Home > IP Topics Index > Specific Strategies and Mechanisms for Facilitating Access to Innovation > Using Milestones in Healthcare Product Licensing Deals to Ensure Access in Developing Countries > Editor's Summary, Implications and Best Practices

Everyone wants a pragmatic answer to this question: How can IP management by public sector organizations and public-private partnerships (PPPs) or product-development partnerships (PDPs) successfully balance the commercial interests of private sector manufacturers and the objectives of the public sector? This chapter begins to answer that question. The goals and paradigms of the public and private sectors may seem too distant to bridge, but the tools and materials required to build the contractual architecture and span that divide can be found here.

Private-sector companies seek to generate a satisfactory rate of return on their manufacturing and marketing efforts. In a commercial environment, market attractiveness rules priorities. But these priorities can exclude the poor, the very people who have the greatest needs for affordable products. The public sector therefore seeks products at the lowest possible prices, in excellent quality, and in sufficient quantities. This does not mean, however, that the public and private sectors have opposing interests. In fact, successful IP management of public-sector generated intellectual property can link them. The experiences of the Concept Foundation, which are the basis for this chapter, offer a solid demonstration of this practice. The Foundation used a PDP business model to deal with downstream issues concerning product delivery, to utilize contractual milestones, and to achieve its principal goal of closing the medicines access gap for developing countries.

A large part of the problem is a simple failure to communicate between the public and private sectors. No matter how well public-sector players think they understand industry, discussions between the public sector and industry are always cross-cultural. In such an environment, nothing is more dangerous and conducive to misunderstandings than to “assume the obvious,” since what is obvious for a person with a public-sector background will not necessarily be the same for the other partner. Obligations and contractual performance, for example, cannot be left to vague statements about “best efforts” and “common sense.” Hastily and carelessly drafted licensing contracts with little to no view of foreseeable contingencies and problems are a serious problem. Early on, everything may look clear, but honeymoons always end. When differences arise, vague “best efforts” clauses will do nothing to sort out complex disagreements about the contract’s precise obligations. What the public sector wants to achieve with a commercial partner should be specified precisely in writing that details when and how this will be achieved and specifying milestones, as well as related penalties if milestones are not fulfilled.

This chapter contends that specific milestones belong in the actual contractual document that the parties execute. Although laborious to initially research and draft, this will save much pain and expense later if problems arise. Vague open-ended boilerplate language is prone to subjective interpretations that fuel problems instead of leading to resolutions. And because there will inevitably be situations when the original targets of a license agreement are delayed or not achieved, or when projected public-sector benefits are delayed or unrealized, it is therefore good practice to establish milestones that set incentives for keeping to timelines and performance goals. This allows both the licensor and licensee(s) to focus resources on their efforts to perform as initially agreed. The most common milestones include:

• Definition of the geographic coverage (territory) for marketing the product.
• The claim for product exclusivity by the private sector licensee, and the quid pro quo for its provision.
• The definition of the preferred public sector price or other public sector benefit.

Such results-oriented milestones require very intensive preparations, detailed knowledge of processes related to the development and marketing of the product, detailed knowledge of markets, realistic anticipation and forecasting of product potential, quantitative forecasting, the establishment of a master plan for the entire product roll-out, and a mission-driven mindset. These will allow public sector entities to establish optimum goals, and prevent them from losing out to commercial thinking. In this respect, the most important milestones cover:

• Pricing to the public sector
• Territory and exclusivity
• Regulatory work and time to market
• Royalties
• Terms and termination of the license agreement
• Provisions relating to contract enforcement

When working out milestones and other contractual incentives, remember that competitiveness in the private sector is a very big deal. Licensees seek the highest levels of competitiveness to reach their commercial objectives. One of these objectives will be to support a very competitive manufacturing cost structure, which ultimately provides the public sector with the lowest possible cost for the product. Remember also that private sector market targets can also be used to measure public sector goals. Such targets can provide useful information about how many poor people the product will reach, how easily it will be available to them, and who can afford the product at what pricing level. As this chapter makes clear, the public and private sectors can work together and reach their mutual, shared, objectives. But to succeed, they should actually communicate with each other unambiguously. Clearly articulated milestones are the common language that will bridge the divide between these two cultures.

Key Implications and Best Practices

Given that IP management is heavily context specific, these Key Implications and Best Practices are intended as starting points to be adapted to specific needs and circumstances.

For Government Policymakers

• Advances in medical and vaccine developments for the poorer sectors of a nation require a legal infrastructure that enforces complex contractual agreements. The successful execution and enforcement of such contracts will create many opportunities for providing the poor of a country with advanced health care technologies.

For Senior Management (university president, R&D manager, etc)

• Your institution critically needs adequate capacity in contract and license drafting. Using milestones in contracts will also require capacity in research and business modeling. Training personnel in these capacities is important, well worth the initial investment made in education, training and capacity building.
• Using milestones in contracts requires a good understanding of the technologies, business processes, and regulatory issues, to name but a few critical areas. Only the ability to integrate the various components lead to meaningful milestones. As a result, continued investments in training technology transfer personnel are important, particularly in the fast evolving fields of health and agricultural biotechnology.

For Scientists

• Although not directly your concern, contractual milestones will still impact your work. Research schedules and goals may be directly linked to specific milestones, and you need to know how such milestones might affect your program.
• Technology transfer officers will need to learn from you about your science and how it can be integrated into business processes. This may sometimes seems a time consuming distraction. However, your time is well spent in your quest to see the fruits of your science impact society.

For Technology Transfer Officers

• If your office is administering a license contract, you will be responsible for seeing that milestones are properly administered. Should your office be involved in the drafting and negotiation of agreements containing milestones, you will need to ensure that the requisite capacities are available for such detailed work.
• Avoid “best effort” clauses in agreements. Instead, make the extra effort to draft comprehensive contracts with articulated milestones. This up-front investment in time and effort will pay off if a problem subsequently arises.
• During the drafting and negotiation of agreements containing milestones, do not hesitate to involve people from other departments, including business schools, outside consultants and experts in the relevant industries/markets.
• Developing meaningful milestones that provide the appropriate balance of incentives, rewards and penalties requires detailed preparations, a sound understanding of the processes related to developing and marketing the product, realistic forecasting of product potential, persistence in quantitative forecasting and in putting together a master plan for the entire product roll-out, and above all, a mission-driven mindset.