Severable improvements to IP

watermelon-corer

Severable watermelon corer, apparently

It has become popular to include references to “non-severable improvements” in research contracts. Typically, the contract will state who owns any IP generated under the agreement. But the parties want different ownership rules to apply if the new IP is a “non-severable improvement” to a party’s pre-existing, or “background” IP.

Consider, for example, the following terms in the Brunswick long-form collaboration agreement. Versions of this agreement are often used by UK universities for inter-university collaborations. Clause 8.2 includes the following provision:

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 Parties agree that any improvements or modifications to a Party’s Background IP arising from the Project which are not severable from that Background IP will be deemed to form part of that Party’s Background IP and be owned by that Party.

This is the only place in the agreement that the word “severable” is used, and the term is not defined. So, we must rely on any general understanding of what this term (or its opposite, non-severable) means, when interpreting the provision.

Some universities’ template agreements include a definition. For example, IP Draughts discovered this agreement from the University of Sheffield, when he conducted a quick internet search. The agreement is a licence agreement rather than a research contract, but it is helpful for having this definition:

Non-Severable Improvements: any Improvement which if used or practiced without licence from the Licensor would infringe any Intellectual Property Rights in the Software and/or Information.

In a research contract setting, a severable improvement might be defined as an improvement to a party’s background IP that can be used without infringing that background IP.

It is troubling to IP Draughts that people in the sector are using these terms but sometimes not defining them, as though everyone knows what they mean. But do they? We are dealing with a rather technical, legal point.

IP Draughts first encountered this issue in the context of EU competition laws, and in particular old versions – no longer in force – of the Technology Transfer Block Exemption Regulation. Article 5 of the regulation might be described as a “grey list” – a list of clauses in licence agreements that the European Commission’s Antitrust Division is not happy about, but which are not as bad as the “black listed” or “hardcore” clauses that appear earlier in the regulation. Including hardcore clauses is very likely to be a breach of Article 101 of the EU Treaty, and potentially leads to fines, unenforceability of the agreement, and claims for damages by affected third parties. Including a grey-listed clause runs these risks, but the risks are considered lower than in the case of hardcore clauses, and parties may be able to justify the inclusion of grey clauses in appropriate circumstances.

Article 5 of the regulation includes a provision that “grey lists” obligations on a licensee to assign or exclusively license to the licensor any improvements to the licensed IP made by the licensee. Essentially, the European Commission thinks such provisions may be anticompetitive if they prevent the licensee from competing with the licensor with respect to such improvements.

For several decades, Article 5 distinguished between severable and non-severable improvements. Non-severable improvements are considered to present much less of a competition issue, as they can’t be used without infringing the original IP. For example, the 2004 version of the regulation included the following definition and terms:

Article 1(1)(n): ‘severable improvement’ means an improvement that can be exploited without infringing the licensed technology

Article 5(1)(a): The exemption provided for in Article 2 shall not apply to any of the following obligations contained in technology transfer agreements:
(a) any direct or indirect obligation on the licensee to grant an exclusive licence to the licensor or to a third party designated by the licensor in respect of its own severable improvements to or its own new applications of the licensed technology; [emphasis added]

By the time of the current, 2014 version of the regulation, the European Commission had toughened up its thinking. There is no reference to severable improvements, and Article 5(1)(a) simply reads:

Article 5(1)(a): The exemption provided for in Article 2 shall not apply to any of the following obligations contained in technology transfer agreements:
(a) any direct or indirect obligation on the licensee to grant an exclusive licence or to assign rights, in whole or in part, to the licensor or to a third party designated by the licensor in respect of its own improvements to, or its own new appli­cations of, the licensed technology;

IP Draughts’ working hypothesis is that the concept of severable improvements originated in the Technology Transfer Regulation; he had not come across it outside the regulation, until recently.

It seems strange that the legal concept is no longer used in its original form, but has migrated into the practice of university contracts managers in respect of a different type of contract – research contracts rather than licence agreements. By endorsing and using the Brunswick agreement, the sector appears to consider that the term is so obvious in its meaning that it doesn’t need to be defined.

IP Draughts is troubled by this assumption. Just because an expression has become part of a professional jargon, it doesn’t mean that the meaning is universally understood. Familiarity breeds lazy assumptions. He would prefer to see the term defined, whenever it is used in a contract.

This is not his only reservation about the Brunswick agreement, or about other industry-standard agreements (e.g. the DESCA collaboration agreement, or UK funding terms). He thinks people in the sector should be investing more time and money in getting the wording as good as it can be.

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