Avoiding IP Pitfalls During 'Build to Buy' Deals in Biotech

Winsome Cheung’s commentary was included in a Law360 article examining the intellectual property considerations for pharmaceutical companies when considering whether to enter into transactions to fund, guide, and eventually buy biotech innovations.

Winsome provides her insight on actions companies should take, saying, “The parties should consider which company will own the IP rights during the collaboration before they enter into an agreement. This can be put into a research plan which shows who will own any potential IP. A very simple model, which is favorable to the [seller], is for it to own all of the arising IP during the option period, because, ultimately, if the company isn't bought then it gets to retain that IP and has freedom to operate or sell to another buyer.”

She added that there are gradations depending on how much involvement the potential buyer has had in the research and development process. "Especially if [the option holders] themselves contribute their own technology to the collaboration — they may wish to ensure they own the IP relating to what they contributed, so they can keep hold of these improvements," Winsome said. But the seller "would want to ensure they will not be blocked in the future if the option isn't exercised."

Winsome also addressed the issue of the need for a mechanism in the initial contract to avoid so-called contamination issues — which arise when the parties in a build-to-buy transaction each incorporate their technology or improve upon this during the collaboration period, mixing together their existing IP: “Solving the know-how contamination issue is partly by contract but also partly by operational measures. For example, setting up firewalls and clean teams that work on specific kinds of technology.”