“Intellectual Property in
Collaborative Innovation”
A short guide for
RIA Members
© Railway Industry Association (2014)
“Intellectual Property in Collaborative Innovation”
A short guide for RIA members
An introduction by the author
This guide is intended to assist Railway Industry Association members with understanding
intellectual property rights, particularly in the context of development work (innovation) in which
intellectual property is to be created through collaboration with other parties.
Negotiating collaboration agreements and the ownership of the intellectual property rights that
derive from them can be challenging, and therefore when writing a short guide such as this, deciding
what to omit is harder to establish than what to include. I hope, nevertheless, that it provides a
reasonable introduction, both to intellectual property rights in general and specifically to intellectual
property rights that are shared or created through collaboration.
I am grateful for the comments offered by patent agents Urquhart Dykes & Lord on an initial draft of
this guide, as well as for the comments by Francis How of the Railway Industry Association. Any
errors and omissions are however, my own.
Dai Davis
Percy Crow Davis & Co.
http://www.daidavis.com/
March 2014
About the author
Dai Davis is a Technology Lawyer. He is a Chartered Engineer and Member of the Institution of
Engineering and Technology. Having been national head of Intellectual Property Law at Eversheds
and later national head of Information Technology law at the same company for a number of years,
Dai is now a partner in his own specialist law practice, Percy Crow Davis & Co.
Dai advises clients on intellectual property, computer and technology law including distribution,
collaboration and joint venture arrangements. He is primarily a non-contentious lawyer, specialising
in advising on commercial agreements relating to software and technology products. He has worked
for clients in the rail and transport industries for more than 25 years, including work in the area of
high-tech product safety and the law relating to CE Marking.
Disclaimer
This guide has been produced for the use of members of the Railway Industry Association. It is
intended as a general guide only. Professional advice should be sought before any transaction is
undertaken, for example from a patent agent in the case of drafting or protecting a registered
intellectual property right; or from a solicitor in the case of preparing a commercial agreement or
advice on a collaboration agreement.
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“Intellectual Property in Collaborative Innovation”
A short guide for RIA members
Introduction
This guide is intended to introduce RIA members to common intellectual property terms and issues.
In particular, it is written to assist those looking at undertaking developments in which intellectual
property rights might be created through collaboration with other parties. This includes situations
where others are funding part of those developments and are seeking whole or part ownership of
the intellectual property rights arising from the work.
The guide is divided into the following sections:
1.
2.
3.
4.
5.
6.
7.
1.
A brief introduction to intellectual property rights
When is it worthwhile protecting an invention?
The use and limitations of Confidentiality Agreements
Difficulties that can arise in collaborative developments
Common solutions
Issues arising from working with government bodies
Summary
A brief introduction to intellectual property rights
Intellectual property rights are all about monopolies. In England, the Crown was the first to award
such monopolies by way of “letters patent”. This monopoly was often financially exploited by
monarchs, for example Queen Elizabeth I issued letters patent for prized commodities such as starch
and salt! Nowadays, the basis of those monopolies is set out in legislation. Much of that legislation
is of an international and European origin. Intellectual property rights such as patents are based on
international treaties and, increasingly, through European legislation as a consequence of the United
Kingdom’s membership of the European Union.
The primary forms of intellectual property rights are patent rights, trade mark rights, design rights,
and copyright. Know-how can also be regarded as a form of intellectual property right. However
there are other less frequently used rights, which are not further discussed in this guide, including
database rights, semiconductor chip topography rights1, and others which are unlikely to be of
relevance to readers in the railway engineering field.
All intellectual property rights are essentially negative rights: they merely give the holder the right to
take action to prevent another person from infringing the intellectual property right. The only
exceptions are copyright and trade marks where there are also criminal offences which can be
enforced both privately and by public prosecutors, most notably Trading Standards. However
Trading Standards offices only prosecute the most extreme examples of counterfeit goods which are
being sold directly to the public, for example by market stall holders. Owners of intellectual
property rights are therefore left to enforce their own rights in the vast majority of cases, should
they choose to do so.
1
A right which protects the maskwork for the design of circuitry on a semiconductor device.
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Patent
A patent is a monopolistic right granted by the state in respect of an invention which is novel and
not obvious. A patent can also exist for a method of manufacturing. A patent must be registered
with the state (see the discussion under the heading “registration” below). In general, the maximum
lifetime of a patent is 20 years, and until the patent expires the holder may preclude other people
from manufacturing articles to the patented specification or using the patented method.
A patent is essentially a “deal” with the state: the inventor tells the state about the invention in
return for receiving the monopolistic right. It is a fundamental part of that deal that the invention is
new when the inventor reveals the invention to the state2. If he or she has already told a third party,
other than in circumstances where there is a duty of confidentiality, the patent application may not
be granted or, if granted, could later be successfully be attacked by a third party. The inventor must
reveal sufficient details of the invention in order to explain to others how to “work” the invention.
The other criteria for patentability are that there has been an inventive step, and that the patent is
capable of industrial application. As to the first of these, this means that there should be a real
practical problem that has been resolved by the invention. While a detailed analysis of this
requirement would be outside the scope of this guide, the requirement essentially means that the
patent must show a genuine contribution to the previous body of related knowledge. Regarding the
requirement for industrial application capability, this can be effectively ignored, since very few “realworld” patents are ever challenged on the grounds that the patent is incapable of industrial
application.
Patents, like other registered rights, only exist in the countries in which the right is registered. There
is no such thing as a worldwide patent. Indeed few patents are ever registered in more than one or
two dozen industrialised countries. Certainly this is true in the railway industry; only a minority of
countries have a developed railway industry where patent protection would be economically
worthwhile.
Trade Mark Rights
Trade mark rights are used to distinguish one company’s products and services from those of its
competitors. Trade mark rights are monopolistic and can exist in registered or unregistered forms.
A company which owns the rights to a trade mark has the monopoly rights to sell and market its
goods using that trade mark and can therefore take legal action to prevent others from using that or
a similar trade mark.
Registered trade mark rights are much easier and less expensive to enforce than unregistered ones.
Whenever a business uses a distinguishing name, symbol or other feature by which to distinguish
their products, consideration should be given as to whether to register that distinguishing name,
2
It can be seen that this is impossible to prove, because the patent owner is trying to prove a negative: namely
that no-one has had the same idea or thought previously. This is one, but only one, of the reasons that patent
litigation can be expensive. Other reasons include the fact that the registration process is not designed to be,
and is not, fool-proof: it is often possible to register a patent that does not properly fulfil the registration
criteria discussed. In addition, the common law litigation system is expensive by its very nature.
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symbol or other feature as a trade mark. Trade mark rights, whether registered or unregistered, can
last for as long as a product or service is continuously sold using that trade mark i.e. potentially
forever.
When a trade mark is registered, the monopoly use of that trade mark is limited in scope:
a) by geographical area;
b) by category (i.e. the registrant only has rights for a specified category of goods or services);
c) by time (although as has been noted registration can be renewed repeatedly, provided that one
also keeps using the registered trade mark).
Where the trade mark is unregistered, the protection afforded is limited by the actual use made of
the trade mark. Therefore, if the unregistered trade mark right is available it is limited in a similar
manner, i.e. an unregistered trade mark right will exist only in respect of the country in which, and
the goods (or services) for which, the mark is actually used. So, for example, if you do not use an
unregistered trade mark in Ireland, you will not have any rights there. Unregistered trade mark
rights are more expensive to enforce than registered trade mark rights, because more evidence
needs to be presented to persuade a court of the true nature and extent of the unregistered rights.
Countries with a common law history tend, however, to respect unregistered trade mark rights.
Countries on mainland Europe often have rights of unfair competition which have a similar, if not
wider, result.
Design rights
A design right, like a patent, is monopolistic in that it precludes persons from manufacturing articles
to that design without permission. However, unlike a patent, a design right only protects the
particular outward shape or configuration of a product, not its technical features. Therefore it is
possible to build a similar article to a different design without breaching the design rights associated
with the original article. In practice, design rights afford little protection for many engineering
products, such as those found in the rail industry, unless one is making a mass-manufactured,
consumer-orientated product.
Like trade marks, there are two forms of design right: registered and unregistered. Both forms exist
in the United Kingdom and in the European Union, giving four rights in total. Therefore, design
rights can be registered just in the United Kingdom, or, by a single registration, across the whole of
Europe. While European Union unregistered design rights last for only three years from the date of
first publication, European registered design rights can be renewed up to a maximum duration of
twenty five years.
Copyright
Copyright in a work is, as the name suggests, the right to prevent other persons making physical
copies of that work. Works which are protected by copyright include literary works, music, films,
engineering drawings and computer programs. Copyright does not protect an idea but only the
physical manifestation of that idea. Any copying, translation, adaptation or similar use of a work is a
potential breach of copyright. In the engineering world, three dimensional goods are now protected
by design rights rather than copyright.
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Copyright exists automatically and there is no need for registration. It exists in the majority of
countries in the world, and certainly all those of economic importance, by virtue of the existence of
copyright conventions which are discussed further below. Copyright can be important to
engineering companies as a way to protect records of know-how. Another important example of its
use is when a company prepares a complex response to an invitation to tender and wishes to limit
the copies made of that response.
Know-how (Confidential Information)
The right to protect know-how (or confidential information) is the right to prevent unauthorised use
of a trade secret. Where the information which constitutes the trade secret is revealed to the
recipient in circumstances of confidentiality, then the owner of the know-how can prevent the
recipient disclosing that information to other persons or parties without permission of the owner.
The owner does not have a monopoly right however, since he or she cannot prevent third parties
from independently discovering and thereafter using the same know-how.
The duty to respect confidentiality can arise automatically, as in the case, for example in the
relationship between an employer and an employee, or it can arise from a contract. While in certain
circumstances a duty of confidentiality can be implied into a contract it is always advisable to set out
the duty explicitly.
Registered rights
The process of registration (whether for a patent, trade mark or design right) involves payment to a
government or a government agency for the monopoly use. Each government extracts its own
payment and therefore these monopoly rights tend to be limited by the areas controlled by
individual governments. However, this is not always the case. For example, the Netherlands,
Luxembourg and Belgium (together commonly referred to as the Benelux area) have for many years
controlled trade marks from a single registry and one registration will suffice to obtain trade mark
rights in all those countries. Similarly it has been possible since 1st January 1996 to obtain a single
registration for a European wide trade mark and since 1st January 2003 to obtain a European wide
registered design right. The European Union has also now established regulation allowing for a
European-wide patent, but that will not enter into force until a minimum of 13 states have ratified
the legislation, which is unlikely to happen until 2015 at the earliest.
A word of warning. Do not try and reduce the costs involved by writing and registering a patent
yourself. While that is feasible for trade marks and design rights, the writing of patents should be
left to a competent patent agent. Patents written by people who are not experts are almost
invariably worthless because they have been badly drafted.
Conventions
Today, most intellectual property rights are based on conventions, most of which are international
although some operate only on a European-wide basis. The essence of these conventions is fairly
straightforward. If a country is a signatory to a convention, it agrees to treat the intellectual property
rights of citizens of the other countries that are signatories to that convention in the same way as
the intellectual property rights of its own citizens. In turn, the other member states agree to respect
the intellectual property rights of that state’s citizens in an equivalent manner.
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So, for example, a UK citizen or an entity holding a UK copyright will also enjoy copyright in all the
countries who are signatory states to the Berne Convention for the Protection of Literary and Artistic
Works, the Universal Copyright Convention or both. These two conventions are also, in fact,
respected by most of the countries of the world, although there are still some less-industrialised
countries (such as Afghanistan and South Sudan) which are not members of either of these
conventions. In such countries, it is not possible to enforce copyright because copyright protection
does not exist. Similarly, a citizen of one of these countries would not be able to claim copyright
protection in the UK.
2.
When is it worthwhile protecting an invention?
The answer to this question in respect of intellectual property rights other than patents is relatively
straightforward:
a) Trade marks should be registered, but only where there is expected to be sufficient trade in the
relevant country for the relevant class of goods or services to justify registration. An average
working price for registration is around £900 per country per class. The price for registration in
the United Kingdom only is cheaper, perhaps £750 (and £150 for each additional class).
European-wide registration starts at about £1,500 to £2,000, but this price includes the cost of
the first three classes. These prices include the likely professional charges, providing there are
no complications, for example, having to deal with previously registered marks which are
similar. Renewals are payable to the trade mark registry every ten years: currently £200 (plus
£50 for each additional class) in the case of a United Kingdom trade mark, and about £1,220 in
the case of a European trade mark.
b) Design rights are inexpensive to register, and should almost invariably be registered. The price
of initial design right registration for the whole of the European Union is around £500 (including
professional costs). Renewal fees are also payable. In the case of the United Kingdom this is
every five years.
c) In the case of unregistered trade mark rights, unregistered design rights, copyright and knowhow, the question is less relevant since these rights exist automatically. Confidentiality is
however something best protected by a formal confidentiality agreement, and is discussed in
section 3 below.
The answer to the question “when is it worthwhile obtaining a patent to protect an invention?” is
more complex. How do you assess the commercial worth of your invention before it is established
in the market place? What is the real commercial value of your patent?
There are both positive and negative answers to these questions, since patents can be used in
defence as well to attack infringers. A patent agent, when asked how much it will cost to obtain a
patent in a given country will often quote a figure of about £5,000 to £7,000. That is likely to include
the cost of both professional fees and registration fees. However the true whole life cost is much
higher. The overall cost for the patent, over its lifetime of twenty years, including renewal fees, is
likely to be in the region of £20,000 or more per country. The costs are loaded towards both the
beginning, because of the initial patent registration fees, and the end, because the cost of renewal,
which is usually an annual process, can increase towards the end of the patent life. The costs at the
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end of the patent life are generally less important, however, because the economic worth of the
patent will invariably be well-known at that time – if the patented product is not providing an
income stream it is an easy decision not to renew it. It is of course much harder to justify the cost of
obtaining a patent when one does not initially know the potential value of that patent.
However, the most significant cost issue associated with a patent centres not on the cost of
obtaining and renewing a patent, but around the cost of action (enforcement) where your patent is
infringed. In countries such as the United Kingdom, Canada and the United States which have a
common law legal system, those costs will be prohibitive for many if not most of the readers of this
guide. Even a multinational corporation or large government body will consider carefully and
approve at board level the need and the budget for patent litigation. In the United Kingdom there is
an alternative “lower cost” procedure for claims where the amount of damages is less than
£500,000. However, even this cannot be really called inexpensive because, although the costs
payable to the other party are capped at £50,000, it is still possible to spend more than that in
bringing or defending such a claim. It is therefore not surprising that the United Kingdom has a legal
system designed to encourage settlement out of court, supported by widely-used arbitration and
mediation mechanisms.
The practical solution to the problem of patent infringement comes in the form of insurance. An
insurance policy can be obtained that will provide funding up to a pre-agreed level in the event that
your patent is infringed and you decide to take legal action. The cost of a reasonable insurance
policy can be as little as £2000 per year. The additional cost of extending this to cover multiple
patents in multiple countries is usually modest. It is also possible, in some circumstances, to buy
insurance after a patent infringement has come to light. However, the cost is naturally much higher,
and it may cost several thousand pounds in legal fees just to compile enough evidence to complete
the application form for this type of “after-the-event insurance”.
In practice, the steps to take in patent protection are:
a) Establish in which countries it is economically sensible to obtain patent protection, and then
prioritise those countries in which to obtain protection. It is unlikely that you will have
sufficient funding to protect your patent in all the countries where infringement could
conceivably occur.
b) Divide your budget between funding to obtain the patent and funding to protect the patent.
Obtain insurance for the latter.
A further issue associated with enforcement is the type of warning letter sent to a potential or
suspected patent infringer. Unless the warning letter is carefully worded, the patent infringer may
be able to take proceedings against you, the patent owner, for an “unjustified threat”. This can be
problematic as you can lose some of the control of any potential litigation and give that control to
the other party. The same is sometimes true for some other intellectual property rights.
It is sometimes also the case that, particularly in the case of trade mark and copyright infringement,
a warning letter may be written not just to the infringing company, but also to the directors of that
company. In the latter case, individuals may even be threatened with criminal sanctions. Good legal
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advice is therefore important before taking any intellectual property infringement proceedings or
threatening to do so.
A classic defence to an allegation of patent infringement is to challenge the validity of the patent, by
arguing that at the time it was applied for, the patent was not new or did not involve an inventive
step. This can be time consuming and expensive to contest for both parties. Often, therefore, it is
preferable to reach a deal rather than fight matters in a court. Well over 99% of all intellectual
property disputes are settled out of court in England and Wales. Indeed, our entire litigation system
is largely built around the premise of forcing people to settle out of court.
If you are the subject of an allegation of patent infringement, the best form of defence is attack. If
you can find an intellectual property right which the company initiating the litigation may have
infringed, or even one that it wants, it will be easier to reach a settlement agreement. Generally
speaking, the more you have to trade, the better the resulting settlement agreement will be for you.
This is why registering an intellectual property right can have a great value as a shield as well as a
sword.
3.
The use and limitations of Confidentiality Agreements
Confidentiality is relative, not absolute. An organisation will have different levels of confidentially for
different types of information used in its business. Many large companies will have confidentiality
policies detailing the general rules that determine what level of confidentiality is to be given to any
written document. This is usually dependent on (i) the contents of the document and (ii) the author
of the document. It should be noted that it is not only written documents that may need to be
covered by a confidentiality agreement. In many circumstances, the discloser will also wish to
protect oral information given to the recipient.
A duty of confidence, when imposed by a confidentiality agreement, can last for as long as the
information is actually confidential. In theory this could be an indefinite period. It is sometimes
common, therefore to include an upper time limit on the duty of confidence in a confidentiality
agreement, depending upon the nature of the confidential information being revealed.
When considering the need for a confidential information agreement it is important to note that an
obligation of confidence will protect the substance of the confidential information rather than its
manifestation. This is the converse to copyright, which protects the manifestation of the idea rather
than the idea itself.
In the case of know-how, a professionally prepared standard confidentiality agreement or, as it is
sometimes referred to, a “non-disclosure agreement” is inexpensive. However, do not use a
standard confidentiality agreement as the basis of an agreement for the exploitation of that
confidential information: there are many more issues, including payment, that are not covered by a
standard confidentiality agreement. A standard confidentiality agreement is therefore only really
suitable for a straightforward purpose such as revealing information in order to discuss the
possibility of a contractual relationship such as a manufacturing agreement, distribution agreement,
joint venture or sale / purchase of assets. A confidentiality agreement is not suitable for use by itself
as the basis of a joint venture, teaming agreement or other collaboration arrangement.
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One of the most important considerations in a confidentiality agreement is therefore the purpose of
the agreement itself. Acceptable purposes could be:
a) … … the parties discussing a joint working collaboration relating to [<specify>] with each other.”
b) ... ... evaluation by each of the parties of the use of the [<specify>] developed by [<specify>] or a
derivative of that [<specify>].”
c) ... ... enabling the parties to determine whether the parties wish to seek to negotiate an
agreement in respect of the exploitation of intellectual property rights in the [<specify>]
developed by [<specify>] or a derivative of that [<specify>] [service].”
d) ... ... enabling the parties to determine whether they wish to collaborate in a joint venture to
[improve] [enhance] the [<specify>] [service] [technology] developed by [<specify>].”
A confidentiality agreement may be either one-way, where confidential information is only being
given to a single recipient, or two-way, where both parties are exchanging confidential information.
In the latter case a mutual confidentiality agreement should be used.
As has been stated, it is always best to have an explicit written confidentiality agreement and not to
rely on arguing that an implied duty may have arisen. One reason for this is that, in practice, one
often wants to protect a duty of confidentiality by way of an injunction, before a secret is wrongly
revealed. It is much easier to persuade a judge to grant such an injunction where something has
been recorded in writing. It is also possible to claim damages for a breach of an obligation of
confidence.
4.
Difficulties that can arise in collaborative developments
Those who pay for a development expect to own that development. After all, if you pay someone to
create something especially for you, most of us would expect to own it. However, the law takes the
opposite view in the case of intellectual property rights. If you pay a photographer to take your
portrait picture, it is the photographer who owns the copyright, not the subject of the photograph.
If you pay a builder to build a house, you own the house, but not the plans3 to the house, which the
builder can re-use. The position is similar in respect of patents and designs. It is the creator of the
invention or the design who will own the relevant intellectual property right. Even in the area of
trade mark rights, if you pay a consultant to design a logo or marketing material, it will be that
consultant who owns the copyright in the logo.
The only exception is where the developer is an employee. In England, the law provides in most
cases that the employer will become the owner of the intellectual property right in the work
developed by the employee in the course of the employer’s business. The distinction between an
employee and an individual who works as a consultant can therefore be important in disputes
regarding ownership. It is therefore important to remember, when engaging a consultant, to
address the issue of ownership of intellectual property at the outset; doing so at a later stage can be
3
The plans are another form of work protected by the law of copyright and the builder, or his architect, will be
the owner of the copyright in those plans.
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difficult. It should also be noted that in some limited circumstances 4, mandatory compensation
must be paid to an employee who develops a patent as part of his employment.
In law, the starting point is that the developer owns the intellectual property rights, for the following
reasons:
a) Intellectual property rights are designed to recompense the developer for his time and skill in
developing the product.
b) Usually, the reason that the funder has agreed to fund that a particular developer is because of
that developer’s expertise. The developer builds on his or her past experience to resolve a new
problem for the funder. That experience is the developer’s livelihood.
c) There may be ancillary rights, such as know-how which would be separated from the other
intellectual property rights if ownership of the intellectual property rights were given to the
funder. This is related to the previous point, since the developer is unlikely to have developed
the product in isolation, and instead depended on his or her experience to do so.
Intellectual property rights can be assigned differently where the parties agree otherwise, but it is
sensible, for reasons stated above, that the starting point in any contract negotiations is to allow the
creator to retain ownership of any rights.
A funder’s position may well be that it wishes to own the intellectual property rights. However that
result is usually illogical, for the reasons set out above. The funder may have concerns about wishing
to “do what it wants with the development”, but that is not something that requires the funder to
own the intellectual property rights. The funder can “do what it wants with the development”
without the need to own the intellectual property rights. The difficulty in discussing ownership is
often that it revolves around a discussion about owning all the rights in the intellectual property
asset.
Rather than discussing ownership of the intellectual property, a more sensible way of proceeding is
to talk first about exploitation. Once each party understands and agrees what the other’s plans are
for exploiting and using the intellectual property assets, ownership should become a secondary
matter. Indeed in many cases, once the issue of exploitation has been agreed, resolution of the
question of ownership becomes far less contentious, and it can possibly even become obvious as to
what the solution should be.
As an example, consider a rail product company developing a new product for a foreign rail network
operator. The network operator is the funder, paying towards the development of the product, and
possibly providing other benefits, such as beta-testing the product or otherwise assisting the
developer to develop a practical, working solution. The operator wishes to own the intellectual
property rights arising out of the development. However, the company developing the product
does not wish to assign those intellectual property rights. The key to resolving this issue is to
understand why each party is taking the stance that it is.
4
The crucial legal test being where the patent, the invention, or both are of outstanding benefit to the
employer.
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Why does the network operator want to own the intellectual property rights? More importantly,
how does the network operator want to exploit those rights? It may be concerned with assuring
continuity of supply, should the original product developer be unable to supply or maintain the
product at some stage in the future. Or it might be concerned with the price that the developer
wishes to charge for the product in a monopoly situation. Another common concern is that, having
developed a working product for the funder, the developer might then supply the product at a
cheaper price to subsequent customers, thereby disadvantaging the network operator, who may be
in competition with those other customers.
Conversely, what are the typical concerns of the developer? First and foremost it will want to
ensure that it recoups its investment in developing the product. It will want to ensure that even
where a third party uses the intellectual property so created, it is adequately rewarded. In some
circumstances, such as where the product has many uses, it will not want to allow a third party to
use the intellectual property rights at all, since this may interfere with the developer’s wider
marketing opportunities (for example outside the rail market). It will want to be in control of the
commercial exploitation of the product.
It might be thought that a sensible solution is to have joint owners of intellectual property rights.
However this is unlikely to be viable in practice because, without further agreement, joint ownership
will rarely resolve the issues between the parties. In the United Kingdom, for example, joint
ownership or copyright means that neither owner can exploit the copyright commercially without
the consent of the other owner, although each owner can use the copyright work itself for its own
internal purposes freely. This might be a convenient result for the funder, but would prevent the
developer from exploiting the copyright work commercially, which probably is what it would wish to
do. Similarly with patents, in the United Kingdom, either joint owner can “work” the patent itself,
but the consent of the co-owner would be required, for instance, in order to grant a licence of the
patent to a third party.
Finally in this section, it is worth noting some terminology that is often used in the context of
collaborative agreements. “Background intellectual property” is often used to refer to the
intellectual property rights which belonged to a collaborator before the project began. Conversely,
“foreground intellectual property” is intellectual property which is developed as part of the project.
Usually “foreground intellectual property” is intellectual property developed jointly between the
parties, although this may not always be the case. It is always worth considering the precise
definition proposed to be used in any given collaboration agreement.
5.
Common solutions
There are relatively easy solutions to the problem of the funder wanting to benefit from the
commercial exploitation of the intellectual property by the developer.
Licensing
The best “solution” in most collaborative developments is therefore for the developer to own the
intellectual property rights and for the funder to have a licence to ensure that it has the rights which
it wishes to reserve to itself. Those rights can either be reserved on an exclusive, sole or nonexclusive basis. The principal differences between these are as follows:
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a) If a licensee is granted an exclusive licence, only the licensee can carry out the licensed activity;
not even the licensor can do so.
b) If a licensee is granted a sole licence, only the licensor and the licensee can carry out the
licensed activity: the licensor is not permitted to grant a licence to any other party to carry out
the licensed activity.
c) If a licensee is granted a non-exclusive licence, the licensor and the licensee can carry out the
licensed activity and there is no restriction imposed on the licensor in relation to granting a
licence to any other parties.
It might be thought that in conjunction with licensing, it would be sensible to agree a price below
which the developer may not licence subsequent users. Although this may appear attractive, it can
constitute a form of resale price maintenance and be fraught with difficulty from a competition law
perspective. Even when it is not illegal, fixing the price at which a licensee may sell rarely provides
as effective a commercial resolution as the alternatives described below.
Lock-out period
Another solution is to agree a lock out period. Within that period, the developer agrees not to
supply the product to either (i) anyone or (ii) named competitors of the funder. Typically, such a
period might be six, twelve or eighteen months. That is generally sufficient time in which the funder
can obtain a first-mover advantage in a normal market place. However, the rail industry being a
market place in which new technology can take a significant length of time to become established,
this solution could be more difficult to apply than in other, more fast-moving, markets.
Reward sharing
A third solution is to share future economic reward. In this solution, the developer retains
ownership of the intellectual property rights. The funder receives a payment based on future
commercialisation of the product. For example, the funder may receive a royalty payment from the
developer based on the future supply of the product. That can either be a fixed amount or a
variable amount dependent upon the future sale price of the product. The amount might be capped
or uncapped. The objective is not just to allow the funder to recoup his investment, but also to
share some of the potential future reward arising out of the initial project. After all, the funder and
developer do not usually know whether the initial project will be successful or not. This solution has
the advantage of allowing the funder to share in the future reward from the project in which it has
also taken a risk.
Stakeholding in the developer company
A common concern on the part of companies that fund a development is that the developer
company may go out of business or simply move on to some bigger and better project and thereby
lose interest in the project which was originally undertaken for the funder. There is a solution to this
whereby the funder takes a stake in the developer company. The stake can take many forms, but
may typically be shares in or options to buy shares in the developer company. The usual initial
reaction to such a suggestion is to reject the idea out of hand. At first sight it does seem a rather
extreme step to take.
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There are many advantages of such an arrangement, however. Since the developer and the funder
are unlikely to be competitors, or at least direct competitors, such an arrangement is certainly
potentially possible. As has been stated, in such an arrangement the funder will have a financial
stake in the developer company. This will make the objectives of the two companies, at least with
regard to the development of any new product arising from the funded project, more closely aligned
than would otherwise be the case. It will enable the funding company to have access to day to day
knowledge of the developer company’s operations, perhaps through a seat on the board of the
company.
Importantly, it will remove the element of surprise for the funding company taking the stake. If the
developer company is encountering financial difficulties, the funding company will find out about
that far earlier than it would otherwise do, at a time when the funding company will have at least
some control of the situation and can influence the solution to that problem. If the developer
company decides in the future to work on a mark II version of the product that will supersede the
mark I version which the funder has invested in, the funder will be forewarned. With that
knowledge the funder and the developer can discuss and agree how the funder’s continuity of
supply can best be maintained.
While this solution has a lot to offer, it is unfortunately not an option when, in practice either party
is a government owned body, quango, or indeed an arm of government itself (all of which are
referred to below as a “government body”).
6.
Issues arising from working with government bodies
Government bodies5 are conservative by nature. They tend not to take risks, or at least not ones
that could cause political difficulties. This was illustrated in the field of intellectual property when
universities were issued with guidelines developed by the Lambert Working Group on Intellectual
Property. This was a government funded initiative which originally made its recommendations in
December 2003. It looked at the way in which University and Industry collaborated in joint ventures,
and in particular examined who should own the resultant intellectual property rights. This was done
from the perspective of the university being the developer, seeking an external funder from
industry.
As might be expected, no rigid rules were recommended or established. However, there were a
number of key conclusions contained in the report:
a) Issues relating to ownership of intellectual property rights created a “major barrier” to
collaboration.
b) Ownership of the intellectual property rights should be “proportionate” to the financial and
intellectual input of the parties.
c) Business should own the intellectual property rights if its contribution to the project was
“significant”.
5
The phrase “government body” is intended to include a government department, a government agency or
any other “public” organisation whose funding, activities and objectives are largely determined by central or
local government.
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It will immediately be seen that these conclusions are of only limited practical use. First, the
question of proportionality can often only be accurately determined at the end of the transaction.
Even then, it may be difficult to establish the resultant output of the collaboration. Normally, parties
would want to, and indeed should, determine who will own the resultant intellectual property rights
before they undertake a joint development.
Second, the business contribution will almost always be “significant”. If the University had the
funding, knowledge and skills to do all the research and development itself, it would be less likely to
need the assistance of the business in the first place.
The Lambert Working Group on Intellectual Property also recommended the production of some
model contracts6.
In some collaborative situations, government itself may be the funder. Here again, government
conservatism often equates with the government body wishing to be the owner of the intellectual
property rights. However this is too simplistic an approach. By owning the intellectual property
rights, the government body merely swaps one set of problems for another. Those problems, and
the issues associated with the government body (when it is the funder)7 insisting on owning the
intellectual property rights, have already been partly discussed in sections 4 and 5, but in summary
are:
a) Price: If the developer knows that it has only “one bite of the cherry” in terms of income arising
from the development, and must price in the assignment of the intellectual property rights
arising out of the research project, the developer will need to increase the price of the funding
accordingly. Such an approach removes from the developer an ability to amortise the cost of
the research in the manufacture of the product. Even in the highly unlikely situation where the
funder is paying for all the reimbursable costs of the development, the developer will still have
its own costs to recoup, such as the lost opportunity of engaging its staff on an alternative
project.
b) Alignment of interest: The interests of the developer and funder are more misaligned when the
funder is to own the resultant intellectual property rights. The developer may be discouraged
in its ability to develop the best possible product for the funder, because it knows it will have to
assign the resultant intellectual property rights to the funder. Indeed, the developer is
incentivised to apply its resources in developing a different and potentially better Mark II
product, in which it does own the intellectual property rights.
c) Separate Maintainer: A reason the funder may wish to own the intellectual property rights is to
future-proof the product so that it has the “freedom” to approach a number of suppliers to
maintain, repair or upgrade the product. In practice this is not likely to happen regularly during
the lifetime of the product however, for the following reason. If the funder does go down this
6
Copies of these model contracts can be found at http://www.ipo.gov.uk/whyuse/research/lambert/lambertmrc.htm.
7
While these problems can also be encountered where neither of the parties is a government body, but is for
example a large company, these problems may be more acute where one of the parties is a government body.
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route, it will in all probability select a single maintenance supplier, usually after a tendering
process, who will subsequently build up the knowledge of how to repair or upgrade the
product. Some or all of that knowledge will be the confidential information of that supplier, not
of the funder. Therefore, regardless of whether or not the new supplier of maintenance is the
same as the original developer, the funder will find it difficult, or at best uneconomic
subsequently to change that maintenance supplier. It will “cost” too much to introduce a new
maintenance supplier.
Of course, the funder could avoid this by having more than one company maintain the product
from inception. However, that too may not be worthwhile, because of the reduction in the
economies of scale that are needed efficiently to maintain the product (which, in the case of the
rail industry, are often relatively low volume industrial products). A better solution for the
funder may be to appoint a single maintenance organisation, allowing that maintenance
organisation to retain any intellectual property rights itself, and with the funder having a licence
for the intellectual property rights. The maintainer would often be the initial developer of the
product, although not necessarily so. The licence would allow the funder to appoint a second
or alternative maintenance provider. The possibility of such an appointment may well be
sufficient for the funder to ensure that it is paying a fair price for maintenance.
Given the way that government bodies are focused territorially on the United Kingdom, a further
solution presents itself, namely that the intellectual property rights could be shared on a territorial
basis. In this arrangement, the government body funding the development would own the rights
within the United Kingdom, and the industrial partner would own them outside the United Kingdom.
While at first sight this may seem like a pragmatic solution, it may present difficulties in practice. For
instance, such an arrangement may not be attractive to the industrial partner where the product is
of limited use outside the United Kingdom because of the unique attributes of the United Kingdom’s
historic railway infrastructure. Or, to take another scenario, if the industrial development partner
wishes to licence another user within the European Union, that other user may be more comfortable
knowing that the industrial developer owns the world-wide rights.
7.
Summary
As stated in section 4, the successful resolution as to who should own the intellectual property rights
arising from a collaborative development is usually a secondary question. The primary discussion
between the collaborating parties (often, although not always, the funder and the developer) should
always focus on exploitation rather than ownership. Once each party understands what the other
wants to do to exploit the intellectual property asset in the future, resolving ownership should
become a more logical analysis, based upon who ought to have the intellectual property rights in
order to achieve the agreed exploitation goals of each party. Usually, since it will be the developer
who will be licensing third parties, it is logical for the developer to own the intellectual property
rights in order best to achieve the agreed exploitation goals of each party. The developer can then
licence the funder so that the funder ensures that the funder has the exploitation rights which it
wishes to reserve to itself.
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