Australia: University IP: Actively Managing The Commercial Profit Pie

The bionic ear developed through the University of Melbourne has revolutionised the way the medical world approaches hearing. Implanted in more than 50,000 people in 120 countries, it is a true story of success, not only in terms of research but successful commercialisation and industry partnership.

The bionic ear would not have achieved the success it has without the industry partnership shared between the University of Melbourne, Australian firm Cochlear Limited and the Bionic Ear Institute. The partnership is just one example of how a modern university can manage its intellectual property (IP) and succeed commercially. With the implementation and active management of their IP policies, universities will continue to be cornerstones contributing to the greater public good through their research, innovation and discoveries, while at the same time sharing in the commercial success.

The modern academic environment sees researchers becoming increasingly aware of the commercial potential of their knowledge, and being encouraged to be entrepreneurial in their research and to better engage with industry. With recent restructures to government funding, securing alternative sources of revenue is also vital if institutions are to survive. This changing landscape poses some interesting questions. While universities have long maintained detailed policies on IP and its management, are these policies adapting to the changing landscape? How can universities better manage those policies that have been implemented to ensure they share in the success of the discoveries they make?

When a research paper is written, a new process discovered, or a new engine built, it is the owner of the IP that is provided with the opportunity to exploit the subject matter for commercial profits. However, if the creation or discovery is by an academic, is the owner the individual or the institution they work for? Subject to certain legislative regimes, it is commonly the creator, author or inventor that is owner of the subject matter, but in an employment relationship this position can be altered. Statutory and common law principles presume that a university should own all IP that its staff create in the course of their employment, because it is the university that provides the resources and takes the risks. While determining precisely what has been developed or created in the ‘course of employment’ can be awkward, there are a number of important considerations:

• Was university funding, or funding obtained by the university, applied to support the creation of the subject matter?
• Were university resources, such as equipment and labs, used in the creation process?
• Was pre-existing IP owned by the university, such as patented inventions, drawn upon during the creation of the subject matter?
• Was the academic engaged in activities expressly covered by their contract of employment?

Answering ‘yes’ to the questions above will go a long way to establishing a university’s right to commercially exploit and profit from newly generated IP. However, reliance on statutory and common law principles alone has always been recognised as a dangerous path to travel. Universities need to ensure they have a proactive and comprehensive IP policy. Having the right employment contracts in place is the first step and a key component of developing such a policy. Universities may expressly provide through their contracts with academics that all ownership and rights of exploitation vest in the institution, whereas other universities may elect to provide academics with exclusive ownership and exploitation rights, ‘fair share’ in profits, or simply due acknowledgement.

In constructing employment contracts, significant consideration should be given to the job description. The description should effectively cover the expectations of the role and the specific duties and responsibilities involved. If the role is divided between research and teaching, the allocation of the division should be made clear. If the role involves research, the description should clearly outline whether research is limited to a team environment or whether individual research is approved. The scope of any research should be clearly defined and the contract should also provide the extent, if any, that researchers are permitted to engage with industry.

Academics and universities should also be mindful of the terms which may be implied and how their conduct or representations may affect, influence or even alter what was previously thought to have been agreed.

Universities need to ensure that their management of IP does not end when the contract of employment is signed, but is only just beginning. The framework of an IP policy should ensure that the university adequately engages with their academics on an ongoing basis and the policy is actively managed and understood by all parties. This includes understanding and monitoring the research that academics are undertaking (and the agreements they might be entering into with third parties, however minor those agreements may appear).

In April this year, the United States District Court for the Northern District of California issued a decision in the case of Stanford v Roche. Stanford alleged that Roche had infringed two Stanford patents concerning the measurement of the HIV virus in blood using Polymerase Chain Reaction (PCR) techniques. A research fellow at Stanford, along with some colleagues, had developed the technology whilst employed by Stanford. However, the research fellow had spent some time at a Cetus research centre as a visitor where he first established the link between PCR techniques and the measurement of HIV in a patient’s blood. Whilst at Cetus the Stanford research fellow had signed a visitor confidentiality agreement which also purported to assign all of his rights in the research and any related research to Cetus (with these rights later acquired by Roche). Given the signed visitor confidentiality agreement, Roche naturally claimed that it had an ownership interest in the patents. Fortunately for Stanford, the Court found that the application of particular US legislation, the Bayh-Dole Act, meant that given the federally funded nature of the agreement the research fellow had no interest to assign. Whilst this may have been a win for Stanford, it only came after lengthy and costly litigation and the favourable interpretation of particular legislation. While Stanford may have had strong IP policies in place, failure to adhere to those policies and adequately supervise its research fellows (and the agreements they were signing) could have led to the university missing out on the opportunity to commercialise and exploit valuable IP rights.

Universities should ensure that they remain the decision maker, particularly in determining acceptable terms for joint ventures and industry arrangements, and visitor confidentiality agreements, as often the devil is in the detail. A confidentiality agreement will often bind participants far beyond mere obligations of confidentiality.

Expertise by an individual in the subject of the research, does not always translate into expertise around the negotiating table, or appreciation of the IP issues involved. If the terms of a joint venture are inadequately negotiated, or poorly monitored, institutions may face considerable liabilities in respect of IP with which they are associated, but over which they exercised little or no control (or possibly never even knew existed). It is no longer acceptable to have a policy in place. Rather, policies must be actively managed and considered and understood by all in the university hierarchy, particularly those at the coal face and not just the legal team.

Whether it be the development of a new bionic ear, the hydrogen fuel cell or an innovation to overcome the troubles experienced by the wooden barbeque, the commercial success will hinge not only on whether there is a policy to deal with the IP created, but moreover, how that policy is managed.

• IP policies must extend beyond the employment contract.
• Engagement with academics, students, contractors and administrative personnel plays a vital role in the administration of IP policies.
• Active management is key to the success of a sound policy.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.