Spin-outs — Intellectual Property
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The content of this page is based on information provided by Murray Jack of McGrigors.
What IP is required by the spin-out?
The first task is to identify the IP that the spin-out will need. The IP will need to be clearly defined in any agreements entered into between the university and the spin-out to ensure that related IP is not inadvertently held by or transferred to the wrong party. In the case of a spin-out company, the IP may consist of a particular technology protected by patent or know-how / confidentiality. Consider how related technologies and improvements to the existing technology will be dealt with.
Types of IP that may be relevant to a spin-out include patents or confidential know-how for novel technologies, trade marks for brand names of products, design rights in the form and shape of products, copyright in user guides.
Who owns the IP now?
The second task should be to determine through a due diligence process who actually owns the IP. In most cases, all IP developed by an employee during the course of his employment will be owned solely by the employer (unless the terms and conditions of employment state otherwise), while IP developed by a consultant, contractor or other third party will be owned by the consultant, contractor or third party (unless an IP assignment agreement has been entered into).
If the founder of the spin-out company has been employed by the university, it is likely that the university will own the IP. Identifying ownership may be more complex if the founder was employed by the university but created the IP in his spare time. In practice, it is likely to be difficult for the founder to establish that he did not create the IP in connection with his employment by the university.
It is possible for IP to be owned jointly by more than one party.
Check if there have been any research funds that have been used to create or develop the IP and if so check the funding terms to check if they impose any conditions about ownership or use of IP.
If the IP consists of know-how (for example technology which is under development and for which a patent application has not yet been filed), consider whether the owner has taken appropriate steps to keep that know-how confidential (ie what practical procedures, such as security measures, are in place for ensuring that confidential information is not disclosed, have non-disclosure agreements been entered into with all third parties who may have access to the confidential information and do the employee contracts contain confidentiality provisions?). If know-how is disclosed without secrecy obligations, it is no longer protected.
Who will own the IP following the spin-out?
As mentioned above in relation to the technology transfer agreement, the IP can either be:
- transferred to the spin-out by way of an IP assignation or assignment;
- or retained by the university and licensed to the spin-out.
If the IP is to be assigned to the spin-out, the spin-out should look to obtain warranties and an indemnity from the university in respect of the university's title to the IP and third party IP infringement. Whether the university will be willing to give this will depend on the history of the IP and the knowledge about the IP of those joining the spin-out.
From the spin-out's point of view, an assignation is preferable as it means greater control and flexibility over the exploitation of the IP. However the University may want to grant licences of the technology to other companies in other fields or may be concerned about loss of the technology if the spin-out becomes insolvent.
If the university will not agree to an assignation of the IP, the next best outcome for the spin-out would be an exclusive licence which allows only the spin-out to exploit the IP. A sole licence allows the university to exploit the IP as well as the spin-out, while a non-exclusive licence allows the university to license the IP to any other third parties as well as the spin-out. A non-exclusive licence should be resisted by the spin-out as it is unlikely to attract investors.
If the IP will be licensed to the spin-out, consider whether the licence should:
- be exclusive, sole or non-exclusive;
- be sub-licensable;
- be fixed or for a renewable term
- contain termination rights (the university may insist that the licence is terminated on a change of control of the spin-out or if the spin-out fails to fully exploit the IP or meet certain milestones);
- be limited to particular countries or be worldwide;
- be limited to a particular field of use;
- contain an assignation trigger (the spin-out may look to negotiate an assignation trigger whereby the IP is assigned to it if it achieves a certain target, such as the level of return for the university);
- contain warranties and an indemnity from the university (the spin-out should look for warranties and an indemnity from the university in respect of the university's title to the IP and third party IP infringement. Whether the university will be willing to give this will depend on the history of the IP and the knowledge about the IP of those joining the spin-out).
The licence should also set out who will take action against infringers (if the licence is exclusive the spin-out may take action against infringers, but if it is not, the spin-out should require the university to take action to protect the IP).
If the IP includes registered IP (such as patent, trade mark or design right applications or registrations), consider whether the licence or assignment should be registered with the relevant registry. Although assignments of IP do not need to be registered in the UK to be valid, this may not be the case in other countries. Licences of registered IP should be registered to ensure that the licensee is able to enforce its rights against third parties and, in the case of exclusive patent and trade mark licences, bring infringement actions.
If the university owns the IP, what will the spin-out pay for the IP?
If it is determined that the university either fully or partially owns the IP, the next step will be to work out what the consideration the university should receive for the assignment or licence of IP to the spin-out. The university may want:
- to subscribe for shares in the spin-out;
- future royalties or milestone payments in respect of the exploitation of the IP; or
- cash; or
- a mixture of the above.
Who will own newly created IP?
Consider whether the university, the spin-out or the founders will own the IP created by the spin-out, including any improvements to the existing technology. This may be the university, the spin-out, the founder or a third party. Any agreements entered into between the parties should set out the intention clearly.
It should be borne in mind that, if the founders or others involved with the spin-out continue to be employed by the university, the university is likely to own any IP created by them, unless the scope of their work with the spin-out can be clearly distinguished from their employment by the university.
If the spin-out is to own the new IP, the founder and all employees and consultants that may create IP should be asked to enter into employment or consultancy agreements with appropriate IP and confidentiality provisions.
Even if the spin-out is to own the new IP, the university may ask the spin-out to disclose all new IP to the university and grant a licence back to the university for research and teaching purposes.
Does the spin-out need any assistance from the university?
The spin-out should consider whether it is able to make full use of the IP, or if it needs to include a provision in the technology transfer agreement requiring the university to provide training, consultancy services or equipment.
Is the IP adequately protected?
Consider whether patents should be filed to protect the technology or registered designs to protect the shape or form of products. The technology transfer agreement should set out who will pay for IP registrations. If the university has incurred costs in registering IP which it is now assigning to the spin-out, it may look to recover these costs.
If the technology is not the subject of a patent application or registration but is protected by know-how, consider whether it is adequately protected by security measures, non-disclosure agreements and employee contracts (as mentioned above in relation to who owns the IP).
If the spin-out will use a trading, brand or product name, consider whether that name will be owned by the spin-out or the university and consider the benefits of registering the name as a registered trade mark and registering domain names incorporating the name.
Is there any blocking IP?
Consider carrying out searches to ensure that no-one else is already using the technology, design or trade name (if that is the case, the spin-out or university may be open to claims for infringement of third party IP rights). These searches can be very expensive, but as a minimum it is worth carrying out informal searches using the internet and the trade mark, patent and design right databases on the Intellectual Property Office's website (www.ipo.gov.uk) and asking others in the same field whether there may be any potentially conflicting patented technologies.
