Recent reports have suggested that businesses partnering with universities for grant funding under Australia’s $2.2 billion University Research Commercialisation Package will be required to agree to standard-form contracts with mandatory intellectual property (IP) retention clauses they may not like. Is this correct? What do these contracts do, what IP retention is required, and will this stifle the attractiveness of the program from the private sector perspective?
Moulis Legal special counsel Lucinda Watson and paralegal Adam Lukacs investigate the Australian Government’s proposals in this important area of research commercialisation and the all-important IP that makes it happen.
Navigating the ‘valley of death’ between idea and realisation
On 1 February this year, Australia’s Department of Education, Skills and Employment announced a $2.2 billion dollar policy to promote research and improve the commercialisation of the results. Most of the money is going towards an ‘economic accelerator’, a $1.6 billion competitive program to encourage partnerships between businesses and universities to move early-stage research to market actualisation. Studies have drawn attention to the all-too-frequent fact that good ideas fail to get off the intellectual drawing board because of risk aversion, lack of communication between the private sector and the education sector, and failures of each side to understand the other. Referred to by some as the ‘valley of death’ between idea and realisation, the accelerator program intends to give business and the research industry the capacity and the time, through increased public investment, to overcome these barriers.
Cutting-edge industry focus aligned to Australia’s economic needs and strengths
The economic accelerator program will operate as a priority-driven grant program supporting projects in the fields of medicine, food and beverage, space, defence, resource extraction technology and critical minerals processing, and recycling and clean energy. The Department has made clear that the program will ensure that government research investment is ‘focused in sectors where Australian research can build scale and have real-world impact’.
Mandatory form contracts…
Parties seeking funding from the economic accelerator program are required to enter into template IP agreements that have been prepared by the Department. There are 12 template agreements, each designed for use in different circumstances. The agreement required to be used depends on factors such as the type and value of the project and the number of parties involved.
For instance, where a private company and a university seek to engage in mutual research, they should make use of the ‘Research Agreement’. If a company wants to use a university’s IP to create its own product, the parties will use a ‘Non-Exclusive Licence’, ‘Exclusive Licence’ or ‘Assignment Agreement’. For product testing services, the parties will have to make use of a ‘Technical Services Agreement’. In all cases where confidential information needs to be disclosed as part of negotiations, a ‘Mutual Confidentiality Agreement’ will be appropriate.
There are ‘standard’ form and ‘accelerated’ form examples of each, with the former being appropriate for complex and higher risk projects, and the latter for lower risk projects that require less negotiation.
The legal basis for the accelerator program is contained in the Higher Education Support Amendment (Australia’s Economic Accelerator) Bill 2022. The Bill, once it becomes law, will create legislative authority for the Minister to hand out grants, in line with the requirements of the Other Grants Guidelines (Research) 2017. The mandated IP agreements, which will be included in the Guidelines, and not the Act itself, will be part and parcel of this legislative framework.
…with flexible IP right choices permitted
However, even though the parties must have a legal agreement, answering the description of the mandatory templates, they retain the ability to:
- decide the party in whom the IP rights in the results of the project will vest;
- vary their choice as to which of them will have the first right to commercialise IP rights in the results of the project.
Further, although the agreements make it clear that businesses must pay universities a fee for their contribution, the specific amount is allowed to be determined by the parties.
What is mandated with respect to apportioning IP rights and obligations is as you would expect – a university must grant a royalty-free, world-wide, non-exclusive licence to their business partner to use pre-existing IP rights in the project’s results to the extent necessary for the business to exercise its rights to the results for the project’s purpose, and a business must grant a similar licence to its IP to its university partner to the extent necessary to carry out the project.
Despite IP autonomy, inflexibility concerns persist
Concerns persist that any particular ‘mandated’ agreement may not be able to accommodate complex and unique situations for each university-business partnership, and that parties will become stuck with suboptimal relationships. How this will be resolved is not clear. On one view, it should not be difficult for the Department to release the shackles on template agreements in the same way as it has done so with the IP clauses they contain. The other view, however, is that the risk of wasting public money without strong supervision of contractual relations by the Department is too great. Will the Department go so far as to allow contractual flexibility, and retain some kind of power to review and approve contracts before advancing any funds? The latter seems unlikely, given the huge number of research commercialisation contracts expected to be transacted. A submission in the public consultation process concerning the Bill from the ‘Group of Eight’ (Australia’s top eight universities) suggested that some institutions were entering into 3,000 to 4,000 such agreements every year, with the number expected to increase massively once the new funding comes on stream.
Public funding and IP rights – a potentially dangerous crossroad
It is critical for governments and their agencies to maximise the policy outcomes that they seek to gain from any and every contract they enter into. That outcome first needs to be identified and articulated, then negotiated and described in a contract that supports the outcome.
The University Research Commercialisation Package and its ‘economic accelerator program’ spotlights the importance the government places on getting ‘value for money’ when spending public funds. The administrative arrangements do their best to provide guidance to the parties and to ensure contractual legitimacy. But not everything can be controlled, and the Department would repress the very inventiveness it is trying to encourage if it were to mandate ‘cookie cutter’ terms and conditions and unchangeable IP retention rights in the transaction documents it issues.
Legal counsel on the private sector and university sides of any research commercialisation transaction has the important task of not only advancing their client’s interests but also being cognisant of the wider public interest. A failure to comply with the mandated agreements to an appropriate extent may well rebound on institutions and the business involved, in the sense of government disapproval and the denial of future grants. It is the ‘appropriate extent’ that parties will have to get right.
Proper agreements ensure basic accountability
A proper balance in the retention and exploitation of IP rights when public money is being spent is an important issue that parties need to consider when crafting contractual arrangements for the commercialisation of IP. Research collaboration between business and universities can produce amazing success, such as the partnership between CSL and the University of Queensland for COVID-19 vaccine clinical trials. Strong, clearly worded contracts are essential.
In our view, concerns that parties engaging in ‘economic accelerator program’ research projects will not have adequate contractual freedom have been overstated. The way in which IP rights can be retained and attributed under the relevant contracts is more flexible than the way it has been reported in some quarters. The template agreements remind legal counsel on both sides to make sure they properly cover the legal issues involved, assisting them to keep their clients out of destructive litigation, and in the government’s good books when it comes to future funding.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2022