By Roya Ghafele

Law360 (June 5, 2020, 3:16 PM EDT )

Roya Ghafele

British pharmaceutical company AstraZeneca PLC recently announced that it will order 400 million doses of a vaccine created in the labs of Oxford University. At the same time, the British pharma giant will obtain another $1 billion in funding from the U.S. government.

Against this background, I briefly outline why it is important to adequately manage the public interest in technology transfer agreements.

Public Spending on R&D to Fight COVID-19 Is Impressive

As the global pandemic spreads, universities around the world seek to find a cure. Much of this research is undertaken with the support of public funds. The United Kingdom for example has announced it will make £84 million of funding available for clinical trials to test a vaccine against COVID-19. The vaccine project of Oxford University, in which the U.K. government has major hopes, is also to receive another £20 million in public funding.

To bring potentially lifesaving technology to market, universities need to enter partnerships with corporations. In that spirit Oxford University signed a technology transfer agreement with AstraZeneca.

Such partnerships are commonly known as public-private partnerships for health and allow a university to combine its academic know-how with the commercial capabilities of a pharmaceutical company. Without such partnerships it is rather difficult to bring health technology to the market.

These partnerships need to be guided by the preservation of the public interest. A university has a responsibility to protect the public interest, particularly if its research is undertaken with public support. To assure the preservation of the public interest, it is important that patents are adequately addressed in technology transfer agreements. This implies that on the one hand contracts contain public interest clauses and on the other hand that the licensing rate is commensurate with the need to preserve the public interest.

How Can the Public Interest Be Protected?

Patents protect the underlying rights to an invention and allow a pharmaceutical company to charge higher prices. Once patent protection expires, prices drop.

When universities enter partnerships with companies, they have several options to transfer patents. The can either sell or they can license the patents as part of a larger deal.

Reflect Public Interest in Tech Transfer Contracts

In either scenario, they should insist on public interest clauses for their patents. For example, they can ask that the drug be made available at a lower rate to impoverished parts of society or to patients in developing countries.

A good example in that regard is the deal that Bristol-Myers Squibb Co. and Yale University concluded some time ago. Yale University held IP on a compound that may defeat the HIV-AIDS pandemic. The pharmaceutical company again had the ability to bring the drug to market, which the university itself would have been unable to do. The transfer agreement made it clear that patients in Africa would be able to access the cure at a very low price tag.[1]

Undertake an IP Valuation Under a Public Interest Lens

Furthermore, universities should cautiously set the licensing rate or the sales price. Here, commonly accepted patent valuation methods can help. A university can make use of comparable licensing agreements to set a rate or it can assess the net present value of future cash flows that may be associated with its intellectual property.

As university IP usually reflects forward-looking technologies, assessing potential future revenues associated with the patents is likely more insightful than making use of a benchmark approach. Questions that can guide such a valuation can for example be:

• What market can be tapped into with this patent?
• What are the risk rates and how do these relate to potential returns?
• What rate will allow to best assure health for all?

In the context of a patent valuation undertaken under a public interest paradigm, one may want to add assessments such as the ability of the patent to help save lives. In that regard, the royalty rate may need to be adjusted, so to assure that lives can be preserved, independently of the financial background of the patient.

Helping Universities Increase Their Bargaining Position

Certainly, the transfer of technology is subject to negotiation and a university that is in a weak negotiation position will find it difficult to insist on public interest clauses and public interest rates for its patents. However, in the current crisis it should be in a very strong position to do so.

Also, a valuation of its patents undertaken under a public interest lens helps a university enhance its bargaining position. It also allows to substantiate its position in a factual manner. Charts on market prospects alongside the ability to protect the health of all layers of society help contribute to substantiating a position.

What should be avoided is valuable patents sold off to the highest bidder and subject to market forces alone. This would be entirely contrarian to current needs. The research that has led to the generation of such patents has often been funded by the public. By channeling research through a company it becomes available to the public. In this cycle the public should not be paying a substantially higher price tag for patents that were in the first instance generated with the help of public funds.

This can be achieved by valuing the IP in a smart way from the outset, that is from the stage at which it is moved from a university into a corporation.

While all of this may sound self-evident, the necessity to protect the public interest when transferring patents is often ignored. This does not happen because of bad intentions, but because of a lack of awareness.

The WHO's Open COVID-19 License Approach

The approach of adequately reflecting the public interest in the transfer of patents between universities and companies appears to be somewhat closer to market realities than what is suggested by the open COVID-19 license approach proposed by the World Health Organization. That approach requires a "royalty free, worldwide, fully paid up license (without the right to sub-license)" for any form of intellectual property.

Such an arrangement may be understood as a much-debated compulsory license. Both companies and universities may find it potentially hard to comply with a compulsory license.

The deal between Oxford University and AstraZeneca did not include a royalty-free license and the university did not give its IP away on an unpaid basis. In my opinion, the university could have done more to reflect the public interest. In particular, it could have valued the IP under a public interest lens. This would have further emphasized the need to assure health for all, something that we need in the current crisis.

Takeaway

The inspirational example of Yale University should serve as a blueprint for the wider protection of the public interest in transfer agreements between universities and companies. In addition, universities should put more of an emphasis of valuing the intellectual property from a public interest perspective and set prices for their IP accordingly.

In the present crisis, humanity simply cannot afford to do otherwise.

Adequately reflecting the public interest through means of an IP valuation, alongside relevant clauses in technology transfer agreements, factors in respect for the public interest from the outset. Such an approach permits both the university and the company to adjust their strategy from the outset. This interferes significantly less with an institution's ability to generate income, while still allowing for means to strongly protect the public interest.

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Roya Ghafele, Ph.D., is the managing director of Oxfirst Ltd. She has held lectureships in law and international political economy with the University of Oxford and the University of Edinburgh and served as an economist to the United Nation's World Intellectual Property Organization, the Organization of Economic Cooperation and Development and McKinsey & Co.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.nytimes.com/2001/03/12/world/yale-pressed-to-help-cut-drug-costs-in-africa.html.

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