Keeping an Alliance on Target

Section I.P.? Non-Compete Provision? ?Non-compete or exclusivity provisions are generally regarded as protective measures. The restrictions associated with these provisions are intended to ensure that the parties to a biopharma alliance keep focus on the deal’s objectives.? Actually, however, there is a hierarchy of protective measures, ranging from least to most restrictive, as follows:? (1) segregation of alliance technology, and those having access to it, from others who might legitimately engage in competitive activity (I’ll call this “Segregation”); (2) contractual non-compete and exclusivity provisions (“Non-compete”); and (3) assignment of improvements to the originator of the alliance technology (I’ll call this “Assign Improvements”).

Segregation of alliance technology from portions of one or both parties’ employees permits relative freedom to conduct parallel development and/or commercialization programs.? Segregation is most often invoked to cover the circumstance when a party to an alliance has a change of control or acquires an entity, and thereby inherits a program in competition with the objectives of the alliance.? However, segregation is also sometimes used in instances where a party has other programs in the same field as the alliance.? Protections afforded to a party in such instances typically involve explicit requirements to identify and sequester individuals or groups having access to alliance technology, creation and maintenance of firewalls to prevent the movement of, or access to, alliance technology beyond those directly involved, and timely notification of the existence and status of any such competitive or “distracting” program.? Although these provide meaningful protective measures, Segregation clauses are minimally restrictive to the business of the partners.

An analysis of Segregation provisions done by BioSci showed that 80% of such clauses addressed segregation measures following a change of control or asset acquisition by an alliance party.? Here’s an example of a Segregation provision from the 2018 Adaptive Biotechnologies discovery alliance with Genentech for neoantigens to treat cancer:

Rather than restricting access to and use of information, Non-compete clauses restrict activity.? Such provisions might apply to one or both parties, reciprocally or differently, during the collaborative term, plus some period after, or for the full term of the alliance.? Non-compete provisions generally apply to a specific field, which might be defined on the basis of target, compound class, disease and/or therapeutic modality (e.g. monoclonal, mRNA).? An analysis of Non-compete provisions done by BioSci showed that 43% of such clauses were restrictions on the activities of the technology or compound originator; 32% were restrictions on the activities of the commercialization partner; and 25% were restrictions that applied reciprocally to both parties.

Over the course of an alliance, Non-compete clauses typically become less restrictive, as intermediate stages of development (e.g. lead compounds, clinical candidates) are used as gating mechanisms to advance (or release) collaboration IP.? Upon successful commercialization, the licensed scope might be expanded (e.g. back-up compounds, non-field uses), but in the event of termination or truncation of the alliance, a party’s IP would typically revert to its originator.? As such, Non-compete provisions invoke restrictions of competitive activity in specific areas while maintaining some ability for the restricted part(ies) to engage in development or commercialization activity in an adjacent space.? Non-compete clauses typically have no requirements for notification, segregation of personnel or firewalls, nor do such provisions change the default rules of inventorship.

Why are Assign Improvement provisions at the top of the hierarchy of protective measures?? Instead of regulating access to information or certain types of activity, Assign Improvement clauses allow development to proceed freely and instead focus on the ownership of such development.? At their most restrictive, improvement provisions will assign ownership of all improvements to the technology’s originator – including improvements invented by the parties jointly or solely by the commercialization partner – thereby bypassing the default rules of inventorship to ensure that all technology modifications and enhancements reside with the originator.

An analysis of improvement provisions done by BioSci found five distinct categories of these clauses.? Assign Improvements was most common, at 32% of instances.? These provisions typically require the commercialization partner to notify the originator of any improvements on a timely basis. All improvement-related patents are assigned to the technology originator, and that party generally conducts patent prosecution and enforcement.? Here’s an example of an Assign Improvements clause from Cell Design’s 2016 CAR-T alliance with Kite Pharma:

The next most common category of improvement provisions, at 20% of instances, I’ll call Assign & License.? For this type of clause, the technology originator is assigned all improvements, but such improvements are then licensed to the commercialization partner for uses within the initial license scope.? Here’s an example of an Assign & License provision from EvoGenix’ s 2007 discovery alliance with AVEO:

As to the three other improvement categories, improvements aren’t assigned and the underlying default rules of invention ownership remain unaltered.? Per BioSci’s analysis, improvements were licensed to the commercialization partner in 14% of instances, were licensed to the commercialization partner with grant back to the originator in 18% of instances, or entailed joint ownership, with each party owning its sole improvements, in 16% of instances.? For each of these three categories, improvement-related IP is swept into the base license provisions, typically including responsibility for patent filing, prosecution and enforcement.

In summary, when a deal discussion turns to protective measures, it’s important to remember that there are multiple arrows in your quiver.? Choosing the right one can make a big difference in keeping an alliance on target.

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You can see the introduction to this ongoing series of articles about best practices in biopharma licensing, or go directly to links to previously posted articles of the series here.