Introduction

 

Companies that regularly engage universities and research institutes (collectively research organisations or ROs) to undertake research are accustomed to ownership of IP remaining with the RO. By experience, they know that a license of the IP meets their needs.

 

Companies that lack that experience intuitively think that they should own the IP that arises from the research they are funding. They perceive the research funds they pay to be the purchase price for the IP that is generated. After all, that is how it works when a client or customer engages a contractor. The contract will invariably state that the contractor assigns the IP created by the contractor to the customer or client.

 

It is to be expected therefore that a company engaging an RO to undertake research, sees no difference, on the question of IP to arise, between engaging a contractor, and engaging an RO.

 

But of course, there is a world of difference.

 

The trouble is, just saying there is a world of difference looks and feels like a negotiation. And that prompts the company to continue negotiating that it must have the ownership of IP arising from the research it funds. Tensions arise.

 

Here are some strategies that work to make the issue less controversial and often resolved without any controversy at all.

 

 

Introducing companies to the licensing environment

 

If the first time that a company sees a proposal that it be granted a license, when it is expecting an assignment of IP, is when it reads the first draft of the agreement, we should expect that it will be taken aback.

 

Up to that point the focus of discussions has been upon the science and what the research will be, and little attention, if any at all, has been given to what the terms of the research agreement will be.

 

We can consider proactively introducing the licensing idea early in the relationship.

 

Not so crassly as to say early in the relationship “We will let you have a license of the IP but will retain ownership.” That will be provocative.

 

A more subtle approach is needed.

 

Consider producing a quality brochure-type publication which might be called something like “Introducing Our Successful Licensees”.

 

In that publication devote a page to each licensed technology, and describe:

 

1. the licensee

2. the technology licensed

3. how the licensee’s research funds assisted the development of the IP

4. the benefits that the licensee has realised as a result of the license (revenues from sales, countries exported to, sub-licenses granted, number of new employees, etc).

 

Of course, everything published must be either in the public domain or agreed to by the licensee.

 

Generously employ the word “license.” Describe the company as “the licensee” in preference to calling it “the company.”

 

Do not send the publication by email.

 

Instead hand it to the company’s representatives and say something like “Here’s some stories about our licensees. Perhaps we can include you in the next printing.”

 

What is achieved?

 

Sharing news of commercialisation successes is a good enough reason to do this.

 

But what is achieved is that the company has been introduced to the idea that what the RO does is license its IP, not assign its IP. The publication does not say that the RO retains ownership of the IP. It does not need to. That is implicit.

 

The more well known the licensees and the more impressive the technologies and the stories the bigger the impression the publication will make.

 

The inference that the company will make is “These well known companies were happy to take a license, that’s all they needed.”

 

The inference won’t be as obvious as that. It becomes the climate of the relationship with the RO that it is a relationship of licensor – licensee.

 

When in due course a license is proposed, it won’t come as such a surprise. If the company still wants to negotiate the ownership issue, the publication that was provided earlier becomes a powerful aid to help in the negotiation.

 

Experience tells us that most likely, there will be acceptance of a license relationship without any discussion or controversy.

 

 

Reinforce the landscape – share good news

 

Having created the landscape or climate for a license, reinforce it.

 

For example, if you have received news about a licensee’s good fortune, make a point of sharing that good news with companies with which you have created that climate, while discussions about the science and the research are continuing.

 

Has that licensee achieved a milestone? Made a regulatory application? Obtained a regulatory approval? Made a recipient of a business award? Started a clinical trial? Granted a sub-license? Obtained venture capital? Launched a product? Achieved sales of an impressive amount? Started exporting? Been recognised in some way? Been mentioned in the media?

 

Even if there is no recent news is there something else that can be mentioned and applauded?

 

Again, what you say must be in the public domain, or permitted by the company.

 

What do you achieve?

 

You’ve again subtly reinforced that the landscape is that of a license, not an assignment. You’ve reinforced that others that have dealt with the RO have excelled commercially with a license, without ownership. You have reminded them that the climate of relationships with ROs is licensing, not assignment.

 

Experience tells us that the likelihood of acceptance of a license without any discussion or controversy increases by doing this.

 

 

In the contract focus on rights, not ownership

 

Often a negotiation follows the agenda of the provisions in the legal agreement. There is a focus on the terms of the agreement, and that is what is negotiated.

 

As well, terms are often negotiated, not because there is anything wrong with them, but because negotiators feel that whatever an agreement states, they have to improve it in their favour. Often it does not matter what the term is. It matters only that they have to negotiate an improvement to the term, in their favour.

 

So, if you include in an agreement a term that the IP arising from research will be owned by the RO, the company will want to negotiate it. It will want to improve the term in its favour, by it owning the IP.

 

Now tensions arise. If the company perceives itself as failing in the negotiation of that term, tensions worsen.

 

This happens because there was a term in the contract stating that the RO would own the IP. It may not have happened at all if the term had been left out.

 

What? Can you do that? Of course you can. The RO employing the researchers, the RO will own the IP that they create. That is a matter of law and the employment contract. There is no need for a clause in a research agreement providing that the IP arising from the research will be owned by the RO. It is unnecessary.

 

What does the contract say in that case? The research agreement instead focuses on the rights that the company will have. It may be an option to negotiate a license. Or it may be the license itself.

 

Remembering that often the negotiation agenda is the legal agreement, it will be that term which is focused on and negotiated, without the issue of IP ownership even arising.

 

Does that really happen? Well, not every time! But it happens often enough to consider employing this approach.

 

Experience tells us that the likelihood of acceptance of a license (or option to be granted a license) without the issue of ownership of IP arising increases by doing this.

 

 

And if IP ownership is still sought…

 

You’ve done all that. You’ve given your company prospect your brochure showcasing your successful licensees. You’ve introduced them to the climate of relationships with ROs being one of licensing not ownership. You’ve reinforced the climate by sharing with them the good news of one (or more) of your licensees. You’ve omitted the unnecessary term in an agreement calling attention to the RO’s ownership of IP. But, they persistently still want to own the IP.

 

Well, it happens sometimes. But employing these strategies will reduce the number of times that IP ownership continues to be sought. Some report a dramatic decrease in the number of times this happens as a result of using these strategies.

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Explain that research is costed with only a partial recovery of overhead costs, and without a profit component, the RO in this way contributing to the cost of the research, in the expectation of future royalties under a license.

 

Compare how a contract research organisation costs its research. It has full recovery of overheads, and then adds a profit component. On that basis the customer or client owns the IP.

 

Explain that if the company wants the research to be re-costed on that basis, then you can go ahead and do that.

 

Better still, have a booklet that explains this, so that the message can be consistently delivered. The booklet also explains that the RO, as the company prefers, can go ahead with either:

 

1. the model of only partial overhead recovery, without a profit component, retaining ownership of IP, with the prospect of future royalties

2. the contract research organisation model of full overhead recovery, as well as a profit component, ownership of IP going to the company, and without any future royalties.

 

Being presented with this choice, most often the company will choose the back end option – paying royalties from the IP’s future earnings, rather than the front end option, having recourse to other income to pay a larger up front amount.

 

The company might persist in seeking an assignment and offer to pay royalties pursuant to the assignment. Of course, that must never be done. See a previous issue of IP Bits: Downsides to Assigning IP for Royalties.

 

This strategy is not available to ROs which as a matter of principle do not agree to assigning ownership of IP they create.

 

But for those ROs that are flexible on this issue, this further strategy can work as well.

 

There should rarely be a need to go this far however. The earlier strategies, if implemented well, should avoid the sensitive IP ownership issue on most occasions.

 

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