5 June 2014
Intellectual property protection is vital to maximising the benefit of research and development in the life sciences. Technological improvements, especially when embodied in commercial products, tend to be fairly transparent and therefore available to potential competitors. Such competitors can therefore acquire knowledge about state-of-the-art technology within a reasonably short period of time and with relatively modest research and development effort of their own.
In order to understand the benefit of intellectual property protection, an understanding of the technology lifecycle is important. Early phases in the technology lifecycle, such as research and development and the early part of the adoption phase are typically characterised by initially low but rapidly increasing levels of performance improvements in the technology but negative revenue. During the intermediate phases of later stage adoption and maturity – performance improvements in the technology become increasingly hard to achieve but revenues rapidly increase. In the later stages of decline and obsolescence little or no performance improvements are possible and revenues in respect of the technology diminish.
In the following two figures the columns each represent a phase during the technology lifecycle: A = Research; B = Development; C = Adoption; D = Maturity; E = Decline / technology substitution; and F = Obsolescence.
It is also important to note that the costs / revenues shown in the technology lifecycle curve in figure 1 represent the costs / revenues spent or achieved by all market entrants in respect of a given technology as a whole and not just the costs / revenue of the first life sciences company to develop the new technology. Accordingly, it will often be the first developer that incurs almost all of the cost of the initial pre-revenue research and development phase but also the early post-revenue phase too.
However, revenues in the maturity phase will often be shared by the initial developer together with a number of other market entrants that have recognised the market potential of the technology and, benefitting from the research and development of the initial developer, have been able to adopt the new technology and compete with the initial developer for revenues derived from that technology. The time at which this competition occurs will depend entirely on the strength of intellectual property protection the initial developer has managed to acquire. Accordingly, the longer a life sciences company can prevent competition, the greater proportion of the available revenues from a particular technology can be kept to itself. Accordingly, early stage life sciences companies that have broad intellectual property protection in respect of their core technologies are much more attractive investment propositions.
The term intellectual property covers a number of different rights, all of which are legal constructs that have been developed in order to give individuals and companies a property right in ideas, expressions and embodiments of ideas and information developed by them. Such property rights enable individuals and companies to protect those of their ideas and information that have some commercial value from exploitation by others so that they can themselves realise some commercial benefit from their own innovation. In essence all are negative rights giving the owner of the intellectual property right the right to prevent others from doing certain things. The most relevant intellectual property rights in the context of a life sciences company are patents, confidential information or trade secrets, copyright and trade marks.
coloured liquid in bottlesIn terms of technological innovations the principal intellectual property right is the patent, which is granted in respect of technological improvements over the current state of the art. These technological improvements can be very significant (such as a brand new technology) or relatively modest (such as an incremental improvement of an existing technology). Both types of invention are generally entitled to patent protection so long as they are: i) new (i.e. the invention has not been made publicly available before the date on which a patent is applied for); ii) not obvious in light of the current state of the art (which is actually a relatively low hurdle that is based on what a notional non-inventive person would find obvious); and iii) industrially applicable.
The essential function of the patent system is to incentivise innovation and the development of the corpus of knowledge of society as a whole. Accordingly, a patent once granted gives the owner of it the right to prevent anybody else (even somebody that independently comes up with the same invention at a later date) from doing anything that falls within the scope of the patent, in essence, providing a monopoly to the patent owner in respect of the invention. A patent then lasts for a maximum of 20 years. As a quid pro-quo for the grant of this exclusive right, the inventor must fully disclose the invention in a publicly available document so as to enable third parties to be able to put the invention into practice after the patent expires.
It is important to note that holding a patent does not give the patent holder the positive right to market the invention that is the subject of the patent. In particular, the patent holder must not ignore the patent or other intellectual property rights of others. For instance, a product may be covered by a number of different patents that may be owned by more than one individual. By way of example:
One person invents the therapeutic inhaler and gets a patent for therapeutic inhalers per se. Later, another person develops an improvement on the earlier inventor's therapeutic inhaler and gets a patent for that improvement. The inventor of the improvement will not (without a licence) be able to market his improved therapeutic inhalers without infringing the earlier patent on inhalers per se and conversely the earlier inventor will not (without a licence) be able to market the improved inhaler without infringing the later patent.
Securing patents around the world is an expensive business, so it is important to be strategic in where patents are sought. In essence, patents should only be sought in the countries where there is either i) a potentially large market for the patented product or process; or ii) a high likelihood of manufacture of the patented product. To patent more extensively would be cripplingly expensive. Even in Europe, it is not generally advisable to seek patents in every country in the EU instead focusing on the larger European economies of the UK, France, Germany, Spain and Italy for this reason.
A life sciences company will, in the course of developing its technology, generate information that has a commercial value. This information for as long as it remains secret is known as confidential information or trade secret. Keeping such information confidential will be valuable as a means of maintaining a competitive advantage over others operating in the field for a number of reasons, including:
Clearly, the value of confidential information to the innovator will diminish as soon as that information ceases to be confidential or secret and becomes publicly available to all. However, in order to exploit confidential information and trade secrets it is sometimes necessary to disclose it to others. Such disclosure can be protected by the law of confidence, enabling a person to disclose secret information to a recipient in confidence thereby imposing an obligation on the recipient to maintain the secrecy of the information.
While the patent system provides a time limited monopoly right in return for a public disclosure of the invention, confidential information can remain secret indefinitely. Accordingly, it can be tempting to rely instead on the confidential nature of the invention rather than applying for patents. However, most inventions, once marketed are capable of being reverse engineered and in the absence of patent protection such reverse engineering by a competitor is perfectly permissible.
Where patents protect an industrially applicable idea per se, copyright on the other hand protects the way in which an idea is expressed from copying by third parties. Unlike with patents, to infringe copyright there must be actual copying and so independent creation without copying of the copyright work will not be an infringement. Intended primarily to protect literary and artistic works, in the context of life sciences innovations copyright is applicable to any computer software (which is considered a literary work) that a life sciences company develops in order to implement its innovation or for the purpose of research (for example, in bioinformatics). Also, while patents must be applied for, copyright arises automatically from the moment the idea is recorded in tangible form (e.g. written down) and in respect of literary works (which includes software) lasts for the life of the author plus a further 70 years.
It is important to note in respect of copyright in computer software that it is only the expression the software programmer choses to use in order to cause a computer to implement a particular task (i.e. the code the programmer chooses) and not the task itself that is protected by copyright. Accordingly, it is not an infringement of the copyright to observe the task enabled by the copyright software and then write software code that causes the same task to be performed (a patent would be required to protect the task).