The subject matter of the collaboration (field definition).

The background and foreground IP (who is contributing what?).

The management of the collaboration.

The protection of the IP generated.

What happens when the collaboration expires?

Transfer of materials.

Publication.

Subject matter of the collaboration (field definition). The parties involved should have a clear idea of the items that each is expected to contribute to the project and should precisely define the field and scope of their collaborative research. This is usually based on a technical description of the work to be done.

If possible, the field of the agreement should take into account all the spheres in which the results of the collaboration may apply. Nevertheless, it is also important to set limits by excluding, for example, areas in which the parties wish to remain free to work alone. This minimizes the risk of later conflict between the parties.

The parties should also be careful not to propose more than they are technically able to deliver in terms of expertise and resources.

Background and foreground IP (who is contributing what?). Lists of the following must be prepared by each party and attached as an exhibit to the collaboration agreement:

• Patents.

• Know-how.

• Generally, all IP rights related to the field of the agreement that are owned by the parties before entering into the formal collaboration and will be made available for the project ('background rights').

It is possible to grant the other party a non-exclusive license for such background rights to the extent that these rights are necessary for the development and use of the IP rights that are created during the collaboration project ('foreground rights'). Background rights will frequently be made available freely to the other party for the duration and purposes of the collaboration project, although the parties will wish to receive consideration (usually through licensing arrangements) for their background rights that are incorporated in products or processes emerging from the collaboration.

The issue of ownership of foreground rights is a very sensitive one, especially with regard to any improvements made to the technology covered by background rights. The simple answer is to award the developments and the corresponding foreground rights to the party that produces these developments. In relation to work that cannot be attributed to either one of the parties, it is usual for such developments to be co-owned by the parties. However, co-ownership is frequently a potential source of conflict. Therefore, the parties may decide to allocate the work product carried out in the course of the agreement between them. One such possibility is to allocate the results and developments to one or the other party, depending on its specific field of business and/or its allocated specific territories.

In any event, the parties may decide that each will be granted a non-exclusive license under the foregrounds rights owned by the other.

Management of the collaboration. Clear management rules must be set out in the collaboration agreement.

There should be a clearly identified project leader, who will be responsible for the overall project management. Each party should also appoint a project manager, responsible for delivering that party's contributions to the project.

Arrangements for effectively monitoring both parties' progress against the project's milestones and objectives should also be defined. It has also been shown that regular progress reviews significantly improve the probability of success of a collaboration project.

A collaboration committee can be established with regular meetings and minutes being taken of such meetings. The agreement should include a clear process for the parties to follow should disputes relating to the agreement and/or IP rights or protection arise.

Protection of the IP generated. The parties must decide the process by which the foreground rights (see above 'Background and foreground IP (who is contributing what?)')will be protected and the type of protection they want to pursue (for example, whether to keep the information secret as know-how or to obtain patents). Biotechnology collaborations will also generate other rights that must be considered (for example, copyright, including in any new software and possibly database rights, depending on the type of collaboration).

Most importantly, the parties should decide on:

• The party that will have the right to file patent applications and for which countries.

• The party that will bear the costs for such application procedures.

The issue of prosecution, maintenance and renewal of the granted IP rights should also be addressed.

The parties also need to consider management of possible litigation either with regard to the protection of their IP rights or against third party infringers, as well as in relation to any infringement of third parties' IP rights.

What happens when the collaboration expires? The consequences of the expiration of the collaboration agreement need to be described in the agreement. This is particularly important when it is known that one party may wish to continue some work within the field of the agreement. Therefore, specific provisions should be included to define who can work on what, and what belongs to whom, including, but not limited to, the IP rights.

Following termination of the agreement, the parties may also wish to maintain confidentiality for a certain time-period. The time-period should reflect the nature and value of the data disclosed. Other provisions, such as clauses organizing ownership of IP rights, may also remain in force post-termination of the agreement.

Transfer of materials. Agreements involving the transfer of materials should contain provisions that govern the transfer of those research materials that are tangible (for example, reagents, cell-lines, plasmids, vectors and software).

The terms should protect the ownership of the research material and define the scope of each party's liability to the agreement, particularly as the materials are usually research materials that have not been fully tested. The agreement should contain terms relating to the physical transfer of the material and how it is to be controlled at the recipient's business. In addition, the parties also need to consider:

• Who should bear the risk of the transfer.

• Terms relating to IP rights.

• Who should own progeny and derivatives.

• Liability issues.

• Publication.

• Confidentiality.

• Royalties.

Written terms provide the party releasing the material with an element of control over the material once this has been provided to the other party. In addition, it provides them with an opportunity to:

• Protect the related confidential information.

• Set out how any IP resulting from work with the materials will be dealt with.

• Limit their liability (for example, in relation to a potential IP infringement).

The first consideration in the ownership of the material is whether it can replicate or not. If it cannot replicate, then the source of material to the recipient is finite and should be consumed during the research. Further quantities may be required for further research and if there is appropriate IP protection this can be relied on to prohibit the recipient making more material. If the material is one that can replicate, such as a cell-line or nucleic acid, by providing a small amount and appropriate information on the conditions for use, the source is essentially infinite. Therefore, the agreement should deal with ownership and right to use the replicated material and any progeny or derivatives. In the case of a material that can be incorporated into another, there can be difficulties about what happens to composite materials, such as a nucleotide sequence that has been incorporated into a cell-line or gene vector. In the case of a cell-line there should also be a license to replicate the cell-line.

It is important to consider the types of IP that may protect the biological material; often this includes patents and know-how. Some of the know-how or confidential information will be embodied in the material being transferred, but there will be other know-how, such as experimental conditions in which the material operates most efficiently. Also, it is possible in that valuable new IP could be created which could either enhance the value of the materials or block their use in the field of interest.

There are various legal and regulatory issues that need to be considered. These relate mainly to biological material and, in particular, materials of a human derivation. The use of human tissue has become an increasingly common feature of the drug discovery and preclinical research process in the last decade. This is because, as the understanding of human biochemistry increases, so too does the understanding that it is important to study the biochemistry of candidate drugs in the tissue in which they are intended to act. It is also because the increased understanding of biochemistry has increased interest in the use of stem cells, and the different approaches countries have taken to regulation of research of this nature does lead to regulatory differences between countries.

Publication. One difference between publicly-funded technology and research undertaken by private companies is that there is a strong need in the academic environment to publish results. This is not only driven by the desire of the scientists (whose career and reputation are inextricably linked to publication of their work), but, with an increasing amount of scientific research being funded (in the UK in particular) by charities, there is the requirement that the advances made with charity funding be disseminated for the public benefit.

In a competitive field of science, it is necessary to maximize the potential for patent protection by filing an application as early as possible, but the costs involved can be significant. It is necessary to adopt an appropriate protection strategy and, in certain circumstances, try to predict where the real commercial value of an invention may lie. However, this involves time and understanding. Ideally, the process starts when the scientist has made an interesting discovery that he or she thinks may have commercial potential. From this point onwards, the work and publications of the scientist can have a dramatic effect on the scope of protection and thus the value of the IP. The participation of a collaboration committee is vital in this process.

A screening agreement is simply an agreement whereby a drug discovery company employs a third party screening company to carry out screening of the drug discovery company's biological target, using a library of compounds or antibodies which may be either existing or generated specifically for the screening.

Drug discovery companies rely on being able to discover compounds that are suitable for disease intervention. Through the screening of compound libraries against biological targets they aim to identify and develop compounds that act as the intervening drug. The compounds identified ('hits') will then become the basis of the development program of the company and will be taken through the clinical development path or, together with the relating technology and IP, will be outlicensed to a pharmaceutical company for later stage development, registration and sale. It is often the case that the company which has the IP relating to the biological targets, does not have a significant range of compounds and with the advent of combinatorial chemistry and more latterly, the generation significant monoclonal antibody libraries, many companies contact a third party to screen against the third party's library.

A number of issues need to be carefully considered before entering into a screening agreement, in particular those relating to:

• Ownership of the library.

• Ownership of the target.

• Ownership of IP in hits.

• Reach-through issues.

Ownership of the library. Where the screening company already has a suitable compound library available that has sufficient specificity for the screening, the ownership of that library will normally stay with the screening company. This makes sense as the library may also be used for subsequent screening for other drug discovery companies. However, in a number of cases, particularly when a suitable library of appropriate specificity is not available, the drug discovery company will need to generate a specific compound library fulfilling certain necessary criteria and, in order to do so, may contract with a screening company or a third party for the creation of the library and pay the associated costs. In these cases, the drug discovery company will argue that it should own the library.

Ownership of the target. Ownership of the target will need to remain with the drug discovery company for it to be able to carry out the further drug discovery work once the screening is over and for it to benefit from the maximum scope of exclusivity. Following this, lead drug candidates will be generated and optimized and eventually, there will be selection of a candidate drug. The lead optimization process will include chemical modification of the lead compound to improve affinity and selectivity, and so it is important to note that the compound selected as a candidate drug will rarely have a structure identical to the hit compounds identified through the initial screening process.

Ownership of IP in hits. Given that the object of the screening is to generate hits that will be the starting point for chemistry work leading to the candidate drug, the drug discovery company will need to obtain sufficient IP rights relating to the hits generated during the screening process. A complicating factor here is the fact that hits rarely have the same structure as the lead or candidate drugs, the latter having been modified during the optimization process. Obtaining exclusive rights to IP relating to the hits alone may therefore not provide sufficient protection for the compound actually chosen for development. Therefore, it is important to expand the exclusivity to cover, as far as is possible, the entire class of compounds that the hits represent. If an exclusive license to the hit compound IP is obtained by the drug discovery company, in order to obtain the desired scope of protection the drug discovery company should seek to include provisions in the screening agreement that allow it to influence the patenting procedure by the screening company.

However, to minimize risks, a drug discovery company is best advised to obtain ownership of the IP relating to hits to secure adequate control of the downstream compounds.

IP that relates to the target may constitute modifications or improvements to the screening method. Therefore, it is also important for the drug discovery company to secure control over the IP that relates to such modifications or improvements to allow further screening work with a third party or licensee of the candidate drug.

Reach-through issues. Reach-through rights are an attempt by the owner of an enabling technology (such as a screen or a database of genetic or proteomic information) to acquire some right or interest in the results of the research undertaken by the recipient using the technology. The end product concerned may or may not be within 'reach-through' claims of a patent licensed as part of the enabling technology.

There are two broad categories of reach-through rights:

• Where the transferor is seeking some ownership or right to use the IP generated by the recipient.

• Where the transferor is seeking a right to share in the downstream income from the product obtained by the recipient from the exploitation of the technology (reach-through royalties).

These categories are fundamentally different and raise different concerns. The main difference is that the second category is broadly an economic decision and leaves the recipient free to exploit the IP in the way that he or she chooses. It is arguable that reach-through royalties raise some antitrust issues. While there have been no specific decisions from the European Court of Justice on this point, the parties generally "do not need to be protected against foreseeable financial consequences of an agreement freely entered into and they should therefore be free to choose the appropriate means of financing the technology transfer and sharing between them the risks of such choice" (recital 21, the Technology Transfer Regulation). Therefore, while reach-through royalties are not expressly permitted or stated to be anti-competitive in this Regulation, recital 21 suggests that such provisions are not unenforceable.

The attempt by the transferor to acquire ownership or some right to use the IP could substantially deprive the recipient of the benefits of his or her research. From a researcher's point of view, anything that accelerates the research, or allows exploration of a new avenue is desirable and often the long-term impact of the related agreement is not immediately apparent.

The effect of this is not to be underestimated because in some instances there may be no time or scope limitation on the right of the transferor of the research tool to acquire rights in the IP generated by the researcher. Some agreements can be seemingly innocent but when the terms are taken together they make it virtually impossible for the researcher to ever claim complete ownership of the results of his or her research. In one example, the owner of the research tool sought a non-exclusive, royalty-free right to use 'all' of the results of the research undertaken by the recipient using the material or any derivative, together with a first right to negotiate an exclusive commercial license with a right of first refusal over any terms that may subsequently be offered to a third party. The effect of the agreement if it was interpreted broadly was that if the researcher used this model system in the future to identify a target protein which he or she then used in a drug discovery program to identify the novel therapy, the transferor of the research tool (some DNA which was used in maybe one of several model systems) could demand a license to the ultimate drug. These elements of the agreement were contained in four or five different clauses of a six-page agreement.

The question arises as to whether this type of ownership reach-through is enforceable against the recipient. Under English contract law, the researcher will not be protected from having struck what turns out to be a bad bargain. It is not within the scope of this article to concentrate on the antitrust issues concerning reach-through rights in detail as the issues are complex and in many cases will turn on the particular facts, for example whether the relevant agreement is to be considered a license or an R&D agreement. However, it may be that antitrust law principles are relevant. Clearly there is an agreement between undertakings that could have an effect on competition because the researcher would not be in the position to negotiate freely with third parties of his or her choosing. The question is whether the agreement could be saved as an agreement of minor importance (which is quite likely in the case of deals between small biotechnology companies, although how the relevant market is defined would be the subject of much debate), or one that has no real effect on competition. The de minimis test is a continuing one, so, while in the research phase the market share criteria may not pose a problem, if the result is a blockbuster drug, this may have to be reconsidered.

It is important to distinguish between:

• The release of a tool to a researcher to conduct his or her own research (the situation described above).

• The provision of a tool to a researcher to facilitate research that has been sub-contracted to the researcher by the provider of the tool.

In the latter case, the assignment of the IP is entirely consistent with the underlying agreement that the researcher should undertake research for the benefit of the provider of the tool.

For small biotechnology companies where cash is very important and there is a significant risk of the research failing to produce any marketable product, it may be desirable to lay off the current cost of receiving the research tool by agreeing to share a proportion of future income. However, in such arrangements the parties should always beware of the cumulative effect of the various royalty obligations ('royalty stacking').

If a company has taken research tools from a number of organizations and given each of them a proportion of the royalties, these can accumulate very quickly and eat into the profit stream of the product, possibly making it not commercial to exploit. Some limit on the total payments to be made is desirable, such as to agree that in no event will the percentage royalty payable exceed a certain percentage. If it does, each of the licensors will have their royalties reduced pro rata. In addition, the payments could be limited to a proportion of the revenue to be received by the biotechnology company. It is unlikely that, in the current market, the biotechnology company will market its own product. Therefore, sharing of a few percent of the revenue actually received may not be too difficult for the biotechnology company to accept. However, in adopting this strategy it is important to recognize the potential that the company has when marketing its own product and to limit the total royalty if the product is marketed directly.