Introducing Background IP to a research project: what does it mean?

Clauses that deal with “Background IP” are very familiar in research collaboration agreements. Consider the following example, taken from a draft agreement that IP Draughts was asked to review earlier this week. It is a typical example of its kind. Both the clauses and related definitions are set out below.

“Background IPR” means all Intellectual Property Rights owned by or licensed to a Project Partner at the start of the Project;

“Intellectual Property Rights” or “IPR” means all industrial and intellectual property rights including patents, utility models, rights in inventions, registered designs, rights in designs, trademarks, copyright and neighbouring rights, database rights, moral rights, trade secrets, and rights in confidential information and know-how (all whether registered or unregistered and including any renewals and extensions thereof) and all rights or forms of protection having equivalent or similar effect to any of these which may subsist anywhere in the world and applications for registrations of any of the foregoing;

The Project Manager and the Representative shall be responsible for identifying and agreeing in writing on behalf of the Parties any Background Intellectual Property used, or to be used, in the course of the Project and the owner of the same, prior to or as soon as reasonably practicable following its disclosure in the course of the Project;

Each Party acknowledges that a Project Partner’s Background IPR may be required to be accessed by the other Project Partners in order to undertake the Project and to use a Project Partner’s own Foreground IPR (“Relevant Background IPR”).

Each Party hereby grants to each of the Project Partners an irrevocable, non-exclusive, perpetual and royalty-free licence to:

(a) use its Relevant Background IPR during the term of the Project for the purpose of carrying out the Project; and

(b) use its Relevant Background IPR after the term of the Project strictly for the purpose of using a Project Partner’s own Foreground IPR.

The above clauses may be a little more elaborate than some that IP Draughts has seen, but they are similar in effect to many that are in circulation. Readers may spot some general drafting issues in the above wording, but that is not the point of this post. IP Draughts has chosen this wording as representative of a class of clauses that deal with background IP, and not with a view to criticising the specific agreement.

Let’s take a couple of examples, and test them against the wording. In both cases, assume that the contracting party is a university:

1. Software. One of the university’s academics uses in the collaboration some software that a colleague generated prior to the start of the collaboration. The university has not done any due diligence on who owns any IP in that software, but at least some of the IP is likely to belong to the university as the employer of the individuals who wrote the lines of code. The university intends to form a spin-out company that will obtain an assignment of the party’s IP (such as it is) in the software.
2. Scientific technique. The university uses in the collaboration a technique for radio-labelling the molecules that are the subject of the collaboration.  The university’s principal investigator believes that he invented the technique, but neither he nor the university has sought to patent the technique and, unbeknown to them, another institution has already patented it so it is unlikely that the university would be able to patent it anyway.

How are these examples affected by the contractual obligations quoted above?

Software

In the case of the software, what is being “used” in the collaboration is an intangible product – software.  It is not being made available to the other parties. It is probably protected by copyright in the lines of code, and perhaps as confidential information. However, there is every chance that this IPR may be overlooked by the parties, as the academic mistakenly believes that, because the software implements ideas that have been published in an academic paper, it is freely available for use by anyone and not protected.

Therefore, there is likely to be some Background IPR in the software. But it is debatable whether this IPR (as distinct from the software itself) has been “used” in the collaboration. Note that the definition of Background IPR does not include information or software as such, and there is no other defined term such as Background Information, which sometimes appears in agreements of this kind.

If this Background IPR has been used, it is debatable whether the other parties need access to it.  Perhaps they would like to have access to the software, to validate work done in the project or do further work, in which case they will also need a licence under the Background IPR.  But this is all highly speculative, based on the facts described above.

If it turns out that the other parties do need a licence to use the software, this could be problematic for the university, if it has plans to hive the software off into a spin-out company. If the university or the investors in the spin-out company manage to spot the issue in their IP due diligence, it may be necessary to carve out free licences to the other collaborating parties as required by the above clauses, which may dilute the value of the software as an asset of the company.

Scientific technique

We might speculate that the other collaborating parties will need to use, in subsequent development or commercialisation work, the radio-labelling technique that the university has used in the collaboration.

It is doubtful whether the university has any Background IPR in the technique, as it has not patented it, but certain aspects may be protected as confidential information. The technique as such is pure information and not within the definition of Background IPR.

Let us assume that, despite these technical points, the parties identify the technique as the university’s Background IPR. Now the university must license the technique to the other collaborators. But in fact, the only real IPR protecting the technique is a patent that is owned by someone else, which the parties are not even aware of when they record the technique as the university’s Background IPR.

Is the university liable if the patent owner sues the other parties when they use the technique? The above clauses don’t include any express IP warranties, but might such a term be implied? Which law is the contract made under? Many international research collaboration agreements are made under Belgian law.  What does Belgian law have to say about implied warranties in an IP licence?

Observations

In IP Draughts’ view, many of the clauses that are seen in research collaboration agreements on the subject of Background IPR are of doubtful value. They seem to be there to establish a general principle, rather than provide specific legal protection, and sometimes the wording raises more issues than it settles.  Issues that may arise include:

1. The agreement may provide a mechanism for identifying Background.  In practice what the parties are likely to do (particularly if the people doing the identification are scientists rather than IP specialists) is identify background information -techniques, software, etc – rather than items of intellectual property. Sometimes the wording of the agreement doesn’t distinguish between the two.
2. Universities typically don’t do due diligence on background IPR before conducting a research project.
3. What the user of Foreground IPR is typically interested in is not being prevented from using the Foreground IPR because someone owns some Background IPR. That is fine in principle, but if the parties cannot realistically identify the Background IPR that they are concerned about, any “licence” to unidentified Background IPR is rather notional. Perhaps it would be better to include a simple obligation on the parties not to sue one another for infringement of Background IPR if that infringement occurs in the context of using or exploiting Foreground IPR.
4. In addition, perhaps a distinction should be made between use of Background IPR in further R&D activity, and use in commercialisation. There may be stronger arguments for asking for financial terms in any licence, if the IPR is used in comercialisation.
5. There is also the issue of what happens if the Background IPR cannot be licensed because it is “tied up” elsewhere, eg by an exclusive licence or assignment.  Sometimes, the licence clause will only require a party to license if it is free do so.  But this begs the question of whether a party is allowed to tie up their Background IP after the collaboration agreement has started, eg by assigning it to a spin-out company.

It is understandable that parties, or their IP advisers, may be concerned that the assertion of rights to Background IPR presents a risk to the commercialisation of Foreground IPR. How real or theoretical that risk is will vary depending on the parties and the technologies concerned. When dealing with university parties, the risk seems likely to be lower than with some commercial companies.

IP Draughts has not come to any settled view on how best to deal with these issues (and part of the problem may be the use of “one size fits all” clauses on Background IPR) but he is tentatively moving in the direction of thinking that a very limited licence, similar to a “covenant not to sue” approach, may be the right way forward. For example, something along the following lines – but this is not final wording!

The parties acknowledge that the performance of the Project, or the use of Foreground Intellectual Property as contemplated by this Agreement (together, “Permitted Activities”), may infringe a party’s Background Intellectual Property. The Parties’ Principal Investigators have identified in Schedule 1 any significant Background Information that they think will be used in the Project, and any Background Intellectual Property that they are aware of (but without conducting any searches or investigations) which they consider likely to be infringed when conducting Permitted Activities.

If a Party considers that it needs access to another Party’s Background Information or Background Intellectual Property in order to conduct Permitted Activities, it will so notify the other Party and those Parties will discuss in good faith whether such access will be given and on what terms.  Where access is given for research and development activities, it will generally be given without charge.

This wording is work-in-progress, and may well be revised in light of readers’ comments. A key difference from the wording quoted at the beginning of this article is the lack of definite and immediate licences to Background IPR. Sometimes, it will be appropriate to include such licences in the collaboration agreement. But is it right to include them as a default position in a template agreement? IP Draughts is not sure, and would welcome any suggestions.