Background IP – a minefield?

backgroundThis blog has previously discussed the subject of Background IP, which is often a defined term in research agreements. Sometimes, parties get stuck in negotiations over the extent to which Background IP is to be licensed under the agreement.

IP Draughts has two main concerns about this subject:

  1. The parties are often vague about whether there is any background IP, and whether it is available for license. Clauses dealing with background IP become theoretical, a tick-box exercise, rather than an immediate commercial concern.
  2. The chances of valuable foreground IP (as distinct from useful results) being generated under a research contract are sometimes low. The likelihood that it will be necessary to secure rights to background IP are even lower.

An important concern in many research contracts is who will own, who can use, and who will benefit financially from, any IP in the results of the research (commonly defined as foreground IP). The owner of the foreground IP will typically want to avoid a situation arising where they cannot commercialise the foreground IP because, in doing so, they will infringe another contracting party’s background IP. The other contract party may be willing to license its background IP if it is available (e.g. it has not been exclusively licensed elsewhere). Hence the clause dealing with background IP. For simplicity, this article will assume that there are only two parties to the contract; in practice, many research agreements have more than two parties.

A typical background IP clause may say that a defined category of background IP is non-exclusively licensed to the owner of the foreground IP, where the use of the foreground IP would otherwise infringe the background IP.

(There is another type of clause, which licenses background IP for the purposes of performing the research under the contract. IP Draughts thinks that type of clause is mostly a waste of ink, as the chances of a contracting party suing the other party for infringement of background IP in the performance of the agreed research seem vanishingly small. But that is not today’s subject.)

Coming back to the licence of background IP for commercialisation, which IP is typically covered by this licence? For this, we need to consider the definition of background IP. Unfortunately, the template agreements that parties use for research contracts have different, and inconsistent definitions.

The Brunswick collaboration agreement defines Background IP as:

  • All Intellectual Property used in connection with the Project which has been generated prior to or outside the scope of the Project (“Background IP”) shall remain the property of the Party contributing the same.

The Lambert agreements define Background as follows:

  • “Background”: information, data, techniques, Know-how, inventions, discoveries, software and materials (regardless of the form or medium in which they are disclosed or stored) which are provided by one Party (whether belonging to that Party or to a third party) to the other Party for use in the Project, and whether before or after the date of this Agreement, except any Result;

The European Commission’s Horizon 2020 Grant Agreement defines Background as follows:

  • ‘Background’ means any tangible or intangible input — from data to know-how, information or rights — that exists before the GA is signed and that is needed to implement the action or to exploit its results.

Each of these definitions has a slightly different focus, in that some are concerned with information rather than the IP that protects the information. Leaving that aside, an important question of principle is whether the background IP licences should relate to one of more of the following:

  1. IP in background information that was provided by one party to the other for use in the contract. (Let’s call the owner or provider of background information or background IP, the “Background Owner”.)
  2. Background IP that the Background Owner has itself used in the performance of the contract research. Depending on the definition of Background, this might mean use of information, or infringement of IP.
  3. Background IP that another party has used in the performance of the contract research.
  4. Background IP that will be infringed when the results of the research are commercialised. In other words a commercial licence will be needed (to use the Framework wording above). This may be further broken down into (a) where the parties realise at the outset that such a licence will be needed, or (b) where they don’t realise, perhaps because no-one is thinking hard about these issues.

It is not clear to IP Draughts why a commercial licence to use Background IP should depend on whether that IP was “provided” in the course of the research, or on whether that IP was “used” in the course of the research. These points seem of marginal relevance, unless the intention is to limit the scope of the licence. From the perspective of the owner of the foreground IP, the background IP licence should be broad rather than narrow. But from the Background Owner’s perspective, granting a broad right when you don’t even know which IP is involved seems a risky strategy.

In most of the research contracts with which IP Draughts has been involved, the parties don’t consider carefully what background IP exists, whether it is available for licence, and what commercial terms, if any, should apply to that licence. Instead they come up with vague wording, such as the following which appears in the long-form Brunswick agreement:

If the Lead Exploitation Party requires the use of Background IP of any other Party (the “Other Party”) in order to exercise its rights in the Results then, provided the Other Party is free to license the Background IP in question, the Other Party will not unreasonably refuse to grant or delay granting a licence to the Lead Exploitation Party so that the Lead Exploitation Party may use such Background IP for the purpose of exercising its rights in the Results.

This wording doesn’t state whether the licence may be subject to commercial terms such as royalties.

By contrast, certain terms of research funding of the UK Department of Health and Social Care including the following provision:

The Contractor shall make available the Contractor Background IP that is necessary and/or useful for undertaking the Research…

Where such Contractor Background is unencumbered by third party rights, the Contractor shall licence or assign the Contractor Background IP to a nominee of the Authority’s choosing free of charge, in all other cases, such licence or assignment shall be made on fair and reasonable terms.

In this case, the definitions of Contractor Background IP, and Background IP, include the requirement that the IP in question is “used in the performance of the Research”. Although the first paragraph from the DHSC terms quoted above is slightly circular (see definition of Background IP), it too is definitionally focused on the stage of the research, rather than downstream commercialisation. The second paragraph – the scope of the licence – may be broader.

Other funding terms vary as to how they deal with background IP.

IP Draughts comes back to the question, when is background IP “used” in the performance of research. Logically, this seems to refer to use of information – e.g. a particular scientific technique – in respect of which a party owns a patent or other IP.

He finds the different drafting approaches to this issue mind-boggling. Provided, used and needed don’t mean the same thing, and information is not the same as intellectual property.

Is there a single, clear, fair, straightforward solution to this problem? Perhaps not, if the background IP clause is inserted without considering which IP it might “bite” on. Perhaps the vague approach of the Brunswick agreement is the least-worst option in the context of university research collaborations. For commercial services agreements in a B2B context, a customer might well prefer something stronger.


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