Background

Artificial intelligence (AI) is transforming the life sciences industry, with potentially its most significant impact on drug discovery and development including the acceleration of inherently burdensome tasks such as target identification, lead optimization, and safety and efficacy prediction. [1]

AI models trained on multiomics, literature, clinical phenotypes, and patient and other data can identify candidate disease biology hypotheses and entirely new protein and pathway targets. [2] Some systems can even infer receptor–ligand interactions from correlated gene expression signatures, without prior structural annotation. [3]

Generative AI, such as graph neural networks, diffusion models, and molecular design systems, has also been reported to propose novel chemical entities predicted to bind to selected targets. [4] Since composition-of-matter patents can protect entire therapeutic platforms, these new compound outputs may represent the most commercially valuable results of an AI platform.

Numerous companies have emerged offering AI drug discovery platforms to either serve others in drug development and/or advance their own pipelines. [5] These approaches raise acute challenges in patentability (inventorship, obviousness, enablement) as well as management of data and confidential information. Counsel must therefore carefully account for risks and opportunities unique to AI-enabled drug discovery.

Hypothetical Deal Scenario

For the purposes of this article, we consider the following deal example. Company A, an AI-platform company, has created a compound library through its platform and seeks to license its library and platform to others. Pharma Company B wishes to license selected compounds from the library and use the platform to discover new compounds for an oncology indication (“Indication X”).

Company A’s interests include maximizing the value of its compounds and services revenue while protecting its background IP. Company B’s interests include obtaining ownership rights over the IP relating to the compounds used for Indication X.

Library Compounds

The terms for licensing the library compounds would include typical provisions like upfront fees, milestones, and royalties on sales of products covered by applicable patents. Company B will likely insist on an exclusive license to the library compounds, while Company A may limit exclusivity to a defined field (e.g., a specific target or indication) to preserve rights elsewhere, allowing Company A to segment and monetize the same compounds across multiple therapeutic areas.

Platform-Generated Compounds

For compounds discovered via the platform, Company B may seek outright ownership, compensating Company A through service fees.

Alternatively, if the resulting compound class has broader utility in indication areas distinct from Indication X, Company A may seek to retain ownership but grant Company B exclusivity only for Indication X. If this concept is acceptable to Company B, the compounds should be treated as part of Company A’s library and licensed accordingly with lower service fees.

Joint ownership rights in the compounds is also an option, but that could complicate matters including with regard to attracting investment and risking that full commercialization rights do not vest with a single party.

Inventorship Considerations

In the United States, only a natural person can be an inventor, [6]  and at least one human must make a “significant contribution” to conception of each patent claim. [7]

Courts have yet to define how the “significant contribution” test applies to AI-assisted inventions. Patents issued without proper inventorship – where no human made such a contribution – may be invalidated.

Company B should take this into account when licensing IP developed with the assistance of AI, and should perhaps seek representations and warranties from Company A that inventors named on licensed patents are properly named and that a human made a contribution to the conception of each patent claim. Clauses that terminate royalty obligations upon a finding of invalidity of licensed patents will also help mitigate this category of exposure.

Ownership and Use of Data

Company A would own its AI platform and improvements, but agreements must clearly allocate ownership of data used or generated by the platform, including predictive binding data and toxicity models required by the FDA. [8]

Because AI tools may also be required post-approval for diagnostics, Company B, as the commercialization entity, should ensure perpetual, irrevocable rights to access and use data necessary for such regulatory and commercialization purposes, including the continuing transfer of and access to the data during and surviving the agreement.

Ownership and Confidentiality of Training Data

The parties should specify who owns and may access the training data used by the platform. If Company B contributes such data, it should seek to ensure confidentiality is maintained despite the model’s learning processes.

This can be complicated given that Company A’s platform will doubtless learn from and retain copies of the data. Company B may seek to require that Company A (1) not have access to the raw training data, (2) keep training data confidential indefinitely, (3) not re-use the data for other clients, (4) not copy or reverse engineer the data; and (5) comply with other restrictions.

Given that regulators may review AI-derived data, the platform’s operation should comply with FDA guidance on transparency, validation, and reproducibility. Contracts should also delineate privacy obligations and data-handling standards consistent with HIPAA.

Indemnification and Risk Allocation

AI collaborations introduce new risk vectors. Company B will typically require indemnification from Company A for claims arising from unauthorized use of third-party or restricted data that Company A provides to train the platform. Reciprocal indemnification obligations may apply where Company B supplies the data.

Company B may also seek protection from losses caused by malicious code, technical failure, or cybersecurity breaches and require minimum technical safeguards – encryption, penetration testing, on-prem storage, and disaster recovery – with audit rights to verify compliance.

The parties will likely seek standard indemnification for claims of third-party infringement and require reps and warranties that there is none. Given the potential for significant exposure in the event of a third-party infringement claim, whether and to what extent each party agrees to these clauses will likely be a key point of negotiation.

Patent Prosecution for New Compounds

Patent prosecution rights generally follow ownership. If Company B owns the new compounds, it would control preparation and prosecution, subject to Company A’s review to prevent disclosure of background IP. If Company A owns, it would lead prosecution while coordinating with Company B to ensure alignment on claim scope and geography. Cooperative prosecution models similar to research collaborations can balance interests while confirming inventorship in AI-assisted inventions.

Post-Termination and Bankruptcy Considerations

Agreements should also govern handling of trained models and outputs following term and termination. For example, if Company A customizes an AI model for Company B, Company B could require that the uniquely trained model and data be (1) segregated from Company A’s general systems so as not to be used for the benefit of third parties and (2) after the agreement, be destroyed or otherwise sequestered for Company B’s future use only.

Given that many AI-platform companies are early-stage, Company B should also plan for the potential insolvency of Company A. If regulatory approval or commercialization depends on ongoing platform access, the agreement should ensure continuity even after termination or bankruptcy.

An escrow arrangement could require Company A to deposit a functioning, regularly updated copy of the platform with a neutral agent, enabling Company B to access it for necessary post-approval or other ongoing use. Negotiation may be difficult given, for example, trade-secret concerns, but Company B’s commercial program may depend on this safeguard.

Conclusion

AI-enabled drug discovery raises novel challenges at the intersection of licensing, patent law, and data governance. Licensing counsel must tailor agreements to address inventorship, ownership of compounds and data, confidentiality of training datasets, indemnification, platform continuity, and regulatory compliance. By anticipating these issues, parties can better align innovation incentives and mitigate risk in this rapidly evolving domain.

Editors and Authors

The authors are attorneys at Rothwell, Figg, Ernst & Manbeck, P.C.

This article is for informational purposes and does not constitute legal advice.

References

[1] https://www.mckinsey.com/industries/life-sciences/our-insights/ai-in-biopharma-research-a-time-to-focus-and-scale

[2] Ocana, Alberto, et al. “Integrating artificial intelligence in drug discovery and early drug development: a transformative approach.” Biomarker Research 13.1 (2025): 45; Wang, Joanna. “Navigating the USPTO’s AI inventorship guidance in AI-driven drug discovery.” Journal of law and the biosciences vol. 12,2 lsaf014. 2 Aug. 2025, doi:10.1093/jlb/lsaf014; see also https://www.drugtargetreview.com/news/166597/ai-platform-detects-new-drug-targets-in-minutes/

[3] Vahid, Milad R., et al. “DiSiR: fast and robust method to identify ligand–receptor interactions at subunit level from single-cell RNA-sequencing data.” NAR Genomics and Bioinformatics 5.1 (2023): lqad030.

[4] Adegbola, Itunuoluwa, Integrating Generative AI with High-Throughput Screening for Accelerated Drug Discovery (June 20, 2025). Available at SSRN: https://ssrn.com/abstract=5317101;  Boston Consulting Group & Wellcome Trust, Unlocking the potential of AI in Drug Discovery, (2023) https://wellcome.org/sites/default/files/2023-06/unlocking-the-potential-of-AI-in-drug-discovery_report.pdf

[5] For example, systems like Insilico’s Chemistry42 generate molecules which are then synthesized and tested in vitro. Ivanenkov, Yan A., et al. “Chemistry42: an AI-driven platform for molecular design and optimization.” Journal of chemical information and modeling 63.3 (2023): 695-701.

[6] Thaler v. Vidal, 43 F.4th 1207, 1213 (Fed. Cir. 2022), cert denied, 143 S. Ct. 1783 (2023).

[7] https://www.jdsupra.com/legalnews/key-inventorship-considerations-in-ai-6047492/;  “Inventorship Guidance for AI-assisted Inventions,” PTO-P-2023-0043, available at https://www.federalregister.gov/documents/2024/02/13/2024-02623/inventorship-guidance-for-ai-assisted-inventions.

[8] https://www.biosimilarsip.com/2025/07/23/beyond-guinea-pigs-patent-risks-and-opportunities-in-ai-enabled-drug-development/;

https://www.biosimilarsip.com/2025/02/13/from-algorithms-to-approvals-navigating-ai-in-drug-and-biological-product-regulation/

Causam Enterprises v. International Trade Commission, No. 2023-1769

Assignment of “Continuations” Found Not to Include “Continuations-In-Part”
By: Jillian Baggett
Edited by: Anthony Berlenbach, Cara Regan, and Brian Kacedon

Abstract
In Causam Enterprises v. International Trade Commission, No. 2023-1769 (Fed. Cir. Oct. 15, 2025), the Federal Circuit determined whether the party asserting a patent, Causam, actually owned the patent. Causam filed a complaint at the International Trade Commission seeking to block imports of smart thermostats. The alleged infringers, Resideo and others, contended that due to a prior assignment of all continuations and divisions of a parent application, Causam did not own the asserted patent, and therefore could not assert it. The Federal Circuit disagreed, confirming Causam’s ownership. Because the prior assignment was silent as to continuations-in-part (“CIPs”), the Federal Circuit determined that the contract excluded the asserted patent (a continuation from a CIP). This meant that the inventor had not transferred his ownership rights to the asserted patent and was instead free to transfer title to Causam.

Background
Causam filed a complaint in the International Trade Commission to prevent Resideo from importing and selling certain smart thermostats. Residio denied infringement and also argued that Causam did not own the asserted patent and therefore could not assert it.

Resideo’s Ownership Challenge
Although the parties disputed the import of various contracts related to predecessor patents of the asserted ’268 patent, resolution of the issue turned on the scope of a single contract: a 2007 assignment of a grandparent application to the asserted patent to a third party, America Connect. The asserted patent was a continuation of its parent, which was in turn a CIP of the grandparent application, meaning the parent added new material as compared to the grandparent application. The 2007 assignment of the grandparent application to America Connect unambiguously assigned “all divisions, reissues [and] continuations.” CIPs were not mentioned, leaving an ambiguity as to whether the CIP application fell under the umbrella of this provision. If so (as Residio contended), then the inventor had already assigned its rights in the CIP application to America Connect in 2007 and Causam did not own and could not assert the grandchild patent. If the 2007 assignment excluded CIPs (as Causam contended), then the CIP application, and all its descendants (including the asserted patent) were validly transferred later on from the inventor to Causam, establishing Causam as the legal owner of the asserted patent. The ITC ultimately found the patent not infringed, and Causam appealed. As a threshold issue, the Federal Circuit considered whether Causam owned the patent to adjudicate if Causam had constitutional standing to appeal the ITC’s order.

Key Findings of the Court
On appeal, the Federal Circuit closely examined the language of the 2007 provision assigning the “[i]nvention” of the grandparent application and “all divisions, reissues, continuations and extensions thereof.” The Court noted that the term “continuations-in-part” was missing from the provision and considered this omission “decisive.” The Court reasoned that to hold otherwise would require “insert[ing] words into the contract that the parties never agreed to.” Further, the Court recognized the well-known difference between continuations and CIPs: only CIPs can include new matter. This distinction has a variety of legal consequences and results in the two application types being regularly treated differently. The Court also noted a lack of additional agreements, evidence, or broad language that would suggest an intent of the parties to include CIPs in the 2007 assignment. Instead, given the lack of external evidence, the Court construed the “continuations” in a way that “respects rather than overrides important distinctions in familiar technology.” Accordingly, the Court held that the inventor had good title to the CIP application in 2014, and had properly assigned it to Causam, making Causam the legal owner of the asserted patent.

Strategy and Conclusion
The Federal Circuit’s decision in Causam v. ITC turned on a single omitted phrase: continuations-in-part. Therefore, contract drafters should be sure to determine the scope of specific terms before choosing to include (or remove) them from assignment provisions, as omissions may be decisive. Relatedly, assignors and assignees should make a concerted effort to explicitly discuss the intended outcome of an assignment, especially regarding future applications that may improve on (or add “new matter”) to an existing invention.

Further Information
For further information, see the Court’s full decision here.

Editors and Authors
The editors and the author are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner,
LLP.

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

If you weren’t able to join us in Boston—or want to relive the energy—don’t miss our newest slideshow video capturing the full experience of the LES Annual Meeting 2025. From the lively Welcome Reception to the final moments of closing networking, the video showcases the people, conversations, and ideas that made this year’s meeting unforgettable.

Our outstanding co-chairs, Arpi Siyahian and David Powsner, curated a program packed with value. Attendees enjoyed:
· Engaging plenary speakers who brought fresh insight into the evolving world of licensing and intellectual property.
· Fact-filled workshops designed to deliver practical expertise across industries and technologies.
· In-depth roundtable discussions where members exchanged perspectives, tackled challenges, and built new connections.

Watch the LES AM2025 Slideshow Video: LES AM2025

And mark your calendar! Next year’s Annual Meeting takes us to beautiful San Diego, October 18–21, 2026. We can’t wait to see you there!