Canada: Commercialization Of Intellectual Property In Hospitals

Last Updated: May 21 2008
Article by Paige Backman

Technology transfers and the commercialization of intellectual property in hospitals refers to, in a simplified model, the process through which ownership or license rights to inventions and other intellectual property developed by doctors and researchers flow to the hospital, and thereafter to third parties, in a commercially responsible manner.

Hospitals are wellsprings of intellectual property. It is not always as obvious as inventing an implantable neurostimulation system. Aside from the more obvious patentable inventions, there are software databases, processes, scientific or medical papers and findings, educational materials, trade-marks and copyright. Each of these intellectual properties has a commercial value. Maximizing the commercial value of such intellectual properties is a significant issue for most hospitals.

Barriers faced by healthcare institutions to fully realizing the commercial value of intellectual property are unique, even among other public sector entities such as higher education institutions. In order for a hospital to maximize the commercial value of intellectual property, it requires resources knowledgeable in medicine, intellectual property, licensing, corporate structures and tax. A number of hospitals either have, or work with, affiliated hospitals or universities to satisfy some of the foregoing requirements. It is rare, however, for any hospital to have the breadth of resources necessary to fully realize the commercial value of its intellectual property.

In addition to the lack of cohesive knowledge resources, one of the key impediments hospitals face in fully maximizing the commercial value of its intellectual property is that patient care, including public access to the best healthcare, the latest discoveries and inventions, is paramount to all other interests, including cost recovery. Another impediment is the inventor's obligations and desires to publish his or her findings. However, if one accepts the paradoxical nature of the hospital's need and desire to advance public health through public access and publishing, against the reality that hospitals, in order to continue to operate, must operate on a cost recovery basis (at the very least), one can begin to put together the appropriate avenue through which a particular piece of intellectual property may be commercialized.

There are many different ways to commercialize intellectual property. One way is for a hospital to obtain ownership of the intellectual property and to market and commercialize it themselves. This is rarely a practical approach given the limited financial and knowledge resources required to further develop the intellectual property. In this situation, the hospital would be required to properly market it and negotiate all of the end user agreement contracts with royalty payments flowing back to the hospital, and thereafter back to the inventor. Another approach is to license the intellectual property to an existing corporate entity which is in a better position to develop it, if necessary, market it and negotiate all of the end user agreements. Alternatively, a new entity can be created by securing the appropriate management and financial resources from the private sector. In this case, the intellectual property in question can be fully commercialized, licensed or transferred to the new entity with the inventor having share ownership of it.

Each approach must be considered by appropriate corporate and tax counsel who are knowledgeable about medical research and venture capital financing. This is to structure the go-forward entity and relationship in a way that accounts for the divergent interests of the inventor, hospital and financing parties. As well, tax counsel should be knowledgeable about the tax consequences relating to royalty payments from various licensing arrangements, both domestic and international. Counsel should also be knowledgeable about the various corporate entities available to be used as well as the benefits and consequences of including financing parties from the United States and other foreign countries.

The contract terms appropriate for commercializing intellectual property are as varied as the number of available structures. They are further nuanced by the concerns specific to a particular hospital, inventor and financing entity. However, the key terms are always: who owns what going into the relationship; who owns what as a result of the new relationship; who owns modifications or improvements, if any, on a go-forward basis; who may use the intellectual property on a go-forward basis; and what is the appropriate compensation model for the hospital, the inventor and for the parties financing the venture?

The effective commercialization of intellectual property is a key piece in maintaining Canada's place as a leader in healthcare. To retain the doctors and researchers who develop the intellectual property, without losing them to more commercially driven markets, hospitals need to develop their knowledge of the available and appropriate structures for commercializing the specific intellectual property in question based on corporate law, intellectual property law and tax law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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