Medical device license agreement

Since physicians are in a position of recommending medical devices to their patients, any value transferred by a manufacturer of such devices to physicians with the expectation of a recommendation from such physician could present significant risk to the parties.

Given the severity of the criminal and civil sanctions under the anti-kickback statute, physicians need to be very careful when structuring development and license agreements with manufacturers and ensure that any such arrangement is consistent with the personal services and management contracts safe harbor of the anti-kickback statute, which requires that any fees paid to the physician be set at fair market value. The federal government determined that many large up-front payments, annual payments and monthly consulting fees that were being paid prior to the development of a device did not meet fair market value.

The parties thus would have to move to a royalty or percentage-based arrangement whereby the physician was paid for the transfer of her intellectual property and other work in the development of the device only if the device was completed. A pure medical device manufacturer consulting arrangement would be structured separately on a per hour, per fee basis, not a royalty or percentage basis.

It is this risk-shifting that requires physicians to take a close look at the material provisions of any device development deal, including provisions concerning calculating royalties, payment on products and excluded products, design completion and events of death and disability, non-competition, rights to intellectual property, future developments and termination.

Any royalty or percentage-based payment arrangement will include a percentage of net sales. Net sales is typically defined as gross invoice price, less costs and expenses directly related to the sale of the product such as discounts, shipping charges, taxes and other related costs.

Some manufacturers are also now requiring that per-hour service fees paid to the physician in connection with the development of the device during the term be deducted from any royalties due. Physicians should carefully scrutinize any deductions to ensure that they are directly related to the sale of the device and understand exactly the dollar amount they should be receiving on the sale of the devices.

Payment on Products and Excluded Products. Third-parties may claim a right in the developed device. In the event the manufacture is required to pay such third-party for its rights in such device, the manufacturer will seek to offset such amounts from the royalty or percentage payment due to the physician. Physicians should seek to minimize the amount of any such offset. Additionally, to comply with Stark and the federal Anti-Kickback Statute physicians should not be paid for products they use in their own practice or any hospital where they have privileges.

Generally, Stark prohibits a physician or immediate family member who has a financial relationship with an entity from making referrals to that entity for the furnishing of designated health services for which payment may be made under the federal health care programs, unless an exception or safe harbor is satisfied.

Design Completion-Death and Disability. The device may be completed a few months before it goes to market. Physicians should ensure that the contract is structured so that the payment obligation of the royalty is triggered upon design completion. This is especially important if the physician becomes disabled or dies between the time period of design completion and the device going to market. The physician should not lose her rights to royalties or percentage payments due if the device has been completed.

Non-Competition Agreement. Manufacturers will seek a non-compete from the physician developer. It is crucial to limit the non-compete to the services rendered for the device being developed i.

Additionally, the term of any non-compete should not run beyond the date of the last royalty payment for that particular product. Intellectual Property. In most device development and license agreements, the physician must either license or assign her intellectual property to the manufacturer.

Physicians should be mindful to maintain the right to have their names on patents and copyright protection over their literary works. Future Developments. Intense Competition from Big Players: Medical technology is an intensively competitive industry driven by the large number and variety of devices and designs with lots of variations in improvements. In addition to the traditional medical device players such as Johnson and Johnson, leading tech and consumer electronics companies, such as Apple, Google, IBM, and Samsung, are spending billions on digital health initiatives, especially around wearable, life sciences and smartphones.

These players are well-honed in the managing and commercializing IP in the consumer marketplace, and will use their marketing and sales muscle aggressively to compete in this fast growing market. Shortening Technology Lifespan: As a result, the medical devices industry is becoming a high-volume, consumer electronics market. This in turn is shortening the commercial lifespan for med device technology to months, much shorter than the patent lifespan of 20 years.

Succeeding in this market requires the strategic use of your med tech IP. Especially when it comes to patent technology, where both the patent and technology lifespan is limited, and getting it into the market sooner than later is the goal.

Instead they are setting up incubators and corporate investment funds to partner with startups and small businesses. And that is creating a great licensing opportunity for med tech startups. Licensing and Med Tech Value: The closer your medical device technology is to market ready, the more value it has in terms of licensing.

Or another way of looking at it is as your med tech device goes through the development process, from concept to market ready, each stage it goes through reduces market risk.

Negotiating the Licensing Deal: There are some key business terms to keep in mind when it comes to licensing your med tech device, such as exclusivity, field of use, and territories. Before licensing it, you must understand all the applications for your device technology. Is it a single market or can it be used in multiple areas of the health care industry? This is important to consider, otherwise you can wind up locking up your IP rights with one company and missing revenue opportunities in other markets.

The best licensing agreements are performance based. That means making sure you and your licensing partner agree on key milestones, such as development timelines, marketing dates and royalty payment deadlines.