Outsourcing can save costs and provide other commercial benefits. With outsourcing efforts related to medical devices, it is important to understand some aspects of U.S. intellectual property (IP) law. This is especially true for inventive medical devices, where there is value not just in the device itself but in the ideas behind the device. When outsourcing creative work, the IP issues are of utmost importance. But even when outsourcing seemingly noncreative work, such as manufacturing, these issues should still be addressed. This article touches on three such issues: sharing, inventorship, and ownership of IP. While discussed in the context of medical device outsourcing, these issues are also important to technological outsourcing in general.

For inventive medical devices, there is often value in the ideas behind the device.

With medical device technology, outsourcing comes in many forms. Doctors often task medical device makers with improving medical devices and procedures. To commercialize a device, these and other inventive entities may work with engineers, designers, manufacturers, R&D labs, universities, incubators, or shops-for-hire. In all cases, the first step in outsourcing is approaching a potential outsourcee, where proprietary information may be shared.

Sharing IP: Identify Preoutsourcing IP

If you are outsourcing innovative work, where the outsourcee will make an inventive contribution, each party typically brings know-how to the table. When outsourcing non-innovative work, you want proof of the IP you owned going into the arrangement, to ensure that you protect it from potentially unscrupulous outsourcees. It is therefore important to identify the relevant pre-outsourcing IP owned on either side.

The pre-outsourcing IP can be identified in the agreement or contract covering the outsourcing arrangement. Such agreements come in many forms, such as manufacturing agreements, consulting agreements, license agreements, or joint development agreements. These agreements define each party’s role in the outsourced project and should identify what each party separately owned beforehand.

The way in which the pre-outsourcing IP is identified depends on the nature of the IP. Existing devices or devices currently under separate development can be identified with engineering drawings. Software can be identified with functional descriptions, flowcharts, or code. Manufacturing, testing, or other broad capabilities may be described in writing, tables, charts, etc.

The pre-outsourcing IP may also be identified with lists of patents and patent applications. A utility patent application will clearly identify the subject matter possessed, with enabling written description and informative drawings. The pre-outsourcing filing date of the application will also facilitate proving prior possession of the IP.

Some IP is best not disclosed to the public (for example, in a patent application) but is better kept as a trade secret. Accordingly, entering into an initial nondisclosure agreement (NDA) before negotiation of the outsourcing agreement is common. An NDA is a written, contractual agreement to keep confidential the information to be shared. Confidentially sharing pre-existing know-how before agreeing to the binding outsourcing agreement will identify any deal-breaking limitations or duplications of technical capabilities. The NDA should also reference, or be included in, the outsourcing agreement.

Inventorship: Identify Contributions of Each Party

In addition to identifying the pre-outsourcing IP, it is important to understand how each party contributes to the IP developed during the outsourcing. Patentable inventions may be developed by one party alone or jointly by multiple parties. Identification of all inventors — no more, no less — is necessary for enforcement of any resulting patent and affects who owns the rights to these patentable inventions.

To be an inventor of a patentable invention, conception is the cornerstone. An inventor is not one who merely reduces the idea to practice, such as a technician or manufacturer performing their typical roles. The inventor instead must contribute a “definite and permanent idea of the complete and operative invention,” such that an ordinary engineer could practice the invention.

Joint inventorship results when the ideas of multiple people are combined to produce an invention. In any patent application filed pursuant to the outsourcing, the scope of the rights in the invention is described in the numbered listing of “claims” at the end of the patent document. To qualify as a joint inventor, a person merely needs to have made an inventive contribution to just one of these claims.

Joint inventorship may also occur where an outsourcee performs seemingly non-inventive functions, such as manufacturing, assembly, testing, or consulting. For instance, if the idea as originally conceived is difficult to make, a manufacturer who changes the design for simpler fabrication may be an inventor. However, to be a joint inventor, a person’s contribution must help distinguish the invention from the existing state of the art. It must be more than contributing existing ideas or obvious modifications. The analysis is often contextual. For instance, conceiving of screws to fasten parts together is not typically an inventive contribution. But in the context of regenerative scaffolds secured to tissue or bone, the use of a particular screw design may need to be considered for inventorship purposes.

Ownership: Understand Who Owns the IP

For patentable inventions, inventors are owners in the United States until they transfer their ownership to another party. Inventors are usually under a contractual obligation to assign ownership of the IP they develop to their employers, typically under an employment agreement. With outsourcing, the assignment may be across the table to another party. Be clear as to whether such assignment is direct to that party or assigned indirectly via the inventor’s employer. For instance, startups may use employees at incubators or similar organizations for assistance with design or engineering. If the startup is to own the IP, typically the incubator employees will assign the rights to the incubator, who will then assign it to the startup.

What if those employees execute assignments directly to both the incubator and the startup? When outsourcing, look out for such conflicting agreements. Also, be aware that inventions can be assigned before they are conceived. For example, employment, consulting, or other such agreements can include language where inventors both agree to assign and presently do assign inventions made during their employment and/or their participation in the outsourcing effort. This type of agreement makes it possible to make present assignments of future inventions. With outsourcing, such agreements can be used to proactively address allocation of ownership, but they can also present unforeseen issues where one party or the other does not appreciate the scope of the language in an IP assignment clause.

For example, suppose a medical device designer partners with a manufacturer to improve a vascular graft design for less-expensive fabrication. Typically, a joint development agreement would outline who owns what. Ownership of expected improvements may be straightforward, but who will own unexpected spin-offs? For example, what if the manufacturer is inspired by the graft invention to invent a new stent? Or if the manufacturer invents a new tool to make the graft? Ownership of such related inventions will depend on the language of the assignments and the collaboration agreement. Broadly drafted provisions, including present assignments, should thus be incorporated, if capturing ownership in such situations is desired.

Where employees from both the outsourcer and the outsourcee make inventive contributions, the default in the United States is joint ownership by the parties to a patent claiming both contributions. While joint ownership may be desirable in certain limited situations, some important and often undesirable consequences of joint ownership on patent rights should be understood. Joint owners of a patent may make, use, sell, or license the patented invention without the consent of, and without accounting to, the other owners. Therefore, a joint owner may unilaterally grant to a licensee the right to make and sell the invention, and the licensee’s payments need not be shared with the other joint owners.

Joint ownership can also adversely affect enforcement of patent rights. Under U.S. law, all joint owners of a patent must agree to sue for infringement. Further, an accused infringer may protect himself from a lawsuit by getting a license from a co-owner. This may occur where a previously unidentified inventor, who did not assign away his ownership rights, grants a license to the accused infringer. Additionally, all joint owners must act together as a composite entity in patent matters before the U.S. Patent and Trademark Office. Any friction among the group may create delay and increase the costs for such matters.

Conclusion

Outsourcing can be great for medical device development. To fully realize the benefits, it is critical to consider these three IP issues: sharing information, inventorship, and ownership. First, identify and agree to the pre-outsourcing IP possessed by each party. If possible, file a patent application before making any disclosure. Regardless, agree to keep any disclosed know-how confidential. Second, proper identification of inventors in outsourcing efforts can be difficult but is necessary for enforcement of the patent. Inventors must have conceived of an inventive contribution to at least one of the patent claims. Third, the default owners of inventions are the inventors, and ownership is transferred using written assignments. To capture ownership of unanticipated IP, use broadly drafted provisions in nonconflicting assignments and joint development agreements. If joint ownership is being considered, understand that joint owners can unilaterally use and profit from the patent, and that joint ownership can complicate enforcement of patent rights.

This article was written by Tom Cowan, Associate at Knobbe Martens, San Diego, CA. For more information, Click Here .


Medical Design Briefs Magazine

This article first appeared in the October, 2016 issue of Medical Design Briefs Magazine.

Read more articles from this issue here.

Read more articles from the archives here.