Life science companies have embraced outsourcing research and development, manufacturing, and other business functions, as they seek to become more capital efficient. The outsourcing relationships can vary widely from sponsored research with not for profit institutions, fee for service agreements, joint development agreements and even joint ventures. Ideally, the company (buyer) gains access to the specialized knowledge, skills, and equipment of a service provider that can perform the outsourced services better, more quickly and at lower cost than the buyer. In exchange for these efficiencies, the buyer necessarily surrenders control of the project to the service provider, and assumes a number of risks that are inherent in surrendering control. Typically, the risks of greatest concern involve ownership and use of the buyer's pre-existing intellectual property ("IP") and IP that might be developed during the project. These IP risks can be particularly difficult to quantify and manage when the buyer and service provider are located in different countries. Strong IP rights are considered essential to the success of emerging and established life science companies because new product development cycles are long, development costs are high, and successful products generally have a long commercial life. Yet, life science companies of all sizes are increasingly accepting the IP risk and outsourcing, even to service providers located in countries where the ability to effectively enforce IP rights is questioned. This article explores the activities and contract provisions that a life science company should consider when outsourcing to a foreign service provider in order to minimize IP risks. At the outset it is important to recognize that the buyer typically shares its valuable pre-existing IP with the service provider in order to enable the performance of the requested services. For example, the buyer's know-how and trade secrets might be required to perform the requested services. In the course of providing the services, the buyer's IP might be improved or new IP might be developed. The buyer will need to control and limit the use of its pre-existing IP by the service provider, and may determine that it needs to own any improvements or new IP, particularly if they relate to core aspects of its business. As the buyer is no longer in exclusive control of its IP, there is a risk that the service provider will use the buyer's IP for unauthorized purposes, such as providing similar services to the buyer's competitors, or may fail to protect improvements or new IP. These risks are particularly significant when the service provider is located in a country where effective protection and enforcement of IP is uncertain, and where the service provider might be owned, in whole or in part, by the state.
Due Diligence and Service Provider Selection
Carefully Drafted Agreements Reduce IP Risk
Allocate Ownership and Rights to Use the IP
Define a Dispute Resolution Process
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