Quick tips for start-ups

August 2004

Who owns intellectual property created during the course of employment?
Generally the employer owns the rights to any intellectual property created by an employee during the course of their employment. In the case of a consultant, however, the issue is less clear. Consultancy agreements should include a provision assigning the rights in any intellectual property created to the company.

Should all new inventions be patented?
There are a number of issues to consider when deciding whether or not to apply for a patent. These include:

• whether your idea has been sufficiently developed to acquire a patent;
  
  
• whether you have the resources available to protect your patent if it is infringed; and
  
  
• whether, as an alternative to patenting, you are able to keep your invention secret.

In many cases, the decision not to patent will be legitimate.

How important is secrecy?
If information about your invention becomes public you jeopardise your chances of filing a patent. Any disclosures you make about your invention should therefore be made under the umbrella of a confidentiality agreement. This includes disclosures made during development or funding discussions or to people contracted to you.

How do I structure my company?
How you structure your company can have important implications in terms of risk and profitability. At the outset, it is generally advisable to form a company and transfer your IP into it. When it comes to selling your product, it's a good idea to set up a separate company to conduct the trading activities. This structure isolates the intellectual property from the trading risk and can create a buffer. For example, if there is a product liability claim it's the trading company, not the company that owns the IP, which will be sued.

What is my idea worth?
If you want to raise capital you will need to obtain a valuation of your IP, which can be a difficult process. It is important to remember that the investor generally has a different view from the inventor and that in many cases, the ultimate valuation will be a matter of negotiation.

Can I apply for government funding?
There is a multitude of government funding opportunities, as well as general business advisory services, available to companies at different stages of their lifecycle. The Ministry of Research, Science and Technology provides grant opportunities within the science/technology areas, including student scholarships and research and development funding for specific projects. The Ministry of Economic Development (through new Zealand Trade and Enterprise) provides grant opportunities and business programmes tailored specifically to start-ups.

Key legislation

What primary piece of legislation governs life sciences in New Zealand?
The Hazardous Substances and New Organisms Act 1996 (the HSNO Act). The HSNO Act seeks to protect the environment and the health and safety of people and communities by preventing the adverse effects of hazardous substances and new organisms.

How does the HSNO Act define a "new organism"?
A "new organism" is defined as a new species coming into New Zealand for the first time and includes any animal, fish, seed, plant or micro-organism. It also includes in its definition any plant, animal or micro-organism developed through genetic engineering (a genetically modified organism, or GMO). A GMO is any organism in which the genes have been modified by using in vitro (recombinant DNA) techniques.

Who determines what a "new organism" is?
'New organisms' are determined by the Environmental Risk Management Authority (ERMA). The criteria under which ERMA determines a "new organism" is whether it belongs to a species, subspecies, infrasubspecies, variety, strain, or cultivar prescribed as a risk species, where that organism was not present in New Zealand as at 29 July 1998 or a genetically modified organism or an organism that belongs to a species, subspecies, infrasubspecies, variety, strain, or cultivar that has been eradicated from New Zealand.

How do you apply to bring a new organism into New Zealand?
An applicant seeking to introduce a new organism in New Zealand must apply to ERMA. Most applications under the HSNO Act have to be publicly notified, which involves placing an advertisement in the public notices section of the main daily newspapers. The public is invited to make submissions and a public hearing can be requested.

Can applications be dealt with urgently?
Applications, such as those for plants or animals posing little risk to the New Zealand environment (e.g. tropical fish), can be processed using the rapid assessment provisions of the HSNO Act. A quick assessment will be made, and if accepted, approval will be given.

Who enforces the HSNO Act?
Occupational Safety and Health Service, Ministry of Consumer Affairs, Land Transport Safety Authority, Maritime Safety Authority, New Zealand Police, Civil Aviation Authority, Ministry of Health, the 74 territorial local authorities (including city councils, district councils and county councils), Customs Department and Ministry of Agriculture and Fisheries.

How is it enforced?
Voluntary compliance is an important part of the operation of the HSNO Act. This includes the adoption of codes of practice, industry standards and guidelines. Enforcement officers are also able to issue:

• compliance orders which either require a person to stop doing something, or to do something to ensure compliance, or to remedy the effects of non-compliance; or
  
  
• infringement notices for infringements specified in the HSNO regulations.

What penalties can be imposed for breaching the HSNO Act?
Fines for breaching the HSNO Act's main provisions can be up to $500,000 for each breach and an additional $50,000 for every day during which the offence has continued. The offender can also be imprisoned for up to three months. In addition, the courts can order a convicted offender to remedy or mitigate the effects of non-compliance at their own cost or to pay the cost of this being done. The courts can also require a new organism to be destroyed.

What other pieces of legislation currently apply to biotechnology in New Zealand?
The HSNO Act is the primary piece of legislation for managing hazardous substances and new organisms in New Zealand. A number of other laws do complement the HSNO Act including:

Agricultural Compounds and Veterinary Medicines Act 1997 - prevents and manages risks associated with the use of agricultural compounds, such as risks to trade, animal welfare, agricultural security and breaches of domestic food residue standards.

Biosecurity Act 1993 (BSA) - provides the law relating to the exclusion, eradication and effective management of pests and unwanted organisms.

Food Act 1981 - governs the sale of food for human consumption, including the issuing of food standards in respect of food manufactured or prepared for sale or sold in New Zealand or imported into New Zealand, and the labelling, packaging and advertising of food.

Medicines Act 1981 - governs the manufacture, sale and supply of medicines and related products, including the making of therapeutic claims for such products.

Consumer Guarantees 1993 - requires that certain guarantees be given where goods or services are supplied to a consumer.

Fair Trading Act 1986 - prohibits misleading and deceptive conduct in trade in New Zealand in relation to representations made about products or services.

Human Tissue Act 1964 - provides that human tissue can only be removed from a deceased person's body if authorised by the "person lawfully in possession of the body" and must be effected by a medical practitioner.

What legislation applies to patents?
Patents are governed by the Patents Act 1953. For a biotechnological invention to be patentable under the Patents Act, it must satisfy the same criteria as any other invention - it must fall within the definition of invention specified in the Patents Act, be useful, be novel and not be obvious.

The Patents Act does not expressly provide for biotechnology inventions. However, the New Zealand Intellectual Property Office does have a practice of refusing patents for human beings on the basis that they do not fall within the definition of 'invention' in the Patents Act. There is also a general exemption for inventions which are contrary to morality. This exception is rarely exercised and has not been the subject of any court decision in relation to biotechnology patents.

The Patents Act also provides that claims for a new substance shall not be construed as extending to that substance when found in nature. However, if naturally occurring micro-organisms have been isolated (i.e. removed from their natural state and modified in any way), it is possible to make patent claims in relation to them.

Useful links

• BIOTENZ is a non-profit industry group of leading New Zealand companies working together to promote biotechnology, natural products and related services. Biotenz is supported by Trade New Zealand.
  
  
• The New Zealand Biotechnology Association is an incorporated society that represents people with an interest in biotech and the biotech industry.
  
  
• The Ministry of Research, Science and Technology provides grant opportunities within the science/technology areas.
  
  
• New Zealand Trade and Enterprise provides business advice and grant opportunities to aid business growth. Its Biospherenz site provides advice and information about the biotechnology industry.
  
  
• BizInfo provides tailored business programmes for start up companies.
  
  
• The New Zealand Computer Society provides support, events and training for all those involved in the computer industry and research.
  
  
• Software New Zealand was set up to support, promote and facilitate the growth of New Zealand's software industry.