Most physicians are aware that consulting agreements with biotech companies raise issues under the Anti-Kickback Statute. This Federal Statute imposes criminal and civil penalties for offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate federal health care program business. While compliance with state and federal fraud and abuse regulations is critical, the compensation structure of an agreement must not be a physician’s only consideration when entering a partnership with a pharmaceutical or medical device company.
Physician-industry collaborations create many opportunities for physicians to participate in product research and development and generate income beyond their medical practice. However, a consulting agreement is a complex legal contract that creates significant rights and responsibilities that can be easily overlooked.
Intellectual Property Rights and Royalties. Consulting agreements often contain provisions which require the Consultant to assign intellectual property rights to the Company. While it is reasonable to assign certain intellectual property rights, the language of the contract must be tailored to ensure it does not overreach.
Stock Options. While it may be beneficial to accept payment in the form of stock options from a growing company, these arrangements can be complicated when the value of the option is extremely volatile. The terms of a stock option must be carefully structured to ensure the Consultant is protected and maintains the benefit of his or her bargain.
Conflicts Of Interest. Industry Consulting can create various conflicts of interest. Existing academic, employment or other consulting contracts may contain terms that limit the Consultant’s ability to perform work and assign intellectual property. Additionally, any conflicts that may arise from the Consultant’s participation in clinical research related to the subject matter of the Consulting Services or products sold by the Company must be addressed.
Non-Compete Provisions. Most agreements will contain a provision which limits the work the Consultant can do for other companies while he is performing the Consulting Services, and for a limited time after. These provisions are enforceable and should be understood and narrowed to the extent possible.
Indemnification. Like all other contracts, consulting agreements often contain indemnification provisions. If a Consultant does not ensure these terms are fair and sufficiently narrow, the Consultant could be unexpectedly and unnecessarily liable for a large sum.
This is a non-exhaustive list of the many obligations and implications created by consulting agreements that may have serious consequences if not properly considered. Before signing an agreement, a physician must ensure his or her understanding of the document’s content and negotiate any important, relevant issue. Negotiations do not have to be adversarial.
Frier Levitt can help you draft or negotiate a consulting agreement that not only survives state and federal regulatory scrutiny, but also accommodates your personal needs. Contact us today.
