University IP and Fair Shares: What's Not to Like?

A long time ago, while I was working as a post-doctoral researcher, I invented a thing. It is not important what that thing is (but you can check here if you're interested). What was important is that it was of commercial interest to a company I was working with at the time. The company came to an agreement with the university and bought the IP rights, which was primarily the invention itself. A while later I went to work for the company to help them develop the invention, from which many other patent applications followed. This was interesting for a while until I got distracted by the IP aspects of the work and switched to becoming a patent attorney. The invention therefore, in a roundabout way, led to my change of career, which has turned out quite well so far. 

Without going into too much detail, a key aspect of the change of career turned out to relate to the contractual terms at the university that specified how much was given to the inventor(s) and how much the university got from proceeds relating to an invention. The share at the time, which was decided at the university level, was that the university's commercial arm would take an initial cut and the rest would be divided between the relevant university department and the inventor(s). Since I was the sole named university inventor on the patent application, the inventor share was all mine. At the time, it did not occur to me to think that the share was in any way unfair, as I thought it was quite generous. I was after all employed by the university, so whatever I did on work time was understood to belong to the university. If I were to be working for a private company I would not expect to receive any share of the proceeds, particularly if I was employed in a position where it was not unreasonable to expect that an invention might come up at some point. The deal therefore seemed to me to be a fair way to compensate those who might come up with something commercially useful, perhaps partly because those working at a university might not be paid as well as those in the private sector.

The ONI nanoimager: literally a black box.

It turns out, however, that not all university researchers felt the same way as me, as I found by reading the recent decision in the case of Oxford University Innovation Limited v Oxford Nanoimaging Limited [2022] EWHC 3200 (Pat), which issued just before Christmas. The decision is extremely long winded, running to 651 paragraphs (177 pages in the pdf version). The case, however, is actually relatively simple and deals with two key points. The first is the issue of whether an invention should be owned by an employer under Section 39, while the second (which takes up the bulk of the judgment) deals with whether a contractual agreement between a lowly researcher and a University employer is unfair pursuant to the European Directive on Unfair Terms in Consumer Contracts, 93/13/EEC (the UTCD). 

What's inside the black box?

The story started with a talented researcher named Jing Bo (Mr Jing), who went to work at the University of Oxford in 2012 to help develop a new microscope. Mr Jing invented an improved version of a microscope that researchers at the University had been working on. Two patent applications covering the new microscope were applied for, the first one published as WO 2015/059842 A1 (see Fig. 2 of the application here) and the second as WO 2016/170370 A2. 

The microscope was considered to be of sufficient commercial potential that a spin-out company was formed, Oxford Nanoimaging Limited. In line with the University's usual terms, ONI was set up so that the inventors (Mr Jing and two others from the University research group) owned 50% of the shares and the University owned the other 50%. Any royalties paid were also arranged to be distributed so that both the University and the inventors received a share. The company, with Mr Jing working first as CTO and then as CEO, turned out to be quite successful and royalties started to come in. At that point, you might imagine all would seem well. The University would be justified in getting their share of the proceeds and the inventors too, with Mr Jing being in his position due largely to being the right person in the right place at the right time to take advantage. 

In 2019, however, ONI, under Mr Jing's charge, stopped paying royalties to the University. By 2021 the amount owed to the University stood at over £700k (and has increased since). The dispute between ONI and the University (or more specifically its commercial arm, Oxford University Innovations Limited, or OUI) was that Mr Jing challenged the University's right to own the inventions under Section 39 of the UK Patents Act and also challenged the terms of the contract agreed to by Mr Jing while working at the University as being unfair due to the status of the parties being unbalanced at the time. 

Section 39 states that "an invention made by an employee shall [...] belong to his employer [...] if it was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties". Mr Jing argued that he was a lowly researcher, who was paid very little at the time of coming up with the invention, and should not therefore have his invention owned by the University because it was not reasonable to expect that an invention might result from his employment. A problem with this argument, however, was that Mr Jing did a very successful job at selling himself to the University to get the position in the first place, providing references that described him as someone who "thinks very logically and analytically" and was "skilled at solving technical problems". Mr Jing was indeed not paid very much, but the judge found that he was engaged to work on a potentially exciting project and he was an experienced researcher who was expected to do valuable work on the microscope project. It was therefore clear that an invention could reasonably have been expected to arise (see paragraphs 211-212). The judge also considered that "The pay of an employee was not a relevant consideration under s.39 if, because of their duties and characteristics, invention would be expected from them" (para 213). 

From a patent law perspective therefore, the decision seems uncontroversial. I would have been very surprised had the judge found any differently. Even though there are few precedents, the principle is clear: if you are paid to invent then the invention belongs to your employer. Considerations beyond this that go into whether the amount paid was not enough to justify ownership of any inventions is not for a court to decide. 

The other point is of less interest to me as a patent professional, but has some interest from a personal perspective, having been in a similar position to Mr Jing while at another university. I will not even attempt to summarise the legal analysis in the judgment, which runs to over 400 paragraphs. The gist, however, is that Mr Jing, while working as a DPhil student (which followed a short period of employment during which he came up with the first microscope invention), should have been treated as a "consumer" within the meaning of the UCTD and the University should have treated him as such. The terms of the contractual agreement, however, as noted briefly above, were not unfair and the positions of the parties were not unbalanced. Indeed, the terms were much better than any employee working for a private company could have expected to get. As the judge found, the University's "general benefit sharing policies were not out of line with those of other institutions when the issue is properly examined, including with regard to the scope for differences in reasonable policy choices the University could make" (para 559). There was no unfairness in the way the University allocated benefits under its IP Provisions as between researchers and the University, including as to share of royalties and equity. Those most involved in the project received substantial equity shares and royalties and the University, supporting the work, ensured that the benefits were spread more widely. This was not unfair but instead, as the judge noted, "the reasonable response to such a scenario is not a complaint but: 'what's not to like?'" (para 562). 

In summary, it seems that the case does not set any new tests or guidance regarding University inventions or how proceeds from such inventions should be handled. Instead, it in effect largely confirms that what Universities have generally been doing for a long while is quite fair, if not generous, and there really is no need to complain if you are or were a University researcher and your invention becomes successful. A small share in something very big is, after all, better than a big share of nothing at all. 

Intransigent Inventors and Switching Sides

I wrote a while back about a case involving inventors refusing to sign forms for a US application. In that case, the application had been assigned to another company after the original applicant went bust. The inventors, who were directors of the original applicant company, unsurprisingly became uncooperative once the new applicant took over, and refused to sign declaration and assignment documents for a subsequent US application. The case was resolved by a UK IPO hearing officer deciding in favour of the new applicant because the original intention was to have the application to proceed in the name of the company and not the inventors. It undoubtedly helped the new applicant's case, however, that neither inventor filed anything in their defence, which resulted in the claimant's case being considered to be supported (according to Rule 77(9)).

As I mentioned at the time, cases relating to entitlement under section 12 (relating to foreign and international patents and applications) do not come up very often. I was therefore interested to see that another one was decided last month. This was the case of University of Warwick v Dr Geoffrey Diamond, published as BL O/518/15. The case concerned US application 12/306,505, which happens to have been recently allowed by the USPTO, although the UK proceedings were initiated over two years ago while the application was undergoing examination.

The issue related, as before, to an inventor refusing to sign declaration and assignment documents for the US application. The application identified three inventors, two of whom were cooperative. Dr Diamond, however, refused to sign. Unlike in the earlier case, he contested the claim, and argued that the University had no right to his contribution to the invention. Instead, he argued that his contribution belonged to a company, G-Tronix, which had been spun out from the University and at one point had all of the inventors listed as directors but by the time the proceedings were issued had only Dr Diamond as director (and has now been dissolved).

By the time the hearing took place in June this year, it appears that Dr Diamond had caused the University a great deal of difficulty (and, presumably, expense), having caused the hearing officer at the IPO to issue two preliminary decisions (BL O/208/14 and BL O/225/15), one of which Dr Diamond appealed to the High Court (and had struck out). The argument was largely about whether Dr Diamond was, at the time the invention was made, employed by the University in a capacity where section 39 would indicate that the invention belonged to the University. Dr Diamond argued that he was not, although his arguments were somewhat confused and contradictory. He initially argued that he was employed by G-Tronix but, when cross-examined, said that this was a "slip of the pen". He was also quite vague about how early prototypes of the invention were developed, even though he claimed that they were developed in his workshop at home, and did not appear to have any knowledge of how some of the figures in the patent application were prepared, even though they formed a key aspect of the invention. The hearing officer found Dr Diamond to be unconvincing and not a credible or reliable witness, although did not go so far as to find him dishonest.

You might think that this would fatally damage Dr Diamond's case, but you would be wrong. Since the proceedings were initiated by the University, it was down to them to establish that they were entitled to the invention, and not for Dr Diamond to prove that he was instead. Unfortunately for the University, they failed to do this to the hearing officer's satisfaction. Even though the hearing officer was fairly sure that the invention was made before the inventors became directors of G-Tronix, and Dr Diamond was working with the other inventors at the time, the evidence of whether the invention was made in the course of Dr Diamond's normal duties was not particularly strong on either side and the claimant had failed to show that the invention belonged to them. This left the US application having to proceed in joint names, and presumably with neither side being particularly happy about the outcome.

The moral of the tale in my previous story about section 12 proceedings was that it was sometimes necessary to use a sledgehammer to crack a nut. This time though, to extend the metaphor a bit further, I would say that if you need to use a sledgehammer you should make pretty sure that you have a good one as sometime the nut can be more difficult to crack than you first thought.

As a postscript, while looking through the prosecution files for the family of applications relating to the one in question, I noticed something odd. The US application forms part of a family that includes international application PCT/GB07/050368, which was published as WO 2008/001141. This entered the European regional phase in January 2009 as European application number 07733789.7. In the decision the hearing officer mentioned a few times the patent attorney who was responsible for the PCT application, who Dr Diamond had met and apparently liaised closely with for preparation of the application. This same patent attorney was also responsible for making a request for the application to enter the European regional phase, as evidenced by his electronic signature on the request form. The next year, however, in July 2010 the EP register shows a change of representation, with another representative from the same association of patent attorneys becoming responsible. This is all fairly standard, as representatives change fairly often and responsibilities for applications can change. What happened afterwards, however, was not normal. Only three months later, in October 2010, third party observations were filed, attacking the validity of the application. These were prepared and filed by the same attorney who was originally responsible for the application, but was apparently now representing someone else, having left his previous employ and set up by himself. This other party was identified only as "a well established manufacturer [who] is monitoring with interest the prosecution of this European patent application". Further observations were filed in March 2011 by the same attorney. None of this prevented the application from going on to be granted, which it did in 2012, although the examiner did use the prior art cited by the third party in raising an objection of lack of inventive step in a summons to oral proceedings.

Switching sides is something that would obviously raise alarm bells for any patent attorney. If you were involved with preparing, filing and prosecuting a patent application, it would be a clear conflict of interest to then work for another party in trying to knock down the same application. This is made quite clear in the IPReg Code of Conduct, Rule 7 of which states:

"A regulated person must not act where his interests conflict with those of a client or of a former client, or where he knows or has reasonable grounds for suspecting that the interests of any partner or regulated person or staff of his firm, conflict with those of a client or of a former client.

Provided in all the circumstances it is reasonable to do so, a regulated person may act for two or more clients, or for a client as against a former client, in relation to the same or a related matter in a situation of conflict, or possible conflict but only if all of the parties have given their informed consent in writing."

What I wonder is whether the University gave permission for the attorney to switch sides and start attacking the patent application that he originally prepared and filed. I would be very surprised if they did, since I cannot see how it could possibly be in their interests to do so, but this seems to me to be the only way that this would avoid a clear breach of the IPReg code.