Platform technology collaborations – who owns the arising IP?

Platform technologies, often the core business of a biotech or techbio company, can be extremely valuable assets. Whether it’s a high throughput biochemical screening technology or an AI platform for identifying potential drug candidates, they are often in high demand.

In this article, we look at a collaboration scenario where a biotech company (who we’ll refer to as ‘PlatformTx’) owns a drug discovery platform and uses it in collaboration with another company to discover new drug candidates. The collaborator will take forward the drug candidates for development and commercialisation and PlatformTx will receive milestone payments and royalties from the collaborator.

Who should own the IP in the drug candidates identified through use of the platform and what ramifications does this have for PlatformTx? Broadly speaking, the IP in the drug candidates could be owned by the collaborator, by PlatformTx, or the IP could be jointly owned. There is no ‘one size fits all’ answer, and the approach very much depends on the circumstances and the relative bargaining power of the parties.

PlatformTx owns the IP

The strongest position for PlatformTx is to own the IP in the drug candidates identified using the platform, perhaps granting the collaborator an exclusive licence to develop and commercialise this IP. If the licence terminates for any reason, for example, if the collaborator commits a material breach, goes insolvent or doesn’t progress the technology, PlatformTx still owns the IP and can in theory license it to a third party or move forward with it itself (although there are a number of potential difficulties with this, including proving any breach by the collaborator and dealing with any further product IP that has been generated subsequently by the collaborator that the collaborator owns).

Collaborator owns the IP

If the collaborator owns the IP in the drug candidates identified using the platform, the parties will probably have an agreement that looks very much like a licence agreement, with the collaborator responsible for development and commercialisation, and PlatformTx receiving milestones and royalties if the products are successful.

In this scenario, PlatformTx is in a very different position, and needs to think carefully about how it can protect its revenue stream if things ‘go wrong’.

Termination

In a traditional licence agreement, parties can usually terminate in breach scenarios or where the licensee is not progressing the technology, and the licensee can often terminate for convenience. But in the scenario where the collaborator owns all the IP in the products, termination on its own is not an attractive scenario for PlatformTx, as the collaborator would be free to continue exploiting the products in question without the obligation to share any revenue with PlatformTx.

PlatformTx must think carefully about when the collaborator should be allowed to terminate the agreement and what the consequences are. Where termination is allowed, PlatformTx should consider whether it should prohibit the collaborator from further exploiting the drug candidates (depending on the reason for termination) or alternatively ensure the agreement provides for the royalty and milestone provisions to stay in place where the collaborator is able to continue exploiting the technology, even if other provisions may fall away.

There may also be scenarios where PlatformTx can gain access to the IP in the drug candidates on termination of the agreement, either through assignment or licensing, and this could happen automatically on termination, or require agreement of the parties at the time. There are many different nuances to consider here and, if this is something PlatformTx wishes to pursue, the mechanism should be considered carefully at the outset to give PlatformTx as much certainty as possible.

Selling the IP

Another risk for PlatformTx is the collaborator selling the IP to a third party. In the absence of anything to the contrary in the contract, if the collaborator sold the IP to a third party, and that party took the IP without knowledge of the contract between the collaborator and PlatformTx, PlatformTx would (under English law principles) lose its revenue stream.  Also, PlatformTx would have no claim to the IP, and no claim against the new owner (who is not bound by the contract and who is not infringing any of PlatformTx’s IP).

Therefore, it is important for PlatformTx to include restrictions or conditions in the contract around the collaborator selling the IP to a third party, such as a broad consent right to an IP sale or a contractual obligation on the collaborator to pass the obligation to pay royalties (and other relevant obligations) onto the new owner. These provisions would not prevent the new owner from taking the IP without an obligation to pay royalties, but would at least give PlatformTx a claim against the collaborator.

Insolvency

If the collaborator is having financial difficulties or goes into administration or liquidation, what are the options for PlatformTx to protect its revenue stream? In common with the scenarios outlined above, PlatformTx might wish to consider including provisions in the contract for the assignment of the IP to PlatformTx upon certain insolvency triggers, but these kinds of provisions can often run into difficulties with enforceability, and will be impacted heavily by the insolvency laws of the country in which the collaborator is located and the powers that are afforded to insolvency practitioners. 

Parties jointly own the IP

The parties may agree to jointly own the IP covering the drug candidates that arise from the initial collaboration.

Joint ownership of IP is not straightforward and rules about what joint owners are permitted to do with the IP vary by jurisdiction. The general position in the UK is that, unless there is an agreement to the contrary between the co-owners, co-owners are permitted to exploit the jointly owned IP themselves without the other co-owner’s consent, but cannot assign or license the IP to a third party without the other co-owner’s consent. Therefore, the agreement between PlatformTx and the collaborator must deal with the rights of each party to exploit the IP, grant licences, assign the IP, and manage and enforce the IP.

PlatformTx also needs to think carefully upfront about the consequences of termination and insolvency of the collaborator. As a joint owner of the IP, PlatformTx is in a better position than if the collaborator solely owned the IP, as it would normally be a party to any transaction involving the collaborator selling its interest in the IP (this can vary depending on the jurisdiction). However, the parties would still be advised to include provisions in the agreement addressing the assignment of the IP, and the requirement for the collaborator’s obligations in the contract to be taken on by the new IP owner.

Conclusion

It is always more secure for PlatformTx to own the IP arising from collaborations with its partners, but this is not always possible or appropriate. Where the collaborator has part or sole ownership of this IP, and is paying royalties and milestone payments to PlatformTx on the downstream exploitation of that IP, there are a number of risks for PlatformTx. Companies in this position should be aware of these potential pitfalls and, although they can never be totally mitigated, the inclusion of the contractual protections outlined above will most certainly help.