A. Shishanova. Line of Defense: Legal Practice of Structuring Relationships Between Participants in the Registration and Circulation of Medical Devices
The interests of the developer, the manufacturer of a medical device, the authorized representative of the manufacturer and the production site often collide and lead to disputes over the rights to the medical device and the terms of its use and distribution.
A large share of such disputes relates to the protection of intellectual property used for or in connection with the manufacture of a medical device.
As banal as it sounds, the best way to avoid disputes is to agree on everything at the outset
and put it in writing.
However, not everyone follows this scenario, and sometimes the scenario goes off course because of the intervention of external factors or the bad faith of the parties themselves, who do not comply with the agreements reached.
In practice, participants in the circulation of medical devices face various difficulties in structuring their relationships and resolving disputed issues within those relationships.
To see clearly what difficulties may arise in connection with the use of intellectual property in the manufacture and distribution of medical devices,
and how to avoid them, we suggest examining, using specific simulated tasks, what actions should be taken to ensure proper protection of the interests of each party.
Simulated situations on problematic issues will be presented below together with instructions for their possible resolution.
Situation No. 1
A medical device manufacturer faces the need for contract manufacturing of part of its devices and engages a production site.
Under the terms, the production site receives from the manufacturer the documentation and detailed instructions required to produce a medical device fully developed by the manufacturer, and undertakes to produce the agreed number of devices and hand them over to the manufacturer for placing into circulation in the territory of the Russian Federation. The manufacturer is concerned that the production site might later start using the documentation and instructions transferred to it for its own production of similar medical devices.
In this situation the manufacturer is right to be concerned that its development, which will be transferred to the production site, may be used outside the contract manufacturing relationship.
The documentation that contains all the information about what the medical device is and how to produce it is of high value to the manufacturer.
If it falls into the hands of a third party, that third party may start using the information obtained to produce its own medical devices.
To protect itself in this case, the manufacturer should remember two simple rules:
1. Never forget to take measures in advance to protect the medical device
as an intellectual property object.
2. Always conclude a contract with the production site that settles the intellectual property issues.
As for the first rule,
the manufacturer's protection tactics in this case depend on what proper measures have been taken to protect the medical device's production technology as an intellectual property object.
The following mechanisms for protecting an intellectual property object may be used to protect a medical device's production technology:
- Obtaining a patent for the medical device as an invention/utility model;
- Obtaining a patent for the appearance of the medical device as an industrial design;
- Taking measures to protect the documentation as know-how.
For the first two items,
which involve obtaining a patent, the manufacturer obtains protection of its technology
only after Rospatent issues a positive decision to grant the patent.
For the third item –
it is important to remember that the manufacturer must take measures to protect the confidentiality of the information constituting the production technology of the medical device, which will eliminate the possibility of access to it by any third parties (more on this a little later).
As for the second rule,
depending on which protection mechanism is chosen, when concluding the contract with the production site it is necessary to define sufficiently all the terms concerning the production site's use of the manufacturer's intellectual property.
Yes, the most important advice is to be sure to conclude a contract with the production site that records all the terms of cooperation, in particular how many devices must be produced, within what period and at what price, the production site's obligation to comply with the conditions for producing medical devices, and also to give separate attention to the section dealing with intellectual property.
In this section of the contract it is important to note the following conditions:
Condition 1
Depending on exactly how the production technology of the medical device is protected, the terms of its use must be defined:
- For an invention/utility model/industrial design: include a condition on granting the right to use the invention/utility model/industrial design under a non-exclusive royalty-free license for the term of this contract, solely for the purpose of manufacturing the medical device and subsequently handing the devices over to the manufacturer for placing into circulation (subpara. 1, para. 2, Art. 1358 of the Civil Code of the Russian Federation).
*If the production site is a foreign company, and under the contract the parties have also agreed that the production site imports the manufactured medical devices into the territory of Russia, it is worth additionally specifying that the right is also granted to use it for the purpose of importing the finished device into the territory of the Russian Federation and handing it over to the manufacturer for placing into circulation.
- For know-how: include a condition on granting the right to use the know-how under a non-exclusive royalty-free license for the term of this contract, solely for the purpose of manufacturing the medical device and subsequently handing the devices over to the manufacturer for placing into circulation (Art. 1466 of the Civil Code of the Russian Federation).
Condition 2
Provide that the exclusive rights to any improvements of the technology that may result from the production site's performance of the contract belong to the manufacturer from the moment they are created;
Condition 3
Include a provision that nothing in this Contract may mean that any rights pass to the production site in respect of intellectual property objects belonging to the manufacturer (listing all such objects expressly);
Condition 4
Include a condition on maintaining confidentiality in respect of the documentation provided and any information transferred under the contract, defining, among other things, liability for disclosure or accidental leakage of such information;
Condition 5
Include guarantees from the production site that the employees given access
to the information received from the manufacturer under the contract have been familiarized with the regulation
on compliance with commercial secrecy adopted by the production site, and have been informed that the information received under the contract is confidential and may not be disclosed.
Additionally: provide for a penalty for the production site's breach of this guarantee;
Condition 6
If, under the contract, the manufacturer also instructs the production site to apply a trademark to the device or its packaging belonging to the manufacturer, additionally provide that the production site is granted permission to use the trademark by applying it to the devices manufactured by the production site;
*If the production site is a foreign company, and under the contract the parties have also agreed that the production site imports the manufactured medical devices into the territory of Russia, it is worth additionally specifying that the manufacturer gives permission to use the trademark for the purpose of importing the finished device into the territory of the Russian Federation and handing it over to the manufacturer for placing into circulation.
Taking measures in advance to protect the technology as an intellectual property object, including maintaining a confidentiality regime and concluding a contract that regulates the use of the technology and provides for liability for disclosure of confidential information, will help protect the manufacturer's interests. Unfortunately, these measures will not always ensure protection unconditionally; nevertheless, if the production site is found to be using the technology outside the concluded contract, the manufacturer will have a better chance of proving that the production site's actions are unlawful and of holding it liable.
Therefore, any manufacturer should always take care in advance to put in place measures to protect the technology and to conclude a contract that protects the manufacturer's interests.
At the end of this article there is also a CHECKLIST FOR THE MANUFACTURER, which collects all the advice on this task.
Situation No. 2
The Roszdravnadzor register of medical devices openly publishes photographic images of medical devices, operating documentation and labeling. Manufacturers have become concerned that, with such openness of information, any third party could use these data to start its own production of the same medical devices, and are asking whether there are any ways to protect against this and to hold liable those who start such production.
- In considering this situation, it is worth defining quite clearly exactly what information is freely available in the Roszdravnadzor register and to what extent any third party can obtain from such information enough to start its own production.
- Roszdravnadzor publishes for each medical device photographs of the device, as well as the operating manual of the medical device, which in fact contains instructions for users of that medical device. The register contains no information relating to the production technology of the medical device.
Interestingly, if a patent for an invention/utility model/industrial design is obtained, the abstract and the appearance of the medical device will in fact be contained in Rospatent's open registers, and any third party will also have access to such information.
- At the same time, free use of these data for one's own developments will not be lawful, since these devices are protected as an invention/utility model/industrial design.
- Such is the paradox: disclosure of information in this case rather warns all third parties that they must not do exactly the same thing.
- Another interesting paradox is that, by choosing to protect a medical device as a patent law object, the developer in effect gives up the possibility of protecting the essence of that invention as know-how. This is because only information that is kept secret from third parties can be protected as know-how.
As for the information given in the Roszdravnadzor register (bearing in mind that information containing the production technology of the medical device itself should not be placed in the public domain), and especially if the manufacturer has not taken measures to obtain a patent for the medical device, the manufacturer should make sure that the information constituting the production technology is confidential and is transferred only under contracts with production sites, subject to non-disclosure.
To introduce an appropriate confidentiality regime for such information
- it is worth introducing a commercial secrecy regime
(although introducing a commercial secrecy regime specifically is not mandatory for information to be recognized as know-how, this option nevertheless provides the best evidentiary basis showing that appropriate confidentiality measures were taken):
- define a list of information constituting a commercial secret;
- restrict access to the information constituting a commercial secret;
- keep records of the persons who have been given access to the information constituting a commercial secret and (or) the persons to whom such information has been provided or transferred;
- regulate relations concerning the use of information constituting a commercial secret with employees on the basis of employment contracts and with counterparties on the basis of civil-law contracts;
- affix to tangible media containing information constituting a commercial secret, or include among the details of documents containing such information, the stamp "Commercial Secret" indicating the holder of such information.
If the information contains a commercial secret, the following requirements must be observed for its use and transfer:
- the information may be provided to another person only on the basis of an agreement that must define the scope of the information provided and the measures the person receiving the information must observe to protect its confidentiality;
- the person receiving the information is obliged to ensure its confidentiality, prevent its disclosure or unauthorized access to it, including by familiarizing its employees and counterparties with the rules of access to such information;
- the person receiving the information has no right, without the consent of the holder of the information, to transfer it to third parties or to use it beyond the scope provided to it, including for purposes not specified in the agreement between the parties.
With regard to the photographic images placed in the Roszdravnadzor register, it is also worth bearing in mind that, despite their being in the public domain, third parties nevertheless cannot copy these photographs and use them for their own purposes – this is permitted only with the permission of the holder of the exclusive rights to such photographs, which are copyright objects.
If such photographs are used to copy the design of the medical device itself, and the appearance of the device is not protected as an industrial design
then, as one means of protection if someone copies the design – one may try to refer to unlawful use of the design as a copyright object.
However, it should unfortunately be borne in mind that proving that a device's design has been used one-to-one is not the simplest task, though it can be done.
Situation No. 3
The authorized representative of a foreign medical device manufacturer (hereinafter, the "AR") wants to be the sole distributor of a new model of a foreign-made medical device that is under development. It enters into negotiations with the foreign manufacturer, who in general does not object but does not understand what to do about the fact that it already has a number of official distributors of older models in the territory of Russia, and also what to do in this situation about parallel-imported devices.
The AR's wish is perfectly understandable:
everyone wants exclusivity, especially if it also allows the AR to control the quality of the medical devices supplied and to answer for that quality to consumers and supervisory authorities.
One option for achieving such exclusivity –
of course, is to conclude an agreement with the manufacturer
that unambiguously states that the AR is the sole official representative and supplier of specific medical devices in the territory of Russia.
To strengthen this exclusivity, if
the manufacturer has a trademark used to identify a specific model of the medical device, or a patent for an invention/utility model/industrial design,
the agreement may also include a condition granting the AR the right to use such a trademark under an exclusive license, which eliminates the possibility of granting the right to use it to the same extent to third parties.
And here everything comes down to whether the manufacturer itself is ready for such terms and whether it is able to agree to them.
The manufacturer may already be bound by agreements with other third parties
to whom it has also promised exclusivity terms.
In the example presented, the AR wishes to obtain the status of exclusive distributor – in respect of a specific new model of medical device.
If the manufacturer agrees to this – an agreement can be concluded which must state that the AR is granted exclusive rights to promote the specific medical device in the territory of the Russian Federation, and that the manufacturer bears liability if it concludes a similar agreement with another person.
Attention must be paid here, however,
to the fact that such conditions prohibiting the manufacturer from entering into similar agreements with third parties may, in the event of a dispute, be regarded as restricting competition and may be declared invalid. They would rather have the force of "intimidating" conditions warning the other party against behaving otherwise.
Attention should also be paid to the fact that, despite the status of exclusive distributor in the territory of Russia, it will be very difficult to protect oneself in any way against parallel-imported devices,
especially given the current practice of partially permitting parallel imports in Russia. If persons importing parallel-imported goods lack the manufacturer's permission to use the trademark or patent, the right holder or the exclusive licensee may bring corresponding claims against such persons.
As a protective measure against parallel imports, one may also consider including the manufacturer's trademarks in the TROIS of the Russian Federation
this will allow customs to track the import of medical devices by persons who have not obtained
the corresponding permission.
However, inclusion in the TROIS of the Russian Federation requires the direct initiative of the right holder.
Thus, for the AR to secure its status as exclusive distributor
the following measures must be taken:
1. Conclude an agreement with the manufacturer that expressly states that the manufacturer undertakes to sell medical devices in the territory of Russia exclusively
through the AR, and provides for liability for concluding similar agreements with other persons;
2. Agree with the manufacturer, if there is a trademark and/or patent, on the AR's right to use it in the territory of Russia under an exclusive license;
3. Agree with the manufacturer on possible ways of combating parallel imports of medical devices, including the option of including the manufacturer's trademark in the TROIS of the Russian Federation.
Situation No. 4
A medical device manufacturer is a subsidiary of a global medical company that is the right holder of all intangible assets, including the entire portfolio of trademarks used to label medical devices. The manufacturer has encountered a problem: a large clinic that purchases medical devices has asked the manufacturer for consent to use the trademark for marketing purposes (to publicize that the clinic purchases specific medical devices). When this question arose, the manufacturer also became very concerned about how lawful it had been that it had previously used this trademark, which is registered to the parent company.
The situation described is quite classic when it comes to the interaction of parent and subsidiary companies, where all intangible assets are registered specifically to the parent company.
In practice there may be another situation, when, for example, a trademark is registered
to a sole proprietor but is used by the company itself or by one of its sister companies.
The outcome is the same – the trademark is registered to one person, while it is the medical device manufacturer that directly uses it.
In the situation under consideration, the following separate issues deserve attention:
1. The lawfulness of the medical device manufacturer's use of the trademark
There is a basic rule –
any use of a trademark may be carried out only with the consent of its right holder.
This rule must always be followed.
If there is no such consent, the right holder may bring claims in connection with unlawful use.
However, the list of ways in which the right holder may express such consent is open (para. 1 of Art. 1233 of the Civil Code of the Russian Federation). The most classic way to express consent to use (and some mistakenly believe it is the only one) is, of course, to conclude a license agreement that clearly defines the limits of use of the trademark.
This option really is the most reliable and the easiest for proving that such consent exists.
However, additionally, it also requires registering the grant of the right to use the trademark with Rospatent.
Besides concluding a license agreement, the right holder may also express consent simply by issuing, for example, a unilateral letter of permission.
Consent to use a trademark may also be included simply as a condition in another contract. Oral consent is also generally permitted, but it must be borne in mind that in the event of a dispute it will be very hard to prove the existence of such oral consent.
There is one more interesting option – the so-called "use under the control of the right holder".
Court practice includes an approach under which the use of a parent company's trademark by its subsidiary is recognized as lawful,
if the parent company in turn exercises control over such use. In this situation it is assumed that the subsidiary uses such a trademark lawfully in the absence of any separate consent to do so.
Thus, in the situation described there is a high probability of arguing that the manufacturer's use of the trademark, if it was carried out with the knowledge of the parent company, is lawful.
2. Granting the right to use the trademark by the manufacturer to a third party
In order to give consent to the use of a trademark by a third party, the right holder's consent to this is also required in the first place.
In the situation described, the third party, the clinic, applied with a request for consent specifically to the manufacturer, which under the terms of our situation is not the right holder, and no license agreement has been concluded with it.
In this situation, the following actions may be taken to satisfy the clinic's request:
1. Concluding a license agreement directly between the parent company and the clinic,
and subsequently registering the grant of the right of such use with Rospatent;
2. The parent company issuing a letter of permission or another unilateral document to the clinic for the use of the trademark;
3. Concluding a license agreement first between the parent company and the manufacturer,
which will provide for the manufacturer's right to grant sublicenses for the use of the trademark (and subsequently registering the grant of the right of use with Rospatent), and then, after that, concluding a sublicense agreement between the manufacturer and the clinic (and subsequently registering the grant of the right of use with Rospatent).
It should be borne in mind that if a "one-time" consent to use the trademark is required, it makes sense to use the first two options, where the parent company, as the right holder, itself immediately gives consent to use the trademark.
If, however, requests for granting the right to use the trademark to the manufacturer start to become systematic, it is still worth considering the option of concluding first a license agreement and then a sublicense agreement.
As the main conclusion – consent to the use of a trademark can be given only by the right holder of that trademark or by a person whom the right holder has vested with such authority.
If the trademark is not registered to the manufacturer, but the manufacturer uses this trademark and also wants to grant the right to use it to third parties – this issue must be treated very seriously and everything must be done in accordance with our recommendations given above.
Of course, the problems and disputed situations that may arise in the process of creating, using and distributing medical devices are far more numerous than in the cases we have considered.
Nevertheless, the examples of situations given describe truly real problems
that manufacturers, production sites or ARs have faced.
And finally, we would like to give a few basic tips once again:
1. Do not forget that a medical device can be protected as an intellectual property object and take appropriate measures to protect it in advance.
2. Always agree with counterparties on all important issues and be sure to record these agreements in a written agreement.
3. If the question arises whether you can use a trademark, patent, copyright object or other intellectual property objects, always first find out who holds the exclusive rights to such an object and ask them about the possibilities of using it.
These simple tips can really help avoid many disputed situations.
Moreover, in the current environment, where changes in legislation are frequent and new
challenges arise in the legal field, it is important not only to be aware of all developments but also to be able to respond to them promptly.
On the Capital Legal Services website and in the Telegram channel @LegalRecipes you can find useful materials that will help you stay up to date with all the latest innovations and changes in the legal field.
CHECKLIST
for a medical device manufacturer on protecting production technology in relations with a production site
- Take appropriate measures to protect the medical device as an intellectual property object:
/01/ File an application for a patent for an invention or utility model depending on how patentable the medical device's technology is (whether it meets the criteria of novelty, industrial applicability and inventive step
(for an invention only));
Application filed ✓
/02/ File an application for a patent for an industrial design if the appearance of the medical device is new and original;
Application filed ✓
/03/ Introduce in the company appropriate measures to protect the confidentiality of the medical device production documentation and of any information that contains valuable details of exactly how to produce the medical device;
Application filed ✓
/04/ Enter the relevant intangible assets on the company's books –
the invention, utility model, industrial design or know-how.
Application filed ✓
- Conclude a contract with the production site, which must reflect the following conditions:
/01/ Subject of the contract, including how many medical devices must be manufactured and within what period;
/02/ The production site's obligation to comply with the conditions for producing medical devices and the production site's liability if claims are made against the manufacturer in connection with the substandard quality of a medical device;
/03/ Conditions on the use of intellectual property objects:
Condition 1
A condition on granting the production site the right to use the invention/
utility model/industrial design (if any) under a non-exclusive license for the term of this contract, solely for the purpose of manufacturing the medical device and subsequently handing the devices over to the manufacturer for placing into circulation;
Condition 2
Or a condition on granting the production site the right to use the know-how under a non-exclusive license for the term of this contract solely for the purpose of manufacturing the medical device and subsequently handing the devices over to the manufacturer for placing into circulation;
Condition 3
If, under the parties' agreements, a production site located outside the Russian Federation must also bring the medical device into the territory of Russia, additionally note that the intellectual property objects may be used for the purpose of importing the finished device into the territory of the Russian Federation and handing it over to the manufacturer
for placing into circulation
/04/ A condition that the manufacturer owns the exclusive rights to any improvements
of the technology made in the course of performing the contract;
/05/ A condition on maintaining confidentiality in respect of the documentation provided
and any information transferred under the contract, defining, among other things, liability for disclosure or accidental leakage of such information;
/06/ Guarantees from the production site that its employees have been familiarized with the regulation on commercial secrecy adopted by the production site, and have been informed that the information received under the contract is confidential and may not be disclosed. Additionally: a penalty for the production site's breach of this guarantee.
/07/ If, under the contract, the manufacturer instructs the production site to apply a trademark to the device or its packaging: a condition granting the production site permission to use the trademark only by applying it to the devices manufactured by the production site (if the production site imports the manufactured medical devices into the territory of Russia, it is additionally worth specifying that the manufacturer gives permission to use the trademark for the purpose of importing the finished device into the territory of the Russian Federation and handing it over to the manufacturer for placing into circulation).
Author of the article: Antonina Shishanova
