How to ensure an unbroken chain of title to inventions
It is crucial for early-stage life sciences companies to ensure that they have title to the inventions which they rely upon. Firstly, for an early-stage life sciences company to be able to commercialise the products and services it is developing, and to block competitors from offering the same products and services, the company is dependent on the exclusive rights to the inventions that such products and services are based on. Secondly, early-stage life sciences companies are often dependent on obtaining funding through a private placement or IPO. As private placements in, and IPOs of, such companies are investments in the inventions that these companies claim to have, investors will usually conduct due diligence to ensure that such companies have unbroken chains of title to their inventions.
By Jenny Nondal & Thomas Hagen
All early-stage life science companies should therefore be able to document an unbroken chain of title to their inventions.
A life sciences company's invention portfolio may consist of (a) inventions made by, or on behalf of, the company and (b) inventions acquired, or transferred from, a third party. This issue is highly relevant in both Norway and elsewhere. The recent US Supreme Court decision in Minerva Surgical, Inc. v. Hologic, Inc is an important reminder of its significance.
In this article we will set out how an early-stage life sciences company can ensure an unbroken chain of title to the inventions made by, or on behalf of, the company. We will also set out how an early-stage life sciences company can ensure that the chain of title to inventions which the company is considering acquiring or obtaining from a third party is not broken.
(A) Inventions made by or on behalf of the company
Under most national patent legislation, patentable inventions can only be made by natural persons. As a result, the original owner of an invention will be the natural person that made the invention, usually an employee or a consultant, rather than the employer. It is therefore important that an early-stage life sciences company ensures that all rights to, and title in, inventions made by its employees and consultants are assigned to the company. A company can obtain such rights through statutory patent provisions or through agreements with relevant inventors.
Obtaining title to an invention through a statutory patent provision
Under national patent legislation, a company is usually entitled to the title to the inventions made by its employees. However, the assignment of the title to an invention from an employee to an employer under national patent legislation, such as the Norwegian Employees' Invention Act, does not take place automatically and requires the employee to make an assignment declaration to the employer.
Additionally, an employer's statutory right to title in the inventions made by its employees will vary in depending on the applicable country's legislation. Consequently, we recommend that early-stage life sciences companies include assignment of title to inventions provisions in their employment agreements.
Obtaining title to an invention through agreement
An early-stage life sciences company should ensure that all employment and consultancy agreements with parties who may make, or contribute towards making, inventions as part of their commitments to the company, contain assignment of title clauses. When drafting or reviewing such intellectual property rights (IPR) clauses, four considerations are particularly important:
- The language should be broad enough to cover all inventions, made by the employee or consultant, that are of relevance to the company.
- Clauses in employment agreements should cover all inventions wholly or partially arising out of the employee's efforts in connection with the employment relationship, alone or in cooperation with others, outside of working hours and up to one year after the expiry or termination of their employment, unless otherwise provided by mandatory rules of law.
- Clauses in consultancy agreements should cover all inventions wholly or partially arising out of the deliverables under the consultancy agreement or required for utilising the deliverables under the consultancy agreement.
- The assignment should be automatic and the company should not be required to claim the invention in order for the title to the invention to be assigned to the company.
- If the company wants to obtain title to inventions without paying remuneration, in addition to the salary, bonuses or other contributions already paid to the employee or consultant, the IPR clause should state that the employee's or consultant's duties include development of new inventions and that the agreed compensation reflects this duty. However, the company may wish to offer some additional compensation to inventors, often limited to its employees, for instance as part of an inventor incentive program.
- Employees and consultants should be obliged to inform the company in writing of any new inventions and should be required to provide assistance in connection with the transfer of the title in the invention to the company, including to protect, defend and enforce the invention beyond expiry or termination of their employment or consultancy agreement with the company. In certain jurisdictions, such as the US, companies are required to provide written proof of the assignment from the inventor(s) of an invention when submitting a patent application. The abovementioned duty to provide required assistance includes execution of such inventor declarations. If an early-stage life sciences company is considering applying for patent protection in jurisdictions requiring inventor declarations, it is important that it ensures that inventors are required to provide such declarations.
If the requirement to assign title to an invention is not included in an employee's or consultant's employment or consultancy agreement, assignment of title to inventions can be effected through a subsequent intellectual property assignment declaration or through a separate agreement with the relevant inventor. The points set out above, at no. 1, 3 and 4, should be considered when determining what should be included in such declarations or agreements.
(B) Inventions made by or on behalf of a third party
Title to inventions made by, or on behalf of, a third party are typically obtained through an asset or share purchase agreement.
When an early-stage life sciences company is considering acquiring title to inventions from a third party, through an asset or share purchase, we recommend ensuring that the seller or target company can document unbroken chains of title to the relevant inventions, in accordance with the recommendations set out above under (A), Obtaining title to an invention through agreement, no. 1 and 4. If the seller or target company is unable to document the assignment of title to the inventions in question, as a condition for the purchase, we recommend requiring the seller or target company to obtain assignment agreements or declarations in accordance with the recommendations set out above. Alternatively, the seller can provide a warranty in the asset or share purchase agreement that it, or the target company, has the title to the relevant inventions .
Additionally, for asset purchases, the asset purchase agreement must clearly define the rights that are being transferred and the inventions that are subject to the transferred rights.
In order to ensure that title to relevant inventions is assigned to the early-stage life sciences company, and that the company obtains, or is able to obtain, the required inventor assignment declarations in connection with the submission of patent applications, we recommend setting out written procedures for when the different documents mentioned in this article should be executed.
We regularly advise our clients on how to ensure an unbroken chain of title to existing and future inventions, including but not limited to drafting IPR clauses, declarations and transfer agreements.