Rushing to Outsource Pharmaceutical R&D to India?

Consider a host Intellectual Property Issues

Nanda P.B.A. Kumar, Ph.D., JD

February 3, 2009

Contractual outsourcing Pharmaceutical R&D Offshore

A pharmaceutical company turns over responsibility, in whole or in part of an in-house technical function to a service provider in India (Customer to contractor/SP)

Outside of customer’s national jurisdiction Advantages: time-cycle and cost reduction,

among others A valid business strategy?

Contractual outsourcing Pharmaceutical R&D Offshore - Service Providers

Many companies - ranging from the big multinational contract research organizations to small laboratories concentrating on specific areas or expertise

It can be difficult to choose the best contractor for an individual project. All companies have strengths and weaknesses, and one that may have a deservedly good reputation in one area may not be the most suitable in another

Contractual outsourcing Pharmaceutical R&D Offshore - More than a handshake

Involves the transfer of customer-owned IP and confidential information

Involves sharing and/or the creation of, one or more types of IP rights each of which is governed by its own distinct national laws.

IP rights shared or created can be solely customer-owned IP, the SP-owned IP, and jointly-owned IP

The protection of that IP may be critical for customer’s global competitive advantage.

IP protection and enforcement mechanisms for IP rights in India differ in material respects from those in the U.S., for example

Intellectual Property Development

INVENTION ANDINVENTOR

ConceptionAnd

Reduction to Practice

PatentProtection and

PilotProduction

MarketResearch Marketing

ProductionTesting

INTELLECTUAL PROPERTY PRODUCT

Contractual outsourcing Pharmaceutical R&D Offshore - Intellectual Property Flow

Cm, d and other IP

SP

EmployeesEx-employeesConsultantsContractors

P, new d, f, pc, m and other deliverables?

Contractual outsourcing Pharmaceutical R&D Offshore - Customer’s concerns

• Theft/misappropriation

• IP ownership

• Infringement

• Possibility of being forced into litigation in the Indian court system

Customer’s concerns - Trade Secrets and Confidential Information

Safeguarding trade secrets and confidential information • Unauthorized disclosure of confidential information

to a third party • Trade secret recipient’s own “misappropriation” of

the information There is no legislation for the protection of trade

secrets and confidential information in India• Because no statutory protection is afforded to trade

secrets in India, Customer will have to rely on common law protection or contractual safeguards to protect trade secrets

Customer’s concerns - Trade Secrets and Confidential Information

Potential parties with access - SP, SP’s employees and ex-employees assigned to the project, consultants of the SP and any subcontractors • Customer may be left without a direct remedy

against the employees, ex-employees, consultants of the SP and the subcontractors

Non-competition covenants as a strategy to protect customer’s trade secrets • Stringent laws against overly restrictive trade

practices

Customer’s concerns – Inventions in India

Inventions originating in India or involving an Indian resident inventor – First filing requirements U.S. standards of written description,

enablement, and best mode First-to-invent patent system vs. first-to-file

patent system Documentary proof of earlier conception and

diligent reduction to practice

Customer’s concerns - IP Ownership

No automatic assignment provision for patents -inventions must be assigned by both employees and independent contractors

Assignment must be registered in India - otherwise it is invalid

Customer’s concerns - IP Ownership

“work made for hire” doctrine is not as well developed as in the U.S. Extends to employee-created works, independent contractors

do not fall under the ambit of the work made for hire doctrine "moral rights" for authors of copyright work, i.e., the author’s

rights to claim authorship and to prevent (or claim damages for) any distortion, mutilation, modification or other act in relation to such work if such act is prejudicial to the author’s honor or reputation

Customer’s concerns - IP Ownership

Copyright transfer will default to 5 years and the territory of India

Must exercise rights within one year of transfer - otherwise the transfer will be deemed terminated with respect to such unexercised rights

The assignment may, however, override this result by, for example, specifying in the assignment that the transfer will not be terminated for failure to exercise such transferred rights

Customer’s concerns – litigation in India

Can be a protracted process taking numerous years for cases to be resolved or even heard by the Indian courts As of March 2007, over 24 million cases were

reported to be pending in the district courts and over 3 million cases pending in the High Courts

The monetary damages awarded by Indian courts are nominal

Injunctive relief in response to breach of contract claims or non-statutory IP rights may be less easily obtained

Contractual outsourcing Pharmaceutical R&D Offshore – Contractual Safeguards

Unambiguous enforceable provisions against the SP, employees, ex-employees, consultants of the SP and any subcontractors

Clarify ownership of IP created during the relationship Ensure that the SP has signed effective assignments

documents and those documents are registered in India Have the SP agree to adjudicate any dispute arising

from the underlying transaction exclusively in a non-Indian (e.g., U.S. jurisdiction)

Contractual outsourcing Pharmaceutical R&D Offshore – What is the Solution?

Understand national and local IP laws and culture of India

Assess the possible impact on the proposed outsourcing transaction

Conduct due diligence on potential contractors Adequately protect against the potential risk of

losing IP rights through contractual safeguards so that the purpose of the proposed transaction may be successfully accomplished

THANK YOU

Nanda P.B.A. Kumar, Ph.D.nkumar@reedsmith.com

Reed SmithLLP2500 One Liberty Place

1650 Market StreetPhiladelphia, PA 19103-7301

Office: 215.241.7991Cell: 215.880.4113Fax: 215.851.1420

www.reedsmith.com