Playing the "Sport of Kings": Intellectual Property Management Options for Hospitals

In 2012, Pittsburgh-based Carnegie Mellon University received nearly $1.2 billion in damages after a federal jury determined Marvell Technology Group in Santa Clara, Calif., had sold semiconductors that used technology developed by Carnegie without a license. It was one of the largest sums awarded in a patent infringement case, according to a report in The New York Times.

filesPaul Cronin, a patent litigation partner at Boston-based Nutter McClennen & Fish, says Carnegie's victory can serve as an example not only for other universities but also for academic medical centers.

"It was obviously a great business decision for this institution," he says. "It's a very good model for hospitals to consider."

Thanks to legislation passed more than 30 years ago by former Sens. Birch Bayh of Indiana and Bob Dole of Kansas, teaching hospitals, universities and other major research organizations can take ownership of intellectual property created with federal funding. For instance, an academic medical center can pursue patent protection for new cancer-fighting technologies that were partially funded by the government.

Defending and disseminating intellectual property is about more than just additional revenue for the hospital or health system. For instance, Johns Hopkins HealthCare Solutions, the commercialization unit of Johns Hopkins Medicine in Baltimore, shares some of its research to help other healthcare organizations that may not have as many resources with evidence-based practices.

However, hospitals looking to generate revenue and drive more innovation using their patent portfolios do face drawbacks.  Aggressively pursuing patent infringement cases could foster disapproval from companies and members of the public, especially for hospitals that are publicly funded, Mr. Cronin says. Additionally, the high cost of taking patent battles to court could be prohibitive for hospitals.

How to make money off patents through licensing: a new avenue of revenue
A hospital with a portfolio of patents likely spent a considerable sum to build it, probably $20,000 or more on average per patent, Mr. Cronin says. That should be motivation for healthcare providers to prevent unlicensed use of their intellectual property. "It's a liability because they spent a lot of money to obtain it," he says.

There aren't many hospitals currently trying to license or litigate to profit from their patents, but universities like Carnegie can serve as examples of how to license intellectual property, he says. There are a few ways hospitals looking to license can go about it.

First, the medical center can try to license the technology covered by the patents on its own. Mr. Cronin says this method offers an advantage in that the hospital doesn't have to share patent revenue with a third party. On the other hand, this approach isn't likely to work well if the hospital doesn't have anyone on staff with licensing expertise, he says.

If no one at the medical center has the necessary licensing skill, administrators can hire an outside company to evaluate the hospital's portfolio and start a licensing campaign. In that case, the hospital will split any resulting revenues with the outside company. This is the best option for healthcare providers who don't want to get involved in possible patent battles and would rather have a third party handle it, according to Mr. Cronin.

Taking it to court: the pros and cons of fighting patent infringement battles
Like Carnegie Mellon, medical centers can also stop others from profiting off of their work by filing patent infringement cases against companies using the hospital's intellectual property without permission. Mr. Cronin says the hospital can file the cases itself or get a third party to pursue the lawsuit on its behalf. The latter case will involve splitting fees.

There's a certain stigma surrounding contingent-fee patent infringement litigation, Mr. Cronin says. People or companies who obtain patent portfolios and take companies or individuals to court for infringement to make money have triggered backlash among tech companies, software developers and others, who label the lawsuit filers as "patent trolls."

For instance, the Internet Association — a group that represents U.S. Internet companies and users — recently launched an ad campaign to raise awareness about "trolls" and to call for legislation to stop them. According to the group, the "trolls" have targeted coffee shops, hotels and other main street businesses in addition to tech companies. The Internet Association claims these patent assertion entities — which buy patents but do not create or sell anything — place a "real drag" on innovation and job creation.

Hospitals, as practicing institutions, won't get labeled as trolls, Mr. Cronin says. Still, they may face possible disapproval for pursuing patent infringement cases. "Hospitals are a lot of the time taking public money," he says. "They're held to a higher standard. If they're going to do this, they want a clear case of infringement, and they want well-defined reasons for doing it."

Still, medical centers who stay out of court for fear of public disapproval risk being taken advantage of by private companies. "The private industry, they're smart, and they know universities and hospitals don't like to file lawsuits because of the potential backlash," Mr. Cronin says. "There's the real potential for private companies to prey on them."

He says universities seem to have avoided the stigma by justifying their actions and showing they have a legitimate interest in protecting their intellectual property in order to drive more innovation with revenue.

Another disadvantage to legal action is the cost. Mr. Cronin calls it "the sport of kings." If the case involves more than $25 million in potential recovery — a likely scenario for hospitals — the cost could be north of $5 million, he says.

"It's incredibly expensive to undertake this, and that can be a real barrier to entry," he says. "Hospitals could get sticker shock from patent battles."

One way to bring down the price of patent battles is to hire lawyers on a contingency basis, meaning they will not charge a fee unless they actually recover money from the defendant. Alternately, they might only charge 10 percent to 50 percent of what they usually would if there isn't a recovery. "That's how universities are gaining entry into the arena, and the hospitals could consider that as well," Mr. Cronin says.

Ultimately, Mr. Cronin says academic medical centers shouldn’t let the potential pitfalls of patent monetization stop them from following in the footsteps of universities and defending their intellectual property, especially considering the increasing economic pressures healthcare providers face. He advises contacting a lawyer with patent expertise to see what their options are.

"They should explore it," he says. "It doesn't hurt to get some information. Universities and hospitals are very similar in certain ways, and the universities are having success. Hospital administrations shouldn't overlook this."

More Articles on Hospital Patent Issues:
Allscripts Sued for Patent Infringement
AHA to Congress: Stop Patent "Trolls"
A Public-Private Enterprise: Why Intellectual Property is a Mainstay at Academic Hospitals 

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