Research Policy Analysis and Coordination
Guidelines for Patent Clauses for Use by Contracts and Grants Officers
11-300 General Guidelines for Patent Clauses
Research funding agreements are legal contracts and set forth the rights and obligations of both a sponsor and the University. Each article of the agreement must be considered in conjunction with all the articles, as none of them will stand alone. For example, a patent clause is dependent on many articles of the agreement, such as the research proposal and the budget, publication, confidentiality, and termination clauses. Every time a proposed article is reviewed, amended or replaced, consideration should be given to the effect that article has on the entire agreement.
Adherence to the Guidelines for acceptable patent clauses does not exempt the agreement from the policy and procedures for review and approval of contract and grant documents by General Counsel outlined in Chapter 13. The Office of General Counsel is responsible for the provision of legal advice to the University, and for the preparation or approval of all contracts, grants, licenses and other legal documents including those relating to the University patent program. The University official having execution authority for such documents (e.g., campus Contract and Grant Officers for research contracts and the Director, Innovation Alliances and Services or campus Authorized Licensing Offices for licenses) is to coordinate legal review with the Office of the General Counsel prior to execution or use.
It is University practice to secure patent provisions in each contract or grant agreement which conserve the potential interests of both the inventor and The Regents, while recognizing the probable interests of the source of extramural funds when the source has a desire to have such interests considered. Policies of extramural fund sources and the involvement of third party co-inventors affect patent matters. Frequently, rights associated with patentable inventions can be best evaluated after the invention is made and, therefore, it is not possible to set forth definitive terms for allocation of rights in advance. However, the following statements are provided as Guidelines to negotiate patent clauses in research agreements.
11-300.1 Preferred Patent Provisions
The University prefers grants or contracts with patent clauses expressly giving all patent rights to The Regents to be disposed of in accordance with University patent policy. This can be accomplished with the following standard clause:
All rights to inventions conceived or reduced to practice during the performance of this agreement are the property of The Regents and will be disposed of in accordance with the University of California Patent Policy.
This clause preserves the maximum rights of The Regents and does not entail any additional administrative effort or obligation to the sponsor.
A grant or contract which has no patent clause is also acceptable. In the absence of any patent obligation to the sponsor, the University would retain any University patent rights. Caution should be exercised whenever this approach is used with commercial sponsors where the work involves receipt of the sponsor's proprietary data or other proprietary materials. It is frequently possible to negotiate the preferred patent provisions.
11-300.2 Right to Title
It is University practice to retain ownership of inventions developed during the course of sponsored research. Patent clauses proffered by extramural fund sources that demand all rights to inventions or discoveries or a sponsor’s unilateral right to determine equities after the fact can only be accepted by Contract and Grant Officers with prior approval by RPAC.
11-300.3 Importance of Well-Defined Scope of Work and Budget
Before any research agreement is negotiated, it is essential that the work statement and budget for the project be well -defined, specific, and complete. In the event the research program is sponsored by more than one extramural source that claims patent privileges, and it is not possible to discretely identify and separate one project from another, then patent terms in the various agreements supporting the research program must not conflict. A well -defined statement of the scope of work is the basis for determining which sponsor has been granted rights.
11-300.4 Conceived and Reduced to Practice and Multiple Sponsor Support
It is necessary to limit the grant of patent rights to non-federal government entities to inventions "conceived and reduced to practice" in the performance of the sponsored project.
Many sponsors try to assert a claim to patent rights arising from research funded in whole or in part by them. Since development of a patentable invention includes both conception and reduction to practice, it is possible for an earlier sponsor to claim rights to an invention conceived during the earlier period but reduced to practice at a later date.
As the Federal government patent policy asserts an interest in any invention conceived or first reduced to practice in the performance of a project funded in whole or in part by the Federal sponsor, it is useful to review the scope of Federal government patent rights as set forth in 37 CFR Part 401, the codification of the Bayh-Dole Act and related regulations.
Federal regulation 37 CFR 401.1(a) differentiates between supplemental projects (when the University accepts "supplemental funding from other sources for the purpose of expediting or more comprehensively accomplishing the research objectives of the government sponsored project"), and simultaneous, closely related projects (when a "non-government sponsor establishes a project which, although closely related, falls outside the planned and committed activities of a government funded project"). The government claims patent rights in inventions developed under non- government sponsored supplemental projects but does not claim rights in non-government sponsored closely related projects.
When a research program is sponsored by more than one extramural source, any proposed patent relationship between the University and the sponsors must be carefully examined to insure that commitments to be made to one sponsor do not conflict with commitments already made to another.
11-300.5 Obligations Outside the Agreement Work Scope
Care should be taken to assure that patent clauses place no patent obligation on the University beyond the carefully defined scope of work to be performed under the specific contract or grant. For example, there should be no patent rights granted to information or research findings produced prior to, or after, the performance period covered by the contract or grant, or produced by the effort of other University employees working in similar or related fields, but not covered by the terms of the contract or grant.
11-300.6 Importance of Early Consideration of Patent Rights
Many conflicts and problems over patent rights can be avoided by early consideration of patent matters. It is necessary to anticipate patent issues and to consider any overlapping obligations to sponsors before entering into any research agreement.
11-310 Guidelines for Patent Clauses in Agreements with Federal Sponsors
11-310.1 Federal Patent Statute and 37 CFR 401
Patent terms in Federal agreements with educational agencies, non-profit institutions and small businesses are governed by patent law, codified in Public Laws 96-517, 98-620, and 106-404, and implemented through 37 CFR Part 401.
With few exceptions, nonprofit organizations and small businesses who perform work under federally funded research agreements may elect to retain patent rights to inventions arising from the sponsored research, subject to granting certain rights to the government such as a "nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject inventions throughout the world."
The regulations provide a preference for United States industry, and exclusive licensees must agree that products embodying the subject invention will be manufactured substantially in the United States. There are limited conditions for government march-in-rights, as well as provisions for the University to decline to assert rights and thus leave them with the government. In the event the University elects not to file a patent application and not to pursue commercialization, and if the government decides not to pursue patent protection on the invention, the individual inventor(s) may request release of rights to the invention from the government. Finally, there are prohibitions on assignment of the patent rights to third parties and requirements to use royalty payments, after payment of expenses and the inventors' share, to further scientific research or education. (See the Federal standard patents rights clause in 37 CFR 401.14(k)).
11-310.2 Approved Clauses for Federal Agreements
It is University practice for campus-based research to accept Federal grants and execute Federal contracts only when the patent rights given to the Government in such a grant or contract provide a non-exclusive, royalty-free license to the government for governmental purposes.
For any Federal funding agreement, which includes any contract, subcontract, grant, or cooperative agreement entered into by any Federal agency (other than the Tennessee Valley Authority) and the University for the performance of experimental, developmental, or research work funded in whole or in part by the Federal government, the required standard Federal patent clause is incorporated in 37 CFR 401.14.
11-320 Guidelines for Acceptable Clauses for State of California, County, and Municipal Government Agencies
11-320.1 Standards for Acceptable Clauses
Historically, many agreements with State, county, and municipal government agencies traditionally have not included any patent provisions, and this precedent should be continued as much as possible. Moreover, the University has maintained its long- standing practice that inventions arising from University research funded by those agencies are the sole and exclusive property of The Regents. Most State, county and municipal governments are not in the position to patent or license inventions.
11-320.2 Sample Acceptable Clause
In the event that an agreement with a State, county or municipal government requires a clause governing patent rights, the clause provided in Section 11-300.1 is acceptable.
11-330 Guidelines for Patent Clauses in Agreements with For-Profit Sponsors
11-330.1 Summary of Sponsor Pantent Rights Applicable to Funding Agreements With Industrial (For-Profit) Sponsors of Research
For commercial sponsors, patent privileges correspond to the level of funding provided. The following categories have been established:
- When the sponsor pays all direct and indirect costs (including an appropriate share of any faculty salary and benefits) for the research to be undertaken, the sponsor may be granted a time-limited first right to negotiate an exclusive or nonexclusive license for the life of any U.S. patent. Right to sublicense may be granted under exclusive license only.
- When the sponsor pays less than all direct and indirect costs in the form of money, expendable materials or supplies, or other substantial assistance, the sponsor may be granted a time-limited first right to negotiate a non- exclusive license for the life of any U.S. patent.
- When the sponsor pays only salary or stipend in support of a fellowship or research assistantship for an individual, the sponsor may not be assured of a license but may be considered as a licensee.
Subject to the above conditions, research funding agreements may provide a sponsor a time-limited first right to negotiate a license to patentable inventions (other than plant patents) conceived and reduced to practice in the performance of the sponsored research. All licenses will:
- be royalty-bearing, rates negotiable and based on general industry practices for the type of invention involved;
- provide for diligent development, commercial marketing, or use as one condition for retention of the license; and
- normally require a license issue fee and appropriate minimum annual royalties and reimbursement of patent prosecution and maintenance costs.
Licenses under corresponding foreign patents may be granted where possible on terms and conditions similar to U.S. license, except that the sponsor must agree to reimburse the University for its foreign patent prosecution and maintenance costs.
See Business and Finance Bulletin G-40 for a full -text copy of the Summary of Sponsor Patent Rights Applicable to Funding Agreements with Industrial (For Profit) Sponsors of Research.
11-330.2 Considerations in Developing Acceptable Clauses with For-Profit Sponsors
- Conflicting Terms
In the event that standard clauses are not used or the terms of the agreement are unusually complex regarding rights in data or ownership of deliverable results, it may be appropriate to introduce the patent clause with a phrase such as "notwithstanding any other provision of this agreement."
- Granting Right to Exclusive License
When the agreement covers all direct and indirect costs of the research, including a proportionate share of the salary and benefits of the Principal Investigator and any other co-researcher, and the sponsor seeks a time-limited first right to negotiate an exclusive license, the agreement should be reviewed to determine that there is a complete, specific work statement and that the budget is adequate to perform the task. Further, it should be determined that the Principal Investigator does not have and does not contemplate support from other sponsors for related work. When the sponsor wants to prescribe conditions to insure that the project will not be supported by other sponsors or benefit from other sponsored support, such conditions must be specifically discussed and agreed to in writing by the Principal Investigator. Because of the nature of the research environment, it is impossible to completely isolate a research project. Therefore, if the Principal Investigator is willing to accept additional terms about separating the sponsored research project and/or maintaining additional records to support and document inventions resulting from the work, such agreements should be qualified with the statement such as "the University will use reasonable efforts to insure that the sponsor's support of research is not commingled with other sponsored research and will not be financially liable for failure to do so."
- Granting Right to a Non-Exclusive License
If it is clear that the agreement will not cover all costs and a right to a non-exclusive license is to be granted, the right to the non-exclusive license should be qualified with the statement "to the extent the University has the legal right to do so." Because such situations anticipate that there will be other sponsors sharing the cost of the research, to whom patent obligations may be given, all current and future agreements for support of the project must be reviewed to insure that the patent clauses are consistent with each other.
- United States and Foreign Patents
It is important that the University not become obligated to file foreign patent applications. Consistent with the Summary of Sponsor Patent Rights Applicable to Funding Agreements With Industrial (For Profit) Sponsors of Research in Section 11-341, if the right to a license to foreign patents is provided, then the sponsor must agree to reimburse the University for its foreign patent prosecution and maintenance costs. The Principal Investigator and all others involved in a commercially sponsored project must agree in writing to consent to withhold publication for a reasonable period as may be necessary to protect foreign patent rights, if such delay is required by the contract.
- License Agreement Terms
Generally, license agreements cannot be prepared until the subject invention has been made. Further, the authority to negotiate license agreements has been delegated only to the Innovation Alliances and Services and to campus Authorized Licensing Offices (and not to Contract and Grant Officers). (See Sections 11-110 and 11-230.) Other than stating general conditions of the license, such as negotiable royalty rates based on general university-industry practice and due diligence, it is difficult as well as beyond the scope of Contract and Grant Officer's authority to include the terms of the licensing agreement in the sponsored project patent terms. In the event that the sponsor insists that certain licensing terms be negotiated at the same time as the sponsored agreement, Innovation Alliances and Services or campus Authorized Licensing Offices will usually negotiate a separate agreement containing the license terms.
11-340 Guidelines for Patent Clauses in Agreements with Non-Profit, Charitable Sponsors
The patent position of this class of sponsors varies considerably from seeking no rights, to insisting on retaining all rights, to insisting the rights be 'dedicated to the public." A frequent complication with this class of sponsors is refusal or inability to pay for the full costs of a project including full indirect costs. Many non-profit charitable sponsors are approved for a full or partial waiver of indirect cost reimbursement and many also limit reimbursement of direct costs, such as the Principal Investigator's time. An important consideration in negotiating with non-profit, charitable sponsors is that offering a commercial license is not practical because the non-profit entity is not in the position to manufacture or distribute products. All non-profit sponsors should first be encouraged to accept the University's preferred patent provisions (See Section 11-300.1). Only if this is unacceptable to the sponsor should the following Guidelines for acceptable clauses be used.
11-340.1 Considerations in Developing Acceptable Clauses with Non-Profit Sponsors
- Right to Non-Commercial License
Upon request, a non-profit sponsor may be offered a non-commercial, royalty-free, non-exclusive license to any patentable invention that is conceived and first actually reduced to practice in the performance of the research agreement for the sponsor's internal use only, subject to the University's legal ability to offer such a license, whether or not the sponsor is supporting the partial or full cost of the research.
- Clarification of Patentable Invention Selection and Prosecution Responsibilities
According to Federal patent policy, when the University does not elect to file a patent application, the patent rights revert to the Federal government if the project was supported at least in part with Federal funds. The Federal policy then provides for the government to release the rights to the individual inventor(s) if the government elects not to file a patent. Therefore, in cases of partial support to a Federally-funded project, it may not be possible for the University to agree to allow a non-profit charitable sponsor to file the patent application if the University elects not to do so, as such rights reside with the Federal government. Further, the University must be free to determine whether patent applications should be filed on a subject invention at the time the invention is known.
- Sponsor Option to Seek Title
With the consent of the Principal Investigator and the absence of commingling the sponsor's support with other sponsor's support whose requirements may preclude doing this (see 11-310.3), it is acceptable to negotiate provisions that allow the non-profit sponsor to seek title in the event the University elects not to seek patent protection and not to pursue commercialization. Such clauses generally incorporate provisions such as the following:
To the extent the University has the legal right to do so, any invention conceived and reduced to practice in the performance of research carried out under this award shall be the property of the University provided that the University shall make such invention available for commercial license upon reasonable terms and conditions. In the event the University elects not to seek patent protection on such invention and not to pursue commercialization, and to the extent that the University has the legal right to do so, the University agrees to assign all rights to such invention to the nonprofit sponsor upon request. In cases where the non-profit sponsor is not paying al direct and indirect costs of the research and for the reasons outlined in Section 11-340.1(2), it is essential that a patent provision al owing the sponsor the option to seek title be qualified by a phrase such as "to the extent the University has the legal right to do so."
- Royalty Sharing
Clauses providing for royalty-sharing with a non-profit charitable sponsor can only be accepted with the concurrence of the campus Authorized Licensing Offices and cannot be approved independently by the Contracts and Grants Office.