Intellectual property (IP) contamination in manufacturing agreements occurs in multiple ways: (1) when the contract development and manufacturing organization’s (CDMO) background IP is utilized to create a customer’s product; (2) when third-party IP is included into that customer’s product; and (3) when the customer’s IP is incorporated into a third-party product. Because of the numerous opportunities for IP contamination, it is one of the most essential considerations in cell and gene manufacturing agreements. 
 
IP Contamination: CDMO’s Background IP
In typical manufacturing agreements, the customer engages the manufacturer to make a widget, and pricing and volume discounts are the main concerns. Many manufacturers in the Cell and Gene Space own their own technology platform that is protected by intellectual property. Indeed, this IP is often the reason the customer engages the manufacturer. 
 
This creates a tug-of-war between the CDMO and their customer as to which entity owns the developed IP. The CDMO wants to use “lessons learned” from customer-to-customer to improve their platform. 
 
Customers, on the other hand, want to ensure that they own all intellectual property related with their product’s development. Without this, it could be difficult for customers to switch manufacturers. The following contract terms can help limit the possibility of IP contamination between the CDMO and their customer:
 
Confidentiality
Customers can implement institutional safeguards by having CDMO personnel who have access to customer confidential information sign an acknowledgement that they will not use customer confidential information for any purpose other than manufacturing that customer’s products. The goal here is to make the personnel who have access to customer confidential information aware of IP contamination issues.  
 
Consider whether the CDMO can make use of developed IP/project data. Customers may prefer to restrict the usage of their developed IP/project data to specific competitors, but they are not especially worried if a CDMO uses this information with other customers. Access to and use of this data can be used to horse-trade other terms important to the customer. 
 
IP Terms
One of the most effective strategies to ensure IP ownership is to file patent applications before the manufacturing relationship begins. IP filed (by the CDMO or customer) before the manufacturing relationship begins, is clearly background IP and owned by the applicant.
 
The parties should consider clearly specifying who owns what IP, created throughout the contract manufacturing agreement. Contracts frequently define IP ownership based on what it relates to: the product or platform. If the developed IP is clearly related to a customer’s product or the CDMO’s platform, IP ownership can be easily determined. However, as is often the case, the developed IP is not clearly or solely related to one or the other or, in fact, relates to both. In such cases, IP ownership disputes are likely to occur. Consider including contract clauses that specify how IP ownership disputes will be resolved. Some solutions include forming a committee to settle IP disputes or agreeing to send IP conflicts to mediation or arbitration. 
 
Consider including operational flexibility to transfer manufacturing to a different manufacturer. Can the customer negotiate a license to CDMO background IP to shift production of the product to another manufacturer in certain situations such as a lack of supply, capacity limits, or new market entrants?
 
IP Contamination: Third-Party IP Is Incorporated into a Customer’s Product and Vice-Versa
Customers want to make sure that their IP is not used/incorporated into a third-party’s product and ensure that a third-party’s IP is not incorporated into their own product. Some contract terms that can help reduce the likelihood of third-party IP contamination include: 
 
Representations and Warranties
Rep and warranties can help ensure that a CDMO does not use a third party’s confidential information when manufacturing a customer’s product. Consider including a rep and warranty that reads, “Manufacturer will not misappropriate or use any third-party IP when developing or manufacturing customer’s product.” Consider including a product warranty that states, “Customer will have good title to the manufactured product.” If third-party IP is utilized, these representations are violated. 
 
Limits on Liability/Caps  
Reps and warranties are useful, but they have little force if there are liability caps for breaching a representation or warranty. Manufacturing agreements frequently limit liability to a percentage of the amount paid under a Statement of Work. Consider building in exceptions for liability caps for breach of a representation and warranty, breach of confidentiality, indemnification, liability for using the client’s IP (infringement), and for misappropriation of third-party intellectual property rights. These exceptions to liability caps are intended to increase risk for the CDMO in order to prevent purposefully or negligently contaminating intellectual property.
 
Indemnification         
Exceptions to liability caps are useful, but they are ineffective unless the CDMO is required to reimburse customers for violations of a representation and warranty, as well as confidentiality, for intellectual property infringement, and/or third-party IP misappropriation. 
 
Conclusion
As can be seen, contract terms can help reduce the likelihood of IP contamination. It is critical to grasp the relationship between representations and warranties, limitations on liability, and indemnification. When one of these terms is amended, customers must examine how it affects the other clauses.