Bench to Market
Many Genomics Law Report readers hope for the opportunity to take a product or process from the research laboratory to the commercial market. “From Bench to Market,” our newest series of posts, will explore the key issues scientist-entrepreneurs will face in turning a research idea into a viable business. Attorneys at Robinson, Bradshaw & Hinson who specialize in the various stages of this process will offer practical background information and pointers. The series will track the development of a new business through each major step, from the decision to pursue commercialization all the way to the pot at the end of the rainbow, a financially successful business. Readers unfamiliar with the terminology associated with bringing a venture to market may find our glossary of terms to be of assistance.
Now, and as the series unfolds, we look forward to receiving your questions and feedback. No matter the stage of the commercialization process you may find yourself, if you have questions or if there are topics or issues that you would like to see addressed please let us know in the comments or by contacting us directly.
Starting Out with Government Funding: SBIR and STTR Grants
This commentary in the Genomics Law Report’s ongoing series Bench to Market is contributed by Jon Jordan, Robinson, Bradshaw & Hinson, P.A.
You’ve spent months or even years researching and believe you are on the brink of a major breakthrough. Your quest to develop a marketable product or technology is at a crossroads and, like many entrepreneurs, you wonder where you can find the funds to make your dream a reality. Luckily, public funds are available from a variety of sources to help fund research and development and commercialization activities. Public grants are a valuable source of funding that can mean the difference between commercialization success and the death of an idea before it makes it off the bench.
There are currently 26 federal government agencies that offer grants in a variety of fields. In this post we will focus on the two major programs offered by the federal government for small businesses/entrepreneurs, particularly those entrepreneurs engaged in science and technology related research. These programs are the Small Business Innovation Research (“SBIR”) program and the Small Business Technology Transfer (“STTR”) program. Each of these programs is intended to stimulate technological innovation, strengthen the role of small businesses in meeting research and development (“R&D”) needs, and increase private sector commercialization of innovations derived from federal R&D.
Organizing the Company – Choice of Entity
In the first installments of the Bench to Market series, we discussed how to secure and protect intellectual property rights to technology that will be central to the venture. Once the entrepreneur is confident these rights are secure, it is time to form the legal entity that will carry on the business of developing the new technology. It is generally a good idea to create a company early in the process to avoid the necessity of assigning contracts and taking other legal steps that might be required if legal arrangements are made initially in the names of individual entrepreneurs.
It is also important to conduct all business related to the new technology through a company structure so that there is no confusion about who is responsible for the company’s obligations. If a corporation, partnership, or LLC is formed, capitalized, and operated properly, the new legal entity constitutes a separate and distinct “person” for all purposes under the law, and the company, as opposed to the entrepreneur who forms it, will be liable for the debts and obligations of the business. While this is not true in all situations (for example where the owner has personally guaranteed a debt of the company or where the owners have failed to provide appropriate capitalization), the “limited liability” that a separate legal entity provides can and often does prove to be crucial.
Provisional Patents: A (Temporary) First Step
Any entrepreneur is likely to be euphoric when her company discovers a novel and potentially valuable genomic invention that may be protectable by a patent. But when the celebrations start to fade, difficult decisions will remain about how to protect and exploit the intellectual property rights associated with the invention. A company may protect its rights by carefully avoiding disclosure until it has reduced its invention to practice (that is, made it work) and filed a patent application. But our entrepreneur may not have that option. Reducing the invention to practice requires money, which may be in short supply.
For the purpose of this post, we assume that the entrepreneur has already taken the required steps to be sure the company owns all necessary rights in the invention. (See our earlier Bench to Market articles: “What Happens When Professors Have Valuable Inventions?” and “Don’t Overlook Agreements with the Inventors.”) How can she now have the discussions with outside parties (such as venture capital firms) that may be necessary to commercialize the invention, without risking the loss of important intellectual property rights?
Don’t Overlook Agreements with the Inventors
Corporate formalities are rarely a high priority for early stage development companies. There may be a formal legal entity (such as a corporation or limited liability company) or the participants may operate informally as a partnership. Some participants may be paid employees of the development company while others may still be full time professors or even have other jobs and work for the development company in their spare time. Inventions may be entirely new concepts or may only be improvements (albeit significant ones) to earlier inventions. It may not be at all clear exactly who owns what rights in anything that might be invented.
The participants often do not worry much about this until the day when something potentially valuable is discovered. Then the world changes. Suddenly the participants are focused on allocating rights (including the now important economic rights) to the invention. As they move to the likely next stage of seeking venture capital, they will be asked to prove that the development company owns the invention that it is trying to commercialize. Any misunderstanding about the rights to the invention can become a major problem if they are not addressed before this point.
What Happens When Professors Have Valuable Inventions?
You are a faculty member at a research university and you have made a significant breakthrough. More specifically, you are on the verge of what might be loosely called an “invention.” It could be anything—a chemical formula, a gene, a medical test or therapy, an engineering advance, or even a method of financial analysis. But its defining elements are that it is new and that it has a potentially useful, real-world application.
So what do you do next? The answer is simple, unequivocal, and unavoidable: Read your university’s patent and invention policy. (It might also be called an intellectual property policy or a technology transfer policy.) In all probability, it became part of your terms and conditions of employment when you were hired.
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Bench to Market: Understanding the Language
As the first installment of our Bench to Market series of posts, we provide a glossary of certain terms that an entrepreneur is likely to hear in the course of bringing a venture to market. This glossary assumes that many terms commonly used in legal circles will be new to the entrepreneur. The defined terms in this initial list relate primarily to the choice of legal entities that are available to the entrepreneur for development and operation of a business venture. As the series continues, this list will be expanded to include additional terms discussed in subsequent posts.
From Bench to Market
Many Genomics Law Report readers hope for the opportunity to take a product or process from the research laboratory to the commercial market. “From Bench to Market,” our newest series of posts, will explore the key issues scientist-entrepreneurs will face in turning a research idea into a viable business. Attorneys at Robinson, Bradshaw & Hinson who specialize in the various stages of this process will offer practical background information and pointers. The series will track the development of a new business through each major step, from the decision to pursue commercialization all the way to the pot at the end of the rainbow, a financially successful business.
Some of the issues we will examine go to the core viability of the proposed business. For instance, does the proposed venture have the rights to all of the intellectual property necessary to develop the contemplated product or service? Acquiring the necessary bundle of rights can require would-be entrepreneurs to work at a very early stage with tech transfer offices and other rights holders to obtain the requisite licenses for commercialization.
