United States: Commingled Intellectual Property–Like Peanut Butter And Jelly?

Who doesn't like the favorite sandwich of childhood – peanut butter and jelly? The two substances blend and meld together, creating a delectable gooey, messy, sticky and sweet treat.

In the life sciences, commingled intellectual property can also create "gooey," messy and sticky problems for companies. Unfortunately, there's nothing sweet about commingled IP and the complications that can arise from it, and you can be sure that an experience arising from claims of commingled IP will leave a sour taste in your mouth. Here we discuss proactive or preventative steps that companies can take to reduce the risk of commingling IP.

In layperson's terms, commingled IP arises when intellectual property belonging to one party becomes incorporated into a proprietary creation belonging to another party, or is used by the second party in developing the second party's proprietary intellectual property.

How might this happen?

An R&D company might in-license the use of certain materials or processes for use in its own R&D program. Typically, in a licensing agreement, the licensor will allow the licensee to use the licensor's proprietary materials or IP in connection with the licensee's pursuit of a specific research project. However, scientists in research companies and universities commonly confer with one another; collaboration and exchange of ideas is a hallmark of scientific innovation. This sharing of information about materials and processes used by one research group may influence a group of colleagues to use the same materials or processes in an unlicensed project.

A clear hypothetical example of commingled IP involving materials could be a situation in which Company A licenses the rights to use stem cells produced by Company B in developing a biologic drug or vaccine relating to prevention of shingles. Scientists at Company B confer with colleagues and due to absence of appropriate safeguards in the license and/or deficiencies in Company B's IP management, the colleagues use the licensed stem cell strains on a project, which leads to development of a biologic drug for a condition other than shingles.

Another hypothetical example would be one in which there is a proprietary process ("know how") which is licensed by Company B to use in connection with its shingles biologic drug development. In regular scientific roundtables, scientists on the shingles biologic drug team discuss their methodologies, including the steps which constitute the licensed "know how." The scientists who are not working on the shingles vaccine do not know that the "know how" methodology was licensed from Company A. They go on to use the same methodological steps in their own, unrelated experiments, which result in fruitful, commercially viable results.

In each of these hypotheticals, Company B has developed a viable invention which arguably contains IP that belongs to Company A. Some of the negative repercussions which may result include:

  • Breach of contract/breach of license claims asserted by Company A
  • If the IP was patented, claims for patent infringement
  • If the IP was not patented, statutory and common law claims for misappropriation of trade secrets (which can arise from unauthorized use or disclosure of trade secrets)
  • Negative effect upon Company B's ability to patent the invention and/or enforce patents containing commingled IP, and/or ability to obtain copyright protection
  • Inability for Company B to honestly represent that it owns all intellectual property rights to its invention
  • Difficulty with existing investors
  • Difficulty attracting new investors or additional investments from existing investors
  • Negative press
  • Expense and time diversion resulting from litigation
  • Issues of joint ownership and the need to document the same if joint ownership is agreed upon
  • Litigation with Company A if joint ownership is not agreed upon
  • Different rules regarding joint ownership may apply depending upon whether the issue is intellectual property ownership or copyright ownership – in one instance, joint owners may have duties or accountability to one another
  • Copyright protection difficulties

So what are some proactive steps that a Company might consider taking in order to avoid the sticky mess of commingled IP? Some suggestions follows.

  • First, have a clear understanding of the permissible scope of use of licensed IP.
  • Licensor should consider including appropriate safeguards and audit provisions to reduce/monitor risk of commingling

    • Consider whether to require individual recipients at Company B to sign a confidentiality agreement
  • Licensee should consider:

    • Periodic internal auditing processes to monitor the use of licensed IP.
    • Consider whether to implement restrictions or guidelines for internal discussions amongst scientists when mentioning IP owned by another entity.
    • Consider whether to implement guidelines for scientists on lab notebook notations that relate in any way to licensed IP
    • Consider whether to engage forensic consultants to evaluate whether inventions are free of commingled IP
    • Ensure that your internal confidentiality agreements with employees make clear that confidential or proprietary information belonging to third parties must be maintained as confidential

The specific proactive or preventative steps that a company should take will be highly dependent on the particular facts of that company's operations and its access to and use of IP belonging to another. Our intention in this blog is to raise awareness of the issue. The old adage, "an ounce of prevention is worth a pound of cure" certainly applies in this context. Take the time to consider the issue as it relates to your company. With proactive, preventative strategy and some luck, you may one day enjoy sweet success without experiencing a sticky IP mess along the way.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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