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"I Don't Give You Permission to Sell my IP"

“I don’t give you permission to sell my IP,” she said it in a trembling voice, unsure of herself.

After a few minutes she was more composed and was able to tell me her story.

She told me her name. She was now a post-doc at a university in the United States. She was Australian. She had completed her PhD at one of my Australian university clients a few years earlier. She claimed that she was an inventor on a patent that I was “selling”.

The transaction was in fact a license to a start-up company being spun out by the university, into which investors were investing a significant amount.

There was nothing unusual about the transaction. What was unusual was her claim that she was an inventor. Her name was not familiar to me amongst the inventors in three patent applications that were the subject of the license to the start-up.

“So you were a student when you made the invention?” I asked. “Yes” she confirmed.

“Were you asked to sign a Deed of Assignment?” I asked.

“I was asked to sign a Deed of Assignment when I started my PhD, and I did sign it, along with everybody else” she replied. “But I didn’t sign it voluntarily. I was forced to sign it. It was made clear to me that I could not proceed with my PhD unless I did sign it,” she added. “I’ve spoken with my family’s lawyer and have been advised that I am not bound by the document,” she said.

I promised that I would look into what she had told me.

The timing of her telephone call could not have been worse. Or, from another point of view could not have been better.

She called on a Monday. The transaction documents were due to be signed on Friday. The deal had been completely negotiated. All the transaction documents had been agreed. They just need to be printed and executed. This was due on Friday when one of the critical signatories returned from overseas.

What she said in the phone call needed to be investigated. It was unlikely that the documents would be signed on Friday. The signing would have to be postponed. Some of the people involved in the deal would not be happy.

But on the other hand it was fortunate that her phone call had come when it did. If her phone call had come a week later, after the transaction documents were all signed, and if what she claimed was true, the university did not own all the IP that was the subject of the license transaction, it would be in breach of its warranties, and it could be held liable for significant damages.

What we found out:

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Her name was not listed as an inventor in any of the patents that were the subject of the deal. Was she right that she was an inventor? Perhaps she was not?

We met with the director of the institute who had in fact been her PhD supervisor.

When we asked the director about her he was dismissive “Yes, she did her PhD here. But as was normal practice she signed a Deed of Assignment when she arrived at the Institute. It must be in the files somewhere.”

But why was her name not listed amongst the inventors when she firmly believed that she was an inventor?

That, of itself was a significant problem. Omitting a person’s name from the list of inventors on a patent, who indeed was an inventor is a ground to challenge the validity of a patent, and for it be revoked.

The patent that omitted her name was a significant component of the parcel of patents with which the deal was concerned and represented a significant proportion of the deal value. The potential revocation of that patent would not just devalue the whole deal, it would most likely make the investor disinclined to do the deal at all.

“Her name is not amongst the inventors because she didn’t invent anything,” the Director insisted.

Was she an inventor? The issue was an important one to get right.

We engaged a patent attorney to undertake an inventorship determination. The patent attorney interviewed all the inventors on all the patents, gathering information from them about the contribution made by each member of the research team.

The patent attorney concluded that not only was she an inventor she was the main inventor on one particular patent.

It emerged that she and the Institute’s director had had a relationship. This might have affected the Director’s objectivity about her inventive contribution.

Was she bound by the Deed of Assignment which she had signed when she first joined the Institute years earlier? That was the critical question.

Section 21(1) of the Australian Consumer Law provides that “a person must not, in trade or commerce, in connection with … the supply of … services… engage in conduct that is, in all the circumstances, unconscionable.”

As much as students may not think of themselves as consumers, and as much as a university regards it as foreign to classify itself as providing services, or engaging in trade or commerce, the boundaries of consumer protection laws have expanded significantly in past decades to have that effect. Universities provide the service of education, and students are consumers of those services.

Independently of the Australian Consumer Law there is a general law governing unconscionable conduct in relation to contracts.

What is unconscionable conduct? A broad description is that it is conduct that is so harsh and unfair that it goes against good conscience.

The courts will look at all the circumstances to decide if unconscionability is present.

Section 22(1) of the Australian Consumer Law non-exhaustively lists some of the things that a court might consider in judging whether conduct is unconscionable. At the top of the list is “the relative strengths of the bargaining positions of the [parties].”

If one of the parties has a weak bargaining position, like a trusting young inexperienced vulnerable student and the other party is a large organisation like a university, the relative bargaining positions of the student and the university has been described as almost giving rise to a presumption of unconscionability.

Another indicator of unconscionability is the absence of choice. Putting a system in place which hinders choice, or makes choice impossible, can of itself be evidence of unconscionability, such as the practice of having all PhD students execute a Deed of Assignment upon the commencement of their study.

A strong (but not conclusive) indicator of the absence of unconscionability is that the student receives independent legal advice, or at the very least has the opportunity to obtain independent legal advice.

In the present case, the absence of choice, the presence of a system in place that made choice impossible, the “climate” surrounding the signing of the deed of assignment being that signing was a requirement to proceed with PhD studies, and the inequality of bargaining power, were persuasive. We had to conclude that the Deed of Assignment signed by the student was one that the student could have declared void.

The relationship between the student and the institute’s director did not factor into that conclusion. That had happened years after the Deed of Assignment had been signed. It was only the time of the Deed’s signing that was relevant to the question.

How was the deal to be saved?

We spoke to her. She just wanted to be treated fairly. She wanted to be named as an inventor, as was her right. She wanted to be included amongst all the inventors who would share under the university’s commercialisation revenue policy. This was also her right.

These expectations were easy to accommodate. The patent application was amended to include her amongst the inventors. A new Deed of Assignment was prepared. It provided for the IP assignment, and that she would share in commercialisation revenue under the university’s commercialisation revenue sharing policy.

We sent the new Deed of Assignment to her lawyer.

The single biggest factor that will influence the presence or absence of unconscionability is whether the student is presented with a real choice about whether to assign or not.

If a student is not given a choice, but must compulsorily assign the IP, for example, when starting their PhD, this is indicative of a system of conduct or pattern of behaviour pointing to unconscionability.

If a student chooses not to assign the IP, the student must be offered an alternative project of equal merit which does not require an assignment.

Not all IP created by a student needs to be assigned to a university.

The only IP that a university does need to ensure is assigned is IP which arises in a project that is subject to contractual obligations concerning the IP, or a project that has commercialisation horizons.

Taking the approach that all IP created by a student must be assigned to the university is of itself strong evidence of an unequal bargaining position and unconscionability.

Giving a student a choice to sign a Deed of Assignment, and a choice not to, is the strongest evidence to negate unconscionability.

Universities act cautiously in obtaining an assignment of IP from a student. They do not necessarily rely on their IP policy, which is unlikely to be legally binding on the student. See Are University IP Policies Legally Binding?

The larger universities whose Students’ Unions are large enough to employ lawyers to advise students, refer their students to the Students Union Legal Office for independent legal advice. Smaller universities send the assignment deed and accompanying documents to the student recommending that the student seek legal advice. Some even offer to pay for the legal advice.

How did our deal fare? The student happily signed the new deed of assignment. The deal proceeded. It was signed three weeks later than planned, but was signed.

How did she find out about the transaction? One of her friends, a former colleague still working in the institute had alerted her.
 

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