University intellectual property ownership — key considerations when drafting student and researcher contracts and IP policies

A recent case concerning intellectual property (IP) ownership and rights to income from the exploitation of IP will have implications for all universities and students across England and Wales.

The High Court decision of Mr Daniel Alexander KC in Oxford University Innovation Limited v Oxford Nanoimaging Limited [2022]* is the first to examine whether consumer protection laws must be considered when assessing the contracts between universities and students or employed academics. 

As Mr Alexander KC noted, this area “has increased in importance as universities and other institutions both in the UK and elsewhere have focussed more on commercialisation of research work by their researchers, especially in the sciences”.

The outcome means that universities must reconsider their policies, contracts and compensation agreements to ensure fairness when commercialising research work and inventions created by their students or student researchers.

Here, Sara Ludlam and Mpho Kgatuke explain the significance of this case and what actions universities need to take to ensure compliance.

Students are consumers

This case has provided a detailed analysis as to why both undergraduate and postgraduate students qualify (and are to be treated) as consumers within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999/2083 (UTCCRs). This means that universities must reconsider the contents of all student contracts (both undergraduate and postgraduate) to ensure they’re ‘fair’.

Reflective of the position of many UK universities, Oxford University’s (the University’s) IP provisions provide that the University could claim patent rights in respect of inventions made by a DPhil student “in the course of or incidentally to” their studies and “persons employed by the University in the course of their employment”. However, institutions should be mindful of avoiding a “blanket claim to such rights that is too broad to be fair”. 

This means that all universities need to:

1. Revisit their IP provisions to check that policies are “fair” as defined under consumer protection law. 
2. Examine whether the terms of any compensation given to DPhil students is fairly weighted and adequate procedures are in place to determine shares of royalty and equity to fairly compensate the university and its researchers with regard to their respective contributions.

How did the dispute arise?

The dispute arose when spin-out company Oxford Nanoimaging Limited (the Company) refused to pay royalties in the sum of over £700,000 to Oxford University’s licensing company — Oxford University Innovation Limited (OUIL) — pursuant to a licence agreement between the parties. OUIL subsequently issued a claim for breach of contract.

In what the judge described as a “creative” way to avoid paying the royalties due to OUIL under a licence agreement, the Company argued that:

1. Mr Jing (a former Oxford University student and one of the inventors of the device being commercialised by the Company) was a consumer.
2. The IP terms in the University’s contracts with Mr Jing created a significant imbalance to his detriment.
3. The IP terms were contrary to good faith. 

Mr Jing was initially employed as a research intern by Oxford University to help in developing an imaging device. He was later enrolled as a DPhil researcher and the University’s IP Statute and Regulations (IP Provisions) were incorporated into his student contract. 

Mr Jing’s work involved collaborating with other University employees. The work was successful and a decision was taken to commercialise the device developed by the team in which Mr Jing worked through a spin-out limited company, the Company. This was set up as a 50/50 equity enterprise between researchers and the University in accordance with the University’s IP exploitation policy. 

An agreement was drawn up, further to which the University licensed to the Company the IP rights owned by the University in the device.

Claim for breach of contract

OUIL issued a claim for breach of contract against the Company when it refused to pay royalty fees due under the licence agreement.

The Company’s defence was that the licence was void for common mistake as it was Mr Jing — not the University — that was entitled to own the relevant IP rights, including the right to licence those IP rights to the Company.

The Company said that the licence was entered into on the common assumption that the University owned the relevant IP rights, when in fact these were owned by Mr Jing. This assumption was wrong and — as the assumption was fundamental to the licence — the licence was void for common mistake.

The parties agreed that if the University did own the relevant IP rights, the licence wasn’t void for common mistake and the royalties were payable (in addition to overdue and interest).

Reviewing the IP

The court reviewed the IP created further to work done by Mr Jing, which fell into two phases — work done while he was employed by the University as an intern and work done while he was a research student.

Phase one

The Company argued that s.39(1)(a) of the Patents Act 1977 (the Act) would not apply, as in Mr Jing’s role as intern there was “no reasonable expectation” that an invention might result from carrying out his duties. This was because of his ostensible low status in the team, lack of experience and modest salary. Therefore, ownership of the invention remained with Mr Jing.

As a reminder, section 39 of the Act states:

(1) Notwithstanding anything in any rule of law, an invention made by an employee shall, as between him and his employer, be taken to belong to his employer for the purposes of this Act and all other purposes if—

(a)it was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or

(b)the invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer’s undertaking.

(2) Any other invention made by an employee shall, as between him and his employer, be taken for those purposes to belong to the employee.”

The court held that it didn’t matter how much Mr Jing was paid in this role as he was “employed to carry out development work” and “at least in part due to his academic attributes, as an experienced researcher an invention could result from his duties”. The judge didn’t accept the argument that the pay of employee should be a relevant consideration under s.39. It was therefore found that s39 did apply and his work during this phase belonged to the University.
This can be seen as positive news for all universities.

Phase two

In relation to the ownership of any IP created further to Mr Jing’s work done while a DPhil research student, the Company argued that the University’s rules on IP ownership for students (including research students) were unfair when considered from the viewpoint of the student — where a student is considered to be a consumer and therefore protected by consumer law.

The terms under which Mr Jing became a DPhil student (the DPhil Contract) operated to transfer title to the University in the relevant IP created by him during those studies (or give the University a right to claim such a transfer).

The Company argued that — insofar as any relevant invention was made by Mr Jing — while Mr Jing was a DPhil student, the University’s IP provisions contravened the UTCCRs and were therefore not binding on Mr Jing.

The Company admitted that Mr Jing’s DPhil Contract incorporated the University’s ‘IP Statute’, which appeared to vest the relevant IP rights relating to the nanoimager generated during Mr Jing’s DPhil in the University in exchange for a share of any revenue and (potentially) equity from its commercialisation.

Findings on consumer law

To determine whether the Company’s argument that Mr Jing was entitled to rely on consumer law when working as a research student had any merit, the judge considered whether Mr Jing qualified as a consumer under relevant consumer law.  

The judge held that:

• Mr Jing was a consumer because the nature of his duties primarily fell outside a trade and profession — his position being largely similar to an undergraduate student. 
• While the terms within Mr Jing’s doctorate agreement which transferred the IP rights to the University did fall within consumer regulations, they were not unfair as there was no significant imbalance to Mr Jing’s detriment. 
   

This meant that the licence couldn’t be void for common mistake, as the relevant IP was owned by the University and royalties were due from the Company.

While you may not want to read all 75 pages of the judgment, it helpfully includes (in an Annex) an extract of the university’s IP policy, which may be worth considering in light of what is ‘fair’.
 

1. Ownership of IP created by [employed interns] at higher education institutions 

It was noted that the issue of ownership of inventions created or developed by employees under section 39 of the Patents Act 1977 has been well covered by authority.

The University’s IP policy provided that it could claim patent rights concerning inventions made by doctorate students “in the course of or incidentally to” their studies. In this case, it was accepted that the University’s policy was relatively standard.

Contrary to the Company’s arguments, it was held that the invention was reasonably to be expected from Mr Jing as a student acting in the course of his duties during his period of employed internship because — although he had a junior position and “low status in the University hierarchy” and “modest salary” — the evidence provided by the University was that he had been employed because of his brilliant and promising academic history to date and that he had the skills and experience necessary to be an inventor, specifically in relation to the device which he did then develop.

2. The distinction between employees and students

Courts in England and Wales haven’t previously dealt with the applicability or impact of consumer protection legislation in terms relating to the IP rights of inventions created during student research. The judge considered the factors on a spectrum from employees to students. He noted that it wasn’t a point of contention that Mr Jing was an employee of the University during the course of his internship. Employees fell squarely outside of consumer regulations.

Further along the scale were postgraduate researchers that are employed by a university under contracts of employment. These types of roles were also held to be excluded from consumer regulations unless special circumstances could be shown to apply to the relevant individual. A distinction can be made between postgraduate researchers with paid contracts of employment and postgraduate students who may be doing similar work but aren’t party to a contract of employment.

The judge said at paragraph 410 that:
“a DPhil student is normally entitled to be treated as a consumer under the UCTD and that it does not matter for this purpose whether the student is undertaking that educational qualification with a view to her career, profession and/or professional advancement.”    

Yet beware — the judge also said, at paragraph 426, that:
“…the closer a DPhil student is to an employed researcher in actual work and status, the less unfair it is to treat the DPhil student in the same way as one would treat an employed researcher as I discuss in the next section.”
This factor will be taken into consideration when looking at how ‘fair’ the terms of the contract or IP policy are held to be in relation to IP ownership and the division of benefits to be derived from the exploitation of any IP.
Both undergraduate and postgraduate students ought generally to be treated as consumers for the purpose of consumer legislation as their reason to study may include intellectual and personal development and to experience being a member of a higher education community — rather than the sole purpose of commencing a trade or profession.

3. Fairness of IP policies

The court made the determination that the University’s IP terms did not contravene UTCCRs.

The factors considered to determine the fairness of the terms included:

• Whether there was an imbalance in the parties' rights.
• If the terms acted to the detriment of the student. 
• In good faith, whether the terms deliberately or unconsciously took advantage of a student’s position, relative to other similar institutions.
   

4. Revenue sharing provisions of spin-out companies

The judge cautioned that the courts should be careful of intervening in debates concerning appropriate university policies. He found that overall, in this case, there was no unfairness in the way that the University allocated its benefits, including royalties and equity in its IP provisions. While its IP policies may provide for royalties at a lower percentage of revenue from inventions than other universities, an employee of the University was deemed to receive other significant benefits, such as equal equity participation in a spin-out company.

This case may be persuasive authority in determining the balance of factors between higher education institutions and their junior employees or student inventors when assessing whether IP ownership and benefits have been correctly allocated. 

Institutions should be mindful of having proper agreements in place when allocating responsibilities in research projects and/or ownership and commercialisation of student or employee inventions, as consumer regulations differ to employment rules. Importantly, the court will usually look at the true nature of the relationship between the parties when considering fair terms, rather than the description in any agreement.  

Spin-out companies (and any companies that employ university students or researchers) should review and understand the policies that university institutions have in place. They should consider their scope to ensure that they don’t fall foul of IP ownership rights and job descriptions don’t suggest that no IP may be created by that employee. 

While this case is only a High Court judgment and hasn’t yet been considered in similar cases, the opportunity for students to raise such claims against universities are rare, so it’s unlikely to be re-examined soon.

Additional points of interest

Indemnity costs

The Company applied to have the University’s costs assessed on an indemnity basis and applied to have a discount further to having won on one if its arguments — namely, that a student is to be considered as a consumer. 
The discount wasn’t granted, as the judge — referring to the conditions set out in the case law Hospira UK Ltd v Novartis AG [2013] EWHC 886 (Pat) at [2], Unwired Planet International Ltd v Huawei Technologies Co Ltd [2016] EWHC 410 (Pat) at [8]) — found that this issue wasn’t “suitably subscribed”. He commented that he had to deal with the issue at length in the judgment “to satisfy its own obligations of producing a properly reasoned decision”. He didn’t find that either of the parties had “materially increased their costs” in dealing with this issue. 
A useful summary of the case law on when and how indemnity costs can successfully be applied for was set out, in addition to comments on the preservation of confidentiality in relation to university IP policies.

Confidentiality and university IP policies

The Court was asked by the University to grant a confidentiality order. While the Company didn’t oppose this request, the Judge commented that not only are requests for confidentiality not automatically granted without proper consideration but also that there may be a public interest in knowing about the content of discussions between the University and its IP group — in this case called the Intellectual Property Advisory Group (IPAG).
The request was granted “on the basis it is appropriate because there is a risk that this material contains information which remains genuinely commercially confidential and the disclosure of which could prejudice Oxford or a third party”. However, the court left it open for an interested third-party to apply to the court for specific disclosure of some of the confidential information because of his concern over the ‘public interest’ issue. 
Universities must be aware of this when drafting confidentiality provisions, disclosing documents in disputes with staff, researchers and students and in the context of any internal discussions about the creation and enforcement of IP policies. 
Specifically, the judge said: “I do not implicitly endorse a blanket claim of confidentiality on the part of the University or OUI in its records of discussions of its IP policies (whether at IPAG or otherwise) or information about how changes to such policies are developed”.

Legal approach to s39 Patents Act 1977

Finally, we may not have heard the end of cases relying on s39 of the Act. Although the judge asserted that he had implemented the correct legal approach in this case and the low salary of Mr Jing (one of the inventors) isn’t a relevant factor, he did go on to say that even if it was a factor, Mr Jing (in this case) was generously recompensed for his work through the University’s IP policies and his employment contract.

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*Although judgment was given in December 2022, we have only now been able to assess its implications as an appeal was anticipated. However, the case has now settled.