By: PHILIP M. GOLDMAN
The Challenges of Bringing an Invention to Market
There are several routes for taking a medical innovation through the process of patenting and commercialization - none without risks.
The intersection of medicine and business is hotter than ever, as medical innovations multiply faster than fruit flies. Physicians with an inventive bent face a number of complex issues if they intend to patent their creations. This article discusses recent developments affecting the patentability and commercialization of medical innovations.
One such development is a legislative change that affects the patenting of "pure" medical and surgical methods in the United States. In general, a pure method does not use a new chemical compound (e.g., a drug) or a device (e.g., a surgical instrument). Rather, the method uses common equipment and materials and can be performed by a medical specialist simply by learning the steps of the process.
Patents on processes and methods are widely issued and accepted in all areas of industry and technology. An estimated several hundred medical procedure patents are granted each year. A prime example is the surgical method protected by U.S. Patent No. 5,080,111, which was issued in 1992 to Samuel Pallin, M.D., an eye surgeon in Arizona. This method, a sutureless incision used in cataract removal, involves only two steps - obtaining a suitable instrument, such as a scalpel, and using it to make an incision with a particular shape at a certain position in the eye tissue. After receiving the patent, Pallin brought an infringement action against Jack Singer, M.D., an eye surgeon at the Hitchcock Clinic at Dartmouth Medical College in New Hampshire who was also using the procedure and had written about it in medical journals. After a long and costly legal battle, the case was decided in Singer's favor because Singer was able to prove that he and other surgeons had performed the procedure before Pallin applied for his patent.
Partly because of the Pallin case, the subject of medical procedure patents came up for debate in the United States in the mid-1990s. As a result, provisions were added to the patent laws, allowing procedure patents to continue to be issued and, at least theoretically, enforced, while giving medical personnel and institutions immunity from infringement actions. It is unclear, however, whether a company that teaches the medical community to perform a particular method could be considered an infringer of this type of patent.
Consequently, whether a medical innovation can or should be marketed in the United States partly depends on whether it is a "pure" method. While patent protection might be available for such methods, its effective value might be minimal.
The inventive physician has at least three routes for reaping the commercial benefits of an innovation - assuming he decides against publishing the innovation and dedicating it to the public. One option is to cast his lot with his employer, such as a university, hospital, or other professional affiliation. The employer can develop, commercialize, and/or license the innovation. The physician may see his creation make it to market and may even collect some consulting or royalty income. Some of the royalty money may also flow back to the physician's project or department.
If the physician is not required to turn over his innovation to his employer - an important fact to establish early in the process - he has two other options. One is the do-it-yourself route, which involves creating a legal entity to develop and market the innovation; the other requires teaming up with a commercial partner and "licensing out" the creation.
The do-it-yourself route is commonly assumed to lead to greater riches, but that is by no means a certainty. Consider whether you would rather put in the time and effort necessary to reap 100 percent of the profits in what may become a $1 million-per-year product or sit back and cash a quarterly check for a 5 percent royalty on what others have built into a product that generates 10 times as much a year in revenues. What is certain is that the do-it-yourself route requires substantial time and resources. And neither route is without risks or costs.
Do-It-Yourself Medical Marketing
Marketing the patented (or patent-pending) product typically requires balancing patent protection, costs, and potential benefits with everything else that is involved in launching a commercial venture. Although the patent is intended to provide a limited monopoly on the invention, that monopoly is far from guaranteed. Nor does the patent predict or ensure success - two-thirds of U.S. patents are effectively "abandoned" by their owners before the end of the patent's 20-year term.
The patent process - including preparation, filing, prosecution, and enforcement - is lengthy and expensive. The investment required to enforce the patent can quickly dwarf the investment needed to develop and commercialize the product. A ball-park estimate for pursuing a patent for a single invention can easily reach $100,000 over the patent's 20-year term. A typical patent infringement lawsuit these days can cost $1 million per side. Patent protection insurance is available but of questionable worth.
Marketing your innovation on your own is the business equivalent of planning your own wedding. you are fully into it, you realize that it can consume your every waking moment and ounce of energy. For the typical medical invention, this route requires dealing not only with the development, scale-up, and manufacture of the product, but also with marketing issues such as advertising, order fulfillment, quality control, shipping, and customer service. With medical inventions, there is often the added burden of regulatory law and product liability issues.
If you market your innovation yourself, having a patent may keep imitators and competitors at bay or make the product package more palatable to an acquiring company. In the meantime, the patent may be a luxury that adds little value.
'License-It-Out' Medical Marketing
Many physicians decide that the best way to commercialize their product is to work with a corporate partner. From the physician's perspective, the licensing route can offer the best of both worlds - the product can continue on its cumbersome and expensive drive to commercialization at somebody else's expense, and if it becomes successful, the doctor-inventor will reap at least some of the benefit.
The difference between "licensing out" rights to an invention and selling those rights, as by "assignment", is similar to the distinction between leasing a car and buying one. With a car lease, the car dealer retains ownership of the vehicle, while the driver has most of the rights of possession, including driving and repairing the car. Similarly, with a patent license, the licensor (i.e., the physician) retains ownership rights to the invention; by written agreement, the licensor permits one or more other parties (the licensee companies) to use those rights, so long as the licensees live up to various obligations, such as marketing the product and paying royalties. Creating an effective license agreement can itself mean the difference between success and failure for the inventor.
The first step on this path is to identify the right potential partners and establish trust and confidentiality. Few medical companies are eager to embrace ideas from outside, and the process can be time-consuming and expensive for the physician. Often, it is difficult to find even a single willing licensee. Although physicians usually have an initial advantage over the garden-variety inventor, this advantage may amount to little more than a foot in the door.
Another important issue is choosing the right time to license. The common wisdom holds that before companies will consider licensing a new invention, the patent should be actually granted and issued (not just applied for). This position is both unfortunate and unnecessary, since the period following the initial filing of a patent application may be the best time to identify, contact, and negotiate with potential licensees. Specific information about the invention is still likely to be secret, the patent claims are in flux, and expenditures are still relatively low. Rights under a pending application are just as transferable -and often equally valuable - as those arising under an issued patent.
It is also wise to consider how patent rights can be assigned to best exploit their value. For example, would a series of nonexclusive licenses be more valuable and manageable than a single, exclusive one? Similarly, consider whether a product or process may be sold in more than one field and in multiple countries.
The financial components of a patent license can include lump-sum payments and "earned" royalties, based on actual sales, as well as minimum royalties, typically used to maintain exclusivity and ensure at least a minimal level of effort and commitment on behalf of the licensee. A number of methods are used for determining a reasonable royalty rate.
The value a physician derives from a patented technology can also take nonmonetary forms. These include equity positions, research and development funding, consulting arrangements, and "grant-backs" (rights to improvements generated by the commercial partner), all of which should be documented.
The inventive physician encounters many choices and risks in deciding how to move a new product or process to market. No particular path is guaranteed to succeed or to provide greater benefits than another. Perhaps the best approach is to consult professionals who have been through the process.
MM Inventing 101
Most physicians probably believe they have, at one time or another, come up with a new or improved method of accomplishing some medical task. Here are some basic principles that apply to protecting and commercializing medical inventions.
The idea must be patentable. The idea must be suited for protection by a patent rather than a trademark or copyright. Patents are best used for the protection of ideas that relate to new and useful "things", to methods of making things, to methods of doing or using things, and to improved varieties of old things. Trademarks protect the name, symbol, or manner used to identify such things, and copyrights are used to protect the expression of ideas, rather than the ideas themselves.
The idea must be "new, useful, and unobvious." If the new idea does lend itself to patent protection, the inventor can file and then "prosecute" a patent application through the U.S. Patent and Trademark Office. To be issued a patent, an invention must meet a tripartite requirement that the idea be new, useful, and unobvious. During the patent prosecution process, the inventor and his attorney will negotiate (generally in writing) with a patent examiner to convince the officer that the invention meets this requirement.
Ownership issues must be resolved. Inventors often have preexisting (and perhaps forgotten) obligations to assign their rights in new inventions to their employer, practice group, or even entities that provided funding for the work. It is important to clarify those rights and, if necessary, request a "release" of rights from the employer. Once the inventor has established that he owns the rights, he can transfer them to others by assigning or licensing the patent rights. In many respects, the differences between assigning and licensing a patent or invention are akin to the differences between selling (assigning) and leasing (licensing) a car.
From "The Inventive Physician" by Philip M. Goldman, J.D., Minnesota Medicine, July 1994. Philip Goldman is an attorney with Fredrikson & Byron, P.A., in Minneapolis. He wrote "The Inventive Physician" for Minnesota Medicine in 1994.