Innovation Pipeline

Nanotech researchers are well advised to study the landscape before staking a claim.

By Stephen Maebius
Economists have long touted patents as an incentive to
investment in areas that might otherwise be avoided due to  the high cost of research and lengthy product-development cycle. This is known as the “prospector” effect. At its strongest, it can spark a patent gold rush, as occurred in 1992 when the National Institutes of Health announced it would seek patent protection on the thousands of gene sequences gleaned by the Human Genome Initiative.

The NIH move spurred companies to file thousands of
patent applications on gene sequences. New companies were formed based almost entirely on a business model of identifying and patenting gene sequences of unknown function with the hope that one or more of the patents would turn out to cover a blockbuster drug like erythropoietin, which fell under one of the first gene patents obtained by Amgen.

Although the commercialization of nanotechnology is
only just beginning to pick up speed, the prospector effect is already in full gear, as nanotechnology companies rush to
stake out territory with patents. And with the December 3
signing by President Bush of a new $3.7 billion nanotech
spending initiative, the rate of nanotech patent filing is cer-
tain to accelerate. Those who file now, in the early stages of
the boom, are likely to reap the greatest rewards by obtaining broad patent claims that will command a greater portion of royalties in future.

A solid patent position is one of the elements that
sophisticated investors look for in any business plan. And
if a research group can use patents to corner an impor-
tant sector of nanotechnology, that may provide just the
security a venture capital firm needs to begin the process
of setting up a business.

What’s a strong patent worth? On December 3, when
San Diego-based Nanogen was issued a patent for a
manufacturing method by which DNA sequences are
oriented on a substrate using an electric field, Nanogen’s
share price soared over 50 percent in one day. Although
method-of-manufacturing patents have traditionally been
considered a weaker type of patent, the Nanogen
experience shows that method-of-manufacturing claims
can be important when investors perceive that they cover
an essential production pathway in an area where many
companies are operating or plan to operate.

The creation of new companies centered around a
strong patent position really began with the Bayh-Dole
Act of 1980, which liberalized the transfer of university-
owned patents funded by government grants to startup
companies. Prior to Bayh-Dole, there was so much red
tape involved in transfering university patents that little
commercialization took place. Since Bayh-Dole, many
biotech companies have sprouted from the seed of a uni-
versity patent or group of patents licensed to the startup.
First come the patents, then comes funding from a ven-
ture capital firm. That cycle is now playing out among
nanotechnology startups that have managed to license
university nanotechnlogy patents. Some notable exam-
ples are CNI, NanoInk and NanoSys, companies that all
grew out of university nanotech patents and venture cap-
ital funding.

The increasing number of patents issued in this field
means that those seeking to commercialize products must
now pay close attention to avoid the patents of others,
although patents in this area may still be broad if there is
no previous work to give the U.S. Patent Office a basis
for limiting the scope of a claim. Patent counsel can assist
by conducting a search of issued patents to analyze
potential barriers to entry and suggest ways to work
around those barriers. Though this may seem obvious,
there are many tales of investors who rushed in to fund a
promising university startup and acquire the relevant
patent rights from the university only to find out after
the investment was made that the technology was already
surrounded by a competitor’s patent estate. Such situa-
tions occur because the university and its counsel nor-
mally have no reason to analyze their freedom to
operate—universities don’t sell products.

Nanotechnology brings together many disciplines of sci-
ence. Therefore, filing a patent application for a nanotech-
nology invention requires careful consideration of the
potential end uses so that they’re adequately covered by the patent, a process that may draw upon expertise in many different fields. For example, an invention in quantum dots may have applications in both semiconductors and in the tagging of biological materials. Engaging patent counsel with a thorough understanding of the technology can improve the value of your patents.

Taking steps to protect your intellectual property is
critical to the successful transfer and commercialization of
inventions in nanoscale science and engineering. Many
investors will not invest unless you’ve constructed adequate
defenses around your intellectual property. That’s why it’s
important to consult qualified intellectual property counsel
at the earliest stage and ensure that measures are in place to
protect your intellectual property. There are many traps for
the unwary.
• New employees should sign agreements stating that their inven-
tions will be owned by the company, if that’s the intended result of the employment relationship, and that they agree to be bound your company’s confidetiality policies and procedures.

• Before collaborating with other parties to jointly develop technology or to contract for the development of new technology by another party, consult with a patent attorney to ensure that agreements are in place which properly define ownership of any resulting intellectual property.
• Before licensing in or licensing out any intellectual property, consult with a patent attorney to conduct a due-diligence review and ascertain the value of the intellectual property.

Failure to be informed of weaknesses or strengths in intellectual property can negatively impact your negotiations. This list is not intended to take the place of qualified intellectual property counsel—and it is not intended to constitute legal advice—but it may help you avoid mistakes that could reduce the value of your intellectual property.

Stephen Maebius is a partner in the IP department of Foley & Lardner and head of the nanotechnology practice group.  He can be reached by e-mail at smaebius@foleylaw.com.
Patent planning: key considerations in protecting your nanotech intellectual property.

DOS AND DON’TS OF NANOTECH IP
• Don’t publish or publicly present your invention until you’ve filed a patent application and consulted a patent attorney.

• Don’t offer to sell your invention until you’ve filed a patent application and consulted a patent attorney.

• Don’t discuss your technology with potential investors until you’ve entered into a nondisclo sure agreement, consulted a patent attorney and, preferably, filed a patent application.

• In consultation with your patent attorney, conduct a
freedom-to-operate search of third-party patents before
launching a product or investing large sums of money to
develop a product.

• Maintain detailed lab notebooks with each page dated, signed by the person who performed the work and countersigned by a witness.
• Consider the use of invention-disclosure forms (in addition to lab notebooks) to facilitate preparation of patent applications.
• Remember that grant proposals can create prior art against your own later-filed patent applications, so language to be included in grant proposals should be reviewed by a patent attorney before it’s submitted.

What’s in a word?
Maybe millions when the word is “nano.”
Patent statistics as of August 11, 2003:
• 884 U.S. patent applications filed since the year 2000
contain the word “nanoparticle.”
• 584 U.S. patent applications filed since the year 2000
contain the word “nanotube.”
• 99 U.S. patent applications filed since the year 2000
contain the word “nanowire.”