NCURA Region VI & VII 2011 Spring Meeting
April 3 -5, Denver
Problematic IP Clauses: The Powerpoint Sequel
The issues that can arise when intellectual property terms are negotiated are diverse. Due to time constraints, the presenters cannot present all of the issues that a sponsored projects officer may face during the negotiations. We hope that the supplemental information in this handout will continue to assist you in these negotiations.
FURTHER THOUGHTS: KEEPING IP “IN THE BOX”
Copyrightableworks:
Copyrights are “born” at the time when the protected work is “fixed in a tangible medium,” such as when an article or software is written. This is different from patentable inventions, which are “born” when “conceived” and “reduced to practice.” In addition, the rights attached to copyrights are different than patents. Research agreements must use different language to assure sponsors receive rights only to copyrightable works fully funded by them. Namely:
“...copyrightable works first createdin the performance of research under this Agreement”
»NOT “created” or “made”
–May include derivative works based on earlier works (under other unknown funding That may present potential conflicting obligations)
»NOT “relating to”, “arising from”, “resulting from” or developed”
–Same issues as with inventions
“Improvements” to IP Developed on Sponsor Funding:
e.g., “...and any improvements thereof” (for patentable inventions)
e.g., “...and any derivative works thereof” (for copyrightable works)
Sponsors will ask for improvements to:
»Inventions within scope of rights
»Inventions eventually licensed
»Sponsor’s proprietary technology
»Software
Obligation can last indefinitely into the future
Particularly problematic with respect to software, which is often reused and built upon over many years
Obligation can reach to improvements made by other researchers, maybe even on other campuses for systems.
Future improvements may use different funding from different sponsors with conflicting intellectual property rights! (Can you predict the future?)
» Do not include improvements in scope of rights
» Do not include derivative works in scope of rights
LICENSING RIGHTS:
Make sure the university is only required to give rights to the extent it can
“To the extent that University has a legal right to grant such license…”
Things to consider and that you may not be able to predict:
Other sponsored research in the lab?
Research in other labs?
Material transfer agreements?
Agreements handled by other university offices?
Circumstances surrounding co-inventors?
Make sure the university is only required to give rights to what it owns
“…license to University’s interest in inventions [copyrightable works]…”
Avoids committing rights we don’t have
»e.g., co-inventors/authors from other organizations
Note: does not help avoid potential conflicting third party obligations
Especially important if caveat or scope of inventions are non-ideal
NOTE: under many copyright policies, university doesn’t even own certain copyrighted works created by faculty.
Contractually grant the sponsor only “the first right to negotiate”
“…to the extent that University has the legal right to do so, University shall offer to Sponsor a time-limited first right to negotiate an exclusive or non-exclusive, royalty-bearing license...”
Right to negotiate, NOT right to a license
Must be time-limited right to negotiate ...with subsequent release of obligation (or your obligations can last a long time)
Be aware of exclusive v. non-exclusive license.
»If the sponsor hasn’t paid all costs, an exclusive right may not be available (what did you promise the other sponsor?)
»For non-exclusive, beware of granting sublicensing rights, or sponsor can compete with and undercut your tech transfer office by licensing the same rights to other prospective licensees
Right of First Refusal:
Understand the implications of a Right of First Refusal:
“…to the extent that University has a legal right to do so, University shall offer to Sponsor a time- limited right of first refusal to a royalty-bearing license…”
Sponsor can review every proposed licensing arrangement with any prospective licensee ahead of that licensee. Sponsor can then reject or accept the terms.
TTO will have to inform prospective licensees of these lingering rights of the Sponsor, and the company will not want to spend time and effort negotiating under those conditions
Severely inhibits licensing program
Can be acceptable as a last resort, but only with time limit and subsequent release of obligation
Outright Grants – Don’t Do It!
e.g., “University hereby grants to Sponsor an exclusive [or non-exclusive] license…”
Research agreement becomes a license agreement – without license agreement terms to protect the university.
»Research agreements and license agreements have different terms – can expose university to liability if a commercial license is granted without the proper license terms.
»May require different delegation & legal approval
»Unknown invention/unknown risk
»May force filing of a patent/incurring expenses
»Needs diligence, product liability coverage, royalties, infringement, limited warranty…
»No record of license to track commitments
Most Favored Nations – Be Cautious!!
e.g., “Recipient agrees not to make such non-exclusive license available to third parties on better terms than those offered to Sponsor.”
–Very difficult for licensing office
–What is “better terms”? Lower royalty, but higher issue fee? Different diligence? Different field?
»e.g., “...without also making such terms available to Sponsor”
–Tremendous administrative burden for licensing office.
Disclosure of Invention to Sponsor
“University shall promptly disclose to Sponsor in writing any such inventions. Sponsor shall hold such disclosure on a confidential basis and will not disclose the information to any third party without consent of University.”
Sponsor must keep in confidence (to protect non-U.S. patent rights)
BAD: disclose “within __ days of an invention being made”
»As administrators, we don’t know when the invention is actually made and delays can occur at tech offices due to workload, etc.
Sponsor’s Decision to Secure a License – Time Period
“Sponsor shall advise University in writing within thirty (30) days of disclosure to Sponsor whether or not it wishes to secure a commercial license…If Sponsor does not elect to secure such license, rights to the inventions disclosed hereunder shall be disposed of in accordance with University policies with no further obligation to Sponsor.”
Good: tie to date of disclosure to Sponsor
To be avoided: date of patent filing would force university to file patent at own expense
Never use: date of patent issuance would force university to go through entire patent process, and patent may not issue!
»Worldwide protection can cost $100-200K
»Ties up invention for up to 5 or 6 years
ReleaseUniversity’s obligation to Sponsor -- Release must occur whether sponsor chooses not to elect, or simply fails to elect
Time Period for Election: Thirty to sixty days is typical
If period is too long, or is silent…
»Amounts to a free option to the Sponsor
»Commercialization is delayed
»Patent filing may be forced (at whose expense?)
For longer periods
»Make sure patent expenses are covered by sponsor
»Consult with licensing office and PI
»Consider reserving right to use and distribute for research purposes during election period
Cost of License
Royalties: “Said license shall be … royalty-bearing”
Royalties and fair consideration are determined as part of license negotiations, not in advance of the invention being known
In a research agreement, avoid:
»Pre-set royalty
»Pre-set royalty cap
»Royalty-free
»Remember: Invention/copyrightable work doesn’t exist yet, no way to know its value
Licenses often contain multiple forms of payment:
»license issue fee
»license maintenance fee
»milestone fees
»minimum annual royalties
»earned royalties
“Royalty-free” is not the same as “fully paid-up” – a royalty typically is a percentage of the sales price of a product. Paid-up means that no further payments are required at all to use the invention. Thus, a paid-up license granted in a research agreement means that the sponsor can use the invention commercially for only the cost they paid to have the research performed. No further royalties, fees or patent cost reimbursement is required.
(beware! companies sometimes use “royalty-free” and expect fully free)
Patent Expenses
“If Sponsor elects to secure a license, Sponsor shall assume all costs associated with securing and maintaining patent protection for such invention(s), whether or not a patent issues.”
»While holding an option, Sponsor pays costs
»Cannot guarantee a patent will issue
»Cannot reimburse if patent doesn’t issue
Watch for:
»Obligation to file patents, together with…
»…no obligation for sponsor to pay patent expenses
»Especially with a long election period where Sponsor does not have to pay costs
With joint inventions, watch for:
»Sponsor control of prosecution, and/or
Equal sharing of patent expenses
»Sponsor can use/make profit with no obligation to share success with University
University ends up subsidizing Company!
Patent Prosecution (Who Applies for the Patent)
GOOD
»University will file for patents at its discretion or when requested by Sponsor provided Sponsor reimburses out-of-pocket patent filing, prosecution and maintenance costs.
BAD
»If University doesn’t file, Sponsor can file in its own name. (you’re giving up title!)
UGLY
»University is REQUIRED to file at its own expense.
University should control prosecution for sole and joint patents
Risks when other party controls prosecution:
»Can narrow claims drafting
–Easier to patent around it
–Company not interested in use of invention outside their business area, so university doesn’t get broader coverage to license to other companies and maximize use of the invention
Abandonment without notice to University
Joint patents: may drop all claims associated with University inventors => sole company patent
Do not give up control of University patent prosecution lightly – involve tech transfer in decision.