Outsourcing Medical Device Manufacturing
You are a medical device designer, you have just commenced or are about to commence negotiations with a manufacturer to produce your medical device products for distribution and sale. There are several issues you need to consider and cover off before and during negotiations for outsourcing medical device manufacturing.
Non-Disclosure Agreement and Confidential Information
You may have heard of non-disclosure agreements (also known as confidentiality agreements), you may already have one signed by your manufacturing partner. Perhaps you have a ‘standard’ non-disclosure agreement that you get all your commercial partners to sign and you just ‘tweak it’ each time. Like drafting your own, patent specification, or performing surgery on yourself, preparing your own non-disclosure agreement is fraught with danger.
When preparing a non-disclosure agreement the nature of the confidential information that will be disclosed, the reason for disclosing the information and the purpose for which the information can be used must be explicitly and accurately defined. For example, the purpose for which confidential information will be disclosed might be so the manufacturer can evaluate and assess the medical device design and with a view to, potentially, negotiating a manufacturing and supply agreement with you.
The non-disclosure agreement should also provide a term, that is a deadline by which the agreement ceases to have any force. The agreement may also envisage new developments or improvements arising after the disclosure of confidential information and who will own any IP in those developments or improvements.
If the manufacturer won’t sign a non-disclosure agreement then you can either chose another partner who will or make sure you have some other form of protection in place for your intellectual property, such as a patent application or a registered design. Ideally you would have as many of these forms of protection in place as possible, although for strategic reasons you may choose to have only some in place.
Once you have a signed, properly prepared, non-disclosure agreement, patent application or design registration in place you can then have greater comfort in discussing your medical device concepts with the manufacturer.
After you have disclosed your confidential information to the manufacturer and they have evaluated it you might then commence negotiations towards signing a manufacturing agreement. It is critical that the manufacturing agreement should include terms covering how ownership of intellectual property in any developments or improvements to the medical device design will be treated.
Your initial work with the manufacturer will likely involve a period of product design, development and testing. If all goes well then the final steps before entering the market include obtaining necessary regulatory and marketing approvals.
However, during the design, development and testing phase, numerous prototypes may be designed and tested with the information learnt during tested used to refine the design in the next iteration. As you can imagine, the design of the product resulting from such an iterative process of design and testing may bear little resemblance to the original design or prototype that was disclosed to the manufacturer under the non-disclosure agreement. Also, it is not always entirely clear who is responsible for any design changes or improvements.
Frequently, it is the know-how of both parties that are responsible for improvements. You as the originator of the design may contribute to improvements based on your depth of knowledge of the performance requirements of the medical device and the clinical setting in which it will be used. However, the manufacturer may also contribute to improvements in the design based on their understanding of the manufacturing process as well as the characteristics and tolerances of components that will be used in the medical device.
The manufacturer may have a legitimate claim to ownership, as the employer of an inventor or a designer, in relation to improvements to the medical device design that may ultimately be found in the final product. As such, it is important to agree, in advance, with the manufacturer who will own the IP in any improvements.
If patent or registered design protection is to be sought for the IP in the original medical device design and any improvements, then it is a common requirement of National IP Offices in various jurisdictions (including the U.S.A and China) to require supporting documentation such as declarations, assignments and powers of attorney to be signed by inventors and applicants. As such, whichever IP ownership structure is agreed upon, the agreement should include a requirement that parties must execute any documents that may be required to facilitate the efficient and effective protection of IP.
Who will be responsible for the costs associated with obtaining any IP protection is another item to be negotiated. Usually, if one party will own all the IP then they will be exclusively responsible for pursuing and paying for IP protection. However, if the ownership of IP is divided then the responsibility for pursing and paying for IP protection can be more complex. Ideally, you would own all the IP and would have sole responsibility for protecting it.
Protecting Your Medical Device IP
There is not absolute right time to commence the process of seeking patent protection for any inventions in a new product. Usually, we recommend that you contact us as early as possible to discuss your plans and keep us informed of developments so that we can advise you when we think it is an appropriate time to commence preparation and filing of a patent application.
On the one hand you might want to file a provisional patent application before disclosing your confidential information to the manufacturer to protect against them taking your ideas and commercialising them without you. You may not even be able to obtain a valid patent if you disclose your invention without the protection of a non-disclosure agreement. Another risk with delaying filing a patent application is that another competitor may file a patent application for a similar invention before you, thus, establishing prior rights that might trump yours. However, there are risks associated with filing too early. For example, the nature of the product may change substantially during design and development such that the original patent application no longer covers the product.
Otherwise, a timely point to file a provisional patent application is when the process of design and development is approaching conclusion and the final form and function of the medical device has crystallised. The provisional patent application should be filed before full scale manufacturing has commenced, also before any orders for the product are taken and before any contracts for supply of the product entered into.
Armed with the above tips you will be able to steer clear of some of the more common IP traps and pitfalls associated with outsourcing medical device manufacturing. The advice and guidance of a professional Patent Attorney or IP lawyer will help you navigate a path forward.