Oxford University’s IP Policy put under the microscope as High Court considers questions of fairness

As part of a novel defence to a claim for unpaid royalties relating to the use of IP rights in a specialised microscope, the High Court has recently considered the effect of consumer protection law on a university’s IP policy. Whilst it found that undergraduates and DPhil students are “consumers”, Oxford’s IP Policy was found not to be unfair and was therefore effective to transfer IP rights to the University.

This decision will be of particular importance for those in the life sciences sector who are in the habit of collaborating, or otherwise dealing, with universities or university spin-outs. Whilst Oxford’s IP Policy passed the test, others might not, and that could have serious implications for life sciences businesses that are involved in commercialising the fruits of university research.

Factual background                                    

The dispute before the court primarily related to a claim by Oxford University Innovation Limited (“OUI”) against Oxford Nanoimaging Limited (“ONI”) for unpaid royalties under a licence agreement. The licence related to IP rights in a specialised microscope which had been commercialised by ONI as the “Nanoimager”.

The Nanoimager was developed in the laboratory of an Oxford Professor, but the bulk of the detailed development work which led to the licensed patents in issue being granted was carried out by an individual called Mr Bo Jing. During the relevant period of development, Mr Jing was first employed by the University as a research intern and then worked as a DPhil researcher. Prior to starting each of those roles, Mr Jing signed up to terms which, on their face, made it clear that any IP rights he created whilst working for the University would be owned by the University.

OUI is the technology transfer arm of Oxford University. Its role includes working with University researchers to identify and protect IP, and to commercialise it through licensing and the creation of spin-out companies. ONI was one such company that was spun out of the University, for the specific purpose of commercialising the Nanoimager under the terms of a licence from OUI.

ONI did not dispute that it hadn’t paid its royalties under that licence. However, it sought to defend itself by arguing that the licence was void for common mistake because, at all material times, it was Mr Jing, not OUI, who was entitled to own the IP licensed under the agreement. OUI and ONI had made a fundamental mistake in assuming that OUI owned the licensed patents.

The issues at trial

The main issues at trial were divided into two broad areas, reflecting the two different roles that Mr Jing had performed during the relevant period:

• First, during the period that Mr Jing was employed by the University as a research intern, did section 39 of the Patents Act operate to vest the licensed patents in the University?
• Second, what was the effect (if any) of the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCRs”) on the University’s IP regime vis-à-vis Mr Jing as a DPhil student?

High Court decision

Section 39 of the Patents Act

The court dealt swiftly with the first issue relating to ownership of employee inventions under s.39. Acknowledging that this is an area of law that has been well covered by previous decisions, the main question the court had to determine was whether there had been a “reasonable expectation” that an invention might result from Mr Jing carrying out his duties as an employed intern. The court found that there had been that expectation. It was clear from the facts that Mr Jing had been employed to innovate and to help develop a new, specialised microscope. The court dismissed as irrelevant ONI’s counterarguments relying on Mr Jing’s low status in the University, his youth and relative lack of qualifications and experience, and the modest amount he was paid for the work. The University (as employer) was therefore entitled to any IP Mr Jing (as employee) developed in the course of his internship.

Impact of consumer protection law

The second issue was more complicated. The question of whether the UTCCRs could apply to the terms of a university’s IP policy is not something the English courts had considered before and so this had to be assessed from first principles.

The first question the court considered was whether Mr Jing (as a DPhil student) was a “consumer”.  The court found that he was. Whilst not as clear cut as the position of an employee (who is not a consumer) and an undergraduate (who is), the court concluded that DPhil students are more similar to undergraduates than employees and so should normally be treated as consumers. Mr Jing’s situation was no different.

The court did, however, acknowledge that some aspects of Mr Jing’s situation - such as the fact that he changed his status from an employee (as research intern) to a consumer (as DPhil student) during the relevant period and that his DPhil was fully funded - were relevant to the question of whether the IP terms imposed on him were unfair under the UTCCRs.

Whether or not Oxford’s IP policy was unfair depended on two key factors: (i) whether the IP provisions as a whole caused a significant imbalance between the University and Mr Jing, to Mr Jing’s detriment; and (ii) whether those terms were contrary to the requirement of good faith.

The court found there was no significant imbalance. Whilst Oxford’s IP Policy required Mr Jing to transfer his IP rights to the University, in return he became a 25% shareholder in ONI and was entitled to significant ongoing royalties (which could run to hundreds of thousands of pounds). He also later became ONI’s CEO. These terms were reasonable in the court’s opinion and at least as favourable as he might have received in other circumstances (e.g. if Mr Jing had been a post-doctoral employee or employed to design a similar microscope in a commercial setting).

The terms were also found to have been made in good faith. They didn’t obviously depart from what one would expect and were seen by the court as a good faith attempt to balance the University’s interests with those of its students.

The effect of all this was that Mr Jing’s IP rights in the Nanoimager had been validly transferred to OUI. There was therefore no mistake, the licence was valid, and ONI had to pay the outstanding royalties.

Comment

This is the first time consumer protection law has been applied in the UK in this context. Whilst it wasn’t determinative in this case, it does raise an additional consideration for life sciences companies who collaborate, or otherwise deal, with universities or university spin-outs to think about. Balancing the rights of universities with those of their researchers and students isn’t straightforward and, whilst Oxford University look to have got the balance right in this case, other universities might not. Those involved in the life sciences industry who are working or collaborating with universities or spin-outs, or looking to invest in or acquire such spin outs or their related IP, may therefore wish to consider the terms of any relevant university IP policies as part of their due diligence before entering into such arrangements. Whilst there is no bright line rule as to whether a particular IP policy oversteps the mark, the very comprehensive judgment in this case provides some helpful pointers.

A version of this article was originally published in the Healthcare & Life Sciences Newsletter of the International Law Office - www.lexology.com/commentary