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Contract Accord 6: Foreground Intellectual Property

Accord Revision Date: September 2019
Page Updated: January 2020
©2020 University-Industry Demonstration Partnership (UIDP). Please refer to the copyright and disclosure statement for UIDP Contract Accords usage and rights.

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OVERVIEW AND BACKGROUND

Results of Sponsored Research Agreements (SRAs) can take many forms, as discussed in other Contract Accords.[1] For purposes of this Contract Accord, foreground intellectual property (FIP) means potentially patentable inventions conceived and reduced to practice during performance of the SRA.

FIP clauses in SRAs:

  • establish expectations of the parties with respect to FIP;
  • describe the requirements for reporting and disclosure of FIP;
  • describe a process for protection of FIP; and
  • provide a pathway for sponsors to benefit from the FIP.

FIP clauses tell the parties, research administrators, and investigators the obligations they are making in the SRA with respect to this kind of research result.[2] FIP terms are generally included in SRAs (and in Materials Transfer and other collaborative agreements) even though FIP is not always an anticipated result of the research. A well-defined statement of work (SOW) will help the parties make initial determinations about the likelihood that FIP will result from performance under the SRA. The SOW will also describe the scope of the project and whether there are tasks to be performed by both parties or only by the University. A collaborative project may be more likely to result in joint FIP that has both University and sponsor personnel as inventors and prompt the parties to included provisions in the SRA that address joint FIP.

FIP has been the subject of considerable discussion between Universities and their industry sponsors and collaborators (Companies). Over the last few years, new models have emerged that promote expedited contracting methods largely by providing predetermined FIP terms. Over time, these models may make some of the following discussion moot or may demonstrate that the more standard terms reflected here remain useful for at least some industry-sponsored SRAs.[3]

INDUSTRY PERSPECTIVE

The FIP clauses, in conjunction with provisions covering other types of research results such as copyrightable material and software,[4] are used to assure the Company that it will have clearly defined access to results from the SRA. Companies enter into SRAs to develop new knowledge that they hope will give them a commercial advantage. Companies need to know the terms of access to FIP developed[5] both solely by the University and jointly by the University and the Company in order to make informed decisions about whether funding an SRA is in the Company’s best interests. Companies assume that the University is able to provide rights to FIP as described in the applicable agreement. If there are exceptions to the University’s policies that do not allow the University to acquire rights to certain intellectual property made by personnel participating on the project, this needs to be communicated to the Company so that it can assess the impact on its access to the FIP. This is especially true if the Company is a small business or is inexperienced with Universities and may have limited resources to identify and address these issues.

Companies also need to consider the scope of the access that they may need to FIP in order to provide intellectual property rights to any of their commercialization partners. This assessment may need to go through multiple levels of the Company and may take considerable time. Companies therefore need to have option periods that are long enough to make internal decisions about how the FIP fits into their commercialization strategy.

Some Companies do not require exclusive access to FIP and may negotiate for a non-exclusive, royalty-free license (NERF) that protects their right to use the FIP for most purposes. Other Companies require exclusive rights to FIP in either a limited field or all fields. Still others ask that FIP be dedicated to the public,[6] thus ensuring free access by the Company and others.  Some Companies feel that reimbursement of patent expenses incurred by the University is sufficient consideration for rights in FIP, while others are willing to agree to pay a royalty or other consideration, particularly in exchange for exclusive rights.

Control of patent prosecution is important to some Companies, such as those that have large patent departments and find it more efficient to control patent prosecution using in-house counsel. Other Companies prefer that the University handle the prosecution for University-owned inventions due to the potential for conflict of interest.[7]

UNIVERSITY PERSPECTIVE

University policies generally require employees to assign their rights in any intellectual property they make in the course of their employment to the University. These policies may or may not address intellectual property made by students, visitors, adjunct, and other classes of personnel that may be involved in a project sponsored by a Company, particularly if they are not paid by the University and may therefore not fall under the University’s policies controlling IP rights of employees.

The FIP clauses providing rights to the Company help to ensure that new inventions made during performance of a research project can be commercialized or further disseminated for the benefit of the public. Universities typically prefer to grant an option to the Company to obtain rights to FIP if the Company elects that rather than addressing all the provisions that would be contained in a license agreement in the SRA.[8] This approach allows the parties to negotiate terms of a license that are consistent with the nature and based on the value of the FIP discovered and avoids negotiation of terms for hypothetical scenarios that may never occur, yet lead to potentially contentious discussions and extended delay before any work even begins.

Terms and conditions of any license agreements made pursuant to an SRA or other agreement are to be negotiated in good faith between the University and the Company. Negotiation of a specific royalty rate prior to the identification of the FIP is often requested by the Company in order to get a rough idea of what terms it can expect from the University, but this may have negative tax consequences for the University.[9] While uncommon, typical examples of a University’s past royalty rates or a range of rates may be included if the scope of the project is such that it is possible to anticipate the nature of the FIP with reasonable certainty.

The University is interested in getting a decision from the Company about its interest in licensing FIP as soon as possible so that, if the Company is not interested, the University is able to pursue support from another Company or license the FIP to a third party without undue delay. Universities prefer that the option period begin when FIP is disclosed to the Company.

Universities prefer to control prosecution of patent applications covering FIP to ensure that the patent application maximizes the protection and potential value of the invention. The Company may or may not be interested in the full scope of potential uses of a patent and may negotiate for rights only within a preferred or defined field of use.

The University does not want to be obligated to expend funds to protect FIP unless it is reasonably assured that the funds can be recovered from a licensee. Therefore, Universities may condition the Company’s exercise of an option to negotiate a license to FIP on its commitment to reimburse the University for related patent costs.

Regardless of the rights a Company acquires in FIP, Universities will retain the right to continue to use FIP for the University’s non-commercial research and educational, and often patient care, purposes. This retention of rights by the University is generally not negotiable since it protects the University’s ability to continue to conduct research, teaching, and other activities related to the FIP according to its core mission, even after the FIP is exclusively licensed.

FIP TERMS IN SRAs GENERALLY

The inclusion of an FIP clause in an SRA (or other applicable agreement having a defined SOW) is strongly recommended. Absent an FIP clause, the Company acquires no rights in FIP invented by the University in performance of the research, except as a result of the operation of law, e.g., the Company would generally have joint ownership rights in FIP that is jointly invented by employees of the University and the Company. FIP terms in an SRA typically include:

1. Definition. This term should define the FIP that is covered by the terms of the SRA. The definition may apply only to FIP made by University employees but could include FIP invented jointly by personnel of both parties. The definition of FIP may also include limitations, such as a particular field of use. Joint FIP may be defined separately from FIP developed by one or the other party.[10]

2. Ownership. This provision should describe the ownership rights of the parties in the defined FIP. Generally, FIP will be owned by the party whose employees invented it. Joint FIP will be jointly owned.[11] This clause may also specify the law under which the determination of inventorship will be made.

3. Disclosure. This provision requires the parties to notify each other of any FIP that is developed. It may state the form of the disclosure as well as the person to whom the disclosure should be made.

4. Grant of Rights. These provisions describe the rights the parties will obtain in the defined and disclosed FIP. The provisions may include an outright grant of rights. Some common variations on non-exclusive commercial rights granted by the University to the Company in SRAs include:

a. At a minimum, University grants the Company the right to a NERF license to use the FIP invented by the University in performance of the SOW within its own organization for commercial research and development.

b. The NERF may be extended for broader commercial purposes (such as sale of products based on the FIP), may be subject to limitations (such as commercial use in a specific field of use), or may be granted in special situations to promote a strategic relationship or may be granted because the SRA provides significant programmatic support.

c. A non-exclusive license of broad scope may also be granted in exchange for consideration (e.g., patent cost reimbursement, royalty, fully paid fee, or other fee).

d. NERFs are often granted for unlimited purposes with no further consideration beyond the research support if the FIP is a research tool and other precompetitive type of FIP.

5. Grant of Option. Option provisions give the Company the opportunity to obtain certain rights in FIP that are not granted outright in the SRA. Generally, this provision includes an option period, which is a specified period of time during which the Company may elect to obtain rights in FIP made by the University by:

a. entering into a confirmatory license[12] for the nonexclusive rights granted in the agreement; or

b. negotiating an exclusive license as described in the agreement; or

c. negotiating a formal option agreement extending the period of the option so that the Company has sufficient information to determine the nature and the scope of a full license.

6. Patent Application Control and Reimbursement. These provisions describe the obligations of the parties relative to patent prosecution. They describe the process for determining if and when a patent application covering FIP will be filed and what the parties are required or entitled to do:

a. Patent prosecution responsibilities: Which party files and oversees patent applications and prosecution.

b. Right to review: The scope of the non-filing party’s right to review the application, office actions, etc.

c. Choice of counsel: The parties’ respective roles in choosing, reviewing or approving patent counsel.

d. Patent costs: Who pays and when.

e. Default or discontinuance: What happens when the party that is paying patent costs or handling prosecution discontinues doing so.

Provisions might also be included that require some reimbursement to the Company by the University of patent expenses paid by the Company if the option is ultimately not exercised and the FIP is licensed by the University to a third party.

These provisions are negotiable, particularly in circumstances in which control is more logically exercised by the Company, e.g., the FIP is an improvement to Company-owned IP or the FIP is jointly invented. In cases where the Company files the patent, the University may seek assurance that the attorney chosen by the Company will represent the University as an equal client, or that the attorney has no conflict of interest, i.e., is not involved in any actions or cases adverse to the University. The University may wish to play a meaningful role in the prosecution of the patent by maintaining a right to review and approve the patent and substantive actions relative to the patent.

7. Reservation of Rights. If the Company acquires exclusive rights in any University FIP, the University typically retains the right to use the FIP for its own non-commercial research and educational purposes.[13] These purposes may be described to include at least continued non-commercial research and education. Additionally, these purposes often include patient care and the right to license these rights to other research institutions. No commercial use by the University of exclusively licensed FIP is anticipated under this provision. A provision reserving the federal government’s rights in any FIP that is made at least in part using federal funds must be included.

LICENSE TERMS IN AN SRA

As previously discussed, Universities generally do not grant license rights in an SRA, but if the parties agree to do so, specific details of licensing terms included in an SRA may include some of the following variations. These points could also be addressed in the option terms contained in an SRA:

1. Non-Exclusive Commercial Use by Company of University FIP. The University typically will not grant a non-exclusive licensee the right to sublicense since it prefers to license those rights directly.

2. Exclusive Rights to Company in University FIP Including Conditions or Limitations.

a. Contingent on patent cost recovery

b. Consideration (royalty, fully paid, fee or other)

c. Field of use

d. Territory of use

3. Joint FIP. Collaborative research projects present the opportunity for the creation of jointly owned FIP. As previously noted, joint ownership of FIP is subject to the terms of the agreement, while joint inventorship is controlled by patent law.[1] In the event that a Company wishes to commercialize joint FIP exclusively, the Company typically is expected to pay full patent costs for protection and maintenance and is given an option to negotiate a license to the University’s undivided interest in the jointly-owned patent rights.

4. Third-Party Rights and Sublicensing.

a. For non-exclusive licenses, sublicensing is not generally included except to defined affiliates of the Company.

b. For exclusive licenses, the right to sublicense is generally included in the rights available to the Company under the option clause or grant of rights clause.

c. Affiliates of the Company as defined by the SRA have the same rights as the Company.

d. For federally funded research, the government may have reserved intellectual property rights by operation of law, and universities may have reporting requirements related to any FIP.

5. Assignment of FIP. Assignment by the University of ownership of FIP, including assignment of the University’s ownership in joint IP, would be negotiated on a case-by-case basis, highly dependent on unique circumstances. Note that the ability of the University to enter into some assignment agreements may be limited by statutory requirements if the FIP is made at least in part using federal funds.[2]

PRINCIPLES

1. Ownership of FIP should not be confused with inventorship.

2. The SRA should either grant rights in FIP to the Company or grant an option to negotiate a license to the University FIP. In either case, the SRA should describe the parameters of rights in FIP that will be granted to a Company.

3. The SRA generally does not contain all the terms that would be found in a license agreement, e.g., royalty rates, liability, enforcement, milestones, and diligence requirements.

4. The SRA should address the parameters and breadth of research, educational, and other rights in the FIP retained by the University after the FIP is licensed exclusively to the Company. Retained rights may include licensing to other non-profit organizations and to other commercial entities.

5. The parties should consider the extent to which they may require access to the other party’s background intellectual property (BIP) in order to conduct the project or practice the FIP and the likelihood that the project will improve or modify the BIP and negotiate those rights explicitly.[16]

6. Rights for defined affiliate organizations of the Company are generally included under the same terms and conditions as those of the Company.[1]

7. Generally, the Company expects, and the University will assure, that all personnel that will be involved in the sponsored research (e.g., unpaid participants, visiting scholars, undergraduate and graduate students, interns) are subject to the University’s IP assignment policy or have separately entered into an assignment agreement that allows the University to convey rights to the Company, unless otherwise explicitly agreed in the SRA.

8. The University should inform the Company of any proposed third-party funding or resources to be used in the project and how that might affect development or Company’s rights in FIP.

9. The SRA should contain an adequate description of the invention disclosure process, including the obligation to disclose, to whom to disclose, the timeline, and process for disclosure.

10. The SRA should describe relevant time periods and processes for election of rights and negotiation of an option or license agreement.

11. The SRA rarely conveys rights to the Company to results of future related research that is not funded by the Company.

OUTLIERS

This Contract Accord does not address these situations or issues:

  • Clinical Trials. FIP resulting from sponsor-initiated clinical trials are not addressed here.
  • Consorti FIP resulting from multiple sponsor support as members of consortia are likely to be described in the by-laws governing the consortia. The bylaws may treat the FIP quite differently than described in this Contract Accord in recognition of the shared resources and often pre-competitive nature of consortia.
  • Field Trials. FIP resulting from sponsor-initiated field trials are not addressed here but see UIDP Contract Accord 13: Specialized Services/Testing Agreements.
  • Faculty Consulting Agreements. FIP resulting from faculty consulting agreements are not addressed since faculty, in this capacity, are acting outside of the scope of their employment and these activities may not be governed by the university’s IP policies.
  • Other Research Results. See UIDP Contract Accord 4: Other Research Results
  • Copyrights. See UIDP Contract Accord 8: Copyrights
  • Software. See UIDP Contract Accord 16: Software
  • Confidential Disclosure Agreements. See UIDP Contract Accord 9: Disclosure and Protection of Confidential Information
  • Gifts. See UIDP Contract Accord 11: Gifts

FOOTNOTES

[1] Note that potentially patentable inventions that have been conceived but not reduced to practice are covered in UIDP Contract Accord 4: Other Research Results. Inventions outside the scope of research described in an SRA are covered in UIDP Contract Accord 5: Background Intellectual Property. Copyrightable materials are covered in UIDP Contract Accord 8: Copyrights. Software is covered in UIDP Contract Accord 16: Software and Statement of Work is covered in UIDP Contract Accord 1: Statement of Work.

[2] The University administrators who negotiate FIP license option language in the SRA are often not the same people who will negotiate the license or license option for FIP, or who will administer the FIP license.

[3] For a discussion and review of some of these new models, see UIDP New Models for University-Industry Collaborations.

[4] Copyrightable materials are covered in UIDP Contract Accord 8: Copyrights. Software is covered in UIDP Contract Accord 16: Software.

[5] Though generally the SRA will not provide definitive terms regarding FIP, several universities have developed new models for facilitating University-industry interaction in defined circumstances that provide pre-negotiated FIP terms.

[6] See UIDP Public Dedication of Intellectual Property Quick Guide.

[7] See UIDP Contract Accord 15: Personal Conflicts of Interest.

[8] Refer to Rev. Procs. 97-14 and 2007-47.

[9] Refer to Rev. Procs. 97-14 and 2007-47.

[10] Other forms of intellectual property that may result from performance of the SOW should be addressed separately.

[11] It is important to keep in mind that ownership generally follows inventorship. Inventorship is a legal and non-negotiable concept based in statute and case law and determinations by the US Patent and Trademark Office from opinions presented to them by patent counsel. Ownership, on the other hand, is a contract concept that can be assigned either by contract (regardless of the underlying inventorship) or by policy (as is the case with most University IP policies covering inventions made by employees). This is changing as a result of the decision in Stanford v. Roche (Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (Sup. Ct. June 6, 2011), although slowly. An SRA, therefore, could provide that all FIP would be jointly owned, but it would not be able to provide that all FIP would be jointly invented.

[12] A separate document formally conveying the rights promised in the research agreement.

[13] Note that many Universities have adopted the March 6, 2007, “In the Public Interest: Nine Points to Consider in Licensing University Technology,” published on the Association of University Technology Managers website (https://autm.net/about-tech-transfer/principles-and-guidelines/nine-points-to-consider-when-licensing-university.) Point 5 says this right should be reserved by the University for use by all institutions.

[14] Ownership of inventions is generally assigned to the inventor’s employer by policy of the employer.

[15] Bayh-Dole Act, P.L. 96-517, (Patent and Trademark Act Amendments of 1980) allows small businesses and non-profit organizations, including universities, to elect to retain title to inventions made under federally funded research programs subject to various conditions.

[16] See UIDP Contract Accord 5: Background Intellectual Property.

[17] Consider export control implications if there are foreign affiliates. See UIDP Contract Accord 7: Export Control.