R&D and commercialisation

Digital health collaborations

As the Digital Fusion report has identified, collaborations between the healthcare and life sciences sector and technology media and telecoms businesses are at the core of successful digital health initiatives. Collaboration reduces initial financial out-lay in development and provides the parties with a wealth of expertise in a sector with which they may have had no, or limited, prior engagement.

Collaborations introduce their own risks however, with the parties working together, allocating responsibilities between themselves, relying on each other’s expertise, resources and performance. The following points reflect some of the considerations which will need to be taken into account and papered when entering into a digital health collaboration.

Project management

The scope and purpose of a collaboration, together with responsibilities, deliverables and time lines, need to be carefully defined. Performance obligations should be applied for development and commercialisation, with rules on sub-contracting.

The parties will need to agree on project management. Joint committees are often established for the management of development, commercialisation and patents. Rules concerning the roles and responsibilities of such committees, the frequency with which they meet, as well as agendas, representation, voting and minutes of meetings will be stipulated. Project teams often manage day-to-day tasks. Particular tasks may be allocated to parties under the development and commercialisation plans. Each party may have an alliance manager. The parties may agree to secondments to facilitate the collaboration.

Background IP and know how

IP which has been created before the collaboration starts or during the collaboration but outside its scope (often referred to as "Background IP") frequently underpins collaborative ventures in which IP-rich organisations pool their assets for the purposes of R&D and subsequent commercialisation.

First, the parties will need to decide what Background IP they are prepared to contribute to the collaboration. In most cases, each party will expect to retain ownership of its Background IP, and will typically grant to the other parties a licence to use its Background IP for the purpose of the collaboration and, if required, to commercialise the finished product.

As mentioned in the Digital Fusion report, restricting the use of Background IP in this way can prove more challenging when a collaboration involves the use of AI technology which learns from another party’s Background IP. Licensed patents and software may also require disclosure of a defined set of technical know-how. Usually, the owners will remain responsible for prosecuting, maintaining, defending and enforcing their Background IP, and the related costs.

Each contributing party must have the right to license the IP that they are sharing, whether by owning the IP or having a sub-licensable licence of the IP. Care should be taken where Background IP is licensed in to a collaborating party from a third party as it may contain conditions or restrictions on that party’s ability to share that IP in the collaboration. For example, it may require that any improvements are assigned or licensed back to it.

These licences might be royalty-free during the co-development phase, with strict confidentiality requirements. Any commercial use of Background IP once the co-developed product is in the commercialisation phase may remain royalty-free or be subject to commercial licensing terms including payment.

Foreground IP and know how

It is vital to establish early on (ideally before any IP has been created) the ownership, and licensing arrangements, of IP rights that are created under the collaboration (often referred to as Foreground IP). Rights to Foreground IP are often heavily negotiated. Ordinarily, sole ownership is preferred to joint ownership. However, in co-development agreements joint ownership is more frequently agreed where there is joint inventorship of patents. Such an arrangement should be considered carefully as statutory restrictions apply regarding how joint owners can exploit, use and enforce their rights, with these varying between jurisdictions.

Conversely, in some collaboration arrangements there can actually be an advantage to the parties agreeing to hold IP jointly. Due to the complexity that surrounds the use of jointly held IP in different jurisdictions, agreeing that IP should be held jointly by the collaborators can in some cases make it less likely that a party will walk away from the collaboration because of the uncertainty over the effect of doing so on their IP position.

Otherwise, sole ownership may be determined through a number of mechanisms, such as by reference to whose Background IP it improves or relates to (e.g. a party’s software, device or methodology), field, funding contributions by the parties or public grant requirements.

The party that does not own the Foreground IP (or who jointly owns it) may be granted licences. These licences may be two-tier: one for the development phase and another for the commercialisation phase, in order to permit the two licences to be granted on different terms. The licences might be exclusive or non-exclusive, limited in scope, the field of use, duration or territory, and subject to payment obligations (which could include upfront fees, milestones and royalties or be included as part of wider revenue sharing, see below) and restrictive covenants.

Responsibility for filing, prosecuting, maintaining, defending and enforcing the Foreground IP, and related costs, will be a matter for negotiation. In cases of joint ownership, one party may take the lead with the consent of the other party and costs split equally. Where the parties do not agree on filing strategy (eg with respect to filing for patent protection in a particular territory), they may wish to provide for one party to be able to file at its own cost in both parties’ names.

We are also increasingly seeing non-traditional IP positions, such as the move towards open innovation and the opportunities and threats that this poses. Similarly, there may be regulatory requirements for market access which may dictate how Foreground IP is owned.

It may be necessary to consider anti-trust rules, which in Europe would include an assessment under Article 101 (restrictive agreements and practices) or Article 102 (dominant position) of the Treaty on the functioning of the EU as well as the R&D and technology transfer block exemptions.

Third party IP rights

Freedom to operate searches and analyses may be required to identify patents and other IP rights which might be relevant to commercialisation of the product developed in the collaboration. Responsibility for conducting those searches and analyses, and the associated costs, will need to be agreed. Licences may be required from third parties with blocking IP which will require negotiation and agreement, failing which the parties may need to design around it (or challenge its validity at the appropriate time).

Parties may wish to include appropriate financial provisions in their licensing agreements to address this additional cost. Conducting freedom to operate searches may be more difficult for digital health innovations which rely on copyright which is not a registered right in many jurisdictions. In such cases, it is not possible to search IP registries for conflicting rights.

Equally, the technology may evolve very quickly in digital health innovations, such that freedom to operate searches may need to be repeated or delayed until a final product is identified (however, fixing any issue which is identified may then be costly).

UPC considerations

Subject to the outcome of an ongoing complaint before the Constitutional Court in Germany, the Unified Patents Court is still planned to take effect. This new regime will create a unitary patent - one patent covering 25 European states and a new court where both unitary patents and national patents can be heard.

The key risk with a unitary patent, or having national patents which are subject to the jurisdiction of the Unified Patent Court, is of central attack ie a third party can challenge a unitary patent or patent family in one court and, if successful, bring down the patent in all 25 jurisdictions.

For more information on the Unified Patent Court, visit our dedicated page.

Open source software

Whilst OSS allows for cheaper and faster software development, it is not entirely free to use without restriction. If a Digital Health business’s model involves the commercialisation of proprietary software, it is paramount that the software remains confidential.

All OSS is made available subject to a non-negotiable licence and the terms of those licenses can be particularly onerous, particularly where the terms are classified as restrictive, or copy-left, which require the entire code which contains snippets of OSS code to be made publically available. Such an obligation is clearly detrimental when commercialising a proprietary software product.

Compliance and regulatory filings

Depending on how the product is classified and regulated, a collaboration agreement may need to contain provisions governing the creation of trial protocols, obtaining consents and approvals (regulatory, patient and ethical), establishing agreements with trial sites and investigators, adverse event reporting, pharmacovigilance and good practice including GMP and GDP compliance.

The parties will need to agree who is responsible for filing for regulatory approvals, and dealings with the regulators. With the introduction of the new Medical Device Regulations, the parties may wish to include detailed provisions requiring all sub-contractors in the supply chain to comply with certain regulatory requirements.

The parties may also wish to ensure that their internal policies apply to the execution of a collaboration, such as those concerning anti-bribery and corruption, transparency, child labour, health and safety, non-discrimination and trade union membership.

Product manufacture and safety

The parties will need to agree who will be responsible for manufacture and supply of the product both during development and commercialisation. Each party may be responsible for manufacturing and supplying one element of the product, with one of the parties responsible for the manufacture of the final co-developed product, each at an agreed cost where applicable or a third party may be engaged.

This may differ on a territory-by-territory basis or be the same in all cases. Depending on how the product is regulated, manufacturers may be subject to obligations to ensure they have sufficient stocks of product to maintain the supply chain, as well as ensuring that it complies with the requirements of GMP. Alternative sources of supply may be used to mitigate risk.

Pricing and reimbursement

The parties will need to agree who will be responsible for manufacture and supply of the product both during development and commercialisation. Each party may be responsible for manufacturing and supplying one element of the product, with one of the parties responsible for the manufacture of the final co-developed product, each at an agreed cost where applicable or a third party may be engaged.

This may differ on a territory-by-territory basis or be the same in all cases. Depending on how the product is regulated, manufacturers may be subject to obligations to ensure they have sufficient stocks of product to maintain the supply chain, as well as ensuring that it complies with the requirements of GMP. Alternative sources of supply may be used to mitigate risk.

Read more here.

Brands

When commercialising a co-developed product the parties will need to consider branding, including (i) the trade mark(s) under which the product is marketed, (ii) the use of each party’s company name or trade marks on the product, (iii) that any trade marks, slogans and packaging are in line with that party’s own brand direction (where possible), (iv) that the proposed branding is consistent (to the extent possible) regardless of which party is marketing the products, and (v) that any branding and related marketing complies with relevant regulatory requirements. Regulatory rules will influence the trade marks used.

The parties will need to consider who will own, maintain, prosecute, defend and enforce the trade mark(s) for the product and apportion the costs of these activities. The parties will also need to agree what will happen to the trade mark in the event of termination of the agreement (e.g. whether the mark will be assigned to the non-terminating party to continue to market the product or if the mark will be surrendered).

Co-promotion

The parties will need to consider how they will allocate territories between them for commercialisation or if they wish to co-promote the developed product in all or some territories. They may grant each party an option to co-promote in certain territories in certain circumstances (eg if sales reach a certain threshold).

In the event of any co-promotion, the parties should agree detailed co-promotion plans including branding, promotion targets and strategies (such as patient communication programmes), pricing guidelines (subject to antitrust laws), supply forecasts and costs.

Any promotion will need to comply with local legal and industry requirements. These may be more stringent if the product is classified as a medical device or pharmaceutical.

Funding and revenue sharing

Project funding and costs allocation will need to be agreed (if public funding is involved it may import additional requirements (through the grant agreement or by operation of law) such as access to IP, publicity and audits). Milestone payments may be agreed where one party does the bulk of particular development work.

The parties will need to agree on the booking of sales, a revenue reporting process and the distribution of revenues. Complexities may arise if options are triggered by sales reaching certain thresholds e.g. co-promotion options or revenue sharing options. Reporting obligations and audit rights are commonplace. Consideration will also need to be given to how any revenue share might operate in the event the collaboration agreement is terminated, but a co-developed product remains on the market.

Depending on the type and structure of a collaboration, a collaboration agreement may also need to address product manufacture and supply, reimbursement activities, branding and co-promotion rights.