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30 November 2022

IP strategy: A digital health start-up story

Technology start-ups often outsource the development of some aspects of their products. This can be particularly true in the digital health space, where disparate technologies may need to be brought together in order to bring a product to market. While this approach has many advantages, it can complicate the development of an IP strategy. This article explores issues relating to IP strategy with the help of a digital health case study.

Scenario

May Diagnostics is a spin-out company that has been set up to commercialise developments made by teams within two different University departments. The first team (headed by Professor Johnson) has developed a biological process that can isolate samples relevant to a disease. The second team (headed by Dr Elizabeth May) has developed a diagnostic process that exploits the discoveries of Professor Johnson’s team to provide a reliable test for whether an individual has the disease.

Dr May is a leading member of May Diagnostics, but Professor Johnson and his team have not joined the company, preferring to dedicate their time to academia.

The newly formed company is developing an IP strategy.

Product Development

As shown in Figure 1, the product being developed by May Diagnostics has three key parts:

  • The biological process developed by Professor Johnson’s team. This process uses a mechanical device to extract a sample from a patient.
  • The diagnostic process developed by Dr May’s team. This process obtains information relating to the sample and then uses a data processing backend to enable a diagnosis to be obtained.
  • A mobile phone application (App) that controls the diagnostic process and provides user interfaces (both to patients and to medical professionals)

FIG. 1: The May Diagnostics product

May Diagnostics has decided to focus product development efforts on the diagnostic process, including the data processing backend. The development of the App has been outsourced to Keir IT, a specialist App developer. The mechanical product that underpins the biological process has been designed by Professor Johnson’s team, but product development assistance is being obtained from a further company (Davey Mechanical Services).

Business Strategy

There are many ways in which May Diagnostics might develop a business to exploit this technology. The appropriate IP strategy should be dependent on the general business strategy.

It is common to develop a proof of concept and then seek to exit the business – May Diagnostics has decided that this is its preferred approach. An appropriate IP portfolio including protection for the underlying technology may form a significant part of the value of the business for a potential buyer.

An alternative strategy would be for May Diagnostics to bring the product to market (either alone or with a partner). In this scenario, branding (and therefore trade mark protection) may be key. Also, the App (developed by Keir IT) and the mechanical device (developed by Professor Johnson and Davey Mechanical Services) would be central to the products actually being sold — IP rights for those products may then assume greater significance.

As May Diagnostics intends to exit the business following the development of a proof of concept, an IP strategy should be developed to support this business strategy. Nevertheless, it may be useful to have a degree of flexibility. Opinions regarding the appropriate business strategy may develop over time. An IP strategy is a long-term strategy that should be able to evolve as business strategy evolves.

Stakeholders

In addition to developing a business strategy, May Diagnostics should consider the needs of other stakeholders in the project when developing an IP strategy.

Dr May and Professor Johnson are the leading academics behind the technology. Dr May’s interests are likely to be similar to May Diagnostics’ interests (although not necessarily identical). The position of Professor Johnson could be more complicated. Professor Johnson has played a major role in the development of the technology underlying May Diagnostics’ business and may feel some “ownership” of the technology, regardless of the legal position. Professor Johnson may well develop the technology further and is likely to publish relevant papers. Such papers may limit the ability of May Diagnostics to patent the underlying technology (which may limit the attractiveness of the company to other parties at the end of the proof of concept phase). It may be wise to include Professor Johnson in the project in some capacity (for example, as a consultant). In any event, any legal rights that are owned by Professor Johnson should be transferred to May Diagnostics at an early stage.

The University (as employers of key academics) may well be the first owner of some IP rights. Thus, May Diagnostics should liaise with the University (for example, via the University’s Technology Transfer Office). It is likely that the University will encourage May Diagnostics in the development of the technology and may be able to offer both practical and financial assistance. For example, in the event of a difficulty in the relationship between any of the academics and May Diagnostics, the University may be able to offer assistance.

Keir IT and Davey Mechanical Services are commercial enterprises and have interests in their respective contributions to the project. Any IP developed by those parties should be transferred to May Diagnostics. Some sensitivity may be required here. For example, Kier IT may be keen to retain the right to re-use some of the modules of the App in projects for other clients (and may have re-used earlier modules when developing the App for May Diagnostics). A clear agreement should be reached so that all parties know where they stand.

The IP portfolio should restrict the ability of competitors to take advantage of the work of May Diagnostics and its partners by developing similar products and services. Thus, when developing an IP portfolio, it is useful to consider how the IP portfolio would be viewed by such competitors. For example, protecting concepts using copyright and registered designs might prevent a competitor from directly copying May Diagnostics’ solutions, but would offer little or no protection against the development of alternative solutions to the same problems. Further, an extensive patent portfolio might limit the scope of a competitor to offer competing products, but only if the relevant patents are obtained in the countries of interest to that competitor.

If May Diagnostics intends to bring a product to market, then customers also become stakeholders. These include patients, medical professionals, and health companies or bodies (such as the National Health Service in the United Kingdom). Customers ultimately want to make use of, and have confidence in, the products and services they are using. Freedom to operate and brand protection may be key issues to such customers — granted patents may also help to give credibility.
Finally, of course, the interests of investors and potential buyers of the business should be considered. This is of critical importance given May Diagnostics’ intended business strategy.

IP Strategy

Having considered its own business strategy and the needs of other stakeholders, May Diagnostics is in a position to develop an IP strategy. Such a strategy might answer the following questions:

  • Why IP should be obtained?
  • What IP should be obtained?
  • When and where IP should be obtained?
  • How risks can be mitigated?
  • Those issues are discussed in turn below.

Why IP should be obtained

May Diagnostics intends to exit the business having developed a proof of concept. The IP strategy should assist with this by providing an attractive IP portfolio to sell with the business. A good IP portfolio can also enable product differentiation and assist with gaining prestige and credibility. Ultimately, the IP portfolio should enable a buyer of May Diagnostics to limit the ability of competitors to provide similar products and services.

What IP should be obtained

There are a wide range of IP rights that may be relevant to this project. Relevant IP rights include:

  • Copyright (protecting creative works, including computer software)
  • Trade Marks (protecting branding, such as product and company names);
  • Patents (protecting technical functionality);
  • Designs (protecting what products look like); and
  • Confidential information/know-how (concerning the control of distribution of information).

IP for the biological process might include registered designs and trade marks protecting aspects of the mechanical device, patents directed to the underlying biological concepts or to features of the mechanical device, and confidential information/know-how that may be retained within Professor Johnson’s or Dr May’s teams. Patents directed to the underlying biological process may be one of the key IP rights developed in this project. Note that registered designs may be of limited value since May Diagnostics is intending to develop a proof of concept only and products may well be redesigned before being marketed.

IP relating to the diagnostic process might include copyright in computer software, confidential information (for example, relating to the data processed by the data processing backend), and patents covering the algorithms implemented by the diagnostic process. It should be noted that restrictions on the patenting of mathematical methods, computer programs, and diagnostic methods practised on the human body may limit the scope of patents that might be obtainable.

IP relating to the App may include copyright in the underlying software code, registered designs and copyright in the user interfaces, and trade marks relating to branding of the App. However, IP relating to the App may be of limited value if future design iterations are likely to change the look and feel of the product.

When and where IP should be obtained

Delaying filings for registered IP rights (particularly patent applications) delays costs. However, delay risks concepts being disclosed and thereby preventing valid patents from being obtained. A particular issue for May Diagnostics is that academics involved in the project will be keen to publish their work. Accordingly, early filing of patent applications for core concepts is probably advisable.

Registered designs should perhaps be delayed until close to product launch (since designs change). Indeed, if a proof of concept is developed (rather than a commercial product), registered design protection may not be required at all.

Trade mark protection should be considered before brand reputation is built. Not conducting detailed trade mark searches may be a costly mistake as it can be expensive to rebrand later if problems emerge.

Start-up companies have limited resources available when developing IP portfolios. One way in which limited funds can be stretched is to limit the IP portfolio to key jurisdictions. For example, patents may only be obtained in a small number of countries. While attractive in the short term, if the geographical scope of the IP portfolio does not meet the needs of stakeholders (such as potential investors or buyers), then this may significantly limit the value of the IP portfolio (and potentially the entire company). It may make sense to obtain core IP rights in a wide range of countries, with other IP rights being obtained in a subset of those countries.

How risks can be mitigated

There are lots of parties involved in the project. Any of those parties could potentially own at least some IP rights in the project. Addressing ownership of IP rights at an early stage is advisable for many reasons. For example, memories are clear, collaborations are still working, and external pressure (such as from potential investors) is less significant. Clarifying issues of ownership when May Diagnostics is seeking to exit the business is certain to be more difficult and more expensive.

“Freedom to operate” refers to the freedom to market the products and services developed by May Diagnostics (which can be restricted by the IP rights of others). This will be an important issue to any company considering investing in, or buying, May Diagnostics. A full freedom to operate analysis is a difficult and expensive task and is beyond the means of many start-up companies. However, a lack of knowledge of the IP landscape in the relevant technical field (such as major companies within the field and their attitudes to IP) is likely to make potential investors or buyers nervous.

The project includes a number of software products. Software developers often make use of Open Source Software (OSS). Caution is required here since the use of OSS typically comes with obligations that may be unattractive to potential investors and buyers. While May Diagnostics has a degree of control over software code developed in-house, significant care is needed to ensure that outsourced software development (for example, during App development by Keir IT) does not result in OSS restrictions being imported into the product.

Final Thoughts

This article explores issues relating to IP strategy using a digital health case study. As discussed, understanding general business strategy and the needs to key stakeholders can help in the development of an IP strategy that ultimately results in the creation of an appropriate IP portfolio and the identification and mitigation of key risks.

As a final thought, I note that IP strategies often place more focus on the development of IP portfolios than on the mitigation of risk. This can be a mistake. Understanding and mitigating IP risks can significantly strengthen a company’s IP position and can be impressive to investors.