Teaching Responsible Conduct of Research (RCR): A Resource Guide for Professional Science Master’s Degree Programs
Case Studies from Biology and Biotechnology
Case: Withholding Material Core IP Disclosures
Ethics Topic:
Conflict of Interest
Case Subject Matter:
Intellectual Property
Controversy:
Withholding Material Core IP1 Disclosures
Author:
Doug Lane, Instructor
A research scientist working in a global pharmaceutical R&D company conceived of a novel way to
rapidly determine gene function by producing combinatorial permutations of ribozyme gene
expression inhibitors encoded in viral vectors. The idea was an improvement in a field dominated by
the market leading company that held over 200 issued patents on ribozyme technology.
The inventor, believing his idea was novel, left his pharmaceutical R&D employer and filed a
provisional patent on the invention. He sought and found private investors to finance his idea and
started a biotech company to commercialize his invention. The investors agreed to invest $5.0
million to finance the company subject to two contingencies: convert the provisional patent into a
full patent application and secure a freedom-to-operate opinion.
The lead investor, an experienced biotechnology private equity investor, worked with the inventor
and recommended a prominent biotechnology patent counsel in the area to produce the opinion
letter. They retained the attorney who filed the full patent application with the USPTO and
produced the opinion letter, stating the filed patent application did not infringe any valid issued
patents. The lead investor and the inventor capitalized on the opinion letter and closed the round
raising $7.0 million from the investors.
One year later the new company’s Board of Directors made an offer to a CEO candidate with a
strong track record of biotech executive business management to lead the company and identify and
close revenue producing partnerships with pharmaceutical and biotechnology companies.
1
The case study is a description of events that occurred in a start-up biotechnology company. Names and information
are redacted to ensure anonymity of the parties involved.
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Teaching Responsible Conduct of Research (RCR): A Resource Guide for Professional Science Master’s Degree Programs
The candidate did his due diligence on the unissued patent, its likelihood of being issued, and the
opinion letter. He met with the lead investor, the inventor, and the patent counsel. After many
discussions he accepted the position, relocated to the area, and began the challenge.
The CEO immediately contacted pharmaceutical companies in the US and EU and received letters
of interest from several. He was in final discussions with four US and three European
pharmaceutical companies to partner with the company and arranged on-site meetings with the
three European companies to negotiate and close term sheets. The CEO and the company’s Chief
Scientific Officer and Founder flew to Paris for the first two meetings.
Over dinner in a Parisian bistro the first evening of arrival and after the second bottle of Bordeaux
the CEO and the Founder/CSO discussed more of the company and specifically the filed patent
application. After many questions the CSO/Founder became curiously irritated with the CEO and
unexpectedly blurted out, “Well, this patent is just a ‘get-out-of-jail-free’ card.” This was shocking to
the CEO and raised considerable concern. When he asked the CSO/Founder what he meant, the
CSO/Founder immediately realized he made an egregious mistake and tried to cover it up.
The CEO said nothing more about the incident until returning to the office. He met six times over
the following four weeks with the patent counsel who issued the opinion letter. After ten hours of
discussions with the patent counsel the CEO finally understood the critical question to ask, “Your
opinion letter states the patent application does not infringe any valid issued patent. How do you
define ‘valid’ as used in your opinion letter?”
The patent counsel reluctantly answered the question stating that in the patent counsel’s professional
opinion the core patents issued to the leading ribozyme company were invalid, citing inventorship
discrepancies.
The CEO left the meeting and immediately entered the following notes into his patent file and
personal journal:

“Counsel disclosed, in Counsel’s opinion, the ribozyme company’s core patents are invalid
and, therefore, Counsel’s opinion letter is (on its face value technically) correct. Counsel
therefore opines our patent application does not infringe any ‘valid issued patents’.”
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Teaching Responsible Conduct of Research (RCR): A Resource Guide for Professional Science Master’s Degree Programs

“Because Counsel’s opinion letter is technically accurate, the founder, the lead investor, and
the company were enabled to state to the investors who financed the initial $7 million, and
to me, explicitly, that the company’s “Opinion Letter” stated the patent application (“patent
pending”) did not infringe any valid issued patents.”

“What was not disclosed to anyone by the Founder, the lead investor, or Counsel, and what
was clearly missed by everyone, was the following:
o before our patent application would be allowed and issued,
o before we could commercialize our technology, and
o before any pharmaceutical partner could commercialize any drug or diagnostic device
conceived or developed in any way through use of our technology,
o we had to file patent invalidation proceedings against the ribozyme company and litigate
to invalidate up to 200 issued patents!”

“This Creates Four Terminal Problems:
o The amount of capital we would have to raise from current and new private investors
required to initiate and sustain such a massive invalidation proceeding would be
unprecedented in the history of the industry and is not feasible;
o No investor will commit such amounts of capital for such a purpose;
o No pharmaceutical company will partner with any company with this overhanging
problem if/when they know the full scope of the patent issue unless and until all
blocking patents are invalidated;
o No investor in their right mind, including our current investors, will provide any further
financing when they understand this situation.”
He faced difficult decisions, each with considerable consequences for investors, the company,
employees, and for the CEO himself. His decision was immediate. First and foremost all pending
partnership discussions were put on hold.
He called an emergency meeting with the company’s Chairman (and largest investor). He disclosed
and described the situation to the Chairman in explicit detail and recommended a course of action
that would allow the company to continue, albeit at substantially lower value, but would protect the
company, its officers and directors against a certain cascade of litigation by and against the company.
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Teaching Responsible Conduct of Research (RCR): A Resource Guide for Professional Science Master’s Degree Programs
After the Chairman confirmed he fully understood the magnitude of the problem, the recommended
actions, and the most likely scenarios, the Chairman said to the CEO, “This is your problem. I’m
backing the scientist.”
The CEO immediately handed the Chairman a Letter of Resignation he prepared in advance,
resigned the position, and left the company that afternoon. The next week he received a threatening
letter from the company’s corporate counsel reminding him that he remained under strict
confidentiality covenants that required him to not disclose anything of the company’s business for
five years.
Six months later the company closed a $3.0 million financing from a syndicate of new private
investors. By the end the year the company entered into a joint venture with a company spun out of
one of the major universities, which included another $2.0 million dollar investment. Two years
after the CEO’s resignation the company filed for bankruptcy after patent counsel for the new joint
venture partner discovered and disclosed to the company the “does not infringe any valid issued
patents” conundrum and terminated their partnership contract “for cause”.
Teaching Questions

What are the key events in the case study?

What is the primary problem?

Were any laws broken or breached?

Who are the principal individuals involved in the case study?

Who held conflicts of interest?

What are the conflicts of interest?

What legal, regulatory, compliance, or professional standards are compromised?

Which of the four ethical distinctions are evident in the case study?
o Prescriptive vs. Descriptive Claims
o Law vs. Morality
o 1st Order Moral Questions
o 2nd Order Moral Questions

How is (are) it (they) applied? Describe.

Which of the six ethical approaches can be used to evaluate ethical considerations?
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Teaching Responsible Conduct of Research (RCR): A Resource Guide for Professional Science Master’s Degree Programs
o Deontological Ethics
o Consequential Ethics
o Virtue Ethics
o An Ethics of Care
o Casuistry Approaches
o Applied Ethics

What are alternative outcomes that could have happened?

What course of action could be defended on ethical grounds?

What steps would have to be taken to implement an optional course of action?

Did anyone act unethically?

Who?

How?

What could have been done to act ethically?

How would the outcomes have changed if the individuals acted ethically?
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