SECTION 1800

Intellectual Property

¶1801 Background and Introduction to Intellectual Property

¶1810 What Is Intellectual Property?

¶1811 Patents

¶1811.1 The Test of an Invention

¶1811.2 Barriers to Obtaining Patent Protection

¶1811.3 The Patent Application Process

¶1811.4 The Parts of a Patent Application

¶1811.5 Application Review

¶1811.6 Provisional Patent Applications

¶1812 Copyright

¶1813 Software

¶1814 Trademarks

¶1815 Other Intellectual Property

¶1815.1 Mask Works

¶1815.2 Biomaterials

¶1815.3 Trade Secrets

¶1820 Intellectual Property and Federal Grants: Governing Regulations

¶1821 OMB Circular A-110

¶1822 Bayh-Dole (Patent Rights)

¶1822.1 Disclosure/Notification Requirements

¶1822.2 Interagency Edison

¶1823 Rights in Data (Copyrights)

¶1824 Computer Software

¶1825 Biomaterials

¶1830 Protecting Government Rights in Nonfederal Agreements

¶1831 Agreements With Foundations and Other Nonprofit Organizations

¶1832 Agreements With Commercial Concerns

¶1833 Material Transfer Agreements

¶1834 Consulting Agreements

¶1840 Commercializing Intellectual Property

¶1841 Technology Assessments

¶1842 Licensing Agreements

¶1842.1 Traditional Licensing Arrangements

¶1842.2 Licensing Agreements With Equity

¶1842.3 Income Distribution

¶1843 Confidentiality Agreements

¶1850 Conflicts of Interest

¶1860 The Institution's Intellectual Property Policy

¶1861 Intellectual Property Policy

¶1861.1 Coverage

¶1861.2 Scope of Intellectual Property

¶1861.3 Use of Institutional Resources

¶1861.4 Royalty Distribution

¶1861.5 Intellectual Property Assignments

¶1861.6 Administrative Mechanics

¶1862 Employee Intellectual Property Assignments

¶1870 Useful References

Footnotes

¶1801 Background and Introduction to Intellectual Property

1. the passage of the Bayh-Dole patent legislation in the early 1980s, which allowed institutions to retain title to inventions made with federal funding;
2. the use of computers and computer software to facilitate the development of new products and services as well as to further scientific discoveries; and
3. the availability of new materials, including ceramics, optics, and biologicals to name but a few.

The Bayh-Dole legislation gave rise to formal intellectual property and licensing offices in colleges and universities, whose primary function is the commercialization of the results of research. This emphasis has paid off for the institutions and for the economy in general. The Association of University Technology Managers reports in its AUTM U.S. Licensing Activity Survey Summary: FY2009 that the commercialization of academic research during FY 2009 resulted in 658 new commercial products, 5,328 total license and options, 596 new companies, and $53.9 billion total sponsored research expenditures. Examples of innovations from colleges and universities include the recombinant DNA technique, digital signal processing, various antibiotics and artificial joints, as well as computer processing and microprocessor developments. While not all of these innovations have been developed with federal funds, federal funds have contributed significantly to many recent discoveries and inventions.

This section has been written to give the college or university research administrator an understanding of intellectual property principles and the issues relating to intellectual property and technology transfer as well as guidance in the appropriate handling of intellectual property generated as a result of federal grants.

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¶1810 What Is Intellectual Property?

• patents,
• copyrights,
• trademarks, and
• related proprietary matters.

At colleges and universities, the intellectual property protection and commercialization usually focus on patents and copyrights, with patents receiving the most attention.

¶1811 Patents

In the United States, the term of a patent is twenty years from the date a patent application is filed. In return for the grant from the government, the patent holder must disclose the invention to the public through the publication of the patent.

Patents are legally defined as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." Examples of patentable inventions include the following:

• new compounds or new uses of existing compounds;
• new devices;
• chemical processes;
• new life forms including plants and animals;
• novel computer systems and software; and
• methods of making and using genetically engineered products, including the products themselves.

The United States Patent and Trademark Office (PTO) manages and administers the patent process.

Patent Reform: America Invents Act

On September 16, 2011, President Obama signed the Leahy-Smith America Invents Act (AIA). It is the first major overhaul of the U.S. patent system in almost 60 years. Some of the key provisions relating to the law are discussed below. The goals of patent reform were as follows:

• Encourage innovation and job creation
• Support USPTO's efforts to improve patent quality and reduce backlog
• Establish secure funding mechanism
• Provide greater clarity around patent rights
• Provide less costly, time-limited administrative alternatives to litigation

Section 3 of the AIA amends the patent laws to

• Convert the U.S. patent system from a “first to invent” system to a “first inventor to file” system;
• Treat U.S. patents and U.S. patent application publications as prior art as of their earliest effective filing date, regardless of whether the earliest effective filing date is based upon an application filed in the United States or in another country;
• Eliminate the requirement that a prior public use or sale be “in this country” to be a prior art activity; and
• Treat commonly owned or joint research agreement patents and patent application publications as being by the same inventive entity for purposes of novelty, as well as nonobviousness.

The change to a “first-inventor-to-file” versus a “first-to-invent” system was a major change in U.S. patent law and better aligned U.S. law with the law in much of the rest of the world (which is a “first to-file” system). This provision took effect March 16, 2013, with final regulations published February 14, 2013, as amended on March 14, 2013.

According to the USPTO, this provision provides the following:

• Priority to a patent is based on the first inventor to file a patent application for a claimed invention and not the first to invent the claimed invention.
• An inventor has a one-year grace period within which to publically disclose an invention before filing a patent application.
• The scope of prior art to be applied against a claimed invention is simplified and broadened.  

The AIA also increases share of royalties retained by universities under the Bayh-Dole Act (see ¶1822) for federally funded inventions and repeals provisions pertaining to statutory invention registrations, effective March 16, 2013.

The USPTO is revising the rules of practice in patent cases for consistency with, and to address the examination issues raised by, the changes in section 3 of the AIA. Regulations on Examination Guidelines were also published on February 14, 2013.

¶1811.1 The Test of an Invention

1. it must be novel;
2. it must have utility; and
3. it must not be obvious.

What Do These Tests Mean? Novelty is easy — the invention must be new; no one else has done this before. An invention of a new machine, for example, would be novel. A reiteration of an existing machine would probably not fulfill novelty requirements.

Utility is also easy — the invention must have some usefulness. Utility was an issue a number of years ago when the National Institutes of Health attempted to seek patent protection for a number of gene fragments it had discovered; in the patent application, they were unable to prove utility — it was obvious that the gene fragments were newly discovered, but there was no known use for them, and the patent application was denied.

Obviousness is much more difficult. Obviousness means that an invention is not obvious to one skilled in the field in which the invention is obtained. This means that an invention should not simply be an extension of what has been previously discovered, but rather, it must be something that is truly new and not anticipated. For example, if the next logical step to someone versed in the field of the invention would be to develop that invention, then it is obvious and not patentable.

¶1811.2 Barriers to Obtaining Patent Protection

Protecting an invention through a patent is not always easy. Many barriers must be overcome prior to receiving a patent. The following paragraphs discuss some of the issues that arise when patent protection is sought.

Enabling Disclosure and Foreign Patents. In the United States, there is a grace period of one year to file for patent protection once an "enabling disclosure" of the invention is made. An enabling disclosure is a written publication that describes the invention in sufficient detail that a person of ordinary skill in that area could reproduce and practice the invention without an unreasonable amount of difficulty. Under U.S. law, oral disclosures, even if they are presented with visual materials, typically are not considered "enabling publication."

However, the "enabling disclosure" creates a conflict if foreign patent protection is sought because publication immediately precludes filing of patents outside of the United States. The obvious solution to the differing disclosure times between the United States and foreign countries is to file a U.S. patent application prior to making any publication. Filing a full U.S. application provides an applicant with twelve months to file in most non-U.S. countries without losing filing rights. The PTO also instituted a provisional patent application (see ¶1811.6) that may preserve the foreign patent rights before the time-consuming full scale patent application is submitted. Because there have been some issues concerning the acceptability of provisional applications by some foreign countries. It is probably best to consult a patent attorney with respect to foreign publication rights and provisional applications.

Who is an Inventor? Determining who is an inventor is crucial to obtaining a valid patent. Inventorship is very different from academic practices of authorship. To be considered an inventor, one must have made independent inventive contributions. Under patent law, this means "the formation in the mind of the inventor of a definite and permanent idea of the complete and operative intention as it is thereafter to be applied in practice." There can be co-inventors, with the criteria for inventorship being the same for each. Persons who simply test an inventive concept or build in response to design schematics are not considered inventors because they made no independent contribution to the idea. Likewise, naming someone as an inventor as a way of recognition or reward is inappropriate because those individuals are not innovators as defined by law.

One issue that often arises at colleges and universities is the inventor status of graduate students. Here the law of inventorship must be applied as stringently as in any other case. If the graduate student truly made innovative contributions, the student must be recognized as a co-inventor.

The issue of inventorship is important because including individuals who are not inventors or excluding individuals who are inventors can cause an invalidation of a patent. Because the determination of inventorship is sometimes very difficult and can cause problems for the college or university administrator, it is probably wise to leave the legal determination of inventorship to the institution's patent counsel.

Date of the Invention. The date of the invention is a fact that the Patent Office will use to determine whether a patent should be issued on a particular invention. Detailed record keeping is crucial to the establishment of the invention's date. It also is critical in interference proceedings brought by another party who believes it may have made the invention first. Inventors should use bound notebooks with consecutively numbered pages and record the invention in as complete a description as possible. Entries should be made in ink and should be signed and dated. A person who has read and understands the material should witness these entries.

While some scientists keep their research records on computer, this practice can be problematic in establishing the various dates surrounding an invention. One solution used by scientists who prefer computerized record keeping is to print the electronic entries each week, sign and witness them, and file them for reference. Another approach to electronic entries might be a "time stamping" program that automatically dates the entry. With the advent of write-only CDs, it is possible to store records electronically without concern that these will be altered. The important thing with respect to electronic records is to have an indisputable means of time stamping in case of a patent interference action.

¶1811.3 The Patent Application Process

The enabling disclosure of a patentable invention is the first step in securing a patent (see ¶1811.2). Once this disclosure is made, a patentability search is performed. This typically consists of a review of all patents issued, published foreign patent applications, and all other relevant literature. The United States Patent and Trademark Office (PTO) has a searchable database for patents and for patent applications.

With information from the patentability search, the enabling disclosure, and supplemental information from the inventor, a patent application is drafted, typically by a patent attorney. Most colleges and universities retain outside patent counsel who draft, file, and prosecute patent applications although there are some who use in-house attorneys for these actions. The PTO now has an electronic filing system (EFS) for certain types of patents and patent actions.

Once the patent application has been completed, it is filed with the PTO. The filing must include a transmittal form (e.g., Form PTO/SB/05) or letter identifying the applicant, the type of application, the title of the invention, the applications contents, and a listing of all accompanying enclosures. The filing fee also must be enclosed. Form PTO/SB/17 should be used to calculate the fee and indicate the method of payment.

Section 3 of the AIA amends the patent laws to convert the U.S. patent system from a “first to invent” system to a “first inventor to file” system; treat U.S. patents and U.S. patent application publications as prior art as of their earliest effective filing date, regardless of whether the earliest effective filing date is based upon an application filed in the United States or in another country; eliminate the requirement that a prior public use or sale be “in this country” to be a prior art activity; and treat commonly owned or joint research agreement patents and patent application publications as being by the same inventive entity for purposes of novelty, as well as nonobviousness (see ¶1811).

¶1811.4 The Parts of a Patent Application

A full patent application consists of a number of parts:

• the specifications, including the claims;
• the drawing;
• the inventors' oath that they have made the invention; and
• documents that assign the invention to the institution.

Specifications. The first part of the application is the specifications including one or more "claims." The specifications are a written description of the invention, including how it is made and how it is best-practiced (i.e., utilized by the end user). The specifications are necessary because once a patent is granted, the owner of the patent has the right to exclude others from using an invention unless they obtain a license in return for disclosing the invention in full. The specification must be written such that a person who is ordinarily skilled in the area of the invention could reproduce it; in essence, an issued patent teaches one skilled in the area how to make the invention. According to the Patent Office instructions, the following headings should be included in the Specifications section in uppercase letters without boldface type or underlining and must be addressed in the sequence provided:

• Title of Invention
• Cross-reference to Related Applications
• Statement Regarding Federal Sponsored Research or Development
• Reference to a Microfiche Appendix (if relevant)
• Background of the Invention
• Brief Summary of the Invention
• Brief Description of the Several Views of the Drawing (if relevant)
• Detailed Description of the Invention
• Claim or Claims
• Abstract of the Disclosure

Claims. The claims are the essential elements of the invention and describe its specific features. Claims generally range from very general to very specific, and when the U.S. Patent and Trademark Office reviews the application, the claims are the key to whether the patent is granted. In this section, any prior art also is disclosed and commented upon in light of the invention for which protection is being sought. Prior art comprises publications or any other information that is related to the specific invention; this could mean previous work by the inventor or others that led up to the invention.

Drawing. The second part of a patent application is the drawing, where necessary. For example, in an invention of a machine, specific drawings are necessary. Obviously, when an invention is a biological, drawings are not produced.

Oath by the Inventors. Another part of a patent application is the oath by the inventors that they have made the invention. The oath must be signed by all the actual inventors. The Patent Office provides forms for the oath, PTO/SB/01 and PTO/SB/02.

Assignment. Documents that assign the invention to the institution also are included in the patent application.

¶1811.5 Application Review

Once a patent application is filed, a PTO patent examiner reviews it for the three-prong patent test — utility, novelty, non-obviousness — and for the enabling disclosure (the specifications and claims). Correspondence will likely take place between the PTO patent examiner and the patent attorney about the application; these are referred to as "office actions." Typically, the first office action rejects most or all of the claims and stipulates very general reasons such as obviousness or existence of prior art. Within the allowed three-month response time, the patent attorney then replies and may adjust the claims or add additional information in order for the examiner to accept them. There can be many office actions and responses resulting in a time span ranging from a few months to several years prior to the granting of a patent.

Once the patent is granted, it is published, and enforcement rights can be utilized. See http://www.uspto.gov/patft/help/images.htm for examples of patent grants.

Seeking patent protection is an expensive and time-consuming business. In the United States, it is not uncommon to spend between $30,000 to $50,000 in the course of three to five years to secure a patent. Foreign filings are even more costly — in most cases, in excess of $100,000. Annual maintenance fees just to keep patents active can be thousands of dollars.

¶1811.6 Provisional Patent Applications

In its discussion of provisional patent applications, the PTO advises applicants to make the disclosure of the invention as complete as possible, to name all inventors in the application, and not to make amendments to provisional applications. Because of the limitations inherent in the provisional application, it has not been filed often. However, when enabling disclosure, such as publication of an article in a journal, is imminent, the provisional application is certainly an "invention-saving" option for colleges and universities.

¶1812 Copyright

Unlike inventions, copyright protection is obtained the moment a work is produced. For example, once something is put down in writing, the author automatically has copyright. Only if the owner of the work wants the right to sue others for infringement does the owner need to file for formal copyright protection with the Library of Congress. The fee for filing a copyright application is nominal.

Under copyright law, the copyright is the property of the author who created the work. However, there is a concept in the law called "work-for-hire." Under the copyright law a work made for hire is defined as (1) a work produced by an employee within the scope of his or her employment, or (2) a work specifically ordered or commissioned for use. The parties must expressly agree in writing that the work shall be considered a work-for-hire. This is particularly true in the case of a non-employee, although many institutions require at least acquiescence of institutional copyright ownership at the time of employment. Because institutional assertion of ownership of copyrights is typically limited (see ¶1861, Scope), colleges and universities need to take particular care in the case of faculty.

Notice of copyright is no longer required under U.S. copyright law, but it is always a good idea to place the copyright notice on the work. According to the United States Copyright Office, visual copies should contain the following elements of notice:

• the symbol © or the word "Copyright;"
• the year of first publication of the work; and
• the name of the owner of the copyright in the work.

Consequently, a typical copyright notice would be © 2001 XYZ University.

For works created on or after January 1, 1978, protection is for a term of the author's life plus an additional 70 years. In works-for-hire, the duration is 95 years from publication or 120 years from creation, whichever is shorter.

Like patents, when the copyright is to be held by the institution, the appropriate institutional office files for copyright protection. Unlike patents, there are specific forms used in applications for copyright. The time it takes to obtain copyright approval from the Copyright Office is much shorter than the time it takes to obtain a patent — generally a couple of months if the application is complete when submitted.

¶1813 Software

¶1814 Trademarks

A trademark is a word, name, symbol, or device used to indicate the source of a product and to distinguish it from the products of others. A subset of trademarks is a servicemark; the only difference is a servicemark is used to indicate a service rather than a product. Trademark rights may be used to prevent others from using similar marks. Trademarks require registration with the Patent and Trademark Office.

In most colleges and universities, trademarks generally are associated with the name or mascot of an institution; these are referred to as insignias. By trademarking the name or mascot, institutions then can market these on items such as T-shirts and coffee mugs. For example, an institution may enter into a licensing arrangement with a clothing manufacturer and receive royalties on each article sold.

In some instances, trademarks have been used to protect a particular association with a college or university invention or other intellectual property. Examples of trademarks used with patents developed at colleges and universities include the Lycos^® Search Engine (Web software) and Taxol^® (cancer therapy).

¶1815 Other Intellectual Property

¶1815.1 Mask Works

A mask work is defined in the Semiconductor Chip Act of 1984 as a series of related images representing a predetermined, three-dimensional pattern of metallic, insulating, or semiconducting layers of a semiconductor chip product. This is a unique type of intellectual property that can be protected through registration with the United States Copyright Office. Unlike copyright, however, an application, which consists of a completed Form MW, a filing fee, and a copy of the identifying material, must be filed to obtain protection, and that application must be filed within two years after the date on which the mask work is commercially exploited. Mask work protection extends for ten years. Registration of mask works is relatively inexpensive and similar to copyright. United States Copyright Office Publication 100, Federal Statutory Protection for Mask Works, outlines the requirements and the process to copyright mask works.

¶1815.2 Biomaterials

¶1815.3 Trade Secrets

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¶1820 Intellectual Property and Federal Grants: Governing Regulations

¶1821 OMB Circular A-110 (2 CFR Part 215)

The government's rights regarding patents, copyrights, and other forms of intellectual property (referred to as "intangible property") and the college's or university's responsibilities are stipulated in OMB Circular A-110 (2 CFR Part 215). Subpart A, __.2(s) of A-110 defines intellectual property as "…not limited to, trademarks, copyrights, patents, and patent applications..." Subpart C, __.36 sets forth the government rights in intangible (intellectual) property developed under federal grants as well as the grantee's rights and requirements.

¶1822 Bayh-Dole (Patent Rights)

Rights to inventions developed under federal grants by colleges and universities are governed by regulations contained in 37 CFR Part 401, Rights to Inventions Made by Nonprofit Organizations and Small Businesses. The source of the authority for and provisions of this regulation is Pub. L. 96-517 (later amended by Pub. L. 98-620), commonly known as Bayh-Dole (named after the two senators, Senator Birch Bayh of Indiana and Senator Robert Dole of Kansas, who initially sponsored the legislation). [Note: There remain occasional references by federal agencies to OMB Circular A-124. This circular preceded the codification of the Bayh-Dole legislation in 37 CFR Part 401. OMB Circular A-124 was rescinded and is no longer the applicable regulation.]

Bayh-Dole grants nonprofit organizations, including colleges and universities, and small businesses the right to elect to retain title to inventions made in whole or in part with federal funds and to grant exclusive licenses to practice the inventions made. In return for the election rights, the nonprofit or small business must meet certain reporting requirements, federal licensing provisions, and other requirements.

The provisions of 37 CFR Part 401 apply to the grants of all federal agencies, except scholarships, fellowships, training, or other "educational purposes" grants. In addition, exceptions sometimes are made for national security purposes or where the government determines that greater government rights are required. The requirements of 37 CFR Part 401 are summarized in the following paragraphs.

¶1822.1 Disclosure/Notification Requirements

Initial Disclosure. The clock starts running on an institution's reporting requirements when the inventor (as defined in ¶1811.3) discloses, in writing, an invention to the appropriate institutional official. Within two months of such disclosure, an institution must notify the federal funding agency that sponsored the work that an invention has been made. A copy of the disclosure or other information that conveys in more detail the basic invention must accompany the disclosure. Most institutions have developed a standard form for disclosures, such as the one in Figure 1822-1 below. Institutions also are required to notify the government of any pending publication that describes the invention.

Figure 1822-1 Sample Invention Disclosure Agreement

As discussed in ¶1811.2, public disclosure has an impact on the ability to obtain patent protection. Recently, the government has made available an electronic reporting system, known as Interagency Edison, for electronic submission of disclosures as well as follow-on information requirements. See ¶1822.2 for more information about Interagency Edison.

Election of Title. Within two years of disclosure of the invention to the federal funding agency, an institution must make an election of title to the federal government in writing. This election confirms the institution’s acknowledgment of responsibilities under the regulations, including the requirement for due diligence in seeking legal protection of the invention and in licensing the technology. Due diligence, in this case, means making appropriate and timely progression in the protection of the invention and its licensing. At the time of election of title, the government’s confirming license (i.e., the grant to the government of its nonexclusive rights, also should be made). Figures 1822–2 and 1822–3 are examples of a letter electing title and a confirmatory license to the government.

Figure 1822-2 Sample Title Election Letter

Figure 1822-3 Confirmatory License to the Government

Federal Government License. While 37 CFR Part 401 grants institutions the right to own inventions created under programs receiving federal funds, the federal government must be given a "nonexclusive, nontransferable, irrevocable paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world." In practical terms, this means that while institutions may elect title to inventions, the government also will have an interest in the invention and may use the invention royalty-free, either on its own or through a government contractor. When institutions license an invention to a company for commercialization, the license should acknowledge and include the government's rights. This is also important in sponsored research agreements between a college or university and a commercial concern (see ¶1830).

"March-in Rights." The federal government always retains the right to assert a claim against an invention or resultant patent if an institution fails in its responsibilities under the regulations. Referred to as "march-in rights," this right allows the government to require a grantee to license an invention when it believes that the grantee is not taking the appropriate steps to "achieve practical application of the invention." (See 37 CFR § 401.6.) Assertion of march-in rights by the government rarely has taken place with respect to colleges and universities.

"Greater Rights." The government also has reserved for itself the right to claim "greater rights" in any inventions made under federal funds if it determines that it is in the best interests of the government to do so. In recent years, the National Institutes of Health sometimes has claimed "greater rights" in inventions. Typically, that claim has been asserted at the time of a request for proposals and is included in the listing of proposed terms of award. These greater rights have involved only those areas where an institution is a part of a government program, such as performing clinical trials on investigational new cancer drugs. For example, if an institution is only one of a number of institutions testing a large number of compounds through a federal agreement to determine their effectiveness in curing disease, the greater rights determination would prohibit one institution from asserting patent claims on a particular compound.

Patent Filings, Prosecution, and Maintenance. When an institution elects title to an invention, it assumes the responsibility to make timely filings of patent applications, domestic or foreign, or to give the government the opportunity to file timely applications, should the institution elect not to do so.

In the case of notification to the government, 37 CFR Part 401 requires a series of notifications and actions once disclosure and title election takes place. In electing title, the grantee agrees to file the initial publication within one year after election of title or prior to any statutory bars (see ¶1811.3) that would preclude patent filing. Foreign patents must be filed in appropriate time frames; if the grantee decides not to file for foreign protection, timely notice must be given to the government so that foreign applications can be filed by the government at its own discretion. For example, if an institution decides not to file a foreign application, the government must be notified at least thirty days prior to the deadline for filing the foreign application.

Reports of utilization of inventions or licensing efforts must be filed annually. These annual reports must include information on the status of development, the date of first commercial sale or use, gross royalties received, and any other data as specified by the government. There is no specific format given for the report. The advent and use of Interagency Edison (see ¶1822.2) have made this requirement easier to manage at colleges and universities because the information normally contained in a utilization report already is available in the Interagency Edison system.

Maintenance of existing patents is also a requirement of the regulations. If a grantee holding title to an invention opts not to continue maintenance of an invention, it must inform the government in a timely manner (30 days in advance of a required legal action, such as payment of maintenance fees). This allows the government to take over the patent if it so desires.

Other Institutional Requirements. In addition to the disclosure and notification requirements described above in this discussion, 37 CFR Part 401 requires a college or university to take certain steps on an institutional level to ensure compliance with the statute and to protect the government's rights.

• Employee Patent Agreements. Section 401.14(f)(2) of the regulations expressly require that an organization's employees, other than clerical or nontechnical staff, must agree in writing to promptly disclose in writing any inventions made with federal funds and to execute any documents necessary to obtain patent protection. For more information on these employee agreements, see ¶1862.
  
  
• 37 CFR §401.414(k)(1) expressly forbids the assignment of patent titles to other entities or individuals without approval of the federal funding agency. The only exception is assignment to a firm whose specific mission is patent management, such as Research Corporation Technologies, Inc. (RCT is a company whose purpose is to exploit college and university technology through licensing and other arrangements.) A college or university administrator must be mindful of this requirement when accepting funding from other entities, including grants from nonprofit institutions, sponsored research agreements with commercial concerns, and materials transfer agreements from all sources.
  
  
• Notification of Government Rights on Patent Applications. The following statement must be included in the specifications of any patent application or on an issued patent resulting from federal funding (37 CFR § 401.414(f)(4)):

  This invention was made with government support under (identify grant number) awarded by (identify the federal agency). The government has certain rights in the invention.

• 37 CFR § 401.414(k)(2) states that royalties must be shared with inventors. The extent of such sharing is not specified; a discussion of royalty-sharing policies is included in ¶1861. In addition, the regulations require royalty and other income derived from federally funded inventions to be used for scientific research or education after expenses are paid and the appropriate royalty sharing with the inventor(s) has occurred. An institution should keep appropriate records that indicate the disposition of royalty and other licensing income. A particular quirk in federal regulation occurs in Section __.24 of OMB Circular A-110 where royalty income is included in the definition of program income but is then quickly exempted from program income reporting requirements.
  
  
• Licensing Requirements. Certain requirements that directly affect the licensing of federally funded inventions also are specified in 37 CFR Part 401. For example, there is a requirement that reasonable efforts should be made to license these inventions to small businesses, as defined by federal law. Reasonable effort in licensing would consist of proactive efforts to market the technology to those small businesses. For example, a reasonable effort would be that of letting small businesses in the field of the invention know of its availability for licensing. In addition, there is a requirement that any products using the federally funded technology should be manufactured substantially in the United States; this means, where possible, products incorporating the technology should be made in the United States.
  
  
• Education. Another requirement is that an institution must provide education and training for employees regarding the statutes and regulations governing the reporting of inventions and the filing and processing of patent applications. Institutions have used a wide variety of methods to comply with this requirement, including information seminars, development and dissemination of written materials, and, most recently, Web sites. Many institutions have issued manuals to inventors on recognizing a patentable invention and the steps that must be taken to protect it, including cautions on enabling disclosures.
  
  
• Subawards. The provisions of Bayh-Dole must be included in any subrecipient agreement made to other nonprofit organizations, including colleges and universities, and small businesses. Typically, that is done either in a specific article of the agreement or as part of the flow down of general terms. An example of a specific clause is as follows:

  Sample Clause
  Pursuant to Pub. L. 96-517, as amended by Pub. L. 98-620, title to any invention or discovery made or conceived under this Subagreement shall vest in Subawardee. Subawardee shall promptly notify Awardee in writing of any such inventions or discoveries. Subawardee hereby grants to Awardee a royalty-free nonexclusive license for internal research purposes only to any Subawardee invention or discovery.

¶1822.2 Interagency Edison

Once a user registers and logs onto Interagency Edison, a number of features are instantly accessible. The user can enter and submit online a new invention disclosure, which fulfills the initial disclosure notification requirements of Bayh-Dole. After the disclosure is made, modifications may be made to the notification to update the information and add utilization information (such as licenses) and patent issuance and maintenance information. Several online forms also can be completed and printed out if written information is required. One of these is the license to the United States Government as required by Bayh-Dole (see ¶1822.1, Figure 1822-3).

In furtherance of the requirements of the Federal Financial Assistance Management Improvement Act of 1999 (Pub. L. 106-107) (see ¶2750), the government has indicated its intention to use Interagency Edison as its common system for summary invention reporting forms.

¶1823 Rights in Data (Copyrights)

Research data also is discussed in A-110, Subpart C, Section __.36(c). In this section, the government reserves the right to obtain, reproduce, publish, or otherwise use the data first produced under an award and to authorize others to receive, reproduce, publish, or otherwise use such data for federal purposes.

¶1824 Computer Software

¶1825 Biomaterials

If biomaterials developed under federal grants are patented, the rights of an institution are governed by 37 CFR Part 401. It is important to note that the NIH has issued strong guidance with respect to biomedical research materials used as research tools in academic institutions and industry. NIH Principles and Guidelines for Sharing of Biomedical Resources—Final, issued on December 23, 1999, intends to ensure access by scientists to research tools developed with NIH funding. NIH defines research tools as cell lines, monoclonal antibodies, reagents, animal models, combinatorial chemistry laboratories, clones and cloning tools, and databases and computer software to the extent that these are used as unique research tools. (See also the NIH Policy on Sharing of Model Organisms for Biomedical Research.)

The guidance addresses many issues including the following:

• Institutions should avoid signing agreements that unduly limit the freedom of investigators to collaborate and publish.
• Certain restrictions and brief delays in publications to permit patents to be filed may be acceptable.
• These research materials are subject to Bayh-Dole.
• Restrictive licensing could hinder research tools' utilization and public availability.
• Institutions should not agree to unreasonable terms proposed by providing organizations.
• Widespread distribution on a nonexclusive basis should be encouraged.
• Exclusive licenses to distributors who will make the research tool widely available on reasonable terms are acceptable.
• Unique research resources must be broadly and promptly available to the scientific research community in order to advance science.

In 2003, NIH has issued complimentary guidance on data sharing that reaffirms its support of the concept of data sharing to bring the results of research to the public. That policy and other NIH pronouncements on related issues can be found here under the heading "Resource Sharing."

It also should be noted that biomaterials, including research tools, developed under federal awards must be reported to the federal agency, even if they are either not eligible for patent protection or the institution, because of the nature of the materials, determines not to file for patent protection. That reporting is typically accomplished through iEdison (see ¶1822.2).

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¶1830 Protecting Government Rights in Nonfederal Agreements

¶1831 Agreements With Foundations and Other Nonprofit Organizations

¶1832 Agreements With Commercial Concerns

Research administrators who are negotiating the agreement do have alternatives that will give a company control of the invention without giving away title. For example, the patent clause could be written to provide the company with an exclusive option to license any inventions developed under the agreement. The resultant license could be nonexclusive or exclusive — this should be spelled out in the research agreement — with reasonable royalty rates. An example of such a clause appears below.

Sample Clause
Title to all inventions and discoveries made by University resulting from the research performed hereunder shall reside in University; however University agrees to grant to Sponsor an option to negotiate an exclusive, worldwide, royalty-bearing license, to make, use or sell under any invention or discovery made and conceived during the terms of this Agreement and directly resulting from the performance of research hereunder, with the right to sublicense with accounting to University, subject only to the reservation of the rights of the Government of the United States of America, as set forth in 37 CFR Part 401. Sponsor shall have three (3) months from disclosure or any invention or discovery to notify University of its desire to enter into such a licensing agreement, and a licensing agreement shall be negotiated in good faith within a period not to exceed six (6) months from Sponsor's notification to University of its desire to enter into a licensing agreement, or such period of time as the parties shall mutually agree.

Another pitfall in commercial agreements is a requirement for licenses to any background inventions. These are inventions that relate to the invention being licensed, and these may already be subject to terms of another agreement. Research administrators who negotiate these agreements must be particularly wary when background patents are addressed.

¶1833 Material Transfer Agreements

Materials coming into an institution from a commercial entity pose particular challenges for those reviewing and approving the accompanying MTAs. For example, assume the material being transferred is a new chemical compound that either has or is thought to have commercial value. The institutional investigator wishes to study the compound further as a part of a federally funded research project. However, the compound is the transferring company's proprietary data and may or may not be the subject of patent protection. Because of the potential or real commercial value of the material, the MTA may contain intellectual property terms that are onerous and sometimes unacceptable in the context for which they are being used. In addition, some MTAs require certain terms of confidentiality that may preclude publication of academic works.

Why are intellectual property and confidentiality terms a problem in MTAs? The conflict between the transferring company's interests as reflected in the MTA and the investigator's research project are clear. Typically, materials are being used at colleges and universities in conjunction with federally supported research projects. An MTA that requires any patents developed using the transferred materials to remain the property of the supplying entity causes a direct conflict with the Bayh-Dole requirement that grants the government a royalty-free license. Confidentiality provisions without the right to disseminate information infringe directly on the institution's obligation to disseminate the results of academic research. This can put the institution in a difficult position. On one hand, the institution is trying to protect the rights of its faculty investigator to pursue his/her research freely and publish the findings; on the other hand, if an agreement cannot be reached to transfer the material to the faculty investigator, there will be nothing to publish. The key for the college or university research administrator is to try to negotiate terms that will be mutually satisfactory to all parties and do not infringe on Bayh-Dole requirements.

In an effort to facilitate the exchange of research materials, the Public Health Service issued a standard Uniform Biological Materials Transfer Agreement (UBMTA) in 1995 (see Figure 1833-1 below). The UBMTA was developed specifically for the transfer of biological materials; however, there is no reason that it could not be adapted for transfer of other materials as well. The UBMTA now is used widely by academic institutions transferring materials to another academic institution; however, it has had less acceptance from commercial firms.

Figure 1833-1 Uniform Biological Materials Transfer Agreement

Figure 1833-2 UBMTA Implementing Letter

The National Institutes of Health also encourages the use of a simple letter agreement to streamline exchanges between nonprofits (see Figure 1833-3 below).

Figure 1833-3 Simple Letter Agreement for the Transfer of Materials

Because the UBMTA does not have widespread acceptance from for-profit concerns, there is no standard template used by these firms. Each agreement typically requires negotiation. Some of the issues that arise in MTAs are the following:

• the definition of the materials;
• restrictions regarding the institution's use of the materials in funded projects;
• prepublication review;
• disclosure of research results; and
• the legal form of the agreement itself.

¶1834 Consulting Agreements

For this reason, many institutions ask, but do not require, to review individual consulting arrangements and urge faculty members to craft the work scope of their consulting agreements very narrowly.

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¶1840 Commercializing Intellectual Property

In April 2007 a group of eleven research universities and the American Association of Medical Colleges developed a white paper on the topic of technology licensing. Titled "In the Public Interest: Nine Points To Consider in Licensing University Technology," its purpose is to "foster thoughtful approaches and creative solutions to complex problems that may arise when universities license technologies in the public interest and for society's benefit." The paper suggests the following nine points as core values:

1. Universities should reserve the right to practice licensed inventions and to allow other nonprofit and governmental organizations to do so.
2. Exclusive licenses should be structured in a manner that encourages technology development and use.
3. Minimize the licensing of "future improvements" to avoid reducing opportunities for other funding.
4. Anticipate and help to manage technology transfer-related conflicts of interest.
5. Ensure broad access to research tools.
6. Enforcement action should be carefully considered because litigation is seldom the preferred option for resolving disputes.
7. Be mindful of export regulations.
8. Be mindful of the implications of working with patent aggregators.
9. Consider including provisions that address unmet needs, such as those of neglected patient populations or geographic areas, giving particular attention to improved therapeutics, diagnostics, and agricultural technologies for the developing world.

¶1841 Technology Assessments

Most institutions conduct a commercial assessment as part of their determination of whether to seek patent protection. The purpose of this assessment is to determine whether there are products that can result from the invention and the value of those products in the marketplace. An invention may have tremendous scientific value but insufficient economic potential to induce a company to expend resources to develop and market the invention. Figure 1841-1 below presents a series of questions that could be used to conduct a technology assessment.

Figure 1841-1 Assessment of Technology for Commercial Viability

If the result of the assessment is that protection and commercialization of the intellectual property should continue, then the institution, in addition to seeking legal protection, typically will begin the search for a company (or licensee) to commercialize the technology. If the result of the assessment is negative, the institution generally will decline to move forward and, in the case of a federally funded invention, will notify the government that it will not pursue protection and will decline to elect title. At that time, it is possible for the inventor to request title from the government.

¶1842 Licensing Agreements

¶1842.1 Traditional Licensing Arrangements

• effective date
• definitions
• scope of license
• duration
• scope of license consideration (e.g., royalties, other payments)
• reports and reporting
• third-party infringement
• patent marking
• indemnification
• use of names
• assignment
• terms
• warranties
• protection of federal government interests
• general clauses found in most legal documents (such as legal jurisdiction, force majeure, severability)

Figure 1842-2 Patent License Agreement

1842.2 Licensing Agreements with Equity

Licensing agreements with equity have one large difference from traditional licensing agreements discussed in ¶1842.1 — the acquisition by the institution of equity interests in the company that licenses the intellectual property. The rise of start-up companies with little available cash to devote to a licensing arrangement is the primary reason that equity interests are included in licensing agreements. Instead of taking up-front cash payments or even running royalties, an institution will negotiate for a part of the company by taking an equity interest.

One issue that arises as a result of equity arrangements is the disposition of the equity received. This is handled in various ways by institutions, the most common being the transfer of the management of the equity to the institution's investment office. Decisions regarding disposition of the equity then are made directly by the investment office. Typically, the equity is held in conformance with legal requirements and is sold at the first opportunity to do so. At that point, the proceeds are disposed of in accordance with the institution's royalty distribution formulas.

¶1842.3 Income Distribution

The distribution of income derived from licensing patents, copyrights, and other proprietary works generally is subject to a formula developed by the institution and typically is not addressed in any licensing agreement. (The Bayh-Dole requirements applicable to inventions made with federal funds only require an income distribution; they do not stipulate a formula or amount.) However, in the case of inventions or other works in which there is more than one creator, a wise institution secures a written agreement regarding the split of royalty income from the inventors or creators prior to entering into any licensing agreement. While the general rule is that the inventor/creator's share of any licensing income is split equally among the individuals involved, there may be exceptions. For example, a student who is involved as an inventor in an initial patent may not have made an inventive contribution to a follow-on patent, both of which may be the subject of a licensing agreement. In these cases, the institution probably should develop a distribution formula.

One way of handling multiple inventions is to assign shares. For example, if there are two inventions, one under the name of Professor X and Student Y and another under the name of Professor X and Student Z, the share formula might be computed as four. Any royalty income distribution, then, would allocate two shares to Professor X, one share to Student Y, and one share to Student Z.

The issue of equity as payment becomes an interesting factor when licensing is being done with an inventor (faculty) start-up company. The question that arises is whether income distribution should be made to a faculty inventor when he or she presumably already has benefited through the start-up company. Some institutions continue to use their distribution formula because of the Bayh-Dole requirement that income must be shared with the inventor(s); others do not provide additional payment to the faculty inventor.

¶1843 Confidentiality Agreements

Confidentiality agreements should include these three provisions:

1. Material exchanged should be marked as confidential. If it is not possible to mark materials as confidential or proprietary or if materials also are accompanied by verbal confidential information, an institution should require that a follow-on in writing be done within a short time period (usually less than 30 days) indicating which materials are considered to be confidential.
2. There should be a period of confidentiality. Most institutions begin negotiating with a three-year period from receipt of the material. Some will go as far out as five-to-seven years. In this case, shorter is better; after all, institutions of higher education generally are not places that have a lot of security policies concerning confidential materials.
3. There should be a set of exceptions built into the confidentiality agreement. The following five exceptions are traditionally excepted from the confidentiality obligation:
   1. material that is already in the recipient party's possession at the time of disclosure;
   2. material that is or later becomes part of the public domain through no fault of the recipient party;
   3. material that is received from a third party having no obligations of confidentiality to the disclosing party;
   4. material that is independently developed by the recipient party; and
   5. material that is required by law or regulation to be disclosed.

For state-supported colleges or universities, the last exception is most important in light of the fact that most of these institutions are subject to state freedom of information laws.

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¶1850 Conflicts of Interest

Conflicts of interest, whether real or potential, often arise in intellectual property matters, particularly when licensing agreements are contemplated with companies in which the faculty member has an interest. For example, how are licensing and other matters handled when the inventor already owns a share of the company to which the invention is being licensed? It is important that the institution have a policy that requires disclosure of real or potential conflicts of interest and addresses the resolution, if possible, of such conflicts. Because institutions that have funding from either the National Institutes of Health or the National Science Foundation already are required to have such policies (see ¶755), conflicts of interest that arise in licensing matters generally are handled under that policy framework.

The following should be taken into consideration when looking at conflict-of-interest matters:

• The institution should ascertain whether the company has the resources and ability to commercialize the technology in a timely manner.
• The faculty member should acknowledge his or her relationships with the company in any publications or presentations that utilize data generated from research that is funded by the company.
• The faculty member's consulting efforts with the company should be distinct from any sponsored research supported by the company.
• While the faculty member has likely signed confidentiality agreements with the company, he or she is the only person bound by this confidentiality. Students, post-docs, or others who work on company-funded work should be free to publish their data in a timely manner without the constraints of the faculty member's confidentiality agreements.
• Intellectual property associated with any inventions that are developed from the faculty member's consulting efforts with the company should be handled through the institution's technology licensing office.
• The faculty member should be made aware that any changes in his or her research program that affects his or her company relationships should be reported to the appropriate university official charged with handling conflict-of-interest issues.

For a full discussion of conflict of interest and research, including institutional conflict of interest, see ¶2840.

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¶1860 The Institution's Intellectual Property Policy

All institutions should have a specific policy governing intellectual property. The policy should addresses any intellectual property developed in the course of employment and assert the institution's policies with respect to ownership and disposition of intellectual property.

¶1861 Intellectual Property Policy

¶1861.1 Coverage

The policy also should address works created by administrative staff in the course of their institutional responsibilities. Most policies consider these "works-for-hire" and, as such, these automatically become the property of the college or university.

¶1861.2 Scope of Intellectual Property

The development of online course materials and distance learning also has presented a particular set of issues for institutions that are only beginning to be addressed in institutional policies. Because institutions continue to follow their existing policies with respect to copyright in scholarly works created by faculty members, they also tend to acknowledge that faculty members own the copyright to electronically published materials created on their own initiative. This typically includes traditional class materials.

However, when electronic materials are specifically commissioned by the college or university (i.e., a faculty member is being paid — either through their normal compensation or in addition to their normal compensation — most institutions maintain that these are works-for-hire and, therefore, are the property of the institution. Consequently, many institutions are taking title to electronic materials developed expressly for distance learning courses.

¶1861.3 Use of Institutional Resources

• The inventor used a minimal amount of institutional unrestricted funds.
• The intellectual property has been developed outside the research area covered by a sponsored project.
• A minimum amount of time and insignificant institutional resources have been used. Use of office, library, machine shop facilities and traditional desktop personal computers are examples of facilities and equipment that are not considered significant.

¶1861.4 Royalty Distribution

After out-of-pocket patenting expenses, royalties and income shall be distributed 40% to the inventor(s), 20% to the department(s) of the inventor(s), 20% to the school of the inventor(s), and 20% retained centrally by the institution.

Some institutions use a different formula depending on the amount of income. For example, 50 percent of any net royalty income may be distributed to the inventor up to a certain amount; after that milestone is reached, a sliding scale may be implemented. Figure 1861-1 below is an example of a sliding scale.

Figure 1861-1 Sliding Scale Royalty

Another sometimes-sensitive area in royalty distribution is distribution of royalties to administrative staff who may have developed intellectual property in the course of their institutional responsibilities. Typically, these works are included as "works for hire" and are not subject to any royalty distribution.

Equity Income. The policy also should address equity income. For example, it may be that in lieu of royalties, the college or university may take an equity position in a company. It may also be that the equity is split at the time of licensing so that the faculty member has control immediately; other institutions keep the equity whole until such time as a licensing agreement allows its sale. At that time, the institutions sell their holdings and subject the proceeds to the predetermined royalty distribution formula. In most cases, equity is taken in licensing agreements with private companies, and there are federal securities rules regarding timing of equity sales after the company goes public.

¶1861.5 Intellectual Property Assignments

¶1861.6 Administrative Mechanics

• the person(s) who will receive disclosures, reports, and notices;
• what the institution will do with the intellectual property;
• the rights of the inventor or creator;
• the person with ultimate responsibility for administering the policy; and
• dispute resolution procedures.

¶1862 Employee Intellectual Property Assignments

Because assignment agreements are necessary to comply with federal patent regulations, it is important that an institution ensure that all appropriate personnel have executed the agreement.

Many institutions require that the assignment be made at the time of employment, perhaps at the same time a faculty or staff member signs up for benefits. Acquiring student signatures is often more difficult, and many institutions transfer the responsibility for student assignment agreements to the student's department.

Figure 1862-1 Sample Employee Assignment Agreement

Frequency of Agreements. One question that has arisen in the past is whether the acknowledgment of the institution's intellectual property policy is sufficient or whether a specific written assignment agreement is required. It is the general consensus of the legal community that separate assignment agreements (executed on a onetime basis to cover inventions made while employed by a specific institution) are necessary to comply with the provisions of Bayh-Dole.

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¶1870 Useful References

There are a number of references that a college or university administrator may wish to consult for additional information on intellectual property development, protection, regulation, and licensing matters. The following is a listing of various Web sites that contain reference materials that may be useful.

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