Digital Health Success Requires Innovation Protections

2021 was the biggest year for digital health investment ever. Globally, more than $44 billion was invested in 990 digital health companies, according to StartUp Health.¹ Only a decade earlier, roughly $2 billion was invested in digital health. Since 2011, there has been more than a 20-fold increase in annual global digital health funding. Among U.S.-based digital health startups, the total funding in 2021 was $29 billion across 729 transactions, with an average deal size of nearly $40 million, according to Rock Health.² Overall U.S.-based digital health startup investment nearly doubled from the record $15 billion invested in 2020. Such unprecedented investment numbers demonstrate the attractiveness of digital health solutions. Many signs point to the continued growth of digital health in 2022.³ Adoption of digital health technologies by clinicians and consumers exploded early in the global pandemic, but now appears to be stabilizing. Artificial intelligence (AI), machine learning (ML), the Internet of Things (IoT), and big data are driving the digital health revolution. Trust in technology, cost effectiveness, and evidence generation continue to accelerate digital health. Companies that protect their innovations are poised for successful fundraising and commercial success in the evolving digital health landscape. Protecting Valuable Digital Health Assets Digital health is impacting every aspect of the medical technology industry. Augmented reality is assisting in surgery, machine learning is improving diagnostics, and the use of data collected by connected medical devices is providing insights into product usage and effectiveness. Software and data are now among the most important assets of companies. By using intellectual property (IP) to protect innovations, savvy digital health companies will be prepared for IP due diligence questions by potential partners or investors. Drive Growth With a Proactive Patent Strategy As more medical devices join the connected world, patent protection is becoming increasingly important for companies to secure and maintain their competitive market advantage. Patents are important for companies of all sizes with digital health innovations. For early-stage companies, patents are often the only way for investors to place a value on their technologies. In this way, patents make up a significantly greater portion of enterprise value for early-stage digital health companies. As a company grows, patents become the currency that secures financing through venture capital or private equity investment. Patents can also lead to business partnerships, including collaborations, joint ventures, and licenses with strategic partners. A successful patent strategy entails developing a patent portfolio with comprehensive coverage around key innovations. To secure the most comprehensive protection, each part of the digital health technology should be covered by the patent portfolio. Patent claims should be directed to the platform, key components, control systems, interactions between the physical devices and software, mobile applications, treatment methods, use methods, and any other aspects of the invention. Design patents can also provide protection for ornamental features of digital health products, particularly the user interface. The core technology must have adequate patent protection to provide flexibility and room to operate in a desirable market. To obtain broad patent protection, medtech companies should file an initial patent application covering the core technology, followed by additional patent applications covering key improvements. Companies should consider both current and future business objectives and analyze ways that competitors may attempt to design around its patents. As digital health companies continue to improve their core technologies, they should file additional patent applications covering incremental changes to form another layer of patent protection, or a “picket fence” of patents, around that core technology. By filing patent applications covering incremental improvements, digital health firms can grow their patent portfolios and expand their market leverage. Confirm IP Ownership It is imperative digital health organizations secure and maintain clear ownership of their IP. Companies interact with employees, contractors, industry partners, customers, end users, and other parties throughout product development and commercialization. To avoid disputes about IP ownership—including data and software—the parties should forge a written agreement before any IP is created or transferred to clearly document each party’s IP rights. Such agreements should include assignment provisions or license grants, as well as provisions about confidentiality and use restrictions. Companies should also update their terms and conditions to ensure user data ownership, or obtain permission to use the information for the envisioned purposes. Since data collected from medical devices is likely to include users’ personal identifiable information, it must be secured pursuant to data security and privacy guidelines such as HIPAA and the European General Data Protection Regulation. Failure to adhere to these guidelines could result in civil or criminal liability. Smart digital health companies will also use contracts to control development and use of their software and data. Well-drafted development agreements set forth detailed specifications, performance requirements, milestones, payment schedules, and other criteria intended to keep the project on track, as well as any constraints the company wants to place on the developer’s use of the deliverables with other clients. Protect Trade Secrets A company’s success is often attributable to its confidential information, algorithms, and know-how. As digital health relies on costly R&D and programming, companies must take precautions to safeguard their innovations against IP theft. Types of IP theft include piracy, corporate espionage, cyberattacks, and misappropriation of trade secrets, product designs, or manufacturing processes. Whether entering a new market, improving existing products, or expanding distribution networks, IP theft should always be a concern. Trade secret protection can be an effective way to protect digital health innovations. Prime candidates for trade secret protection include features that will not become public or cannot easily be reverse engineered, such as AI and ML algorithms, image processing techniques, user interfaces, sensors, and user data. Implementing safeguards and policies can help keep such valuable information proprietary to the company and out of competitors’ hands. Companies can effectively protect trade secrets by restricting access (physical and electronic) only to essential employees. For example, IT systems can be configured to allow access only to developers rather than all workers. This reduces the risk that an employee—an engineer or salesperson, perhaps—shares sensitive information with potential customers or a competitor when changing jobs. Many IT systems can be built to alert management to suspicious activity, thereby giving companies an opportunity to intervene. Another way to safeguard trade secrets involves giving customers and authorized third parties access only to application programming interfaces and executables, rather than the underlying source code, libraries, and databases where the “secret sauce” typically resides. If a company must disclose confidential information, such disclosures should be made only after both parties sign a non-disclosure agreement. Digital health innovators can leave themselves vulnerable to IP theft by inadvertently including trade secret information—algorithms, formulations, manufacturing secrets, or mixing and assembly details—in the company’s instructions for use (IFU), standard operating procedures (SOP), or marketing materials. Companies should review a product’s IFU and SOP and eliminate any information that may reveal trade secrets and lead to a competitive duplicate product. Digital Health Success Record-breaking funding and exits, increasing consumer adoption, and disruptive innovations are fueling the digital health revolution that is transforming healthcare. A well-planned, integrated IP strategy that protects digital health innovations can ensure success in the evolving healthcare market. References

1. 2021 Year-End Insights Report: $44B Raised Globally in Health Innovation, Doubling Year Over Year | by StartUp Health | StartUp Health (healthtransformer.co)
2. 2021 year-end digital health funding: Seismic shifts beneath the surface | Rock Health
3. Digital Health – What Will 2022 Look Like?

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David J. Dykeman is a registered patent attorney with 25 years of experience in patent and IP law and is co-chair of Greenberg Traurig’s Global Life Sciences & Medical Technology Group. Dykeman’s practice focuses on securing worldwide IP protection and related business strategy for high-tech clients, with particular experience in medical devices, digital health, robotics, wearables, life sciences, and information technology. He can be reached at [email protected]. Todd Basile is a registered patent attorney with more than 15 years of combined experience in the tech and legal industries. He helps technology companies protect and commercialize their innovations and brands across various industries including medtech, digital health, robotics, and software. He also represents investors in M&A deals, negotiates technology transactions, and assists clients in navigating IP disputes. He can be reached at [email protected]. Roman Fayerberg is a registered patent attorney with more than 15 years of experience in patent and IP law. He advises clients on procurement and enforcement of IP rights, including domestic and international patents, with a focus on medtech, digital health, robotics, and life science technologies. He can be reached at [email protected].