Outsourcing Trends

Outsourcing Trends

5 Tips for Building IP Protection into Your Outsourcing Strategy

With 2016 coming to a close, the trend of increasing extramural R&D continues with no end in sight.  According to a recent report by Grandview Research, the global healthcare contract research outsourcing market is expected to grow to $45.2 billion by 2022.  This is up from $27 billion in 2014, which translates to a compound annual growth rate of 6%+ over the next seven years.  The growth is attributed to factors such as increasing breadth of industry R&D, mergers and acquisitions, patent expirations, as well as government contracts.  For many companies, outsourcing is a critical strategy for obtaining access to innovation at every stage in the R&D process.  With rising investment demands and constrained resources, outsourcing has become a key approach in value-based, technology-focused drug development.  This increase in outsourcing also means an increase in sharing proprietary or confidential assets with service collaborators.  During the early stages of development, products under development may not yet be protected by patents and are particularly vulnerable to unknown legal loopholes.

In order to effectively protect rights over an IP portfolio, companies should employ a comprehensive and strategic outsourcing plan, with both legal and R&D IP stakeholders included at contract initiation phases.  More often than not, the development of that proprietary knowledge, whether it be in the form of new chemical matter, streamlined processes, or novel technologies, is intellectual property that collaborators have a hand in developing.  With so much focus on cost and time efficiencies as value drivers, IP can become an afterthought in the planning process.  How can companies benefit from strategic outsourcing without compromising their intellectual property?  

Here are five best practices to consider:

#1 – Execute a Strategy Designed to Prevent IP Loss.  

There are many ways IP protection can be compromised, particularly through lack of electronic security.  Business processes to prevent the loss of such assets (and loss of their value to the company) must be established before they are shared with a collaborator.  A data loss prevention (DLP) strategy should be created to cover the security and organization controls in place to manage access, storage and transmission of proprietary information.  The policies which stem from this strategy should outline access controls, IT system standards, data encryption requirements, and other organizational controls that protect information from unauthorized use. Many organizations use a walled approach to protecting IP, which reserves access to data, facilities, and IT systems only to select CRO employees on a granular, need-to-know basis.  Additionally, data loss prevention software can help detect/prevent potential information breaches or data exfiltration transmissions by monitoring and blocking sensitive data while in use or at rest in data storage.

#2 – Know your IP Assets.  You can’t protect what you don’t identify as IP.  This sounds simple but in practice can be quite complex, especially for companies with numerous concurrent research projects.  Project leaders and employees need to know the nature and value of the IP assets as much as they have to understand the value of the company’s other assets.  The value of IP requires managing it inside and outside the company with audit trails which detail who handled it and/or altered the information.  Employee training is a critical component here.  Key R&D staff should be educated on the basics of IP, notified of the controls in place to protect it, and informed about their role in the process – including mechanisms for reporting suspected breaches.

#3 – Protect Your Ownership.  Contracted research outsourcing generates IP, volumes of data, electronic records.  These records are often used to establish dates of invention and ownership of IP when in question.  Companies can lose their claim to the IP in question if data files were tampered with or lost.  Confidentiality agreements are frequently too risky to rely on as a sole protection protection of a company’s proprietary information.  Therefore, proper protection of intellectual property rights, documents and data must be prioritized in the planning stages of outsourcing strategy. Ownership of research data and technologies developed during the collaboration must be clearly outlined in all contracts.  In general, it is not uncommon to be provided only what’s known as a non-exclusive, royalty free, non-sublicensible, non-transferable license to the IP.  Not only can this can leave uncertainty in who owns the IP in the end, but also it does not confer ownership of the IP, only use of it.  Instead, it is important to endeavor to take a broad approach that assigns IP to the research buyer is best practice where possible.  For example, Science Exchange provides a standard fee-for-service agreement, which provides broad IP rights (including the deliverables)  to the sponsor/requestor of the service.  This allows the sponsor/requester to rest comfortably knowing that their IP rights will be protected.  Typically, the CRO is also required to maintain confidentiality for the period set out in the terms and conditions of the contract.   

#4 – Protect Yourself from Insolvency

Even as the outsourcing market matures, occasionally CROs may be unable to deliver on terms of a contract.  Often the contracts define such situations as breach, entitling the sponsor to terminate the arrangement. However, in certain jurisdictions, the clause may be rendered void so as to allow the estate to assign the contract to another CRO (or otherwise commercialize the contract) to the benefit of creditors. To mitigate the risk of insolvency, sponsors must at all times retain access to documents and data involved in the IP they seek to pursue ownership of.  That means maintaining data back-ups, as well as tracking chain of custody and time stamps for key entities, such as samples and experimental results.  Science Exchange offers clear, 1:1 communication and chronological documentation on all projects, which protects both parties from risk in the unlikely event of contract breach or refutation of results.

#5 – In Contract Terms, Less is Always Not More.

Thorough language in an outsourcing contract is the result of properly considering project requirements for quality, time, money, milestones, liabilities, and remedies.  Not only does this protect the contracting organization, but consolidating these terms into one master agreement with Science Exchange means the selection process for service providers is expedited significantly. This is just one of the ways Science Exchange can help companies set expectations early on that promote best practices in their outsourcing programs.

Outsourcing will continue to be a critical strategy for dealing with resource challenges, escalating internal costs and gaining efficiencies in the overall drug development process.  IP protection should be prioritized within any outsourcing strategy from the outset.  Organizations must work to build the business processes and culture to protect IP throughout the R&D lifecycle. Defining the administrative, organizational, and technical controls to protect your IP, combined with the proper contractual terms, can ensure long-term success in maintaining proprietary ownership.  Once successful roader strategic business alliances are built on this foundation, partners can pursue combined growth opportunities and a shared long-term operating vision, win-win for sponsors and CROs alike.


This article was written with contributions from Mary Beth Walsh


Christina Cordova


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