Use and exploitation of IP (Clause 4)

The university's return

When the University owns the IP in the Results and licenses them to the Sponsor (clause 4.5 in Research Collaboration Agreements 1, 2 and 3), as a charity, the University is obliged to seek a fair return. That return may take various forms - a one-off payment, royalties or a share of revenue.

Where Research Collaboration Agreement 1, 2 or 3 is used, the initial return to the University (for a non-exclusive licence) is the Financial Contribution paid by the Sponsor, details of which are in Schedule 1. That may take the form of a fixed sum or the payment of royalties (or a combination of the two). Where the return is in the form a royalty, the words "fully paid-up, royalty free" should be deleted from clause 4.5.

Where the Sponsor then negotiates and is granted a further licence or takes an assignment of IP in some of the Results (Research Collaboration Agreements 2 and 3), the University will seek a further return. What that return is will be determined in the negotiations between the University and the Sponsor for the licence or assignment.

Where the Sponsor owns the IP in the Results (Research Collaboration Agreements 4 and 5), the return to the University is the Financial Contribution paid by the Sponsor, details of which are in Schedule 1. If the University is to receive on-going payments (such as a revenue share) from the Sponsor after completion of the Project, these should also appear in Schedule 1.

Re-assignment of IP/Time Limited Licence

The University may wish to include a clause that re-assigns rights to the University if certain targets for on-going payments are not met, or if the Sponsor is not exploiting the IP, but that sort of clause may not be effective if the Sponsor has gone into liquidation.

If there is any concern about the solvency of the Sponsor to whom any IP is to be assigned, the University may prefer to grant a licence that can be terminated on breach or insolvency.

Another approach that you might consider is to time limit the rights of the Sponsor where the Sponsor is to exploit the IP, allowing it exclusivity for a number of years, and at the end of that period, the University and the Sponsor both having non-exclusive rights to exploit the IP.

Background

Clause 4.1 clarifies that the Agreements are concerned only with the ownership and right to exploit the IP in the outputs or Results of the Project; the ownership and exploitation of other intellectual property rights are not affected.

Under clause 4, if either party provides any Background, the other party may not exploit it commercially or use it for any purpose except the Project. The parties may wish to consider extending the licence of Background so that it can be used where necessary for the exploitation of the Results.

Unless a party designates any of its Background as confidential, it may be used it in connection with the Academic Publication of the Results. (Please see the note on Academic Publication).

Factors influencing exploitation rights

The decision as to which party owns the IP in the Results and/or has the right to exploit them will depend on a number of factors including: the parties' respective contributions in terms of intellectual effort, Background, money, materials, facilities and human resources, their ability to exploit the Results, any conditions imposed in relation to any External Funding, and a company's need to claim R&D tax credits (for which the IP in the Results needs to vest in the company, either alone or with another person) and a company's need to own assets against which it may be able to raise investment. Please refer to the Decision Guide when deciding which of the five Research Collaboration Agreements to use.

The difference between Research Collaboration Agreements 4 and 5

In Research Collaboration Agreements 4 and 5 the Sponsor will own the IP in the Results from the moment they are created. The essential difference between agreements 4 and 5 is that, under the latter, the University has no right to use the Results for academic purposes. This means that in carrying out a project under Research Collaboration Agreement 5 the University is not pursuing its charitable objectives. For that reason most universities will channel this sort of contract research through a subsidiary trading company.

It is important that the parties decide which IP provisions apply when they are discussing their respective contributions to the Project and the contents of Schedule 2 (the Project Description).

Subcontractors and students

Where any student or sub-contractor works on the Project, the University or the party engaging the sub-contractor should ensure that it has acquired any rights in the IP that the student or sub-contractor acquires by virtue of his involvement in the Project. Those rights will not automatically belong to the party that engages the sub-contractor.

Assignment of IP

Although Research Collaboration Agreements 4 and 5 provide for the Sponsor owning the IP in any of the Results created by the University, that IP needs to be transferred or assigned to the Sponsor. Clause 4.4 of Agreements 4 and 5 contains that assignment.

Some forms of IP, such as copyright, can be assigned in advance or prospectively assigned, i.e. before the IP is created, but that is not always the case. The IP is assigned in advance where the law allows that, and where IP cannot be assigned in advance there is an agreement to assign it later, once it has come into existence.

Notifying results

The obligation in clause 4.4 (4.5 in Agreements 4 and 5) is to notify any patentable Results promptly, and the clause leaves the notification of other Results until the time of the next report. This is to reduce the administrative burden but, depending on the nature of the Project, the parties may wish to consider amending the clause so that all Results are to be notified promptly

Warranty of Full Title Guarantee

Where the University is undertaking contract research for the Sponsor, the Sponsor may want the University to assign "with full title guarantee ". (See clause 7.8 of Research Collaboration Agreement 4.) If the University gives that warranty it is promising that:

• it has the right to dispose of the IP and that it will, at its own cost, do all that it reasonably can to give the title (ownership) that it purports to give; and
• the IP is free from all charges and encumbrances (such as a mortgage) and rights of third parties (except those that it doesn't know about/could not be expected to know about).

You will need to discuss whether the University is willing to assign with full title guarantee or whether the fuller alternative wording in clause 7.8 (clause 6.8 in Research Collaboration Agreement 5) should be amended to suit the circumstances.

Licence back of the results

Where the IP in the Results has been assigned to any party, the other(s) will need a licence to use them to carry out the Project. This licence appears in clause 4.6 of Research Collaboration Agreements 4 and 5.

Licence to sponsor (Research Collaboration Agreements 1, 2 and 3)

Because in Research Collaboration Agreements 1, 2 and 3 the University owns the IP in the Results, in clause 4.5 of those Agreements the University grants the Sponsor and its Group Companies the right to use the Results for any purpose (possibly in a specific field and/or territory), but the Sponsor has no right to sublicense the use of the Results. If the Sponsor wishes to sublicense the use of the Results, or to have exclusive rights, it will need to negotiate to obtain a further licence, and/or to take an assignment of some or all of the IP in the Results (Please see Clause 4.6 in Research Collaboration Agreements 2 and 3).

Note that Research Collaboration Agreement 1 does not envisage any further licence or an assignment, but there is nothing to stop the University and the Sponsor negotiating later if this is what they both wish to do.

Negotiations for further Licence/Assignment of IP (Research Collaboration Agreements 2 and 3 only)

In clause 4.6 in Research Collaboration Agreements 2 and 3 the University and the Sponsor agree to negotiate to try and agree the terms of a further licence or assignment of IP in certain of the Results to the Sponsor. Agreements to agree (of which this is an example) are not enforceable in English law. Some Sponsors may be worried that the negotiations may come to nothing.

In order to bring more certainty to the negotiations, the parties may prefer to include an outline of the terms that envisage will apply to any further licence or assignment (Please see Schedule 3 in Research Collaboration Agreements 2 and 3).

Issues to be addressed

The sort of issues that may need to be addressed include:

• Which of the Results is licensed/assigned?
• Is the licence exclusive (or possibly a sole) licence?
• Is the licence restricted to one or more specified territories, or is it worldwide/Are worldwide IP rights assigned or only those in some territories?
• Is the licence restricted to one or more specified fields?
• What is the duration of the licence - indefinite, a fixed term of years or terminable on [X] amount of notice by either party?
• Commercial Terms - will the Sponsor make one off payment, pay royalties or a revenue share, or a combination of both in return for the licence/assignment?
• How are payments to be calculated?
• When are payments to be made?
• Are there any minimum sales targets?
• Do the rights revert to the University if those targets not met, and is the University obliged to make payments to the Sponsor if the University then commercialises the rights that have reverted to it?
• Are any of the confidentiality obligations in the Research Agreement to be relaxed to give effect to the new arrangements?

A form of Patent and Know-how Licence Agreement and Patent Assignment may be found in the Useful resources on this website.

The sponsor's position under Research Collaboration Agreement 1 (non-exclusive licence)

The comfort for Sponsors is that they already have non-exclusive rights granted under clause 4.5, and that means that the University will not be able to grant an exclusive licence to a third party in the same field and territory; in practice the most likely person the University will want to deal with is the Sponsor because of its involvement in the Project and understanding of the technology and the market for the technology; the University will have a financial incentive to do business with the Sponsor, so as to increase the University's return.

To give further comfort, the University agrees, for a period of time, not to offer better terms to any third party. In practice this may be difficult to enforce; because the Sponsor is already a non-exclusive licensee, it will not be easy to compare like with like and the value of any additional rights may be greater to the Sponsor than to any third party.

Patenting strategy

As the owner of the IP in the Results, the University may or may not decide to patent any invention. If the Sponsor is interested in acquiring exclusive rights or in taking an assignment of the IP in any Results, it may wish the University to apply for a patent so as to protect those Results. In practice the University and the Sponsor will need to discuss a patenting strategy.

It is suggested that the Sponsor pays the patenting costs that the University would not otherwise have incurred, but that if the rights are then licensed or assigned to a third party by the University, the University reimburses the Sponsor. (Please see clause 4.6.4 in Research Collaboration Agreements 2 and 3.)