Oxford case (2): what does fairness mean on IP ownership?

This is the second of five (or more) articles that focus on detailed issues that arise from the judgment in the case of Oxford University Innovation Ltd v Oxford Nanoimaging Ltd [2022] EWHC 3200 (Pat). The previous article discussed the judge’s conclusions that PhD students are consumers in their relationship with their university, and therefore the university has an obligation to treat students fairly.

This article will focus on what the judge said about assessing fairness in the context of a university claiming ownership of IP generated by a student. Later articles will look at the judge’s comments about other aspects of Oxford University’s IP policy, including revenue sharing terms, and whether they were fair.

As previously mentioned, IP Draughts is cherry-picking “headline” comments from the judge that he thinks will interest readers of this blog, rather than going through all of the judge’s careful and detailed reasoning. Readers who have responsibility for compliance with consumer law, eg those updating a university’s IP policy, will wish to read the judge’s detailed comments (or take advice on them).

Paragraph numbers below are those used in the BAILII transcript of the judgment. Comments in quoted text that appear in [colour] are IP Draughts’.

Introduction

Perceived unfairness in university IP terms is a topical theme among university students, and is broader than the legal issue of compliance with consumer protection laws. This theme intersects with the legal issue in two separate places in the following discussion.

Some of the judge’s introductory comments provide a flavour of the legal issues that were argued in the case.

25. ONI contends that, in so far as any relevant invention was made while Mr Jing was a DPhil student, the University’s IP provisions, which are discussed in greater detail below, contravene the Unfair Terms in Consumer Contracts Regulations 1999/2083 (“UTCCRs”) and were not binding on Mr Jing as a result.  [see discussion in previous article]
26. ONI admits that Mr Jing’s DPhil Contract incorporated the University’s ‘IP Statute’, which prima facie operated to vest the relevant 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.

27. This issue therefore requires the court to consider two questions:
(1) Whether, as ONI contends, Mr Jing was, as against the University, a “consumer” within the meaning of regulation 3 of the UTCCRs when he entered into his DPhil Contract; [see discussion in previous article]
(2) Whether the University’s IP Statute (and particular terms of it) were, in the relevant statutory respects, ‘unfair’ within the meaning of regulation 5 of the UTCCRs.

28. In order to succeed with that aspect of the claim, ONI must win on both.

29. ONI’s case has a number of strands but they are broadly these:
(1) A DPhil student is a “consumer” within the meaning of the UTCCRs and there are reasons to treat Mr Jing as such; [see previous article]
(2) The University IP Provisions provided 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 this blanket claim to such rights is too broad to be fair; [see discussion of this subject below]
(3) Assuming that this breadth of claim could be justified, the terms of compensation in respect of these rights are unfairly weighted towards the University and against the DPhil students (and in particular Mr Jing), have inadequate procedures for determining shares of royalty and equity which have operated unjustly in this case and may do in other cases to give Oxford (and other researchers) too much and Mr Jing too little, having regard to their respective contributions. [details to be discussed in a later article]

Wider campaign on fairness

The judge comments that Mr Jing had brought the case as part of a general campaign on the unfair treatment of junior researchers within universities.

81. …I formed the impression that [Mr Jing] may have been less concerned with this case providing increased personal benefit to him than with the wider issue of whether Oxford had been making over broad claims to rights in students’ work they should not have been, making significant sums out of them and inadequately compensating students (or unfairly benefitting other faculty members of the University and investors) as a result of their ability to control the rights and the terms on which they were exploited.
82. I do not think his criticisms of unfair treatment were justified for reasons I explain below at length. In general, academic entrepreneurs at Oxford, including students, especially in the sciences, seemed, on the evidence, to be getting a good deal out of doing their work there and the benefits from or as a result of the University’s IP policies. Nor did I think that his criticisms of the benefit splits between the researchers involved (or the procedure for reaching them) were justified. These have, in any event, since been reviewed.
83. I also thought that Mr Jing exhibited a lack of proportion which affected some of his evidence. He regarded an example of a university acting inappropriately being circumstances such as those in the present case in which the University supported interns and DPhil students in their research work, obtained financial support for them, enabled them to build on the technical work of others in a world-leading department, assisted them in paying for IP protection for their inventions (which might not have existed at all otherwise), formed a spin-out company to share profit from them, allocated them substantial equity in that company on top of a significant royalty stream, assisted them further in obtaining further rounds of investment thereby potentially increasing the value of their shareholding and royalty stream and provided them with a platform for a senior management role.
85. A court must be careful in criticising anyone for challenging IP policies (or any policies which have the effect of vesting rights in institutions) even if their complaints are not justified. It shows a certain determination of mind on Mr Jing’s part to advance this case which is, in a sense, creditable. He came over as having a strong sense of justice, which was focussed more on the alleged over-enrichment of others from work he undertook more than his personal under-enrichment from it. It is moreover a healthy aspect of industrial and general democracy that major institutions, including those of international and/or cultural significance, such as the University, should be called upon to justify their ownership of, distribution and benefit from valuable rights generated as a result of the intelligence, creativity, labour and skill of others, especially if those others are less powerful.

86. …I do not think he can be criticised as such for advancing this kind of argument and casting a burden on the University to justify its position up to this point. Oxford claiming to be entitled to several hundreds of thousands of pounds in royalties alone in significant measure from patents rights to inventions which they accept were substantially created by Mr Jing while an intern and student. It and others to whom the University chose to allocate an equity share have benefitted from that in various ways. Against that background, it is not unreasonable to ask why and how that comes to be justified, even if the individual in question who is raising the issue (and ONI) may also be benefitting significantly.

General approach to fairness vs considering the individual

A theme that runs through the case is the extent to which the university should look at the individual circumstances of the student when determining fairness. IP Draughts has not come to a settled view on this, but his initial reaction is that the judge may have taken an inconsistent approach, in that:

(a) at some places in the judgment, he focuses on the importance of the university having a standard policy that should be fair across the board (eg on general approach to revenue sharing), and yet

(b) in other places, he focuses on the individual circumstances of the student and the project, eg it may be easier to show fairness if the student has prior experience, and if the project is commercially-focused.

IP Draughts may come back to this in a later article, as his thoughts on the case develop.

Fairness of the IP Statute that transferred IP to the university

ONI attacked Oxford’s IP policy on several fronts: on the general issue of fairness, on the wording of the IP policy, and on how it was implemented (both in terms of amounts and on behavioural approach). Ultimately, ONI lost on all of these fronts. The paragraphs quoted below focus on general fairness and the wording of the policy.

224. ONI’s position is that those terms did not bind Mr Jing and did not operate validly to vest the relevant IP rights in the University because those terms were contrary to the UTCCRs. This gives rise to two issues:
…
(2) Was the contract unfair? ONI’s case in summary is that the IP terms of the IP Statute and IP Regulations were unfair within the meaning of the UTCCRs for a range of reasons. These include arguments that those provisions (a) involve a blanket approach as regards the circumstances in which they will be claimed which is too broad; (b) are more favourable to the University than comparable provisions applied at other universities; (c) produce the same results, in terms of ownership and share, irrespective of the actual contributions by those responsible and apply an unfair “one size fits all” approach; and (d) unfairly hinder a student’s right to take legal action or exercise any legal remedy in respect of issues of ownership of intellectual property. Oxford’s case in summary is that terms in the IP Statute and IP Regulations are not unfair because they do not create a significant imbalance to the detriment of Mr Jing and are not contrary to the requirement of good faith. It contends that the terms on their face and as they have operated are favourable to Mr Jing and are in line with those in other academic institutions and, if anything, more favourable than those which would apply to employees engaged in research in industry.

The judge analyses the extensive case law on what amounts to unfairness, though very little of that case law concerned universities. He then applies the case law to the circumstances of a PhD student at a university:

468. Having regard to the general principles set out above, in my view, the unfairness test as it applies to the position in this case can be summarised as follows, adapting the statements from the authorities to the context of a contract with a DPhil student:
(1) The court must consider the effect of the IP terms as part of the contract for educational services as a whole. All of the terms relating to the subject matter in question must be considered.
(2) The impact of the terms must be examined broadly and from both sides.
(3) Account should be taken of whether provisions favouring the university assignee of IP rights may also indirectly serve the interest of the DPhil student assignor, for example by making more readily available student places for research as well as facilities – such as assistance with spin out formation – for exploitation of IP rights as well as significant benefits from their exploitation.
(4) In considering whether a term in a DPhil student’s contract causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the student, the court should have particular regard to what the position would be in the absence of the term. One factor is what rules of national law would apply in the absence of the terms but that is not the only relevant comparator in a case of this kind. In particular, it can be appropriate to consider what the position may be under the IP terms in contracts with individuals making contributions to research with similar characteristics (such as contracts of employment of post-doctoral students or other researchers and others in industry) in so far as they are regulated by national law and the position in other institutions of a similar kind.
(5) As to “good faith” the court must consider whether the IP terms deliberately or unconsciously take advantage of a DPhil student’s indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position and other similar circumstances.
(6) The test as a whole involves deciding whether the IP terms depart conspicuously from an average generally informed and reasonably attentive consumer’s legitimate expectations as to the content of a DPhil contract of this kind, whether such contractual terms are common, or are surprising, whether there is an objective reason for the significant imbalance to the consumer’s detriment in the IP terms.
(7) One important factor is whether the university could reasonably assume that the DPhil student would have agreed such a term in individual contract negotiations. A relevant factor in this evaluation is the extent to which the terms in question have been regarded as significantly unfair or has operated to create unfairness by others who are also subject to them.

The judge then turns to the detail of the IP ownership terms in Oxford’s policy. One aspect of the Oxford IP policy caused him concern. This was the wording of clause 5(1)(b) of the policy, which claimed ownership of student IP that was generated “in the course of or incidentally to their studies”. This wording was out of line with other universities’ IP policies, and the judge thought it had the potential to be unfair.

Readers who look at the annex to the judgment will see the text of the policy, together with revisions that Oxford later made. In the later version, the problematic phrase is deleted and replaced with the words “only in the circumstances specified in subsection (3) below”. Subsection (3) is new, and lists five scenarios in which the university claims ownership.

The judge notes that although the original wording was broad in scope, Oxford didn’t apply the wording as broadly as the wording permitted.

The judgment explains why Oxford changed the wording of the policy.

485. The new IP Provisions were made following extensive discussions in the Intellectual Property Advisory Group (“IPAG”) triggered by concerns expressed by students as to the scope of student-created IP. These were discussed, inter alia, at an IPAG meeting on 9 November 2017.
486. Some of these discussions cast light of how the University itself regarded the (old) IP Provisions and their potential effect. The confidential minutes of that meeting record the fact that the (old) clause 5 of the IP Provisions (which employed the language “by student members in the course of or incidentally to their studies”) causes “most difficulty for students”. The IPAG, which was composed inter alia of senior professors and other academics in a number of departments, is recorded as having a general understanding that students own their IP unless it fell into one of three exclusions (“when supported by internal/external funding, or made extensive use of University equipment or facilities, or joint development with another member of the University”).
487. The Chair of the group proposed a change to the wording to state “what 5(1)(b) actually means and to remove incidentally to”. I think what was meant by “what 5(1)(b) actually means” in this document meant “what the University has treated 5(1)(b) as applying to” rather than saying that this was what, as a matter of pure language, it actually meant.
488. An amendment was proposed which (in essence) involved providing guidance as to what the statute was understood to apply, to with a view to amendment in the longer term. Dr Gibbs says that these new terms were “not intended to alter the University’s practice or policy in any way but instead to reflect more accurately the policy as it was understood and applied by IPAG (and the University)”.

The judge is critical of the older wording, but concludes that it didn’t cause the university’s treatment of Mr Jing to be unfair. He has various reasons for deciding this, including how Oxford implemented the policy, and that Mr Jing’s IP would have been caught by the (fairer) wording used by other universities. He concludes

639. For the reasons given, with the exception of the term in the IP Provisions (in clause 5) which was over broad in claiming rights in IP created by students (considered above) which was capable of creating an imbalance to the detriment of a student, none of the provisions in the IP Provisions did so and the imbalance created by that provision was not significant.

640. In any event, the IP Provisions satisfied the requirements of good faith. The IP Provisions are not contrary to the UTCCRs or the UCTD and are not void.

In IP Draughts’ mind, this discussion raises several points:

(1) He has seen some university IP policies that are very broad in scope, or which do not appear to have been reviewed by an IP lawyer. Instead, they seem to have emerged from high-level discussions, eg with union representatives.

(2) He has also seen student discussion on social media about university IP policies that the students consider to be against their interests, eg in relation to computer games.

(3) The judge’s comments case illustrates the need to draft/review IP policies with great care, both from a policy and a drafting or “pure language” perspective. IP Draughts recommends that a specialist, transactional IP lawyer should be involved in any updating of such policies.

Concluding remarks

IP Draughts is more familiar with the issue of fairness in relation to a company’s standard terms of business with its (consumer) customers. In that context, much thought needs to be given to adapting terms that might be thought unobjectionable in a business-to-business contract so that they are fair to a consumer. Over the years, the regulator (originally the OFT, now the CMA) has given guidance on what terms are acceptable.Terms such as narrow warranties, short time limits for claims, strict caps on liability, indemnities to be given by a customer, and the like, usually have to be omitted. The language of the contract has to be simple. Consumer contracts look very different to B2B contracts.

The judge in this case was persuaded that the university’s approach was fair, but another judge might take a more critical view. By way of analogy, there is a traditional judicial approach to assessing the enforceability of liability and entire agreement clauses, which rejects them entirely if there is any scenario in which they would be unenforceable. Although the judge in this case was not considering clauses of that kind, he took what might be considered a generous interpretative approach in saying that the wording of Oxford’s IP policy, though too broad and potentially unfair, was fair in the way in which it was administered. Oxford should give a large bonus to Dr Mairi Gibbs, then Head of Operations at OUI and now Chief Operating Officer, for her evidence and demeanour in the witness box, which seems to have helped Oxford to win the case. As the judge put it: “[she] gave helpful evidence on OUI and the University’s IP Provisions. She was a very good witness whose evidence was not seriously challenged in any material respect, still less undermined.”

This case should focus the minds of university policy makers on making their IP policies clear, accurate and fair. This requires specialist drafting skills as well as knowledge of consumer and IP laws. Muddling through, in the way that some universities seem to have done, will not be enough.

The next article in this series will focus on the patent law issues that are discussed in the Oxford case, and in particular whether a university cmployee’s duties include the making of inventions.