Licensing Of Modified Virgin Coconut Oil In Malaysia

Pre-Commercialisation and Licensing of Modified Virgin Coconut Oil A Case Study Under MARDI-CAS-IP NPI Collaboration Project Guat Hong Teh Intellectual Property Specialist CGIAR Central Advisory Service on Intellectual Property Email: g.h.teh@cgiar.org And Rafeah A. Rahman Deputy Director Malaysian Agricultural Research and Development Institute Email: rar@mardi.gov.my Malaysian Agricultural Research and Development Institute P.O. Box 12301 General Post Office, 50774 Kuala Lumpur, Malaysia Tel: +603 8943 7570 Fax: +603 8941 6642 Website: http://www.mardi.gov.my

CONTENTS EXECUTIVE SUMMARY 3 ACRONYMS 4 1. INTRODUCTION 5 2. VIRGIN COCONUT OIL AND ITS ENHANCEMENT THROUGH RESEARCH AT MARDI 6 3. UP-SCALING OF PRODUCTION TECHNOLOGY AND LICENSING OF MVCO FOR PRODUCT DEVELOPMENT: THE CHALLENGES 7 4. FACTORS OF SUCCESS FOR PRE-COMMERCIALISATION OF MVCO 8 4.1 Funding Mechanism under TechnoFund 8 4.2 Searching for the Right Partner and Building Trust and Confidence in Partnerships 10 4.3 Dedicated Inventor is central to success 13 4.4 Internal MARDI support for IP management and business development 13 5. WHAT’S NEXT? 14 5.1 Management of production technology of MVCO 14 5.2 Further research and development for use of MVCO in animal feed and health 14 5.3 Possible consolidation and continuous capacity building for IP and business development functions at MARDI 15 6. CONCLUSION 15 ACKNOWLEDGEMENT 16 Pre-Commercialisation and Licensing of 2 Modified Virgin Coconut Oil

Executive Summary Commercialisation of publicly-funded research in Malaysia is low. Studies have shown that a complex interaction of policy direction, funding mechanism, innovation structure, diffusion mechanisms and manpower availability is necessary to increase the interaction between public research institutes, universities and the private sector, in order to bring research to market. In this paper, the authors showcase a recently patented product known as modified virgin coconut oil and how the Malaysian Agricultural Research and Development Institute (MARDI) has been able to up-scale its production and licence the technology to two private companies. Factors leading to its success include the newly- launched TechnoFund scheme by the Ministry of Science, Technology and Innovation (MOSTI); the selection of the right private sector partners and the building of trust and confidence between them; an extremely dedicated and proactive inventor who is business savvy; and the internal MARDI support to research staff for IP management and business development needs. The paper concludes by looking into further steps that MARDI can take to exploit the potential of this technology, investments that it should continue to make for augmenting its current internal skill sets, and a recommendation to consider the pros and cons of future models of collaboration with the private sector. Pre-Commercialisation and Licensing of 3 Modified Virgin Coconut Oil

Acronyms BDU Business Development Unit Biotropics Biotropic Malaysia Berhad CAD Corporate Affairs Division CAS-IP Central Advisory Service on Intellectual Property CGIAR Consultative Group on International Agricultural Research IP Intellectual Property IRPA Intensification of Research in Priority Areas MARDI Malaysian Agricultural Research an Development Institute MARDITech MARDITech Corporation MOA Ministry of Agriculture and Agro-Based Industries MOSTI Ministry of Science, Technology and Innovation MP Malaysian Plan MVCO Modified Virgin coconut Oil PCT Patent Corporation Treaty TMC Technology Management Committee VCO Virgin Coconut Oil Wawasan Wawasan Tebrau Sdn Bhd Pre-Commercialisation and Licensing of 4 Modified Virgin Coconut Oil

1. INTRODUCTION The Malaysian Agricultural Research and Development Institute (MARDI)1 has been conducting coconut research since its inception more than 30 years ago. The ‘tree of life’ is the fourth most important industrial crop in Malaysia in terms of total cultivated area, after oil palm, rubber and paddy. The scope of research has focussed on breeding and selection of new improved varieties, agronomy, and pest and disease management. Alongside recent initiatives by the Ministry of Agriculture and Agro-Based Industry to revive the coconut industry through replanting efforts2, emphasis is also given to development of technologies and know-how for creating value-added products from coconut, so as to generate wealth and ensure higher returns to coconut farmers and small and medium-size coconut enterprises3 in the country. Besides keen competition from neighbouring countries such as the Philippines, Indonesia, Thailand and Sri Lanka, where raw coconut availability is high and labour costs are generally lower, coconut oil, as the main commodity traded in the world market, faces keen competition from other vegetable oils4. The development of niche products from coconut oil is therefore one way for Malaysian coconut farmers and entrepreneurs to derive higher value without having to compete rigorously in the conventional oils market5. This paper is intended to showcase a recent technology developed at MARDI to produce high-quality virgin coconut oil with antimicrobial properties and to share with the reader some ex-post observations of the intellectual property (IP) and pre-commercialisation policies and strategies adopted, and lessons learnt. 1 MARDI is a statutory body incorporated with the main objective of generating and promoting new, appropriate and efficient technologies towards the advancement of food, agriculture and agro-based industries in Malaysia. See: http://www.mardi.gov.my/home, last checked 30 July 2009. 2 At least two replanting programmes are on-going at the time of writing. See, for example, the National Coconut Development Plan (2001-2010) and the Coconut Industry Revitalising Plan (2008-2015). 3 In Malaysia, coconut is said to affect the socio-economic position of approximately 80,000 households in rural areas. (See: A. Sivapragasam, Coconut in Malaysia – current developments and potential for re-vitalisation, paper presented at the 2nd International Plantation Industry Conference and Exhibition, Shah Alam, Malaysia; 18-21 November 2008, available at: http://www.ipicex.com/docs/oral/Session%202B%20Sivapragasam.pdf, last checked 29 October 2009). Worldwide, coconut is grown by more than 11 million farmers, mostly smallholders with low incomes, in more than 90 countries (See: http://www.cogentnetwork.org/). 4 World trade in coconut oil has only increased marginally between 1960 and 2005, compared to soybean, palm oil and rapeseed oil. (See: A. Sivapragragasam, Ibid., Table 1). For world vegetable oil consumption, see: The American Soybean Association, Soy Stats, available at: http://www.soystats.com/2009/Default-frames.htm, last checked 29 October 2009. For price of coconut oil and other products, see: http://www.apccsec.org/daily.html, last checked 29 October 2009). Other coconut products traded in the world market include fresh nuts, copra, desiccated coconut, activated carbon, coir and coir-based products. 5 See: Business Times, Good Demand for Virgin Coconut Oil, 25 May 2009, available at: http://www.scribd.com/doc/17560020/Global-Market-for-Virgin-Coconut-Oil, last checked 30 October 2009. Pre-Commercialisation and Licensing of 5 Modified Virgin Coconut Oil

2. VIRGIN COCONUT OIL AND ITS ENHANCEMENT THROUGH RESEARCH AT MARDI In recent years, the successful commercialisation of virgin coconut oil (VCO) in the market has drawn the attention of scientists into researching for its future potential as a form of functional food oil6, as well as for possible uses in the pharmaceutical, nutraceutical and cosmetics industries7. The term “VCO” refers to virgin coconut oil that is obtained from fresh and mature kernel of coconut by mechanical or natural means with or without the application of heat, which does not lead to the alteration of the oil8. It is generally differentiated from refined coconut oil because it does not undergo the processes of refinement, bleaching and deodorization. In 2004, through the Intensification of Research in Priority Areas (IRPA) Programme9 (for further details, see Figure 1 and Box 1) of the Ministry of Science, Technology and Innovation (MOSTI), the research at MARDI on modified virgin coconut oil (MVCO) started with a humble grant of RM133,000.0010 to Dr. Kamariah Long, a principal research officer with a background in enzymology. After 2 years11, a proof of concept for a unique form of virgin coconut oil with broad antimicrobial properties was developed. A MARDI-owned product known as DermacoTM M7, a liquid for external application, produced with this unique oil, had also been made for unofficial distribution. Box 1. Intensification of Research in Priority Areas (IRPA) Programme Since 1988, the government of Malaysia had initiated the IRPA scheme to fund research and development in public research institutions and universities. This scheme, administered by MOSTI, was primarily aimed at socio-economic development and capacity building, starting from its implementation in the 5th Malaysia Plan (MP)12. This later led to the aim of increasing collaboration between public institutions and industry for research collaboration and commercialisation in the subsequent 6th, 7th and 8th MP. Despite the investment in basic and applied research, public research institutions and universities continued to struggle in transferring and/or commercialising potential technologies, as well as to develop meaningful linkages with the private sector. In the National Survey of Research and Development 2008 Report, gross expenditure on research and development for 2006 was RM3,646.7 million, representing 0.64% of Malaysia’s gross domestic production (GDP). From this amount, RM411.4 million (11.3%) was spent on basic research; RM1,645.3 million (45.1%) on applied research; and RM1,590 (43.6%) on experimental development. “Basic 6 See: A.M.Marina, Y.B.Che Man and I.Amin, Virgin Coconut Oil: Emerging Functional Food Oil, Trends in Food Science & Technology 20 (2009) 481-487. 7 There are many websites dedicated to informing the public about the benefits of VCO and promoting products derived from VCO. See, for example: http://www.thevirgincoconutoil.com/, http://www.cocoscience.com/ and http://www.tropicai.com/index.php?id=304&L=2. 8 See: APCC Standards for Virgin Coconut Oil, available at: http://www.apccsec.org/document/VCNO.PDF, last checked 29 October 2009. 9 This is the main source of research and development funds for public institutions and universities in Malaysia. In the th 8 Malaysia Plan (2001-2005), the total amount approved under the IRPA was RM883.9 million. The scheme emphasises funding of research activities that will lead to commercialisation. The IRPA is today renamed as the Science Fund (see Figure 1). 10 USD 38,000. The exchange rate between United States Dollars and Malaysian Ringgit used in this paper is USD1=MYR3.50. 11 It is deceptively simple to think that the research only took 2 years. Dr Kamariah Long has had a long history of working on hydrolysis of fats and oils and holds 2 patents in her name to date. 12 The Malaysia Plans are 5-year development plans launched by the Government of Malaysia since 1966. For more information, see: http://www.epu.gov.my/historyeconomic, last checked 5 August 2009. Pre-Commercialisation and Licensing of 6 Modified Virgin Coconut Oil

research” has been defined as “experimental or theoretical work undertaken primarily to acquire new knowledge without a specific application in view. It is carried out without looking for any long-term economic or social benefits other than for the advancement of knowledge”. “Applied research” is said to “involve original work to acquire new knowledge with a specific application in view. It also involves research to determine possible uses from the findings of the basic research or to determine new methods or ways of achieving some specific or pre-determined objectives”. “Experimental development” has been defined as “research involving systematic work using existing knowledge gained from other research and/or practical experience for the purpose of creating new or improved materials, equipment, products, system and processes or services”. See: http://www.mastic.gov.my/portals/mastic/publications/R_DSurvey/2008/R&DSurvey2008.pdf, last checked 29 October 2009. The result of this research led to the filing of a patent (Application no. PI 20055720) on the invention with the Intellectual Property Corporation of Malaysia on 7 December 2005. Within 12 months, an international application published under the Patent Cooperation Treaty was also filed13. The international preliminary report on patentability of the invention suggests that it met the criteria of novelty, inventiveness, and industrial applicability. According to the patent documents filed, the uniqueness of the invention relates to the nature of MVCO produced through the disclosed method. It was stated that the MVCO contains broad antimicrobial spectrum towards bacteria and yeast. This finding is potentially useful for developing products for treatment of skin diseases, personal hygiene, food preservation, and as a natural antibiotic agent for prevention of diseases in animals. For the innovation, the inventor and her technology have received several awards within and outside Malaysia14. 3. UP-SCALING OF PRODUCTION TECHNOLOGY AND LICENSING OF MVCO FOR PRODUCT DEVELOPMENT: THE CHALLENGES With its many potential uses, subsequent challenges for MARDI included the up-scaling of the production of MVCO for commercial purposes, and the further work in product research, development and marketing. For the up-scaling process, infrastructure and additional technical know-how and skills were lacking within MARDI. Investment had to be found for construction of a physical plant, and partnerships need to be developed to augment MARDI’s existing technical skill sets. To eventually commercialise the MVCO in the market, further clinical testing of the MVCO for specific uses in cosmetics, health supplements and pharmaceutical products for human and animal health needed to be carried out, again, by entities that not only have the relevant expertise and experience, but are also willing to put investment monies into a relatively new and untested novel technology. An initial attempt was undertaken by MARDI to interest a large public-listed company in Malaysia to invest in up-scaling the technology and to subsequently develop, solely or jointly with MARDI, new products using the MVCO. This company was involved in the business of, inter alia, industrial and specialty chemical production. It was thought that the company would be interested in investing in future MVCO market, which was largely unexplored but showed commercial prospects, by developing know-how for the up-scaling process. 13 International Application No. PCT/MY2006/000028, filed 16 November 2006. 14 Gold Medal, MARDI Science and Technology Exhibition 2005; Bronze Medal, Salon International Des Inventions Des Techniques Et Produits Noveaux Geneve (2006); Woman Inventor of the Year (2006), International Federation Inventors’ Association. Pre-Commercialisation and Licensing of 7 Modified Virgin Coconut Oil

However, MARDI was unable to generate enough interest with its patent that would result in the company investing monies into development of large-scale production technology. The company was merely interested in future product development using the MVCO and expressed willingness to be a potential licensee when MARDI could produce it at an industrial scale. Despite these challenges and the initial failed attempt to solicit for investment through partnership with the private sector, the following section will elaborate on how MARDI was able to attract two local companies who were willing to partner in moving its technology forward. It will attempt to showcase factors of success that contributed to the up-scaling and licensing processes. 4. FACTORS OF SUCCESS FOR PRE-COMMERCIALISATION OF MVCO From the authors’ observation, several factors (explained below) seem important in the success of the pre-commercialisation process of MVCO. These factors represent interesting elements for the consideration of policymakers, scientists and IP practitioners when studying ways in which to improve linkages between research and market, public-private partnerships, and management of IP and technology transfer in research institutions. 4.1 Funding Mechanism under TechnoFund Whilst ongoing scoping for interested partners was being conducted by MARDI after its failed initial attempt, a new research, development and commercialisation funding structure for the next Malaysia Plan, the 9th (2006-2010), was being launched. Under that structure, a new competitive fund known as TechnoFund was initiated to provide funding to bridge the gap between research and market-ready inventions (see Figure 1 and Box 2). The aims of the TechnoFund were: 1. to stimulate the growth and successful innovation of Malaysian technology-based enterprises by increasing their level of research and development, and commercialisation; 2. increase capability and capacity of Malaysian Government Research Institutes and Institutions of Higher Learning to undertake market driven research and development, and to commercialise the outputs through spinoffs or licensing; 3. enhance global competitiveness and research and development culture among Malaysian technology-based enterprises; 4. increase contribution to Malaysia’s gross domestic production through economic wealth creation and exports; 5. foster greater collaboration between Malaysian enterprises and Government Research Institutes or Institutions of Higher Learning; and 6. to encourage institutions, local companies and inventors to capitalise their intellectual work through patent registration15. The fund would provide financing for 2 major types of activities: (a) pre-commercialisation activities such as the development of pilot plants or the conduct of clinical/field trials; and (b) intellectual property acquisition. The TechnoFund scheme also required cooperation between public bodies and the private sector. Where application is submitted by government research institutions, institutions of higher learning or the private sector, a business plan has to be submitted to MOSTI as well. 15 See: TechnoFund Guidelines at http://www.psas.edu.my/portal/berita/pengarah/technofund.pdf, last checked 7 July 2009. Pre-Commercialisation and Licensing of 8 Modified Virgin Coconut Oil

A joint application was made by MARDI and Wawasan Tebrau Sdn Bhd (Wawasan), a company established by a group of young creative entrepreneurs who specialises in specialty feed and fat manufacturing, oil and fat process technology, and renewable energy. Figure 1: Types of funding administered by MOSTI under the 9th Malaysia Plan (2006-2010) (Source: TechnoFund Guidelines). Box 2: The National Survey of Public Research Commercialisation in 2003, Low percentage of technologies from public institutions and universities actually made it to market. From a total of 5232 projects funded under the 7th and 8th Malaysia Plans, only 5.1% were successfully commercialised. Commercialisation has also not resulted in any significant revenues. The “root causes” for this failure were identified by MOSTI as follows16: a) Funding mechanism for research is not conducive for commercialisation. b) Researchers are often unaware or not concerned about the commercial potential of their findings. c) There is a lack of good research management practices and skill sets in universities and public research institutes that will lead to commercialisation. d) Manpower constraints in universities and public research institutions such as lack of scientific personnel and technology transfer officers. e) Research focuses mainly on publications rather than a culture of commercialising research products. f) Lack of clear incentives and rewards to stimulate commercialisation activities. g) Paucity of networking mechanism to link key parties necessary in commercialising research findings. h) The innovation infrastructure suffers from systemic weakness. i) Limited diffusion mechanism for accelerating adoption of technologies because of an absence or lack of technology transfer agencies and professionals. j) Feasibility studies on marketable outputs are rarely conducted and commercial partners are often not involved in research and development planning. 16 See: Hii Hnn-Hui, Diagnosis and Prescriptions of National Innovation System: Case of Malaysia, 10th September 2003, available at: www.it-lodge.com/doc/hhh.ppt, last checked 29 October 2009. Pre-Commercialisation and Licensing of 9 Modified Virgin Coconut Oil

On 13 November 2007, a grant of RM4.5 million17 was made to MARDI and Wawasan for up-scaling of the MVCO production18 with the following main milestones: a) The setting up of pilot plant and equipment for the primary production and processing of VCO and secondary processing of MVCO; b) Establishment of safety data and standard compliance for VCO and MVCO; c) Development of commercial-ready prototype; and d) Animal feeding trials for VCO and MVCO. The availability of the TechnoFund scheme was seen to be a crucial component for the further development of the MVCO technology19 through this public-private partnership, according to MARDI and Wawasan. It could be argued that, with governmental funding, the risks presented to the private sector were substantially reduced because of the financial support provided by the government in building the pilot plant and for related studies. This scheme was thus timely and served as a bridge between MARDI and Wawasan. In the words of the Director General of MARDI, upon hindsight: “Without the TechnoFund grant of RM4.5million given to us by The Science, Technology and Innovation Ministry (MOSTI) this collaboration might not have worked out.”20 It is unclear if MARDI would have been successful in partnering with Wawasan or another private company if not for the TechnoFund grant. Arguably, based on the novelty of the technology and increasing popularity of VCO, private investments to up-scale the production technology could have been found. However, one will not be able to state this for certain. Future impact assessment studies of the TechnoFund scheme by the government of Malaysia may well look, in greater depth, into studying the various situations where gap funding under TechnoFund was essential to the success of the commercialisation process. 4.2 Searching for the Right Partner and Building Trust and Confidence in Partnerships 4.2.1 Partnership for up-scaling of production technology: Wawasan Tebrau Sdn Bhd (Wawasan) The selection of an appropriate partner for the up-scaling production of the MVCO was arguably the most difficult for MARDI, despite the availability of governmental funding under the TechnoFund scheme. As stated above, prior to the availability of the TechnoFund scheme, MARDI had approached a potential company for partnership in this venture. However, due to the lack of interest in further investment in research and development of the up-scaling technology, the partnership never materialised. When the scheme became available, MARDI again approached the same company for partnership, this time with some potential support from the government. Nevertheless the collaboration did not materialise because the said company did not have the necessary expertise to up-scale the production technology, was 17 USD1.29 million. 18 To date, MARDI has been successful in obtaining a total of RM41.32 million for up-scaling of 14 of its technologies, including the MVCO project. (Source: MARDI). 19 Personal communication, Dr Kamariah Long (MARDI) and Mojo Yap (Wawasan Tebrau Sdn Bhd). 20 The Star, Virgin Coconut Oil to Hit the Shelves, 9 June 2009, available at: http://thestar.com.my/metro/story.asp?file=/2009/6/9/southneast/3972462&sec=southneast, last checked 30 October 2009. Pre-Commercialisation and Licensing of 10 Modified Virgin Coconut Oil

unwilling to invest in clinical trials of MVCO-based products, and was merely interested in final product development using the MVCO. A decision was then made by the inventor to approach Wawasan, a smaller-size company which she has had previous technical co-operations with. The individuals behind Wawasan have been process experts for many years and are consultants to various public bodies and private companies, both locally and internationally, for the design and building of manufacturing plants as well as the development of technology in niche segments of the oil and fats industry. Simply put, Wawasan has a proven track record in the field of oils and fats. In the authors’ view, the partnership with MARDI for the up-scaling of MVCO production was seen as a unique complementary component to Wawasan’s business. It had traded in VCO prior to the partnership and was therefore interested to explore the possibility of an expansion into the production of MVCO. As the by-products of the MVCO production may also potentially have uses that would add value to their feed manufacturing business, among others, this was a win-win partnership21. Although the funding from the TechnoFund scheme assisted in alleviating some of the risks presented to Wawasan, the company had also invested time and approximately RM1 million22 into the venture so far, an amount that is not insubstantial for a company of its size. This demonstrated that Wawasan was serious in the venture and saw potential commercial value in the MVCO. 4.2.2 Partnership for product development for human health: Biotropics Malaysia Berhad (Biotropics) How did Biotropics come to learn of the MVCO? Biotropics is a government-linked company that was incorporated in 2007 with a mandate of developing and promoting Malaysia’s bio-resources into superior herbal-based products23. The company first approached MOSTI to seek for recommendations regarding potential inventions funded by MOSTI that could be developed into nutraceutical, cosmetics or pharmaceutical products. As custodian of the national R&D grants, MOSTI is aware of MARDI’s MVCO invention and its commercial potential, therefore suggested Biotropics to approach MARDI for further negotiations. Initial talks centred upon whether Biotropics should be included in the TechnoFund scheme, i.e. whether there should be a tripartite relationship between MARDI, Wawasan and Biotropics. After some discussions, it was concluded by Biotropics that it did not see its contribution in the up-scaling process. It was only keen on the MVCO as a potential product in itself or as an ingredient for further product development. What were the licensing terms? A Product Licensing Agreement was concluded on 17 February 2009 between MARDI and Biotropics. It has been granted an exclusive licence by MARDI to: a) undertake preliminary studies based on the available data or information and to further use, develop and undertake researches necessary for producing marketable products for human use based on the MVCO; and b) subsequently manufacture, use and sell the products worldwide. 21 Wawasan is the main producer of CalCFA (calcium soap of long chain fatty acids), a type of rumen bypass fat made for high milk-yielding dairy ruminants. In 2004, it built and commissioned the first plant in Malaysia for the production of CalCFA. (Source: CalCFA Brochure, obtained from Wawasan, 15 July 2009). 22 USD285,714.29. (Personal communication, Mojo Yap of Wawasan, 15 July 2009). 23 See: http://www.biotropicsmalaysia.com/index.php, last checked 29 October 2009. Pre-Commercialisation and Licensing of 11 Modified Virgin Coconut Oil

As consideration for the licence from MARDI, Biotropics undertook to pay licensing fee, management and application fees for patents in several countries, and a sliding scale of royalties over net sales of future products. Under this arrangement, Biotropics was granted a 3-year term to conduct a preliminary study on the MVCO properties and its potential uses for human health and application. If the preliminary study shows that the MVCO is unsuitable for purposes envisioned by Biotropics, it can terminate the Agreement. Similarly, if Biotropics is unable to commence sale of a product within 3 years, MARDI has the right to withdraw the licence. The Product Licensing Agreement would otherwise last for as long as the patent on the MVCO remains valid. The terms negotiated demonstrate that parties were able to be flexible but committed in bringing any viable products to market in a pre-determined timeline. What were some of the critical points in the success of this negotiation? The Product Licensing Agreement was negotiated for approximately 30 months before it was signed. During this time, a few observations on important negotiation points deserve mention, as follows: a) MARDI’s role in creating trust and confidence between Wawasan and Biotropics It is interesting to note that the Product Licensing Agreement between MARDI and Biotropics does not include the right for Biotropics to produce MVCO in its own right, unless MARDI is not able to meet the demand requested by Biotropics. In this situation, it was foreseen that Wawasan would be the supplier, or one of the suppliers (depending on subsequent negotiations between MARDI and Wawasan), 24 of the MVCO to Biotropics in the future. According to those involved in the project, this was one of the “sticking points” in the negotiations. Biotropics had no prior or previous engagements with Wawasan and does not know of their ability, technically or otherwise, in ensuring continuous supply of the MVCO. To alleviate the concerns of Biotropics, MARDI conducted several meetings, at an early stage when this concern was raised, that facilitated the building of trust and confidence between Wawasan and Biotropics. All parties were able to put their concerns upfront and deal with them in a transparent manner. Upon hindsight, it was thought that this was a significant element in the successful negotiation process with Biotropics25. b) Creative delineation of rights and interests by the parties Prior to signing the Product Licensing Agreement with Biotropics, MARDI had earlier concluded a collaborative agreement with Wawasan, dated 1 February 2008, that had granted to the latter a first right of refusal to own a licence on the MVCO and the technology or know-how in its production. This meant that MARDI would need to obtain the approval of Wawasan before licensing the MVCO or know-how relating to its production to a third party. MARDI was able to convince Wawasan to carve out its interest for potential uses of the MVCO for human application to Biotropics. It was also apparent, from the authors’ interview with Wawasan, that the company adopted a pragmatic approach to negotiations in this case as the development of pharmaceutical, nutraceutical and cosmetic products is not in Wawasan’s area of expertise and may well require extensive investments to build in the short term. It remains, however, interested in researching for promising uses of MVCO in animal feed and health products, an existing area of its current business. c) Existence of intellectual property rights adds credibility to innovation The existence of intellectual property rights on the MVCO invention was seen as adding credibility to its commercial potential by Biotropics. In fact, Biotropics undertook to pay for management and application fees for the patents in several countries under the Product Licensing Agreement. 24 Or at least, one of the suppliers, depending on subsequent negotiations. 25 Personal communication (Kamariah Long, 8 July 2009). Pre-Commercialisation and Licensing of 12 Modified Virgin Coconut Oil

MARDI had initiated filing under PCT invention in several countries and this was later added by Biotropics to now include the United States of America, the United Kingdom, Ireland, France, Germany, Japan, India, Philippines, Singapore and Indonesia, as countries of interest. 4.3 Dedicated Inventor is central to success The success in the project so far seems to be influenced greatly by the inventor of the technology taking a proactive attitude in commercialising her invention. When interviewed, it was clear to the authors that despite the lack of training and experience in this process, Dr Kamariah Long had a positive and dedicated attitude in learning how to build partnerships, was savvy on intellectual property issues, and was instrumental in building trust on the technology throughout the negotiation process. The inventor is also currently in the driving seat to further improve the up-scaling technology of MVCO production with Wawasan. There is mutual respect between the partners, and reliance is placed on the inventor for matters relating to the improvement of the technology. 4.4 Internal MARDI support for IP management and business development One of the important factors that contributed to the success of the pre-commercialisation and licensing activities of the MVCO patent is the close co-operation between the inventor, the MARDI IP office and its Business Development Unit (BDU). Although the success thus far is largely attributed to the passion and commitment of the inventor, the roles played by both the IP office and BDU were important in supporting her. Together, they planned, executed and continue to monitor the project. In the process, the inventor had also acquired many different skills sets, including negotiation and business experience26. This fact demonstrates that it is vital that both scientists and IP or business managers work hand-in-hand in bringing technology to market because of their complementary skill sets. The development of IP and business capabilities in MARDI is a fairly recent affair and is arguably evolutionary in nature. The IP office is a part of Corporate Affairs Division (CAD) that has various portfolios besides IP management, and is separate from BDU. CAD reports to the Senior Director for Operations whilst BDU reports to the Deputy Director General for Technology Transfer and Commercialisation27. Disclosures of new inventions are submitted to the IP office where it would undergo first-level screening for novelty and potential commercialisation. Any invention worthy of a patent application would then be submitted to the MARDI Technology Management Committee (TMC) for a further evaluation and endorsement. This Committee is made up of senior managers from MARDI’s 18 units/divisions, and includes members from the IP office and BDU. If the technology is approved for protection by TMC, the IP office takes the necessary steps for application and protection of the invention. For licensing and up- scaling of technologies, however, BDU is the unit tasked to assist inventors to undertake further steps such as to partner with either a public or private entity or both. There is a further body called MARDITech Corporation28, a subsidiary of MARDI, which is responsible for commercialisation of MARDI technologies which do not require up-scaling. 26 Personal communication (Kamariah Long, 8 July 2009). 27 See: http://www.mardi.gov.my/organisational, last checked 30 July 2009. 28 See: http://www.marditech.com/, last checked 30 October 2009. Pre-Commercialisation and Licensing of 13 Modified Virgin Coconut Oil

Box 3. Some tips for a successful partnership and commercialisation process . 1. Strong and patentable innovation 2. Dedicated, passionate and committed inventor 3. Choose the right partner Develop a checklist that spells out the essential skill sets of a desirable partner that you are looking for. If necessary, do a background check or mini due diligence of your partner. 4. Build trust, respect and confidence among all players. If necessary, bring all your collaborators to the same table. 5. Be transparent and firm about your interests, but at the same time adopt a flexible and listening attitude to the party you are negotiating with. 6. Don’t be greedy in negotiations. Make a list of your interests and your “non-negotiables” to guide you. 7. Put yourself in the shoes of your partners and try to see what their concerns are. Develop a list of options together and rate them. Select the option that best meets both parties’ interests. 8. Various skill sets are needed in the commercialisation process of an invention. Scientists, intellectual property professionals and business managers should work hand-in-hand throughout the process. Be prepared to learn new skills that are out of your usual scope of work, especially if you are a scientist. Adopt a positive and dedicated attitude, and have a mindset that shows you truly care about the success of your invention. 9. Seek professional advice where and when necessary. No one is an expert in everything. 5. WHAT’S NEXT? Although it can be said that the up-scaling and licensing of the MVCO technology have been largely successful, several observations can be made for future consideration. 5.1 Management of production technology of MVCO The agreement between MARDI and Wawasan will end on 31 January 2010. It is imperative that parties discuss a plan or strategy for future exploitation of the production technology, as this is jointly owned under the agreement. At the very least, parties would need to ensure that production of MVCO for Biotropics would be feasible should it require bulk supply in the future. At the date of writing, the authors are informed that discussions are under-way between MARDI and Wawasan on the appropriate collaborative model. Parties are considering a range of options from setting up a joint venture company to simple licensing. Future studies could, inter alia, look into the pros and cons of the various options for collaboration. 5.2 Further research and development for use of MVCO in animal feed and health The exclusive licence with Biotropics involves only the use of MVCO in products for human health. It would serve MARDI’s interests well if further research is carried out to determine the suitability of the MVCO for animal feed and health. Also, MARDI’s existing partner, Wawasan, may be convinced to invest in this venture further. Pre-Commercialisation and Licensing of 14 Modified Virgin Coconut Oil

5.3 Possible consolidation and continuous capacity building for IP and business development functions at MARDI Although the functions of IP management and business development may be separated between two distinct units within an organisation, MARDI already has plans to consolidate both its IP office and BDU in the upcoming 10th Malaysia Plan commencing in 2011. An IP management audit of the institution is recommended to examine the role of the IP office, BDU and MardiTech Corporation for effective management, transfer and commercialisation of intellectual assets in MARDI. Capacity building for IP and business development functions at MARDI will remain as important areas for MARDI to invest in, from the perspective of both human and financial resources. Additional skill sets that can be included within these functions are legal, marketing and business development. The importance of IP management in commercialisation of technology is fully recognised by the ministry and the Malaysian government. One of the Key Result Area identified by the government in the 10th Malaysia Plan is to achieve greater contribution from valued-added new sources of growth29. To achieve that, MOA has proposed a programme for effective IP management as a strategy to strengthen the IP environment. Hence, it has fully supported MARDI in its request for a substantial budget for the setting up of an IP Office. The budget includes cost for IP protection, capacity building, incentives to researchers, as well as the necessary infrastructure required. 6. CONCLUSION The MVCO patent, and its up-scaling and licensing process, show that local public-private partnerships in commercialising publicly developed inventions can be a reality with enabling policies, strategies and personnel skill sets. The timely introduction of the TechnoFund scheme was an important enabling policy that contributed to the formation of public-private partnership between MARDI and Wawasan, as substantial investments were made by the government for the building of the pilot plant. Despite its initial failed attempt to partner with a big company, it turned out that MARDI is better off collaborating with a smaller-size company that had the necessary skill sets to further develop the technology and was willing to invest a significant amount of money and time in the up-scaling process. MARDI’s subsequent role in linking Wawasan and Biotropics early on in the project was important in creating trust and confidence in two private companies that did not have any formal legal relationship. The background to all of this was the actors – the inventor, the business development manager and the intellectual property practitioner. Together, they worked to ensure that all of these goals were achieved. Challenges still exist and future planning remains necessary. Possible models for future collaboration with Wawasan need to be considered and the pros and cons of each discussed. The further potential of the MVCO for animal feed and health could also bring promising commercial value to MARDI and it needs to plan carefully for further research in this direction. Changes are foreseeable to strengthen the support functions of business development and intellectual property management within MARDI. In the long run, capacity building of these functions internally would benefit MARDI’s goals and would be consistent with the country’s aim in becoming a knowledge-based, innovation-driven economy. More success stories such as this one need to be documented and shared more widely to build confidence in scientists and developing country intellectual property practitioners. 29 Garispanduan Pertama Penyediaan Rancangan Malaysia Kesepuloh, 2011-2015: Prospek Ekonomi dan Hala Tuju Strategik Pre-Commercialisation and Licensing of 15 Modified Virgin Coconut Oil

Acknowledgement The authors would like to acknowledge the financial support provided by the Dutch Foreign Ministry (DGIS) through CAS-IP of the CGIAR, for this case study. We would like to express our gratitude to Dr Kamariah Long, the inventor of MVCO; Dr Azizan Ab. Rashid, Head of BDU; and the entrepreneurs from Wawasan Tebrau Sdn Bhd – Mojo Yap, Low Moh Sing and Gareth Cheong - for sharing their experiences with us during interviews. Without their contributions and cooperation, this case study would not be a reality. Thanks also to Dr Lam Peng Fatt for making the arrangement for the interviews and sourcing some of the reference documents for us. Special mention is also due to Karine Malgrand for her patience, comments, editing and gentle reminders throughout the writing of this case study. We appreciate the critical feedback that we have received from her, as well as from Peter Munyi, on earlier drafts. The paper also benefited from comments of IP practitioners in the CAS-IP led National Partners Initiative (NPI) in January 2010. Lastly, it is hoped that the experience, lessons learnt and observations gathered from this case study will help MARDI and other NPI members in their efforts to improve IP management and technology transfer in their respective institutions. Any omissions and errors remain the authors’ own. The individual case studies and the compilation are licensed under the Creative Commons Attribution- Noncommercial-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0 or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. Recommended citation: Guat Hong Teh, Rafeah A. Rahman. 2010. Pre-Commercialisation and Licensing of Modified Virgin Coconut Oil. In: CAS-IP NPI. 2010. Institutionalization of Intellectual Property Management: Case Studies from five Agricultural Research Institutions in Developing Countries. CAS-IP, Rome, Italy. Pre-Commercialisation and Licensing of 16 Modified Virgin Coconut Oil

Licensing Of Modified Virgin Coconut Oil In Malaysia

by CGIAR Central Advisory Service on Intellectual Property

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Licensing Of Modified Virgin Coconut Oil In Malaysia Document Transcript