Biotechnology Legal Issues Involved in Technology Transfer - Assignment Example

?Case Study on the Legal Issues Involved in Technology Transfer and New Venture Formation By Contents Contents 2Introduction 3 The Consequences of the Spin-off 4 Contracts for the Transfer of Patents 6 Trade Secrets/Confidentiality Covenants 7 Joint Ventures 9 Joint Venture Equity 10 Conclusion 12 Appendix 13 Bibliography 14 Case Study on the Legal Issues Involved in Technology Transfer and New Venture Formation Introduction The activities and transactions conducted by BioVacc Ptty Ltd since 2010 involve a number of legal issues and documents. As a spin-off from RMITT, the relationship between RMITT and Bio Vacc raises a number of legal issues separate and apart from the legal issues between Bio Vacc and other entities and individuals. To begin with the arrangements with RMIT University alone involve contracts for the transfer of patents, research and development programs and the appropriate methods for dealing with equity in joint ventures. Another legal issue is the registration of the patents or the transfer of the patents’ ownership with the Office of Intellectual Property in the relevant jurisdiction. Contracts will also have to be drawn up between Bio Vacc Ptty Ltd and RMIT for the vaccine project and between Bio and Protein Solutions and Firefly Australia with respect to their joint ventures. Contracts of employment or simple contracts including confidentiality covenants will also be necessary with respect to the students involved in research. This paper examines the various legal issues involved in the transfer of technologies in the arrangements spearheaded by Bio Vacc with a view to accommodating the interests of the parties and any other relevant stakeholders particularly with reference to the patents involved. This is necessary as the parties to the arrangements are only some of the important stakeholders. Other stakeholders who are not parties to the arrangements may have interests that conflict with the commercial and/or scientific interests of the contracting parties.1 The Consequences of the Spin-off A spin-off is the creation of a new organization which is founded on the resources of the parent company or organization.2 This means that the Bio Vacc is essentially a new and independent organization that originated from RMIT. To put it another way, RMIT is commencing a new venture formation via Bio Vacc. The parent company which is RMIT in this case typically forms the new company which is Bio Vacc in this case, to facilitate technology transfer.3 Four legal issues are involved in this spin-off process. First there is the rights and obligations of the parent organization that transfers the technology (patents). Secondly, there is the stage where the technology transfer can actually start. Thirdly, the rights and obligations of the spin-off company that is attempting to form a new venture out of the technology. Finally there are the rights and obligations of the investor who provides funding.4 The roles of each of the actors are best understood by the definition of spin-offs. To this end, Boehm defines a spin-off as: A new company formed (1) by individuals who were former employees of a parent organization, and (2) which is based on a core technology that is transferred from the parent organization.5 In the context of a university spin-off, Boehm describes the spin-off as a founded by a former member of the faculty, or staff member, or even a student who departs from the university for the purpose of starting an organization or starting a company while “still affiliated with the university”.6 The university spin-off may also be a “technology or technology-based idea development within the university”.7 The main legal issues are therefore the limits and extent of the use of new technology for the new venture formed by Bio Vacc. In this case the new technology is the two vaccine patents. A second legal issue is the limits and extent to which university research members will participate in the new venture of Bio Vacc. Bio Vacc is essentially a research spin-off established to exploit the two patents transferred from RMIT. The transfer of this technology is expected to allow exploitation of RMIT’s know-how and knowledge. The spin-off is created by RMIT’s staff on the basis of the experience gained at RMIT although it does not have a legal link to RMIT aside from the transfer of a fraction of its equity. There is to some extent a spin-in on the part of RMIT in that it can function inside of Bio Vacc, although RMIT is a separate legal entity.8 The legal documentation necessary for forming the spin-off will obviously be the formation of a new company, Bio Vacc under the Companies Act 2006. This document will name the shareholders in such a way as to reflect the initial investments of the investors and the technological contribution of RMIT in terms of equitable value. The corporate documents will also provide specific details of the officers and directors and will therefore name the primary investor as CEO and the management roles that RMIT will play in the new venture (Bio Vacc). In other words, the initiating corporate documents will appoint and identify the officers and directors of BIO Vacc. Contracts for the Transfer of Patents It is not clear whether or not the university has assigned the absolute title to the patent to Bio Vacc. It can only be assumed at this stage that the assignment is merely a consent to use the patent and does not involve a transfer of ownership. Regardless of the extent of the transfer the proprietorship of the technology behind the patent, the rights applicable to the patent are required to be assigned. This can be conducted by virtue of a document referred to as an Assignment of Patent Rights. Alternatively an Agreement on Transfer of Technology may be used to include a clause assigning the patents’ rights. In both instruments the university will be referred to as the assignor and this covers the vendor or seller or the transferor. Bio will be referred to as the assignee which is the buyer or the transferee.9 Since the university has insisted that it be the partner of first choice with respect to any research involving vaccines and the patents involve patents it would appear that the university is extending a license to use the patents rather than surrendering total ownership. It therefore follows that a license of technology is appropriate. This would involve permission to use the patents within the prescribed parameters. As Rossini explains: The owner or licensor may grant permission to use a patented invention or process, or rights to manufacture, sell, distribute or market the resulting product for a defined territory and term.10 The only term appears to be the first consultation provision. Even so, it appear to be a condition of the use of the patents and must therefore be included in the license. It will also be necessary to specifically include in the license or the assignment the extent to which Bio may use, manufacture or exploit any resulting material or products resulting from the use of the patents.11 Trade Secrets/Confidentiality Covenants Bio has a staff member of the university and PHD student assisting in the research. It is not known whether or not these parties are employed or merely contracted out by the university or are merely participating for their own academic interests. In either case they are working within the confines of Bio Vacc which is for the most part conducting research and working with intellectual property and will probably invent something new or discover something unique. Since Bio is working with material, techniques and information that is not generally released in the public domain, some measure of protection is necessary. If there are contracts between the student and the university staff member and BIO, a confidentiality clause should be include in the contracts. Any breach of the covenant will therefore become a breach of contract under the law of contract and the party releasing trade secrets or any other confidential technology information would be liable in damages.12 There are a number of ways that the law seeks to protect trade secrets/confidentiality or “non-public domain status”.13 Protection may be by virtue of the statutes for the protection of intellectual property against the unauthorised use of patented or copyright material generally. Protection is also granted under the common law which has a set of standards and principles intended to prevent freeriding. The tort of misappropriation or wrongful torts may also function under a form of social contract in the events neither the student or the university staff members have actual contracts with Bio Vacc.14 The case with respect to Protein Solutions and Firefly Australia is clearer. Protein Solutions have been contracted to manufacture the vaccine for preclinical studies and Firefly was contracted to complete GLP pharmacotoxicology and safety studies. Since both of these parties’ services are engaged a contract of service will be necessary and a confidentiality clause should be included in those contracts as an extra protection against the risk of unauthorized used of the technology implicit in the vaccine’s patent. Joint Ventures The facts of the case study clearly indicate that the arrangements between Bio and the university are a joint venture. A joint venture is described by Rossini as: The collaboration of two or more parties to establish a business. In the context of technology transfer, the owner of technology would form a business together with the recipient who may be a manufacturer and/or distributor.15 The university owns two patents that it assigned to Bio under the condition that it received funding for unrelated research in the sum of $50,000 a year for three years, 20 per cent equity in Bio, and to consider the university as “partner of first choice for any contract research relevant to vaccine development”. These terms and conditions are consistent with the definition of a joint venture particularly in cases of technology transfer. As Rossini explains, a joint venture is structured around the “complementary aspects of each party” and it makes provision for: The continued involvement of the provider of industrial property, who may provide patents, processes, designs, knowhow and expertise.16 Bio and the university are sharing their mutual knowhow and expertise. The university, in addition to having a continued involvement is providing patents. There is no doubt that the arrangements between the university and BIO fall under the umbrella of a joint venture. Bio, as the recipient of the technology is providing manpower, the material and the place for conducting the research and the resources. A joint venture agreement or contract should be signed to reflect the specific terms and conditions of the joint venture under the new venture. This will supplement the company formed under the name and style of Bio Vacc and will fill in any gaps left in the corporate documents. For instance the corporate documents do not usually spell out that that shareholders or board members will have a right to first partnership with the company formed. Nor does it speak to payments other than the obligation to pay shareholder dividends. A joint venture agreement will specifically identify and detail these obligations and arrangements. Moreover, the joint venture agreement will make these obligations and arrangements legally binding on both parties to the joint venture. Joint Venture Equity The joint venture is a natural consequence of the spin-off between RMIT and Bio Vacc. While it is obvious that RMIT intended to form an independent company with the formation of Bio Vacc, it is equally obvious that RMIT intended to be a part of the exploitation of the patents transferred to RMIT. Therefore, while Bio Vacc is a spin off from RMIT, it is also part of a joint venture for research and development efforts on the part of RMIT. There are essentially two ways that this new venture formation between BIO and the university can be dealt with. The new venture formation can be dealt with by virtue of a contractual joint venture or the agreement can be reflected in a company as shareholders in the company. This would then be an “equity joint venture” company.17 Since the university has received a 20 per cent equity in the company that was already formed, it can be argued that an equity joint venture company has already been formed. In any event, the joint venture or the new venture formation should include agreements for licensing, handling and providing equipment, consulting, management, distribution, exclusivity and confidentiality.18 Consultancy will arise in terms of technical matters. Individuals will provide advice, training or other types of services related to the transfer of the technology. This may involve “intangible knowhow” which should be protected by virtue of contract.19 Similarly, distribution, exclusivity, confidentiality, management and equipment should be detailed in a contract so that the parties know what their obligations and rights are. In particular the parties ought to know in advance what share of the capital they will receive and what share of the liabilities they will undertake. Obviously as an equity venture company, liabilities and shares will be determined by virtue of the Companies Act 2006 under the auspices of the limited liability company.20 In this regard, the university will be responsible for 20 per cent of the expenditures and entitled to 20 per cent of the profits. However, there are other aspects of the operations involved in the new venture formation and the transfer of technology that are not covered by the Companies Act 2006. This would include management, the sharing of resources, consultancy and responsibility for providing equipment. These aspects of the new venture formation and the transfer of technology ought to be specified in a contract between the university and Bio. For instance, distribution for liability in respect of the risk of harm in the clinical trials in Australia must be considered in the context of which party stands to gain the most should the clinical trials succeed. Conclusion There are a number of legal issues that can arise in the transfer of technologies and the formation of new ventures. This is so regardless of the past working relationship of the parties. Although Bio arouse out of projects conducted by the university, the relationship between Bio and the university with the formation of the company not only severed the pre-existing relationship between Bio’s founder and the university, but gave way to an entirely new relationship. This new relationship involves a number of legal issues and impacts third parties or other stakeholders. These stakeholders or third parties are the university student, the university staff member and the outside partners involved in Bio’s strategies for preclinical trials and distribution. For the most part the legal issues are related to the technology implicit in the patents and the patents that will likely arise as a result of the new venture formation. Appendix Legal Instruments Necessary for the Technology Transfer and New Venture Formation Between Bio Vacc and RMIT Bio Vacc/RMIT Transfer of Patent Confidentiality Joint Ventures Spin-off Covenants 1. Formation of a company (Bio Vacc) 1. Assignment of patent rights Staff member of RMIT 1. Joint venture Agreemt between Bio and RMIT a. Distribute shares reflecting each party’s equity 2. Or Agreement on Transfer of Technology with clause assigning patents’ rights. PHD Student of RMIT a. Terms and conditns of RMIT’s role. b. Appoint and identify officers and directors. Confidtly. Clause in Service Contracts with Firefly and Protein Solutions. b. Terms and conditns of Bio’s obligatns and rights. c. Licensing agreement d. Consulting. e. Consultancy Bibliography Boehm, J. (2008). Entrepreneurial Orientation in Academia. Frankfurt, Germany, Babler-Verlag. Colston, C. and Galloway, J. (2010). Modern Intellectual Property Law. Oxon, UK: Routledge. Companies Act 2006. Haq, H. (2007). “Constructing a ‘Coordinated Structure’ in the Contract for the Transfer of Technology.” International Journal of Technology Transfer and Commercialisation, Vol. 6(1): 24-39. Oakey, R. et al. (2010). New Technology-Based Firms in the New Millennium, Vol. 8. Bingley, UK: Emerald Group Publishing Limited. Robertson, A. (2004). The Law of Obligations: Connections and Boundaries. London, UK: Cavendish Publishing. Rossini, C. (1998). English as a Legal Language. London, UK: Kluwer Law International Ltd. Read More