Is There a Case Against the Proposal for a Policy on Intellectual Property?
[Every] man has a property in his own person; this nobody has any right to but himself. The labor of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature has provided and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature has placed it in, it has by this labor something annexed to it that excludes the common right of other men. For this labor being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough and as good left in common for others.
-John Locke
Strengthening Rights of Inventorship: Where Do the University’s Best Interests Lie?
Economic and political realities have made it clear to McGill that the University’s financial outlook is anything but encouraging. Every School, Department, administrator, faculty member, and student has felt the pinch. To remain solvent, the University must find alternative sources of income. One avenue explored by the Proposal is to maximize the revenue the University receives from royalties arising from faculty and student inventions. McGill is by no means the first university to try this approach [FN1]. But are the risks that the Proposal carries worth the financial reward?
The University benefits from its inventors even when inventors retain all rights to their inventions. By strengthening the rights of inventorship, University inventorship is promoted. Novel inventions increase the academic stature of McGill among its peer institutions and attract first-rate students and faculty [FN2]. As McGill’s stature grows, so does the opportunity to receive money from private and public granting agencies, alumni, and the government. As one commentator stated: “Most faculty-generated research provides little, if any, financial reward for the researcher [FN3], but all first-rate scholarship benefits the university, whose reputation grows with the prominence of its professors. This reputational benefit is the return on a university’s investment in its faculty; in this light, additional gain in the form of financial benefit from faculty research and writing would constitute unjust enrichment of the university. The university provides resources and gains stature, through which it attracts students and endowment contributions. The quid pro quo is satisfied, and any incidental financial advantage to faculty members should be outside the reach of the university, which has already captured the return on the investment” [FN4]. A university that does not respect inventor’s rights may antagonize its faculty and students and jeopardize the valuable intangible benefits that accompany vigorous university inventorship [FN5].
Some commentators suggest that university appropriation of inventor’s rights undermines the academic mission of the university [FN6]. Universities have long emphasized the importance of basic research in their academic mission, and indeed most university research is basic in nature. By creating a financial stake in research that is patentable, and thus profitable, a conflict of interest arises. Although basic research provides much of the knowledge required for applied research, it is less likely to yield patents than applied research. Thus a university is inclined to pursue applied research at the expense of basic research, compromising its academic mission.
The University, as stated in the Principles and Objectives section of the Proposal, has a vested interest in seeing inventions commercialized so that they may benefit the University community and society at large. The University assumes that University ownership is the best means to that end. But as University of Pittsburgh School of Law’s Professor Pat Chew states: “…faculty inventors who own their inventions are in the best possible position to ensure the invention’s proper development from an abstract idea to a practical application. As the inventors and technical experts, they best understand the fundamental nature as well as the intricate nuances of the discovery. They can protect the integrity of the invention and help to solve problems as it moves from research prototypes through commercial modifications to the market. As owners, they have an economic and professional interest in the outcome, as well as ultimate control over questions dealing with product evolution, licensing, and distribution. Not only the creators’ interests, but also the public’s interest in the highest quality, most accessible, and creative products are best served if creators own their own works” [FN7]. A paternalistic attitude towards its inventors on the part of the University may keep valuable inventions from the public.
The University is founded on a simple tenet: all scholarly output is equal in importance, regardless of the form it may take. The song composed in the Faculty of Music is equivalent to the novel written in the Department of English, which is as important as the industrial lubricant produced in the Department of Chemistry or the flight modeling software developed in the School of Computer Science. Under the Proposal, the musician and novelist own their work entirely, while the chemist and programmer own not even the slightest portion of their work. Software and patentable inventions, though requiring the same creative energies and talents to produce, are not treated the same as more “artistic” output. The Proposal will create two separate classes of faculty and students within the University; those that own their work and those that do not. As another commentator states: “All professors create equally…[and] all genres of creation are equal…moral equity demands that liberal arts and technical professors be treated equally with respect to the ownership of their creations” [FN8]. The inability of technical faculty and students to own their creations humbles them in front of their liberal arts peers and disrupts the harmony of the University.
In an employer-employee relationship, where do the rights of inventorship lie when there is no contractual agreement specifically assigning those rights to a particular party? Case law is clear on this point: the rights reside with the employee-inventor [FN9]. There is only one exception to this rule: if an employee is hired to invent a specific invention. This criterion is almost never satisfied in the academic workplace. Because anything patentable is by definition novel and non-obvious, the nature of the inventive process itself prevents anyone from predicting exactly what invention will arise. And although faculty and students may perform research as part of their duties, other duties required of them may be administrative or educational in nature and not relate to invention at all. Also, the university administration normally does not dictate the specific aim or area of the research of its faculty and students. In the interests of academic freedom, that decision is the prerogative of the faculty member or student. Thus, it is impossible for a university to claim that faculty and students have been hired to invent (it is also interesting to note that faculty that never produce an invention are never sued for breach of contract by universities). To weaken a university’s claim to patent rights even further, faculty at an academic institution have been traditionally viewed by courts as “special” employees, and it is doubtful that a court would see students as employees at all. The most a university can acquire from a faculty or student inventor barring a contractual agreement assigning rights to the university is what is called a “shop-right” [FN10]. A shop-right is a non-exclusive right to practice an invention that cannot be licensed or assigned. Shop-rights provide universities with very little in any financial regard.
The fact that case law dictates that employee-inventors retain patent rights to their inventions in the absence of a contractual agreement brings up a logical question that isn’t easy to answer. Does the Proposal constitute a legally binding contract assigning patent rights to the University?
Is the Proposal for a Policy on Intellectual Property Legally Binding?
Clearly the University would like its inventors to believe that the Proposal for a Policy on Intellectual Property is a legally binding document: that belief would encourage inventors to comply with the Proposal, which would benefit the University greatly. But there are significant problems with the Proposal that make it uncertain that it would be considered as such by a court.
ADEQUATE CONSIDERATION
For a contract between two parties to be legally binding, there must be what is called in legal terms, "adequate consideration". Adequate consideration does not refer to a period of reflection on the merits of entering into a contract, but rather refers to the fact that a contract is in its essence an exchange between two parties, and that this exchange leaves both parties with something that they didn't have before they committed to the contract. In other words, a contract in which one party receives something without giving anything in return (getting "something for nothing") is not legally binding. This seems to describe the Proposal, in which, according to its terms, the inventor is yielding to the University certain rights of inventorship, without being given anything in return. The University might argue that in exchange for the transfer of these rights, the University provides for its faculty and students employment and enrollment. However, this proposal would still not apply to current faculty and students who are already employed or enrolled, and would therefore receive nothing by committing to the Proposal. Continued or past employment is probably not adequate consideration [FN11]. The only situation where adequate consideration could be conceived of is if the Proposal is presented to new faculty and students whom are then asked to sign it in exchange for employment or enrollment. As new faculty and students have not, are not, and probably will not be asked to sign such a Proposal transferring their rights of inventorship to the University in exchange for employment or enrollment, it is difficult to imagine that a court would view the Proposal as legally binding.
CONTRACTS OF ADHESION
Courts do not always accept what are called "contracts of adhesion" as legally binding. A contract of adhesion is a contract in which there is a seriously and obviously unequal bargaining position between the two parties entering into the contract. The purpose of prohibiting contracts of adhesion is to prevent powerful parties from victimizing weaker parties when entering into contracts. A contract of the nature described by the Proposal would likely be considered a contract of adhesion, and thus not binding. Prospective University students who have not the abundant financial or legal resources possessed by the University and could have their enrollment revoked by the University (which, needless to say would have drastic consequences on the students' future livelihoods) are clearly not in an equal bargaining position with the University. Even faculty, who may have the benefit of wisdom, expertise, or financial and legal resources, might not be considered the University's equal. Because a court may see the Proposal as a contract of adhesion, it is not certain that it will be viewed as legally binding [FN12].
COMPREHENSION OF THE PROPOSAL AS A LEGAL DOCUMENT BY INVENTORS
Universities that sought to claim patent rights on faculty and student inventions have claimed either that oral contracts assigning patent rights to the university existed or that signing an agreement to abide by faculty or student handbooks amounted to the signing of a contract assigning patent rights to the university. When faculty are recruited and hired, their duties and obligations, etc. are usually indicated over correspondence and thus don’t have the face-to-face negotiating components of a true contract [FN13]. Agreeing to the policies outlined in a faculty or student handbook is even weaker evidence that a contract assigning rights was signed [FN14]. Many faculty and student handbooks state that they are merely a guide and not a legal document. Some students or professors at a university may be asked to sign an agreement when others at the same university are not. And because the content of the handbook was written entirely by the university, without any input from the faculty member or student, it will be construed against the university. At least one court ruling notes: “…the use of handbooks for assignment of patent rights is probably inadvisable” [FN15].
Parties should not enter into contracts in which it is not clear exactly what the parties are receiving and what they are giving up. Not a single time in the Proposal are inventors informed of their legal rights of inventorship that they would be giving up by signing the Proposal. It is also disappointing to note that the language of the Principles and Objectives section of the Proposal, which seems to reaffirm and strengthen the rights of inventors, is followed by policies that reassign rights of inventorship from inventors to the University. This dichotomy might be construed as a concealment of the true rights and obligations conferred upon inventors by signing the Proposal. Furthermore, the Proposal is not even written in the standard legal format that makes most contracts instantly recognizable as contracts. Taken together, these ambiguities of the Proposal make it very difficult for an inventor to understand the true impact of the Proposal on him or herself. In the interest of fairness, the Proposal should be written in the appropriate legal style, it should enumerate those rights of inventorship that the inventor would yield to the University, and be written in a language in which the Principles and Objectives section does not contradict the actual policies laid out in the Proposal.
“Invention” means an innovation with patent possibilities that is: a) created by an Inventor with University assistance; or b) developed with the use of University equipment, facilities, or resources; or c) created in the course of academic duties or work in the course of study, research, or related work. It includes such computer software as can be patented.
“Original Work of Authorship” means printed material or Software created by an Author a) with University assistance; or b) with the use of University equipment, facilities, or resources; or c) created in the course of academic duties or work in the course of study, research, or related work.
The Proposal here is redundantly vague in parts a, b, and c. It is almost impossible to conceive of a situation in which a University student or faculty member could create an invention or original work of authorship outside of the circumstances described in a, b, and c. For the University to claim ownership, an inventor would merely have to write their invention down with a McGill pencil, contemplate their invention in a McGill library, have been stimulated to invent by a attending a McGill-sponsored conference, or ask advice about their invention from a McGill colleague, and so on. The Proposal should be rewritten to clearly limit itself to those cases where the University has had substantial, not just incidental, participation in the creation of an invention.
4.5 Moral Rights: In certain cases, Inventors of Software may wish to defend their moral rights to their work. The University will then provide appropriate advice and guidance to these Inventors.
“Moral Rights” are a subset of rights of inventorship that include the right of inventorship credit and the right of an artist not to see his or her work altered. Inventor retention of moral rights costs the University very little in a financial respect, yet can be very important in advancing the career of an inventor. All inventors at the University, not just inventors of software, should retain their moral rights in all cases, and the Proposal should express this position.
7.1 Sharing of Income: Net Income from University-owned Intellectual Property shall be shared between the Inventor(s) and the University on the following basis: 50% of Net Income shall go to the Inventor, and 50% to the University. Should the University decline to pursue commercial development and assign its rights to the Inventor(s) under the provisions of Art. 8.3, the University shall be entitled to 20% of the Net Income.
The assignment of a 50/50 split between the University and inventor may seem egalitarian, but considering the standing policy of 65% net income to the inventor, this is a definite step backwards in the relationship between inventors and the University. This move limits rights of inventorship and makes inventorship at the University less appealing. This contravenes the goals outlined in the Principles and Objectives section of the Proposal and bucks the current trend in academia to strengthen rights of inventorship, a trend lauded by many legal commentators [FN16]. Furthermore, assignment of 20% of net income to the University after the University has declined to pursue commercialization seems radically unfair to inventors. The largest amount of the net income that the University could reasonably claim is the fair market value of the University resources the inventor used for the creation of the invention. An alternative to the Proposal’s scheme is a cost-sharing agreement between inventors and the University. If, for instance, the University agrees to bear 20% of the commercialization costs it would then receive a certain percentage of the invention’s profits.
8.1 Role of the University: In consultation with the Inventor(s), the University pursues commercial development of Inventions and Software through licensing, distribution, or transfer to third parties, or by assisting in the creation of new enterprises set up specifically to develop the Intellectual Property. This is normally done by OTT; OTT will consult the Vice-Principle (Information Systems and Technology) in cases involving Learnware. Inventors will support and cooperate with OTT in its efforts to commercialize their Intellectual Property, as their involvement is critical to success.
The assignment of a complete monopoly of faculty and student inventions to OTT should worry any University inventor. First, because OTT is a monopoly, it does not need to compete with similar private technology transfer companies, and thus the inventor is uncertain whether or not OTT is competent to negotiate for favorable licensing agreements. Indeed an administrator within the School of Management stated that OTT was “incompetent” [FN17]. Second, there is a significant probability that OTT will encounter a conflict of interest and thus breach its fiduciary duty to the University inventor. Not only is OTT charged with representing the interests of the University and the University inventor, it is also responsible for “…[ensuring] benefits to Canada, if possible to Quebec.” [FN18] The University inventor is put in the agonizing position where he or she does not know if OTT is willing or even capable of representing his or her best interests, and yet he or she is, at the same time, required to “support and cooperate with OTT in its efforts to commercialize their Intellectual Property…” To further compound the problem, should an inventor be wronged, opportunities for redress are severely limited (see commentary on Article 9).
A more equitable, and arguably more effective, policy would adopt a strategy similar to that of the University of Wisconsin’s Alumni Research Foundation (WARF). Wisconsin faculty retain all intellectual property rights, so WARF must compete with similar non-university technology transfer companies, and it does so successfully: most Wisconsin faculty choose to let WARF commercialize their inventions though they are by no means required to do so. This arrangement has allowed WARF to donate over half a billion USD towards University of Wisconsin research [FN19].
8.3 Transfer of Rights: The University will assign ownership of the Intellectual Property to the Inventor in the following cases:
The University declines to pursue commercialization, or decides to cease its efforts to commercialize the Invention or Software, as in Art. 8.2;
The University has been unsuccessful in commercializing the Invention or Software within a reasonable period of time;
The process of commercialization is notoriously lengthy. The Proposal must clarify what a “reasonable” period of time is. In addition, the inventor should be notified, in writing, as to the status of the invention’s commercialization either upon request by the inventor or periodically. This will protect inventions from languishing within the University and keep the University from de facto declining to pursue commercialization without an official declaration to that effect (prevent the placement of inventions on the “back burner,” so to speak).
9. Dispute Resolution
Any dispute with respect to the application of this Policy except for decisions not to initiate or to cease commercial development (Art. 8.2) shall be referred to the Vice-Principal (Research). All material relevant to the dispute shall be provided to the Vice-Principal by all parties to the dispute with 10 working days of the day at which the matter is referred to him or her. The Vice-Principal shall be free to invite comments by parties who may have an interest in the resolution of the dispute and to consult with experts, if required. The Vice-Principal shall promptly advise the parties of his or her decision in the matter. The decision of the Vice-Principal may be appealed to the Principal with 10 working days of transmittal to the parties. The Principal shall then appoint a three-member committee to examine the dispute and advise him or her on appropriate ways to resolve it. The Principal shall make a final decision on the dispute.
The dispute resolution process is decidedly pro-University in design. It seems unlikely that the Principal, even with the advice of an unbiased 3-person committee would ever reverse a decision made by the Vice-Principal (Research). In the interest of obtaining an impartial decision, appeals of decisions made by the Vice-Principal should be heard instead by a 9-person standing Committee on Inventor-University Dispute Resolution. The committee should number nine so that it can include representatives of the administration, faculty, and students: standing so that the Committee can acquire expertise in resolving disputes. Or as an alternative, the inventor or University should have the right to request the services of a professional arbiter.
10. Enforcement
Acceptance of this Policy is a condition of employment by the University, or engagement as a visitor in any University program. Students registered at McGill are also bound by this Policy. This Policy also applies to McGill academic staff on sabbatical leave unless the host institution or company has rules which preclude the application of this Policy and other arrangements are agreed to by the University writing.
This Policy will apply to all relevant Intellectual Property disclosed after the date of final approval of the Policy.
Article 10 raises many questions as to the legality of the Proposal. These questions are discussed in the section entitled: Is the Proposal for a Policy on Intellectual Property Legally Binding? Article 10 declares that the persons bound by this policy are employees, students, visitors, and academic staff on sabbatical leave. There is one salient party to the policy who is not described as bound: the University itself. The fact that the authors of the Proposal neglect to include the University as a party bound by the conditions set out by the Proposal reinforces the notion that the Proposal hasn’t even set out any conditions for the University and thus requires faculty and students to give up their legal rights of inventorship to the University without being given anything in return [FN20].
Article 10 also states that the Proposal applies to all “…Intellectual Property disclosed after the date of final approval of the Policy.” What about intellectual property that was conceived before a faculty member or student came to McGill? As currently written, the Proposal implies that this, too, belongs to McGill. McGill faculty and students should have the opportunity to disclose intellectual property to the University before signing the Proposal: the University would then be unable to claim ownership of this intellectual property.
As a university patent office administrator confided to Professor Chew: “You’ve got to understand the way it is at universities. Universities do not look at legal niceties. Their attitude is that faculty won’t sue them. Like in business, the university is the employer and they own faculty work. On the other hand, they do not want to push the issue since some really vocal faculty might complain. Most faculty are oblivious to their rights. [Even] if they did know their rights, they would be afraid to push it…so the university’s position is not tested” [FN21].
The University can and must play an important role in University inventorship. Inventors can benefit greatly from the University’s expertise and reputation when bringing their inventions to market. But policies that reassign the rights of inventorship of faculty and student inventors to the University place the University at risk. Those policies may be unfair, illegal, or counterproductive. They expose the University to lawsuits [FN22], diminish the goodwill of the faculty and students towards the University [FN23], and may harm the stature of the University in the eyes of its peers and the public [FN24]. It is the duty of the administration to adopt policies that foster collaboration and partnership between the University and its inventors, not policies that separate inventors from the fruits of their labor.
[FN1] Some prominent North American universities have liberal intellectual property policies that favor the inventor, including Harvard, Stanford, and the University of Wisconsin. The University of Wisconsin, for instance, claims no part of its inventors’ inventions. These universities also maintain excellent reputations for inventorship and the quality of their scholarly output.
[FN2] Some universities with liberal intellectual property policies (e.g. Stanford University) acknowledge they use their policies as recruitment tools for new faculty. Also witness the case of Stephan Wolfram, who while a prominent and respected faculty member at the California Institute of Technology developed mathematical software that CalTech claimed the rights to. Dissatisfied, Wolfram sought employment at the University of Illinois. Illinois agreed to a contract in which Wolfram would retain the rights to all his future creations and thus Illinois was able stage a coup over its rival, Caltech, by successfully recruiting this prestigious academic. See G.A. Taubes, Physics Whiz Goes into Biz, Fortune 17 (April 18, 1988) 90-93.
[FN3] Of 2,751 discoveries disclosed by University of Wisconsin faculty, only 73 have produced incomes greater than expenses. Wisconsin Alumni Research Foundation, WARF, The Wisconsin Alumni Research Foundation Story 19 (1990).
[FN4] See Mark Meyer, To Promote the Progress of Science and Useful Arts: The Protection of Rights in Scientific Research, 39 IDEA: J.L. & Tech. 1, *16.
[FN5] Witness the case of Vanu Bose, MIT PhD student and son of Bose Corporation founder and MIT professor Amar Bose. Vanu Bose developed a technology during the course of his PhD and began a startup company to commercialize his invention. MIT would only assign the rights of his invention back to Bose for a significant portion of the startup’s profits. The conflict escalated, disillusioning both the elder and younger Bose. Vanu Bose, whose father’s corporation donated USD$6,000,000 to MIT, stated: “MIT is like my second home. I love this place. But right now I don’t plan to donate a cent.” See Amy Dockser Marcus, Bose and Arrows: MIT Seeds Inventions But Wants a Nice Cut of Profits They Yield, The Wall Street Journal, Page A1, July 7, 1999.
[FN6] See Pat K. Chew, Faculty-Generated Inventions: Who Owns The Golden Egg?, 1992 Wis. L. Rev. 259, 307.
[FN7] Id. at 310.
[FN8] See Sunil R. Kulkarni, All Professors Create Equally: Why Faculty Should Have Complete Control over the Intellectual Property Rights in Their Creations, 47 Hastings L.J. 1995 at 247.
[FN9] United States v. Dubilier Condenser Corporation, 289 U.S. 178, amended, 289 U.S. 706 (1933). “A patent is property and title to it can pass only by assignment. If not yet issued an agreement to assign when issued, if valid as a contract, will be specifically enforced.” For a complete discussion of this seminal case in IP law, see Chew supra note 5.
[FN10] Dubilier at 188.
[FN11] Simmons v. California Institute of Technology, 209 P.2d 581 (CA. 1949) at 585. In this case, Edward Simmons brought suit against CalTech to recover royalties from a strain-sensitive element he devised. The court ruled "…such [past] employment is inadequate consideration to support a contract, and the promises of Simmons to grant licenses to use his invention only upon approval by the Institute and to pay royalties to the Institute were made without any counter-promise by the Institute." See also University Patents, Inc. v. Kligman, 762 F. Supp. 1212 (E.D. Pa. 1991). In this case Dr. Kligman developed an anti-aging skin cream and patented it without the knowledge of the University of Pennsylvania. University Patents, Inc. then filed suit against Kligman for ownership of the patent. The court wrote: “Even courts which have taken a liberal view of the applicability of handbook provisions have held that a handbook issued after the existence of an express or implied contract of employment is not binding in the absence of additional consideration.”
[FN12] “Courts generally enforce preinvention assignment agreements on the basis of freedom-of-contract principles. Of course, ‘freedom of contract’ is really free only if there is a parity of bargaining power between the contracting parties. This parity may be lacking between employee-inventors and employers. Today, the majority of employment contracts are offered on a ‘take-it-or-leave-it’ basis. The process by which an employee-inventor agrees to assign her preinvention rights to her employer is not one of hard arms-length bargaining, ‘but rather of a fly and flypaper.’ As a result, most commentators agree that freedom of contract generally does not exist in the employee-inventor context; that is, preinvention assignment agreements are contracts of adhesion.” Steven Cherensky, A Penny for Their Thought: Employee-Inventors, Preinvention Assignment Agreements, Property and Personhood 81 Cal. L. Rev. 597 (1993) at 620-621.
[FN13] “Most of contract law is premised upon a model consisting of two alert individuals, mindful of their self-interest, hammering out an agreement by a process of hard bargaining.” John D. Calamari and Joseph M. Perillo, Contracts § 1-3, at 6 (3d ed. 1987).
[FN14] See Kligman supra note 11.
[FN15] See G. Kenneth Smith, Faculty And Graduate Student Generated Inventions: Is University Ownership A Legal Certainty?, 4 Va. J.L. & Tech (1997) at 5.
[FN16] See Meyer supra note 4, Chew supra note 6, Kulkarni supra note 8, Cherensky supra note 12, Smith supra note 15, and Sandip H. Patel, Graduate Students’ Ownership and Attribution Rights in Intellectual Property, 71 Indiana L.J. (1996).
[FN17] Comment made by an anonymous administrator within the McGill University School of Management.
[FN18] There are many situations where conflicts of interest arise under the Proposal. Take for example: a Quebec company is bidding on the licensing rights to a McGill invention. The Quebec company is unwilling or unable to outbid a British company for the license. OTT however, has a mandate to ensure that benefits of the technology go to Quebec wherever possible. In addition, OTT knows that transferring the technology to a Quebec company is a wise political decision: it enriches the constituency of Quebec politicians, who then might be more inclined to increase the funding of McGill. Thus, the University chooses to breach its fiduciary duty to the inventor, and the license goes to the Quebec company even though the inventor would have benefited more if the license had gone to the British company.
[FN19] For more information on the University of Wisconsin’s remarkable technology transfer office, the Wisconsin Alumni Research Foundation, see supra note 3 or visit the WARF homepage at http://www.wisc.edu/warf.
[FN20] See supra note 11 regarding the issue of adequate consideration that Article 10 raises.
[FN21] See Chew supra note 6 at 281.
[FN22] See Simmons vs. California Institute of Technology.
[FN23] supra notes 2 and 5.
[FN24] To see how the press views the demands universities place on employee-inventors, see Scott Clark, Policy Should Be Friendly To Entrepreneurs, Arizona Business Gazette, Oct. 14, 1999.