a good accountant and a good
5 See also, in this Handbook, chapter 14.3 by H Thangaraj,
audit firm. RH Potter��
and A
��
Krattiger.
• payroll plan. The TTO director must re- 6 See also in this Handbook, chapter 15.1 by HH Feindt.
main aware of federal and state tax policies.
It is wise to hire a good accountant and a
good audit firm to oversee such matters.

CHAPTER 6.6
Administration of a Large Technology Transfer Office

Sally Hines, Administrative Services Manager, Office of Technology Licensing, Stanford University, U.S.A.
ABSTRACT the next six years. Today, the OTL has the follow-
This chapter describes the organizational management of ing employee composition:1
a technology transfer and licensing office based on the
• director (1)
experience of Stanford University’s Office of Technology
Licensing (OTL). It consists of a director, seven licensing • assistant to the director (1)
associates, eight licensing liaisons, one copyright licensing • licensing associate I (0)
specialist, and an administration staff. The administrative • licensing associate II (1)
staff comprises an assistant to the director, an administra- • licensing associate III (6)
tive services manager, a manager of information systems,
receptionist(s), a manager of compliance and assistant, • marketing, software and copyright specialist (1)
and an accountant and assistant. The industrial contracts • licensing liaison I (0)
office is part of OTL and consists of a manager and three • licensing liaison II (8)
associates. • administrative services manager (1)
• administrative support personnel (7)
1. Background
The mission of the Stanford University Office of The benefits to Stanford resulting from the
Technology Licensing (OTL) is to promote the formation and operation of the OTL have been
transfer of Stanford University’s technology for many. Although it took many years for substan-
society’s use and benefit, while generating unre- tial net revenues to be obtained, at the end of FY
stricted income to support research and educa- 2005–06, the OTL had received total revenues
tion. Thus, the primary focus of OTL has not of US$1 billion and had total operating expenses
been to maximize income generation, but to fa- of US$45 million. In its 36 years of operation,
cilitate putting into use for society’s benefit the the OTL has contributed US$591 million to
innovations developed at Stanford University. Stanford and its inventors
In the early years, staffing levels were kept
very low to control total expenses. There were
only two people on staff for the first five years 2. Personnel issues
of operation. A third person was added in FY Reporting to the director are the licensing associ-
1974–75 and total staffing was three people for ates, administrative services manager, marketing,
Hines S. 2007. Administration of a Large Technology Transfer Office. In Intellectual Property Management in Health and
Technology Transfer Practice Manual (Second Edition, Part II: Chapter 3).
© 2007. S Hines. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

hines
software and copyright specialist, manager of licensing associates have been recommended to
compliance, accountant, manager of the industrial OTL by other universities or individuals in the
contracts office, and the director’s assistant. Each field. There are no lawyers in the licensing associ-
of the licensing liaisons supports one licensing as- ate category.
sociate; the liaisons report directly to the associ- • The technology licensing associate I handles
ates. The manager of information systems reports routine cases (with supervision) and par-
to a senior licensing associate. The receptionists ticipates in the negotiation and preparation
report to the administrative services manager. of more complex cases. Some experience in
Professional staff are divided into licensing at least one of the following is necessary: li-
liaison and licensing associate positions (Table censing, negotiation/contracts, marketing,
1), whereas Figure 1 shows the organigramm. or patents.
Complete job descriptions are provided in Box 1, • The technology licensing associate II handles
at the end of this chapter. a variety of complex cases and requires a
high degree of technical and business ex-
2.1 Licensing associates pertise, a familiarity with the legal issues in-
Each licensing associate has a specific area of ex- volved, and at least four years of applicable
pertise (see OTL Web site2). Many of the Stanford experience.
Table 1: Main Professional Licensing Positions
Position Job Description (corresponding appendix)
Licensing liaison I Direction from supervisor, assist with marketing, routine

amendments, patent prosecution, database management;
position is 75% clerical
Licensing liaison II With some supervision, market new inventions, including

carrying out market research and preparing abstracts; docket
administration; coordinate and monitor patent activities;
inventor meeting scheduling; handle administrative/clerical
responsibilities in support of licensing associate
Licensing associate I Evaluate and handle licensing with respect to standard and
nonstandard cases with some guidance
Licensing associate II Evaluate and handle licensing with respect to nonstandard

cases with independence; take appropriate, independent
action in a majority of situations
Licensing associate III Evaluate and handle independently the licensing of complex
cases; appropriately handle a variety of IP
Note: Standard cases involve nonexclusive licenses and template-type agreements. Nonstandard cases
require creativity in resolving issues. Complex cases require unusual creativity in resolving new issues.
See also Box 1 at the end of this chapter for job descriptions.

CHAPTER 6.6
• The technology licensing associate III is re- It is important to keep yearly statistics about
served for individuals handling major cases the office and collect them in a database for
where licensing potential is estimated to analyzing the progress of the office and for use by
be in the millions of dollars. Because of other entities. Such data for Stanford University’s
the magnitude of the cases, the work has OTL are published annually and are available on
a significant impact on the university and the OTL Web site.4
involves much coordination and complex Finally, in order to ensure smooth operations,
decision making. Eleven or more years of each member of the staff of the office is trained
applicable experience and/or two years of in and has access to the Standard Operating
experience at the OTL are required. After Procedures (SOP’s) through the OTL Intranet.
an individual has been with the office for These SOP’s consist of step-by-step instructions
five years (and has reached the associate III about procedures for handling various docu-
level), he/she has the privilege of using the ments. Two sample SOPs are included in Box 2.
title senior associate. It is important to note, however, that the SOPs
are evolving, and each tech transfer office should
2. 2 Licensing liaisons develop its own operating procedures, adjusted to
Stanford OTL has two levels of licensing liai- institutional policies and the prevailing adminis-
sons. The licensing liaison I level requires more trative procedures. ■
direction from the licensing associate than the
licensing liaison II level. There are many ways
Sally Hines, Administrative Services Manager, Stanford
to find good people. Probably the best ways are University, Office of Technology Licensing, 1705 El Camino
referrals, ads on various Web sites, and through Real, Palo Alto, CA, 94306 U.S.A. sally.hines@stanford.edu
licensing organizations such as the Association
of University Technology Managers and the
1 The information provided here is current as of the pub-
Licensing Executives Society.
lication date. As with any technology transfer office,
structure, job descriptions and responsibilities, and the
number of persons employed change over time.
3. Conclusions and 2 otl.stanford.edu.
the need for SOPs 3 See, also in this Handbook, chapter 6.1 by L Nelsen,
Running and administering a technology trans- which provides relevant information for heads of
fer and licensing office is a challenging task from research institutes and research hospitals, whether
private or government supported.
many perspectives, ranging from policy to strat-
4 otl.stanford.edu/about/resources.html.
egy. As Nelsen3 describes them, one of the key
5 Note that SOPs are rarely shared with third parties
aspects are rigorous, consistent, and authoritative
because they are highly specific for the particular
administrative approaches and procedures. This institution and environment in which an office
chapter described the approach of one entity, operates.
Stanford University’s OTL.

hines
Figure 1: Oranigramm of Stanford University’s Office of Technology Licensing

Director
Assistant to
the Director
Senior Compliance Administrative Accounting Industrial

Associate(s)
Associate(s) Manager Services Manager Manager Contracts Manager
Licensing Liaisons Accounting

Receptionists
Assistants OTL Filing/ Industrial Senior
ICO Data Contract Contract
Management Associates Officer
Marketing,
Patent
Info Systems Software
and Data
Manager and Copyright
Coordinator
Specialist
Database
Consultant
CHAPTER 6.6
Box 1: OTL Licensing Job Descriptions
Technology licensing associate I
The Licensing Associate works with the inventors (Stanford professors, graduate students,
and research staff) and with prospective licensees. The Licensing Associate evaluates, obtains
proprietary protection, markets, and negotiates the terms and conditions of the licensing
agreement with industry.
The Licensing Associate I typically performs the following functions:
• Evaluation and analysis of new invention disclosures (initial review; meeting with inventor(s);
identify industry reviewers; make contact, send materials, follow-up; collect and evaluate
information; and make decisions and provide necessary notifications)
• Licensing (Develop licensing strategy; identify potential licensees; negotiate terms; prepare
draft agreements; and close the deal)
• Patent-related activities (selection of attorney; make decisions regarding when and where to file
patent applications; and manage inventory of unlicensed cases from a financial perspective)
• License Agreement Monitoring/Relations with Licensees (ensure compliance with diligence

terms; prepare and execute amendments; process terminations; and hold meetings with
licensees to monitor progress in Licensed Product(s) development)
• Professional Development (participate in professional associations; attend association

conferences; and take training classes)
The Licensing Associate I level handles (with supervision) standard and nonstandard cases,
where agreements tend to be modifications of established patterns. The Licensing Associate also
participates in the negotiation and preparation of more complex cases.
Some experience is necessary in at least one of the following: licensing, negotiation/contracts,

marketing, and patents. Approximately four years of work experience is preferable. A minimum of a
BS/BA degree in a science or engineering field—or equivalent applicable experience—is required.
Technology licensing associate II
proprietary protection, markets and negotiates the terms and conditions of the licensing
The Licensing Associate II typically performs the following functions:
information; and make decisions and provide necessary notifications).
• Licensing (develop licensing strategy, identify potential licensees, negotiate terms, prepare
draft agreements, and close the deal.

hines
Box 1 (continued)
• Patent related activities (selection of attorney; make decisions regarding when and where to file


The Licensing Associate II independently handles a variety of nonstandard cases and would be
considered an experienced professional. These positions require a high degree of technical and
business expertise, a familiarity with the legal issues involved, and approximately four years of
applicable experience (for example, scientific, research, marketing, business development, patents,
and licensing). A minimum of a BS/BA degree in a science or engineering field is required.
The Licensing Associate II is a position in which qualified professionals may enhance their career
experience and move up the OTL career development ladder to a Licensing Associate III. The
Licensing Associate II must be able to participate as a member of the OTL team, while continually
assuming increased responsibility and independence.
Technology licensing associate III
proprietary protection, markets and, negotiates the terms and conditions of the licensing
The Licensing Associate III typically performs the following functions:
information; and make decisions and provide necessary notifications)
• Licensing (Develop licensing strategy; identify potential licensees; negotiate terms; prepare
draft agreements; and close the deal)
• Patent-related activities (selection of attorney; make decisions regarding when and where to file


The Licensing Associate III level would be reserved for individuals handling major cases (for
example, Cohen/Boyer or FM Sound) where licensing potential is estimated to be in the millions

CHAPTER 6.6
Box 1 (continued)
of dollars. Because of the magnitude of these cases, the work has significant impact on the
University and involves much coordination and complex decision making (for example, participating
in decisions on whether to pursue major litigation).
In order to qualify for the level of Licensing Associate III, an individual is required to have 11 or
more years of applicable experience and/or two years of experience at the Office of Technology
Licensing.
A Complex Case has one or more of the following attributes:
• Requires exceptional good judgment and special attention because of the following: exceptional
number of patent applications/patents involved; the level of royalty revenue (potential or actual);
and/or the number of licensees involved
• Involved in litigation in which Stanford is either responsible or intimately involved and where
Stanford’s involvement presents a significant liability or revenue opportunity for Stanford
• New and complex intellectual property issues are involved in the licensing such that creative
solutions must be developed
• The case has either the potential to generate $3–5 million or costs $1 million (in litigation costs or
claims against Stanford) or has a major impact to OTL’s licensing program
Examples of complex cases include:
• Sondius Program: the technology consists of a portfolio of patents, trademarks, copyrighted works;
licensees include a start-up, major corporation, and other companies, and the licensed fields
of use are varied; the revenue potential is considered significant; Stanford invested significant
resources into the development of the technology; the potential of litigation is relatively high.
• ARIM Portfolio: involves 20 patents and copyrighted technologies licensed exclusively and
nonexclusively to many companies; licensing strategy is to make the technology broadly available
while encouraging investment in the technology.
• Phycobiliprotein: Complicated license strategy (exclusive license to two companies, converting

one of these two licenses to a nonexclusive); sued one licensee; generating over $3 million/year
in royalties with the extensive management and monitoring of the licensees because the chain
of distribution is often unclear; auditing; each license is separately and individually negotiated.
The Licensing Associate must have demonstrated exceptional good judgment, breadth of knowledge
of patents, copyrights, and trademarks, and the ability to independently resolve complex issues and
deal with unusually difficult situations. The Associate must use exceptional creativity in structuring
win-win licenses in difficult and complex cases. Typically, complex cases present issues that have not
been dealt with in the past and, therefore, require particularly creative solutions.

hines
Box 1 (continued)
Licensing liaison I
With close supervision from Licensing Associate:
• Assist in the marketing of inventions to industry, including identifying potential licensees,

initiating contact, preparing and distributing promotional materials
• Research library and computer database resources to identify potential licensees in the
invention field of use
• Help monitor performance of licensees to ensure diligence provisions are met
• Prepare routine amendments to agreements, give notice and process termination of

agreements when required
• Assist in the coordination and monitoring of patent filing and prosecution
• Prepare financial and status reports and complete other tasks in the analysis and marketing of
inventions as assigned and designated by Licensing Associate
• Keep highly organized and indexed files (both paper and computer database) to track
evaluation, patenting, marketing, and maintenance functions for inventions
• Extensive database management including entry of information on new inventions, keeping

people, company records, and patent information up to date, and entry of license agreement
data
• Prepare and sign own correspondence whenever possible, and prepare correspondence for
associate’s signature
General:
Assist with general office-support tasks as needed for the efficient operation of the office. It
would be expected that 75% time would be devoted to clerical duties.
Qualifications:
College level training highly desirable, preferably in science or engineering. Demonstrated strong
oral and written communication skills. Ability to take initiative, to prioritize workload, and to
work independently. Exceptional organizational and analytical skills. Attention to detail. Interest/
experience desirable in technical marketing. Ability to use PCs, familiarity with databases
(preferably 4th Dimension) and software programs Microsoft Word and Microsoft Excel.
Licensing liaison II
With some supervision from Associate, Licensing Liaison is responsible for marketing and
invention management assistance. The Licensing Liaison will work with the Licensing Associate
(with some supervision and good judgment on the part of the Licensing Liaison):
• Marketing, including identifying potential licensees through market research, initiating

contact, preparing and distributing promotional materials

CHAPTER 6.6
Box 1 (continued)
• Market research using library and computer database resources
• Preparation of invention abstracts for database
• License Agreement monitoring ensuring compliance with diligence provisions and financial
terms of the agreement
• Patent-related activities including coordinating and monitoring patent filings and prosecution.
Coordination of inventor signatures on documents and licensee input
• Responsible for all sponsor compliance ensuring that all regulations and obligations are
fulfilled
• Prepare financial and status reports and complete other tasks in the analysis and marketing
of inventions as assigned and designated by Licensing Associate
• Preparation and execution of royalty sharing and nondisclosure agreements
• Processing of dropped cases and follow through
• Secondary administrative support and database entry for Associate
• Keep highly organized and indexed files (both paper and computer database) to track
evaluation, patenting, marketing, and maintenance functions for inventions.
• Schedule inventor meetings
• Assist with general support tasks, including reception, as needed for the efficient operation of
the office. This position will have administrative/clerical responsibilities in support of licensing
associate
Qualifications:
No licensing experience is required, but at least three years of experience as a paralegal or
other relevant experience is preferred. BS/BA strongly preferred. Experience with intellectual
property preferred. Ability to take initiative, to prioritize workload, follow-up consistently, and
work independently. Good communication skills (oral and written) important. Exceptional
organizational skills and attention to detail required. Experience with databases, word processing,
and spreadsheet software required.

hines
Box 2: Standard Operating procedures5
List of SOPs
Invention Disclosures
Conceptual Disclosures
Preliminary Disclosure Information Entered into Database
Disclosure Notification of Government and Other Sponsors
Associate Docket Review
Royalty-Sharing Agreements (RSA)

Prepare Royalty-Sharing Agreement
Copy Distribution
Enter RSA Data into Database
Compliance—Government and Other Sponsors

Government Sponsors
Disclosure Notification of Government Sponsors
Transmit Compliance Information to the Government
Copy Distribution
Corporate and Other Sponsors
Disclosure Notification of Corporate and Other Sponsors
Transmit Compliance Information to Corporate and Other Sponsors
Copy Distribution
Processing Patents
Patent Application
Patent Prosecution
Newly Issued Patents
Patent Maintenance
Patent Abandonment/Expiration
Marketing
Decision to Market
Develop Non-Confidential Abstract
Develop List of Companies
Marketing Letter—Have Inventors Review/Comment
Confidential Disclosure Agreements (CDA)

Send Two Original CDAs to Potential Licensee(s) for Signature
File Stanford’s Original Agreement
License Agreements
Negotiate the Terms of the Agreement with Potential Licensee(s)
Agreement Signature Procedure
Enter License and License Terms into Database
Copy Distribution
License Agreement Process
Amendments
Terminated-Agreements Process
Equity
Receiving Stock Certificates from Company

CHAPTER 6.6
Box 2 (continued)
Tabled Dockets
Assess whether Invention Belongs in “The Pound”
Steps for Sending Invention to “The Pound”
Consider Re-Marketing While in “The Pound”
To Remove from “The Pound”
Terminated Agreements
Letter to Terminate Received/Issued
Update “Terminated” Safe Documents
Termination-Letter Distribution
Dropped Dockets
Decision to Drop a Docket
Off-Site Storage
Files to Be Archived for First Time
Files to Be Re-filed at Off-Site Storage
Miscellaneous Documents to Be Archived
General Administrative Filing

Outgoing Correspondence
General Filing
Sample SOPs for License Agreements4
1 Negotiate the terms of the agreement with potential licensee..................................Associate
A Royalty-Sharing Agreement should be completed when a patent is filed or when a license

negotiation is initiated.
(See also Exhibit L, titled 1st Licensee Meeting Checklist and Exhibit M, titled Parameters of
an Exclusive License Agreement [not included in the Handbook].)
1.1 Term Sheet.............................................................................................................. Associate/Team
Associate and Team determine the desired:

• financial terms
• BATNA (Best Alternative to No Agreement)
• walk-away conditions for the agreement
• type of license (non-exclusive, field exclusive,
or exclusive)
Associate either generates a term sheet (See Terms Sheet example [not included in
the Handbook]) or requests a proposal from a licensee. For all field and fully exclusive
licenses, Associate receives a development plan from licensee.
Associate and company representative agree on financial terms.

hines
Box 2 (continued)
1.2 License Agreement.......................................................................................................... Associate
Once term sheet is agreed upon, enter financial terms, and docket-specific
information, into standard License Agreement (see standard document license
agreements on OTL Intranet; not included here). Utilize clauses library and input
from Team as needed. Keep Director informed, particularly if the license contains
nonstandard provisions.
1.3 Conflict of Interest Review............................................................................................ Associate
Prepare Conflict of Interest Memo if inventor has a financial stake in the company or
other relationships with the company, including:
• has equity
• is or will be a consultant
• is or will be on the Scientific Advisory Board
• is or will have sponsored research or collaboration with company
a. Ask inventor to send their COI memo to Deans describing relationship with
company and how any potential conflict of interest would be managed. Suggest
inventor check out the COI Web site of their respective institution (for Stanford
University, see www.stanford.edu/dept/DoR/ad_hoc.html). .................... Associate
b. Obtain approval required by School Dean and Dean of Research before signing
the Agreement. ............................................................................................. Associate Tracks
2. Agreement Signature Procedure
Signature order not critical; if OTL signs first, include a deadline for the agreement to be
returned.
2.1 Director reviews and approves final draft of agreement. .................................... Director
2.2 Prepare two original agreements for execution. . ..................................................... Liaison
2.3 Licensee signs (preferably first). ................................................................................... Licensee
2.4 Director signs for OTL. . ..................................................................................................... Director
2.5 Return one original to Licensee. ..................................................................Associate/Liaison
3. Enter license and license terms into the database....................................... Liaison/Associate

Be sure to add all necessary information, including:
- To License record
• All standard fields
• Equity (if applicable)
• Office of Scientific Research funds (if applicable)
• Corporate contact
• Entity size
• License-specific notes

CHAPTER 6.6
Box 2 (continued)
- To License Terms:
• All royalty terms
• Progress report terms and
• Diligence terms or reminders to self
4. Copy Distribution .......................................................................................................Receptionist

• Original to SAFE file
• Routing copy, which is routed to:
1. OTL Accounting; then
2. OTL staff; then
3. Receptionist for scanning
• Personal copy to Associate (Associate should notify receptionist
if he/she already has a personal copy).
5. Processing and filing Stanford’s original agreement
5.1 After license terms entered: ........................................................................................ Associate
• If license issue fee was received, forward check to OTL Accounting

for processing.
• If license issue fee was not yet received, have OTL Accounting send invoice
to Licensee.
5.2 Notify inventors of license agreement, verify their address and update 4D.
.................................................................................................................................. Associate/Liaison
5.3 If inventor requests a copy of the license agreement and there are no confidentiality
provisions in the agreement that prevent this: ...................................... Associate/Liaison
• The inventor must sign and return an Inventor Confidential Disclosure

Agreement.
• File original inventor CDA in SAFE and stamp “CONFIDENTIAL” on the copy of
the agreement before sending it to the inventor.
5.4 When licensed, notify patent attorney to: . ................................................................. Liaison

• Pay large entity fees.
• cc licensee on correspondence with the patent office
(for exclusive licensees only).
6. Amendments
Amend for “minor” changes; rewrite agreement if major changes.
6.1 Prepare up to two amendments per agreement, rewrite agreement thereafter.

.................................................................................................................................Associate/Liaison
6.2 Associate and team determine desired terms and conditions. . ......Associate/Liaison

hines
Box 2 (continued)
6.3 Follow same signature procedures for original agreements

(see Section 2, above) ......................................................................................Associate/Liaison
6.4 Update 4D license and license terms, if necessary. . .............................Associate/Liaison
6.5 Original Amendment filed in SAFE; Associate keeps a personal copy.

.................................................................................................................................Associate/Liaison
7. Terminated-agreements process............................................................................................ Associate
(See SOP section “Terminated Agreements” for further instructions [not included in the
Handbook].)
Sample SOPs for Invention Disclosures
1. OTL/Associate receives new paper disclosure...................................................... Associate/Liaison

(for online disclosures, go to 3)
Give disclosure to Director.

(See http://otl.stanford.edu/inventors/resources/disclosure.pdf)
2. Preliminary disclosure information entered in database...................................................Director
2.1 Assign docket number, associate initials and title....................................................Director
2.2 Give copy of disclosure to Front Desk. . ....................................... Assistant to the Director
2.3 Create correspondence folder and give folder to Associate. .......................... Front Desk
Give copy of disclosure to Compliance Manager.
(See SOP section “General Administrative Filing” [not included in the Handbook].)
2.4 Review, sign and witness disclosure, then give it to Liaison for
processing............................................................................................................................Associate
2.5 Enter all remaining information from invention disclosure form into
database, including each inventor’s:
• Name
• Addresses
• E-mail address
• Phone number
• Fax number
• Department (please verify using Stanford Directory)......................................Liaison
Also check each Database box that corresponds to a special affiliation or situation
(e.g., HHMI or SRC).

CHAPTER 6.6
Box 2 (continued)
2.6 If invention is sponsored, and sponsor is already listed in the database:

enter sponsor name and contract number in the sponsor portion of the
docket screen...........................................................................................................................Liaison
If no sponsor or “None” listed: double check with the inventor.
If an inventor is an HHMI employee: HHMI should be included as a sponsor.
If an inventor is a VA employee: VA should be included as a sponsor.

(See SOP section “Compliance: Government & Other Sponsors” [not included in the
Handbook].)
2.7 If sponsor not already in database, obtain copy of any nonfederal sponsored
agreement from Industrial Contracts Office, Office of Sponsored Research, or inventor
and put agreement in file. Then enter sponsor information/terms into database.
Verify sponsor requirements and communicate them to Compliance Manager as
needed. (See SOP section “Compliance: Government & Other Sponsors” [not included
in the Handbook].).................................................................................................................Liaison
3. OTL receives new online disclosure, and Database notifies Director.............................Director
3.1 Director assigns docket to Associate and generates database e-mail to

Associate/Liaison team. ....................................................................................................Director
3.2 Print out attachment(s) included with Director’s e-mail, if any, for
correspondence file...............................................................................................................Liaison
3.3 Review disclosure (found in the Database Disclosures view):

• Add/update inventor and sponsor information in Database, as needed
• If no sponsor or “None” listed: double check with inventor
• If inventor is a Howard Hughes Medical Institute employee: HHMI should
be listed as a sponsor
• If inventor is a Veteran’s Administration employee: VA should be listed
as a sponsor
• Approve docket and generate database e-mail to director
• Print out disclosure
3.4 Director creates docket and sends 4D e-mail to Associate/Liaison team. . .....Director
3.5 Once docket number has been assigned by Director, write docket number in upper
right-hand corner of printed disclosure and give original disclosure (with printouts of
attachment(s), if any) to Front Desk to create correspondence folder.................Liaison
3.6 Database notifies Compliance Manager of new disclosure...............................Database
4. OTL notifies government and other sponsors of Stanford’s action on the disclosure
(See SOP section “Compliance: Government & Other Sponsors” [not included in the
Handbook].)............................................................................................................. Compliance Manager

hines
Box 2 (continued)
5. Associate docket review
5.1 Read disclosure and arrange to meet with Inventor(s) within 1 month.........Associate

Have the disclosure signed by inventor(s), witness, and Associate.
If there was a material transfer agreement (MTA): copy the MTA from
Industrial Contracts Office files and review for any IP requirements.
Confirm whether inventor(s) plan to publish or present, including online.
Enter status note (in Database Notes view) that describes inventor
meeting and docket evaluation.
(See also Exhibit B: 1st Inventor Meeting Checklist; [not included in the Handbook].)
5.2 Evaluate disclosure for patentability and commercial potential. Evaluation

may include input from:
• Biological or Physical Sciences Team
• Patent attorneys
• Industry contacts
• Technical Experts (for example other faculty, Niodesign Network)
• Full marketing.............................................................................................. Associate/Team
5.3 If not provided with disclosure, obtain marketing abstract information from inventor
or create marketing abstract......................................................................... Associate/Liaison
(See Exhibit D: Marketing Abstract [not included in the Handbook].)
5.4 Enter following information into database (these should be updated if there was an
online disclosure):
• Abstract
• Applications
• Advantages
• Publications
• Stage of Development
• Continuing Research
• Links to lab Web site
• Status
• Action
• Categories
• Bio/PhySci
• EPIC if applicable
• Patent Bar date......................................................................................... Associate/Liaison
5.5 Make preliminary domestic/foreign filing decision—defer if more research required

.................................................................................................................................... Associate/Team
5.6 Send out standard royalty sharing agreement (RSA) memo if:
• Invention is being marketed
• Patent application is filed
• RSA not needed if invention is being dropped prior to marketing...............Liaison
(See SOP Section “Royalty Sharing Agreements” [not included in the Handbook].)

CHAPTER 6.7
Training Staff in IP Management

Sibongile Pefile, Group Manager, R&D Outcomes, Council for Scientific and Industrial Research (CSIR), South Africa
Anatole Krattiger, Research Professor, the Biodesign Institute at Arizona State University,
ABSTRACT tive research environment, developing countries

This chapter provides an overview of training opportuni- have been less effective in exploiting research out-
ties that developing country institutions can explore to
puts, especially intellectual property. Institutions
start to address problems related to a smooth implemen-
tation and execution of all intellectual property-related in developing countries face numerous problems
aspects (policy, management, procedures, and so forth). in managing their own intellectual property.1
The chapter offers to institutions guidelines for evaluat- These include a limited understanding of the IP
ing training needs and reviews different kinds of training system and how it can be applied in the public
programs, identifying the pros and cons of each. IP man-
agement training is a long-term investment, but a cost-ef- sector research environment, a low appreciation
fective one, leading to better utilization of third-party IP of the benefits that can be derived from manag-
resources, more effective internal IP management policies ing institutional intellectual property, and inad-
and procedures, and higher efficiency in regard to out- equate human and financial resource capacity to
licensing and partnership development. The chapter em-
invest in institutional IP management policies
phasizes the importance of strategic and practical training
programs related to participants’ responsibilities within and resources.
an organization. Finally, multidimensional case studies In IP management, the importance of practi-
are provided to illustrate the myriad issues that may arise cal training events cannot be overemphasized. For
with respect to the management of intellectual property. this reason, we have included, at the end of this
chapter, a few brief case studies that can be used
1. Introduction for training purposes (Box 1 at the end of this
Whether technology comprises new products and chapter). These case studies will allow the par-
services, or improvements of existing ones, and ticipants to play roles (that is, role-play situations
whether it is simple or sophisticated, technology that arise in the day-to-day management of intel-
is an important contributor to socio-economic lectual property) and, most importantly, will al-
development. The processes by which knowledge low participants to see how their specific roles in
and technology are transferred ensure that tech- real life affect (directly or indirectly) deal-making
nologies can be applied in virtually all industry activities. Even for those who are not involved in
sectors. But technology and knowledge transfer deal-making, this practical approach is especially
capabilities in developing countries are not meet- useful as it enables participants to view their re-
ing local needs for socio-economic development spective tasks in broader contexts and thus better
and for driving progress in such critical industry understand their roles and responsibilities, as well
sectors as health and agriculture. Despite an ac- as their importance in the process.
Pefile S and A Krattiger. 2007. Training Staff in IP Management. In Intellectual Property Management in Health and Agricul-
© 2007. S Pefile and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Internet for

PEFILE & KRATTIGER
2. A strategy for IP management Information on training needs can be gath-

capacity building ered in various ways:
• interviews. one-on-one or group format;
2.1 Analyze institutional goals face-to-face or by phone; formal interviews
Deciding upon a program to build IP manage- and off-the-record discussions
ment capacity begins with a thorough analysis • focus groups. conversations among teams
of institutional goals, recent policy changes, and of workers from across the organization
required adjustments in the institutional strategy, • questionnaires and surveys. anonymous
with respect to IP management. Institutional ca- or not
pacity in IP management means a range of things: • document analysis. a study of policies,
including clear and transparent policies (conflict strategies, and management procedures (for
of interest, licensing, patent, and so forth); es- example, employment agreements, grant
tablished procedures (for example, for incoming documents, and other contracts)
and outgoing materials, laboratory notebooks); • observation.
and people at nearly every level of the organiza-
tion being well informed on how the procedures
work, and why. It is essential to identify weak- 2.3 Develop strategies to achieve
nesses and strengths of the IP management sys- training goals
tem within an institution in order to take better Ranking the training goals and determining
advantage of existing organizational structures. how to meet the highest-priority training needs
This means identifying where the weakest links is difficult. A well-developed plan should have
are. A training program then will assist staff in specific and realistic objectives, include measur-
better understanding and helping the institution able and achievable outcomes, schedule clear
to achieve its goals. time frames for all activities, and should un-
dergo regular monitoring and evaluation.2 Of
2.2 Identify training needs course, different people have different under-
The next step is to identify the competencies re- standings, vested interests, and preferences, so
quired to accomplish the overall goals. This re- a lot of soft negotiation will be required. It may
quires an analysis of the required proficiencies, be helpful to work with a third-party training
existing deficiencies, and the causes of the defi- provider who, if they understand the organiza-
ciencies. In general, the training requirements tion, can take a more objective view and assist in
of staff members are summarized in Table 1. In better designing the training program to meet
order to ascertain specific needs, the following institutional goals.
question should be answered:
• What knowledge and skills are required
for optimal operation of the IP office and 3. IP training programs
therefore required among IP management Initially, individuals interested in IP training were
staff? limited to a small collection of course offerings
• What IP-related knowledge and skills are available through staff members of organizations
required for the research staff? that, due to their practical experience in the field,
• What are the communication gaps with re- were able to share their know-how. But intellec-
spect to intellectual property both within tual property as a field of study is growing in im-
the institution and with third parties? portance as institutions value it more and more.
• What are the particular elements of the IP In addition to the essential practical training of-
policy that seem least well understood and fered by institutions such as the Centre for the
implemented? Management of Intellectual Property in Health
• What resources are required to bring knowl- Research and Development (MIHR), formal
edge and skills to the required levels? training in IP management is also available from

CHAPTER 6.7
Table 1: Generalized Training Needs of Different Staff Groups
Group Training requirement (minimum)
Researchers • maintaining good laboratory records

• a basic understanding of the types of IP agreements,
especially in the context of exchanging research material and
information
• the importance of confidentiality, especially with respect to
publishing and delivering academic presentations
• when to disclose intellectual property to the relevant office
• institutional IP policy guidelines and procedures
Research managers • the importance of IP management and management functions

and institution • IP protection processes and procedures; the investments
directors required to manage intellectual property effectively (include
key decisions required at different stages of intellectual
property and research development)
• implementing IP policies, processes, and procedures
• an appreciation of the role of technology in addressing socio-
economic needs
IP managers • overview of IP management from the generation of intellectual

property to its exploitation and application
• awareness building
• understanding of science (some domain understanding of
certain fields of science an added benefit)
Operations finance
• understanding of IP policy guidelines, namely, systems and
processes to handle IP payments and receipts, for example,
royalties; the administration of benefits to researchers and the
institution
human resources
• IP policy guidelines and interface with other institutional
policies such as, conditions of service, recruitment, conflicts of
interest and commitment, contracting with clients, and so on
legal services
• IP policy guidelines
• IP contracts and agreements
• What is intellectual property; and the different forms of IP
protection
• IP negotiation
grant and contract research
• IP contracts and agreements, especially clauses regarding IP
ownership
• IP policy guidelines

PEFILE & KRATTIGER
MIHR.3 The online version of this Handbook will responsible primarily for preparing and pros-
list many other such programs and places. ecuting patent applications, conducting patent
IP training opportunities can be divided into searches, patent infringement and litigation, and
two distinct disciplines: law and IP management, preparing and filing applications for patent and
which includes deal making as the central focus. other IP protection. During the course of per-
forming these duties, patent lawyers are required
3.1 IP law to communicate with counsel and guide clients
Although most training programs begin by cover- on legal issues in this field.
ing IP law, it is more appropriate to present this
topic at the end of the course. A brief overview at 3.2 IP management
the beginning might be appropriate, but placing On the other hand, IP management courses train
emphasis on it at the beginning diverts attention individuals to become IP practitioners. An IP
from the more important issues, namely what an practitioner may not necessarily have formal edu-
institution is doing with its intellectual property cation or training related to intellectual property
and with the intellectual property of third par- but would have work experience and some infor-
ties. Therefore, a training program really ought to mal training in the field. IP management is the
begin with the central issue, which is deal making convergence of basic IP law, business and research
for most institutions. management, and institutional policy adminis-
IP law is concerned with statutory regimes tration. IP practitioners need to know the IP field
for the legal protection of IP rights. IP law studies well enough to make appropriate strategic and
normally include: management decisions about the protection and
• patent law. the study of patents for inven- exploitation of institutional intellectual property.
tions, including international and regional Furthermore, IP practitioners are expected to:
treaties that form part of an international develop institutional IP policy, advise on when,
legal framework in patent law where, what, why, and how to protect intellec-
• copyright law. the study of principles and tual property; identify useful intellectual property
standards of protection under national and from their institutions; establish institutional sys-
international copyright and related rights tems and processes to manage intellectual prop-
treaties erty; assess the value of intellectual property; re-
• trademark law. the study of legal provisions port on IP activities; and build awareness of the
relating to trademarks in national, interna- importance of intellectual property within the
tional, and regional IP treaties research community. Essentially, the IP practi-
• industrial design law. the study of laws tioner serves as a bridge between science and the
pertaining to the registration and protec- outside world. Such an individual should know,
tion of original and innovative designs. (In therefore, how to articulate issues effectively to
some countries, design patents go under different stakeholders and when to seek profes-
different names, such as “utility model” in sional counsel for highly technical matters.
France and the law for “minor inventions”
in Australia.) 3.3 IP law vs. IP management training
Important issues to consider when deciding on
Other training opportunities exist in areas which type of IP training program would be ap-
such as: propriate for staff members include:
• legal aspects of traditional knowledge and • training costs. It is important that the
biodiversity institution receive value for its training
• legal aspects of electronic commerce investment.
• duration of training. Legal training in IP
Many law faculties offer training for becom- law takes several years; short courses in IP
ing a patent lawyer. Typically, patent lawyers are management take weeks or months.

CHAPTER 6.7
• institutional needs. While it is not unheard • MIHR4

of for IP lawyers to be involved in IP man- • AUTM (The Association of University
agement activities, normally, these lawyers Technology Transfer Managers)5
are focused on legal issues. Institutions • NTTC (National Technology Transfer
can outsource legal functions to local law Center)6
firms. Depending on the type and volume • WIPO Worldwide Academy7
of work, institutions need to determine • NIH (United States National Institutes of
whether their IP managers require a legal Health) Office of Technology Transfer8
qualification in addition to the scientific • PIIPA (Public Interest Intellectual Property
and research management background that Advisors, Inc.)9
most IP practitioners possess.
• access to and availability of training op- 3.5 Designing training programs
portunities. Unless an institution organizes A training strategy should begin with a clear mis-
an internal IP training program, the institu- sion and provide measurable training objectives
tion often relies on the training schedules of through which progress can be monitored. The
other programs. Some training opportuni- training program should facilitate the achieve-
ties may take place at awkward times in the ment of the institution’s goals for promoting
organization’s business cycle. Furthermore, and commercializing products that emerge from
it can be exceedingly costly for developing research.
country institutions to fund individuals to Training-program development can be bro-
attend a one- or two-day training course ken down into ten essential steps as illustrated in
overseas as is often the case with such IP Figure 1. Note that training is a continuous and
training programs. iterative process.
• size of institution and volume of IP activ-
ity. Large institutions with a significant, 3.6 Elements of a good training program
growing IP portfolio may need an IP law- Given the many different types of training pro-
yer in addition to an IP manager. For most grams available, how does one distinguish good
institutions, however, an IP practitioner training opportunities from those with little
may be adequate. value? Key considerations to bear in mind when
planning an IP training program include:
3.4 Training locations • relevance to practical issues. For example,
A growing number of IP training programs are whereas for lawyers, the course may well
available on the market. The list of programs center around the law, in most cases em-
below is by no means exhaustive; an Internet phasis on legal aspects, especially patent
search of the topic will certainly yield many more law, for IP management practitioners is too
results. strong. Rather, equal emphasis should be
placed on deal making, which should run
3.4.1 IP law like a thread through training programs for
Degree programs or courses in IP law are offered technology transfer managers.
by numerous universities in both developing • reputation of trainers and programs. Over
and developed countries. The World Intellectual the years, certain programs have built a
Property Organization (WIPO), along with the good track record and are often recom-
University of South Africa (UNISA) offer a dis- mended by former course participants. It
tance-learning course in IP law. is useful to seek the views of past trainees
and trainers about courses attended and the
3.4.2 IP management value derived from those course.
Highly regarded IP management courses are of- • qualifications and experience of trainers.
fered by: Some training programs provide a biogra-

PEFILE & KRATTIGER
Figure 1: Steps in the Training Development Cycle

Point of Entry
Analyze Identify
Plan next steps
institutional goals training needs
Develop strategies to
Evaluate the training
achieve training goals
Deliver the training Identify faculty
Prepare training
Arrange logistics Develop training plan
modules and materials
CHAPTER 6.7
phy of trainers and presenters. The biog- which training programs to invest time and
raphies provide useful information about money in.
the trainer’s knowledge and expertise in • training material. The merit of a course
the field, as well as experience in providing can be evaluated based on the quality and
training to a given audience. relevance of training material offered prior,
• training topics and relevance. It is pos- during, and after the event. Pre-training
sible to rapidly appraise the usefulness of material is important for introducing the
the training opportunity by carefully ex- topic and preparing the trainee. Post-train-
amining the training subject matter. To ing material should reinforce the training
maximize the benefit of the training op- and provide trainees with reference mate-
portunity, course content should be cur- rial that will be useful for applying the new
rent, provide new knowledge, and show knowledge.
relevance to the training needs of the se- • post-training support. Support after the
lected audience. training event is important. In most cases,
• method of instruction. To ensure effective the real training takes place in the work en-
learning, training should incorporate dif- vironment, which is where the learning can
ferent methods of instruction. Lecturing is be applied and utilized. Trainees may not
the most common form of instruction (al- always be certain of themselves; when it is
though this may not be the most effective). possible for trainees to ask questions and
Demonstrations, group discussions, role- reaffirm learning, the chances of applying
playing, and simulations are other methods the new learning successfully are greater.
of instruction that can be used to maximize
the training opportunity and maintain the Different forms of training programs exist,
audience’s interest. Programs that use dif- and some programs will be more valuable than
ferent instruction methods and a mix of others; if possible, trainees should experience
student-teacher interactions tend to be the a range of opportunities. Post-training reports
most effective and offer the greatest benefit should not only detail the outcomes of a given
to the trainee. training program but also explain how the train-
• training environment. The location and ing experience will change work practice. The
environment of the training site is of major measures that management can use to monitor
importance to the trainee and the trainer. development should be clear. The institution
The training environment should not in- paying for the training should be able to measure
terfere negatively with the learning pro- the outcomes of the training experience. Long-
cess. Venues and facilities need to be eas- term outcomes should address the competency
ily accessible and conducive to learning. gaps identified in the needs analysis and should
Without a suitable setting, the training will be evaluated using measurable indicators. Long-
be compromised. term outcome measures would include:
• training schedule and session plans. A well- • increased research outputs
designed session plan will focus on topics • more efficient resources utilized for IP man-
that the audience needs to know. Session agement activities
objectives should be clearly stated, the tar- • improved financial performance of the
get audience identified, and the schedule organization
should communicate the method and con- • portfolio performance
tent of presentations and the time available
for questions and discussion. A detailed Short-term outcome measures include:10
analysis of the training schedule ahead of • improvements in skills performance
time will reveal whether or not the program • improvements in the efficiency of conduct-
is well planned and inform choices about ing procedures and tasks

PEFILE & KRATTIGER
• showing an understanding and appreciation then be successfully implemented, while engag-

of performing tasks in a prescribed way ing, educating, and motivating participants. ■
Sibongile Pefile, Group Manager, R&D Outcomes,

Table 2 introduces the different types of train-
Council for Scientific and Industrial Research (CSIR), PO
ing and examines the pros and cons of each form. Box 395, Pretoria 0001, South Africa. spefile@csir.co.za.
Box 2 presents an outline of a workshop plan.
Anatole Krattiger, Research Professor, The Biodesign
Institute at Arizona State University, Chair, bioDevel-
opments-International Institute, and Adjunct Professor,
4. Conclusions Cornell University, PO Box 26, Interlaken, NY, 14847,
The chapter provided an overview of training op- U.S.A. afk3@cornell.edu
portunities that can enable developing-country
institutions—or indeed institutions anywhere in
the world—to strengthen staff competencies and 1 CIPR. 2002. Integrating Intellectual Property Rights and
Development Policy. DFiD:London. www.iprcommission.
thus build internal IP management capacity. The org/papers/pdfs/final_report/Ch7final.pdf.
chapter offers to institutions guidelines for evalu-
2 OPM. 2006. Guidelines for Conducting Diversity Training.
ating training needs and reviews different kinds Office of Personnel Management: Washington, DC.
of training programs, identifying the pros and www.opm.gov/hrd/lead/Policy/divers97.asp.
cons of each. 3 www.mihr.org.
The adage “reading is learning, seeing is be- 4 Ibid.
lieving, and doing is knowing” is particularly ap- 5 www.autm.net.
propriate in the context of training and capacity 6 www.nttc.edu/services/training.asp.
building. Accompanying this chapter are several 7 www.wipo.int/academy/en/index.html.
case studies for short courses, each presenting a
8 tttraining.od.nih.gov/.
different challenging IP management scenario.
9 www.piipa.org.
Case studies give trainees opportunities to envi-
10 Boydell T and M Leary. 2001. Identifying Training Needs.
sion how a technology transfer project might be Chartered Institute of Personnel and Development:
carried out. London. pp. 8–10.
Finally, a detailed workshop plan that pro- 11 Although the case studies are based on real occurrences,
vides comprehensive steps is important. Such the scenario has been adapted to protect the privacy
an IP management training course so that it can of all organizations and individuals involved.

CHAPTER 6.7
Table 2: Pros and Cons of Different Types of Training Programs
Type of
Pros Cons
training
Short • trainee not absent from work for extended • no formally recognized
courses periods qualification
• training opportunity focused and aimed at • course content shallow
professional development • course coverage possibly
• can be inexpensive unfocused
• teaching specifically targeted to adult • value of learning
learners experience dependent on
• possible to be selective and choose only the the extent to which the
most relevant training courses trainee can apply the new
knowledge
Full-time • often leads to a formal qualification • trainee absent for a

courses • course content detailed and the learning longer period
intense • training might be costly
• direct access to training material, lecturers, • not all of the course
and other resources content relevant to the
• better opportunity for trainee to build institution’s current
lasting networks needs
• greater chances that trainee will complete
course within the stipulated period
Part-time • trainee not away for extended periods • overall training period
courses • learning in segmented modules enabling possibly longer than full-
trainee to apply new knowledge in a more time course
structured manner • overall cost of releasing
trainee from work not
necessarily cheaper
• possibility that trainee
may take longer to
complete course due to
flexibilities built into the
course
Distance • flexible learning schedule • need for good time-

learning • trainee can be situated anywhere management skills and
the discipline to study
• training material is normally in a form
that makes it readily available for future • trainers and training
reference resources less accessible
• trainee may not necessarily need time off • coursework coincident
work with full-time
employment

PEFILE & KRATTIGER
Table 2 (continued)
Type of
Pros Cons
training
Internship • can be customized for the individual • may necessitate extended

• practical experience absence
• greater exposure for trainees through • can be costly
secondments to different organizations • no formal qualification
• training in depth and teacher/trainee obtained
exchange better, resulting in a potentially
better cost benefit to the institution
supporting the training
• overall training experience typically varied
with broader exposure
Internal • training customized and contextualized • the institution must pay

training • greater control over course content unless training is funded
• training intense and in depth • for the duration of the
course, productivity may
• can be structured to cater to the different
be lower
needs of different groupings within the
research community • institutions need to be
involved in the planning
• greater number of individuals can be
and implementation of
exposed to a single training episode
the event; in some cases,
• assists with creating an internal culture of institution may need
learning and understanding intellectual to assign staff member
property to assist with training
• helps to develop institutional IP networks arrangements
and systems
• post-training assistance is normally
available

CHAPTER 6.7
Box 1 : Case Studies for Use in Training
Eyeborn™ Orbital Implant
Your local research and technology institute (RTI), in collaboration with a clinical research
organization (CRO), a group of surgeons and the local university, have developed an
orbital implant to replace eyes lost due to disease or injury. The Eyeborn™ implant is to be
launched as a commercial product at the next International Ophthalmology Conference.
The central aim of the project, supported by an angel investor, is to develop an improved
and more cost-effective orbital implant. The hydroxyapatite material from which the
implant is made, allows tissue and blood vessels to grow into the porous ceramic. Since the
eye muscles are attached to the orbital implant, mobility of the implant is synchronized
with that of the normal eye. Once a polymer prosthesis, or cap, with artwork of an iris
and a pupil is placed over the implant, it is often difficult to discern a difference in the
eyes in appearance and movement. This means patients who receive an implant appear to
have normal ocular function. Presently, your product offers a more affordable, high-quality
alternative to existing implants. It will benefit a larger percentage of the poor population,
and, because of the lower cost, will be more accessible to government hospitals and clinics.
Presently at government hospitals, patients that have lost an eye are given either a silicon
eyeball or nothing at all.
Background
• A local patent has been granted for the eye orbital.

• There is a patent application for the orbital eye inserter.
• RTI owns the intellectual property.
• You have approached a local company to do the manufacturing.
• You would like to sell the product nationally and internationally.
• You would like to ensure that the product is available at an affordable price at all local public
health facilities.
• You have a three-year window of opportunity to get your product on the market and to secure
a sustainable market position.
Tasks
• Determine whether or not you will file international patents, stating where, how and why.
• Determine how benefits will be shared with the consortium of researchers.
• Identify any other forms of IP you may consider protecting.
• Summarize what commercialization vehicle you will use and why.
• Identify your key partners to help you get the product on the market.
• List agreements you require with your partners.
• Describe your business model for supplying private and public sector health facilities.

PEFILE & KRATTIGER
Box 1 (continued)
The Smart-lock safety syringe
The Smart-Lock Safety Syringe provides improved protection against needle stick injury
and contamination. The device has an added benefit of being easier to use and providing
more accurate measuring.
Background
• The Smart-lock Safety Syringe technology is a new disclosure by your institution’s

researchers.
• A prototype has been developed.
• The market for syringes in your country is highly competitive and saturated. While there are
no Smart-Lock Safety Syringes on the market, there are many different other types of syringes
available.
• You have been promised significant distribution opportunities for your product in francophone
Africa, provided you establish a factory in one of the countries. Most countries in this region
have weak IP protection systems.
• To manufacture the Smart-Lock Safety Syringe is a highly technical process; the know-how or
the process resides with the small group of researchers at your institution.
Tasks
• Develop an IP protection strategy for the Smart-Lock Safety Syringe detailing:

- whether or not you wish to protect your intellectual property (if not, go to the next task);
if so:
- where to protect the intellectual property (taking into consideration national, regional,
and international patent systems)
- when to start applying for IP protection
• Given your answers to the questions above, develop a business plan that details how you
intend to exploit your intellectual property . In the summary of the plan, address the following
issues:
- partnerships and partnership agreement conditions
- other agreements required
- technology and knowledge transfer arrangements
- your business model

CHAPTER 6.7
Box 1 (continued)
Avenging Montezuma’s Revenge!
The purpose of this case study is to consider basic strategies related to the building of
public–private partnerships, the pooling of resources, building on comparative advantages,
and achieving the dual goals of social needs and commercial objectives. Specifically,
trainees will be addressing the issues of licensing across public and private sectors that are
attempting to meet needs in developed and developing countries.
In this case study, trainees are encouraged to develop creative ways in which public and
private sectors can combine their resources, segment markets, and address the specific
needs of different constituencies (developed and developing countries).
Background
Viajes BioTech Inc.11 is a small biopharmaceutical company in North America, founded by Jose
(Pepe) Herrera, a Mexican immigrant to the U.S. Prior to establishing the company, Pepe worked
for his mother’s travel agency while he was studying for his doctorate degree at the Autonomous
University of Cancun, Mexico, and visited all corners of the world. During these times, he often
had intestinal discomfort and returned with diarrheal diseases. His doctoral thesis focused on
such diseases, and he collected many Escherichia coli specimens from around the world. After
making good money during the dot-com boom, he set up Viajes BioTech Inc. in San Diego, United
States, to build on his Ph.D. research with the primary purpose of alleviating the suffering of the
many millions of travelers to the developing world.
The Research To-Date

E. coli heat-labile enterotoxin (LT) is composed of catalytic A and noncatalytic homo-pentameric
B subunits and causes diarrheal disease in humans and animals. In order to produce a nontoxic
LT for vaccine and adjuvant development, two novel derivatives of LT were constructed by a site-
directed mutagenesis of A subunit; Ser63 to Tyr63 in LTS63Y and Glu110, Glu112 were deleted in
LT delta 110/112. Mice immunized with the purified mutant LTs (mLTs) either intragastrically or
intranasally elicited high titers of LT-specific serum and mucosal antibodies. These results indicate
that substitution of Ser63 to Tyr63 or deletion of Glu110 and Glu112 eliminate the toxicity of LT
and both mutants are immunogenic to LT itself. Therefore, both mLTs may be used to develop
novel antidiarrheal vaccines against enterotoxigenic E. coli.
Note that the particular strain used in this research originated from a sample collected from
a campesino at a clinic in Pepe’s grandparents’ hometown, Chulula, outside San Cristobal de
las Casas in the State of Chiapas. Whenever he visited his family at Christmas and Easter, Pepe
would spend a few days helping in a clinic in that village. Campesinos are generally poor farm
laborers.
Business Model of Viajes BioTech Inc.

The company focuses on the development and commercialization of a vaccine for diarrheal
diseases that occur predominantly in developing countries but that have a significant market in
developed countries among travelers for both business and leisure.
Viajes Biotech Inc. counts some 50 highly trained staff and has laboratories able to produce
nonGMP pilot lots of the vaccine but has no clinics or production facilities.

PEFILE & KRATTIGER
Box 1 (continued)
The company owns the key intellectual property for the vaccine in the form of a single
dominating patent (but a series of continuations in part are still at the patent office in the United
States). Pepe still has another two months to file for (PCT Patent Cooperation Treaty) applications
in foreign jurisdictions, having marked all possible boxes in the application. Money, however, is
relatively tight, and it is not clear whether the expense is warranted.
Because the infections are extremely rare in most developed countries, it is difficult to test
the vaccine in those countries. Thus Viajes BioTech Inc. is seeking a partner in the developing
world to assist in the clinical trials. Pepe, having lived the first 25 years of his life in Mexico, also
wants to find a way to extend the benefits of the vaccine to people in the developing world.
During his recent vacation trip over Christmas to the South African vineyards, Pepe visited
a former fellow student of his, Koreen Ramessar, who works on muscular dystrophy at the
Department of Human Genetics at the University of Cape Town medical school. Koreen heard
of the advances her classmate had made with his vaccine and introduced him to the director of
IIMR, the International Institute of Medical Research in Colombo, Sri Lanka. The current director,
D.C. Mokhobo, is originally from Cape Town and was visiting her family over the festive season.
Pepe and Dr. Mokhobo of IIMR had dinner just before New Year’s Eve and agreed, in principle,
on a joint effort to develop the vaccine further whereby Viajes BioTech would focus on introducing
the vaccine into developed countries, and IIMR, through appropriate partnerships, would focus
on developing countries.
The International Institute of Medical Research, IIMR

IIMR is an autonomous international nonprofit organization headquartered in Colombo, Sri
Lanka. It maintains a network of laboratories and research centers hosted by a series of leading
research institutions across the developing world. The institute also carries out research, teaching
and training in its facilities. The entity does not have its own clinics but arranges for clinical
studies through collaborating centers in developing countries.
Tasks
General
To develop a framework agreement between a public (IIMR) and a private entity (Viajes BioTech
Inc), sketching the outline of a business plan, with particular focus on the IP strategy, incorporating
all the available tools, as appropriate.
The Teams
Pepe and Dr. Mokhobo each requested the relevant people in their institutions to work out the
details on how the scheme could be made to work to benefit both parties. Two teams were
created:
• One team represents the business development and marketing side of Viajes BioTech Inc.
• Another team represents the R&D program of IIMR and also includes the deputy director for
International Cooperation.
The Specifics
First, meet in your own team for 60 minutes to determine the issues that need to be addressed.
Specifically, think of the needs of your entity to ensure that the primary policy of the entity is

CHAPTER 6.7
Box 1 (continued)
respected in the deal. Also think of the needs of the other party. For example, Viajes BioTech must
find a way of making a return on its investment. IIMD, on the other hand, does not sell things
and will need to think of marketing alliances and licensing, as well as obtaining the funding to
conduct the work.
Second, the teams meet together and compare ideas, issues, and approaches. Note that this
is not primarily a negotiating exercise. Begin by developing the overall business plan for how the
vaccine would be tested and commercialized, both in the developing and developed worlds. Then
develop a coherent IP strategy that reinforces the business plan.
Remember that your bosses have made the policy decision, in principle, to get this venture
going. Your task is to flesh out the framework for how it could work in practice. Hence the other
party is not a hostile team but, essentially, in the same boat as you are. Also, you are not required
to develop a detailed investment plan with cash flow and royalty rates; rather, the principles of
the deal are to be developed.
The Assumptions
• The time required to develop the vaccine for clinical trials is 9 months.
• Clinical trials will take two years to complete if all goes well.
• The cost for clinical trials across five countries is estimated to be US$20 million.
• The cost of production for 1 million units is US$10 million. That cost could be reduced to US$5
million if produced in a high quality laboratory in India. Note that these costs do not include
marketing and distribution costs, commissions, advertising, and so forth.
• The total market in the United States, Europe, and Japan for business and leisure travelers is
estimated by Viajes BioTech Inc. to be approx. five million units per year in the first five years,
increasing to 15 million units per year thereafter. Viajes BioTech Inc. estimates that travelers
are willing to pay up to US$25 per shot/unit.
• The total market in the major cities in Asia, Africa, and Latin America is estimated to be at
least 100 million units per year.
• Viajes BioTech Inc. already invested US$7.5 million in the vaccine. The next round of financing
will be launched in three months and the company needs to show a sound business plan and
potential for significant profits, if it is to convince its current and prospective new investors of
putting up an additional US$30 million or so over the next three years.
The Report to Your Bosses

Specific issues you should address in your report (in the form of a slide presentation lasting no
more than 10 minutes), should include:
• Who supplies the vaccine for clinical trials?
• In which countries outside the U.S.A. should Viajes BioTech Inc. file for patent protection?
Remember that each such filing will cost some US$25,000 including translation and filing
fees.
• What other form of IP protection should be sought? When, where, and why?
• Who is liable for untoward events with the vaccine in clinical trials?
• Who should own potential new intellectual property generated from the clinical trials
conducted by IIMR?
• Means by which the vaccine could be (1) produced, (2) marketed, and (3) sold in the developing
world.
• How will you deal with third-party technologies that may have to be licensed-in for the
production of the vaccine?

PEFILE & KRATTIGER
Box 1 (continued)
• Are there any issues of compensating Mexico for use of the E. coli strain that led to the vaccine?
If so, what might they be and how could they be resolved?
• Prior review of the labeling of the vaccine for sale in any market. Include an explanation of why
there should be review.
Additional Considerations
• Should your group require specific technical, strategic, and legal advice, it can be made available
for a limited time. However, the external advisors will only respond to well-formulated and
relatively specific questions.
• Invent whatever additional information you feel you may need, but be sure to specify such
assumptions (amount of capital needed, types of IP protection sought and obtained, terms
of the commercial licenses required, the way that regulatory issues are addressed, and so on).
Make reasonable assumptions, given the milieu of your activities.

CHAPTER 6.7
Box 2: Sample Workshop Plan
Objectives
• To provide quality training for sustainable knowledge and skills transfer in intellectual
property management.
• To develop appropriate skills for identifying, protecting, developing, valuing, and
commercializing research resources.
• To develop knowledge and skills in strategic IP management, focusing on the fundamentals
of IP rights: licensing issues and negotiating joint venture agreements that seek to enhance
the availability of research results for health products.
Workshop emphasis
The workshop will focus on providing participants basic/intermediate/ advanced [indicate which]
level training in IP management.
Background
Many developing country institutions lack the human capital and capacity required to design
and implement IP management systems that serve the IP management needs of academic
institutions. Without meeting the need to provide training to personnel in IP management, the
execution of IP management practices is less likely to succeed. The proposed capacity-building
initiative will focus on developing learning experiences that have immediate relevance to the
participant’s occupation and experience, thus providing the basis for activities that lead to
institutional IP management development.
Partners
Acknowledge the organizations collaborating on or sponsoring the training.
Workshop format
• Tutorial work and presentations
• Case studies and role-play
• Materials for reading and future reference
Training topics
• The fundamentals of intellectual property management. This component will provide the
basic principles of intellectual property protection processes and an overview of IP regimes.
• IP strategies and methodologies. The purpose is to teach participants the approaches to
negotiation, establishing agreements, licensing, technology transfer processes, and business
development.
• Technology transfer management. An overview of technology management functions and
strategies is provided.
• Commercialization. Provide instruction on how to develop a commercialization plan, include
discussion of the key components of such a plan and guidance on aspects such as negotiation,
deal structuring, and venture fund sourcing.

PEFILE & KRATTIGER
Box 2 (continued)
Teaching and learning methods

The teaching techniques selected are designed to enable trainees to gain knowledge through
traditional tutoring methods and from each other’s experiences.
• lectures. knowledge transfer using conventional teaching techniques (direct instruction)

• presentations. “guest speakers” including IP professionals representing private and public
sector industries
• case studies. interactive practical exercises that encourage participants to apply the knowledge
they have acquired to solve complex intellectual property issues
• role play. exercises that expose trainees to strategies and approaches in operation in various
IP management disciplines
Workshop content and curriculum

The teaching content of the workshop will be developed in consultation with key partners. The
suggested agenda for a four-day workshop is presented below.

Day 1. Refresher on IP processes and regimes: An overview of IP processes
Day 2. IP management practices
• current practices and issues in IP management
• licensing fundamentals
Day 3. IP management strategies: Managing an IP portfolio
Day 4. Technology transfer strategies and commercialization
• fundamentals of technology transfer
• fundamentals of commercializing intellectual property
Training materials
• slide presentations
• case studies
• role-play supplies
• reading material
• CD of reference material and Web-based links
Accreditation
Participants will receive acknowledgement for full attendance of the training program.
Tutors
Tutors will include:
• three to four keynote speakers
• lecturers and presenters
• facilitators of interactive activities

CHAPTER 6.7
Box 2 (continued)
Who should attend

This training program is directed at professionals in health R&D interested in acquiring skills in IP
management. The target audience includes:
• technology transfer office staff
• research managers and scientists
• senior management
Venue
Accommodation will be provided at preferential rates. Refreshments and meals will also be
provided.
Costs
Participants will be required to pay their own travel costs. Participants will be required to make a
single payment [or other payment plan] when registering for the workshop.
Entry limitations
Entrance will be granted to the first 20 applicants who complete registration.
Subsequent training and support

Post-workshop activities will include issues identified during the training-needs analysis and also
take into account responses received following a workshop survey among participants.
Workshop evaluation
The assessment measures will be determined first by the specific objective of the workshop, and
second, by the expectations of participants. Evaluation measures will include:
• relevance of the workshop to participants
• choice of tutors
• professional diversity of trainees
• duration of workshop
• balance between theory and application
• training techniques
• discussion and exchange
• documentation
Suggestions for further improvement will be sought from trainers, trainees, and observers.

CHAPTER 6.8
Building Networks:
The National and International Experiences of AUTM
KAREN HERSEY, Visiting Professor of Law, Franklin Pierce Law Center, U.S.A.
Developing and implementing best practices in intellec- Networking among peers in any profession gener-
tual property (IP) management requires several critical
ally provides two important benefits. It encourag-
inputs, and building networks is among the most im-
portant. The experience of the Association of University es relationships between individual practitioners,
Technology Managers (AUTM) serves as an excellent some of whom may be highly skilled while others
example of how to build and maintain such networks. are less so. Regardless of the proficiency levels of
The important lessons learned as AUTM grew and ex- individuals, each one contributes to the experi-
panded its networks are broadly applicable to building
dynamic, productive, and sustainable networks anywhere ence of every other. Whether individuals func-
in the world. Furthermore, since AUTM is an association tion as mentors or apprentices, the one-on-one
of individual, rather than institutional or organizational interactions raise the level of each person’s exper-
members, it functions all the more as a catalyst for net- tise and professionalism. Moreover, networking
working. Networking provides two important benefits.
contributes to the overall quality of group perfor-
First, it facilitates relationships between individuals with
varied experience, expertise, and skill sets, encouraging mance. By working through networks, practitio-
individuals to contribute to each other’s professional ners exchange ideas and experiences, developing
expertise. Second, the network itself contributes to the best practices that become standards for perfor-
overall quality of group performance. Working through mance. The Association of University Technology
networks, practitioners exchange ideas and experiences to
form best practices that become performance standards Managers (AUTM) provides a shining example of
for individuals and their institutions. Networks thereby how this process can benefit an organization. The
contribute to building IP management capacity at both history of the AUTM provides a solid case study
the individual and institutional levels, and this capacity of the usefulness and power of networking.
building then feeds back to further support and expand
the network. This chapter considers the networking prac-
tices established by AUTM. It charts the organization’s
growth over a period of 30 years from a small group of 2. Forming a network
U.S. and Canadian patent managers to an association of to solve problems
more than 3,400 members from countries on every con-
AUTM began its journey as a direct result of
tinent.1 As the story of AUTM demonstrates, networks
can begin locally and gradually expand to operate on a networking. Coming together as a small group
national, regional, and even international scale. However, to solve a set of common problems in the mid-
as AUTM has shown, the organization itself must begin 1970s, a handful of individuals formed a net-
with—and steadfastly maintain—a clear and focused work that would eventually grow into AUTM.
central mission.
Midway through 2006, the total membership
Hersey K. 2007. Building Networks: The National and International Experiences of AUTM. In Intellectual Property Manage-
© 2007. K Hersey. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

HERSEY
stood at 3,494. The organization plays a global modern concept of networking. These early efforts
role in developing academic technology transfer to articulate a useful mission were successful: at
as a unique profession. its first annual meeting in 1976, some 51 indi-
AUTM, or more accurately its antecedent, viduals paid a $30 fee to join SUPA.
the Society of University Patent Administrators No two networks are alike, nor is the pro-
(SUPA), did not start out to establish a new process by which they are formed. Each network is a
fession. Rather, it started as a loose organization unique creation formed by different people for dif-
of individuals, notably not institutions, who saw ferent purposes. Each grows according to the ac-
a need to work together to solve problems. The tivities its members choose to focus on. Often, the
problems of the day were specific to the then-cur- role a network takes on is influenced by external
rent university patenting situation in the United factors that simply happen. Such was the case with
States. A jumbled array of inconsistent patent SUPA. Its unexpected ability to wield influence
policies among U.S. government agencies fund- through its networking capacity became apparent
ing research at U.S. universities made for a dif- early on, as its members were rallied to gather sup-
ficult landscape for early practitioners of univer- port for the most significant piece of legislation to
sity technology transfer. At the same time, a few affect university technology transfer in the United
experienced individuals recognized that other States: the Bayh-Dole Act.2 By using the organi-
issues involving patenting and licensing periodi- zation as a pulpit from which information about
cally emerged in their daily activities as university the Bayh-Dole bill could be broadcast, SUPA was
licensing professionals. Patenting and licensing able to give members the information they needed
concerns were not commonly understood by the to urge their own congressional representatives to
colleagues of these individuals. Although there support the bill. The organization gained public
were relatively few U.S. universities engaged in recognition from this early experience of energiz-
technology transfer in the mid-1970s, there was ing its member network. It continues to play a
enough activity to suggest a need for an associa- role in virtually all U.S. federal policy efforts that
tion of individuals who could help each other. In involve technology transfer at universities.
the beginning, AUTM (SUPA, at the time) was
chartered to create networks of individuals who
would find solutions to problems arising from the 4. Expanding geographic boundaries
complex legislative landscape in the United States Today, AUTM’s membership is an ethnically
and who could provide useful interpersonal link- and culturally diverse group with individuals
ages to help understand and deal with the com- from around the globe. This diversity is due,
plexities of patent licensing. in part, to another external factor that played
an unanticipated role in expanding the AUTM
network. While there was no overt intention to
3. Early days: Developing the mission reach beyond U.S. boundaries during SUPA’s
Early efforts to draw new members into the fledg- formation in 1974 and 1975, the organization
ling organization could succeed only if organizing embraced Canadian institutions nearly from the
filled a need. Articulating a mission was then, as start. It happened quite naturally that Canadian
now, indispensable to creating sustainable net- members were included because of their person-
works. While the word networking was not com- al connections and relationships to SUPA’s orga-
monly used in those days, the enumerated pur- nizers and also, perhaps, because a mailing list
poses for establishing the organization included, was used that reached across the United States/
among others, “generating self-help programs to Canadian border. The outreach encouraged a
enable universities to establish an in-house patent contingent of six Canadians to attend SUPA’s
technology and licensing capability” and “effect- first annual meeting in 1976. By 1978, SUPA
ing interchange of views amongst university patent had its first Canadian trustee, and a concerted
administrators.” These goals certainly match the effort was made to extend information about

CHAPTER 6.8
SUPA to licensing practitioners in Canadian by adopting a category of affiliate membership.

universities. Another reason for AUTM’s inter- Individuals can be admitted as affiliate members
national membership had to do, no doubt, with if they are, “engaged either directly or indirectly in
the omission of any geographical or national activities relating to the administration of intellec-
limitations in early membership requirements. tual property… and [their] organization interacts
Membership was open to “any individual who has with institutions of higher education or teaching
some responsibility for the administration of inven- hospitals.”3 An important reason for introducing
tions and/or intellectual property at an institution of the affiliate-member category was to provide an
higher learning….” Although not part of the early opportunity for regular members to make con-
planning, the fact of early Canadian involvement tacts with prospective licensees, as well as with
paved the way for AUTM to grow as an inclu- service providers such as patent counsel. Through
sive, rather than exclusive, global network. By not these opportunities, members could begin to de-
limiting its membership, SUPA was providing av- velop personal networks among companies con-
enues along which global networking could begin sidered to be customers. AUTM recognized that
to develop. networking could be used as a marketing tool to
build relationships with potential customers. The
decision to do so had a tremendous impact on the
5. Developing a networking growth of the organization.
structure Through trial and error, AUTM adopted
Early decisions to structure AUTM as an asso- an internal structure to support its networking
ciation of individual, rather than institutional or goals. Initially, the management structure did
organizational members, laid the foundation for not include any position dedicated to enriching
the organization as a catalyst for networking. The networking activities. But as the organization’s
first step in developing its networking capacity membership grew and its educational activities
was to use regionalization as the best mode for expanded, it became clear that AUTM had to
organizing subgroups, rather than using public/ pay closer attention to specific member needs.
private, big/small or other classification schemes. Over a period of two years, between 1993 and
Organizing by U.S. geographical regions (East, 1995, AUTM reorganized and made networking
Central, West), and then forming a Canadian a fundamental focus of its organization. This was
region, promoted networking in several im- accomplished by adding two new positions to the
portant ways. It helped individuals in the same board of trustees: a vice president for member-
geographical region to become acquainted with ship and a vice president for communications.
one another and provided opportunities for dis- Further strengthening its commitment to the
cussing issues that were common to their region. networking needs of its members, the organiza-
Closer regional associations also promoted faster tion added a vice president for affiliate members
and more-satisfactory resolutions of ownership to the AUTM board in 1997, and in 2000, the
and licensing issues where faculty and students organization created a vice president for interna-
in neighboring institutions actively partnered in tional relations position. AUTM has made other
research. Organizing in regional cohorts also laid recent changes at the trustee level to support and
the groundwork for local summer meetings that bring greater emphasis to its network. A vice
AUTM introduced in 1992. The purpose of the president for public policy supports the efforts of
new format of regional summer meetings was ex- AUTM’s members to speak in a collective voice
pressly to provide small, informal meeting venues on relevant policy matters. In addition, because
that were more conducive to forming personal re- the organizing of the annual meeting and the
lationships than were general meetings attended data gathering function, overseen by the Metrics
by the membership at large. and Survey Committee, have emerged as the pri-
In 1978, the organization took a second step mary interests of the organization’s membership,
to expand opportunities for member networking these two functions (formerly under a single vice

HERSEY
president) are now represented on the AUTM sporting events, receptions, group din-
board by two separate vice presidents. ners, and a special reception for new
members to facilitate their first AUTM
networking opportunity
6. Member networking - specific time set aside for each AUTM
While supporting networking through the orga- region to meet
nizational structure is an indispensable activity, - one afternoon dedicated to SIG meetings
more than structure is needed to instill network- - the Networking Fair, first held in con-
ing as a seamless part of a member’s experience. junction with the 2000 annual meeting,
Over the past 30 years, AUTM has pursued dif- providing a forum for members to meet
ferent avenues to reach this goal: with affiliate members looking for new
• The AUTM Web site went online in 1995. licensing opportunities (The fair enables
It provides members with online access to members to build their own marketing
shared information. Networking is spe- networks and has become a major an-
cifically addressed through a MEMBER nual meeting event.)
CONNECT capability that allows mem- - the Innovation Showcase, introduced at
bers to find and communicate directly with the 2006 annual meeting, gives AUTM
one another through email.4 members an opportunity to formally
• The AUTM Newsletter provides informa- present new and promising technolo-
tion and articles of current interest. The gies to AUTM’s network of affiliate
newsletter is now delivered six times a year members (The 2006 showcase pro-
electronically, and members receive weekly duced several relationships with poten-
updates by email. tial licensees. As another successful ex-
• Educational courses are held throughout ample of promoting networking among
the year to provide professional education AUTM’s members and their customers,
to both new and more experienced mem- the showcase will be repeated at the
bers. These courses directly contribute to 2007 annual meeting and after, as in-
the overall quality and influence of the terest warrants.)
AUTM member network.
• Special interest groups (SIGs) encourage Forming an integral part of the AUTM struc-
members with particular interests to meet ture, most of these efforts continue today.
together to discuss issues and solve prob- Metrics are one way to measure the impor-
lems. Each SIG meets in conjunction with tance of organizational activities to members and
AUTM’s annual meeting. to gauge the success of the organizational efforts
• Summer meetings are held in each AUTM to support those activities. An AUTM survey
region, with networking opportunities conducted in 2005 was especially instructive,
forming a major element of program plan- as it measured the importance of networking to
ning. Special workshops promoting net- AUTM members. The survey results indicated
working have been included in both sum- that networking with colleagues was cited as a
mer and annual meeting programs. primary reason for joining AUTM by 22% of
• Activities at AUTM’s annual meeting that respondents; and 51% of respondents cited net-
support its networking goals include: working with colleagues as the reason for remain-
- logistical and space planning to facili- ing an AUTM member. Networking was by far
tate networking breaks, which serve to the most important reason for retained member-
support prearranged and impromptu ships. Thirty-eight percent of respondents se-
meetings lected networking as the second most important
- social events specifically arranged to reason for joining AUTM. It is clear from the
promote relationship building, such as survey that working to build successful member

CHAPTER 6.8
networks should remain a primary focus for the with international colleagues, but rather to cau-
association. tiousness about selecting the structure for the
interaction. Any networking organization that
begins regionally but wishes to expand must
7. Building AUTM’s consider how the expansion fits in with the its
international networks mission. The organization must decide whether
it can expand without compromising that mis-
7.1 Options sion and whether, in the case of AUTM, it
AUTM has long debated how to extend its should attempt, as a wider organization, to ex-
member network beyond the United States and tend beyond its borders, or leave it to disparate
Canada to include relationships with technol- national regions to do so individually. AUTM
ogy transfer professionals in other countries. wrestled with these questions throughout the
The importance of learning from counterparts 1990s. It considered proposals for international
in Europe, Asia, South America, and elsewhere growth that ranged from marketing materials
was always regarded as an important goal. worldwide, under the AUTM brand, to fran-
Memberships were routinely accepted from chising. The organization weighed the options
individuals from any country who fit the reg- of establishing an “international region,” that
ular-member or affiliate-member definitions. would mirror the United States and Canadian
However, member surveys and questionnaires regions, with establishing a looser type of struc-
through the 1980s up until the mid-1990s ture where networking, sharing of educational
showed that most Canadian and U.S. members materials, and joint meetings would form the
were not engaged in enough global activities to basis for AUTM’s international relationships.
warrant placing the question of how to “interna- The path toward finding an appropriate inter-
tionalize” on the AUTM agenda. national role for AUTM formally began with its
As globalization increased during the 1990s, agreement in 1997 to partner with Science Alliance
the situation changed. More institutions were in sponsoring a conference in Amsterdam aimed at
doing business abroad, and there were more and European participation. The success of this con-
more requests for memberships from foreign ference resulted in similar conferences sponsored
countries (although foreign members still account jointly by AUTM and Science Alliance in 1998 and
for only a small fraction of all AUTM member- 1999. Partly as a result of networking at these con-
ships). It is probably fair to say that a major factor ferences, Europe formed its own organization, the
in AUTM’s thrust onto the global stage was the Association of European Science and Technology
publication of two important works by the orga- Transfer Professionals (ASTP) while UNICO,
nization in 1994: the AUTM Technology Transfer among others, was formed in Britain. In a sense,
Practice Manual and the first annual AUTM then, AUTM’s approach to internationalizing was
Licensing SurveyTM. These enhanced the organi- determined not by AUTM, but by the individuals
zation’s reputation for leadership in technology who would people the new international organi-
transfer, both at home and abroad. Requests for zations. Those individuals answered the question
translation rights to the practice manual made for themselves. They would have most to gain, in
it clear that AUTM had provided a practical terms of networking and education, by forming
resource for technology transfer professionals their own independent organizations to focus on
regardless of nationality, and the AUTM licens- regional issues. And as these organizations now be-
ing survey provided a model that other countries gin to grow their own networking capacities, they
and geopolitical units could look to in measuring may find AUTM’s experience useful.
their own technology transfer activities. This is not the end of the story, however.
Despite growing international interest, Although AUTM had decided neither to fran-
AUTM responded slowly. This hesitation was chise itself nor to form an international region,
due not to any lack of interest in networking international interest in AUTM’s educational and

HERSEY
networking activities was growing. Without com- 8. Conclusions

promising its initial mission of education, net- Network building by any professional organiza-
working, and influencing academic technology tion or association comes from a unique combi-
transfer directions in the United States, AUTM nation of individual member preferences, goals
added a vice president for international relations adopted by the organization, and factors that hap-
to its board of trustees in 2000. In the same year, pen randomly. Thus, the experience of AUTM is
AUTM hosted its first independent international unique simply because there is only one AUTM.
conference in Edinburgh, Scotland, attracting It is not unique, however, in terms of adopting
182 participants from 18 countries. networking practices and activities that are driven
by the fundamental interests of its members and
7.2 Networking for a global impact that seek to encourage both learning and mentor-
AUTM’s current challenge is to meet the net- ship based on shared experiences. This goal repre-
working and educational needs of colleagues in sents a universal maxim of network building that
developing countries. A first major step in this can be applied across the world, in both devel-
effort has been to offer very low-cost electronic oped and developing countries. Strong member
memberships (US$10 per year) to colleagues in networks build quality and integrity by adopting
developing countries. Electronic memberships best practices that have been tested and found to
give these members electronic access to AUTM’s be successful. Building networks both among its
publications and news updates and provide members and with aligned organizations provides
these members with opportunities to partici- the credibility an organization needs if it aspires
pate directly in AUTM activities—all without to a leadership position in its sphere of operation.
paying the higher costs associated with regular The AUTM experience may be helpful for others
memberships. In an effort to build a global net- seeking to reach those goals.
work of partnerships, AUTM is seeking to form Networks, as groups of like-minded, mis-
sustainable relationships with organizations sion-driven professionals, can be formed at dif-
such as MIHR (Centre for the Management of ferent geographical levels in order to serve vari-
Intellectual Property in Health Research and ous functions. This multilevel approach allows
Development) and WIPO (World Intellectual organizations to address different aspects of their
Property Organization). respective missions:
• Local networking creates opportunities to
7.3 Networking as part of strategic planning work with colleagues who are in the imme-
While network building has been central to diate vicinity. They might be working on
AUTM’s organizational efforts from its inception, similar problems, and so such networks can
in many respects networking among members has build synergistic collaborations.
naturally happened without robust or direct plan- • National networking can be a useful
ning. Nonetheless, as a result of recent changes mechanism for working with colleagues
in AUTM’s strategic planning, networking will to encourage national legislation that
command a center stage with two strategic goals: addresses IP and technology transfer.
(1) to specifically identify and gather a number of National networking can also be useful
essential skills and best practices that have been for designing and implementing systems
learned through AUTM’s networking activities, for appropriate IP management, training,
and (2) to add a new networking component and education.
that will establish networks with other organiza- • Regional networking provides opportuni-
tions that have related interests. The latter goal ties to work with neighboring countries
is explained as an effort “[to] develop a network- in coordinated research and development
ing map of key organizations, both for-profit and endeavors and related IP management and
not-for-profit, and individuals with whom AUTM technology transfer initiatives and includes
wishes to collaborate.”5 building AUTM-like organizations.

CHAPTER 6.8
• International networking will become in- 1 The author gratefully acknowledges the contribution
creasingly important as globalization ad- to this chapter by Jon Sandelin. (Sandelin J. 2004.
Association of University Technology Managers: 30 Years
vances. Building networks with colleagues of Innovation. Association of University Technology
from around the world will provide op- Managers: Northbrook, Ill.) While the work is not
portunities for many forms of technology quoted herein except as noted, it provided a history of
AUTM that would not have been otherwise available.
transfer and for building IP management
capacity. ■ 2 35 U.S.C. § 200–212 (1980, 1984).
3 See AUTM Bylaws, Article IV: Categories of Membership:
Affiliate Members. www.autm.net.
Karen Hersey, Visiting Professor of Law, Franklin Pierce 4 www.autm.net.
Law Center, 2 White Street, Concord, NH, 03301, U.S.A.
5 AUTM Strategic Plan, adopted by the board of trustees,
khersey@piercelaw.edu
1 March 2006. www.autm.net.

CHAPTER 6.9
How to Select and Work with Patent Counsel

MICHAEL L. GOLDMAN, Partner, Nixon Peabody LLP, U.S.A.
Public sector technology transfer offices (TTOs) are in Technology transfer offices (TTOs) at a univer-
the business of “moving” technology from research and
sity or other academic institution have only one
development to eventual commercialization in order to
advance their missions of serving the greater public good. product to sell—technology. The value attributed
Intellectual property (IP) management is integral to this to such technology is influenced heavily by the
process, and integral to IP management is patenting. quality and scope of the patent coverage. If a pat-
Maximal captured value for public sector technologies ent is drafted poorly or does not provide adequate
will be greatly affected by the quality and scope of the pat-
ent coverage and this, in turn, is greatly influenced by the coverage for the technology and reasonable exten-
quality of work done by patent counsel. It is therefore es- sions thereof, licensing opportunities may either
sential for a TTO to select a patent attorney whose work be lost or greatly devalued. Unlike manufactured
will enhance the institution’s prospects for obtaining op- goods, patents are not made by machines—they
timal licensing arrangements. From selection to hiring to
are prepared by people, in other words patent at-
ongoing interactions, it is important for the TTO and
the patent counsel to develop and maintain a good work- torneys or patent agents. As a result, patents will
ing relationship. Central to this relationship is ensuring vary in style and quality as a function of who pre-
that patent counsel can prepare and prosecute patent ap- pares them. Due to the possibility of such vari-
plications in a manner that achieves positive results cost ability, it is important to select carefully a pat-
effectively. This is a complex process, and there are many
responsibilities that both counsel and the TTO must ent attorney whose patent work will enhance the
assume. In addition, patent attorneys can provide gen- institution’s prospects for obtaining profitable li-
eral counseling: resolving inventorship issues, providing censing arrangements. Guidelines on making this
licensing and agreement support, and settling disputes. selection are suggested in this chapter.
The TTO will be the patent attorney’s actual client and
function as the interface between counsel and the institu-
Once suitable patent counsel is selected, it is
tion. By selecting qualified patent counsel and then devel- important to develop a good working relationship
oping a good relationship, a TTO can ease its workload between the patent counsel, the technology trans-
and facilitate its mission. Therefore, retaining a skilled fer manager, and any other individuals involved
patent attorney and one that is well suited to the particu-
in these processes. One aspect of this developing
lar needs of the TTO is an essential element for operating
a viable technology transfer program. The search for such relationship involves ensuring that patent counsel
an attorney must be approached thoughtfully. can prepare and prosecute patent applications in
Goldman ML. 2007. How to Select and Work with Patent Counsel. In Intellectual Property Management in Health and Ag-
ricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and
Technology Transfer Practice Manual (Part IV: Chapter 1).
© 2007. ML Goldman. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

GOLDMAN
a manner that achieves good results in a cost-ef- Names of patent attorneys can be obtained
fective fashion. Beyond that, however, it is im- from a variety of sources. Like most profession-
portant to recognize that patent attorneys can als, patent attorneys are best located by seeking
provide general counseling, resolve inventorship references and by “word-of-mouth.” Listings in
issues, provide licensing and agreement support, a telephone book and the PTO’s register of pat-
and resolve disputes. Suggestions on how TTOs ent attorneys are potential sources; however, they
can work effectively with patent counsel in all provide no basis for distinguishing between the
these areas are also provided. listed individuals. The local bar association or
By selecting qualified patent counsel and de- intellectual property (IP) law association may
veloping a smooth working relationship with him be somewhat better resources, because these or-
or her, TTOs can develop a resource that will ease ganizations would have some knowledge about
their workload and facilitate their ability to handle individuals’ reputations in the community and,
difficult situations. Inevitably, when patents are presumably, would recommend someone with a
well prepared and prosecuted, they become more solid reputation.
valuable, and licensing income may be enhanced. As members of the Association of the
Making an appropriate selection of patent counsel University of Technology Managers (AUTM),
and developing a good working relationship with technology transfer managers are an excellent
him or her is one of the essential elements to oper- source of counsel who have experience with aca-
ating a viable technology transfer operation. demic institutions and have provided quality as-
sistance to peers in other TTOs. A few calls to
the TTOs of other institutions should result in
2. Selecting patent counsel names of recommended individuals.
Local companies are another source of pat-
2.1 The patent attorney ent counsel recommendations. Companies with
Patent attorneys must be registered with the their own in-house patent attorneys are likely to
U.S. Patent and Trademark Office (PTO) in or- use attorneys in private practice for some proj-
der to practice before that governmental agency. ects, so in-house patent attorneys are likely to be
Obtaining such registration is not like register- a very good resource. In companies with no in-
ing to vote. Patent attorneys must pass a written house patent attorney capability, the individual in
examination given by the PTO. In addition, pat- charge of research, development, or engineering
ent attorneys must have a degree in science or en- or the company’s general counsel are likely to be
gineering or a sizable amount of course work in working with outside patent counsel and should
those areas. be able to provide recommendations.
The PTO registers both patent attorneys
and patent agents. Those with law degrees and 2.2 Evaluating the Patent Attorneys
admission to a state bar are registered as patent Once the names of some patent attorneys have
attorneys, while individuals who are not lawyers been obtained, the technology transfer man-
are registered as patent agents. In a law firm (as ager is ready to begin the evaluation of those
opposed to in a university setting) the practice of recommended. The following items are offered
a patent agent is usually limited to preparing and as criteria to be considered when determining
prosecuting patent applications before the PTO. which attorney will best meet the needs of the
Patent attorneys also handle these responsibilities institution:
and, additionally, may litigate patent disputes, • size of the attorney’s firm
prepare and negotiate license agreements, and • scope of the attorney’s legal experience
provide legal advice. Because patent agents usu- • the attorney’s experience with academic
ally handle only a limited scope of work within institutions
a law firm, a TTO is best served by selecting a • the attorney’s technological background
patent attorney as its primary contact. • the firm’s location

CHAPTER 6.9
2.2.1 Size of the firm manager should also examine whether the
One consideration is the size of the firm with attorney being considered has experience in
which the attorney is affiliated. Large firms will other areas, such as litigation, interferences, li-
have a critical mass of patent attorneys and the censing, and counseling. There will inevitably be
resources to handle whatever problems the insti- times when a TTO will need such skills.
tution might encounter. These resources include
large libraries, access to databases, staff to main- 2.2.3 Experience with academic institutions
tain and utilize the resources, and so on. The staff It is also beneficial for the patent attorney se-
of patent attorneys at a large law firm is likely to lected to have experience representing academic
include individuals with biotechnology, chemi- institutions. Attorneys with such a background
cal, mechanical engineering, software, and elec- are comfortable working with TTOs as clients
trical engineering backgrounds, so that the firm and in dealing with faculty. Unfortunately, such
can handle work in virtually any technology. In experience includes the ability to prepare patent
addition, these attorneys will collectively have applications under the seemingly constant pres-
experience in patent prosecution, litigation, IP sure of filing a case prior to publication. Another
counseling, interferences, and licensing. As a re- facet of expertise in handling patent matters for
sult, a large law firm is generally able to handle academic institutions is the ability to work with
most any legal problem that confronts a technol- faculty who have little knowledge about IP and
ogy transfer manager. On the other hand, small- have a variety of undertakings competing for
er firms might have the advantage of lower cost their time and attention. Lastly, the attorney
while having individuals with the skills needed needs to be acquainted with procedures com-
to service the institution. Although firm size is monly used by TTOs to delay or minimize costs.
a consideration, its significance should not be For example, patent counsel should be familiar
overstated. The technology transfer manager will with the Patent Cooperation Treaty procedure
be working with individual attorneys, and, there- for foreign filing in order to delay payment of
fore, the attorney’s capabilities should receive the national filing fees in the selected foreign coun-
bulk of the manager’s attention during this eval- tries. Further, patent counsel without experi-
uation process. ence working with universities may not know
that a reference to government rights should be
2.2.2 Scope of legal experience inserted in the specification. Rapport and mu-
A manager should know the patent counsel’s tual respect between patent counsel and faculty
scope of legal experience. Because a significant inventors are also crucial to cost-effective, strong
portion of the work required by TTOs involves patent protection.
preparation and prosecution of patent applica-
tions, the attorney selected should have a solid 2.2.4 Technological background
patent prosecution background. Careful scruti- Another selection criterion is the extent that pat-
ny of an individual’s capabilities in prosecuting ent counsel’s technological background matches
patent applications is appropriate. Ask how long the needs of an academic institution. Larger in-
the attorney has been doing such work, how stitutions may have work in myriad technologies
many applications he or she has prepared and from electrical engineering to biotechnology. As
prosecuted, and so on. Make sure the attorney a result, such institutions must retain different
does a significant amount of original patent-ap- attorneys with these backgrounds (or a firm with
plication drafting as opposed to prosecuting cas- such attorneys). On the other hand, a smaller
es that originated overseas. Ask to review patents institution, such as a medical center, may only
that the attorney prepared and the files of issued need an attorney with a biotechnology or medical
patents he or she prosecuted (these are publicly background. In selecting patent counsel, TTOs
available after the patent issues or the patent ap- should evaluate their needs technologically and
plication publishes). The technology transfer find someone with a matching background.

GOLDMAN
2.2.5 The firm’s location interest issues are complicated by the need to
How close are patent counsel’s offices to the in- avoid representing clients with technologically
stitution? Generally, it is preferable to use a local similar inventions. It is difficult to anticipate
attorney if he or she is otherwise satisfactory. If conflict of interest issues; they may never arise
there is no local attorney with the necessary legal or may arise years after patent counsel is first
and technical expertise, however, proximity must retained. Another potential problem is that the
give way to quality. If a manager needs to go out- counsel or the firm selected may not, at some
side the local vicinity to find a patent attorney distant time in the future, have the capacity
with suitable credentials, the manager should try to handle a particular project. This may occur
to structure the relationship so that the attorney because the attorney or the firm are otherwise
has maximal opportunities to visit the institu- engaged or lack the required technical expertise.
tion. For example, if possible, the technology Rather than dealing with a conflict of interest
transfer manager should give the attorney more or a lack of capacity situation on a crisis basis, it
than one project to work on at a time so that he may be better to select and work with a back-up
or she can come to campus, talk to the inventors, firm that can handle such projects.
and handle the matters in a cost-effective fash-
ion. Personal meetings between TTO personnel 2.4 Conditions of representation
and patent counsel are important for fostering a Once the technology transfer manager has se-
good working relationship, and making it easier lected patent counsel, the conditions of rep-
for the technology transfer manager and office resentation should be established. In many
staff to receive advice. When personal meetings jurisdictions, lawyers are required to establish
are not possible or cost effective, a patent attor- such a relationship in writing through a retainer
ney outside the local area should be able to work letter.
effectively with the technology manager and the One purpose of the retainer letter is to es-
institution’s faculty by telephone, fax, e-mail, and tablish contact people on both sides to handle
overnight courier. administrative matters, particularly billing is-
sues. The TTO should select the person from its
2.3 Selecting one firm vs. many staff who is most likely to interact with patent
Another criterion to consider in retaining pat- counsel as counsel’s contact person. The retained
ent counsel is how many individuals or firms attorney or law firm will designate the attorney
the technology transfer manager should select. who will prepare and send out bills. It may also
This depends on the volume of work generated be appropriate to use one attorney as the point
at the institution. The technology transfer man- of contact between the institution and the law
ager must, of course, select enough individuals firm. That person can act as ombudsman with-
or firms to handle the institution’s work volume. in the law firm to ensure that the institution’s
On the other hand, it is preferable to use as few special needs or requirements are met. It is still
firms as possible to ease administrative require- a good idea, however, to know which attorney
ments on the TTO. It is also easier to establish will be taking primary responsibility for particu-
a good working relationship and to ensure that lar projects and to ensure that the individual is
the institution’s procedures are followed when qualified.
only a few firms are used. Nevertheless, it may The retainer letter should also establish
not be a good idea to use only one firm, be- billing procedures. Because most law firms
cause that firm may not be able to handle cer- work on an hourly rate basis, the retainer let-
tain projects for any of a variety of reasons. For ter should specify billing rates for the attorneys
example, the legal profession has rigorous con- likely to be handling the institution’s work.
flict of interest standards that prevent attorneys There is an occasional desire to utilize alterna-
from representing one client in an action against tive billing procedures, such as fixed fees or fee
another client. In patent matters, conflict of and equity combinations. Further, some TTOs

CHAPTER 6.9
choose to pay their counsel a monthly retainer wants carried out should be channeled through
fee to cover routine counseling and advice. This the TTO.
makes TTO personnel and faculty less reluctant
to contact counsel with small but important
questions. The terms of any special fee arrange- 3. Working with outside
ment should be stated in the retainer letter. The patent counsel
retainer letter will also specify billing cycles.
Generally, bills are rendered by most law firms 3.1 Allocation of work
every month. Having selected patent counsel, the TTO should
Another feature of the retainer letter will begin to establish a working relationship with
be a specification of the bill content. An accept- that attorney. Determining how work is to be al-
able bill will include, on a daily basis, an indica- located between patent counsel and the TTO is
tion of which attorney worked on a particular an important starting point in establishing such a
project, the amount of time spent daily on that relationship. Generally, the less work that is sent
project, and what that work involved. This will to the attorney, the lower the TTO’s legal fees.
make clear the services for which the TTO is On the other hand, the more work the TTO re-
being charged. Block bills containing a narrative tains for itself, the less time its staff will have for
of all work done on a particular project without other matters. It is, therefore, important for the
specifying which attorney did that work, how TTO to assess how its resources are to be utilized
much time the attorney spent on a particular and then to distribute its workload accordingly.
task, and when that task was done should not
be accepted. 3.2 Evaluating the invention disclosure
TTOs should also prepare their own retain- Quite often, a TTO will receive an invention dis-
er letter for newly selected patent counsel. In closure from a faculty member while the underly-
the institution’s retainer letter, the TTO should ing research is ongoing. An evaluation must then
state what it expects from counsel. One impor- be made to determine whether the matter is ripe
tant point that this letter should stress is that for filing a patent application.11 The TTO should
the TTO—not the faculty—is counsel’s client. consider:
This is a seemingly simple concept, because the • the invention’s commercial value
TTO is receiving and paying the attorney’s bills. • whether there will soon be a public disclo-
Nevertheless, things can become confusing in sure regarding the invention
academic settings where patent counsel is work- • whether that publication will enable those
ing heavily with faculty members who generally skilled in the art to practice the invention
operate as “free agents” with respect to the in- • whether meaningful protection can be
stitution. It is easy for such faculty members to obtained at this stage of the invention’s
regard patent counsel as their attorney and to development
begin asking the attorney to handle their other
projects without approval from the TTO. In Generally, the TTO should make an initial
such situations, patent counsel should refer such effort to decide whether (and when) a patent ap-
requests back to the TTO. The TTO’s retainer plication should be applied for on a particular
letter should emphasize this point and inform technology. However, where resolution of this is-
counsel that charges for unauthorized work will sue becomes legally and technically complex, pat-
not be paid. To diminish further the possibil- ent counsel should be consulted.
ity of such a problem, the TTO should empha- Another important consideration with re-
size to faculty that patent counsel represents the spect to a newly submitted invention is whether
TTO—not the individual faculty member— that invention warrants an investment in patent
and that any patent work the faculty member protection. This decision should be made by the

GOLDMAN
TTO that has experience in marketing and valu- 3.4 Preparation and prosecution of
ing technology. a patent application
Once a patentability search has been obtained and
3.3 Pre-filing patentability evaluation a decision is made to proceed with preparation
Once the TTO makes a preliminary decision to and prosecution of a patent application, patent
proceed with obtaining patent protection, it is counsel will bear the bulk of work responsibility.
advisable to make a pre-filing patentability evalu- Nevertheless, the TTO should act to facilitate the
ation. An initial evaluation of this type can be process (to minimize costs and to ensure that there
conducted by the TTO if it has access to comput- is valuable IP to license). This can be achieved in a
er-search databases or is willing to work directly number of ways.
with an outside search firm. Generally, computer
searching is appropriate for biotechnology and 3.4.1 Inventor participation
chemical inventions. On the other hand, devices The TTO should make introductions between
are best searched by manually reviewing the U.S. patent counsel and the inventor(s), personally or
Patent and Trademark Office’s collection of pat- by mail. The TTO should insist that the number
ents in the relevant area. The TTO, of course, of meetings between counsel and the inventor(s)
must have the staff to conduct and/or evaluate be held to a minimum. In most cases, one meet-
such searches. ing to discuss the invention and one meeting to
One possibility to increase staff assistance in discuss a draft application is sufficient. Brief tele-
a TTO is to use engineering, science, or law stu- phone conferences can be used to fill in gaps left
dents on a part-time basis for such work. When by such meetings.
utilizing such part-timers, however, it is recom- It is important to impress upon the inventor(s)
mended that their role be restricted to gathering the need to cooperate with counsel’s requests for
information for evaluation by patent counsel or information. The inventor should furnish any
a staff person who has experience in evaluating draft journal article to facilitate preparation of
patentability. Staff persons making initial pat- written examples for the patent application. If
entability evaluations need to acquire a working the article does not provide sufficient information
knowledge of patentability standards and what for examples, the inventor will be requested to
is considered prior art (in other words, subject provide additional experimental write-ups. This
matter capable of preventing issuance of a pat- often requires a fair bit of work, but the inven-
ent). An ideal way to gain such an understand- tors are much better able to do this than patent
ing is to attend AUTM programs on the subject. counsel. Moreover, having the inventors under-
Other organizations also have basic courses about take this task (as opposed to patent counsel) will
patents and patentability. Ultimately, however, reduce cost.
knowledge is best obtained over time by working For biotechnology and chemical inventions,
with (and learning from) patent counsel. patent applications will frequently be faced with
A TTO that does not have the staff to make a rejection (35 U.S.C. §112, 1st paragraph: fail-
an initial patentability evaluation should send ure to disclose and explain the invention in de-
disclosures out to patent counsel who can then tail) because the application’s disclosure does
arrange for a patentability search and make an not support the broad scope of protection being
evaluation. This, of course, is the most expensive sought. To overcome this problem, the scope of
route, because patent counsel is taking respon- protection may have to be narrowed to an often
sibility for obtaining a patent search, evaluating unacceptable extent. Applications based on little
that search, and providing a recommendation. more than draft publications are particularly sus-
Many TTOs, however, utilize this approach be- ceptible to such problems, because publications
cause their staffing resources are committed to generally report only the work actually carried
marketing and technology transfer. out by the researcher; it does not usually discuss
alternatives or way in which the invention can

CHAPTER 6.9
be expanded. To obtain a broad scope of protec- information requested by counsel, it is likely that
tion, the inventor(s) will be requested to assist the PTO will mail another Office Action; thus
patent counsel by providing information about requiring the TTO to incur the expense of fil-
how the invention can be utilized. The TTO ing another response, which includes the infor-
should impress upon the inventor(s) the impor- mation that should have been put into the prior
tance of their cooperation in this regard so that response.
commercially valuable patent rights are obtained In responding to Office Actions, extensions
in a timely manner. of time can be obtained by payment of additional
fees. To minimize costs, there should be limited
3.4.2 Duty of disclosure use of such extensions.
It is important for the TTO to understand the
duty of disclosure to the PTO. Under this duty, 3.4.4 Foreign filing
patent applicants must disclose all information After an application is on file in the United
that a reasonable examiner would consider im- States, counsel will eventually inquire whether
portant in deciding whether a patent should is- the case needs to be filed overseas. Decisions on
sue. Inventors must not submit inaccurate data foreign filing require consideration of whether:
and must disclose all patents, publications, and • the return on foreign filing justifies the
other disclosures (such as prior art) which would expense
be relevant to patentability. This includes the in- • such filing is going to be considered valu-
ventor’s own efforts to disseminate information able by domestic licensees
as well as those of others. Published abstracts and • the invention has sufficient value to attract
information disseminated at poster sessions must a licensee in a particular foreign country
also be disclosed. This duty is not extinguished
upon filing of the application. If the inventor dis- There are, of course, other factors that must
covers prior art after his application for patent has be considered in deciding whether to foreign
been filed, he has a continuing duty to submit file, but they are beyond the scope of this chap-
such information to the PTO. ter. A technology transfer manager should pro-
The TTO will need to advise patent counsel vide the attorney with plenty of advance notice
which aspects of an invention it considers to be about foreign-filing plans. This will enable the
valuable. The attorney can then frame the pat- necessary papers to be prepared without a last-
ent claims in a way that will provide the desired minute rush.
protection and enhance licensing opportunities.
It would be prudent for the TTO to monitor 3.4.5 Further research and new data
what is being claimed initially and throughout After an application is filed, inventors often
prosecution to ensure claim scope expectations breathe a sigh of relief and assume that they are
are met. done with patent applications. They then con-
tinue their research without informing the TTO
3.4.3 Office Actions or patent counsel of any developments. This is
After the application has been filed, the PTO will unfortunate, because such later work can be the
eventually issue an “Office Action” that must be basis for further (and, indeed, often more valu-
responded to by patent counsel. Generally, coun- able) patent protection. The technology transfer
sel will need input from the inventors when pre- manager should impress upon the inventors the
paring this response. The technology transfer need to keep either patent counsel or the TTO
manager can assist in this process by stressing apprised of future developments.
to the inventors that a prompt response to the
attorney’s request for information or additional 3.5 Maintenance fees and annuities
experimental data is imperative. If a response to Once patent protection is obtained in the United
the PTO Office Action is filed without all the States or overseas, it is necessary to decide who

GOLDMAN
will be responsible for paying maintenance fees will enable the attorney to position the dispute to
and annuities. The TTO can undertake this the advantage of the client—the TTO.
task itself or work directly with an annuity ser-
vice. On the other hand, it can rely upon pat- 4.2 Preparation and negotiation of
ent counsel and counsel’s docketing system to agreements
handle this task. Patent counsel can also provide TTOs with sup-
port in the preparation and negotiation of licenses
and other agreements. Some TTOs have a great
4. Working with patent counsel on deal of experience in these efforts and do not need
other matters to use patent counsel for such services. On the
Working with patent counsel should not be thought other hand, other TTOs lack this experience and
of only in terms of preparing and prosecuting pat- should strongly consider involving patent counsel
ent applications. There are a number of other areas in these activities. For instance, counsel can pre-
where counsel can provide valuable assistance. pare agreements, review draft agreements from
potential licensees or the TTO, provide selected
4.1 Dispute resolution clauses for inclusion in any agreement, and ne-
Quite frequently, inventorship disputes arise in gotiate with potential licensees. Involving patent
academic settings. These issues are best resolved counsel in such negotiations is particularly criti-
before any patent application is filed. cal where discussions are centered around sub-
Inventorship disputes may arise between stantive patent issues, such as the scope of patent
faculty members and their graduate students. protection available, and whether the potential
Sometimes, graduate students are merely “a pair licensee has rights in the subject technology due
of hands” who simply follow instructions from to a dispute over inventorship or over who was
the faculty member. In other situations, the stu- first to invent. Patent counsel should be involved
dent conceived or helped conceive the invention. in such negotiations to help persuade potential li-
To make a proper inventorship determination, it censees that the client has a meritorious position.
is necessary to interview the parties and to review At the very least, patent counsel should be kept
their documents to ascertain each inventors’ con- apprised of the substance of any license negotia-
tribution. Patent counsel should have a level of tions so that any changes needed to enhance the
expertise in resolving inventorship disputes that quality of the application can be promptly made.
will make all parties involved feel that their views
have been properly considered. 4.3 Interference proceedings
Faculty often collaborate with scientists at Issues of priority of invention (who was first to in-
other institutions or companies. Such collabora- vent) are resolved in the PTO through proceed-
tion is rarely undertaken with an eye toward pat- ings known as interferences. Often, these issues
ents. However, once a decision is made to go for- become apparent during license negotiations as
ward with a patent application, disputes can arise discussed above. Alternatively, the inventors may
regarding who will be named as inventors. Again, become aware of similar work by others when
patent counsel can be useful in investigating the they attend conferences. No matter how this in-
situation and providing an opinion on how to formation becomes known, it is important that
resolve the matter. This is particularly important patent counsel be kept apprised. This enables the
when dealing with a collaborating institution or attorney to undertake a strategy that will put the
company, because, in order to maintain what has TTO in the most advantageous position possi-
been up to that point a good working relationship ble in any interference proceeding. The attorney
with the collaborating institution, the technology should be involved in such situations at a very
transfer manager may choose to use patent counsel early stage and should meet with the inventors to
as an advocate to resolve conflicts. Moreover, early discuss strategy. In the event that an interference
involvement of patent counsel in any such dispute is declared, such a proceeding is like a mini-patent

CHAPTER 6.9
litigation. This is a complex proceeding, and pat- technology and the patents covering this technolo-
ent counsel will need to be involved. Indeed, the gy. To ensure that the greatest value is realized from
attorney should be the institution’s representative the fruits of the institutions’ research scientists, it is
in any such proceeding. essential that good patents are drafted, prosecuted
and maintained. Therefore, it is of the utmost im-
4.4 Getting questions answered portance to select the institution’s patent counsel
Lastly (and most importantly), patent counsel carefully. This will involve evaluating several key
can serve a TTO by being available to answer factors, such as size of the attorney’s firm, scope of
simple questions on IP matters. Most patent the attorney’s legal experience and capabilities, the
counsel are willing, without charge, to help a attorney’s experience with academic institutions
technology transfer manager in patent awareness and technological background, and the firm’s geo-
efforts by giving seminars to groups of institution graphic location. Once counsel is selected, a good
faculty or participating in special events such as working relationship with him or her should be ac-
invention fairs relating to the technology transfer tively pursued. This will require defining the condi-
program. By providing such advice to that office tions of representation, the allocation of work, and
and faculty, patent counsel can help ensure that the dynamics and management of patent counsel’s
protection for valuable technology is not lost but, relationship with its client (the TTO) and also with
instead, enhanced. the institution’s administration, staff and scientists.
By carefully taking all of these steps, the TTO can
ensure that quality patents are obtained and man-
5. Conclusions aged in a cost effective and timely manner. ■
The mission of public sector research institutions
is research and development of technological ad-
vances that will eventually provide benefits to the Michael L. Goldman, Partner, Nixon Peabody LLP,
Corner of Clinton Ave. and Broad Street, P. O. Box
public, especially in terms of health and nutrition.
31051, Clinton Square, Rochester, NY, 14603, U.S.A.
IP management (of which patenting is integral) ad- mgoldman@nixonpeabody.com
vances this mission by facilitating the development
and commercialization of public sector innova-
tions. Therefore, for public sector TTOs, the prod- 1 See also in this Handbook, chapter 9.1 by L Nelsen and
ucts that they will want to disseminate will be their chapter 9.3 by R Razgaitis

CHAPTER 6.10
How to Hire an IP Attorney and Not Go Bankrupt

ABSTRACT makes it very important at the outset to clearly

As a result of the growth in intellectual property (IP) pro- define the scope of the office and the ways in
tection, more and more institutions are establishing tech-
which work will be analyzed and implemented.
nology transfer offices (TTOs) to spearhead or support
the effective transfer of technology. These offices serve a
variety of functions, all of which must be integrated in
order to transfer the technology cost effectively and to 2. The attorney-client relationship
benefit the institution. One responsibility of a TTO is to The legal relationship between a lawyer and a cli-
provide services: from strategy development to contracts
and agreements; from patenting to trademark protec- ent is protected under a special set of legal rules
tion; and from conflict-of-interest analysis to negotiation that encompass the concepts of “client confiden-
support. In all of these areas, legal inputs are important, tiality” and “legal privilege.” This umbrella of
and few offices will have the necessary range of in-house confidentiality and legal protection from disclo-
expertise. Gaining access to and developing relationships
sure is an important part of the relationship, that
with attorneys are important elements in any strategy to
set up effective TTOs. This chapter provides important allows attorneys and clients to deal with sensitive
information for deciding how to select and work with an issues without compromising a client’s privacy.
attorney (or attorneys) who will provide IP backstopping This confidentiality can be particularly important
to the TTO. when a staff member of a client company wishes
to discuss a matter that involves disclosing poten-
1. Introduction tial wrongdoing but does not want to risk having
The process of hiring an attorney to represent the disclosure made public. It is important early
your IP interests can be complex and costly. It on in the relationship for the client to understand
is therefore important that your office finds dy- the nature of this special relationship and use it
namic, effective, and user-oriented representation effectively for the benefit of the TTO.
from the beginning—first impressions really do
count. The support of administrators and scien-
tists to the technology transfer office is critical, 3. THE scope of the tTO and its
especially in the first few months and years of its legal-representation needs
operation. Hiring the right lawyer can really help Establishing the scope of the work for the TTO
you achieve your IP goals. is an important initial step. The TTO should
The technology transfer office (TTO) serves be able to provide a comprehensive IP service
many masters and has a range of functions; this without being overwhelmed with work and
Dodds J. 2007. How to Hire an IP Attorney and Not Go Bankrupt. In Intellectual Property Management in Health and Ag-
© 2007. J Dodds. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

DODDS
obligations. The types of issues that need to be element in a global environment. Think of the
debated and resolved will affect the type of legal brand value of names such as Coca-Cola® and
representation required and should include the Kodak®. Again, use the guidance of the lawyer
ten items discussed below (see also Box 1). when choosing for inventions, their names, lo-
gos, slogans, and so forth, so as to minimize costs
3.1 Strategy development later when dealing with potential infringement
A critical initial role of the lawyer should be to actions.
work closely with the TTO to develop an IP Copyright is a simple and cheap form of pro-
strategy that delivers benefits most effectively to tection; it is useful for books, papers and databas-
the institution or company (more about this will es. In the genomics area, more attention is being
be explained below). Early decisions on the goals given to using database protection as a cost-effec-
and strategies of the institution or company will tive form of IP coverage. The use of this type of IP
save funds later (for example, money can be saved in the overall strategy development of an office is
by not filing applications deemed frivolous to the critical. As an example, companies such as Celera
goals of the TTO). Helping the client to decide Genomics and Human Genome Systems have
goals and strategies may be one of the most criti- used highly effective copyright and contract law
cal jobs for the lawyer, whose assistance in devis- provisions to protect and exploit their databases
ing the new strategy is crucial to the long-term on sequence data.
success of the IP office. Ensuring that expenses
are incurred only in those areas that fit the strat- 3.4 Trade secrets
egy is also crucial. Protecting innovative ideas from becoming pub-
lic knowledge is the cheapest form of coverage—
3.2 Patenting it is free! And not very popular with IP lawyers!
The area of patenting includes patent searches, The downside of this IP approach is that you must
work related to freedom-to-operate, prior art keep your secret a secret. If you do not, you risk
searches, patent filing, patent maintenance, and having someone reverse engineer your invention
so forth. and patenting it. Then you could be precluded
In your discussions you need to think about from using your own invention! Protecting a se-
whether the type of patenting done by the TTO cret in a commercial environment is really not
will involve utility or design patents, or utility as simple as one might imagine, and substantial
patents on plant. When should provisional appli- effort is required to maintain secrecy, or to li-
cations rather than nonprovisional applications cense it.1
be used? If in doubt, use a provisional applica-
tion to buy yourself a year to seek partners and 3.5 Plant variety protection
develop interest in the concept. (You also need to An important area of IP specifically applied to
be aware of the Patent Cooperation Treaty pro- sexually propagated plant species is plant variety
visions and when to apply them in order to file protection. Separate chapters in this Handbook
for multicountry coverage.) It is vital to involve a deal with the topic in detail.2
patent attorney in these steps of the process and
to be guided by him or her as to the nature of the 3.6 Contract and agreement development
subject matter. Try to develop a portfolio of ex- Develop a good portfolio of standard agreements
perts that can be called upon to advise you when and templates that can then be customized as need-
patents are being sought in their particular areas ed and as appropriate. But take care to fully cus-
of expertise. tomize the required content. Use a lawyer to review
them and ensure that your interests are covered. It
3.3 Trademarks and copyright work is tempting to think that once you have used one
The trademark area is often significantly under- agreement you can just use the same for others with-
used. Product branding is an important marketing out consultation—this is a mistake!

CHAPTER 6.10
3.7 Policy development 3.8 Conflict analysis

You will need to create an internal office policy Consider using a lawyer and an ethics-and-conflicts
document, which may well assist the institu- panel to regularly review the TTO’s actions regard-
tion in developing its IP policy and guidelines. ing potential conflicts. Conflicts are a surprisingly
Obtain a lawyer to review and comment on prog- common problem, especially where staffs develop
ress during the initial strategy development stage. consulting contracts, serve on boards, and so forth.
Remember, it is hard to go against something Having a review panel is also valuable when faculty
that is included in the policy document. Again, or staff develop competing technologies. Effective
this is a crucial area since the policy of the TTO rules must be established so that support of one pat-
can be used as a tool in both negotiations and ent does not affect a competing patent, a situation
litigation. that would breach a fiduciary relationship.
Box 1: Scope of TTO Activities—The Easily Forgotten Items
Legal One of the key outputs from your lawyer should be legal documentation.
Documentation: Do not measure the volume of paper as an indication of output. Instead,
focus on a limited amount of high-value text such as opinion letters, con-
tracts crafted, and so forth.
Keeping It is very important for the TTO to maintain an active surveillance of keep-
Up to Date: ing abreast of changes. The lawyer can be used to “police” agreements and
technologies. This can be an important way to identify infringers and po-
tential licensees.
Legal Matters A wide range of legal matters needs to be addressed early on in the estab-
Linked to Office lishment of the TTO. These include, but are not limited to, the following:
Organization:
n Staffing contract: This should lay out a staff line-of-authority plan and
work definitions. The employment contract needs to be reviewed by a
lawyer.
n Staff employment handbook: This must include matters related to con-
fidentiality, ethics, and conflict of interest. The lawyer should review and
give input on this.
n Governmental and state filing requirements: Your local equivalent of the
Secretary of State can help on this. Requirements include work permits,
pension plan provisions, occupancy permits, fire inspection permits, and
other documents.
n Possible incorporation of the entity: The TTO may wish or may need to
form a separate legal entity. In the U.S., many of these offices are known
as research corporations and have charitable, so-called 501(c)(3) status.
This is the domain of the lawyer. Seek his or her counsel before you
proceed.
n Tax matters: Be aware of all U.S. federal and state tax matters if you are
in the U.S. (Other countries have local, regional, and/or national laws)
Hire a good accountant and audit company. They are as important as
your lawyer.

DODDS
3.9 Licensing innovative and that appear to have commercial

The bread and butter of a TTO is licensing. The value. Remember that some great science has no
flow of information, ideas and materials is two- market, and some simple inventions have huge
way. Some staff members will be accessing the commercial value.
IP of others through license agreements, and the Most often, TTOs set up an internal com-
TTO will be licensing technologies through li- mittee, or panel, to review invention disclosures
cense agreements. Be careful, you will be bound and give feedback to inventors. Use the lawyer as
to abide by any agreements that you sign! Make a part of this evaluation process.
sure a lawyer reviews all major-deal documents.
You may also wish to seek advice from a lawyer on
creative arrangements for licensing your technol- 4. Thinking outside the box
ogy. Such arrangements may involve using your The lawyer can be used highly effectively to think
IP as an investment by contributing to a joint of innovative ways of capturing value from an IP
venture. Consider hiring a lawyer or technology portfolio. Patenting may not be a viable option in
transfer company to do this on a contingency or some areas, and the use of creative instruments of
partial-contingency basis. copyright, trademark, and contract law may be vi-
able, and even preferable, alternatives to consider.
3.10 Negotiations support
Successful negotiating is an art that takes skill, 4.1 Outsourcing services
practice, and sharp wits. Lawyers are trained in An effective technology transfer office should
the skills and use them each day. Moreover, the consider building access to a set of contracting
representational responsibility of a lawyer can agents, who can provide external skills that can
make him or her an excellent advocate for the be counted on for needed advice or service. This
TTO. Under certain circumstances, you may might be achieved through the maintenance of
wish to use a lawyer as your negotiator. an advisory panel, through a series of consulting
contracts, or through a well-functioning personal
3.11 Strategy development and technology (business) network. The lawyer can play a criti-
assessment cal role in setting up such outsourcing arrange-
The area of strategy development and technology ments. Before outsourcing services, consider the
assessment is one of great importance. It is per- following:
haps the area to which money spent on lawyer • Hiring patent attorneys: Choose an attor-
fees can be applied most effectively. If your TTO ney with a range of qualifications and spe-
strategy is ill conceived, all efforts in the other as- cializations tailored to the nature of the in-
pects of your office are redundant. vention portfolio. A chemical engineering
One of the key challenges facing any TTO, background might be helpful for advising
especially in the early stages, is trying to decide on a natural products patent, for example,
which inventions to protect and to what extent whereas a background in biological engi-
the protections should apply (that is, in which neering might prove better for handling a
countries or fields of use). Costs and fees are such patent on a biolistic gun.
that no individual entity has the resources to pat- • Retaining general legal counsel: Find
ent all inventions. Typically, ten invention disclo- someone who knows the big picture but
sures will lead to one patent, one license will come who understands the science of the inven-
from ten patents, and royalties will come from tion and the client as well. Be guided by
10% of the patents. That is why the lawyers’ input the attorney as to the big-picture issues.
here is so vital. Use patent attorneys to help you
evaluate the potential market for an invention. 4.2 Costs and fees
It is critical to spend your money wisely and The cost of evaluating, protecting, and maintaining
try to evaluate only those inventions that are truly IP coverage is not insubstantial. A wide range of

CHAPTER 6.10
fees is payable in relation to IP protection. The types the final version to comment on any specific clauses
of fees a TTO may face include the following: that need to be negotiated and agreed upon.
• patent and trademark search fees
• patent and trademark filing fees
• plant variety protection fees 5. Conclusions–and a note
• maintenance fees about confidentiality
• copyright filing fees The importance of confidentiality and trust can-
• issue fees not be underestimated. The inventions of the
• attorney fees clients, the nature of the business, and so forth,
• drafting fees requires that all TTO employees observe the
strictest rules in relation to confidentiality and
These fees can be substantial. In the United conflict-of-interest matters. The hiring of person-
States you would pay US$1,200–$2,000 for a nel should take this into account. Moreover, full
trademark, US$2,500–$8,000 for a provisional and adequate documentation about confidential-
patent application, and US$6,000–$30,000 for ity and conflict-of-interest issues, in relation to
a nonprovisional application. A patent filed and the TTO’s operations, should be used to further
maintained worldwide over its entire life will cost strengthen compliance with the rules. The lawyer
about US$500,000 in fees. When retaining a law- has a special relationship to the TTO and can be
yer to negotiate for you, don’t neglect to negotiate used as a valuable resource to deal with difficult
your legal fees! and delicate matters. Attorney privilege is a legal
strength to be used to your advantage. ■
4.3 Use of form agreements and contracts
Lawyers often do not like the use of standard forms.
John Dodds, Founder, Dodds & Associates, 1707 N
The forms are designed to be party neutral. The ob- Street NW, Washington, D.C., 20036, U.S.A. j.dodds@
ligation of a lawyer is to act on the client’s behalf, doddsassociates.com
which is why lawyers react adversely to such forms.
At times, it is tempting to use standard forms
1 See also in this Handbook, chapter 11.5 by K Jorda.
and agreements to keep costs low. The situation can
2 See also in this Handbook, chapter 4.7 by M Blakeney
be resolved by using standard forms and agreements and chapter 10.11 by W Pardee.
where appropriate, and then having a lawyer review

CHAPTER 6.11
Technology Transfer Data Management

ROBERT G. SLOMAN, CEO, Inteum Company LLC, U.S.A.
ABSTRACT maintain a high standard of decision making can

A technology transfer office must be able to manage enor- be compromised. If the TTO is a closed system, and
mous amounts of dynamic data. This chapter examines
no additional professional or support resources can
how electronic file systems can meet this need, focusing
on the importance of shared communication links and be acquired to deal with the additional workflow,
the benefits of using advanced spreadsheet applications other solutions must be found. These solutions will
developed by the private sector. It considers the relative very likely involve fundamentally changing how
merits of spreadsheets, flat file databases, and relational the office uses its available tools.
databases, and highlights the numerous benefits of a net-
work solution. The chapter explains how to ensure data Fortunately, being one or more generations
integrity and manage “analysis paralysis” in such systems, behind in implementing data management and
and it offers a self-questionnaire to guide decisions about decision support software systems does not trans-
adopting a software management solution. late into years of catch-up for the TTO. TTOs
can reap the rewards of corporate investment in
these areas. For more than a decade, companies
1. Introduction have collectively spent many millions of dollars ex-
Managing a technology transfer office (TTO) re- perimenting with executive decision-support soft-
quires strong administrative, technical, and com- ware and management information systems that
munication skills. To make informed decisions, a were designed to get information to organizations
tremendous diversity of information needs to be quickly and thus increase efficiency and facilitate
captured and analyzed. A TTO’s ability to handle rapid response. These objectives apply equally well
this information is complicated by how rapidly to TTOs.
new information becomes available. Moreover, Airline-booking applications are good exam-
the average academic TTO usually has limited ples of large, end-user friendly, real-time informa-
funds and staff with which to create such a so- tion systems. Much has been learned about soft-
phisticated data management system. ware design since the first implementation of such
Meeting these challenges and making time- systems, resulting in more accessible applications
ly, informed decisions can be very rewarding. that conform to the workflow logic of the end user.
However, as workflow increases, the ability to While early linear programming efforts proved
Sloman RG. 2007. Technology Transfer Data Management. In Intellectual Property Management in Health and Agricultural
California, U.S.A. Available online at www.ipHandbook.org.
Technology Transfer Practice Manual (Part II: Chapter 4).
© 2007. RG Sloman. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

SLOMAN
inaccessible to end users, modern software applica- information to be processed and correctly filed. If
tion design is event driven and object oriented. files are not up-to-date, a technology transfer man-
As computer prices have plummeted, the pow- ager may be forced to wade through stacks of pa-
er and sophistication of hardware computing have perwork to find a needed piece of information.
increased dramatically. Decommissioning exotic With an electronic system, however, a job
mainframe computers because of their exceptional packet can be quickly delegated to an officemate.
maintenance and professional support costs, com- All case-related data and activities can be transferred
panies are now implementing enterprise computing easily, with instructions, to another manager or to
models on local area networks (LAN) of worksta- support staff. This is the electronic equivalent of
tions, sharing resources from a file server.1 The com- handing a physical file to a person with the neces-
puting advances pioneered in the corporate realm— sary instructions and briefing information. With a
specifically, improved efficiency, reliability and work physical file, the recipient may miss relevant action
throughput—are now available to TTO managers. items. However, with an electronic file, the previous
manager can easily transfer a variety of action items
associated with that case to the new manager.
2. Physical or electronic files? Of course, one of the most compelling reasons
to use a state-of-the-art data management system is
2.1 Considerations the unprecedented ability to interrogate enterprise-
A resource for shared information should be ac- wide data creatively. A manager can now rapidly for-
cessible to those who need the information in or- mulate questions that in a physical file environment
der to make decisions. Often, technology transfer would be unthinkable due to the time required to
and intellectual property (IP) management deci- assemble and analyze the information sets.
sions depend on a mix of variables, including in-
formation about the inventors, their ongoing re- 2.2 Connectivity
search programs, the companies interested in the The key to achieving connectivity through net-
technology, the relevant patent applications and worked computing environments is to create
their status, and the amount of money invested in shared communications links, including e-mail
each technology transfer case. In this complex en- facilities and a shared information pool. No alter-
vironment, electronic data management systems native method achieves the degree of connectiv-
provide the most rapidly adaptable support tool. ity offered by a networked environment. Indeed,
Physical files suffer from some fundamental networked computing environments can develop
limitations. In a TTO, records (or documents) are connectivity between the files themselves in a way
generally filed by case or technology according to that is not possible with physical files. For ex-
the manager’s guidelines. The technology transfer ample, a technology transfer manager can check
manager will probably find physical files limited to see if contact has been made with a particular
and difficult to maintain because there will be only company or individual, regardless of what case
a single physical copy—unless staff members make that contact is associated with. The labor required
multiple copies of files and place them in related to accomplish this task with physical files would
areas. The person doing the filing makes a judg- be prohibitive.
ment about where best to file each document. This
is why a manager may routinely find information
in the “wrong place”—or not find it at all. A man- 3. Finding the best tool for the job
ager may apply certain rules for filing documents,
but the rules are generally complex and loose, and 3.1 Computer applications
therefore are frequently bent or misapplied. Often,
a technology transfer manager must review an en- 3.1.1 Spreadsheets
tire file to find the information in question. Another Financial modeling tools, called spreadsheets,
problem with physical files is the time it takes for were the first applications developed for the PC.

CHAPTER 6.11
Since the release of Visicalc™,the first widely used contained in a single record. Patents, however,
spreadsheet, many generations of powerful ana- would be in a separate database file. In a flat file
lytical tools have been developed. (A secondary database, therefore, a user would need to consult
market has developed for templates. These add first one database and then the others in order to
utility by providing spreadsheet layouts and built- connect the data in meaningful ways. Because a
in algorithms, enabling plug-and-play simplicity. programmer or user can change the data structure
Unfortunately, few of these templates are useful of a particular table, these databases are quite flex-
for the technology transfer professional.) ible. Moreover, they can also be changed with-
When a technology transfer manager is seek- out upsetting relations with other databases. In
ing to generate graphs from data for reports, the short, flat file databases have the benefits of de-
spreadsheet has no equal. Users can create relation- sign simplicity, ready recognition by end-users,
ships between different spreadsheets, allowing data and flexibility.
to be shared and linked from one sheet to another. Though navigation is straightforward in a flat
However, users who have tried to create complex file database, the burden is on the user to look
links between several layers of spreadsheets know in the right place. There are other disadvantages.
that this can be a complex task, tantamount to Generally, the end user must purchase a flat file da-
programming. Unfortunately, because of the soft tabase engine and then design his or her own sys-
nature of the links, they can become corrupted. tem. Experienced users of flat file databases work
One corrupt spreadsheet cell, or one with a pilot out routines and patterns of interrogation at which
error,2 can be copied into other spreadsheets with they become adept; new users, however, may have
catastrophic results. Such errors, moreover, are dif- a problem navigating around these systems with
ficult to trace. sure-footedness.
Of course, spreadsheets are useful for budget- In addition, reporting from a flat file database
ing and license revenue forecasting. They are well is difficult because the links required to bring infor-
understood and provide dramatic visual outputs, mation together can be as complex as those used to
such as graphs. The modern spreadsheet is capable link cells in spreadsheets. If a technology transfer
of conducting “what if?” scenarios that can be par- manager is contemplating a flat file database struc-
ticularly useful when attempting to forecast patent ture, she or he should consider preferred report de-
maintenance fees, for example. Some of these pack- sign and useful templates, which will reduce some
ages also contain rudimentary database-like func- of the complexity.
tions that create screens for data entry. However,
the sheer size and complexity of spreadsheets make 3.1.3 Relational databases
them difficult to program. In addition, they do not Relational databases contain a group of tables
compare favorably in this area to purpose-built da- with various aspects of the information base cod-
tabase products. ed together or hard-linked to other tables. A data-
Some very sophisticated, complex systems us- input screen may draw on a number of tables to
ing Microsoft’s Excel® and other software products show information in a pseudorelational mode. In
have been developed by TTOs. Sharing these sys- a truly relational database design, however, there
tems is encouraged, since the time required for de- must be one or more linking fields between tables.
signing linked spreadsheets suitable for managing Technology transfer managers require access
the forecasting and budget processes is daunting. to data on finances, faculty, patent prosecution,
and marketing contacts, among other things. Each
3.1.2 Flat file databases functional data element might be contained in a
Flat file databases create an environment where separate data management resource, but this would
the user can create records with data about a be inefficient. In programming parlance, access to
particular class of event or package of informa- backroom (detail) data is important, but technol-
tion. For example, records on a technology and ogy transfer managers increasingly value data that
the data elements directly related to it may be can be easily navigated without any knowledge of

SLOMAN
the underlying data structure. A relational database managers, and support staff are electronically briefed
system can accommodate this need. about cases and contacts, then meetings can proceed
Relational database systems permit the ma- more efficiently, and briefing sessions can be short-
nipulation of larger sets, such as the technology ened or eliminated. When meetings do occur, it is
portfolios for each manager and each department, more likely that decisions can be made with confi-
among myriad other selectable criteria. Transferring dence; those who are not directly involved in the
sets of physical files would require a review of the case may still have sufficient information to contrib-
file and, probably, a briefing from a previous man- ute useful ideas. Also, when support staff is kept cur-
ager. With a relational database, one can transfer rent they can plan their workflow more efficiently.
the entire project from one manager to another, In relational database design, there are rules
enabling a more efficient transfer of action items that describe how data should be “normalized.”3
and information than is possible with physical files. Rigid rules dictate elegance and resource efficiency.
This maximizes the use of professional management For transaction-based databases, the design can be
talent, for example, if one manager needed to focus optimized to increase the speed of recording a sales
attention on other urgent projects, such as infringe- transaction or stock movement. Alternatively, the
ment support, cases could easily be temporarily redesign can be optimized for ready access to a large
deployed with a relational database tool. pool of related data. This latter version most con-
The inherently rigid structure and connectivity forms to the needs of a technology transfer man-
of data in a relational database gives unprecedented agement information system. The reason is simple:
power to look at the data and business models in technology transfer decisions are based on complex,
different and creative ways. Exception reports, run variable information. A technology transfer manag-
with some frequency, can rapidly show where data er requires access to a range of information, includ-
gaps exist, which can drive administrative proj- ing IP status, commercial contacts, expenses, and
ects. Managers can forecast expenses and revenues other information. The transaction- and related-
to isolate a variety of parameters and determine if data design paradigms, however, need not be mu-
divisions are real. The ability to conduct nearly in- tually exclusive. In other words, even if the demand
stantaneous audits can help managers plan office for data interconnectedness dominates, the goal of
activities, and this connectivity also enables a su- high-speed response need not be abandoned.
pervising manager to evaluate the performance of When thinking about the complexity of tech-
technology transfer managers using data manage- nology transfer data management requirements,
ment systems. the relational database is the engine of choice be-
Some argue that a disadvantage of a relational cause it requires less data entry and can be easier
database is that it uses a rigorous data structure that to maintain and audit. With expert programming
does not allow variability. However, a rigid data code, a relational database can quickly present the
structure is essential if a technology transfer man- information a technology transfer manager needs.
ager wants to get reliable results from an electronic Because the complexity of the data sets requires
interrogation. To accommodate the real need for these powerful and capable computing tools, the
free-form annotations, it is possible to provide commercial databases used by the technology
note or memo fields in which special details can transfer community are all relational or pseudo-
be recorded. Indeed, a technology transfer manager relational database engines.
should look for a balance between rules and flex- One perceived disadvantage of licensing an
ibility when selecting or designing a relational data independent vendor’s technology transfer manage-
management system. ment system is that the vendor controls the struc-
In some relational database models, connec- tural design. That is, during the next generation
tivity is enhanced by regularly downloading recent of offerings, additions will invariably arise, and
data that can be read and interpreted by all office the end user is not able to modify the data struc-
members. This works best when the office eschews tures as needed. Viewed from the perspectives of
a hierarchical structure. If the office director, the vendor and licensee, there are excellent reasons

CHAPTER 6.11
for this limitation. The cost of developing the code of funds from a licensee or the response due
generated for such applications frequently involves date for a patent application office action is
many thousands of dollars, as well as years of care- wrongly entered).
ful thought and programming. The investment in It is important to use the most appropri-
programming code of this type can cost in excess ate tool for a given job. Relational databases
of US$200,000! are the best all-around data management tool.
Spreadsheets are a good tool for financial analy-
3.2 Network solutions sis and graphics. A technology transfer manager
All of the above database tools can be shared over may choose to use a relational database engine to
a local area network (LAN). However, only rela- store data and then export data to a spreadsheet
tional databases can function reliably in multiuser for manipulation and graphing.
mode, with a number of users accessing the same Relational database engines are at the core of
data pool simultaneously, without fear of data all commercially available accounting packages. An
corruption. For example, on a LAN, if a technol- increasing number of commercially available ac-
ogy transfer manager were to open a spreadsheet counting packages are designing their database file
file that someone else had on his or her screen, the structure to be compatible with DBase®. DBase data
manager would either receive an error message file structures, in turn, are an example of so-called
indicating that the file was in use or be advised XBase data structures. When the data structures
that it was available in read-only mode. In the between two applications are equivalent or com-
later scenario, any changes made would be lost. patible, fewer steps are required to translate data
More accurately, they would be saved but then between them. So, if an accounting package with
overwritten by the person who had the file open DBase-compatible data structure is used, it would
first and saved it. Flat file databases may be prob- be advantageous to choose a management informa-
lematic in the same way. tion system with a compatible data file structure.
Relational databases have built-in record lock- DBase data file structure is currently supported
ing and transaction-tracking features that control and promoted by two of the leading proprietary
the access to shared files and the procedures used to relational-database engine suppliers. Accordingly, a
update data. Many TTOs associate networks with technology transfer manager should be aware that
the Internet. This chapter, however, is addressing not all relational database engines are compatible
LANs, a computing environment where one com- with DBase.
puter acts as the file server for client workstations.
LAN technology has advanced dramatically in the 3.4 Data distribution
last several years, with a number of well-supported Data distribution means providing rapid access
systems available. Even for small TTOs, the advan- to current information to precisely those people
tages of using a LAN in combination with a rela- who require it to make informed decisions. The
tional database are remarkable. ease with which data can be queried will deter-
mine how often the database is used by the tech-
3.3 Data portability nology transfer staff. With the power of relational
Most software applications are able to export database engines and the connectivity of a LAN,
and import data. The advantages of data por- designs that can be easily interrogated by end us-
tability are evident. If a technology transfer ers are now possible.
manager can enter data in one application and The technology transfer manager should view
transport it in an organized fashion to a differ- the investment in the acquisition of a system and
ent application, data doesn’t have to be entered the time spent in data entry as an asset in produc-
twice. Rekeying data not only wastes time but tion. This system data should be fully utilized by
also increases the likelihood of data integrity the technology transfer manager to coordinate
problems if data is recorded differently in office activities and generate reports sequentially or
two places (for example, if the date of receipt on an ad hoc basis.

SLOMAN
3.5 Paradigms for data management supports their work habits. Relying on technol-
The main design paradigms for technology transfer ogy transfer managers to complete data entry on
management information systems are driven either their patents and licenses may not be the most
by (1) committee and administration or (2) end-user effective use of their time. Rather, this task could
functionality. System designs that are driven by the more efficiently be delegated to the individual
former usually prioritize the design of report out- responsible for administering the contracts or to
puts. Administration, for example, may announce, an experienced administrative staff person. It is
“We want a monthly report showing which patent desirable that a single individual be delegated the
applications are due for a maintenance fee, sorted responsibility of entering specific sections of the
by the technology licensing manager.” As a result, a data (for example, the data on patent prosecution
table structure may be defined and a report written and revenues and expenses for each technology
to support this management objective. But while or case). This approach reduces the likelihood of
defining objectives is important, this approach may errors and data duplication. In general, a manage-
create conflicts in terms of data structure. To create ment information system should allow an admin-
a design of this type requires the consideration of istrative support staff member to easily complete
all the ways the data may be interrogated, while at such data entry.
the same time avoiding massive data duplication,
rekeying, or excessive look-up requirements that 4.2 Auditing
slow a system down. It is preferable to conduct audits of the informa-
If the system is designed around the very spe- tion in all environments. Reports can accomplish
cific interrogatory output paradigm, the administra- this function and can be set up to run at certain
tive objectives will be supported, but the ease of use intervals or to run on an as-needed basis. In ad-
for end users will be diminished. When a manage- dition, for truly mission-critical information, re-
ment information system provides little end-user ports should be created and submitted to outside
functionality, it will not be kept as current as one professional service providers for periodic review.
that does. With daily functionality, end users more An example might be generating reports from the
easily navigate around other parts of the system. database with current information about a par-
Even though most users will spend 80% or more ticular patent prosecution and presenting that
of their time in a single module, they will be famil- report, or portfolio of reports, to the patent at-
iar enough with navigation techniques to find their torney. Staff could then request that the attorney
way to other relevant sections when the need arises. update the report.
A technology transfer manager may want to One direct and immediate benefit of this ap-
opt for a system designed first for the end user, but proach is improved data integrity. Another benefit
with powerful and flexible administrative report is that service providers may come to understand
functions. The design goal should be to create a how much information about a university’s tech-
system that acts as a partner in real time, so that nology transfer assets, patent applications in this
data is entered as the workday unfolds. If users en- case, is valued.
ter the data as they move along during their day, If a technology transfer manager is interested in
data entry is more current and accurate. In addi- implementing such a review, doing so on a rotating
tion, the time burden decreases and the sense of basis, rather than as a direct audit of all records, may
accomplishment is enhanced. be sufficient and would reduce incremental costs.
4. Data integrity 5. Analysis paralysis

The term analysis paralysis is being used here to
4.1 Assigning data-entry tasks describe a period of time when an office shuts
For day-to-day contact functions, users should down operations, virtually stopping all services, to
have the flexibility to use the system in a way that allow the staff time to update, analyze, modify, and

CHAPTER 6.11
discuss the technology data. This process can be an when a quick, unexpected analysis is needed. This
excellent educational experience for an entire of- “time out” might seem an impossible goal, but the
fice staff. Generally, teams should be planned in rewards can far outweigh the cost.
advance and assigned a batch of technology or case
files to find answers to predefined questions. This
process can help define the office’s future mode 6. Evaluating Software Solutions
of operations and may uncover areas in need of If a technology transfer manager is going to adopt a
attention. If the entire staff is engaged in the pro- software management set of solutions, this author
cess, a sense of team building may be achieved. suggests taking the process to its most advanced
Through this process, a technology transfer state possible. In determining suitability, a number
manager may be able to anticipate questions from of questions should be asked (see Box 1).
the university’s administration. Moreover, if all The decision to design a system or acquire
technology staff are involved in the production and a commercially available software package to
interpretation of the data, experts among the staff manage technology transfer data should be based
may emerge in different fields. And finally, periodic on the TTO’s needs. Like all computer solutions,
analysis of data results allows for a faster response the system will be only as good as the people
Box 1: Key Questions for Decision Makers in Evaluating Software Solutions
1. How suitable to the task is the software solution?
The solution recommended in this chapter is not cheap, especially when a technology transfer
manager considers the cost of a LAN, a commercially available package, and training.
2. Is adopting the software solution worth the investment of both money and staff time?
Only the technology transfer manager can answer that question, taking into consideration
all variables of the university and the TTO. A technology manager may want to consider the
following advantages of incorporating a software solution:
a) Managers with ready access to current data can work faster and with greater accuracy and
can make decisions with increased confidence.
b) Staff will be more likely to bring important issues to the attention of the supervising
technology transfer manager, and necessary interventions will more likely occur.
c) As a training tool for new technology licensing managers, the software tools described in
this chapter can create an environment where staff can work more efficiently, with fewer work
projects falling behind schedule.
d) Software solutions can increase responsiveness to clients and the ability to analyze workflow
and make appropriate resource allocations.
3. Why is time being spent in entering the data (as opposed to completing the
day-to-day functions)?
One possible response to this question is that data entry creates a work environment where
relevant data can be readily accessed when needed by users, managers, and support staff so
informed decisions can be made in a timely fashion.

SLOMAN
using it. Therefore, a final consideration when tion formats. The industrial relational-database lit-
purchasing or developing any system is the likeli- erature reveals that the focus of applications devel-
hood that staff will actually use the software. It opment is moving away from the exotic hardware
is not necessarily true that staff who collectively of the mainframe and minicomputer and toward
design a system will be more likely to use it. This the client-server model of distributed computing
may sound counterintuitive, but it is based on environments such as LANs.
our real-world experience. The TTO management experience is relatively
fresh, and the cost of failing to professionally man-
age data is not yet widely recognized. Examples of
7. Conclusions such costs include large, unpaid obligations that
A key element in developing a data management persist because of inefficient methods for collecting
system is setting clear goals of effective data man- revenues, or poor management of a technologies
agement. The technology transfer manager should portfolio. Both of these situations could result in
have information to support the essential tasks of real costs to the TTO, although it may take several
the office staff in both tactical and strategic modes. years for this to become evident.
Tactical support means ensuring ready and cur- With a properly designed and implemented
rent access to information about all aspects of a software solution, a manager can decide with
particular case. The strategic mode demands the greater confidence that the data needed to sup-
presentation of information that can illuminate port a decision are at hand. Allowing managers
trends and assist in office organization, workflow and staff to be more responsive to clients, data
distribution, and planning. Other examples of management systems solutions can also dramati-
such data use include revenue forecasting and cally enhance the general professionalism of an
cash-flow planning. While cash flow may not be office. ■
a prominent issue yet in all academic TTOs, the
cost of doing business in the field of technology
transfer is increasing rapidly, and cash-flow plan- Robert G. Sloman, CEO, Inteum Company LLC, 8826
NE 124th Street, Kirkland, WA, 90834, U.S.A. robs@in-
ing may soon become imperative.
teum.com
Data management tools should act in con-
cert with the goals of managers and adapt to the
way managers work, instead of requiring users to 1 A file server is a high-powered personal computer
linked by communication cables to computer worksta-
adopt a certain pattern of processing information. tions. The file server provides storage of shared data
Regimentation of data is important, but this need files and software applications, as well as printer shar-
not create a barrier to end users. ing capabilities.
It also is important to think ahead and design 2 A spreadsheet “pilot error” is a data entry error made
an application for the future. As programming in an algorithm or data cell that causes erroneous
results.
tools and desktop computers have become more
3 “Normalized” data has been organized into relation-
powerful, workgroup software with event-driven, ships in a way that seeks to minimize duplication of
rather than programming-driven, applications have data and maintain data integrity.
emerged in full graphical user interface presenta-

CHAPTER 6.12
WIIPS™: Whitehead Institute Intellectual

Property System (A Relational Database for
IP Management and Technology Transfer)
Amina Hamzaoui, Associate Director, Intellectual Property, The Whitehead Institute for Biomedical Research, U.S.A.
We are pleased to announce that the Whitehead among staff members. The system is easy to
Institute for Biomedical Research in Cambridge, learn and use and comes with detailed system
Massachusetts, U.S.A., has kindly allowed documentation. In addition, WIIPS™ provides
MIHR and PIPRA to distribute the Institute’s complete financial control, with financial audit
proprietary WIIPS™ Database. This database trails and automation to meet the compliance
offers tangible benefits to improve the function requirements that are often required of TTOs.
and efficiency of any technology transfer office WIIPS™ can be used to manage all the financial
(TTO). In accordance with the non-profit mis- aspects of the TTO, allowing better control of
sions of MIHR, PIPRA, and the Whitehead patent-filing costs. The system permits effective
Institute, the sharing of WIIPS™ will be free of monitoring of expenses and legal bills, thus
charge and is primarily aimed at assisting devel- helping to ensure timely expense reimburse-
oping country TTOs. ment and accounts receivable management,
WIIPS™ is a relational database designed to and it facilitates faster royalty calculation and
automate essential intellectual property man- distribution.
agement and technology transfer functions. It In order to better adapt WIIPS™to the
simplifies recordkeeping and generates useful needs of TTOs, users will be authorized to copy
reports for technology disclosures, patent ap- and modify the software, and/or to re-write the
plications, joint invention agreements, licenses, accompanying user guide, as long as any modi-
and material transfer agreements. In addition, fied products mention that the product is based
the system stores essential information on every on WIIPS™ and has been modified by the user.
inventor, owner, and licensee who has interacted Users may also make and use as many copies of
with a given TTO. Thus, the system effectively WIIPS™ as are required.
automates all recordkeeping, and offers imme- The relational database and the user guide
diate and accurate information on the status of can be downloaded for free, subject to the terms
every case, including documentation, patenting of a license, from the online version of the
and licensing information. Not only will it al- Handbook at www.ipHandbook.org as of August
low TTOs to better manage volumes of IP data, 2007. The database requires that users are run-
it will also increase productivity and accuracy, ning Microsoft® Access® on a Windows XP or
since WIIPS™ allows for easy communication higher system.
Hamzaoui A. 2007. WIIPS: Whitehead Institute Intellectual Property System: A Relational Database of IP Management
and Technology Transfer. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best
Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
© 2007. A Hamzaoui. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

Hamzaoui
As a non-profit, research and educational or-

ganization with focus on research in the biomed-
ical field, the Whitehead Institute is pleased to
further MIHR and PIPRA’s missions of dissemi-
nating information and tools of best practices
in technology transfer and intellectual property
management, and we are keen to contribute to
these commendable efforts. n
Amina Hamzaoui, Associate Director, Intellectual

Property, Whitehead Institute for Biomedical Research,
Five Cambridge Center, Cambridge, MA, 02142, U.S.A.
hamzaoui@wi.mit.edu

CHAPTER 6.13
Organizing and Managing Agreements and Contracts

ROBERT POTTER, Senior Associate, Agriculture & Biotechnology Strategies, Inc, Canada
HILD RYGNESTAD, Managing Director, Rygnestad Canada, Canada
ABSTRACT (or has already licensed rights to certain parts of

Agreements and contracts are not just pieces of paper to the technology). Even worse, you will not be able
be signed before money changes hands; they are vitally
to sign a deal at all if you cannot find out whether
important documents. If an organization hopes to prop-
erly fulfill the terms of its contracts, to say nothing of you have the rights to use a technology. Both of
negotiating future contracts, it must have a system for or- these situations require that your organization can
ganizing and managing its contracts. Such a system must quickly determine where you stand with existing
make data accessible as well as keep it secure. Resources contractual obligations related to the technology
and tools should be incorporated wherever possible to de-
sign and implement a system within the available budget. that is being developed.
After it is implemented, the effectiveness of the contract This chapter will consider the life span of
management system should be continuously monitored a contract from the point of view of what is re-
and evaluated. quired to manage the rights and obligations un-
der that contract. Life span is defined as the entire
process (or the stages) from the initial idea of a
1. Introduction deal to the expiration of the contract or of its ob-
Social and cultural differences can cause people, ligations (Figure 1).
even good friends, to misunderstand each other.
Written agreements and contracts are therefore
critical in that they formalize the details of a deal 2. Requirements of a contract-
and ensure that all parties concerned understand management system
their rights and obligations. For these reasons, a Agreements and contracts have a life span and
contract is not just a piece of paper that must be the needs for contract management will change
signed before money changes hands, but a vital over time: during negotiations, for active con-
document throughout the life span of the rela- tracts, and after a contract has expired or been
tionship between the parties to a deal. terminated.
It is important for a company or institution
to be able to organize and manage contracts to 2.1 Requirements during negotiations
know what its existing contractual obligations are. Contracts begin as a potential relationship be-
After all, there is no use negotiating a wonderful tween two or more parties. Ideally, the parties
deal for a piece of technology if your organiza- negotiate an agreement that ends in a signed con-
tion does not have the rights to the technology tract, but the agreement may be put on hold, or
Potter R and H Rygnestad. 2007. Organizing and Managing Agreements and Contracts. In Intellectual Property Manage-
© 2007. R Potter and H Rygnestad. Sharing the Art of IP Management: Photocopying and distribution through the Internet

POTTER & RYGNESTAD
even dropped completely, if the parties cannot third parties. The methods of storing and access-
agree or if the agreement process is somehow de- ing contracts will largely depend on the size and
railed. The level to which pre-signing activity needs resources of the organization, and is discussed in
to be captured in a contract-management system detail in a later section.
depends on the parties involved and the way the
deal was initiated and brought to a close. The fol- 2.3 Requirements after contract expiration
lowing questions need to be considered: Would it When a contract expires or is terminated before
be valuable (for the parties involved or for future its due date, the parties involved often still have
negotiators) to have the history of the negotiation various legally binding obligations toward each
on record? Did communications during the nego- other. For example, all parties are typically bound
tiations have any bearing on the final deal? Will by confidentiality clauses that last longer than the
the negotiations (especially if they do not lead to contract period. There may be other obligations,
an agreement) affect potential future deals?1 The as well, such as the obligation for one party to
staff that were a part of the negotiations will likely give up the rights to original or derived materials.
be able to answer these questions. Generally speak- The extent to which each party fulfills its obli-
ing, in a small organization, it may not be criti- gations may directly affect the success of future
cal to formally record such information. However, deals, so both administrative and management
in larger organizations a high staff turnover and a staff must be familiar with the obligations of all
larger number of contracts often translates into a parties. To facilitate this information sharing, the
shorter “institutional memory” and a greater need requirements of a contract-management system
for formally recording the information. are as much about enabling access as they are
about secure storage.
2.2 Requirements for active contracts
It is important to store a signed contract securely;
however, it is also critical that the staff respon- 3. Designing a contract-
sible for implementing the terms of the contract management system
have access to the documents, so that they can A contract-management system can be based on
ensure that all rights are enforced and obligations many components such as institutional memory,
honored. For example, licenses fees must be paid hard-copy filing, electronic filing, or a computer-
and reporting dates must be met. In addition, ized database. However, a system composed of a
a contract may oblige one of the parties to dis- combination of these components is more robust.
perse funds, to follow up diligently on product Moreover, since it is not entirely dependent on
development, to grant rights to derived materi- any one technology, the reassignment of staff, a
als to third parties, or to obtain such rights from flood in the archive room, a fire in the computer
Figure 1: The “Life Span” of a Typical Deal
Under obligation
Negotiation Activity (for example confidentiality)
Proposed Active Expired Final Obligation

(fully executed, signed)
Pending Terminated
“Dead” (prior to expiration)

CHAPTER 6.13
room, or a failure of the database tool will not Electronic filing systems. With electronic filing
cause a catastrophic loss of information. systems documents can be made easily accessible,
Determining the right blend of components especially if they are stored on network-accessible
requires input from all levels of the organization. media. Documents are transferred to electronic
The staff knows how the current system works, or media such as scanned computer files and can be
why it does not work, and can offer suggestions copied and updated much more easily than for
for improving the management system. All users hard-copy files. An electronic filing system can be
of the management system should be involved stored centrally and accessed directly from a stor-
during system design to ensure successful imple- age location or viewed remotely over a computer
mentation: when users are involved in the design network.
and take ownership of the system, it becomes a Database. An electronic filing system makes
useful tool rather than a resource-costly burden. it easier to retrieve documents when these need to
Designing a contract-management system is be reviewed. However, it still remains time-con-
more than picking a software tool and its starts by suming to search for specific information and to
finding the balance between accessibility and data get an overview of all contracts and agreements.
security that meets your organization’s require- Computer-based databases, including simple
ments. The desired design is subsequently guided ones kept as spreadsheets and text documents,
by available resources such as existing tools, per- are useful because they are more easily searchable
sonnel, and information technology infrastruc- than hard-copy files. Databases should record the
ture. In the end the desired design is adapted to following information for each contract and re-
meet the available budget. lated documents:
• Name and address of contract parties
3.1 Requirements: Accessibility • Dates of execution and expiration
versus data security • Length of the confidentiality term
When designing a contract-management system • Deadlines by which products or informa-
it is important to find the balance between mak- tion must be delivered
ing the system accessible and maintaining data • Deadlines by which funds must be
security. transferred
• Keywords or a brief summary describing
3.1.1 Accessibility the scope of the contract
One of the main purposes of implementing a • Electronic links to the document(s)
contract-management system is to minimize
reliance on one or a few persons to manage the Searchable databases have several fundamen-
organization’s contracts and associated obliga- tal advantages. They can:
tions. This requires a certain level of accessibility • Reduce the time and resources needed to
to contract documents as well as any other related find physical or electronic documents
information. • Incorporate searches of electronic docu-
Hard-copy filing systems. Maintaining and ment texts provided these have been made
using hard-copy systems do not require users to searchable through a process of Optical
have specialized technology skills, but hard-copy Character Recognition (OCR)
systems may be difficult to organize and update. • Produce automatic reminders of expiring
If several people are involved in the management contracts and upcoming deadlines
of contracts and storage of documents, there • Help identify potential conflicts of interest
may be no central point allowing timely access before new contracts are signed
to required information including original docu-
ments. No matter what other storage techniques When properly designed, searchable data-
are used, hard-copy originals must always be bases can help staff find the proverbial needle in
stored in a secure manner and kept on hand. a haystack. Not only can databases retrieve any

POTTER & RYGNESTAD
and all documents that contain a particular term, locations. It is also a good idea to keep a backup
but they can be designed to automate searches of electronic copy in an off-site location. Off-site
such information as outstanding payments, over- storage and backup services can be purchased
due reports, or upcoming deadlines. and/or managed commercially or by other de-
System access. All employees will need a dif- partments in your organization. These service
ferent level of access to the system, depending on providers should guarantee that they have appro-
their job duties. An employee who scans docu- priate measures in place to prevent unauthorized
ments and inputs data will probably require a access and accidental data loss.
lower level of access than one who needs to ac- Unauthorized access. Lockable storage fa-
cess specific records or information. For example, cilities, filing cabinets, and safes generally pre-
a system can be designed so that it only displays vent unauthorized access to hard-copy mate-
the details of selected contracts to authorized us- rial. Electronic material and databases may be
ers. Staff can generate statistics on overall perfor- at greater risk of unauthorized access than hard-
mance (such as the number of contracts finalized, copy materials, especially if they are stored off
payments made, or reports overdue) without be- site. Network traffic should be encrypted and
ing granted access to sensitive material. In a Web- usernames and passwords should be used to make
enabled application external parties can even have sure only authorized persons can input, view, or
direct access to information related to their own alter data.
obligations, thereby reducing the number of re- Information technology support. In-house
quests handled by the contracts-management computer support is essential because of increased
office. reliance on information technology. If an orga-
A contract-management system that com- nization lacks the resources to employ full-time
bines electronic filing of documents with a search- computer support personnel, it must train some
able database can also be designed such that it is staff members to deal with common computer
accessible by users at a central point or from a problems. More complex technical problems will
workstation on an internal network (Intranet) in need to be addressed by a reliable and responsive
one location or over a Virtual Private Network external party.
(VPN) linking different geographical locations.
Access over a network is a benefit as long as the 3.2 Available resources
connections are secure and reliable with minimal The next step after having determined your orga-
downtime. This is particularly important if the nization’s requirements for accessibility and data
whole system is stored off-site with no central ac- security is to determine how available resources
cess point on-site if the network is down. will affect the system design and implementation.
When taking available resources into account the
3.1.2 Data security original plan often needs revising to include is-
Regardless of the measures put in place, a con- sues such as: newly discovered needs, change in
tract-management system will be labored with staff expertise, new technologies, and declining
security problems related to both loss of data and available funds.
access by unauthorized users.
Data loss. Regardless of how you store your 3.2.1 Identify existing tools and procedures
data, it can be lost due to fire, flood, theft, or The first step is to identify all–if any–tools that
a number of other catastrophes, so it is impor- already exist and are used currently for contract
tant to take steps to guard against data loss. management within the organization. Such tools
Preventative measures include safes, fire alarms, could be filing systems, procedures, spreadsheets,
sprinkler systems, burglar systems, and fire- and or more-advanced databases and reminder sys-
waterproof filing cabinets. The chances of data tems. These tools can be used as models for de-
loss are minimized further if hard-copy and signing components of the new system. As noted
electronic systems are maintained in separate before, current contract managers can shed useful

CHAPTER 6.13
light on tools and procedures that work, but also Custom built tools. Another option is to have
those that do not work, as this information is of- tools custom built. A provider tailors an applica-
ten more useful. tion to the client’s needs. The more complex the
tool, the more time and resources will be required
3.2.2 Select new tool for its design and implementation—and the
Low-technology solutions. A contract-manage- higher the cost. The implementation of custom-
ment system is more than a software tool such ized software should be expected to cost roughly
as a database, and, with some limitations on twice as much as the software tool itself. It is im-
accessibility and security, low-technology solu- portant to remember that more advanced (and
tions can still be viable solutions if resources more expensive) tools are not always the best or
are particularly limiting. Some organizations most cost-effective solution.
use hard-copy filing systems with continuously Numerous companies provide software
updated hard-copy summary sheets for each systems for managing intellectual property as-
contract. The summary sheet is good for quick- sets—including filing patents (mostly U. S.
reference but may lack accessibility. As noted patents) and licensing inventions. A number
before, a backup system is important to avoid of these systems are customizable, including
data loss. software packages that either the clients or the
Simple databases. Other organizations de- company must modify to fit their own needs.
sign and maintain computer-based databases All of the systems are quite expensive to pur-
in their simplest forms, for example in spread- chase. They are likely to be most useful to larger
sheets or text documents. This improves acces- research institutions and research-based compa-
sibility, enables a quicker overview, and can be nies. You can find a list of providers and links
supplemented with some form of reminder sys- to their Web sites in the endnotes following this
tem for upcoming deadlines and obligations. chapter.2
Database software packages. Some organiza- Finally, there are many other options for
tions decide to use internal or external expertise to less- specialized, less-expensive document man-
design a more complex database tool in software agement system. A simple search will turn up
packages such as Microsoft® Access or FileMaker® 20 or 30 companies that provide such software.
Pro. These software packages provide a user- It is quite possible that future versions of com-
friendly front-end for designing and maintaining mon operating systems or office productivity
databases. More advanced approaches could in- suites will include such applications. However, as
volve other software such as Oracle®, MySQL™, discussed in this chapter, contract management
Microsoft® SQL Server, and DB2®. Using these is much more than just storage and retrieval of
packages allows for tools to be designed more to documents.
order and is a good option if an organization has
some level of internal expertise with the software 3.2.3 Personnel considerations
of choice. When transferring information from the old sys-
Off-the-shelf tools. There are software packages tem to the new, considerable time will be needed
designed for contract management that are more to locate existing documents, convert them to
or less ready for use off-the-shelf. It is important electronic files, and enter the corresponding data
to make sure that the software has the necessary into a database. At the same time, new contracts
features. Although off-the-shelf tools can usually must be entered into the system. After the initial
be customized to some extent, it may make more transfer is completed, keeping the filing system
sense for an organization to redesign its proce- and database up to date must be considered as a
dures than to try to make an off-the-shelf tool time-consuming task. If a system design change
perform tasks that the system was not designed becomes necessary, time will also have to be allot-
to handle. ted for accomplishing this task.

POTTER & RYGNESTAD
The amount of staff training that is required • IT and system support. Support both for
by a change in management system will depend maintaining network infrastructure and
on the complexity of the system and on existing for running the system. If the system is
staff skills. Staff may be trained in such skills as designed in-house, details of operations
filing, data entry, reporting, and day-to-day prob- should be extensively documented in order
lem solving. Providers of commercially purchased to make future maintenance and develop-
management systems usually offer employee ment easier. If the system is purchased off
training sessions for an additional fee. the shelf or designed by an external devel-
oper, the service provider should provide
3.2.4 Select information on-site or telephone support
technology infrastructure
The choice of Information Technology (IT) infra- 3.2.5 Budget considerations
structure is largely guided by the balance between Finally, the desired system requirements, such
accessibility and security discussed above. A con- as accessibility, data security, existing tools,
tract-management system might include some or personnel resources, choice of system tool, and
all of the following items: information technology infrastructure must be
• Physical storage facilities. Fire- and flood- compared to the available budget. Trade-offs
proof filing cabinets that can store hard- will be necessary and each organization must de-
copy originals, or system-backup media, termine which needs are absolute requirements
that do not require frequent access and which are only desirable. While it is often
• Computer/server. A computer or server tempting to cut back on such expenditures as
with the necessary software that stores all training and support for users, it is important to
electronic documents and the database note that the system investment will be a waste
tools —in other words, the central collec- of money and resources if it is not used to its
tion point. The organization should obtain capacity.
professional IT advice and continued IT Some organizations have the resources to
support to ensure data security. think big and to implement systems with more
• Backup system. A system in the form of capability than is needed at the outset, thereby
another computer or storage medium that delaying the cost of frequent upgrades. Where
automatically backs up the information possible, an organization should plan for success
in the contract-management system on and institute a system that seems too big now, as
an hourly, daily, or weekly basis, depend- it will likely appear too small in a few years time.
ing on how frequently data is updated. If An organization with tighter budget restrictions
automatic backups are impossible, manual should aim for a system that will serve its cur-
backups should be performed, for example, rent needs and implement a smaller or cheaper
on backup drives or other storage media, system, but try to ensure that there is room to
and the copies stored safely away from the expand it later.
central collection point.
• Scanning capability. Scanning hardware 3.3 Monitoring benefits of the new system
and software, with or without optical Because it is costly to implement a new contract-
character recognition capabilities that can management system, and because the cost must
convert documents into searchable elec- be justified to senior management, it is impor-
tronic media. tant to be able to measure the benefits of the new
• Network. Computers connected to the system. Many, if not all, of the benefits can be
central collection point also with profes- tracked and monitored automatically by the most
sional IT support that can ensure stable ac- advanced systems. Table 1 outlines the baseline
cessibility as well as data security over the data that should be established and against which
network. benefits can be measured.

CHAPTER 6.13
Table 1, below, provides only examples; each 4. Conclusions

organization will want to monitor itself according Managing contracts and agreements is not glam-
to its own criteria. Monitoring the benefits of a orous, but it is vital—especially if the organi-
new system not only helps to justify its expense zation is involved in complicated technology
but also helps to identify aspects of the system transfer deals with many rights and obligations.
that need revising. Ideally, a contract-management system should be
Table 1: Examples of Criteria that Can Be Used to Measure

Benefits of a New Contract-Management System
Baseline Data Measurable Benefits
Time and resources spent searching and Additional staff time available for
managing contracts performing other tasks due to more-efficient
contract management
The value of successful proposals, less the Increase in the value and number of
value of unsuccessful proposals successful proposals, due to less time spent
researching potential conflicts with existing
contracts
The value of invitations to submit proposals Improved reputation with collaborators,

funding bodies, boards, and contractors
Grounds for successful and unsuccessful
proposals
Resources spent or committed Minimized exposure due to nonexistent or

without contract expired contracts
Number of deliverables that are not Fewer deliverables not submitted according
submitted according to contract to contract
Number of delayed reports. Time and resources saved because reports

(whether scheduled or ad hoc) are processed
Resources committed to preparing reports
timely and with minimal effort
Penalties for delayed payments Money saved because payments are

processed on schedule.
Number of times that confidentiality terms Confidentiality terms are adhered to

are broken

POTTER & RYGNESTAD
established before any contracts are negotiated. 1 If negotiations are aborted, there may still be certain
The sooner a functional system is implemented, obligations that affect future deals. These include
confidentiality agreements. Being aware of other
the easier it will be to keep it updated. types of information about the party with which
Identifying the system requirements starts negotiations were aborted, for example reasons for
with balancing accessibility against data secu- failure or specific problems encountered, may also be
rity throughout the life span of a contract. This useful when future deals are being contemplated.
is followed by considerations for the available 2 Knowligent has developed IP-Portfolio (an IP
management system) and many lab-management
resources, including personnel and budget. The software modules. www.knowligent.com/.
contract-management system should be planned
Computer Packages provides customized solutions for
and implemented with the full involvement of all managing IP portfolios and collecting royalties. www.
levels of the organization to make sure that it be- computerpackages.com/.
comes a useful tool and not another administra- Inteum LLC is the maker of Inteum C/S® (the successor
tive burden. to a widely used system called DEALS), a program
that manages the entire technology life cycle from
Smooth contract management is almost in- negotiations to final obligations. www.inteum.com/.
visible, but the marks of poor management are all
InfoEd supplies module-based software for managing
too evident: lost deals, a poor corporate reputa- sponsored research programs, including technology
tion, and, in the worst case, lawsuits. Investing transfer modules. www.infoed.org/.
resources in management is like any preventive O P Solutions Inc. provides software to the IP legal
measure: you will really never know how much industry, including software for patent and trademark
filing and prosecution management. www.opsolutions.
time and money it has saved you. ■
com/.
Master Data Center provides IP management
software, including installation of software systems
ROBERT POTTER, Senior Associate, Agriculture & and maintenance services. www.masdata.com/.
Biotechnology Strategies, Inc., 106 St John Street, PO Box
Knowledge Sharing Systems LLC makes TechTracs, a
475, Merrickville, Ontario, K0G 1N0, Canada. rpotter@
complete management system covering sponsored
agbios.com
research, patent filing, and compliance with licenses
and agreements. www.knowledgesharing.com/.
HILD RYGNESTAD, Managing Director, Rygnestad Canada,
179 George Street, Apt. 306, Ottawa, Ontario, K1N 1J8,
Canada. hild@rygnestad.net

CHAPTER 6.14
Monitoring, Evaluating, and Assessing Impact

SIBONGILE PEFILE, Group Manager, R&D Outcomes, Council for Scientific and Industrial Research (CSIR), South Africa
ABSTRACT on R&D investment, and the magnitude of that

Much has been written about the socio-economic ben- return, is important to policy-makers, tax pay-
efits and competitive advantage achieved by developed
ers, government officials, development agencies
countries as a result of investing in scientific research and
technological innovation. For developing and emerging and, of course, those funding the research and
economies, sustainable development is dependent on the research institutions themselves. This chapter
establishing and supporting R&D institutions that not provides guidance on building organizational ca-
only perform good science, but also effectively share their pacity to plan, monitor, evaluate, and assess the
knowledge and technology outputs. Both the extent to
which a return on an investment is realized from R&D impact of R&D investment on society and in
activities and the magnitude of the resulting impact on the market. It should be noted that the chapter
intended beneficiaries are important to funders, policy- does not evaluate the performance of Technology
makers, taxpayers, government officials, development Transfer Offices in managing intellectual prop-
agencies, and the research institutions themselves. This
erty, but rather focuses on determining the socio-
chapter provides guidance on building organizational
capacity to plan, monitor, evaluate, and assess the im- economic impact of transferred knowledge and
pact of R&D investments. It should be noted that the technology.
chapter does not address measuring the performance of a R&D institutions in developing countries
Technology Transfer Office to manage intellectual prop- operate with limited financial resources for
erty, but rather focuses on determining the socio-eco-
nomic impact of transferred knowledge and technology. R&D and even less funding for technology and
knowledge transfer. The socio-economic chal-
lenges experienced by developing countries put
more pressure on R&D institutions, requiring
1. Introduction them to effectively and efficiently address local
Much has been written about the socio-economic social and economic development needs through
benefits and competitive advantage that devel- the transfer and adoption of innovative science.
oped countries achieved by investing in scien- To this end, a key responsibility of research in-
tific research and technological innovation.1 For stitutions in developing countries is to make re-
developing and emerging economies, it is recog- search outputs available for use by society and
nized that sustainable development depends on local industry. It is therefore critical that research
establishing and supporting R&D institutions institutions not only generate relevant research,
that both perform good science and share their but also transfer and diffuse research results in
knowledge and technology outputs.2 A return a way that maximizes impact. A well-developed
Pefile S. 2007. Monitoring, Evaluating, and Assessing Impact. In Intellectual Property Management in Health and Agricul-
© 2007. S Pefile. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

PEFILE
and comprehensive monitoring, evaluation, and point in time and is associated with the use
impact assessment framework is necessary to of transferred technology; technology dif-
measure efforts by institutions to meet R&D fusion is the spread of a technology across a
objectives. Such a framework can assist research population over time.
institutions in:
• improving the efficiency of research re- A robust monitoring, evaluation, and impact
source allocation assessment framework should demonstrate trans-
• improving the standard and effectiveness of parency and confer accountability. It is therefore
project decision-making important that systems enable institutions to
• directing future research plans more document, analyze, and report on research and
effectively technology transfer performance effectively.
• obtaining evidence of resource mobilization
• prioritizing research based on the level
of economic returns and positive social 2. The Framework
impact There are different methodologies and processes
for monitoring, evaluation, and impact assess-
Technological innovation transforms an idea ment. An impact assessment study can be custom-
generated during research into a new or improved ized and structured to suit the information and
product that can be introduced into a market, a reporting requirements of an institution and its
new or improved operational process used in in- stakeholders. Figure 1 illustrates a comprehensive
dustry and commerce, or a new approach to a so- monitoring, evaluation, and impact assessment
cial service.3 Monitoring, evaluation, and impact framework. (The components of the diagram are
assessment should be conducted throughout the described in greater detail in subsequent sections
R&D continuum described below: of this chapter.)
• research and technology generation. Basic
research, applied research, and experimen- 2.1 Diagnosis
tal development are included. For many developing country institutions, the
• technology development. During this public expects the research to provide solutions to
stage, knowledge from research is com- health, food security, sanitation, water, poverty,
bined with practical experience to direct and environmental challenges. As institutions in-
the production of a new product. vest their limited resources in these important ar-
• technology adaptation. This entails pilot- eas, their research efforts must be focused so that
ing technology and simulating real-life the resulting impact on society and the economy
conditions for the production of the tech- is optimal. Institutions, therefore, must be able
nology are typically involved. to articulate the problem that the science sets
• technology transfer. An important com- out to address. The needs assessment conducted
ponent of technology transfer is IP (intel- at the start of a project defines the problem and
lectual property) management. Typically, provides baseline data for the ex ante evaluation.
institutions manage IP protection, routes At the diagnosis stage of the process, questions
to commercialization or transfer, and con- should include:
tractual arrangements that facilitate the • Who is responsible for collecting perfor-
transfer of intellectual property from the mance information?
lab to the market. • What information is being collected?
• technology adoption and diffusion. This • When and how often is the performance
stage of the process is key, for it signifies measure reported?
the point that products, transferred to the • How is the information reported?
market, achieve depth and spread widely. • To whom is the performance measure
Technology adoption is measured at one reported?

CHAPTER 6.14
The needs assessment should also seek to will address the challenges. A logical framework
determine: can be used to structure the various activities and
• What is the nature and scope of the prob- specify means and ends. Information in a logical
lem requiring action? framework should include:
• What intervention may be made to amelio- • why a project is being conducted
rate the problem? • what a project is expected to achieve
• Who is the appropriate target population • how the project is going to achieve these
for the intervention? results
• what external factors are crucial for the suc-
The outcome of the diagnosis should be a cess of the project
document that: • how the success of the project can be assessed
• defines baseline information • where the data required to assess the success
• sets project targets of the project can be found
• states assumptions • what the project will cost
• specifies measurement indicators
• could be tied with ex post evaluation, that This information is then used to complete
is, evalulation after the project has ended the matrix summarizing information, which is
required both to design and evaluate the activity.
2.2 Planning Table 1 illustrates such a matrix.
Once the problem has been identified, a plan A logical framework (logframe) is a useful tool
should be drawn up to explain how the research for the assessor and has the following advantages:
Figure 1: The Planning, Monitoring, and Evaluation Cycle
Impact assessment
Rediagnosis
and planning
Monitoring
Technology Evaluation
transfer (impact) ex ante
Diagnosis (identify
and define
Recommendation the problem)
Planning
Evaluation ex post
Implementation
Monitoring and Logframe

ongoing evaluation (indicators)

PEFILE
• It makes the project appraisal transparent at a given point in time, whether that point is in
by explicitly stating the assumptions under- the past, the present, or the future. Put another
lying the analysis and by allowing a check way, an evaluation is the periodic and systematic
on the proposed hypotheses and expected assessment of the relevance, performance, effi-
results in an ex post analysis. ciency, quality, and impact of a project, in rela-
• It deals explicitly with a multitude of so- tion to set objectives and goals. Evaluation seeks
cial goals and does not require reducing the to investigate and determine whether:
benefits into one figure. • the intervention is reaching the intended
• It is understandable to nonscientists. It target audience
can therefore be used as a tool to clarify • the intervention is being implemented as
the trade-off among objectives and, thus, envisioned
specify the decision-making process. • the intervention is effective
• It is flexible with regard to information and • the costs of the intervention, relative to ef-
skill requirements. It can incorporate social fectiveness and benefits, is lower than the
cost, benefit analysis, use input, output tables, benefits
and partial models. It can also be used with
rudimentary information skills, albeit at the Different monitoring and evaluation systems
cost of more hypotheses and uncertainties. can be used. The method chosen mainly depends
on the following considerations:
2.3 Implementation • What should be measured? The evalua-
Implementation is the actual evaluation; it en- tion should be based on the project design.
tails data collection, analysis, and reporting. Stakeholders should agree about how the
Evaluation is systematically assessing a situation crucial project issues should be measured.
Table 1: Logical Framework Structure
Narrative Objectively verifiable Means of verification Important

summary indicators (OVI) (MOV) assumptions
Inputs • Nature and level of • Sources of information • Initial project

resources assumptions
• Necessary cost
• Planned starting date
Outputs • Magnitudes of outputs • Sources of information • Assumptions affecting

• Planned completion • Methods used the input-output
data linkage
Purpose • End-of-project status • Sources of information • Assumptions affecting

• Methods used the output-purpose
linkage
Goal • Measures of goal • Sources of information • Assumptions affecting

achievement • Methods used the purpose-goal
linkage

CHAPTER 6.14
• For whom should it be measured? The us- use several different methods in combination, bal-
ers of the evaluation results should be iden- ancing quantitative and qualitative information.
tified and the results should correspond to Ongoing monitoring and evaluation pro-
their expectations. cesses measure:
• For what purpose should it be measured? • technical aspects: physical input-output of
This determines the sensitivity of the mea- goods and services
sures and the degree of accuracy needed. • institutional aspects: organizational and
• How should it be measured? Consensus managerial aspects, including customs,
is needed between the evaluator and pro- tenure, local organizations, and cultural
gram/project managers on whether a pro- setting
posed measure truly indicates a change in • socio-cultural aspects: broader social impli-
the desired direction. cations, resource and income distribution,
• How should the data be collected? The de- and employment opportunities
sign of the evaluation system should be de- • commercial aspects: business and financial,
termined and the desired level of accuracy securing supplies, and market demand
in the information agreed upon. • economic aspects: economic efficiency,
• When and in what form is the informa- costs and benefits
tion needed? It should be available when • environmental aspects: biological and phys-
needed in a usable format. ical effects
• Who collects, analyzes, and presents the
information? This is necessary to adapt the 2.4 Rediagnosis and replanning
monitoring and evaluation system to the Should the results of a monitoring and evaluation
management realities of a program/proj- exercise indicate that a project is not going ac-
ect. Managers should not underestimate cording to plan, then rediagnosis and replanning
the time needed to analyze and present the is required. Rediagnosis and replanning require
information. the measurement process to be continually im-
proved, and changes in the measurement process
The specific questions that an effective evalu- should be aligned with changing needs and pri-
ation should answer are: orities.4 Program replanning and rediagnosis may
• Is the program effective in achieving its in- also require going back to prior steps in the plan-
tended goals? ning process to review whether:
• Can the results of the program be explained • the problem is well defined and described
by alternative explanations that do not in- • the objectives are adequately implemented
clude the program? • a revised-impact model has been
• Does the program have effects that were developed
not intended? • the target population has been redefined
• What are the costs of delivering services • the delivery system has been redesigned
and benefits to program participants? • there are revised plans for monitoring im-
• Is the program an efficient use of resources? pact and efficiency
Deciding which evaluation process to use de- Research programs are dynamic, and evalu-
pends on numerous factors, such as set objectives, ations should take this into consideration.
available time, skills, and resources. To guide your Naturally, the longer the research project lasts,
choice, Table 2 summarizes data collection de- the greater the likelihood that a given project
signs and their different characteristics. will require modification and adjustment. Table
Typically, data collection methods include 3 summarizes the design, implementation, and
checklists, scoring models, cost-benefit analyses, assessment requirements of research projects at
surveys, and case studies. The best approach is to different stages of maturation.

PEFILE
Table 2: Data Collection Designs and Their Characteristics
Types of
Ability to
evaluation Ability to
Characteristics Technical measure

Cost Reliability (primarily exclude rival
evaluation design expertise what is
adoptive to hypothesis
happening
the design)
Case study: one low very low low reporting very low nonexistent
measurement (actual
vs. planned)
Case study: two medium low low process good low

measurements evaluation
(before and after)
Time series design relatively medium medium impact very good medium
(prior trend vs. actual) low, if evaluation
feasible
Case study with one medium low low formative low low
measurement and a evaluation
control group (with
and without)
Quasi-experimental relatively relatively relatively impact very good good (variable)

design high high high evaluation
(variable) (variable)
Experimental design expensive evaluation very good very good

research
CHAPTER 6.14
2.5 Ex post evaluations example ex ante evaluation, as well as proj-

These take place at the end of a research project, ect planning
when the effects and results of the project can • is usually only done for more important,
be tracked and used in adoption studies. At this innovative, or controversial projects
stage, the evaluation:
• assesses the project’s performance, qual- Essentially, ex post evaluations determine im-
ity, and relevance, immediately after its pact and are used to demonstrate accountability.
completion The evaluations sum up the lessons learned from
• works best when a pre-project baseline had the project. They provide a firm foundation for
been defined, targets projected, and data future planning and for establishing the credibili-
collected on important indicators ty of public sector research. They can also be used
• is often done by professional and external to justify an increased allocation of resources.
evaluators
• requires that classical criteria be broadened 2.6 Recommendations
to include user satisfaction The recommendations that arise from evaluation
• should be an integral part of project studies should assess the information collected.
implementation Evaluations should also review:
• demands advanced preparation • what turned out differently than expected
• uses a blend of interviews, field visits, ob- • which part of the strategy produced the de-
servations, and available reports sired results and which did not
• provides lessons that can be systematically • whether a cross-section of views were
incorporated into future activities, for sought and accommodated
Table 3: An Assessment Planning Guide
Innovative programs Established programs Fine-tuning
Conceptualizing • problem description • determining capacity • identifying needed

• operationalizing for evaluation program changes
objectives • developing evaluation • redefining
• developing intervention model objectives
models • identifying potential • designing program
• defining extent and modification modifications
distribution of target opportunities
population • determining
• specifying delivery accountability
system requirements
Implementing • formative research and • program monitoring • R&D program

development and accountability refinements
• implementation studies • monitoring
monitoring program changes
Assessing • impact studies • impact studies • impact studies

• efficiency analyses • efficiency analyses • efficiency analyses

PEFILE
• with whom the findings need to be shared When conducting an impact study, the im-
• in what form the results should be pact is assessed by gathering information on the
presented number of users, degree of adoption, and the ef-
fect of the technology on production costs and
There are various uses for evaluation find- outputs. Studies should be conducted at different
ings. The outcomes of an evaluation can be cat- levels (for example, household; target population;
egorized into three basic types: direct, indirect, regional and national; and at primary, secondary,
and symbolic.5 Evaluation outcomes are direct or economy-wide sector levels.)
when information or findings are applied directly There are different types of impacts.
to alter decisions and results in an operational Production and economic impact measure the
application. Indirect use refers to a more intel- extent to which the project addresses:
lectual, gradual process, in which the decision • risk reduction
maker gleans a broader sense of the problems • yield increases
addressed by a project or program. Indirect use • cost reduction
of study results produces a strategic or structural • reduction in necessary inputs
application of outcomes. Symbolic use refers to • employment creation
situations where the evaluation results are accept- • implication for other sectors of the
ed on paper, but go no further. Unfortunately, economy
many evaluation studies end up as symbolic ini-
tiatives. It is imperative that technology transfer Socio-cultural impact measures the extent to
assessments do not end up simply as academic which the project contributes to:
exercises. When an assessment is not practically • food security
applied or used, not only is the effort wasted, but • poverty reduction
future programs may continue to repeat mistakes • status of women
and waste money. • increases in knowledge and skill level
• number and types of jobs
2.7 Impact assessment • distribution of benefits across gender and
An impact-assessment study aims to determine geographical locations
causality and to establish the extent of improve- • changes in resource allocation
ment for the intended beneficiaries. Impact • changes in cash requirement
assessments are time sensitive and, there- • changes in labor distribution
fore, studies should be conducted periodically • nutritional implications
throughout the duration of a project. An im-
pact study should measure the rate of adoption Environmental impact measures the project’s
for technologies that have been made available effects on:
for social or industry use. Such studies should • soil erosion and degradation
assess the technology’s level of use by targeted • silting
beneficiaries and estimate the benefits of R&D • compact soil
investments. By following these guidelines, im- • soil contamination
pact studies should be able to determine the • water contamination
impact of technology generation and transfer. • changes in hydrological regimes
Impact assessments should also seek to mea- • effects on biodiversity
sure both intended and unintended outcomes, • air pollution
taking into account behavioral change among • greenhouse gases
potential users and beneficiaries. The resulting
effect on productivity and quality of life should Institutional impact measure effects on:
be measurable and, therefore, evaluated and • changes in organizational structure
reported. • change in the number of scientists

CHAPTER 6.14
• change in the composition of the research is conducted. In summary, there are three evalua-
team tion methods used to assess impact. These can be
• multidisciplinary approaches and (1) qualitative, such as peer review, (2) semiquan-
improvements titative, such as tracking scientific evidence, or (3)
• changes in funding allocated to the quantitative, such as econometric measures. The
program evaluation method selected should depend on the
• changes in public and private sector evaluation objectives of the study and the needs
participation of each stakeholder (Table 5). The strengths and
• new techniques or methods drawbacks of each tool are presented in more de-
tail in Table 6 (at the end of this chapter).
2.8 Tools
Different tools are used to measure performance
over time. These include (1) secondary analysis 3. CHALLENGES AND KEY
of data, (2) the screening of projects and research SUCCESS FACTORS
orientations by peers and experts in the field, (3) Monitoring, evaluation, and impact assessment is
qualitative descriptions of case studies and anec- a complex field. The conditions, methodologies,
dotal accounts, and (4) matrix approaches, which and projects described here present various chal-
provide rich information and help to rationalize lenges that need to be factored into the evalua-
and simplify choices. tion and impact study. These challenges include
Examples of the matrix approach include: the relatively unpredictable nature of research
• systemic methods. can be used to imple- and technology transfer events. Certain research
ment an evaluation (This method is not re- outcomes are discrete and are thus difficult to
ally suitable for evaluating and can be very measure, track, and document. Moreover, there is
difficult to implement.) no single, accurate method to objectively evaluate
• financial methods. namely, cost-benefit R&D performance. There are also institutional
measures that take into account marketable challenges. Effective communication between
outputs and commercial resources (It is of- stakeholders can be a problem, partly because of
ten difficult to collect the information, and the difficulty of maintaining data quality. And
some factors cannot be financially assessed.) because assessments tend to focus on measuring
• technological forecasting methods. en- more immediate, short-term benefits, there is
tail the use of scenario methods and allow the risk of overlooking some of the longer-term
for the causality chain to be reversed (This benefits of R&D. This issue is also related to de-
method also allows for forecasting and takes termining the frequency of assessment studies.
into account social transformations.) For example, the European Union has adopted
• quantitative indicators. for example, sci- a system that calls for three impact assessment
ence and technology indicators and mea- studies: an ex ante study at the start of the proj-
surement, pure descriptiveness, and se- ect, a project-end assessment, and an ex post study
lection integration (Indicators provide three years after the completion of the project.6
fundamental scientific output measures.) The frequency of the study may affect its tem-
poral focus. Of course, without establishing the
To help select the most appropriate study commitment and resources to collect, process,
method, Table 4 maps the desired impact of a study store, and make accessible key performance data,
against the assessment method and technique. nothing can be accomplished. ��
Technology trans-
fer managers need to develop��
the infrastructure
2.9 Indicators necessary to have valid and reliable performance
Developing indicators is a critical step in the eval- information and use this data for decision-mak-
uation process. Ultimately, indicators drive im- ing. They should take the time to develop a
pact assessment and influence how the assessment shared understanding with funders about the role

PEFILE
Table 4: Impact Assessment Methods and Techniques
Impact Type Method Technique

Intermediate impact Survey, monitoring Simple comparison/trend
• Institutional changes analysis
• Changes in the enabling

environment
Direct product of research Effectiveness analysis using Simple comparison: target vs.
logical framework actual
Economic impact Econometric approach, Production function, total

(micro, macro, spillovers) surplus approach factor productivity, index
number methods, and
derivatives
Socio-cultural impact Socioeconomic survey/ Comparison over time

adoption survey
Environmental impact Environmental impact Various

assessment • Qualitative
• Quantitative
Table 5: A Summary of the Evaluation Needs of Different Stakeholders7
Research
managers/
Evaluation activity Policy-makers Donors Researchers
program
leaders
Review of entire system X X X X
In-depth review of component X X X
Ex ante evaluation of program/ X X X

project
Ongoing evaluation/ monitoring X X X

of research activities
Ex post evaluation of a research X X X

program/project
Impact assessment X X X X

CHAPTER 6.14
of public R&D within the national innovation IP management, commercialization, and tech-
system. Such efforts may make it possible to alle- nology transfer in relation to their economic and
viate shortages of essential financial, human, and social goals.
knowledge resources. Finally, it is essential to take the time to di-
It is essential to identify the key factors that, gest, reflect upon, and learn from an impact-as-
if in place, will improve the effectiveness of an sessment process. Lessons can be learned from
assessment framework. Managers must strive to both successes and mistakes, and these lessons
have in place as many of the following key success should not only be used to take corrective action
factors as possible: but also to improve future performance. n
• leadership commitment
• a desire for accountability
• a conceptual framework SIBONGILE PEFILE, Group Manager, R&D Outcomes, Council
for Scientific and Industrial Research (CSIR), PO BOX 395,
• strategic alignment
Pretoria 0001, South Africa. spefile@csir.co.za
• knowledgeable and trained staff members
• effective internal and external
communication 1 Macfarlane M and J Granowitz. 2002. Report to Science
• a positive and not punitive culture Foundation Ireland: Technology Transfer for Publicly
Funded Intellectual Property. Columbia University: New
• rewards linked to performance York; Rivette K and D Kline. 2000. Rembrandts in the
• effective data processing systems Attic–Unlocking the Hidden Value of Patents. Harvard
• a commitment to and plan for using Business School Press: Cambridge, Mass.
performance information 2 Idris K. 2003. Intellectual Property: A Power Tool
• adequate resources and the authority to for Economic Growth. World Intellectual Property
Organization, WIPO Publication No.888; Alikhan S.
deploy them effectively. 2000. Socio-Economic Benefits of Intellectual Property
Protection in Developing Countries. World Intellectual
Property Organization, WIPO Publication No. 454(E);
Dickson D. 2007. Technology Transfer for the Poor
4. Conclusion
(editorial), SciDev.Net; 16 January 2007. Moreira M A.
An effective evaluation system should strengthen 2007. Technology Transfer Must be Relevant to the Poor
an institution’s ability to maintain leadership (opinion), SciDev.Net; 16 January 2007. www.SciDev.Net
across the frontiers of scientific knowledge. The (click on Dossiers, Technology Transfer).
system should enhance connections between fun- 3 Main definitions and conventions for the measurement
of research and experimental development (R&D): A
damental research and national goals, such as im-
summary of the Frascati Manual 1993. OECD. Paris.
proved health, environmental protection, pros-
4 U.S. Department of Energy Office of Policy & Office of
perity, national security, and quality of life. Such Human Resources and Administration. 1996. Guidelines
an evaluation system also will stimulate partner- to Performance Management. Washington, DC.
ships that promote investments in fundamental 5 Mackay R and D Horton. 2003. Expanding the Use of
science and engineering, as well as the overall Impact Assessment and Evaluation in International
Research and Development Organizations. Discussion
more effective use of physical, human, and finan-
Paper, ISNAR.
cial resources for social and economic benefit.
6 Anonymous. 2003. Assessing EU RTD Programme
As a way of benchmarking progress, it is Impact; Collecting Quantitative and Qualitative Data
helpful to examine how other organizations mea- at Project Level: Designing Suitable Questionnaires
sure impact. Impact measures are a sure way of for Measurement of EU RTD Programme Impact
Study Contract No XII/AP/3/98/A. www.evalsed.info/
knowing that science is delivering on its objec-
downloads/sb1_research_development.doc.
tives and that R&D projects are having their in-
7 Interest depends on the activity and the role of the
tended effect. Without a measurement process, stakeholder concerned.
institutions cannot justify their efforts in R&D,

PEFILE
Table 6: Comparison of Assessment Tools
Methods R&D time frame R&D type Strengths Weaknesses

Modified peer past, ongoing, all • relatively easy to organize • relies on the opinions of a small number of people
review and future • can provide valuable information on • qualitative information only
potential impacts
• probably the best method for basic/
strategic R&D
• low to medium cost
User surveys past and on- applied R&D • overcomes the problem of a small number • structuring the survey and analyzing the results
going of respondents can be tricky
• possible to develop quantitative indices • often requires considerable time to identify users,
• medium cost develop survey methodology, and analyze results
Benefit-cost past, can be applied R&D • can provide reasonable defensible • can be very time consuming and labor intensive
methods used for ongoing estimates of potential benefits • results are critically dependent on assumptions
and future • provides a structure and a framework for that can be highly uncertain
R&D in certain assessing R&D projects that forces the
circumstances • because of cost and time requirements, can only be
right questions to be asked used for a limited number of projects
• relative cost is high
• data collection requirements are demanding
Cost- future, past (to a applied R&D • simplest • there is nothing to prove that any of the alterna-
effectiveness certain extent) • does not require benefit information tives can yield benefits over and above costs
analysis • if one of the alternatives costs less, but produces a
• medium cost
low quality product or has a different impact, then
the assessment becomes more complicated

Table 6 (continued)
Case studies past applied R&D • can provide good illustrations of the • generally there is no way to add up the results of
relationship between R&D and its impacts a group of case studies to obtain a measure of the
• probably the best method for basic/ total impact of the group
strategic R&D • the results cannot be extrapolated to other R&D
• medium cost projects that are not in the group
Partial past, ongoing, all • the information required to specify the • the individual indicators can generally only be
indicators and future indicators relatively easy to collect added up on a subjective basis, making overall
• probably the best method for ongoing impact assessment more difficult
monitoring • provides only a very partial picture of impacts
• low relative cost
Integrated future applied R&D • an easy but structured way to identify • relies heavily on the judgment of a few individuals
partial research priorities • there is a potential for bias in assigning weights to
indicators • forces decision makers to explicitly consider different criteria
the key determinants of impacts
• low relative cost
Mathematical past, ongoing, applied R&D • more powerful and sophisticated • demanding in terms of data requirements
programming and future • enables one to select optimal portfolio • high relative cost
• can handle simultaneous change in many • not particularly useful for evaluating too diverse a
variables set of R&D projects
• if either the criteria or constraints are not well
defined, there is a risk of arriving at a nonsensical
“optimal” solution

CHAPTER 6.14
PEFILE
Table 6 (continued)

Simulation past and future applied R&D • flexible • to be useful, it must accurately reflect the
method • can be used to estimate optimal level relationship between technological advancement
of research at national, commodity, or and economic development
program level • requires an extensive amount of time to construct
• can estimate the effect of research on and validate data
prices, income, employment, or other • medium to high relative cost
parameters
• can handle simultaneous change in many
variables
Production past applied R&D • offers a more rigorous analysis of the • uncertainty in projecting past rates of returns to
function impact future
approach • estimates marginal rates of return • demanding in terms of data
• statistically isolates the effects of R&D • selection of suitable functional form can be
from other complementary inputs and difficult
services • serious econometric problems may be involved
• relative cost is high
7
SECTION
Contracts and Agreements

to Support Partnerships
CHAPTER 7.1
Agreements: A Review of Essential Tools

of IP Management
bioDevelopments-International Institute and Adjunct Professor, Cornell University, U.S.A.
ABSTRACT responsible for further development), co-develop-

Public-sector research institutions can use a variety of ment (in which two parties collaborate on contin-
agreements to protect and manage intellectual property.
ued development), and distribution.
These agreements are powerful tools to foster competition
in the private sector and reduce prices for consumers in Most agreements are between two parties,
developing countries. This chapter provides an overview but some may involve three or more parties. The
of the following types of major agreements—confidential- public sector agency or the negotiating party may
ity, material transfer, development (in which the licensee provide the first draft of an agreement for nego-
is responsible for further development), co-development
(in which two parties collaborate on continued develop- tiation. Whoever writes the first draft often has
ment), and distribution—explains the functions of those the advantage, so public sector agencies should,
agreements, and suggests strategies for their effective use. whenever possible, take the initiative to prepare
The chapter also discusses the meaning and usefulness of the agreement. Regardless of who provides the first
the standard elements and formulas found in such agree-
draft, the proposal should adhere to the principle
ments. It explains the meaning and significance of the
terms and language used and discusses such key issues as of good negotiations: offer an agreement that you
product liability, fees and royalties, and arbitration. The would be willing to sign, if you were the other
chapter emphasizes the importance of establishing and party. A good agreement benefits both parties. For
maintaining trust when negotiating and implementing an agreement to work, the two parties must trust
agreements.
each other and maintain this trust throughout the
implementation of the agreement. With a high
1. Introduction level of trust, moreover, a request to renegotiate
One important goal of public sector licensing by either party may be better received should cir-
should be to promote competition between pri- cumstances change. Finally, since enforcing inter-
vate companies. Monopolies and high prices are national agreements through legal remedies may
not caused by patents themselves but by how pat- be difficult, such agreements should be considered
ents are managed, so the goals of the public sec- solemn commitments that must be observed.
tor can be served by using licensing strategies that
foster competition and reduce prices.
Many kinds of agreements are used to pro- 2. The use and limitations of
tect and manage intellectual property (IP). These template agreements
include agreements for confidentiality, material The chapter provides a number of template or
transfer, development (in which the licensee is sample agreements for each major type of contact.
Mahoney RT and A Krattiger. Agreements: A Review of Essential Tools of IP Management. In Intellectual Property Manage-
© 2007. RT Mahoney and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

MAHONEY & KRATTIGER
The online version of this Handbook also provides involving proprietary health products. Such con-
many agreements from different institutions from fidential information could concern laboratory
countries around the world. Each of these agree- data and other research data, sources of materi-
ments can be downloaded in Microsoft Word or als, methods of production, the nature of licensing
Adobe PDF formats. agreements, detailed design of specialized equip-
Evidently, no template agreement can be nor ment, staff-training requirements, countries in
should be considered as the “correct” or “best” which the developer would like to sell the product,
agreement. Any agreement must embody, specifi- and so on. It is wise to conclude a confidentiality
cally, the deal that has been struck between the par- agreement before entering into serious discussions
ties, and a good deal for all parties will depend on about a relationship with another party. Aside
the purpose of the deal and the context in which from the obvious aim of protecting confidential
the deal takes place. The template agreements are information, such an agreement ensures that both
merely intended as illustrations and possibly be- parties are treating the discussions seriously. An
come a starting point for discussions and negotia- agreement to convey and protect confidential in-
tions. In the discussion of the agreements in the formation is a measure of the willingness of both
Section 3, special reference is made to humanitar- parties to proceed. This is especially important for
ian-use clauses where appropriate and relevant. the party receiving confidential information. They
It should be noted that template agreements should be able to ask any reasonable question and
are useful when used judiciously and as a start- expect a fairly detailed response. Without a confi-
ing point in the total process that ends in a fidentiality agreement, the other party can refuse to
nal agreement between or among the parties. A provide information that they consider sensitive.
template agreement may be more or less com- It is more difficult to negotiate a confidentiality
plete, but clauses will always have to be changed, agreement after negotiations have begun, espe-
deleted, or added. It is useful, however, for any cially if trust has been damaged.2
organization to develop its own template agree-
ments that include the major elements that are 3.2 Materials transfer agreement
regularly used. The final draft agreement should Before agreeing to sign a license for further prod-
be reviewed by the institution’s counsel before uct development, a potential licensee may wish to
signature (and in some cases even before sending evaluate the new material(s) or products to see if
it to the other party for review). it works well in his or her hands. Although licen-
The online version of this Handbook1 will include sors should be willing to provide samples, they
a section with several hundred actual downloadable have an interest in assuring that the prospective
agreements from many different institutions. licensee does not misuse the samples. Misuse
might involve passing on a portion of the sample
to a third party or using the sample to generate
3. Major types of agreements additional material for future use without con-
Two parties establishing a long-term working cluding a license. It is generally recommended
relationship could sign a series of agreements, that public-sector research organizations use ei-
or they could sign one or two agreements that ther a Simple Letter Agreement3 or the Uniform
combine several agreements within them. The Biological Materials Transfer Agreement and the
following list appears roughly in the order that Implementing Letter format developed by the
agreements would be signed when two parties are National Institutes of Health.4 In cases where
engaged in the development and distribution of a large numbers of materials need to be transferred
new or improved product. on a regular basis, such as by plant breeders, a
simple material transfer agreement, such as that
3.1 Confidentiality agreements developed by with the International Network
Confidential information will probably be part for Genetic Evaluation of Rice (INGER),5 vari-
of discussions to establish business relationships ous national agricultural research and extension

CHAPTER 7.1
systems in Asia and the International Rice additional capabilities that a public-sector research
Research Institute (IRRI) might be most appro- institution either lacks or does not wish to allocate,
priate (Box 1: see also Appendix of this Handbook then the institution will want to enter into a co-
at the end of Volume 2, page 1853). development agreement with a partner identified
through the Invitation to Collaboration process.
3.3 Invitations to collaborate Co-development agreements vary widely with
To achieve its product-development goals, a re- regard to the extent to which the original owner or
search institute will often need to collaborate with product developer retains control over the prod-
another organization. This need may arise at any uct. A lone inventor with no development capa-
point, from laboratory studies through licensure bility may have very little control over what hap-
and distribution. For example, when a public-sec- pens to the product once a co-developer is brought
tor research program requires prototype products into the picture. On the other hand, a large firm
for clinical trials, it will probably need to find a that has completed virtually all of a product’s de-
partner because most public-sector research centers velopment, and only needs, for example, to clini-
lack high-quality production facilities. Likewise, cally test the product at a new dosage, may retain
for many neglected diseases in developing coun- almost complete control (in such cases, the firm
tries, highly specific, highly sensitive, affordable may simply execute a subcontract with the clini-
diagnostics are unavailable, and so collaboration cal-testing organization). A co-development agree-
might be needed when diagnostics are required ment will define the nature of the final product or
for surveillance or clinical trials. Collaborators are other output sought, the role of each party in the
such an important part of successful development development process, the resources (financial, per-
that public-sector research institutions should sonnel, and institutional) each party will invest,
have a thorough process for identifying them. the process by which the project will be managed,
Collaborators may be sought through Invitations the interim goals (milestones) and timetable, and
to Collaboration, which should be widely distrib- provisions for sharing in the success or failure of
uted in international journals or other media, in- the effort. Of particular importance is the project-
cluding the Internet and an organization’s Internet management system. It is common to establish a
home page. Summaries of the goals of the collabo- project-management committee comprising staff
ration might also be included in the invitation. from each party. The number of members from
Responses to an invitation should be reviewed ac- each party, the authority of the committee, the
cording to well-defined criteria, and all applicants frequency of meetings, and the requirements for
should receive a report on the outcome of the pro- written reports will be specified in the agreement
cess. An open and transparent process (with ap- (see the Appendix of this Handbook for a sample
propriate protection of confidential information) co-development agreement).7
will establish a reputation for fairness. Sometimes,
sole sourcing for one of the collaborating entities 3.5 Technology licensing agreement
may be appropriate because of the undisputed ca- These are the most common types of agreements
pability of one organization to undertake the work negotiated by universities. It allows one party to
rapidly, effectively, and inexpensively. Cases of sole use, make, or sell products involving the intellec-
sourcing, however, should be clearly documented, tual property of the other party. The agreement
and management should be able to explain clearly has terms defining the length of time the license is
why the sole-source route was chosen (see Box 2). valid; the markets (territory) in which the licensee
Once a collaborator has been identified, it will be can make, use, or sell the product; whether or not
timely to negotiate a co-development agreement.6 sublicenses are permitted; the nature and amount
of up-front fees and royalties; and whether or not
3.4 Co-development agreements the licensor has rights to any improvements de-
If research and development have reached a stage veloped by the licensee. Many other terms can ap-
at which further extending the work requires pear in a licensing agreement. See Appendix for a

MAHONEY & KRATTIGER
sample technology-license agreement, and Sections particularly in agreements between public and
11 and 12 in this Handbook contain many chap- private sector agencies. It documents that the
ters dealing with specific elements of licenses. parties believe their motivations and goals are
complementary, and because the objective of an
3.6 Distributorship agreement agreement is to have a win-win outcome, this sec-
Distributorship agreements permit the licensee to tion should set the right tone and clearly state the
receive a product from a licensor or to purchase parties’ reasons for entering into the agreement.
a product from a third party for distribution in If a dispute ever arises between the parties, the
a defined market under a number of conditions information in this introductory section could be
involving price, quantities, quality, labeling, roy- invaluable should the dispute end up in arbitra-
alties, and so on. The agreement often allows the tion or litigation.
distributor to arrange for clinical trials, submit
required documentation to the national licens- 4.2 The parties
ing authority, and prepare and carry-out product The parties are those persons, companies, or in-
promotion. A public-sector research institute, for stitutions that willingly enter into an agreement.
example, may arrange for a diagnostic to be man- Most often, there are two parties, but the number
ufactured by a commercial company that may not may be more than two. The agreement may be
be interested in marketing the diagnostic in any between two institutions or two individuals, or
or all territories. an institution and an individual. It is important
Because they place a valued product in the to note that if one of the parties is an institu-
hands of a second party, distributorship agree- tion, then the entire institution is bound by the
ments are treated very carefully, especially the agreement.
negotiation and implementation phases of such Note that the incorporated names of the in-
agreements. In cases of drugs, vaccines, and diag- stitutions involved, as well as their headquarters,
nostics, a license grants the licensee the right to are included in the parties’ names and addresses
obtain a regulatory permit to sell the product in a list. Some organizations have regional offices or
given market. If the license should be terminated subsidiaries with authority to enter into agree-
because the licensee does not perform or loses in- ments. The addresses here may be different from
terest in the product, the licensor and a new li- the addresses to which notifications or data must
censee may find it difficult to get a new permit be sent.
from the regulatory authority. They may have to
repeat many expensive activities with the attendant 4.3 Definitions
delays. One way to address this potential problem, Any agreement is built around the meaning of the
if local law permits, is to require the regulatory written words. Many words or phrases are legal
license to be transferable to a third party selected “terms of art” that do not require definitions if
by the licensor. A distributorship agreement can the usage is standard within the corresponding
also be the first step in building a long-term re- field. Including a definition section enables a
lationship that can lead to technology-licensing lawyer, in drawing up an agreement, to use the
agreements and additional co-development agree- language of the agreement precisely, clearly, and
ments. The Appendix of this Handbook contains a consistently without deviation in either the forms
sample distributorship agreement. of terms or their meanings. For example, as a legal
term of art, the term infant refers to any child up
to the age of adulthood—not just a baby—and a
4. Standard Elements of Agreements “foreign corporation” is one incorporated in any
jurisdiction, not necessarily another country. If
4.1 Recitals, preamble, and whereas clauses there is any doubt whether a term will be under-
Laying out the broad motivations and goals of stood, it is advisable to define it, in order to avoid
the parties, this opening section is important, any confusion later.

CHAPTER 7.1
4.4 Confidentiality the license is for the limited territory of a single

Confidential information disclosed in tangible country. One reason for this is the cost and time
form is managed very carefully. The informa- required to obtain the approval of the national li-
tion is placed in a secure, locked filing cabinet censing authority. Few licensees would be willing
or in a password-protected computer and marked to take on this burden if others could freely take
“CONFIDENTIAL.” Only those staff covered by advantage of their costs for obtaining regulatory
the confidentiality agreement have access to the approval.
material. Either they should complete a check- In general, licensees want the most territory
out form when they remove the material, or, with and the highest level of exclusivity. This gives
digital materials, a record should be made of the them the greatest opportunity to exploit mar-
materials being accessed. Orally transmitted in- kets, seek profits, and keep competitors away.
formation should be put in writing soon after Moreover, it generally lowers the licensee’s risk.
it is provided and the written form checked in With an unproven licensee, it is prudent to limit
and out as appropriate. Scientists commonly dis- both territory and exclusivity to the minimum
cuss research findings freely and seek to publish necessary for the project to succeed (at least ini-
them early. However, if the generation of intel- tially). It is a licensor’s nightmare to spend several
lectual property is an important goal, scientists years working with a licensee only to have that
will have to consider how they can disseminate licensee fail to develop the product’s market. A
their findings while helping to produce the in- compromise middle ground is for the licensor to
tellectual property. One way to overcome this grant increasing levels of territory and exclusivity
difficulty is for IP management offices to swiftly as the licensee achieves various performance mile-
evaluate whether to patent a new discovery. Some stones. For example, the licensee could receive a
technology transfer offices can complete such an license to a new territory after successfully com-
assessment in 30 days, which does not unrea- pleting a marketing plan for that territory and
sonably delay the presentation or publication of investing some base levels of funds to implement
the work. It should always be remembered that the plan. Or a licensee could be required to pay
confidential information has commercial value a separate license fee for each additional territory
and its improper release can cause substantial granted. The amount should be large enough to
damage. The original owner of the confidential ensure that the licensee will want to protect the
information could seek financial damages for the amount paid by actually developing the market
unauthorized release of confidential information. in the new territory. A good rule of thumb is that
Divulging confidential information might also be a license should be granted only when it is prob-
grounds for terminating the agreement. able that the licensee will be able to develop that
market. A key consideration for the licensor is to
4.5 Territory and exclusivity calculate the minimum market size necessary to
In a licensing agreement, the territory is the geo- reach its financial goals with the product. One is-
graphic region in which the licensee is permit- sue with exclusive licenses is that they de facto
ted to make, use, or sell the product. Applying form monopolies, which can make it difficult for
mainly to distribution agreements, a territory can the public sector to obtain the product at an af-
be a part of a country, a whole country, several fordable price.
countries, or the whole world. Exclusivity deter-
mines whether the licensee will have to share the 4.6 Product liability
territory with one or more other licensees of the Product liability is increasingly important. Once
same products. Licensors grant nonexclusive li- an issue primarily of concern in the United
censes to stimulate competition among licensees States, product liability is becoming a problem
and to provide alternate distributors in case one in Europe as well as the rest of the world. It af-
licensee fails. For health products, a licensor rare- fects many aspects of the health product business,
ly grants anything but an exclusive license when from the conduct of clinical trials to product

MAHONEY & KRATTIGER
prices, which are increased to cover the cost of in defending a liability case. Insurance is available
liability self-insurance. to cover just the legal costs of defense. The licen-
All health-product manufacturers and dis- sor should ask for proof that the licensee has ob-
tributors should be concerned about the safety of tained liability insurance and that the insurance
their products. There is a chance that a product is kept in force. Liability is an extraordinarily im-
will harm an individual. Preventive products (for portant issue, and public sector research groups
example, vaccines) are the cause of greater con- are well advised to obtain high-quality profes-
cern than therapeutics, since the former are given sional advice.
to healthy individuals. When a health product
harms an individual, it is reasonable for that per- 4.7 Up-front fees and royalties
son to be compensated for the injury. The form A license transfers value. The up-front fees and
of compensation, however, will vary depending royalties, therefore, are the agreed price repre-
on the country. Unfortunately, in developed senting that value. Since licenses are not trad-
countries, “product liability” has, to some extent, ed in open markets, where the price can be set
become a kind of lottery: individuals seek huge through supply and demand, each negotiation is
awards based more on the ability of the company unique and reflects the evaluations of each party.
to pay than on the actual losses. Sometimes the A licensor will have several considerations. First,
awards are so large that the very survival of the the licensor will want, at a minimum, to recover
company is threatened. This situation has made the expense, or some reasonable portion of the
companies quite defensive regarding liability, af- costs, already invested in the product. Second,
fecting their willingness to enter new markets and the licensor will want to generate a steady flow
to develop new health products. of income.
When negotiating a license, the key ques- Up-front fees have to balance two issues.
tion with respect to liability is: who should accept First, they should be high enough, if possible, to
product liability and for what? For some matters meet the licensor’s need for short-term income
the answer is clear. A manufacturer, for example, and to assure that the licensee is seriously seek-
should be responsible for adhering to good man- ing to develop the product. Second, they should
ufacturing practices and should be responsible not be so high that they limit the ability of the
for any injury caused by errors in the production licensee to invest in the product and make it a
process. A public sector licensor will usually ex- success. Other factors to consider are the ex-
pect the licensee to assume most of the liability pected life of the product and the lifetime of the
because the licensee sells the product. A licensor IP rights being granted. The shorter the life of a
may, as a condition for granting the license, make product (because other, better products are ex-
acceptance of liability by the potential licensee, pected to emerge quickly), the less the licensor
which places a special burden on the licensee to can ask for up-front fees and, to a lesser extent,
assess carefully the product’s potential liability royalties. If the license is based on a patent, at
implications. It is extremely rare for a licensor to the end of the patent’s life the level of royalties
be brought into a liability suit. If accused, it is may decrease or the license may even expire. The
even rarer for a licensor to be found liable. term of the license is more complicated when the
Even if a licensee holds the licensor harm- license is for know-how. A reasonable but com-
less, doing so would not prevent the licensor from plicated approach for such licenses is to have the
being named in a suit. The costs of defending a royalty diminish with time and eventually reach
suit, especially in the United States and Europe, zero when both parties agree that the know-how
can be very large—sometimes almost as dam- is no longer valuable. Such an event might oc-
aging as a liability judgment itself. The licensor cur when the licensor stops using the know-how.
should therefore request, and have this specified But if the know-how is essential for successfully
in the agreement, that the licensee meet all costs manufacturing and selling the product through-
incurred, within reasonable limits, by the licensor out its lifetime, there is no reason for the royalty

CHAPTER 7.1
to change. Also, a licensor may make continual 4.9 Term and termination
changes in the know-how and pass those on to Term and termination clauses specify the term
the licensee. In this situation, royalties may be over which an agreement is to last. The beginning
collected for a very long time.8 date can be either a specified calendar date or,
Having said all this, it is important to remem- more usually, the date on which the last signature
ber that the goal of the licensing strategies dis- is applied. A specified date might apply when cer-
cussed here is to maximize benefits for the public tain calendar-specific tax matters are important
sector. Possible up-front fees and royalties should or when it is essential to ensure that one party
be seen simply as two ways to extract value for the does not delay initiation of the agreement.
public sector—and perhaps not the most desirable Termination is a much more complex issue.
ways. A standard termination provision should include
cases in which one party breaches a part of the
4.8 Arbitration agreement. The party that feels there has been a
Successful agreements are based on trusting re- breach by the other party will be required to send
lationships, and both parties in an agreement a notice of breach. Usually, a period of time is
should work to maintain trust in implementing provided during which the supposedly breach-
the agreement. Some agreements, usually those ing party can correct the breach or prove that a
negotiated between two parties in the same coun- breach has not occurred. Also, since circumstanc-
try, can allow for disputes to be settled in court. es can change, it may be desirable to allow one or
The more common practice, however, is to use both parties to terminate the agreement follow-
arbitration. The issues for consideration here are ing the expiration of a defined notice period (for
the number of arbitrators, how they are chosen, example, 60 days). It may be desirable to define
their operating rules, the location where the ar- the circumstances under which such termination
bitration shall take place, which party shall bear is allowed.
the costs of the arbitration process (or what share
each party will bear), and whether the arbitration 4.10 Jurisdiction, warranties, notices
should or should not be administered by an arbi- The agreement will specify that, in the case of a
tration institution. dispute, laws will apply in a particular country,
In one formulation, three arbitrators are state, or province. The jurisdiction will usually be
used. Each party chooses one, and the two ar- that of the licensor, although there may be rea-
bitrators, so chosen, choose the third. The third sons to have a neutral third location.
arbitrator serves as the chairperson of the panel. Each party to the agreement should warrant
The arbitrators may operate according to various that it has the authority to do what is contained
rules. An international set of rules is a common in the agreement. For example, if the agreement
reference, and many arbitration institutions have is a patent license, the licensor will warrant that
their own arbitration rules. In addition, most it owns the patent and that it is not aware of any
countries have laws that govern arbitral proceed- infringement of the patent. Conversely, this war-
ings conducted within their territory. These laws rant may include that the licensee cannot hold
should be carefully considered when choosing the the licensor liable for any unknowing infringe-
arbitral locale. Location is also important because ment that may be discovered. Warrants are of-
of costs. If arbitration occurs at the offices of one ten symmetrical (that is, each party warrants the
party, the other party will have to incur costs to same things).
be present for the proceedings. Cost allocation An agreement will specify the name, address,
can be specified in the agreement, or the arbitra- and other contact information of the individuals
tors can allocate the costs. Arbitration can be very or positions within each party to which official
costly, which further emphasizes the need to en- communications should be directed. The notice
sure that the initial negotiations are as thorough clause may also specify whether fax and electronic
and specific as possible.9 documents are acceptable.

MAHONEY & KRATTIGER
4.11 Other potentially important clauses representing the Party and not signing the agree-
In certain types of agreements or jurisdic- ment as an independent entity.
tions, the following clauses may be of particular In some cases, more than one representative
importance: from each party should sign an agreement. For ex-
ample, when materials are transferred to a labora-
4.11.1 Illegal/unenforceable provisions tory of a specific scientist, it is important to ensure
In some jurisdictions, it might be advisable to in- that the scientist is fully aware of the obligations so
clude certain limitations: the scientist may be included as a signatory.
Should any court of competent jurisdiction later Further, in a university setting, different de-
consider any provisions of this Agreement to be in- partments or even legal entities may have certain
valid, illegal, or unenforceable, such provisions shall responsibilities over in-licensing and out-licens-
be considered severed from this Agreement. All other ing. For example, an office of sponsored pro-
provisions, rights, and obligations shall continue grams may be responsible for incoming materi-
without regard to the severed provision, provided als, whereas a foundation that commercializes
that the remaining provisions of this Agreement are university inventions may also have a stake in the
in accordance with the intentions of the Parties. agreement. In such cases, there may be signatories
representing at least three entities, one of which
4.11.2 Statement of completeness may include the chief scientist.
Many organizations have more than one agree-
ment with a specific third party in place. If that
is the case, then the formerly existing agree- 5. Conclusions
ments should be cited whenever possible and re- No agreement will ever be perfect. Evidently,
viewed for consistency with any new agreement. there are good and not-so-good agreements (and
Alternatively, the agreement may be limited to the even poorly written ones or highly ineffectual
purpose that has previously been defined. Typical agreements). The better ones may take longer to
language could read: negotiate, but the good news is that each time
The above constitutes the full and complete an agreement has been successfully developed by
Agreement on this Purpose by and between the two parties, the process gets easier. Taking time to
Parties. think through and discuss the terms of an agree-
ment helps foster communication between the
4.11.3 Subject law partners. Such an activity, especially if carried out
In the subject-law section, the Parties clarify where early on, sets the project on a path for success. In
they wish to have an agreement interpreted and any case, the critical aspect of any agreement is
adjudicated. Such a determination is not always what the parties do after the agreement has been
necessary but can make future interpretation less signed; an agreement should always be seen as
difficult, particularly if the Parties are located in just the beginning of a long and mutually benefi-
different countries. Typical language is: cial relationship. n
This Agreement shall be interpreted, construed
and adjudicated under the laws of _____ province
[or state, canton, etc.] _____ within the nation of Richard T. Mahoney, Director, Vaccine Access, Pediatric
Dengue Vaccine Initiative, International Vaccine Institute,
_____.
San Bongcheon-7dong, Kwanak-ku, Seoul 151-818,
Republic of Korea. rmahoney@pdvi.org
4.12 Signatories
Representatives with authority to bind their re- Anatole Krattiger, Research Professor, the Biodesign
spective institutions are the persons who should Institute at Arizona State University; Chair, bioDevel-
sign agreements. It is advisable to include the Cornell University, PO Box 26, Interlaken, NY, 14847,
person’s title to make clear that the person is U.S.A. afk3@cornell.edu

CHAPTER 7.1
1 www.ipHandbook.org. Included there are many actual 4 See http://ott.od.nih.gov/policy/rt_guide_final.html

agreements including confidentiality, material transfer and http://ott.od.nih.gov/NewPages/UBMTA.pdf.
(for germplasm, biological resources, materials for 5 The swift program at Cornell University and IRRI
testing, research tools, and experimental animals), collaborated at the time for the INGER Training-
IP licenses for copyright, software, trademarks, trade Workshop on IPR, 17-18 July, 2001, Maruay Garden Hotel,
secrets, and various forms of exclusive, coexclusive and Bangkok, Thailand.
nonexclusive licenses, as well as the Model Provisions
for an Equitable Access and Neglected Disease 6 See, also in this Handbook, chapter 17.10 by KR
License developed by the working group, based at Schubert.
Yale University, convened by Universities Allied for 7 Ibid. and chapter 7.4 by MB Steinbock.
Essential Medicines. Other chapters in this Handbook
8 See, also in this Handbook, chapter 5.4 by BJ
also contain sample agreements including nonasserts,
Weidemier.
invention disclosure, licensing checklist, and more.
Please refer to the index for a list of agreements. 9 See also, in this Handbook, chapter 15.3 by E-J Min.
2 See, also in this Handbook, chapter 7.2 by SP Kowalski 10 Mahoney RT (ed.). 2004. Handbook of Best Practices
and A Krattiger. for Management of Intellectual Property in Health
Research and Development. MIHR: Oxford, U.K.
3 See, also in this Handbook, Box 3 in chapter 5.7 by AB
Bennett.

MAHONEY & KRATTIGER
Box 1: Material Transfer Agreement for the Genetic Evaluation

of Rice to and from INGER Collaborators
The International Rice Research Institute, MCPO Box 3127, Makati City 1271, Philippines (“IRRI”),
provides the “Material”
under the following terms and conditions:
1. The Material provided is not intended for the exclusive use of any single organization.
2. IRRI requires written notification if the recipient distributes the Material to a third party.
3. Recipients may not seek any form of intellectual property rights protection on the Material
without prior written consultation with IRRI. IRRI reserves the right to refuse to grant such
permission.
4. Use of the Material will be publicly recognized when and where appropriate, and recipient will
provide IRRI with reports on its use of the Material on a reasonably frequent basis.
5. IRRI does not warrant or guarantee the title, quality or correctness of the Material being
supplied and will not be held liable for the Material or its use.
6. IRRI provides the Material on acceptance of the terms and conditions of this MTA. Recipient’s
retention of the Material shall be deemed to constitute acceptance.
Name of Recipient
Title
Institution
Address
E-mail
Date

CHAPTER 7.1
Box 2: Invitation to Collaboration
Development of a Health Product A
Objective
The Public Sector Research Centre (PSRC) is seeking collaborative relationships with one or
more organizations capable of completing the following tasks for prototype health products:
industrial development, manufacturing, clinical testing, and licensure by national regulatory
authorities.
Health Product A can be produced in a number of different ways. The PSRC believes that one or
more of these production methods could be viable for commercial scale-up.
The Public Sector Research Centre

[insert a description of the PSRC including governance, funding, research programs, goals,
history, capabilities, etc.]
Participating Scientists
The following scientists have played a leading role in the development of methods for
synthesizing Health Product A as described in the attached documents. [attach copies of
relevant publications]
and their collaborators.
Mode of Operation
The PSRC has the ability to mobilize assistance for the health-product development process by a
variety of means including financial, technical, and in-kind support.
Companies should contact the PSRC to initiate an agreement on a development project.
The following issues are open for discussion with respect to a collaboration
agreement:
• Product development including consultation on details of manufacture, adjuvanting,

packaging, heat stability, etc.
• Cost sharing of the manufacture of sufficient health product for Phase I through Phase III
trials.
• Assessment and planning for the introduction of the health product into private-sector
markets.
• Assessment and planning for the introduction of the health product into public-sector
markets.

MAHONEY & KRATTIGER
Box 2 (continued)
• Development of regulatory standards through interactions with national regulatory

authorities and the World Health Organization.
• Conduct of Phase I through Phase III trials in developed and developing countries in a variety
of populations.
• Obtaining regulatory approval in developed and developing countries.
Intellectual Property Rights

Details on patent applications will be discussed with interested parties following execution of
a suitable confidentiality agreement. The PSRC possesses extensive know-how, which will be
essential for the cost-effective implementation of a health-product development program.
Desired Product
The envisaged health product is expected to consist of _______________________. Further
information on specific methods for health product manufacture is provided in the attached
documents.
In the developing world, the principal use of the product is expected to be _________________
______. In the developed world, the health product may find use in _______________________.
See the following dossier for further discussion of potential market.
Submission of Expression of Interest

At this time, a letter containing the following information is requested:
• the nature of your interest in this project
• if you wish, a summary of the capabilities and experience of the organization
• names of other collaborators or partners
• an indication of the types of assistance/collaboration desired from the Institute
Interested parties are requested to write to the PSRC ____________________________________

__________. Submissions are requested prior to _______________________.
For further information, contact either [name 1] _______________________or [name 2] _______

________________ of the PSRC at telephone _______________________ or fax _______________
________ or write to them at [e-mail address] _______________________or the above address.
Review and Contracting Procedure

Interested parties will be contacted to arrange for meetings and development of collaborative
agreements.
Background on Health Product A and Collaborating Scientists

Health Product A is involved in acute, chronic, and _______________________. Health Product A
is widespread in both developing and developed countries and infects _____________________.
Infection persists throughout life. Health Product A transmission is primarily by _____________
__________.

CHAPTER 7.1
Box 2 (continued)
Health-Product-A–associated diseases are significant causes of morbidity and mortality.

For example, in developing countries ______________________________________________.
In developed countries, it leads to significant morbidity_______________________.
Short biographies of collaborating scientists [include as an attachment]
Market Potential for Health Product A
Scientific and other References
Source: Mahoney10

CHAPTER 7.2
Confidentiality Agreements: A Basis for Partnerships

STANLEY P. KOWALSKI, Franklin Pierce Law Center, U.S.A.
bioDevelopments-International Institute and Adjunct Professor, Cornell University, U.S.A.
ABSTRACT a mutually advantageous relationship. For exam-

Confidentiality agreements (also called nondisclosure ple, a confidentiality agreement often precedes
agreements, confidential disclosure agreements, and se-
licensing negotiations or the acquisition of intel-
crecy agreements) are contracts that govern the disclosure
of confidential information by one party (the disclosing lectual property (IP) rights.
party) to another party (the receiving party). Confidential Depending on the perspective, whether a per-
information is exchanged for a promise of secrecy. The son or party is disclosing or receiving confidential
disclosure may be unilateral, bilateral or multilateral. information, the disclosing party will want the re-
Confidential information disclosed in a confidentiality
agreement might pertain to scientific research results and ceiving party to maximize protection whereas the
data, chemical compositions and formulas, software de- receiving party will want to minimize constraints.
velopment information, recipes, laboratory methodology, However, the disclosing party often wants to dis-
and manufacturing techniques trade secrets (in the form close information, for example, as a first step in
of valuable know-how and/or show-how). The confiden-
licensing negotiations or other business develop-
tial information has value precisely due to the fact that is
known to only a few, that is, open disclosure will be inju- ment activities, or as required by a know-how li-
rious to this value. Confidentiality agreements often pre- censing agreement. But even the receiving party
cede licensing negotiations or the acquisition of IP (intel- may see problems in terms of future constraints
lectual property) rights and serve to strike an appropriate imposed by the agreement and its ability to use
balance between the needs of the disclosing and receiv-
ing parties. A confidentiality agreement can either stand the received information. In the end, a confiden-
alone or be included as part of a broader agreement. An tiality agreement is intended to strike an appro-
appropriately drafted confidentiality agreement should priate balance between the needs of a disclosing
contain a list of standard provisions and exceptions. In party and the needs of a receiving party.
special cases, where the disclosing party wishes to care-
fully protect the confidential information, the agreement
Confidential information is often passed
might also include extra strong clauses and articulated from one party to another when materials are
security provisions. transferred, during collaborations, and in some
types of licensing agreements. A confidential-
ity agreement is the simplest form of almost any
1. Introduction: Building Trust agreement, and confidentiality clauses generally
Before entering into a relationship, a level of form an integral part of most other agreements.
trust between the parties must be established. But confidentiality agreements are also entered
This trust is the basis for a confidentiality agree- into separately for the sole purpose of disclosing
ment, which is often the first step in developing confidential information, although perhaps they
Kowalski SP and A Krattiger. Confidentiality Agreements: A Basis for Partnerships. In Intellectual Property Management
© 2007. SP Kowalski and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

are used less often for that purpose. It is important contract terms, confidentiality agreements in-
to note that obtaining third-party confidential include a number of terms that are important. Box
formation may not always be a good option. The 1 provides a fairly typical confidentiality agree-
knowledge could block important future research ment used by a university.
or otherwise adversely affect the business of a re- The following agreement is a sample of a
ceiving party. one-way, or unilateral, confidentiality agreement.
Two-way agreements, through which two parties
mutually disclose confidential information follow
2. Confidentiality agreements the same approach in principle, except that both
defined parties usually have the same obligations to each
Confidentiality agreements (also called nondis- other. Specific samples of unilateral and bilat-
closure agreements, confidential disclosure agree- eral agreements from different organizations are
ments, and secrecy agreements) are contracts that available for download on the Handbook’s Web
govern the disclosure of confidential information version.
by one party (the disclosing party) to another
party (the receiving party). The disclosure may be 3.1 Disclosing party
unilateral, with one party disclosing confidential It should be noted that the disclosing party does
information to only one other party; bilateral, not necessarily need to be the party who actually
with two parties mutually disclosing information; owns the confidential information. The disclos-
or multilateral, with three or more parties disclosing party may instead be a party that lawfully pos-
ing information among themselves. sesses the information and is legally permitted to
With regard to a confidentiality agreement, disclose it.
confidential information is exchanged for a prom-
ise of secrecy. Confidential information is infor- 3.2 Receiving party
mation that is of value precisely because it is not Receiving parties, particularly in large organi-
generally known to competitors or to the public. zations, are parties to a confidentiality agree-
Such information might pertain to scientific re- ment. The receiving party may thus be a series
search results and data, chemical compositions of individuals, depending on the complexity
and formulas, software-development information, of the disclosure. In such cases, confidentiality
recipes, laboratory methodology, manufacturing- agreements, and disclosures, are made at differ-
techniques trade secrets (in the form of valuable ent stages whereby, initially, one individual or
know-how and/or show-how), and so on. What a small department receives the confidential in-
matters, within the context of the confidential- formation. For example, if the receiving party
ity agreement, is that the information is of value is not confident that the information is really
due to its state of being relatively unknown, and, worth binding the entire large institution to an
therefore, open disclosure would be injurious to agreement, an individual may be nominated to
this value. receive the confidential information as a first
step before subsequent agreements are executed.
Unless otherwise articulated in the confidential-
3. Key provisions ity agreement, every person within the organi-
As stated above, confidentiality agreements come zation that is named as a party may share the
in many different forms and lengths and should confidential information with every other per-
be adapted to the particular circumstances and son within the same organization. However, as
legal environment.But they all have the same es- per specific disclosure provisions in the agree-
sential components and purpose: to ensure that ment, disclosure may be limited to persons who
a privileged communication to a third party is “need to know,” or to certain departments, or to
treated as confidential. But, along with the stan- only scientists within a specific research group,
dard terms of any agreement, such as boilerplate for example.

CHAPTER 7.2
Box 1: Unilateral Confidentiality Agreement
This Agreement, effective on _________ (“Effective Date”),

is by and between _________________________(“Disclosing Party”),
with offices at ________________________, and
________________________ (“Receiving Party”),
with offices at ________________________.
The Disclosing Party intends to disclose certain Confidential Information to the Receiving Party
for the following purpose (the “Purpose”):
Now, therefore, in consideration of the Disclosing Party making such confidential information
available to the Receiving Party, the Receiving Party hereby agrees as follows:
1. As used in this Agreement, the term “Confidential Information” means any technical or business
information furnished by the Disclosing Party to the Receiving Party in furtherance of the
Purpose in connection with the Purpose, regardless of whether such information is specifically
designated as confidential and regardless of whether such information is in written, oral,
electronic, or other form. Such Confidential Information shall include, without limitation, trade
secrets, know-how, inventions, technical data or specifications, compilations of information,
records, testing methods, business or financial information, research and development
activities, product and marketing plans, and customer and supplier information.
2. Confidential Information shall not include disclosed information to the extent that the
Receiving Party can demonstrate that such disclosed information:
(a) was in the public domain prior to the time of its disclosure under this Agreement;
(b) entered the public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by the
Receiving Party;
(c) was independently developed or discovered by the Receiving Party without use of the
Confidential Information;
(d) is or was disclosed to the Receiving Party at any time, whether prior to or after the time
of its disclosure under this Agreement, by a third party having no fiduciary relationship
with the Disclosing Party and having no obligation of confidentiality with respect to such
Confidential Information; or
(e) is required to be disclosed to comply with applicable laws or regulations, or with a court
or administrative order, provided that the Disclosing Party receives prior written notice of
such disclosure.
3. The Receiving Party agrees that it shall:

(a) maintain all Confidential Information in strict confidence, except that the Receiving
Party may disclose or permit the disclosure of any Confidential Information to its
directors, officers, employees, consultants, and advisors who are obligated to maintain
the confidential nature of such Confidential Information and who need to know such
Confidential Information for the purposes of this Agreement;
(b) use all Confidential Information solely for the purposes of this Agreement; and
(c) upon the conclusion of the Purpose, or earlier at the request of the Disclosing Party, return
to the Disclosing Party all originals, copies, and summaries of documents, materials, and
other tangible manifestations of Confidential Information in the possession or control of
the Receiving Party.

Box 1 (continued)
4. The term of this Agreement is for the duration of one (1) year from the Effective Date
(“Termination”).
5. The obligations set forth in this Agreement shall remain in effect for a period of five (5) years
after Termination, except that the obligation of the Receiving Party to return Confidential
Information to the Disclosing Party shall survive until fulfilled.
6. The Receiving Party acknowledges that the Disclosing Party claims ownership of the
Confidential Information disclosed by the Disclosing Party and all intellectual property rights
in, or arising from, such Confidential Information. No option, license, or conveyance of such
rights to the Receiving Party is granted or implied under this Agreement.
In Witness whereof, the Parties hereto have caused this Agreement to be executed.
DISCLOSING PARTY RECEIVING PARTY
Signature: _________________________ Signature: _________________________

Name: ____________________________ Name: ____________________________
Title: _____________________________ Title: _____________________________
Date: _____________________________ Date: _____________________________
3.3 Purpose of the confidentiality agreement 3.4 Limitations on disclosure

As with any agreement the definition and de- Information received under a confidentiality
scription of the purpose are important for any agreement cannot be disclosed to a third party
confidentiality agreement, with the aim of avoid- that is not a party to the agreement, even if such
ing confusion and later disagreement. The text disclosure takes place under a separate agreement.
could read: There are also examples when a receiving party
… to evaluate XXX technology of the Disclosing believes that the disclosing party has a separate
Party, or confidentiality agreement with a third party. This
… to evaluate entering into a sponsored research might tempt the receiving party to disclose the
agreement, or confidential information to this third party, per-
… to evaluate the information to assess entering haps mistakenly believing that the third party
into a license agreement might already have had access to the particular
confidential information from the disclosing par-
Such language provides an additional caveat ty. Such disclosures to third parties are not per-
as to how the confidential information may be mitted (unless specifically allowed).
used within the context of the confidentiality
agreement. That is, in addition to who may be a 3.5 Important exceptions
receiving party and what the confidential infor- Confidentiality agreements usually contain ex-
mation entails, purpose further specifies, or receptions to the receiving party’s obligation to
stricts, how the information may be used. maintain the confidence of the confidential

CHAPTER 7.2
information. These clauses are not generally departments. Yet Irina’s confidentiality agree-
points of negotiation. Different agreements may ment is between BioChem and the university as
include different exceptions, though the follow- a whole since the Office of Sponsored Programs
ing five are fairly typical: signed it on behalf of the university. Since Irina
1. The information that was in the public do- never shared the data with Yuri, Yuri may be un-
main prior to the time of its disclosure. der no obligation of confidentiality in regard to
2. The information was already known by the the specific data he developed himself.
receiving party. Referring now to the fourth point in the list
3. The information entered the public do- above, if a provision is included in the confiden-
main after the time of its disclosure under tiality agreement such that information indepen-
the agreement through means other than dently developed or discovered by the receiving
an unauthorized disclosure resulting from party (someone at the university) without the use
an act or omission by the receiving party. of the confidential information will be an excep-
4. The information was independently de- tion to confidentiality, then Yuri is under no ob-
veloped or discovered by the receiving ligation to keep the information secret. If this ex-
party without use of the confidential ception were not included in Irina’s confidentiality
information. agreement with the BioChem company, then Yuri
5. The information is or was disclosed to the would not be able to publish information about his
receiving party at any time by a third party innovation without placing Irina at risk of breach
having no fiduciary relationship with the of the confidentiality agreement with BioChem.
disclosing party and having no obligation Once Yuri made his data public, Irina likewise is
of confidentiality with respect to such con- no longer under an obligation to keep her data se-
fidential information. cret (providing it is identical) since the data is now
6. The information is required to be disclosed public. This is perhaps the single most important
to comply with applicable laws or regula- exception to keep in mind when drafting confi-
tions, or with a court or administrative or- dentiality agreements for research institutions.
der, for example, a subpoena for produc-
tion of the information pursuant to a grand
jury proceeding. 4. Other possible clauses
Nongrant of rights. In some confidentiality agree-
The fourth point is particularly important for ments, the disclosing party will state that there is
academic research establishments. The following no confusion about the intent in disclosing confi-
example serves to illustrate the point: Yuri works dential information. This is to prevent the receiv-
at a university in the biochemistry department. ing party from later claiming that, by disclosing
He has no connection with, nor knowledge of, the confidential information, the disclosing party
a particular set of confidential information. Yuri implied the granting of, to the receiving party, addi-
independently develops an innovation that relies tional rights or licenses. This limitation could read:
on the same general knowledge as that of another Nothing contained in this Agreement shall
researcher, Irina, at the same university but in be construed as an obligation to enter into any
the department of physical chemistry. With that further agreement concerning the Project or
general knowledge, Yuri developed his invention Confidential Information, or as a grant of license
that concurrently leads to valuable data. Nearly to the Confidential Information, other than for the
identical data had been obtained by Irina under Project.
a confidentiality agreement from the BioChem
company. That confidential data has been previ- Limitations to disclose. Certain limitations may
ously obtained by Irina. apply to the amount of information to be dis-
Evidently, both professors, Yuri and Irina are closed. Language such as the following can be
employed at the same university but in different included in specifying such a limitation:

The amount of Confidential Information to be possible. This will be the case when information
disclosed is completely within the discretion of the to be disclosed is of great value and importance
discloser. to the disclosing party. Under such circumstanc-
es, the disclosing party can include extra strong
Limitations on the use of the information. clauses in the agreement. These provisions will
Certain agreements contain a specific clause that not alter basic obligations articulated in the agree-
states certain limitations on the receiving party’s ment, but rather clarify and emphasize the grav-
use of the confidential information, for example: ity of said obligations. Examples of extra strong
The receiving Party may not use the Confidential clauses could include:
Information for commercial or noncommercial re- • The receiving party is forbidden to use the
search (or for the production of prototypes; or for disclosed confidential information to make
obtaining regulatory approvals) without the prior inventions or other valuable developments.
written approval of the disclosing Party. • If the receiving party uses the disclosed con-
fidential information to make inventions or
Representation. In some cases, a receiving party other valuable development, then all rights
may demand representation. Language such as the to such shall be assigned to the disclosing
following can be included to address this issue: party.
Discloser of Confidential Information represents • The receiving party will not attempt
that the disclosure of information is not in viola- to replicate the disclosed confidential
tion of any commitment or obligation to any former information.
employer, present employer, or any other party and • The receiving party will not engage in de-
that discloser has the right to make such a disclosure tailed research for the purpose of investigat-
and to make the promises and agreements expressed ing the details and aspects of the disclosed
herein. confidential information.
Such representations are sometimes used • The receiving party will not use the dis-
when individuals disclose information. closed confidential information in a
manner that either confers commercial
Requirements for documentation. There are no benefit on the receiving party or places
standards as to whether disclosed confidential in- the disclosing party at a commercial
formation should be documented. Especially in disadvantage.
an academic setting, where disclosing and receiv-
ing parties are scientists and converse by phone Security.2 Security is, naturally, a critical consider-
and e-mail, such a requirement would, in many ation in any confidentiality agreement. Common
cases, be ignored or forgotten. However, if in- provisions in agreements state that the receiving
cluded, the following clause may be used: party must treat the disclosed confidential infor-
To the extent practical, Confidential Information mation with the same degree of security as it does
shall be disclosed in documentary or tangible form its own confidential information, or there can be
marked “Proprietary” or “Confidential.” In the case a clause that specifies reasonable and proper mea-
of disclosures in nondocumentary form made orally sures to safeguard and ensure security. However,
or by visual inspection, the discloser shall have the if the disclosing party wants to make certain
right or, if requested by the recipient, the obligation that a specific level of security is established and
to confirm in writing the fact and general nature of maintained, then the following types of provi-
each disclosure within a reasonable time after it is sions might be included in the confidentiality
made. agreement:
• Disclosed confidential information must be
Extra strong clauses.1 Occasionally the stored in designated, locked storage spaces.
disclosing party may want the confidential- • Only designated individuals can have access
ity agreement to provide as much protection as to the disclosed confidential information.

CHAPTER 7.2
• Copying the disclosed confidential infor- a confidentiality agreement with another party to
mation is strictly prohibited. receive their confidential information, it is im-
• Disclosed confidential information cannot portant to ensure that everyone in the organiza-
be taken from the premises. tion who has access to the confidential informa-
• Any viewing of the disclosed confidential tion is well informed of the obligation to keep it
information must be duly recorded in a confidential. n
log.
• All disclosed confidential information docu-
ments have unique identifier numbers and all Stanley P. Kowalski, Franklin Pierce Law Center, 2 White
Street, Concord, New Hampshire, 03301, U.S.A. spk3@
are marked, in red, “CONFIDENTIAL.”
cornell.edu and skowalski@piercelaw.edu

5. Conclusions Institute at Arizona State University; Chair, bioDevel-
There are two simple rules to keep in mind when opments-International Institute; and Adjunct Professor,
Cornell University, PO Box 26, Interlaken, NY, 14847,
dealing with confidentiality agreements (and, in U.S.A. afk3@cornell.edu
fact, with any agreement): First, if there is no trust
between the parties, then perhaps it is best not
to proceed with the agreement, no matter how 1 This section is based on UNICO. 2006. UNICO Guides:
Confidentiality Agreements. UNICO; Cambridge, U.K.
simple the agreement may be. On the other hand, www.unico.org.uk. The UNICO Guide provides ad-
a confidentiality agreement may be a rational first ditional and valuable discussions on confidential-
step in developing the trust needed to build a re- ity agreements, including a range of template agree-
ments.
lationship that may lead to further collaboration
and new opportunities. Second, by entering into 2 Ibid.

CHAPTER 7.3
Specific Issues with Material Transfer Agreements

ALAN B. BENNETT, Associate Vice Chancellor, Office of Research, University of California, Davis; and Executive Director, PIPRA, U.S.A.
WENDY D. STREITZ, Director, Policy, Analysis and Campus Services, Office of Technology Transfer, University of California, Davis, U.S.A.
RAFAEL A. GACEL, Associate Director, Technology Transfer Services, Office of Research-Technology and Industry Alliances,
University of California, Davis, U.S.A.
ABSTRACT This has not typically been the case in health re-
In the health and agricultural sciences, biological mate- search, where reagents, cell lines or antibodies that
rials were once freely and widely exchanged. But more
have potential therapeutic implications have been
and more, these materials have gained commercial value.
Public sector institutions, as well as private companies, transferred under specific agreements that define
have recognized, therefore, that proprietary protection of the terms of the transfer. In both agricultural and
these materials may be necessary. Material transfer agree- health research, the increasingly sophisticated re-
ments (MTAs) are legal instruments that define terms search approaches that rely heavily on access to
for the transfer of tangible biological materials between
or among two or more parties. MTAs are bailments that biological or bioinformatic resources created by
transfer possession but not title: the party who transfers other researchers have dramatically increased the
the materials retains full ownership; the party who receives need for researchers to share research tools. This
the materials holds them in trust. Transfer is governed by trend has been advanced further by the investment
contract, ideally specifying the term of the transfer, how
of federal agencies (notably the National Science
the materials may and may not be used, and other related
issues, such as confidentiality. In addition, an MTA may Foundation [NSF] and the National Institutes
contain licensing provisions for the transfer of embedded of Health [NIH]) and private companies in the
intellectual property (IP) rights (patent rights). Hence, development of genomic resources that are in-
an MTA can be a hybrid instrument, covering the trans- tended primarily as vehicles for further discovery
fer of both tangible property (via bailment and contract)
and intangible property (via licensing of patent rights). of gene function and/or gene regulation. These
Biological materials transferred using MTAs include re- types of biological and bioinformatic resources
agents, cell lines, antibodies, research tools, insertional (such as insertional mutant populations, genome
mutant populations, genome sequence databases, novel sequence databases, and novel vectors) are the
vectors, and plant genetic resources. Due to divergent
institutional priorities, material transfers between the pri-
most problematic with regard to sharing, because
vate and public sectors are generally more complex than they are the research tools that can lead to po-
those between public sector institutions. tentially valuable discoveries, invariably leading
to the question of who will own or control those
downstream discoveries.
1. Introduction The NIH considers the sharing of research
There is a long history of sharing biological tools so important to future research progress that
materials, such as plant germplasm or genetic the agency issued strong guidelines on the ap-
stocks, and for the most part this has been done free- propriate terms for transfer of research materials
ly and often without any form of a legal agreement. that contribute to, or result from, NIH-funded
Bennett AB, WD Streitz and RA Gacel. 2007. In Intellectual Property Management in Health and Agricultural Innovation: A
© 2007. AB Bennett, WD Streitz and RA Gacel. Sharing the Art of IP Management: Photocopying and distribution through
the Internet for noncommercial purposes is permitted and encouraged.

BENNETT, STREITZ & GACEL
research.1 Similarly, the NSF has issued guide- company that traditionally had little concern over
lines for data and materials release and requires a university’s use of its property may now be ap-
investigators to describe the timing, constraints, propriately concerned that its proprietary materials
and means of release of materials developed, par- may lead to valuable inventions or even to fueling
ticularly for programs (such as the Plant Genome a competitor’s business interests. Universities and
Research Program) that focus on the generation nonprofit research institutions have also become
of research resources and tools.2 much more aware and protective of research mate-
Plant genetic resources represent another area rials. The result has been a slow but steady evapora-
of increasing concern regarding how freely these tion of unrestricted transfers of research materials
resources can be exchanged. Even those plant ge- between scientists, in general, and particularly be-
netic resource centers that are most committed to tween industry scientists and those in universities.
the free exchange of germplasm now utilize spe- With growing regularity, the sharing of re-
cific agreements to govern the transfer of seeds, search materials takes place under material trans-
if only to specify that the recipient cannot seek fer agreements (MTAs). MTAs are legal agree-
intellectual property (IP) rights on the materials ments (bailments) that govern the transfer of a
(the African Rice Center, WARDA; Box 1 [see tangible property between parties. For example,
end of chapter])3 or to ensure that the recipient the University of California, Davis, executed over
understands that there is no warranty on the 470 MTAs in 2005, and this number had been
transferred material (Tomato Genetics Resource increasing every year since 2001. At the same
Center; Box 2 [see end of chapter]). time, the complexity of MTAs is increasing dra-
Scientists have traditionally shared research matically, with restrictions and obligations poten-
materials freely, and, indeed, an important criteri- tially reaching far beyond the material itself, to
on for scientific publication has been the ability of data or inventions made using the material and/
other researchers to experimentally reproduce and or to derivative materials. As a consequence, each
thereby test published results. The ability to repli- MTA has begun to take on the complexity of a li-
cate results will often rely on access to the under- cense agreement, and a high level of skill and time
lying biological materials or information, but that are required to ensure that the MTA can be ex-
access is not assured today. So what has changed? ecuted without compromising key principles and
Probably the most significant change has been the will not conflict with other agreements. Hence,
narrowing of the gap between fundamental re- an MTA can be a hybrid instrument: covering the
search and commercial developments, particularly transfer of both tangible property (via bailment
in health research, but also in agriculture.4 Materi- and contract) and intangible IP (via licensing of
als that at one time would have been useful almost patent rights). To complicate things even further,
exclusively for fundamental research purposes are provisions of an MTA may stipulate how any fu-
increasingly seen as having direct commercial val- ture IP rights, arising from the use of the materi-
ue, and this trend has generated a new breed of als transferred, will be allocated.
researchers and companies that focus on leveraging Because MTAs are contractual agreements
novel research tools to discover new commercially between two or more parties, the agreements
valuable traits, genes, or compounds. Particularly, typically do not have the geographic or tempo-
in the case of companies, they may be reluctant ral limitations of patented technologies (patents
to share their “crown jewels” without making sure are territorial, issued by countries, with limited
that their business interests are protected. As a re- terms, typically 20 years from filing) and, con-
sult of the Bayh-Dole Act, many universities ac- sequently, can be much farther reaching than
tively use the patent system as a means to transfer the scope of patent rights. It is interesting to
research results to industry. In addition, universi- note that an evaluation of the property rights
ties increasingly conduct research that is sponsored associated with “GoldenRice” indicated that
by industry. As a consequence, they may have con- 44 patented products or processes and at least
cerns similar to those of private companies. So a 15 materials, many of which were governed by

CHAPTER 7.3
MTAs, were potentially used in its development.5 maintains ownership of the property transferred.
In navigating the intellectual and technical prop- Transferred property is held by the receiving party
erty landscape surrounding “GoldenRice,” Po- according to terms stipulated in a legally bind-
trykus reported that the restrictions imposed by ing contract. The contract, therefore, governs the
one MTA had been particularly problematic.6 transfer of tangible biological materials between
Just as universities are experiencing an in- two or more parties. In addition to the tangible
crease in the use of MTAs for receiving and dis- property rights being owned by the provider, the
seminating materials, so are companies. One large material(s) may be the subject of a patent or pat-
pharmaceutical company indicated that it had ent application. In this case, the MTA may need to
six administrators dealing with more than 1,000 account for the transfer of IP rights as well as the
MTAs in the year 2000 and that many of these transfer of tangible material. Transfer of IP rights
agreements required lengthy negotiations. Some would be in the form of a license, for example, to
companies have questioned whether it is worth make, use, sell, and so forth, that is, a license is
their while to exchange research tools with uni- permission to do what would otherwise violate the
versity scientists at all.7 In our own experience, provider’s IP rights. This chapter deals with mate-
agreements for transfer of research materials from rials that are intended to be used for research pur-
industry to the university often have a low priority poses, usually in the absence of planned research
for attention within company legal departments, collaboration between the provider and recipient.
particularly because such transfers are often only Such a collaboration could be accommodated by
incidental to, or may actually compromise, their a separate collaboration agreement that would ac-
main commercial interests. We estimated that company the MTA. The MTA defines the rights
10%–25% of MTAs received from industry for of the provider and recipient with respect to the
incoming materials to the University of California materials and derivatives of the materials.
were never executed because the terms compro- At most institutions, researchers themselves
mised fundamental academic principles or created are not authorized to sign either outgoing or in-
legal obligations that the university cannot fulfill. coming MTAs for their institutions. The MTAs
An example of a deal-breaking term in an MTA is must be reviewed and approved by an autho-
one that specifies that the provider maintain own- rized institutional official. Agreements that are
ership of data resulting from use of the materials. not signed by an institutional official may not
This term could prevent publication or prevent be valid or enforceable. These functions usually
the continuation of the very research that the ma- reside in the Office of Research Administration
terial was intended to advance. Thus, universities (Sponsored Programs) or the office that manages
in general are in a situation in which the exchange IP and technology transfer for the institution. Be-
of research materials is of increasing and indeed cause the researcher utilizing the material(s) is ul-
critical importance, but both universities and pri- timately responsible for fulfilling the obligations
vate companies are having difficulty finding easy of the MTA, most MTAs require the signature of
ways to share these resources. As Eisenberg sum- the recipient of the material acknowledging their
marized “Although there are many points on which recognition of their responsibilities and duties un-
they disagree, most people from each of these quarters der the agreement.
seem to agree that the problem is growing rather than
diminishing.” 8
3. Structure of a material
transfer agreement
2. What is a material An MTA can range in size from a few hundred
transfer agreement? words on one page to several thousand words on
Fundamentally, an MTA is a bailment, that is, more than a dozen pages. The NIH’s “Simple Let-
a transfer of tangible property without transfer ter Agreement for the Transfer of Materials” (Box
of title. Under such an agreement, the provider 3 [see end of chapter]) is an excellent example of

a short, easy-to-understand, one-page MTA. The pear within the agreement. In a third approach,
Simple Letter Agreement requires no negotiation an MTA may define the terms that will be used
and is used by academic institutions throughout throughout the agreement in a separate section
the United States to transfer materials, and, in the for definitions and define the terms that are used
case of research consortia composed of multiple only in one or two sections as they first appear
academic or nonprofit institutions, this type of within the agreement.
agreement can be modified to provide an umbrella The definition of materials should be limited
for easy transfer of materials between consortium to that of the actual materials being transferred,
members. On the other end of the spectrum, a including progeny and unmodified derivatives,
complex and lengthy MTA from a company will- and should not include substances or inventions
ing to provide innovative and highly proprietary created by the recipient of the materials. Progeny,
materials can take years to negotiate. as defined in the Uniform Biological Material
The standard MTA used by the Davis campus Transfer Agreement (UBMTA), are unmodified
of the University of California (Box 4 [see end of descendents of the original material. Progeny can
chapter]) represents an MTA that a university would include a virus from a virus, a cell from a cell,
use to provide materials to another university. An or an organism from an organism. Unmodified
MTA, regardless of its length and complexity, may derivatives, according to the UBMTA, are sub-
incorporate many if not all of the following: stances created by the recipient that constitute an
• a preamble unmodified functional subunit or an expression
• definitions product of the original material that was provid-
• a description of use of the materials ed. Unmodified derivatives can include purified
• confidential information or fractionated subsets of the original material;
• IP rights progeny or products thereof; subclones of un-
• warranties modified cell lines; transcription and translation
• liability and/or indemnification products, such as RNA and protein derived from
• publication provided DNA; reverse transcription and reverse
• governing law translation products, such as DNA synthesized
• termination on a template using provided RNA; monoclonal
• signatures antibodies secreted by a hybridoma cell line; and
• exhibits or appendices chemically synthesized copies. Since a provider
usually asserts ownership of materials, the defini-
3.1 The preamble tion of materials should not overreach to modi-
The preamble of an MTA is like an abstract of fications, derivatives, crossbred progeny (in ani-
a manuscript or a prologue to a novel. The pre- mals), mutants, or other substances that are not
amble lays the groundwork for the MTA and being provided by the provider.
sets the stage for the legally binding terms and
conditions that follow. The preamble identifies 3.3 Use of the materials
parties to the agreement and specifies the MTA’s An MTA specifies how the recipient can and can-
effective date. It may also include the addresses not use the material. Usually, the MTA contains a
of the parties. It may even contain recitals or blank space for the researcher to include a descrip-
whereas clauses describing the material, the goal tion of the research use with the material. Some-
of the research, and the intent of the parties. times an MTA has a separate appendix with a very
detailed description of the intended research use.
3.2 Definitions An MTA will usually prohibit the recipient from
An MTA may have a separate section to define spe- using the materials in a manner other than that
cific terms such as materials, use of the materials, intended by the original research. An MTA will
modifications, or inventions. On the other hand, also typically prohibit provider’s material from
an MTA may define these terms as they first ap- being tested in humans and used in plants and

CHAPTER 7.3
animals consumed as food. Other prohibitions the recipient to know precisely what information
may include using the material in research that must be kept confidential.
has IP obligations to third parties, or with other The MTA may stipulate that the recipient
materials from third parties, or transferring the can disclose the provider’s confidential infor-
material to third parties or even to other research- mation only to the recipient’s own personnel
ers within the recipient’s institution. Finally, most who have a need to know and who use the
MTAs have prohibitions for the material to be confidential information. The MTA may also
used for commercial purposes. require that the recipient take the same steps
and use the same methods to prevent the un-
3.4 Confidential information authorized use or disclosure of the provider’s
Often, providers of materials include, on the confidential information as the recipient would
MTA form, proprietary or confidential informa- take to protect its own confidential informa-
tion. Therefore an MTA may contain a provision tion. Requirements such as these are generally
to protect the provider’s confidential informa- appropriate when confidential information is
tion. Confidential information can be defined being exchanged.
as “information, data, or material, in written or
other tangible form related to the material, that 3.5 Intellectual property
is identified as confidential at the time of disclo- Nearly every MTA will address IP matters such
sure.” However, confidential information should as the disclosing of inventions, the prosecuting
not include information that is: of patents and plant variety protection certifi-
• generally known to the public at the time cates, and the granting of options and licenses.
of disclosure to the recipient IP rights language is perhaps the most challeng-
• already in the recipient’s possession at the ing language to negotiate. An MTA may con-
time of disclosure by the provider tain overarching IP language that can reach to a
• disclosed to the recipient on a noncon- researcher’s and/or institution’s past inventions
fidential basis by a third party having the and future inventions, which may have little or
right to make such disclosure nothing to do with the materials provided, and
• independently developed by the recipient could impact the researchers ability to continue
without the use of the confidential infor- doing related research.
mation disclosed by the provider as evi- The MTA may specify that the recipient
denced by written records disclose, assign, and/or license any inventions to
• required to be disclosed by law or govern- the provider, free of any royalties and fees. While
mental rule or regulation most institutions will agree to certain licensing
rights, they are generally unable to assign an in-
The MTA should include language to make vention because doing so may violate:
clear to the provider that the above information is 1. the Bayh-Dole Act if the invention resulted
not considered confidential. from research funded by the U.S. federal
An MTA may also specify that the recipient government
of the confidential information treat it as confi- 2. the Tax Reform Act of 1986 by possibly
dential and maintain it in confidence for a certain jeopardizing the U.S. federal tax-free status
period of time. A long period of nondisclosure, of bonds that were issued to build or im-
for example, over five years, may be very difficult prove research facilities
for a university to manage. Generally, an MTA 3. the Principles and Guidelines for Recipients
may require that all confidential information of NIH Research Grants and Contracts on
be marked “Confidential” and be reduced to Obtaining and Disseminating Biomedical
writing. Reducing confidential information to Research Resources, by restricting the ac-
writing places an additional administrative bur- cessibility of research materials
den on both parties, but it does make it easier for

4. an institution’s own principles, policies, or disposal of the material, and modifications. In

and practices if the invention was not de- addition, many providers will stipulate that the
veloped for the public benefit recipient indemnify, hold harmless, and defend
5. other laws, regulations, rules and policies the provider against any claims, costs, or other
liabilities that may arise as a result of recipient’s
It is generally reasonable to grant a limited use, storage, or disposal of the material. A num-
subset of IP rights to the provider of the materi- ber of state institutions, for example in Alabama,
als. For example, to the extent that the recipient Georgia, Kentucky, New York and other states,
is legally able to do so, the recipient could grant are prohibited from indemnifying other parties
a nonexclusive royalty-free research license to any and must limit their indemnification to the ex-
inventions that necessarily use or necessarily intent permitted by state law. In addition to recipi-
corporate the material and are conceived and first ent liability, some MTAs will make the providers
actually reduced to practice in the performance of liable for losses, claims, or demands made by the
the research. The recipient, in many cases, may be recipient, or made against the recipient by any
able to grant a first right or an option to negotiate other party, that are due to the provider’s negli-
a non-exclusive or exclusive commercial license to gence or misconduct.
such inventions. In some cases, when a provider
provides innovative and valuable compounds, a 3.8 Publications
recipient may have to grant a nonexclusive, roy- An MTA should enable the recipient of the ma-
alty-free research license to such inventions if the terials to publish or present the results of the
provider is concerned about being blocked from recipient’s research using the materials without
practicing new uses for its materials especially the approval of the provider. An MTA can re-
when the provider is performing or sponsoring quire that the recipient send the provider a copy
similar research. of any proposed manuscript, abstract, poster
session, or presentation prior to such publica-
3.6 Warranties tion or presentation so that the provider can
An MTA nearly always stipulates that the mate- review it, provide any comments, or request
rial does not come with any warranties. A typical the removal of the provider’s confidential in-
warranty clause, usually written in capital letters, formation. A review period of 30 to 45 days is
may read: sufficient for most providers and is acceptable
PROVIDER MAKES NO REPRESENTA- to most academic recipients. The MTA may
TIONS AND EXTENDS NO WARRANTIES require that the publication or presentation
OF ANY KIND, EITHER EXPRESSED OR be delayed for an additional period of time to
IMPLIED. THERE ARE NO EXPRESS OR allow for the filing of patent applications. An
IMPLIED WARRANTIES OF MERCHANT- additional period of 30 to 45 days is sufficient
ABILITY OR FITNESS FOR A PARTICULAR for most providers. An MTA can also require
PURPOSE, OR THAT THE USE OF THE the recipient to acknowledge the provider for
MATERIAL WILL NOT INFRINGE ANY providing the materials in any publications or
PATENT, COPYRIGHT, TRADEMARK, OR presentations.
OTHER PROPRIETARY RIGHTS.
3.9 Governing law
The language is nearly always written in up- An MTA may specify that it is governed by
percase letters to make the clause stand out. the laws of a particular jurisdiction, state, or
country. This may present a problem in cases in
3.7 Liability and indemnification which the provider and the recipient are located
An MTA usually stipulates that the recipient of in separate jurisdictions, states, or countries.
the materials assumes all liability for damages Most providers and recipients will agree to be
that may arise from the recipient’s use, storage silent on governing law.

CHAPTER 7.3
3.10 Termination industry and academia, primarily because the

An MTA should specify an expiration date for the cultures and motivations of each institution in-
agreement. Otherwise, the recipient’s obligations will volved in the exchange are similar. In the United
continue forever. The parties should be able to ter- States, most universities readily transfer materials
minate the MTA earlier by providing advance, writ- for academic research purposes under terms that
ten notice. When the MTA expires or terminates, typically have no restrictions other than a require-
the recipient is generally required to stop using the ment not to transfer the materials to third parties
material and may be required to return or destroy without approval or notification. These transfers
any remaining material. A termination clause may are often accomplished using the NIH-facilitated
also delineate certain obligations that survive termi- UBMTA9, the NIH’s Simple Letter Agreement,
nation. These surviving obligations may be related to or an equivalently benign agreement. The UBM-
areas dealing with confidentiality, IP, warranties, lia- TA incorporates a very narrow definition of the
bility, and indemnification. The MTA can always be material to be transferred and the agreement does
extended by the mutual agreement of both parties. not give a provider rights beyond the “original
material, progeny and unmodified derivatives.” This
3.11 Signatures narrow definition and the lack of “reach through”
The signature section is usually the last part of an to new materials and to new research results is the
MTA. A typical MTA may have the signatures of hallmark of agreements between universities that
the following individuals: greatly facilitates these transfers.
• the authorized official of the organization When a problem does occur in a transfer be-
or company receiving the materials tween academic institutions, it is usually because
• the researcher receiving the material the material has been exclusively licensed and the
• the authorized official of the organization terms of that agreement impose some constraints
or company providing the materials on the institution providing the material. Howev-
• the researcher providing the material er, this problem is usually avoidable, particularly if
such exclusive licenses specifically reserve the right
Some MTAs may require only the signature(s) to use the materials for internal research purposes
of the authorized official and/or the researcher of and to transfer the materials for research at other
the recipient of the materials. Researchers may sign academic institutions. For example, the University
as acknowledging, reading, and/or understanding of California routinely incorporates the following
the MTA but should not sign as legal parties to the clause into its exclusive license agreements:
MTA. Doing so could place them at risk of being Nothing in this Agreement will be deemed to
personally liable and being sued in a court of law. limit the right of The Regents (i.e. University) …
to make and use the Invention … and associated
3.12 Exhibits or appendices technology and allow other educational and non-
An MTA may include an exhibit or appendix that profit institutions to do so for educational and
is attached to the end of the agreement. In many research purposes.
cases, the attachment is a detailed description of
the research, a protocol, or a long list of materials.
Sometimes confidential information is put in the 5. Material transfer from private
exhibits or appendices so that it can be redacted companies to universities
more easily than if it were put into the agreement. Material transfers between private and public sec-
tor institutions are typically much more complex
than transfers between two universities and are
4. Material transfer between much more prone to failure, particularly when
universities the transfer is from a company to a university re-
Sharing of materials between university scientists searcher.10 What are some of the features of these
is generally less problematic than transfers between MTAs that create difficulties, particularly for

universities? Contrary to popular belief, the pri- 5.2 Rights in research results
mary issues for most universities do not concern Universities also need to preserve the ability of
the ability to profit from licensing future inven- their researchers to use their own research results
tions, but center on: in future research. This may seem obvious, but
• a few fundamental academic principles if a provider of material insists that it own the
• the need to avoid incurring unfunded fi- results of research conducted with its material
nancial obligations (sometimes including data, inventions, and re-
• the need to avoid creating conflicting legal ports), researchers and universities can lose all
obligations with third parties access to these products of their own research,
making it difficult, if not impossible, to perform
These issues primarily reflect most universi- any follow-on research. An example of how this
ties’ concern with protecting the fundamental appears in an MTA would be a case in which
mission of the institution and their low tolerance a provider asserts ownership of new substances
for financial or legal risk. created by the university researcher while using
its proprietary material, sometimes reaching to
5.1 Dissemination of research results substances or compositions that don’t contain
The single most obvious and fundamental prin- the original material in any form (often referred
ciple for the university and university researchers to as reach through rights). This type of provi-
is to preserve the unrestricted ability to publish sion could have an impact on publication as
their research results. The freedom to publish can well, since many journals require that materi-
be restricted by MTAs when the provider requires als discussed in a paper be made available for
editorial rights in a publication or the right to ap- replication of the research. Yet in this case such
prove and, by inference, to disapprove a publica- availability would be controlled by the material
tion. Publication restrictions can show up in MTAs provider, not the researcher. In many cases, a
in indirect ways as well. For example, the material for-profit provider may have a legitimate reason
itself may be specified as confidential, making a to insist on retaining ownership of any modifi-
meaningful publication impossible. Of particular cations of its original material. For example, if
concern are the serious consequences that a pub- a vector that took years to create could now be
lication restriction can have on students, whose easily modified to incorporate new functions,
future depends so heavily on publication. Clearly, the provider would be understandably reluctant
this is one principle a university cannot compro- to relinquish rights to improvements that can
mise and the principle is so widely recognized that now be relatively easily incorporated. In these
one would think it would not even be on the table cases, it may not be appropriate or possible to
for discussion. However, it occasionally is. share this material. However, in many cases this
Typically, the material provider’s underlying kind of provision is the result of a provider us-
concern is not to restrict academic publication ing too broad an approach to ensure no pos-
but to protect its confidential information relat- sible loss of its own rights. Negotiations can
ed to the material and to preserve patentability often identify a balanced solution in which
of inventions. Both are legitimate concerns and the provider is assured that it maintains own-
can usually be met by agreeing to remove a com- ership of its proprietary material, and while a
pany’s confidential information from publica- recipient may own the narrow improvement it
tions and to delay publication for a limited time created, the provider would still own the origi-
(usually 60 to 90 days) to permit the evaluation nal material if it continued to be included as a
of potentially patentable inventions and to file component.
patent applications, when appropriate. Univer-
sities readily agree to these types of provisions, 5.3 Conflicting legal obligations
but further restrictions on publication rights are Perhaps the most difficult issue presented by
typically nonnegotiable. MTAs is the potential for entering into agree-

CHAPTER 7.3
ments that create conflicting legal obligations. 5.4 Public benefit of university research
This situation routinely arises because, while the Universities, particularly public universities and
material is coming from one source, the funding those whose research is supported largely by pub-
for the research is usually provided by a differ- lic funds, have an obligation to see that their inno-
ent source, typically public agencies but also, po- vations are made available to the public in a dili-
tentially, other private companies. To the extent gent and timely manner. In the United States, this
that the MTA and relevant funding sources carry obligation is based on the Bayh-Dole Act, which
IP obligations, it is easy to see how conflicts can has a stated objective “to promote … public avail-
arise. While such obligations are typical of pri- ability of inventions,” as well as on the philosophi-
vate research support, public funding also carries cal missions of most universities. One means of
legal IP obligations to the government. The most accomplishing availability is through the licensing
prominent of these obligations includes require- of inventions to private companies that can invest
ments in the United States under the Bayh-Dole the often substantial additional R&D effort re-
Act, such as, a prohibition on assigning title to quired to produce real products. The public ben-
inventions to third parties, the provision of a efit obligation can be compromised by MTAs that
nonexclusive license to the government to prac- require the granting of a nonexclusive, royalty-free
tice or have practiced the invention on behalf of license to inventions back to the provider. If the
the government, and the right of the government company were not interested in commercializing
to march in. Clearly, the university cannot enter the invention, the existence of its nonexclusive,
into an MTA that creates a new obligation that royalty-free license could prevent other companies
is in conflict with such obligations of law or its from entering into a license, because they would
contractual obligations to others. For example, lack the exclusivity needed to allow them to invest
if access to a particular research tool or material in the development of the technology, effectively
requires that the provider be offered an exclusive “shelving” the technology. A solution that is often
license to inventions, then this restricts the proj- acceptable is involves linking such a license very
ect from receiving any other material or research narrowly to inventions that are dependent on the
funding that carries a similar obligation—exclu- company’s material. These inventions represent
sive access to inventions from the same project the company’s legitimate business interest and
can be given only once! The university and its re- are inventions that, typically, only the company
searchers need to be very careful in determining providing the material would be in position to
how important are specific inputs to the project, commercialize. While broader language seeking a
and they may need to decide which IP rights can license to inventions less closely linked to the ma-
be apportioned to research sponsors and/or material will not necessarily prevent a university from
terial providers and prioritize those rights. It is signing an MTA, such language should certainly
clear from the complexity of inputs to research provoke a careful evaluation of the situation.
projects and the increasing complexities of own-
ership of research tools and materials, that access 5.5 Fair consideration
to the full set of tools for certain projects may Most universities seek a financial return in ex-
simply be impossible. This situation is analogous change for the commercial use of their research
to that which has been described as the “tragedy results. Public institutions, in particular, are
of the anticommons” where the fragmentation of concerned that the public funds that are used
IP ownership becomes so complex that no single to support the institution should not be used to
entity can acquire all the rights it needs to devel- indirectly support private companies. These con-
op products.11 In a similar sense, the fragmented siderations color the expectations of universities,
ownership of research materials or information particularly if the provider of a material seeks free
can impact the practical ability to conduct fun- license to resulting inventions. Here, the interests
damental research or at least to do so using the of the university’s administration and researchers
most efficient research tools. may diverge, with researchers needing, primarily,

Wendy D. Streitz, Director, Policy, Analysis, and Campus

to gain access to the material to advance their Services, Office of Technology Transfer, University of California,
research and with the administration seeking to Office of the President, 1111 Franklin Street, Oakland, CA,
preserve the fundamental principles of the uni- 94607-5200, U.S.A. wendy.streitz@ucop.edu
versity and avoid costly legal battles. Where inter-
Rafael A. Gacel, Associate Director, Technology Transfer
ests are divergent, the situation can become very Services, Office of Research-Technology and Industry
complex. In our experience, a common underly- Alliances, Technology Transfer Services, University of
ing interest of all parties is to enable and acceler- California, Davis, 1850 Research Park Drive, Suite 100,
ate research progress, and in most cases solutions Davis, CA, 95618-6134, U.S.A. ragacel@ucdavis.edu
can be developed that satisfy the essential needs
of all parties. Unfortunately, developing these so-
1 Marshall E. 1999. New NIH Rules Promote Greater Shar-
lutions can take a long time and, as mentioned ing of Tools and Materials. Science 286: 2430–2431.
earlier, for many private companies, negotiating
2 Silverthorne J. 2003. Ensuring Access to the Outcomes
MTAs for university researchers is a low priority of Community Resource Projects. Plant Physiology
in relation to the many IP-related transactions 132:1775–1778.
that may be more critical to the company’s pri- 3 The sample agreements found at the end of this
mary business interests. chapter are also available for free download at
www.ipHandbook.org. An Adobe® Acrobat® reader
or Microsoft® Word® are required. The Web site also
contains many additional IP sample agreements.
6. Conclusions 4 Rai AK and RS Eisenberg. 2001. The Public and the
Overall, the transfer of materials between re- Private in Biopharmaceutical Research. In Proceedings
searchers has been getting more difficult, and it of the Conference on the Public Domain, Duke Law
School: Durham, North Carolina. www.law.duke.edu/
appears that the days of open exchange of mate- pd/papers/raieisen.pdf.
rials, particularly from researchers in industry to
5 Kryder RD, SP Kowalski and AF Krattiger. 2000. The
academic researchers in the life sciences, are over. Intellectual and Technical Property-Components
While some domains of free exchange continue of Pro-Vitamin A Rice (GoldenRice™): A Preliminary
to thrive, and some funding agencies and foun- Freedom-to-Operate Review. ISAAA Briefs No. 20. ISAAA:
Ithaca, New York. www.isaaa.org/kc/Publications/
dations are actively promoting open exchange of pdfs/isaaabriefs/Briefs%2020.pdf.
materials, these are becoming exceptions rather
6 Potrykus I. 2001. Golden Rice and Beyond. Plant
than the rule. Both universities and private com- Physiology 125: 1157–1161.
panies have legitimate interests, which they are 7 Eisenberg RS. 2001. Bargaining over the Transfer of
trying to support when engaging in material Research Tools: Is This Market Failing or Emerging?
transfers. When these interests collide, it can be In Expanding the Boundaries of Intellectual Property:
Innovation Policy for the Knowledge Society (eds.
difficult to find common ground. However, the RC Dreyfuss, DL Zimmerman and H First). Oxford
mutual interest of both research-based private University Press: New York. pp 223–249.
companies and of universities is to support re- 8 See supra note 6.
search advances; and when both parties keep this 9 ott.od.nih.gov/newpages/UBMTA.pdf.
overarching objective in mind, material transfers 10 Pool R. 2000. Material Transfer Agreements. In Finding
usually are possible. ■ the Path: Issues of Access to Research Resources.
National Academic Press: Washington, D. C. www.nap.
edu/catalog/9629.html.
Alan B. Bennett, Associate Vice Chancellor, Executive 11 Heller MA and RS Eisenberg. 1998. Can Patents Deter
Innovation? The Anticommons in Biomedical Research.
Director, PIPRA, Office of Research, University of Califor-
Science 280:698–701.
nia, Davis, 1850 Research Park Drive, Davis, CA, 95616,
U.S.A. abbennett@ucdavis.edu

CHAPTER 7.3
Box 1: Material Transfer Agreement (MTA) for plant genetic resources held
in trust by the Africa Rice Center (WARDA) 1
The plant genetic resources (hereinafter referred to as the “material”) contained herein are being
furnished by Africa Rice Center (WARDA) under the following conditions:
• Africa Rice Center (WARDA) is making the material described in the attached list available as
part of its policy of maximizing the utilization of material for research, breeding and training.
The material was either developed by Africa Rice Center (WARDA); or was acquired prior to the
entry into force of the Convention on Biological Diversity; or if it was acquired after the entering
into force of the Convention on Biological Diversity, it was obtained with the understanding
that it could be made available for any agricultural research, breeding and training purposes
under the terms and conditions set out in the agreement on 26 October 1994 between the
Africa Rice Center (WARDA) and the Food and Agriculture Organization of the United Nations
(FAO).
• The material is held in trust under the terms of this agreement, and the recipient has no rights
to obtain Intellectual Property Rights (IPRs) on the material or related information.
• The recipient may utilize and conserve the material for research, breeding and training and
may distribute it to other parties provided such other parties accept the terms and conditions
of this agreement.
• The recipient, therefore, hereby agrees not to claim ownership over the material, nor to seek
IPRs over that material, or its genetic parts or components, in the form received. The recipient
also agrees not to seek IPRs over related information received.
• The recipient further agrees to ensure that any subsequent person or institution to whom
he/she may make samples of the material available, is bound by the same provisions and
undertakes to pass on the same obligations to future recipients of the material.
• Africa Rice Center (WARDA) makes no warranties as to the safety or title of the material, nor as
to the accuracy or correctness of any passport or other data provided with the material. Neither
does it make any warranties as to the quality, viability, or purity (genetic or mechanical) of the
material being furnished. The phytosanitary condition of the material is warranted only as
described in the attached phytosanitary certificate. The recipient assumes full responsibility
for complying with the recipient nation’s quarantine and biosafety regulations and rules as to
import or release of genetic material.
• Upon request, Africa Rice Center (WARDA) will furnish information that may be available in
addition to whatever is furnished with the material. Recipients are requested to furnish Africa
Rice Center (WARDA) with related data and information collected during evaluation and
utilization.
1. This MTA covers materials which are being transferred before the entry into force of the International Treaty on
Plant Genetic Resources for Food and Agriculture. The Treaty envisages that Africa Rice Center (WARDA) will enter
into an agreement with the Governing Body of the Treaty, once the Treaty enters into force. Africa Rice Center
(WARDA) has indicated its intention to conclude such an agreement with the Governing Body. This agreement, in
line with the Treaty, will provide for new MTAs and benefit-sharing arrangements for materials transferred after
the entry into force of the agreement. The attention of the recipient is drawn to the fact that the details of the
MTA, including the identity of the recipient, will be made available to the public.
2. This does not prevent the recipients from releasing the material for purposes of making it directly available to
farmers or consumers for cultivation, provided that the other conditions set out in this MTA are complied with.

Box 1 (continued)
• The recipient of material provided under this MTA is encouraged to share the benefits accruing
from its use, including commercial use, through the mechanisms of exchange of information,
access to and transfer of technology, capacity building and sharing of benefits arising from
commercialization. Africa Rice Center (WARDA) is prepared to facilitate the sharing of such
benefits by directing them to the conservation and sustainable use of the plant genetic resources
in question, particularly in national and regional programs in developing countries and countries
with economies in transition, especially in centers of diversity and the least developed countries.
The material is supplied expressly conditional on acceptance of the terms of this Agreement.
The recipient’s acceptance of the material constitutes acceptance of the terms of this Agreement.

CHAPTER 7.3
Box 2: Material Transfer Agreement (MTA) for requesting plant

materials from the C.M. Rick Tomato Genetics Resource Center (TGRC)
THIS AGREEMENT is made by and between The Regents of the University of California (“THE REGENTS”)
on behalf of the C. M. Rick Tomato Genetics Resource Center (“TGRC”), and _______________________
_____________________(“RECIPIENT”). THE REGENTS asks that the RECIPIENT agree to the following
before the RECIPIENT receives the plant materials requested from the TGRC.
1. The TGRC will make substitutions, as necessary, for items that are currently unavailable for
distribution. For large requests, the TGRC may delete some items, as needed, to reduce its workload
and accommodate other requests. The TGRC will provide a packing list detailing which accessions
(“MATERIAL”) have been shipped.
2. The MATERIAL is provided free of charge and, except as stated herein, without restrictions by the
TGRC to support research, breeding, and/or educational projects involving tomato. The RECIPIENT
may distribute the MATERIAL to third parties under an MTA that includes the language of terms 3,
4, 5, and 6.
3. THE REGENTS MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESSED OR IMPLIED, REGARDING THE FITNESS OR MERCHANTABILITY FOR A PARTICULAR
PURPOSE, OR THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT,
TRADEMARK, OR OTHER PROPRIETARY RIGHTS.
4. The MATERIAL has not been thoroughly evaluated by the TGRC.THE REGENTS MAKES NO WARRANTIES
OF ANY KIND, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY OF THE INFORMATION
PROVIDED BY THE TGRC; THE QUALITY, HEALTH, OR PHYTOSANITARY CONDITION OF THE MATERIAL;
OR THE GENETIC IDENTITY OF THE MATERIAL, INCLUDING ITS ORIGIN, PURITY, TRUENESS TO TYPE,
GENETIC BACKGROUND, AND THE PRESENCE OR ABSENCE OF ANY TRANSGENES. The RECIPIENT
is responsible for verifying that genetic identity is correct in its own plantings, and the RECIPIENT
will notify the TGRC of any potential problems it observes with the MATERIAL, such as aberrant
segregation, incorrect phenotypes, unexpected traits, or other problems.
5. Unless prohibited by law, the RECIPIENT assumes all liability for damages it incurs and for claims
by third parties which may arise from the RECIPIENT’s use, storage or disposal of the MATERIAL.
RECIPIENT shall hold harmless, defend, and indemnify THE REGENTS against any claims, costs
or other liabilities which may arise as a result of the RECIPIENT’S use, storage or disposal of the
MATERIAL.
6. The RECIPIENT shall acknowledge the TGRC as the supplier of the MATERIAL in any publications
which result from the RECIPIENT’s use of the MATERIAL, and shall provide the TGRC with copies of
the relevant publications.
7. Before the TGRC can send the MATERIAL, the RECIPIENT or other authorized official of the RECIPIENT’s
organization, must sign and deliver this MTA by mail, facsimile, e-mail or in person to the TGRC at
the following address:
C. M. Rick Tomato Genetics Resource Center

Department of Plant Sciences (Mail Stop 3) Tel.: +1-530-754-6059
University of California, Davis Fax: +1-530-752-9659
One Shields Avenue tgrc@ucdavis.edu
Davis, CA 95616, U.S.A. http://tgrc.ucdavis.edu
CERTIFICATION BY RECIPIENT OR OTHER AUTHORIZED OFFICIAL:

I have read and understand the conditions outlined in this Agreement and I agree to fully abide by
them in the receipt and use of the MATERIAL.
Signature, Name and Title: ____________________________________________________________

Institution:_______________________________________________________Date:______________

Box 3: Simple Letter Agreement for the Transfer of Materials
In response to RECIPIENT’s request for the MATERIAL ______________________________________

_____ the PROVIDER asks that the RECIPIENT and the RECIPIENT SCIENTIST agree to the following
before the RECIPIENT receives the MATERIAL:
1. The above MATERIAL is the property of the PROVIDER and is made available as a service to the
research community.
2. THIS MATERIAL IS NOT FOR USE IN HUMAN SUBJECTS.
3. The MATERIAL will be used for teaching or not-for-profit research purposes only.
4. The MATERIAL will not be further distributed to others without the PROVIDER’s written consent.
The RECIPIENT shall refer any request for the MATERIAL to the PROVIDER. To the extent supplies
are available, the PROVIDER or the PROVIDER SCIENTIST agree to make the MATERIAL available,
under a separate Simple Letter Agreement to other scientists for teaching or not-for-profit
research purposes only.
5. The RECIPIENT agrees to acknowledge the source of the MATERIAL in any publications reporting
use of it.
6. Any MATERIAL delivered pursuant to this Agreement is understood to be experimental in

nature and may have hazardous properties. THE PROVIDER MAKES NO REPRESENTATIONS AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED. THERE ARE NO EXPRESS
OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK,
OR OTHER PROPRIETARY RIGHTS. Unless prohibited by law, RECIPIENT assumes all liability
for claims for damages against it by third parties which may arise from the RECIPIENT’S use,
storage or disposal of the MATERIAL except that, to the extent permitted by law, the PROVIDER
shall be liable to the RECIPIENT when the damage is caused by the gross negligence or willful
misconduct of the PROVIDER.
7. The RECIPIENT agrees to use the MATERIAL in compliance with all applicable statutes and
regulations.
8. The MATERIAL is provided at no cost, or with an optional transmittal fee solely to reimburse the
PROVIDER for its preparation and distribution costs. If a fee is requested, the amount will be
indicated here: ______________
The PROVIDER, RECIPIENT and RECIPIENT SCIENTIST must sign both copies of this letter and return
one signed copy to the PROVIDER. The PROVIDER will then send the MATERIAL.
PROVIDER INFORMATION and AUTHORIZED SIGNATURE

Provider Scientist:______________________________________________________________
Provider Organization: __________________________________________________________
Address:______________________________________________________________________
Name of Authorized Official: _____________________________________________________
Title of Authorized Official:______________________________________________________
Certification of Authorized Official: This Simple Letter Agreement has / has not [check one]
been modified. If modified, the modifications are attached.

CHAPTER 7.3
Box 3 (continued)
______________________________ _______________________ _________________ _____

Signature of Authorized Official Date
RECIPIENT INFORMATION and AUTHORIZED SIGNATURE
Recipient Scientist: ____________________________________________________________
Recipient Organization: ________________________________________________________
Address: _____________________________________________________________________
Name of Authorized Official: ____________________________________________________
Title of Authorized Official:______________________________________________________
Signature of Authorized Official:_________________________________________________
Date: ________________________________________________________________________
Certification of Recipient Scientist: I have read and understood the conditions outlined in
this Agreement and I agree to abide by them in the receipt and use of the MATERIAL.
_____________________________________________________________________________
Recipient Scientist Date

Box 4: Material Transfer Agreement with the University of California, Davis
This Agreement is made this _____ of ________________, by and between THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA, as represented by its Davis campus, (“UC DAVIS”), having an address
at the Office of Research, Technology and Industry Alliances, Technology Transfer Services;
University of California, Davis; 1850 Research Park Drive, Suite 100; Davis, CA 95616-6134, and ___
________________ (“RECIPIENT”), having its principal place of business at ____________________
(collectively “the PARTIES”).
RECIPIENT has requested from UC DAVIS the MATERIAL defined in Section 1.B. below for the
RESEARCH USE defined in Section 1.F. below by the RECIPIENT INVESTIGATOR(S) defined in Section
1.G. below. In consideration of the supply of MATERIAL from UC DAVIS to RECIPIENT, the PARTIES
agree as follows:
1. Definitions
A. “ORIGINAL TRANSFERRED MATERIAL”: The physical material actually delivered to the
RECIPIENT by UC DAVIS, as identified in Exhibit A attached hereto.
B. “MATERIAL”: ORIGINAL TRANSFERRED MATERIAL, PROGENY, and UNMODIFIED
DERIVATIVES.
C. “PROGENY”: Unmodified descendant from the MATERIAL. Examples include but are not
limited to: virus from virus; cell from cell; and organism from organism.
D. “UNMODIFIED DERIVATIVES”: Substances created by the RECIPIENT that constitute an
unmodified functional sub-unit or an expression product of the ORIGINAL TRANSFERRED
MATERIAL. Examples include but are not limited to: purified or fractionated sub-sets
of the ORIGINAL TRANSFERRED MATERIAL; PROGENY or products thereof; subclones
of unmodified cell lines; transcription and translation products (e.g., RNA and protein
derived from provided DNA); reverse transcription and reverse translation products (e.g.,
DNA synthesized on a template using provided RNA); monoclonal antibodies secreted
by a hybridoma cell line; and chemically-synthesized copy or copies.
E. “MODIFICATIONS”: Substances created by the RECIPIENT that either contain or
incorporate the MATERIAL or were created through the use of the MATERIAL.
F. “RESEARCH USE”: The scientific RESEARCH USE specified in Exhibit A.
G. “RECIPIENT INVESTIGATOR(S)”: The RECIPIENT’s scientific investigator(s) specified in
Exhibit A.
H. “CONFIDENTIAL INFORMATION”: Information, data or material in written or other
tangible form related to the MATERIAL that is identified as confidential at the time of
disclosure. CONFIDENTIAL INFORMATION does NOT include information that is:
(i) generally known to the public at the time of disclosure to the RECIPIENT;
(ii) already in RECIPIENT’s possession at the time of disclosure by UC DAVIS;
(iii) disclosed to RECIPIENT on a non-confidential basis by a third party having the right
to make such disclosure;
(iv) independently developed by RECIPIENT without the use of the CONFIDENTIAL
INFORMATION disclosed by UC DAVIS as evidenced by written records; or
(v) required to be disclosed by law or governmental rule or regulation.

CHAPTER 7.3
Box 4 (continued)
2. Terms and Conditions

A. Use
i. The RECIPIENT shall use the MATERIAL solely for the RESEARCH USE. Any other use of the
MATERIAL by the RECIPIENT is expressly prohibited without the prior written consent
of UC DAVIS. In addition, the RECIPIENT agrees to use the MATERIAL in compliance with
all applicable statutes and regulations, including, but not limited to, those related to
research involving the use of animals or recombinant DNA. The MATERIAL may not be
used on any human subjects or for commercial purposes or any other use other than the
RESEARCH USE.
ii. RECIPIENT will not analyze the MATERIAL for chemical composition or physical structure
or have or allow any component of the MATERIAL to be analyzed or make any use of any
such analysis. The RECIPIENT will not alter the chemical structure of the MATERIAL in
any way.
B. Tangible Property Ownership: UC DAVIS retains ownership of the MATERIAL, including any
MATERIAL contained or incorporated in MODIFICATIONS.
C. Confidentiality: Any CONFIDENTIAL INFORMATION disclosed by UC DAVIS to RECIPIENT
shall be treated as confidential and maintained in confidence by RECIPIENT for five (5)
years after disclosure. RECIPIENT shall not disclose any CONFIDENTIAL INFORMATION of
UC DAVIS, except to its own personnel who have a need to know. Without limiting the
foregoing, RECIPIENT agrees to take the same steps and use the same methods to prevent
the unauthorized use or disclosure of CONFIDENTIAL INFORMATION of UC DAVIS as it takes
to protect its own CONFIDENTIAL INFORMATION or proprietary information.
D. Distribution: RECIPIENT agrees NOT to transfer the MATERIAL or MODIFICATIONS to anyone
other than to one who works under the direct supervision of the RECIPIENT INVESTIGATOR
within the RESEARCH USE without the prior written consent of UC DAVIS.
E. Disclosure, Inventorship, and Intellectual Property Rights
i. Disclosure: The RECIPIENT shall promptly notify UC DAVIS of any potentially patentable
discoveries or inventions made through the use of the MATERIAL, whether or not made
within the specified limits of the approved RESEARCH USE. The RECIPIENT shall promptly
supply UC DAVIS with a copy of the invention disclosure.
ii. Inventorship: Inventorship shall be determined according to United States patent law.
iii. Intellectual Property Rights: Collaborative efforts of UC DAVIS and the RECIPIENT may
create inventorship rights under United States patent law as well as under the law
of any applicable jurisdiction in which a party or the PARTIES may elect to file patent
application(s). Each party shall own its undivided interest in joint inventions. The
PARTIES shall cooperate in discussing and securing intellectual property rights to protect
potentially patentable inventions.
iv. No Implied Rights: The RECIPIENT acknowledges that the MATERIAL is or may be the
subject of a patent application. Except as provided in this Agreement, no express or
implied license or other rights are provided to the RECIPIENT under any patents, patent
applications, trade secrets or other proprietary rights of UC DAVIS, including any altered
forms of the MATERIAL made by UC DAVIS. In particular, no express or implied licenses or
other rights are provided to use the MATERIAL, MODIFICATIONS or any related patents of
UC DAVIS for commercial use or any other use other than the RESEARCH USE.

Box 4 (continued)
F. Warranty and Licenses:

i. Any MATERIAL delivered pursuant to this Agreement is understood to be experimental
in nature and may have hazardous properties. UC DAVIS MAKES NO REPRESENTATIONS
AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED. THERE
ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY
PATENT, COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS.
ii. If the RECIPIENT desires to use the MATERIAL or MODIFICATIONS for profit-making
or commercial purposes, the RECIPIENT agrees, in advance of such use, to negotiate
in good faith and conclude a license agreement containing terms typically required
in license agreements executed by UC DAVIS. It is understood by the RECIPIENT that
UC DAVIS will have no obligation to grant such a license to RECIPIENT, that future
licensing rights, if any, may be subject to preexisting contractual obligations of UC
DAVIS, and that UC DAVIS may grant exclusive or non-exclusive commercial licenses
to others.
G. Liability: The RECIPIENT assumes all liability for damages that may arise from its use,
storage or disposal of the MATERIAL and MODIFICATIONS. UC DAVIS will not be liable to
the RECIPIENT for any loss, claim or demand made by the RECIPIENT, or made against the
RECIPIENT by any other party, due to or arising from the use, storage or disposal of the
MATERIAL and MODIFICATIONS by the RECIPIENT. The RECIPIENT agrees to indemnify, hold
harmless and defend UC DAVIS against any claims, costs or other liabilities which may
arise as a result of RECIPIENT’S use, storage or disposal of the MATERIAL.
H. Publication of Research Results: The RECIPIENT may publish or present results of research
relating to the MATERIAL, provided the RECIPIENT provides UC DAVIS with a copy of any
proposed manuscript, abstract, poster session or presentation at least thirty (30) days prior
to such publication or presentation. UC DAVIS shall review such publication or presentation
for CONFIDENTIAL INFORMATION or patentable material and may request a delay of the
proposed publication or presentation for up to an additional thirty (30) days to allow for
the removal of CONFIDENTIAL INFORMATION or the filing of patent application(s). Unless
UC DAVIS directs otherwise, any publication or presentation reporting the research carried
out with the MATERIAL shall contain proper referencing in academic journal format,
acknowledging UC DAVIS as the source of the MATERIAL.
I. Termination:
i. Date: This Agreement will terminate on the earliest of the following dates:
(a) on completion of RECIPIENT’S current RESEARCH USE with the MATERIAL;
(b) on thirty (30) days’ written notice by one party to the other; or
(c) ( ) years from the date of execution of this Agreement by UC DAVIS.
ii. Surviving Obligations: Obligations with respect to Tangible Property Ownership (2.B.),
Confidentiality (2.C.), Distribution (2.D.), Disclosure, Inventorship, and Intellectual
Property Rights (2.E.), Warranty and Licenses (2.F.), Liability (2.G.), Publication of Research
Results (2.H.), and this Section (2.I.ii) shall survive termination.
iii. Return of MATERIAL: As directed by UC DAVIS, RECIPIENT shall stop using the MATERIAL
and shall return or destroy any remaining MATERIAL on the termination of this
Agreement.

CHAPTER 7.3
Box 4 (continued)
J. Applicable Law: The validity and interpretation of this Agreement and legal relations of the
PARTIES in the performance of this Agreement shall be governed by the laws of the State
of California without regard to conflicts of law provisions.
K. Notice: Any notice required under this Agreement will be considered properly given and
effective on the date of the postmark if mailed by prepaid postage first-class certified mail;
on the date of delivery if delivered in person; or on the date of receipt if mailed by any global
express carrier service that requires the recipient to sign the documents demonstrating
the delivery of such notice. Notice shall be given to the designated authorized official at
the address provided below:
FOR THE REGENTS OF THE UNIVERSITY OF CALIFORNIA:

Authorized Official: Executive Director,
Technology and Industry Alliances
Address: Technology Transfer Services,
Office of Research,
Technology and Industry Alliances,
University of California, Davis
1850 Research Park Drive, Suite 100
City, State, Zip: Davis, CA 95616-6134
Country: USA
Telephone: 530.757.3432
Fax: 530.758.3276

FOR RECIPIENT:
Authorized Official:
Recipient Institution:
Address:

City/State/ZIP:
Country:
Telephone:
Fax:
3. Complete Agreement
This Agreement constitutes all the agreements between the PARTIES, both written and oral
with respect to the subject matter hereof. All prior agreements respecting the subject matter
hereof, either written or oral, expressed or implied, between the PARTIES are hereby canceled.

Box 4 (continued)
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA RECIPIENT
Name: Name:
Associate Director, Technology Transfer Services Title:
Date: Date:
UC DAVIS INVESTIGATOR and RECIPIENT INVESTIGATOR acknowledge reading and understanding

this Agreement and shall abide by the terms and conditions thereof.
UC DAVIS INVESTIGATOR RECIPIENT INVESTIGATOR

Name: Name:
Title: Title:
Date: Date:
Exhibit A
1. ORIGINAL TRANSFERRED MATERIAL:

2. RESEARCH USE:
3. RECIPIENT INVESTIGATOR (name):

CHAPTER 7.4
How to Draft a Collaborative Research Agreement

MARTHA BAIR STEINBOCK, Deputy Assistant Administrator, Office of Technology Transfer,
U.S. Department of Agriculture, Agricultural Research Service, U.S.A.
ABSTRACT with, the concept of the collaborative research

A collaborative research agreement has five major parts: project must involve a research project through
(1) statement of objectives, (2) statement of work, (3) gen-
which both parties benefit from the work that
eral provisions, (4) budget, and (5) list of materials. This
chapter provides a step-by-step discussion of the issues will be done.
that need to be addressed in each part of the agreement, A poorly written agreement can tear apart an
emphasizing the importance of crafting an agreement otherwise harmonious relationship. On the other
that is mutually beneficial and, above all, clearly written. hand, a well-written agreement, in which all par-
Whereas all parts of any agreement are important, for col-
laborative research agreements, extra care should be taken ties understand their responsibilities, will build
in describing the objectives and work of the collabora- and strengthen a productive scientific relation-
tion, the research plan, and the mechanisms for agreeing ship. An effective agreement will be clear both to
on changes in the research plan. Partnerships grow and the researchers doing the research work and to the
change; this invariably leads to the need for amendments.
managers of both parties. And a well-written col-
Arguably, many of the best collaborative research agree-
ments need numerous amendments in order to reflect the laborative research agreement can lay the ground-
evolving needs of the parties involved. work for moving the results of research toward
commercialization.
For the sake of simplicity and to facilitate dis-
1. Introduction cussion of the issues involved, the chapter focuses
The objective of writing a collaborative research on one scenario: developing a research agreement
agreement is to clarify for both parties what they between a National Agricultural Research System
are trying to accomplish together and to clearly (NARS) government laboratory and a private
set forth the rules that will govern the collabora- company. Many of the points made are equally
tive effort. A good partnership must be mutually valid for collaborative research agreements be-
beneficial, and an effective collaborative research tween other types of entities.
agreement will help both parties understand and
accept mutual benefit as a goal. Of course, sim-
ply writing that an agreement is mutually benefi- 2. Parts of an Agreement
cial does not make it so. An effective agreement Most collaborative research agreements have five
must be based on an actual win-win relationship, general parts. The agreements can be somewhat
one that is truly mutually beneficial. So to start flexible in the terminology they use. The names
Steinbock MB. 2007. How to Draft a Collaborative Research Agreement. In Intellectual Property Management in Health and
This chapter was authored as part of the official duties of an employee of the U.S. Government. Copyright protection for
this work is not available in the United States (Title 17 U.S.C § 105). The views expressed are those of the author and do
not necessarily represent those of the U.S. Department of Agriculture.

STEINBOCK
assigned to the subparts are not terribly impor- that is sent to the project, as well as the quantity
tant. What is important is that the agreement of each item and the dates those materials were
covers each the following points: transferred from one party to the other. By updat-
1. statement of objectives ing the list of materials each time new materials
2. statement of work are sent from one of the collaborating researchers
3. general provisions to the other, all parties are assured of having a
4. budget current and complete list.
5. list of materials
2.1 Statement of objectives
The first part of the collaborative research The statement of objectives should be concise
agreement is commonly called the statement of and clear. Use terms that nonscientists will read-
objectives. This explains the overall setting of the ily understand and avoid the excessive use of sci-
agreement. It describes what the parties want to entific jargon. The statement of objectives should
accomplish together and why the collaboration is explain the real-world issues that the collabora-
important. tive research agreement will address. It should
The second part of a well-drafted collabora- articulate both the what and the why of the col-
tive research agreement is called the statement of laboration. When someone outside of the science
work. This may sometimes be called the research community reads the agreement, they should be
plan. It describes the research that the parties pro- able to tell why the parties believe it is important
pose to conduct and includes which approaches to undertake the collaboration. In addition, the
will be undertaken and which methodologies statement of objectives should clearly specify the
will be used. Most importantly, this part of the scientific goals of the collaboration. Care should
agreement specifies who is responsible for what be taken to differentiate long-term goals, which
and specifies the due dates for completing each may happen years after the agreement is complet-
part of the research project. ed, and short-term goals, which will be accom-
The third part of an effectively written col- plished by the end of the agreement.
laborative research agreement is called the general Consider the following examples from two
provisions. These are sometimes known as the statements of objectives from actual agreements:
legal provisions. They cover a series of impor- • Good: to develop, test, and evaluate trans-
tant details, the mechanisms of collaboration, genic tomatoes expressing the “N” gene,
and the rules by which the collaboration will be which encodes for resistance to tobacco
conducted. mosaic virus.
The fourth part of a agreement is the bud- • Not as good: to determine basic breeding bi-
get. This part sets forth the resources that each ology, including ploidy levels of a resistance
party needs and contributes to the collaborative biotype of Lolium.
research project.
For collaborative research agreements in which The first one is quite well written. It clearly
biological or other materials (germplasm, plant and specifically explains the objective. From this
parts, biotech components, and so forth) are passed clear statement, most readers will get a feel for
from one party to the other for use in the project, what the agreement hopes to accomplish.
the agreement typically includes an additional sec- The less well-written statement vaguely states
tion called the list of materials. This section is of- the goal. Phrases like basic breeding biology do
ten attached as an appendix to the agreement. In not really mean much unless they are further
some cases there may be more than one appendix, defined, and terms like ploidy level may not be
since the materials being used and transferred may well understood by the nonscientific community.
change over the course of the project. Remember, the goal of the statement of objectives
In its simplest form, the list of materials is to set the stage for the agreement by clearly stat-
should provide a unique name for each item ing what the parties hope to accomplish.

CHAPTER 7.4
2.2 Statement of work collaboratively. This statement of responsibilities

The next part of a well-written collaborative re- is perhaps the most critical element of a research
search agreement is what is often referred to as agreement because without a clear understand-
the statement of work. This is by far the most ing of responsibilities, the partners may have
important part of the agreement. Sometimes, the unrealistic expectations and become frustrated.
statement of work is attached to the agreement If it is unclear who will be doing each piece of
as an appendix. This is not to diminish its im- experimentation, both parties may be sitting
portance in any way. It is merely a convenience back, waiting in vain for the other to produce
to have this research plan slightly separated from something. It cannot be stressed enough that it is
the general body of the agreement. The advantage very important to break down each of the scientific
of having it self-contained is that it will be easier objectives of the statement of work into tasks and
for the scientists to relate to it, and in the event clearly state who is responsible for each.
of modifications to the work plan, it can be more Another point to consider is to quantify the
easily amended. work that is to be done. It may not be necessary
The statement of work contains the scien- to use exact numbers (for example, the types and
tific objectives, methodologies, and approaches. replications of an experiment or the number of
It should be broken down into subsections, with test tubes you will be using), but do insert gen-
each section explaining what “partner A” will eral guidance about the size and scope of the col-
do and what “partner B” will do, with the time laborative research. For example, if you are go-
frames and benchmarks specifically laid out. ing to do a feeding study and will be using 30
In drafting this section of a collaborative re- mice per replication, state that in the agreement.
search agreement, the parties must work together That way both parties will be clear as to the or-
closely. The other parts of a collaborative research der of magnitude of the data types that are to be
agreement can be initially drafted by a technol- generated and the level of resources needed for
ogy transfer officer and/or intellectual property their part of the work. Researchers often believe
management officer and then can be exchanged they understand what the other has in mind, but
between the partners for review, comment, and without written descriptions, such assumptions
negotiation. But the collaborating researchers often lead to misunderstandings. For example, if
themselves should prepare a first draft of the an institute researcher says he or she will “field
statement of work, which can then be edited by test” a new variety, he or she may have in mind
the technology transfer officer. This is because the a half-hectare plot necessary to generate enough
collaborating scientists are the ones who really plants for a publication, while the company sci-
understand the complexity of what is to be un- entist has in mind 100 hectares. So, be as clear
dertaken, and it is the scientists who must fully as you can about the sizes or numbers of replica-
embrace the plan that is developed. tions and other quantifiable aspects in the state-
Within the statement of work, there should ment of work.
be a section stating the project’s scientific objec- Another aspect that is very important is to
tives. With complicated or longer projects, there build-in time frames and benchmarks. Generally,
may be many objectives and subobjectives. In you want to have built into the statement of work
such cases, the use of a numbering or outlining at least an indication of when each party should
system makes the objectives clear and readable. have completed their responsibilities under each
Each objective in the statement of work objective or subobjective. Often researchers will
should be followed by a description of the meth- object that time-frame specifics make them feel
odologies and approaches to be used to address pressured, but such a plan will help the collaborat-
the scientific questions involved. Further, each ing scientists make progress in an orderly fashion.
objective must include very clearly what each It also helps prevent one party from having to wait
partner (the institute scientists and the com- for the other and causing lost time. Time frames
pany scientists) will be doing, separately and are important to make the experimentation run

STEINBOCK
smoothly and they help the partners garner the template agreements, a person can often begin to
resources that will be needed to move the project fully understand which points are negotiable and
along. which legal provisions are required by organiza-
Benchmarks are important to help measure tion policy or law. At the same time, collaborative
work progress. They specify that at a certain point research agreements should be as user-friendly as
both parties expect certain pieces of data to have possible and avoid unnecessary stipulations.
been generated, certain parts of the experiments There are a wide range of typical general
to have been completed, or certain questions to provisions. These include a public disclosure/
have been answered. You will want to write these publication policy, which addresses how the par-
goals as benchmarks. In a larger agreement, with ties will communicate with each other and the
multiple objectives and multiple people involved, outside world; reports; confidentiality issues; the
sometimes there may be activities that will flow important issues of intellectual property manage-
sequentially (one has to be completed before ment and technology transfer from the institute
another can begin). Other research may be oc- to the company; regulatory approvals; indemnity
curring simultaneously in parallel experiments. and liability statements; dispute resolution plans;
In these complicated situations, project-manage- and provisions for termination. This part of the
ment software can be helpful when preparing the agreement should also spell out an amendment
statement of work. procedure and name the persons responsible for
A collaborative research agreement can grow the agreement, both managerially and scientifi-
to be a lengthy document. However, you should cally, at the institute and the company.
not think that it is like a grant application that
can be 20, 30, 40 or more pages. A collaborative 3.1 Publications
research agreement is not designed to convince Public disclosure is a crucial part of any research
an outside party that the work is worthwhile, nor agreement. Science is driven by the need to pub-
does it aim to show that either of the collaborat- lish, and scientific careers depend on such publi-
ing scientists are high-quality researchers. Rather, cations. Public disclosure, including publication
it should clearly spell out the respective research in patent literature, keeps innovation going. The
that the partners will be doing. So, a statement of phrase public disclosure is a broad term that in-
work should only be as long as it needs to be to cludes many types of disclosure of research re-
ensure that both parties know what is expected of sults. Public disclosure can include any form of
them. A typical agreement will be 10–15 pages, public dissemination of research results: articles,
and the statement of work is often no more than abstracts, poster sessions, both informal and for-
two or three pages. mal seminars, talks, information posted on the
Internet, and grant applications. Most organiza-
tions that enter into collaborative research agree-
3. General Provisions ments will want to put some limitations on the
The next part of a collaborative research agree- right to public disclosure. Such a delay in public
ment is the general provisions. This is the body of disclosure may be necessary to ensure that patent
the agreement that covers the how of working to- applications can be filed for discoveries made un-
gether and provides mechanistic guidance to the der the agreement.
scientists at the institute and at the company, as A publication clause should protect the inter-
well as to managers. Normally, an institute or an ests of both parties. Generally, there is a statement
entity has a standardized set of general provisions that both parties reserve a right to review and
that has been reviewed by their legal counsel and comment on all public disclosure by the other
that can serve as a starting point for negotiating party. Typically, a specific time frame (usually 60
agreements. Each person studying this chapter or 90 days) is set up for such a review. Often there
should consider developing such template agree- is also a provision written into the collaborative
ments. In the process of such development of research agreement stating that one party requires

CHAPTER 7.4
the other party to delay public disclosure of proj- access to such IP/TP as may be created under
ect-derived information for a specific length of the collaborative research agreement. For an in-
time to allow for patent preparation or exclusive stitute, working with a company is an effective
use by the other party. The bottom line is that way to transfer technology. Many believe that it
a well-written agreement should clearly state all is the most effective and efficient way for research
such limitations of public disclosures. results to move from the laboratory, through a
development process by the company partner,
3.2 Confidentiality and finally into the marketplace. Without such
Another aspect of the general provisions involves provisions, the benefits of collaboration may be
confidential information, sometimes called confi- lost.
dential business information, or CBI. It is impor- The first step in drafting this section is to
tant for the collaborative research agreement to clearly define IP and TP rights.
differentiate between two types: (1) confidential IP rights are rights under various types of
information that a party brings into the project statutory protection. These IP rights include the
and that predates the agreement, and (2) confi- intangible property rights obtained from:
dential information that is generated under the • issued patents and patent applications
agreement and that the parties generated while • plant variety protection (or a breeder’s
working together and conducting project experi- rights) applications and granted certificates
ments. A collaborative research agreement should • copyrights (including software)
specify how both types of information are to be • trade secrets
handled by the parties. • trademarks and service marks
For information that is created by one of
the parties prior to or outside the scope of the TP rights are the second broad class of prop-
agreement, you may find it helpful to use the erty rights. These include ownership rights in
terms commonly found in a confidentiality or various classes of biological materials, germplasm,
nondisclosure agreement. Like any confidenti- databases, business plans, research plans and pro-
ality agreement, these clauses should specify a tocols, laboratory notebooks, and the like. They
time limit during which the information is to be involve the ownership of things that one can
kept confidential. Typically, such time limits are touch, see, taste, smell, and hear.
between two and five years after the end of the The second step in dealing with IP/TP issues
collaboration or from the point the information is to establish who owns what. The collaborative
is generated. If the parties have an earlier signed research agreement should clearly state that all
nondisclosure or confidentiality agreement, that IP/TP contributed to the collaborative research,
document may simply be referenced in the col- but predating the project, should be owned by
laborative research agreement or the collaborative the party who contributed its use to the project.
research agreement can state that it replaces the This is why there should be a clear inventory of
confidentiality agreement. all IP/TP that either party contributes to the
The confidential treatment of information project.
generated under the project will be closely tied For example, if the company has a genetic
to the treatment of intellectual property (IP) and construct or a genomics database that the collab-
tangible property. orators will use, then whether or not these con-
tributions are covered by a filed or issued patent
3.3 Intellectual property or some other sort of statutory protection, these
Perhaps the most important section of the gener- contributions need to be clearly identified in the
al provisions deals with the intellectual property agreement. Similarly, if the institute brings germ-
and tangible property (TP) provisions. This sec- plasm lines, a site-specific promoter, or a transfor-
tion is important because what motivates most mation vector into the project, these too should
collaborative research is the potential for gaining be identified and documented in the agreement.

STEINBOCK
In this way, collaboration can be promoted be- In a first-to-file country, the rules for the de-
cause each party recognizes and acknowledges termination of actual inventorship are different.
the other party’s ownership of the contributed As in a first-to-invent country, ownership follows
materials. inventorship. So, whoever files first will be listed
After establishing an inventory (in the list of as the inventor and as the owner. Clearly, it is im-
materials) of the IP/TP that is brought into the portant to understand the rules of the country in
project, the next step is to clearly establish how which the patent filing is taking place. Yet it must
the ownership of new property discovered under be remembered that if the new IP/TP is to be
the project (new IP/TP) will be determined. In a protected in the United States (and other first-to-
typical collaborative research project there is the invent countries), regardless of where the research
potential for three classes of new IP/TP: takes place, the rules of first-to-invent apply to all
1. New IP/TP that is solely discovered by the patent filings.
institute researcher In general, if only employees of the institute
2. New IP/TP that is solely discovered by the are listed as inventors, then the institute owns the
company researcher invention. If only employees of the company are
3. New IP/TP that is jointly discovered by listed as inventors, then the company owns the
the institute researcher and the company invention. However, if at least one employee of
researcher the institute and one employee of the company
are listed as inventors, then the invention is joint-
In collaborative research, many of the discov- ly owned by both the institute and the company.
eries fall into class three. A well-written collab- Regardless of whether the patent filing is in a
orative research agreement will address how and first-to-invent country or a first-to-file country,
by whom the ownership determinations are to be it is important to address the matter of patent
made in cases in which the IP/TP is discovered by ownership in a well-written collaborative research
one party or the other. agreement. However, equally important than pat-
Globally, patent laws differ. Under the ent ownership are the rights that are granted un-
patent laws of nearly all countries outside the der the patent.
United States, inventorship is determined by A key part of the IP provision is what the
whomever files the patent first (and has been in- agreement is actually promising in terms of
volved in the discovery process). In the United the granting of licensing rights, or the “grant.”
States, inventorship is determined by first-to- Normally, the parties enter into a collaborative
invent and ownership follows inventorship, research agreement in order to obtain access to
that is, ownership goes to whoever files first. the discoveries that flow from the collaborative
This is the so-called first-to-file approach. It is project.
therefore necessary for a collaborative research The scope of the grant must be considered
agreement to address the matter of ownership very carefully. For example, if the scientists are
determination, or refer to the national laws of conducting mer research and are seeking a tech-
the partners. nology for disease resistance, it is possible that
Normally, inventorship is determined when the technology may apply to other plants as well.
the patent attorney talks with the researchers. If Thus, the collaborative research agreement should
a patent is being sought in the United States, be clear that the grant is for a license for mer only
great care must be taken to include on the pat- (or for some other agreed-upon subset of plants).
ent application only the actual inventors (those This will be a key point in the negotiation of the
researchers who make the creative, intellectual agreement. Normally, one party will want a very
contributions to the discovery). If someone who broad grant of rights and the other party will keep
is not an inventor is named as an inventor on the trying to narrow the grant.
patent application, this will prevent the issuing The next thing to consider is whether the
of a legitimate U.S. patent. grants will be for an option to a license or an actual

CHAPTER 7.4
license. There are pros and cons to both approach- not assured of an exclusive license because their
es. Granting an option, with a preset fee struc- competitors may also seek a license.
ture, is sometimes all that will be requested, be- The negotiation of the grant of intellectual
cause such an option allows both parties adequate property is a key part of the collaborative research
time to thoroughly evaluate the invention before agreement. Take time to think it through clearly
signing an actual license. On the other hand, one and come up with a solution that meets the needs
party may strongly prefer a direct grant of a li- of both parties.
cense, with the business licensing terms clearly
spelled out, because this reduces the amount of 3.4 Amendments
uncertainty. The last part of the general provision section is
Granting an option normally makes a great the amendment process. Strong partnerships
deal of sense because it is very difficult to pre- grow and change; therefore, agreements need
dict what IP/TP will be generated. Further, it is to be amended. In fact, many of the best col-
difficult to predict the value of such new IP/TP. laborative research agreements need constant
Therefore, agreements that give a direct grant of amendments. It is not unusual for a collaborative
a license and fully spell out the license terms can research agreement to be amended as often as ev-
lead to a gross miscalculation of the new IP/TPs ery six months or every year. This is because the
worth, either undervaluing it or overvaluing it. If researchers often identify dynamic, new opportu-
the IP/TP is overvalued, this would likely act as a nities that the partners want to explore together.
disincentive for future development of such IP/ Thus, a well-written agreement can be amended
TP. If the new IP/TP is significantly undervalued, so that the statement of objectives, the statement
this may act as a block on the future relationship of work, and the budget reflect the new needs.
of the parties because one party has been treated All amendments should in writing and signed
unfairly. by the proper authorities as an appendix to the
With either approach, the collaborative re- agreement. Guard against informal amendments
search agreement should include time frames that may sneak in as the project gains momen-
during which the party who receives the option tum and the researchers become excited. If they
to a license must decide whether it wishes to ex- are not written down, such amendments can lead
ecute its option and take a license. The option to disputes and litigation. So make it clear to ev-
grant should not be open ended. This will allow eryone that all significant changes in the research
another licensee to be sought if the collaborating must be written and appended to the agreement.
party does not wish to develop and market the
new IP/TP. 3.5 Termination
Likewise, it is important to specify the li- All agreements should have a specific date upon
cense grant’s level of exclusivity. Is the license (or which the cooporation ends. Termination clauses
the option to a license) for an exclusive license or may be added that stipulate when and under what
a nonexclusive license? Is the license exclusive by conditions each party may elect to terminate the
country or region? Is the license limited by crop? agreement before the end date. The end date may
By product? By time? Or, is the license more gen- be extended through the amendment process, if
eral? Most companies (and many other collabora- both parties agree. This is common in successful
tors as well) will want some sort of exclusivity in collaborations.
their license (or option to a license). It may be
adequate for such a collaborating partner to have
an exclusive right for some specified time period, 4. Budget
or for a certain well-defined field of use, or for a The fourth section of a well-written collaborative
certain licensed territory, or for a combination of research agreement is the budget. There is a ten-
these. Most organizations are reluctant to put their dency to view this as the most important section
resources into an agreement if the organization is because it documents the funding that the parties

STEINBOCK
contribute. This, however, is an improper em- each party provides to the project. This is critical
phasis. While it is true that public sector agricul- because all such materials were developed outside
tural research is grossly underfunded, and thereof the project and are owned by one partner or
fore funds obtained from collaborating partners the other. They are not new TP that will be di-
have an extremely important place in the overall vided according to the granting clauses. Rather,
research budget, collaborative research should materials that are included in the list of materi-
never be viewed principally as a way to raise rev- als are fully owned by one of the collaborators.
enues. Collaboration is much more than that. Sometimes items listed in the list of materials
Concentrating only on research funding over- have IP rights associated with them; sometimes
looks both the use of the agreement as a means of they do not.
technology transfer and as a way to build an intel- In truly collaborative research, the list of ma-
lectual synergism that can result when researchers terials may have to be amended on a regular basis.
collaborate. This will require the agreement to be amended
Developing the budget must begin with a easily (as noted above). A well-written collabora-
clear statement of work. This will help determine tive research agreement, the list of materials will
for the collaborators the amount and the timing dynamically respond to the emerging needs of the
of the resources required for the collaborative researchers.
project. This is the starting point. There must be
enough funding to undertake the project without
detracting from other projects that are already 6. Conclusion
underway. Collaborative research agreements can be ex-
Staff time should be considered, as well as tremely beneficial to both partners. No single
tangible resources (such as space and equipment entity ever has adequate money, resources, and
that will be required to support the project). For intellectual capacity to do all the research it might
example, if one partner will need to recruit gradu- want to do. Forming partnerships can be an effec-
ate students, technicians, or other personnel, then tive and economical way of accessing resources.
salary and benefit costs for the new staff must be Collaborative research agreements, moreover, are
included. Also, do not overlook in-kind contri- often the first step in establishing longer-term
butions that a collaborating partner may be able partnerships. They can be effective technology
to provide. A company, for example, may have transfer tools, as well. The benefits are much more
very specialized equipment, expertise, formula- than monetary. Taking the time to think through
tion technology, or access to facilities that would and discuss the terms of the collaborative research
be extremely costly for an institute to procure on agreement helps foster communication between
its own. The value of such in-kind contributions partners and sets the project on a path for suc-
should be noted in the budget. cess. Indeed, good partnerships spur creativity
The budget for a collaborative research agree- and help innovation to serve the public welfare.
ment should be absolutely clear as a research bud- Lastly, it should be said that writing and
get and be totally separate from any sort of licens- negotiating a collaborative research agreement
ing revenue that might be projected. The budget might seem like a very difficult process. In fact, a
should also specify when the payments will be first attempt to write such an agreement usually
made and clearly indicate when the contributed is difficult. The good news is that each time one
in-kind resources will be provided. does it, the process gets easier. ■
MARTHA BAIR STEINBOCK, Deputy Assistant Administrator,

5. List of Materials
Research Operations and Management, Office of Technology
The final section of a collaborative research agree- Transfer, USDA-ARS, Room 4-1158, 5601 Sunnyside
ment is the list of materials. As with the budget, Avenue, Beltsville, MD, 20705, U.S.A. martha.steinbock@
this section provides a clear listing of the TP that ars.usda.gov

CHAPTER 7.5
Drafting Effective Collaborative Research

Agreements and Related Contracts
E. Richard Gold, Director, Centre for Intellectual Property Policy, McGill University, Canada
Tania Bubela, Assistant Professor, School of Business, University of Alberta, Canada
ABSTRACT Contracts, which define in legal terms the form

Best practices in IP (intellectual property) management relationships take, mediate the interaction among
are built on a foundation of licensing and contracting
those with knowledge, skills, and/or resources in
expertise. A contract defines a bargain that parties enter
into, and, as such, defines the relationship and the expec- order to create something new, improve what al-
tations of the parties. It is therefore critical to carefully ready exists, or distribute what has already been
draft contracts that clearly, and objectively, indicate the created. In this chapter, we first discuss some of
intentions of the parties. Avoid stilted, legalistic jargon the basic tenets of good contract drafting, that is,
when drafting contracts; instead, strive for direct, simple,
and accurate language. In written agreements, be sure to emphasizing clarity and simplicity and avoiding
include the terms and provisions covering the grant itself, the slavish use of standard-form contracts, which
such as payments, dispute resolution, intellectual prop- may contain provisions unsuitable to specific
erty emerging from the R&D, IP ownership and confi- contracting cultures and contexts. Later in the
dentiality, and other related legal terms and definitions.
chapter, we discuss sound drafting practices for
However, remember that generic templates do not exist.
The relationship and goals of the parties will define how research contracts and for more complex collab-
the agreement is structured. The actual document will orative research and sponsorship contracts.
also vary, depending on whether the parties are public or Because contracts are about relationships—
private sector entities, on whether the license is a collab- with all the ambiguities, pitfalls, and excitement
orative-research agreement or a sponsorship agreement,
and on the business and legal culture. of human relationships—contracts are difficult
to capture on a dry document composed by law-
yers. A written contract can never fully describe
a relationship nor the full set of contractual ar-
1. Introduction rangements that embody the relationship. The
Human relationships are the engine of innova- extent to which judges and arbitrators interpret-
tion; they drive the creative use and management ing a dispute rely on the written document it-
of intellectual property (IP). Patents, trademarks, self—in contrast to the external evidence about
and copyrights provide mechanisms through the relationship between the parties—varies from
which actors in the private and public sectors can jurisdiction to jurisdiction. For example, in com-
build relationships, coordinate activities, assign mon law jurisdictions, contractual interpretation
responsibility, and allocate the benefits arising tends to be more contextual, with greater allow-
from innovation and its distribution. The con- ance made for external evidence about the broad-
tract links these actors and the various IP regimes. er relationship. The civil law, however, tends to
Gold ER and T Bubela. 2007. Drafting Effective Collaborative Research Agreements and Related Contracts. In Intellectual
© 2007. ER Gold and T Bubela. Sharing the Art of IP Management: Photocopying and distribution through the Internet for

GOLD & BUBELA
focus more on actual contractual wording and describe the arrangements between the parties,
the dictates of the civil code. However, irrespec- given the cultural and legal context?
tive of jurisdiction, the written contract is the
strongest objective manifestation of the inten- 1.1 Explaining the bargain:
tions of parties as they enter into a relationship. The art of contract drafting
Parties can most easily avoid disputes if the If one were to read court decisions about con-
contract describes, as fully and simply as possible, tracts, one would soon see that judges struggle
the bargain made by the parties. This notion has not as much to determine what the documents
important consequences for contract document say, as to determine the nature of the relation-
drafting. Long-winded sentences, boilerplate ships underlying the contracts. When judges
provisions and impossible-to-understand defini- find this difficult because the contract docu-
tions only complicate lives and understanding in ment is confused and convoluted, they are more
a futile attempt to remove doubt concerning, and likely to misinterpret the original agreement
ambiguity of, complex and evolving relationships. between the parties. Such misinterpretations
Such lengthy documents are not only unreadable lead to decisions that run against the allocation
by the actual signatories to the contract but do of responsibilities and benefits that the parties
little to provide guidance to the business people originally intended, increasing uncertainty and
and judges who may eventually have to settle dis- undermining the business rationale for the con-
putes based on those documents. tract. What judges seek to find in contractual
Instead of thinking about contractual docu- documents are objective indications of what
ments as an attempt to pin down every last aspect the parties intended to do: Who was to take on
of a relationship between parties in complex legal what risks? Who was to benefit from the results
jargon, this chapter suggests a different approach, of the contract? How were the parties to deal
one drawn from the experience of large corporate with disputes and controversies? Judges want
law firms: explain the provisions of the bargain to understand what the parties bargained for so
as simply as possible, in a logical sequence, us- that they can figure out who should do what,
ing plain language. By explaining the bargain in when, and where.
a clear and accessible manner, not only are the A good contractual document is one that sets
chances better that the parties will comply with out the bargain as clearly and simply as possible;
the essence of the contractual relationship, but a bad document is one that muddles it with too
also business people and judges will resolve dis- many words, arcane language, and legal mumbo
putes in conformity with the fundamental inten- jumbo. The job of a lawyer is to identify the es-
tions of the parties. sence of the relationship so that the parties and
Undoubtedly there is temptation to use stan- judges understand exactly what the business deal
dard form contracts and boilerplate provisions to is about. This involves setting out the contract in
lower transaction costs and legal fees, but in the a structured way that focuses on the essential ele-
end, the use of poorly written or inappropriate ments of the bargain.
contractual provisions may lead to greater costs, The simplest contract is one in which one
rather than save money. That is not to say that party promises to deliver something to another
every contract need be drafted from scratch; the in return for something (monetary or otherwise).
use of contractual precedents is a judicious use If a dispute arises, the parties agree to follow a set
of legal resources. Select precedents that are well procedure (such as arbitration or mediation) or to
written and constructed. Parties to the contract sue in court (litigation).1 This progression should
should question the relevance of each provi- be defined in the contract (for example, mediation
sion to the bargain within the appropriate cul- procedures, followed by binding arbitration).
tural context. When using clauses from standard Further, the agreement should clearly explain
form contracts, the key question to ask is: do you how one party is to deliver something to the other,
understand the language and does it accurately the heart of what Article 1 should cover. Article

CHAPTER 7.5
2 should deal with payment: to whom should different from the detailed legal rules in another
the payment be made? in what currency? in place, say Uttar Pradesh, India.
which form (electronic, bank draft, for example) Written contractual documents depend
and when? One could also add a few sentences to a large extent on local customs. That is, the
dealing with late payments: will there be inter- contract can be meaningful only within the set
est charged and, if so, how much? how would a of business practices and norms that exist in the
currency crisis (for example, currency cannot be place where the contract is to be performed. As
exported out of the country) be dealt with? The practices and norms vary tremendously, so do the
third article deals with resolving problems: steps contractual documents that serve to reflect con-
to be taken if the receiving person is unsatisfied tractual relationships. So, for example, contrac-
with what was delivered, either in terms of qual- tual documents in the United States tend to be
ity or quantity; how the parties would resolve the very detailed and long, while a contractual docu-
conflict; what the first person should do if he or ment on a similar topic will be shorter and much
she is not paid. The parties can agree to litiga- less detailed in Germany. Exporting one style of
tion or arbitration but may first prefer to set up contractual document from one place to another
a mechanism through which they can elevate the can be risky, since the business people and courts
problem to senior management who, presumably, will have difficulty interpreting a document writ-
want to avoid the costs and embarrassment of go- ten for a different place with different customs.
ing to court or arbitration. This is another good reason to avoid a slavish de-
The key to drafting these articles is to keep votion to standard-form contracts and why this
the essence of the bargain clear and as uncompli- chapter does not include a sample contract with
cated as possible. Sentences should be short, free boilerplate provisions, but instead sets out only
of vague adjectives, and be written in the active the main elements of a contract.
voice. The vocabulary should be accessible both Of course, when the parties are from two dif-
to business people (with technical knowledge but ferent places, say Uttar Pradesh and California,
limited legal knowledge) and judges (with lim- the parties must adopt a more generic style of
ited technical knowledge but with extensive legal contractual language that reflects, to the extent
knowledge). Use correct grammar and a simple possible, the practices in both jurisdictions. This
vocabulary. If the document would get low grades is not principally for legal reasons; the contractual
from a secondary school teacher, do not use it. In document will be interpreted in accordance with
fact, sometimes legal disputes turn on grammar. the laws and customs of only one of the jurisdic-
One recent commercial dispute in Canada, worth tions. Rather, the effort to reflect both cultures is
$2 million (Canadian), was resolved on the basis important to maintaining business relationships,
of a rogue comma.2 since people from both places must feel comfort-
After the parties explain the main provisions able with the contractual document.
of the bargain, the parties will need to define Finally, it is helpful to recognize that, while
words and phrases used in the contract. The par- legal systems abound, there are two principal
ties should include clauses that take into account ones that govern most commercial contracts:
the local law that applies to the contract. These the common law and the civil law. While some
clauses can have important implications for the countries use hybrid legal systems (for example,
bargain, and so writing them requires expert le- Oman, Puerto Rico, and Indonesia), most con-
gal knowledge. Such clauses can deal with what tracts dealing with collaborations and research
would happen if there were natural disasters or will be subject to one or the other of these two
labor strikes, or how much leeway is given with systems. Usually, common law countries are for-
regard to time lines, or how to calculate exchange mer colonies of the United Kingdom and follow
rates. This information must be relevant to the lo- the English legal system, while civil law countries
cal area, however, because the detailed legal rules are generally the former colonies of continental
of one place, say California, U.S.A., may be quite European powers.

GOLD & BUBELA
Common law and civil law systems are usual- There are a variety of contracts, and associated
ly similar in result, but there are differences in law documents, that relate to intellectual property. A
and in practice that could ambush the unwary. basic license is the simplest of these contracts. The
For example, for a common law contract to be en- first article of a basic license should describe the
forceable there must be an exchange of something rights being licensed (patent rights, copyright,
of value, called consideration. Consideration can trade secret rights, data-use rights, and so on) and
be in the form of money, return promises, action, the scope of the license (limitations on geography,
or forbearance. On the other hand, civil law does users, and time). Article 1 should provide suffi-
not require consideration. Therefore, a failure cient detail so that the business people and judges
to provide consideration (for example, a license understand as clearly as possible both the nature
with no payment and no obligation of confiden- and the limitations on what is being licensed.
tiality) may not be enforceable in the common Article 1 should also discuss any ancillary license
law. Another difference between the two legal (for example, a license back or cross-license).
systems is that the civil law imposes background The second article should deal with payment.
obligations of good faith as well as more limits on Is there, for example, an up-front fee? Are there
what can be the subject of a contract than does royalty payments and, if so, how long will roy-
the common law. However, these differences are alty payments have to be made? How and when
relatively rare. They are unlikely, in most cases, to should payments be made? The third article will
affect collaborative or research agreements great- set out the dispute-resolution mechanism: arbi-
ly. The bigger difference is one of style: common tration, courts, and/or some form of mediation.
law contractual documents tend to be longer and One should supplement these articles with an
more detailed, while civil law contractual docu- explanation of what brought the parties together
ments tend to be short and refer to the civil code and what their goals are. The contract also should
for more detail. either acknowledge or reject relevant local laws
regarding liability for problems that may arise
1.2 Contracting to innovate (those within the parties’ control, such as failure
Contractual documents that deal with innovation to pay, and outside their control, such as flood
should follow the general rule of contracts: explain or fire). The contract should clearly state which
the bargain in simple, straightforward sentences. country’s (or state’s) law applies and so on. The
Clarity and simplicity are, once again, the keys to parties should take care in setting out definitions
a successful contractual document. If the contract and should include these at the end (or in the
is well drafted, neither the institutions involved introduction, if one prefers). The other issues can
nor judges will misunderstand the responsibilities be dealt with in a concluding article that would
of the parties involved. Following the rule does include mundane, but essential topics, such as
not, of course, avoid all conflict, but minimizes it how the parties are to notify one another.
and provides business people and courts a frame- Other forms of contractual documents deal-
work within which to resolve disputes. ing with intellectual property expand the license
agreement and may, in addition to the basic li-
1.2.1 The license cense, include articles dealing with matters such
Traditionally, a license is a grant of permission for as information exchange, staff, and IP rights (as
a party to enter onto the physical property of an- in a consortium research agreement).
other, that is, an agreement not to hold the party
liable for illegal trespass. With respect to intel- 1.3 Types of contracts
lectual property (IP), a license is a promise not Just as there are no real limits to the bargains we
to sue a party for actions that would otherwise can make, there is no limit to the type of con-
constitute infringement. In other words, a license tracts we can create. As circumstances change,
is permission to make use of another’s IP under new technologies are introduced, and business
carefully laid out conditions and terms. people and lawyers try to identify new niches, we

CHAPTER 7.5
encounter new ways of contracting. The imagina- The simplest form of research contract would
tion is the only thing that limits what a contract begin, in Article 1, with a holder of intellectual
can be about. Therefore, instead of trying to cover property granting a license (that is, promising not
all possible forms of contracting with respect to to sue for infringement) to a researcher in order to
innovation—an impossible task—we will concen- allow the latter to make use of a certain technolo-
trate on a discussion of the main types and leave it gy for a defined research use. Generally, however,
to the reader to imagine different scenarios. Since research contracts are more complex, and the li-
the key is, as always, to be clear and transparent, cense forms only one part of the broader research
one can adapt the basic forms of contractual ar- contract. The contract may include a promise to
rangement covered here to other circumstances. provide a sample of the material.
The remainder of the chapter concentrates Material transfer agreements are discussed
on two types of contracts: research contracts and more fully elsewhere,3 but it is worth noting that
collaborative research or sponsorship agreements. these agreements are not only particularly sig-
The collaborative research and sponsorship agree- nificant for research, but are also often the most
ments are the more complicated and incorporate problematic of contracts to negotiate. There are
most of the basic terms of the research contract. real worries about the sharing of research materi-
Heeding the warning against using standard- als and results in a research environment that is
form agreements, the discussions below will con- increasingly industry funded, competitive, and fo-
centrate on some of the principal issues that arise cused on commercializing research results. These
in the various types of contract. However, one agreements also give rise to significant practical
must adapt the contractual arrangements to the difficulties, such as the time and labor needed to
fundamental underlying relationship and not get prepare and transfer research materials, and the
overly caught up in presenting minutiae. need to internationally ship biological material.4
The research contract may call for a payment
(often nominal, to cover expenses) in cash as well
2. Research contracts as in-kind (for example, a promise not to do or
A research contract is one in which a researcher disclose certain things). The contract may also
seeks to obtain the rights to use some knowledge discuss how to resolve disputes over exactly what
(be it patented or protected as a trade secret) to was licensed (for example, slight variations on the
advance his or her research project. That is, the initial technology), payment amounts (how to
rights obtained are an important ingredient in the handle the production of material that was never
carrying out of a research project, whether at a used), and so on.
public, not-for-profit, or for-profit institution. That is the basic bargain. With a clearly
A basic outline of a research contract would written contract, one has already avoided most
include the following: possible conflicts. There remain, however, a few
• Article 1: the license contentious issues that we cover here in more
• Article 2: payment terms and process detail. These include publication rights, confi-
• Article 3: problem escalation and dispute dential information, tricky licensing concerns,
resolution payment, and rights to the results of the research
• Article 4: intellectual property emerging performed.
from research (where applicable)
• Article 5: confidentiality and publication 2.1 Publication rights
rights It is seldom the case that a technology is solely
• Article 6: legal terms, such as what to do protected by patents that are available for review
in case of an “act of God” or other inter- by the public, and it is bad business practice to
vention, timing issues, and notification use only patents if other forms of business protec-
procedures tion are also available. Therefore, when a party
• Article 7: definitions licenses the use of a certain technology, that party

GOLD & BUBELA
often must provide associated confidential infor- competitor, if a confidential relationship exists
mation. To protect the party against the disclo- between the person and the party to whom the
sure of this information, he or she often asks for information was initially disclosed. One of the
a right to approve any publications. In addition, best ways of ensuring this protection from disclo-
if the research may result in new information that sure is through a contract.
may affect the technology owner’s interests (the The obligation to maintain confidentiality
research shows that the technology does not work will often be reciprocal. The technology owner
or works better than expected), the technology may seek to include a confidential information
owner may wish to have time to prepare for this clause in the research contract to prevent the re-
eventuality prior to any public disclosure. This searcher from disclosing confidential information
also would lead the owner to seek the right to ap- initially disclosed by the owner. The researcher
prove publications. may wish to insert this type of clause into the
Given the interests of technology owners contract to protect the results of his or her re-
to guard against uncontrolled disclosures, these search effort.
owners may insist that a clause be added to the re- It is important to pay attention to how broad-
search contract providing that the researcher may ly one defines the term confidential information. A
only publish articles after first getting permission narrow definition can be clear, but may leave out
from the technology owner or after first giving important information. A broad definition may,
the technology owner enough time to prepare on the other hand, prevent the parties from get-
itself for the publication. Delays of three to six ting on with their work. Therefore, both parties
months for the technology owner to review pub- to the research contract should review the defini-
lications to ensure that no confidential information carefully and make sure it is clear to them.
tion is disclosed are reasonable, provided that the There are several mechanisms that can increase
article’s author is permitted to submit the article clarity. First, one can limit confidential informa-
to the journal for a confidential review during tion to material that is clearly identified (because
this time. As normal peer-review processes usu- it is marked confidential) or limit confidential
ally take at least this much time, it provides little information to clear and discrete categories of
inconvenience to the author. information (for example, business plans or cus-
If the technology owner also has the right to tomer lists). Caution should be used in accepting
new inventions coming out of the research (usu- an open definition (for example, “Confidential
ally this only happens in a sponsored-research Information includes but is not limited to … .”),
setting, which will be discussed later), then the especially where there is no requirement that the
owner may also reasonably request a publication confidential information be specifically marked
delay in order to assess the publication for any as such. In addition, some courts may strike
disclosure that could threaten the patentability of down an overly broad confidentiality provision.
the new invention. This is because they sometimes see these provi-
sions as contrary to public policy, since they limit
2.2 Confidential information competition.
Patents often represent only a part of a technol- Overall, the scope of what is held to be confi-
ogy, for example, an early prototypical embodi- dential should not be so broad as to prevent pub-
ment of an invention. The remainder, such as lication of research results and the use of research
secrets and know-how, are protected under most by others. Moreover, since what should be kept
legal regimes as trade secrets or as confidential confidential will depend on how the information
information. In addition, the research conducted is to be used, no single definition will apply well
under a contract may result in the creation of in all cases.
new confidential information. The person who The contractual provisions dealing with con-
possesses confidential information can only pre- fidential information should make clear to whom
vent others from disclosing it, for example, to a the information may be disclosed (for example,

CHAPTER 7.5
other researchers, including graduate students in owner who grants a nonexclusive license is per-
the same and other institutions, and so on). Care mitted to grant the same or a similar license to
should be taken to ensure that the obligations anyone else (however, the owner may not grant
would not prevent doctoral students or post-doc- someone else a sole or exclusive license). Unlike
toral fellows from publishing theses and making a nonexclusive license, an exclusive license incor-
presentations. porates two promises. The first is the license itself,
The confidentiality provisions should also that is, a promise not to sue the researcher for pat-
include a sunset clause that would end the ob- ent infringement. The second is a promise by the
ligation of confidentiality under a variety of cir- technology owner to neither use the invention
cumstances, including situations where the infor- himself or herself nor grant a license to anyone
mation is made available to the public through else. Coexclusive licenses, prevent the owner from
no fault of the receiving party and cases where a granting a license outside of an identified group.
court requires that the information be disclosed. A sole license is similar to an exclusive license ex-
Finally, the contract should set out how cept that the technology owner retains the right
much care must be taken by the person receiving to use the invention herself or himself. Normally,
the information to keep it confidential. For ex- the greater the degree of exclusivity requested, the
ample, must the receiving party lock away the in- greater the royalty paid by the researcher, since
formation in a safe, or can he or she leave it filed fewer sources of revenue are available to the tech-
in office filing cabinets? This is important, since nology owner. In an academic setting, researchers
it establishes the level of precaution the receiving usually require only nonexclusive licenses. In the
party must undertake to protect the information, private sector, especially where a technology is key
and how the party ought to address inadvertent to developing a particular application, a research
disclosures. The agreement should also specify organization may need an exclusive or co-exclu-
what information the recipient of information is sive license that justifies the investments needed
entitled to keep after the expiration of the con- to bring the technology to the market. This is of-
tract and what must be returned or destroyed. ten the case if the research organization faces a
significant risk or the market for the technology
2.3 The license is expected to be small.
The researcher’s freedom to carry on research us- Some inventions in the biotechnology field,
ing a patented, or otherwise protected, invention such as genetic inventions and platform technol-
is determined by the scope of the license. A li- ogy, tend to represent upstream inventions: these
cense may be narrow and provide only for a de- are inventions that are needed in a large variety
fined field of use, such as use in conjunction with of settings and applications. Granting exclusive
certain vectors, or the license may be broad and or sole licenses over all applications (generally re-
cover all research. The broader the scope, the more ferred to as fields of use, in-license agreements)
freedom the researcher has to conduct research. for these types of inventions is not recommended.
The researcher needs to recognize the coun- Indeed, the Organisation for Economic Co-op-
terintuitive fact that receiving a license to an in- eration and Development (OECD) has recently
vention does not guarantee that he or she is en- issued best practice guidelines for licensing ge-
titled to use the invention. The researcher may netic inventions that emphasize the general
need, for example, regulatory approval, or may preference for nonexclusive licensing for genetic
need to license other inventions from the same technologies.5 However, we can infer that non-
or different providers. It is therefore critically im- exclusive licensing is more broadly preferred,
portant for the researcher to determine, normally especially for platform technologies. One study
with the assistance of the licensor, how he or she indicated that exclusive licensees often fail to ac-
will be able to legally use the invention. tually invest the necessary funds to move a tech-
A license can be a nonexclusive license, a nology forward.6 This may happen if the licensee
sole license, or an exclusive license. A technology lacks funds or loses interest in developing the

GOLD & BUBELA
technology. Thus, strong exclusive relationships this, the license should specifically permit the re-
are generally not the best way to advance research search organization signing the license with the
or commercialization. right to allow others to use the invention through
If an exclusive license is necessary, particu- a sublicense. On the other hand, the technology
larly with respect to very early-stage research, it owner will often want to ensure that this group
is best to narrowly define fields of exclusive use does not become too large. Thus, it is in both par-
for the invention so that the technology owner ties’ interests to specifically define the group to
has the flexibility to permit researchers in other which access to the inventions will be provided.
fields with different applications the freedom to In addition, the license should identify all coun-
conduct research. Where an exclusive license is tries where the researcher requires access to the
required, the parties should draft the license to invention.
include provisions that enable the technology
owner to take back the rights granted in certain 2.4 Payment
circumstances. These circumstances might in- In general, those who receive a license for an in-
clude the failure of the research organization to vention pay a combination of up-front fees and
develop the invention in the manner described in ongoing royalties for the right to use the inven-
the license agreement, failure to fully exploit all tion. Where the technology is a research tool and
aspects of development for the invention, or fail- the market for the technology consists primarily
ure to sublicense as appropriate. These take-back of those conducting research, a market price will
provisions should address, for example, the loss of be charged. In the case of research agreements,
the license, the conversion of the exclusive license however, it is standard practice to either not
into a nonexclusive license, or the reduction in demand these fees or to set them at a rate that
scope of the exclusive license. compensates the technology provider for out-of-
To preserve the freedom of researchers, in pocket expenses. There are other cases where a fee
general, to engage in research for humanitar- will normally not be requested, such as where the
ian purposes, licenses should, whenever possible, license is provided as part of a cross-license ar-
explicitly recognize the rights of third parties to rangement or where the parties wish to contract
conduct humanitarian research. This can be ac- for the provision of know-how related to research
complished by having one of the parties retain that falls within existing research exemptions.
the right to provide licenses to others who plan Where payment is required, the amount of the
to carry on such work. The parties may even go fees depends on many factors, including the scope
so far as to impose an obligation to do so in spe- and nature of the license, the type of invention,
cifically defined circumstances. When seeking to and whether the researcher is sponsored by the
include this type of provision, a lawyer should be private or the public sector. In general, care must
consulted in the relevant country to make sure be taken in establishing up-front fees, especially
that the obligation is enforceable, especially in where these fees may present a barrier to access.
case of bankruptcy.
One important, but occasionally overlooked, 2.5 Rights to intellectual property
element of a license is a description of the orga- created through research
nizations and people that are entitled to benefit Research conducted using licensed innovation
from the license. Without such a list, the default may itself result in patentable inventions. Some
is that the license will apply only to the licensee. of these inventions may relate to the licensed-in
Where the research is being used by researchers technology. For example, they may constitute a
at several institutions, or several locations, or modified or improved form of the original tech-
by research teams from multiple corporate en- nology, or they may be substantially different. If
tities within the same family of companies, the the research agreement is silent on the ownership
license must be drafted so as to permit all of the of these new inventions, then the researcher or
researchers to use the technology. To accomplish the researcher’s employer, or a combination of

CHAPTER 7.5
the two, would be entitled to hold a patent over responsibility for new inventions rests with the
it, depending on the IP policy of the particular researcher, not the original owner. The situation is
research institution. This means that the original slightly different with respect to improvements to
technology owner would, in the absence of any licensed-in inventions. In this situation, the origi-
agreement to the contrary, normally have no IP nal technology owner may wish to have access to
right to this new invention and, therefore, no those improvements both for his or her own sake
right to use the new invention, let alone control but also for the sake of his or her other licensees.
access to it. This situation can be changed through It may be appropriate for the researcher to license
an appropriate assignment, through grant-back back improvements on a nonexclusive basis to the
clauses, or through license provisions in the re- original technology owner, to the extent that this
search contract. is necessary for the owner and his or her other
licensees to continue using the (improved) inven-
2.5.1 Ownership tion. A reasonable royalty may be required. The
In the research setting, ownership of intellectual scope of the license back should not be so large as
property developed using licensed-in technology to prevent the researcher from licensing the im-
should generally remain with the researcher or provement to other parties.
the researcher’s employer. This is especially true
where the research takes place at a university or 2.6 Alternative structures for
public research center and where public funds are research relationships
used to conduct research. Thus, reach-through Researchers will often require access to many
license agreements, in which the original technol- inventions to accomplish their work. Indeed,
ogy owner claims rights to research resulting from a researcher may be required to purchase many
the use of licensed inventions, should generally be licenses to carry out a particular research proj-
avoided. ect. The need for multiple licenses, referred to as
The situation is different for sponsored re- patent stacking, can lead to problems, because
search where the researcher is essentially hired to the costs, in terms of both time and money, as-
conduct research for the original technology own- sociated with obtaining those licenses to a large
er. In this case, it is appropriate for the researcher number of patents simply is prohibitive. In order
to assign IP rights to the technology owner, since to avoid potential problems, license agreements
the default rule would leave the intellectual prop- need to ensure that the total royalty burden faced
erty in the researcher’s hands. Where there is an as- by the researcher is reasonable. This can be ac-
signment, the researcher should ensure that other complished by setting a maximum total royalty
researchers, graduate students, and postdoctoral burden that the researcher must pay to all licen-
fellows working on the project understand this sors. To the extent that the total royalty burden
and agree to transfer intellectual property to the exceeds that amount, the researcher would pay
original technology owner. the technology owner a pro rata amount of the
The contract should also set out whether the total royalty burden. The owner may wish, how-
researcher or the original technology owner has ever, to set minimum royalty rates.
the responsibility to file and maintain patents for Alternatively, licensors and licensees may
the new inventions. Normally, this would fall on wish to contemplate creating patent pools, pat-
the party who ends up with the patent or who ent clearinghouses, or other open-source means
holds an exclusive license to the invention. to ensure that researchers at both public and pri-
vate institutions have access to basic technology.
2.5.2 License back License agreements would then be standardized
The research contract would not normally include and ensure access to a variety of inventions at a
a license back from the researcher to the original reasonable cost.
technology owner for inventions made during the A patent pool is an arrangement in which
course of the research. This is because the risk and “two or more patent owners agree to license certain

GOLD & BUBELA
of their patents to one another and/or third parties.”7 3. Collaborative research and
Patent pools bring together patent holders in a sponsorship agreements
specific area of innovation, such as a viral genome, While the research contract normally provides a
to facilitate the efficient use and development of one-way flow of technology from the technology
a technology. The patents are pooled because the holder to a researcher, more complex arrange-
arrangement allows inventors in the pool to use ments exist. This section considers two of them:
all their patented inventions under favorable li- the collaborative research agreement and the
censing terms. The group then shares any benefits sponsorship agreement.
that may materialize from this arrangement. The A collaborative research agreement involves
motion picture industry, aeronautics firms, and multiple partners, often a mixture of private and
those developing new DVD technology have all public sector actors, working together on a par-
successfully used patent pools to advance their re- ticular research project. The partners each con-
spective technologies.8 tribute an amount of money, skilled talent, and
There are many challenges to setting up a pat- technology to a central pot that they then har-
ent pool. For example, patent pools may trigger ness to conduct research. Usually, the private sec-
anti-competition laws.9 Second, researchers may tor actor either obtains the intellectual property
choose not to join in the patent pool because, to the resulting research or, more often, a prior-
even though these pools reduce research transac- ity right to license that intellectual property. By
tion costs and spread risk, they also decrease the adding additional players and providing a more-
potential for large profits. Thus, parties need to complex ownership scheme for the resulting tech-
strike the right balance between research goals nology, collaborative research agreements form a
and profit motives.10 more-complex transaction than the one-way flow
Open source patent systems share the goal of technology in the research contract.
of promoting the free dissemination of research A basic collaborative research agreement
between inventors and the public, in contrast to would include the following
the creation of marketplace monopolies. Open • Article 1: joint obligations to participate in
source systems can be directed at end products the collaborative research effort
or research tools used to develop products. There • Article 2: a high-level description of what
are several functioning examples of open source each party brings to the research project
patent systems. One such initiative is the Public (money, technology, material, skills) with
Patent Foundation (PPF). It facilitates the cre- cross-references to articles 3, 4 and 5. The
ation of free zones in which patents are pooled details of each party’s contribution may be
and made freely available to other participants.11 attached as an appendix to the agreement.
The PPF accomplishes this by granting nonex- • Article 3: payment terms and process
clusive and royalty-free licenses to participants. stipulations
Another example is the Biological Innovation • Article 4: licenses from the various parties
of Open Society (BIOS). It involves technolo- to use pre-existing technology (including a
gies that have already been granted patent rights. mechanism to add additional technology)
Focusing on research tools rather than on final • Article 5: a list of materials needed to be
products, BIOS (like PPF) has established licens- transferred to conduct the research
ing terms to achieve their specific goals.12 One • Article 6: provision for who holds intellec-
final example of an open source patent system is tual property emerging from the research
the Tropical Disease Initiative (TDI). With this • Article 7: licenses to technology emerging
system, inventions are not necessarily subject to from the research (including who has the
patent rights. TDI’s aim is to maintain an ac- right to license-out the technology)
cessible Web database to facilitate research and • Article 8: allocation of financial returns
development and to make research information from the use or license of emerging tech-
readily accessible to researchers.13 nology and payment terms

CHAPTER 7.5
• Article 9: addition and removal of collab- • Article 10: definitions

orative team members
• Article 10: management structure that will Both collaborative research and sponsor-
be used to supervise the research and re- ship relationships are complex and so the nature
search results of these relationships will be context dependent.
• Article 11: problem escalation and dispute This means that one should avoid the automatic
resolution use of standard-form agreements and ensure that
• Article 12: confidentiality and publication the contract is context specific. The more com-
rights plex the contract, the greater the need for clarity
• Article 13: legal terms, such as what to do in and structure.
case of an “act of God” or other intervention,
timing issues, and notification procedures 3.1 Confidential information
• Article 14: definitions The discussion that follows presumes the reader
understands the content of the previous discus-
A sponsorship agreement is a research contract sion with respect to research contracts, and thus
instigated by an actor, usually in the private sec- only highlights areas of particular importance
tor, for the benefit of that actor. In some ways, it and adds provisions not required for the ordinary
is research for hire. However, when the research- research contract. The reader is thus advised to
er or research organization being hired is in the read carefully the previous section on research
public sector, the agreement normally also creates contracts before continuing further.
knowledge for that organization or the research A research sponsorship or collaborative
community in general. As in the collaborative re- research relationship is designed to build new
search agreement, the sponsor will normally, in knowledge and new inventions. While some of
addition to providing a license to original tech- these inventions may be patented, others may
nology, pay for the research and retain certain IP be held as trade secrets. In the latter case, the
rights in the outcome of that research. agreement should normally establish how to en-
The basic structure of a sponsorship agree- sure trade secret protection. In virtually all col-
ment includes the following: laborative research or sponsorship agreements,
• Article 1: a description of the research to be all parties will be obliged to maintain confi-
conducted by the researcher dentiality, in order to protect both what was
• Article 2: payment terms and process brought into the research project and what is to
stipulations be produced through the research partnership.
• Article 3: the license to any technology nec- Unlike standard research contracts, it is highly
essary to conduct the research likely that, with both collaborative research
• Article 4: any materials needed to be trans- and sponsorship agreements, information will
ferred to conduct the research likely flow back and forth between a number of
• Article 5: ownership of intellectual prop- parties, perhaps in different jurisdictions. The
erty emerging from the research agreement must therefore clearly provide for
• Article 6: any license to use technology re- information sharing and for a mechanism to
sulting from the technology keep track of who has accessed what informa-
• Article 7: problem escalation and dispute tion and when. Such provisions will not only
resolution help maintain control over the information,
• Article 8: confidentiality and publication but make it easier to identify which party is
rights responsible for any security lapses, should they
• Article 9: legal terms, such as what to do in occur. It is also important, in cross-jurisdic-
case of an “act of God” or other interven- tional agreements, to ensure that confidential
tion; payment schedules and other timing information provisions are enforceable in all
issues; and notification procedures relevant jurisdictions.

GOLD & BUBELA
The parties should carefully describe what describe the set of persons who are entitled to use
should be done at the end of the project with the technology, as well as set out a mechanism to
confidential information that is brought into or add additional researchers and institutions who
created through the project. Thus, the agreement may later join the project.
should specify whether, at the end of the research, Normally, material or information contrib-
other participants in the research project are en- uted through a sponsorship or collaborative re-
titled to use the confidential information brought search agreement will be licensed on a nonexclu-
into the project by another party. Similarly, the sive basis to those carrying out the research. It is
parties must determine who will be entitled to good practice to include these provisions even in
use information created through the research pro- countries where a formal research exception exists,
gram and for what purposes. given both ambiguities in the law and differences
In order to ensure that confidential informa- between the legal rules in different countries. The
tion can be licensed to others, it is also important parties should ensure that the scope of the license
for the agreement to stipulate which of the parties is sufficiently broad as to accommodate changes
is entitled to make decisions about the licensing in research direction.
of the information. In the absence of such a pro- Where there are multiple parties to an agree-
vision, it will be difficult to transfer confidential ment, the contract should provide a mechanism
information developed through the research pro- through which participants can withdraw. This is
gram to eventual licensees of the technology. particularly important for bankruptcy issues that
otherwise could plague ongoing research. Such a
3.2 License to contributed mechanism can also address any changes in sta-
patented technologies tus of one of the participating institutions (for
Participants in a research project will likely bring example, a subsidiary company merging with its
with them not only confidential information, but parent company). These agreements should nor-
patented technology for use in the course of the mally state that the remaining parties are entitled
research. Given the evolving nature of complex to continue using material or information and
research projects, the parties are unlikely, at the should also stipulate the process for adding new
beginning of the project, to know exactly which parties to the collaboration, subject to national
technology they will each need to contribute. To bankruptcy and competition laws as well as other
handle this problem, the agreement should list contractual obligations.
the technology and associated patents that need Once again, one must recognize that a license
to be included in the project. The parties should by itself does not guarantee that the licensee or
establish a mechanism through which additional other parties named in the agreement can actually
technology (and associated patents) can be added, use the invention.
for example, a committee that formally approves
the addition of new items to the technology and 3.2.2 Payment
patent list. By establishing such a mechanism, As licenses granted to researchers actively con-
the contract provides transparency to the partici- tribute to the research effort, they are usually
pants and yet includes flexibility to adjust to new provided either free of charge or at a reasonable
developments. rate.
3.2.1 License scope and nature 3.3 Rights to intellectual property

Unlike a standard research contract, which li- created through research
censes technology to one party, in the collabora- One of the most important goals of the spon-
tive research agreement and occasionally in the sorship or collaborative research arrangement is
sponsored research agreement, the license will to develop a new technology that can be com-
need to extend to all research participants at all mercialized. Because of this, some of the key
institutions. Therefore, the agreement needs to IP provisions in these agreements relate to the

CHAPTER 7.5
intellectual property produced through the re- has the responsibility to file and maintain patents
search, rather than to existing inventions. over those inventions.
A related issue is which party or parties will
3.3.1 IP rights associated with have the power to make decisions about the fu-
the sponsorship agreement ture use of intellectual property, including deci-
If a sponsor wishes to alter the default legal pro- sions concerning licensing out technology devel-
vision that the researcher or employer retains IP oped during the course of the research program.
rights to research results, the agreement ought to What is important here is not actual ownership,
clearly specify the respective ownership stake of but which party has control over the use and fur-
each of the parties in inventions resulting from ther licensing of those inventions.
the research. The sponsor and researching organi- In general, no matter which party or parties
zation ought also to specify which of them has the own the technology and associated intellectual
power to make decisions about the licensing of property, all of the parties ought to have the right
these inventions. This need not be the same as the to use the developed technology on a nonexclu-
ownership entitlements, although it frequently is. sive basis for internal use and the use of their sub-
The parties should also specify which of them has sidiaries. There may, however, be cases where such
the responsibility to file and maintain patents, an arrangement is not practical or effective (for
with respect to the inventions. In normal cases, example, when the parties do not plan to work
the sponsor holds the IP rights and the obligation on the technology after the research project and
to maintain patents. prefer to license it exclusively to a third party).
The power of a party with the right to grant
3.3.2 IP rights associated with the licenses to others should not be unconstrained.
collaborative research agreement For example, the collaboration agreement should
The ownership of intellectual property that re- normally provide that licenses over research tools
sults from a research collaboration can be dif- or platform technology developed through col-
ficult to determine. Often the institutions have laboration should be nonexclusively licensed. If
different sets of rules governing the ownership that is impossible, and the collaboration agree-
of intellectual property. Some institutions may ment provides that resulting technology can be
leave intellectual property in the hands of their licensed exclusively, there should be limits. An
researchers and students, while others will claim exclusive license should preserve the right of all
ownership to the intellectual property. In reality collaborating researchers, and preferably all re-
the issue of ownership is more complicated, since searchers anywhere, to continue conducting re-
ownership rules often depend on who funds the search on the technology and using it in a teach-
research (that is, the government, a philanthropic ing environment. Second, any exclusive license
foundation, or the private sector). Furthermore, should ensure that further development and use
on a practical level, it may be difficult to assess of the technology is not blocked. This can be ac-
which party has the greater claim to inventions complished through the use of provisions that
made during the course of the research. enable the collaboration to nullify licenses in
In the above circumstances, the parties certain well-defined circumstances (for example,
would be well advised to specifically address the the failure of the future license holder to develop
question of which of them will obtain ownership the technology in the manner described in the
of patents and other IP rights. If the parties fail license agreement, to fully exploit all aspects of
to address this issue, they risk blocking further development for the technology, or to sublicense
development and use of research results arising as appropriate). The nullification provision can
from the collaboration. Ownership may also be take the form of a loss of the license, the conver-
particularly important with respect to avoiding sion of the exclusive license into a nonexclusive
seizure by others, as in the case of bankruptcy. license, and the reduction in scope of the exclu-
The parties ought also to specify which of them sive license.

GOLD & BUBELA
Rogers Tells Aliant. Globe and Mail 16 October, 2006: B1.

Just as the issues of technology ownership
3 See, also in this Handbook, chapter 7.3 by A Bennett,
should be separated from control of the technol- WD Streitz and FA Gacel.
ogy, so should the issue of ownership be separated 4 Walsh JP, C Cho and WM Cohen. 2005. View from the
from that of revenue allocation. What is critical Bench: Patents and Material Transfers. Science 309:
is that the agreement clearly states how licens- 2002–2003.
ing and other revenue is to be divided among the 5 In order to address these concerns, OECD member
collaborators. countries agreed to Guidelines for the Licensing of
Genetic Inventions used in health care. The guidelines
set out principles and best practices for those in
business, research, and health systems who enter
4. Conclusion into license agreements for genetic inventions used
for human health care. The guidelines are targeted
The best contractual document is one that, once
at those involved with innovation and the provision
signed, is never looked at again. This can be the of health services, particularly those involved in the
case when the parties have so well described their licensing of the inventions. Overall, the guidelines seek
relationship that it is obvious who is to do what to foster the objectives of stimulating genetic research
and innovation while maintaining appropriate access
and who bears the risks. In the unfortunate and to health products and services. www.oecd.org/
rare situation where a dispute arises, a clearly document/26/0,2340,en_2649_37437_34317658_1_1_
drafted contract is essential for assisting both the 1_37437,00.html.
business people administering the contract and 6 Colyvas J, M Crow, A Gelijns, R Mazzoleni, RR Nelson, N
the judges that may be called upon to interpret it Rosenberg and BN Sampat. 2002. How Do University
Inventions Get Into Practice? Management Science 48:
to find an appropriate and fair solution. 61–72.
The basic elements of a bargain between par- 7 U.S. Department of Justice and the Federal Trade
ties, whether with regard to a simple research Commission. 6 April 1995. Antitrust Guidelines for the
contract or to more complex sponsored research Licensing of Intellectual Property. 4 Trade Reg. Rep. CCH.
or collaborative research agreements, determine See also Goldstein JA, TJ Ebersole and MC Guthrie 2005.
Patent Pools as a Solution to the Licensing Problem of
the structure, language, and length of a contrac- Diagnostic Genetics. Drug Discovery World Spring:86-
tual document. The goal of the contract drafter is 90.
to capture the main components, laying them out 8 Clarke J, J Piccolo, B Stanton and K Tyson. 2000.
in order of importance to the overall relationship Patent Pools: A Solution to the Problem of Access in
Biotechnology Patents? United States Patent and
between the parties. While legal detail cannot be
Trademark Office: Washington, DC. www.uspto.gov/
ignored, it should take second place to clear draft- web/offices/pac/dapp/opla/patentpool.pdf.
ing practices. ■ 9 Ibid.
10 Verbeure B, E Van Zimmeren, G Matthijs and G Van
Overwalle. 2006. Patent Pools and Diagnostic Testing.
E. RICHARD GOLD, Director, Centre for Intellectual Property Trends in Biotechnology 24: 114–120.
Policy, McGill University, 3664 Peel Street, Montreal, H3A
11 Feldman R. 2004. The Open Source Biotechnology
1W9, Canada. Richard.gold2@mcgill.ca Movement: Is It Patent Misuse? Minn. J.L. Sci. & Tech. 6:
117–167.
TANIA BUBELA, Assistant Professor, School of Business,
University of Alberta, 3-30D Business, Edmonton, T6G 12 Ibid.
2R6, Canada. Tania.bubela@ualberta.ca 13 Maurer S, A Rai and A Sali. 2004. Finding Cures for
Tropical Diseases: Is Open Source an Answer? Minn. J.L.
Sci. & Tech. 6: 169–175.
1 See, also in this Handbook, chapter 15.3 by EJ Min.
2 ��
Robertson G. 2006. A $2-Million Comma? Au Contraire,

CHAPTER 7.6
The Use of Nonassertion Covenants:

A Tool to Facilitate Humanitarian Licensing,
Manage Liability, and Foster Global Access
Chair, bioDevelopments-International Institute and Adjunct Professor, Cornell University, U.S.A.
Nonassertion covenants (nonasserts for short) grant per- The concept of a nonassert agreement, or nonasser-
mission to third parties to practice a patent they would
tion covenant (NAC),1 has become well known
otherwise infringe. Legally, nonasserts are patent-in-
fringement settlement agreements that are designed and in 2006 in the context of open-source software.
drafted with the purpose of preemptively resolving future During that year, several major software com-
infringement disputes. Nonasserts can take three forms: panies such as Sun Microsystems and Microsoft
(1) an agreement between two parties, (2) an agreement Corp. announced that they would not seek to
among several parties, or (3) a public statement. A non-
assert can specify the release of only certain patent rights enforce any of their enforceable patents with re-
or fields of use, or it can be broad and specify release spect to defined portions of products related to
for entire patent families, including future inventions in certain Web-based applications. Similarly, IBM
a certain area. Public statements effectively place rights proclaimed that it would not assert its rights with
to patents, or elements thereof, into the public domain.
respect to 500 of the company’s patents on open-
Nonasserts nevertheless need to specify, precisely, which
rights are granted in order to avoid ambiguity that could source software implementations. Similarly, the
lead to equitable estoppel. Massachusetts Institute of Technology (M.I.T.)
Nonasserts can have wide-ranging implications in and other public entities also use nonasserts in
terms of enhancing public sector R&D. One application the biotechnological areas.
could be with patent rights covering research tools that
are critical for accelerating the development of essential The use of nonasserts spans a broad range
biotechnological applications. Specifically targeted non- of applications. This chapter presents the main
asserts can also be effective instruments for industry to types of nonasserts, provides sample language
permit the use of patented inventions anywhere in the from actual nonassert agreements, and discusses
world, provided such use is for the express purposes of
addressing specific humanitarian needs in developing
the broader implications of the use of nonasserts
countries. This could have broad-ranging and signifi- to respond to the overwhelming need for new ap-
cant positive impact, as this approach reduces trans- proaches in humanitarian licensing as public in-
action costs, encourages innovation to help the poor, stitutions strive to bring about global access.
and accomplishes this without any loss of commercial
opportunities.
2. Forms of nonasserts
A nonassert is an implied license. Put differently,
a nonassert is an agreement that certifies that the
party or parties to the implied agreement will not
Krattiger A. 2007. The Use of Nonassertion Covenants: A Tool to Facilitate Humanitarian Licensing, Manage Liability, and
Foster Global Access. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Prac-
tices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.
ipHandbook.org.
© 2007. A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

KRATTIGER
assert or defend certain rights that they possess. could overcome an infringement action and be-
Such rights are typically related to patents. A come an unintended beneficiary of the nonas-
nonassert can take one of three forms: sert, continuing to use the intellectual property
• an agreement between two parties with impunity (perhaps on the grounds that the
(bilateral) nonassert was misleading and that the unintended
• an agreement among several parties beneficiary would be materially prejudiced if the
(multilateral) patentee could assert his or her rights).
• a public statement (proclamation) Box 1 provides a sample of a public nonassert
statement from the software industry and Box 2
When drafting a nonassert, the owner of the gives a public nonassert statement from biomedi-
intellectual property rights who pledges that it cal area.
will not enforce its rights should use precise lan-
guage to specify which rights exactly will not be
enforced and whether or not any field-of-use re- 3. The Benefits of NonAsserts
strictions will apply. If the terms are left vague Nonasserts are an important instrument of indus-
or ambiguous, the ambiguity could leave open try for promoting open standards or for the es-
the possibility of equitable estoppel at some time tablishment of industry standards. In the form of
in the future.2 This means that a person or party public statements, nonasserts provide a number
Box 1 : Nonassertion covenant from the software industry:

Microsoft Open-specification Promise
Published: September 12, 2006 | Updated: February 15, 2007
Microsoft irrevocably promises not to assert any Microsoft Necessary Claims against you
for making, using, selling, offering for sale, importing or distributing any implementation to
the extent it conforms to a Covered Specification (“Covered Implementation”), subject to the
following. This is a personal promise directly from Microsoft to you, and you acknowledge
as a condition of benefiting from it that no Microsoft rights are received from suppliers,
distributors, or otherwise in connection with this promise. If you file, maintain or voluntarily
participate in a patent infringement lawsuit against a Microsoft implementation of such
Covered Specification, then this personal promise does not apply with respect to any Covered
Implementation of the same Covered Specification made or used by you. To clarify, “Microsoft
Necessary Claims” are those claims of Microsoft-owned or Microsoft-controlled patents that
are necessary to implement only the required portions of the Covered Specification that are
described in detail and not merely referenced in such Specification. “Covered Specifications”
are listed below.
This promise is not an assurance either (i) that any of Microsoft’s issued patent claims covers
a Covered Implementation or are enforceable or (ii) that a Covered Implementation would
not infringe patents or other intellectual property rights of any third party. No other rights
except those expressly stated in this promise shall be deemed granted, waived or received by
implication, exhaustion, estoppel, or otherwise.
“Covered Specifications” […] applies to the identified version of the following specifications.
New versions of previously covered specifications will be separately considered for addition
to the list.
[List of Specific Web services]
Source: Microsoft Corporation.3

CHAPTER 7.6
Box 2: Nonassertion Covenant from the Biomedical Area

for Tuschl I siRNA Patent Applications
In order to facilitate widespread distribution of an important class of research reagents,

the Massachusetts Institute of Technology, the Max Planck Gesellschaft zur Förderung der
Wissenschaften e.V., The Whitehead Institute for Biomedical Research, and The University of
Massachusetts (“the Patent Owners”) now announce that they will not assert the patents
listed below against companies that sell or use DNA vectors which induce production of siRNA
endogenously, provided that such vectors are only used for research purposes, and provided
that the RNA that mediates RNA interference is not isolated from the transformed cells. The
Patent Owners intend to enforce the patents listed below against any use not specifically
listed above.
The patents included in this announcement are listed below. Further continuations, divisionals,
issued patents, and reissuances are included as well.
“RNA Sequence-Specific Mediators of RNA Interference”

by David P. Bartel, Phillip A. Sharp, Thomas Tuschl and Phillip D. Zamore
• Australia Serial No. 2001249622, Filed March 30, 2001

• Brazil Serial No. P10107536-5, Filed March 30, 2001
• Canada Serial No. 2404890, Filed March 30, 2001
• European Patent Convention Serial No. 01922870.9, Filed March 30, 2001
• Israel Serial No. 151928, Filed March 30, 2001
• Japan Serial No. 2001-573036, Filed March 30, 2001
• Korea Serial No. 200270123832, Filed March 30, 2001
• New Zealand Serial No. 522045, Filed March 30, 2001
• Patent Convention Treaty Serial No. US01/10188, Filed March 30, 2001
“RNA Sequence Specific Mediators of RNA Interference”

• United States of America Serial No. 09/821,832, Filed March 30, 2001
• United States of America Serial No. 10/255,568, Filed September 26, 2002
Source: M.I.T. 4

KRATTIGER
of advantages over traditional open-standards • Access to research tools. Nonasserts can

committees or institutions: provide access to patented research tools,
1. Through nonasserts, the standards devel- for example (as illustrated in box 2 below),
opment is streamlined and the standards by removing intellectual property barriers
implementation proceeds faster since free that would otherwise inhibit the research
licenses promote adoption. Importantly, tool’s use by those who most need but can
nonasserts can be issued unilaterally with- least afford it. Specifically, nonasserts can
out the need for any complex negotiations provide access to critical research tools for
with third parties (such as open-standards use in designated institutions that con-
committees). duct R&D specifically to address needs
2. Commitments not to enforce certain pat- in developing countries. But the use of
ent rights can be highly specific or broad, nonasserts goes further: even drugs or
or both. Under the somewhat stringent vaccines could be manufactured in coun-
U.S. antitrust laws, broad industry col- tries where such drugs or vaccines (or pro-
laborations may not be permitted in an cesses) have been granted for the express
environment where multiple competitors purpose of producing them for develop-
meet in the same place. ing countries.
3. Also related to antitrust concerns is the lim- • Reduction of high-transaction costs as-
itation on specific price or terms whereby sociated with negotiating bilateral or
price fixing and market manipulation al- multilateral licensing agreements. The
legations may arise. Standard-setting ini- negotiation of any license agreement is a
tiatives among competitors always entail time-consuming endeavor. In cases where
the potential for incurring significant legal the license is for humanitarian purposes in
risk. particular, the licensor generally gains no
4. Nonasserts in the form of public statements material benefits and often places the nego-
carry no enforcement cost. In essence, they tiation of such agreements at the bottom of
are self-executing. Once proclaimed, no legal the priority list. Nonasserts, even bilateral
staff time is required to negotiate licenses. ones, are relatively easy to negotiate as they
Everyone gets the same deal and the deal is primarily require agreement on two fairly
free. simple aspects:
− listing of the patents (or other forms of
The result of the acceptance and use of non- intellectual property protection)
asserts in the software industry is that a growing − specific permitted use, or limitations to
“patent commons” has emerged supporting open- the permitted use, or both
source software.
In agricultural biotechnology (agri-biotech) To be clear, nonasserts are not a form of a
applications and health-related research, nonas- patent pool. This distinction is important with
serts are also emerging as an elegant solution to regard to liability management associated with
certain well-defined problems. These solutions the commercialization of products, particularly
include: in the drug, vaccine, and food biotechnology
• A tool for the management of liability. areas. A patent pool is an explicit granting of
License agreements carry certain liabilities right to other parties. A nonassert, on the other
even if the agreements contain all the nec- hand, is a pledge not to sue someone who would
essary safeguards and warranties. This is otherwise infringe on a right. As such, a nonas-
especially the case with agri-biotech appli- sert can also be viewed as a preemptive infringe-
cations where little certainty exists, because ment-settlement agreement, granting permission
discussions on global liability and redress to practice the patent in spite of the actual legal
regimes are ongoing.5 infringement thereof.

CHAPTER 7.6
Box 3 provides a sample nonassert that is health and agri-business areas. Carefully drafted,
based on an actual agreement signed by two U.S. targeted nonasserts permitting the use of these
institutions, a company and a university. In the tools—anywhere in the world—for developing-
case of humanitarian licensing, certain restric- country–public-sector R&D institutions (and/or
tions may be included such as the limiting of use for commercial purposes for the exclusive use to
to not-for-profit humanitarian purposes for the address humanitarian needs could therefore have
exclusive benefit of people in developing coun- broad-ranging and significant positive impact.
tries or even to for-profit entities solely for hu- This approach reduces transaction costs, encour-
manitarian purposes in developing countries. ages innovation to help the poor, and accom-
plishes this without much cost, time, or loss of
commercial opportunities. n
5. Conclusions
From a legal perspective, nonasserts are preemptive
Acknowledgements
patent-infringement settlement agreements that
Thanks go to Stanley Kowalski for having brought to my
are designed and drafted with the purpose of re- attention the important issue of equitable estoppel.
solving future infringement disputes. Nonasserts,
therefore, in essence, release certain patent rights Anatole Krattiger, Research Professor, the Biodesign
into specified sectors. These sectors are often the Institute at Arizona State University; Chair, bioDevelop-
ments-International Institute and Adjunct Professor, Cornell
public domain when it comes to software and of- University. PO Box 26, Interlaken, NY, 14847, U.S.A.
ten bilateral agreements in applications related to afk3@cornell.edu
health and food biotechnology. But there are no
reasons really why nonasserts could not become a 1 They are also called nonassert agreements (when be-
more widespread tool in fostering important ad- tween two parties) or Covenant Not to Sue.
vances and innovation to address needs in devel- 2 “Equitable estoppel [is] an equitable defense to a claim
of patent infringement available when a defendant
oping countries.
has prejudicially relied on the patentee’s misleading
Bilateral nonasserts should find much more conduct concerning his intentions to enforce a patent.
common use as the problems with equitable es- The Federal Circuit [has] adopted a three-part test
toppel are almost moot. Due to privity (in oth- for equitable estoppel, under which the defendant
[being sued in an action for patent infringement]
er words, the degree of relationship between or must show: (1) The patentee, through misleading
among the parties), the closer the relationship, conduct, led the alleged infringer to reasonably infer
the less likely will be the potential for misunder- that the patentee did not intend to enforce its patent
against the alleged infringer. (2) The alleged infringer
standings that could trigger equitable estoppel.
relied on that conduct, and (3) Due to its reliance, the
Hence, an agreement between two parties, or an alleged infringer would be materially prejudiced if the
agreement among several parties, is a sufficiently patentee is allowed to proceed with its claim. When an
close relationship to permit communications to alleged infringer establishes the defense of equitable
estoppel, the patentee’s claim is entirely barred [that
resolve any misunderstandings or ambiguities, is, an alleged infringer may continue to practice the
much as with a license agreement. patented technology].” McCarthy JT, RE Schechter
But a patentee’s public declaration of non- and DJ Franklyn, 2004. McCarthy’s Desk Encyclopedia
of Intellectual Property: Third Edition; The Bureau of
enforcement of a patent via a nonassert can have
National Affairs, Inc.: Washington, DC.
wide-ranging implications in terms of enhanc-
3 www.microsoft.com/interop/osp/default.mspx; see
ing public sector R&D. This would be the case also www.oasis-open.org/committees/security/ipr.php
especially with patent rights covering research for other samples.
tools, and particularly in the United States due 4 http://www.web.mit.edu/tlo/www/industry/non
to limitations on research exemptions, which are assert_statements.html.
critical for accelerating the development of es- 5 See also in this Handbook, chapter 17.18 by RY Boadi.
sential biotechnological applications in both the

KRATTIGER
Box 3: Nonassertion Covenant in the Form of a Bilateral Agreement

Date: 21 March 2007
To: Institute
From: Company
Subject: Nonassertion Letter under U.S. Patent No. X,XXX,XXX
Thank you for your interest in using Patented Technology owned by Company in your endeavors
aimed at improving the health and well-being of people in developing countries of the world.
Company is willing not to assert its rights under Company Patented Technology you requested,
as further described below.
As background, Company’s understanding is that your work aims at the development of _______
_____ for use in __________. Company is willing to not assert Company U.S. Patent No. X,XXX,XXX
nor any of the patents’ foreign counterparts, divisionals or continuations in part, or any other
rights that Company may have now, or hereafter, related to the technology contained in the
patents specified against Institute, or their trustees, directors, officers, employees, affiliates, their
agents, licensees, or successors in interest.
This Nonassertion Letter is limited to the aforementioned Patent and provided that such patented
technology is used solely for the production of ___________.
In consideration for Company’s Nonassertion Letter as described herein, Institute, their affiliates,
agents, licensees and successors of interest, agree to not assert any patent or patent application
against Company, it affiliates, agents, licensees, or successors that would prevent Company, its
affiliates, licensees, agents, licensees, or successors or customers of each, from practicing, for any
purpose(s), under the claims in the Company patents specified above. Upon change of control of
Institute or assignment by Institute to any party or entity, Institute shall concomitantly impose
the obligation to implement this Nonassertion Letter to Company with respect to such acquirer
or affiliate.
COMPANY makes no express or implied warranty AS TO any matter whatsoever,

including (1) the condition of the INTELLECTUAL PROPERTY that is the subject
of the NONassert, (2) THE MERCHANTABILITY AND FITNESS OF ANY MATERIAL, RESULT,
OR PRODUCT FOR A PARTICULAR PURPOSE, (3) NONINFRINGEMENT OR MISUSE OF ANY
INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY, OR (4) SAFETY OF EMPLOYEES,
WORKERS OR PURCHASERS OF PRODUCTS MADE USING THE COMPANY PATENTS.
Accordingly, Institute and their affiliates, agents, licensees, successors, and customers shall
have sole discretion, responsibility and full liability for their activities, provided for under this
Nonassertion Letter, including the research, design, manufacture, and potential sale of products
pursuant to this Letter. Institute shall hold Company, and its affiliates, officers, employees, and
consultants harmless from and against any and all claims, suits, obligations, causes of action,
liability, costs and damages, injuries to persons (including those that may result in death) or
property (including, without limitation, loss of use), product liability claims, claims for damage
to the environment or from the use, handling, or storage of materials and any other claim,
whatever the cause may be, based upon, arising out of, or related to the acts or omissions of an
Institute and/or its affiliates and/or any of their employees, officers, employees, and consultants
or other persons acting on behalf of the Institute or under Institute’s control, in connection with
the Institute’s execution, delivery, performance of, or failure to perform, or practice of its rights
granted under this Nonassertion Letter.
Please indicate your acceptance of the terms in this Nonassertion Letter by signing two copies
and returning one fully executed copy of the original to me at your earliest convenience.
Best regards and all the best in this endeavor,

Company Officer

8
SECTION
Inventors and Inventions

CHAPTER 8.1
Introduction to IP Issues In the University Setting:

A Primer for Scientists
MARTHA MUTSCHLER, Professor, Department of Plant Breeding and Genetics, Cornell University, U.S.A.
GREGORY D. GRAFF, Research Economist, PIPRA, and Visiting Research Fellow, Department of Agricultural and Resource
Economics. University of California, Berkeley, U.S.A.
ABSTRACT 1. Why you should learn about IP

Intellectual property (IP) is inherent to many of the and technology transfer
research, teaching, and extension functions of the uni-
versity, and IP issues can occur in all phases of the cor-
responding programs. A research program may utilize IP 1.1 Faculty and staff
generated and protected by others in its planning and A working understanding of intellectual property
execution phases. As a research program advances, de- (IP) is needed to realistically evaluate and man-
cisions made regarding disclosure of results may affect age IP issues and make informed decisions, from
whether or not discoveries made by the program can
eventually be protected. starting and running programs to deciding how
A successful research program will generate discov- best to handle the resulting inventions. Lack of
eries—and therefore IP—and decisions must be made basic information regarding IP and technology
regarding whether to protect, and how to deploy, those transfer issues can result in problems that are
discoveries. The decisions must consider the manage-
costly in terms of time, opportunity and money.
ment of IP as well as the goals and priorities of the re-
search program and the university. It is also important to You must take an active role in decisions regard-
consider IP in the teaching and extension functions of ing IP management within your program. This
the university, including the creation or use of written will have an impact on the directions you provide
materials, software, networked resources, or designs. to undergraduate and graduate students, post-
IP and IP issues are not the sole or even the primary
focus of a university. However, failure to properly consid- doctoral fellows, and/or technicians working in
er IP issues can lead to frustrating and costly problems. your program.
Fortunately, realistic and efficient management of IP in Ignoring IP management issues will not make
research, teaching, and extension requires only a mini- them go away. Failure to manage IP and make in-
mal working understanding of the issues and an ability
to access on-campus assistance in dealing with them.
formed decisions are de facto decisions that may
This chapter presents basic information that any sci- result in outcomes that are undesirable and irre-
entist should know about IP, discusses the importance versible. Errors made by students and staff in your
of IP management in a scientist’s work, and reviews ad- program can materially affect IP issues. Regardless
ditional sources of information regarding IP. We hope,
of whether you knew of the errors when they oc-
this chapter will assist the reader in avoiding simple yet
costly errors in IP management. curred, you may still be ultimately responsible.
Acquisition of the basic information re-
garding the management of IP by faculty and
staff need not be difficult or time consuming.
You are not expected to become an expert in IP
Mutschler M and GD Graff. 2007. Introduction to IP Issues In the University Setting: A Primer for Scientists. In Intellectual
© 2007. M Mutschler and GD Graff. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

Mutschler & Graff
management and technology transfer, just to be 1.4 Applying basic information

sufficiently aware of the issues so that you can As university faculty, staff, and students, you are
use the resources available to avoid problems and not expected to become experts in the manage-
maximize your opportunities. This chapter pro- ment of IP. However, acquisition of some basic in-
vides many links in the text to important online formation about management will allow you to:
resources. Pertinent additional resources are listed • make informed decisions day to day, to
in the endnote.1 avoid errors that are time consuming and
costly
1.2 Graduate students, postdoctoral • know when to contact IP/TT personnel
fellows, and technicians • interact efficiently and successfully with the
Obtaining a basic understanding of IP is an im- university’s technology transfer staff
portant part of your training, whether your fu- • achieve your goals
ture career lies in government, academia or in-
dustry. Basic IP training is important to how you Furthermore, remember that there is most
will proceed in your research. Do not assume that definitely a lack of sufficiently trained personnel in
your advisor or supervisor—or the technology the field of university IP management and technol-
transfer office (TTO)—can reverse the effects of ogy transfer, and thus considerable employment
IP errors you make. Your status as a student or opportunities exist if this area appeals to you.
postdoctoral fellow, and thus your status of be- Further information. To find out more about
ing “in training,” does not alter the regulations employment opportunities, see the Association of
regarding the use of IP protected by others or the University Technology Managers (AUTM) Web
requirements that must be met for any inventions site: www.autm.net/directory/job_list.cfm.
you generate to be properly handled. In fact, ba-
sic IP training is important in the direction of
staff you may be responsible for supervising in 2. University intellectual property
the course of your activities. and technology transfer policies
A university will have a policy covering intellec-
1.3 Difficulties caused by tual property that will be available to all university
a lack of IP knowledge personnel. All personnel are required to operate ac-
Depending on the nature of the error, misjudg- cording to this policy. The university home page is
ments in handling IP issues can result in dif- a central site for searching for university policy on
ficulties protecting your discovery or licensing many topics. Your university may also have a pol-
your invention. Even if these difficulties are sur- icy office, a technology transfer office or research
mountable, they can be extremely frustrating, foundation, and a office of university counsel.
time consuming, and costly. Errors may even
result in the complete loss of opportunity to 2.1 Bayh-Dole and university policy
protect your discovery, or in a severe narrowing The policy of any U.S. university must conform
of the scope of protection obtained. Reduction to the obligations imposed by the Bayh-Dole
or loss of opportunity to market your discov- Act (Public Law 96-517). The Bayh-Dole Act is
ery/invention can result. In fact, you may even intended to promote investment by the private
suffer a reduction or loss of opportunity to use sector in commercialization of federally funded
your own discovery or incur liability due to an research discoveries for the public good. It in-
inadvertent infringement of IP protected by cludes preferences for small businesses and for
others. However, with proper IP protection and manufacturing in the United States. Under Bayh-
management, you can decide how to handle the Dole, a university is required to file patents on
intellectual property you create as you see fit those inventions they elect to own and to encour-
and make sure that you receive the rewards that age collaboration with industry to promote the
mean the most to you. utilization of inventions.

CHAPTER 8.1
Rights retained by the government under fellows, technical staff, graduate students, and
Bayh-Dole include a nonexclusive license to visiting scholars. The employee contracts usu-
practice the patent and march-in rights. March- ally assign property rights in all IP to the uni-
in rights allow the government to “march in” and versity, but the inventor(s) typically are given
take over an invention if commercialization of a significant share in any revenues that are
an important invention is not being executed earned, typically in the range of 25% to 50%
with due diligence by a university or licensee. of royalties. One major exception to the policy
The government has not, to date, invoked of assigning IP rights to the university involves
march-in rights, but it is possible that someday copyrighted materials (with some exclusions).
march-in rights could be applied. One situation In addition, the IP agreement covers inventions
that could warrant such action might be one in and creations in the individual’s area of employ-
which a drug or vaccine is needed to control a ment. Thus, if a molecular biologist invents a
pandemic. better lawn mower at home in his or her free
Further information. To find out more about time without use of university resources, that
the background of Bayh-Dole as well as its implica- invention would not be included under the em-
tions for university IP policies in the U.S., see the ployment agreement.
Web site of the Council on Government Relations
(COGR), “The Bayh-Dole Act: A Guide to the
Law and Implementing Regulations,” October 3. The university technology
1999. To find our more about similar legislation transfer office
in developing countries see chapter 6.1.14 by
Gregory D. Graff titled “Echoes of Bayh-Dole: 3.1 A university’s IP, licensing, or technology
A Survey of IP and Technology Transfer Policies transfer office executes its IP policy
in Emerging and Developing Countries” in this The university’s IP or technology transfer office
Handbook. is your most important source of information
and assistance. The structure and functions of
2.2 Ownership of intellectual property such an office may differ somewhat from insti-
A central part of IP policy at any organization tution to institution. Most often the technol-
concerns the ownership of intellectual property. ogy transfer office will be in or affiliated with
The approach differs somewhat between corpo- the office of research, although in some cases it
rate and university contexts. may be an independent foundation owned by
or affiliated with the university. Most university
2.2.1 Typical corporate policy IP or technology transfer offices will evaluate in-
In industry, employment contracts regarding ventions and pursue appropriate protection for
the issue of IP ownership are binding. A com- them. Some offices will also market or license
pany usually holds total ownership of ideas and the inventions.
inventions, while an employee’s salary is consid- The technology transfer office will indicate
ered the compensation to an employee/inventor what materials you must provide so that the trans-
for his or her “inventing services” rendered to the fer manager can service your needs. Reasonable
firm. Noncompete clauses are often included in expectations regarding this process will make it as
employment agreements and apply when an em- efficient as possible and prevent misunderstand-
ployee leaves the company. ings. The technology transfer personnel will not
be experts in your area of endeavor. You must
2.2.2 Typical university policy provide them with detailed information regarding
In the university, employment contracts or IP the creation and characteristics of your invention.
agreements are likewise binding with regard to Expect that creating this documentation—and
the issue of IP ownership. University policy cov- working with the IP/tech transfer personnel to
ers all personnel, including faculty, postdoctoral create the documents supporting a utility patent

Mutschler & Graff
or other forms of IP protection—may require as 4. IP and technology transfer

much time and effort as creating a collaborative issues that may affect university
grant proposal or a major publication. scientists on a daily basis
Further information. For general informa- Important issues and agreements that may af-
tion about university technology transfer offices fect university faculty or staff members include
see the following: the documentation of work with appropriate re-
• G Graff, A Heiman and D Zilberman. cordkeeping methods, the use of materials and
2002. University Research and Offices methods originating elsewhere, dealing with col-
of Technology Transfer, California laborators outside the university, executing legally
Management Review, vol. 45, no. 1. are. binding agreements, and publicly disclosing re-
berkeley.edu/~ggraff/Graff-Heiman- search results.
Zilberman-CMR-2002.pdf
• EM Rogers, J Yin and J Hoffmann. 2000. 4.1 Documenting work: Notebooks, films,
Assessing the Effectiveness of Technology electronic information, and beyond
Transfer Offices at U.S. Research Work must be efficiently and fully documented.
Universities, Journal of the AUTM. www. Documentation can of course be important for
autm.net/pubs/journal/00/assessing.html the preparation of publications, reports, and
grant proposals, and it can be essential for the
3.2 The mission of the IP or preparation of documentation supporting an ap-
technology transfer office plication for IP protection and for supporting IP
The mission of a technology transfer office as the rights in the rare event that they are challenged.
responsible agent, fiduciary, or trustee for the The types and quality of documentation are im-
university’s intellectual property is to: portant, but there are ways this can be done ef-
• foster creativity and inventiveness at the ficiently, so that proper documentation is not an
university undue burden.
• support the university’s educational and re- Further information. For good examples
search missions of guidelines for keeping notebooks, see the
• enhance and protect the IP interests of the following:
university and its employees • Cornell Center for Technology, Enterprise,
• manage IP for the benefit of the university’s and Commercialization, “Lab Notebook
research and educational enterprise and its Guidelines.” www.cctec.cornell.edu/cctec/
inventors researchers/protocols/guidelines/index.cfm
• Northwestern University, Technology
The roles of the office—in providing for the Transfer Program, “Maintaining Laboratory
protection and commercial development of in- Notebooks.” www.northwestern.edu/ttp/
ventions—are typically to: investigators/lab_notebooks.html
• determine what type of protection, if any, is • Florida State University, Office of IP
possible and desirable for an invention Development and Commercialization,
• evaluate commercial potential of an “Notebook Guidelines.” www.techtransfer.
invention fsu.edu/notebookguidelines.html
• obtain the appropriate intellectual property
protection 4.2 Using materials or methods
• locate suitable commercial development originating elsewhere
partners or research and developmen col- The issue of using materials or methods originat-
laborators and market the intellectual prop- ing elsewhere arises in a number of ways or under
erty to them various circumstances including the use of copy-
• negotiate and manage licenses over the in- righted material and the use of protected mate-
tellectual property rials or processes. Using protected materials and

CHAPTER 8.1
processes in research could end up affecting your invention merely indicates that if there is protec-
freedom to operate (FTO). tion, the application for that protection predates
the publication. You must be aware of IP protec-
4.2.1 Using copyrighted material tion of any materials or processes you use in your
There are standard rules governing the use of programs and projects.
copyrighted materials in publications, teaching, A research exemption might apply to your use
and research. University libraries can provide in- of the materials or methods in your work at the
formation regarding the use of copyrighted ma- university, but this cannot be assumed in all cases.
terials for such purposes as class readings and re- In U.S. patent law there is no formal research ex-
serve lists. A university’s information technology emption for university research. However, there
(IT) or computing policy may cover, specifically, are strong social norms in place such that pat-
the use of copyrighted material on course Web ent owners have virtually never exercised their
pages. Often the university counsel rather than property rights against university researchers for
the technology transfer office handles copyright conducting academic research. There are several
issues on campus, including the acquisition of practical limitations that prevent patent lawsuits
copyrights on materials owned by the university. from being filed against university researchers:
• In most cases it is a benefit to patent hold-
4.2.2 Using protected materials or processes ers to have academics testing, validating,
Protected materials and processes vary widely, and refining the technologies they already
depending upon the field of endeavor. They can own.
include such things as: • It may be difficult to define what damages
• vectors used in genetically engineering are suffered by the owner of a patent if the
organisms technology is used in an academic research
• enzymes, reagents, and other supplies used project.
in a laboratory • Because establishing a clear precedent
• computer programs against research use of patented technolo-
gies by universities could open the door
The use of protected materials or processes for widespread litigation against universi-
leads to the question: Do you have full freedom ties—thereby slowing down the pace of
to operate in your research program, or do unrec- academic research and draining public re-
ognized, unresolved FTO issues exist? sources—patent owners generally view the
pursuit of such cases as detrimental to their
4.2.3 Freedom to operate own long-term interests, or, if more short-
Freedom to operate indicates that you are “free” to sighted, simply conclude that it is highly
use all of the materials, methods, and other re- unlikely that any judge or court would
sources needed for your programs and projects want to establish such a precedent by rul-
and that this use does not infringe on the prop- ing in their favor.
erty rights of others. Just as your invention may
be protected because you are using some form Thus, there is something of a de facto research
of intellectual property, the inventions of oth- exemption for university research.
ers may also be protected. Use of such protected FTO problems resulting from the use of oth-
inventions of others, without permission, might ers’ proprietary materials and methods are more
constitute infringement of their rights. The legal likely to show up further downstream, such as
and appropriate use of protected inventions may when you attempt to patent and commercialize
require a formal agreement or license with the the results you obtained. Your technology and any
inventors. patents you might receive are likely to be domi-
Published does not mean unprotected! A nated by their patents. If your invention embod-
publication by the scientist about a discovery or ies their technology (for example, if you create a

Mutschler & Graff
plasmid that contains their promoter), then they GM Fenton, C Chi-Ham and S Boettiger.
may be able to stop you from commercializing www.ipHandbook.org
your invention altogether. • Freedom to Operate: The Preparations, by
To prevent or at least to be cognizant of such SP Kowalski. www.ipHandbook.org
risks, consider freedom to operate issues when • Freedom to Operate Strategies: Why the
you start using any new method or material, not Public Sector Needs to Learn How to
after your project is completed. After all, a patent Manage Risk, by A Krattiger. www.ipH-
holder is not obligated to give you a license. If in andbook.org
doubt whether freedom to operate issues apply to
your work, contact your technology transfer of- 4.3 Dealing with outside collaborators
fice representative. It can be critical to discuss and document col-
Examples of FTO issues are, in fact, com- laborative agreements in the development of a
mon in the university setting. Be aware of ma- project. Consider which part of the work will be
terials or methods that can be used for research performed by each cooperator, how responsibility
purposes only. Examples of this can be found in and credit will be shared, and who will be authors
the fine print in molecular biology supply cata- on publications. It is best if such questions are
logs. Likewise, be aware of limitations in an considered at the onset of a project and are re-
agreement allowing use of protected materials or assessed as the program continues. Problems are
processes. The agreement may limit you to use most likely to occur if this is put off until a dis-
for research purposes only, or it may restrict you covery is made.
to a certain range of use for commercial prod-
ucts, affecting your ability to protect and com- 4.3.1 Material transfer agreements
mercialize any inventions that may result from A material transfer agreement (MTA) is a legal
your work. agreement used when giving material to others
It is advisable to search the patent literature that limits the rights they have to use the mate-
just as you would search for recent publications rial and lists their obligations with regard to use
in your line of research. While this might seem of the material. In short, it details the conditions
tedious or redundant, in fact there can be impor- of the agreement between the owner of protected
tant fringe benefits. Someone may have already IP and the party wishing to use it. An MTA is
made the discovery or invention you are pursu- executed if you want to use material or methods
ing. If a patent already exists, you can study it protected by others or if others want to use mate-
to determine whether your project can proceed rials or methods protected by you. An MTA must
as planned, should be modified, or if you should be crafted carefully since it will be legally bind-
seek a license to the patented invention. In addi- ing. And it must be created and signed before the
tion, patents can be an excellent source of infor- transfer of the material in question occurs, not
mation. Since an application must fully disclose after the fact.
the invention, including the best method for its Consult with your technology transfer repre-
practice, a patent document may provide more sentative regarding any MTA needed for obtain-
detail on how to reproduce a result than a peer- ing other’s materials or for the release of your ma-
reviewed research publication. terials. However, different offices of the university
Further information. Your technology may manage MTAs for incoming materials (often
transfer office representative or university coun- sponsored programs or the research office) and for
sel should be approached regarding concerns or outgoing materials (often the technology transfer
questions on freedom to operate, as ultimately it office).
is a legal question. Other chapters of relevance in Further information. To learn more about
the Handbook are: material transfer agreements see the following:
• Intellectual Property Freedom to Operate: • Cornell Center for Technology, Enterprise,
The Law Firm’s Approach and Role, by and Commercialization, “Material Transfer

CHAPTER 8.1
Agreements.” www.cctec.cornell.edu/cctec/ that the agreement is properly drafted, and that

researchers/protocols/mta.cfm the correct individuals sign the agreement.
• Northwestern University, Technology
Transfer Program, “Material Transfer 4.4 What constitutes public disclosure?
Agreements (MTAs).” www.northwestern. A public disclosure is made when an inventor
edu/ttp/investigators/material_transfer. reveals previously undisclosed (that is, secret)
html information to members outside the circle of
• Council on Government Relations inventors and the personnel they directly super-
(COGR), “Material Transfer in Academia.” vise. There is interplay between the need for se-
www.cogr.edu/docs/MTA_Final.pdf crecy, in order to be able to protect an invention,
and the need to reveal information to operate
4.3.2 Confidentiality and a program within a university where disclosure
confidentiality agreements and transparency are the norm. The presence
A confidentiality agreement is a legally binding of various functions important to the univer-
agreement regarding the disclosure and use of sity—educating students, publishing, efforts to
confidential proprietary information. A confi- acquire grant funding, and others—which are
dentiality agreement should be in place before generally not part of a corporate environment,
either sharing proprietary information with an- might have ramifications regarding disclosure.
other party or seeking proprietary information Among the many different vehicles for disclosure
from another party. are lectures, discussions, seminars, group meet-
Consideration of confidentiality agreements ings, annual reports, grant proposals, and radio
can be different in a university setting than in an and TV interviews.
industry setting. A faculty or staff member may Unintended public disclosure can have major
be asked to sign a confidentiality agreement if ramifications for protection of intellectual prop-
he or she is consulting for a company outside of erty. The more valuable the invention, the harder
the university. In this situtation, the individual companies will search for any inadvertant disclo-
signs, and is obligated by the agreement, not the sure that will invalidate IP protection.
university. Faculty and staff are not empowered Further information. A good discussion of
to obligate the university under a confidentiality disclosure by publications and by posting online
agreement and attempting to do so may make can be found in these online publications:
them personally liable. The offices that are autho- • GP Malilay, AM Mueting and AS Viksnins.
rized to sign these agreements and create a legal 1996. Prior Art: Silent Time Bombs that
obligation for the university are typically in the Can Blow Away Your Licensing Deals.
technology transfer office (signatory authority for Journal of the AUTM, pp 18–28. www.
licenses, agreements, contacts, and so forth deal- autm.net/pubs/journal/96/3-96.html
ing with inventions) or an office such as spon- • SJ Braman. 1996. Are Your Patent Rights
sored programs or the office of research (signa- Disappearing over the Internet? Journal
tory authority for outgoing grant proposals and of the AUTM, pp. 29–31. www.autm.
agreements accompanying incoming funds from net/pubs/journal/96/4-96.html
the funded grants).
For example, the representative of a company
interested in possibly licensing intellectual prop- 5. So you (think you) have an
erty handled by the technology transfer office invention! Great! What next?
would sign a confidentiality agreement before ob-
taining detailed information on the technology. 5.1 Overview
Drafting and obtaining signatures on the confi- There are a few things that are important to un-
dentiality agreement is handled by the technology derstand about working with the technology
transfer office for the inventor. This helps assure transfer office. Foremost, it is essential for the

Mutschler & Graff
inventor to be actively involved in all of the phas- • a description of the invention

es of the protection and marketing of the inven- • details about the funding of the research
tion. There are two main reasons for this: first, the that led to the discovery
inventor has unique, detailed knowledge that is • an explanation of why the invention may
critical to the characterization and description of be important or valuable in industry
the invention and the drafting of the patent and • reasons why companies might be interested
its claims; and second, inventors often have useful in the invention
leads, such as company contacts, that will assist • the identity of the inventor (or inventors)
in the marketing of the invention. Collecting the • a description of how the invention was
information and documentation needed to draft made
a disclosure and a patent application takes time
and effort on the part of the inventor, something Remember, a clear, detailed disclosure allows
on the order of the time and effort required to the technology transfer staff to serve you better
write a major publication or grant proposal. If and faster.
you expect to seek patent protection for your in- The technology transfer officer’s role in dis-
vention, you need to make the commitment and closure is to help the inventor fully describe the
create time for it. This will make the process run invention by considering the material provided
far smoother. and asking questions to elicit further informa-
It is helpful to remember that the breadth tion or details. In the process of discussing the
of research covered at a university is often far disclosure and deciding upon a protection and
greater in scope than that at even the largest of licensing strategy, the technology transfer officer
companies. At the same time, university technol- will conduct an intellectual property audit. This
ogy transfer offices have less staffing than analo- will reveal whether there is any preexisting IP that
gous offices in industry. As a result, a technology may affect the process.
transfer officer at a university may be dealing with Further information. Details regarding the
more inventors and a broader scope of inventions disclosure process, including forms, can often be
than his or her counterparts in industry. Input found on a university’s technology transfer office
from the inventor will directly assist the technol- Web site. Some examples include:
ogy transfer staff in bringing projects to successful • Cornell University, Center for Technology,
completion. Enterprise, and Commercialization,
Cooperative, responsive inventors often have “Invention Disclosure Process.” www.cctec.
the best experiences, since they enable the tech- cornell.edu/cctec/researchers/disclosures/
nology transfer staff to provide prompt and com- index.cfm
plete service. • University of California, Office of
The steps in the technology transfer process Technology Transfer, “Disclosing an
follow a typical pattern: Invention.” www.ucop.edu/ott/faculty/dis-
• disclosure: starting the process of protect- close.html
ing/marketing an invention
• evaluation: deciding whether the invention 5.3 Evaluation
should be protected and, if so, how The purpose of evaluation by the TTO is to de-
• protecting: proceeding with an application termine what the technology does and what its
(also called prosecution) commercial potential may be. For example:
• marketing: finding a licensee • Is it a research tool, software, compound,
• licensing: making a deal new method, diagnostic, or therapeutic?
• Does it fill an unmet need, or fill a need
5.2 Invention disclosure better than current methods?
The inventor’s role in disclosure is to provide in- • What is the size of the potential market or
formation, including: markets?

CHAPTER 8.1
• Would it have competition from other It is important to realize that the laws, inter-
technologies in those markets? pretations of laws, and strategies used in protect-
• What companies are in those markets? ing intellectual property develop and change over
• Who is investing in those markets? Why time. It is the responsibility of the technology
would investors be interested in the transfer office to keep abreast of these develop-
technology? ments and to advise and assist university inven-
tors as needed.
Answering these questions will enable the
TTO to estimate the commercial value of the 5.5 Marketing and licensing
technology. An invention will not generate financial returns
for a program unless it is successfully marketed
5.4 Deciding whether and how to protect and licensed. Depending on the nature of an in-
After disclosure and evaluation of an invention, vention, the personnel of the technology transfer
decisions must be made as to whether to protect office may or may not have a comprehensive list
the invention and, if so, how. These decisions are of potential licensees for the technology. The in-
made jointly by the inventor(s) and the technol- ventors may play a critical role in providing such
ogy transfer office, based upon all of the technical information.
and legal information available and based upon Depending on the invention, and the com-
economic considerations. panies interested in the invention, the license
Some disciplines routinely employ a par- granted may be exclusive (made to only one com-
ticular form of protection for the technology pany, with that company holding all rights to sub-
generated in that discipline. Examples include license) or nonexclusive (made to more than one
copyrights on writings; patents on vaccines, company). In some cases, a license to a company
medicines, chemicals, engineered processes and transfers rights to the invention for just a limited
materials; design patents on figures, graphics, or subset of its potential uses, rather than for any
artwork; and plant patents or plant variety certifi- and all possible uses. The decision as to the na-
cates (PVCs) on new varieties of plants. ture of the license granted (that is, the uses it will
In some areas, protection has long been possi- cover) is made by the technology transfer office in
ble but not routinely employed by universities. For consultation with the inventor, and is thoroughly
example, plant patents have been available since negotiated with the licensee.
1930; however, prior to 1982 the apple breeding There are other options as well. In some cas-
programs at the Geneva Agricultural Experiment es, the university, through the technology transfer
Station in New York developed and released apple office, encourages use of the invention in the de-
varieties without protecting them. These unpro- velopment of a new start-up venture.
tected cultivars include a number of widely grown Patents require periodic servicing, such as pe-
varieties, such as Empire (1968), Jonagold (1972), riodic payment of fees to the U.S. Patent Office
and Liberty (1978). However, cultivars released (PTO), which is managed by the technology
after 1982 were protected using plant patents and transfer office. The technology transfer office also
are generating returns to the inventors and their manages the license: receiving and distributing
research units. These protected cultivars include payments, billing the licensee, and monitoring
Freedom (1983), Empress (1988), Royal Empire whether the terms of the license are being re-
(1990) and Fortune (1995). spected by the licensee.
In some areas, the possibility of protecting If an invention is valuable, it is not unusual
IP is a more recent development. For example, to find companies infringing the property rights
before changes were made in the interpretation over it by using the invention without a license.
of U.S. patent law beginning in the 1980s, it was If this is determined to be occurring, the tech-
not possible to protect inventions involving mod- nology transfer office will take the lead in rectify-
ified life forms with utility patents. ing the matter, seeking assistance as needed from

Mutschler & Graff
the inventor. This involves a series of steps, from in so doing, to fully describe the best means of
contacting the infringing company and request- practicing the invention so that an expert in the
ing that it either cease infringement or obtain a relevant field of technology (one skilled in the art,
proper license, to filing a law suit. The more valu- in patent terminology) can actually make and use
able the invention, the more likely it is that some the invention relying only upon the information
company will test the resolve of the university to presented in the application.
assert its IP rights. Such situations occur regu- Subjects of patents can be any of the
larly, but they are manageable, given the proper following:
expertise on the part of the technology transfer • mechanical devices: a machine or device
office and other legal counsel representing the • processes: methods of doing or creating
university. something, for example, a diagnostic or
Marketing and licensing is obviously a large therapeutic method
and complicated endeavor. The best information • articles of manufacture: the paper clip is the
regarding this process can be obtained from rep- classic example
resentatives in the technology transfer office. • compositions of matter: a new formulation
of plastic, a new alloy, a new medicinal
compound
6. Types of intellectual • improvements in any of the above
property protection
Certain characteristics are required for an in-
6.1 Overview vention to be patentable. The invention must, of
Types of IP protection tend to be specific to par- course, be of proper subject matter. It also must
ticular kinds of creations or technologies, but be novel. The invention must be something that
they are not always mutually exclusive. There are would not be obvious to an expert in the field.
instances when an invention may be protected by And the invention must have some useful appli-
more than one type of IP. cation industrially or commercially (that is, the
The types of protection vary in many features invention is not trivial).
including: There are two types of patent applications: a
• requirements to acquire the protection regular application and a provisional application.
• cost (A provisional application merely starts the ball
• type of technology covered rolling and gives the inventor one year to file a
• type of protection afforded regular application.)
• length of time provided Once granted, a U.S. patent gives the owner
of the patent the right to exclude others from
A full study on any one type of IP protection making, using, offering for sale, or selling the
would be a book in itself. What follows is a brief invention in the United States or importing it
introduction to each of the types of IP protec- to the United States for the term of the patent.
tion that might be of possible use to a university It is important to remember that patents are
researcher. country specific. For instance, a patent granted
by Canada gives the owner of that Canadian pat-
6.2 Patents: utility patents, design patents, and ent similar rights within Canada. It is up to the
plant patents inventor and their technology transfer office to
A utility patent is what most people think of when decide in which countries to apply for foreign
they hear the word patent. A utility patent is a patents (which foreign filings to make). In those
grant of a property right by the U.S. government countries where rights are not sought or granted
to the inventor for a term of 20 years. over a technology, it is, in effect, left to the public
The applicant is required in the patent ap- domain (unless some other means of protection
plication to fully disclose the invention, and, is utilized.)

CHAPTER 8.1
The inventor or inventors must be listed on At most universities, patent costs are ini-
the patent application. The question of inventor- tially borne by the office of technology transfer,
ship—Who is the inventor?—is sometimes a point but they are the first thing to be reimbursed once
of contention, so consider this carefully. The revenues begin to come in when an invention
rules used under U.S. patent law to determine is licensed. It is crucial to consider whether a
who is an inventor for purposes of patent protec- license on the invention is even likely to return
tion are very different from the means generally more than the costs of applying for, maintaining,
used to determine who should be an author on and defending the patent; otherwise, perhaps a
a publication. Inventorship depends specifically less costly form of protection should be used. A
on the claims of patent. A person who gives piv- good rule of thumb is that if the technology is not
otal advice, even just once, in the course of a re- worth defending, one should not be applying for
search project could be an inventor. A technician a patent. Consultation with a technology transfer
doing much of the work under supervision, but representative can help to determine if a utility
not making decisions, would probably not be an patent is the appropriate means of protecting the
inventor. However, if the technician made unex- invention.
pected observations or suggestions critical to the Further information. For useful information,
development of the invention, he or she might in increasing order of detail and complexity, on
well be an inventor. Advice from the university the requirements and protection afforded by util-
IP/technology transfer office may be useful in ity patents, see the following:
cases in which inventorship is unclear. • L von Bargen Mueller. 1995 (with revi-
Further information. To learn more sions by JT Sorensen, 2002). An Inventor’s
about inventorship, see SH Lieberstein. 1998. Guide to Patents and Patenting, AUTM
Relevant Concepts in Determining Difficult Educational Series No. 1
Disputes Over Ownership. Journal of the AUTM. • American Bar Association, “Inventor’s
www.autm.net/pubs/journal/98/lieberstein.html. Committee: Short Description of the
Patent Process.” www.abanet.org/intel-
6.2.1 Utility patents prop/comm106/106patent.html
A utility patent is costly in terms of time and ef- • U.S. Patent and Trademark Office,
fort. The time and effort you spend on filing and “Frequently Asked Questions about
prosecuting a utility patent could be equivalent to Patents.” www.uspto.gov/web/offices/pac/
the time and effort you would spend on produc- doc/general/faq.htm
ing a major publication or a large collaborative • U.S. Patent and Trademark Office, “A Guide
grant proposal. to Filing a Utility Patent Application.”
A utility patent is also costly in terms of mon- www.uspto.gov/web/offices/pac/utility/
ey. The cost of a U.S. patent application typically utility.htm
ranges from about US$15,000 to US$30,000, al- • American Bar Association, “Comprehensive
though it can cost more. Costs of foreign patent Information on Patents.” www.abanet.org/
applications depend on the country but typically intelprop/comm106/106general.html
are within a similar range in Germany, England,
France, Australia, and Japan. After a patent is is- 6.2.2 Design patents
sued, there are patent maintenance costs to cover. A design is a visual ornamental feature, such as
At times, there are additional costs for defending a logo, embodied in, or applied to, some article
the application or the patent. The more valuable a of manufacture (for example, a mug, sweatshirt,
property is, the more likely it is to be challenged, or poster), the shape of a bottle or the shape of
either as an interference (issuance of a conflicting headlights of a car. Design patents protect new,
patent claiming some of the same technology) or original, and ornamental designs for an article
as an infringement (actions of a company using of manufacture. The design patent protects the
the technology without permission). appearance of design on the item, and not the

Mutschler & Graff
structural or utilitarian features of the item—that • tissue culture

is, the design of the logo, not the cloth of the • nuclear embryos
sweatshirt or the ceramic of the mug. The term of
protection in the United States is 14 years from Most plants covered by plant patents are
the date the grant is awarded. horticultural crops, such as apples, raspberries,
A design patent application must include: and almonds, or ornamentals, such as rhododen-
• a preamble stating the name of the appli- drons, roses, and tulips. For historical reasons,
cant, the title of the design, and a brief de- tuber crops, such as potatoes and Jerusalem arti-
scription of the nature and intended use of chokes, were specifically excluded from consider-
the design ation. For the purpose of plant patents, algae and
• drawings or photographs of the design macro fungi are allowed; bacteria are not.
claimed (Since this is the critical part of the A plant patent application must meet the
design patent, the PTO site listed below same requirements of utility patents. The plant
has considerable detail about this portion to be protected must have been developed or dis-
of the application.) covered by the applicant. It must fulfill the re-
• a written description of the elements quirements for novelty and nonobviousness. The
of the design, shown in the drawing or plant cannot have been sold or released in the
photograph U.S. more than one year prior to the date of the
• a written description of the features of the application.
design A plant patent must include a complete de-
• the single claim for the design scription of the botanical features of the plant
• an executed oath or declaration by the and the characteristics that distinguish that plant
applicant from known, related plants. A drawing or photo-
graph of the plant showing its most distinguish-
Further information. To learn more about ing characteristics and text describing what is be-
design patents, see the Web site of the United ing shown in the drawing or photograph help to
States Patent and Trademark Office, “Frequently document the plant’s novelty.
Asked Questions (FAQ) about Design Patents.” Once granted, the plant that is protected
www.uspto.gov/web/offices/pac/design/desfaq. includes mutants, hybrids, and genetically trans-
html. formed plants. The grant lasts for 20 years from
the date the application is filed. During this pe-
6.2.3 Plant patents riod, the plant patent protects the inventor’s right
A plant patent protects a distinctive new variety to exclude others from asexually reproducing,
of an asexually reproduced plant. Asexual repro- selling, or using the plant so reproduced. As with
duction is the creation of identical genetic copies utility patents, when the plant patent expires, the
of a plant without using genetically reproducing subject matter of the patent (that is, the plant va-
seeds. Asexual reproduction includes the use of: riety) enters the public domain.
• root cuttings Further information. To learn more about
• apomictic seeds plant patents, see the Web site of the United
• bulbs States Patent and Trademark Office, “General
• slips Information about Plant Patents.” www.uspto.
• rhizomes gov/web/offices/pac/plant/.
• runners
• corms 6.3 Plant variety protection
...and methods such as: Plant variety protection (PVP) is a means for
• grafting and budding protecting sexually reproduced plant varieties.
• division Plant variety protection is a form of IP admin-
• layering istered and granted by the U.S. Department

CHAPTER 8.1
of Agriculture (USDA), rather than the U.S. of the copyrighted work. The term of protection
Patent Office. This is basically the U.S. version for works owned by individuals is the life of the
of plant breeders rights, as agreed upon interna- author plus 70 years.
tionally under the convention known as UPOV Items that can be copyright protected
(International Union for the Protection of New include:
Varieties of Plants). A PVP grants 20 years of pro- • literary works
tection (for new varieties of plants) from date of • musical works, including accompanying
issue (and 25 years for trees and vines). A PVP words
cannot be granted for uncultivated plants or ma- • dramatic works, including any accompany-
terials found in nature. ing music
PVP regulations require that the plant culti- • pantomimes and choreographic works
var to be protected must be: • pictorial, graphic, and sculptural works
• novel or new: cannot have been sold in the • motion pictures and other audiovisual
United States for more than one year works
• distinct: is clearly different from other com- • sound recordings
mon varieties of the crop • architectural works
• uniform: has no more variability than other
varieties of the crop Examples of things that cannot be copyright
• stable: remains unchanged when repro- protected include:
duced, particularly with regard to the dis- • ideas or concepts
tinctive characteristics of the variety • lists showing no originality
• titles, names, short phrases, and slogans
In the application for the PVP, the applicant • type styles
provides the genealogy of the variety and describes • factual information
the variety and its novelty. A public deposit of • public domain information
seed of the variety is also required. • works not fixed in tangible form
Protection provided by the PVP applies to
the single variety claimed. The PVP prevents oth- A copyright gives to the holder the right to
ers from selling, sexually or asexually reproduc- reproduce one or more copies of the protected
ing, or distributing without a license from the work. Notwithstanding copyright protection,
holder of the PVP. Since the mid-1990s, a PVP other parties, such as archivists, educators, and
also prevents others from producing a hybrid va- members of the media may reproduce protected
riety using the claimed variety as a parent. works for certain types of use known as fair use.
Exclusions to the protection include use of The copyright also gives certain limited rights to
the cultivar in breeding, by farmers saving seed distribute or disseminate copies, prepare deriva-
for their own use, and for the sale of limited tive works (including translations), and perform
amounts of seed. or display publicly (with exceptions for instruc-
Further information. To learn more about tional use, broadcasting, and religious services).
plant variety protection, see the Web site of the Excluded from the fair use are digital movies, dig-
USDA Plant Variety Protection Office. www. ital games, and similar products since the entry
ams.usda.gov/science/PVPO/pvpindex.htm. into force of The Digital Millennium Copyright
Act in late 1998.
6.4 Copyright At most universities copyright issues are
Copyright provides legal protection of an original handled by the university counsel, rather than
work set down in a fixed form or medium of ex- the technology transfer office, with possible ex-
pression. The term of protection for works owned ceptions for some technologies, such as software,
by corporate entities is the lesser of 95 years from involving both copyright and utility patents for
publication date or 120 years from the creation protection.

Mutschler & Graff
Further information. To learn more about Properties that many universities protect by copy-
obtaining copyrights or using copyrighted mate- right, design patent, and perhaps trademark, are
rial, see the following Web sites: the university’s name, logo, and other symbols,
• Cornell University, “The Copyright such as a mascot. Some universities—particular-
Information Center.” www.copyright.cor- ly those with well-known sports programs—earn
nell.edu considerable funds through the licensing of their
• Stanford University Libraries, “Copyright protected names and logos for merchandise.
and Fair Use.” fairuse.stanford.edu A department wanting to use the university
• Indiana University and Purdue University logo, for example, on a T-shirt being designed
Indianapolis, “Copyright Management for an upcoming symposium, must first obtain
Center.” www.copyright.iupui.edu permission from the office that is responsible for
• Library of Congress, United States trademarks and such.
Copyright Office. www.copyright.gov Further information. To learn more about
trademarks, see the Web site of the U.S. Patent and
6.5 Trademark Trademark Office, “Basic Facts about Trademarks.”
A trademark is essentially a brand name, which is www.uspto.gov/web/offices/tac/doc/basic/.
used to identify or distinguish in the marketplace
one company’s goods from another’s. A trademark 6.6 Trade Secrets
includes any word, name, symbol, or device, or A trade secret is secret or confidential informa-
any combination of these. Many of the products tion that gives the company that possesses the
we buy sport trademarks, from Sunkist oranges information an advantage over companies that
and Coke, to Levi Strauss jeans, Dell computers, do not possess it. Trade secrets can protect any
and Intel microprocessors. information that provides a competitive ad-
There are other types of “marks” as well. The vantage. Examples include a process, method,
service mark is similar to the trademark, but the composition, or recipe. The recipe for Coca-
service mark identifies a service or the source of a Cola syrup, and many other food and beverage
service, rather than goods or the source of goods products are protected as trade secrets. A trade
(for example, a cleaning service, rather than mops secret has a far longer term of protection than a
and brooms). A certification mark identifies a “re- patent. A trade secret is in force as long as the
gional or other geographic origin, material, mode secret information is kept secret and not made
of manufacture, quality, accuracy, or other charac- publicly available.
teristics of goods and services.” A collective mark A trade secret protects information, quite
is a type of trademark or service mark used by simply, by keeping it secret. Trade secrecy laws
the members of a collective group and indicates make it illegal for someone to obtain the secret
membership in the organization. by misappropriation (for example, breaking into
Trademarks, and the other types of marks, are the vault in which the secret is kept). Of course,
handled by the U.S. Patent Office. Application a product must be able to be used or marketed
involves filing a form, along with a drawing of without revealing the secret to be protected as a
the mark to be protected and specimens of the trade secret (for example, the product must not
mark. (The specimen will be a prototype of the be able to be reverse engineered). If someone in-
design, such as a label or tag, which incorporates nocently, independently discovers the same in-
the mark.) Before one files an application, it is formation, they can use it without infringement.
advisable to run a search to check that the mark Indeed, the second discoverer could in fact apply
is not already registered. With proper mainte- for a utility patent, in some instances.
nance (use, renewal, and so on) a trademark can By university policy, no secret research is
be perpetual. conducted at the university, but an invention that
At most universities, the university counsel results from research could, in some instances,
handles trademark and service mark applications. be protected by trade secret at least temporarily,

CHAPTER 8.1
Acknowledgments
pending an application for another form of This chapter was written with enthusiastic and significant
IP protection. suggestions, contributions, and corrections from sev-
eral contributors (listed in alphabetical order): Richard
6.7 Bailment Law Cahoon, David Kryder, Patricia McClary, and James
Seversen. We sincerely thank them all for their contribu-
Some inventions can be marketed without the tions and encouragement.
formal protection of a patent or other form of IP
protection though the use of bailment law. Under Martha Mutschler, Professor, Department of Plant
this approach, control over use and dissemination Breeding and Genetics, Cornell University, 303 Bradfield
of the invention is obtained by careful use of ma- Hall, Ithaca, NY, 14853, U.S.A. mam13@cornell.edu
terial transfer agreements and licenses. Where ap- Gregory D. Graff, Research Economist, PIPRA, and
plicable, this method reduces paperwork and the Visiting Research Fellow, Department of Agricultural and
costs of preparation and application for patents Resource Economics. University of California, Berkeley,
or other forms of protection. The method would PIPRA, Plant Sciences, Mail Stop 5, University of California,
Davis, CA, 95616, U.S.A. gdgraff@ucdavis.edu
require careful coordination with the technology
transfer representative.
Further information. To learn more about 1 This chapter provides many links in the text to impor-
tant online resources. Pertinent additional resources
bailment law, see PM Simpson, Jr. 1998. Use are:
of Bailment in Transferring Technology from a
Braman SJ. 1996. Are Your Patent Rights Disappearing
University. Journal of the AUTM. www.autm.net/ Over the Internet? Journal of the AUTM, pp. 29–31.
pubs/journal/98/simpson.html. www.autm.net/pubs/journal/96/4-96.html.
Cornell Center for Technology, Enterprise, and
Commercialization. Invention Disclosure Process.
www.cctec.cornell.edu/cctec/researchers/disclosures/
7. Summary index.cfm.
Managing the IP issues that arise in the course Cornell Center for Technology, Enterprise, and
of university research and teaching functions Commercialization. Lab Notebook Guidelines. www.
is important. Though sometimes the issues are cctec.cornell.edu/cctec /researchers/protocols/
guidelines/index.cfm.
complex, the management of these issues can be
Cornell Center for Technology, Enterprise, and
handled efficiently, reducing time commitment. Commercialization. Material Transfer Agreements.
The goal of this chapter is to provide basic infor- www.cctec.cornell.edu/cctec/researchers/protocols/
mation to enable university scientists/inventors mta.cfm.
to manage intellectual property and technol- Cornell University. The Copyright Information Center.
www.copyright.cornell.edu.
ogy transfer issues. The university scientist need
not be an IP expert. The ability to protect some Stanford University Libraries. Copyright and Fair Use.
fairuse.stanford.edu.
forms of IP is fairly recent, having undergone or
Council on Government Relations (COGR). 1999. The
even still undergoing rapid changes in interpre- Bayh-Dole Act: A Guide to the Law and Implementing
tation and strategy. Being knowledgeable and Regulations. www.cogr.edu/docs/Bayh_Dole.pdf.
capable in these areas is the task of those uni- Council on Government Relations (COGR). 2003.
versity personnel in the technology transfer of- Material Transfer in Academia. www.cogr.edu/docs/
MTA_Final.pdf.
fice and the outside legal experts who work with
Florida State University, Office of IP Development
the university on IP and technology transfer.
and Commercialization. Notebook Guidelines. www.
Researchers/inventors should consider how they techtransfer.fsu.edu/notebookguidelines.html.
want to handle IP issues during day-to-day work Graff G, A Heiman, and D Zilberman. 2002. University
and know whom they should contact when they Research and Offices of Technology Transfer, California
have new IP or technology transfer issues. They Management Review 45, no. 1 (fall). are.berkeley.edu/
~ggraff/Graff-Heiman-Zilberman-CMR-2002.pdf.
should not hesitate to use these resources when-
Indiana University and Purdue University Indianapolis.
ever needed. ■ Copyright Management Center. www.copyright.iupui.edu.

Mutschler & Graff
Innes C, and CC Valauskas. 2000. Development and Rogers EM, J Yin, and J Hoffmann. 2000 Assessing the
Deployment of Digital Works in Universities: A Guide Effectiveness of Technology Transfer Offices at U.S.
for Authors and Licensing Officers, AUTM Educational Research Universities. Journal of the AUTM. www.autm.
Series, no. 5. net/pubs/journal/00/assessing.html.
Leslie B. (1998) Material Transfer Agreements, AUTM Simpson Jr, PM. 1998. Use of Bailment in Transferring
Educational Series, No. 3. Technology from a University. Journal of the AUTM.
www.autm.net/pubs/journal/98/simpson.html.
Library of Congress. United States Copyright Office.
www.copyright.gov. United States Department of Agriculture. Plant Variety
Protection Office. www.ams.usda.gov/science/PVPO/
Lieberstein SH. 1998. Relevant Concepts in Determining
pvpindex.htm.
Difficult Disputes Over Ownership. Journal of the
AUTM. www.autm.net/pubs/journal/98/lieberstein. United States Patent and Trademark Office. Basic Facts
html. about Trademarks. www.uspto.gov/web/offices/tac/
doc/basic/.
Malilay GP, AM Mueting, and AS Viksnins. 1997. Prior Art:
Silent Time Bombs That Can Blow Away Your Licensing United States Patent and Trademark Office. General
Deals. AUTM Educational Series, no. 2. Information about Plant Patents. www.uspto.gov/
web/offices/pac/plant/.
Northwestern University Technology Transfer Program.
Maintaining Laboratory Notebooks. www.northwestern. University of California, Office of Technology Transfer.
edu/ttp/investigators/lab_notebooks.html. Disclosing an Invention. www.ucop.edu/ott/faculty/
disclose.html.
Northwestern University, Technology Transfer
Program. Material Transfer Agreements (MTAs). Valauskas CC and C Innes. 1999. Copyright Protection
www.northwestern.edu/ttp/investigators/material_ of Software, Multimedia, and Other Works: An Authors
transfer.html. Guide. AUTM Educational Series, No. 4.
Public Law 96-517, Patent and Trademark Act of 1980, 37 Von Bargen Mueller L. 1995. An Inventor’s Guide to
C.F.R. Part 401, reported in the Federal Register, vol. 52, Patents and Patenting. AUTM Educational Series, No. 1.
no. 52, March 18, 1987, pp. 8552–8563.
Rockman HB. 2004. Intellectual Property Law for
Engineers and Scientists. Wiley-IEEE Press: Hoboken,
New Jersey.

CHAPTER 8.2
How to Start–and Keep–a Laboratory Notebook:

Policy and Practical Guidelines
JENNIFER A. THOMSON, Professor, Department of Molecular and Cell Biology, University of Cape Town, South Africa
ABSTRACT 2. Types of laboratory notebooks

A laboratory notebook is an important tool that goes well The following items explain a few important
beyond research management and can have important
things to know about lab notebooks and how
implications for issues ranging from intellectual property
management to the prevention of fraud. This chapter dis- they may be used:
cusses the key elements of a laboratory notebook, types • Hardbound books with numbered pages
of notebooks, what should be included in the notebook, show that no pages have been deleted or
ownership issues, archiving, and security. The chapter added.
provides sample notebook pages that illustrate some of
the recommended practices. • In companies or institutions aimed
mainly at producing patentable prod-
ucts, carbon copies of each page are of-
ten required. In addition, each page may
1. What is a laboratory notebook? have to be signed and dated both by the
Although you may think you will remember what scientist and by an independent witness
you did and why you did a certain experiment in within two weeks of work being done.
a week’s time, YOU WILL NOT! And nor will This scientist should be someone who is
anyone else in your laboratory. Hence the need likely to be traceable in some years time,
for laboratory notebooks. In short, a laboratory if needed, to confirm reading and coun-
notebooks is: ter signing. The witness should not be
• a daily record of every experiment you do, likely to be named as a co-inventor in a
think of doing, or plan to do patent application. The counter-signato-
• a daily record of your thoughts about each ry should sign and date each page of the
experiment and the results thereof notebook to confirm that she or he has
• the basis of every paper and thesis you read and understood the entry and is sat-
write isfied that the entry has been accurately
• the record used by patent offices and, in the and correctly written.
case of disputes, courts of law (in the event • It is advisable to keep different note-
you file patents on your findings) books for different projects or different
• a record that would enable successive scien- aspects of the same project. Notebooks
tists, working on the same project, to pick up should be clearly identified on the out-
where you left off or reproduce your results side cover.
Thomson JA. 2007. How to Start—and Keep—a Laboratory Notebook: Policy and Practical Guidelines. In Intellectual Prop-
erty Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L
© 2007. JA Thomson. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

THOMSON
3. What goes into a • cross-references (If you have already de-

laboratory notebook? scribed an experiment earlier, or if you have
On the front cover of the notebook should be a used a standard protocol and have not devi-
description of what is contained in it (for exam- ated from the previous descriptions of the
ple, cloning of the X gene and characterization experiment for your current one, you may
of its product). The first and last dates of entry reference the earlier information instead of
should also be written on the front cover. writing it out again. For example, if you are
The following items explain a few important starting a new experiment on page 48 and
things that need to be recorded inside the lab are using the same protocol as already de-
notebook. Remember, everything must be writ- scribed on page 22, write on page 48, “fol-
ten in ink or other permanent medium. lowing the protocol as described on page 22 of
• a detailed account of every planned and ex- this laboratory notebook.”)
ecuted experiment with the amount of de- • using preprinted forms can save time, if
tail that would enable a scientist “skilled in your experiments involve common, stan-
the art” to determine what had been done, dard procedures (see Figure 2)
why it had been done, and what the results • information with regard to any data that
were has been electronically captured (These data
• dates accompanying every entry, account, should be accessible to any scientist “skilled
or record in the art.” Such electronic data should be
• protocols, reagents, lot numbers in each backed-up and archived weekly.)
entry, and where appropriate, sketches, de-
scriptions, and so on Corrections must be made by drawing a sin-
• explanations of the significance of each gle line through the entry (see Figure 3). If you
experiment, as well as the observations, re- leave more than four lines at the bottom of a page,
sults and conclusions of the experiment cross through the area to indicate that those lines
• details of each experiment (Remember, were unused (see Figure 4). Never use Whiteout.
what may seem trivial or obvious at the Remember, laboratory notebooks and their
time your experiment was conducted, may contents are confidential and of great value.
later be of critical importance.) Store them in safe places and report any loss or
• personal comments (It is a living docu- theft to your supervisor immediately. When you
ment, so stamp it with your own person- leave your laboratory for any length of time, in-
ality. Comments such as “SUCCESS AT form your supervisor of the whereabouts of your
LAST!! THIRD TIME LUCKY :)” are laboratory notebooks. When you leave the insti-
highly appropriate. However, do not make tution permanently, ensure that your notebooks
sweeping statements, such as, “This proce- are handed over to your supervisor.
dure is worthless” or “We infringe X’s patent
with this procedure.” Statements like this
could affect the future patentability of your 4. Who owns the notebook?
research. The person or organization who is paying the bills
• photographs, computer generated data, owns your laboratory notebook. In most cases
and so forth should all be stuck into your this will be the company, university, or research
notebook in such a way that they will not institute who employs you or your supervisor.
come loose (see Figure 1). If the format of In the case of universities, you will probably
these data is too large for your laboratory find that employees enter into a contract that
notebook, sign and date such data and file stipulates that all inventions developed while
them in a loose-leaf ring file that can clearly employed are the property of the university.
be identified. Record the location of these Universities, and some companies, have agree-
documents in your notebook. ments that income generated from discoveries

Figure 1: Example of a Gel Photograph Figure 2: Using a Preprinted Form
Pasted into a Laboratory Notebook for Standard Reactions Saves Time

CHAPTER 8.2
THOMSON
Figure 3: If You Make Mistakes, Figure 4: Draw a Line to

Correct Very Clearly Fill Empty Space

CHAPTER 8.2
made by employees and/or students, will be divid- • Label your notebook along the spine with
ed between the institution and the discoverers. your name, the project, and the start and
end dates for the notebook.
• Make sure your supervisor knows where
5. How do you keep copies of your notebooks are stored!
laboratory notebooks?
Some laboratory notebooks come equipped with
carbon copies. These types are the best and safest. 7. How do you protect your
If your notebook is not of this type, you should lab notebook?
make photocopies of the complete notebook. But It is essential to protect the security of your re-
why do you need copies? cords. Here are some important practices to
• Once you have completed a laboratory follow:
notebook, your supervisor will probably • When you leave the lab each day always
want to keep the original. You will there- leave your lab notebook where your su-
fore need copies to help you in completing pervisor can find it, preferably in the same
your research. You will often need to check place. It is not necessary to lock it away
back on what you did a few months ago. every night, although it is a good habit to
• You might leave your institution before form.
you have time to write up your research for • Lock your lab when you are the last person
publication or patenting. You will need a to leave. If you are not sure whether anyone
copy of your notebook to enable you to do else will return to the lab, play safe and lock
this. Your supervisor will also need a copy it. People will soon learn to keep their keys
to ensure correctness of data and interpre- with them!
tation. (The latter is just one reason why • If your supervisor allows you to keep past
it is so important for you to comment on notebooks, make sure she or he knows
your data in your lab notebook, making where they are.
suggestions, interpretations, and so forth.)
• Another scientist might have to take up
where you left off. Although your supervi- 8. Conclusions
sor will have your lab notebook, your suc- A laboratory notebook is an important tool that
cessor will also need to have a copy to help goes well beyond research management, and
her or him continue your work. It will be keeping good records has implications for issues
essential that your results can be repeated. ranging from intellectual property management
to the prevention of fraud. Institutions should
have a comprehensive policy that should be rig-
6. How do you archive your orously implemented (see Box 1 for guidelines for
laboratory notebook? a notebook policy). ■
Archiving means keeping your notebooks in a
system that allows easy access. Your supervisor or
institute will probably have an archival system in Jennifer A. Thomson, Professor, Department of Molecular
and Cell Biology, University of Cape Town, Private Bag,
operation for this purpose. Here are some recom-
Rondebosch 7701, South Africa. jennifer.thomson@uct.ac.za
mendations for archiving:
• The best option is a lockable bookcase, or
cupboard, or a locking file cabinet.

THOMSON
Box 1: Laboratory Notebook Policy

The following policy is a document originally prepared by SWIFFT at Cornell University in
the context of its collaboration with the centers of the Consultative Group on International
Agricultural Research (CGIAR). The policy itself is based on actual policies that are in effect in
several leading research centers and companies, but has been adapted to reflect the specific
needs of public sector research institutions.
Background
Many public organizations are entering a new era and are considering protecting their own
inventions and engaging in research with other organizations, both public and private. These
new relationships, often based on collaborative research agreements, may require precise
documentation of certain activities and results. Laboratory and research practices will frequently
need to be carefully formalized and noted in ways that will allow future IP auditors to review
the authenticity of results and certify the dates of occurrences. Such practices are important for
potentially patenting possible discoveries made by these institutions or by their collaborators,
especially when seeking patent protection in the United States.
Recording procedures are generally spelled out with respect to standard laboratory notebook
practices. These procedures inform all staff about the process for daily establishing and
maintaining of laboratory records that could become primary evidence for the resolution of
disputes or litigation. In court, dates of invention, description of an invention, and research
techniques can be established through carefully kept laboratory notebooks.
In order to achieve the goal of maintaining court-ready documentation, a bound laboratory

notebook, in whatever format, must be:
• an honest representation of the research work done by the researcher
• regularly written (daily recording is normally recommended)
• routinely witnessed (at least weekly) by another scientist
• duplicated when completed, if the researcher would like a working copy
• archived in a secure place and/or by a secure method.
The policies and procedures outlined below can be modified to suit almost any organization’s
needs and existing IP policies and to harmonize the lab notebook policy with other institutional
tools. It is essential, however, that any laboratory notebook policy be consistent with other
laboratory procedures, that all research staff be well trained in the execution of the policy, and
that the adopted policies be systematically enforced.
Laboratory Notebook Policy

The purpose of this policy is to ensure that the institution is sufficiently protecting its inventions,
research, and products, so that discussions or allegations during disputes or litigation are based
on documented fact. This includes such things as the date of an invention or a description of
the invention or research, the dates or research techniques that were used, and the like. In order
to do this, the laboratory notebook, in whatever format, must be an honest representation of
the research work done by the institution, and must be acceptable to a court, the U.S. Patent
and Trademark Office, and other offices whose charge is regulating statutory protection of IP.
Therefore, certain standards apply to each type of notebook.
Guidelines
1. General
All ideas and data must be entered into the laboratory notebook. Entries must be complete
enough that another scientist would have little or no trouble understanding and repeating the
experiments.

CHAPTER 8.2
Box 1 (continued)
Each page must be signed, and dated each day, by the scientist running and recording the
experiment, and signed and dated by a witness, if not immediately, then at least within one week
of the scientist’s signature.
In deciding the exact procedures to follow, it is important to keep in mind that any type of
laboratory notebook must achieve two goals:
1. Reflect its own integrity
2. Corroborate information independent of the person doing the research
Thus, the condition of the laboratory notebook must reflect that it is a clear and accurate
representation of activities that have taken place in the lab and that none of the information
has been falsified: any changes made to the recorded information should be clear and obvious
and the new information should be able to be compared with the old; and the notebook should
be completely in tact, with no pages missing or illegible. A witness who has not been involved in
the experiment, by signing and dating the notebook, must attest (by virtue of signing) that the
information, experimentation, and/or ideas that occurred were recorded on the date indicated.
2. Types of laboratory notebooks
A. Hardbound notebook
• Laboratory notebooks are checked out from the designated librarian in the department or
office specified and returned to the designated technician immediately upon being filled,
to be microfilmed.
• When signing out a new laboratory

notebook, the researcher will notice Figure 5: An Index at the Back Makes
that the laboratory notebook is Your Notebook More Useable
numbered, is permanently bound,
has index pages (Figure 5) and that
all pages are prenumbered.
• The researcher should enter a new

experiment in the index each time a
new experiment is started.
• Use each page in order. Leave no

blank pages between experiments.
• Record enough information so that a

scientist “skilled in the art” could pick up your laboratory notebook and easily determine
what had been done, why it had been done, and what the results were. Entries should
include procedures, reagents, lot numbers, where appropriate, sketches, descriptions, and
so on. The purpose and significance of the experiment as well as observations, results, and
conclusions should be made clear. Remember, what may seem trivial or obvious at the time
experiments are conducted, may later be of critical importance.
• If procedures have already been described in an earlier experiment or have used a

standard protocol, and the researcher has not deviated from the previous descriptions of
the experiment for the current one, the researcher may reference the earlier information
instead of writing it out again. For example, if the researcher was starting a new experiment
on page 42, and was using the same protocol as already described on page 25, he or she

THOMSON
Box 1 (continued)
could write on page 42, “Following the protocol as described on page 25 of this laboratory
notebook.”
• All data should be entered, in ink, directly into the laboratory notebook.
• Corrections should be made by drawing a single line through the entry. Erasers or whiteout
should never be used. The researcher should initial each lineout, and if possible, add next
to each lineout a note of explanation, such as, “wrong data.” The researcher should never
tear pages out of the laboratory notebook. Pages may be copied for the researcher’s own
use, but never removed.
• At the end of each day the researcher should put a line or a cross through any unused
space on that day’s page(s) in the laboratory notebook. If a blank line is left between
paragraphs, there is no need to lineout the one line, but if a number of lines have been
left at the bottom of the page, they should be marked through. This could prove it was
impossible to enter additional information in the laboratory notebook, in those empty
spaces, at a later date.
• If additional information, such as a machine-generated table or graph, an original photo, or

autorad, is part of the experiment and is small enough to be attached in the notebook, the
information should be attached using a permanent adhesive or nonremovable tape. The
researcher should sign his or her name over the border of the attachment, crossing over
onto the laboratory notebook page. Signing in this way would clearly show, if at any time
in the future the attachment had been removed.
• If the additional data is too large for the laboratory notebook (for example, a computer
printout that is a few pages long), such additional data can be signed and dated;
countersigned and dated by the witness; and given an appropriate ID number. The
researcher should note on such additional data which laboratory notebook and which page
number the additional data is referenced. Then, in the laboratory notebook the researcher
should reference the additional data’s ID number and note the secure-storage location
where the additional data is being held. Preferably, a drawer with a set of files that are
always used to store oversized information should be used. A summary of the data can be
placed in the laboratory notebook. The same sort of procedure should be followed with any
samples that are to be kept.
• Each original page of the laboratory notebook must be signed and dated by the researcher
and by a witness. A witness should be someone who has read each entry, who is competent
to understand what he or she has read, but who is not a co-inventor. Each research group
should designate a person who is responsible for assigning permanent witnessing partners.
However, if the assigned witness is not available when needed, another person who fulfills
the appropriate criteria may be used.
• If any changes are made after pages are signed or witnessed, the changes must be initialed
and dated by both the researcher and a witness. Care should be taken to use the current
date when signing or witnessing a laboratory notebook.
• Ideas should be recorded in the laboratory notebook, as these may be important in

determining a date of invention.
• It is important to return completed laboratory notebooks to the designated person as soon

as possible to ensure a duplicate copy of the laboratory notebook is captured on microfilm

CHAPTER 8.2
Box 1 (continued)
or other permanent media. This process will be expedited so that the notebook can be
returned quickly to the researcher. A laboratory notebook can be retrieved at any time
during the microfilming process, if needed. Upon completion of the microfilm process, the
laboratory notebook will be returned to the researcher, for use as reference in the laboratory,
or put into permanent storage at the researcher’s request. One microfilmed copy will be
kept in the library for access at any time. One other copy of the microfilm copy will be put
into secured storage in the designated location.
B. Hardbound notebooks containing electronically captured data
• At laboratories where a large amount of data are generated and stored in the computer, a
written laboratory notebook, with all of the guidelines referred to above, is still required. In
this setting, however, much of the data referred to in the laboratory notebooks may exist
in electronic files. The laboratory notebooks should contain a summary of the information
in those files and also give the name of the file (and format) in which the data are stored.
• The electronic data should be backed up and archived weekly. A new and separate file
should be provided as a place to store data. Details of these files and the back-up procedure
should be described to all researchers and managers in a memo. These backed-up files
should never be opened except for litigation or U.S. Patent Office matters.
C. Hardbound notebooks generated by computers
• The same guidelines apply to hardbound notebooks generated by computers as for

hand-written laboratory notebooks. The difference is that rather than purchasing a
laboratory notebook and writing in it, research activity is documented electronically. The
documentation is printed out on a regular basis and then bound to form a laboratory
notebook. The printed material should be clearly labeled with the information that will
appear on the front of the bound book and sent to the appropriate person or department
for binding. Once bound, the laboratory notebook will be assigned a number, recorded, and
returned to the researcher or archived, upon request.
• Each experiment is to be described and each page should be numbered and signed,
countersigned, and dated. Each week these experiments are to be saved in the special data
file as described in a memo. Also, as with hardbound notebooks, data such as small graphs,
photos of gels, and so on, which can be attached to the laboratory notebook page should
be attached using the same methods as described above.
• Even though it may be a convenient way of recording experiments, electronic documentation

is not the recommended way, for a variety of reasons. If a number of experiments from
different days are printed on one page, for example, and the page is only signed and dated
after the last entry, it may be difficult or impossible to pinpoint dates of specific activity,
especially an exact date of invention.

CHAPTER 8.3
Documentation of Inventions
W. Mark Crowell, Associate Vice Chancellor for Economic Development and Technology Transfer,
University of North Carolina at Chapel Hill, U.S.A.
ABSTRACT facilitate understanding among researchers of the

Documentation of research is a critical aspect of best importance of keeping good records. In addi-
practices in IP management. This is true because research
tion, the technology transfer office must establish
and development activities that give rise to inventions
must be thoroughly documented in order to successfully fail-safe systems for documenting and diligently
manage patents, including determining patentability, pursuing the invention disclosures that the office
drafting and prosecuting patent applications, and later, receives.
if the need arises, protecting patents against third party Why is record keeping so important? In a
challenges, for example, a patent interference proceed-
ing. Maintaining, for each invention, a complete record research environment, good research records are
of who made the invention, when it was made, and how essential for a number of reasons—including for
it was made, must therefore become a formal component assisting the institution in meeting its progress-
of a university’s policy and training programs and must be reporting requirements to research sponsors, for
carried our according to specific protocols. An organized
documenting expenditures, and for promoting
and methodical approach to documentation will support
patent management, provide a readily accessible source research integrity. However, for the technology
of critical information, ensure the capture of maximum transfer manager, U.S. patent laws provide an
value of inventions, and protect patent portfolios against altogether different reason for promoting good
challenges when, and if, the need arises. practices in invention documentation.
Among the first lessons that U.S. technol-
ogy managers learn is that the patent laws dictate
1. Introduction that a patent is awarded to the first party to in-
Documentation of inventions is an extremely vent. In the United States, unlike virtually every
important issue, and yet this relatively straight- other country, priority of invention is established
forward activity is one of the most forgotten, by the first-to-invent rule. However, the major-
overlooked or, simply, carelessly neglected aspects ity of nations follow a priority rule by which the
of invention management. A lack of attention to party who is first to file is entitled to a patent.
this activity can result in the loss of patent rights What this means, then, is that a contest can en-
that the applicant would otherwise possess. The sue between parties who dispute priority of an in-
technology transfer office has a responsibility to vention, that is, who was actually first to invent.
Crowell WM. 2007. Documentation of Inventions. In Intellectual Property Management in Health and Agricultural Innova-
tion: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A.
Technology Transfer Practice Manual (Second Edition, Part VI: Chapter 2).
© 2007. WM Crowell. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

CROWELL
Such a contest is adjudicated by the U.S. Patent can be invaluable for documenting who contrib-
and Trademark Office (PTO), Board of Patent uted to the invention and the critical dates and
Appeals and Interferences, in an administrative facts of conception and reduction to practice of
proceeding called a patent interference. The patent the invention; these dates would refute the claim
interference proceeding determines who was the that raised references identified relevant prior art
first to invent, has priority, and thus is entitled to if the records documented conception and reduc-
the patent. tion to practice (invention) as having occurred
So, when two competing patent applications before the raised references. This example under-
claim the same subject matter, the PTO declares scores the importance of maintaining clear, me-
an interference, that is, the patent applications ticulous chronological records. Nothing will sub-
“interfere” with each other. Each inventor then stitute for comprehensive records if, and when,
seeks to prove priority of invention, and reliable complex legal challenges to a patent or patent ap-
evidence is sought that can document which party plication arise. Always assume that there could be
was, in fact, the first to invent. Under U.S. patent trouble, and assemble records accordingly so as to
law, the inventive process, by definition, begins protect valuable investments in research, develop-
with conception of an invention and proceeds ment, and commercialization.
to reduction to practice (either actual construc-
tion of the invention or filing of a patent applica-
tion with the PTO). To comply with patent law, 2. The Practical importance of
the first party to conceive a patentable invention record keeping
must carry out certain activities to proceed with In reality, there are occasions on which an inven-
reasonable diligence toward the development and tion disclosure form (IDF) itself, or possibly a
patenting of an invention. In other words, it is grant application, will be the first viable record
possible that the first to conceive an invention that a researcher has adequately, and diligently,
can fail to prevail in an interference proceeding if proceeded through the inventive process, from
he or she did not diligently work toward reduc- conception of the invention through to reduction
tion to practice of the invention or did, in fact, to practice. In such cases, the technology trans-
diligently work toward reduction to practice but fer office must ensure that such records are safely
cannot produce any documentation as evidence to stored, properly witnessed, and readily available
prove having done so. Therefore, an inability to when the need arises. A lot depends on such care
prove who is the first to conceive, or a lack of being taken, and an investment in managing
evidence to refute a charge that an inventor was and maintaining records will pay off in the long
not diligent in pursuing an invention, can lead term.
to the loss of valuable patent rights to which the U.S. patent practice places immense impor-
inventor and institution may otherwise have been tance on witnessed records when two or more
entitled. parties claim the same invention. For example, an
Therefore, within the notoriously complex applicant involved in an interference proceeding
context of an interference proceeding, careful must be able to prove the date of conception (the
documentation of inventions and the inventive date when the inventor formulated in his mind a
process, from conception to reduction to practice, definite and complete idea of the invention) and
will be extremely important in order to prevail if the date of reduction to practice (the date when
such legal challenges arise. In addition to inter- the conceived invention was actually built, with
ference proceedings, patents are, not infrequently, every element of the conceived invention) even if
challenged on such grounds as incorrect naming it is not yet commercially perfected. It is critical to
of inventors or newly raised references that chal- make clear to staff that the IDF used by the tech-
lengers argue should have been submitted to the nology transfer office must avoid using language
PTO as proof of prior art at the time of the patent that refers to date of first conception or date of first
application. In such situations, research records reduction to practice. Should legal adjudications

CHAPTER 8.3
arise, such a statement could be construed to be chronologically consistent documentation, and

an admission that no earlier conception or reduc- thus simply perceive such a requirement as an-
tion to practice occurred (when in fact it has), sig- other annoying administrative burden. Indeed,
nificantly damaging the institution’s position in a in some laboratories, directors of research might
priority contest. Instead, the IDF should simply push staff to maximize time at the bench and
ask that the location of records documenting con- minimize time at the desk; record keeping will
ception and reduction to practice be identified. inevitably suffer as a result of such prioritization
In addition to documenting the dates of of time. And in some cases, graduate students
conception and reduction to practice, the PTO who come and go, and who work on research
interference proceeding may turn on the dili- projects, believe, or perhaps are told, that labora-
gence shown by the contending inventors. In tory notebooks belong solely to the students. If
this situation, the inventors’ witnessed records important facts about the conception or reduc-
must demonstrate that the invention’s develop- tion to practice of an invention are included in
ment, including the act of filing a U.S. patent such notebooks, the documentation may not be
application, was pursued in a reasonably diligent available (that is, it has “walked away” with the
manner, pursuant to the statutory requirements student) at some future date when a patent is be-
of U.S. patent law. In an interference proceeding challenged.
ing, the party that can prove that it was the first Despite any difficulty that universities may
to conceive will likely be awarded the patent. If face with strict record-keeping protocols, the im-
one party proves it was the first to conceive of an portance of this activity cannot be overlooked.
idea, but a second party conceived of the idea and Most research universities now have active pat-
pursued reduction to practice in a more diligent enting and licensing programs, and sound re-
manner, the second party may prevail in the in- search documentation and record keeping is
terference proceeding. an essential component of successful programs.
In the private sector, most industrial research This cannot be ignored or left to chance; there
is carried out under guidelines that impose strict- is just too much at stake, and the stakes only get
ly enforced record-keeping practices as a matter higher.
of routine practice. Often, these records are made
on a daily basis, dated, witnessed, and stored. If
researchers working under such conditions are the 3. Guidelines for record keeping
inventors named on a patent application involved Good laboratory record-keeping practices should
in an interference proceeding, proving the date of not be driven merely by IP (intellectual property)
conception and reduction to practice should be concerns. Good laboratory records have long been
without ambiguities and informational gaps and, viewed as “good science,” and good laboratory
hence, relatively simple and straightforward. records can be extremely helpful if a lab should
On the other hand, research record keeping ever face charges (however specious) of scientific
in universities can be lax to the point of slop- misconduct. Essentially, the same record-keeping
piness, and, in such cases, much more challeng- practices that are considered good science and ap-
ing to organize and manage. Laboratory research propriate for responding to scientific misconduct
tends to be conducted at any and all hours of the charges are also good practices for purposes of
day, and researchers often find it difficult to find managing, securing and protecting IP rights.1
the resources, witnesses, or other means by which The following guidelines for record keep-
documentation can be facilitated. Furthermore, ing are contained in the North Carolina State
the culture of some universities is such that prac- University manual of patent and copyright pro-
tices of this type historically have been viewed cedures and are highly recommended:
as inappropriate or unnecessary. Researchers may 1. A good practice is to use bound notebooks
neither understand, appreciate, nor wish to be for records. Entries should be made on
inconvenienced by attending to detailed and a daily basis. The use of a “diary format”

CROWELL
provides a day-to-day chronology. (This to invite individuals who can witness the
can be extremely important in document- entries immediately after they are made.
ing diligence or other important issues.) 7. In the event that notes are kept on a com-
2. Use the notebook to record a conception (a puter, be sure to make the appropriate en-
complete description of a means to accom- tries into the computer system at the end of
plish a particular purpose or result, ideally each day. Each daily entry should be print-
including all elements of a conceptualized ed out, signed, and witnessed, following the
invention), laboratory data, drawings, or same procedure as that recommended for
other observations. Each entry should be written notebook entries. The final printed,
dated, headed with a title, and continued signed, and witnessed document should be
on successive pages. glued into a notebook.
3. Entries in the notebook should be made in 8. Identify a safe method for storing and mon-
ink. Under no circumstances should entries itoring the records. Research data related to
be erased or “whited out”; a line should be pending or issued patents should not be
drawn through text or drawings that are destroyed. Therefore, a retrievable archive
being deleted, and the corrected material system needs to be organized, implemented
should be entered. Any blank spaces on and maintained. Such an investment will
pages should be drawn through. pay for itself many times over in the event
4. Any material that cannot be incorporated of a patent dispute.
into the notebook should be glued in and
referred to in a notebook entry.
5. All entries in the notebook should be signed, 4. Conclusions
dated, and witnessed (by at least two peo- In general, best practices in documenting labora-
ple) at the time they are made. Witnesses tory research serves two purposes: scientific and
should have read the entered material and legal (IP management and patenting). These pur-
be capable of understanding it but be imposes are not mutually exclusive, and indeed there
partial observers of the work and have no is considerable overlap, as the means to the two
direct stake in the outcome. The witnesses objectives are entirely consistent. Best practices in
could be, for example, colleagues from an- documentation will provide the researcher with
other laboratory in the same department. a clear record for assembling publications, grant
An extremely important or unusual discov- proposals and, in the event of fraud or miscon-
ery or observation (a potentially patentable duct allegations, a clear record for establishing the
invention) may warrant having more than facts. Similarly, a best practices approach to docu-
two witnesses. Multiple inventors may not menting research will greatly facilitate managing
serve as witnesses for each other. If impor- issues related to IP management and patenting.
tant records lack the requisite witness sig- This could include, but is not limited to, patent
natures, the records should be signed as application drafting and prosecution, patent chal-
soon as possible after the records are cre- lenges by third parties, and evidence production
ated. Even a witness signature made days for patent interference proceedings. Each of these
or weeks after the record was created is evi- will require documentation of research and devel-
dence that the document existed prior to opment activities. Documentation policy must,
the date on which signature was made. therefore, be carefully and thoughtfully institu-
6. Laboratory heads should set aside a time for tionalized, as part of every university’s required
all in their laboratory staff to stop working protocols. Such procedures and requirements
at the bench (or, in agricultural research, should be an integral part of overall IP manage-
the greenhouse or field) and record entries ment and training that the technology transfer
into their notebooks. This time should be office provides to the university administration,
carefully and consistently observed. Be sure staff, and scientists. A lot of value might be at

CHAPTER 8.3
stake. The investment in building capacity and

appropriate IP management systems will pay off
in the long term. n
W. Mark Crowell, Associate Vice Chancellor for Economic

Development and Technology Transfer, University of
North Carolina at Chapel Hill, Box 4000, 312 South
Building, Chapel Hill, NC, 27599-4000, U.S.A.
Mark_Crowell@unc.edu
1 See, also in this Handbook, chapter 8.2 by JA Thomp-

son.

CHAPTER 8.4
Invention Disclosures and the Role of Inventors

DAVID R. MCGEE, Executive Director, Technology & Industry Alliances, University of California, Davis, U.S.A.
ABSTRACT made and ending with the use of disclosures to

This chapter is intended to assist intellectual property pro- create defensible patents.
fessionals, in working with inventors, to develop a high-
quality invention disclosure and, eventually, to prosecute
a patent application. Major topics include the importance
of data records, utility and reduction to practice of inven- 2. Conception of an invention
tions, understanding prior art (including the inventors’ The term invention is occasionally confused with
own art), and determination of inventorship. the term idea. According to the U.S. Code of
Federal Regulations, (37 C.F.R. §501.3(d)), an
invention is defined as “any art, machine, manu-
1. Introduction facture, design or composition of matter, or any new
Invention disclosure is more than the simple and useful improvement thereof, or any variety of
completion of an institutional or corporate plant, which is or may be patentable under the pat-
form to satisfy some policy requirement. It ent laws.” An idea, by definition, is limited to a
includes a complete description of something thought, existing only in the mind; an idea may
novel and nonobvious given in such a manner or may not be patentable as a concept. Only in-
that anyone of ordinary skill in the particular ventions can be patented, not ideas.
art could reproduce the invention. The disclo- In the legal sense, the conception of an in-
sure represents the first official recording of the vention occurs when someone has mentally de-
invention and, if done properly, can establish veloped an idea that is novel, nonobvious, and
an irrefutable date and scope of the invention. exists in enough enabling detail that someone
Often the disclosure document has been used of ordinary skill in the relevant area of science
to defeat challenges to dates of invention, in- could practice the invention. Conception does
ventorship, invention scope, and prior art. not necessarily require actual reduction to prac-
Conversely, improperly written invention dis- tice of the invention, but it does require that the
closures many times have resulted in disastrous invention be thought through completely. The
losses of patent rights. degree to which the conceptualization is incom-
This chapter explains the nuts and bolts of plete should not be such that it is renders the
invention disclosures (as well as some of the nu- invention inoperable.
ances), beginning with the responsibility of sci- Commonly, a complete conception occurs
entists to disclose inventions even before they are over a lengthy period of time and may involve
McGee DR. 2007. Invention Disclosures and the Role of Inventors. In Intellectual Property Management in Health and Ag-
© 2007. DR McGee. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

MCGEE
other contributors. The date on which such con- person as an inventor who did not contribute to a
ception is deemed to be complete, that is, it satis- claim is patent fraud and would render the patent
fies all aspects required of an invention (novelty, invalid if discovered. Intentionally excluding an in-
nonobviousness, and enablement), is considered ventor could likewise render a patent invalid.
to be the date of invention. The date of inven- It is the responsibility of potential inven-
tion may be, but is not required to be, either the tors to make a good faith effort to determine
actual date of reduction to practice of the inven- who among themselves are actual inventors.
tion or the filing date of the patent application Ultimately, inventorship must be examined by
(constructive reduction to practice). the patent attorney of record to ensure that the
inventors included on the patent filed are, in
fact, inventors.
3. Inventorship
Those individuals who contribute to an enabling
concept are known as the inventors. Inventorship 4. Preparing the invention
is, therefore, restricted to the intellectual concept. disclosure
It does not extend to those persons who may re-
duce the invention to practice but did not con- 4.1 Education of inventors before they disclose
tribute to the invention’s conception. The IP professional should never assume that the
Inventorship relies on specific claims ul- scientists in his or her organization are aware of
timately approved by the patent office for the when, how, to whom, and why to properly make
granted or issued patent. Since patent prosecu- an invention disclosure. As with many other busi-
tion most commonly involves changes to the ness practices, acceptance of the patenting process
claims filed with the application, the inventors begins at the top of the organization. If top man-
may change. agement does not endorse patenting, then no one
One of the most frequently misunderstood else will either. An effective education program,
and contentious issues between scientists and the concerning the policies, practices, and practical
intellectual property (IP) professional is the con- understanding of the patent process, is a must for
fusion between inventorship and authorship. As staff of the organization. The program must be
described above, inventorship is a legal determi- continuous, since new staff will not be aware of
nation based on the contribution to the enabling the process, and existing staff will need to review
concept embodied in at least one allowed claim. the process on a frequent basis. The best time to
An individual who has spent extensive time and educate new employees is during their orientation
effort in the laboratory reducing an invention to programs. Instruction should be supplemented at
practice is not an inventor in any sense unless he regular periods during the year to all potential in-
or she has also contributed to at least one claim. ventors. Only the technology transfer office (TTO)
Teams of scientists conduct most research. is really qualified to educate these scientists.
As such, research team members are constantly
discussing technical aspects of the research; over 4.2 Duty to disclose
a period of time, an idea may emerge that has It is essential that employees be aware of and fol-
been jointly developed. From the idea, an inven- low the employer’s policy for duty to disclose an
tion may be described. Frequently, conflicts arise invention. Many organizations have a policy that
when an author is not included as an inventor on requires all employees to disclose to the employer
a patent application and believes that the work all inventions made during the course of employ-
performed in actual reduction to practice should ment. Depending on the specific policy, the duty
mean that he or she be designated as an inventor. to disclose may extend beyond employment to
Unintentionally including a noninventor or ex- include inventions made outside of employment,
cluding an inventor can usually be corrected in the such as inventions made while consulting for an-
patent office. However, intentionally including a other company or at home.

CHAPTER 8.4
4.3 When the inventor calls 4.4 Getting the big picture
For the TTO to succeed, inventors must be con- When an invention is disclosed, the IP profes-
fident that their inventions are going to receive sional should clearly understand not only the
a thorough evaluation of their patentability and technical details of the invention but also how
commercialization potential. Nothing will alien- the new invention may relate to other inventions
ate an entire cadre of inventors more quickly and as a portfolio. Additionally, the inventor may be
completely than if the TTO treats inventions prolific and so it is important to know if there are
superficially or capriciously. The TTO must give additional invention disclosures anticipated by
careful attention to every invention disclosure, re- the inventor and, if so, whether those should be
gardless of its content. combined with the invention disclosure at hand.
This knowledge could greatly influence whether
4.3.1 Understanding your institution’s IP and/or when to file a patent application and
policies and your country’s IP laws what the scope of the patent application may be
The IP official must be the expert on his or her in light of other existing or expected invention
company and institutional IP policies and prac- disclosure forms. The inventor must provide the
tices. These policies and practices must be care- IP professional with his or her plans to continue
fully and patiently explained to each inventor. conducting research related to the invention. This
Likewise, all laws pertinent to any aspect of IP is especially important if the invention has not
must be understood by the TTO and communi- been reduced to practice.
cated whenever needed to the inventor. If the invention disclosed is incomplete be-
cause the inventor has not completed an enabling
4.3.2 Understanding the inventor’s concept, or if reduction to practice is necessary
timing of public disclosures to determine enablement, then the inventor
One of the most common complications accom- must be clearly told what deficiency is present.
panying an invention disclosure is a publication or The invention disclosure form will be held by the
a pending publication. If publication is imminent, IP professional with no action taken until the in-
then a provisional patent application may be the ventor provides a complete disclosure. Periodic
only recourse to avoiding loss of patent rights. In follow-up with the inventor is advisable to en-
the United States, a grant application is not consid- sure that he or she remembers to provide the in-
ered a publication until the Notice of Grant Award formation necessary to complete the invention
is sent. Therefore, it is essential to completely un- disclosure form.
derstand the nature and content of the intended
publication in order to determine whether or not 4.5 Inventorship versus ownership
it will actually contain an enabling disclosure of The duty to disclose should be not be confused
the invention. It also is necessary to know when with the assignment of an invention. Disclosure
the invention will be disclosed. Abstracts for sci- of an invention means merely that the invention
entific meetings are now commonly e-mailed to has been described in complete (that is, enabling)
participants months before the meeting date. detail. Assignment means that ownership of, that
Depending on the specific invention, an abstract is, legal title to, the invention has been given by
may easily be an enabling disclosure, so it is im- the inventor to another party (for example, the
portant to question each inventor to determine if employer). Employers commonly combine the
and when a publication and/or abstract may oc- duty to disclose and the assignment of inventions
cur. Many times a disclosure (such as a speech) on a single form to be signed by the new employ-
does not provide enough detail to constitute an ee upon reporting to work. But this is not always
enabling disclosure. The TTO should obtain cop- done, so the actual language must be carefully re-
ies of all speeches, technical presentations, pend- viewed. The combination of the duty to disclose
ing grant applications, and so forth, and maintain and the assignment of invention into a single,
these with the patent file wrapper. signed document is convenient in case there are

MCGEE
ever any questions later during a patent prosecu- subsequent patent applications filed by other par-
tion of the ownership of an invention. ties that could prohibit the first party from being
For certain government organizations, the able to practice something it invented. This pre-
duty to disclose may go beyond mere policy com- caution may be especially helpful in the United
pliance and have additional legal consequences if States, where first to invent takes precedence over
timely and complete disclosure is not made. first to file. Most importantly, without a timely
disclosure, no decision can be made about wheth-
4.6 When the invention disclosed is co-owned er or not to file a patent application to preserve IP
Collaborative research projects between separate rights. Occasionally, a delay in disclosure may be
entities are common. Usually these projects are appropriate, for example, if the inventor is con-
described in a contract, grant, or interinstitution- tinuing to conduct experiments that may provide
al agreement. These documents will usually con- better enablement or broader utility, which would
tain one or more sections that address co-inven- provide broader claims should a patent be sought.
torship and co-ownership of IP developed during However, the decision to delay filing an invention
the term of the agreement. Nothing should be disclosure should be made in consultation with
assumed about the ownership of IP before thor- appropriate IP managers.
ough review of the agreement has been complet- If an inventor is unable or resistant to com-
ed. Once ownership has been determined, the pleting an invention disclosure form (See Box 1 at
other party may need to be notified upon receipt end of chapter for a sample invention disclosure
of an invention disclosure form and prior to filing form.), then an interview with an IP professional/
a patent application. Frequently, the other party TTO officer of the same institution for the pur-
will have an opportunity to participate in some pose of disclosure may be required. Completing
manner during the IP process. an invention disclosure without the inventor’s
If an invention has been made by co-inven- input is not recommended, however, since the
tors and at least one of the co-inventors is from inventor is, naturally, more familiar with the in-
a second entity, and if there is no contractual vention than anyone else. If a patent application
agreement between the entities, then a decision is prepared from an invention disclosure that has
has to be made as to whether to inform the sec- been obtained from an interview, the patent ap-
ond entity of the invention disclosure form. plication may take longer and cost more to pre-
Prior to disclosure, it would be advisable for the pare. Ultimately, each inventor must critically
two institutions to sign a two-way confidentiality review and affirm that the invention has been
agreement to avoid public disclosure and subse- correctly and completely described in the patent
quent loss of rights. Additionally, in first-to- file application. In the United States, each inventor
countries, the first party should file a patent ap- must sign a declaration affirming that the inven-
plication prior to notifying the second party. tion has been correctly and completely described,
Subsequent agreements, such as an interinsti- in order to meet the filing requirements of the
tutional agreement, can be made to define each U.S. Patent Office.
party’s rights and determine how patent prosecu- In some countries, patent offices do not re-
tion costs will be shared. quire filing an invention disclosure in order to
file a patent application. Under certain circum-
stances, however, other government agencies may
5. When to disclose an invention require that invention disclosures be filed.
It is good practice to disclose an invention as soon
as it is an invention. Filing an invention disclosure 5.1 Where to submit an invention disclosure
declares the invention, the inventors, and the date Invention disclosures may be submitted wherever
of invention. Even if a patent application is never the employer’s policy dictates, for example, with
filed, a properly completed invention disclosure a company’s own IP department or outside patent
may be able to provide some protection against counsel or with an academic institution’s TTO.

CHAPTER 8.4
In the United States, patent law provides 6. Use of laboratory notebooks as

for a disclosure document program that allows invention disclosures
an inventor to submit an invention disclosure to Laboratory notebooks are frequently relied upon
the U.S. Patent and Trademark Office (PTO). to ascertain the actual date of invention and to
The program is described in detail in the Code identify the inventor. Unfortunately, most lab
of Federal Regulations (37 C.F.R. §1.2.1(c)). It is notebooks are incomplete, illegible, and not wit-
especially beneficial to individual inventors who nessed, or witnessed erratically—if they are kept
are not affiliated with an employer, because the at all. However, if kept appropriately, a labora-
program provides evidence of disclosure that may tory notebook can easily suffice as an invention
avoid the necessity of disclosing, to witnesses, in- disclosure. The information must at least include
formation the inventor wishes to keep confiden- a detailed description of the invention and signed
tial. The U.S. PTO will keep the invention dis- and dated pages by the inventor and appropriate
closure for two years and then discard it unless it witness(es). The actual discovery (that is, the in-
is referred to in a pending patent application. The vention) must be clearly explained.
disclosure document program is not a substitute IP professionals should educate scientists
for filing a patent application and provides no fil- about the need for complete disclosure if the note-
ing date for a patent application. book is to be useful at all. The scientists should
also be trained to avoid writing off-hand remarks
5.2 Confidentiality of an invention disclosure in the notebook (for example, “this was an obvi-
To avoid the potential undesired publication ous experimental approach” or “I used an obvious
of an invention prior to filing a patent applica- extension of Dr. X to conduct this research” or
tion, all invention disclosures should be submit- “there is a paper that is prior art to my research”).
ted confidentially. When disclosure is made by Such notebook disclosures would be discoverable
an employee to a fellow employee, it should be during litigation and could result in loss of patent
clearly understood that the disclosure is to be rights. As always, scientists should be counseled
kept confidential. As such, the disclosure would to completely disclose the invention and to pro-
not be considered a publication in most cases. In vide only absolutely truthful disclosure.
very large institutions, the presumption of con-
fidentiality may not exist. Consequently, if chal-
lenged by an outside party, such disclosure may 7. Assignment form
be deemed by the patent to have not been a confi- An assignment is the transference of legal title to
dential disclosure but a publication. Even within an invention. Assignment of all inventions may
an organization, therefore, it is always important be made in advance of any discovery by execut-
to verify confidentiality prior to disclosure and to ing a general assignment agreement. During pat-
execute a confidentiality agreement, if needed. ent filing, assignment of an invention may be re-
quired by the patent office. The employer should
5.3 Content of an invention disclosure form obtain a second assignment of the specific inven-
There is no set format for an invention disclosure tion being filed as a patent application because
form; however, there are certain types of required it provides the patent office with a simple, clear
information common to all invention disclosure assignment record. However, if an inventor can-
forms. Examples of the forms can be easily ob- not be reached or is unwilling to provide a signed
tained from the Internet by selecting any search assignment, then the original general assignment
engine and entering invention disclosure in the agreement can serve as evidence of assignment of
search box. Numerous forms from institutions all that invention.
over the world are available.1 All the forms have Under U.S. patent law, all assignments for
certain things in common: most request similar patent applications and issued patents must be
kinds of information. Box 2 at end of chapter lists recorded. This requirement may vary in other
items that appear commonly on the forms. countries.

MCGEE
7.1 What to do in the absence of a previous It is advisable not to ask anyone to sign an
assignment when there is a duty to disclose agreement upon which the signature date is dif-
Occasionally during the preparation of a pat- ferent than the actual date of signing—it may un-
ent application, the IP professional discovers dercut the validity of the document. The agree-
that there is no record of assignment. A signed ment can, however, specify an effective date in the
acknowledgement of an employee’s duty to as- text that predates the signature, providing that no
sign may also be lacking. These are serious is- intervening and conflicting agreements have been
sues, because ownership of a patent is joint and executed.
severable; any owner can act independently of a
co-owner. In other words, co-owners can sepa-
rately practice an invention or license it without 8. Diligence when filing a patent
a co-owner’s permission. Therefore, obtaining after receiving the invention
clear assignment of an invention is extremely disclosure form
important. Because the U.S. PTO has a first-to-invent rule,
U.S. patent practice includes an obligation of
7.2 Obtaining signatures for duty to assign diligence to proceed with the filing of a patent
and assignment documents application once an invention is completed. A fil-
As soon as it is discovered that an inventor has ing delay can, under certain circumstances, result
not fulfilled the duty to assign or has not executed in a loss of patent rights. This most commonly
an assignment document, the TTO officer should occurs when a second, independent party invents
promptly review the organization’s policies to see and files a patent application after the first party’s
if they are clear. In addition, he or she should look date of invention, but before the first party’s filing
for other records that may include the employ- date. If a lack of diligence by the first party can
ee’s signed acknowledgment of compliance with be shown, the second party may prevail and win
corporate or institutional policies. For example, the patent filing. Obviously, diligence in filing is
employee policy handbooks frequently contain rendered a moot issue in first-to-file countries.
sections relating to IP. It is common practice for
human resources departments to obtain from
employees written acknowledgement that they 9. Updating a submitted invention
have read, understand, and will comply with all disclosure form and combining
policies. This written acknowledgement may be disclosure forms
useful if an inventor does not wish to provide a Frequently, when an invention disclosure form
written assignment for an invention. is submitted, it represents ongoing research. As
Next, the IP professional should contact such, it may not meet the standards of patent-
the inventor, in person if possible, and explain ability or commercialization potential to warrant
why an assignment is necessary. If a duty-to-dis- a patent filing. Regardless, an IP professional
close agreement has not been signed, then the should receive the invention disclosure form and
IP professional should explain to the employer assess whether or not to file a patent application.
why signing a duty-to-disclose agreement is Alternatively, he or she could hold the invention
important. If the institution has a policy that disclosure form in anticipation of receiving new
provides inventors with compensation, such as data or matter from the inventor. The inventor
royalties, then the IP professional should go over may then file a subsequent invention disclosure
those policies as well. He or she should have the form as an addendum to the first form. Invention
agreements ready to be signed in duplicate and disclosure forms on related matter, if combined,
provide the inventor with a copy. (The original may greatly strengthen a patent application with
should be kept on file.) Explain that additional broader claims.
assignments for any future inventions will be If the second invention disclosure form con-
needed and why. tains the best method of practicing the invention

CHAPTER 8.4
or new matter, then the date of invention may be understood. During these discussions, the patent
that of the second invention disclosure form and attorney will develop the broadest claims pos-
not the first. sible without becoming an inventor.
10. Patent preparation from the 11. Maintaining invention

invention disclosure form disclosure forms
A properly completed invention disclosure form Each TTO should establish a database of inven-
will greatly enhance the ability and speed with tion disclosures and a secure-storage facility where
which the patent attorney is able prepare the pat- original copies of invention disclosure forms are
ent draft. Expediting this process can dramatical- filed. A fireproof file cabinet is a good example
ly lower attorney fees. To aid in the process, the of such a facility. Invention disclosure forms
attorney should receive a complete copy of the should be retained for the life of any related pat-
invention disclosure form, copies of all referenc- ent. Duplicate copies should be stored off-site.
es, clear instructions about the most important An outside patent firm will frequently provide
aspects of the invention that need to be claimed this service. The disclosure document program at
in the patent application, and an explanation the U.S. PTO will maintain an invention disclo-
of why these aspects are important. The patent sure form only for two years, unless the invention
attorney will be able to craft a patent applica- disclosure form is referenced in a pending patent
tion properly only if the client clearly describes application.
its strategic objectives within the context of the
invention.
Most inventors are unfamiliar with the pat- 12. Inventor’s Certificate
ent prosecution process, and so the IP profession- An inventor’s certificate may be filed in lieu of
al should clearly describe the process to the inven- a patent application. The certificate will contain
tor and explain how he or she will be expected to a detailed description of the invention and most
assist in it. The inventor should be introduced to of the components of a patent application. An
the patent attorney, and the employer should take inventor’s certificate is, therefore, similar to an
care to ensure that a good, productive working invention disclosure form. However, unlike an
relationship is established between the inventor invention disclosure form, the inventor’s certifi-
and the patent attorney. The inventor is the ex- cate is part of a legal process (established in ac-
pert and will need to provide the patent attorney cordance with each country’s respective patent
with substantial assistance in drafting the inven- laws and procedures) to publicly recognize the
tion background, the technical description of the inventor(s) as an inventor for a defined invention
invention, and access to any known references. as of a specified date.
After filing, the inventor will likely assist the pat- An inventor’s certificate is not a patent and
ent attorney in providing technical rebuttal for does not provide any of the IP protection rights
issues raised by the patent office. Depending on provided by patenting. Instead, many countries
the particular patent application, the inventor’s commonly use certificates to provide a monetary
involvement can occasionally require a substan- reward for an invention for which no patent is
tial amount of time. intended.
Patent counsel will prepare and file the pat-
ent application based on the invention disclosure
form. It is the responsibility of the patent coun- 13. Marketing intellectual property
sel to prepare a complete and enabling disclosure through an invention disclosure
of the invention. Most often the patent attorney It is common practice among academic institu-
will discuss the invention at length with the in- tions to market IP using the information con-
ventor, in order to ensure that all its features are tained in invention disclosure forms. Because

MCGEE
the invention disclosure form contains enabling instead, the name of the licensing professional
detail of an invention, premature disclosure of should be used.
such information prior to filing a patent appli- Many institutions provide nonconfidential
cation could destroy patent rights. Care must be abstracts of IP on Web sites, which usually orga-
taken to provide only general, nonconfidential nize the abstracts and contact information into
information that does not include any enabling databases by technology area. These databases
information. If a patent application has been filed can be efficiently marketed by technology area
but not yet published, then the filing date or pat- through mass e-mailing or mailings to potential
ent application number should not be disclosed. licensees. ■
Unauthorized parties can use these numbers to
obtain confidential information about a pending
David R McGee, Executive Director, Technology and
application. If the patent application has been Industry Alliances, University of California, Davis, Office of
filed, then including information contained in Research, Technology Industry Alliances, 1850 Research Park
the pending application is acceptable. The dis- Drive, Davis, CA, 95616, U.S.A. drmcgee@ucdavis.edu
closed information in marketing abstracts made
available for previously unpublished patent appli-
cations should be updated after the application is 1 For example: http://research.ucdavis.edu/homecfm?id
=OVC,2,1025.
published. It is inadvisable to include inventors’
names in marketing abstracts as points of contact;

CHAPTER 8.4
Box 1: Sample invention disclosure form
[Insert Institution or Company Name Here]
CONFIDENTIAL
1. TITLE OF INVENTION:
2. OVERVIEW OR PURPOSE OF INVENTION:

3. BRIEF DESCRIPTION OF INVENTION:

Provide a brief abstract of the invention including novel embodiments of the invention.

4. DETAILED DESCRIPTION OF INVENTION:

Provide in plain language a numbered list of what attribute(s) you, the inventor, believe is/are
useful about the invention.
Provide a complete, enabling description of the invention. Include all descriptions, steps,
processes, and other data and information necessary, so that someone of ordinary skill in the
art could reproduce and practice this invention. If the invention is a composition of matter,
provide a complete formulary and any other information necessary to completely and accurately
describe the composition. If the invention requires software that has been developed as part
of the invention, provide a detailed program flow chart and copies of the software. Provide
detailed drawings and a description for any apparatus.
Attach additional sheets if necessary.

5. BACKGROUND (Optional):
If known, describe the state of the art as set forth in patents or journal references (identify
by patent number or journal citation, if possible) and indicate how the invention overcomes
any disadvantages to or problems in this art. Attach additional sheets if necessary. Also attach
complete copies of the references.
If any inventor knows of any art relevant to the invention, please provide such information
through description below with appropriate literature references. All cited references should
be attached to the invention disclosure form.


MCGEE
Box 1 (continued)
6. CONCEPTION:
Provide the date upon which a complete, enabling concept was known by the inventor(s).
Invention conceived on:
First written record:
7. FIRST DISCLOSURE TO OTHERS:

Provide the complete names and anyone to whom you have disclosed your invention in enabling
detail and the dates on which you made the disclosures.
Date: Name:
Date: Name:
Date: Name:
Indicate how the disclosure was made (for example, orally or through a presentation, report, or
publication). Provide copies of any documents or other media you used to make the disclosure.

8. FIRST REDUCTION TO PRACTICE:

Provide the date of first preparation or isolation of compound molecule or microorganism; date
of first use of process, or date of construction of apparatus.
Date:
9. FIRST SALE OR PUBLIC USE OF INVENTION:

Describe and provide the date of any sale or public use made, or planned to be made, of your
invention in the United States or in any foreign countries. Provide details of any sale, use or
disclosure. The description should tell whether or not the use was for testing purposes, and
if there was an effort or intention to maintain secrecy around the invention after the use
commenced.

10. PROGRAM OR CONTRACT:

Was the invention made during the course of your work on a specific program, grant(s) or
contract?
Yes No
If no, provide an explanation of how and where the invention was made.
If yes, provide below the name and applicable number of the funding agency.
Fund source Grant or contract number


CHAPTER 8.4
Box 1 (continued)
11. CONTACT INFORMATION

Provide the specified information about the inventor(s).
Signature of inventor: Date:
Printed inventor name:
Affiliation:
Mailing address:
Citzenship:
E-mail:
Telephone:
Signature of inventor: Date:
Printed inventor name:
Affiliation:
Mailing address:
Citzenship:
E-mail:
Telephone:
12. WITNESSES:
The invention was described to me by the above inventor(s), the description was examined and
clearly understood.
Signature of witness: Date:
Printed name:
Affiliation:
Signature of witness: Date:
Printed name:
Affiliation:

MCGEE
Box 2: Information requested typically in

an invention disclosure form
Inventor
This should include the complete name of the inventor and his or her employer affiliation and
complete mailing address.
Invention
An invention should include a title of the invention, a short abstract, and a detailed description of
the invention. The advantages of the invention should be clearly described. The inventor(s) should
include as many features, embodiments, and uses of the invention as possible.
Date of invention
This is the date the invention was conceived in enabling detail. U.S. patent law (35 USC §104)
provides for the establishment of a filing date when an invention is made abroad, as long as
certain provisions are met: 1) the inventor must be domiciled in the United States or a North
American Free Trade Agreement [NAFTA] or World Trade Organization [WTO] country; 2) the
invention has been conceived in either the United States or a NAFTA or WTO country; and 3) the
inventor must be serving in a NAFTA or WTO country on behalf of one of those countries. Such a
provision may or may not be available in countries other than the United States. The provision
may have no significance at all for first-to-file countries.
Date of actual reduction to practice, if applicable (may be the date of invention)

Actual reduction to practice is not required but is helpful when preparing the patent
application.
Applicable research funding sources, if any

It is very important to know whether the invention has been funded by an entity, other than the
inventor’s employer, that may have ownership/licensing rights.
Date of public disclosure of the invention

This may be critically important if the date creates a statutory bar for patenting. If the date is in
the future, then it provides a timeframe within which a decision of whether or not to file a patent
application has to be made. Copies of any publications (for example, manuscripts, handouts,
posters, electronic presentations, and slides) should accompany the invention disclosure form.
In addition, any relevant supportive scientific references should be copied in full and attached to
the invention disclosure form.
References
The inventor should include complete references and photocopies of any other related science he
or she is aware of that could potentially be cited by the patent examiner as novelty-destroying or
as rendering the invention obvious. There is no duty for the inventor or the attorney of record to
conduct a literature search to determine whether there is any prior art to the present invention.
But if the inventor or the assigned institution is made aware of any such art, then it must be
disclosed to the patent office. There is no duty to provide the patent office with an opinion of the
relatedness of any reference cited to the patent office. The examiner is responsible for making
such a determination.
The inventors should be instructed not to provide written admission, directly or indirectly,
that any reference is prior art. In some countries such a statement is viewed as an irrevocable
admission that the reference is true prior art that renders the present invention as non-novel
and/or obvious.

CHAPTER 8.4
Box 2 (continued)
List of potential competitors/licensees

Since inventors are knowledgeable in the area of science related to the invention, they are usually
also knowledgeable about who is working in that area. This is valuable information, since it
provides direction in finding potential competitors, potential licensees, and potential areas of prior
art that can be reviewed before filing a patent application to help determine patentability and
claim drafting. Also, one can build a better patent portfolio by reviewing patents and file wrappers
filed by another institution or company.
Witnesses
Usually, at least two witnesses are required on an invention disclosure form. A witness should
be scientifically competent to understand the details of the invention and not directly affiliated
with the research being disclosed (for example, an inventor on the invention disclosure form or a
principle investigator of the research).
Signatures of all inventors

It is critical that at least one of the inventors has signed the invention disclosure form, otherwise,
the form cannot be considered to have been perfected. The TTO at the institution should try to
obtain original signatures from each of the inventors as soon as possible.
Receipt of electronically filed invention disclosure forms

Faxed signatures are generally accepted worldwide as sufficient evidence of an executed document.
Electronic signatures do not yet have such wide acceptance. Consequently, it is recommended that
invention disclosure forms not be sent electronically without the subsequent conveyance of an
original, signed copy.

9
SECTION
Evaluation and Valuation

of Technologies
CHAPTER 9.1
Evaluating Inventions from Research Institutions

ABSTRACT and time to develop them into marketable prod-

The patenting strategies of research institutions are based ucts. Such investments will usually be very risky;
on three key decisions. The first involves whether or not
neither the practicality of the technology nor its
to file a patent. This decision must be based on sound
information about the market, the uniqueness and use- ultimate market acceptance will be known with
fulness of the invention and/or technology, the likelihood any certainty.
of being able to obtain patent protection, factors related It is assumed that the research institution’s
to the inventor, and the potentially paradoxical impact interest is primarily in the social functions of
of patenting on the institution’s social and humanitarian
responsibilities. The second decision involves whether to technology transfer: bringing new medicines
market the invention to established companies or to de- and other useful products into public use, en-
velop a spinout business. The third involves how much to hancing the competitiveness of industry by
charge for a license. Related to all of these decisions is the encouraging the use of new technology, and
key question of whether patenting is the most effective
enhancing economic development and job cre-
route to global access. Negotiating licensing agreements
that are fair to the research institution, the private com- ation. Revenue from royalties is assumed to be
pany, and developing countries can be challenging be- a secondary consideration. (Even in the United
cause research institutions may have difficulty determin- States, the Bayh-Dole Act, which gave U.S. re-
ing fair market values. In addition to outlining a process search institutions the right to own and license
for obtaining these values, this chapter offers some rough
numbers for guidance. In general, the author concludes out inventions from government-funded re-
that it is far better to conclude a deal than to wait for search, was enacted in the cause of economic
the best agreement while fighting interminably for perfect development—not as a mechanism for fund-
financial terms. ing the institutions. Twenty-five years later, the
revenue produced, though useful to the institu-
tions, makes up on average only a small per-
1. Introduction centage of their research budgets.)
This chapter discusses how to evaluate new in-
ventions arising from research at universities and
other research institutions. It considers early, 2. The evaluation process
“university-stage inventions” arising out of ba- Technology transfer offices evaluate early-stage
sic research, rather than development projects. inventions in order to make three decisions:
Most of these university-stage inventions will 1. whether or not to file a patent on the
require substantial investments in both money invention
Nelsen L. 2007. Evaluating Inventions from Research Institutions. In Intellectual Property Management in Health and Ag-
© 2007. L Nelsen. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

NELSEN
2. whether to market the invention to existing addition, there may not be enough time for such
companies or try to do a spinout a study before publication (particularly in aca-
3. what to charge for the invention demic institutions with a policy against delaying
publication for patenting or other commercial
Fortunately, these three decisions do not usu- reasons). The requirement for confidentiality be-
ally have to be made at the same time. And, of fore patenting also limits the depth of any market
course, if the answer to the first question is no, research study.
then the other two questions are moot. Finally, it must be realized that the more in-
novative the invention, the harder it is to get good
2.1 Decision 1: Whether or not to file a patent market feedback. Potential users of new technol-
It is assumed that money for filing patents is avail- ogy cannot easily judge the value of something
able but limited. The decision to file a patent they have never thought about before. Business
should take into account answers to the following histories are replete with gross underestimations
questions: of the potential of innovative products (for exam-
1. Is this invention likely to get awarded a pat- ple, photocopy machines and home computers).
ent with broad enough claims to protect a Innovative inventions from basic research in uni-
product or a product line—not just a mi- versities should expect to suffer similar challenges.
nor variation of an existing technology? So what is a technology licensing office to do?
2. If patented, will this invention likely attract a Below are some questions to consider. They
licensee or investment for commercialization will be answered, for the most part, through dis-
that will produce enough of a return to the cussions with the inventors, some library work
institution to justify the patenting expense? perhaps, some discussions with potential users
3. Is patenting the right route to maximize so- or investors maybe, and the experience and judg-
cial access to the technology? ment of the technology transfer staff.
The answer to the first question on patent- 2.1.1 The market

ability is fairly easy to determine with relative It will be important to try to answer these ques-
(though not absolute) certainty. If time allows, a tions about what the market for the invention
search of the literature that includes past and pub- might be:
lished pending patents will reveal prior art. When • What need does this invention satisfy? Is
possible, this search is best done by a professional this a major, well-recognized need or a mi-
search librarian working side-by-side with one nor one?
of the inventors. If potentially important prior • How is this need being met now? Or is it
art is found, a patent agent may be called in to satisfied at all?
evaluate its significance and the likely claims to • What size is the market? Huge, large, small,
be achieved by patent filing. The prior art search miniscule? (As will be discussed later un-
may also turn up dominating patents that may der pricing, more precision here is not usu-
have to be taken into account. ally needed by the patent holder, although
The second question—will the technology much more precision will be needed by the
attract investment for commercialization if it is licensee or investor.)
patented—is far more difficult than the first to • Is the market already established, or will it
answer with any certainty. Market research stud- need developing?
ies take both time and labor. If the technology • Is this a growing field or a dying one?
transfer office receives many invention disclosures
(at the Massachusetts Institute of Technology 2.1.2 The technology
[M.I.T.] we receive about 450 disclosures per The institution will need answers to these ques-
year), there will not be enough resources to per- tions about the new and existing technology and
form a market research study on every one. In how to develop the invention:

CHAPTER 9.1
• How would this technology change how probably choose to stay at the research institu-
the market presently addresses the need? tion, although they may consult or work part
• Is the new technology not only different time for the company developing the invention.
from what is already available, but better? On the other hand, if the inventor has no
If better, what are the major benefits it interest in seeing the technology developed and
offers? will not help to market the patent, these tasks can
• How certain is it that the technology will be hopeless.
work? Can this be demonstrated to a po- The following questions should be considered
tential licensee or investor? to decide how effective the inventor might be in
• How long and how much money will it finding a licensee or investor for the technology.
take to develop the invention into a com- As we shall see, not all of the findings should be
mercial product? documented!
• Is the invention in the inventor’s major field
of research? If not, is he or she at all familiar
2.1.3 Likely degree of patent protection with the market’s needs for the invention?
Answering the following questions will help deci- • Does the inventor have business connec-
sion makers determine whether obtaining a pat- tions in the field of the invention?
ent is worth the expense: • Is the inventor famous? (It’s a lot easier to
• Did the prior art search (or what is known market a patent with a Nobel Laureate’s
about the state of the science) indicate that name!)
broad claims are likely? • Will the inventor be cooperative in meet-
• Is the invention at such an early stage in ing with potential licensees or investors to
product development that the patent will share his or her vision of the invention’s po-
expire before products reach the market? tential and the means of developing it?
(Sadly, many have seen their patents expire • Does the inventor have realistic expecta-
just as the market began rapid growth.) tions about the magnitude and uncertainty
• Is the field moving so quickly that patents of the development task and the potential
are irrelevant? By the time the patent is- financial returns?
sues, will the invention be obsolete? (This is • Can relationships with investors or compa-
not uncommon for software patents in the nies proceed reasonably or is the inventor
United States.) too naïve or overly paranoid?
• Can practice under the patent be detect-
ed, thus allowing for patent enforcement 2.1.5 Social responsibility
against infringers? (It may be impractical In terms of public policy, patents are two-edged
to enforce the patent if the manufacturing swords. They can protect investments very effec-
method is simple and requires no special tively. Moreover, the licensing of university pat-
materials, and the invention is not evident ents has been shown to stimulate much earlier
in the final product.) investment than the placement of inventions in
the public domain. They can also bring much-
2.1.4 The inventor needed revenue to research institutions (although
Inventor participation in the development of the revenue potential of university-stage inven-
university-stage technology is usually critical. tions has been much exaggerated). On the other
The inventor is most familiar with the technol- hand, patents can limit investment in new tech-
ogy and is most likely to have a vision for its use. nologies when the patent holder (or exclusive
Some inventors (particularly students or research licensee) does not invest in all of the fields that
associates) may wish to leave the research institu- can use the patented technology. Patents can also
tion and join (or help form) a company. Most sometimes be used to maintain high prices on
professors or senior researchers, however, will necessary products by excluding competition.

NELSEN
As a side note, patents are particularly para- manufacture and distribution in the public
doxical in the development and distribution of sector of developing countries?
drugs and vaccines for diseases in developing • If the drug or vaccine is expected to be used
countries.1 Indeed, if effective drugs and vac- only in developing countries, with little
cines for all diseases in developing countries ex- or no market in developed countries, will
isted and could be manufactured at low cost, a market aggregation through patenting and
social philanthropist might wish that no patents limited licenses create a sufficiently profit-
existed, since in theory the absence of patents able market that will encourage develop-
would allow competition, leading to lower prices ment and clinical testing?
and wider availability. But in the absence of effec- • Should the patent holder carve out free use
tive drugs and vaccines, patents may be necessary of a patented research tool for nonprofit re-
to ensure profits for pharmaceutical companies, search institutions?
thus encouraging commercial investment in the
research, development, and clinical testing of 2.1.6 Local considerations
new drugs and vaccines. This paradox puts a spe- The decision to patent depends, to some extent,
cial burden on technology transfer professionals. on the institution and its geographic location.
When licensing health- and agriculture-related For example:
patents from nonprofit research institutions, • In under-developed regions (of both de-
technology transfer professionals must try to pat- veloped and developing countries), tech-
ent strategically to protect profits in developed nologies well-suited to local industry and
countries and encourage commercial research and the technology skills of the region, espe-
development. At the same time, they must use cially, may be promoted to create jobs and
mechanisms to assure that the poor can access the strengthen the local economy.
final products. • Public institutions, more than private in-
When deciding whether patenting a new institutions, may emphasize technologies
vention is in the public interest, the following is- that will enhance local economic develop-
sues, among many others, should be considered: ment—particularly if technology transfer
• Is this technology self-evidently useful is one of the metrics that legislators use
without substantial further investment in to decide how generously to fund a given
development? Will it be widely used even institution.
if it is not patented but put in the public • Medical institutions may decide to patent a
domain? product with a relatively small market, be-
• If the answer to the previous questions cause of the potential benefit to patients.
is yes, can the patent-holding institution
nonetheless devise a nonexclusive licens- In all, this set of challenges is formidable.
ing strategy that allows revenue to be gen- For any given invention, most of the answers
erated without impeding the use of the will be guesses at best; still, these should be edu-
technology? cated guesses, and the judgment of the technol-
• If the technology requires substantial high- ogy licensing office may be all that is available.
risk investment, and therefore patent- Both the technology licensing office and, even
ing and exclusive licensing is warranted, more importantly, the senior administration of
should patents be foregone in developing the institution must realize that a decision to
countries to encourage generic competi- file a patent is a decision to take a risk. Patents
tion? (This approach is reasonable, under are expensive, and patent budgets are limited.
some circumstances, for health and agri- Nonetheless, decision makers must realize that
cultural patents.) although it is easier to say no than yes, the sin
• Can the patent holder require sublicensing of omission—not filing a patent on a technology
of other mechanisms to promote low-cost that later becomes important—may be worse

CHAPTER 9.1
than the sin of commission, the filing of a pat- The advantages and disadvantages of licens-
ent that is never licensed. Decision makers should ing to a spinout are almost the reverse of those
consider that if the requirements for patenting are for licensing to an existing company. At the be-
too stringent, then only a few of the inventions ginning, at least, the spinout will be dedicated
submitted to the technology licensing office will to developing the invention as its first priority. It
be accepted for patenting. This will be discourag- will also usually be working very closely with one
ing to researchers and will result in fewer inven- or more of the inventors; moreover, the research
tions reported in subsequent years. institution itself knows the people involved. The
financial arrangements of the license may include
2.2 Decision # 2: Whether to market the both shares of stock and royalties, giving some-
invention to existing companies or license what more assurance that the institution will get
to a spinout at least some return from its license. And, if the
Licensing to an existing company has many ad- company’s strategy does diverge from the origi-
vantages over licensing to a spinout (a new com- nal technology (or the technology doesn’t work),
pany specifically formed to develop the licensed although there will not be any royalties on the
technology). An existing company already has its patent, the equity shares may become liquid and
infrastructure in place, including management. reward the research institution for its role in start-
The company usually has sufficient funds to de- ing the company.
velop the invention, and its financial health often Spinout companies represent a substantial
can be readily assessed. The company also usually risk of conflict of interest, which can be on the
has distribution channels, and its brand name and part of the inventor/researcher or on the part of
market access will make final distribution of the the institution itself. Frequently, both the inven-
product easier and more effective. From the re- tors and the institution will own stock in the
search institution’s point of view, the license agree- company. This can lead to an unhealthy interest
ment is much easier than spinout agreements, and in the company’s fortunes—the parties involved
potential conflicts of interest are far less likely. may encourage the institution to make conces-
This is not to say that licensing to an existing sions on future IP, to sequester data from publica-
company has no difficulties and disadvantages. tion, or to misuse institutional resources or staff
For one, it is difficult to get the attention of an time. The situation is exacerbated if the institu-
existing company (particularly a large one) with tion also invests its own funds in the company.
new but unproven inventions. Existing compa- Thus, research institutions need well-crafted and
nies have already set their research agenda and well-enforced conflict of interest policies if they
priorities, and a new technology needing devel- plan to engage in spinning out companies around
opment could cause disruption. It is also difficult their technologies.
to find within a large company a “champion” who Spinout companies are also fragile. They
will enthusiastically support a new technology must find management talent and raise invest-
that is not his or her own when it runs into the ment money. They are highly dependent on the
inevitable problems in development. talent of the management team, and a bad hire
The single biggest disadvantage of licens- can set the company back for a year or more. A
ing to an existing company is the risk that the spinout company often has difficulty in market-
company will lose interest in the technology, or, ing and developing distribution channels. In hard
perhaps worse in the case of an exclusive license, economic times, further investment may be very
that it will retain some interest in the invention difficult to attract, and the research institution’s
but that the project will be given less priority and equity shares may become valueless due to a
inadequate resources. When things do go wrong, down round of investment or a low-price sale to
it is often difficult for large companies to identify an acquiring company, made in desperation. And,
the right person to provide information or to ne- because of the complexity of equity investments,
gotiate a change in the license agreement. the technology transfer agreement is likely to be

NELSEN
considerably more difficult to negotiate than a interested in contributing to the spinout, it is un-
conventional license. likely to be successful. On the other hand, if the
The advantages and disadvantages of conven- inventor wants to form a spinout and there are
tional licenses and spinouts will be different for no clear reasons why this is impractical, then it is
different inventions. A spinout may be preferred not advisable for the technology transfer office to
when the following criteria are met: “take the baby from its parent” and give the job
• The invention is a platform technology that to an existing company. Such an act would likely
may lead to not just one but many products. cause political problems in the research institu-
It is difficult to justify the risk of a spinout tion and could also discourage future inventors
when only a single product is envisioned. from reporting their inventions.
Also, a spinout company is more likely to
try to exploit the full range of potential ap- 2.3 Decision #3: What to charge
plications of the technology, while an es- for the invention
tablished company will more likely focus Although research institutions may engage in
on a single addition to its existing product technology transfer primarily for social benefit,
line. most nonetheless expect to reap a reasonable fi-
• There is no existing industry making similar nancial return from those licenses. The company
products. It is difficult for a new company expects to make a profit from the product with the
to compete in an established market unless proviso that concessionary terms may be appro-
the technology is overwhelmingly superior. priate for critical public goods where the markets
• The market is large enough to justify the risk. are small, or the ability to pay is very limited.
This is particularly true for technology requir- Under the usual (profit sector) conditions,
ing substantial investment in development. how does a technology transfer office decide
Since the failure rate of spinouts is often what is a reasonable return from licensing a
high, investors expect a very large return on particular invention? Unfortunately, all too
their investments from the winners. A small many technology licensing offices spend far too
market, therefore, will not be sufficient. much time trying to evaluate the total value of
• Strong intellectual property (IP) protection embryonic inventions in some supposedly sci-
exists in the country in which the spinout entific manner. Calculators are kept running
exists and/or in the major markets to which on Net Present Value calculations and other
it intends to export. Patents are the prima- more abstruse formulae, when the major inputs
ry protection for small companies against to the formulae—cost of developing the tech-
larger companies that enter a market after nology, cost of manufacture, the market adop-
a technology is proven successful. Without tion cycle, and the ultimate market size—are
them, the market strength of a large compa- all unknown and cannot even be reasonably
ny that is the second to enter the market can estimated. Thus, the calculations often fulfill
overpower the innovating small company. the “garbage in/garbage out” axiom, producing
• At least one credible inventor will join the largely meaningless results.
company as founder, consultant, and/or Fortunately, technology transfer offices are
employee (the most important criterion). almost never asked (or able) to sell a technology
Without this human technology transfer, outright for a single lump sum. (Few companies
it will be almost impossible to raise invest- or investors would be willing to pay any substan-
ment money and much more difficult to tial sum up front for unproven technologies even
develop the technology. if the research institution was willing to make the
offer.) Thus, the full worth of an invention need
In reality, the choice between a convention- not be calculated at the time the technology is
al license and a spinout often is made for the transferred. License agreements and spinout agree-
technology transfer office. If the inventor is not ments share the risk of this uncertainty between

CHAPTER 9.1
the research institution and the company through status or acquisition by a larger company). In ad-
a combination of payments, some at the begin- dition, if the company has to raise more money
ning of the license and others later, depending on later from investors and its progress-to-date has
future sales or the company’s future success. not been good (or the economic climate for in-
In a conventional license to a company, the vestment is bad), the company may have to ac-
financial components of the license may include cept funding in a “down round investment” that
(among possible other terms, such as sublicens- makes the initial stock almost worthless.
ing fees): If both running royalties and stock are taken,
• a license issue fee: a negotiated amount pay- then each is usually lower than if the deal were
able at the time the license is executed “pure cash” or “pure equity.” In addition, license
• license maintenance fees: annual fees, usu- fees are usually lower than from a large compa-
ally creditable against royalties in any year ny, since a new company will typically be cash
where royalties are payable (Thus, the li- poor and will need to use its cash to develop the
cense maintenance fees function as “mini- technology.
mum royalties” in years when the product The main point for both conventional licens-
is sold.) es and spinouts is that if the technology is suc-
• patent cost reimbursement: almost always cessful the major financial returns will be from li-
required by universities cense fees and/or equity. With both conventional
• milestone fees: usually applied only when licenses and spinouts, the returns are linear. That
the technology is very risky and requires is, once a running royalty rate is set (for example,
significant investment (Meeting a mile- 4% of net sales), then the formula will make “ap-
stone—such as approval for clinical testing propriate returns” regardless of whether the sales
or regulatory approval for sale—validates of the final product are US$100,000 per year or
the technology, allowing the research in- US$100 million per year:
stitution to expect more rewards after the • If the sales are only US$100,000 per year,
relatively low initial license fees.) then the company pays the research institu-
• running royalties: usually a percentage of tion only US$4,000 per year; a small but
sales (Major value is expected here, but fair number, since the sales have not been
it is contingent on the technology’s suc- high.
cess and on the market’s acceptance of the • If the sales are US$100 million per year,
product.) then the research institution receives US$4
million per year, reflecting the large success
In a license to a spinout company2, the finan- of the product.
cial components may include:
• a license issue fee Similarly, if the research institution takes
• license maintenance fees 100,000 shares of founders stock from a total of
• patent cost reimbursement one million shares of founders stock issued, rep-
• milestone fees resenting 10% of the company, in exchange for
• running royalties the technology (the total number of shares, one
• shares of stock (in other words, equity) in million in this case, is totally arbitrary: the per-
the company centage of the total is what counts), then:
• If the share price at liquidity is US$50 per
Shares of stock may or may not be the ma- share (reflecting a successful company), then
jor source of return for the research institution. the university will receive US$5 million.
Equity in the company is certainly the riskiest • If the share price is low, reflecting a “despera-
component for the institution. In harsh economic tion acquisition” price of only US$0.50 per
climates, the company may have a difficult time share, then the research institution will get
reaching liquidity (that is, public stock trading only US$5,000. (This is not unheard of.)

NELSEN
It is worth reiterating that the research insti- • how much and how long it will take to de-
tution does not need to know the total value of velop it
the technology at the time of licensing/spinning • the cost of development in the country in
out, because the linearity of running royalties which the company resides
and/or equity determines the amount the insti- • the state of the economy—including the
tution will receive. The acquiring company (or state of the stock market and the investment
spinout), however, must have a much better es- climate in both the country of origin and, if
timate of the final value of the technology and of different, the country of the licensee
the cost of developing it, since the spinout must • the negotiating power of the research insti-
balance the cost and risk of developing the prod- tution relative to the company
uct within the market against expected sales and • the negotiating skill of the research
profit returns. Fortunately, industrial concerns institution
and financial investors have better resources for
making these estimates. The amount of equity the university gets will
depend on all of the above variables, as well as on
the extent to which the research institution “in-
3. So, what are the numbers? cubated” the technology and spinout company
This section is a risky one to both write and read. before the technology left the institution. For
People often ask for numbers, but the problem is example, the amount (or percent) of equity will
that there are no typical numbers, because there are be lower if the university merely licenses the aca-
no typical deals; each one is unique. The section demic-stage invention to a newly incorporated
does, however, attempt to provide some guidance company and higher if the university invests in
on numbers. Those presented here are all based on showing proof of practical concept or in develop-
personal experience with U.S. and U.K. institu- ing a prototype of the final product. The level of
tions and all depend on the following: equity will be highest if the university assists in
• the importance of the technology to the fi- forming the company itself, devising and writing
nal product the business plan, hiring the management team,
• the type of product helping the company raise money, and even al-
• the uniqueness of the technology and the lowing the company to be housed in the labora-
final product tories of the research institution for the compa-
• the typical profitability of that type of prod- ny’s first year or two of life.
uct and/or the industrial sector With those caveats, the typical ranges are
• whether the IP is the key IP for the com- given in Box 1 for license fees and royalties for a
pany or only a small piece of its holdings conventional license, based on U.S. experience,
• the strength and breadth of the IP with the further caveat that some deals fall out-
• whether the IP includes: side of these ranges.
-
only present patent rights
-
additional know-how for which the
research institution can command re- 4. Conclusion
turn (most know-how is in the public The task of evaluating and pricing early-stage
domain) technology is more art than science. (This is
-
a “pipeline” to future technology and true for negotiation too.) Success requires a
patents from the research institution (a general knowledge of product development,
dangerous precedent if the pipeline is manufacture, and markets, plus knowledge of
too wide) the pricing for comparable technologies (when
• whether the company will have to license the information is available), plus experience.
blocking patents from third parties Technology transfer offices primarily learn
• the state of development of the technology from their own experiences and by studying the

CHAPTER 9.1
experiences of similar institutions. If the offices Lita Nelsen, Director, M.I.T. Technology Licensing Office,
can attract and retain both talented staff and Massachusetts Institute of Technology, Five Cambridge
commitment from their administration, they
MA, 02142-1493, U.S.A. lita@mit.edu
will get better with time.
No deal will be perfect. Some will fail. It is
important to remember, however, that it is far 1 See also in this Handbook, chapter 1.4 by L Nelsen and
A Krattiger.
better to conclude a deal with a company that
2 See also in this Handbook, chapter 13.1 by A Brown and
will competently develop the product than to
J Soderstrom.
wait for the best deal or to fight interminably for
the best financial terms. Only when the technol-
ogy is developed and brought to market will the
public benefit. And that is ultimately why uni-
versities and their technology licensing offices are
in business. ■
Box 1: M.I.T.’s License Fees and Royalties

(U.S. dollars)
Conventional license (without equity)
• License Issue Fee: $10,000–$200,000

• Annual license fee (minimum royalties): $20,000–$200,000 (often beginning low and increasing
by year until the amount reaches a plateau)
• Milestones (when present): $50,000–$1,000,000 (the latter when Food and Drug Administration
approval for marketing is gained for a major drug)
• Running Royalties: 0.5%–7% (the lower range for process improvements or commodity products;
the higher range for noncommodity products and patents with product claims) This may be still
higher for software and for composition of matter patents on drugs.
Based on U.S. and U.K. experience, the following division of equity is typical for a spinout after it has
raised $1 million in investment. It assumes lower license fees and royalties:
Spinout Company Equity Shares After $1 Million of Investment
Venture investor: . ....................................................................................... 33%

Research institution’s share based on IP alone: .................................. 5%–7%
(If) Research institution does extensive incubation: ......................... 10%–15%
Research institution total: ........................................................................ 15%–22%
Employee stock option pool: . .................................................................. 20%
Founding entrepreneurial team: ............................................................ 25%–32%
If no incubation was provided by the research institution, then the entrepreneurial team’s share may
be 40%–45%.

CHAPTER 9.2
Technology Valuation: An Introduction

ROBERT H. POTTER, Senior Associate, Agriculture & Biotechnology Strategies, Inc., Canada
ABSTRACT Simply put, valuation is the process of estimating

This chapter explains the basics of the various ways of a mutually agreed upon value for a product or an
estimating value of a new technology, focusing on the
intellectual property that will enable its transfer
importance of agreeing on the value before finalizing a
technology transfer deal. Indeed, value is simply the ne- from seller to buyer. People use many techniques
gotiated amount arrived at between two parties. Although to reach this value. A perfect valuation scenario
there are many ways to place a value on a technology, would be one where both the buyer and seller
most licensing deals focus on royalty amount, since it walk away each thinking it got the best deal.
spreads the risk between the technology provider and the
developer. The percentage assigned to royalty has to be Although we may not realize it, we use valu-
negotiated. Several factors will affect royalty value: level ation techniques every day. For example, an indi-
of market demand, the improvement the technology can vidual might not hesitate to pay US$6 for a ham-
bring to the final product, whether or not other invest- burger, but would certainly not be willing to pay
ments will be needed to develop the final product, and,
US$50 for the burger. This is because we perceive
most importantly, the predicted rate of uptake in the
marketplace. Some understanding of these factors, or at the value of a burger to be within a limited range.
least the procedures used to estimate them, will enhance The benefits we derive from a burger are not ex-
one’s ability to negotiate a deal that will both help bring pected to cost more than the money we are will-
the technology to market and nurture the relationship being to spend; otherwise, one will eat elsewhere.
tween the parties, thus facilitating any future technology
transfer deals. From the buyer’s point of view, the cost, benefit,
and competing alternatives determine what we
will pay, and, therefore, determine a value. That
value will change depending on where we are,
1. Introduction how hungry we are, and how far the nearest bet-
What is value and what are valuation techniques? ter alternative is. From the seller’s point of view,
Value is what a willing buyer and a willing seller the questions are: How much can I charge for the
have agreed upon as the basis for the exchange burger? What is the demand for my burgers? How
of property or, in our case, intellectual property many different alternatives are there? How is my
(IP) rights. The critical point is finding a particu- product distinct and superior to the alternatives?
lar value that is agreeable to both the buyer and This chapter provides background knowledge
the seller. The first task, and the most difficult on technology valuation that is particularly rel-
one, is assigning realistic values (that the partners evant to IP rights in agriculture. The chapter aims
can agree on) to the various factors in the system. to heighten readers’ awareness of the important
Potter RH. 2007. Technology Valuation: An Introduction. In Intellectual Property Management in Health and Agricultural In-
novation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis,
© 2007. RH Potter. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

POTTER
issues and methods involved in technology valua- from the challenge of identifying useful, appro-
tion when negotiating the sale of rights to a new priate proxies. The more appropriate data one
technology as well as in other circumstances. uses, the more accurate the valuation will be.
Furthermore, the individual and specific val-
ue of assets will vary widely. Understanding how
2. Valuation of these specific values are statistically distributed
Intellectual Property will greatly help estimating value, since including
Much energy has been spent determining meth- a probability of receiving a specified return aids
ods for valuing intellectual property, technology, decision making. Wherever an individual compo-
or products. All available approaches require dif- nent has a range of possible values, knowing the
ferent amounts of data and serve different pur- statistical distribution over this range can make
poses (limitations are inherent regardless of the the overall valuation more accurate and also allow
approach taken). A brief overview of the most one to estimate the probability that this value will
common approaches to technology valuation is actually be achieved.
provided in this chapter. More detailed discus- The following sections identify several valua-
sions are found elsewhere in the Handbook.1 tion approaches and provide a short explanation
The valuation of intellectual property tends of each. To illustrate this, each approach is ex-
to be very complex, since the task of valuation plained with reference to a fictional, ongoing ne-
involves determining the present value against a gotiation, between the University of Costa Rica
future technology or product. Various methods and Mer Seeds SA de CV, over a commercial-use
have been developed that use greater or lesser license for a root-rot-resistant gene isolated at the
amounts of economic theory. In the end, as the university. The gene has been transferred into a
value will usually be a negotiated figure, what is line of a root crop called mer, which Mer Seeds
most important is to find a method that both par- intends to cross with their elite breeding lines.
ties agree will produce a value they can accept.
The most common method of valuation is a 2.1 Cost approach
process of discounted cash flow, which calculates The cost approach is based on covering costs of
the present value of future revenues. Present value developing a new product. Using this approach,
reflects the price a purchaser of the intellectual the University of Costa Rica would seek to charge
property is willing to pay now, in order to receive a one-time fee to cover all research and possible
anticipated cash from future sales of the product. patenting costs for isolating the gene and produc-
Different variables and factors can be built into ing the transgenic root-rot-resistant mer. While
this, such as the risk of the technology not deliv- this approach is a highly relevant one for pricing
ering promised returns, but obviously it is hard to an article produced for sale, the approach is rarely
accurately estimate the future cash flows from in- used to assign a value to a piece of intellectual
tellectual property or from an undeveloped, un- property, because the cost to develop something is
tested technology. The closer one comes to a final not usually related to the value of any intellectual
product, the more realistic will be the estimate property it contains. One version of the approach
of future cash flow. Waiting until near the end of is to calculate anticipated future costs of develop-
product development to negotiate royalties can, ing similar technologies—in effect, using the pro-
however, give rise to serious problems in reaching ceeds from the sale of this technology to pay for
a negotiated settlement. developing the next one. This approach, however,
Most valuation models rely on market data, is highly subjective and difficult to justify.
which, at best, can provide only a range of prob- Still, knowing the cost of development of
able values. For a revolutionary new product, di- a particular technology is often useful and rel-
rect market data is often unavailable and proxies evant when calculating the relative inputs of par-
(or existing products on the market) are used as ties into a joint venture. If, instead of licensing
substitutes. The complexity of valuation arises a technology, an institution enters into a joint

CHAPTER 9.2
venture to develop a product, initial investments SA de CV would use its experience with similar
into the joint venture often control the share products to estimate what farmers would pay and
assigned to each party. A university or research how quickly the market for the seed would grow
institution may not have adequate financial re- to produce the estimated income. This method
sources to develop a product from a technology, is usually applicable where there is prior experi-
but the institution could justifiably claim a share ence and sufficient information. Where products
of a joint venture based on the investment in the are being developed in-house (for example, in a
project up to that point, as well as the product’s large company that performs all or most of the
potential value. research and development), calculating the net
present value of a new product is based on this
2.2 Income approach hybrid method. Decisions on funding products
A pure income approach is carried out by discount- are made by estimating a certain minimum net
ing future anticipated revenues (cash flows) sev- present value.
eral years into the future. In our scenario, this ap-
proach is used when the University of Costa Rica 2.5 Royalty rate method
asks Mer Seeds SA de CV how much it would Because royalties give the inventor a return on
be willing to pay now for a certain return in the sales of the final product, royalties are often used
future (for example, US$10 million in 10 years to share the risk between the inventor and the de-
time). The big drawback to this approach is that veloper. Parties often use a royalty rate that has
there may be no sales, market, or cost data from been agreed upon in the past for similar technolo-
which to predict future revenues. Furthermore, gies; that rate is then applied to anticipated rev-
the method relies heavily on allocation of risk: de- enue streams. Because of the risk-sharing nature
termining what the chances are of a disappointing of this method (if the product does not become a
return (or even of no return at all) and who should success, the royalty amount is low), this is a com-
take this risk, the university or the company? Risk mon approach to licensing technology. But the ap-
estimates are crucial for determining whether to proach does not always result in a valuation of the
invest in a new technology, but they are too often technology itself. Indeed, royalty rates are often
based on little more than gut feeling. determined arbitrarily, with little or no relation to
the added value the technology may give to the
2.3 Market approach product. For example, in our scenario, if an ini-
The market approach requires finding a similar or tial collaborative research agreement between the
comparable technology to the one being evaluat- University of Costa Rica and Mer Seeds limits the
ed. In our scenario, the University of Costa Rica university to a maximum royalty of 5% of gross
would look for other root-rot-resistant mer plants revenues, then, if the technology increases the
on the market and determine how much farmers value of Mer seed products by more than that, the
are using and paying for the seed. So, the valua- university loses. Another problem with arbitrarily
tion would rely on finding sufficient data about applying royalty rates, in this case, is that if Mer
similar transactions to arrive at an accurate esti- Seeds were to combine several traits in one variety,
mate of the value of the new product. The inher- then the company might be unable to afford to
ent weakness of this approach is the difficulty of pay 5% royalties to each technology provider if
obtaining data for a truly novel product. the combined added value was insufficient.
2.4 Hybrid approaches

The more common approach is to use a hybrid 3. The Production System
of income and market methods of valuation. To accurately value a new technology, the existing
This combines the benefits of market compara- production system must be understood in order
bility and the business community’s familiarity to see where the new technology will be applied.
with the income approach. In our example, Mer While agricultural systems vary due to climate

POTTER
and local soil conditions, data do exist on input deducting average post-harvest and pest losses
(costs) and output (benefits)—as in any field. to arrive at the final yield per hectare for the av-
Because of the complex interrelationships among erage mer farmer. Returns are divided between
agricultural markets, competition is hard to es- those from mer that is consumed domestically
timate, but data does exist upon which to base (Domestic) and those from mer that is exported
assumptions. As modern agricultural products (Export). On the basis of this model, production
rely more and more on biotechnology, a relatively costs are US$90 and returns are US$220. A new
new field, for which there is little information product that reduces inputs (pesticides, in this
and substantial risk that there will be no product case, of root-rot-resistant mer) can be calculated
at all, valuation becomes more difficult. To illus- to increase returns by the amount that the pes-
trate the complexities of agricultural systems, we ticides cost.
use an input/output or cost/benefit model based
on the harvest of mer (see Figure 1).
The diagram depicts average returns per 4. Valuing IP Resources
hectare of mer in Latin America. Input costs, Sometimes, all of the IP resources of a company
such as for seed, fertilizer, and pesticide, have or institution need to be valued. Valuing these re-
been derived by converting to U.S. dollars from sources can provide a value for the whole compa-
the average costs in Latin America of those items. ny, including its intellectual property and physi-
Similarly, yield in metric tons (MT) was calcu- cal resources, or it can reveal the input a company
lated by taking conservative yield figures and is investing in to developing a product, excluding
Figure 1: Hypothetical Cost/Income Model

for Mer Production in Latin America
Mer - Inputs / Production costs Returns
Seed Export market
US$30 US$160
(2 x US$80)
Pesticide Yield Domestic market
US$25 10 metric tons US$160

(3 x US$20)
Fertilizer; organic
inputs; standard Pests Post-harvest losses
cropping practices
US$35
Note: The online version of the Handbook (www.ipHandbook.org) contains a downloadable Microsoft®
Excel spreadsheet, which readers can use for modeling cost/income scenarios.

CHAPTER 9.2
the technology that is being negotiated. In our that the business is maximizing the exploitation
hyphothetical example, Mer Seeds can point to of all of its intellectual property.
the intellectual property that it already owns, for
example, existing mer varieties, to show that the 4.2 Technology factor method
company is investing significant resources into The technology factor method is a modification of
developing the new product and also to show that the income or excess earnings approaches that
the gene being obtained from the university will addresses the shortcomings of these approaches
be worth only a portion of the total added value. by directly measuring the contribution of the
Knowing such figures is relevant for joint venture technology to the total revenue of the business.
negotiations. The technology factor method can be used on
One complication in these calculations is the one technology at a time to eliminate the limita-
need to value nonformal intellectual property: the tions of the excess earnings method, in which the
know-how, experience, and expertise that reside whole set of intangibles are valued and lumped
in the company, and in its employees, and that together. The technology factor method might be
may not be protected by patents and trademarks. applicable to Mer SA de CV if it sold many more
Institutions that consider only the value of formal agricultural products than just mer seeds and if
intellectual property stand to lose from overlook- most of these products had a relatively low tech-
ing this form of intellectual property. nology input (for example, if the company dis-
tributed many agricultural chemicals produced
4.1 Excess earnings/residual value by large multinational corporations). In this case,
The excess earning/residual value approach places an overall picture would not give the true worth
a valuation on an entire business, rather than a of the value of the company’s germplasm.
single technology. The approach is appropriate
only if a company has just one major-platform 4.3 Options pricing method
technology and its business is based purely on The options pricing method estimates the value of
products related to that technology. Using a pe- the technology at the point it is considered to be
riod of five or more years immediately prior to successful and then calculates the probability of its
the valuation date, a percentage return is assigned preliminary successes along the path to commer-
to the average annual value of tangible assets used cialization. In the root-rot-resistant mer example,
in a business. This return is deducted from aver- basic research has already been done, but there are
age earnings of the business for the same period, still the possibilities that the technology will not
and the remainder, if any, is considered to be the work in the field, that farmers will not be prepared
amount of the average annual earnings from the to buy it, or that a competitor will offer a better
intangible assets of the business. Since this meth- product (such as a very cheap fungicide). It is also
od is based on past data, it is not necessarily useful possible that transgenic mer will not be approved
for valuing a novel technology, but it may be used for biosafety or food safety reasons. The probabil-
to value a company’s existing technologies. which ity of success at each step in the process is very
will allow for the determination of how much hard to calculate, but with each step, the value of
of an input one side is making in a negotiation. the technology effectively rises as the risk of failure
For example, Mer Seeds could use this method to diminishes. To use this model for early estimates
value its existing germplasm in order to show that of value, the technology must be well defined and
the varieties coming out of the transgenic project the statistical analyses of historical data must be
are just as much due to their germplasm as to the significant enough to allow the appraiser to assign
transgene. The main flaw in this model, however, probabilities to the technology as it proceeds from
is the assumption that excess earnings above and one step to the next. This method is applicable
beyond the return on tangible assets are solely at- to start-up companies during their initial rounds
tributable to intangible assets. Such thinking can of financing, and also for companies developing
lead to an error in valuation because it assumes high-risk technologies, such as pharmaceuticals.

POTTER
4.4 Technology risk/rewards method product is sold or used and at what rate demand
The technology risk/rewards method uses the value for the product develops and increases. A prod-
of roughly comparable technology-based busi- uct’s success depends not just on the number of
nesses as a proxy for the value of patents, and people who try it once, but on the number of re-
then subtracts from this number the amount of peat users. This is referred to as the adoption pro-
cash needed to further develop the technology to cess, in which a product goes from being new in
a commercial stage. Thus, Mer SA de CV would the marketplace to being an established product
first calculate the value the company could gain (or, in some cases, obsolete).
from the technology and then look at the invest- Figure 2 is a generalized adoption curve
ment needed to bring the technology to market. for a hypothetical new technology or product.
Using this number, the company would decide Importantly, the rate at which a product is taken
whether to commercialize the product and wheth- up has a great effect on the revenue that goes to
er paying the University of Costa Rica could be the developer of the product. In this case, as of-
afforded. One drawback of this method is the ten happens, initial uptake is low, and adoption
assumption that the value of technology-based grows slowly as people become aware of the prod-
companies reflects only the value of the technol- uct, try it out, and use it. Early adopters show
ogy, which ignores many other factors. the product’s potential value, and gradually other
consumers begin to use it. As more users see the
benefits, the product spreads throughout the
5. Adoption market. When the new product approaches full
One very important factor in determining the market penetration, the rate of uptake slows—
market value of a product is how much of the there are always people who are either very late
Figure 2: Generalized Adoption Curve For a New Product

Number of users
Uptake Time

CHAPTER 9.2
in adopting or will never adopt the product. At 6. Concluding Remarks

some point other competing products may enter As the discussions above indicate, no universal
the market and reduce market share, or newer method for technology valuation exists. In fact,
technologies may arise that replace the product different methods will often be used within one
completely. The actual curve, therefore, will be organization. The method chosen depends on the
more complex than Figure 2 suggests. kind of technology in question and whether one
In reality, farmers are likely to be wary of ini- is a technology buyer or a technology seller. In the
tially investing heavily in an agricultural product, end, however, what most matters is the accuracy
such as a new seed variety. Some will try it out of the estimations and assumptions about whether
on part of their land and, if they feel it is worth a product will be a success and how much people
the investment, they might then plant more of the will pay for it. Estimating the size of the potential
seed. Other farmers may see this and decide to try market and the adoption rate for the product are
out the seed themselves. Once a certain amount both important in this process.
of the seed is being grown, the adoption rate will Negotiating is a big part of arriving at a value
increase. However, there will almost always be for your technology, but remember that develop-
some farmers who will either delay adoption or ing intellectual property into commercial prod-
not adopt at all, because they prefer traditional ucts through in-licensing and out-licensing is not
methods, are unwilling to change, or perhaps be- a zero-sum game. Both buyer and seller are look-
cause their land is of such poor quality that the ing to get something good out of the deal. And
increased yield does not cover the increased price. these are the much-sought win-win deals. n
Calculating the value of a product by mak-
ing sales projections (the income approach) must,
therefore, consider not just the total area of land ROBERT H. POTTER, Senior Associate, Agriculture &
Biotechnology Strategies, Inc., 106 St. John Street, PO Box
on which a seed could be used, but also include
475, Merrickville, Ontario, KOG 1N0, Canada. rpotter@
a realistic sense of the rate at which the coverage agbios.com
area will expand to reach the total. Meanwhile, as
other products will also likely become available,
the original product will be unlikely to retain its 1 See, also in this Handbook, chapter 9.3 by R Razgaitis.
area indefinitely.

CHAPTER 9.3
Pricing the Intellectual Property of Early-Stage

Technologies: A Primer of Basic Valuation
Tools and Considerations
RICHARD RAZGAITIS, Senior Advisor, CRA International, Inc., U.S.A.
A key consideration in valuing a technology and arriving

ABSTRACT at a price is determining what is to be provided or trans-
This chapter introduces technology managers to certain ferred between the parties. This may include exclusive or
key issues and to six methods of valuation and pricing. nonexclusive rights to specified patents, know-how, and
The value of a technology to a buyer (licensee) depends copyrights (IP [intellectual property] rights), technical
upon how it is to be commercially employed, taking data, rights to future-seller improvements, rights to subli-
into account the cost of development, the time the tech- cense, and the like. The price can consist of any combina-
nology takes to generate returns, the extent of such fi- tion of a variety of types of consideration, including run-
nancial returns, and the risk involved in the process. At ning royalties, fixed payments, common stock (equity),
the time of a licensing/sale transaction of an early-stage R&D funding, lab equipment, consulting services, grant
technology many, perhaps all, of such factors need to backs, or access to other proprietary buyer resources.
be assessed and quantified by making judgments about
how the future will unfold with respect to the technolo- Although sometimes used, cost-basis pricing is a poor ba-
gy being developed. This assessment and forecast assess- sis of valuation, because it fails to consider a technology’s
ment are the essence of all pro forma business models. value based on future commercial applications: the market
Valuing license rights for early-stage technologies is in pays for value to be received, not the cost to create. This
this sense no different than making other future busi- chapter introduces and explains six methods for valuation
ness forecasts, though the details may differ because the and pricing that are based, to one degree or another, on
forecast time horizon may be longer, the uncertainties the market’s expectation of value.
may be greater as to the market size and profitability, • Method I: The Use of Industry Standards Method
the operating performance of the technology as it will be looks at the range of published royalties (and other
used in commercial operation may be less well defined, forms of payment) from technology licenses with-
and other factors. The price paid for a technology trans- in an industry category and uses that information
ferred between parties is the amount of money (present to guide valuation of a technology currently under
and future) and/or the financial value of noncash assets consideration.
given in exchange for the transfer of the technology, • Method II: The Rating/Ranking Method looks
which can only occur if both the seller (licensor) and at several existing license agreements for similar
buyer (licensee) have by some process reached a com- technologies, comparing and ranking a technol-
mon, present understanding of value that makes agree- ogy currently under consideration against the
ment possible. existing license agreements in terms of stage of
Razgaitis R. 2007. Pricing the Intellectual Property of Early-Stage Technologies: A Primer of Basic Valuation Tools and
Considerations. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Prac-
tices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
Technology Transfer Practice Manual (Second Edition Part II: Chapter 4).
© R Razgaitis. 2007. All rights reserved. Photocopying and distribution of this chapter through the internet is permitted
provided that: (1) this complete copyright notice is included; (2) no derivative works or changes to this text are made; (3)
the chapter is copied in its entirety as a single, complete stand-alone work and not be combined with any other text, im-
ages, graphics, or works; and (4) no compensation is sought or received for any such copies. www.razgaitis.com.

RAZGAITIS
development, scope of IP protection, market size,

profit margins, and other such factors. opportunity licensing of early-stage technology
• Method III: The Rules of Thumb, such as the 25% is normally performed prior to a licensee’s com-
Rule (and Other Rules) Method, which appor- mercial use, includes deal elements other than a
tions anticipated profits from the commercial use narrow enumeration of certain patent claims, and
of the technology between the seller and buyer.
• Method IV: The Use of Discounted Cash-Flow
anticipates the potential future use for a range of
Analysis with Risk-Adjusted Hurdle Rates Method products, applications, and markets.
seeks to split expected returns but adjusts basic This chapter is necessarily a short introduc-
profit and loss accounting terms to take into action to a complex subject. The author has writ-
count the timing of investments and returns and
ten three published books that give a much fuller
the risks borne by both parties. The method intro-
duces a discussion of the different possible struc- treatment of these valuation and pricing matters
tures of payments that are possible, as they affect than is possible here. Two of the books are cur-
both timing and risk. rently in print and available from online sources
• Method V: The Advanced Tools Method applies such as Amazon® and are recommended for those
statistical methods, such as Monte Carlo simula-
tions, to discounted cash-flow models to test the
who are charged with valuation and pricing of
influence of various value assumptions and license technology.
terms on the possible outcomes of a deal. • Valuation and Pricing of Technology-Based
• Method VI: The Auctions Method allows in- Intellectual Property, Dr. Richard Razgaitis,
terested parties to bid on the technology, based
published by John Wiley & Sons, 2003.
upon their own independent efforts at valuing the
technology, thus comparing their respective valua- • Dealmaking Using Real Options and Monte
tions, identifying the highest valuation, and strik- Carlo Analysis, Dr. Richard Razgaitis, pub-
ing a price based on that highest valuation. lished by John Wiley & Sons, 2003.
• Early-Stage Technologies: Valuation and
Pricing, Dr. Richard Razgaitis, published
by John Wiley & Sons, 1999 (now out of
Preface print, and supplanted by the 2003 valua-
Although we will consider each of the valuation tion and pricing book).
methods one at a time, doing so does not sug-
gest that only one method is to be used in any Finally, the views expressed here, as in my
given valuation, nor does having six methods above writings, are solely those of the author, and
mean that all should be used in every situation. are not intended to represent the views of CRA
Depending on the circumstances it is likely to be International or that of any professional society
advantageous to consider more than one method of which I am a member or officer.
in any particular valuation. Yet, not all methods
work equally well in all circumstances, and there
is always the practical consideration of the com- 1. Introduction
mensurate level of valuation analysis appropri- One of the most interesting and challenging
ate to the magnitude of the potential licensing tasks facing a licensing manager is determining
opportunity. the value and price of its specific opportunities.
The context of the valuation and pricing This chapter provides an overview of useful tools
discussed in this chapter and with the valuation and methods for this purpose and offers general
methods is licensing (sale) generally known as op- observations on licensing practices.1 Because each
portunity licensing, as distinct from licensing in valuation situation depends on numerous, case-
litigation contexts. In litigation matters there is specific factors, such generalizations may not ap-
normally a very narrow focus on certain claims ply universally, so readers are encouraged to be
of certain patents that have been infringed as of cautious when drawing parallels or imagining
a particular date with respect to specified prod- similarities.
ucts and which patents are known to be valid, Pricing, of course, is a crucial issue in the
enforceable and infringed. On the other hand, commercialization process. The customer for

CHAPTER 9.3
early-stage technologies can be viewed as a value- an equity split, or any combination of royalties
added reseller. Resellers will be induced to buy and equity, the technology transfer manager is
(license), if and only if they believe that they can apportioning the total financial reward between
conduct all the value-added activities needed and the creating organization and the commercial-
sell the result to their customers at a price signifi- izing organization. That split should depend on
cantly greater than what they paid to acquire the the relative value-creating contributions of both
rights. parties.
When selling rights to early-stage technolo- Determining a fair royalty depends on a
gies, there are (usually) significant uncertainties present understanding of the commercial use
facing both the owner of the technologies and the and economic impact of the licensed technol-
licensee. These uncertainties include important ogy. From this perspective, it is better, when
issues such as: feasible, to defer setting the royalty rate to the
• Does the technology really work in a pro- time, or closer to the time, of commercial intro-
duction setting as opposed to inside a clois- duction. When licensing early-stage technology,
tered laboratory? this means that the license or option agreement
• What product development and manufac- would leave the royalty rate unspecified. The par-
turing activities will need to be conduct- ties would commit to engage in good-faith nego-
ed—and at what cost—to bring the tech- tiations on this matter at a later date, preferably
nology to commercial maturity? when a projected income statement based on
• Will there be any commercially valuable more robust market and manufacturing projec-
patent protection to bar copycats? tions was available.
• What product do end users really want But prospective licensees generally look
from the technology, and how much will at this approach with disfavor. They argue that
they be willing to pay? the royalty rate is an important factor in reach-
• What regulatory requirements will need to ing a decision about licensing the technology in
be satisfied? the first place. Further, the licensees argue that
• How much better is this technology than they cannot commit substantial product- and
what is already available? market-development investments and risk fac-
• Will competitors develop an even better ing a carnivorous licensor seeking unreasonable
way of meeting the end user’s needs? compensation at the eleventh hour. And there are
also some good reasons why a technology seller
One way to begin to get around the pric- might not prefer to defer royalty negotiations.
ing issue is to use royalties. The advantage of the Depending on the final royalty values, the seller
royalty (and equity) concept is that it spreads, might have elected to pursue a different commer-
to some degree, these uncertainties and risks be- cialization approach (taking equity in a spinout
tween the parties. Under a royalty (or equity) ar- or pursuing industry-wide nonexclusive licens-
rangement, technologies that ultimately become ing) or to find a different licensee willing to pay
wildly successful in the marketplace will return more for the opportunity.
high financial rewards to both the licensee and Further, if a market window has closed, a
the licensor in some direct proportion to the reversion of rights back to the seller because of
degree of commercial sales achieved. This helps an inability to agree on financial terms may be
remove some of the anxiety of determining the of little business value. Clearly, it is in the inter-
right price—but not all of it. est of both parties to conduct royalty negotia-
Technologies that lead to highly profitable tions based on accurate projections of a license’s
outcomes for a licensee typically warrant a higher economic impact. Agreements reached before
royalty rate on behalf of the licensor. Similarly, the impact is known are more likely to be dis-
smaller returns (with all relevant factors consid- appointing to either the licensee or licensor. A
ered) warrant a lower rate. By fixing a royalty rate, disappointed licensor will normally not have any

RAZGAITIS
recourse as long as the licensee fulfills its end of complex to warrant coverage in other chapters in
the deal. A disappointed licensee, however, can this Handbook.3
come back to the licensor and threaten to drop
the license unless it gets some relief from a royalty
rate that the licensee later perceives as too high. 2. Getting started
The licensor can decline such a request, but it Prior to delving into this discussion, it is help-
could be put in a difficult bargaining position be- ful to review the definitions of two key, related
cause of the cost, delay, and risk associated with terms.4
finding another licensee, and because the term • value: an amount considered to be a suit-
of years remaining under the patents may have able equivalent for something else
been reduced significantly while in the hands of • price: the sum of money or goods asked or
the original licensee. A royalty rate determined given for something
well before commercial introduction can thus be
viewed as a royalty cap by the buyer, regardless In this chapter, price will mean the quantifi-
of what is called for in the agreement. Of course, cation or specification of value. Price should be
the buyer cannot count on a seller agreeing to the expression, in monetary and other forms of
such a downward renegotiation in royalty rate; consideration, of what the technology manager
the buyer may face the choice of proceeding to believes is an appropriate starting point for dis-
commercialization under the agreed terms, or cussions and ultimately represents a fair exchange
dropping its license and losing its own invest- for the institution’s willingness as a licensor to en-
ment in the technology. ter into a commercial agreement.
Parties seeking win-win arrangements This requires that the technology transfer
should seek ways to make these negotiations as manager determine, from the outset, what the
fair as possible, even while each party is looking institution is willing to provide as its end of the
out for its institution’s interests. This requires bargain. Table 1 summarizes ten sources of value,
as much economic information as possible and from the perspective of a licensor of early-stage
some tools for using that information. Presented technologies.
in the sections below are tools and consider- Item No. 1 is the key source of value pro-
ations in determining such splits of the com- vided by the licensor for a typical early-stage
mercial reward. To set the stage, consider the technology agreement—the right to practice the
following excerpt from an actual letter received technology described by the intellectual property
by a venture capitalist: (IP). The licensor may also provide something
“… we are asking for Forty Million Dollars within the categories of Item Nos. 2, 3, and 4.
($40,000,000), which will provide the capital Item No. 5 is usually a left-pocket/right-pocket
needed … . As planned, at the end of the two-year grant: if the licensor agrees to pay the patent costs
period, we will have ramped up to 100% with an for the licensee, then the licensee reimburses the
expected pre-tax profit of $211,832,258.”2 licensor for these costs, dollar for dollar.5
Now, is this a good deal? Even more impor- From the perspective of licensors of early-
tantly, what methodology could be used that stage technologies, Item Nos. 6, 7, and 8 are
would lead to a fair price for such an opportunity strictly the responsibility of the licensee and are,
and form the basis for a rational decision? thereby, not part of what is granted. Although the
Although the general principles in this chap- costs associated with these boxes may be small
ter apply to both a licensee (buyer) and a licen- on average, the risks of a very significant cost as-
sor (seller), this chapter primarily looks at these sociated with them on a given deal are both so
matters from the point of view of the licensor. large, and primarily or solely under the control
The form of an agreement is not detailed in this of the licensee, that it is imprudent for a licensor
chapter; many differing approaches as to royalties to bear them (this is discussed in greater detail in
and equity are possible. This topic is sufficiently Section 6.4).

CHAPTER 9.3
The last two Items, Nos. 9 and 10, may infor a specific territory, for a specific term (such
volve the licensor in some way; most often, how- as five years, after which time the licensor can
ever, the licensor will grant only a willingness to license others), or exclusive but for one other li-
assist the licensee in these activities on a cost-re- censee (a limited exclusivity, sometimes referred
imbursement basis. to as a second-source approach), and so on in a
Generally, therefore, the licensor of early- limitless array of possibilities and combinations.
stage technologies is offering Item No. 1 and, Each of these options will have a different eco-
possibly, Item Nos. 2–4. Within each of these nomic value; accordingly, each should bear a dif-
boxes, figuratively speaking, are yet smaller boxes ferent price. Such issues are sometimes referred to
that further define the contents of the grant. For as aspects of value (see Section 6.2).
example, in Item No. 1 the license may be exclu- As the licensor, a technology transfer man-
sive for all fields and territories for all patents in ager needs to determine what boxes (and contents
the technology package, for a specific application, thereof ) the institution is offering as its package.
Table 1: Ten Sources of Value Relating to IP (Intellectual Property) Rights
1. Rights to practice the • IP rights included

technology (patents, • Field/territory
trade secrets, copyrights, • Degree of exclusivity
trademarks) • Duration
2. Commercial data Production drawings, material balances, operating

statements, training or technical assistance
3. Future improvements From licensor, from licensee, from other licensees, rights
to, payment(s) for
4. Right to sublicense Conditions for, split of fees, improvements/grant backs
5. Patent expenses Maintenance costs, patent prosecution, foreign filing
6. Defense of patents Oppositions, interferences, declaratory judgment actions,

claims of ownership
7. Infringement issues Studies and opinions, freedom to practice, suits against

infringers, suits by third parties
8. General indemnity Product liability, ownership issues
9. Quality control Testing, laboratory services, trademark policing
10. Regulatory approval National regulatory agencies and listings such as the FDA,a
and EPA,b and TSCAc
a U.S. Food and Drug Administration

b U.S. Environmental Protection Agency
c Toxic Substances Control Act

RAZGAITIS
It is a very good practice to document the con- available to a prospective buyer, and an overall
tents of the package in some detail for internal negotiation strategy.
purposes, and perhaps in a more succinct fashion As mentioned earlier, there are an unlimited
for initial discussions with prospective licensees. number of combinations that could be agreed to
For example, part of a licensing package could by the licensor and licensee. It is impractical to
include product prototypes or customized test or price all these combinations and offer a price list.
development fixtures, as well as data unpublished Instead, a price is needed for what is considered
or not yet published that provides additional in- to be a basic deal that is of interest to the insti-
formation on potential applications, costs, or ar- tution and that the technology manager believes
eas of potential improvement. will be of interest to a licensee.
Similarly, the technology professional should In the process of discussing an opportunity
document in detail what the institution is seeking with prospective licensees, a licensing profes-
from the licensee as fair exchange. Some items to sional will learn that there are different items that
consider in determining this exchange are: each licensee wants and different values that each
• royalties (often termed running royalties) licensee places on what it has to grant (surprising-
• other cash payments (an upfront cash ly, not all companies view money the same way;
payment, progress payments, or annual there can be a big difference between funding
minimums) R&D and upfront cash, or between upfront cash
• common stock or partnership interests (as and royalties, and so on). As new information is
partial or total offset for royalties) learned, the technology transfer manager should
• R&D funding at the institution to advance be prepared to reenter the pricing methodology
the technology or other R&D objectives and reconsider assumptions and elections. The
• lab equipment technology transfer manager will also learn about
• consulting agreement(s) the competitive alternatives that prospective li-
• improvements to inventions (so-called censees have use of the institution’s technology.
grant backs) At the same time, the manager will analyze the
• access to proprietary and/or technical data institution’s alternatives should the licensee say
related to the invention no.
In a free market, all participants can decide
There is a long list of sources of consider- what they think a product is worth and com-
ation that the institution may wish to seek from municate this to others. From this process, the
the licensee. By thinking through these items technology transfer manager should be able to
and writing down those that are desirable from learn relevant facts that may cause the price to be
the institution’s point of view, the technology reassessed. It should be remembered that partici-
transfer manager can develop a rational frame- pants in a free market do not consider themselves
work for expectations. From a negotiating per- compelled to communicate what is good or un-
spective, following this process can prevent the dervalued about what the institution has to offer.
institution from being perceived as a nibbler: In most instances, a technology transfer manager
that is, an organization that is always thinking will only hear (or primarily hear) the bad news
of something more that it should get for the related to a product; some of it may be true, and
deal. some may even be relevant.
Negotiating strategy is also important.
Although this subject is outside the scope of this
3. The context of pricing chapter, two pricing negotiation-strategy poles il-
The seller’s pricing expresses belief about value. lustrate the significance of negotiating strategy:
Such belief arises from considering the innate eco- • fixed-price seller: The seller has made a best
nomic benefit associated with the use of the tech- effort at determining a value that repre-
nology being offered, the competitive alternatives sents what it believes is a fair value to both

CHAPTER 9.3
parties. This price is its bottom line, and it are not going to ask for any profit. It is yours for
offers the product to all prospective buyers only the $10 million we have sunk into it. The
as a here-it-is, here-is-what-it-costs, take-it- market will not value what the institution paid
or-leave-it proposition. to develop the technology, not because it is un-
• price maximizing seller: The seller seeks to sympathetic to the institution’s investment (and
identify only those prospective buyers who plight), but because what is important to the
express interest in the opportunity, which market (the buyer) is the value of the product,
is initially priced at or near the maximum not the costs of development. If the product does
reasonably conceivable value because it is not work, it has no value. What the institution
expected to be adjusted downward, per- has invested in its development is gone.
haps substantially, due to the back and Consider the other extreme: An individual
forth of what are likely to be extensive buys a lottery ticket for $1. It turns out to be
negotiations. the sole winning ticket in a $10-million lottery.
Now, someone shows up and says: I’ll give you
There is, of course, a continuum of perspec- $2 for your winning ticket, which will double
tives between these polar positions. The fixed your money. Is this a good deal? Again, the cost
price approach (as an idealization), has the ap- of the lottery ticket is irrelevant in this example.
peal of deal simplicity and speed, but may have Rather, its worth after selection is what some will-
as its result (a) no buyers and therefore no deal ing party would pay to gain the benefits of owner-
or (b) a deal with a buyer who would have been ship. For all the losing tickets together, no ratio-
readily willing to pay more had it just been asked. nal buyer would pay even a dime. For the one
The price-maximizing approach is really about a winning ticket, in this example, a rational buyer
seller offering some flexibility on price and deal would offer millions of dollars, but not more than
elements to attract potential buyers to engage in $10 million.
a negotiation that leads to mutual learning. In In the world of manufactured-commodity
some respects this second approach could be bet- goods, costs and price are often closely related.
ter described as the deal-probability-maximizing Historically, pricing in such circumstances was
approach because it offers an adjustability of pric- determined by multiplying the costs of manufac-
ing and deal elements not available in the fixed- ture by an industry-standard multiplier. A typical
price approach. However, the initial pricing of historic multiplier was simply the factor 2, so the
this second approach has to be within a range that price would be double the cost of manufacture.6
buyers can conceivably find reasonable; otherwise But in the case of high-cerebral content
buyers can be dissuaded from even initiating due products, such as intellectual property, cost is
diligence. The most important point to remember an inappropriate basis. If Picasso was alive and
is that pricing is a process, not a one-time event. you approached him to buy a painting, would
you ask: What did it cost you to make this paint-
ing? Consider another example. The late Sammy
4. Cost as a basis for price Cahn received (it is believed) approximately
Cost is a very poor basis for pricing, although it US$40,000 for granting the producers of the
is sometimes used. To get a sense of using cost of movie, Die Hard II, the right to play his song
development as the deal price, consider the fol- “Let it Snow” in the movie’s opening scenes to set
lowing: suppose an institution and its sponsors the mood for the holiday season. Cahn had sold
have invested $10 million in a particular tech- rights to “Let It Snow” many times. Cahn did
nology that at long last has been determined not not write any new music for the movie; he prob-
to work well enough to be used commercially. ably did not even provide the producers a copy
What are the chances of going out into the world of the sheet music. So what did the producers get
of commerce and saying: Have I got a bargain. for their $40,000? They bought merely the right
Because this technology doesn’t really work, we to use something already existing. How was the

RAZGAITIS
$40,000 determined? That is what the two parties reasonable R&D program should have spent)?
dealing at arm’s length said it was worth, not an Or should such “misspent” costs be recognized as
amount based on a person-hours of labor calcula- a natural part of R&D? When parties talk about
tion as Cahn’s appropriate value for the rights to the seller’s costs, they are usually talking about a
use the song. number residing in some seller cost account used
The market pays for value, not cost. In re- to track certain kinds of investments, and not the
tail software sales, the actual cost of the CD, the result of a carefully considered analysis of all the
manual (if not on the CD), and the packaging activities and value invested by the seller.
is typically less than 10% of the price. Why are
software companies seeking and able to sell their
products for more than 10 times their costs? The 5. Pricing Methods
answer again is that it is value, not cost, that the If cost is not a good way to determine price,
market buys. what is? Sections 5.1–5.6 of this chapter consider
Cost, however, does come into play when methodologies for answering this question. These
considering a prospective licensee’s alternatives methodologies include:
to entering into an agreement. A prospective li- • Method I: The Use of Industry Standards
censee could seek to develop its own technology • Method II: The Rating/Ranking Method
by inventing around the institution’s protection • Method III: Rules of Thumb, such as the
to accomplish the same purpose. If the prospec- 25% Rule (and Other Rules)
tive licensee was convinced that it could do so in
a very short period of time with a parity outcome • Method IV: Use of Discounted Cash-Flow
for, say, $1 million, then the licensee would rea- Analysis with Risk-Adjusted Hurdle Rates
sonably determine that the institution’s technol- • Method V: Advanced Tools
ogy was not worth much over $1 million, which • Method VI: Auctions
is what its costs would be to get what the institu-
tion has without buying what the institution is The goal of these following discussions is to
selling.7 develop tools and thinking. Producing an “an-
When it comes to cost, it is the costs for the swer,” to the question posed at the beginning of
prospective licensee that are considered. Whether this section is not the goal of this discussion, be-
the seller’s costs for developing the technology cause the world of technology rights makes it im-
were $10 or $10 million is basically irrelevant. possible to determine a price in the abstract.
Another important, usually misunderstood,
point is how to determine the seller’s costs. In 5.1 The Use of Industry Standards Method
the lottery ticket example, the costs are easily Having dismissed cost as a basis for pricing, the
known—it is printed on the ticket. But in the next most logical approach is to use industry
case of technology development, such costs are standards; the reason for this is that such an ap-
very difficult to estimate. Consider the variety proach serves decision makers well in many other
and range of questions to be answered: Have we areas of experience.
collected all the direct costs back to the very be- Suppose you want to rent office space. The
ginning of the development? Do we even know coin of that realm is commonly expressed as dol-
how to define the beginning? Did we include the lars per square foot per year (DSFY). Ranges for
value of all the contributions made to the proj- DSFY in the United States are from about US$1
ect by products, services, insights, intellectual to more than US$50. However, when consider-
property, and so on, that were contributed at no ation is restricted to a particular city and a region
recorded cost to the project? Have we excluded within that city (downtown/prime, downtown/
costs associated with development efforts that are periphery, outer belt, suburbs, inner-city ware-
not being offered to prospective licensees? Have house district, and so on), the DSFY range will
we deducted “bad judgement” costs (which no shrink remarkably, say to US$6 to $12. Then,

CHAPTER 9.3
when one further specifies level of amenities each of several categories of technology licensed.
(Bigelow®carpets versus linoleum), and what is The best way to assess how useful such a table
included in the rate (utilities, janitorial services, might be is to think about how its existence would
parking, security, partitioned office layout versus lead a technology transfer manager to reach some
open and bare) the range narrows even further, decision about the price of something.
say US$10.25 to $11. So it is with many other Consider the pricing of a medical device such
goods and services, from haircuts to paper clips. as a blood glucose monitor. Reviewing Table 2,
Why can’t this approach work for rights to the closest category is probably electrical, but is
early-stage technology? The problem is primar- this really what was meant by electrical? What
ily the absence of a track record for comparable does this table reflect for upfront payments? Half
products bought and sold under known (or of the agreements contained a provision for up-
knowable) terms. In the office space example, front payments, and half did not.9 Now what?
there are many properties, many buyers (lessees), What guidance does this table give about whether
and many sellers (lessors). This results in many to have such a payment and its amount? What
transactions of relatively standardizable terms is the modal (most common) value for running
agreed to by parties that had numerous alterna- royalties? None! Now what? Should the royalty
tives to entering into the agreement, which were be priced at zero? The percentage of cases the roy-
considered and evaluated before signing. It is the alty was negotiated within the shown ranges can
tangibility of what is purchased, the frequency also be determined using Table 2, but where does
of purchases, and the public knowledge of the the institution’s product fit? Finally, look at the
purchase that makes it possible to apply industry minimums row. What can a technology transfer
standards. manager do with this information?
In the case of early-stage technology licens- The problem is actually even worse. The
ing, it is often unclear what products can or will agreements that comprise the table each includ-
be ultimately introduced. The number of similar ed a whole panoply of exchanges, only some of
transactions on which to determine price are too which were summarized in Table 2. How can a
few, and frequently it is impossible (or difficult) technology transfer manager shrink all of these
to know what price other licensees/licensors have different considerations down to just one num-
paid in similar deals. Nonetheless, there does exist ber, a royalty rate, and compare the institution’s
some public and private data on early-stage-tech- opportunity with these published outcomes?
nology licensing and in many instances some- Further, there can be instances of royalty base
thing useful can be learned from it. ambiguity. Staying with the hypothetical medi-
One example of published financial data for cal-device example and our bold assumption that
licensing agreements is that obtained by survey- “electrical” data may have some relevant teaching,
ing. Among the more famous examples are tables we can envision instances where the entire device
published based upon transactions between a being sold is covered by the licensed subject mat-
Japanese company and a non-Japanese company. ter, whereas in other cases the license could be
Prior to liberalization of Japanese foreign ex- about a limited feature or function within a much
change regulations in the 1980s, foreign parties more extensive device. In such cases, how was the
licensing technology to Japanese parties were re- royalty-rate data used by the parties? Did they
quired to receive government approval of licens- agree in both of these cases to use the selling price
ing terms. The Japanese government published of the complete medical device, or did they in the
annual statistics related to licensing. A typical second instance agree to use as the royalty base
table is shown in Table 2. In some respects, this some smaller amount than the full selling price
table is more complete than most since it includes of the device because of the limited application
upfront payments and minimum royalties. As is to a single feature or function? There is no way
typical of such tables, there is a frequency of oc- to tell from the table. There are also other con-
currence entry for selected royalty-rate ranges for cerns about this table. It is limited to technology

RAZGAITIS
transferred into Japan in the early/mid-1970s. most royalties are in the range of 0%–10% and
And what relevance would these rates have for li- that pharmaceuticals are generally higher than
censing technology to be used in the U.S.? manufacturing. One wonders about the category
A more recent industry standard survey is of telecommunications. Does this mean that
available, which also offers more distinguishing all royalties for this industry fall in the range of
categories.10 One of the tables is shown in Table 10%–15%? (No, as it turns out: there was only
3—does it provide the technology office manager one survey respondent.) The paper from which
more useful information? Table 2 has been prepared contains a lot of good
Again, use the test. How would this data information, but a technology transfer manager
help a technology transfer manager make a deci- should recognize its limitations as a guide for set-
sion? Consider the categories of pharmaceuticals, ting a royalty.
general manufacturing, and other. Each royalty- None of this discussion is intended to dis-
range category has an entry for each of these. parage the efforts of those gathering and pub-
Unfortunately, all that can be discerned is that lishing this data. Determining effective ways of
Table 2: Use of Industry Standards to Determine Royalties

(Data set obtained from review of all agreements filed in Japan)
Industry Type
Terms of Classification
Chemical Metal Machinery Electrical Others
Payment of Technology
Required 100 54 223 119 231

Initial payment
Not required 65 37 187 119 220
< 2% 5 6 16 32 28
2% > x < 5% 42 24 119 55 126
5% > x < 8% 12 8 112 24 119

Running
royalties
> 8% 7 4 24 11 17
Others 48 28 80 54 69
None 51 21 59 62 92
Minimum Required 38 19 116 35 186

payment Not required 127 72 294 203 265
Subtotal 165 91 410 238 451
No fee, royalty 16 4 11 2 15
Total 181 95 421 240 466
Source: Science & Technology Agency8

CHAPTER 9.3
valuing (pricing) technology is extremely diffi- be taken as recommended norms or standards,

cult, and this author cherishes every scrap of in- but illustrations of information that can be found
formation found. Everyone’s efforts to extricate by investigation.
and publish anything that might help technolo- Lita Nelsen of M.I.T. has published a table
gy professionals in this valuation process are ap- of standards that is an example of more useful
plauded. The goal here is simply to caution the data than the above broad Japanese license agree-
reader about the limitations of using industry ments. The table below represents a narrower
standards for setting royalties and other license class of licensors (M.I.T. and similar universities)
considerations. and provides a narrower distinction of categories
Let us now consider, as examples, other as well as a narrower range of typical royalties. A
sources of financial information about license recast version of data she has published is shown
agreements. The references that follow should not in Table 4.
Table 3: A Recent Royalty Data Set Obtained by Survey

(Licensing-out royalty rates by industry royalty rate category)
Primary 0%–2% 2%–5% 5%–10%

10%– 15%– 20%– Over
Industry 15% 20% 25% 25%
Aerospace 40.0 55.0 5.0
Automotive 35.0 45.0 20.0
Chemical 18.0 57.4 23.9 0.5 0.1
Computer 42.5 57.5
Electronics 50.0 45.0 5.0
Energy 50.0 15.0 10.0 25.0
Food/Consumer 12.5 62.5 25.0
General Manufacturing 21.3 51.5 20.3 2.6 0.8 0.8 2.6
G o v e r n m e n t / 7.9 38.9 36.4 16.2 0.4 0.6

University
Healthcare Equipment 10.0 10.0 80.0
Pharmaceuticals 1.3 20.7 67.0 8.7 1.3 0.7 0.3
Telecommunications 100.0
Other 11.2 41.2 28.7 16.2 0.9 0.9 0.9

RAZGAITIS
Clearly Nelsen’s data covers wide ranges in company simply announces its royalties. One ex-
royalty rates, from 0.1% to 20%, a factor of 200. ample, shown in Table 7, was published by one
Even within one category, the range between the licensor for nonexclusive licenses for its LCD dis-
high and low ends can be a factor of five or more. play patent.
Further, it is likely that there exist “outliers” from Another example of such published rates
such ranges that M.I.T. would license at rates be- is, or was, IBM’s licensing terms. In the 1980s
low the bottom end of the range and perhaps, for and early 1990s, IBM established a licensing
major breakthroughs and extensive IP portfolios, practice—essentially a price list—that offered to
may expect values above the top of the range. The license essentially all of its 34,000 patents world-
data illustrates another trend that appears in other wide for a 1% royalty each for computer uses (pat-
examples: those products and industries with tra- ents only, nonexclusive only), up to a maximum
ditionally high operating margins (profits), such of 5% for all 34,000.17 This practice does not
as pharmaceuticals and software tend to exhibit establish 1% as a minimum per patent royalty;
higher royalty rates compared with, say, the ma- rather it reflects IBM’s practice at one time that
terials industry. a licensee can choose any one from IBM’s massive
Other authors have published tables of roy- portfolio for a rate of 1%, any two for 2%, and so
alties for the purpose of establishing reasonable on. Further, because IBM does not make public
expectations of both licensors and licensees. Table its license agreements it is unknown what pay-
5 is a table published by Corey and Kahn for the ment structure or amount was finally agreed to
medical industry.12 with licensees.
The table’s context is well defined (early-stage The main point about the LCD and IBM
technologies out of research labs), the categories examples is that such published lists can lead to-
are comparatively precise (diagnostics in vivo), expectations and, to the degree that the opportu-
and it includes guidelines on up fronts and mini- nity the technology transfer manager is pricing
mums. However, note that there is an important fits any published examples, this may influence
economic difference between the ends of the roy- the thinking of prospective licensees. In some
alty ranges given: 1% versus 3% or 2% versus cases, such proposed pricing can create a widely
10%, and so on. Unless the technology transfer accepted norm in the respective industry, mak-
manager understands where the institution’s oping it difficult for the seller to price above such a
portunity fits in the range identified, it is difficult norm if the subject matter is perceived to be in a
to know where to begin. Further, not every oppor- similar category. Licensees, like licensors, look to
tunity falls within even these broad ranges. Some this method of industry standards (or norms or
opportunities will have only negligible value; oth- comparables). However, they may look to a dif-
ers could be unusually valuable opportunities. ferent population of examples such as their own
Tom Kiley has published another medical internal catalog of extensive deals that they have
industry table that deals with exclusivity granted completed in the past to establish their expecta-
(Table 6).14 tions for financial terms.
Kiley appears to suggest that for nonexclusive Yet another source of industry standards
rights, the royalty should be about half of the ex- are court determinations of reasonable royalties
clusive royalty. (See section 6.3.2 for more on the awarded in patent infringement lawsuits. Table 8
50% rule.) According to Kiley, inventions in sup- offers a summary from a paper by Mike Carpenter
port of a pharmaceutical (drug) warrant higher who analyzed a series of judgments.18
royalties (7%–15%, as his generalization) than The main limitations of such data are that
drug delivery, diagnostic and therapeutic mono- the result is very specific to the litigated sub-
clonal antibodies (2%–7%), perhaps reflecting ject. In addition, the maturity state of the tech-
another two-to-one ratio. nology is normally far beyond what may be
Published price lists are another source of considered as early-stage technology. Further,
industry standards for pricing. Sometimes a adjudicated reasonable royalty rates are almost

CHAPTER 9.3
Table 4: Example Table of Royalties Developed by Experience

by a University Licensing Office11
Product Royalty (%) Comments
Materials processes 1–4 0.1%–1% for commodities; 0.2%–2% for processes
Medical equipment/devices 3–5
Software 5–15
Semiconductors 1–2 Chip design
Pharmaceuticals 8–10 Composition of materials
12–20 With clinical testing
Diagnostics 4–5 New entity
2–4 New method/old entity
Biotechnology 0.25–1.5 Processa/nonexclusive
1–2 Processa/exclusive
a Expression systems, cell lines, growth media/conditions
Table 5: Royalty Rates for the Medical Industry13
Earned Upfront Payments Minimum Payments

Technology/Industry
Royalty (%) (in US$) (in US$)
Reagents/process 1–3 Patent costs 2,000–10,000
Reagents/kits 2–10 Patent costs 2,000–10,000
Diagnostics in vitro 2–6 5,000–20,000 2,000–60,000
Diagnostics in vivo 3–8 5,000–20,000 2,000–60,000
Therapeutics 4–12 20,000–150,000 20,000–150,000
Medical instrumentation 4–10 5,000–150,000 5,000–20,000

(yr. 1)
10,000–25,000
(beyond yr. 1)

RAZGAITIS
always unrepresentative of arm’s-length rates, as to find a comparable technology, stage of devel-

they represent royalties for patents known to be opment, market impact, and so on. When some-
valid and infringed—conditions not typical of thing comparable exists and is published, this can
early-stage technologies. This litigation-particular be very helpful.
outcome example is also quite dated, but dated- The most valuable tool for determining in-
ness is a factor here in all of the prior examples dustry standards for this method are published
as well, and is innate to any historical collection agreements for similar technologies licensed by
of data.20 Still, a court case usually contains a similar institutions. As Ashley Stevens explains,
wealth of information about how such rates were publicly-traded companies will file license agree-
determined, and of course, the information is in ments that may have a significant economic im-
the public record. Einhorn has published a much pact on the value of the company with the U.S.
more current summary of reasonable royalty de- Securities and Exchange Commission (SEC).22
terminations by a court.21 One can also search The Internet now enables very effective searching
LEXIS® for even more current data. The key is of disclosures made by publicly-traded companies.
Table 6: Proposed Standard Royalties15
Exclusive (%) Nonexclusive (%)
Development rDNAa drug 7–10 3–4
Approvable rDNAa drug 12–15 5–8
Therapeutic mAbb 5–7 3–4
Diagnostic mAbb 3–4 1–2
Drug delivery component 2–3 0.5–2
a Recombinant DNA
b Monoclonal antibodies
Table 7: Price List for an LCD Display Patent16
Vehicles 0.125%
VCRs, and so on 2%
Meters, gauges, and so on 3%
Telephones, and so on 4%
Calculators, and so on 5%

CHAPTER 9.3
Several organizations offer, as a service, summa- patent. The agreement has many other interest-
ries of categories of such filings and copies of spe- ing details, and it would be wise to study this
cific agreements. An example, taken from a talk agreement and learn as much as possible about its
by Mark Edwards, is shown in Figure 1.23 background and current status.
These data are unusual in that they show many To sum up, using this industry standards
of the forms of upfront consideration received by method of setting prices has both positive and
universities for having licensed their biotechnol- negative aspects:
ogy. Underneath such summaries, however, are Positive aspects of the industry-standards
specific agreements now numbering in the thou- method include:
sands, copies of which can be found with some • The values used as the basis are based on the
research. It is from such published agreements market.
that one can gain a better understanding of what • No calculations are required (beyond per-
was agreed to, at least once, by two parties for haps taking averages and medians or other
something similar to what is being offered.24 statistical methods).
One example of such a specific agreement is • One has some confidence of being in the
the license between the University of Houston range of some believed-to-be comparable
(UH) and DuPont for the so-called 1-2-3 super- reference points.
conductors developed by Professor Wu of UH.
The State of Texas required that this agreement Potential negative aspects include:
be placed in the public domain. The agreement • Published information is inevitably dated,
details the payments DuPont agreed to make to and such datedness could have a mate-
gain rights to UH’s superconductor technology: rial effect on the present value of a similar
US$1.5 million in cash upon execution of the deal.
agreement, an additional US$1.5 million upon • The segmentation provided by surveys is
issuance of the U.S. patent, and a third US$1.5 normally too coarse (electrical, mechanical,
million upon the second anniversary of the U.S. telecommunications, and so on).
Table 8: Other Tables of Royalty Rates Based on Litigation Outcomes19
Product Royalty (%) Date Citation
Rotary wing aircraft 2 1976 192 USPQ 612
Sleeping bag 5 1967 156 USPQ 403
Digital data transmitter 7.5 1978 200 USPQ 481
Oscilloscope 10 1977 193 USPQ 385
Computerized teaching aid 12 1978 199 USPQ 178
Toilet paper perforator 20 1977 195 USPQ 125
Airline baggage cart 100a 1977 196 USPQ 129
a of profit

RAZGAITIS
Figure 1: Royalty and Other IP Revenue Data Based

on SEC-Filed and SEC Agreements
Average Pre-Commission Payments: University/Biotechnology Licenses
400
350 341
300
250
$ (in thousands)
200 190
152
150
100
92
50
31
0
Upfront Advance Milestone Total R&D Payments
Fees (23) Royalties Fees (4) Payments (45) Recombinant
(23) (33) Capital
Source: Recombinant Capital (Mark Edwards). AUTM presentation 1993.

CHAPTER 9.3
• The values published normally do not pro- The industry standard method works best
vide sufficient information to determine when one deals in one technology/industry seg-
what IP rights were provided, or to deter- ment, especially when there are a significant
mine their significance or their strength. number of deals involving multiple buyers and
• The royalty basis (or base) is not always ex- competitive sellers, much as in the real-estate
plicitly defined. rental market discussed above. The examples giv-
• The connection of the license to the size en here are not intended to provide representative
and margins of the buyer’s market oppor- technology values but to illustrate some of data
tunity is not explicitly known. sources that exist.
• A wide range of royalties is reported for In summary, price is a very tricky idea. It oc-
each classification, with no clear means of curs “between the ears” of the technology transfer
discerning why some opportunities were manager, as well as between the ears of prospec-
higher valued and some lower. tive licensees. As you can see, it is affected by all
• Often no information on upfront pay- the other things that affect a person’s judgment.
ments, minimums, or due-diligence provi- For those who doubt this, an experiment has
sions is available, all of which can be im- been published that illustrates this point.25 Two
portant components of value. groups of students were asked to review identical
• The licenses often contain other provisions notebooks containing descriptions of seven con-
that directly affect the total value of the sumer products. They were each asked to respond
deal and are reflected in the royalty rate. to each product by specifying what they would
• One cannot uncover a historical agreement be willing to pay for the item. A summary of the
for exactly the same technology as that of findings is shown in Table 9.
current interest, between comparable par- Everything was identical in the two settings
ties, at a comparable stage of development. (A and B), except for one small thing. In setting
So one is commonly performing some in- B, there were Mastercard® logos left lying on the
terpretation of available data to apply to table. Even though all the participants understood
one’s present situation. that they were not buying the items in the book,
Table 9: Price is a Tricky Idea: What Would You Be Willing to Pay?26
Consumer products book Mean in setting A Mean in setting B (B-A)/A
Dress 1 $27.77 $41.50 49%
Dress 2 $21.09 $33.91 61%
Tent $69.95 $77.73 11%
Men’s sweater $13.91 $20.64 48%
Lamp $28.36 $40.41 42%
Electric typewriter $131.45 $165.36 26%
Chess set $35.29 $43.15 22%

RAZGAITIS
and there was no discussion as to how such items understand the viewpoint, it is impossible to un-
could or should be paid for, the mere presence derstand the price.” The view from the buyer’s
of the logos influenced the group B students position always affects the price he is willing to
significantly. pay.
The point of relating this experiment is that One other point needs to be made about
everything about the technology transfer manager, price. It is often the lever used in negotiations.
the institution, the inventors, and so on, are po- Often each party to a negotiation uses price as
tential influences on what a licensee will conclude a lever to get other things. There is a wonderful
is a fair price. ancient saying on how buyers tend to negotiate,
Consider these two different settings for the “Bad, bad says the buyer, but then he goes his
same invention. In setting A, the prospective way, then he boasts.”
licensee goes to Nowheresville, has to drive four
hours because there is no air service, steps in 5.2 The rating/ranking method
cow dung as he gets out of his car, meets the This method applies the elements of any defini-
inventor who has no front teeth and exhibits tion: the specification of a genus plus the distinc-
an annoying habit of scratching his underarms, tion of a differentiator.
and discusses the invention in the Greasy Spoon First, the technology transfer manager
Cafe. In setting B, the prospective licensee goes must find the genus (or family) for the in-
to Mostfamousuniversity, where he is intro- stitution’s technology that he or she is seek-
duced to the distinguished inventor (who has ing to price. Places to look include the pub-
previously won a Nobel Prize) at the exclusive lished agreements discussed earlier, friends in
faculty club and a well-known, well-respected, the network of the Association of University
high-ranking public official stops buy and says Technology Managers (AUTM) and the
hello during lunch. Licensing Executives Society (LES), consul-
Remember, in this thought experiment the tants, and the institution’s files of negotiated
institution is selling the same invention in both deals. Ideally, a technology transfer manager
settings. Even though the prospective licensee is should find at least one or possibly two or
not a student and is not buying consumer prod- three comparable deals from such a search.
ucts as in the example above, the principles are Second, this method uses some form of rat-
the same. The licensee will likely be influenced ing table to score (differentiate) the deal that
by the setting and circumstances, which may be is now being priced based on the known price
completely unrelated to the underlying value of of the comparable deal(s). To do this, a tech-
the opportunity. nology transfer manager must select a list of
In the first act of a wonderful play by Arthur relevant factors. Tom Arnold and Tim Headley
Miller called The Price, the owner of a house full published a useful, extensive list of 100 possible
of furniture is frustrated when the dealer he has factors in an article in Les Nouvelles.27 One hun-
invited to bid on all of it delays giving him a dred factors, however, are far too many to evalu-
price. Instead, the dealer spends a lot of time ate, which is perhaps why the most well-known
understanding the context of the sale (and learns enumeration is the Georgia Pacific factors, so
that the building is about to be demolished and called because the factors were annunciated in a
that the seller has no time or patience to sell the lawsuit involving the Georgia Pacific company
items piece by piece). He intermittently (and and have since been widely cited with respect to
politely) points out certain blemishes in objects litigation matters. The results of a survey pub-
that would otherwise have been perceived as lished by LES asked respondents which of the
very valuable. When the seller finally demands primary Georgia Pacific factors they used to as-
to hear the price, the very old man who plays sess an opportunity when either licensing in or
the buyer simply says, “Because the price of used licensing out. Table 10 gives a summary of these
furniture is nothing but a viewpoint, if you don’t findings.

CHAPTER 9.3
Other approaches may use only three or four regard to this particular factor, 5 meaning much
factors to simplify the analysis, such as (1) com- better, and so on. It is usually a good idea to also
prehensiveness of the IP protection, (2) the stage include a weighting factor so that each consider-
of development (or, conversely, the magnitude of ation is not treated equally. This is illustrated in
licensee investment) to bring the technology to Table 11.
the market, (3) the size and value of the market The result is a weight-averaged score.
that is expected to be won by the licensee, and Anything greater than 3.0 would suggest that the
(4) the sustainability of the innovation wrought subject opportunity is better than the examples
by the subject technology in view of competitive being considered as a standard, anything less than
alternatives both present and anticipated. 3.0 suggests it is worse. If a technology transfer
Once one has chosen the key factors, the manager has two or three standards available, it
technology transfer manager, or preferably a may be possible to use this method to bracket the
commercial assessment team, scores the subject opportunity.
opportunity compared to the reference agree- Although this method is straightforward,
ment found above for each factor selected on there are some important limitations. What is a
some scale. This can be done by employing a 1 true comparable? Each agreement is a snapshot
to 5 scale, with a 3 as being indistinguishable to in time, no two technologies are really identi-
the comparable agreements, 4 meaning the sub- cal, the market is almost never the same, and
ject opportunity is better (more valuable) with the negotiators and organizations will likely be
Table 10: Example of Georgia Pacific Factors Used in Rating/Ranking28
Importance of Factor Licensing Ina Licensing Outa
1. Nature of protection 4.3 4.2
2. Utility over old methods 4.2 4.2
3. Scope of exclusivity 4.1 4.1
4. Licensee’s anticipated profits 3.0 3.4
5. Commercial success 3.7 3.4
6. Territory restrictions 3.7 3.5
7. Comparable license rates 3.6 3.7
8. Duration of protection 3.3 3.1
9. Licensors’ anticipated profits 2.6 3.1
10. Commercial relationship 2.6 3.6
11. Tag-along sales 2.1 2.1
a A ranking of 5 corresponds to most important; 1 to least important.

RAZGAITIS
different. In addition, there are many tradeoffs compared to the standard. Now what? Does the
and exchanges in every agreement; a technology technology transfer manager set expectations for
transfer manager cannot simply compare one the royalty at 27% better than the standard, as
single aspect, such as a royalty rate, and look determined by ((3.8–3.0)/3.0)? Is the up front
at it without considering what else was in the now 127 instead of 100? Are the minimums
agreement. What about the differentiating fac- 64 instead of 50? Does the diligence require-
tors selected? Does a technology transfer man- ment provide that the licensee must be on the
ager really know what the important ones are for market in 31 months instead of 40 months? Is
this opportunity? What does a 4 really mean in the premium on late payments 3.8% instead of
economic terms? Finally, what does a technolo- 3%? There are no simple answers to any of these
gy transfer manager do with the result? Suppose questions. Still, performing this ranking against
the technology transfer manager determines multiple standards and thinking through the re-
that the institution’s opportunity scores a 3.8 sults generally allows one to better understand
Table 11: Method II: The Rating/Ranking Method
Factors Score (1 to 5) X Weighting Factor = Weighted Score
Stage of
development
Scope of IP
protection
Market
attractiveness
Sustainability of
protection
Profit margins
Etc.
Average
Weighted Score
Compared to 3.0

CHAPTER 9.3
the helpfulness of this rating/ranking method in selling products incorporating the licensed
a specific circumstance. subject matter.
The approach also yields at least two other
benefits. First, it prepares the technology transfer Although this looks simple, it is not. One of
manager for marketing, negotiating, and sharpen- the key issues is the degree to which the licensed
ing his or her thinking about what the important subject matter accomplishes the savings or pro-
economic factors are relating to the opportunity. duces the profit. For example, an invention incor-
It gives the manager a greater self-awareness. A porated into a process may produce a savings of
second benefit is that it provides a way of dialogu- $1 a unit. However, when one examines in detail
ing with the internal stakeholders and beneficially how such savings are attained, it may be that sev-
incorporating some of their insights. eral other technologies developed and possessed
The rating/ranking method can also be by the licensee need to be exploited in order to
used for selecting a commercialization path. realize the full $1. In such a case, does the licen-
When developing a commercialization strategy, sor deserve 25 cents, or should the savings be
there are countless possibilities: exclusive versus discounted in some way before the one-fourth
nonexclusive licenses, licensing versus equity in fraction is computed? The issue seems to hinge
a new start-up, going with a company in indus- on whether the invention opens the door to an
try A as the exclusive licensee or in industry B, otherwise locked room called: I can save you $1,
commitment to the industry leader versus a small or whether the invention is a link in a multilink
company who seeks to upset the industry, and so chain that together combine to save $1.29
on. The rating/ranking method can help a man- In the second (profit) manifestation of the
ager sort out the advantages and disadvantages of rule, things get even more complicated. Although
each of the alternatives. It can also be used with net sales is generally a straightforward term to ap-
respect to different potential licensees/partners by ply, profit before tax is subject to many interpre-
taking into account the particular benefit(s) of tations. Normally, the royalty rate is applied to
the technology to such licensee; the method can the royalty basis defined by net sales as follows:
help a seller differentiate among multiple poten- net sales price is the gross invoice price charged
tial candidates to identify those who would ap- minus allowances for returns, and minus cash and
pear to have the most to gain from the license and other discounts granted, charges for packaging
would therefore be the likeliest to enter an agree- and shipping, and sales and excise taxes.30
ment and possibly pay the most. These and other For the purposes of this rule, there is no
criteria can help a technology transfer manager comparable generally accepted definition of profit
decide upon the best commercialization path. before tax. Indeed, one of the basic problems is
determining what an appropriate income state-
5.3 Rules of thumb, such as the 25% ment should look like. Typically, they have the
rule (and other rules) following categories:
Gross sales
5.3.1 The 25% rule Less: returns/allowances
One of the most widely cited tools of valuation is = net sales
the 25% rule. It has various manifestations, but Less: cost of goods sold (COGS)31
when most managers invoke it they usually mean = gross margin (or gross profit)
either of the following: Less: overheads (or G&A, for general
1. The royalty in dollars should be one fourth and administrative)
of the savings in dollars to the licensee by Less: sales (or sales and distribution)
the use of the license subject matter. Less: other
2. The royalty in percent of the net sales price Less: R&D
should be one fourth of the profit, before = Profit before tax (or EBIT, earnings
taxes, enjoyed by the licensee as a result of before interest and tax)

RAZGAITIS
The trouble usually starts below the gross- On the other hand, these expenses are in-
margin calculation. What overheads should be vestments for future payoffs to the company for
attributable to this opportunity? Should all the which the licensor may not enjoy the benefits.
overhead costs currently being experienced by Suppose the U.S. company had elected, in the
the licensee be included in the calculation, even year reported, to increase its R&D investment by
though including these may reward the licensee’s $18,351,000 to pursue an antigravity invention.
inefficiencies? Will the cost-of-sales allocation, This would have left the grand sum of $1,000
which is across many products now being sold, on the EBIT line, corresponding to one-ten-
overcharge the appropriate sales allocation for the thousandth of a percentage point (of sales). Why
subject opportunity? What is “other,” and why is it should a licensor’s fair share of profits depend on
being used to draw down the profitably before the the company’s management pushing an R&D
application of the royalty? And finally, what con- project to develop an antigravity material or, for
stitutes R&D, and should it draw down profits as that matter, any other product?
calculated for determining a reasonable royalty? Above or below the EBIT line are even more
Underneath these questions is the difficulty subjective costs. If they are associated with the
of obtaining reasonable estimates for each of the company’s core operations, they may be appro-
numbers. Annual reports from companies that priate. But what if they are associated with buying
sell products like the one the institution is licens- that new hunting lodge in Montana? Or buying
ing are good places to start. Table 12 shows sum- up Brazilian rain forests? What about restructur-
maries of two large materials companies, one U.S. ing, which may be synonymous for the present
company and one European company, based on cost of past folly? Again the same kinds of argu-
their income statements published in annual re- ments exist on both sides. And again, what about
ports. Although the numbers reflected in Table that favorite term in accounting statements: “oth-
12 represent real data, for the purposes of this il- er.” Other than what?
lustration, the company names have been noted If the licensor agrees that all of the expenses
as U.S. Co. and Europe Co., respectively. shown are appropriate allocations against earn-
As discussed earlier, one of the issues in ap- ings, it leads in this particular year to a negative
plying the 25% rule is where to apply it. If it is number. Now what? Does the institution pay the
applied to the EBIT line ($18,352,000, in the licensee a royalty to commercialize the institution’s
United States company example), it is asserted that product? The point of this discussion is that each
the deductions above that line (COGS, SD&A, cost below the sales line should be analyzed in the
and R&D) are appropriate for determining the context of the subject technology to determine if
true profitability associated with the commercial- the EBIT percentage shown reasonably predicts
ization of the new opportunity being licensed. the licensee’s profitability in the present case. If
Consider whether it is appropriate to subtract not, adjustments to such costs should be made to
R&D from available profit. If it is not subtracted, correct the base on which the rule is applied.
we would get, by this rule, one fourth of 12% The second example in Table 12 (European
(11+1) or a 3% royalty. This is a lot better for the Co.) presents other problems. For competitive
licensor, since it is 12 times the 0.25% one gets by reasons, many companies conceal details in their
using what remains after R&D is subtracted. But statements. They may also use different terminol-
should R&D be included in the subtraction? The ogy. In Europe, sales is normally called turnover,
argument for including it is that R&D is a neces- interest can be finance charges, and so on. This
sary business expense for the enterprise; without example shows a gain from investments.32 Should
such investments, the licensee would not have the the licensor receive the benefit of a higher royalty
high-value, competitive products it needs to sus- because the Europe-based company made money
tain its operations, and, by implication, would be in one year on a good investment? Probably not.
unable to successfully commercialize the subject But if the company had lost money on invest-
opportunity. ments, wouldn’t the licensee argue that such loss

CHAPTER 9.3
should be subtracted as an appropriate business 13 shows the data available from the 1991 edition
expense? So, what about the gain? for SIC #2395.
Another way to obtain income statements In the first two columns are shown summa-
is to use Ibbotson and Associates33 and Robert ries for 11 smaller companies and 17 larger com-
Morris Associates (RMA) publications.34 RMA, panies, based on assets. The right three columns
for example, annually publishes income state- provide three years of data for all of the compa-
ments of categories of companies by Standard nies in the database. Even when focusing on just
Industrial Classification (SIC) code. Continuing the operating profit row, this gives five choices on
with our two materials company examples, Table which to apply the one-fourth rule: 4.1%, 4.7%,
Table 12: Example Applications of the 25% Rule
Annual Report, 1991 Annual Report, 1991

U.S. Co. Europe Co.
US$, in % UK £ in %
thousands millions
Sales 1,249,512 100 “Turnover” 454.0 100
COGSa 643,357 52 Other Inc. 2.2
Gross margin 606,155 48 456.2
“S,D,&A” 447,607 36 “Operating costs” 405.0 89
R&D 140,196 11 EBIT 51.2 11

EBITb 18,352 1
“Investments” (1.4)
Interest 8,090 “Finance charges” 8.7
Restructuring 3,697
Other 9,674 EBT 43.9 10
EBTc (3,109) (0.25) Now what? 2.5%?
Now what? 0.25%?

(0.06%)?
a Cost of goods sold (all “direct” costs of making the product)

b Earnings before interest and taxes
c Earnings before tax

RAZGAITIS
7.8%, 8.4%, and 10.4%. How does a technology profit portfolio bring down the returns of the
transfer manager choose? Taking an average yields stars. Basing a valuation on such numbers will
about 1.5% as the royalty. Is this fair? Unlikely. therefore always be a very tricky business. It also
The root problem is getting good numbers ignores a company’s willingness to pay more for
for the profitability associated with the subject a new opportunity, such as licensing a particu-
opportunity. A prospective licensee will almost lar technology from which new products can be
surely make such a calculation. Yet a licensor will made. As a technology transfer manager becomes
find it very difficult to get access to such infor- more experienced in various business sectors, he
mation. The problem with published numbers or she will better understand the economics of
of business enterprises—such as annual reports, such variables—especially the company’s interest
10Ks, RMA publications, Ibbotson, and other in the opportunity of a new technology—allowing
sources—is that the numbers are “smeared” over for better valuations (see Method IV: Discounted
many different products, each with widely vary- Cash-Flow Analysis with Risk-Adjusted Hurdle,
ing profitability. And once a product has been section 5.4).
introduced, a company is inclined to keep it in One possible remedy to these difficulties is to
the marketplace as long as it contributes to over- request that the licensee provide a pro forma (pre-
head, meaning it at least covers its cost of goods dictive) income statement for the subject oppor-
sold (COGS). In short, dogs in the company’s tunity. In many cases, the licensee will refuse on
Table 13: Another Example Application of the 25% Rule35
Minerals and Earths, Ground or Otherwise Treateda (SIC #2395)
11 Companies 17 Companies
$ 500,000–$2 m $2 m–$10 m All All All
Assets Assets 1991 1990 1989
Net sales 100.0 100.0 100.0 100.0 100.0
Gross “profit” 29.9 21.8 25.4 33.8 32.5
“Op-exp” 21.5 17.7 20.7 26.0 22.1
“Op profit” [ 8.4 4.1 4.7 7.8 10.4 ]
“Other” 1.2 0.8 1.0 1.8 1.6
“Profit before tax” 7.2 3.3 3.0 5.9 8.7
Now what? 1.5%? Average
a Operating without a mine or quarry crushing, grinding, pulverizing, or otherwise preparing

clay, ceramic and refractory minerals; barite, and other miscellaneous minerals, except fuels. Also
includes crushing slag and preparing roofing granules.

CHAPTER 9.3
the grounds that such information is trade-secret Prosthetics where the judge stated, “As a general
information and that providing it, even under rule of thumb, a royalty of 25 percent of net prof-
confidentiality terms, is forbidden. In other cases, its is used in license negotiations.”36 However, in
the licensee may provide it. If so, it is a virtual the famous case of Polaroid vs. Kodak, the judge
certainty that what will be provided is the lower awarded a reasonable royalty that amounted to
range of possible outcomes. Also, such pro forma slightly more than 60% of the infringer’s antici-
statements may have certain cost allocations in- pated profits. The “Ten Sources of Value” (Table
corporated by rule or custom that may be argu- 1) and the rating/ranking factors must always be
able (either way) for getting to a figure to which kept in mind, as should the overwhelming sig-
the parties will apply the 25% rule. nificance of differing risk perceptions of the same
Licensors sometimes call the 25% rule the opportunity. If the licensee sees an opportunity
“one-third rule.” Licensees, on the other hand, as extraordinarily risky, then 25% of the profits
sometimes argue that claiming even one-fourth will appear far too high. If the licensor sees it as
of the profit is overreaching, given such issues picking the low-hanging fruit of something that
as the technology’s early stage of development, can be readily commercialized by a license, 33%
weak patent protection, high market risks, or more will seem reasonable. So, one should
the extraordinary value of intangible assets to not take this “rule” suggesting there is a univer-
be applied by the licensee, and so on. Clearly, sal agreement that the value of “25%” covers all
the many numerous factors that go into value situations.
(summarized earlier) must always be considered For more information, a summary of the his-
when applying rules of thumb. Perhaps the high tory of the 25% rule is included in William (Bill)
risk associated with commercializing a specific Lee’s paper.37 Our observations relating to the use
opportunity means that only one-tenth is fair. of this rule are summarized below:
And if the technology is only a small part of a Positive aspects of the 25% rule method:
very complex whole, with many other patents • Has a “feel-right” tug in certain circum-
and proprietary technologies required of the li- stances
censee and a royalty base on the selling price • Can be the basis (principle) of early
of such a complex whole product, then a value agreement
much less than one-tenth can be reasonable. • Appropriately tied to profitability
This last point relates to the always-relevant dis- • Widely accepted (at least in the sense that
cussion of the royalty base that is being used lots of people have heard of it)
with the royalty rate to determine the royalty
payment. If the licensor’s technology enables Difficulties with the 25% rule method:
substantially the entire product, then the sell- • The lower you go below the top line of an
ing price of the entire product is normally the income statement or model, the more sub-
base. If the licensor’s technology is only part of jective (that is, inauditable and arguable) it
the entire product, then the parties may elect gets, for example, what is appropriate over-
to still use the selling price of the entire prod- head? What are appropriate sales costs?
uct, but discount the royalty rate in recognition • The calculation, depending on how it is
of that fact. Returning to the issue of whether performed, can have the effect of rewarding
25% is the appropriate apportionment, if the licensee business inefficiency.
commercial introduction of a well-developed, • Very difficult to get good income statement
whole technology package for an attractive mar- numbers that are not smeared over many
ket opportunity is certain, then a value higher businesses and products.
than 25% may be appropriate. • The licensed subject matter (normally) rep-
Despite these complexities, the 25% rule is resents only a part of the sales price; com-
well known and widely cited. One example is a plex considerations are needed to decide
citation by the court in Gore vs. Internal Medical whether to discount or not.

RAZGAITIS
• There can be significant year-to-year vari- for determining the relative, premarket contribu-
ability in available income statement tions of licensor and licensee.
numbers. A second version of the 50% rule appears
• No help on upfront fees. to be applied primarily in the area of software
• There is no inherent assessment of the po- and reflects the very significant pre- and post-
tential importance of third party IP and commercial involvement by university and
technology to a licensee’s use of the subject R&D organizations in certain situations. When
technology. software is commercialized, many activities
can be the responsibility of either the licensee
One key piece of advice: If you use the 25% (or or licensor. These include: performing all the
one-third) rule, use it only to develop the calcula- bug fixes and compatibility tests of the original
tion of the royalty rate to be based on sales—never code, developing user interfaces, creating soft-
permit the royalty to be calculated on an as-you- ware manuals, making copies for distribution,
go basis as a percentage of earnings before tax. packaging, finding customers, delivering copies,
hot-line help for routine questions, resources for
5.3.2 The 50% rule in-depth questions, new bug fixes, updates and
Duke Leahey has outlined a 50% rule that is re- improvements, product advertising, sales and
lated to the 25% rule:38 distribution, more bug fixes, and so on. In some
• At the point of product introduction, about instances, the licensee and licensor will divide
50% of the total risk of product failure these responsibilities so that when credit for
remains. cost/risk of creating the product is ascribed to
• If the inventing organization brings the the licensor, then the resulting split is 50:50.
technology to the state of product intro- But there is no simple way of saying how
duction, it is entitled to 50% of the total such a split in responsibilities warrants 50:50. At
reward (profit). one extreme, for example, the owner/developer
• If the commercializing organization partic- of the software product could do everything re-
ipates in premarket development costs and quired for commercial use, including advertising
risks, it is entitled to more than 50% of the and other promotional activities, and elect to hire
total reward. marketers purely on a commission basis to assist
in direct sales. (This is commonly necessary when
From this perspective, the 25% rule repre- selling software that costs in excess of several
sents a 50:50 participation in premarket risk. thousand dollars). In such a case, the marketer
Accordingly, the 50% rule suggests that to deter- is playing only a limited role in the commercial
mine a fair apportionment of profit one should process, basically as a manufacturer’s rep and may
assess the extent to which the premarket risks and be paid a commission, ranging from 10%–20%.
costs will have been borne by the licensor and li- Taking a figure of 15%, this means the revenues
censee when the product finally gets marketed. from sales have been effectively split 85:15 taken
Unfortunately, this is not easy to do. as a percentage of sales in this example of a differ-
When did the invention begin? In most ent rule of thumb.
cases, the inventing organization and individual At the other extreme, the creating organiza-
inventors endured a long, costly gestation that tion can enter a license at an early stage in de-
was the essential primordial ooze from which the velopment and turn over a hard drive contain-
invention emerged. It is therefore unfair to the ing code that works but is not yet complete as a
licensor to add a $5,000 patent application and product. In this case, the licensee has to finish the
a $10,000 project that fleshed out a few numbers code; develop all the user-friendly tools; intro-
and contend such expenditures are equivalent to duce the product to the market; perform all the
the $1 million required cost asserted by a licensee promotions, sales, and distribution; handle the
to bring the technology to the market as the basis customer; and so forth. Here, the licensee may

CHAPTER 9.3
agree to pay a royalty in the range of 10%–25% tastes of consumers. What are some technical
(or even much less). Taking again a figure of 15%, risks? Although it may not be obvious, a key
this means that the revenues from sales have been technical risk has to do with whether the technol-
split 15:85. ogy works. For many reasons, a lot of inventions
By using the 50% rule, or a 50:50 split of simply do not work. Sometimes the invention
revenues, a licensor agrees to perform an addi- works, but only under very carefully controlled,
tional 35% share more of services than in the glacially slow procedures with tiny quantities in
15:85 example (or the commercial partner is clean rooms carried out by very experienced sci-
doing an additional 35% share more of ser- entists using technicians with dexterity and intel-
vices than in the manufacturer’s rep example ligence that is hard and very costly to duplicate.
of 85:15). As you can see, it is unhelpful to If a product needs to be made in high volumes at
rely too heavily on such numbers. Indeed, like low cost, there is a huge risk in taking something
any other type of licensing, once a technology that works in the cleanest of clean-rooms and get-
transfer manager has gone through a significant ting it to work in a factory.
number of deals, he or she will be able to recog- In the category of market risk, a competitor
nize what deserves a 50:50 split, as well as the may develop a superior product based on anoth-
appropriate split for the level of involvement in er technology. Customer requirements can also
particular cases. change dramatically. Tastes can change, and antic-
ipated profit margins can erode or disappear. And
5.4 Discounted cash-flow analysis customers, despite all the market assessment, can
with hurdle rates simply decide not to like a product. Remember
Method III introduced the concept of apportion- New Coke? Remember Corfam? Sinclair and
ing profit by examining each party’s contributions Commodore computers? An appetite-suppress-
and risks incurred in creating such profit. Method ing candy with the unfortunate name of Ayds?
IV is a more sophisticated way of performing such Finally, all sorts of external events can sink
considerations. This method consists of deter- an enterprise. Some raw material that the licens-
mining future cash flows, then discounting these ee needs to use or a product that it plans to sell
cash flows by accounting for the time over which can become illegal or so constrained by regula-
those amounts are to be received and by the as- tion that there is no cost-effective way to use it
sociated risk of receiving such cash flows. For this or sell it. Other industries can undergo upheaval
reason, this method is sometimes known as the to the mortal detriment of a licensee. Remember
discounted cash flow (DCF) method. When all the oil embargo? The shortage of DRAM chips?
such cash flows have been discounted, they can Nuclear power? A key trade secret could be sto-
be added to determine net present value (NPV). len. The patent office could deny patentability or
The key to this method is the application of the grant broad rights to a blocking patent owned by
risk-adjusted hurdle rate (hereafter designated by a third party.
k) or the factor based upon perceived risk that is
used to discount the future cash flows and will be 5.4.2 Developing a risk-reward model
referred to here as the “risk-adjusted hurdle rate” Investors use a risk-reward model to guide their
(RAHR). In effect, k is used to determine how investment decision making. It is commonly
the profits (or cash) resulting from the commer- expressed in some form of a graph such as the
cialization of the subject opportunity should be one shown in Figure 2, where increased risk de-
apportioned. mands an increased required rate of return (k),
also known as the hurdle rate. The job of a busi-
5.4.1 Defining risk nessperson is to convert the investments made in
First, let us consider what is meant by risk. There the company into returns that equal or exceed
are technical risks, market risks, and the infamous the rates of return expected by such investors. So
other risks, such as market erosion or the changing the floor for a businessperson’s expected returns

RAZGAITIS
is normally the company-specific, average cost of and publication of an invention may or may not
capital (a combination of debt and equity). What reduce risks associated with commercializing a
makes a particular project investment good or product of interest to a licensee.39 Not all motion
bad at the stage of making the investment is the is progress. This is yet another reason why costs
perception of whether the returns will be attrac- are irrelevant in assessing value. Figure 3 summa-
tive in relation to its risks, the latter of which are rizes the key steps of this method.
determined by the company’s prescribed reward- First, a determination must be made of the
risk relationship. earnings before interest and tax (EBIT). This is
From the point of view of the prospective done in the same fashion (and with the same un-
licensee, one of the basic value questions is the certainties) as with Method III (see Table 12).
degree of risk that has been eliminated by the Next, a provision is made for a royalty payment
licensor’s R&D and other activities. The greater as yet another cost of the licensee. Initially, this
the risk reduction, the greater the perceived value value is simply a guess. Later, it will be adjusted to
(or, in other words, it is less likely that a discount make the overall returns attractive to the licensee.
will be applied to the perceived potential value of Next, a provision is made for taxes. Throughout
the license). From the perspective of the licensor the 1980s and 1990s, a value of 40% was typi-
and, particularly, the professor-inventor, this sug- cal for combined state and federal taxes; some-
gests that additional R&D will increase both the what lower projections are now sometimes made
likelihood and the economic value of a license. for the future. This results in earnings after tax
But this is only true if the licensor’s R&D activi- (EAT—an easy acronym to remember).
ties are successfully applied to commercial risk-re- But the EAT for a project is rarely the
ducing activities. Investment in R&D that is di- amount of cash it throws off. One reason is that
rected toward improved scientific understanding to calculate earnings, we have subtracted from
Figure 2: Return and Risk
Good investment
Required rate of return k(percent)
Bad investment
Company-specific average cost of capital
Risk-free rate of return (T= bills)

7
3% is the historic figure people require to defer consumption
+ 4% inflation = 7% T bill
Increasing risk

CHAPTER 9.3
revenues some non-cash costs such as deprecia- is the hurdle (or discount) rate, and n is the year
tion. To get a cash figure, we need to make three from now in which the projected cash flow oc-
additional adjustments to earnings: (1) the total curs.41 In order to perform this calculation, esti-
depreciation expenses deducted from revenues to mates must be made for revenues and all relevant
reach EBT must be added back since they are not costs and investments year by year. This can be a
a current-year cash expense; (2) the current-year formidable exercise to a first-timer, but after the
cash investment (such as plant and equipment) technology transfer manager has done this a few
needed to produce the revenues flowing from the times, timidity flees and the manager will find
technology must be deducted; and (3) the year- him- or herself boldly arguing about projected
by-year increase needed in networking capital costs of sales in the year 2020. Table 14 provides
(current assets, such as cash, receivables, and in- an example calculation taken from Gordon Smith
ventory, less current liabilities, such as payables— and Russell Parr.42
all of which tend to increase with increasing sales) In the example shown in Table 14, a com-
must be subtracted. The result is net cash flow in pany is considering whether to buy a license for
current-year dollars for the projected period, nor- a specialty product to add to an already existing
mally at least 10 years of sales, or a total of 15 or commodity product. The royalty line showing
more years from the effective date of the license 12.6% of sales is based upon the sales of the li-
agreement. censed, specialty product only. The NPV of the
Next, each years’ cash flow is reduced by di- combined net cash is shown as US$19,684. The
viding each cash flow by the term (1+k)n, where k 12.6% was used because this NPV is identical to
Figure 3: Value: Risk Plus Magnitude and Timing of Future Cash Flows40
1 EBT
Sales
(expenses)
(depreciation)
(royalty)
Taxes
Depreciation Net
EAT (investment) cash
(increase in working capital) flow
2
Discount cash by NPVa = $ in year n
(1 + k)n
3 4
Embody risk in “k” Choose “k”
a Net present value equals “All the future benefits of ownership compressed into a single payment.”

RAZGAITIS
Table 14: Commodity Corp. Discounted Cash-Flow Analysis

(US$, in thousands)
% 1991 1992 1993 1994 1995 %
Commodity sales 100 100,000 105,000 110,250 115,763 121,551
Specialty product sales 100 1,000 5,000 20,000 45,000 60,000
Total sales 101,000 110,000 130,250 160,763 181,151
Cost of commodity sales 68 68,000 71,400 74,970 78,719 82,564
Cost of specialty product 45 450 2,250 9,000 20,250 27,000

sales
Total cost of sales 68,450 73,650 83,970 98,969 109,654
Depreciation expense 2,632 2,813 3,051 3,446 3,699
Gross profit 30 29,918 33,537 43,229 58,348 68,198 38
Selling, general and 24 24,240 26,400 31,260 38,583 43,572 24

administrative
Royalty payment at 12.6% 126 630 2,520 5,670 7,560

of sales
Operating income 5 5,552 6,507 9,449 14,095 17,065 14
Provision for taxes 2,499 2,928 4,252 6,343 7,679
Net income 3 3,054 3,579 5,197 7,752 9,386 5
Depreciation expense 2,632 2,813 3,051 3,446 3,699
Gross cash flow 6 5,685 6,392 8,248 11,198 13,085 7
Less—
- Additions to working 1,200 1,800 4,050 6,103 4,158

capital
- Capital expenditures 2,632 3,632 4,763 7,901 5,046
- Net cash flow 2 1,853 960 (565) (2,805) 3,881 2
- Discount rate 0.9333 0.8115 0.7057 0.6136 4.9718
- Present value 1,730 779 (399) (1,721) 19,296
Total net present value (in US$, in thousands) 19,684

CHAPTER 9.3
the NPV of not taking a license for the specialty stage where the technology does not require an
product. Therefore, a royalty of 12.6% would be additional current-year net cash investment. In
the most the company would pay to gain this ad- this model, the licensee has had to sink a total of
ditional product. $10 million to get to this point (7+2+1), and in
The key aspect of the above calculation is the seventh year, the project results in a net cash
the specification of a value for k. Before delving inflow of $1 million. Note that for most projects,
into how a value for k might be selected, a bet- the amounts of initial investment required are
ter understanding of what k does to a calculation generally able to be estimated with more certainty
is required. Figure 4, which shows a pro forma than are the later-arriving profits.
net-cash-flow projection for a license, can help us Now, the market for the product is expect-
take our first steps to understanding k. ed to take off and there is a significant growth
At time zero, the license agreement is signed. in expected cash generated until the product
During each of the first and second years, the li- peaks in the 12th year. Sales begin to decline
censee spends $1 million in combined upfront in the 15th year, and finally end after the 19th
fees and technology development and project year when the product is withdrawn from the
costs. In the third year, these costs grow to $2 market because it is no longer economically
million, and in the fourth year, as scale-up and competitive.
production costs are incurred, they grow to $3 Adding all the cash flows above the line,
million. So, by the end of the fourth year, and from the seventh through the 19th years, shows
before any sales occur, the licensee has spent $7 a cumulative $136 million. Thus, it took a rela-
million. Although sales begin in the fifth year, tively certain $10 million investment to get an
there is still a net investment required of $2 mil- expected return of $136 million.43 Putting this
lion and again of $1 million in the sixth year. At another way, a $10-million investment starting
the seventh year, the licensee finally reaches the today and extending over a period of the next six
Figure 4: Example Future Net Cash Flow
$16
Profit pressure
at maturity
$14
Total net cash flow = $126m
$12
Investment required = $10m Patent expires
$10
$8
Patent issues
$6
1st commercial sales
$4 year
$2
($2)
Exit the business
($4)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project years

RAZGAITIS
years, will yield a substantial $126 million net in the first and second years). As time progresses,
over the next 19 years.44 there is a compound discounting of cash amounts
Figure 4 ignores inflation and all the risks as- until the cash contributions calculated by the 15%
sociated with the production of those future cash discount factor in the 19th year are almost neg-
flows. In accounting for inflation, a k value of 2%– ligible. This is because the mathematics assumes
8% (depending on our views of the future) might a compounding of risk with each succeeding
be used to reduce all the cash flows to the same year (in other words, more things can go wrong
basis so that when the return is netted against the as more time progresses). Remember that a k of
investment the calculation is made using same year 15% in this model is more than the presumed
dollars, at time zero. If a k value of 7% is selected, rate of inflation. This is why the term hurdle rate
each of the shown cash flows would then be di- is used for k. If the projected cash flows cannot be
vided by the term 1.07n, where n is 1, 2, 3, and so attractive using 15%, then this investment does
on, up to 19 for each year of the projection. not jump this hurdle and should not be made.
However, in addition to inflation, risk must What Figure 5 shows is that, for a k of 15%,
also be assessed and accounted for. The licensee’s the $126 million of nominal net cash is really
expenditures of money are comparatively cer- only $17.25 million of time zero (now) cash.
tain. The returns are not. If the licensee takes This $17.25 million value is called the net pres-
the view that investments and returns should be ent value (NPV) at a hurdle of 15%. The NPV
discounted by the company’s cost of capital, and means that, for a risk value of 15%, including in-
such cost is, say, 15% (which includes the effects flation and all the things that can go wrong, the
of inflation), then the cash flows of Figure 4 result decision to invest in this opportunity will pro-
in the curve shown in Figure 5. duce, in time, the equivalent of $17.25 million
This shows that the early-year cash amounts of today’s dollars. By definition, this means it is
are reduced slightly (the curve and bars are close worth making the investment, unless the licensee
Figure 5: NPV of Net Cash Flow at a Risk hurdle (Discount rate) of 15%
$16
NPV (15% of $126 million) ,
$14
is $17.25 million, which corresponds to
$12 the sum of all the values associated
with this curve,
$10
$17.25 million is the
$8 maximum a licensee
would pay for the
$6 right to such future
cash flows if its
$4 perception of risk
$2 corresponds to a
k of 15%.
0
($2)
($4)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project years

CHAPTER 9.3
has an even better NPV opportunity at the same opportunity. Otherwise, the licensee will select
or lower level of risk. the most positive opportunities available. In any
Figure 6 shows the impact of various hurdle case, the licensee will still want to buy the rights
rates on the same cash values shown in Figure 5. to the opportunity for as little as possible, even
The original cash profile shown was for less than the values used in computing the NPV
a hurdle rate of 0% and assessed this opportu- in the first place: “Business is about paying tens
nity at $126 million net in nominal dollars. If for fifteens.”45
a k value corresponding to a near risk-free alter-
native investment opportunity of 7% is selected 5.4.3 Determining k (the hurdle rate)
over the period, then the opportunity is assessed Now, how is k determined? The discussion of
at $49 million (again, and always, in today’s dol- Method I noted that established market prices
lars). When a hurdle rate of 15% is selected, cor- exist for certain standard kinds of items, such as
responding to a low but real risk, this is further office floor-space rentals, and for standard forms
reduced to $17 million. Finally, when this oppor- of debt instruments, such as federal securities of
tunity is believed to contain significant technical, varying maturity. U.S. Treasury securities, having
market, and other risks corresponding to a risk- essentially no “business” risk, have the lowest k
adjusted hurdle rate (RAHR) of 30%, the NPV is values. For example, as of 13 April 2001, the k
reduced to $1.6 million. value ranged from 4.33% on two-year treasuries
The key idea of NPV is that, once the ap- to 5.16% on ten-year treasuries. Bonds offered
propriate value for k has been selected by the by corporations generally have higher k values,
licensee, then the licensee should be motivated depending upon the perceived risk as character-
to acquire rights to any properties that have a ized by various bond-rating agencies. However,
positive value of NPV, provided the company has all such rates are for broadly based investments,
sufficient resources to pursue every positive NPV not a specific commercialization project, so they
Figure 6: NPV of Net Cash Flow at Various Risk-Hurdle Rates (k)
$16
$14
NPV (0%, $126m)
$12
NPV (7%, $49m)
$10 NPV (15%, $17m)
$8 NPV (30%, $1.6m)
$6
$4
$2
($2)
($4)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project years

RAZGAITIS
are normally believed to be substantially less risky dramatically down to 30%–40% (depending
(because the companies exist, their markets are upon assessments of competitive response, mar-
known, their competitors positioned, their tech- ket saturation, cost of expansion, and so on). The
nology understood, and their businesses typically hurdle rates used for genuine start-up situations
are somewhat diversified). are usually far higher than those used by an exist-
Unfortunately, there is no such table of values ing company, and they reflect the increased risks
available for technology licenses. As was the case associated with all the activities needed to create a
when contrasting office space rentals and tech- business ex nihilo.
nology commercialization opportunities, the lat- So, what is a reasonable way to categorize
ter do not fall into sufficiently precise categories hurdle rates? There is no simple answer to this
with large numbers of published values to permit question. However, to provide some insight the
standard ks to be established. broad generalizations of Box 1 are offered for five
Figure 7 illustrates another type of risk con- categories of risk.47
sideration: business start-up risk. This is based Most licensing situations with existing
primarily on a book by Jeff Timmons.46 companies will fall into Categories II and III,
A number of terms are used to characterize corresponding to hurdle rates in the range of
the stages of development; at times, these terms 25%–40%. Start-up situations or companies
can be confusing and contradictory. In general, contemplating a spinout structure normally re-
for capital sought prior to initial sales, the hurdle quire hurdle rates in excess of 40%, even to 50%
rate required by risk-capital providers is very high, or higher. However, as was discussed in connec-
50%–100% (or even more). Once sales exist and tion with the 25% Rule, every licensing opportu-
a market can be characterized, and assuming the nity has case-specific factors that affect both value
results are favorable, the hurdle rates can decline and, our present concern, risk. Just because an
Figure 7: Hurdle Rates for Start-ups
100 Sales
90
60
50
K Percent
40
30
20
10
0
Years
0
Seed Start-Up 2nd Stage IPO
R&D 1st Stage Mezzanine
Expansion Bridge

CHAPTER 9.3
invention relates to an existing manufacturing ca- risk may be reduced by working with prospective
pability with a known technology area, a poten- licensees who are either already commercially ap-
tial licensee may see the risk associated with such plying technology similar to the subject opportu-
specific invention as warranting a RAHR higher, nity or selling like or similar products. The point
or lower, than given in the Box below. here is that companies perceive risk differently
Figure 8 applies these five risk categories to depending upon their technology base and their
our original cash flow example of Figure 4. existing customers. If, by this redirecting of mar-
If this opportunity corresponds to Category keting activity, a different prospective licensee’s
III, the NPV ranges from a negative $800,000 assessment of risk is now 30%, then there is the
(for a k of 40%) to a positive $1.6 million (30%). potential to gain as much as an additional $1.6
So, what originally looked like a simple decision million beyond those payments embedded in
of making a total investment of $10 million to the cash-flow calculation. That is a very dramatic
net a total of $126 million is actually a close call. increase in value. Furthermore, the likelihood of
If the risk of this opportunity corresponds to a getting the royalties is increased because it is more
hurdle of 40%, this investment cannot be justified likely that such a licensee will succeed (all other
because the NPV is negative. Recall that, when things being equal—and they never are).
this model was created, (an unstated) upfront A second approach to dealing with negative
payment and progress payments were assumed NPV outcomes is to consider what R&D and/or
by the licensee to the licensor, as were continu- market development activities can reduce the risk.
ing royalties that reduced the cash flows to those The real technical risk of some key aspect of the
shown. Both were part of the $10 million invest- technology may be known by the inventors to be
ment. From the point of view of the licensee, this much less than that perceived by prospective buy-
negative NPV should be a stimulus to reconsider ers. A carefully directed, internally funded R&D
all such IP payments to see if the negative NPV program tackling commercial objectives can sig-
can be made positive. nificantly reduce such risk. Of course, it is always
possible that such results will go the other way.
5.4.4 Reducing risk/enhancing value The key idea is to spend small amounts of money
In any event, there are at least two other possibili- on critical, commercially relevant experiments—
ties for reducing IP payments. First, the perceived and not just gather ever-more publishable data
Box 1: What Is Reasonable k?
Unfortunately, the answer is: whatever the market says it is.
What does the market seem to be saying?
I. Low risk (assuredly fits into an existing manufacturing line and market) 10% to 20%; if required
to maintain base product life, then k could be much lower, or even discarded
II. New product (existing manufacturing capability, known technology) 25% to 35%
III. New product and technology (still in existing business) 30% to 40%
IV. New business, product ready for sale (no R&D required) 40% to 50%
V. New business, seed funding, R&D stage 50% to 70% (or more)

RAZGAITIS
Figure 8: Who Are Prospective Licensees

and What Should They Be Willing to Pay?
$16
Profit pressure
at maturity
$14
$12
Patent expires
$10
$8
Patent issues
$6
1st Commercial
$4 Sales Year
$2
($2)
Exit the business
($4)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Project years
Applied to our previous

net-cash-flow model, what would
an investor conclude?
Category k NPV Yes
RF............................ 7%............................. $49m
I............................... 10%–20%................ $33–$8m For a “New Product” category

(k=30%):
II.............................. 25%–35%................ $4.2–$0.1m ≤$1.6m
III>.......................... 30%–40%............... $1.6– $(0.7)m

Barely, Yes
IV............................. 40%–50%............... $(0.7) – $(1.4)m
V.............................. >50%........................ <$(1.4)m Only if you paid me!

CHAPTER 9.3
sets. Some have described this process as doing of competitors. The net result is likely to be that
the last experiment first. In general, it is a very each licensee will pay less royalty, but together
good idea. they could (and should be if such an approach is
Another tool in such a risk-reduction ap- considered) pay more total royalties.48 More de-
proach is leveraging government funding. It can tails on DCF models are provided in the Wiley-
be argued that government funding should be published book by this author.49
used to reduce the risk of significant commer-
cial opportunities so that the private sector can 5.4.5 Possible payment structures
apply it to create high-valued companies and Running royalty structures. There are many pos-
jobs. Commercial funding necessarily has some sible royalty structures. Because the royalty rate
relatively immediate market application and in- depends upon the economic value associated
troduction. However, there are other sources of with specific products, if there are multiple prod-
“research” funding sometimes available that push ucts, then a separate royalty could be established
forward certain knowledge frontiers that could for each product or product area within a single
have as a consequence the development of know- agreement. There is also justification for build-
how that supports the subsequent commercial ing up a royalty rate based upon the measure of
development needed for a specific licensing IP protection obtained. For example, a licensee
opportunity. might pay a royalty of 3% on the basic patent
In addition to reducing risk, one can work and 1% for the use of the two other patents in
to directly enhance value. One tool to accom- the package, or 1% for the use of the unpublished
plish the latter is to form partnering relationships technical information and an additional 3% for
with other R&D organizations that, by pooling the patents, and so forth. Of course, this should
technology resources and market awareness, can only be considered if it relates to an economic
sometimes significantly increase the NPV per- benefit (lower k, higher margins, and so on).
ceived by prospective licensees. Even when the Many licensees ask for a declining royalty rate
NPV is already positive and a prospective licensee with increasing sales, a so-called staircase or wed-
is interested in negotiating rights, remember that ding-cake royalty structure. One example would
a licensor always has alternatives. For example, be a royalty of 5% on the first $1 million in sales,
the technology could be pushed closer to mar- 3% for the next $9 million, and 1% for all sales
ket either by internal investment or by partnering above $10 million, based on annual sales. The un-
with another R&D organization to increase the derlying theory of this approach appears to be an
value. The technology transfer manager should economy-of-scale argument similar to bulk pur-
make such investment decisions by calculating chasing. If a company buys one box of paper clips,
the prospective increase in value discounted by it might conclude that $5 is reasonable; if it buys
the risk of success. 1,000 boxes it may expect to pay only $3 each;
This risk-adjusted hurdle rate approach can and if it commits to buying trainloads per year, it
be used for exclusive and nonexclusive licenses, may expect to pay only $1 each. Companies com-
as well as for licenses by field (or product) and monly leverage volume purchases when they buy,
territory. In each case, the cash-flow projections and apply this same kind of thinking when they
need to reflect the anticipated commercial out- sell. However, there is no economy-of-scale prin-
come given the structure of the agreement. For ciple for IP rights. The licensor’s costs of provid-
example, if the licensing strategy is to have two ing the grant to the licensee are not relevant, nor
competing licensees in all fields and territories, do they decline based on sales volume, as would
then the magnitude of the total sales attainable the costs of a paper-clip supplier. In fact, based
by each licensee is probably less than if there upon an economic-return model, it can be argued
were to be one exclusive licensee. However, the that the profitability to the licensee increases with
gross margins, or profitability, may remain large, increasing sales, and so, the royalty rate should
since each licensee will not face a large number actually go up with increasing sales. For practical

RAZGAITIS
reasons, the parties may elect to simply compro- in favor of the approach: (1) it eliminates the ad-
mise and keep the royalty rate fixed regardless of ministrative burdens (quarterly or annual reports
sales volume. and checks) for both the licensor and licensee and
Developing a staircase royalty structure based (2) basing royalties on sales may divulge highly
on cumulative sales or on years from first com- sensitive licensee business information, which is
mercial use may have a rational economic basis. against company policy or wishes. Recall the ear-
Ordinarily, after the initial introduction, the prof- lier discussion about setting the values of future
itability of a product climbs to a peak and then, income streams in well-defined situations such as
as the product matures, pricing pressures tend to office rent. When a stream of cash payments is
squeeze margins. A royalty structure that attempts well defined and the risk is low or at least well
to model this profile makes sense, providing the understood, then two parties can readily agree
rate during the high-profit years has been set to on the conversion value of the future stream into
correspond with economic benefits. For practical one present payment (which is really just the
reasons, parties frequently elect a single rate over NPV of the future stream). However, for early-
the life of the patents that balances all these fac- stage technologies, estimates of the range of pos-
tors. Regardless of the approach, the rate agreed sible dollar returns from royalties can vary over
to tends to act as a cap for the reasons discussed several orders of magnitude. This is precisely why
in the introduction to this chapter. The licensor a royalty rate so effectively deals with such un-
does not have a vehicle for increasing the rate, certainties. When either the licensee or licensor
and the licensee can come back to the licensor seeks to reduce such uncertainties to a one-time
and threaten to drop the license because of less- lump sum, there is greater risk involved in mak-
than-anticipated margins unless it gets a reducing the conversion. One possible motivation for a
tion in the rate. prospective licensee is simply to see if the license
Licensees sometimes propose capping the to- can be acquired cheaply. Every agreement has as-
tal economic return to the licensor. This may be sociated with it a range of expected outcomes. If
expressed as some multiple of the licensor’s costs a licensee can acquire the license by the one-time
(You shouldn’t expect to get more than ten times payment of the NPV associated with the most
what you’ve invested in this!) or simply as some conservative outcome, then it is in the licensee’s
statement of moral principle ($10 million should interest to do so.
be more than enough, after all you are a public, Rest assured, a licensee is unlikely to agree
not-for-profit institution!). This is nonsense. A to an NPV associated with the most optimistic
licensor who is the rightful owner of a portfolio outcome. It should be recognized, however, that
of technologies has a stewardship responsibility sustaining ongoing agreements is both a business
to return value to the institution for the transfer cost and a risk. An ongoing payment arrangement
of such rights. Furthermore, all portfolios exhibit could possibly lead to a dispute or even litigation.
many losers, a few moderate successes, and only And there may be situations where the licensor’s
a few agreements that perform really well. If the cash needs are such that the institution is willing
licensor agrees to caps on the total return of all to forgo the returns associated with more opti-
agreements in the portfolio, then the portfolio mistic possible projections. If this becomes the
will produce only losers and moderate returns. licensor’s practice, however, the overall returns on
Without the occasional big win (at a fair royalty the licensor’s portfolio of technologies will be re-
rate), the portfolio will not produce a fair overall duced because the licensor will not experience the
return. rare but important higher-than-projected returns
What about the approach of a one-time, paid- from an exceptional license.
up license—that is, setting a higher licensing fee Having said all this, sometimes such an ar-
with a zero running royalty? Some licensees push rangement can be in the interests of both parties
hard for this approach—and not always from a (beyond the simple example given above). The
pure heart. There are several common arguments licensor may wish to take advantage of the high

CHAPTER 9.3
opportunity value associated with a paid license payment of $100,000 and then royalties on sales.
so that the funds can be used to move further and Such a figure would then correspond to a down
faster other technology opportunities that will payment of a little more than 6%. This might be
lead to even more substantial returns. Or perhaps quite reasonable. Some negotiators use, as a rule
the licensees are cash-rich from a current high- of thumb, one year of projected mature-earned
outcome year and are simply willing to make a royalties as an appropriate down payment; this is
fair and substantial payment to own and control approximately 5%–10% of the NPV.
an opportunity because of its perceived strategic Minimums. Another form of diligence is
importance. Overall, in those cases where the fu- the minimum cash payment. Also, agreeing
ture use and value of an opportunity appears to upon such payments increases the likelihood
be reasonably well-bounded, then an NPV calcu- that both parties are looking at the opportunity
lation can be made that is fair to both parties. from similar perspectives. Generally, exclusive li-
Upfront payments. Upfront payments take censes contain minimums. Nonexclusive licenses
many possible forms. As discussed earlier, the may or may not include minimums. The rule of
extreme case is a one-time payment in lieu of thumb appears to be an annual payment in the
running royalties.50 A series of payments can also amount of one-fourth to one-half the annual
be made, either by calendar (such as annual pay- projected reasonable royalty based on sales esti-
ments) or by progress (such as upon filing an IND mates. Again, the higher the risk and uncertainty
[Investigational New Drug application, a filing of such sales estimates, the lower the minimum
with the U.S. Food and Drug Administration], royalty, and vice versa.
upon first commercial sale or other milestones) in It is important to realize that the licensee
conjunction with or instead of royalties. Or the still has significant negotiating leverage on the
licensee can commit to R&D to fund certain ac- minimums. If they end up being too high, and
tivities at the licensor’s laboratories. it is now five years into the agreement, the li-
All of these are basically down payments on censee can exert a lot of influence on the licensor
the NPV opportunity as calculated earlier, and by threatening to drop the license if the mini-
the purpose of any down payment is the same. It mums are not reduced in line with the actual
combines a form of diligence and commitment, sales (assuming the licensee has been diligent in
and provides an early return for the original in- developing the technology and the market). In
vestor, the licensor. In university-industry licens- addition, getting back a five-year-old technology
ing, the upfront payment will commonly at least may make it difficult for a licensor to find an-
exceed the licensee’s payment of all the licensor’s other party interested in licensing the product.
costs in filing and obtaining a patent or patents As discussed earlier, the wish, or threat, for bet-
incurred to date. If the license corresponded to ter terms, of a licensee in a licensee-initiated ne-
an NPV of $1.6 million as in the previous ex- gotiation, puts in jeopardy the licensee’s invest-
ample, and the patent costs were $5,000, such an ment in the technology (any upfront payments,
upfront commitment covering only the licensor’s milestones, annual royalties, and of course its
costs would be cheap—too cheap. own R&D and market development). So a li-
For well-established transactions such as censee would have to take a dramatic step to ful-
buying a house or a car, a down payment of 10%, fill such a threat and drop its license should the
more or less, is common, although for highly licensor not agree.
motivated sales of, say, certain out-of-popularity Equity consideration. A full treatment of
automobiles, might be happy with “no money this subject is beyond the scope of this chapter.
down” deals. For highly speculative opportuni- However, much of what has been discussed above
ties, such as a license to new technology, 10% regarding NPV calculations using discounted
may be on the high side. Consider in the pre- cash-flow analysis and hurdle rates applies. The
vious example, that the $1.6 million NPV was reader is referred to the author’s Wiley-published
computed on the basis of a single, time zero, cash books for more information.

RAZGAITIS
5.4.6 Summary Next, reconsider the estimate for the num-

Summary observations and valuation principles ber of patients cured: 25 out of 100. Now assume
based on Method IV are given in Box 2 and Box 3. a binomial distribution, a commonly occurring
natural distribution, with a mean of 25 as shown
5.5 Advanced tools in Figure 10B.
Once a DCF model has been established, it is Now, adjust the assumption for the market-
possible to extend such analysis by application of ing costs from simply $16 million to the triangu-
quite complex mathematical modeling tools and lar distribution shown in Figure 10C. The most
gain a better understanding of their economic probable outcome is shown as $16 million, and
impact. the minimum and maximum are $12 million and
The basic tool is sometimes called probabilis- $18 million.
tic modeling and, most commonly, Monte Carlo Similarly, the growth rate of the market and
analysis. The complexity of such models used to the market penetration single values are replaced
require mainframe or minicomputers, but at least by the distributions shown in Figure 10D and
two such products now run on personal comput- Figure 10E.
ers. 51 Every simple-value cell in a spreadsheet can
This tool works by replacing certain cells in a be replaced by any of the available probability
spreadsheet with a probabilistic value rather than distributions. As a technology transfer manager
a single number as was done in Method IV. Then gains experience using this tool, it becomes in-
the model is run over and over again, hundreds creasingly clear which cells to treat in this man-
of times, to develop a distribution of outcomes. ner and which probability distribution makes the
It is much like running the company 1,000 times most sense. There never is a right answer. In fact,
(or more) and comparing the outcomes. Under one of the great powers of this methodology is
the DCF approach, each outcome is the same. that the model can be run over and over again
However, under a Monte Carlo method, each of with changing assumptions to better understand
the 1,000 runs would produce somewhat differ- the key assumptions that should be investigated
ent values for those cells that were selected for in more detail to reduce overall uncertainty. The
treatment in this manner. It may sound more result of the Monte Carlo simulation is shown in
complicated, but in many ways it is simpler. In Figure 11.
fact, Monte Carlo methods are particularly useful This outcome shows what happened when
when modeling a start up situation. this business venture was run 998 times. The
Below is an example taken from one of the financial outcome ranged from the worst case,
companies that offers a PC product.52 This con- when all things broke the wrong way (the high-
siders a fictitious drug, ClearView, which may be est marketing cost, the fewest number of cured
a cure for nearsightedness. The key assumptions patients, and so on), with a loss of $14.9 million,
are shown in Figure 9. to the most-favorable outcome (when everything
In this illustration, the impact on profitabil- went right) of a net gain of $51.9 million. Half
ity will be examined through the probabilistic in- the time, the net gain was less than $9.8 million,
vestigation of five assumptions. These are shown and half the time it was more. The big spike to the
in Figure 10. left on the graph of Figure 11 reflects the severe
First, consider the testing costs. The origi- loss that occurs because the cure rate was so low
nal model assumed the testing costs would be that U.S. Food and Drug Administration (FDA)
$4 million. Assume there is an equal probability approval was never obtained.
that the costs will range between $3 million and Another advanced method of increasing im-
$5 million but will never be less than $3 million portance is the use of real options (as opposed to
and never more than $5 million. This is shown as financial options). Indeed, an increasing number
the uniform distribution at the top left of Figure of books explore the use of real options in busi-
10A. ness decision making. Their potential application

CHAPTER 9.3
Box 2: Summary Observations
1. Value is dependent on risk—the risk-adjusted hurdle rate (for the same magnitude and timing
of future net cash flows).
2. There is no one right risk model.
3. Price is determined by what a buyer will give for the rights to such cash flows.
4. As a licensor’s price aspirations correspond to low (optimistic) values of RAHR, the likelihood of
finding such a buyer is reduced (which translates to increased time and resources required to
find such a buyer).
5. There is no one right price (providing No. 2 is true).
6. The longer the period of such future cash flows, the wider the risk limits and the greater the
uncertainty in price aspiration.
7. For cash streams that meet certain standard categories, such as home mortgages, there are well-
established markets that significantly reduce the scatter on risk and price. No such market exists
for early-stage technologies.
8. Net-cash-flow models require more work and are subject to significant assumptions about
operations and the future (but the licensee is using them to analyze the opportunity and so
should the licensor).
Box 3: DCF Valuation Principles
1. Value calculations may have wide limits because of the range of estimates of the magnitude,
timing, and risk of future net cash flows.
2. Value is given by a down payment (option/license fee) and a future royalty, which may, in the
end, be used to determine the one-time, upfront payment for a fully paid-up license.
3. The down payment for a running royalty license should (normally) be a small fraction of the
total estimated value based on one or the other of the following:
- approximating the higher risk bound (but, nonzero)
- 5%–10% of the total NPV (best estimate basis)
4. A fair royalty can only be negotiated when reasonable estimates can be made of future net
cash flows.
5. The royalty should be uncapped.
6. Royalty scales dependent on total sales, if used, should be based on value not on a quantity
discount model.
7. Royalties based on figures below the top line (sales) put the licensor at risk for inefficiency/
ineffectiveness of the licensee, which has the effect of double accounting for risk.

RAZGAITIS
to early, high-risk technologies can be useful methods and negotiation planning and strategy.
because real options do not punish substantial The 2003 Valuation and Pricing of Technology-
but distant future outcomes by high and com- Based IP also gives a more extensive discussion
pounded risk-adjusted hurdle rates. The DCF of various forms of deal structures and financial
approach in particular can calculate an almost payments.
negligible value to a $1 billion opportunity that
occurs, say, 10 years in the future with substan- 5.6 Auctions
tial average risk. Real options can be used to take This analysis of methods and tools began by con-
such risk apart by valuing an opportunity stage sidering the use of industry standards. In a sense,
by stage, risk by risk, as decisions are reached by considering options it ends there as well. An
and investments made. An introduction to such auction is simply a formalized way of obtain-
methods is given in the author’s Wiley-pub- ing bids from competitive potential buyers. As a
lished books and, in particular, another 2003 method, it dates from antiquity and is the preva-
Wiley book by the author: Dealmaking: Business lent form of commodity transactions, ranging
Negotiations Using Monte Carlo and Real Options from the New York Stock Exchange to commod-
Analysis. These resources give a more comprehen- ity markets to estate and sheriff sales caused by
sive treatment of Monte Carlo and real option owner bankruptcies.
Figure 9: Sample Monte Carlo Method—Basic Assumptions
Fictitious new drug, ClearView, for correcting nearsightedness
Costs (in millions):

Development cost of ClearView to date.....................................$10,000
Testing costs.......................................................................................... $4,000
Marketing costs.................................................................................. $16,000
Total costs.............................................................................................$30,000
Drug test (sample of 100 patients)

Patients cured............................................................................................ .0.25
FDA approved if 20 or more patients cured
(1 approved, 0= rejected)
Market study
Persons in U.S. with nearsightedness today............................... 40,000
Growth rate of nearsightedness...................................................... 1.00%
Persons with nearsightedness after one year............................ 40,400
Gross profit on dosages sold

Market penetration...............................................................................8.00%
Profit per customer in dollars . ........................................................ $12.00
Gross profit, if approved...................................................................$38,784
Net profit............................................................................................($14,000)

CHAPTER 9.3
Figure 10: Specific Monte Carlo Assumptions for ClearView Example
A. UNIFORM DISTRIBUTION
Testing costs
Probability
$3.0 $3.5 $4.0 $4.5 $5.0
B. Binomial DiStribution
Patients cured
P=0.25
Probability
n= 100
Mean=25
1 13 26 38 50
C. TRIANGULAR DISTRIBUTION
Marketing costs
Probability
$12 $14 $16 $18

RAZGAITIS
Its use in technology licensing contexts, as to his or her potential interest, he or she will
however, has been comparatively rare because of have to substantially invest in learning how this
various structural difficulties. One of the most offered technology differs from its own or other
significant barriers is the need for any prospec- published literature, the stage of development,
tive buyer to perform extensive due diligence the key benefits, the scope of the intellectual
and analysis. Imagine the contrast between be- property, and so on.
ing on the floor of an exchange and being of- Another barrier to the use of auctions is that
fered 100 shares of IBM at $100 share or 100 the mosaic of the licensing deal is typically much
bushels of corn at $3 per bushel. No investiga- more complicated than a simple cash payment, as
tion is needed to determine exactly what is being in the case of IBM shares or bushels of corn. An
sold or whether there is a market for it. Contrast upfront payment or payments is to be expected,
this with a vice president of an electronics firm but so might royalties, additional R&D invest-
receiving a letter from a university or institute ments at the discovery institution, and many
offering to license or sell a portfolio of patents other deal features. These aspects are not as eas-
relating to a new approach for making a blue- ily communicated by bidders or compared by
green laser. For the VP to have any rational idea sellers.
Figure 10 (continued)
D. CUSTOM DISTRIBUTION
Growth rates of nearsightedness

Relative probability
-15% -10% -5% 0 5%
E. NORMAL DiStribution
Market penetration
SD = 2%
5% to –
Probability
2% 8% 16%

CHAPTER 9.3
Nonetheless, auctions for intellectual prop- to “cure” obesity by a gene, attracted significant
erty do occur. Perhaps the most common occur- interest by other companies, which led to other,
rence is in the context of a shutdown or bankrupt- parallel discussions. However, when a large num-
cy proceeding, where the investors are seeking to ber of companies expressed interest (reportedly
recoup some of the investment and the alterna- more than a dozen), all of them were invited to
tive of continuing as a standalone company no bid on the opportunity. On 28 February 1995,
longer exists. All the parties understand that the Rockefeller announced that Amgen had won by
court has ordered a process, and there will be a agreeing to pay a US$20 million signing fee plus
sale to the highest bidder. unspecified royalties. According to Rockefeller’s
A famous university example of opportunity vice president for academic affairs, “Amgen pur-
licensing is associated with a fat gene discovered chased a scientific concept”: a pretty valuable sci-
at Rockefeller University. According to a Business entific concept.
Week article.53 Rockefeller University and a then The very high-perceived potential value of
recently started biotechnology company initiated the Rockefeller gene gave the institution enor-
discussions; the invention, which has the promise mous bargaining power (some might argue that
Figure 11: Simulation Output (Forecast) for ClearView
Forecast: Net Profit (mm)

Frequency distribution 998 Trials
.04 36
.03 27
Probability
Frequency
.02 18
.01 9
.00 0
($15,000) ($1,250) $12,500 $26,250 $40,000
Percentile
0%....................US$14.939
10%................... US$12.933
20%.....................US$0.617
30%.................... US$4.166
40%....................US$7.402
50%....................US$9.770
60%....................US$12.110
70%................. US$14.968
80%...................US$18.341
90%................. US$22.612
100%................. US$51.917

RAZGAITIS
it created a feeding frenzy). In most licensing Contemporary Realities, chap. 2. John Wiley & Sons,
2002; Razgaitis R. 2003. Valuation and Pricing of Tech-
circumstances, the seller/licensor is simply not
nology-Based Intellectual Property. John Wiley & Sons;
going to be able to attract a sufficient number of Razgaitis R. 2003. Dealmaking: Using Monte Carlo and
simultaneous bidders. This is because the cost of Real Options Methods. John Wiley & Sons. For further in-
the due diligence, coupled with the reduced like- formation about the author, visit www.razgaitis.com.
lihood of being the successful acquirer, will en- 2 Malone MS. Upside. September 1992.
courage already busy companies to do something 3 See, also in this Handbook, chapter 11.11 by D
else with their precious time and energy. Some Bobrowicz.
additional examples of successful and unsuc- 4 The American Heritage Dictionary, New Collegiate
Edition. 1980.
cessful auctions are included in the earlier-cited
5 If the licensor has multiple licenses (that is, two for
author’s Wiley books.
two different applications within the same territory),
it is not uncommon to have each licensee pay half the
patent costs. When developing the initial agreement
6. Conclusions with the first licensee, the language can provide that,
in the event that there is a second licensee, the cost
This chapter started with a letter requesting mon- would be shared.
ey for an investment. It will close with another 6 Even for conventional manufacture, this approach to
one (again, one actually received by a venture pricing is rapidly being supplanted by value pricing.
capitalist):54 This is because it has been determined that, in many
“Hello, How are you doing? My work is nec- cases, such pricing shielded manufacturing and
overhead inefficiencies that are not being tolerated
essary for the survival of life of the planet. I need by a market that can turn to more efficient sellers.
money. Minimum investment $100,000. Profit In other cases, such a cost-based approach did not
25%. Thank you.” capture, for the seller, the high value present in its
products.
This letter has all the basic elements of a good
7 Notice that even in this example there are some
marketing instrument: friendly beginning, state-
important risks and timing issues. The technology, in
ment of mission, expression of need, identifica- this example, is in hand, ready, and works. Launching
tion of benefit, friendly close. Now you have the an R&D project always involves risk, no matter how
tools to decide whether this is a good deal. confident anyone may claim to be about the outcome.
For example, it may be that no alternative work-
Finally, for those of you whose mind has around is possible, or that it will take $20 million, or
wandered reading all these pages and looking at that it will only work 80% as well, or that it will take
all these figures and perhaps now find yourself much longer than anticipated, and so on. Having
something in hand today is less risky than attempting
completely lost, I understand that, you the reader,
an independent solution. On the other hand, there are
were hoping that by this time I would lead you many examples where a highly sophisticated buyer
to the number. OK, here it is: 3.14156. It is the can invent around an institution’s invention cheaply
best this author can do. Use it with great caution. and quickly, even though the institution may have
made an enormous investment in developing the
That is it. That is all you need to know. Happy invention in the first place.
pricing. ■
8 Science & Technology Agency, Japan. Class A
Technological Assistance Agreements (1975).
9 Actually, in reviewing the bottom of the table, under
Richard Razgaitis, Senior Advisor, CRA International, electrical, it appears that two agreements had no
Inc., P.O. Box 65, Milford, NJ, 08848, U.S.A. richard@ payments at all. So more than half of the agreements
razgaitis.com had no upfront fee!
10 McGavock DM, et al. 1992. Factors Affecting Royalty
Rates. les Nouvelles June 1992. p. 107. The data presented
1 The initial version of this chapter was created during was obtained from the voluntary response to a mailed
the author’s tenure with Battelle Memorial Institute, survey. The authors caution that the number of replies
a relationship the author gratefully acknowledges. may not be statistically significant. Also, given the
For more on this topic see Razgaitis R. 1999. Early Stage nature of voluntary replies, there is no assurance that
Technologies: Valuation and Pricing, John Wiley & Sons; the survey is not biased.
Razgaitis R. 2002. Technology Valuation. In The LESI
Guide to Licensing Best Practices: Strategic Issues and 11 Nelsen L. 1989. University Patents. Presented at the

CHAPTER 9.3
1989 AUTM Annual Meeting. These rates were not later, with inflation or increasing costs of electricity or
determined by a scientific study; rather, they are typical a particular raw material, the savings could be $8 in
ranges estimated by Lita Nelsen, Director, Technology the currency of that tenth year. The agreement should
Licensing Office, M.I.T, based on extensive experience normally have some provision for the calculation of
in this area. royalty to similarly inflate in dollars so that, as in this
12 Adapted from article published by Corey G and E example, it would yield $2 in the tenth year.
Kahn. 1991. How to Negotiate Reasonable Royalty 30 This particular form of the definition is adapted from
Rates for Licensing Novel Biomedical Products. Genetic an article by Sommer EM. 1993. Patent and Technology
Engineering News July–August 1991. p.4. A related License Agreements Explained. The Licensing Journal,
article by the same authors was published in 1990 as August 1993. p. 3ff. This article and other similar
Biomedical Royalty Rates: Some Approaches. Licensing sources also deal with an important but complicated
Economics Review December 1990. p. 13. issue of transfer pricing: that is, when a licensee sells
13 Adapted from Corey and Kahn (supra note 2). or transfers the product made by the practice of the
technology to another division or a subsidiary of the
14 Kiley T. 1990. IPH Newsbrief April 1990. licensee.
15 Ibid. 31 All the materials, labor, electricity, and all other variable
16 Source: Communication from the seller. costs attributable to the manufacture of the product
sold.
17 Private communication, Emmett Murtha, November
1993. 32 Because this is a gain in a part of the statement
where reductions are applied, it is shown as a negative
18 Mike Carpenter presented at workshop given at the
number; minus a minus means a plus, and so forth.
1979 LES Annual Meeting.
33 Ibbotson and Associates, Chicago, Ill. www.ibbotson.
19 Ibid.; See also the list of reasonable royalty
com.
determinations in Einhorn: Royalty Patent Licensing
Transactions vol. I, sec 303, pp. 3–11ff; or search DIALOG. 34 Robert Morris Associates, Philadelphia, Penn.
20 There is a widely held perception that royalties 35 Data from RMA Annual Statement Studies, 1991.
determined or negotiated before the mid-1980s, published by Robert Morris Assoc.; Philadelphia, Penn.
when the Court of Appeals for the Federal Circuit was 36 W.L. Gore and Associates v. International Medical
established, are lower than rates established since. Prosthetics, 16 USPQ Second. p. 1257.
21 See Einhorn, supra note 19. 37 Lee Jr. W. 1992. Determining Reasonable Royalty. les
22 Stevens A. 2000. Finding Comparable Licensing Terms. Nouvelles, September 1992. p. 24.
AUTM Technology Transfer Practice Manual. Part VII, 38 Duke Leahey has included this point in various
Chapter 5. AUTM: Northbrook. talks. The version here was the subject of a private
23 Edwards, M. Workshop presented at the AUTM 1993 communication in 1993.
Annual Meeting. Since these data were published by 39 This is part of a long, impassioned argument between
Mark Edwards there has been an enormous increase in business and science. Science argues that it is unwise
the number of such transactions, especially in the “life to develop and apply technology that is not completely
sciences/health” area. Examples of such additional understood. Business says: If we took that view, we
data are available at www.recap.com. would still be sitting on a rock and arguing about the
24 For more discussion on obtaining copies of comparable Pythagorean Theorem—so, let’s get on with it.
agreements see Stevens AJ. 2002. Finding Comparable 40 Smith and Parr. 1989. Valuation of IP & Intangible
Licensing Terms. AUTM Technology Transfer Practice Assets. Wiley. p. 125. See also, Razgaitis, Valuation
Manual, Second Edition. part X, chap. 3. and Pricing of Technology-Based Intellectual Property
25 Feinber RA. 1982. APA Proceedings. Division of Consumer (supra note 1); see also, numerous papers and books by
Psychology. p. 28. Gordon Smith and Russ Parr on DCF methods and ways
of separating intangible and tangible values.
26 Ibid.
41 Some people prefer to use a mid-year convention: that
27 Arnold T and T Headley. 1997. 100 Factors. les Nouvelles,
is, the costs and revenues occur on average on one day,
March 1987. p. 31.
halfway through the year. For this convention, it should
28 Degnan SA and C Horton. 1997. A Survey of Licensed be 1/2, 3/2, 5/2, and so on, which can be generalized by
Royalties. les Nouvelles, June 1997. pp. 91–96. Reprinted using a discount factor of (1+k)(2n-1)/2.
with permission from les Nouvelles.
42 Smith G and R Parr. 1990. Royalty Rate Analysis
29 When using a savings approach, the technology Techniques. Licensing Economics Review November
transfer manager should build in some inflation factor 1990. p. 9ff; also published in the 1991 Supplement to
to avoid collecting 25 cents a unit over a 15-year period the Razgaitis’ Valuation of Intellectual Property and
when inflation eats into the real value of the royalty. Intangible Assets (supra note 1). Smith G and R Parr have
Remember, the $1 savings is $1 in the currency of the year written extensively on this subject. Their organization
that the royalty is calculated (in this example). Ten years publishes the journal Licensing Economics Review,

RAZGAITIS
which frequently includes articles on the application economic rationale for such a differentiation would
of this method, as well as other news and information need to derive from comparing the NPVs of two DCF
on valuation, pricing, and other IP matters. scenarios—one as an exclusive license and one as a
43 This model assumes that the licensor received up- nonexclusive license. Although it seems obvious that
front and minimum payments as part of the $10 the nonexclusive licensee royalty should be less, it is
million investment by the licensee and a reasonable difficult to generalize what a fair difference should be.
royalty throughout all the period that the product 49 Razgaitis R. 1999. Early-Stage Technologies: Valuation
was in commerce, so that the $126 million cash flow and Pricing. John Wiley and Sons. Razgaitis R. 2003.
to the licensee was net of all the licensee’s expenses, Valuation and Pricing of Technology-Based Intellectual
including royalty. Property. John Wiley and Sons.
44 Also assumed in this model is that there is no net 50 However, this author generally recommends that a
residual value or cost after the product is withdrawn licensor of early-stage technology not sell out for a
from the market and the business is exited. one-time, upfront payment. Exceptions to this rule, as
45 A quote heard during a talk by Ray Rogers, finance to most rules, can be warranted, as discussed in the
professor at the University of Michigan Business text.
School. 51 The two products currently available for personal
46 The summary incorporates some of the terms and computers are Crystal Ball®, sold by Decisioneering
values by Timmons. (See Timmons JA. 1990. New of Denver, Colo., (800/289-2550) and @ Risk®, sold by
Venture Creation). Palisades, New York (607/277-8000). Both require
the use of a spreadsheet program such as Microsoft
47 Paul Purcell of Battelle, and others, have provided Excel®.
valuable initial insights to negotiating and valuation
contexts. 52 Crystal Ball, sold by Decisioneering of Denver, Colo.
48 Earlier in this chapter, Kiley (see supra note 15) proposed 53 Business Week, 20 March, 1995.
nonexclusive royalties as being approximately one- 54 See supra note 2.
half the royalties paid under an exclusive license. The

CHAPTER 9.4
Valuation of Bioprospecting Samples: Approaches,

Calculations, and Implications for Policy-Makers
William H. Lesser, Susan Eckert Lynch Professor of Science and Business and
Chair of the Department of Applied Economics and Management, Cornell University, U.S.A.
ABSTRACT interest rates, and a range of risk factors, such as the polit-
In this chapter, the revenue consequences of varying col- ical situation in a given country surrounding the national
lection fees and royalties with regard to germplasm pros- debate on bioprospecting. The latter point is a key factor:
pecting contracts are demonstrated. Principal factors are valuation is always a calculation that has important politi-
the uncertainty of finding marketable products and the cal consequences. Another complicating factor is the need
value of these products. Negotiation factors are finding for confidentiality with which a country and company
a good balance between collection (initial) fees as op- will hold its overall business estimates. Neither a com-
posed to royalty (delayed) payments. Emphasizing col- pany nor a country will be likely to share their valuation
lection fees reduces total payments except when national basis purely for negotiation purposes and because neither
interest rates are very high. Reducing the risk of failure want to tip off other entities about the opportunity. It is
through in-country screening, including the use of indig- therefore concluded that, from a practical perspective, the
enous knowledge, is a potentially valuable activity. Issues proper valuation is the one that (1) provides the country
for contract negotiators are outlined and the implications with compensation and other benefits such that it does
for biodiversity conservation discussed. Conceptually, the not feel taken advantage of and can withstand criticism
highest valuation approach, royalties, will most encour- from its constituents and (2) provides the licensee (typi-
age conservation, but as the future is typically heavily dis- cally a company) with a reasonable cost of obtaining the
counted, collection payments may get more attention and crucial raw or semifinished goods it requires as an input
be most effective. Policy considerations for national gov- to its business.
ernments, nongovernmental organization (NGOs), and
development agencies are reviewed and it is concluded
that grants/loans and training/equipment for in-country
screening should be given a high priority as a potentially 1. Introduction
viable activity in the long term. Since the adoption of the Convention on
It should be noted that the figures and calculations Biological Diversity (CBD) in 1992, the le-
in this chapter are merely for illustration. The valuation
of samples, and by extension a country’s biodiversity, is
gal status of traditional knowledge is in the fo-
a negotiation and will depend on many factors, includ- cus of international debate. Concurrent with
ing alternative investment options by a company, alterna- CBD, Merck & Co. and INBio, the National
tive technologies that could be used for lead compounds, Biodiversity Institute of Costa Rica, made a deal,
Note: While we have been careful in pointing out throughout this chapter that the monetary figures used in
the examples are illustrative, it is important to urge that these figures not be used in actual negotiations. In the
authors’ opinion, one of the main reasons for the overall low level of interest in bioprospecting deals is that ex-
pectations based on the market potential for a blockbuster drug may scuttle a deal on samples to be used for an
industrial application with a much lower market potential.
Lesser WH and A Krattiger. 2007. Valuation of Bioprospecting Samples: Approaches, Calculations, and Implications for
Policy-Makers. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Prac-
tices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at
www.ipHandbook.org.
© 2007. WH Lesser and A Krattiger. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

LESSER & KRATTIGER
which was widely publicized, for the payment of commercial product (a percent royalty, that is, a
fees and royalties for germplasm collected inside form of sharing of benefits), or combination of
Costa Rican conservation areas. Importantly, the the two. Here it is demonstrated that when the
agreement was renewed in 1994, 1996, and 1998 likelihood of finding a commercializable prod-
in similar terms and by 2004 has led to the filing uct is small (the risk of failure great), empha-
of more than 27 patents based on the collabora- sizing initial payments can be done only at the
tion. Studies to determine the potential use of a expense of a significant reduction in the royalty
limited number of extracts of plants, insects, and rate and, hence, in the expected overall rev-
environmental samples have been completed, and enues. The importance of the failure risk is such
the agreement has given INBio access to technol- that reducing it through preliminary in-coun-
ogy, teams, and training. It marked the first of a try screening can improve the revenue prospects
series of deals made by INBio (Table 1). greatly. Whether that is a viable approach de-
Such collection activities, so-called bio- pends on in-country skills, facilities and costs,
prospecting, have received considerable attention which are not evaluated here. Use of indigenous
in the literature and have precipitated discussions knowledge of plants is another means of reduc-
on payments for collected samples and chemical ing the failure rate and can add value to the
extracts from samples. But the subject is gener- samples that might be used in determining an
ally treated in generalities, focusing on research appropriate payment to indigenous groups for
needs, basic rights, and moral obligations. CBD sharing their knowledge.
itself is famous for broad language with multiple The examples used herein apply to pharmaceu-
interpretations possible. On the subject of pay- tical prospecting for medicinal products, the basis
ments, CBD proposes “sharing in a fair and eq- of the Merck/INBio agreement. Pharmaceuticals
uitable way the results of research and development are typically high-value products so the revenue
and the benefits arising from commercial and other is potentially greatest. The approach developed
utilization of genetic resources … upon mutually here, however, is general and can be used as well
agreed terms” (Article 15(7)). There is no attempt for other products, such as crop varieties and cos-
to identify appropriate payment approaches or a metics. The variable likelihood of finding useful
system for valuing germplasm for specific uses. germplasm and values with respect to the resul-
Even a full decade after the entering into force tant products could lead to somewhat different
of CBD, the topic still receives attention, and conclusions. For example, the long standing (but
15 years since its passing has not been resolved. possibly evolving) practice of placing plant vari-
Evidently, there cannot be resolution on actual eties in publicly accessible germplasm collections
terms and payments, since these will be a func- limits the market value of that material.
tion of market conditions, alternative technolo- This chapter does not attempt to identify a
gies (such as recombinatorial chemistry, to name specific market value for germplasm. Most efforts
one), and other factors. We hope to shed light to do so, thus far, date back well over a decade and
on the approaches that could be used to calculate have been conceptually general or relevant only
royalty rates and collection fees. to specific examples from developed countries. It
The purpose of this chapter is also the pro- is, nevertheless, well established that biodiversity
vision of information on the revenue conse- provides two types of values. These are:
quences of alternative payment arrangements 1. direct value
for collected germplasm. We do not attempt - consumptive-use value (that which
to present actual market values for the mate- derives from such activities
rial, although approximate figures are used for as sport fishing, subsistence hunting,
illustrative purposes. Commonly, germplasm- gathering)
rich countries charge for samples in the form - productive-use value (that which derives
of a fixed initial payment (collection fee), a de- from such activities as logging)
layed payment based on sales of the resultant 2. indirect values

CHAPTER 9.4
Table 1: Main Collaborative Research Agreements

Signed by INBio from 1991 to 2002
Research
Industrial or Natural resources Field of primary
activities in
academic partner accessed/Objectives application
Costa Rica
Cornell University INBio’s capacity Chemical prospecting 1990-1992
building
Merck & Co. Plants, insects, Human health and 1991-1999
micro-organisms veterinary
British Technology Group DMDP, compound Agriculture 1992-present

with nematocidal
activity*
ECOS Lonchocarpus felipei, Agriculture 1993-present
source of DMDP*
Cornell University and NIH Insects Human health 1993-1999
Bristol Myers & Squibb Insects Human health 1994-1998
Givaudan Roure Plants Fragrances and 1995-1998

essences
University of Massachusetts Plants and insects Insecticidal 1995-1998
components
Diversa DNA from bacteria Enzymes of industrial 1995-present
applications
INDENA SPA Plants* Human health 1996-present
Phytera Inc. Plants Human health 1998-2000
Strathclyde University Plants Human health 1997-2000
Eli Lilly Plants Human health and 1999-2000

agriculture
Akkadix Corporation Bacteria Nematocidal proteins 1999-2001
Follajes Ticos Plants Ornamental 2000-present

applications
La Gavilana S.A. Trichoderma spp* Ecological control of 2000-present
pathogens of Vanilla
Laboratorios Lisan S.A. None* Production of 2000-present

standardized
phytopharmaceuticals
Bouganvillea S.A. None* Production of 2000-present
standardized
biopesticide
Agrobiot S.A. Plants* Ornamental 2000-present

applications

LESSER & KRATTIGER
Table 1 (continued)
Research
Industrial or Natural resources Field of primary
activities in
academic partner accessed/Objectives application
Costa Rica
Guelph University Plants* Agriculture and 2000-present
conservation purposes
Florida Ice & Farm None* Technical and scientific 2001-present

support
ChagasSpace Program Plants, fungi* Chagas disease 2001-present
SACRO Plants* Ornamental 2002-

applications
* These agreements include a significant component of technical and scientific support from INBio.
Source: Cabrera Medaglia

�� 2004. 1
- nonconsumptive-use value (that which cost, the value option foregone when another
derives from such activities as tourism) mutually exclusive use is selected (an opportunity
- option value (that which derives from cost of clear cutting is germplasm prospecting,
the delaying of destructive use for example). Opportunity costs are sometimes
until the use and value are better calculated (companies making mutually exclusive
understood) investment choices do this routinely) but, tradi-
- existence value (bequest value; that tionally, never are subtracted from the value of
which derives from leaving the selected use as it is sometimes argued they
a resource for consumption by future should be. Conceptually, there is no reason to
generations) limit opportunity cost to a single alternative use
where many likely exist, nor is there a reason in-
Valuation is complicated because, with the direct benefits (for instance, those derived from
exception of productive-use value, none of these logging open land for farming or grazing) should
forms of use involves a marketed product from not be added to the use value. There is the further
which value can be ascertained directly. Rather, issue of discount rate for future income—the re-
indirect measures, such as travel expenditures, duction akin to an interest rate—in the value of
are used or, in cases of option and existence val- delayed consumption compared to present con-
ues, quite esoteric measures, the interpretation sumption. Typically, private (personal and corpo-
of which is not fully clear. Yet valuation is im- rate) discount rates are greater than social rates,
portant because it indicates a potential economic although the determination of the social rate is
justification for preservation or, more precisely, open to different interpretations. Yet, as anyone
in the case of germplasm prospecting, for sub- who has paid off a loan over a ten- or 20-year pe-
stituting sustainable use for destructive uses like riod recognizes, small changes in the interest rate
logging. have major implications on the outcome. Indeed,
Further complicating valuation is the discus- the use of opportunity cost is a complex matter
sion of appropriateness of adding opportunity yet to be resolved.

CHAPTER 9.4
2. Pricing Choices total revenues are affected by an emphasis on ini-

The Merck/INBio agreement of the early 1990s tial, as opposed to delayed, payments.
utilized a combination of the two principal pay- Delayed (royalty) payments are preferred by
ment alternatives: collection fees and royalties. the contracting company, which, for the pur-
Merck paid to INBio a fee of US$1.1 million and poses of this article, we shall assume is a mul-
an undisclosed royalty rate for resulting product tinational pharmaceutical company. Delaying
sales. A collection payment can be (and in the payments means the company has no interest
Merck/INBio case was) paid in total, or in part, costs, which are required if payments are made
in services, such as providing training to national before the product is marketed and revenues flow.
scientists in screening procedures, or as equip- Pharmaceutical products can take up to 12 years
ment. The purpose here is to demonstrate how to bring to the market in the United States, so the
Table 2: Estimates of Variables for the Base Agreement
Per-sample basis
Value used in
Item calculations Range Comments/Reference
Collection fee US$50 50–200 Figures are intended to cover actual

costs (packaging, transport and
related costs) but not return a profit
Royalty payment 5% 1%–5% Royalty of gross sales
Developing-country 15% 10%–25% Discount rate used by developing

interesta countries with hard currency
shortages (a likely minimum figure)
Corporate interest rate 7% 5%–9% Corporate interest rate charged to

and by major corporations; lower
than developing country rate
because of better credit rating and
more efficient credit markets in
developed countries
Product value US $500 100 million– Total worldwide sales once

million 1 billion + developed and over the life span
of the product. Below an expected
market of US$100 million, returns
generally do not cover development
and regulatory costs
Development delay 10 years 10–12 years –
Hit rate 1:12,000 1:6,000– Frequency with which collected

1:30,000 material will result in a marketable
product
a This figure represents interest on a hard currency loan such as one denominated in dollars.
It does not reflect the occasionally very high rates - up to and exceeding 100% - for local currency
loans during inflationary periods.

LESSER & KRATTIGER
interest cost could be considerable. As important, Table 2 shows the estimates of the variables
making initial payments shifts the risk of failure to required for a bioprospecting agreement. As we
the company, which will have expended the col- are developing different variations, we call this the
lection and screening costs as well as development “base” agreement.
charges. With a successful product found in only From Table 2, the expected return per sample
one of some 12,000 tries and average product de- collected can be computed as shown in Table 3
velopment costs of US$230 million including the (figures are rounded for convenience). Total value
costs of failures, the risks are indeed large. Because for a 12,000-sample contract is also included.
of these risk and interest factors, along with tight Of course, most samples would pay $50 with,
budgets and scarce foreign exchange, contracting on average, the 1/12,000 paying off $25 million.
countries prefer initial payments to subsequent and In other words:
uncertain royalties. However, the contracting com-
panies will seek compensation in the form of lower
5% royalty of $500 million = $25 million
overall payments for accepting additional risk. Here
we explore how much that compensation is likely
to be. This is a general average with the likelihood of
For the purposes of this article a base agree- a hit2 having a wide latitude. Thus, countries select-
ment is computed on a per-sample basis (in U.S. ing this approach would be operating in a “boom
dollars). This agreement is intended to represent or bust” mode. The collection fee covers costs so
the outcome of careful negotiations, with both that no real revenue comes in until and unless a hit
sides reaching a minimal acceptable position from is scored. No attempt was made here to determine
which they are unwilling to move without conces- the range (frequency distribution) with regard to
sions from the other party. the estimated 1/12,000 hit figure. The present value
Table 3: Computing Expected Return for the Base Agreement
Per-sample basis Full contract

Item Calculations Equation b
Return 12,000 samples
Collection fee _ _ 50 0.6 million
Royalty fee paid 1

5% x $500 million x [1] 2000 25.0 million
in year 10 12,000
Present value of 2,000

a [2] 500 6.0 million
royalty fee (1 + i)n
Total present
expected value 50 + 500 550 6.6 million
a Where i=15% (developing-country interest level) and n=10 years (development delay).
b Refers to numbered equations in text.

CHAPTER 9.4
Figure 1: Present and Future Value of Contract as a Function

of Product Value and Royalty Rate
Present Present Future
value of value of value of
sample Contract contract
(US$) (US$Million) (US$Million)
1,000 12.5 50
800 10.0 royalty rate 40

5%
600 7.5 30
3%
400 5.0 20
1%
200 2.5 10
0 0
200 400 600 800 1,000
Product value (US$ Million)
Note: Collection fees of $50 per sample are included in the calculations. Other variables are 15% developing
country interest rates, 10 years development delay, and 1/12,000 hit rate.
of the $25 million figure is only $6 million because example, is making payments today instead of
of the high interest rate used (15%) and the ten- ten years in the future, will add an implicit in-
year delay involved. Figure 1 gives an indication of terest charge (technically, a discount) to those
how these values are affected by royalty rates and payments. The third component, and the most
product value. complex to calculate, is the change in the risk
undertaken by the company. Under the base
agreement, the selling country accepts most of
3. Emphasizing Collection Fees the risk; if no marketable product is forthcom-
over Royalties ing no royalty payments are made. The 1/12,000
What would be the ramifications of shifting fees hit-rate figure used here is an average and an ap-
forward, emphasizing current collection payments proximation. It is possible that 12,000 samples
at the expense of longer term royalties? Suppose will yield no marketable products or ones with
for our example the collection fee was increased by low values. Shifting royalty payments to collec-
$150, to $200 per sample. What would change? tion fees means, in effect, that some of the royalty
We shall assume that the basic revenue situation has been “prepaid” so that the failure of a product
remains unchanged and that only the schedule is to materialize is a loss for the company. That is,
altered. Since there are just two payment param- the company is taking on an additional risk of a
eters (collection fee and royalty rate), increasing loss. In this regard, the contracting company will
one necessitates reducing the other. act like a banker, and indeed like any private cor-
The point about raising collection fees neces- poration, which is a risk/reward managing entity,
sitating a reduction in the royalty rate has sev- by demanding to be compensated financially for
eral components. First, there is a direct transfer accepting additional risk. That required compen-
of dollars. Second, the company, which, in this sation can be estimated.

LESSER & KRATTIGER
Raising the collection fee by $150 would increase the expected costs for the company by $1.8
million. In other words:
$150 for 12,000=$1.8 million
Moreover, the payments would be made today as opposed to 10 years hence so that the company
would have total (including interest) costs of $3.5 million, that is:
From Table 3, Equation [2]: $1.8 million x (1+ 7%)10 = $3.5 million
The company is then willing to pay only $21.5 million (25 - 3.5) in royalties (from Table 3) so that
the effective royalty rate becomes:
Equation [3]:
5% = x% x = 107.5 = 4.3%
$25 million $21.5 million 25
But the company accepts additional risk ($1.8 million worth) and will want to be compensated.
The amount can be computed using the following the equation:
Equation [4]:
change in payment $3.5 3.5 = 30%

size of risk change = = =
payment $21.5 / (1.07)10 + $0.6 11.5
Thus the company is willing to offer a royalty rate 30% lower, that is:
Equation [5]: 4.3% x 0.3 = 1.3%
The new royalty rate is now 3.0%, that is:
Equation [6], from [3]: 4.3% - 1.3% = 3.0%
This is a reduction of 40% of the original value. The new present value of the expected payment
per sample can now be computed as:
Equation [7] (from Table 3, Equations [1] and [2]):

$200 collection fee + 3.0% x $500 million x 1/12,000 $1,250 = $500
, or $200 +
(1.15) 10
4.045
Hence, the country is giving up $50 ($550 - $500) or 9% per sample to ensure timeliness of the
payment.

CHAPTER 9.4
Table 4: Impact of Country Interest Rate on Total Expected

Present Values under Different Interest Rates
Interest Rate 10% 15% 20% 25%
Collection fee 50 50 50 50
a
Present value of royalty fee 775 495 325 215
Total expected present value/sample 825 545 375 265
Collection fee 200 200 200 200

b
Present value royalty fee 465 300 195 130
Total expected present value/sample 665 500 395 330
c
Country loss/gain -160 -45 +20 +65
a $2,000/(1+i)10 from Table 3, equation [2] (results rounded)

b $1,250/(1+i)10 from Table 3, equation [2] (results rounded)
c Total expected value/sample for $200 collection fee - total expected value/sample for $50 collection fee.
An important insight can be derived from rate and involves a significant discounting of the
this example. The penalty for the germplasm- future. Note that the country is paying the com-
providing country declines as its interest rate pany 7%, along with discounting the future by
increases, or more correctly, as the gap between 15% for a total discounting of 22%, which re-
its interest rate and the corporate rate of the duces any future royalty payment by a factor of 7
contracting company (7% in this example) in- that is (from Table 4, Equation [2]):
creases. This penalty is shown in Table 4 where,
using the figures described above, the penalty $25 million / (1 + 0.22) 10 or 25/7.3
declines to zero at a country rate near 20 per-
cent; at higher rates the country is actually bet- Third and finally, the country is effectively
ter off. The company is borrowing money at a borrowing against the future; should a hit come,
preferential rate and lending it to the country at less additional revenue will be collected. While
the same rate, plus risk premium. This approach that may be undesirable for future generations,
might be an efficient way for the selling country this approach does increase the awareness of the
to finance itself, but several additional factors value of germplasm resources. Referring again
must be considered. to the Merck/INBio agreement, the more than
First, the contracting company must be US$1 million collection fee (a rather insignificant
agreeable to such an arrangement (not all will amount) received all the public attention while
be). Second, a 15% figure is quite a high discount the level of the royalty figure has never been made

LESSER & KRATTIGER
public and potentially could represent a much sible away from a major company’s laboratories,
greater figure. at least for the present.
It should be noted that it is very difficult to The development of a marketable pharma-
come up with an appropriate discount rate with- ceutical product passes through several stages
out knowing specific country circumstances. It beginning with a primary screening and, if suc-
may also not be an objective figure. The concept cessful, progressing through secondary screening
of personal discount rate, that is, what the per- (including isolation and preliminary toxicologi-
son on the other side of the table has internalized cal evaluations) and proceeding to the several
about risk, as well as political and economic in- stages of drug development. For purposes here,
stability and immediate need for money could all assume in-country collection with primary
play major roles in the choice between collection screening costs of $200 per sample. Prescreened
payments and royalties. samples in this example have a 1/3,000 chance
of being a hit (four times the unscreened rate)
because the least promising samples have been
4. Payment for Screening eliminated. The rate depends on several factors,
One of the emphases on germplasm prospecting including the stringency of the screens. This rate
in the CBD, and elsewhere, is the performance presumes relatively nonstringent tests that would
of the maximum number of services in country be most appropriate for a range of developing
(value added) as opposed to the export of raw countries.
germplasm materials. That emphasis not only Of course, screening does not change the
increases payments but also enhances national underlying probability of finding a commer-
scientific expertise while moving away from de- cializable product. Screening merely increases
pendency on commodity-type exports. Here we the value of the retained samples, because they
examine the revenue ramifications of such an have a higher probability of viability than the
approach. No attempt is made to determine the collected samples. There is a cost for this: every
practicality of such a step that depends on the retained sample represents four screened sam-
country of origin having adequately trained staff ples, so the per-sample-retained cost is $800.
and adequate facilities to be able to complete It is assumed the country will collect the out-
screenings in an accurate, timely, and cost-effi- of-pocket costs, or $200 per sample, but be-
cient manner. Screening near the source of ori- cause these represent actual costs, the country
gin has some advantages due to the cost of pack- does not make a profit as in the earlier second
aging and transport and the volatility of some example. Payments can be computed follow-
compounds. On the other hand, some screening ing the royalty-rate calculation method shown
procedures are technically complex or, for infec- earlier, using the hit rate of 1/3,000 and a col-
tious diseases, involve high standards for isola- lection and screening fee of $800 (figures are
tion facilities. Those screenings would not be fea- rounded):
Present value of royalty:
5.0% x $500 million x 1/3,000 $167,000 = $2,100

= 5.0% x
(1 + i)n 4.04
Total expected value per sample: $800 + $2,100 = $2,900

CHAPTER 9.4
The total expected value per sample is now

From Equation [6]: 0.33x(5%-3.0%)=0.66
more than five times the base payment.
It should be noted that both the royalty rate
and the risk factor remain unchanged. The ad- This gives a final rate of:
ditional “collection” fees are merely a transfer of
expenses from the company’s in-house screening Equation [9]: 5%-0.66=4.34%
cost to the developing country, and this does
not change the basic value of the contract. The
calculations assume, however, that the quality While the amount is not huge, it represents
of cost screening in the developing country is a penalty and would likely not represent a viable
identical to that of the company. If the qual- option in the long term.
ity in the developing country is inferior, the These calculations, of course, are only illus-
value of the screenings is questionable, and the trations and say nothing about the practicality of
pharmaceutical company is likely to reject this screening in-country. Actual cost and result fig-
option. Especially in the case of false negative ures will be required for such computations. The
results (improperly rejecting a potentially viable exercise does suggest that economical in-country
compound), inaccurate or inconsistent results screening is a potentially valuable value-added
must be repeated. If the total cost of screening activity. Screenings in countries, following this
in developing countries is less than that of the strategy must, as noted, be less costly than con-
pharmaceutical company (a plausible situation tracting-company screenings, and less accurate.
due to lower wages and shipping costs), then Indeed, to the extent screening in-country is less
the selling country can take the difference as expensive due to lower salary levels, savings on
profit. For the example just mentioned, imagine shipping costs, and other factors, all parties may
further that a screening by the pharmaceutical benefit. However, countries must invest in train-
company costs $150, while in the country of ing and equipment/infrastructure before offering
origin it is $100. Total costs including the $50 this service. Several sources of funds are possible,
collection fee are then $200 versus $150. The including the use of collection fees (as is provided
company should, in theory, be willing to pay the to a small degree in the Merck/INBio agreement)
full $200 cost to the developing country, which or through a grant or loan from a bilateral or
would yield it a “profit” of $50 per sample ($200 multilateral agency.
payment - $150 costs). As discussed in the pre-
ceding example neither the royalty rate nor the
risk factor would change. 5. Indigenous Knowledge
Now, however, imagine the costs are re- Indigenous knowledge of plants can be an alter-
versed, $100 for the pharmaceutical company native to preliminary screening. Plants that can
and $150 for the selling country. This could hap- be identified as free from insect damage, for ex-
pen for a number of reasons, such as a high cost ample, likely contain potent alkaloids, called the
of maintaining specialized equipment or simple most important group of medical chemicals. If
inexperience and/or inefficiency. If the country plants identified by indigenous peoples as having
still covered costs by negotiating a $200 collec- particular attributes are collected, the probability
tion plus screening fee, the company would treat of a hit is increased. Here, for simplicity, we will
$50 of it ($200 payment - $150 costs) as a higher assume the increase is to 1/6,000. Some argue
fee, along the lines of the second example. Rather that the success of screening could double or tri-
than repeating those calculations, note that the ple if information based on traditional knowledge
fee increase here is one-third ($50/$150) of the was utilized. Further, it is assumed that the cost
amount shown in the second example. The roy- of a single specimen collection is $100 because of
alty-rate reduction would likewise be one-third of the additional difficulty of finding selected plants.
that amount, or: Payments are then (again rounded):

LESSER & KRATTIGER
Collection fee: $100

Present value of royalties = 5% x $500 million x 1/6,000 $8,330 = $1000

= 5% x
4.04 4.04
The royalty level in this example is the same as the base situation because:
$50 x 12,000 = $100 x 6,000
So there is no change in the timing of payments. Similarly, the risk factor is unchanged:
Total expected value per sample: $100 + $1,000 = $1,100 (double the base level of $550)
Again, while only hypothetical, this example does indicate the potential value of indigenous
knowledge, at least for plants (it is less indicative for microbes and insects with which indigenous
cultures are typically less familiar). The additional amount of $500 per sample (Equation [11]), can be
paid to indigenous groups for the value of their knowledge, but a suitable transfer mechanism must
be developed.
Equation [11] (from Table 3, Equation [2]):
$1,100 - $100 collection fee - $500 present value of royalty = $500
6. Conclusions an economical means of “borrowing” from the

The negotiating of terms for germplasm collec- contracting company. Seemingly more favorable
tion is a complex matter, made more so by the is in-country screening, but costs, feasibility, and
absence of a generally accepted value of the ma- acceptability of results must be considered care-
terial in its raw form. This article is directed to fully before choosing this option. Utilizing in-
a related issue: how any payments should be di- digenous knowledge is, according to the example
vided between current (collection) fees and future used here, also remunerative along with the pros-
royalties. The two are different because of the pect of providing equity payments to numerous
ramifications of who accepts the risk of finding a groups otherwise far removed from market sys-
usable product and the capital cost/value of sales tems. However, to be utilized by companies, in-
to be made ten or more years into the future. The digenous knowledge must be less costly than mass
examples shown here suggest, but do not guar- screening.
antee, that increasing collection rates is costly in Overall, the aggregate payments for collected
terms of overall expected payments. However, for germplasm, given the current state of knowledge,
countries short on foreign exchange and, hence, appear limited. Similarly, the payments to indige-
with high interest rates, raising collection fees is nous groups will likely be fairly modest compared

CHAPTER 9.4
to the needs of those groups. These issues make are substantiated at all by actual cost figures, in-
careful valuation and contractual negotiation all country screening is attractive financially as well
the more critical. as for its effects on development and skills im-
Negotiators need to consider, at least, two provement. However, considerable investment
additional factors, which have not been discussed will be required before such efforts are possible.
here. First is the granting of exclusivity for the With adequate in-country funds lacking, inter-
samples. Companies, of course, will be hesitant national donors should seriously consider loans
to invest in a product when the possibility exists or grants for training and equipment purchases
of a competitor bringing the technology to mar- since in-country screening will be economically
ket first or obtaining the patent. Therefore, com- rewarding in the long term. Unlike numerous
panies will seek exclusivity. Countries, however, potential projects, there appears to be a ready
will wish to find additional markets; certainly, the market for the product, a preliminary-screening
possibility of multiple products from the samples service. More, broader conclusions from INBio
is there. Thus, countries will opt against exclu- on their experiences are given in Box 1.
sivity. As a compromise, countries should (1) The allocation of funds between collection
charge more for granting exclusivity and (2) set fees and royalties can affect conservation incen-
a time limit (it is four years in the Merck/INBio tives. While a thorough treatment of that issue is
agreement). outside of the scope of this article, it does warrant
Second, negotiators must evaluate their level mentioning. Conceptually, the highest valuation
of trust in the opposite party. One way to consid- approach—payment of royalties—will encourage
er contracts is as a means of reducing the need for conservation the most in the long term. However,
trust by specifying obligations in a way that can people typically discount the future heavily so that
be adjudicated. However, it is not feasible to spec- up-front (collection fee) payments may get more
ify all aspects, so some level of trust is required. attention and, in the long run, do most to encour-
With germplasm prospecting perhaps the most age conservation. This is a matter of perception
critical issue is identifying whether the material and not of business or economics, which needs
used in developing a product was derived directly exploration through other methodologies. n
or indirectly from a sample provided under the
agreement. Unscreened samples, with the myriad
compounds they could provide, and the numer- William H. Lesser, Susan Eckert Lynch Professor of Science
and Business; Chair of the Department of Applied Economics
ous analogs to them, will be virtually impossible
and Management, Cornell University, 155 Warren Hall,
to track thoroughly. Preliminarily screened sam- Ithaca, NY, 14853, U.S.A. whl1@cornell.edu
ples are described in more detail and hence easier
to track, but documenting a claim in court could Anatole Krattiger, Research Professor, the Biodesign
still be difficult and expensive. Thus, considerable Institute at Arizona State University; Chair, bioDevel-
trust in the integrity of the contracting compa- Cornell University, PO Box 26, Interlaken, NY, 14847,
ny would seem to be critical, but perhaps some U.S.A. afk3@cornell.edu
checks should be included in the agreement.
In a broader context, this analysis suggests
1 Cabrera Medaglia J. 2004. Bioprospecting Partner-
several policy considerations for national govern- ships in Practice: A Decade of Experiences at INBio
ments, nongovernmental organizations (NGOs), in Costa Rica. IP Strategy Today No. 11-2004. Pp. 27-40.
and international donors, such as foundations www.bioDevelopments.org/ip.
and bilateral and multilateral agencies. These 2 A hit rate is the number of expected lead compounds
considerations involve both the allocation of pay- divided by the number of samples to be screened to
obtain the given lead compounds.
ments between collection fees and royalties and
in-country screening. If the examples used herein

LESSER & KRATTIGER
Box 1: Lessons Learned from a Decade of Bioprospecting Partnerships

at INBio in Costa Rica
A. There must be a clear institutional policy for the criteria demanded in prospecting contract
negotiations. For INBio, these include the transfer of technology, royalties, limited quantity
and time access, limited exclusiveness, no negative impacts on biodiversity, and direct
payment for conservation. This policy has led to the stipulation of minimum requirements
for initiating negotiations, and these requirements have meant rejecting some requests (e.g.,
very low royalties, unwillingness to grant training, etc.). This institutional policy also provides
greater transparency and certainty for future negotiations. These same policies must also be
taken into consideration when local communities and indigenous peoples, such as the Kuna’s
in Panama, adopt legal outlines in the contractual arrangements entered into by them. They
should include other relevant ideas, such as those related to the impossibility of patenting
certain elements, licensing instead of a complete transfer, etc.
B. The existence of national scientific capabilities, and consequently the possibilities of adding
value to biodiversity elements, increases the negotiating strengths and benefit sharing
stipulated in contract agreements. As we previously mentioned, the need to grant an
aggregated value to material, extracts, etc., is crucial if one wishes to be more that just a simple
genetic resource provider. In this regard, the development of important human, technical, and
infrastructure capacities through laboratories, equipment, etc., together with the institution’s
prestige, have permitted better negotiation conditions.
The existence of relevant traditional knowledge for operations, which INBio has not yet
experienced, implies greater scientific capacity and, consequently, should lead to better
compensation conditions.
C. Knowledge of operational norms and of the changes and transformations taking place in the
business sector, as well as the scientific and technological innovations that underlie these
transformations, helps to define access and benefit-sharing mechanisms. It is essential to
know how different markets operate and what access and benefit-sharing practices already
exist in these markets. These vary from sector to sector: the market dynamics for nutraceuticals,
ornamental plants, crop protection, cosmetics, and pharmaceuticals are complex and different.
This knowledge is needed to correctly negotiate royalties and other payment terms. How can
we otherwise know if a percentage is low or high? It is also crucial to be informed about the
operational aspects of these markets. When INBio began negotiating new compensation
forms, such as advance payments or payments on reaching predefined milestones, with Eli
Lilly and Akkaddix, it was vitally important to know the approximate amounts the industry
was likely to pay in order to negotiate appropriately. Otherwise, one will likely request terms
that are completely off the market or accept terms that are inadequate.
D. Internal capacity for negotiations, which includes adequate legal and counseling skills about
the main aspects of commercial and environmental law. The Institute now recognizes that
negotiations involve a scientific aspect (of crucial importance to define key areas of interest
such as a product, etc.), a commercial aspect, a negotiation aspect, and the respective legal
aspects. These latter are composed not only of national trade law but also international
environment law, conflict resolution, and intellectual property. For these reasons, creating
interdisciplinary teams is crucial. At the same time, the need for such a team is one of the
most important criticisms of the contractual mechanisms. Solutions such as facilitators or
others that pretend to “level the negotiation power” have been proposed by several authors.
Unfortunately, until appropriate multilateral mechanisms exist, benefit sharing and
contractual systems must go hand in hand. The absence of an interdisciplinary team keeps
one of the parties at a disadvantage, particularly given the enormous legal and negotiation
capabilities of pharmaceutical companies.

CHAPTER 9.4
Box 1 (continued)
E. Innovative and creative ideas for obtaining compensation. An ample spectrum of potential
benefits exists. In the past, interesting benefit-sharing formulas were developed through
appropriate negotiations. Such formulas included, for example, fees for visiting gene banks,
collecting material, etc. The contractual path fortunately permits parties to adapt themselves
to the unique situation of each concrete case and to proceed from there to stipulate new
clauses and dispositions.
F. Understanding in such key subjects as: intellectual property rights; the importance of
warranties for legality; clauses on ways to estimate benefits (net, gross, etc.); requirements
and restrictions on third-party transference of material (including subsidiaries, etc.) and the
obligations of such parties; precise definitions of key terms that condition and outline other
important obligations (products, extracts, material, chemical entity, etc.); precise determination
of property and ownership (IPR and others) of the research results, joint relationships, etc.;
confidentiality clauses in the agreements and how to balance them in relation to the need for
transparency in the agreement; termination of obligations and the definition of the survivor
of some obligations and rights (e.g., royalty, confidentiality, etc.); conflict resolutions.
As sub-clause D makes very clear, negotiated agreements are complex. For example, the
outcomes that give rise to benefit sharing, such as royalties, will depend on the nature of the
definitions for “product,” “extract,” “entity,” etc. A more comprehensive definition will lead to
a better position. Further examples of aspects that must be specified include delimiting the
areas or sectors where samples can be used, the net sales, and what is possible to exclude
from them. In addition, the procedures and rights in the case of joint and individual inventions
are of interest (preference and acquisition rights, etc.), as are the conditions for the transfer of
material to third parties (under the same terms as the main agreement? need for consent or
information? transference to third parties so that certain services can be performed? etc.).
G. Proactive focus according to institutional policies. There is no need to remain inactive while
waiting for companies to knock on the door to negotiate. An active approach to negotiations
based on the institution’s own policy for understanding national and local requirements has
produced important benefits. INBio’s Business Development Office and its highly qualified
expert staff, the attendance of seminars and activities with industry, the distribution or
sharing of information and material, and direct contacts, all of these empower an institution
to deal with challenges. The current policy is based on the idea that it is not enough to wait to
be contacted or to be available at the behest of a company; instead, one should possess and
maintain one’s own approach.
H. Understanding national and local needs in terms of technology, training, and joint research.
International strategic alliances must be struck. Even when an institution or community
possesses adequate resources to face a concrete demand, knowing the national situation and
the strategic needs will permit it to reach better agreements and fulfill a mission that goes
beyond merely satisfying the institution’s interests. It will permit the prospecting to benefit
society as a whole and demonstrate that it is possible to improve quality of life.
I. Macro policies and legal, institutional, and political support. For prospecting to succeed,
so-called macro policies have to exist; that is to say, there must be clear rules about the
“bioprospecting framework,” which requires biodiversity inventories, information systems,
business development, and technology access. One reason for Costa Rica’s success is that
institutions not only have experience in negotiation but also in setting policies and actions in
this area overall. This includes, for example, a current biodiversity inventory rated as “successful”

LESSER & KRATTIGER
Box 1 (continued)
that enables us to know what we possess. It is the first step in the quest to use this resource
intelligently. Our relevant experience also includes a National Conservation Area System
that assures the availability of resources, the possibility of future supplies and provisions,
mechanisms that contribute to the conservation of biodiversity as part of the contractual
systems, etc. At the same time, the possibility of possessing adequate instruments to manage
information, systems of land and property ownership, etc., contribute jointly with the existing
scientific capacity to create a favorable environment for bioprospecting and to make possible
the negotiation and attraction of joint enterprises. To this should be added other elements,
such as the existence of trustworthy partners, which is one of the most relevant aspects in
joint undertakings.
Lastly, one crucial topic is the constant denouncement of the business community because
of the uncertainty caused by the new access rules (mainly in terms of who is the competent
authority, the steps to be taken, how to secure prior informed consent, etc.). The emergence
of these new regimes, together with the fact that the intention is to essentially control
genetic information, its flow, supply, and reception—a topic where little national, regional,
and international experience exists—has caused concern because of the possibility of
contravening legal provisions. This has led to the establishment, as a policy, of the inclusion of
clauses related to the need to fulfill local regulations, to demonstrate the contracting parties’
right to fulfill their obligations pursuant to national laws, to present the appropriate permits
and licenses, etc. In some cases, this topic has generated important discussions and analyses in
negotiations. At an international level, various bio-prospecting agreements around the world
are the target of complaints, claims, and lawsuits precisely due to the lack of legal certainty.
This has created problems and discrepancies that hinder activities and joint ventures. A few
examples would be complaints about the Agreement between Diversa and the Autonomous
University of Mexico (which is still being litigated); or the deal between this company and
Yellowstone National Park; or criticisms of the agreement between the Venezuelan Ministry
of the Environment and the Federal University of Zurich.
Source: Reproduced with permission from Cabrera Medaglia J. 2004. Bioprospecting Partnerships
in Practice: A Decade of Experiences at INBio in Costa Rica. IP Strategy Today No. 11 (2004): pp. 27–40.
www.bioDevelopments.org/ip.

10
SECTION
Patents and Patenting:

Balancing Protection
with the Public Domain
CHAPTER 10.1
Defensive Publishing and the Public Domain

Sara Boettiger, Senior Advisor, PIPRA and Chief Economist, M-Cam, Inc., U.S.A.
Cecilia Chi-Ham, Director, Biotechnology Resources, PIPRA, U.S.A.
ABSTRACT negative effects. For instance, when research tools

IP (intellectual property) rights can reward innovators and or enabling technologies are patented and not
encourage investment in developing new products and
available for licensing, the creative and collabora-
services. However, the exclusionary power of IP rights can
sometimes have negative effects, making technologies less tive process of innovation can potentially be im-
accessible and, thereby, potentially impeding innovation. peded. To ensure the balance between access and
To make informed decisions about how to balance ac- protection requires an understanding of both the
cess and protection requires an understanding of both the traditional IP rights system (patents, copyrights,
traditional IP rights system (patents, copyrights, trade-
marks, and trade secrets) and alternative mechanisms for trademarks, and trade secrets) and alternative
preserving access to technologies. This chapter provides concepts, such as defensive publishing, public
a brief introduction to the public domain and defensive domain, and open source.
publishing and examines issues concerning the choice be- Debates about IP policy and the need to seek
hind the choice of whether to publicly disclose or to pat-
a socially optimal balance between IP rights and
ent an innovation. Discussing the strategic use of defen-
sive publishing in IP management, the chapter considers the public domain are important for the pursuit
both the utility of defensive publishing and its limitations of vibrant national and international innovation
for supporting broad innovation. After an examination of systems. This chapter’s focus, however, is narrow-
the public domain and how it relates to other open-ac- er. Rather than examining how policies regard-
cess concepts, such as open source and the commons, the
chapter focuses on the practical considerations involved ing the public domain might support innovation,
when using public-domain technologies and defensive we look instead at how, given current IP laws, IP
publishing to manage intellectual property. management practitioners can best use the public
domain to support particular goals.
The term public domain describes a body of
work that is freely available, legally unprotected,
1. Introduction and not subject to individual ownership. Public
A well-functioning innovation system strikes a domain implies the absence of individual IP rights.
balance between protecting technologies and pre- This definition exemplifies the language associat-
serving access to them. IP (intellectual property) ed with the public domain and what remains after
rights can provide incentives that reward innova- all the boundaries of IP rights have been staked.
tors and encourage investment in the develop- Likewise, we commonly refer to a technology
ment of new products and services. However, falling into the public domain, as if there were
the exclusionary power of IP rights can also have never a conscious decision to place something in
Boettiger S and C Chi-Ham. 2007. Defensive Publishing and the Public Domain. In Intellectual Property Management in
Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Ox-
ford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.
© 2007. S Boettiger and C Chi-Ham. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

BOETTIGER & CHI-HAM
the public domain; instead, the public domain In recent decades, many authors have exam-
encompasses the residuals of the processes of the ined how innovation systems have been changing
IP rights system. This chapter, however, does not in response to the expanding system of IP rights.
view the public domain as simply a default for As IP rights have become stronger, broader, and
technologies that are not claimed via IP rights. more far-reaching, many technologies that might
Instead, the chapter aims to promote a broader previously have been freely accessible in the pub-
appreciation of the public domain as a valu- lic domain are now proprietarily owned. This
able resource. The authors seek to facilitate the phenomenon has been particularly noticeable in
discerning use of the public domain as a tool the fields of health and agriculture.
(among a set of tools that include traditional IP In 1980, a landmark U.S. Supreme Court
rights and related licensing mechanisms) of pru- decision (Diamond v. Chakrabarty)2 set the stage
dent IP management. for a burgeoning biotechnology industry and an
Section 2 provides background that illus- exponential rise in the number of life-science pat-
trates the importance of the public domain and ents. Allowing for the patenting of human-made
how it has changed in recent decades. Section microorganisms, the decision clarified the Court’s
3 briefly introduces two other open-access con- position that patentability did not depend on the
cepts—the commons and open source—in order distinction between living and inanimate things,
to distinguish three alternatives from one other but instead between inventions made by “man”
and defines their relation to the IP rights system. and those that exist naturally. Among other influ-
Section 4 uses a narrower, legalistic definition of ences to increased patenting during this period,
the public domain to discuss the practical impli- the Bayh-Dole Act of 1980 has played a role. It
cations surrounding public domain technologies. set up new rules for the interface between aca-
That section reviews the patent-law concepts nec- demia, in which publications are the currency of
essary for understanding both the construction the trade, and the commercialization of universi-
of a successful defensive publication, how to as- ty research through patenting and licensing.3 The
certain whether a technology is, in a legal sense, rise in the patenting of life-science technologies
part of the public domain. Section 5 introduces and the corresponding reduction in the number
the practice of defensive publishing, examining of technologies remaining in the public domain
how best to place innovations into the public do- has been most remarkable in developed countries.
main. Section 6 considers potential strategies for Still, in many developing countries, patenting re-
the IP manager choosing between patenting and mains sparse.4 Indeed, despite the strengthening
defensive publishing. Section 7 outlines practi- of IP rights policies worldwide through TRIPS
cal issues confronted by users of public domain (the Agreement on Trade-Related Aspects of
technologies. Intellectual Property Rights) and TRIPS-plus, in-
ternational disparities in patenting behavior are
likely to persist. Understanding these differences
2. Innovation and the public domain can be important for understanding how best to
“There is no area in which public concern about in- use the public domain.
tellectual property and the public domain has been Substantial differences in patenting behavior
greater than in scientific and technical research. can also be found between the public and private
Whether it is the controversy over the patenting of, sectors within a country. Public sector patenting
and access to, the humane genome or pluripotent behavior and the use of the public domain may
stem cell lines, the appropriate role of intellectual be influenced by culture (for example, the land-
property in university research, or the use of ethno- grant universities in the United States, the cen-
botany and traditional herbal knowledge in phar- ters of the Consultative Group on International
maceutical patenting, the coexistence of science and Agricultural Research, (CGIAR), and many other
property rights has been a fairly constant concern public sector agricultural research institutions
over the last 15 years.” –James Boyle1 worldwide have a strong history of contributions

CHAPTER 10.1
to the public domain), a lack of resources relative domain if one can make, use, offer for sale, sell, or
to the private sector, and institutional structures import the invention without infringing an active
that often are designed to accommodate differ- patent and if there are no other types of IP rights
ent goals. Although there clearly are exceptions, that lay claim to the invention. Technologies in
public sector institutions and individual research- the public domain can be used with impunity be-
ers are generally at a disadvantage when it comes cause, by definition, there is an absence of owner-
to strategically employing the patent system to ship and therefore free access. This description of
achieve their research and development goals. In the public domain as a distinct set of technologies
these instances, the public domain can be a cru- with a defined boundary, though, is misleading.
cial resource. In fact, the boundary between the two sets can
This chapter does not consider whether the be difficult to discern, can vary from country to
shift in the relative strength of the public domain country, and is continually shifting. It is no sim-
in the life sciences is disadvantageous, and, if so, ple task to ascertain whether or not a technology
to whom. Such complex issues have been consid- is in the public domain.
ered widely in the literature on IP policy. Instead,
the chapter focuses on how to use the public do- 3.2 Open source
main to achieve individual IP management goals. Like the public domain, open source is character-
Whether research and development goals in- ized by free accessibility. However, with regard to
volve decisions about how to access technologies, open-source technology, free access derives from
how to preserve widespread access to newly de- a different source. Free access in the public do-
veloped technologies, or how to ensure that inno- main is defined by an absence of ownership, but
vations continue along the research and develop- free access in open source is dependent upon the
ment path toward commercialization unimpeded presence of IP rights that enable the use of open-
by IP issues, a solid understanding of the public source licenses.
domain is paramount. It is essential to know how The concept of open source has its origins
the public domain interfaces with the IP rights in computer software. Once computer code has
system in order to know when and how to use it. been fixed in a tangible means of expression, it is
automatically the subject of copyright protec-
tion. This copyright protection allows the owner
3. Defining open-access concepts to license the code. A typical (non-open source)
In this section we compare the concept of pub- license might, for example, contain terms that
lic domain with two other concepts: open source restrict the use of the licensed product or stipu-
and the commons. These three terms all relate to late fees to be paid. But the terms of an open
open-access alternatives to the traditional IP source license are seen as an unusual reversal of
rights system, but they are very different from one typical licensing terms (so unusual the license is
another. sometimes called copyleft). By signing an open-
source license, the licensee agrees to ensure that
3.1 Public domain the software will remain available for public use,
In its usage to date, the term public domain is elas- modification, and redistribution; the licensee
tic and inexact. A definition can be but one of many is then in breach if he or she privately appro-
definitions, each surely a function of perspective and priates the technology and restricts its public
agenda ... 5 availability.
Defining the term public domain as the ab- Such legal protection from private appropri-
sence of individual property rights creates two ation has been used to generate a self-defending
mutually exclusive sets of technology: one that is commons of software code that is collaboratively
protected by some form (any form) of IP rights added to and improved upon. A technology li-
and another that has no IP rights. Thus, in patent censed under an open-source license, therefore,
law, a technology is considered to be in the public cannot be in the public domain; otherwise there

BOETTIGER & CHI-HAM
would be no license and no way of enforcing the The collective-management concept translates,
commons. albeit loosely, into the term’s use in reference to
Several versions of open-source licenses are intellectual property.
commonly used, and they vary in the restrictive- In addition to describing the management of
ness of their terms. For instance, there may be a a body of intellectual property, the term commons
provision that any code that is combined with has also been used in reference to characteristics
the licensed code will fall under the ambit of the of ownership and access.7 Whether a commons is
open-source license. Therefore the entire body of defined by lack of private ownership, open access,
code can only be licensed under the same open- or collective management seems to vary according
source license terms—it cannot be privately ap- to the context in which it appears and to the au-
propriated. This viral quality limits the utility of thor’s own interpretation of the word. Depending
the open-source license in certain commercial on the choice of definition, commons can apply
contexts but increases the potential for growth to the public domain and to open source.
of the protected commons of code. Other ver-
sions of open-source licenses are less viral and
have been tailored to different business needs. 4. Review of related legal concepts
In the fields of health and agriculture, open Before discussing the use of the public domain
source has been most easily adopted in areas with in greater detail, this section briefly reviews the
similar technology characteristics (for example, relevant sections of patent law. The legal back-
genomics). Attempts to apply the open-source ground presented here is important for defen-
model to nondigital technology sectors6 encoun- sive publishing, that is, intentionally placing a
ter a range of difficulties. Patent law, not copy- technology in the public domain through pub-
right law, protects technologies in these sectors of lication and thereby preventing future patenting.
the life sciences. Applying open-source licensing In addition, understanding these legal concepts
mechanisms in patent law has its own set of le- will make clearer the discussion in Section 7 on
gal challenges. Also, there are differences related how to ascertain whether technologies are truly
to the innovation processes of non-digital tech- in the public domain. Much of this material will
nologies. The amounts of time, capital, and risk be familiar to the reader who has read in this
involved in, for instance, the production process Handbook the chapters on freedom to operate
of pharmaceuticals, are vastly different from the (FTO)8 and on various aspects of patenting and
production process in software production. In patenting strategies.9
addition, some technologies simply lend them-
selves less easily to the type of collaborative in- 4.1 Patentability requirements and their
novation structures that successful open-source importance in defensive publishing
models are based upon. Still, the tenets of open Defensive publishing seeks to preclude future
source resonate among communities of innova- patenting in a technology area by making it
tors in a wide range of technology sectors. The impossible for a potential patentee to satisfy one
search for new applications of the open-source or more of the statutory patentability require-
model is surely a worthwhile pursuit. ments.10 A solid understanding of patentability
requirements allows for greater success in de-
3.3 The Commons fensive publishing. In particular, the patent-law
The term commons has been used widely in vari- concepts of novelty, nonobviousness, and enable-
ety of contexts; its meaning, as applied to IP, is ment are key.
less clear cut than those of either public domain
or open source. Outside the field of intellectual 4.1.1 Prior art and the patent
property, the commons frequently refers to a com- application process
monly managed resource (for example, an ejido In order to meet patentability standards, the
in Mexico describing commonly managed lands). claimed invention must satisfy the statutory

CHAPTER 10.1
requirements of utility,11 novelty,12 and nonobvi- publication must be matched with attention to its
ousness,13 the latter two of which involve an eval- prominence in search engines that patent exam-
uation of prior art. In addition, the patent must iners may be more likely to use. Perhaps more im-
be ��
sufficiently described and enabled in the patent portantly, diligent attention should also be paid
application.14 If��
the patent examiner assesses the to newly published patent applications in the
prior art and deems that the claimed invention is field of interest. As these applications are issued,
either not new, or is obvious, the patent may be evidence suggests that the author of a defensive
denied, or the claims may need to be narrowed in publication may need to make the publication
order to account for the documented prior art. It known to the patent examiner in order to be con-
should be noted that the term prior art encom- sidered as prior art and, therefore, limit the claims
passes both nonpatented and patented prior art. of the proposed patent. If defensive publications
(This chapter does not consider the latter.) are brought to light after a patent issues, recourse
Citations of prior art can be added by either through patent invalidation is possible but may
the applicant or the examiner.15 U.S. patent law be prohibitively expensive. There are provisions
does not require the patent applicant to search for within U.S. patent law for the submission of pri-
prior art (that duty falls to the patent examiner). or art during a patent’s application process, and
However, if the applicant or inventor is aware of this window of opportunity should be strategi-
prior art, it must be included. The duty to dis- cally utilized.18
close exists under the requirement that appli-
cants act in “candor and good faith” when deal- 4.1.2 Novelty and nonobviousness
ing with the U.S. Patent and Trademark Office An invention is ineligible for patent protection
(PTO) during the patent-prosecution process. if it is either not new or obvious in light of ex-
A breach of this duty can be considered inequi- isting prior art. The novelty and nonobviousness
table conduct and may result in the patent be- requirements for patentability define the param-
ing unenforceable, but there is nothing to pre- eters within which defensive publishing can be
vent intentional ignorance of prior art on behalf implemented. The parameters define how public-
of the applicant. In fact, since 2001, when the ly disclosed inventions, as prior art, can be used
PTO began to record which citations were added to support future patentability rejections.
by the examiner, 40% of U.S. ��
patents have re- Disclosure of an invention, and the accom-
sulted from applications in which the applicant panying bar from future patentability due to lack
has listed no prior art at all.16 of novelty, is not limited to publications in print-
It is unclear how thoroughly examiners ed form. An invention can become ineligible for
search for prior art. Patents, both domestic and patenting through any public knowledge of the
international, are a kind of prior art that allows invention, or though its being used or offered for
for relatively easy and expeditious searching. sale. However, it is important to note that U.S.
Defensive publishing, however, depends on the law limits the use of nonprinted evidence in sup-
ability of patent examiners to find publications port of a lack of novelty rejection to that which
in nonpatent prior art searches. Sampat17 discusses originates within the United States. If the inten-
the difficulties patent examiners face in searching tion is to use evidence from other countries to
for nonpatent prior art and notes the growing con- support a rejection on lack of novelty grounds,
cern that these various constraints on effective prior the evidence must be either a patent or a printed
art searching are increasingly binding, and that the publication.19 The section of U.S. patent law rel-
PTO is issuing more and more “low quality” pat- evant to novelty and defensive publishing says
ents, [that is,] patents that would not have been is- that a patent application can be rejected on the
sued had the examiner considered the entire universe basis of lack of novelty if “the invention was …
of relevant prior art. patented or described in a printed publication in
So for those seeking to practice defensive this or a foreign country, before the invention thereof
publishing, the skills of crafting a good defensive by the applicant for patent, or … more than one

BOETTIGER & CHI-HAM
year prior to the date of the application for patent the two patentability requirements described
in the United States.”20 In most other countries, above (novelty and nonobviousness). In order to
the one-year grace period does not exist; public support rejections under the novelty requirement,
disclosure of an invention immediately bars pat- the publication, or nonpatent prior art, must be
entability in those countries. enabled. If the reference is supporting a rejection
In addition to understanding the timing on grounds of nonobviousness, enablement may
of disclosures, a successful defensive publishing not be as critical a factor; a nonenabling publica-
strategy should consider the meaning of the words tion can still be used to support a rejection on
printed and publication. For example, is a docu- grounds of nonobviousness.22 This section con-
ment posted on the Internet considered printed, siders enablement for an author constructing a
such that the document constitutes prior art and defensive publication.
works to reduce future patenting? Sections 5.1– Although the legal definitions vary somewhat
5.4 discuss best practices in regard to the content depending on the country in question, in general
of defensively published documents, as well as the enablement requirement is meant to ensure
their date and mode of publication. that the document contains enough detail for a
The nonobvious requirement in U.S. law person skilled in the art to be able to make and
states that if the existing prior art is such that a use the invention after reading the document. A
person who is skilled in the art would not have key question is whether it is clear that the public
difficulty coming up with the invention, the in- possessed the invention prior to the date the pat-
vention is not patentable: “… if the differences ent applicant claims to have invented it. While
between the subject matter sought to be patented the burden of proof of enablement for prior art
and the prior art are such that the subject matter falls to the patent applicant, who must provide
as a whole would have been obvious at the time the facts supporting a purported lack of enablement
invention was made to a person having ordinary (this presumption of enablement in prior art is no
skill in the art to which said subject matter pertains. different for a nonpatent publication than for a
Patentability shall not be negatived by the manner patent), it is still worthwhile considering enable-
in which the invention was made.”21 ment in a defensive publication.
In comparison to the novelty requirement, When plants are the claimed inventions that
the patentability requirement of nonobviousness a defensive publication is seeking to protect from
gives a broader range of possibilities for defensive patentability, enablement may require that some-
publishing to prevent future patenting. The key one of ordinary skill be able to reproduce the
difference is that in order to support a rejection plant. Descriptions of the plant variety, however
under the novelty requirement, the printed pub- detailed, may be insufficient. In one case, a ref-
lication must include each and every limitation erence describing a rose was found not enabled,
of the claimed invention, either explicitly or im- despite explicit detail and evidence that the au-
plicitly. A rejection under the nonobvious require- thor was in possession of the rose.23 In this case
ment, however, only requires that the content of the court ruled that, without information on the
the prior art publication can be modified in an grafting process, reproduction of the rose was im-
obvious way to arrive at the claimed invention. possible. In other cases, supporting documenta-
In addition, the patent examiner can use combi- tion may be necessary to indicate that seeds were
nations of prior art to support a nonobviousness publicly available within the time frame necessary
rejection, so even disclosures in defensive publish- to bar patenting.
ing that are partially complete may still create dif-
ficulties for those wishing to patent in the field. 4.2 Overlapping claims and dominant patents
What are the legal concepts used to ascertain
4.1.3 Enablement whether a technology is in the public domain
Careful defensive publishing anticipates how best and therefore freely available? This question is
to support a patent examiner’s rejections under relevant to both scientists and IP managers who

CHAPTER 10.1
are considering what technologies to choose for of the chapter by Fenton et al. 25) An initial search
a project. These pesrons must proceed with cau- delivers the documents detailed in this figure: sev-
tion, because the use of a technology in a publi- eral scientific papers and a group of patents. Once
cation, or the decision to in-license a technology the documents are arranged chronologically, we
under an active patent, may go only part way to can see that the E8 promoter’s DNA sequence
providing the right to practice the technology or was disclosed early in our chronology in two
pursue a certain research project. scientific publications. But ascertaining whether
A common misunderstanding in this area the E8 promoter is still in the public domain and
stems from a belief that patent claims define therefore available freely involves further investi-
mutually exclusive areas of technology. In reality, gation. Years after the initial publications, several
the patent claims overlap each other: the use of patents were issued that claimed variations on the
one technology can infringe claims in more than sequence and the right to use of the original E8
one patent. While the issuance of a patent gives promoter sequence when combined with partic-
the patentee the right to exclude others from ular genes. Therefore, while the original sequence
practicing the invention, it does not imply that itself remains in the public domain, when using
the patentee can practice the invention without, the sequence care must be taken to avoid infring-
perhaps, infringing existing patents. When the ing subsequent patent claims.
rights to existing patents are needed to practice Published scientific literature, trade journals,
a technology, those patents are considered domi- conference proceedings, abandoned patents,26
nant patents. and expired patents are all good sources for find-
The existance of broad, pioneering patents ing public domain technologies. In the case of
illustrate how dominant patents can affect the expired and abandoned patents, the boundaries
rights to use downstream innovations. For ex- of the forfeited IP rights have been clearly de-
ample, Monsanto’s claim to the plant transforma- fined by the claims of the patent: the previous
tion method using Agrobacterium means that all owner of the patent no longer has the legal right
patents in which the claims specifically depend to exclude someone from using what is set out
on this transformation method are blocked by a in the claims of the patent. But these two areas
previous patent. U.S. Patent No. 6,369,298 is a are especially prone to overlapping claims from
patent assigned to Pioneer Hi-Bred International, other patents that may still be active and affect
Inc. (now a subsidiary of DuPont) for transfor- the freedom to use the technology. Companies
mation of sorghum. In this case, the claimed often file multiple patents in a technology space,
technology depends on the Agrobacterium trans- or there may be multiple patents in one family
formation method. A third party intending to that arose from an initial application. Just be-
practice this technology would likely not only cause a patent has expired and entered the public
need a license for U.S. 6,369,298 but also for domain does not mean the technology is avail-
Monsanto’s Agrobacterium transformation domi- able for use.
nant patent(s).24 When seeking to identify whether a technol-
Pioneering patents like the one described ogy is in the public domain, one must be cau-
above are relatively uncommon, but overlapping tious because of overlapping claims. Armed with
claims and dominant patents exist in all areas of this knowledge, research into a potential public
patented technology. Understanding the overlap- domain technology begins with publicly available
ping nature of patent claims is crucial for those patent databases.27 These databases provide a great
who intend to utilize the public domain, because deal of information about the boundaries of the
using a technology that appears to be in the pub- public domain. Nonetheless, it can be difficult to
lic domain may involve infringing one or more understand the interplay between the published
patents. scientific literature and patents, as illustrated in
The case study of the E8 fruit promoter pro- the E8 case study. PIPRA offers technical assis-
vides another example (see the timeline in Figure 1 tance in this regard, analyzing technologies used

BOETTIGER & CHI-HAM
in public sector agricultural research to ascertain the goals of promoting access, primarily by pro-
with greater accuracy the boundaries of the pub- viding important leverage.
lic domain.28
5.1.1 Will the technology need private-sector
resources for further development and
5. When to use defensive publishing: distribution?
the choice between patenting IP rights provide private economic incentives that
and publishing can sometimes be critical to research, develop-
Deciding whether to patent or publish is a stra- ment, and distribution processes. As an example,
tegic decision that must take into account a consider the investment needed to bring a drug
host of variables: the mission of the institution from discovery through to delivery. Although
(and/or the funding agency) involved, the goals an accurate estimate of the true cost of drug de-
of the individual project, the financial resources velopment is the subject of a lively debate, it is
available to spend on IP protection, the nature inarguably hundreds of millions of dollars.30 In
of the technology, the functionality of the court most cases it is unreasonable to expect the public
system in the countries where the technology will sector to take on the levels of investment and risk
be used, and the strategies being employed by involved in drug development. A parallel example
other institutions producing similar technologies. can be seen in agriculture, where regulatory clear-
Moreover, defensive publishing and patenting ance may be needed for a new product, or seed
inventions each has its limitations and benefits. distribution networks may need to be engaged.
Other strategies, such as trade secrecy, trademark It is important, therefore, to assess early whether
protection, and bailment29 need to be considered private capital is likely to be necessary, at some
as options when formulating an IP management point, for research, development, regulatory clear-
strategy. ance, manufacturing, and distribution. IP rights
Defensive publishing is often associated with can facilitate the private sector’s engagement by
promoting access, but there are instances where, providing critical assets for bargaining (for exam-
perhaps counter-intuitively, defensive publish- ple, in product development partnerships).
ing may not be the most appropriate choice for
getting widespread access to either an end-prod- 5.1.2 Are there benefits to be gained
uct or a newly developed technology. There are from segmenting the market?
instances, however, where patenting has limita- One benefit of choosing to patent, rather than
tions and defensive publishing may be the better publish, is that patenting provides an opportu-
choice. nity to segment the market of technology users
or licensees. An IP manager may require differ-
5.1 Can defensive publishing promote access? ent licensing terms, for instance, depending on
Many institutions and/or sponsors, particularly whether the technology will be used commer-
in the fields of health and agriculture, place a cially or for humanitarian purposes. Alternatively,
high priority on promoting widespread access the license might contain terms to segment the
to developed technologies. Indeed, publishing market geographically or by fields of use. An
continues to play a critical role in universities exclusive license may be implemented, for ex-
and at other public sector research institutions. ample, to limit the technology’s use to one major
Recent changes in the worldwide use of patent- crop, reserving all other uses of the technology
ing discussed above, however, are forcing these for widely accessible and nonexclusive licens-
institutions to reassess whether this IP manage- ing. Using such an approach, income generation
ment strategy is the best way to support their and access may be complementary goals for the
goals. This section focuses on promoting access IP provider. Or the rights to a technology in, for
and highlights some instances where the choice instance, developed country markets may be ex-
to patent a technology may be key to achieving changed for contractual obligations to deliver the

CHAPTER 10.1
product to developing countries for a reasonable nature of the technology may place the owner in
price. Choosing to protect the technology with a position to demand a wide range of contractual
IP rights instead of defensive publishing may pro- obligations in exchange for the use of the selec-
vide bargaining leverage that ultimately achieves tion system. BiOS, for example, operates on this
the institution’s goals. principle by providing patented enabling tech-
nologies under licensing terms that support the
5.1.3 Is the technology a research tool organizations open-access goals.32
(enabling technology)? A second scenario concerns improvement
A body of evidence indicates that the patenting patents. Here, as in the previous example, suppose
and access restrictions (through exclusive licens- the IP manager chooses not to patent the novel se-
ing, for example) of enabling technologies can lection system. Improvements to the technology
limit the progress of innovation in health and are subsequently invented and patented, restrict-
agriculture.31 Indeed, the existence and effects of ing the uses of the original technology. Had the
patent thicket– or anticommons-dynamics are IP manager patented the technology, the value of
now fairly well accepted. The task of this section, the subsequent improvement patents would de-
however, is not to consider the policy question of pend on access to the underlying dominant pat-
whether research tools should be patentable, but ent (see Section 4.2 on dominant patents). The
to examine the choice between patenting (nota- E8 case study provides a concrete example where,
bly in the examples given here with widespread had the original sequence been patented instead
nonexclusive licensing) and defensive publishing of published, the use of some of the downstream
for the IP manager whose goal is to promote ac- patents would depend on Agritope, Inc. or
cess in a context where research tools, and im- Epitope, Inc. licensing the original patent. For
provements to them, are widely patented. In technologies that do not lend themselves to sub-
other words, how can IP management preserve sequent restrictions from improvement patents,
the right to use an enabling technology? this is not a concern. Mouse models are an ex-
As a first example, consider plant transfor- ample of this type of technology. The majority of
mation that confers a new trait. Access to several mouse models used in research, for instance, are
complementary enabling technologies is required licensed and not patented.
to produce a product. A vector that includes a
promoter, selectable marker, a backbone, and a 5.2 Using defensive publishing as a tool
gene of interest must be used, as well as a trans- in an IP management strategy
formation method and germplasm. Lack of access Clearly, the common perception that publishing
to any one technology may delay research and de- inherently promotes access may require recon-
velopment or, in some cases, altogether prevent sideration. Still, what are the merits of defen-
the progress of the project. sive publishing for supporting a wide variety of
In such a case, the complementary nature IP management goals? And how does it high-
of the technologies implies that the decision to light the limitations of using patents to protect
patent may confer bargaining leverage. If an IP innovations?
manager chooses not to patent an enabling tech-
nology, for example, a novel selection system with 5.2.1 The costs of maintaining
wide applicability in plant transformation, the a patent portfolio
ability to control the technology’s applications is Patent portfolios are costly to develop and main-
lost. Research projects where the selection system tain. Moreover, they sometimes require a lengthy
would otherwise have been the limiting factor maturation period before reaching a point
(where all other technologies are owned or acces- where they return income. Unless a licensee is
sible) could progress, without impediment, if the found who will underwrite the cost before the
technology were to be published. Alternatively, if prosecution process starts, the initial investment
the IP manager chooses to patent, the essential in the cost of prosecuting patents can be large,

BOETTIGER & CHI-HAM
particularly where protection is sought in mul- costs for patent litigation in the United States
tiple countries. Even where licensees are already in exceed $2 million dollars per case. Any decision
place, it can be many years before a license gener- to patent must include an assessment of whether
ates a positive cash flow. In examining U.S. uni- the patentee can afford to enforce the patent. In
versity technology transfer offices (TTOs), Heher addition to the expense, the maturity or efficacy
notes that 40%–50% operate at a net loss and of the patent law system in the countries likely to
that profitability often depends on income aris- be involved should be considered. If the technol-
ing from one or more blockbuster patents.33 In a ogy lends itself to bailment, for example, more
cross-country comparison of TTOs, he finds that control over the use of technologies may be
“the first and foremost requirement for success from found through contract law, particularly in
technology transfer is a well-funded high quality re- countries where the patent system is not well
search system as the benefits from commercialisation developed.
of research are directly proportional to the magnitude
of the investment in research.”34 While direct and 5.2.4 Defensive publishing as an
indirect economic impacts provide broad benefits active strategy
from building an institutional patent portfolio Defensive publishing is most effective as an active
and TTO, the investment is long term and high strategy. This is a different use of publishing than
risk. If resources are particularly constrained, the that found in many research institutions today.
decision to expend money on patenting deserves The use of defensive publishing requires carefully
careful consideration. Less expensive alternatives constructed disclosures with the greatest possible
to patenting may support IP management goals public exposure and diligent worldwide monitor-
and allow more resources to be directed toward ing of new patent applications as they arise in a
research. particular technology field. When a patent appli-
cation appears for which the defensive publication
5.2.2 Transaction costs of licensing has the potential to force a narrowing of the claims
The transaction costs of negotiating licenses are or a total rejection, the appropriate channels must
substantial and may need to be accounted for be used to alert the patent office of the published
in the decision to patent. For instance, if the prior art.
IP management goal is to promote access to a
technology, and the choice is either defensive 5.2.5 Using defensive publishing in
publishing or nonexclusive licensing, the costs of combination with patenting
negotiating multiple nonexclusive licenses, or de- One of the strongest roles defensive publishing
vising licensing language to segment the market can play is when it is used, not as a substitute for
of technology users suitably, may outweigh the patenting, but in conjunction with it. As an ex-
benefits. Transaction costs can be somewhat re- ample, consider a strategy where an IP manager
duced in take-it-or-leave-it nonexclusive licenses, patents a core technology and then defensively
but these tend to be rare. publishes the surrounding, related innovations,
thereby reducing the likelihood that others will
5.2.3 Enforcement considerations: be able to obtain dominant patents. Obtaining
costs and legal Infrastructure patents on improvements to a core technology as
The costs (and feasibility) of enforcing the patent they are discovered may be a poor use of limited
may also need to be considered. Because a pat- resources. In addition to improvements, new uses
ent confers exclusionary rights, it may be worth- of the core technology may be discovered as re-
less without the ability to enforce those rights. search and development progress. But defensive-
Enforcement may require litigation against infring- ly publishing these improvements and alternative
ers or using the patent to invalidate subsequent uses will inexpensively and effectively contribute
blocking patents. In either case, patent litigation to preserving the right to a wide field of applica-
is a game for players with deep pockets. Average tions for the core technology.

CHAPTER 10.1
5.3 Preserving access: ten questions to consider at the outset of a research project, using better-
For the IP manager deciding on a strategy for pre- known tools (which are often proprietary) may be
serving public access, considering the following important in the initial proof of concept stages of
questions should be helpful: research. In this case, it is worthwhile to identify
• What are the IP management goals of the whether public domain technologies are available
institution or inventor? for substitution at a later stage.
• Will the technology need the engagement The identification and promotion of substi-
of private-sector resources for further devel- tute technologies from the public domain is one
opment and distribution? of PIPRA’s important contributions to the field
• Are there benefits to be gained from seg- of agriculture. PIPRA’s mandate is to assist pub-
menting the market? lic sector researchers worldwide in overcoming IP
• Is the technology a research tool (enabling impediments to the research, development, and
technology)? distribution of staple crops for developing coun-
• Do the benefits of patenting and licensing tries and minor crops in developed countries.
outweigh the costs? Because the commercial market for these crops
• How and where might the patent be is too small to attract private-sector investment,
enforced? the public sector primarily pursues research and
• Are there other viable options for protec- development with respect to such crops—often
tion—trade secrecy, bailment, trademarks, without the resources to successfully address IP
and so forth? issues. Public domain technologies are therefore
• In which territories/countries is the tech- a critical resource for developing these orphan
nology likely to be used? crops.
• Can the technology be licensed without As PIPRA’s library of technical and legal in-
patenting? formation on public domain and patented, but
• Can defensive publishing be used in con- accessible-enabling technologies (including free-
junction with traditional forms of IP dom-to-operate opinions from attorneys) in agri-
protection? culture grows, so does the demand for knowledge
of what technologies are in the public domain and
how they might be employed in place of currently
6. Using public domain technologies used patented technologies. Some practical con-
Public domain technologies are valuable inputs siderations for researchers and IP managers with
to research. Indeed, they are a crucial but com- regard to identifying public-domain technologies
monly underutilized resource for researchers. are laid out below.
Using research tools or enabling technologies in
the public domain reduces transaction costs and 6.1 Patent databases provide
mitigates future potential IP impediments in the only part of the picture
research and development process. As the E8 case study illustrates, an investigation
In developed countries, many of the standard must begin with a search through both the pub-
inputs of science in the fields of health and agri- lished scientific literature and patent databases. It
culture have been patented. Scientists, however, is both the comparison of the content and the
continue to use these tools because they have a timing of the publication of each contributing
well-known history, including known levels of document that will determine whether the tech-
efficiency and documented use in specific crops. nology in question is in the public domain and
The use of patented research tools, on the other its limitations for use. A simple patent search
hand, can open the institution to infringement may mislead by returning a bewildering number
liability and/or create problems in later stages of related patents. But a comparison of these pat-
of commercialization. While the maximum use ents with the published literature can reveal that,
of public domain technologies may be desirable for instance, the core technology is in the public

BOETTIGER & CHI-HAM
domain and that the patent thicket is made up public domain are more expansive in some
of improvements, and other patents, limiting countries than in others, opportunities may ex-
the utility of the original technology. If this is ist to design research strategies that take advan-
the case, knowledge of these limitations may be tage of these differences.
critical in designing a research plan that invents For example, the territorial limits of patents
around existing patents and maximizes the use of have led to suggestions that developing-country
the public domain technology. research institutions should use technologies that
Sequence comparisons may provide another are not patented domestically but are patented in
critical piece of information for the researcher more-developed countries. Legally, a researcher
seeking to use a public domain technology. As an using a technology in a country where no pat-
example, PIPRA’s analysis of the Soybean Heat ent has been filed is not infringing. However, an
Shock Promoter found that changing the se- obvious constraint surfaces when the product of
quence by one nucleotide allowed researchers to the research is destined for export into a country
avoid infringing the issued patents.35 It should be where there is patent protection. In this case, de-
noted, however, that this case is somewhat anom- spite the lack of patent protection domestically, it
alous. The determination by PIPRA’s attorneys may be necessary to investigate the patent land-
that altering a single nucleotide avoided existing scapes of export markets.
patents was reached by carefully considering both There are still further considerations. In or-
prior art and patents. Generalizations cannot der to use a technology that resides in the public
be made, because it is only through examining domain domestically, but is patented elsewhere,
how both sets of specific documents interact that a researcher may require the transfer of materials
FTO can be evaluated. However, the example il- or know-how from the patentee. These often in-
lustrates how critical the use of sequence analy- volve material transfer agreements (MTAs) with
sis tools such as BLAST can be when analyzing restrictive terms and reach-through obligations
patents. In general, careful attention to the prior that may hinder research and interfere with broad
art and the use of homology measures in patent access for researchers in developed and develop-
claims may be necessary to identify the specific ing countries alike. Even where no patent rights
public domain sequence. are found, this situation may involve negotiating
agreements (such as nonasserts) with the technol-
6.2 The landscape is continually changing ogy owner. In addition, even when large compa-
The boundary of the public domain changes nies as patentees are not concerned with infringe-
as new patents are issued. Periodic updates of ment issues or losing market share, the companies
the analysis are necessary to check for recent- may be concerned about liability and stewardship
ly issued patents that may restrict the use of issues. Finally, developing country research insti-
the original technology. Searches can be hindered tutions, or the organizations that sponsor their
because patent applications remain unpub- research, may attach considerable value to the
lished—and therefore invisible in patent search building of relationships with the company that
engines—for many months after their initial fil- has patented the technology. Therefore, despite
ing dates. the lack of patent protection and the legal free-
dom to use a technology, there may still be im-
6.3 Geographical considerations portant reasons to negotiate a license.
Finding out what is in the public domain is
made even more complex by the territorial
nature of patents. The analysis for the E8 case 7. The mechanics of
study considered only the situation in the defensive publishing
United States; any other country would re- This last section focuses on the mechanics of de-
quire collecting a different set of documents. fensive publishing: how to best ensure that a dis-
Nonetheless, because the boundaries of the closure precludes downstream patenting by others.

CHAPTER 10.1
Elements to consider in drafting a successful de- plant transformation vector, as well as its use in
fensive publication include: content, language of particular crops.
choice, publication venue, and publication date. Whether the inclusion of certain language
The following sections elaborate on best practices in a publication will prevent future patenting in
in defensive publishing. this case is uncertain, and it should be noted that
the combination of prior art references in support
7.1 Content of a rejection on nonobviousness grounds comes
The goal of defensive publishing is to prevent pat- with several caveats. A successful rejection of a
enting in a particular technology area. Therefore, claimed invention due to obviousness must show,
constructing a disclosure specifically designed to not only that someone skilled in the art would
create evidence to prevent patentability will in- have been able to combine the prior art refer-
crease the likelihood that fewer patents will issue ences, but that they would have been motivated to
in this technology space. The disclosure should do so. Second, there must be a reasonable expec-
be as complete and detailed as possible. Where tation of success for the purported combination.
relevant, a publication should include descrip- Third, the references taken together must teach or
tions of all parts of the experiment, experimental suggest all the elements of the claimed invention.
conditions, diagrams, formulas, procedures, se- When drafting the content of a defensive publica-
quences, materials, and methodologies. We indi- tion, it is impossible to anticipate all the possible
cated earlier that enablement of the publication combinations of the author’s technology with
may be important; a defensive publication should that belonging to others, but by using language
include evidence illustrating possession of the in- that acknowledges the caveats above, the author
vention and enable a person skilled in the art to can broaden the subject matter of the disclosure
make and/or use the invention. as much as possible.
7.1.1 Consider disclosing the potential 7.1.2 Consider disclosing potential

for combining technologies alternative applications
In addition to a thorough description, defensive As with potential combinations, it may be worth-
publishing should include potential combinations while to include alternative applications of the
of the target technology with other technologies. technology, even if they are not documented in
This is true even for combinations for which the detail. If the technology is a product, the author
author may not have detailed documentation. may want to consider including the current prod-
As the case study of E8 revealed, the inclusion uct, potential uses of the product, and derivative
of additional combinations can expand the use products. While defensive publication can place
of the document to support future nonobvious- a product technology in the public domain, pro-
ness rejections. Publishing the sequence of the E8 cesses developed later using that product can still
plant promoter did not prevent the issuance of be patented. By anticipating potential applica-
future patents claiming the use of the promoter tions, the author of the defensive publication
combined with particular genes. If the authors of may contribute to an obviousness-type rejection
the original publication had ended their paper in the future. If the technology disclosed is a pro-
by articulating the likely success of the sequence cess, the author might consider including details
for promoting the expression of broad classes of products derived from the process. These con-
of genes, there may have been stronger grounds siderations anticipate the patentability of product
for rejecting subsequent patents. To extend this and process patents. As an example of product
point, a defensive publication may be even stron- and process patents, consider the famous Cohen-
ger if it anticipates not only the promoter-gene Boyer technology. This was not one patent, but
combination, but also its potential use in entire three: (1) a process patent for the construction of
systems, such as the transformation method, se- molecular chimeras, (2) a product patent for pro-
lectable marker systems, and other elements of a teins made using recombinant eukaryote DNA,

BOETTIGER & CHI-HAM
and (3) a product patent for proteins made using The publication language may need to be, for
recombinant prokaryote DNA.36 example, one spoken in the countries in which
the patent will be barred. It may be important,
7.1.3 Consider disclosing related alternatives however, to write at least the abstract and title in
One way to design around a defensive publica- English to maximize the chances that this partic-
tion (or a patent) is to alter, even minimally, the ular disclosure will be brought to the attention of
structure of the technology. TGo anticipate this, the patent offices in the United States and Europe
defensive publication can indicate how the tech- during prior art searches. Still, given the limita-
nology may be altered while still maintaining tions of nonpatent prior art searching in patent
the original disclosed functions and characteris- offices, the best post-publication strategy is to
tics. This follows common practice in drafting monitor the published application in the technol-
patent claims. For instance, a sequence may be ogy field and alert the relevant patent office to the
published that includes a percentage homology defense publication.
within which the function of the technology re-
mains the same. In addition, it may be useful to 7.3 Where to publish
include homologies across different species. As noted previously, U.S. law uses the words
“printed publication” in its novelty require-
7.1.4 Consider depositing biological materials ment. U.S. courts have adopted a broad defini-
For some inventions involving biological mate- tion of the word printed, to include documents
rial, we have established that a written description stored on electronic media, and on microfilm.40
is insufficient to convey the technology in such a Documents posted on the Internet may therefore
way that a person skilled in the art can practice it. be used to satisfy the printed aspect of the novelty
For such inventions, the patent system has come requirement.
to depend on the deposit of biological materials in The word publication has also been fairly
recognized, publicly accessible culture collections broadly interpreted to mean any printed docu-
worldwide. As a rule of thumb, if the biological ment that is freely available to the public. Peer-
material can be made, or isolated, without undue reviewed publications are only one option for
experimentation, or if the material is otherwise defensive publication, and their constraints on
known and readily available, it is not necessary content may leave the author with a less than
to deposit material. In many cases, however, a complete defense. Printed materials presented at
defensive publication will be stronger if biologi- trade shows, conferences, seminars, or on Web
cal materials are deposited (the deposit accession sites are all considered to satisfy the definition of
number should be referenced, where relevant, in publication. Indeed, major corporations have used
the publication and sequence information given). this kind of defensive publishing as part of their
Patent deposits worldwide have been regu- IP management strategy for many decades. IBM
lated since 1980 when the Budapest Treaty on provides perhaps the best-known example of the
the International Recognition of the Deposit use of a technical journal for defensive publish-
of Microorganisms for the Purposes of Patent ing. The success of that strategy is illustrated by
Procedure came into force.37 The World a 2002 search of the U.S. patent database by Bill
Intellectual Property Organization38 provides Barrett that found almost 10,000 patent citings
an updated list of the countries that have rati- of IBM’s Technical Disclosure Bulletin.41 By pub-
fied the Treaty and the collections that are rec- lishing technical disclosures without the content
ognized as international depositary authorities restrictions of peer-reviewed publications, IBM
(IDAs).39 wields an inexpensive, flexible tool that comple-
ments its overall patenting strategy.
7.2 Choice of language A number of companies specialize in pub-
The choice of language (that is, English, or other) lishing nonpatent prior art. The Web site IP.com,
in a defensive publication can also be important. for example, provides expertise in defensive

CHAPTER 10.1
publishing and offers a search engine to make it management plan begins by identifying the in-
easy for a patent examiner to navigate through puts and enabling technologies used in research.
the site’s library of disclosures.42 Disclosing an A strategic IP plan also clearly articulates the in-
invention through such a company will increase tended use of the technologies that are produced.
the likelihood that a patent examiner will see it. Once this framework is established, IP manage-
The companies, however, may charge hundreds ment tools can be used effectively to support the
of dollars for such a disclosure. Another method project’s goals.
of disclosure is the use of the statutory invention The public domain is a valuable resource
registration procedure, whereby the PTO allows for early-stage thinking about a project’s re-
for the registration of an invention that is unex- search tools. The above practical considerations
amined. This method, too, can be expensive. The will hopefully assist in effectively incorporating
most cost-effective way to defensively publish is to public-domain technologies into an IP manage-
publish for free on the Internet (but dating mate- ment plan, thus reducing the need to in-license
rial published on the Internet can be problematic; technologies and freeing up resources for more
see next section). If the Internet is used to publish research. Moreover, when managing the prod-
defensively, there may be a greater need to moni- ucts of a research project, one tool to consider
tor recently published patent applications in the alongside more traditional IP rights is defensive
field of interest. publishing, or placing a technology in the public
domain. When considering defensive publishing,
7.4 Timing and date stamping however, IP managers should keep in mind both
The date of a defensive publication is a critical its utility and its limitations. n
piece of information that must be documented
and discernible by the patent office. It helps the
patent examiner to determine whether the publi- Acknowledgements
Thanks to Fredh Fredrik, of the Center for Intellectual
cation brings into doubt the patentability of the
Property Studies at Chalmers University of Technology,
subject matter. The dating of material published for his research assistance and to Michael Lang of Harness,
on a Web site can be a difficult matter: many Dickey & Pierce, P.L.C. for reviewing and discussing an
documents on the Web are date stamped on the earlier version of this chapter.
date of access, not the date of posting. Obviously,
this practice can cause problems for a party those SARA BOETTIGER, Senior Advisor, One Shields Avenue, PRB
- Mail Stop 5, University of California, Davis, Davis, CA,
attempting to preclude future patenting in a
95616-8631, U.S.A. sboettiger@ucdavis.edu
technology area by using the Internet for defen-
sive publishing. Fortunately, there are solutions. CECiLIA CHI-HAM, Director, Biotechnology Resources, PIPRA
Many companies now offer digital time stamping University of California, Department of Plant Sciences,
(DTS) or digital notary services. This technology Plant Reproductive Biology Building, Extension Center
Circle, Davis, CA, 95616, U.S.A. clchiham@ucdavis.edu
has become accepted legal proof that the con-
tents of a publication existed at a particular point
in time and has not changed since that time.43 1 Boyle J. 2003. Foreword: The Opposite of Property? Law
Another readily accessible method of establishing and Contemporary Problems 66(1-2):25. www.law.duke.
the date of an Internet publication is to scan a edu/shell/cite.pl?66+Law+&+Contemp.+Probs.+1+(Wi
nterSpring+2003).
document that includes a date and a signature,
2 447 US 303 (1980).
and post the pdf on the Web.
3 The Bayh-Dole Act (1980) altered incentive structures
surrounding the development of publicly funded
research by mandating institutional ownership and
8. Conclusion the ability to exclusively license these inventions. See,
This chapter has examined how IP managers and also in this Handbook, chapter 3.3 by Gregory Graff and
chapter 3.2 by Rachel
��
A Nugent and Gerald
��
T Keusch.
researchers can use the public domain and defen-
4 Because patents are territorial grants of exclusionary
sive publishing to their advantage. A strategic IP

BOETTIGER & CHI-HAM
rights, the patent landscape can vary considerably formal interference proceeding. Outside the scope of
among countries. an interference proceeding, proof of lack of novelty is
5 Lange D. 2003. Re-imagining the Public Domain. limited to printed documents and patents.
Law and Contemporary Problems 66(1-2): 463. www. 20 The one-year period is based on the priority date, which
culturaleconomics.atfreeWeb.com/Anno/Lange%20Re is usually the date on which the patent application is
imaging%20the%20Public%20Domain%20LCP%2020 filed. It
��
is possible, however, for a patent to have a priority
03.htm date that is earlier than the date on which it was filed.
6 For example, the Biological Innovation for Open Society Continuation and divisional applications, for instance,
(BiOS, www.bios.net). may retain the priority date of the “parent” application
from which they are derived (in these instances it is
7 The discussion of the commons here derives from the even possible for one patent to have more than one
excellent compilation of collected papers from the priority date, as different content in the claims may
Duke Conference on the Public Domain (www.law. have entered the patent application process at different
duke.edu/pd/papers.html), in Law and Contemporary times). In addition, the establishment of a priority date
Problems, 66, Winter and Spring 2003, where readers must encompass international applications. If a patent
will find an in-depth discussion of many facets of the is filed on an invention in Japan, and then later a U.S.
public domain. application is filed, the U.S. application will retain the
8 See, also in this Handbook, chapter 14.2 by SP Kowalski; priority date of the earlier Japanese application. Patent
chapter 14.4 by GM Fenton, C Chi-Ham, and S Boettiger; applications can also have earlier priority dates if a
and chapter 14.1 by A Krattiger. provisional application was filed first.
9 See, also in this Handbook, chapter 10.5 by O Livne, 21 35 U.S.C. 103 Conditions for patentability; nonobvious
chapter 10.6 by AS Viksnins and AM McCrackin, and subject matter.
chapter 11.8 by S Shotwell. 22 “Even if a reference discloses an inoperative device, it is
10 This section refers in particular to U.S. patent law. prior art for all that it teaches.” Beckman Instruments v.
However, internationally the requirements for LKB Produkter AB, 13 USPQ2d 1301, 1304 (Fed. Cir. 1989).
patentability tend to be similar. “A non-enabling reference may qualify as prior art for
the purpose of determining obviousness under 35 U.S.C.
11 ��
35 U.S.C. § 101.
103.” Symbol Technologies Inc. v. Opticon Inc., 19 USPQ2d
12 ��
35 U.S.C. § 102. 1241, 1247 (Fed. Cir. 1991).
13 ��
35 U.S.C. § 103. 23 In re LeGrice, 133 USPQ 365 (CCPA 1962).
14 ��
35 U.S.C. § 112. 24 Monsanto’s patent application(s) for Agrobacterium
15 A member of the public can also add citations. See mediated transformation have not yet issued as
footnote 14. patents in the U.S. Until this happens, it is impossible to
say with certainty which patents will be blocked by the
16 ��
Alcácer ��
J and M Gittelman. 2004. How Do I Know What issued claims. In addition, Monsanto’s Agrobacterium-
You Know? Patent Examiners and the Generation of mediated transformation patents in other parts of the
Patent Citations. Working Paper. www.olin.wustl.edu/ world have already expired; dominance changes by
cres/research/calendar/files/alcacer_gittelman.pdf#s territory.
earch=%22Alc%C3%A1cer%20and%20Gittelman%20(
2004)%22. 25 See supra note 8.
17 Sampat BN. Examining Patent Examination: an Analysis 26 In addition to patents that have been abandoned due
of Examiner and Applicant Generated Prior Art. to non-payment of maintenance fees, some abandoned
Working Paper. faculty.haas.berkeley.edu/wakeman/ patent applications may also be in the public domain.
ba297tspring05/Sampat.pdf. Under a revised law, U.S. patent applications filed
on or after 29 November 2000 are to be published
18 35 U.S.C. §301.
��
Citation of prior art: “Any person at any within 18 months. Prior to this change in law, patent
time may cite to the Office in writing prior art consisting applications were not publicly available. The new law
of patents or printed publications which that person still contains an option for secrecy up until the point
believes to have a bearing on the patentability of any that the patent issues. If the patentee elects to forego
claim of a particular patent. If the person explains foreign patenting, s/he has the right to request that
in writing the pertinency and manner of applying the application remain unpublished.
such prior art to at least one claim of the patent, the
citation of such prior art and the explanation thereof 27 See, for instance, www.uspto.gov.
will become a part of the official file of the patent. At 28 www.pipra.org.
the written request of the person citing the prior art, his
29 If the technology has an element of tangible property,
or her identity will be excluded from the patent file and
bailment may be used (for example, material transfer
kept confidential.”
agreements) to protect the technology under contract
19 §102(g) allows for proof of prior invention in any law instead of patent law—a choice that may be
country that is a member of the WTO, but this is warranted in countries where patents are more difficult
limited to cases where inventorship is disputed in a or prohibitively expensive to enforce in comparison

CHAPTER 10.1
with contracts. 35 Contact PIPRA for more information on the written

30 A report by the Global Alliance on Tuberculosis Drug FTO opinion for this technology.
Development on the economics of tuberculosis drug 36 Intellectual Property Rights and Research Tools in
development estimated the cost of drug development Molecular Biology: Summary of a Workshop Held at
for a tuberculosis indication was US$115-240 million. the National Academy of Sciences, February 15-16,
See The Economics of TB Drug Development (October, 1996 (1997), p. 40; www.nap.edu/readingroom/books/
2001) at www.tballiance.org. These figures are property/5.html.
well below many other cited estimates for drug 37 The term “microorganism” was appropriate at the
development cost, such as the well publicized study by time the Treaty was named because the primary uses
DiMasi et al (DiMasi AA, RW Hansen and HG Grabowski. of biological materials in industry involved bacteria
2003. The price of innovation: new estimates of drug and lower fungi. Today the term is interpreted broadly
development costs. Journal of Health Economics 22: within the context of the Budapest Treaty to include
151–185). a wide range of biological materials (for example,
31 See, for example, BD Wright and PG Pardey. 2006. The bacteria, viruses, isolated DNA, and cell lines, etc. (see
Evolving Rights to Intellectual Property Protection in Fritz D and V Weihs. 2001. Deposition of Biological
the Agricultural Biosciences. Int. J Tech and Globalisation Material for Patent Protection in Bio-Technology. Appl
2(1/2):12-29. While they articulate the complexity of the Microbiol Biotechnol 57:443–450.)
issues and admit that “definitive evidence on the effects 38 www.wipo.int.
of IPR on agricultural research will not be available
soon, if ever,” their paper also includes a catalog of 39 See www.wipo.int/treaties/en/registration/budapest/
examples where the path of research has been altered pdf/ida.pdf for a current list. Also of relevance is
because of IP rights. Tomatoes with improved shelf- chapter 10.10 by Dennis Harney and Timothy McBride
life characteristics, fungus-resistant strawberries, in this Handbook.
hypoallergenic wheat, as well as herbicide tolerant 40 In re Wyer, 655 F.2d 221, 226-27 (C.C.P.A. 1981).
barley, turf grass, and lupin are all examples where
41 Barrett B. 2002. Defensive Use of Publications in an
research and development were suspended due to IP
Intellectual Property Strategy. Nature Biotechnology
roadblocks.
20:191-193.
32 www.bios.net.
42 www.ip.com.
33 ��
Heher AD. 2004. Economic Modelling of Institutional
Research and Innovation. Unpublished
��
Report for 43 For instance, www.digistamp.com offers non-profit
SARIMA. SARIMA Project 3. University of Cape Town: organizations performing medical or environmental
Cape Town. public research use of their service at 30 cents per time
stamp.
34 See supra note 33, page 3.

Chapter 10.2
Provisional Patent Applications:

Advantages and Limitations
RICHARD L. CRUZ, Intellectual Property Attorney, DLA Piper US LLP, U.S.A.
ABSTRACT Provisional patent applications were estab-

In the United States, provisional patent applications can lished in the United States to place domestic in-
provide an additional year of patent protection, for a to-
ventors on an equal footing with foreign inventors.
tal of 21 years from the initial filing date. With such an
extension, a provisional application provides parity with Before the advent of U.S. provisional applications,
foreign applicants who, pursuant to the Paris Convention, foreign (Paris Convention signatory) applicants
may file for a U.S. patent within 12 months of the foreign could claim the benefit of a foreign priority date,
filing. Provisional applications have both advantages and yet have their U.S. patent term measured from a
disadvantages, so proper management is essential. The ad-
vantages include the preservation of a priority date imme- later U.S. filing date. Foreign inventors were thus
diately after an invention is conceived, a one-year delay granted a term of patent protection that could
for further developing the invention, an extra year of pat- last for 21 years. U.S. applicants, on the other
ent protection, and constructive reduction to practice of hand, were disadvantaged: their patent term was
the invention. In addition, provisional applications pro-
measured from their initial U.S. filing date and
vide an inexpensive way to avoid possible statutory bars
and preserve absolute novelty for foreign filing purposes. limited to 20 years. Effective June 8, 1995, do-
They also enable the use of the phrase “Patent Pending” to mestic applicants were given the opportunity to
mark products embodying the invention. The disadvan- file provisional applications, thereby establishing
tages include a possible increased overall cost of obtaining U.S. priority dates that would not count against
a patent, potential loss of trade secrets, and a false sense
of security. An inventor must also file a nonprovisional any resulting U.S. patent term. Allowing for U.S.
application within one year, and the subject matter of a patent protection that lasts 21 years from an ini-
nonprovisional application is limited to subject matter in tial filing date, this change in policy established
the provisional application. parity between U.S. and foreign inventors.
As an informal application, a provisional pat-
ent application does not require all the formal
1. Introduction elements of a utility patent application. For ex-
Beginning in 1995, inventors were able to file ample, provisional applications are not required
provisional patent applications in the United to include formal claims, a declaration of inven-
States. This informal type of patent application torship, or drawings, all of which are required for
establishes a priority filing date and provides in- utility applications. Instead, all that is required is
ventors one additional year to prepare and file a a written description of an invention and a cov-
formal utility patent application. ersheet that, among other things, identifies the
document as a provisional patent application.
Cruz RL. 2007. Provisional Patent Applications: Advantages and Limitations. In Intellectual Property Management in Health
© 2007. RL Cruz. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

CRUZ
Unlike utility patent applications, provi- period that the invention is not commercially fea-
sional patent applications are not substantively sible, he or she can avoid the substantially higher
examined by a U.S. Patent and Trademark Office costs of pursuing a utility application.
(PTO) examiner. Instead, they are reviewed by
the application division of the PTO to ensure 2.3 An extra year of patent protection
that the minimum filing requirements have been An issued patent gives an inventor the right to
met. As a result, the legal cost of preparing provi- exclude others from using, selling, and/or of-
sional applications is relatively low compared to fering to sell the patented invention for twenty
utility applications. Similarly, since the PTO does years. This twenty-year patent term is calculated
not have to perform a prior art search or analyze from the filing date of the inventor’s utility pat-
provisional patent applications, the cost of filing ent application. The one-year delay between the
these applications is also quite inexpensive when filing of a provisional application and the filing
compared to utility applications. of a utility application does not count against the
Aside from costs, several other factors should twenty-year patent term. As such, filing a provi-
be considered when determining whether or not sional application provides up to an extra year of
to file a provisional patent application. A few of patent protection, effectively extending the pat-
their advantages and limitations associated with ent term to 21 years.
provisional applications are outlined below.
2.4 Constructively reduce an invention
to practice
2. Advantages of a Provisional An invention is said to be reduced to practice
Application when an inventor converts the inventive idea into
something that is operable and capable of being
2.1 Preserve a priority date reproduced by others. Filing a provisional ap-
Because they have fewer formal requirements, plication has the effect of constructively reducing
provisional applications are simpler and generally an invention to practice, insofaras the invention
less expensive to prepare and file. A provisional is adequately described so as to enable a person
application may therefore be used to quickly and skilled in the art to reproduce it. By filing a provi-
inexpensively obtain an official filing date for an sional application, a legal presumption is created
invention immediately after the invention has that the invention was reduced to practice, albeit
been conceived. An official filing date provides constructively, at least as early as the filing date
unequivocal proof that an invention was con- of the provisional application. This presumption
ceived at least as early as its filing date. may be very advantageous to an inventor, partic-
ularly if another inventor claims to have invented
2.2 A useful one year delay the same invention first.
Once a provisional application is filed, an inventor In the United States, an inventor is entitled to
has up to one full year to file a formal utility ap- a patent if he or she is the first to invent a particu-
plication. This one-year delay enables an inventor lar invention. If a dispute arises over who actually
to further develop his or her invention, assess the invented the invention first, establishing a reduc-
invention’s commercial potential, and seek finan- tion to practice date may be paramount to deter-
cial support for further developing and/or patent- mining which inventor is entitled to the patent.
ing the invention. In addition, the one-year delay In such disputes, the inventor who establishes the
enables an inventor defer the bulk of the costs earlier reduction to practice date (for example, by
associated with preparing and filing a utility pat- filing the earlier provisional application) will be
ent application until he or she is confident that presumed to be the first to invent. The challeng-
the invention is commercially viable, and/or until ing inventor, i.e., the inventor not deemed the
he or she is able to secure financial support for the first to invent, may only overcome this presump-
invention. If the inventor determines during this tion by forwarding evidence that establishes that

CHAPTER 10.2
he or she (the challenging inventor) is entitled to her earlier invention date to predate the French
an earlier reduction to practice date. Thus, filing publication date. However, if the German inven-
a provisional application not only establishes an tor waits until after March 1, 2006 to file a U.S.
early reduction to practice date, but it also shifts application, the French publication will be deemed
the burden to any challenging inventor to prove prior art under 35 U.S.C. § 102(b) and will bar the
that she or he invented the invention first. German inventor from obtaining a U.S. patent.
To avoid this 102(b) U.S. statutory bar, the
2.5 Preserve a non-U.S. priority date German inventor could file a U.S. utility pat-
Most countries outside of the U.S. award patents ent application concurrently with, or even after,
on a first to file basis. That is, an inventor will be filing his or her German application. Pursuant
entitled to a patent if he or she is the first to file an to the Paris Convention, the German inventor
application for a particular invention, regardless would still have a period of one year after filing
of whether another inventor was the first to actu- the German patent application to file a U.S. pat-
ally reduce the invention to practice. As a result, ent application. However, the utility patent appli-
many foreign inventors (and U.S. inventors seek- cation option could be quite costly, particularly
ing international patent protection) seek to file since the German application would have to be
patent applications in non-U.S. countries as soon translated into English and include U.S.-style
as possible in order to preserve their foreign prior- claims, drawings, and other formalities.
ity date. It should be noted that under U.S. law, As an alternative, if the German inventor was
establishing a foreign priority date does not neces- not prepared to incur such an expense, or if he or
sarily guarantee a specified period of time for filing she preferred to further develop the widget be-
in the United States. Still, as members of the Paris fore committing to the high costs of filing in the
Convention, patent applicants in Convention United States, he or she could simply file a U.S.
member-nations have up to 12 months to apply provisional application. Since provisional applica-
for patent protection in the United States in order tions are not required to be written in English or
to preserve an international priority date. to include claims, drawings, or other formalities,
the German inventor could simply file a copy of
2.6 Avoid statutory bars his or her German application in German as a
Pursuant to 35 U.S.C. § 102(b), if an invention is U.S. provisional application. In this manner, the
published anywhere in the world more than one German inventor could preserve a U.S. filing date
year before a U.S. patent application for that in- and avoid a § 102(b) statutory bar, all at a very
vention is filed, the publication will act as a statu- reasonable cost.
tory bar to obtaining a U.S. patent. This statutory
bar is not limited to publications provided by an 2.7 Preserve absolute novelty for foreign filings
invention’s first inventor. If, for example, a second Most countries outside of the U.S. require abso-
inventor independently conceives and publishes lute novelty, which means that, as a prerequisite to
the invention more than one year before the first receiving patent protection, a patent application
inventor files in the United States, the second in- must be filed before any public disclosure of that
ventor’s publication will bar the first inventor from invention. In these absolute novelty countries, any
ever obtaining a U.S. patent on that invention. public disclosure of an invention prior to filing an
To illustrate, suppose inventor X, a German application for patent acts as a bar to patentabil-
inventor, invents a novel widget on January 1, ity. As such, it is imperative for inventors seek-
2005, and accordingly files a German patent ap- ing foreign patent protection to preserve absolute
plication describing the widget in April 2005. novelty worldwide. Provisional applications may
Independently, a French inventor, inventor Y, provide an easy, cost effective way to preserve ab-
conceives of the same widget and publishes it on solute novelty; however, this must be approached
March 1, 2005 in a French publication. Under with caution, as adequate disclosure is required.
U.S. law, the German inventor may rely on his or There is still a general lack of consensus about

CRUZ
how courts in various foreign jurisdictions will will always increase the overall cost of obtaining
regard a U.S. provisional application as a basis for a patent. This is especially true when multiple
priority. Even so, if an inventor wished to pub- provisional applications are filed to cover various
licly disclose an invention as part of a presenta- aspects of an invention.
tion, the inventor could preserve absolute novelty
by filing a copy of all of the presentation and 3.2 Disclosure of invention
handout materials as a provisional application. In Although provisional applications do not have all
this manner, the inventor could both preserve a of the formal requirements of utility patent appli-
U.S. filing date and preserve absolute novelty in cations, provisional applications must nonetheless
Paris Convention nations, or in nations that have meet the disclosure and enablement requirements
acceded to the WTO (as the TRIPS Agreement of utility patent applications. That is, provisional
[Trade-Related Aspects of Intellectual Property applications must include a complete, adequate
Rights]) incorporates the Paris Convention). This disclosure of an invention, a disclosure of the best
includes the majority of the world’s nations. mode of the invention, and any drawings nec-
essary for understanding and/or recreating the
2.8 Patent pending described invention. If a provisional application
Once a provisional application is filed, an inventor cannot adequately support the entirety of a cor-
is permitted to apply the phrase “Patent Pending” responding utility application, then only those
to products embodying the invention. Use of this aspects that are adequately supported in the pro-
phrase indicates to the public that the marked visional application will be entitled to the provi-
product or products is or are believed to be inven- sional application’s priority date. All other aspects
tive and that any and all available patent rights of the utility application will have a priority date
in the invention are being pursued. Application corresponding to the filing date of the utility ap-
of the phrase also enables the immediate complication. In this regard, preparing a provisional
mercial promotion of an invention with less risk application to fully support a later filed utility ap-
of having the invention copied and/or stolen. In plication may be as time consuming and as costly
addition, a “Patent Pending” notice gives official as preparing a utility application.
notice to competitors and potential infringers,
which may be particularly useful in establishing 3.3 Potential loss of trade secrets
a patent infringement claim once the invention Another concern relating to provisional applica-
is formally patented. It should be noted that the tions is the potential lose of trade secrets. As ex-
phrase “Patent Pending” does not give rise to en- plained above, although provisional applications
forceable patent rights. It is only after a patent is do not have all of the formal requirements of
issued that enforceable patent rights attach. utility patent applications, they must nonetheless
adequately disclose and enable inventions. In at-
tempting to satisfy these requirements, inventors
3. Limitations of a Provisional may disclose too much information, including in-
Application formation they might later wish to retain as a trade
Aside from the many advantages described above, secret. Once a provisional application is filed, all
there are several limitations and disadvantages as- information disclosed will be incorporated into a
sociated with filing provisional applications. later filed corresponding utility application. When
the utility application becomes a patent, the entire
3.1 Increased overall cost provisional application will become public, and
Although provisional applications are typically any potential trade secrets it contains may be lost.
less expensive to prepare and file than utility pat-
ent applications, there are costs associated with 3.4 One-year filing deadline
the same. Filing a provisional application first, Once a provisional application is filed, an in-
and then filing a corresponding utility application ventor must file a utility application claiming

CHAPTER 10.2
priority to the provisional application within one Provisional applications may not be amend-
year. Failure to file a utility application within the ed. If certain aspects of an invention are devel-
one-year period will result in the provisional ap- oped or changed after a provisional application
plication automatically being abandoned, which has been filed, an inventor will be required to file
may prevent the inventor from ever patenting the another application to reflect these developments
invention. or changes.
Similarly, if an inventor accidentally discloses
3.5 False sense of security secret information in a provisional application,
Filing a provisional application may give an in- the inventor will be precluded from going back
ventor a false sense of security. Although filing a and amending the provisional application to re-
patent application does provide some protections, move the secret information. In this scenario, the
it does not provide any enforceable patent rights. inventor would have the option of abandoning
Furthermore, provisional applications never ma- the provisional application and possibly hav-
ture into patents. If an inventor falsely believes he ing the option of filing another provisional ap-
or she is adequately protected by a provisional application that excludes the secret materials. This
plication, he or she may delay filing a utility ap- would, however, reset the priority date.
plication. And if an inventor fails to file a utility
application during the one-year period, the pro-
visional application will automatically be aban- 4. Conclusion
doned thereby preventing the inventor from ever Provisional applications provide numerous ad-
patenting the invention. vantages for both domestic and foreign inventors,
which is why they are widely used and are often
3.6 Other potential limitations integral to successful patent strategies. There are
There are other limitations to filing provisional also, however, certain risks and limitations associ-
patent applications. For example, since filing a ated with provisional applications, so filing provi-
provisional application delays the filing of a util- sional applications may not always be desirable or
ity patent application, any patent that may ulti- appropriate. Accordingly, before deciding wheth-
mately issue may also be delayed. Depending on er to file a provisional application, care must be
the inventor’s (or patent owner’s) patent strategy, taken to properly assess:
such a delay may not be desirable. • the nature of the invention(s)
It is important to note that both provisional • the particular needs of the inventor
and utility patent applications trigger the time line (or company)
for filing applications under the Patent Cooperation • the inventor’s (or company’s) overall
Treaty (PCT) and the Paris Convention. Since in- patent strategy ■
ternational patent applications must be filed within
one year of a U.S. filing, the high costs of inter-
RICHARD L. CRUZ, Intellectual Property Attorney, DLA Piper
national filing will be incurred within one year of US LLP, 1650 Market St., Suite 4900, Philadelphia, PA,
filing a provisional application. 19103, U.S.A. richard.cruz@dlapiper.com

CHAPTER 10.3
Designing Patent Applications

for Possible Field-of-Use Licensing
Arne M. Olson, Director, Olson & Hierl, Ltd., U.S.A
ABSTRACT in different fields, thereby maximizing the in-

Patent applications should be organized and drafted with come stream from patent royalties. For example,
a long-term objective that carefully considers the multiple
part of a biotechnology invention could be used
possibilities, and opportunities, of field-of-use licensing.
This is particularly the case in the agricultural, pharmaceu- to make diagnostic tests for a disease, while an-
tical, biochemical, and chemical disciplines, as inventions other part of the same invention could be used to
can have multiple applications that are sometimes impos- prepare pharmaceuticals to treat the disease. One
sible to foresee. Technology managers must, therefore, fo- company may have expertise in the sale and dis-
cus strategically, not only on the basic idea of an invention
but broadly, in order to consider the various ways such an tribution of diagnostics while another company
invention might be put into more widespread and more has all the resources to get U.S. Food and Drug
profitable use. Therefore, the more details, examples and Administration (FDA) approval for human phar-
alternatives that are thought through and then disclosed in maceuticals. Either of these companies could be
the patent application, the greater the opportunity for fu-
licensed to cover both areas, but maximum sales
ture divisional or continuation applications, as well as fu-
ture claims that can be exclusively (field-of-use) licensed. and royalties would be obtained by having each
By making all of the institution’s licenses, in effect, field- company sell in its area of expertise. This chapter
of-use licenses, the technology manager retains the ability focuses on specific examples of field-of-use licens-
to take a possible future use and license it to someone else, ing and discusses how a manager can aid in the
maximizing the benefits of the inventions and generating
higher royalties for the institution. development of well-written patent applications
that support this licensing approach.
It might be useful to consider making ev-
ery license a field-of-use license. Even though a
1. Introduction particular invention suggests a single use that ap-
The life of a technology transfer administrator is pears to perfectly fit a potential licensee, there is
not an easy one. With tight budgets, the more that simply no way of knowing what other uses may
a university can make from its licensing program, develop over the life of a patent. A piece of con-
the better. One of the great benefits of field-of-use trol technology developed solely for automobile
licensing is that it allows a licensor to license the manufacturing may turn out to be useful for op-
same patent or related patents to different parties erating a rocket system developed several years
Olson AM. 2007. Designing Patent Applications for Possible Field-of-Use Licensing. In Intellectual Property Management
Technology Transfer Practice Manual (First Edition, Part III: Chapter 3).
© 2007. AM Olson. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

OLSON
thereafter. Rather than simply licensing such a commercial or humanitarian value of an inven-
patent exclusively to a particular automaker, an tion. An application that is poorly constructed
inventor should consider licensing the patent to and includes typographical errors or scientific in-
a particular automaker in the field of automobile consistencies will make a negative impression on
manufacturing. When a particular field of use is a potential licensee and on a patent examiner.
properly licensed, other fields of use developed in
the future would remain the property of the uni- 2.2 Allow for future coverage
versity for later exploitation. A well-written application will reflect consider-
ations of possible areas of future coverage, de-
scribing not only the basic idea developed in the
2. The value of a quality application lab, but also peripheral ideas and extrapolations.
There are some basic concepts that can apply to Including such information supports broad and
all patent applications, not just those that are ap- valuable coverage in a patent. It suggests areas for
propriate for a potential field-of-use license. First, future development that can be covered in more
it is important to have a well-written patent ap- detail in continuation applications. Specifically, if
plication. Far too many technology managers these future ideas are at least sketched out in an
look at the cost of preparing and filing a patent application’s specification (that is, are adequately
application as opposed to the total cost of obtain- disclosed in the original application), there can
ing a patent. It is not the cost of filing the applica- be a basis upon which to reach back to the earli-
tion that counts, but the total cost of getting the est filing (priority) date for subsequent claims and
patent. Although cost alone is not a determining related amendments disclosed in the original par-
factor of a well-written application, a frugally pre- ent application. Thus, the institution would have
pared patent application may contain mistakes or the benefit of a filing date that will avoid what
omissions and/or may not be sufficiently thought otherwise would be prior art.
out to provide broad coverage or ideas for pos- Coming up with alternative uses of an inven-
sible future expansion into other opportunities. tion, or other ideas for development, should be a
These initial oversights could lead to expensive collaborative effort between the patent attorneys,
amendments, the necessity of filing continua- the technology managers, and the inventors.
tion applications, and even continuation-in-part Recognizing that managers often prefer to mini-
applications to rewrite the application and thus, mize direct contact between inventors and the at-
raising the overall cost of the application. torneys in order to keep costs down, this is one
instance where direct communication can prove
2.1 The patent application as a sales document to be particularly useful and valuable, as even the
One benefit of a properly written patent applica- best patent attorney cannot think of all of the al-
tion is that it provides a far more useful sales doc- ternative uses of an invention or all the modifica-
ument than one that is poorly prepared. Often, a tions or possible future uses of an invention.
particularly new and valuable development does Such contact between the inventor and the
not yet have a licensee. Thus, a well-written pat- attorney is critical for developing examples of ad-
ent application is important for convincing a po- aptations or permutations needed to provide for
tential licensee that the invention is worth licens- future field-of-use licensing. Prior to this com-
ing. Both the potential licensee and the patent munication, the technology manager may wish
examiner need to be confident of the value of the to encourage the inventor to describe addition-
invention, but for different reasons. The patent al alternatives or other possible future uses and
examiner will look for “statutory” value—wheth- simply forward these descriptions to the patent
er the invention sought to be patented is novel, attorney. This exercise could begin the creative
useful, and non-obvious to one skilled in that thought process—the “what if ” thinking—need-
art. The potential licensee, in addition to statu- ed to come up with other possible future uses.
tory value, may seek value based on the potential The more the inventor engages in this type of

CHAPTER 10.3
thinking, the less time it will take for the patent can be filed, expanding on that particular aspect
attorney to consider and describe the potential of of the basic concept. Thus, the institution has the
the invention. A monetary savings can sometimes benefit of the earlier filing date, and a new ap-
be realized as well since it will take less time for plication can expand on and claim the particular
the patent attorney to prepare the application. new development.
While the university should retain control
2.3 Retain control over the patent application over the patent application, it is still possible for
All too often, a university will turn over the writ- the license agreement to have the licensee pay for
ing of the patent application and the control of the prosecution of the patent application. In the
the patent prosecution to the licensee. This creates case of two licensees for the same patent, the pat-
an inherent conflict of interest and a potential for ent expenses can be divided equally between the
future litigation. (The conflict arises because a li- two licensees. This also is discussed in greater de-
censee may prefer relatively narrow patent protec- tail in the preceding chapter.
tion to minimize the amount of royalties it might
have to pay in the future.) In patent prosecution,
decisions need to be made as to what level of pro- 3. Structuring the
tection to seek. Relatively narrow patent claims patent application
can often be obtained without too much diffi- In structuring the patent application, it is best to
culty and expense. Broad coverage, however, may incorporate as many alternatives as possible for
be far more important for a university because it future expansion. Doing so can have two direct
would allow for future licensing and would cover effects: (1) the application will support broader
more products to be sold by the licensee. While claims than might otherwise be possible—this can
broad coverage may have been originally sought be particularly important in the biotechnology
to cover a licensee’s future developments, if, dur- and chemical areas, where it is often necessary to
ing patent prosecution, the claims are narrowed give more than a simple example to support broad
so that the licensee’s future developments are out- claims in the patent application—and, (2) having
side of those patent claims, the university could ideas for future uses in the application allows for
lose significant royalties. continuation applications to these developments.
Specific to a potential field-of-use licensing This is a version of the “throw in the kitchen sink”
situation, the patent application will have disclo- approach. It is difficult to predict what will have
sures and possibly claims to uses of the invention future value, and it may not be worth having
that are outside a particular licensee’s interest. claims for ideas for potential uses in the applica-
That licensee would, of course, have no incentive tion, but it is worth having at least a sentence or
to spend any time or money expanding on the paragraph about a possible alternative. Two or
concepts outside of its own interests. three pages of a patent application can include a
Where the university controls the patent great many of these “sleeper” inventions that can
prosecution, it has the ability to determine the remain dormant and be brought to life when they
breadth of the patent protection it wishes to seek are found to have a particular value.
and whether to dedicate resources to expand the This is not a new idea. The 1876 Alexander
patent coverage into other fields of use. When Graham Bell patent titled Telegraphy describes
preparing the patent application, one should Bell’s invention as a multiple telegraph using
think of all possible uses of the invention, not different frequencies of sound to simultaneous-
just those of a present licensee. These do not have ly transmit several telegraph messages over the
to be worked into all of the claims, but the dis- same wire. A reference is made toward the end
closures should appear in the patent application. of the patent that the invention can be used to
At some future time, should another potential li- transmit sounds and, if certain modifications are
censee show interest in that area, a continuation made, even the human voice. The value of this
(or possibly, a continuation-in-part) application last extrapolation can be seen by the number

OLSON
of infringement lawsuits referred to as “The By way of a fictional example, a scientist has

Telephone Cases.” discovered the gene coding for one of the envelope
The claims of the patent application can also proteins of “RBS” virus. Suppose the RBS virus
be structured for field-of-use licensing. There can has only recently begun to infect the human pop-
be broad claims to the general overall concept ulation and some of its potential effects include
that are licensed to more than one party on a a revival of a previously conquered illness. The
field-of-use basis; there can also be narrow claims scientist has also discovered that a 20-amino acid
directed to specific fields of use that are licensed residue polypeptide which is named “Merkin” and
only to a particular licensee. The narrow claims which can serve as a vaccine against the dreaded
can be written to define the field of use, for ex- RBS. In addition, the scientist has found that
ample, the use of the invention as a diagnostic when the Merkin polypeptide is injected into
for a particular disease in farm animals; another animals, the animals exhibit an immune response
narrow claim could define the use as a similar di- and begin producing harvestable antibodies that
agnostic for humans. Future continuation or di- react with RBS virus in a sample. The scientist has
visional applications could have claims directed also recently successfully created a monoclonal cell
to other specific fields of use. line that produces antibodies to RBS.
The approach described here has the benefit These anti-Merkin antibodies are particularly
of providing specific claims or specific patents that valuable because they have a high affinity for the
can be exclusively licensed to a particular licensee. RBS virus and, at least in the lab, protect precious
Generally, licensees prefer to have an exclusive li- bodily fluids from infection. Therefore, a possible
cense, even if it is only for a specific claim or a spe- use of the antibodies would be to create a direct
cific patent. In addition, defining specific narrow treatment for an RBS virus infection: the anti-
claims for different licensees can provide a mecha- body would be collected and then injected into
nism for allocating the reimbursement cost of the patient as a form of treatment.
prosecuting the patent applications as well as for Another use for the Merkin polypeptide is
determining which licensee will be responsible for in an assay to detect the presence of anti-RBS
or involved with suing a potential infringer. For antibodies in human blood serum. It was found
example, the license agreements can be structured that using the antibody as a means to detect RBS
such that if a patent claim exclusively licensed to a was not successful because the RBS virus does
particular licensee is infringed, then that licensee not generally appear in a high concentration
is required to take part in the infringement liti- in blood. However, when the Merkin polypep-
gation. If different claims exclusively licensed to tide was used, it reacted with antibodies in the
separate licensees are infringed, then both licens- patient’s blood and other precious bodily fluids
ees would be involved in the litigation. The idea is to indicate whether there had been antibodies
that if each licensee’s exclusive “turf ” is invaded, produced to fight the RBS virus, now present in
they would want to be involved. Separate patents the blood. One type of HIV assay system works
for exclusive licensing to different licensees can similarly. It does not detect the presence of HIV
arise as a result of restriction requirements. This itself, but rather it detects the presence of HIV
issue is discussed in more detail below. antibodies in the patient’s blood. The success of
the test depends on the assumption that if HIV
3.1 Biotechnology example antibodies are in the patient’s blood, the patient
One of the wonders of biotechnology is the discov- has been exposed to or infected by HIV.
ery that genetic information can be used to code Thus, it appears as though the Merkin poly-
for proteins or parts of proteins. For example, it peptide has at least two immediate uses. The first
has been found that relatively short lengths of is as part of an assay system to check for an RBS
polypeptides can be used to form vaccines. Prior virus infection, and the second is for future de-
to this discovery, vaccines had been made from velopment as a vaccine. The antibodies that have
proteins obtained from dead or weakened viruses. been developed appear to have possible uses for a

CHAPTER 10.3
future assay as well as possible future therapeutic As matters progress and Vaccinia becomes
value. more interested, a non-exclusive but field-of-use
A potential licensee, Assay Specialists, Inc. license can be granted to Vaccinia on (3) and (4).
(ASI) has shown particular interest in the use of Vaccinia would be the only licensee for the vac-
the Merkin polypeptide for conducting diagnos- cine based on Merkin (5). At some future date,
tic assays. ASI is a large company that has a great if there is a revival of the previously conquered
deal of experience in assays of this type, although illness in epidemic proportions, there may be an-
it has little to no experience in therapeutic treat- other potential licensee and, therefore, justifica-
ments and vaccines. Another company, Vaccinia, tion for a divisional patent application directed to
has indicated an interest in possibly developing a a cure for the recurring illness (10).
vaccine and therapeutic treatment. At this point,
Vaccinia’s interest is lukewarm, because prelimi- 3.2 Chemical example
nary studies of using a vaccine on animals are still Dr. Lovejoy has discovered a highly toxic com-
being conducted. pound that he has named oxymoronic acid. This
Based on this, therefore, a properly prepared compound is very useful in treating certain men-
patent application could cover the following tal disorders. The only known source of oxymo-
inventions: ronic acid is certain mutant desert bushes that
1. The gene used to make the envelope grow only in the area surrounding nuclear test
protein. sites. The elimination of open air testing of nu-
2. The purified envelope protein. clear weapons, however, has put great restrictions
3. The part of the gene that codes for the on the number of mutant plants available. All at-
Merkin polypeptide. tempts to cultivate oxymoronic-producing plants
4. The Merkin polypeptide. have thus far been unsuccessful, but Dr. Lovejoy
5. A vaccine based on the Merkin has recently found a way of synthesizing a pre-
polypeptide. cursor of oxymoronic acid that he has named
6. Antibodies to the Merkin polypeptide. protomoronic acid that can be manipulated to
7. The monoclonal cell line. form oxymoronic acid. Through this synthesis
8. Diagnostic products based on the Merkin scheme, it is possible to produce oxymoronic
polypeptide or its antibodies. acid in the quantities needed for medical treat-
9. A therapeutic treatment based on the ment purposes.
antibodies. Through encouragement by the technology
10. A cure for the recurring illness. manager and the patent attorney, Dr. Lovejoy
has worked out alternative synthesis schemes for
A field-of-use license can be granted now to other possible precursors of oxymoronic acid, one
ASI directed to diagnostic products. This would of which is called “AP.” While these schemes have
be a non-exclusive but field-of-use license to the not been fully tested, they appear to provide oth-
claims directed to the Merkin polypeptide gener ways of making oxymoronic acid synthetically
erally (4) and an exclusive license (meaning that and thus may prove to have value in the future.
ASI will be the only licensee) for those claims that A patent application is prepared having claims in
are specifically directed to the use of the Merkin the following areas:
polypeptide for diagnostics (8). There can also be 1. Oxymoronic acid in a purified form as a
a non-exclusive license for the use of the part of pharmaceutical.
the gene that codes for the Merkin polypeptide 2. The precursor, protomoronic acid.
(3) so that ASI can also make the polypeptide, 3. Various alternative precursors, including
using DNA cloning techniques. This results in a AP.
licensee signed up in the initial stages and pro- 4. The methods of making oxymoronic acid
vides a source of revenue to support the patent using the various precursors.
application(s) and further research. 5. A rat poison based on oxymoronic acid.

OLSON
The last category listed above was a gratu- one, or possibly more, divisional patent applica-
itous discovery when one of Dr. Lovejoy’s gradu- tions are carved out of the original parent patent
ate students, who had a laboratory in a less than application.
desirable location, dropped some oxymoronic The typical reaction to this is annoyance.
acid on the floor and it was sampled by one of the After all, what has been filed as one patent appli-
visiting rodents. It was discovered that it made an cation will now be split up into four and perhaps
extremely effective rat poison. as many as ten parts. However, one should not
Because this discovery was fortuitously made necessarily complain, as there might be a silver
and was not considered to have any immediate lining in this gray cloud. This situation, albeit
commercial value, the idea of using oxymoronic initially annoying, can often be done relatively
acid as a rat poison was put in as a sentence or simply, and present new opportunities.
two in the patent application. This did not cost Since the U.S. Patent and Trademark Office
anything, but it left open the possibility of future has taken the position that there are separate in-
options. Some years later, while one of the patent ventions in the patent application, these inven-
applications was still pending, a major pesticide tions can be prosecuted as separate applications.
company came to the university asking for a li- Thus, one can continue to prosecute the claims
cense to further develop this rat poison. Because directed to the diagnostics until those are allowed.
a divisional application was still pending, it was The diagnostic patent issues, and that patent can
possible to file a continuation (or a continua- be exclusively licensed to ASI. Meanwhile, a se-
tion-in-part) application having claims directed ries of other patents may be obtained from the
to the use of oxymoronic acid as a rat poison and same core invention (the parent application) via a
thereby grant the pesticide company an exclusive series of divisional patent applications arising out
license in the field of using oxymoronic acid as a of the restriction requirement. Each patent can
rat poison. In such a case, the graduate student be directed to a different field of use and licensed
could likely be a co-inventor (as opposed to the separately. Furthermore, depending on the cir-
rat who actually made the discovery but did not cumstances of each application, there might be
live to tell about it). opportunities for patent term extensions due to
An exclusive field-of-use license in the medi- delays in the patent office, certain administrative
cal area was granted for (1), the pharmaceutical, proceedings (for example, successful appeals), or
above. Later it was found that AP had particular for regulated medical products to compensate for
usefulness as an adhesive and was licensed to a regulatory delays. Thus, a restriction requirement,
bumper sticker company because no exclusive li- when strategically managed, can become an un-
cense had been granted for (3) above. expected series of opportunities.
4. Restriction requirements 5. Conclusion

as opportunities The main point presented in this chapter is to
It is quite likely that a patent examiner review- encourage creative thinking when preparing pat-
ing a patent application directed to the above ex- ent applications. The technology manager should
amples would take the position that there is more focus not only on the basic idea, but should also
than one invention present in a given application encourage inventors to think broadly regarding
(in some jurisdictions referred to a lack of unity all the various ways their invention might be put
of invention). For example, the examiner may into use. When the patent application is filed,
say that the gene is one invention, the polypep- there is no way of knowing every possible use of
tide is a second invention, the diagnostics are a the invention. Thus, the more invention ideas
third invention, the vaccine is a fourth invention, that can be put into the patent application, the
etc. When this is the case, the patent application more support there is for future divisional or con-
is “restricted” to only one invention, and then tinuation applications, or future claims that can

CHAPTER 10.3
be exclusively licensed. By making all of the in-

stitution’s licenses, in effect, field-of-use licenses,
the technology manager has retained the ability
to take one of these possible future uses and li-
cense it to someone else, maximizing the benefits
of the inventions and generating higher royalties
for the institution. ■
Arne M. Olson, Director, Olson & Hierl Ltd., 20 North

Wacker Drive, 36th Floor, Chicago, IL, 60606, U.S.A.
aolson@olsonhierl.com

CHAPTER 10.4
Patenting Strategies: Building an IP Fortress

JOHN DODDS, Founder, Dodds & Associates, U.S.A.
ABSTRACT a contract or compact between the government

A comprehensive intellectual property (IP) portfolio can and the inventor/creator. In return for the right
be of substantial value to both private and public sector
to exclude others from the practice of the inven-
entities. Patents are a key element of IP portfolios and
must be managed according to the mission, objectives, tion, the government requests that the inventor
and motivations of the organization that owns them. fully disclose the enablement of the invention.
Large companies can afford an offensive patent strategy, Additionally, the monopoly is now limited by
but small companies may not have the resources for this. time and is only applicable in the territory under
Therefore, it is extremely important for private sector
entities, especially small- and middle-sized companies, the jurisdiction of the government that granted
to design and implement an effective and cost-efficient the patent.
strategy for patent management. For public sector enti- In the United States, a patent is a fundamen-
ties, patent strategies will focus on advancing social wel- tal right provided in Article I, Section 8 of the
fare, and the mission of the institution will therefore drive
Constitution. Congress is empowered to “promote
objectives. A key factor to consider is the method of IP
protection: patent, trademark, copyright, or trade secret. the progress of science and useful arts by securing for
The costs of maintaining each of these IP categories are limited times to authors and inventors the exclusive
different. Although research institutes and companies right to their respective writings and discoveries.”
will likely wish to reduce costs as much as possible, key In exchange for a right to exclude others from
technologies still need to be protected properly. A com-
pany can reduce costs by focusing the patent protection making, using, or selling the potential invention,
on those geographic areas where it has business. A uni- the inventor must provide a complete and accu-
versity can reduce costs by selectively prosecuting patent rate public description of the invention and the
applications with broad claim structures, strategically li- best mode of practicing it. This disclosure of in-
censing technologies, and enforcing patent rights if and
when necessary. To build a strong basis of protection,
formation by the inventor allows others to invent
several forms of IP may be used for the same invention further, thus pushing technology forward for the
or improvement. benefit of society.
Congress has given the U.S. Patent and
Trademark Office (PTO) the authority to grant
1. Introduction an inventor the right to exclude all others from
Historically, a patent was a grant made by a sover- exploiting the invention in the United States for
eign that would allow for the monopoly of a par- a period of 20 years, or for design patents, up to
ticular industry, service, or product. Over time, 14 years, from the date of filing a patent applica-
the concept has been refined and now stipulates tion with the PTO. This right to exclude makes a
Dodds J. 2007. Patenting Strategies: Building an IP Fortress. In Intellectual Property Management in Health and Agricultural
© 2007. J Dodds. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

DODDS
patent a negative right, since a patent holder may power to carry on a particular business or
only exclude others from using, manufacturing, trade, to manufacture a particular article,
copying, or selling his or her invention. or to control the sale of the whole supply
Patents are territorial. For example, a U.S. of a particular commodity. Monopoly is a
patent generally has no force in other countries, form of market structure in which one or
just as a patent granted outside the United States only a few firms dominate the total sales of
has no force in the United States. However, prod- a product or service.
ucts sold in the United States, even if they are • nonprovisional patent application. A
made outside the patent domain, may infringe a patent that is filed with the PTO includes a
U.S. patent. Procedures for filing, regulations for written document that comprises a specifi-
patentability, and patent terms vary considerably cation (including a description and at least
from country to country. one claim), an oath or declaration, and,
The United States is the only country in the when necessary, one or more drawings.
world that awards its patents using a first-to-in- • patent. A grant or right to exclude others
vent approach; all other countries have a first-to- from making, using, selling, or offering to
file approach. The first-to-invent approach has led sell one’s invention and a right to license
to the development of patent interference prac- others to sell, make, use, or offer to sell that
tice, a quasi-litigation conducted within the PTO invention.
to determine the issue of priority, or who made • plant patent. A patent granted to an in-
the invention first. ventor who has invented or discovered and
Another important difference between the asexually reproduced a distinct and new va-
U.S. system and the system adopted in many oth- riety of plant. (Plant patents are not issued
er countries, for example European countries, is for tuber-propagated plants or for plants
the one-year grace period awarded in the United found in an uncultivated state.) Plant pat-
States. This means that an invention is patentable ents are issued for 20 years.
if it has not been published or otherwise brought • plant variety protection. Protection for
into public awareness earlier than one year from sexually reproduced (by seeds) or tuber-
filing the patent application. propagated plants. Registration of Plant
Patents are relatively complex documents to Varieties is administered by the U.S.
prepare and submit, and the time and expense Department of Agriculture.
in obtaining such protection can be substantial. • provisional patent application. An inex-
Given the legal complexity and the costs in- pensive first patent application that allows
volved, it is important for the inventor to develop filing without a formal patent claim. It
a coherent strategy with which to approach the provides means to establish an early filing
patenting process. date. Provisional patent applications expire
12 months after filing. Before this, the in-
ventor has to file a nonprovisional patent
2. Definitions application in order to protect his or her
• design patent. A drawing or depiction of invention.
an original plan or conception for a novel
pattern, model, shape, or configuration to
be used in the manufacturing, textile, or 3. Types of patents
fine arts, and chiefly of a decorative or or- There are three types of patents:
namental character. Design patents are is- 1. A design patent protects a new, original,
sued for a period of 14 years. and ornamental design for an article of
• monopoly. A privilege or peculiar advan- manufacture.
tage vested in one or more persons or com- 2. A plant patent protects a new and distinct,
panies, consisting of the exclusive right or asexually reproduced variety of plant.

CHAPTER 10.4
Tuber propagated plants are excluded from However, tuber-propagated plants are excluded
plant patents. from plant patents.
3. A utility patent is granted for any new and An application for a plant patent consists of
useful process, machine, manufacture, or the following elements:
composition of matter or for any new or • title, which must include the name of the
useful improvement thereof. Most impor- claimed plant. The following shows an ex-
tantly, the invention has to be useful. A ample of the form of a typical title: Birch
utility patent is the type of patent most tree named “Renci.”
people are familiar with. An application for • specification, which includes a description
a utility patent can be of either the provi- and one claim
sional or nonprovisional type. • one or more drawings or photographs
• an oath or declaration
3.1 Design patents
A design patent protects the look of an article. The specification should include a complete
In order to be patentable, the design or the look detailed description of the plant. Characteristics
has to be original. One cannot, for example, get that distinguish the claimed plant from related,
a design patent for a vase that is in the shape known varieties should be described comprehen-
of Mickey Mouse, as this image is already pat- sively. The specification should also include the
ented and not original. A design patent might origin or parentage of the plant variety and must
be granted, however, to a vase having a different point out where and how the variety has been
mouse-shape. asexually reproduced. If the plant variety origi-
A design patent application should include nated as a newly found seedling, the specification
the following elements: must fully describe the conditions under which
• title of the design the seedling was found growing.
• brief description of the nature and intend- A plant patent is granted on the entire plant.
ed use of the article in which the design is Therefore, only one claim is permitted. The fol-
embodied lowing is an example of a typical plant patent
• drawings or photographs claim: “A new and distinct cultivar of a birch tree
• description of the drawings or photographs named ‘Renci,’ as illustrated and described.”
• a single claim The drawing must disclose all the distinctive
• an oath or declaration characteristics of the plant capable of visual rep-
resentation. When color is a distinguishing char-
A design patent may have only one claim that acteristic of the new variety, the drawing must be
covers the whole design. The following shows an in color. As an alternative, a photograph may ac-
example of a typical claim: “The ornamental de- company the application.
sign for a vase as shown (and described).” If the plant is a newly found plant, the oath
It is possible to file a utility patent for a new or declaration must also state that the plant was
and original way an article is functioning and also found in a cultivated area.
file a design patent for the original design of the
same article. 3.3 Utility patents
A utility patent can be issued for any new and
3.2 Plant patents useful process, machine, manufacture, or compo-
A plant patent may be granted on an entire plant sition of matter. In order to be patentable, the
if it is a new and distinct variety and it is asexu- invention has to be new, useful, and nonobvious.
ally propagated. Asexually propagated plants are A patent cannot be obtained for pure ideas or
those that are reproduced by means other than theories, no matter how useful the theory might
from seeds, such as by the rooting of cuttings, be. In addition to plant patents, utility patents
by layering, budding, grafting, or inarching. can be issued for some types of plants, for exam-

DODDS
ple, transgenic plants. This is because a transgenic more than one country. But because every coun-
plant, if new and useful, may be regarded as a try has its own laws and regulations for patenting,
composition of matter or manufacture. obtaining protection in multiple locations is rare-
An application for a utility patent requires ly simple or cheap. To ameliorate this situation, a
the same elements as are required for a design great deal of effort has been spent, for more than
patent application. 100 years, to try to harmonize patentability stan-
dards across countries.
3.3.1 Nonprovisional application The Patent Cooperation Treaty (PCT) is an
A nonprovisional (utility) patent application has international treaty harmonizing patent appli-
to include the following parts: cation procedures across 117 countries. PCT is
• title administered by the World Intellectual Property
• specification, which includes a description Organization (WIPO). With one PCT patent
and at least one claim application, an inventor can get a filing date in
• one or more drawings all member countries. Eighteen months after the
• an oath or declaration filing, the applicant has to decide in which of the
member countries he or she actually wants and
The description should be written in such a needs to have a patent. The benefit of a PCT ap-
way that any person skilled in the field to which plication is that there is no need to file separately
the invention pertains can make and use the in all countries, as the whole procedure can be
invention. accomplished in one application. Moreover, the
In a nonprovisional patent application, there PCT system gives the inventor 18 months time to
must be at least one claim. The scope of the shop around before deciding in which countries a
protection of the patent is defined based on the patent would be most useful.
claims. Whether a patent will be granted is also All PCT applications will be published 18
largely decided by the choice of the claim. The months from the filing, if not abandoned be-
optimal claim is one that is wide enough to cover fore that. This practice is generally in line with,
as much as possible without overlapping anything although not precisely analogous to, that of the
that was already known. U.S. PTO. In the United States, the inventor may
require a U.S. patent application not to be pub-
3.3.2 Provisional application lished before issuance if the application is filed
A provisional patent application is a lower cost, only in the United States. Nevertheless, the in-
initial patent application that does not have to vention may still be the subject of a PCT applica-
include any claims, oaths, or declarations. A pro- tion, with similar delay in publication, providing
visional patent application has a pendency of 12 certain provisions are met. Specifically, pursuant
months from the date of its filing. A provisional to Article 64(3)(b) of the PCT, which articulates
patent application cannot mature to an issued the U.S. Reservation, publication can be simi-
patent, but it gives the inventor an early filing larly delayed. According to this article, if only
date and use of the term patent pending. In order the United States is designated, the international
to benefit from the early filing date of the pro- publication is postponed until after the issuance
visional application, a nonprovisional patent ap- of the U.S. patent. Article 64(3)(b) of the PCT is
plication has to be filed before the end of the 12 therefore not inconsistent with the U.S. rule.
months pendency of the provisional application.
5. Regional patents
4. Patent harmonization The creation of regional patent offices has
A patent is valid and effective only in the country helped to harmonize patent applications in dif-
in which it is issued. Trade, however, is global, and ferent parts of the world. The European Patent
thus it is important to have patent protection in Office (EPO) is the regional patent office serving

CHAPTER 10.4
countries that are members of European Patent organizations, universities, and some small busi-
Convention (EPC). By filing a single application nesses will qualify as small entities.
in one of the three official languages of the EPC
(English, French, German), it is possible to ob-
tain a patent in any or all of the 24 contracting 7. Appeals, interference, and
countries. European patent applications can also other procedures
be extended to some eastern European countries The applicant can appeal the decision by a pat-
that are not parties to the contract. If a patent is ent examiner to reject a patent application. In the
granted by the EPO, then that patent must still United States, the Board of Appeals within the
be taken to each individual country and validated PTO hears the cases. If the applicant is dissatis-
there. fied with the decision of the Board of Appeals, he
Currently, there is major movement toward or she may appeal to the Court of Appeals for the
developing a community patent for the European Federal Court.
Union. Once issued, a community patent would A unique form of patent dispute is a prior-
be enforced in all E.U.-counties without any vali- ity dispute between two or more inventors claim-
dation requirement. Community patents would, ing to be the first to have developed an inven-
however, require a centralized patent court sys- tion. These disputes are known as interference
tem, with specialized courts and a centralized ap- proceedings.
peal court. Two types of post-issuance procedures are
Another effort at harmonizing patent ap- available in the United States. If someone believes
plications involves participation by counties of there is a priority dispute that was not considered
the former Soviet Union in the Eurasian Patent when the patent application was examined, that
Convention. By filing one application in Russian, individual can ask for a reexamination of the pat-
a Eurasian patent may be granted in one or all ent. Anyone, including the patentee, can ask for
of the contracting countries. Likewise, African reexamination. Often times, individuals accused
countries in which English is spoken have estab- of infringement use the reexamination procedure
lished the African Regional Intellectual Property to question the validity of the patent. If the PTO
Organization (ARIPO); African countries in finds the patent invalid in the reexamination
which French is spoken have established the process, there can be no grounds for claiming
Organisation Africaine de la Propriete Intellectualle, infringement. Reexamination procedures can be
or OAPI. either ex parte or inter partes. In the ex parte reex-
amination process, the third party, even if it was
the requester, does not have a right to participate
6. Fees in the proceeding after filing the request, nor does
The fees charged by the U.S. PTO include filing the third party have a right to appeal the deci-
fees, publication fees, issuing fees, and mainte- sion. The inter partes reexamination procedure
nance fees. Updated information of the fees is was created in 1999 and can be applied only to
available at the PTO’s Web site.1 patents issued on or after November 1999. Inter
Maintenance fees on utility patents must be partes reexamination gives the third party a right
paid at 3½, 7½, and 11½ years after the date of to provide comments and present arguments
issue of the patent, or it will expire. Once a patent during the procedure and a right to appeal to the
expires, the invention is in the public domain and Patent Office’s Board of Appeals.
anyone may use it without authorization from the The second type of post-issuance procedure is
patent holder. a reissue. Only the patentee can seek a reissue and
The PTO gives a 50% reduction in most of only in the case of an error being made without
the fees for organizations designated as “small deceptive intent, in the claims or in disclosure of
entities.” Independent inventors, not-for-profit the original application. If the patentee seeks to
broaden the original claims, the reissue has to be

DODDS
filed no later than two years from the issuance of the Trademark Act provides for registration of
the patent. However, if the patentee seeks to nar- collective marks, membership marks, and certi-
row the claims, a reissue can be filed at any time. fication marks. A domain name, such as yahoo.
The PTO charges fees for each of these pro- com, can qualify as a trademark or service mark if
cedures, with reexamination fees being the high- it is used in connection with a Web site that offers
est. In addition to these fees, attorney fees will goods or services to the public.
have be paid by the applicant. Attorney fees will The basis for filing a trademark can be either
probably be significantly higher than PTO fees. actual use or intent to use. If the applicant files a
trademark based on intent to use, she or he has
to swear to a bona fide intent to use the mark
8. Other nonpatent intellectual in connection with the proposed products or ser-
property elements vices. If the mark is not actually used within 30
Intellectual property (IP), sometimes also called months of registering the mark, the registration,
“intangible property,” is any product of the hu- as related to that specific class,2 would be consid-
man mind or intellect. Thus, IP can be almost ered abandoned.
anything, including a technical invention or an
improvement of an earlier invention. It can also be 8.2 Geographical indications
a unique name or logo, design, method, software, A geographical indication is a sign used on goods
database, domain name, or piece of writing. that have a specific geographical origin and pos-
The broad area of IP is subdivided into dif- sess qualities or a reputation that rely on that place
ferent legal classes that are protected by different of origin. Geographical indications are defined in
means. Patents are not the only way to protect the TRIPS Agreement (Trade-Related Aspects of
IP. Trademarks, copyrights, and trade secrets are Intellectual Property Rights) as a type of IP. The
used as well, and very often they form an impor- World Trade Organization (WTO) provides legal
tant part of an overall IP strategy. means for interested parties to prevent the use of
a geographical indication that indicates or sug-
8.1 Trademarks gests that a good originates in a geographical area
A trademark is a word, phrase, symbol, design, other than its true place of origin. Geographical
or combination of these that distinguishes the indications cannot mislead the public as to the
source of one’s goods or services from those of true geographical origin of the good, nor can they
another. A trademark can be valid only when it is constitute an act of unfair competition.
used on or in connection with goods or services Most commonly, a geographical indication
in commerce. A trademark provides protection to includes the name of the place of origin of the
the owner of the mark by ensuring the exclusive good. Agricultural products typically have quali-
right to use it to identify goods or services or to ties that derive from their place of production
authorize another to use it in return for payment. and are influenced by specific local factors, such
Trademark protection keeps others from applying as climate and soil. Examples of geographical in-
similar marks to inferior or different products or dications are Idaho for potatoes or Roquefort for a
services. type of French cheese.
Rights to a federally registered trademark can Whether a sign functions as a geographical
last indefinitely if the owner continues to use the indication is a matter of national law and con-
mark on, or in connection with, the goods and/or sumer perception. The TRIPS Agreement does
services stipulated in the registration, as long as not require that a WTO member extend protec-
the owner renews the mark with the PTO every tion to a geographical indication if that geograph-
ten years. ical indication is the generic name of the good in
There are various types of marks that can be that member country. Therefore, the word “cham-
registered with the PTO. In addition to laying out pagne” is not registrable as a geographical indica-
the provisions for trademarks and service marks, tion in the United States because champagne is

CHAPTER 10.4
a generic term in the United States meaning any In the Copyright Act there is, however, a
light-colored wine with bubbles. fair-use exception that states that the use of an
The United States offers robust protection author’s original creation is authorized for the
for geographical indications, generally by regis- purposes of criticism, comment, news reporting,
tering the good with a certification mark, which teaching, scholarship, or research. Fair use takes
is a type of trademark. into consideration the purpose and character of
the use, the nature of the copyrighted work, the
8.3 Trade secrets amount and substance of the portion used in re-
Trade secrets are an important and widely used lation to copyrighted work as a whole, and the
business asset in the United States. Both large and effect of the use upon the potential market.
small businesses rely on trade secret protection, Generally the categories of works that are
often without even realizing it. It has been esti- protected are:
mated that 90% of inventions are protected by • literary works
trade secrets. • musical works, including words accompa-
There are various kinds of trade secrets. The nying music
most famous example of a trade secret is the • dramatic works
formula of Coca Cola, which has been kept se- • pantomimes and choreographic works
cret for over 100 years. In addition to chemical • pictorial graphic and sculptural works
formulas or processing methods, trade secrets • motion pictures and other audiovisual
can consist of software, accounting records, cus- works
tomer lists, and plant designs, among others. • sound recordings
Although trade secrets may overlap with patent- • architectural works
able subject matter, they go well beyond that.
Even failed experiments can qualify as trade se- The work has to be original and in a fixed
crets; knowledge that a method does not work, medium. This means that the work has to be an
in some cases, can give an individual or business independent creation of the author and it must
a huge competitive edge. exhibit some creativity. Being in a fixed medium
The generally accepted definition of a trade means that the creation is in a tangible form: A
secret appears in the 1939 Restatement of Torts. short story is written down, a song is recorded,
The subject matter of a trade secret must be secret; and so on. A pure idea or concept cannot be
as such, matters of public or general knowledge in copyrighted without description or illustration.
an industry cannot be appropriated by anyone as
a secret. Information that is completely disclosed
by the goods that one markets cannot be consid- 9. Assembling a strategy
ered a trade secret. By definition, a trade secret is The development of a coherent IP strategy in-
known only to those in the particular business in volves an analysis of three types of IP: self-de-
which it is used. veloped, incoming, and outgoing. In order to
develop a strategy to manage IP, an organization
8.4 Copyrights generally conducts a freedom-to-operate study
A copyright is a type of IP protection for authors or IP audit. Such an analysis inspects all patents,
of original works. A copyright protects an original trademarks, copyrights, contracts, material trans-
work and allows the author an exclusive right to: fer agreements, know-how, and anything else
• reproduce the work exclusively that could be part of the intellectual capital of an
• prepare derivative works organization.
• distribute copies or records by sale, lease, or The first step in developing an IP strategy
other type of ownership transfer is to document the technologies that already
• perform the work publicly exist in the organization, plus the technologies
• display the work in development. The existing technology could

DODDS
consist of trade secrets, know-how, patents, or the patent. If an organization developed a patent-
combinations thereof. The most critical elements able method for transforming a plant species, for
of the technologies are placed in a database. The example, it would be very difficult to ensure that
database could, for example, contain the follow- no one was infringing on that method, and thus
ing elements: issued patents, filing and expira- patenting would be largely ineffective.
tion dates of the patents, abstracts of technolo- The organization should also analyze where
gies, first claims of patents, current and future it will need the protection. There might not be a
potential of IP, existence of licenses, and so on. need to keep a patent valid all over the world if
Each project of the company can be similarly the technology is used only in the United States,
documented. Data of issued and applied patents or if the only prospective market is in Germany.
in each project should be documented; valuable In these cases, it would be advisable to apply for
trade secret and contracts should likewise be patents only in the relevant countries.
documented. It is also important to get accurate knowl-
When all the IP is documented in a database, edge of the IP rights of competitors in your field.
consideration should be given to the merits of the Knowing the IP rights of other organizations in
documented technologies. Questions to be asked your field will help you identify where your or-
are, for example: ganization has a distinct competitive advantage,
• What stage is the technology in? and will enable you to identify and eliminate
• What is the novelty of the technology? costs of any out-of-date IP. By knowing your
• Is the technology in use? own IP, you can identify under-utilized IP that
• Are outside licenses needed to develop the could potentially be sold or licensed out; know-
technology further? ing other people’s IP could help you to avoid
• Does a competitive technology exist? costly infringements suits. Finally, knowing your
• Is the technology commercially launched? IP gives you a road map to create a successful
• Are capital requirements needed to launch R&D strategy.
the technology? Finally, an organization can choose an offen-
• Are there environmental or regulatory is- sive or a defensive patent strategy. This depends
sues related to the technology? a great deal on the size of the company, but also
on the demands of the particular industry within
Depending on the organization, the answers which the company operates.
to the above questions will have varying impor-
tance. For example, a university technology trans- 9.1 Offensive patent strategy
fer office might not care too much if the stage of An offensive patent strategy is designed to build
the technology is at a pilot level or whether the barriers to block competitors from gaining entry
patent has been issued. For an organization bas- to your proprietary technologies. Using an offen-
ing its business on in-house developed technol- sive patent strategy means filing patents as soon
ogy, however, these issues are crucial. as is practicably possible. Filing a large number
Patenting is expensive. Therefore, it is impor- of patent applications and later maintaining the
tant, especially for a small organization, to criti- issued patents is expensive; on the other hand, an
cally assess which technologies it needs to patent offensive patent strategy may derive large licens-
and where. Even if an invention is patentable, it ing incomes.
might not always be the best solution to patent it. Given the expense, an offensive patent strat-
If, for example, an invention is difficult to reverse egy is often available only to large organizations,
engineer, or if it would be easy to invent around a since small companies generally cannot afford the
patented technology, then keeping the invention costs of filing and maintaining patents. Beyond
as a trade secret might be more beneficial. Also, size, an offensive patent strategy is more impor-
patenting might not be an effective tool if it would tant for companies operating in very competitive
be difficult to ensure that no one is infringing on fields.

CHAPTER 10.4
9.2 Defensive patent strategy technique of genetic transformation). These types

Using a defensive patent strategy, a company files of patents, when strategically licensed, will en-
patents primarily to ensure that innovations can able effective development, broad dissemination,
be practically used. With a defensive strategy, fil- and maximum social usefulness of a technological
ing and maintenance fees will be small, but the advance. This is precisely in line with the public
company will not gain royalties from licensing sector mission of providing for humanitarian in-
patents out. terests and the welfare of the general public, in
In addition to these two strategies (offensive contrast to the much more limited mission of the
and defensive) an organization can adopt some- private sector.
thing in between, depending on the field and the
type of the technology it uses. A defensive patent
strategy can be combined with a strong trade- 10. The IP fortress
secret portfolio, or a large number of in-licensed Building a strong base for IP protection will make
technologies. An offensive patent strategy can be it difficult for other people and companies to in-
used to demonstrate innovations to industries fringe upon protected rights. One way to secure
and markets. IP protection is to cover IP with various types of
IP rights.
9.3 Public and private sector strategies Imagine that the IP of a particular U.S.
compared company is a novel paintbrush. The company
The public and private sectors by and large have can obtain a utility patent in the United States
different missions, objectives, and motivations. covering the novel paintbrush. If the company
These, in turn, drive the overall patent strategies has business in Europe, it might be wise to file
that each employs. a PCT as well. It might be beneficial to write a
Private sector organizations, primarily cor- claim, also, for painting with the paintbrush. By
porations, are profit oriented and must aggres- doing so, the company would ensure that both
sively respond to the pressures imposed by the people manufacturing the brush, and each small
marketplace and shareholders who expect returns or large painting using the brush, would be guilty
on their investments. Therefore, the private sector of infringement if they were not first granted a li-
will use defensive and offensive patenting strate- cense to use the brush in any manner they saw fit.
gies, often obtaining numerous patents contain- When the company holding the patent improves
ing narrowly drafted claims. In this way, a series of the tool, it can always file a new patent covering
painstakingly prosecuted patent portfolios is stra- the improvement (continuation-in-part applica-
tegically used to build proprietary fortifications. tion). Additionally, the design of the paintbrush
The private sector organization can thereby stake might be protected by a design patent. Finally,
out its territory, protect its interests, and secure the company might have a unique name for the
its profits. In the expanding world marketplace, tool that could be trademarked.
this strategy is becoming more and more com- Building such a fortress around the invention
mon; the use of foreign filing and patent families makes it difficult for others to use the invention
confirms the global strategic perspective of multi- without getting a license. Depending on the pol-
national companies. icy of the organization and the type of the inven-
The public sector, on the other hand, has tion, the organization can then grant either exclu-
the very different mission of serving the greater sive or nonexclusive licenses to use the product.
public good. Additionally, for much of the pub- There are several ways to protect IP, but one
lic sector, the perspective is primarily local: either should always remember that protecting IP is ex-
national, or possibly regional. Patenting strategies pensive. Therefore, an organization needs to think
will focus on more broadly drafted claims that carefully about its competitors, likely infringers,
will encompass a technology, or, more often, a and the geographical area where the invention is to
key process, method, or technique (for example, a be marketed. Sometimes keeping an invention as a

DODDS
trade secret might be the cheapest way to protect JOHN DODDS, Founder, Dodds & Associates,1707 N Street
it. Sometimes patenting, even if more expensive, NW, Washington, DC, 20036, U.S.A. j.dodds@doddsas-
sociates.com
might give better protection. Finding the best way
to build and protect an IP portfolio requires imagi-
1 www.uspto.gov/main/howtofees.htm.
nation, in addition to a thorough knowledge of the
2 See also in this Handbook, chapter 11.6 by WT Tucker
company and its product lines. and GS Ross.
3 Recommended reading for further information on this
topic:
11. Summary and conclusions Field TG, Jr. Avoiding Intellectual Property Problems.
A comprehensive IP portfolio can be of substan- www.piercelaw.edu/tfield/avoid.htm.
tial value to both private and public sector enti- Field TG, Jr. 1994. Intellectual Property: Some Practical
ties. For both sectors, patents are a key element of and Legal Fundamentals. IDEA The Journal of Law and
Technology 4: 79–129.
an IP portfolio. Large companies can afford an of-
Goldschreider R. 1998. Licensing In: A Key to Continued
fensive patent strategy, but small companies may
Corporate Health. IDEA The Journal of Law and
not have recourses for this. Therefore, especially Technology 2: 361–382.
for small- and middle-sized companies, planning Patel R. A Patent Portfolio Development Strategy for
and lateral thinking about how to put in place Start-Up Companies. Fenwick & West LLP: Washington,
an effective and cost efficient strategy is extremely DC. www.fenwick.com/docstore/Publications/IP/IP_
bulletins/IP_Bulletin_Fall_2002.pdf.
important. IP can be protected through patents,
trademarks, copyrights, and trade secrets. The Rivette KG and D Klive. 1999. Rembrandts in the
Attic: Unlocking the Hidden Value of Patents. Harvard
costs of maintaining each of these IP categories Business School Press: Cambridge, Mass.
are different. A company can reduce costs by lim- U.S. Department of Commerce. 2000. Patents and How
iting patent protection to those geographic areas to Get One: A Practical Handbook. Dover Publications.
where it has business. But even when a company Unites States Patent and Trademark Office. Types of
wishes to reduce costs as much as possible, im- Patent Applications/Proceedings. www.uspto.gov/
portant technologies need to be protected prop- web/patents/types.htm.
erly. A strong protection may be built by using

several forms of IP for the same invention or im-
provement.3 ■

CHAPTER 10.5
Cost-Conscious Strategies for Patent Application Filings

Oren Livne, Associate Director, Licensing, Office of Technology & Industry Alliances,
University of California, Santa Barbara, U.S.A.
ABSTRACT product, an invention for which additional re-

Timing and cost are two key factors involved in patent- search may demonstrate some significant result, or
filing decisions. This chapter explores mechanisms for de-
an invention that may be licensed in the future.1
laying the high costs of filing a patent application as long
as possible, so that additional information on an inven- The cost-minimizing approach recommended in
tion and evidence of its worthiness can be gathered. The this chapter is intended for such inventions with
efforts to minimize up-front costs are balanced against the questionable or uncertain value. The approach is
potential need to secure viable patent rights at some point not recommend for a blockbuster drug or an in-
in the future. This chapter begins by walking through the
stages of the publication process—from prior to submis- vention that represents the core of a company’s
sion, to after publication—and suggests cost-conscious products.
patent-filing strategies that are possible at each stage. The
focus is on delaying significant costs until the value of
the invention is more certain. The chapter concludes with
additional points to consider when making patent-filing
2. Decisions, Decisions
decisions.
2.1 No publications planned
When the inventors plan no publications and
there are no other reasons (such as concerns over
1. Introduction competing groups) to secure a priority date, a
With university inventions, research is often early company or university can enjoy the luxury of
stage and an invention’s worthiness can be uncer- time. There is no need to do anything on the pat-
tain from both a scientific and market perspec- ent side so long as the invention will not be sup-
tive. At the same time there is a drive to publish pressed, concealed, or abandoned. Technical re-
that forces early patenting decisions. Companies search and market evaluation may continue until
have some extra leeway with respect to delaying the invention’s value is determined. Then a patent
publication, but are pushed by competitors and application may be filed, if appropriate.
a need to demonstrate technical capabilities and,
as a result, often face patenting decisions well in 2.2 Publication planned for a future date
advance of a clearly defined product line. Both If there is significant time before publication sub-
universities and companies must therefore make mission, technical research and market evalua-
decisions on inventions that represent only pos- tion may continue in the hopes that additional
sibilities—an invention that might end up in a information will be gathered that can support
Livne O. 2007. Cost-Conscious Strategies for Patent Application Filings. In Intellectual Property Management in Health and
© 2007. O Livne. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommer-

LIVNE
the patent filing decision. Often publication sub- single cohesive document containing all data and
missions are delayed, providing additional time information relating to the invention. If possible,
for evaluation. When submission becomes more this document can be drafted by the inventors
definite, the steps in the following section may be and then reviewed by the invention manager. The
followed. invention manager can discuss the description
with the inventors and work to add any missing
2.3 Publication submission information, alternative methods, compositions
Submission of a publication is not necessarily a or devices, and additional breadth to the descrip-
dire situation. Not all submissions are considered tion. The attorney will then have a more-solid
publications. Usually submissions will be main- starting point from which to draft the applica-
tained in confidence until the publication date (it tion. Depending on the nature of the invention,
is advisable to note “CONFIDENTIAL” on the costs may be kept below US$10,000.4
manuscript). If that is the case, several additional Once the nonprovisional U.S. application is
months are gained for technical research and mar- filed, there is one year during which foreign rights
ket evaluation (again, assuming there are no other can still be pursued (assuming no prior publica-
reasons to secure an earlier priority date). If the tion has taken place). If foreign patent rights are
submission will not be maintained in confidence no longer desired, no action needs to be taken. If
and is considered a publication, then a patent ap- foreign rights are still desired, one of the two fol-
plication may need to be filed prior to submission lowing filing approaches can be employed prior
(see section 2.4). to one year from the initial filing:
1. File a Patent Cooperation Treaty (PCT)
2.4 Publication imminent application claiming all or specific na-
When publication is imminent, an application tions. Filing a PCT application provides
needs to be filed only if foreign (non-U.S.) patent 30 months from the earliest priority date
rights are desired. If foreign patent rights are not (filing date of the nonprovisional applica-
desired, the U.S. patent-application filing does tion) before which national-stage patent fil-
not need to occur until a year after publication. ings need to occur. Most countries are now
In this case, the steps in section 2.5 “Publication” members of the PCT (with the Republic of
can be followed (assuming there are no other rea- China [Chinese Taipei] one notable excep-
sons to secure an earlier priority date). tion), so the PCT application is a valuable
If foreign patent rights are desired, an ap- interim step for maintaining worldwide
plication must be filed prior to publication (only patent protection.
a few countries in addition to the United States The PCT route will reduce initial costs
have grace periods).2 Figure 1 details the steps significantly, but total costs will be higher
that may be taken (see the left-hand “YES” side (by the amount of the PCT filing). If the
of the Figure). specific countries or regions of interest
There are two main options to choose from. are not yet known, this is a good route
A U.S. provisional application can be filed. to take (the PCT filing may designate all
Alternatively, if the invention’s value is more cer- member nations). Since the U.S. applica-
tain or it has the potential to generate significant tion was already drafted, PCT costs will
revenues, a nonprovisional U.S. application can be limited to governmental fees, and a
be filed. By avoiding the provisional stage for small amount for attorney time (currently
more certain inventions, the total patenting cost a total of less than US$4,000 for all na-
can be reduced. tions). The U.S. Patent and Trademark
Office (PTO) and the World Intellectual
2.4.1 Nonprovisional U.S. application Property Organization (WIPO) have ex-
If the nonprovisional application filing route is tak- tensive Web sites with helpful information
en,3 attorney costs can be reduced by providing a on PCT filings.5

Figure 1: Decision Chart for a Low-Cost Patent-Filing Approach with Invention Details about to be Published
Are foreign patent NO Have until 1 yr from

rights potentially publication to file.
desired?
YES
Prior to 1 yr from NO
Publication: is a patent No action needed.
Must file application
still desired?
prior to publication.
File full U.S. YES

application.
YES
Will a full U.S. YES
application definitely File full U.S. application.
Will a full U.S.
application definitely be filed?
be filed? Prior to 1 yr from NO
NO No action needed.
filing: are foreign still
desired? File provisional.
NO
YES
Is full U.S. filing YES File full U.S. application.

File PCT or file in
still desired?
File provisional. specific countries.
NO
Prior to 1 year NO Is U.S. filing NO Abandon provisional. Abandon provisional.

from filing: are foreign still desired?
still desired?
YES
YES
Is priority of Prior to 1 yr from

NO NO
provisional needed? Refile provisional. 2nd filing: is U.S. still Abandon provisional.
desired?
File one:
1. PCT application
2. Full U.S. and PCT applications YES YES
3. specific-country application
File full U.S. application. File full U.S. application.

CHAPTER 10.5
LIVNE
2. File national-phase applications in spe- be employed up until one year after the initial
cific countries or regions of interest. If the filing:
desired countries or regions of interest are
already known, patent applications may be 1. File a PCT application claiming all or
filed directly in those countries. The cost specific nations. Filing a PCT application
per country is significant, including transla- provides 30 months from the priority date
tion costs, governmental fees, and attorney (filing date of the provisional application)
time. This route is typically reserved for in- before which national-stage patent filings
ventions whose potential has already been need to occur. Most countries are now
demonstrated or whose value, if proven, members of the PCT (with the Republic
will be very significant. of China one notable exception) so the
PCT application is a valuable interim
2.4.2 Provisional patent applications step for maintaining worldwide patent
If the provisional-application filing route is taken, protection.
attorney costs can be reduced also by providing a The PCT route provides the lowest up-
single cohesive document containing all data and front costs, but total costs will be higher
information relating to the invention. Like the than the combined costs of filings directly
nonprovisional application discussed above, this in a few specific countries or regions of in-
can be drafted by the inventors and then reviewed terest. If the specific countries or regions of
by the invention manager. The invention man- interest are not yet known, a PCT filing is
ager can discuss the description with the inven- a good route to take (it may designate all
tors and work to add any missing information, member nations). The cost of converting
alternative approaches, and additional breadth to a previously filed provisional application
the description. into a full PCT filing can vary significantly
This description can then be filed “as is,” with- depending on how strong the provisional
out claims, at minimal cost (roughly US$300, filing was and whether any new informa-
including attorney time) or, with some sample tion needs to be incorporated (depending
claims, for a little more. This is a somewhat risky on the nature of the invention, costs may
approach, as the attorney will not have reviewed be kept below US$10,000)
the description to ensure that it provides the in- 2. File a PCT application claiming all or spe-
formation necessary to support desired claims. If cific nations and file a separate nonprovi-
it is very uncertain whether or not foreign rights sional U.S. application. Filing a U.S. patent
are desired and the added provisional year is likely application in addition to the PCT at this
to provide that information, this may be an ap- stage has certain benefits. The U.S. patent
propriate approach. If foreign rights are very like- application will likely issue sooner. Also, it
ly of interest or the invention has strong potential is possible that the PTO will issue an of-
in foreign markets, it may be preferable to pro- fice action in time to help with the decision
vide the attorney with the single reviewed docu- on whether or not to go national-phase in
ment and ask that an additional review be con- other countries. There will be added costs
ducted and claims added (a total cost of roughly for filing the additional U.S. application,
US$1,500–US$2,500, depending on the nature primarily in the form of government fees
of the invention). (roughly US$1,500 to US$2,500 for the
filing fee, plus minimal attorney time). If
2.4.2.1 Foreign rights desired an office action is issued on the U.S. ap-
Once the provisional U.S. application is filed, plication, there will be additional costs for
there is one year during which foreign rights drafting and filing the response (roughly
can still be pursued. If foreign rights are de- US$3,000, depending on the nature of the
sired, one of the three following approaches can office action).

CHAPTER 10.5
3. File applications in specific countries. If U.S. application may be filed, providing an ad-
the desired countries or regions of interest ditional year for evaluation. Filing a provisional
are already known, patent applications may application would raise the total costs somewhat,
be filed directly in those countries. The cost but can dramatically reduce the initial costs. If
per country is significant, including trans- the evaluation proved positive and a U.S. patent
lation costs, government fees, and attorney is desired, a nonprovisional application must be
time. This route is typically reserved for in- filed by one year from the provisional filing date.
ventions whose potential has already been
demonstrated or whose value, if proven,
will be very significant. 3. Conclusions
This chapter offers ideas for delaying the upfront
cost of patent filings in a manner that allows pat-
2.4.2.2 Foreign rights not desired ent rights to be secured in the future. Below are
If foreign rights are not desired but U.S. rights some important points to consider when employ-
still are, a full U.S. application must be filed with- ing these strategies:
in one year of the provisional U.S. filing if the • Before applying the strategies described in
priority date of the provisional is needed. this paper, please consult with an attorney
If priority to the provisional is not needed to confirm they are appropriate for your
(for example, if there are no concerns about com- specific circumstances.
peting groups), then a full U.S. application does • There are risks associated with delaying
not need to be filed. The provisional application a patent filing. There may be prior art of
can be refiled within one year of the earliest pub- which you were unaware. Sometimes a
lication—the cost would be minimal since all the paper will be published online prior to
paper work would already be in place (roughly print, or a journal will be mailed before
US$300 if an attorney is used). Using this strat- its cover date, or conference proceedings
egy, a company or university would have a year sent to attendees prior to the conference.
to decide if foreign patent rights were worthwhile Other groups may publish before you have
(the first provisional) and an additional year to a chance to file. Foreign countries (and pos-
see if a full U.S. patent is desired (the second pro- sibly soon, the United States) have a first-
visional). If a full U.S. patent is desired, the ap- to-file system, so delay may result in other
plication must be filed within one year from the groups securing patent rights before you
filing of the second provisional application. have an opportunity to do so.
• Consider what information will be gained
2.5 Publication before the next patenting-decision point.
If enabling details of the invention have already If, for example, it will take three years of
been published, then non-U.S. rights are gener- research to confirm whether an invention
ally not attainable.6 The right hand, “NO,” side is viable, filing a provisional application is
of Figure 1 outlines the steps that may be taken not likely to be worthwhile: going straight
in such cases. A U.S. patent application does not to a nonprovisional filing will reduce the
need to be filed until one year from the publi- total costs. On the other hand, if only six
cation. During this time additional research and months are needed to confirm the value
market analysis can occur. of an invention, a provisional application
If, toward the end of the one-year time pe- might be preferable.
riod, the invention’s value becomes more certain, • Delaying filings through provisional appli-
a nonprovisional U.S. patent application may be cations and the other approaches discussed
filed. in this paper makes sense only if some ap-
If the value of the invention is still uncertain plications are abandoned at future decision
but it continues to have potential, a provisional points. The main benefit of the delay is that

LIVNE
1 Livne O. 2002. Investigation of At-Risk Patent Filings.

it allows additional time for research and Journal of the Association of University Technology
market evaluation so the strong inventions Managers 14:19-29.
can be separated from the weak. If a patent 2 See Strauss J. 2000. Expert Opinion on the Introduction
filing is definitely going to occur, adding of Grace Period in the European Patent Law. Max-Planck
Institute: Munich. www.european-patent-office.
the provisional application will increase the
org/news/pressrel/pdf/straus.pdf. Page 44 provides
total costs. a summary of countries with various types of grace
• Evaluate whether or not foreign (non-U.S.) periods ranging from six to 12 months. If detailed
patent rights are truly desired. Significant information on specific countries is needed, see the
WIPO Guide to Intellectual Property Worldwide at
flexibility is gained if foreign patent rights www.wipo.int/about-ip/en/ipworldwide/country.htm.
are not needed. WIPO provides a good starting point for information
• Remember, attorney costs can be reduced on the patent laws of specific countries.
by providing a single cohesive document 3 It is also possible to file a Patent Cooperation Treaty
containing all data and information relating (PCT) filing in lieu of, or in conjunction with, the non-
provisional U.S. application if the desirability of foreign
to the invention, enhanced by the inven- rights is more certain.
tion manager who could add any missing 4 All cost estimates in this paper are based on small-
information, alternative methods, compo- entity filing fees. U.S. patent filing fees (effective 1
sitions or devices, and additional breadth to February 2007) can be viewed at www.uspto.gov/web/
offices/ac/qs/ope/.
the description. n
5 See, also in this Handbook, chapter 10.7 by AM
Acknowledgement
Schneiderman.
This chapter is an edited version of an article that first 6 See supra note 2 for information on exceptions.
appeared under the title A Cost Conscious Approach to
Patent Application Filings, Les Nouvelles, Vol. XLI, No.
2, June 2006, pp. 115–19.
Oren Livne, Associate Director, Licensing, Office of

Technology & Industry Alliances, University of California,
Santa Barbara, 552 University Avenue, Santa Barbara, CA,
93106-2055, U.S.A. livne@research.ucsb.edu

CHAPTER 10.6
A Guide to International Patent Protection

Ann S. Viksnins, Patent Attorney and Partner, Viksnins Harris & Padys PLLP, U.S.A.
Ann M. McCrackin, Shareholder, Schwegman, Lundberg, Woessner & Kluth P.A., U.S.A.
ABSTRACT filing patent applications in every country in the

When approaching the international production, mar- world can add up quickly, as there are about 200
keting, distribution, and sales of a patented product or
countries where some degree of patent rights are
process, several key factors must be carefully identified
and evaluated. These factors include business and legal is- available. Therefore, you will need to be selective
sues. Business issues include market location, market size, as to where you will file patent applications.
presence (or absence) of competitors, emerging markets Many factors need to be considered when de-
as opportunities, life cycle of the product, and taxes. Legal ciding where to file foreign patent applications.
issues include the presence (or absence) of trade secrets in
the patent application, the status of patent applications Some factors relate to the business development
in foreign countries, the level of patent protection (both or marketing of the invention, and other factors
law and enforcement) in foreign countries, and statutes, relate to the legal status of the invention. For ex-
such as novelty requirements, in prospective foreign mar- ample, will the invention be considered “novel”
kets. Having considered a full range of business and legal
in the countries where you want to file? Do the
factors, options for international patent protection can
then be evaluated and appropriately selected, according countries permit patenting the type of technol-
to the business goals and financial resources of the orga- ogy your inventor has developed? Some countries
nization. Options include national, regional, and interna- do not offer patent protection for computer soft-
tional patent applications, each having its own advantages ware, for instance. Another factor to consider is
and disadvantages. This overall strategy can be effectively
employed to maximize either business or humanitarian whether you will be able to enforce your patent
objectives. once you receive it. The degree of judicial respect
that patents are given in different countries varies
considerably. Some countries have laws that al-
1. basicS OF international low a party to obtain a patent but have almost no
filing strategIES enforcement mechanisms. International treaties
You have a researcher who has developed an excit- such as the North American Free Trade Agreement
ing invention, and you have already decided to (NAFTA) and the Agreement on Trade-Related
file a patent application in the United States. Now Aspects of Intellectual Property Rights (TRIPS)
you need to decide if you should also file patent should help to make enforcement easier and rem-
applications abroad, and if so, where. The cost of edies for infringement more adequate.
Viksnins AS and AM McCrackin. 2007. A Guide to International Patent Protection. In Intellectual Property Management
Technology Transfer Practice Manual Second Edition (Part IV: Chapter 2.2).
© 2007. AS Viksnins and AM McCrackin. Sharing the Art of IP Management: Photocopying and distribution through the

VIKSNINS & McCRACKIN
Specifically, here are some of the business and for the short-term difficulties. As another
legal questions to consider when planning a for- example, Vietnam’s recent accession to the
eign patent filing strategy: World Trade Organization (WTO) will ne-
• How big is the market for your inven- cessitate tangible progress towards TRIPS
tion in a particular country? If the market provisions implementation.1 An important
for the invention is a relatively small one, aspect of this will be strengthening patent
it may not be worth the expense of filing laws and their enforcement.
an application in that particular country. • Would a defensive patent be valuable? It
A benchmark that some companies use is can be worthwhile filing in a particular
US$5 million in revenue per year for the country, even if a market is small, if you
invention. know that a major competitor is doing
• How big is the market for your invention business or has a manufacturing plant in
in a particular region? Many inventions are that country. You can possibly get the com-
region-specific. For example, if your inven- petitor to license the new technology from
tion is a transgenic blueberry plant, you you or at least prevent the competitor from
likely do not need to consider filing in the commercializing your invention in that
region of Equatorial Africa, since blueberry country.
plants do not grow there. Also, it may be • Do you have limited time? Some technolo-
that a patented product has a major market gies only have a life span of a few years, and
in a handful of countries and only a mi- you can expect to get income from licens-
nor amount of interest elsewhere. Further, ing fees only in the early years of a patent.
covering the major markets may provide an Other technologies are in development for
advantage in economies of scale. If most a long period of time and are only economi-
of your potential customers are in coun- cally valuable in the last years of the patent.
tries where you have patent protection, It can take ten years to get a Japanese patent
you may have such strong manufacturing application issued. Even though you might
and cost advantages that you do not need be able to successfully sue an infringer and
to have patent coverage in less-important get retroactive royalties back to your filing
countries. date, by then the competitor will already be
• Where are the major manufacturing cen- in the market. Also, you often cannot get
ters for you and for your competitors? a restraining order to make the competitor
Certain regions of the world are centers stop infringing until after the patent has ac-
of manufacturing for different industries. tually issued.
For example, the Far East economies of • Do you have limited funds to spend on
Singapore, Hong Kong, Korea, Indonesia, foreign patent protection? It may be more
Thailand, the Republic of China, China worthwhile to carefully pick just a few
(People’s Republic of China), and Japan are countries and spend all your money on
important manufacturing countries for the getting well-prosecuted, broad patents in
computer and semiconductor industries. those countries rather than getting nar-
• Where are the emerging markets? row patents in a lot of countries. Another
Developing countries may be strengthening strategy would be to concentrate all your
their patent laws and therefore make patents efforts on the key features of your technol-
more valuable in the near future. For ex- ogy that competitors will need in order to
ample, China has recently revised its patent be competitive.
laws and should be considered for certain • What is the status of a patent application
inventions. There are still many problems in in the foreign country of interest? In some
enforcing patents in China, but in the long countries, such as Japan, published applica-
run, the size of the market could make up tions are respected almost as though they

CHAPTER 10.6
were already-issued patents and can provide of the country of interest, (2) file in a regional
licensing opportunities. This local custom patent office, or (3) file using the procedures set
can make an unissued patent application forth in the Patent Cooperation Treaty (PCT).2
valuable even if the national patent office These filing options are discussed below. Unlike
has a reputation for letting patent applica- in the United States, applications in most other
tions pend for a long time. countries are filed in the name of the assignee(s),
• Would your invention be considered novel not the inventor(s).
in your country of interest? Most countries
require that an invention be undisclosed, or 2.1.1 National applications
novel, as of the effective filing date of the ap- Prior to 1 June 1978, directly filing a patent ap-
plication. Novelty requirements vary con- plication in a foreign country’s patent office was
siderably from country to country. Some the primary way to obtain foreign patent protec-
countries require absolute novelty (which, in tion. Applicants often would rely on the rights
practical terms, means that a patent appli- granted under the Paris Union Convention (that
cation must be filed before any public dis- is, for member nations of the Paris Convention)
closure), while other countries give inven- for a right of priority.3 This right of priority al-
tors or applicants grace periods, following lows a resident of a country that is a member of
disclosure, for filing patent applications. the Paris Convention to first file a patent applica-
• Where are your competitors filing their tion in any member country, and then, within 12
patent applications? Place of filing can months of the original filing date, to file patent
be indicative of future business plans. You applications for the same invention in any of the
may want to file in the same countries your other member countries. By treaty, the later ap-
competitors are filing in, even if you do not plications receive effective filing dates that are the
initially plan to manufacture or sell your same as the original filing date. In other words,
invention in those countries. they would be treated as though they had been
• Are there trade secrets in your applica- filed on the same day as the first application,
tion? Most foreign applications (and most so long as they were filed within the 12-month
U.S. patent applications filed on or after 29 period.
November 2000) are published about 18 Applicants who file a subsequent applica-
months after their priority date. The invention in a country that is a member of the Paris
tion may be of more value when kept as a Convention will not be given the priority of
trade secret for a potentially unlimited time their original application. If possible, applicants
than when disclosed in a patent, which has should consider filing any applications in non-
a limited life span. member countries on the same day as their first
• Can holders of patent rights realize tax ad- Paris Convention application.
vantages in foreign countries? Patents can be It should be noted that even though the
bundled with a technology transfer license to Republic of China is not a member of the Paris
transfer the situs of taxation, allowing expa- Convention, patent applications filed in the
triation of funds with less tax impact. United States may have priority over applica-
tions filed in the Republic of China because of
a bilateral agreement between the two countries
2. Options for filing international (effective 10 April 1996). The priority period is
patent applications 12 months for inventions and new utility model
applications; the period is six months for new de-
2.1 Overview sign applications. Various requirements must be
Once a decision has been made to file a patent ap- met in order for priority to be granted. For ex-
plication, there are three choices for filing in a for- ample, priority must be claimed on the filing date
eign country: (1) file directly in the patent office of the application filed in the Republic of China,

the applicant of that country’s application must during pendency by filing a translation of claims
be the same as the applicant on the U.S. applica- in each designated country.
tion, and the invention disclosed in the Republic An applicant, however, does not gain any en-
of China application must be the same as that of forceable patent rights until the European patent
the corresponding U.S. application. is registered, or “validated,” in each of the coun-
A major disadvantage of filing directly in tries in which protection is sought. Registration
individual countries is that such a strategy can can be expensive because in addition to govern-
be very expensive, as applicants must pay the ment issue fees and translation fees, further fees
individual national government filing fees, pat- for the European associate and local agents in
ent attorney fees, foreign associate fees, and each country will be incurred. Once the European
potential translation costs early in the patent patent is validated, annual maintenance fees, or
program. annuities, will be due periodically in each of the
countries. Maintenance fees vary considerably
2.1.2 Regional applications from country to country. For example, annui-
A potential alternative to filing directly in each ties in the United Kingdom and France can total
country of interest is to file in a regional patent about US$7,000, whereas in Germany they can
office. These patent offices have come into exis- total about US$18,000, over the life of the pat-
tence through international treaties. Examples of ent. Of course, these are estimates and are subject
regional patent offices are the European Patent to change.
Office (EPO),4 the African Regional Industrial
Property Organization (ARIPO),5 the African 2.1.3 PCT applications
Intellectual Property Organization (OAPI),6 and The Patent Cooperation Treaty (PCT) is an in-
the Eurasian Patent Convention (EA).7 ternational agreement that provides a unified and
Often, the EPO is the most commercially im- simplified procedure for filing multiple foreign
portant of the regional patent offices, so its proce- patent applications via a single initial applica-
dures will be discussed in more detail. Use of the tion. Most industrialized countries are members
EPO allows for a uniform procedural system for of the PCT, including many countries that are
filing a patent application in member European also members of different regional patent offices.
countries. The cost of filing a patent application Please note that this list is constantly changing
in the EPO is about US$10,000. This figure as new countries join the PCT. All PCT mem-
includes the EPO filing fees, the U.S. attorney ber countries are bound by the Paris Convention;
fees, and the fees charged by the EPO associate. however, not all Paris Convention member states
The EPO does not allow U.S. patent attorneys are PCT member countries.8 If you have ques-
to communicate directly with it, so a European tions as to whether certain countries are PCT
patent attorney, or agent qualified to practice in member countries, you may check the most re-
the EPO, must be hired for certain aspects of the cent PCT newsletter, on the Web, or contact the
filing and prosecution process. PCT Help Desk.9
The application is reviewed by an EPO exam- PCT Rule 4.10 enables applicants to claim
iner based on the investigation of the prior art in priority of an earlier-filed application in, or for, a
light of the claims. The examiner must consider member country of the WTO10 that is not party
a PCT Chapter II examination report, if appli- to the Paris Convention.
cable. (The PCT procedure is discussed in further The procedures set forth in the PCT allow
detail below). The EPO issues an official action applicants to obtain and/or preserve the prior-
statement. The U.S. patent attorneys respond to ity date of the first-filed application in any of the
the official action through their European asso- PCT member countries, including the United
ciates. After successful examination, the applica- States. An applicant files a copy of the applica-
tion is granted as a European patent. It should tion in a PCT office and pays the PCT filing fee.
be noted that interim protection can be available This filing of the patent application may be the

CHAPTER 10.6
first time it has been filed anywhere, or it can be the regular U.S. application in which to file its
an application that claims priority over an earlier- international applications.
filed application, so long as it is filed within 12 Prosecution of a PCT application has two
months of the initial filing date. parts. Chapter I involves the initial processing
Along with a copy of the application, the of the application, a search of the prior art, and
applicant files a PCT request. When the request publication of the application and search results.
is filed, the presumption is that the applicant Chapter II involves an optional international pre-
would like to designate all available countries or liminary examination. (Figures 1 and 2)
regional offices, thereby reserving the right to, at a Once an applicant decides to file a PCT ap-
later time, file national (or regional) applications plication, the applicant enters Chapter I by filing
claiming priority to the first-filed application. In a PCT office request, a copy of the application, and
Box No. V of the PCT request form, it is stated the PCT filing fee. Application in most countries
that “The filing of this request constitutes, under is made in the name of the owner of the invention,
Rule 4.9(a), the designation of all Contracting not of the inventor, as in the United States. The
States [emphasis added] bound by the PCT on the PCT filing of the patent application may be the
international filing date, for the grant of every kind first filing, or a PCT application that claims pri-
of protection available, and, where applicable, for ority to an earlier-filed application can be filed, so
the grant of both regional and national patents.” In long as it is filed within 12 months of the priority
other words, priority to the first-filed application date. Either the U.S. Patent and Trademark Office
is automatic and all-inclusive, with all possible (PTO) or the International Bureau of the World
designations. The PCT request form, however, Intellectual Property Organization (WIPO) can
provides for the “de-designation” of Germany, act as PCT receiving offices for applications on
Korea, Russia, and Japan (for example, if applica- inventions by applicants who are either nationals
tions have already been filed in these countries). or residents of the United States. Either the PTO
It is critical to keep in mind that if patent protec- or the European Patent Office can be designated
tion is desired in a non-PCT country, an appli- as the searching authority.
cant must file directly in that country. The application is then reviewed by an au-
When filing an international application that thorized examiner, and a prior art search is per-
relies on the Paris Convention one-year grace pe- formed. The examiner reviews patents and pub-
riod for a priority date, the time period for filing lications from around the world and lists those
the foreign application is calculated from the date that are determined to be relevant prior art, with
of the first-filed national application. For most respect to the claims of the application. Within
U.S. applicants, the first-filed national applica- 16 months of the priority date, a preliminary
tion is a regular nonprovisional U.S. application. search report is issued. The applicant then has an
It is important to note, however, that if a U.S. opportunity to amend the claims in the applica-
provisional application is filed as the first-filed ap- tion. After 18 months from the priority date, the
plication, the one-year grace period begins with application is published.
the filing of this provisional application and not Under previous PCT procedure, within 19
with the filing of the “conversion” regular non- months of the priority date, applicants were re-
provisional U.S. application that claims priority quired to choose to enter PCT Chapter II, enter
over the provisional application. Thus, if a provi- the national stage (that is, file the application in
sional application is filed, the conversion date for at least some of the countries or regional offices
the nonprovisional U.S. application and the Paris designated), or abandon the application. If the
Convention bar date for the filing of internation- applicant decided to enter PCT Chapter II, the
al applications fall on the same day. Therefore, the filing of a demand for a preliminary examination
international application and the U.S. regular ap- was required and a Chapter II filing fee would
plication need to be filed on the same date. The be assessed. However, the Article 22(1) time limit
applicant does not get an additional year beyond for filing national-stage applications without the

need to file a demand has been changed from 20 prior art search, the EPO has limited the categories
or 21 months to 30 or 31 months. This change it will search and/or examine. The EPO will not
went into force on 1 April 2002. Applicants search or examine applications in the areas of busi-
should recognize, however, that some PCT mem- ness methods and related inventions. “[T]he EPO
ber countries maintain reservations regarding this is no longer a competent [International Preliminary
new timing rule and should remain cautious.11 Examining Authority], within the meaning of PCT
Applicants may file a preliminary amendment Article 32(3), for international applications filed by
with the demand. When that has been done, the U.S. residents or nationals in the [U.S. Patent and
PCT examiner prepares a written opinion that Trademark Office] or [International Bureau] as a
should be received by the applicant within 22 Receiving Office where the corresponding demand is
months of the priority date. The applicant has an filed with the EPO on or after 01 March 2002, and
opportunity to amend the claims and respond to where the application contains one or more claims
the examiner’s opinion during the period between directed to the fields of business methods.”12
22 and 28 months following the priority date. A In the 1990s, the EPO had indicated that
final PCT international preliminary examination it would search inventions in the area of tele-
report is published approximately 28 months communications, but would not examine these
from the priority date. PCT Chapter II is closed applications. This meant that U.S. applicants
at 30 or 31 months from the priority date. needed to have all telecommunications inven-
Normally, just before the 30- or 31-month tions examined by the U.S. Patent Office, even
mark, the applicant again must decide whether to if the EPO had performed the search. The EPO,
file applications in at least some of the designated however, resumed its competence as an interna-
countries, or regional offices, or to abandon the tional preliminary examining authority, effective
application. The applicant can choose to file the 1 July 2004, for demands filed by U.S. residents
application in some or all of the countries origi- or nationals on or after 1 July 2004, for interna-
nally designated. The applicant, however, cannot tional applications filed by nationals or residents
add to the list of countries originally designated. of the United States, where the application con-
Because the PCT application does not, in itself, tains one or more claims relating to the field of
result in the granting of any national patent telecommunications.13
rights, the applicant must initiate the national Similarly, in the field of biotechnology, al-
stage in each of the national offices where patent though the EPO had earlier announced that it
protection is desired. At this point, the applicant, would neither search nor examine applications
via a local attorney or agent, files a copy of the in that area, and that such applications were re-
international application, a translation of the ap- quired to designate the U.S. Patent Office as the
plication (if necessary), the national fee, and any searching and examining authority, the EPO re-
other documentation required by the national of- sumed its competence as an international search-
fice. The remainder of the prosecution is similar ing authority and international preliminary ex-
to that discussed above, when an application is amining authority, effective 1 January 2004, for
filed directly in a national office. The national international applications filed by nationals or
offices, however, do give deference to the PCT residents of the United States, where the applica-
international preliminary examination report and tion contains one or more claims relating to the
may not conduct a further search. field of biotechnology.14
It should be noted that it is possible at any
time during the PCT process to file one or more 2.2 Advantages and disadvantages
national-stage applications. It is not necessary to of different application strategies
wait until the end of Chapter I or Chapter II to
file a national or a regional application. 2.2.1 Direct national filings
For U.S. applicants using the PCT procedure If an applicant has only a small number of coun-
and wanting to select the EPO to perform the tries where she or he wants to file and chooses to

CHAPTER 10.6
actively pursue prosecution in only those coun- fees, and translation costs, if appropriate, will be
tries, the applicant can avoid the costs associ- incurred just as they would if the national stage
ated with the intermediate steps of filing in the was entered directly. Also, the additional inter-
PCT or regional patent office prior to filing na- mediate costs associated with the filing and pros-
tionally. Some countries conduct no, or limited, ecution of the PCT application will be incurred.
examination. Further, the countries of interest must be mem-
Disadvantages to direct national filing are bers of the PCT.
that (1) each application will be independently
examined (no deference given to a prior favorable
review in a different country), and (2) govern- 3. Possible international
ment filing fees and translation costs will be due filing plans
early in the patenting process. The selected international filing strategy will de-
pend on the potential importance of the inven-
2.2.2 Direct regional filings tion and other business and legal considerations.
With direct regional filings, applicants may be The following are examples of filing strategies in a
able to avoid some translation costs (for example, variety of circumstances.
the Eurasian Patent Convention requires applica-
tions to be filed in Russian, but no translations 3.1 Invention has immediate international
into different languages will be required by the market potential
various countries after grant of a Eurasian pat- 1. File application in the United States; expe-
ent). Another advantage to direct filings is that dite obtaining a foreign filing license from
substantive examination of the regional patent in the U.S. Patent Office.
each of the designated countries is no longer nec- 2. After receipt of a foreign filing license, file
essary. This makes direct regional filing especially in countries of interest that are not mem-
cost-effective if protection is desired in a number bers of the Paris Convention.
of member countries, since the single regional 3. File a PCT application designating all PCT
examination replaces national examinations per- countries within three months after the
formed by each member country. U.S. filing.
If obtaining protection in only a few member 4. Within 12 months after the U.S. filing date,
countries is desired, it may be less expensive to file pay designation fees for desired countries,
applications in each country individually, thus and proceed with the PCT prosecution.
avoiding costs associated with the intermediate 5. Within 12 months after the U.S. filing date,
steps of first filing in the regional patent office. file national applications in non-PCT coun-
tries that are Paris Convention countries.
2.2.3 PCT filings
PCT filings preserve future foreign patent rights 3.2 Invention has international, but not global,
and permit an applicant to delay national entry market potential
into PCT member countries for up to 30 or 31 1. If it is known ahead of time which coun-
months from the priority date. This delay period tries have market potential, one could:
may provide opportunities for further market a. File a PCT application designating coun-
analysis, obtaining a licensee or business partner tries of interest, including the United
for the invention, and obtaining a preliminary ex- States. If filing in any Paris Convention
amination report regarding the issues of novelty, nonmember countries is desired, obtain a
inventive step, and industrial applicability of the foreign filing license, and file applications
claimed invention. upon receipt of the foreign filing license.
Ultimately, the same costs for national fil- b. Within 12 months after the PCT filing
ing or registration (and possible further national date, pay designation fees, and proceed
prosecution), patent attorney fees, local associate with the PCT prosecution.

c. Within 12 months after the PCT filing Under Chapter II of the PCT, a claim not
date, file national applications in non- disclosed by prior art is considered to be novel.
PCT countries that are Paris Convention The relevant prior art is anything made available
countries. to the public, anywhere in the world, by means of
2. If it is not known which countries may a written disclosure, drawings, or other illustra-
be of interest at the initial filing date, one tions, prior to the relevant date (filing date of the
could: first-filed patent application or the filing date of
a. File a U.S. application (and obtain a the PCT application).
foreign filing license if interested in any The European Patent Convention (EPC) has
countries that are not members of the a more-restrictive view of what is new. Under the
Paris Convention). EPC, an invention is considered to be new if it
b. Within 12 months after the U.S. filing does not form a part of the state of the art. The
date, file a PCT application designat- state of the art includes everything made avail-
ing EPO, Japan, Canada, and any other able to the public by means of written or oral
PCT countries of possible interest. description, by use, or in any other way, before
c. Within 12 months after the U.S. filing the effective date of filing of the European pat-
date, file national applications in non- ent application or a patent application from
PCT countries that are Paris Convention which the European application claims priority.
countries. Additionally, the content of European patent
applications that were filed prior to the priority
3.3 Applicant is interested only application, but published after the priority date,
in NAFTA countries are also part of the prior art for novelty purposes.
1. File a U.S. application. There are many variations as to what consti-
2. Within a one-year grace period, file an ap- tutes novelty in a particular country, and these
plication in Canada and Mexico. (File in national definitions can change. Therefore, it is
Canada within one year from any disclo- highly advisable to inquire of a local patent at-
sure by the inventor.) torney or agent as to the current novelty require-
ments for a given country.
3.4 Bars to patentability in foreign countries
Most countries require that an invention be “new
or novel” in order for the inventor or applicant 4. Conclusions
to obtain a patent for the invention. The defi- When properly managed, international patent
nition of novelty varies considerably among the protection can afford many strategic and eco-
different countries of the world. Some countries nomic advantages for an organization, as it seeks
have a requirement of absolute novelty, that is, to optimize value in its inventions. However,
the invention cannot have been described orally implementation of such a patent-portfolio-man-
or in writing, anywhere in the world, or have agement strategy requires careful planning, co-
been sold, used, and so forth, prior to the filing herent organization, and a thorough knowledge
or priority date. Other countries have a require- of an invention’s potential. For example, critical
ment of relative novelty. For example, relative considerations include market potential (both
novelty can mean that the invention must not be in terms of monetary and geographical factors),
known in the particular country or described in the presence or absence of competitors, and the
a written document anywhere in the world (but overall patent protection regime (in terms of laws
foreign oral disclosures may not destroy novelty). and enforcement) in the various nations or re-
Also, a country might give inventors or appli- gions where the invention might be used, sold,
cants a grace period in which to file their patent produced, or marketed. Having carefully weighed
application after they, or a third party, disclose these considerations, options for patent protec-
the invention. tion can then be evaluated. For example, patent

CHAPTER 10.6
applications can be filed within national (for ex- html. See, also in this Handbook, chapter 10.7 by AM
ample the U.S. Patent Office), regional (for ex- Schneiderman.
ample, the EPO), or international systems (for 3 Listings of states party to the PCT and the Paris
Convention and Members of the World Trade
example the PCT), each with advantages and
Organization can be found at www.wipo.int/pct/en/
disadvantages, depending on the objectives and texts/pdf/pct_paris_wto.pdf.
resources of the organization. Whatever course 4 A listing of European Patent Organisation (EPO)
is taken, coherent planning is essential, and a member states can be found at www.european-
thorough knowledge of all relevant parameters is patent-office.org/epo/members.htm.
fundamental. Finally, it is important to remem- 5 A listing of members of the African Regional Intellectual
ber that such an overall strategy can be effectively Property Organization (ARIPO) can be found at
www.aripo.org/articles.php?lng=en&pg=14.
employed to maximize either business or human-
6 A listing of members of the African organization of the
itarian objectives. ■ Intellectual Property (OAPI) can be found at www.oapi.
wipo.net/en/OAPI/historique.htm.
Ann S. Viksnins, Patent Attorney and Partner, Viksnins 7 Web site of the Eurasian Patent Organization Office
Harris & Padys PLLP, 7900 International Drive, Suite (EAPO): www.eapo.org/index_eng.htm.
870, Bloomington, MN, 55425, U.S.A. aviksnins@vhpglo- 8 See supra note 3.
balip.com 9 The newsletter is available at www.wipo.int/
patentscope; to reach the help desk, call +1-703-305 3257
Ann M. McCrackin, Shareholder, Schwegman, Lundberg, (United States) or +41-22-338 8338 (Switzerland).
Woessner & Kluth, P.A., 1600 TCF Tower, 121 South Eighth
Street, Minneapolis, MN 55402, U.S.A. AMcCrackin@
slwk.com 11 Time Limits for Entering National/Regional Phase
under PCT Chapters I and II can be found at www.wipo.
int/pct/en/texts/pdf/time_limits.pdf.
1 Vietnam became the WTO’s 150th member following a
decision by the General Council, on 7 November 2006, 12 Patent Cooperation Treaty (PCT) Information. European
to approve the southeast Asian country’s membership Patent Office as Searching and Examining Authority.
agreement. More information is available at www.wto. www.uspto.gov/web/offices/com/sol/og/patpcti.htm.
org/english/thewto_e/acc_e/a1_vietnam_e.htm. 13 Ibid.
2 www.uspto.gov/web/offices/pac/dapp/pctstate. 14 Ibid.

Figure 1: Overview of International Patent-Protection Procedures

File PCT application PCT search Publication
by end of month 12 in designating report mailed of PCT
application and End of
countries of interest PCT
int’l search report
chapter I
File in U.S. File in non-Paris File in non-PCT, If withdrawal
Convention Paris Convention of PCT File PCT
(priority date)
countries of interest countries of interest application chapter II
(after receipt of by end of month 12 desired, do so Demand for
foreign filing license) by month 17.5 Examination
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
MONTHS
U.S. filing fee PCT filing fee PCT Demand for Examination
US$1000 + (base filing fee) US$2,000–4,000 (government fees for U.S. search) US$800–1,000 (U.S. Exam)
US$2,000–5,000 (government fees for EPO search) US$2,000–3,000 (EPO Exam)
If Prelim. Amend filed after
search or with Demand,
add $500–2,000
Response to Examiner’s
Written Opinion and Exit Chapter II
Claim Ammendments to National Stage
(usually two months from by end of month 30
date of Written Opinion)
Chapter II
Written Opinion by Examiner Int’l Preliminary
Examination report
sent to applicant
21 22 23 24 25 26 27 28 29 30
MONTHS
Response to Opinion National Stage Filings
$1,000+ $2,000–3,500 each English-speaking country
$5,000–8,000+ each non-English-speaking country
$7,000–12,000 filing after U.S. search and exam
$5,500–11,000 EPO after EPO search and exam

CHAPTER 10.6

Approximate Begin exam in Approximate date
date of patent grant in deferred exam of patent grant Common
non-deferred examination countries, usually in deferred termination of
countries by year seven examination countries patent rights
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
FIRST FILING
YEARS FROM
Possible exam fee
Annual Annuities
$350–2,000 early years for each country
Prosecution and Grant of patent Prosecution and Grant of patent
$350–2,500 later years for each country
in non-deferred examination countries in deferred examination countries
(post-filing costs) (post-filing costs)
$500–5,000+ per country $5,000–20,000+ per country
NOTE: on grant of European patent, fees
to perfect rights in individual countries
range from $500–7,000+
Figure 2: PCT International Patent Overview
File within 12 months of U.S. ~16 mos. from Priority Date ~18 mos. from Priority Date
filing Date (“Priority Date”) No later than 19 mos. from Priority date
Prepare and file

C E
A File Application B International Receipt of Prepare and file Demand
in the U.S. PCT Application International Publication of for International
PCT Application
F
Search Report Preliminary Examination
Conforming application (ISR) Preparing Formal Documents
to international PCT Demand
requirements and Fee Calculation Sheet
preparing formal Payment of Fees and Costs (if EPO)
documents: Acknowledge Receipt (if EPO)
General Transmittal Amend claims in Confirmation Postcard (if U.S.)
PCT Transmittal D response to ISR and not e-filed
PCT Request (optional) PCT Transmittal
Fee Calculation Sheet Prepare Preliminary Amendment
Confirmation Postcard Or go to to be filed with Demand
(or e-file) National Stage
PCT Power of Attorney ~21-24 mos. from Priority Date
G
If all countries
of interest are negative opinion
“complying” Receipt of PCT
countries Written Opinion
from PCT Office
positive opinion
H
Prepare Amendments Receipt of
in reponse to International ~28 mos. from
Written Opinion Preliminary Priority date
Within 30/31 mos. Examination
of Priority Date Report (IPER)
Preparation and
Go to National Stage I filing of National
Prosecution Overview Stage Application

CHAPTER 10.6
CHAPTER 10.7
Filing International Patent Applications

under the Patent Cooperation Treaty (PCT):
Strategies for Delaying Costs and Maximizing
the Value of Your Intellectual Property Worldwide
Anne M. Schneiderman, Registered Patent Attorney, Law Offices of Anne M. Schneiderman, Ph.D., U.S.A.
ABSTRACT initial drafting of the application through prosecu-

Obtaining international patent protection for an invention of the patent application, allowance, issuance,
tion can present a significant financial commitment for an
and post-issuance maintenance of the patent, can
early-stage company, entrepreneurial venture or not-for-
profit organization with a limited budget for intellectual easily run from US$30,000 to US$50,000 in legal
property management. This chapter examines the use of and patent-office fees. Should patent protection
patent application filings under the Patent Cooperation for an invention be sought in more than one coun-
Treaty (PCT) to delay, consolidate, or minimize the costs try, the costs of international patent procurement
of patenting overseas. Using the PCT to file internation-
ally enables a patent applicant to delay, generally for up can multiply accordingly. Since the costs associated
to 30 months after the first (priority) filing date, strategic with obtaining patent protection are so significant,
decisions about the countries in which to pursue patent IP protection strategies that delay, consolidate, or
protection. The delay offers a significant advantage, since minimize costs are advantageous.
it allows the applicant more time in which to evaluate
The Patent Cooperation Treaty (PCT) is an
commercial demand for the invention, the likelihood of
its success in overseas marketplaces, and the likelihood of important IP protection tool that can be used to
obtaining a patent grant in a particular country, prior to confront the financial challenges associated with
filing national-phase patent applications in the countries international patent protection. By facilitating
in which patent protection is sought. the filing in any number of PCT member coun-
tries of parallel patent applications, a PCT patent
application offers a valuable means of managing,
1. Introduction delaying, or consolidating the costs of interna-
Obtaining international patent protection for an tional patent protection for a given invention.
invention can present a significant financial com- The PCT can buy time to strategically evaluate
mitment, especially for small or early-stage com- the overall potential value of an invention, that is,
panies, entrepreneurial ventures, not-for-profit provide time within which to make an informed
organizations (such as universities and charitable decision as to how to best proceed.1
organizations), and independent inventors. Such The challenge of managing the costs of pro-
entities usually have to conserve their financial re- tecting IP so that the IP becomes a commercial
sources while striving to build, maintain, protect, asset—and not a financial liability—is one that is
and expand their intellectual property (IP). The cost faced universally by technology managers. An en-
of procuring a national or regional patent, from the terprise that has developed (or acquired) IP must
Schneiderman AM. 2007. Filing International Patent Applications under the Patent Cooperation Treaty (PCT): Strategies for
Delaying Costs and Maximizing the Value of Your Intellectual Property Worldwide. In Intellectual Property Management
© 2007. AM Schneiderman. Sharing the Art of IP Management: Photocopying and distribution through the Internet for

SCHNEIDERMAN
decide at the outset whether that IP is worth PCT application, as described below, is increas-
protecting with a patent. The costs and benefits ingly recognized by developing countries as an
of patent protection must be carefully analyzed. opportunity to publicly promulgate an invention
Although a discussion of such a cost-benefit with “patent pending” status, to identify and nego-
analysis is beyond the scope of this chapter, it is tiate with potential corporate sponsors, investors,
worth noting here that a granted patent generally licensees, and others involved in technology devel-
“protects” the subject IP only to the extent that it opment and commercialization and to stimulate
confers to the patent owner the right to enforce further domestic inventive and related technologi-
the patent, that is, to exclude others from making cal activities.
the invention, using it, importing it, and so forth.
In conducting a cost-benefit analysis, an enter-
prise may decide that the total expected value of 2. Approaches to International
a particular piece of IP simply does not merit the Patent Protection
expense of obtaining a patent and enforcing the There are three basic approaches to procuring in-
rights the patent confers. ternational patent protection on an invention.3
The patent applicant (or IP owner) must de- The first approach, and the most expensive, is
termine the merits of the invention, the commer- to file (usually on the same day) separate patent
cial demand for the product or process provided applications in the national patent office of each
by the invention, the likelihood of its success in country or region4 in which protection is sought.5
the marketplace, and whether protection should The drawback of this approach is that legal and
be sought in a particular country.2 The applicant filing fees for each country begin to accrue as
must also determine, preferably with the advice soon as the application is filed.
of a patent attorney, patent agent, or other profes- The second approach for filing internation-
sional with expertise in patent law, the likelihood ally is to file a patent application in accordance
that the patent application would succeed in the with the Paris Convention for the Protection of
patent office of a particular country or region and Industrial Property.6 Taking this route, the ap-
whether that national patent office would decide plicant files a patent application in a single Paris
that the invention meets its requirements for pat- Convention member country7 (usually required
entability and, thereby, grant a patent. to be the country of residence of at least one of
Ideally, these analyses are conducted prior to the inventors), which establishes a first or priority
selecting specific countries in which to file pat- filing date for the application. The applicant can
ent applications. Thus, any strategy that extends then delay filing in other Paris Convention coun-
the time limit for filing a patent application in a tries for up to 12 months after the priority filing
country, while preserving the priority (first filing) date. Member countries of the Paris Convention
date for the application, potentially gives the pat- agree to recognize the priority date of a patent
ent owner more time for analysis and decision- application filed in one member country and
making before making the financial commitment to give the benefit of that priority date to cor-
to seek patent protection abroad. responding applications in all member countries.
For patent owners and other entities with This approach delays the costs associated with
a proprietary interest in the subject matter to be international patent procurement for one year.
patented, but without large budgets for patent Procurement costs initially accrue in the coun-
portfolio development (for example, not-for-profit try of first filing, and then, up to one year later,
organizations, universities, regional technology in- the costs associated with filing applications in the
cubators, and agricultural cooperatives), extending other Paris Convention countries begin to accrue
the time limit for filing a patent application can (Figure 1).
provide a much-needed opportunity to stimulate The third and least-expensive approach,
investment and technology transfer. The extended which is the primary focus of this chapter, is to
time period afforded by filing an international file a single “international” application under the

CHAPTER 10.7
auspices of the PCT. Of the three approaches, fil- to the filing and preliminary evaluation of patent
ing a PCT patent application is, financially and applications,8 both simplifying and making more
strategically, the most advantageous for manag- economical the process of seeking patent protec-
ing, delaying, or consolidating the costs of inter- tion in other countries. An applicant does not ap-
national patent procurement. Filing a PCT pat- ply for an “international” patent by filing an ap-
ent application allows the applicant to delay, for plication under the PCT. The World Intellectual
up to 18 months after the filing the application Property Organization (WIPO), which adminis-
or in most cases, for up to 30 months after the ters the processing of PCT applications, does not
filing of the first (priority) application, strategic grant international patents. Instead, the PCT fil-
decisions about which countries to pursue patent ing process produces a single patent application
protection in. The delay provides a significant ad- that has been vetted for compliance with filing
vantage, since it allows the applicant more time formalities and that has undergone a preliminary
to evaluate the commercial strength and viabil- search and evaluation. This single application can
ity of the invention prior to filing national-phase then be transmitted to the national patent offices
patent applications in the countries in which pat- of as many PCT member countries as the appli-
ent protection is sought. cant chooses, for filing as a national-phase appli-
cation in that country. The PCT thus streamlines
and consolidates the process of seeking patent
3. The Patent Cooperation protection in more than one country into a single
Treaty (PCT) series of steps and a single set of preliminary re-
The Patent Cooperation Treaty (PCT) is a coop- quirements (see Section 4).
erative agreement entered into by more than 130 Filing international applications with the
countries (called PCT contracting states) with PCT is becoming increasingly popular. In January
the purpose of bringing international conformity 2005, the one millionth PCT application was
Figure 1: Traditional Filing Route under Paris Convention
Month: 0 12 File
applications
File first abroad
local application
Local first-filed patent application followed within 12 months by multiple foreign

applications claiming priority under the Paris Convention:
• multiple formality requirements
• multiple searches
• multiple publications
• multiple examinations and prosecutions of applications
• translations and fees required at 12 months
Some rationalization because of regional arrangements: ARIPO, EAPO, EPO, and OAPI†
† African Regional Intellectual Property Organization, European Patent Office, Eurasian Patent
Organization, Organisation Africaine de la Propriété Intellectuelle.
Source: Courtesy TDR Patents: T. David Reed LLC.

SCHNEIDERMAN
filed, with the doubling time for numbers of ap- will be obliged to file a separate patent application
plications filed having gone from 22 years (for the (usually on the same day) in the national patent
first half million applications) to just 4 years (for office of each country or region in which protec-
the next half million applications).9 tion is sought (Section 2, first approach, above).
3.1 Non-PCT member countries 3.2 Costs associated with filing

More than one hundred countries, however, are a PCT patent application
not members of the PCT, including a number Filing a PCT patent application entails paying a
of countries in Asia (for example, Cambodia, single set of filing fees, as opposed to multiple filing
Nepal, Pakistan, Thailand), South America (for fees for each country in which patent protection
example, Bolivia, Chile, Guyana, Paraguay, Peru, is sought. Currently, PCT filing fees are approxi-
Suriname, Uruguay, Venezuela), Central America mately US$1100 for filing an application (with a
(for example, Panama), the Middle East (for fee reduction for filing electronically online or via
example, Iran, Iraq, Jordan, Kuwait, Lebanon, other electronic media), from US$200 to US$2100
Saudi Arabia, Yemen), and Africa (for example, for a search of prior art publications (depending on
Ethiopia, Rwanda, Somalia). To obtain patent which international searching authority performs
protection in nonmember countries, a patent the search), and a nominal transmittal fee (around
application must generally be filed directly with US$300) charged by the PCT receiving office. The
the national (or regional) patent office.10 Since applicant can also elect to file a demand (request)
patent protection involves complex questions of for international preliminary examination of the
law, the applicant is well-advised to consult with application, which entails an additional fee of ap-
patent counsel familiar with local patent law, in- proximately US$600 to US$750.
ternational Paris Convention patent practice, and
international PCT patent practice before filing a 3.3 PCT filing consolidates and
patent application, especially if applicants are ei- delays patent prosecution costs
ther residents of non-PCT contracting states or Filing a patent application under the PCT con-
inventions were made in non-PCT contracting solidates or eliminates the duplication of costs
states. For example, if all of the applicants on a associated with multiple filings in multiple coun-
patent application are residents or nationals of tries and enables the applicant to submit a single
non-PCT countries, then an application filed patent application in a single language and in a
with the PCT is generally denied an international format that conforms to the requirements of all
PCT filing date. the national patent (or regional) offices of PCT
In general, if the application is first filed in contracting states. The added burden and expense
a country that is not a member of the PCT but of translating the application and of filing it in a
is a member of the Paris Convention,11 then the particular format for a particular national patent
applicant will be ineligible to file a PCT appli- office is thus avoided.
cation but may choose to file additional applica- During the international phase of its pendency,
tions in the national patent offices of other Paris a PCT application undergoes a preliminary evalua-
Convention member countries within 12 months tion that comprises an international search for prior
of the filing (priority) date of the first application art publications, a written opinion and a prelimi-
(Section 2, second approach, above). nary report on patentability, and optionally, a pre-
If the application is first filed in a country liminary examination and a second, more detailed,
that is not a member of the PCT or the Paris report on patentability. The applicant can then
Convention, then the applicant will be ineligible choose to transmit the uniform application and ac-
to file a PCT application, or an application under companying evaluation documents to the national
the Paris Convention in Paris Convention mem- patent offices of as many PCT contracting states as
ber countries, within 12 months of the filing (pri- desired, in which the application enters the national
ority) date of the first application. The applicant phase of the patent procurement process.

CHAPTER 10.7
By far, the most expensive aspect of interna- about them, which can be accessed worldwide
tional patent procurement is the national-phase via the Internet at the WIPO Web site. WIPO
cost, which includes the fees paid to each national oversees translation of portions of the PCT ap-
patent office for entrance into the national phase plication and associated documents into English
and during the patent prosecution process, the or French, also available on the Internet, and can
legal fees of local attorneys or agents to obtain a provide the national patent offices of contracting
national patent, and the fees to the national pat- states with application documents.
ent office to maintain the granted patent in force.
Filing under the PCT enables costs associated
with the national phase to be deferred, in most 4. Options and steps for
cases for up to 30 months from the priority (first filing under the PCT
filing) date, while an international patent-protec-
tion strategy is formulated and decisions are made 4.1 Alternative 1: File an international
about which countries to seek protection in. PCT application that complies
with PCT formality requirements
3.4 The role of WIPO in the and pay one set of fees.
Patent Cooperation Treaty An international patent application can be filed
WIPO, an international organization based in under the PCT if at least one of the inventors of
Geneva, Switzerland, is the administrative body the invention is a resident of a PCT contract-
that oversees the filing of international applica- ing state. Applicants can generally file an in-
tions under the PCT. The International Bureau ternational PCT application with the national
of WIPO administers the international phase of patent office of their country of residence, with
the PCT application process, prior to entrance the national office acting as a receiving office for
into the national phase of countries in which the PCT. Under some circumstances, the PCT
patent protection is sought. WIPO receives and application can be filed directly with WIPO in
stores PCT applications, along with their associ- Geneva.
ated files of patent search and examination doc- The WIPO Web site provides detailed guides
uments and correspondence. WIPO examines to PCT filing requirements,13 as well as a guide to
each application for its adherence to filing for- PCT time limits14 and a PCT time-limit calcu-
malities (such as the required format for the pat- lator15 to assist applicants in computation of es-
ent application, accompanying administrative sential time limits for filing applications and for
filing papers, and fees paid). Based on this initial submissions of other required documents. Time
examination, the applicant may be required to limits under the PCT are measured from the
correct any formal defects to bring the applica- priority date of the application (Figure 2). The
tion into conformity with the PCT format ac- priority date is defined in PCT Article 2(xi) as
cepted by patent offices in the member states. follows:
The carrying out of these procedures reduces the (xi) “priority date,” for the purposes of computing
costs of patent procurement at an early stage. time limits, means:
Formalities defects in the PCT application that (a) where the international application con-
are identified during the international phase can tains a priority claim under Article 8 [of
be rectified before the application reaches the the PCT], the filing date of the application
national patent offices and enters the national whose priority is so claimed;
phase of the patent examination and procure- (b) where the international application con-
ment process. Thus, separate formalities rejec- tains several priority claims under Article
tions by national patent offices in which patent 8, the filing date of the earliest application
protection is sought can be avoided. whose priority is so claimed;
WIPO is responsible for publishing PCT (c) where the international application does
applications12 and accompanying information not contain any priority claim under

SCHNEIDERMAN
Figure 2: PCT Time Limits

Chapter I
20 30
International
(months) Chapter 1
publication
0 12 16 18 19/22 Enter
national
File local File PCT International phase
application application search report and File demand
ISA written International
opinion issued preliminary 30
examination 28
Issuance
of IPRP
Chapter II
Chapter II
Time limits for international PCT applications filed on or after 1 January 2004.
• “Month 0” corresponds to the priority date, the date of earliest filing of a local, regional or
national application. An international PCT application claiming priority to the priority date
must be filed prior to the expiration of 12 months from the priority date.
• Approximately 16 months after the priority date, the international search report and the
written opinion are issued by the international searching authority (ISA).
• Approximately 18 months after the priority date, the application is published.
• In countries that have not withdrawn their notifications of the incompatibility of the time limit
under PCT Article 22(1) with applicable national law, a demand for international preliminary
examination should be filed prior to the expiration of 19 months from the priority date, if the
applicant wishes to postpone entry into the national phase. Otherwise, a demand may be filed
for up to three months from the date of transmittal of the international search report and
written opinion of the ISA, or 22 months from the priority date, whichever expires later.
• The international preliminary report on patentability (Chapter II) is issued by the international
preliminary examining authority (IPEA), approximately 28 months from the priority date.
Unless an international preliminary examination report is established under Chapter II, the
International Bureau of WIPO issues a report on behalf of the ISA that has the same contents
as the written opinion. This report, the international preliminary report on patentability
(Chapter I), is communicated to each designated national-phase office not before the
expiration of 30 months from the priority date.
• The national phase usually must be entered prior to the expiration of 30 months from the
priority date. Some countries make provisions for entering the national phase later than the
PCT 30-month time limit (see endnote 15). As with all deadlines mentioned in this chapter, the
PCT articles, rules, applicant’s guides, and the PCT time-limit calculator should be consulted,
and deadlines should be confirmed by a qualified patent attorney or agent.
• For all designated states to which new Article 22(1) of the PCT does not yet apply, the applicant
must decide whether to file demand by 19 months or to enter national phase by 20 months.
As of 26 June 2006, these countries maintain reservations to the new Article 22(1) timing:
Switzerland, Lithuania, Sweden, Tanzania, and Uganda.
Source: Modified after the U.S. Patent and Trademark Office.17

CHAPTER 10.7
Article 8, the international filing date of The PCT application, however, can incor-
such application[.]16 porate the disclosures of, and claim priority to,
all the national applications directed to that
The time limits are based on the earliest pri- invention that were filed during the previous
ority date of the PCT application and include: 12-month period. The disclosure and claims of
• time limit for submission of the priority the PCT application may therefore differ from
document on which the priority date of the those of the priority application(s) preceding it
PCT application is based in the patent family.18 The PCT application can
• earliest potential date for international also include new disclosure pertaining to the in-
publication of the PCT application, which vention (for example, a description of new em-
is usually 18 months after the priority date bodiments of the invention) or new claims that
• time limit for a demand for international were not set forth in any of the priority applica-
preliminary examination tions. However, to obtain benefit of an earlier
• time limit for entry of the application into priority date, a new claim included in the PCT
the national/regional phase application must be supported by the disclosure
of the priority application filed on that date.
4.2 Alternative 2: File a national After filing the PCT application, the appli-
application first and then a PCT application cant has, as described above, up to 18 months
within 12 months to delay before deciding to enter the national
Once a PCT application is filed, the applicant phase and to file national-phase applications in
has up to 18 months to delay before deciding separate PCT member countries. Hence, the ap-
to enter the national phase and file national plicant can delay for 12 months plus 18 months,
applications in one or more PCT contracting or in most cases up to 30 months, after the filing
states (Figure 2). To delay even further the time of the initial priority application before entering
between the first filing (priority) date of an ap- the national phase in a desired PCT contracting
plication and entry into the national phase, the state.19 In the meantime, the applicant can use
applicant has the option of filing a national ap- this delay to advantage, and take the time to eval-
plication first, and then, up to 12 months lat- uate the merits of seeking protection in specific
er, filing a PCT application claiming priority countries and to delay the assessment and accrual
to the national application. Laws of individual of patent prosecution fees in multiple countries.
PCT contracting states generally require that if Hence, with this approach:
an applicant desires to file a patent application • A national patent application is filed in the
and the invention was made in a particular state, patent office of a PCT contracting state
then either a national patent application must be (member country), establishing the priority
filed in that state (and generally, a foreign filing (first filing) date. This national application is
license obtained) before the application is filed as sometimes referred to the priority application.
a national application in other states, or an inter- • Within 12 months after the priority date,
national PCT application must be filed directly a PCT application is filed and enters the
with a PCT receiving office. international phase.
During the 12-month period following the • Within 18 months of PCT filing, or within
filing of the priority application, the applicant 30 months of the priority date, the PCT
can choose to file one or more additional national application enters the national phase of se-
applications, as new refinements or embodiments lected PCT member countries.20
of the invention are developed. A PCT applica-
tion must be filed no later than 12 months after 4.3 Designating countries in which
the filing date of the first application, however, to to file a national-phase application
claim benefit of that earliest application’s priority When a PCT application is filed, all contract-
date. ing states that are bound by the PCT to the

SCHNEIDERMAN
international filing date are designated, by de- United States. The ISA conducts the search ac-
fault, as potential venues for filing subsequent cording to search standards set by the PCT and
national-phase applications.21 Before the expira- compiles an international search report contain-
tion of the 30-month time limit after the priority ing a list of references that are deemed material
date, the applicant can select a specific subset of to patentability. For each reference, the search re-
the designated states for actual filing of national- port states the patentability criteria (for example,
phase applications with national patent offices. novelty, nonobviousness or inventive step, and
The transmittal to, and filing of, the international industrial applicability) for which the reference
PCT application with the national patent office is considered material. The ISA issues a written
of a contracting state is known as entering the na- opinion that accompanies the search report and
tional phase of international patent prosecution that states whether the invention appears to be
(Figure 2). By filing under the PCT just before patentable based on the results of the search.
the expiration of the 30-month time limit, the The international search report and the writ-
applicant delays examination of the application ten opinion provide the applicant with an early
for patentability by a national patent office signif- indication of the likelihood of success in obtain-
icantly past the point at which national examina- ing a patent based on the claims as filed. This
tion would normally occur had application been early indication is another significant advantage
filed directly with the national patent office. of filing under the PCT. In view of the search re-
The prosecution phase of a national-phase port and the written opinion, the patent claims
patent application can become very expensive. can be amended by the applicant to better dis-
It can take several years of interaction between tinguish the invention from the prior art before
the patent attorney and the patent examiner dur- the application enters the national phase. Thus,
ing the examination proceedings and cost tens of the possibility of having the same claims rejected
thousands of dollars (US$) in attorney costs and by multiple national patent offices for the same
national-patent-office prosecution fees, before (or similar) reasons can be minimized or avoided.
patent claims are possibly allowed and the appli- The added legal and administrative expense of fil-
cation issues as a patent. If patent prosecution is ing separate claim amendments in each national
undertaken in more than one country, then the patent office can also be avoided.
costs of obtaining patent protection multiply ac- Another distinct advantage is that the ap-
cordingly. Thus, one of the chief advantages of plicant may submit to WIPO informal written
filing under the PCT is the permitted delay of up comments addressing, and possibly rebutting, the
to 30 months after the priority date to enter the reasoning and conclusions set forth in the writ-
national phase. ten opinion. This enables the applicant to begin
creation of a prosecution record for the applica-
4.4 PCT international search tion that sets forth reasons for patentability of the
report and written opinion claims, and that accompanies the application as it
Prior to publication of the PCT application 18 enters the national phase in each country and is
months after the priority date, and during the examined by each national patent office.
international phase, a PCT international search- The applicant (as explained in Section 4.5)
ing authority (ISA) conducts a search of the in- also has the option to file a demand and to pay
ternational technical literature to identify patent for an international preliminary examination
publications, technical publications, and other (a Chapter II examination), which is a more de-
prior art references that are material to patent- tailed evaluation of the patentability of the claims
ability of the claimed invention. Current ISA’s that results in the issuance of an international
are the European Patent Office and the nation- preliminary report on patentability (IPRP
al patent offices of Australia, Austria, Canada, Chapter II). The time limit for filing a demand
China, Finland, Japan, the Republic of Korea, is three months from the date of transmittal of
the Russian Federation, Spain, Sweden and the the international search report and the written

CHAPTER 10.7
opinion, or 22 months from the priority date, international preliminary report on patentability
whichever comes last.22 (Chapter II), which is transmitted to the national
If the applicant does not file a demand for patent offices. The international preliminary re-
international preliminary examination, the ISA’s port on patentability (Chapter II) will be issued
written opinion will be subsequently converted by the IPEA, in general, at around 28 months
into an international preliminary report on pat- from the priority date (see Figure 2).
entability (IPRP Chapter I), which is sent, along This creation of a formal-patent prosecution
with the applicant’s informal comments respond- record prior to national-phase entry further re-
ing to the written opinion, to each of the patent duces the duplication of efforts of each separate
offices selected for national-phase entry, not be- national office in performing a separate prelimi-
fore the expiration of 30 months from the prior- nary examination and the expense incurred by
ity date. the applicant in responding to the results of each
Thus, when the national phase is entered in such national examination. The international pre-
each country, each national-phase patent applica- liminary report on patentability (Chapter II) ac-
tion is accompanied by the same search and in- companies the patent application as it enters the
ternational preliminary report(s) on patentability national phase, which can further reduce the du-
(a Chapter I report, and optionally, a Chapter II plication of examination efforts in each national
report, depending on whether international prepatent office. It also can serve to consolidate and
liminary examination has been elected or not). focus the prosecution strategy for the application
This significantly reduces the search and exami- and avoid the duplication of efforts by patent at-
nation effort required for each separate national torneys or agents prosecuting the application in
patent office. each country.
Although national patent offices have no le-
4.5 International preliminary examination gal obligation to consider the reasoning and con-
If an applicant requests and pays the additional clusions of the international preliminary reports
fee for international preliminary examination, on patentability (Chapters I and II), they will
then a second, more-detailed evaluation of the frequently do so. Thus, international preliminary
patentability of the claims is conducted by a PCT examination is a means to reduce the effort ex-
examiner associated with one of the internation- pended on separate examination of the same ap-
al preliminary examining authorities (IPEAs), plication in various national patent offices, and
which are the same as the international search- hence to reduce the applicant’s legal fees associ-
ing authorities (ISAs) described above. A demand ated with separate examinations. For example,
(request) for international preliminary examina- examiners in several national patent offices may
tion may be made at any time prior to (a) three have the same basis for objection to (or rejection
months from the date of transmittal to the ap- of ) the same group of claims in the application,
plicant of the international search report and the and the applicant may choose to submit similar
written opinion or (b) 22 months from the earli- arguments to each examiner to overcome the ob-
est priority date (whichever is later). jection. The examiner in each country, however,
The international preliminary examination may respond very differently to these arguments,
provides a formal opportunity for the applicant to taking into account the differences in national or
respond to the reasoning and conclusions of the regional patent law. Thus, although a national-
PCT examiner, as set forth in the written report phase application may elicit similar objections in
or the international preliminary report on patent- the initial office actions issued by examiners in
ability (Chapter I), regarding patentability of the different national or regional patent offices, there
claims, and to set forth on the record amended may be much less conformity in the subsequent
claims and arguments for patentability. The inter- prosecution history of the application as the ap-
national preliminary examination concludes with plication progresses through the various patent
the issuance, by the PCT examiner, of a second or offices. In patent offices of countries that have less

SCHNEIDERMAN
capacity or resources for patent examination, how- number, such surcharges can be reduced or
ever, patent examiners may rely on IPRPs more avoided.24 For example, the United States charg-
extensively. Thus, the IPRPs can have a greater es significant surcharges for independent claims
influence on the patent claims that eventually are in excess of three or total claims in excess of 20
granted in those countries, thus promoting some in an application. Under the PCT, there is no
similarity or uniformity in the claims granted in claim limit or charge for excess claims. Hence, an
various countries. applicant planning a subsequent U.S. national-
Furthermore, the PCT examiner who is- phase entry can choose to include a large number
sues the written report or the international pre- of contemplated claims in the PCT application
liminary report on patentability (Chapter I), and then consider the results of the PCT evalua-
and who performs the optional international tion from the international phase and amend or
preliminary examination and issues the more- eliminate claims accordingly.
detailed international preliminary report on
patentability (Chapter II), may be the same per-
son and be assigned to examine the application 5. Summary and Conclusions
during the national phase. For example, the ex- Filing a patent application under the PCT en-
aminer who examines a PCT application sub- ables the applicant to delay strategic decisions
mitted to the U.S. receiving office may be the about where to pursue patent protection by:
same person who examines the corresponding • consolidating patent prosecution costs: sin-
application filed with the United States Patent gle-application format, language, and set of
and Trademark Office (PTO). This also avoids fees
duplication of efforts and can result in a more • providing the applicant with preliminary
thorough and informed evaluation by the pat- feedback regarding patentability of the
ent examiner, who has previous experience with invention
the application during the international phase. • providing the applicant with the opportu-
nity to present arguments for patentability,
4.5 National-phase entry to amend claims, and to strengthen the ap-
National-phase entry of a PCT application replication prior to filing with national pat-
quires, by the end of the 30th month after the ent offices
first priority date of the application, that the • enabling the applicant to delay filing the
applicant selects the PCT contracting states in application in individual national patent
which to file a national phase application, files an offices for up to 30 months after the first
application with each national-patent office, pays (priority) filing date
the associated national filing fees, and, under cer- • delaying prosecution costs of filing applica-
tain circumstances, furnishes a translation of the tions in multiple countries
application.23 • streamlining the process of filing applica-
An advantage of filing a national-phase ap- tions in multiple countries
plication, as opposed to filing a national appli-
cation directly with a patent office, is that the Delaying international patent prosecution
applicant can use information acquired during provides more time to determine:
the PCT international phase to strengthen the • the value of IP to applicant or owner
application upon entry into the national phase. • the strength of commercial demand abroad
The applicant can use information derived from • which claims in a patent application are
the written opinion and the international pre- likely to be patentable
liminary report(s) on patentability to plan which • which countries are most attractive for pur-
claims to amend or eliminate prior to entry into suing patent protection
the national phase. In countries that charge fil- • the likelihood of obtaining a patent grant
ing surcharges for claims in excess of a prescribed in target countries. ■

CHAPTER 10.7
Anne M. Schneiderman, Registered Patent Attorney, Law Brochure on Intellectual Property Rights For Universities
Offices of Anne M. Schneiderman, Ph.D., 102 East State and R&D Institutions in African Countries. WIPO:
Street, Suite 7, Ithaca, NY, 14850, U.S.A. anne@schneider- Geneva, Switzerland. ISBN 92-805-1097-7. www.wipo.
manlaw.com int/freepublications/en/intproperty/849/wipo_pub_
849.pdf.
1 This chapter reflects the present considerations and 12 Languages of international publication: Arabic,
views of the author and provides information for edu- Chinese, English, French, German, Japanese, Russian,
cational purposes only. It is not intended to constitute and Spanish.
legal advice or to substitute for obtaining legal advice 13 WIPO provides detailed guides online to filing under
from a lawyer about a particular legal issue. Legal ad- the PCT: World Intellectual Property Organization
vice needs to be tailored to specific circumstances, and (WIPO). PCT Applicant’s Guide (Volumes 1 and II).
readers are therefore urged to consult directly with a WIPO: Geneva, Switzerland. Volume I is available at
lawyer for assistance regarding their particular legal www.wipo.int/pct/guide/en/gdvol1/pdf/gdvol1.pdf
issues. and Volume II at www.wipo.int/pct/guide/en/gdvol2/
2 See also Radack DV. 1992. Patents Outside of the U.S.: A pdf/gdvol2.pdf.
Cost-Effective Approach. JOM 44(4): 62. www.tms.org/ 14 World Intellectual Property Organization (WIPO). PCT
pubs/journals/JOM/matters/matters-9204.html. Timelines and Time Limits. WIPO: Geneva, Switzerland.
3 World Intellectual Property Organization (WIPO). www.wipo.int/pct/en/seminar/basic_1/timeline.pdf.
2006. WIPO Publication, No. 433(E): Protecting Your 15 PCT time limit calculator. www.wipo.int/pct/en/
Inventions Abroad: Frequently Asked Questions about calculator/pct-calculator.html.
the Patent Cooperation Treaty (PCT). WIPO: Geneva,
Switzerland. www.wipo.org/pct/en/basic_facts/faqs_ 16 PCT Article 2. www.wipo.int/pct/en/texts/articles/a2.
about_the_pct.pdf. htm#_2.
4 Examples of regional patent offices include African 17 www.uspto.gov/web/offices/pac/mpep/documents

Regional Industrial Property Organization www.aripo. /1800_1842.htm.
wipo.net/index.html; Eurasian Patent Organization 18 The term patent family is used to designate a
www.eapo.org/index_eng.html; and the Gulf relationship between a patent application and
Cooperation Council www.gulf-patent-office.org.sa. its priority application(s) or other patent priority
5 Since patentability is based, in part, on novelty and document(s). At least three descriptions are commonly
nonobviousness of an invention, patent applications used in patent practice to characterize a patent
on the same invention should be filed on the same family:
day and should not be spaced out (filed in different (1) The applications or documents are directly or in-
countries at different times). directly linked to a specific priority application or
6 Articles of the Paris Convention for the Protection of document.
Industrial Property can be viewed online at www.wipo. (2) All applications or documents have at least one pri-
int/treaties/en/ip/paris/pdf/trtdocs_wo020.pdf. ority application or document in common.
(3) All documents have exactly the same priority or pri-
7 Many, but not all, members of the Paris Convention orities in combination.
are also members of the PCT (and vice versa). List of See also European Patent Office (EPO). About: Patent
Paris Convention contracting parties (currently 170) Families at gb.espacenet.com/espacenet/gb/en/help
can be viewed online at www.wipo.int/treaties/en/ /161.htm.
ShowResults.jsp?lang=en&treaty_id=2.
19 There are a few instances in which the national law
8 Articles of the Patent Cooperation Treaty (PCT) can be of a contracting state is incompatible with the PCT
viewed online at www.wipo.int/pct/en/texts/pdf/pct. 30-month time limit-rule and in which the national
pdf. PCT Regulations, including rules and requirements patent offices of these countries still adhere to the old
for filing applications, time limits, and so on, can be 20-month time limit for entering the national phase
viewed online at www.wipo.int/pct/en/texts/pdf/pct_ (This older rule was replaced on 1 April 2002 with the
regs.pdf. A list of PCT contracting states (currently 134 new time limit). In countries with a 20-month time
contracting states) can be viewed online at www.wipo. limit for entry into the national phase, the limit can be
int/treaties/en/ShowResults.jsp?lang=en&treaty_ extended to 30 months if a demand for international
id=6. preliminary examination is made. Some countries
9 World Intellectual Property Organization (WIPO). 14 make provisions for entering the national phase later
January 2005. Press Release 401: WIPO Marks Filing than the PCT 30-month time limit. In these cases, if the
of One Millionth PCT Application. WIPO: Geneva, applicant fails to meet the time limit to nationalize
Switzerland. www.wipo.int/edocs/prdocs/en/2005/ their PCT application within 30 months, the time
wipo_pr_2005_401.html. limit can be extended upon petition and payment of
extension fees. As with all deadlines mentioned in
10 See also World Intellectual Property Organization
this chapter, the PCT Articles, Rules, Applicant’s Guides,
(WIPO). No stated date. WIPO Publication No. 849(E): A

SCHNEIDERMAN
and the PCT Time Limit Calculator (available online at countries that have not withdrawn their notifications
www.wipo.int) should be consulted in determining of the incompatibility of the time limit under PCT
time limits and the deadlines confirmed by a qualified Article 22(1) with applicable national law (see Figure
patent attorney or agent. 1 and World Intellectual Property Organization). PCT
20 If the country in which the national (priority) Practical Advice 2003. www.wipo.int/pct/en/newslett/
application was filed is also selected as a country into practical_advice/pa_122003.htm.
which the PCT application enters the national phase, 23 The general national-phase entry requirements and
this essentially creates a continuation application in the specific requirements for each PCT contracting
that country. state are described in detail in: World Intellectual
21 The PCT request form, which is one of the administrative Property Organization (WIPO). PCT Applicant’s Guide
forms filed with a PCT application, sets forth this Volume II. WIPO: Geneva, Switzerland. www.wipo.int/
default designation. Certain exclusion provisions pct/guide/en/gdvol2/pdf/gdvol2.pdf.
can be selected, using the request form, to exclude a 24 See also Austin CB. 2005. Leveraging PCT Patent
country from designation. Applications to Gain Advantages in Patent Prosecution.
22 A demand should be filed prior to the expiration of www.michaelbest.com/articles.cfm?action=view&pu
19 months from the priority date if the applicant blication_id=1648.
wishes to postpone entry into the national phase in

CHAPTER 10.8
Filing and Defending Patents in Different Jurisdictions

Ronald Yin, Partner, DLA Piper US LLP, U.S.A.
Sean Cunningham, Partner, DLA Piper US LLP, U.S.A.
ABSTRACT defensively, as leverage in licensing negotiations

In order to build an effective patent portfolio, an organi- or in order to ward off litigation by others? If a
zation must (1) understand the dynamics of the interna-
portfolio is to be used offensively, where are our
tional patent landscape: how to establish foreign prior-
ity, where to file patent applications, and the advantages potential targets located and/or doing the most
and disadvantages of pursuing various filing options; (2) business? If a portfolio is to be primarily defensive,
determine in which countries and/or jurisdictions the in what location is our company most at risk from
organization should seek patent protection based on its licensing approaches or litigation offensives?
objectives (whether commercial or humanitarian access);
and (3) anticipate the possibility of litigation and know
what its options for litigation are.
2. Overview of patenting procedures
To obtain a patent for an invention, the inven-
tor (often called the applicant) must file an ap-
1. Introduction plication for a patent at one or more national or
In February 2006, the U.S. Patent and Trademark regional patent offices. Once the necessary docu-
Office (PTO) issued its seven millionth patent. It ments are filed and any fees paid, the patent office
took 75 years for the PTO to issue its one-mil- will examine the patent and decide whether or
lionth patent (in the year 1911), but in less than not to grant the applicant patent rights for the
a tenth of that time the office issued its last mil- claimed invention. A patent’s first application
lion.1 Inventors in the United States and abroad date is commonly called its “priority date.”
are seeking to obtain patents at a pace unparal- In most instances, an applicant will file a pat-
leled in history, and revenue from patent licens- ent application in a national patent office in the
ing is at an all-time high. country where he or she is located (such as the U.S.
A company must ask itself several key ques- Patent Office [PTO], the Japanese Patent Office
tions before assembling a patent portfolio (or [JPO] or the European Patent Office [EPO]), in
portfolios). What do we plan to do with our pat- order to protect the invention for domestic mar-
ents once we have them? Do we intend to assert kets; later, he or she can file patent applications
our patents offensively (that is, with the aim of pro- in other countries or file an international applica-
tecting market share), either as part of a licensing tion under the Patent Cooperation Treaty (PCT)
strategy or in litigation if companies are unwill- procedure (see Section 3) in order to protect the
ing to license? Or do we plan to use our patents invention in foreign markets. Importantly, patent
Yin R and S Cunningham. 2007. Filing and Defending Patents in Different Jurisdictions. In Intellectual Property Manage-
© 2007. R Yin and S Cunningham. Sharing the Art of IP Management: Photocopying and distribution through the Internet

YIN & CUNNINGHAM
rights awarded by a patent office protect the inven- Therefore, an inventor will not lose patent rights
tion only within the jurisdiction of that particular even if it takes him or her a long time to transfer
patent office, and not in other parts of the world. the application to another country and have it
translated into that country’s language. Since the
Paris Convention Treaty is reciprocal (in other
3. Overview of the Paris words, country A must accord to the inventors of
Convention Treaty country B the same right of priority as country B
The Paris Convention, formally known as the accords to the inventors of country A), no mem-
Paris Convention for the Protection of Industrial ber has an advantage over any other.
Property, established the system of priority rights Not every country is a member of the Paris
that is now internationally accepted. The United Union. However, some countries that are not sig-
States and 171 other countries are signatories to natories of the Paris Convention Treaty, such as
the Paris Convention Treaty, and the signatories Thailand, have entered into bilateral treaties with
are sometimes collectively referred to as the “Paris the United States that grant inventors rights simi-
Union.”2 lar to the right of priority.
Under the Paris Convention Treaty, if an in-
ventor files a patent or trademark application in
another Paris Convention member nation with- 4. Filing a patent application in
in 12 months of the priority date, he or she is different territories
granted the right of priority: in other words, his Significant differences exist between patent offic-
or her patent or trademark application will take es. Table 1 provides the main differences between
precedence over that of any identical patent or the three major patent offices, and the following
trademark application filed in the second country. text describes them in more detail.
Table 1: Significant Differences between the Three Main Patent Offices3
Issue EPO JPO U.S. PTO
Status of successful First to file First to file First to invent

patent applicant
Patent duration 20 years 20 years 20 years
Application language English, French, or Japanese English

German
Area in which the Designated EPCa Japan United States

patent is valid member and extension
countries
Request for Yes, within 6 months Yes, within 3 years No provision

re-examination
of the patent
Time of publication of 18 months 18 months from 18 months from

application from priority date priority date priority date4
a European patent convention

CHAPTER 10.8
4.1 Filing with the U.S. Patent and Trademark with the JPO are not automatically examined by
Office patent examiners. Instead, the applicant has to
When an application is filed at the U.S. Patent file a request for examination within three years
Office [PTO], it is assigned to a patent examiner. (reduced from seven years in 2001) of the appli-
On the date 18 months from the priority date, cation date. If the applicant fails to file a request
the application is published (that is, information for examination within the time limit, the appli-
about the application is made available to the cation is withdrawn. All applications pending ex-
general public). It is possible for an applicant to amination are published in an official Patent and
request that the application not be published, but Utility Model Gazette 18 months after the prior-
this request will be considered only if a patent for ity date. If the patent examination process does
the invention has not been, and will not be, filed not turn up any reasons for refusal, the patent is
in a foreign country. The patent examiner search- granted and published in the gazette. After the
es through U.S. and foreign patent documents patent is granted, anyone can request an appeal
and published patent applications dated prior to examination of the patent on the basis of lacking
the priority date in order to determine whether novelty or an inventive step (obviousness).8
or not the claimed invention fulfills the require-
ments of being new, useful, and nonobvious. 4.3 Filing with the EPO
If a patent application is rejected, the ap- By filing a single patent application with the EPO
plicant is notified in writing and given the op- in one of the three official languages (English,
portunity to challenge the rejection. At any time French, or German), an applicant can obtain the
during the lifetime of a patent, any person may patent rights to an invention in one or more coun-
file a request for the PTO to conduct a second tries that are signatories of the European Patent
examination of any claim of the patent on the Convention Treaty (EPC Treaty). Currently, 31
basis of prior art patents or printed publications. countries have signed the treaty, and five addi-
In order to keep the patent in force (that is, to tional countries are covered by an extension agree-
keep the invention protected by the patent), the ment. At the time of filing, the applicant has to
applicant must pay maintenance fees within cer- specify the EPC countries and “extension” coun-
tain time periods. tries in which he or she wishes to seek protection.
In the calendar year 2005, the PTO granted If the applicant pays designation fees for seven
a total of 157,740 patents: 143,806 utility pat- countries, then the patent will automatically be
ents, 12,950 design patents, 716 plant patents, granted in all EPC member states. Consequently,
245 reissue patents, and 23 statutory invention each patent application to the EPO is usually a
registrations.5 The total number of patents issued bundle of patents, one for each country in which
in 2005 was 13% less than the number issued in the applicant is seeking protection.
2004 and 8.7% less than the number issued in There are three different ways to file EPO
2000; the number of utility patent grants issued patent applications:
in 2005 was 12.5% less than the number issued 1. Direct filing with the EPO; filing date be-
in 2004 and 10.4% less than the number issued comes the priority date
in 2000.6 2. National patent application extended to
In 2005, U.S.-resident inventors were grant- the EPO application within 12 months of
ed 52.4% of all U.S. patents—a half-percent in- the priority date, that is, the EPO applica-
crease over 2004—and foreign-resident inventors tion is filed after first application
were granted the remaining 47.6%.7 3. International application filed under EPC
Treaty
4.2 Filing with the JPO
The patent application process of the JPO is simi- Once an application is filed with the EPO,
lar to that of U.S. PTO, although there are some it is subjected to a two-phase examination proce-
important differences. Patent applications filed dure. First, the patent examiner will search for pri-

YIN & CUNNINGHAM
or art relevant to the invention; this search report, his or her right to file patent applications in the
along with the patent application, is published 18 national or regional jurisdictions designated in
months after the priority date. The applicant then the PCT application for up to 30 months from
has six months to file a request for a further ex- the priority date.
amination. If he or she files such a request, the During the 1990s, the average annual growth
EPO will conduct a substantive examination to rate for PCT filings was 17%. More recently,
decide whether or not to grant the patent. If the the growth rate has slowed, but there were still
applicant does not file a request within that time 135,602 PCT applications filed in 2005, a 10.6%
period, the application is deemed to have with- increase over the previous year and a more than
drawn. Within nine months of a successful EPO 45% increase over the number of applications
patent grant, anyone can file an opposition to the filed in 2000 (93,237). These figures demonstrate
patent.9 the increasing importance of PCT filings.
In 2002, more than 110,000 patent appli-
cations were filed at the EPO. This represented
an 84% increase from 1991. In 2002, residents 5. A global patent-filing program
of the European Union were granted the largest For several reasons, a global patent-filing program
share of EPO patent applications (44.7%), a share can quickly become prohibitively expensive if it is
that far exceeded that of U.S. residents (27.3%) not managed properly. Patents are only enforce-
and Japanese residents (17.4%). The share of bio- able within certain geographical regions. Patent
technology patents filed with the EPO grew by prosecution (that is, the process of obtaining the
8.3% a year between 1991 and 2002, while total patent) can be costly and time consuming. In
EPO patent applications grew by 5.7%. In 2002, many countries, the applicant must pay regular
more than 5,800 biotechnology patents were post-issuance fees (“maintenance fees” or “annui-
filed at the EPO, with 39.9% coming from the ties”) in order to keep the patent in force. Finally,
United States, 34.5% from the European Union, patent applications must be filed before the in-
and 14% from Japan. The proportion of residents vention is disclosed—in other words, when its
of European Union being granted EPO patents is commercial merits are uncertain. Global patent
consistent with the proportion of U.S. residents filing is a high-stakes gamble.
being granted U.S. patents, suggesting that, over- Nevertheless, the risk can be reduced some-
all, U.S. residents and E.U. residents must “share” what by considering the following questions:
their home market with residents from other ju- • Does the invention have global market po-
risdictions. However, the growth of biotech pat- tential? If the invention has only regional
ents has exceeded the growth of nonbiotech pat- application, then it does not merit global
ents, and U.S. residents have filed proportionally patents.
more patents in this area than E.U. residents, sug- • Will the invention still be useful 15 or
gesting the lead U.S. residents have in this area of 20 years from the date of filing? In many
technology. countries, the typical lifespan of a patent is
15 to 20 years from the date of filing. If
4.4 Filing international applications the invention will quickly become obso-
under the PCT lete, then a global filing program may not
On January 24, 1978, the United States became be economical. Furthermore, it often takes
a signatory to a multijurisdiction treaty, the PCT. two to three years from the date of filing for
The PCT allows an applicant to seek patent rights a patent to issue. Until a patent is issued,
in a large number of countries by filing a single the invention will not have any enforceable
international application with a single patent of- legal protection. In that case, it may not be
fice. The PCT is not a single patent filing effec- worth applying for patent protection at all:
tive in many jurisdictions. Instead, an applicant it may be more cost-effective to cash in on
who files a PCT application is allowed to prolong

CHAPTER 10.8
the advantages of being the first to bring accuse it of patent infringement. Parties seeking
the invention to market. to initiate patent litigation in the United States
• Are the rights accorded to the patent owner can do so in various federal district courts or be-
separable? That is, has the owner the right fore the U.S. International Trade Commission
to exclude another from selling the inven- (ITC).
tion or the right to exclude another from
manufacturing the invention? Countries 6.1 Filing in a federal district court
can be divided into two categories: those When filing a patent lawsuit in a federal district
where the invention can be manufactured court in the United States, a litigant must first
and those where the invention can be sold. identify which courts would be proper venues.
Of course, some of these countries may Then it must consider which of the permissible
overlap. Nevertheless, it is not necessary to district courts would best suit its litigation goals.
file patent applications in both countries
where the invention can be made and in 6.1.1 Finding the proper venue for litigation10
countries where the invention can be sold. For a court to be a proper venue for patent litiga-
Protection in only the countries where the tion, the court must have jurisdiction with regard
invention can be sold effectively controls to the subject matter of the dispute and the per-
the world. Even though a would-be in- sons or entities involved. Jurisdiction is the power
fringer/competitor can make the product of a court to adjudicate a dispute.
in a country not protected by any patent, A corporation is considered to “reside” in any
the product cannot be sold in other coun- judicial district in which it is subject to personal
tries. Furthermore, during the time a pat- jurisdiction at the time an action is commenced.11
ent offers protection, capital markets and According to the U.S. Court of Appeals for the
labor markets change—thus changing the Federal Circuit, personal jurisdiction exists in a
situs of manufacturing over the life of an patent infringement case in which a defendant de-
issued patent. In general, therefore, filing liberately places infringing products in the stream
patent applications in the countries where of commerce with the expectation of exploiting
the invention can be sold offers sufficient business in the forum state. Accordingly, an action
protection. for patent infringement may be brought against a
• Is it necessary to file for patent protection corporation in any district where the corporation
in every country in which the invention is subject to personal jurisdiction at the time the
might be marketed? This may not be neces- suit is commenced. An action for patent infringe-
sary. If patents are filed in 80%–90% of the ment may be brought in any judicial district
countries where the invention can be mar- where the defendant resides.12
keted, no competitor could capture more U.S. district courts that hear patent litigation
than 10%–20% of the worldwide market. cases are located in various states. Each district
If the cost of producing the product can court in a state (the forum state), may properly
be brought low enough, there may be no exercise personal jurisdiction over a party outside
would-be competitors at all. the forum state if: (1) the party is amenable to
service of process under the long-arm statute of
the forum state; and (2) the party’s activities in
6. Litigation considerations the forum state satisfy the minimum contacts re-
Patents often lead to litigation, both at home and quirement of the Due Process Clause.13 With re-
abroad. This is not, however, all bad. Patents can gard to the first requirement of long-arm statute,
be used prospectively—by threatening or initiat- various states have enacted legislation permitting
ing litigation to help preserve market share. Patent its courts (including the federal district courts in
rights can, of course, be used by a company to that state) to exercise personal jurisdiction over
protect itself from other companies that would nonresidents of the forum state, under certain

YIN & CUNNINGHAM
conditions. As for the second requirement of due known for being especially fast and are familiarly
process, the Supreme Court of the United States known as “rocket dockets”: the Eastern District
has decided that the Constitution permits a non- of Texas, the Eastern District of Virginia, and
resident of a forum state to be subject to the ju- others who have adopted specific local patent
risdiction of the courts in the forum state, if the rules that require expedited disclosures and trial
nonresident had certain minimum activities with time lines.
the forum state, thereby satisfying due process. Federal Court Management Statistics for
Because several state long-arm statutes, includ- 200516 reveal that the median time from filing to
ing those of Texas and California, are coextensive trial in civil cases during the twelve-month period
with the Due Process Clause, the questions of ending September 30, 2005, was approximately
personal jurisdiction often collapse into a consti- 22.5 months. During this period, an estimated
tutional due process inquiry. 253,273 civil cases came before federal courts,
Even if a court is chosen for litigation proof which approximately 12,184 were classified as
ceedings, the case will not necessarily be held in intellectual property cases involving copyrights,
that court. Patentee plaintiffs are often subject patents, and/or trademarks (Table 2).
to venue challenges in the form of (1) a motion Rocket dockets may become more com-
to dismiss for lack of personal jurisdiction,14 (2) mon. In September 2006, the U.S. House of
a motion to dismiss for forum non conveniens, Representatives passed a bill to create a pilot
which is to say, the forum is inconvenient for wit- program designed to encourage and develop
nesses, experts, documents, and so forth, or (3) a the expertise of district judges in patent cases.
motion to transfer to an alternate venue. When Should the bill become law, it would establish
the original venue is improper, and not merely a ten-year pilot program in at least five federal
inconvenient, the defendant can file a motion to district courts and grant US$5 million each year
dismiss for improper venue. If a plaintiff files a to educate judges and hire additional staff with
lawsuit in a district of proper venue that is incon- expertise in patent matters. The five courts will be
venient for the defendant or the witnesses, and chosen from the 15 district courts with the larg-
if there is a more convenient federal court where est number of patent cases in the previous year
the lawsuit could have been brought, the defen- and only those that (1) are authorized to have at
dant may file a motion to transfer venue under 28 least ten district judges and (2) have at least three
U.S.C. § 1404(a). When the more convenient fo- judges who have requested to hear patent cases.
rum is abroad, the defendant can file a motion to According to a study recently performed by the
dismiss for forum non conveniens.15 A defendant law firm of Fulbright & Jaworski LLP, if the pilot
should request a transfer of venue in a separate program were to become law this year, the five
motion filed either at or near the time the defen- participating district courts would likely be cho-
dant files its answer. sen from among the following fourteen candidate
districts:17
6.1.2 Evaluating the proper venues • Central District of California
Next, the patent applicant must decide which • Southern District of New York
federal district courts and divisions are most fa- • Northern District of California
vorable. This decision will likely depend on the • District of New Jersey
average time to resolution, the cost of litigation, • Southern District of California
and the likelihood of litigation success. Other fac- • District of Massachusetts
tors, such as potential for a retaliatory suit, may • Middle District of Florida
also need to be taken into account, but they are • Eastern District of Michigan
not within the scope of this article. • Southern District of Florida
Time to resolution is a critically important • Eastern District of Pennsylvania
consideration. Some district courts are known • Northern District of Georgia
for prompt resolution; others are not. Some are • Northern District of Texas

CHAPTER 10.8
• Northern District of Illinois the outcome of patent litigation.”19 Ms. Moore

• Southern District of Texas conducted an empirical analysis of the ten most
The cost of litigation (see Table 3) should also frequently selected district courts for patent litiga-
be considered by plaintiffs when choosing where tion between 1983 and 1999. She concludes that,
to initiate patent litigation. According to a 2005 overall, patentees won 58% of all patent suits but
study of the American Intellectual Property Trial that the win rate varies by region (Table 4).
Lawyers Association, the location of patent litiga-
tion can greatly influence litigation costs.18 6.2 Filing in the U.S. ITC
Finally, although the likelihood of success Although federal district courts are the custom-
is difficult to predict, George Mason University ary venues for patent litigation, plaintiffs can also
School of Law Professor Kimberly A. Moore file a complaint in the U.S. ITC under certain
says that “choice of forum plays a critical role in circumstances. Under the Tariff Act of 1930 (19
Table 2: Median Time from Filing to Trial

for Civil Cases in 2005 in 20 Districts20
District court Months from filing to trial Number of IP cases
Eastern District of Virginia 9.4 182
Western District of Wisconsin 11.3 51
District of Maine21 13.0 17
Southern District of Texas 15.3 366
Eastern District of Texas 15.9 193
Southern District of Florida 16.7 332
Middle District of Florida 20.0 280
Eastern District of Wisconsin 20.3 76
Central District of California 20.5 1427
Northern District of Texas 20.7 279
Eastern District of Pennsylvania 20.8 1005
Southern District of New York 22.0 876
Eastern District of Michigan 22.0 208
District of Minnesota 23.0 201
District of Delaware 23.5 149
Southern District of California 25.4 162
Northern District of Georgia 27.0 273
Northern District of Illinois 27.0 462
Northern District of California 28.0 467
District of Massachusetts 31.0 221

YIN & CUNNINGHAM
U.S.C. § 1337), the ITC conducts investiga- references cited in the prosecution histories for
tions into allegations of certain unfair practices each asserted patent.22
in import trade, including patent infringement, After a complaint is filed with the Commission,
via the importation of infringing products. In the Office of Unfair Import Investigations (OUII)
2003, the ITC initiated 18 patent investigations; examines the complaint and determines whether
in 2004, it initiated 28; and in the first half of or not to initiate a Section 1337 investigation,
2005, it initiated 21. usually within 30 calendar days of the filing of the
Plaintiffs are required to provide more evi- complaint. In the event the Commission opts to
dence to the ITC than they are to federal courts. institute such an investigation, the Commission
In patent cases, for example, the Commission reserves all respondents named in the investiga-
quires the following documents in order to initi- tion, as well as the U.S. embassy for the coun-
ate a “Section 1337 investigation”: claim charts try in which they are located, with a copy of the
that purport to show infringement, copies of li- complaint and a notice of investigation. A notice
cense agreements pertaining to each asserted pat- of investigation is also published in the Federal
ent, copies of certified prosecution histories for Register. The OUII only rarely decides not to ini-
each asserted patent, and copies of the technical tiate an investigation.23
Table 3: All-Inclusive Cost of Patent Litigation in 2005
Average cost of patent Average cost of patent

Geographic region litigation for cases valued litigation for cases valued
from US$1 to US$25 million above US$25 million
(in US$) (in US$)
Boston 2,638,889 4,107,143
New York City 3,667,308 6,190,000
Philadelphia 3,287,500 4,712,500
Washington, DC 3,167,742 6,947,917
Other East 2,468,750 3,076,923
Metro Southeast 3,285,294 9,440,909
Other Southeast 1,662,500 3,342,857
Chicago 2,133,000 4,404,412
Minneapolis-St. Paul 1,567,500 3,688,889
Other Central 1,686,098 3,258,571
Texas 2,847,826 4,993,750
Los Angeles 3,015,000 4,866,667
San Francisco 2,823,529 7,985,714
Other West 2,279,630 5,283,333

CHAPTER 10.8
Once an investigation is instituted, the ITC investigations can reasonably expect a trial
Commission assigns an investigative attorney from within nine or ten months from filing.
the OUII to function as an independent litigant rep- A Section 1337 investigation often leads to
resenting the public interest in the investigation. a formal evidentiary hearing before the presiding
A Section 1337 investigation is conducted in administrative law judge. At the conclusion of this
accordance with procedural rules unique to the hearing, the administrative law judge issues an
ITC, although these rules have some similarities initial determination that serves as an initial deci-
with the Federal Rules of Civil Procedure. The sion of the merits of the case. The initial determi-
Federal Rules of Civil Procedure are the rules nation may then be subject to a review by the full
by which litigation is conducted before all U.S. Commission of the ITC (if the parties so choose)
District Courts. However, for example, during a before it becomes the final determination of the
Section 1337 Investigation, it is the administra- ITC Commission. The initial determination often
tive law judge who issues subpoenas24 with nation- issues at least three months prior to the 15-month
wide jurisdiction. Another important distinction target date for the investigation’s completion. At
is timing. Typically, a Section 1337 investigation the request of one of the parties for a review of
moves quickly, with quick deadlines for discovery the initial determination, the Commission may
responses and briefing (usually ten days, rather review and adopt, modify, or reverse the initial de-
than 30 days) and statutory target dates that re- termination or it may decide not to review it at all.
quire completion of the Commission’s proceed- If the Commission declines to review the initial
ings “at the earliest practical time.” This often determination, it becomes the final determination
occurs within 15 months, depending on the com- of the Commission by default.25
plexity of the case. As a result, parties initiating
Table 4: Win Rate Distribution Among

Some Prolific District Courts (1983-1999)
District court Patentee wins Infringer wins

(percent of total cases) (percent of total cases)
Northern District of California 68 32
District of Minnesota 67 33
Central District of California 63 37
Southern District of New York 63 37
Southern District of Florida 63 37
District of New Jersey 61 39
Eastern District of Virginia 58 42
Northern District of Illinois 48 52
District of Delaware 46 54
District of Massachusetts 30 70
Source: The Federal Judiciary26

YIN & CUNNINGHAM
In the event that the Commission determines on arranging the patent portfolio to achieve stra-
that Section 1337 has been violated, the commis- tegic global objectives (for example, determining
sion may issue a cease-and-desist order, directing in which countries and/or jurisdictions to seek
the violating parties to cease their illegal activities, patent protection according to (in the case of pri-
as well as one of two types of exclusion orders: gen- vate sector) commercial objectives, or, (in the case
eral (applying to all infringing articles, regardless of the public sector) humanitarian access objec-
of source) or limited (applying to those infringing tives. Planning requires foresight. For example,
articles imported by a respondent to the investiga- one must anticipate the possibility of litigation
tion) barring certain products from entry into the and know what the venue options are based on
United States.27 The Commission cannot assess the cost, speed, and likelihood of success in liti-
monetary damages. The Commission’s exclusion gation. With such a comprehensive program in
orders are enforced by the U.S. Customs Service, place, both public and private sector organiza-
although the Commission enforces its own cease- tions will be positioned to anticipate, manage,
and-desist orders. and overcome the uncertainties and challenges
The president has 60 days to review that characterize the international technology
Commission orders before they become effec- marketplace in agricultural and health innova-
tive. During this period, infringing articles may tions. ■
enter the United States if the importer posts a
bond with the Customs Service for an amount
determined by the Commission. Similarly, activi- Ronald Yin, DLA Piper US LLP, 2000 University
Avenue, East Palo Alto, CA, 94303, U.S.A.. Ronald.
ties prohibited by a Commission cease-and-desist
Yin@dlapiper.com
order may also continue during the Presidential
review period if the respondent posts a bond with Sean Cunningham, DLA Piper US LLP, 401 B Street,
the Customs Service. Appeals of Commission Suite 1700, San Diego, CA, 92101, U.S.A. sean.cun-
orders pursuant to Section 1337 investigations ningham@dlapiper.com
are heard by the U.S. Court of Appeals for the
1 PTO Press Release (February 14, 2006) titled United
Federal Circuit. States Patent and Trademark Office Issues 7 Millionth
There are advantages and disadvantages to Patent.
using the International Trade Commission as a 2 For a current listing of members of the Paris Union:
forum for patent litigation (see Table 5). Perhaps www.wipo.int/treaties/en/ShowResults.jsp?lang=
en&treaty_id=2.
the greatest advantage is that the win rate of
plaintiffs in ITC investigations is approximate- 3 A patent application filed with the EPO may be
submitted in the official language of any EPC member
ly 70%, as opposed to 58% in federal district state (including the extension states), but a translation
courts. must be submitted in one of the three official EPO
languages (English, French, or German) within three
months of filing the application and no more than
13 months after the earliest requested priority date.
7. Conclusions The date of application is the actual filing date. If a
A global patent filing program is an essential request for priority is also filed, that is, the application
component of an integrated system of IP man- was initially filed in a foreign jurisdiction, then the
“requested priority date” is the priority date that the
agement. It maximizes value and protects the applicant requests the EPC application be accorded. A
integrity of an organization’s patent portfolio. patent application filed with the JPO must be written
Such a program requires knowledge, organiza- in Japanese, but the specification, claims, drawings,
and abstract can be written in English, as long as a
tion, and planning. The dynamics of the interna-
Japanese translation of the English documents is
tional patent landscape must be understood (for filed within two months of the initial filing date. It
example, issues relating to establishing foreign is possible to file a patent with the U.S. Patent Office
priority, where to file patent applications, and in any language, as long as an English translation is
submitted within two months.
the advantages and disadvantages of the various
4 The application for an invention that has not and
filing options). Organizational efforts will focus

CHAPTER 10.8
will not be patented in foreign countries will not be 7 U.S. Patent and Trademark Office. 8 February 2006.
published if the applicant so requests. Patent Trends Calendar Year 2005.
5 A Statutory Invention Registration is authorized by law: 35 8 OECD. 2005. Compendium of Patent Statistics.
U.S.C. § 157. It permits a party to publish an invention, but Organisation for Economic Co-Operation and
without all the attributes of a patent, that is, the published Development: Paris. p. 55.
invention can be used defensively, as a publication, but 9 OECD. 2005. Compendium of Patent Statistics.
not offensively to assert infringement against others. Organisation for Economic Co-Operation and
6 U.S. Patent and Trademark Office. 2006. Calendar Years Development: Paris. pp. 55–56.
1790 to the Present. Table of Annual U.S. Patent Activity 10 Subject matter jurisdiction (that is, the power of
Since 1790. www.uspto.gov/web/offices/ac/ido/oeip/taf/ the district court to hear the subject matter of the
h_counts.pdf. controversy) is not an issue for patent cases because
Table 5: Advantages and Disadvantages to Initiating ITC Investigations
Advantages Disadvantages
Broad injunctive remedies exclude Section 1337 refers only to imported goods;
importations or order infringing parties to ITC does not award monetary damages.
cease and desist from particular activities. (However, filing a case with the ITC does not
prohibit one from filing a parallel case in
federal court.)
Investigations are usually completed in 15 The discovery and motion practice is fast,
months or less, faster than most district permitting little time to search for prior
courts. art that might invalidate a patent or other
evidence to render a patent unenforceable.
Responses are often due within 10 calendar
days. Furthermore, because in an ITC
investigation the OUII is another party,
discovery and response briefing are served/
filed not only by the opposing party, but also
by the OUII.
Broad (in rem) jurisdiction means jurisdiction The domestic industry requirement mandates
is derived from the imported articles, as that the complainant demonstrate that:
opposed to the presence of particular parties • there exists a domestic industry protected
or acts in and around Washington, DC. Thus, by the patent right that the plaintiff seeks
goods of a downstream importer who is not to enforce
named in the ITC, and who normally might • the defendant has performed an unfair act
not be subject to the jurisdiction of the
courts (such as a foreign resident), may be • the defendant’s act has a detrimental effect
excluded. or tendency (above and beyond mere legal
infringement).
No counter-claims are permitted. The plaintiff must provide detailed factual

allegations for each element of each claim.
The trier of fact is an administrative law There is no possible recourse to trial by jury.
judge with experience in patent lawsuits.
The administrative law judges are rotated on In recent months, the rotation of judges has
a regular basis. Thus, assignment of a case to become less predictable
an administrative judge might be predicted.

YIN & CUNNINGHAM
federal courts have exclusive jurisdiction over patent 20 The median time was calculated using the date a case
issues. See 28 U.S.C. § 1338. However, if the litigation was filed and the date the trial began. In the case of
involves other claims, those other claims might be reopened cases that resulted in a second completed
permissible in federal court. trial, the median time was calculated using the
11 28 U.S.C. § 1391(c). original filing date and the date the second trial was
completed.
12 See 28 U.S.C. § 1400(b).
21 Statistics for the District of Maine were not available
13 See Hildebrand v. Steck Mfg. Co., Inc., 279 F.3d 1351, 1354 for 2005. These statistics are for 2004.
(Fed. Cir. 2002).
22 See Rule 210.12(c–g), 19 C.F.R. § 210.12(c–g).
14 Unlike challenges to subject matter jurisdiction, the
defense of lack of personal jurisdiction must be raised 23 See U.S. International Trade Commission. 2004. Section
at the outset of litigation or else the defense is deemed 1337 Investigation: Answers to Frequently Asked
waived. See Fed. R. Civ. P. 12. Questions. Publication No. 3708. p. 21.
15 Quackenbush v. Allstate Ins. Co. (517 U.S. 706, 722 24 See Rule 210.32, 19 C.F.R. § 1337. Investigation: Answers
[1996]). to Frequently Asked Questions 210.32. The Federal Rules
of Civil Procedure limit the scope of any subpoena to
16 www.uscourts.gov/fcmstat/index.html. command a person within 100 miles where the court
17 Anonymous. 2006. Patent Rocket Dockets? House sits if the rules of state statute permit issuance of state
Approves Bill for Pilot Program to Enhance Patent -wide subpoena.
Expertise in Certain Federal District Courts. 25 Ibid.
Fulbright & Jaworski LLP Client Alert (October
2006). www.fulbright.com/images/publications/ 26 See supra note 21 at page 916.
FulbrightClientAlertPatentRocketDockets1.pdf. 27 The remedy of an exclusion order has become a more
18 American Intellectual Property Lawyers Association. powerful tool (and threat) after eBay v. MercExchange
2005. AIPLA Report of the Economic Survey 2005. pp. (126 S.Ct. 1837 [U.S. 2006]). In the wake of the eBay
109–10. decision, patent owners can no longer assume that
injunctions will issue if infringement is found in a case
19 Moore KA. 2001. Forum Shopping in Patent Cases: Does brought in federal district court.
Geographic Choice Affect Innovation? N.C. L. Rev. 79:
889.

CHAPTER 10.9
The Interface of Patents with the Regulatory

Drug Approval Process and How Resulting
Interplay Can Affect Market Entry
DENNIS S. FERNANDEZ, Managing Partner, Fernandez & Associates L.L.P., U.S.A.
JAMES HUIE, Associate, Fernandez & Associates L.L.P.; Currently: Associate, Wilson, Sonsini, Goodrich & Rosati, P.C., U.S.A.
JUSTIN HSU, Summer Associate, Fernandez & Associates L.L.P., U.S.A.
ABSTRACT developed countries at higher prices—or to license

All biotechnology and pharmaceutical products must be them to manufacturers in developed countries—
approved by both the U.S. Patent and Trademark Office
the organizations would be better able to subsidize
(PTO) and the U.S. Food and Drug Administration
(FDA). To maximize the impact of a product’s market drug prices in poorer countries.
exclusivity, the time spent on getting approval should There are other ways that companies can
be minimized. This chapter discusses how the interplay maximize their revenue. For instance, companies
between PTO and FDA applications affect the patent in the biotechnology and pharmaceutical area
approval process, and by extension the patent term, and
how these impact the commercial life of a product. must apply for approval from the U.S. Patent and
Trademark Office (PTO) and Food and Drug
Administration (FDA). Both of these applications
1. INTRODUCTION are necessary: the PTO approves patents that pro-
The goals of the public and private sectors of tect a company’s inventions, and FDA approval
the drug industry are often different. The public of a product is necessary before a new product
sector’s main goal is to provide drugs to the public can be marketed. These approval processes are
for the lowest possible price, while the private lengthy, and companies should minimize the time
sector is most interested in achieving the greatest spent on the process as part of a profit-maximiz-
possible profit. Many private company tactics are ing strategy. This chapter outlines various ways to
employed for maximizing revenue are important extend a patent’s effective life through the strate-
to understand as they can also help the public gic management of these approval processes.
sector to achieve its goals. For example, price
discrimination—the practice of selling health
products at different prices to different customers 2. PTO AND FDA APPROVAL PROCESSES
in various markets—is commonly used by private
corporations to increase their profit margins. This 2.1 Patent applications
practice, however, can also be used by nonprofit The PTO grants patents to inventions that are novel,
organizations: if they were to sell their products to useful, and nonobvious.1 The novelty requirement
Fernandez DS, J Huie and J Hsu. 2007. The Interface of Patents with the Regulatory Drug Approval Process and How Result-
ing Interplay Can Affect Market Entry. In Intellectual Property Management in Health and Agricultural Innovation: A Hand-
Editors Note: This chapter is included in this Handbook to show the important interface of patents and the regulatory
drug approval process and how this interplay affects market entry. It is not intended as an endorsement of effective pat-
ent life extensions to delay the market entry of generic drugs.
© 2007. DS Fernandez, J Huie and J Hsu. Sharing the Art of IP Management: Photocopying and distribution through the

FERNANDEZ, HUIE, & HSU
prevents anyone from patenting an invention clinical testing is completed. Approximately

that is already available to the public. The useful- 85% of all drugs for which IND applications
ness, or utility, requirement states that one skilled are filed are subjected to clinical trials.
in the art must be able to utilize the invention The next stage is Phase I clinical trials, which
in a manner that provides immediate benefit to use human subjects. Phase I trials focus on es-
the public. The obviousness requirement prevents tablishing a drug’s safety profile and examining
applicants from patenting products or processes how the drug is absorbed, distributed in the body,
that are insignificant modifications of already ex- metabolized, and finally excreted. Phase I trials
isting products or processes. usually do not use more than 100 healthy volun-
The inventor of a patented invention has teers, and the trials last, on average, from one to
the right to exclude others from making, using, three years.
offering for sale, or selling the invention in the If the drug successfully passes Phase I, it is
United States or in U.S. territories or possessions. submitted to Phase II trials, which evaluate dos-
A limited 20-year monopoly2 is granted to the age, broad efficacy and additional safety. In this
inventor in exchange for public disclosure of the phase, volunteers who suffer from the targeted
invention.3 In the United States, the average time disease are given the drug. Phase II lasts two
between filing of the application and approval of years, on average.
the patent is 3 1/2 years, while the average time for Phase III trials attempt to verify the effec-
a biotechnology patent is nearly 4 1/2 years. tiveness of the drug with double-blind studies
that involve at least 1,000 patients. (A double-
2.2 Discovery phase and preclinical studies blind study is a stringent way of conducting clin-
Simply put, in the discovery phase of research, sci- ical trials whereby subjective bias is eliminated
entists identify specific chemical or biochemical by neither doctors/nurses nor patients knowing
entities that are worth testing further. Next, pre- whether they administer/receive a placebo or ex-
clinical studies are undertaken comprising in vi- perimental drug.) This phase continues to build
tro studies and animal testing, pharmacodynamic the drug’s safety profile by monitoring any side
responses, metabolic profiling, cellular receptor effects that result from long-term use of the drug.
interaction, and/or physiology that is generally This phase lasts, on average, between three and
analogous to humans. Preclinical studies take four years.
an average of five years, but the precise length of If the drug successfully passes the first three
time depends on the complexity of the study and phases of clinical trials, researchers can then file
the success achieved by initial research. a new drug application (NDA) that includes the
drug’s proposed labeling. A team of physicians,
2.3 FDA approval process statisticians, chemists, pharmacologists, and oth-
The FDA approval process usually requires ten to er scientists at the Center for Drug Evaluation
12 years and US$100 to US$500 million. The and Research review the company’s NDA by ex-
process is accomplished in two phases: clinical tri- amining the preclinical and clinical reports and
als and new drug application (NDA) approval. using risk-benefit analysis to determine whether
The FDA approval process begins when a or not the product’s beneficial effects outweigh
manufacturer requests permission, by submitting its possible harmful effects. Approval of an NDA
an investigational new drug (IND) application, can take from two months to several years, but,
to begin human testing. The IND application on average, approval is granted within two years.
must provide preclinical data of high quality to Once the NDA is approved, the innovating
justify the testing of the drug in humans. Once company is allowed to distribute and market the
the IND application is filed, the manufacturer drug.
must allow the FDA 30 days to review the pro- Once the drug is distributed in the public
spective study before clinical trials can begin. market, it is considered to be in Phase IV trials.
IND applications must be re-filed annually until The manufacturer must continue to monitor and

CHAPTER 10.9
Figure 1: Timeline for Patent/Product Approval

and Profit-Maximizing Options
Years from conception

to product idea
Start Idea
Preclinical
studies
0 File patent idea
Patent Possible
prosecution “special”
1.5 Publication status
of idea
3
Patent issues
4.4 (avg. biotech- FDA clinical Possible FDA clinical
nology) trials and accelerated trials and
NDA approval NDA
Start FDA
approval
process
14 FDA approval
Market Market Market

16 exclusivity exclusivity exclusivity
for pioneer for pioneer for pioneer
biotechnology biotechnology biotechnology
Patent
20 term ends
Possible term
extension and
strategically
extending
market
exclusivity

evaluate the drug’s safety during routine use (see file the patent before the patent enters the public
Figure 1 for a timeline of the above process). domain (internationally, the patent application
must be filed before disclosure).
2.4 Filing PTO and FDA applications There are two other reasons to file patents
The “effective life” of a patent is defined as the pe- before beginning an FDA application: (1) FDA
riod of time between a product’s introduction to approval is accelerated for patented compounds,
the market and the patent’s expiration date. The and (2) patents attract the notice of potential in-
manufacturer of a product with a long effective vestors who can provide the capital to fund FDA
life will enjoy extended market exclusivity and clinical trials. Ideally, preclinical studies should
thereby recover research and development costs. end before, or concurrently with, patent issuance,
When the patent expires, the manufacturer will and FDA clinical trials should begin immediately
be at a real disadvantage: on average, generic drug thereafter. But before clinical trials can begin, the
companies capture 57.6% of the market for drugs manufacturer must turn over several documents
with expired patents. Obviously, the faster the justifying the conduct of the trial, verifying the
drug is approved and thus comes to market, the quality of the data produced, and demonstrating
longer the marketing period and thus the genera- the compliance of the investigator with all regula-
tion of revenues and profits. tory requirements. These documents include: sci-
Preclinical studies are the rate-limiting step entific journal publications, in vitro and animal
in the FDA approval process because clinical tri- data, trial subject information, financial analysis,
als cannot begin until there is sufficient data to and laboratory protocol. The FDA must review
justify human testing. Therefore, as many pre- and approve these documents before clinical trials
clinical studies should be performed as early as can begin. As mentioned above, the filing of the
possible and preferably before a patent applica- patent should be done first, or the drug manufac-
tion is filed, as the results of such studies also help turer runs the risk of missing the one-year dead-
support claims for the utility of an invention. line for establishing priority of invention.
There are several reasons why innovating Once the FDA has approved the drug for
companies should file patents for their products U.S. consumers, the innovating company will
before seeking FDA approval for them. In the enjoy market exclusivity for the patent’s effective
first place, the PTO has lower safety standards life. A strategically written patent will effectively
than the FDA;4 although a patent application and efficiently protect against product infringe-
must demonstrate that a drug has a “sufficient ment by other companies. The innovating com-
probability” of safety in humans, the applicant pany should take pains to develop brand recogni-
is not required to provide any clinical evidence tion and build consumer reliance on its products
of its safety.5 in order to retain the largest possible market share
Next, patents are important IP (intellectual once the patent term ends.
property) safeguards. If an innovating company
were to begin the FDA process before filing a
PTO application, another company could patent 3. EXTENDING A PATENT TERM
the invention before them. The innovating com- Once the patent term ends, the innovating com-
pany would either have to license the biophar- pany need not lose its market exclusivity imme-
maceutical from the other company (losing royal- diately. Various tactics can be used to extend a
ties, market exclusivity, and company value in the patent term and delay generic market entry.
process) or abandon the FDA process altogether Assuming a patent satisfies certain basic
and forfeit millions spent in research and devel- criteria,7 the PTO will grant patent extensions
opment.6 Even if another company does not pat- when its approval process takes longer than
ent the product, the innovating company must three years. If, for example, a patent took four
be careful not to disclose the invention, otherwise years to issue, the patent term may be extended
the innovating company would have one year to by an additional year.8

CHAPTER 10.9
Two laws also allow for patent terms to be an investigational product exemption (for exam-
extended: the Drug Price Competition and ple, an IND application) and the initial submis-
Patent Term Restoration Act of 1984 (also known sion of a marketing application (for example, an
as the Hatch-Waxman Act) and the Generic NDA). The approval phase is the period between
Animal Drug and Patent Term Restoration Act the submission and the approval of the marketing
of 1988. Title II of the Hatch-Waxman Act (the application.11 The PTO calculates the length of
“patent term restoration” or “extension” clause) the extension by considering both the lengths of
gives certain patent holders the opportunity to the aforementioned testing and approval phases.
extend patent terms for human drug products, It is important to note that the PTO does not
including antibiotics and biologics, medical consider times the applicant did not exercise due
devices, food additives, and color additives. diligence12 during the regulatory review period.
The Generic Animal Drug and Patent Term After the innovating company’s patent term
Restoration Act provides a similar opportunity expires, generic companies may enter the mar-
to holders of patents for animal drug products ket with generic drug equivalents. Whereas the
(excluding those derived from recombinant initial FDA approval process may have taken
DNA technology). These laws were designed ten to 12 years, the Hatch-Waxman Act allows
to stimulate innovation by domestic drug generic companies to use the abbreviated new
companies. Both acts allow a patent term to be drug approval (ANDA) process to gain approval
extended by up to five years. However, the total for generic equivalents within six months. There
effective patent life cannot exceed 14 years from are three requirements for filing an ANDA
the date of FDA approval.9 application:
In order for an innovating company to 1. The company must show that the proposed
obtain a patent term extension, certain criteria generic drug is the same as, or bioequiva-
must be met: lent to, an FDA-approved drug.
1. The patent has not expired. 2. The company must certify that a patent
2. The patent has not previously been protected the approved drug.
extended. 3. The company must not use a production
3. The patent owner or its agent submits the method that has been patented by the in-
application. novating company (a so-called production
4. The product has been subjected to a regu- method patent).
latory review period with the FDA or the
U.S. Department of Agriculture (USDA) Because of the third stipulation, it is wise
before its commercial marketing or use. to file the drug production method patent a few
5. The permission for commercial marketing years after filing the original patent (generally
or use represents the first permitted com- focusing on the composition of the drug). This
mercial marketing or use of the product will ensure that even when the drug composition
for which the regulatory review occurred enters the public domain, the production meth-
(see below). For products produced using od will continue to be protected. This strategy is
recombinant DNA technology, excluding even more effective for biopharmaceuticals than
animal drug products, the product must be for traditional chemical pharmaceuticals because
the first produced using that technology. it is so difficult to create production methods us-
6. The patent restoration application must be ing complex microbiological systems.
submitted within 60 days of the product’s Another strategy is known as the metabolite13
initial FDA approval.10 defense involves filing patents for useful drug me-
tabolites in years subsequent to the filing date of
The regulatory review period is composed of the main patent. Once the generic version of the
a testing phase and an approval phase. The testing drug is marketed, the innovating company can
phase is the period between the effective date of bring a patent infringement claim against the

generic company, since the company will inevi- limited number of new drugs that are pend-
tably be manufacturing infringing products via ing final FDA approval. This program al-
its customers’ metabolic processes.14 While the lows drugs to be used and marketed before
effectiveness in court of the metabolite defense the FDA approval process is completed. The
may be debatable,15 litigation can delay market manufacturer must apply for a drug to be
entry of generics. made available through an expanded access
Finally, an innovating company can file a program. To acquire such status, the com-
citizen petition with the FDA, citing safety concerns pany must provide sufficient evidence that
regarding a generic biopharmaceutical. Although the drug will be effective against a given dis-
the majority of citizen petitions are eventually ease and that the drug has not been linked
rejected by the FDA or withdrawn by innovating to unreasonable health risks. The provision
companies, filing such a petition can delay generic is somewhat uncommon because the FDA
market entry for six months or more. generally allows expanded access only if
there are no other satisfactory treatments
available for the given disease.
4. ACCELERATING MARKET ENTRY • FDA accelerated approval process: The FDA
There are essentially five ways in which compa- may accelerate approval of a biopharma-
nies may accelerate the introduction to market of ceutical if adequate and well-controlled
a new drug: clinical trials indicate that it will provide
• PTO special status: The PTO awards spe- considerable therapeutic benefit over exist-
cial status to certain biotechnology inven- ing therapies, particularly in cases of serious
tions, processing them ahead of all others. or life-threatening diseases.
To qualify for a special status the company
must be a small entity (a company with
fewer than 50 employees) or a nonprofit 5. CONCLUSION
organization. The petition must state that The PTO and FDA approval processes are expen-
the patent applicant’s technology will be sive and time-consuming. By the time a drug can
significantly impaired if a patent examina- be marketed to the public, part of its patent term
tion is delayed. will have already expired. In order to maximize
• FDA well-characterized status: The FDA profits, FDA processing time should be mini-
can designate a biopharmaceutical as a well mized as far as possible. In addition, patent terms
characterized biotechnology product if its can sometimes be extended, and various strategies
identity, purity, potency, and quality can be can be used to prevent generic companies from
substantially determined and controlled. taking too much of market share. Nonprofit orga-
As long as the manufacturer is able to pro- nizations in particular may benefit from the strate-
duce the same product, the manufacturing gies outlined in this chapter, especially if they are
technologies of a well-characterized phar- used in conjunction with price discrimination. ■
maceutical can be altered without having to
repeat clinical trials. If a company develops
a well-characterized biotechnology product, DENNIS s. FERNANDEZ, Managing Partner, Fernandez &
Associates L.L.P., 1047 El Camino Real, Suite 201, Menlo
it can begin FDA clinical trials immediately
Park, CA, 94025, U.S.A. dennis@iploft.com
and improve the manufacturing process at
a later date. JAMES HUIE, Associate, Fernandez & Associates L.L.P.,
• FDA expanded access exception: This excep- (Currently: Associate, Wilson, Sonsini, Goodrich & Rosati,
tion allows manufacturers to market the P.C., U.S.A.,) 1047 El Camino Real, Suite 201, Menlo
Park, CA, 94025, U.S.A. james_huie@yahoo.com
product before completing clinical trials
(before completing the approval process). JUSTIN HSU, Summer Associate, Fernandez & Associates
Expanded access is available for a very L.L.P., 1047 El Camino Real, Suite 201, Menlo Park, CA,

CHAPTER 10.9
94025, U.S.A. currently: Wilson, Sonsini, Goodrich & 8 35 U.S.C. § 155; 35 U.S.C. § 156.
Rosati, P.C., 650 Page Mill Road, Palo Alto, CA, 94304, 9 If the patent was issued before 24 September, 1984
U.S.A. justinhsu@berkeley.edu and the product’s regulatory review period began
before that date, then the limit is two years. For animal
drug products whose regulatory review periods began
1 35 U.S.C. § 102; 35 U.S.C. § 103. before 16 November, 1988 the limit is three years. In
2 On December 8, 1994, President Clinton signed the all cases, the total patent life for the product cannot
Uruguay Round Agreements Act into U.S. law. The exceed 14 years from the product’s approval date.
Uruguay Round Agreements Act gives all patents that 10 The FDA defines product approval as the date the FDA
were in force or filed as of 8 June, 1995 an effective term sends a letter notifying the marketing applicant that
of 17 years from the date the patent was granted or (1) the FDA approved the marketing application, (2) the
20 years from the date of the first filing of the patent product development protocol was completed, or (3)
application. All patents filed after 8 June, 1995 have a the listing of used food or color additives. The 60-day
patent expiration date of 20 years from the date of the term begins on the day after approval; the PTO must
first filing of the patent application. receive the application for patent extension on the
3 Nelson v. Bowler 626 F.2d 853 Cust. & Pat. App., 1980 60th day (or the next business day after the 60th day
(C.C.P.A. 1980), “Knowledge of the pharmacological if this day falls on a weekday or holiday).
activity of any compound is obviously beneficial to 11 The FDA has 30 days by law to determine the regulatory
the public. It is inherently faster and easier to combat review period for a product. After this period, there
illnesses and alleviate symptoms when the medical is a 60-day comment period during which parties
profession is armed with an arsenal of chemicals having can request revisions to the regulatory review period
known pharmacological activities. Since it is crucial determination. The end of the 60-day comment period
to provide researchers with an incentive to disclose marks the end of the regulatory-review period stage.
pharmacological activities in as many compounds as
12 Due diligence is defined as “that degree of attention,
possible, we conclude that adequate proof of any such
continuous directed effort, and timeliness as may
activity constitutes a showing of practical utility.”
reasonably be expected from, and are ordinarily exercised
4 35 § U.S.C. 102; 35 U.S.C. 103. by, a person during a regulatory review period.” 35 U.S.C.
5 See In re Hartop, 311 F.2d 249 (C.C.P.A. 1962). § 156(d)(3).
6 The Federal Circuit recognized such concerns of 13 Metabolites are the metabolized derivatives of a drug.
pharmaceutical companies in In re Brana, 51 F.3d 14 In Hoechst-Roussel Pharms., Inc. v. Lehman, 109 F.3d 759
1560 (Fed. Cir. 1995): “FDA approval, however, is not a (Fed. Cir. 1997), the court “recognized that a person may
prerequisite for finding a compound useful within the infringe a claim to a metabolite if the person ingests a
meaning of the patent laws. . . . Usefulness in patent compound that metabolizes to form the metabolite.”
law, and in particular in the context of pharmaceutical See also Zenith Labs., Inc. v. Bristol-Meyers Squibb Co., 19
inventions, necessarily includes the expectation of F.3d 1418 (Fed. Cir. 1994) (stating that a compound claim
further research and development. The stage at which an could cover a compound formed upon ingestion).
invention in this field becomes useful is well before it is
15 In Schering Corporation v. Geneva Pharmaceuticals,
ready to be administered to humans. Were we to require
Inc., 339 F.3d 1373 (Fed. Cir. 2003), a Federal Circuit
Phase II testing in order to prove utility, the associated
panel recognized that patent protection is available
costs would prevent many companies from obtaining
for metabolites of known drugs: “[A] patentee may
patent protection on promising new inventions, thereby
obtain patent protection for an inherently anticipated
eliminating an incentive to pursue, through research
compound through proper claiming.”
and development, potential cures in many crucial areas
such as the treatment of cancer.”
7 21 C.F.R. Part 60.

CHAPTER 10.10
Deposit of Biological Materials in

Support of a U.S. Patent Application
DENNIS J. HARNEY, Attorney, Sonnenschein Nath & Rosenthal LLP, U.S.A.
TIMOTHY B. MCBRIDE, Attorney, Senniger Powers, U.S.A.
ABSTRACT state of the art.4 The enablement requirement is

The deposit of biological material in support of a U.S. typically accomplished through a written descrip-
patent application is a mechanism by which an applicant
tion of the invention within the specification. But
can cure what might otherwise be potentially fatal defects
in a patent application and even an issued patent. A bio- inventions not easily or reasonably described by
logical deposit can, in some cases, satisfy the requirements the written word alone may be “described in sur-
of enablement, written description, and best mode, and rogate form by a deposit that is incorporated by refer-
potentially broaden the scope of claims in the event of ence into the specification.”5 By providing access to
litigation. This chapter briefly explores the relationship
between biological deposits and patentability require- biological material that is difficult to describe, an
ments, what can be deposited, where and when a deposit applicant enables the public to make and use the
can be made, and who has access to the deposit. claimed invention.
A deposit of biological material also can re-
duce the amount of disclosure required in the
1. What does a deposit accomplish? application to enable the claimed invention. For
Referencing deposited biological material in the example, in In Ex parte C, by describing the pa-
specification of a U.S. patent application provides rental varieties and the selection process in con-
the advantage of the deposited material being injunction with a seed deposit, applicants success-
corporated into that patent’s disclosure.3 As part fully enabled a novel variety of soybean plant,
of the disclosure, the deposited material may be seeds from the plant, and a method of producing
employed to augment or correct deficiencies in seeds by self-pollination.6 Notably, the Board of
the specification of the application, specifically, Patent Appeals and Interferences (BPAI) did not
as to enablement, written description, and best require an exacting description of breeding, selec-
mode requirements. tion, and testing since the invention, a disease-re-
sistant soybean plant, was placed in deposit.
1.1 Deposit and the enablement requirement A deposit of biological material may enable
While not always required, a deposit of biologi- more than just the species so deposited. For exam-
cal material is one way to satisfy the enablement ple, in Ajinomoto v. Archer-Daniels-Midland, the
requirement of 35 U.S.C. § 112. The specifica- Federal Circuit held that a method for producing
tion of a patent must enable a person skilled in an amino acid from a genetically engineered bac-
the art to make and use the invention claimed, terium was enabled, despite the fact that only one
aided only by his or her ordinary skill and the altered strain of bacteria that produced threonine
Harney DJ and TB McBride. 2007. Deposit of Biological Materials in Support of a U.S. Patent Application. In Intellectual
© 2007. DJ Harney1 and TB McBride2. Sharing the Art of IP Management: Photocopying and distribution through the Inter-

HAREY & McBRIDE
was disclosed and deposited.7 However, the BPAI The information obtainable from deposits in
was not quite so generous in several previous support of a patent can potentially broaden inter-
cases. For example, in Ex parte Hata, the BPAI pretation of the claims. For example, in Schering
affirmed the rejection of claims directed to treat- v. Amgen, the patent owner could have used de-
ment of infectious disease by administering spe- posited biological material to show that the claims
cific strains of Lactobacillus on the grounds that to leukocyte interferon encompassed the subtype
the select strains deposited were narrower than IFN-alpha14, despite that the specification dis-
the broader class of all strains and that undue ex- closed only two other subtypes.12 In Schering, the
perimentation would be required to locate new patent owner provided evidence that the deposit
microorganisms covered by the claim.8 coded for IFN-alpha14, but only to the appellate
court and not to the trial court. The court held
1.2 Deposit and the written description that, although a deposit could satisfy the enable-
requirement ment requirement, the deposit must be part of
While not always required, a deposit of biologi- the record before it is used to provide support
cal material is one way of satisfying the written for a particular claim construction. Because the
description requirement of 35 U.S.C. § 112. patent owners in Schering presented the evidence
This requirement is met if the specification de- too late, the deposit could not influence claim
scribes the claimed invention in sufficient detail, construction. However, the lesson remains that
such that one skilled in the art would reasonably deposited biological material incorporated into
conclude that the applicant was in possession of the disclosure may be used to support a claim
the claimed invention at the time of filing. This interpretation more broadly than that explicitly
can be achieved by describing the invention with disclosed in the specification.
all its limitations using such descriptive means
as words, structures, figures, diagrams, and for- 1.3 Deposit and the best mode requirement
mulas that fully set forth the claimed invention.9 A deposit of biological material may also satisfy
Put simply, the specification must describe the the best mode requirement under 35 U.S.C. § 112,
invention such that it is distinguishable. ¶ 1,13 but a deposit is not strictly necessary.14 The
Until 2002, it was somewhat uncertain best mode of carrying out an invention must be
whether a deposit of a biological sample could disclosed in sufficient detail at the time of filing
satisfy the written description requirement. But the application to allow one of ordinary skill to
in that year, the Federal Circuit, in Enzo v. Gen- practice it. To satisfy the best mode requirement,
Probe, held that deposit of a biological sample there must be no concealment of a mode of prac-
in a public repository could fulfill the require- tice known by the inventor at the time of filing to
ment.10 The specification of the Enzo patent be better than that disclosed.15
provided a functional description (hybridization In Amgen v. Chugai Pharmaceutical, the de-
characteristics) and referenced a biological defendants argued that, in the field of living materi-
posit, but disclosed no sequences or structural als, a biological deposit should be required so that
descriptions of any of the claimed nucleic ac- the public has access to exactly what the patent
ids. Thus, under Enzo, a reference to a deposit applicant contemplates as the best mode.16 The
coupled with a functional description meets the Federal Circuit held that a deposit was not neces-
written description requirement so long as a sary where the best mode of preparing a cell line
known correlation exists between the described necessary to practice the invention was disclosed
function and a deposited or described structure. and enabled in the specification.17
The generic scope of claims supported would Similarly, in Scripps v. Genetech, where a
be that which a person of skill would deem the patent specification described the process for
patentee to possess based upon the disclosure, producing, screening, and evaluating mono-
which includes information obtainable from the clonal antibodies, the Federal Circuit held that
deposits.11 applicants had not concealed the best mode for

CHAPTER 10.10
practicing the invention of protein purification obtainable from nature.22 In the words of the
using antibodies, despite not having deposited Federal Circuit:
successfully isolated antibodies.18 In Scripps, the When an invention relates to new biological
court specifically rejected the argument that the material, the material may not be reproducible even
“laborious nature of the process of screening the when detailed procedures and complete taxonomic
monoclonal antibodies” required deposit of the an- description are included in the specification. It is
tibodies representing the best mode. then a condition of the patent grant that physical
samples of such materials be deposited and made
available to the public, under procedures established
2. What can be deposited? by the [U.S. Patent and Trademark Office] and in-
Biological material eligible for deposit are those ternational treaty.23
materials capable of direct or indirect self-replica-
tion.19 Representative examples include bacteria, Even so, if “words alone cannot sufficiently de-
fungi, yeast, algae, protozoa, eukaryotic cells, cell scribe” the invention such that a biological deposit
lines, hybridomas, plasmids, viruses, plant tissue would normally be required, such a deposit would
cells, lichens, and seeds. Furthermore, the deposit still not be necessary if the biological material nec-
rules provide that viruses, vectors, cell organelles, essary to the invention is (1) known and readily
and other nonliving material existing in, and re- available to the public or (2) derived from readily
producible from, a living cell may be deposited available starting materials through routine screen-
by means of a deposit of the host cell capable of ing that does not require undue experimentation.24
reproducing the nonliving material.
Generally, for each deposit, the specification 3.1 Known and readily available
of the patent must contain the accession number Biological material need not be deposited unless
for the deposit, the date of the deposit, a descrip- access to the material is required under 35 U.S.C.
tion of the deposited biological material sufficient § 112 and the material is not otherwise known
to specifically identify it and to permit examina- and not readily available to the public. Indica-
tion, and the name and address of the deposi- tions that biological material is known and avail-
tory.20 able include:
• commercial availability
• references to biological material in printed
3. Is a deposit required? publications
The biological deposit “requirement” is not a re- • declarations of accessibility by those work-
quirement per se. Rather, the deposit rules pro- ing in the field
vide a mechanism by which an applicant can • evidence of predictable isolation techniques
overcome what would otherwise be a deficiency • an existing deposit
in the patent application. It is important to note
that a biological deposit may be referenced in a Thus a patentee may forgo a deposit in favor
specification even when not required. Moreover, of assuming an obligation to make the necessary
referencing a biological deposit in the specifica- biological material publicly available.
tion does not give rise to a presumption that the While the U.S. Patent and Trademark Office
deposit was necessary under 35 U.S.C. § 112. (PTO) will accept a showing of current availabil-
A biological deposit may be necessary where ity, the patentee takes the risk that the biologi-
biological material is required to practice an cal material will cease to be known and readily
invention and “words alone cannot sufficiently available.25 The rules do not provide for post-is-
describe how to make and use the invention in a suance original deposits. But the PTO will accept
reproducible manner.”21 For example, a deposit a replacement deposit when a patent owner has
could be required where an invention cannot diligently provided the replacement deposit after
be practiced without access to an organism only receiving notification that the depository can no

HAREY & McBRIDE
longer furnish samples of the original deposit, or This includes deposits made during the pendency
that the deposit has become contaminated or lost of the application. But deposit after application
its capability to function.26 Failure to diligently can seriously compromise international rights.
make a replacement deposit will preclude grant of In the United States, biological material spe-
a certificate of correction.27 A replacement depos- cifically identified in the patent application may
it subsequently made will not be recognized by be deposited during the pendency of the applica-
the PTO, and a request for a certificate of correction (i.e., before issuance of the application as a
tion, even if made promptly thereafter, will not patent).33 A reference to a deposit in the specifica-
be granted.28 Furthermore, the failure to make a tion provides a basis for making a deposit after
replacement deposit where a deposit is considered the filing date of the application. The applicant
to be necessary to satisfy the requirements of 35 must merely provide a corroborating statement
U.S.C. § 112, will cause a patent involved in a that the deposited biological material is that spe-
reissue or reexamination proceeding to be treated cifically identified in the application as filed. If
by the PTO as if no deposit had been made.29 the requirements are met, the post-filing addition
As such, unavailability of biological material to the application of a deposit date and accession
necessary to practice the invention is a defect that number at an independent depository will not be
cannot be cured after the grant of a patent and considered new matter prohibited by 35 U.S.C.
can result in unenforceability. This risk is reflect- § 132.34
ed in advice from the PTO: As such, a U.S. patent applicant could pri-
[Where] an applicant for patent has any doubt vately deposit a biological sample on or before the
as to whether access to a biological material specifi- patent application date, identify the deposited
cally identified in the specification is necessary to material in the disclosure, and then later trans-
satisfy 35 U.S.C. § 112 or whether such a mate- fer the sample to a recognized public depository
rial, while currently freely available, may become and add the depository data at any time prior to
unavailable in the future, the applicant would be the issuance of the patent. Such a private deposit
well-advised to make a deposit thereof before any may be in the inventor’s own laboratory or in the
patent issues.30 laboratory of a colleague, so long as the PTO has
access to the samples during pendency and the
3.2 Derived without undue experimentation samples are transferred to a public depository be-
If only starting materials are readily available, fore the patent issues.
the specification must provide sufficient guid- For example, in In re Lundak, the inventor
ance on making or isolating the biological ma- deposited a biological sample necessary to his in-
terial necessary to the invention without undue vention in the laboratory of a colleague.35 After
experimentation, or else a deposit of the material filing a patent application that identified the pri-
will be required.31 Undue experimentation is de- vately held sample, the inventor transferred the
cided under a standard of reasonableness; it is not sample to the American Type Culture Collection
merely a quantitative determination. Generally, (ATCC) and amended his application with the
there is no undue experimentation where time- accession number and deposit date. The Federal
consuming experiments are merely routine, such Circuit held that for the purposes of 35 U.S.C.
as a reliable screening test performed on a large § 112, it was “not material whether a [biologi-
number of samples.32 cal] sample … resided in the [inventor’s] hands or
the hands of an independent depository as of filing
date.” 36
4. When can biological material As another example, in In re Argoudelis, Ar-
be deposited? goudelis deposited biological material with a
Under current U.S. patent laws and practice, bio- depository prior to filing the patent application
logical material may be deposited at any time pri- but restricted access to the deposit during the
or to the issue of the patent the deposit supports. pendency to persons authorized by the patent

CHAPTER 10.10
applicant.37 The court found the deposit met the Again, while a post-filing, pre-issuance de-
requirements of 35 U.S.C. § 112 despite the re- posit is sufficient for the purposes of a U.S. patent
striction on public access, because access would application, this approach may not fully preserve
be unrestricted after patent issuance.38 Similarly, foreign patent rights.
in Feldman v. Aunstrup, Aunstrup deposited bio-
logical samples at a recognized depository in the
Netherlands before his filing date, but restricted 5. Where is biological
deposit availability to his designees.39 These re- material deposited?
strictions were removed before the patent issued. A U.S. applicant may deposit biological mate-
The court found the deposit sufficient because the rials in any of the 35 International Depositary
PTO could access the deposit through Aunstrup Authorities (IDA) recognized by the World In-
during application pendency, and the public was tellectual Property Organization (WIPO) un-
assured access upon issuance.40 der the Budapest Treaty.42 Signatory countries
To the contrary, many foreign jurisdictions (64, as of 2006),43 including the United States,
require a deposit to be made before the filing date are required to recognize a biological deposit
of the priority application to obtain foreign prior- made in any depository institution approved by
ity rights. For example, an applicant who deposits WIPO, no matter the location. Under the Buda-
biological material after filing a U.S. provisional pest Treaty, storage time is required to be at least
application but before filing a PCT application 30 years, and after the applicant has made the
will be unable to benefit from the U.S. provision- deposit, it cannot be reclaimed. Furthermore,
al application priority date to the extent it is de- the depository has a duty of secrecy concerning
pendent on the deposit. As such, to fully preserve the fact of a deposit and the nature of the depos-
foreign rights, an applicant should make any de- ited material.
posit of biological samples before the priority ap- Only two of the 37 IDAs recognized by
plication is filed.41 WIPO are in the United States—the American
Examples of jurisdictions that require de- Type Culture Collection (ATCC) in Manassas,
posits to be made before the filing date of the Virginia, and the Agricultural Research Service
priority application include Australia, Canada, Culture Collection (NRRL, acronym based on
China, and the European countries that are former name) in Peoria, Illinois. But as of 1999,
members of the European Patent Organization these two U.S. depositories held 51.6% (or 20,461
(as established by the European Patent Conven- deposits) of the world‘s total patent-related bio-
tion). While certain of these jurisdictions pro- logical deposits.44 As an example of applicable
vide means of correcting for a late deposit, such fees, the ATCC charges US$2,500 for a patent-
remedies often require that (1) the failure to de- related deposit. This fee includes viability testing,
posit be the result of an error in judgment or an a deposit certificate, 30 years of storage, release
omission that led to the failure to deposit (such of samples according to deposit rules, quarterly
error not being the failure to deposit itself and informing report of distribution of released mate-
not including intentional delay, for example, for rials, and regulatory compliance reviews.45
strategic or financial reasons) or (2) the applicant A recent report from the U.S. Government
be able to declare that, although a deposit was Accounting Office (GAO) compiled empirical
not made, the biological sample was nevertheless data regarding the deposit practice in the United
available to the public on the filing date of the States.46 The GAO reported that about 0.6% of
application. Because the successful use of such U.S. patents (308 out of 52,841) granted during
remedies is not a foregone conclusion, it is high- the final three months of 1999 were supported by
ly encouraged that any deposit be made prior to biological deposits in the two IDAs in the United
the filing of an application that may be called to States. Of these, only 53 patents (about 0.1%)
serve as a priority document for an international were supported by biological deposits of seeds.
application. The ATCC, one of only four IDAs accepting seed

HAREY & McBRIDE
deposits, estimated that less than 8% of its total supplement this disclaimer with a letter tailored
deposits were for seeds. to each notification of request for samples, mak-
An applicant should also maintain his or her ing it clear there is no implied or express license
own samples of the biological material during the covering the biological materials received from
term of deposit. As discussed above, unavailability the depository.
of biological material necessary to practicing the The number of samples estimated to have
invention is a defect that cannot be cured after been released worldwide to legally entitled par-
the grant of a patent and can result in unenforce- ties in 1999 was estimated at 7,400. In that
ability. The applicant’s practice of maintaining his year, the ATCC released about 7,000 samples,
or her own samples for the duration of the pat- or 95% of the worldwide total. In comparison,
ent protects against any circumstances wherein NRRL (the other recognized U.S. depository)
samples would no longer be available from the released 123 samples, European IDAs released
depository. 190 samples, and a Japanese IDA released 63
samples.
In its recent report to Congress, the GAO
6. Who is entitled to samples of was unable to identify a single documented case
deposited biological material? in which a person or organization had gained
During pendency of an application, a deposit in- access to a biological deposit and then used it
corporated into a patent application specification to infringe the underlying patent.51 This lack of
need not be available to the public, but must be findings was based on court cases, representatives
available to the PTO.47 from the biotechnology industry, and officials
After issuance of a patent, deposited biologi- from PTO, ATCC, NRRL, and WIPO.
cal material that is incorporated into the specifi-
cation by accession number must be freely avail-
able to the public.48 That is to say, all restrictions 7. Conclusion
on availability of the deposit to the public must The rules governing biological deposits in sup-
be irrevocably removed upon granting of the pat- port of a patent application provide a means of
ent, unless the request is not made according to curing potentially fatal patent defects, as well as
proper procedures. As a small measure of protec- flexibility in the preparation of the application.
tion, a depositor can contract with the depository As discussed above, a biological deposit can in
to require that samples of a deposited biological some cases satisfy the requirements of enable-
material will only be furnished if the request is in ment, written description, and best mode, and
a dated writing that contains the name and ad- potentially broaden the scope of claims in the
dress of the requesting party and the accession event of litigation. A deposit will usually be nec-
number of the deposit, and the depositor is noti- essary only when words fail to explain how to
fied in writing of such a request.49 make and use the invention, but an applicant
The deposit of biological material in a rec- may reference a deposit even when not required.
ognized depository is not a grant of a license, While a deposit can be made at any time dur-
either express or implied, to infringe the pating pendency of a U.S. application, those seeking
ent. Furthermore, the release of deposited ma- foreign rights are advised to deposit before the fil-
terial from the depository to others does not ing of any priority application. A U.S. applicant
grant them a license, either express or implied, can deposit in any of the 35 IDAs recognized by
to infringe the patent. The ATCC, for example, WIPO, with two of these in the United States
provides a standard disclaimer in its catalogs, The public will have free access to biological ma-
reference guides, and to recipients of cultures: terials deposited in support of an issued patent,
“This material is cited in a United States and/or but the patent owner is somewhat protected by
other Patent and may not be used to infringe the receiving information regarding who receives
patent claims.” 50 Regardless, a depositor should such deposits. ■

CHAPTER 10.10
Dennis J. Harney, Attorney, Sonnenschein Nath & 927 F.2d 1565 (Fed. Cir. 1991).
Rosenthal LLP, One Metropolitan Square, Suite 3000, St. 19 37 C.F.R. § 1.801.
Louis, MO, 63102 U.S.A. dharney@sonnenschein.com
20 37 C.F.R. § 1.809(d).
Timothy B. McBride, Attorney, Senniger Powers, One 21 MPEP § 2402.
Metropolitan Square, Suite 1600, St. Louis, MO, 63102 22 See Amgen, 927 F.2d, at 1211.
U.S.A. tmcbride@senniger.com
23 Ajinomoto, 228 F.3d, at 1345, 56 USPQ2d at 1337–1338.
24 Wands, 858 F.2d, at 735–736.
1 The views expressed in this article are those of the au- 25 Compare In re Metcalfe, 410 F.2d 1378, 161 USPQ 789
thors alone, and should not otherwise be attributed (CCPA 1969).
to the firm or its clients. The author’s law practice is
concentrated in biotechnology, biochemical, and phar- 26 37 C.F.R. § 1.805(a). During a PTO proceeding (such as,
maceutical patent preparation and prosecution, as for example, the prosecution of a patent application,
well as validity/invalidity and infringement opinions the reissue or reexamination of a patent, or an
and counseling related to patentability and freedom interferences proceeding), the PTO will not recognize
to operate. a replacement deposit by the patent owner if the
depository could still provide samples of the original
2 The views expressed in this article are not necessarily deposit. MPEP § 2407.06.
those of the firm or its clients. The author’s law practice
is concentrated in biotechnology, biochemical, and 27 MPEP § 2411.04. A replacement deposit made in
pharmaceutical patent preparation and prosecution, connection with a reissue or reexamination shall
as well as validity/invalidity and infringement opinions not be accepted unless a certificate of correction is
and counseling related to patentability and freedom requested. MPEP § 2407.02.
to operate. 28 MPEP § 2411.04.
3 Ex parte Maizel, 27 USPQ2d 1662 (BPAI 1992). 29 MPEP § 2407.03.
4 35 U.S.C. § 112, ¶ 1. 30 MPEP § 2411.04.
5 Enzo Biochem, Inc. v. Gen-Probe, Inc., 296 F.3d 1316, 1326 31 See 37 C.F.R. § 1.802; Hybritech, Inc. v. Abbott Laboratories,
(Fed. Cir. 2002); See In re Wands, 858 F.2d 731; 8 USPQ2d 849 F.2d 1446, 7 USPQ2d 1191 (Fed. Cir. 1988); Amgen, 927
1400, 1403 (Fed. Cir. 1998). F.2d, at 1211; Wands, 858 F.2d, at 735.
6 27 USPQ2d 1492 (BPAI 1993). 32 Compare Jackson, 217 USPQ 804 (isolation procedure
7 228 F.3d 1338 (BPAI 1987), 56 USPQ2d 1332 (Fed. Cir. required undue experimentation so deposit was
2000), cert. denied, 121 S. Ct. 1957 (2001). required) with Hata, 6 USPQ2d 1652 (biological
materials obtainable through routine experimentation
8 6 USPQ2d 1652 (BPAI 1987). See Ex parte Jackson, 217 and a reliable screening test did not require deposit).
USPQ 804 (BPAI 1982); Ex parte Forman, 230 USPQ 546
(BPAI 1986) (limiting enablement of generic claims 33 37 C.F.R. 1.804; MPEP § 2406.
covering bacterial vaccine of hybrid S. typhi bacterial 34 In re Lundak, 773 F.2d 1216, 227 USPQ 90 (Fed. Cir. 1985).
species to the extent of deposited species where
there were no working examples outside of deposited
species and unpredictability in the hyperconjugation 36 Lundak, 227 USPQ, at 93–94.
procedure used to produce the strains). 37 434 F.2d 1390, 168 USPQ 99 (CCPA 1970).
9 MPEP § 2163 (2003) (citing Lockwood v. American 38 Id., at 1393 (“It is not necessary that the general public
Airlines, Inc., 107 F.3d 1565 (Fed. Cir. 1997)). have access to the culture prior to the issuance of the
10 See supra note 5, at 1325. patent”).
11 See supra note 5, at 1327. 39 517 F.2d 1351, 186 USPQ 108 (CCPA 1975).
12 222 F.3d 1347, 55 USPQ2d 1650 (Fed. Cir. 2000). 40 See supra note 39, at 1355.
13 Wands, 858 F.2d, at 736. 41 See MPEP § 2406.03.
14 Amgen, Inc. v. Chugai Pharmaceutical Co., 927 F.2d 1200, 42 Budapest Treaty on the International Recognition of the
18 USPQ2d 1016 (Fed. Cir. 1991), cert. denied, 502 U.S. 856, Deposit of Microorganisms for the Purposes of Patent
112 S.Ct. 169, 116 L.Ed.2d 132 (1991). Procedure, 32 U.S.T. 1241 (April 28, 1977) www.wipo.int/
treaties/en/registration/budapest/trtdocs_wo002.
15 Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d
html. A listing of the IDAs as of May 17, 2006 www.
1367, 231 USPQ 81 (Fed. Cir. 1986), cert. denied, 480 US
wipo.int/treaties/en/registration/budapest/pdf/
947 (1987).
idalist.pdf.
16 Amgen, 927 F.2d 1200.
43 WIPO, Budapest Treaty Contracting Parties, Status as of
17 See supra note 16. May 17, 2006 www.wipo.int/treaties/en/documents/
18 Scripps Clinic & Research Foundation v. Genetech, Inc., pdf/budapest.pdf.

HAREY & McBRIDE
44 U.S. General Accounting Office, Report to Congressional

Committees GAO-01-49, Intellectual Property: Deposits
of Biological Materials in Support of Certain Patent
Applications, at 9 (Oct. 2000) www.gao.gov/new.
items/d0149.pdf.
45 ATCC. 2004. Patent Depository Expanded Services
and Fee Changes for 2004 www.atcc.org/Services/
PatentFees.cfm.
46 See supra note 44, at 9.
47 Lundak, 227 USPQ at 93–94.
48 37 C.F.R. § 1.808 (a)(2).
49 37 C.F.R. § 1.808.
50 ATCC. 2004. Use of Patent Cultures, www.atcc.org/
Services/PatentMore.cfm.

CHAPTER 10.11
Protecting New Plant Varieties through PVP: Practical

Suggestions from a Plant Breeder for Plant Breeders
WILLIAM D. PARDEE, Professor Emeritus, Department of Plant Breeding and Genetics, Cornell University, U.S.A.
ABSTRACT This chapter discusses the rules governing the

A plant variety protection (PVP) certificate preserves a U.S. PVP application procedure, which is admin-
plant variety owner’s exclusive rights to sell, reproduce,
istered by the U.S. Department of Agriculture
import, and export a plant variety and its seed. In ad-
dition, a PVP certificate prevents others from claiming (USDA).1 The U.S. PVP Act is very similar to the
PVP or utility patent rights. This chapter walks the reader provisions developed by the Convention of the
through the process of applying for a PVP certificate and International Union for the Protection of New
describes other ways to prevent the unauthorized use or Plant Varieties (UPOV), which have been, or are
sale of protected plant varieties.
being, adopted in many nations around the world.
Of course, anyone considering applying for a PVP
certificate must thoroughly familiarize him- or
herself with local laws and application procedures.
The U.S. PVP Office (PVPO) considers a
1. Introduction variety to be new, and therefore eligible for PVP
A plant variety protection (PVP) certificate pre- certification, only if propagating or harvested ma-
serves a plant variety owner’s exclusive rights to terial of the variety has not been sold, or other-
sell, reproduce, import, and export the plant vari- wise disposed of to other persons, for the purpose
ety and its seed; In addition, a PVP certificate can of exploiting the variety for more than one year,
also prevent others from claiming PVP or utility in the United States, or four years outside of the
patent rights. The duration of a PVP certificate United States.
is 20 years (25 years for a tree or vine). A PVP
certificate can, when combined with licensing,
develop future funds for a breeding program. It 2. The countdown to
also can preserve the financial and other interests PVP certification
of participants in a program, who may have pro- The breeder should be the person to complete the
vided upfront funds. PVP certificate application because only he or she
To be eligible for PVP, a variety must be: will possess the required information and be able
• new and distinct from other varieties to answer follow-up questions from the examin-
(novel) ers. It is important to maintain good breeding
• genetically uniform records, because they are invaluable in case of an
• stable through successive generations infringement challenge.
Pardee WD. 2007. Protecting New Plant Varieties through PVP: Practical Suggestions from a Plant Breeder for Plant Breed-
ers. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krat-
© 2007. WD Pardee. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncom-

PARDEE
2.1 Two years in advance limited release (that is, to one or a limited group
Obtain from the U.S. PVPO the instructions for of companies and/or growers). PVP is most use-
application as well as the proper (species-specific) ful when the release is exclusive.
Exhibit C form (see Section 3.4 below for more If there were several contributors to the breed-
details). Start conducting any tests that will be ing project, you would need to decide whether
required to fill out Exhibit C (such as those for or not to pursue an application for a joint PVP
disease and pest resistance); such tests may take certificate with them. Consider the following
one or two years to complete. questions:
• What entities (companies, associations,
2.2 One year in advance and so on) contributed to the development
Verify that the crop variety is worth protecting of the new variety?
and that the potential returns on the sale of the • Do these entities wish to seek a license for
crop justify the expense of the PVP certificate. the new variety?
The plant breeder should consult with his or her • Will these entities help to cover the ap-
seed project leader (if he or she works for a na- plication costs for a PVP certificate and
tional research center or a university) or his or her certification?
supervisor or sales manager (if he or she works • Do these entities have first refusal rights for
in the private sector). The decision of whether or licensing?
not to apply for a PVP certificate and subsequent
commercialization must be driven by objective
analysis, not emotion. It is easy to form an emo- 3. Preparing the PVP
tional attachment to a project that has required certificate application
a great deal of time, effort, or money. Seek ad- The U.S. PVPO provides detailed instructions for
vice and suggestions from seed growers, advisory how to fill out and submit application forms for PVP
committees, company sales representatives, and, certification. All documents can be accessed online.2
most critically, the farmers who will ultimately be
growing the crops. 3.1 General application requirements
The following questions are important to and procedure
consider: A PVP application consists of:
• Is it likely that royalties or other returns on 1) A completed and signed Form S&T-470
the variety will repay the cost of PVP cer- (Application for Plant Variety Protection
tificate application? Certificate). The applicant must provide
• Does the variety have sufficient advantages his or her name, address, and representa-
over standard varieties? Is it likely to attract tive, and the variety’s genus, species, and
the interest of seed companies, seed grow- variety name (a temporary variety name
ers, and (most importantly) farmers? will suffice until the PVP certificate is is-
• How large are the new variety’s seed vol- sued). The proposed variety name or ex-
umes likely to become? perimental number must be cleared with
• How broad will the variety’s geographical the Seed Regulatory and Testing Branch of
area of adaptation be? the USDA.3
• How large will the variety’s potential market be? 2) the following “exhibits,” all of which will
• Do any seed companies or seed growers be discussed in detail in the following
have a particular interest in the variety? sections:
• Exhibit A: Breeding History, consisting of
Depending on the answers to these questions, the variety’s genealogy, the methods used to
you will want to consider whether the variety is develop the variety, a statement of the level
appropriate for general release (that is, release to of variability in any variety characteristics, a
all interested companies or growers) or exclusive/

CHAPTER 10.11
statement of genetic stability, and the type Exhibit A describes a number of different aspects
and frequency of variants of the variety’s breeding history. First, it describes
• Exhibit B: Statement of Distinctness the pedigree of the new variety, including both
Guidelines, stating how the variety may be the parents used in each cross and the source and
distinguished from all other varieties in the pedigree of each parent. The PVP office specifies
same crop that:
• Exhibit C: Objective Description of Variety, Obtaining intellectual property rights requires
a crop-specific form disclosure. As part of this disclosure the applicant is
• Exhibit D: Optional Supporting Information to provide the public with information about his/her
• Exhibit E: Statement of the Basis of invention in exchange for protection of the variety.
Ownership, stating who owns the variety For Plant Variety Protection, this includes a full dis-
and verifying that the applicant is eligible closure of the parentage and breeding methodology
to file for PVP in the United States in the Exhibit A, Origin and Breeding History. This
• Exhibit F: Declaration Regarding Deposit, information would specify the plant material the ap-
stating that the applicant will submit a cer- plicant started from, i.e., the parentage. All material
tain amount of propagation material to a in the parentage must be traceable back to varieties,
seed depository lines, or clones, etc. that are publicly known or a
matter of common knowledge.5
Included with the forms must be a check
drawn on a U.S. bank (as of 6 October 2006, the Exhibit A also describes the breeding meth-
fee for filing and examination was US$4,382), ods used in creating the new variety, including
payable to “Treasury of the United States.” Since any specific selection criteria that were used. Keep
fees are subject to change periodically, always it simple to avoid confusing the examiner. There
check current schedules at the U.S. PVPO Web is no need to say why certain selections were car-
site.4 Issue fees will also be charged when the cer- ried out, merely what was accomplished and when
tificate is issued. it took place.
The U.S. PVPO office maintains databases
of known varieties of most U.S. crops (includ- 3.2.2 Uniformity and stability
ing those originating in the United States and in This statement declares that the variety has been
some foreign countries). The PVP examiner will observed to be uniform and stable for all char-
compare the information given in the application acteristics over a certain number of generations.
with the database for that crop. The examiner The words “uniform” and “stable” must be used
may request additional data if he or she finds one in the statement.
or more varieties in the database with essentially The statement specifies the number of cycles
similar descriptions (which often happens). Please of seed reproduction through which the variety
note that if all other traits seem similar to another has remained unchanged for all distinguishing
variety, then DNA profiling may be useful, at the characteristics. It is likely that stability dates from
discretion of the PVP examiner. when you initiated increase of the line that be-
Remember, that the U.S. PVPO does not came this variety. Remember that variation is ac-
conduct actual field/greenhouse evaluation (so- ceptable, as long as it is predictable and the vari-
called growing out) or other tests on varieties that ants are describable and commercially acceptable.
are described in PVP applications. The applicant Many modern varieties include a low level of one
must provide all data. Diligence in this regard will or more variants.
be well worth the effort. A variant is a predictable phenotype that dif-
fers in one or more ways from the main pheno-
3.2 Exhibit A: Breeding History type of the variety. The applicant must identify
the variant as typical of the variety and provide
3.2.1 Parentage and breeding methods data on the percentage and frequency distribu-

PARDEE
tion of variant plants. It is permissible to have • Differences in quantitative characters such

more than one variant, so long as each one is as plant size, seed size, and maturity, that
accounted for. However, the total frequency of all are not obvious and detectable without a
variants in the population cannot exceed 5%; a direct comparison, must be supported by
variety that is composed of more than 5% vari- evidence provided by the applicant. The
ants will be deemed a mixture (and thus not eli- evidence must be given as numerical data
gible for PVP). obtained from at least two trials.
An off-type is a phenotype that is not speci- • Distinction based on differences in color
fied as an expected variant. If you find that you needs to be referenced with a standard
cannot remove a certain phenotype from your such as the Royal Horticultural Society
variety, consider describing it as a variant. If you Colour Chart or the Munsell Book of
do not describe it as a variant, the variant will be Color, unless dramatic (i.e., red versus
considered an off-type by certification inspectors green). Color chart measurements must
or seed analysts. be conducted in two or more localities or
growing seasons.6
3.3 Exhibit B: Statement of Distinctness
In order to demonstrate distinctiveness, the vari- It is sometimes helpful to submit photos to
ety must be shown to be distinct in one or more demonstrate color differences.
traits from either: Distinctions in disease reaction between the
(1) the variety that is most similar to it new variety and other varieties must be support-
(2) several similar varieties ed with data or results from at least two trials
(3) all other varieties of the species conducted in two or more localities or growing
seasons, unless the distinction is dramatic (for
When measuring quantitative traits, describe example, other varieties are highly susceptible
your statistical design and provide statistical ref- to disease, while the new variety is disease-resis-
erences such as F values, least significant differ- tant). Remember to include the following: the
ences (LSD’s), standard deviations (SD’s), range, disease reaction to the causal agent or organ-
or other references, that may indicate the degree ism; the causal agent or source of the disease (if
of variability in the tests; this provides an indica- it has been demonstrated or identified); and the
tion of just how distinct the variety really is, that race, strain, or pathotype of the disease, where
is, if it can be distinguished from similar variet- appropriate.
ies. Include data taken from at least two locations It is important to note that yield is not ac-
(preferably from two different states) or over two cepted by the PVP office as a basis for distinct-
years, but do not pool data across years or loca- ness because it is not a sufficiently stable trait.
tions. The more data, the better. Sources of data Yields depend largely on environmental factors.
may include trials at state agricultural colleges,
cooperative tests performed by breeders in several 3.4 Exhibit C: Objective Description of Variety
states, or industry tests. However, be aware that As in Exhibit B, numerical data must be provided
the PVP office also has access to results from most to support certain elements of the variety descrip-
of these tests and will likely use these to evalu- tion: performance characteristics, pest resistance,
ate the distinctiveness of your variety. For many quality, or other traits. Data should be gathered in
crops, the PVP office requests that several stan- at least two locations or over two years. Describe
dard varieties be included in comparative tests the statistical methods used, plus coefficient of
against the variety submitted in the PVP applica- variance (CV), SD, LSD, range, or other esti-
tion in order to provide a point of reference to mates of test variability.
evaluate distinctness.
The U.S. PVP application instructions indi- 3.4.1 Essentially derived varieties
cate that:

CHAPTER 10.11
An essentially derived variety is usually developed (minimum germination rate 85%). In the case of
when one or a few genes or traits are added to vegetative and clonal crops, the applicant declares
a preexisting variety, resulting in a phenotypic that he or she will deposit a viable cell culture in a
change or changes. The change may be cosmetic public depository, where it will be maintained for
(for example, a change in flower color) or eco- the duration of the certificate.
nomic (for example, the addition of a value-add- The U.S. PVPO may use a small subsample
ed, genetically engineered trait, such as an insect- of the submitted seed (no more than 25 seeds)
resistance gene, into an existing variety). in the process of examining the application. The
The U.S. PVPO will approve an essentially rest of the seed sample will be deposited by the
derived variety if it shows one or more distinguish- U.S. PVPO in the National Seed Depository
ing characteristics and if the original variety has a Laboratory (NSDL) at Fort Collins, Colorado.
PVP certificate issued after 1994. The U.S. PVPO The NSDL keeps PVP seeds separate from their
will not protect an essentially derived variety if the normal collections and only the applicant and the
original variety was not protected, or was protected U.S. PVPO will have access to the seed for the
only with pre-1994 criteria. PVP protection may duration of the certificate. These deposited seeds
not protect the owner of the variety from infringe- will be used in case of an identity challenge. The
ment liability if the original variety’s germplasm NSDL will return any remaining seed to the ap-
comprises the majority of the essentially derived va- plicant after the PVP certificate has expired or is
riety. For that reason, it is sensible to make arrange- no longer in force.
ments to compensate the owner of the original va-
riety for the use of the germplasm. At the time of
this writing, there was no absolute rule regarding 4. Other considerations
which varieties are essentially derived and which
are not, though seed committees and organizations 4.1 Critical dates to keep in mind
are working to develop criteria. Disagreements 1. Date of first sale. You must apply for a PVP
must be worked out between variety owners, or if certificate within one year after the date of
this is not successful, by the courts. the first commercial sale of seed or planting
stock of your variety. (Sales of experimental
3.5 Exhibit D: Optional Supporting seed for further testing only are exempt.)
Information You have four years from the date of the
Exhibit D is required for wheat (milling and bak- first commercial sale (six years for a tree
ing quality must be described), but it is optional or vine) to apply for a PVP certificate for
for other crops. This exhibit describes quality fac- foreign varieties. Keep evidence of the date
tors of the crop and/or offers other information of first sale in the form of an invoice or
pertaining to variety uniqueness that is not in- receipt.
cluded in the other exhibits. 2. Date application is received in the U.S.
PVPO. The date the original application
3.6 Exhibit E: Statement of Ownership was received is considered to be the date
Exhibit E is a statement of who developed the of application, though requests for addi-
variety, who owns it, and who or what entity, tional information may take months or
if any, has rights to it. A single paragraph will years to satisfy. The variety can be sold
suffice. while a PVP certificate is being sought
for it.
3.7 Exhibit F: Declaration Regarding Deposit
In Exhibit F, the applicant declares that he or 4.2 When to apply
she has included with the application a “voucher Apply for PVP certificate as soon as you decide to
sample” of at least 3,000 untreated, viable seeds protect the variety and can assemble the necessary
capable of propagating the application variety information (which should be before the date of

PARDEE
first sale). The amount of time it takes to get a battle is worth the cost in money and public
PVP certificate application approved is highly relations.
variable. It depends on the current workload at
the U.S. PVPO and can be lengthened by re- 5.2 Bag-tag warning
quests for additional information. Figure on at Before the PVP certificate is awarded, label all
least a year or possibly two years. seed containers of the variety as follows:
4.3 After filing

Unauthorized Propagation Prohibited
Be prepared to respond to questions and re- U.S. Variety Protection PVPA 1994
quests from the PVP examiner; few applications Applied For
are accepted as originally submitted. Some of
these questions may be answerable with exist-
ing data; for others, more data may need to be After the PVP certificate is awarded, label
collected. seed containers as follows:
5. Further protection U.S. Protected Variety PVPA 1994

for plant varieties Unauthorized Sales for Reproductive
Although a PVP certificate gives you or your Purposes Prohibited
agent the sole right to sell the plant variety in
question and protects the variety name from
infringement, it is sensible to take additional 5.3 Brown-bag sales
precautions: Under the farmer exemption, farmers are permit-
• Control all breeder seed that you or your ted to grow and save enough seed of a PVP va-
organization grow, harvest, and maintain. riety to plant their own acreage.7 If they decide
• Control all foundation seed production by not to plant the seed, they are allowed to sell it.
producing it only within your organization However, some farmers produce and sell large
or granting tight licenses or contracts to volumes of seed, far more than they would be
trusted seed producers. able to plant on their own farms. In the United
• Control who gets foundation seed, through States, this practice is unfortunately common in
licenses or sales, with tight contracts. the Midwest and South, particularly with soy-
beans, cotton, and peanuts. Because the illegal
5.1 Enforce protection seed is often sold in unmarked brown bags, this
Stay alert for unauthorized sales of your PVP practice is popularly called “brown bagging.” A
seed: such things as advertisements in local news- recent Supreme Court decision that upholds the
papers are giveaways of illegal activity. Tell any in- rights of PVP certificate owners may discourage,
dividuals, companies, or other organizations that but will not stop, brown-bag sales.
sell or distribute your variety to be alert to illegal Title V of the U.S. Federal Seed Act makes it
sales and to notify you immediately if they detect unlawful to sell uncertified seed of a PVP variety
them. by the variety name. Many state seed laws include
It is important to realize that the unauthor- similar provisos. On page one of the PVP appli-
ized seller may very well not realize that the vacation, you can state your intention to also apply
riety is protected. Notify the offender that he or for Title V protection. Of course, brown bagging
she is selling a PVP-protected variety. A warning can still occur even if Title V is in force. In such
is often sufficient to stop the problem. If the of- cases, you will need to seek help from the appro-
fender persists in making illegal sales, threaten priate state, federal, or state seed-law enforcement
to cut him or her off from future releases. Sue agency. Seed-law enforcers can issue orders that
only as a last resort, and consider whether a court prohibit offenders from further action, and may

CHAPTER 10.11
issue a stop-sales order or fines to a persistent the next round of improved varieties from your
offender. breeding program, for which you will then seek
PVP. ■
6. Conclusion
Assembling and submitting a PVP application for WILLIAM D PARDEE, Professor Emeritus, Department of Plant
Breeding and Genetics, Emerson Hall, Cornell University,
your variety can be either a nearly unbearable ag-
Ithaca, NY, 14853, U.S.A. wdp5@cornell.edu
gravation or a very easy task. It all depends on
how organized, diligent, and proactive you are. 1 Pursuant to the PVP Act of 1970, 7 U.S.C. § 2321–2583.
The key elements are to plan well ahead, keep 2 www.ams.usda.gov/science/pvpo/apply.htm.
careful records, know what you need to do, know 3 They may be contacted at: U.S. Department of
when you need to do it, and know what the PVP Agriculture, Agricultural Marketing Service, Livestock
offices needs (not less and not more) to process and Seed Programs, Seed Regulatory and Testing
your application. From a practical standpoint, Branch, 801 Summit Crossing, Place, Suite C, Gastonia,
North Carolina, 28054-2193 (Phone: 704-810-8870).
this means keeping good breeding records, being www.ams.usda.gov/lsg/seed.htm.
familiar with the PVP Web site, knowing what 4 See supra note 2.
the forms and exhibit schedules are, and keeping
5 www.ams.usda.gov/science/PVPO/Forms/Guidelines
track of time. If you are organized, the application A.htm.
process will likely go smoothly. And remember, 6 www.ams.usda.gov/Science/PVPO/Forms/Guidelines
after your PVP certificate is issued, be diligent B.htm.
and watch for infringers. PVP can provide your 7 McCarthy JT, RE Schechter and DJ Franklyn. 2004.
variety, and your breeding program or business, McCarthy’s Desk Encyclopedia of Intellectual Property,
Third Edition. The Bureau of National Affairs, Inc.:
with a foundation for realizing returns on your
Washington, DC.
investments, which can then be used to develop

S h a r i n g T h e A r t o f I P M a n a g ement VOLUME ON E
VO LUM E O N E

“At the dawn of the 21st Prepared by and for policy-makers, leaders of public sector research establishments,
century the world created technology transfer professionals, licensing executives, and scientists, this Handbook
an unprecedented wave of
offers up-to-date information and strategies for utilizing the power of both intellectual

public–private partnerships.
For such investments to property and the public domain.
bear fruit as public goods
Eschewing ideological debates and general proclamations, the authors always keep

it is paramount to manage
intellectual property with their eye on the practical side of IP management. The Handbook provides substantive
the public interest in mind. discussions and analyses of the opportunities awaiting anyone in the field who wants
This Handbook provides
to put intellectual property to work.
expert guidance to do a handbook of best practices
just that and will assist in
developing new capabilities
in low- and middle-income “This Handbook is timely. [It] is a valuable guide in helping to navigate the complex—
countries.” but rewarding—world of an increasingly global innovation system.”
—From the Foreword of Norman Borlaug, Nobel Peace Prize Laureate
— Ariel Pablos-Méndez,
Managing Director,
edited By
Rockefeller Foundation “For all who believe, as I believe, that developing countries can—and should—participate in
and benefit from an interconnected world of innovation, this book is an indispensable guide.” Anatole Krattiger
—Mahmoud F. Fathalla, Professor and former Dean, Medical School at Assiut University, Egypt, Richard T. Mahoney
and Chairperson of the WHO Advisory Committee on Health Research
Lita Nelsen
“This Handbook—which really transcends the category of handbooks altogether—

Jennifer A. Thomson
is a must read for anyone who deals with intellectual property.” Alan B. Bennett
—Pramilla Senanayake, FRCOG, Chair, Global Forum for Health Research, MIHR, and the Concept Foundation
Gregory D. Graff
“Intellectual property (IP) has become a much richer field of endeavor as it has moved from
isolationism in the world of policy to a position of engagement … [This Handbook] will serve Carlos Fernandez
as an invaluable resource in this challenging new environment.”
Krattiger
Stanley P. Kowalski
—From the Foreword of Francis Gurry, Deputy Director General, WIPO
Mahoney
Nelsen
“[This] Handbook is an important step towards transnational networks … involving multiple Thomson
Bennett
partners in both North and South—donors and doers alike—who believe in the power of
Satyanarayana
innovation to address the needs of the poor.” Graff
—From the Foreword of Sir Gordon Conway, KCMG DL FRS, Chief Scientific Adviser, DFID UK Fernandez
Kowalski
Distributed for free to developing countries

(subject to availability of funding and support).
US $150
Published by MIHR, PIPRA, ISBN: 978-1-4243-2026-4

Oswaldo Cruz Foundation, and
bioDevelopments-International
Institute The companion Executive Guide distills the key points
of each chapter into simple language and places them
www.ipHandbook.org in the context of evolving best practices.

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S h a r i n g T h e A r t o f I P M a n a g ement VOLUME ON E

a handbook of best practices

Intellectual Property Management

in Health and Agricultural Innovation

“This Handbook—which really transcends the category of handbooks altogether—

Distributed for free to developing countries

Published by MIHR, PIPRA, ISBN: 978-1-4243-2026-4

Layout and Design

Library of Congress Preassigned Control Number

Distributed free of charge to low- and middle-income countries

Richard T. Mahoney (Chair)

Jennifer A. Thomson (Co-Chair)

Comprehensive Editorial Consultant

The Rockefeller Foundation is delighted to have supported the creation of this

With best wishes,

420 Fifth Avenue

Charles J. Arntzen, U.S.A. Alex F. McCalla, U.S.A.

In-kind support provided by AUTM and PIIPA.

Foreword by Norman E. Borlaug.................................................................................................... xxvii

Section 1: Innovation and IP Management: A Contextual Overview

1.1 The Role of IP Management in Health and Agricultural Innovation....................................... 3

HANDBOOK OF BEST PRACTICES | xv

2.1 Reservation of Rights for Humanitarian Uses....................................................................... 41

Section 3: The Policy and Legal Environment for Innovation

3.1 The Courts and Innovation................................................................................................ 147

xvi | HANDBOOK OF BEST PRACTICES

Section 4: The IP Toolbox

4.1 The Statutory Toolbox: An Introduction............................................................................. 337

HANDBOOK OF BEST PRACTICES | xvii

5.1 IP Strategy.......................................................................................................................... 459

Section 6: Establishing and Operating Technology Transfer Offices

6.1 Ten Things Heads of Institutions Should Know

xviii | HANDBOOK OF BEST PRACTICES

Section 7: Contracts and Agreements to Support Partnerships

7.1 Agreements: A Review of Essential Tools of IP Management.............................................. 675

Section 8: Inventors and Inventions

Section 9: Evaluation and Valuation of Technologies

9.1 Evaluating Inventions from Research Institutions............................................................... 795

HANDBOOK OF BEST PRACTICES | xix

10.1 Defensive Publishing and the Public Domain..................................................................... 879

Section 11: Technology and Product Licensing

11.1 Licensing Biotechnology Inventions................................................................................... 991

xx | HANDBOOK OF BEST PRACTICES

Section 12: Dealmaking and Marketing Technology

12.1 Negotiating an Agreement: Skills, Tactics, and Best Practices............................................ 1155

HANDBOOK OF BEST PRACTICES | xxi

Section 14: Freedom to Operate and Risk Management

14.1 Freedom to Operate, Public Sector Research, and Product-Development Partnerships:

Section 15: Monitoring, Enforcement, and Resolving Disputes

15.1 Administration of Technology Licenses............................................................................. 1395

xxii | HANDBOOK OF BEST PRACTICES

16.1 Biotechnology Patents and Indigenous Peoples................................................................. 1437

Section 17: Putting Intellectual Property to Work:

HANDBOOK OF BEST PRACTICES | xxiii

D Focus on Solutions: Accelerating Product Development and Delivery

xxiv | HANDBOOK OF BEST PRACTICES

Appendix: Sample Agreements

Biographical Sketches of Authors and Members of the Board of Patrons.............. 1931

HANDBOOK OF BEST PRACTICES | xxv

HANDBOOK OF BEST PRACTICES | xxvii

xxviii | HANDBOOK OF BEST PRACTICES

Intellectual property (IP) is no longer seen as a self-contained domain in which specialists

HANDBOOK OF BEST PRACTICES | xxix

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