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Product Development and IP Considerations: A Marriage Made in Heaven?

Typically, R&D and the legal department don’t mix well. Some folks say it’s akin to oil and water, while others say it’s more like oil and vinegar. These two departments interact, but only after some vigorous mixing.

Two reasons for this sometimes conflicting relationship are: 1) R&D’s desire to move quickly on projects and 2) legal’s perceived “say no to risk” mentality. In other words, R&D is charged with the timely design and development of new products, while legal is tasked with ensuring that the company’s risk level is managed. Obviously, these two roles do not always align.

This article outlines the stages of the R&D process and the corresponding parallel issues that the legal department would want addressed either prior to or at the same time. The product development process for companies varies depending on upper management’s philosophy and experience. Some companies use the Single-Gate® system developed by Robert G. Cooper in which five gates exist, with each consisting of: 1) a deliverable (visible), 2) a criteria (test and meet) and 3) an output (decision – go/kill/hold/recycle). Other companies follow a modified version of the gate system, like the seven step program I will outline in this article.

No. 1: Concept/Disclosure/Initial Assessment
R&D may develop an internal idea on a product, or an outside physician may disclose a product concept. R&D will examine the idea and perform an initial assessment of whether the idea fits a need and is worth further evaluation.

At this first stage, legal will want pre-disclosure, a Non-Disclosure or Confidentiality Agreement (NDA) in place with the physician. Key elements covered by the NDA include the idea or technology, the identity of the discloser, the term of the agreement, the length of time that confidentiality will last and that the company has no obligation to move forward with development of the idea. If the physician is a regular contributor or consultant to the company, legal will want to ensure that a current Consulting and Assignment Agreement or a Product Development Agreement (PDA) is in place. Key elements that should appear in both of these agreements include duty to assign all IP to the company, reasonable non-compete with a tail, a right of first refusal on new ideas, royalty payments, terms and ownership rights to all improvements.

If the idea contributor is an employee, legal will need to confirm that the employee has either a signed employment contract in place or other documents that provide that the employee has (or will) assigned all ownership rights for all IP to the company and that all work is being done on a “work for hire” basis. Additionally, a reasonable non-compete and confidentiality agreement should be executed by the employee.

If the discloser is a University, legal will definitely need to be involved before any ideas are exchanged. Universities are notoriously difficult to work with because of their historical resistance to assign ownership rights of IP to a company.

In adding to the above agreements, legal may want to perform an initial IP landscape search to see what else is out there and to help R&D identify white spaces. Further, before too much time is invested, legal will also likely want to run a patentability search to see if the idea is actually protectable. Both of these searches would increase the efficiency of R&D during the initial assessment evaluation stage.

No. 2: Research and Development
The product development process commences once the idea is greenlit for further development and evaluation. Companies will likely assign a product development engineer to lead internal efforts of taking the idea from napkin sketch to a workable model. The legal department will definitely want to make sure that an up-to-date Consulting and Assignment Agreement or PDA is in place with the physician and that it covers improvements or additional discoveries that may occur during this second stage. Such an agreement must be signed before extensive R&D efforts are put into the project, because as the project evolves, the company will lose valuable negotiating leverage with the physician.

If the design concept was generated internally, legal will want to confirm that the employee’s assignment and other obligations are up to date. Also, the employment status of the idea discloser should be reviewed, because if this person has left, other legal documents must be confirmed to have been put in place, including a confidentiality agreement and a non-compete.