Penn State's New Approach to the Management of Intellectual Property: Four Simple Rules of Engagement with Industry Partners

 Introduction: In December 2011 Penn State introduced a new approach to the management of intellectual property (“IP”) in industry-sponsored research agreements marking a significant change to the University’s stance on IP ownership and how it licenses technology.  Penn State’s new approach to managing IP is designed to provide more flexibility and more options so that faculty and students may engage more with industry and so that more of Penn State’s IP makes it to market faster. Four new rules for research administration explain the new approach:

Rule 1: The value to Penn State of industry-sponsored research lies in the research itself, in the support of that research and in the overall relationship with the partner, but not in the creation and ownership of IP.

Therefore, Penn State will no longer seek to retain ownership of IP developed from research programs funded by industry because this is not where the University derives value. Penn State will not seek to retain the ownership of IP resulting from industry-sponsored research.

Even though Penn State will not own the IP from an industry-sponsored research project, a research agreement is still necessary.  A new Sponsored Research Agreement has been created.  This agreement will establish the terms, conditions and expectations for both parties. The section dealing with IP states that the sponsor shall own all reports, copyrighted works, and inventions created. This change will lead to significantly shorter negotiation times and to greater success in finalizing research agreements. By changing Penn State’s stance on IP ownership for industry-sponsored research, deeper and longer lasting partnerships that drive research to market faster, create jobs and foster prosperity for the benefit of all are encouraged.

Rule 2: When engaging with an industry partner use the simplest form of agreement as is necessary and sufficient to fit the needs of the program and cut negotiation time to a minimum.

When providing a research service, Penn State will use an even simpler research services agreement. The Research Services Agreement (“RSA”) (more formally named the “Memorandum of Agreement/Measurement, Composition, Fabrication, or Analysis/Academic Research Services”) shall be used when the industry-sponsored project is a research service that Penn State is uniquely able to provide to its partner. Such a service may be an assay, a process, a procedure, an analysis, or a measurement, performed with a device, an instrument, a technique, a methodology or special expertise developed at Penn State that cannot be performed as well elsewhere by a commercial laboratory or technical service provider. In this case the sponsor seeks out Penn State because of Penn State’s special status in providing this kind of scientific or engineering service. At the end of the project the industry partner will still own their materials (or data) and they will own the results of the testing performed at Penn State. Penn State will continue to own the testing procedure itself and anything learned about the test procedure (i.e. improvements/enhancements to the test) while performing the test for the sponsor. 

Rule 3:  If industry funding is a pass-through of federal dollars, which requires Penn State to retain ownership of the IP as specified by federal statute, then a “Penn State Two-Step” licensing option will be offered to the industry partner.

When industry research funding is a pass-through of federal dollars, the new stance on IP ownership cannot be used because Penn State is obliged by the Bayh-Dole Act to take ownership of the IP and cannot provide the rights of ownership directly to the industry partner. Although Penn State is not allowed to flow ownership of the IP to the industry partner, Penn State can license the IP to the industry partner. However, Penn State is also not allowed to include the cost of the license in the research agreement. To do so is to pre-value the license and this is also not allowed.

Although Penn State cannot pre-value a license for IP derived in part or in whole from research performed with federal funds, the University can and will provide an option to license at the time the research agreement is executed. This is completely new and is referred to as the Penn State Two-Step licensing process. In such instances a new clause will be added to the Sponsored Research Agreement that will establish the cost of an option to license the IP at the time the agreement is signed, which is to say before the research is initiated. The built-in option gives industry research partners assurance that they shall have time to assess the commercial potential of the IP and they shall know exactly the cost of doing so at the time the project is being initiated.

The duration of these Penn State Two-Step options shall be for one, two or three years (from the date Penn State shares the invention disclosure with the sponsor) and the costs shall be fixed at $3,000, $6,000 or $9,000, respectively. When the option period is up, the sponsor shall decide at its sole discretion whether or not to enter into a license agreement. If the sponsor declines to license, then Penn State shall retain the right to manage that IP without further accounting to the holder of the now expired option.

The added benefit to both parties of the “Penn State Two-Step” is that the commercial value of the IP will be better known at the end of the option period. This knowledge will simplify negotiation of the financial terms of the license agreement. The Penn Step Two-Step is also available for all Penn State IP that is not yet licensed.

Rule 4: When there must be an exception to the above rules, Penn State will strive to explain it fully and clearly to the industry sponsor and then seek the best way to handle the exception.

Clinical trials require special agreements that must be individually and carefully negotiated. Similarly, medical research is unique and requires agreements that are specific to the research that will be done. Penn State cannot state unequivocally that IP ownership will or will not flow to the industry partner. Other complications make it impossible to anticipate all instances, or to subject all these programs to the above simple rules of engagement. In most cases human and or animal subjects may be involved and other special regulations may be in force.

Even though medical research is more complicated, Penn State shall always use the simplest form of agreement that is both necessary and sufficient to meet the needs of the program according to Rule 2.

Summary: The goal of the new approach to the management of intellectual property (“IP”) in industry-sponsored research agreements is to give Penn State researchers and their industry counter parts the opportunity to work together and to engage in more open innovation. To achieve this Penn State must create an IP environment with as little impediment to the free exchange of ideas as possible. The new rules of engagement for industry-sponsored research arrangements now in force at Penn State, as summarized here, seek to make this happen.