The global medical devices industry operates in one of the most challenging and dynamic market conditions. Increasing consumer demands and regulatory requirements combined with advances in the medical field and the emergence of digital technology are disrupting the space at an unprecedented clip. This is redefining the conventional principles of business and operations in the sector, including the manufacturing process.
In the business of manufacturing, there is a constant struggle for resources and prioritization of functions. If you look at a typical value-chain in light of the business environment we operate in today, product development and consumer-facing functions take precedence. In such a scenario, outsourced manufacturing offers manufacturers a viable alternative strategy. Some of the benefits of outsourcing for manufacturers include cost-competitiveness due to price arbitrage, shortened time-to-market for new products as well as enabling them to focus on R&D and enhancing the overall product experience for end-users.
However, in an innovation-led industry such as medical devices, this also opens up manufacturers to several risks with intellectual property (IP) being the single-largest of them. Owing to its nature, contract manufacturing requires manufacturers to share sensitive information, including product design, specifications, and processes with an external vendor. Thus, exposing companies to potential risks of IP infringement and theft by contractors to manufacture variants without any real investment in R&D. This can not only blunt the edge manufacturers gain through R&D but also put their reputation at stake when cheaper quality knock-offs malfunction.
So, what factors should MedTech manufacturers evaluate before selecting a contract manufacturer, and what measures can they take to protect their IP and business interests?
Understand the local IP landscape
IP-related laws and regulations can be relatively complicated and varied across countries. Hence it is crucial to understand the local regulations where your potential contract manufacturer is based. For example, China does not recognize any rights on designs and patents unless it is expressly registered in the country. Additionally, barring a few exceptions and provisions, China does not grant a patent if the product or its design has been publicly revealed in any other country1. Conversely, some countries have robust IP protection laws but are lax in enforcing them, which can leave Medical OEMs in a precarious situation.
Conduct due diligence on potential vendors
Once you have shortlisted a set of potential manufacturing vendors, it is essential to conduct thorough due diligence into their background, particularly related to their handling of IP and proprietary knowledge. One way of doing so is by seeking references and testimonials to understand the vendor’s past experiences, best practices, and IP protection programs. It would also be worthwhile to check the vendor’s history for past violations or legal proceedings against them for IP-related infringements by other OEMs.
Document IP ownership and usage rights
After a potential partner has been identified, medical OEMs must establish thorough documentation to place on record details related to all the IPs in question. This includes all design patents, trademarks, trade secrets, owners/creators, license agreements, timelines, and validity as well as legal jurisdiction and dispute resolution mechanisms among others. Measures should also be taken to sign relevant non-disclosure and non-compete agreements that would prevent the third-party manufacturer from registering or claiming IP rights on the designs and products. And depending on the nature of the partnership, efforts should be made to determine the usage rights of existing IPs and the ownership of other IPs that may result in due course of the partnership.
Evaluate security and data integrity
While data integrity is a top priority in outsourced manufacturing, in the context of IP protection, it has multiple layers. First and foremost is the physical security of IPs by having a dedicated workspace at the manufacturer’s facility exclusively for manufacturing an OEM’s products. It also includes elements like the presence of security personnel and measures such as physical monitoring of the premises and restricted entry. The next layer is that of IT security that relates to storage and access of IPs within the vendor’s network. The objective here is to prevent unauthorized access to data or inadvertent disclosure of proprietary knowledge by defining protocols and having a robust IP protection mechanism in place.
Perform periodic audits
IP protection is a dynamic and ongoing process. While it is crucial to have legal clauses and security measures for protecting business interests and maintaining data integrity, it is equally important to conduct constant checks to assess the efficacy of those measures. This should be in addition to periodic internal and external audits that validate the protocols and ensure compliance with security standards.
As the medical devices industry navigates through an increasingly competitive and globalized business environment, IP is emerging as one of the single most significant sources of competitive advantage for manufacturers. Additionally, outsourced manufacturing is also becoming a reality because of the distinct edge it provides, despite the potential IP-related risks. So, while on the surface, these two factors sound counter-intuitive, what separates the leaders from the laggards is their ability to ensure that the benefits of outsourcing manufacturing outweigh the risks associated with sharing their IP.
An established company like Cyient comes with years of experience and expertise in regulatory compliance. We offer design and manufacturing capabilities under one roof with a robust and vibrant partner ecosystem. To learn more about our IP protecting practices click here.