Private and government funders are signing larger cheques than ever before to fuel scientific research. The so-called ‘giga philanthropists’ – Bill and Melinda Gates, Michael and Susan Dell, Paul Allen, Warren Buffet – have rewritten the playbook for funding scientific research. Funding organisations of various shapes and forms, and even governments, are financing research at universities as well as startups and university – industry consortia. Various ministries and also corporates, given the corporate social responsibility obligations enshrined in the Indian Companies Act, have begun to experiment with various models for funding of scientific research in India. The table below compares possible structures for allocation of intellectual property between funders and their implementation partners.
We discuss eleven models and their advantages and disadvantages. Some models improve the incentive structure for the inventor allowing them to freely exploit the IP, while others maximise the funder’s control over the IP, thereby increasing opportunities for social-good. Some models permit the funder to recoup their investment through royalties. All the models may be tweaked to suit the nature of the partnership being entered into between two parties. It is advisable, however, to note that the choice of appropriate model is a strategic decision and not just a legal matter. The example of Tesla mentioned at #8 is appropriate here, wherein Tesla open-sourced valuable electric car patents in a strategic manner to supplement their business.
Models for Allocation of Intellectual Property
|S. No.||Model||Model Description||Advantage||Disadvantages|
|1. ||Inventor – owner||The inventor will be the sole owner of the IP.||This model provides the greatest incentive to the inventor. The inventor will be best placed to raise external funding if it owns the IP. ||The model may not maximise social good.|
|2.||Funder – owner||The funder will be the sole owner of the IP.||This model provides the funder complete control over the IP. ||The model does not maximise the social good. |
|3.||Joint-ownership||The funder and inventor are joint owners of the IP and would be able to exploit it jointly.|
Ownership ratio and rights of each party may be determined on a case by case basis.
|Incentivises the inventor and provides control to the funder.||This model could be bureaucratic and warrants a robust governance mechanism for the use of the IP. The parties will need to form consensus and there may be disputes. It is also possible, however, to own the IP jointly but provide all rights of use to either party. |
|4.||Inventor – owner; Funder – Licensee||The inventor, in this case the creator of the IP, will be its sole owner. The inventor will grant a license to the funder. Several variations are possible. The license could be exclusive / non-exclusive / sub-licensable / irrevocable or for limited purposes such as research and academic or charitable purposes and could be for or without royalty. ||The inventor will be best placed to raise external funding if it owns the IP. An exclusive license to the funder provides it with control to ensure social good. A non-exclusive license enables both inventor and funder to exploit the IP independently (subject to terms of the license). The license may also be structured in a manner that either party can further license the IP to third parties. It could be subject to other conditions on use of IP by the funder, such that the funder is free to sub-license the IP but only for research purposes, etc. ||IP licensing establishes a narrow business relationship and they exclude access to any additional process knowledge, technological acumen or expertise, unless specifically provided for in the license agreement. This concern is better addressed in the “Technology licensing” model|
The structure does not encourage reciprocal growth and is concerned with providing maximum protection to ownership of the IP and its consequent benefits.
|5.||Funder – owner; Inventor – Licensee||The funder will be its sole owner; will grant a license to the funder. Several variations are possible. The license could be exclusive / non-exclusive / sub-licensable / irrevocable and could be for or without royalty. ||The funder will have greater control over IP than in the “Inventor – owner; Funder – licensee” model.|
An exclusive license to the funder provides it with greater incentive. A non-exclusive license allows both inventor and funder to exploit the IP independently (subject to terms of the license). The license may also be structured in a manner that either party can further license the IP to third parties. It could be subject to other conditions on use of IP by the inventor.
|Reduced incentive for the inventor. An IP license, especially an exclusive one, limits the ability of the licensor to monetize its IP if it is dependent on the licensee for the same.|
The inventor may find it harder to raise external funding if it does not own the IP. However, this concern can be addressed to a certain extent by granting a perpetual, irrevocable, exclusive license.
|6..||FRAND License||FRAND is an acronym for Fair Reasonable and Non-discriminatory. FRAND licensing terms are generally used for licensing standard essential patents, i.e. patents which must necessarily be used in any product as they have been adopted as a standard by any industry.||It achieves the dual objective of making an invention that may be of relevance to the entire industry available to all players in the industry to exploit on reasonable terms and providing an economic incentive to the owner of the IP.||The owner of the IP will have little to no basis to deny license to any third-party.|
|7.||Technology licensing||A technology license conveys a transfer of technology, i.e. a bundle of designs and instructions necessary to implement or operationalize the innovation that would be achieved through the IP.|
A technology license allows for a more explicit, fair trade of knowledge. An established company with technological expertise may use this model to partner with a company with local expertise.
|The model involves considerable logistical support as licensors must develop tool kits, annotated designs, instructions, usage guides, troubleshooting manuals, etc. or even have a support staff to streamline the implementation of the IP to enable licensees to commercialize the technologies and train their sales and support staffs to sell and service the licensed IP.|
|8.||Open Source||The technology will be available for anyone to exploit subject to limited conditions, such as credit attribution to inventor and funder. |
Note: An example of strategic use of the open source philosophy is Tesla’s recent announcement that it would share its electric cars’ patented technology. This is being seen as a stategtic (and not just altruistic) move. The move may give the EV industry a boost (by increasing supply of EV infrastructure) in which Tesla is already established as a market leader. The more charging stations and related infrastructure are in place, the more electric cars will be sold. Worth noting that Tesla has not publicly offered zero-royalty licenses, which would be legally binding. It has simply pledged not to sue other companies if they act in “good faith,” a loophole-worthy phrase. Likewise, Tesla’s patents serve as collateral to secure financing, so lenders could eventually have a say in their use.
|Maximises social good. ||Any open-sourcing of IP must be evaluated in terms of the aims and goals being tried to achieve (relevant market, sector, etc.). As a general rule, a one-fit-all approach would not be advisable while choosing any model. See Note under column #2.|
|9.||IP-based Component Business||The licensor offers the licensee products which in turn, have the registered technology rights (IP), rather than licensing the IP by themselves.|
An example is computer manufacturers such as Dell, Asus, etc. who, when they purchase processors from Intel, obtain the right to install and resell that product, but not a blanket license or the right to manufacture processors using Intel’s IP.
|10.||Joint Venture||Parties may enter into a joint venture to hold and exploit the IP. Both parties agree on the value of the contributed IP assets and work together during the life of the partnership to re-evaluate their respective roles and royalties and to make any necessary adjustments to maintain a productive commercial enterprise. This would essentially be a contractual setup.||An example is the Nike + iPod fitness products where there is a joint venture involving both patent and trademark sharing.||While this model does promote reciprocal growth, as opposed to traditional IP licensing, the same would generally be restricted to the scope of the Joint Venture, unless otherwise agreed.|
|11.||Pre-emption model||The inventor is the owner of the IP, however the funder will have the right to purchase the IP within a specified time. ||Incentivises the inventor. Funder can purchase the IP to maximise social good.||If the advantage of the invention is not apparent within the specified time and the funding body forgoes its option to claim ownership it will lose its ability to exploit the IP in future.|
*Authored by Sankalp Srivastava, Associate, Tanya Sadana, Principal Associate and Anirudh Rastogi, Managing Partner at Ikigai Law. Ikigai Law is an award-winning law firm with a focus on technology, innovation and entrepreneurship sectors. The firm was named Boutique Law Firm of the Year 2019 and 2020 by Asian Legal Business.