The Five W’s of Intellectual Property Assets in Health Care Business Transactions

Introduction

Intellectual Property (“IP”) assets are important in several types of business transactions, including healthcare business transactions. This article provides an overview of how one can best protect, transfer, and preserve IP rights pursuant to such a transaction.

Who has Healthcare IP?

Healthcare IP is a broad area. Among other things, it includes the IP of large institutions such as university medical centers conducting clinical trials, and pharmaceutical and biotechnology companies conducting drug research. It also includes the IP of smaller entities, such as physician practices making discoveries or creating new clinical devices or developing novel procedures and techniques.

What is Healthcare IP?

Healthcare IP can come in the form of patents, trademarks, copyrights, and even trade secrets. A research medical school may possess a process or method patent on a new procedure, while a pharmaceutical company may possess a product or formulation patent on a new drug. Hospitals, large ambulatory surgery centers, and even many solo physician practices may have registered trademarks on their logos, marks, and advertising. Healthcare providers and entities also may have copyright protections on their publications, protocols, and policies and procedures. Some jurisdictions have also extended IP rights to items such as patient lists under the umbrella of trade secrets. Other assets that share similarities with healthcare IP include “doing business as” (“DBA”) or assumed name filings, web domains, and even business insider knowledge and relationships.

When do you start the process of evaluating Healthcare IP?

When engaging a target healthcare company for merger or acquisition, healthcare IP should be a topic in early business negotiations and be an item in the first due diligence checklist submitted to the seller. From the buyer’s perspective, it is important to have an early handle on what IP is involved in a transaction so that the proper steps are taken to make sure it is adequately preserved and protected in the transaction. From the seller’s perspective, it is important to disclose IP and the actual rights to it so that it is clear what the buyer is buying, and also that the seller indeed possesses the rights to it in order to sell. If the buyer utilizes IP in good faith that the seller in fact did not possess, the seller could ultimately be liable via indemnification if this was not properly disclosed.

Where do you describe and list Healthcare IP?

Healthcare IP should be listed in a comprehensive and straightforward manner in the disclosure schedules to the purchase agreement. Care should also be taken to describe the IP fully and properly in any necessary assignment agreements, registration updates, and in any other required places.

Why is Healthcare IP important?

Healthcare IP is important for numerous reasons. For several entities, such as universities or pharmaceutical companies, it can represent millions, if not billions, of dollars in investment and research and development. For other smaller entities, in the instance of a trade secret, it may not necessarily represent the same kind of capital investment but it may very well still be critical to the survival of that business. Regardless of scale, it is important to maintain and also to transfer IP properly. If not secured properly, IP may be lost. For example, if a buyer does not know about acquired IP, it will not know to file regular maintenance fees and could risk cancellation of the IP. Conversely, if a buyer thinks it owns IP that it actually does not, it may end up violating another entity’s IP rights through use without knowing it. A cease and desist letter accompanied by a demand for unpaid royalties may quickly follow.

How do you secure Healthcare IP?

The best way to secure healthcare IP is to first identify the IP. As mentioned above, care should be taken to comprehensively list IP in an asset purchase agreement. In the case of a stock purchase, it is critical to ensure that the corporate entity selling its stock actually is the invention owner or assignee of record, etc., that possesses the right to transfer the IP. Then, proper steps should be taken to commemorate and transfer the IP through the deal documents and any necessary assignment agreements. Concurrently, proper notices and updates should be made to the various relevant governmental entities such as the U.S. Patent and Trademark Office, the U.S. Copyright Office, and state-level agencies such as the secretaries of state, and trademark offices, as required.

Conclusion

Healthcare IP is an important piece of healthcare transactions. For some businesses, it may represent the raison d’être for the business; for example, a big pharma spinoff whose one product is a therapeutic HIV drug. For other companies, healthcare IP could be less mission-critical. In both circumstances, however, IP is likely a valuable component of a company’s assets and should therefore be given due thought and consideration in a transaction.

About the Author

Justin Puleo is an associate attorney in the Raleigh office of Gordon Rees Scully Mansukhani, and a member of the firm’s Intellectual Property and Healthcare practice groups. He has an interdisciplinary background, which he has leveraged into a full and diverse practice. He is an experienced healthcare transactional attorney and a member of the patent bar who appreciates finding creative and regulatory compliant solutions to business concerns and initiatives. He can be reached at (984) 242-1790 or jpuleo@grsm.com.