University Negotiations with Industry

Bobby C. McQuiston The University of Texas at Austin

Presentation Goals Explore uniqueness of University and Industry negotiations Explore and define the fundamental cultural differences between universities and industry Identify specific problematic issues

Why Industrial Negotiations are Unique Proposal often not submitted through OSP! Often started by PI with informal white paper or other discussion with industrial technical collaborator

Why Industrial Negotiations are Unique Dealing with a “commercial buyer” Procurement via Purchase Order Buyer may have limited experience with negotiations or university research and is “buying research services”

Why Industrial Negotiations are Unique University unable to accept most terms and conditions of Purchase Order

Fundamental Cultural Differences University Mission: Teaching, Research, Public Service

University Research Tenets Research must: Comport with institutional mission Develop and add to the body of public knowledge through research that has academic and scientific relevance to the institution Disseminate results for the public good Provide for the intellectual growth of student and post-doctoral researchers

University Culture and Conduct of Research Open environment Freedom to publish research results - objective results and unbiased status required to maintain the Public Trust Role of graduate students and postdocs Appropriate Use of Facilities and Personnel

University Culture and Conduct of Research Major role played by the Federal Government Bayh-Dole Act of 1980(P.L ): 35 USC Part II, Chpts 200 et al; implemented by Department of Commerce through 37 CFR 401; for contracts, the Act is implemented in the Federal Acquisition Regulations at FAR Patent Rights - Retention by the Contractor (Short Form)(6/97)

University Culture and Conduct of Research National Institutes of Health Policies and Guidelines (Developing Sponsored Research Agreements, Obtaining and Disseminating Biomedical Research Resources) Internal Revenue Service (Unrelated Business Income Tax (Rev.Rul ); Tax Reform Act of 1986 and Private Business Use/Tax Exempt Bonds

Industry Culture For Profit… Company responsible to shareholders to make fair rate of return on investments, including research, maintain and increase its competitive position in the market Contracts are not entered for philanthropic purposes

How Best to Maintain and Increase Competitive Position? Protect trade secrets and secure and increase its IP portfolio through ownership of IP Prevent release of information concerning results of research, not limited to only proprietary information which it furnishes for use in the project Industry Culture

Benefits to Industry Improve quality and lower cost of research Increase amount of interdisciplinary research and gain exposure to new scientific tools, methods, and knowledge Personnel exchange opportunities Access to students as potential employees

Specific Problematic Provisions and Issues Publication Confidentiality or Confidential Information Section Intellectual Property Legal Issues (Indemnification, Insurance, Warranties, etc.) Other Contractual Issues

Publication Rights Maintain the right to publish Is there student involvement on the project? Copyright ownership to author of publication, not institution

Publication Rights Keep the prior review time period short Review for Patent protection Review for Sponsor’s Confidential or proprietary information

Publication Potential Problems and Fixes Clause gives Sponsor the right to approve the publication. Export Control; IRS; Mission; FIX: Replace “approve” with “review and comment” Clause gives Sponsor the unlimited or unreasonably long period to review publication. FIX: Add time limits days)

Publication Potential Problems and Fixes Clause gives Sponsor right to delay publication to protect IP rights, but without specifying length of delay. FIX: Specify length of delay days

Publication Potential Problems and Fixes Clause, ANYWHERE in the agreement, gives Sponsor ownership of study results or reports. FIX: Delete (first choice); Insert a cross-reference to right to publish at that place in the agreement, e.g., “Subject to Institution’s right to publish..” (Also, will need author to agree to ownership of copyright in the report).

Confidentiality Potential Problems and Fixes Define Confidential Information Information must always be identified in writing Ensure a reasonable time period(3 years) for confidentiality Existence of Agreement or relationship with company cannot be confidential (Public Information Act)

Confidentiality Potential Problems and Fixes Results of the project cannot be proprietary -limit to proprietary information furnished by Sponsor Maintain the right of the PI to refuse to accept proprietary information of a sponsor

Exceptions to Obligations for Confidentiality of Certain Information Information in the public domain Known prior to receipt from Sponsor Lawfully made available by third party

Exceptions to Obligations for Confidentiality of Certain Information Information discovered independently Information required to be disclosed by law Information not disclosed in writing or reduced to writing and labeled with appropriate confidentiality legend

Intellectual Property Patents, Copyrights, Trade Secrets and Trademarks

Ownership of Intellectual Property Why the industry seeks title to IP: Certainty of the company’s ability to use, and control over how IP is used, in any manner, particularly in their core business Competitive advantage (even hold off market) Position that it paid for the research; university is only a vendor - not true

Ownership of Intellectual Property Reasons why the university cannot afford to assign ownership: Federal, State, institutional, and private mix of funding sources for research is increasing Significant changes in the profile of research funding have occurred: increasing industrial support and larger interdisciplinary research groups - no longer just individual PI

Ownership of Intellectual Property Reasons why the university cannot afford to assign ownership: Potential for mixed funding and Bayh-Dole Difficult to predict whether IP is anticipated at the initiation of the research If you’re wrong and federal dollars involved with the invention, can be extremely difficult and untenable situation with both industry sponsor and the federal agency

Ownership of Intellectual Property Reasons why the university cannot afford to assign ownership: To be protected, institution would have to insulate and isolate the industrial project from all others - “firewall ”

Ownership of Intellectual Property Reasons why the university cannot afford to assign ownership : Very difficult to accomplish, maintain - no overlapping resources can be used or mixed; and inimical to conduct of normal research and discovery through open environment and discussions, exchange of ideas between colleagues Downstream problems for institution and PI with ability to secure future research in area

IP Provisions Title to Inventions and discoveries based upon Inventorship and decided as a matter of law (USC Title 35 - Patents; Patent rights: 37 CFR and 48 CFR 227 and 252)

Jointly Owned IP Seems fair Joint owners do not require license to commercialize nor are they obligated to account to other party Ability to find a licensee to compete with Sponsor usually limited IP Provisions

IP SRA License Provisions Exclusive/Non-exclusive Royalty-bearing Can limit to Field of use Sublicensing rights only for exclusivity

IP SRA License Provisions Patent Expectations Payment of patent costs University usually files patent Reasonable Time Limits for Negotiations

Institutional Financial Risks Warranties Payment for Research Termination Liability

Warranties A promise that a fact stated in a contract is true or a statement that merchandise is of good quality or title, free of defects and fit for a particular purpose; promise to make good any defects in workmanship or design, replace or re-do any non-conforming work

Payment for Research Use automated and standard university invoices, invoicing and financial reporting procedures Avoid payment based upon “satisfactory performance”, “acceptable deliverables” and the like

Termination All cost incurred, including non-cancelable obligations No Default

Liability and Insurance Indemnification and Hold Harmless One Way or Mutual Terms of Sponsor’s Indemnity Proper parties Kinds of claims Arising/Resulting From Carve-Outs

Liability and Insurance Terms of Institution’s Indemnity Proper Party Limited to that which is authorized Negligence Only Carve Outs Infringement Insurance

Governing Laws vs. Venue Governing Law Whose laws? Alternatives available