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.