A recent High Court judgment provides a reminder to higher education institutions that the terms of their IP policies should be justifiable. It provides judicial confirmation that higher education IP policies as applicable to students, including doctoral students, are likely to be caught by the consumer law requirement for fairness. At the time of writing, although the Judge has recently refused leave to appeal in no uncertain terms, we are waiting to see whether a direct request to the Court of Appeal is made.
The case comes at a time of increasing debate at higher education institutions about the approach to take to making claims to and sharing benefits derived from intellectual property rights in the creative or research activity done by academics, undergraduates, postgraduate research students and employees. The Judge notes that this area has increased in importance as universities and other institutions in the UK and elsewhere have focused more on commercialisation of research work by their researchers, especially in the sciences.
The Nanoimager case is relevant to academic research institutions which employ interns or have doctoral or other students undertaking or proposing to undertake research which turns out to be of commercial value.
The case relates to the ownership of rights underpinning the “Nanoimager”, a super-resolution microscope, originally developed at Oxford University.
Early prototypes of the device were made in a physics laboratory at the University. Mr Jing, briefly a research intern and then a doctoral student, is credited with having done at least the bulk of the development work which resulted in the Nanoimager’s main patents.
The technology was spun out of the University into Oxford Nanoimaging Limited (the Spin Out Company) of which Mr Jing is now CEO. The University, through its tech transfer office, licensed the Spin Out Company to use the Nanoimager patents in April 2016 in return for royalties (in this note we refer to both the University and its tech transfer office as the University). By Spring 2021 the outstanding royalties stood at £700,000 and continued to increase.
The University claimed the outstanding royalties. The Spin Out Company challenged the University’s ownership of the Nanoimager patents, arguing that Mr Jing – the main inventor – was the owner, and so the licence was void and no royalties were due.
During his brief internship (before the doctorate started), Mr Jing was an employee. Section 39 of the Patents Act 1977 is clear that an invention made by an employee belongs to the employer if it was made in the course of the employee’s normal duties or duties specifically assigned to him or her. This part of the case was therefore fairly straightforward.
On the facts, the Judge said that Mr Jing had been employed to innovate and that, given Mr Jing’s abilities, there was a reasonable expectation that an invention may result from him fulfilling his duties. The Spin Out Company argued that it was not reasonable to expect an invention to be made because Mr Jing was a mere “low-status” intern, he was young and inexperienced, was paid a very modest salary, the inventions did not relate to his assigned duties and he was not supervised.
The Judge said that, on the facts, Mr Jing was not that low-status (he was a doctoral student equivalent engaged on an exciting project), he was not that young and not that inexperienced, that the pay of an employee is not relevant to section 39, the inventions did relate to Mr Jing’s assigned duties and he was supervised. The University was properly entitled to any inventions made in the course of Mr Jing’s internship.
The University’s IP Policy, on the face of it, transferred ownership of the Nanoimager inventions made by Mr Jing as a doctorate student to the University. The question in the case was whether the relevant IP Policy terms bound Mr Jing or not.
The Spin Out Company’s position was that the IP Policy did not bind Mr Jing because the terms were contrary to consumer laws, the consequence being that the Nanoimager inventions were not transferred to the University. This argument gave rise to two issues: (1) was Mr Jing a consumer? and (2) was the contract unfair?
The Judge considered how to draw the line between consumers and non-consumers in contracts between individuals and universities / higher education institutions. The line is not an easy one to draw, particularly in the case of a doctoral student. The Judge said that a doctoral student relationship with a university, particularly in the sciences, has some characteristics which are “consumer-like” and some characteristics which are more “employee-like”. By comparison, it is clear that on the “employee” side of the line is the post-doctoral researcher employed under a contract of employment – in this case the university is buying the employee’s services not the other way round. The employee is protected by employment law. Meanwhile, on the “consumer” side of the line is the typical undergraduate student who (in the UK) pays a lot of money for educational services and has no real bargaining power when signing up for these (the Judge goes into some detail on other reasons why an undergraduate will normally, although perhaps not always, be a consumer). The typical undergraduate will therefore benefit from the protection of consumer law.
The Judge compared the differences and similarities between a doctoral student, an employee and an undergraduate. Ultimately, the Judge decided that a doctoral student is normally entitled to be treated as a consumer for the purpose of consumer law: the doctoral student normally has to pay fees to the university and it does not matter if the student is undertaking the educational qualification with a view to his or her professional advancement or receives funding or a stipend. The doctoral student is not protected by employment law so should be protected by consumer law.
Mr Jing therefore benefitted from the protection of consumer law during the period that he was a doctoral student. It is worth noting, however, that this is not an entirely blanket rule for all doctoral students and their employee / consumer status will depend on the facts in each case.
The Judge said that the closer a doctoral student is to an employed researcher in actual work and status, the less unfair it is to treat the doctoral student in the same way that one would treat an employed researcher.
For a term to be treated as unfair, it is not enough that it creates an imbalance in the parties’ rights to the detriment of the consumer. The imbalance must be significant and made in the absence of good faith.
The Judge applied the unfairness test to terms assigning intellectual property rights in contracts for educational services with doctoral students, using the following framework:
- Consider the effect of the IP terms as part of the contract for educational services as a whole.
- The impact of the terms must be examined broadly and from both sides.
- Account should be taken of whether provisions favouring the university assignee also indirectly serve the interests of the doctoral student, for example by enabling facilities and places for research to be made available, including spin out assistance, which may result in significant benefits to the doctoral student from the exploitation of their inventions.
- When considering whether a term causes a significant imbalance to the detriment of the doctoral student, give particular regard to what the position would be in the absence of the term. For example, it may be appropriate to consider what the position would be under IP terms in contracts with individuals making contributions to research with similar characteristics (such as employed post-doc students, or researchers in industry) and the position in other higher education institutions of a similar kind.
- As to good faith, consider whether the IP terms deliberately or unconsciously take advantage of a doctoral student’s position.
- Consider whether the IP terms depart conspicuously from the average consumer’s legitimate expectations as to the content of a doctoral student contract of this kind, and whether there is an objective reason for a significant imbalance to the consumer’s detriment in the IP terms.
- Consider whether the university could reasonably assume that the doctoral student would have agreed such a term in individual contract negotiations.
The Judge held that a term in the University’s IP Policy was overbroad in claiming rights in IP created by students which was capable of creating an imbalance to the detriment of a student. The Judge said that while comparable higher education institutions confined a claim to a doctoral student’s rights where there was a collaboration or made with university facilities (for example), the University’s IP Policy claimed ownership in all intellectual property devised made or created by student members “in the course of or incidentally to their studies”. The Judge said that, in his view, this was out of line with that of other universities in the UK and supports the argument that the breadth of this term created an imbalance between Mr Jing and the University. While an imbalance was created, it must then be considered whether the imbalance created was significant and whether the IP Policy was imposed in good faith. The Judge held that the imbalance created by that particular provision was not significant. The terms of the IP Policy satisfied the requirements of good faith (the University was not trying to “rip off” the students). Therefore, ultimately, the terms of the IP Policy were not contrary to consumer laws and, as such, were not void.
The University was therefore properly entitled to ownership of the Nanoimager inventions, and the royalties owed by the Spin Out Company to the University should be paid.
Comment and takeaways
- The Judge noted a “campaigning” element to the Spin Out Company and Mr Jing’s case, who felt a real sense of injustice. Universities should be prepared to justify their IP policies as complaints and challenges may increase following this case.
- Against the backdrop of this case is Labour’s policy recommendation for a University Spin Out Dashboard. The dashboard would summarise universities’ offer to spin outs and spin out data as well as the average equity the university or its tech transfer office takes. Labour say that “this would foster greater transparency, helping to address the information asymmetry that spin out founders face during negotiations”. This is more evidence of a growing interest in how universities manage intellectual property with their students and staff.
- Higher education institutions do not necessarily need to change their IP policies (this will be fact dependent), but checking that IP policies remain fit for purpose, fair and competitive would be prudent given this shifting climate.
- It may help to address perceived power imbalances to have a clear FAQs document for students and staff to refer to when seeking to understand the higher education institution’s IP policy.
This publication is a general summary of the law as at the date of publication. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2023