Get that founding IP into the right bucket!

In the life sciences sector, ownership of core intellectual property (IP) is crucial. It can significantly influence a business's valuation. So it is essential to ensure that contracts with employees and consultants clearly address IP ownership, especially when they are involved in creating or contributing to valuable innovations. This clarity is vital for demonstrating business ownership of the relevant IP, which is important during due diligence processes when seeking investment. Early-stage companies looking for investors will be expected to demonstrate that they own their founding IP, or at least have exclusive rights to it in the relevant field.

A recent UK High Court case (Hill v Touchlight Genetics) underscores these issues. 

An academic researcher, Dr Hill, had been working on vector-free DNA expression cassettes for potential application as DNA vaccines or in gene therapy. Dr Hill and another academic teamed up with an investor to found a start-up company that would take the work forward towards commercialisation. 

Dr Hill’s view was that she had already developed key aspects of the technology by the time Heads of Terms were signed in 2007. Dr Hill also signed a Service Agreement in 2008, which included assignment to Touchlight of existing IP rights. 

Meanwhile, a patent application was developed, eventually being filed in the name of the company in early 2009. Unlike the earlier drafts, the application as filed included the core technology.

Shortly thereafter, Dr Hill left the company. The patent application progressed, resulting in granted patents in the company’s name. Dr Hill claimed that she should be a joint owner of the patents.

Two key issues in were dispute:  

• Had the inventions been conceived before or after Dr Hill's employment began?; and
• If the inventive developments had taken place before this point, were they covered by the assignment provisions in the Service Agreement?

The extensive factual and documentary evidence presented at trial led the judge to conclude that Dr Hill had in fact conceived the patented process after the Service Agreement took effect. This meant that the invention belonged to Touchlight as Dr Hill’s employer.

The court also considered whether the Service Agreement would be effective to transfer Dr Hill’s rights in the invention to Touchlight, even if the inventions had been conceived before the Service Agreement had come into effect.

The IP assignment in the Service Agreement was broadly drafted to include “all such rights, applications, copyright, know-how and confidential information relating to the Projects owned or created by or in the knowledge of [Dr Hill] prior to the commencement of the Employment". The term “Projects” was defined with reference to an information memorandum drawn up at the founding of the business to attract investment. This had included a broad description of the key technology.

Dr Hill argued that the assignment only applied to the operation of the invented process under particular temperature conditions – thermophilic conditions only. However, the judge’s view was that the drafting was broad enough to capture all conditions (that is, both thermophilic and mesophilic conditions). In context, the overall purpose of the assignment clauses in the Service Agreement was to ensure that Touchlight owned the rights it needed to take the Projects forward, including the rights which could form the basis of patent protection. The judge concluded that the evidence showed the following shared understanding:

• the invented process used an enzyme which could operate under thermophilic or mesophilic conditions and which could give rise to intellectual property rights; and
• a wholly thermophilic process was desirable but may not well be achievable.

It was therefore consistent with commercial common sense for Touchlight to own all of the rights in the invented process so that it could continue to develop it and use a mesophilic enzyme if a thermophilic enzyme could not be obtained.

In the end, both of these points came down on the company’s side as sole owner, but this must have been a costly dispute both in expense and time commitment. More explicit contract wording and record-keeping might have helped to avoid this.

For innovative companies, ensuring that IP is owned by the company is not just a legal necessity but a strategic imperative. And they need to be able to demonstrate this to potential investors.

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