Technology Transfer and the Parties Involved: A Brief Introduction

The exact significance of the term ‘technology transfer’ will depend on the context in which it is being used, ranging from a general, wide sense to a narrow, specific one. For example, if one looks at the EC Technology Transfer Agreements Block Exemption Regulation[1] that refers to the manner in which Article 81(3) of the EC Treaty (currently Article 101(3) of the TFEU) may be applied to various classes of technology transfer agreements, one can include only certain specific categories of intellectual property rights within the ambit of technology transfer, such as software that has been accorded copyright protection, inventions that have been accorded patent protection and proprietary knowledge that can be licensed to others. At the other end of the spectrum, at times, state-of-the-art technology and products and services based on such technology are transferred from developed countries to developing ones. Such transfers are usually meant to facilitate the transferee countries building their capacity and availing of such technological advantages, occasionally offered at subsidized rates. This is also another possible interpretation of the term ‘technology transfer’, albeit in a much looser sense of the term. In course of this note, the author implies the broader sense of the terminology on most of the occasion, although such use encompasses within itself the entire gamut of the narrower usage too. However, one ought not to confuse between technology transfer agreements and technology-related agreements. The latter involves a much wider spectrum, including agreements relating to research and developments, agreements assigning and licensing intellectual property rights, agreements governing production and material transfer, agreements laying down conditions for testing of the technology under a range of conditions, agreements involving delegating or sub-contracting existing obligations, and even specific clauses within other agreements of the likes of confidentiality clauses contained within employment agreements and so on.

It is also not a very easy task to completely separate laws governing transfer of technology from laws governing activities that are intricately inter-linked with such technology, such as production, supply or distribution of products relying upon such technology. The degree to which one may hope to attain success in course of such efforts will to a considerable extent depend upon the regulatory complexities of the jurisdiction one is being subjected to. A case in point is the manner in which a company that manufactures software may be selling the same through a distributor. There is more than one way of doing the same. The company can make copies of the software, pack each copy inside a separate CD/DVD or any other format and sell it to the distributor, who will then re-sell those. This method is unlikely to be included within the ambit of technology transfer that has been discussed in course of this note. Another option can be for the company to provide the distributor with the software’s original or master copy, from which the distributor will be able to make authorized duplicates, each of which will bear the company’s original trademark, which the distributor will then pack and sell to the consumers.[2] This method, depending on surrounding circumstances, may be considered an example of technology transfer as has been discussed in course of this note. However, antitrust law may apply in both the cases, albeit through different routes (may be vertical agreement and block exemptions relating thereto in case of the former arrangement and technology transfer agreement in case of the latter). Yet another instance of technology transfer can be when someone has produced a software programme, and then hands over the license to develop such programme, either by itself or in conjunction with other related programmes, allowing the licensee to also subsequently sell the completed product.[3]

When technology is produced as part of a collaborative research project that has a structure similar to a joint venture, depending on the category of such joint venture, the provisions of merger or combination regulations, as mentioned under the concerned antitrust jurisdiction may even apply to the development or transfer of such technology.[4] Another instance of technology transfer that may involve other legal disciplines or premises is the way universities try to utilize the technology that is part of their research output. A university, whether it is publicly funded or not, would normally be having a department devoted towards issues involving technology transfer, which may either facilitate the transfer of such technology to an independent commercial vehicle, or as is seen in certain jurisdictions, may even float a special purpose corporate vehicle of its own to commercialize such technology.[5]

Institutions involved in Technology Transfer and Their Priorities

Given these wide range of activities that technology transfer entails, it is rather obvious that such activities would also witness participation from a diverse category of institutions. Perhaps it will be useful to spare a glance or two at them at this juncture. One can have large scale manufacturing or producer companies, which only perceive research and development as an ancillary part of their main business goal, and conduct in-house research, which normally does not necessitate technology transfer as such. Pharmaceutical giants are examples of such companies. However, even these companies may engage in transferring technology, in case developing such technology does not entirely match their existing business strategy and they would rather license such technology out to other players and make a profit from such transfer via transfer or license fees or royalty instead.[6] The next category in line comprises small and medium-sized companies, which focus on research and development as part of their main business goal and spend bulk of their budget on the same. For companies such as these, licensing and transfer of technology forms part and parcel of regular commercial activities.[7] Another type of institutions that should be named in this context are the universities and other charitable or non-profit research organizations, which have always paid close attention to research and development, but are at present also spending increasing amounts of resource to commercialize such activities, either by themselves or in collaboration with other profit-making companies (which is when aspects of technology licensing and transfer gain further prominence).[8] The increasing significance of law and applicable regulations in relation of technology transfer in the recent times may therefore owe its origin to one or more of several factors – perhaps some of the large companies mentioned here are growing out of their aversion to use technology created elsewhere and not by their in-house research team, perhaps the universities are realizing the tremendous fillip that commercializing their innovation and technology can mean for their financial independence and future growth, or perhaps it is because of the certain global organizations such as the likes of PraxisUnico or the Russell Group taking more and more interest in providing financial support to the activities of the mid-level technology-based companies mentioned above.[9] A case in point is the recent growth of several companies that are not exactly traditional in terms of the products or services that they offer – their value addition lies in the field of the intangible, such as intellectual property of various forms or goodwill or information. It seems quite obvious that for companies such as these, a robust intellectual property regime is essential for functioning, and when such companies deal with technology and transfer thereof, the interface between intellectual property law and antitrust law once again becomes a focal point.[10] These legal disciplines will also have an inevitable effect on the various contracts that such companies may enter into with outsiders from time to time in course of their business, inter alia to develop, transfer and commercialize the technology-based information that they deal with.

Having said that, these agreements will of course vary, depending on the priorities that the party institutions are going to have. A university or non-profit organization is unlikely to have the same set of priorities that a corporate profit-making entity is likely to display. Most of the universities across different jurisdictions, especially the public-funded ones, are exempted from paying taxes or at the very least get favourable tax treatments.[11] To a certain extent, the degree to which the technology that forms the subject-matter of such agreements is available to and accessible by the members of the public at large, will determine whether the considerations received by the university under such agreements can avail of the same tax exemptions. One of the possible indicators for this is the number and depth of academic publications that might have been made in relation to the technology that forms the subject-matter of such agreements, as such publications are often a popular means of disseminating information or technology among members of the public at large. If on the other hand, the agreement imposes limitations on the details that can be revealed with regard to the technology through such publications, that may go a long way toward establishing the hard-core commercial nature of the agreement and the institute may no longer be able to avail of such tax benefits in relation to consideration flowing therefrom.[12] Another option that the university or charitable organization may avail of is to show that the costs it has incurred in producing and developing the technology actually exceeds any consideration that it might have received from such agreement, in which case the absence of any profit made by the institution ensures exemption from tax too. Of course, often it may happen that the very statute establishing the institution or university does not allow it to enter into any agreement that may contain such restrictions withholding benefits of institutional research output from the public, especially if it is a public-funded institution to begin with. Another pertinent point that may be mentioned in this context is about higher education regulatory authorities evaluating the performance of universities based on the research output that they produce. It is an interesting question whether research leading to commercial output may qualify as academic research to be considered for such purposes.[13] Whether it does or does not will of course depend on the jurisdiction that one is referring to, with academic publications once again serving as a good indicator. In India, universities engaged in research leading to innovation and technology transfer can usually still claim such research as part of their academic output, although as has been mentioned hereinabove, public-funded institutions in this country are often statutorily restricted from entering into purely commercial ventures the benefits of which can be withheld from the public as a whole. Considerations such as these are likely to have a bearing on the type of research that universities and non-profit organizations will undertake to begin with, as well as on the agreements they may be willing to enter into for the purpose of transferring the technological output of such research.

Universities and Technology Transfer: Some Considerations

One of the important points to consider in the context of technology transfer agreements entered into by a university is the identity of the holder of the intellectual property involved therein, the user of such rights, as well as the terms of usage thereof. This matter, which will be discussed in greater detail in course of this note, is especially crucial when there is a team of researchers and academicians working on a project, some of whom may be university employees and some of whom may be external or visiting consultants. It may also depend upon the route selected to commercialize the technology, i.e. whether the university chooses to float a special purpose vehicle of its own, raise venture capital from the market for financing such vehicle and assign/transfer the intellectual property rights to this vehicle, which can then go ahead and develop and market it, in which case the rights still remain to a certain extent ‘in house’, or whether the university enters into an agreement with a third party outsider and begins something in the lines of a joint venture, in which case, the ownership and assignment of the intellectual property rights can be apportioned between the two under certain circumstances. For universities getting their research funding from government or public bodies, there may even be certain limitations that come along with such funds, viz. the avenue that such universities can follow for commercialization of their research output.[14]

At the same time, one must not forget that universities in their own way are as much politicized as an institution can be, with inter-employee tensions, vested interests and academic priorities, which are often difficult to predict, despite the significant role that they may end up playing in offsetting the commercial viability or scientific value addition that a certain research project may have. It is quite difficult for even a dedicated university technology transfer department to be able to properly weigh in among such factors and in the absence of proper guidelines, the people working in such department may end up getting confused as to precisely what might have gone wrong with a project that appeared quite promising as per the usual indicators, but ended up getting derailed by institutional undercurrents. To complicate matters further, there is the additional matter of academic freedom that universities engaged in academic research often have to cope with, unlike commercial research organizations. A considerable size of the university staff may resent any commercial partnership entered into by the university that may curb the academic freedom available to the staff otherwise, and as a result, the level of cooperation that may be expected of them to further such commercial ventures may at best be reluctant or uneven. In case the university is funded by public money, one also needs to consider the public perception of the subject-matter of research. If for instance, genetic modification of agricultural products is a sensitive and highly-debated topic in a particular society, then popular demand may prevent public funds from being used in furtherance of research in that field.[15] Such perception may also extend to the arena of partnerships or collaboration in terms of technology transfer. Partnership between a public-funded university and a commercial profit-driven organization may be frowned upon, as may be cooperative agreements about transfer and sharing of research output between organizations based in countries between which political tensions exist at the moment.

When it comes to technology transfer agreements having as party universities and research institutions, there is one other factor that may influence the priority involved therein – the issue of revenue or royalty sharing between parties to the agreement, as well as apportionment of such revenue among the university staff who might have been engaged in different capacities in the research that led to the technological output. However, this is also a matter of considerable controversy, since such involvement may often turn out to be entirely subjective and difficult to quantify[16], and the department to which the staff member may belong to, or the technology transfer office itself, may also have a claim over at least part of such revenue. While some universities do provide for such situations in the employment contracts or as a matter of policy, some of the researchers involved in the project may not even be employees of the university, but visiting scholars etc. and hence there is always a scope for complexities to arise regarding the applicability of such policies to everybody concerned.

Profit-making Parties to Technology Transfer Agreements

Now that some of the basic priorities of a university or non-profit research institution have been looked at, one may also consider how those are in contrast with the priorities of, say, a profit-making technology-based company when it comes to technology transfer. While the qualities of a researcher engaged in such a company may not be very different from those employed in a university, the former is likely to have a better grasp over the commercial factors and motives involved in the entire process. This may be visible through several indicators, such as a relative indifference of these researchers towards academic or scientific publications. There is also little chance that such an employee researcher would end up getting any share in the profit that may result from his invention, although one-time bonus payments or employee’s stock options are not unheard of as incentives in different industries.[17] One of the positive arguments for establishing small-scale technology-driven companies focusing on research and development is the comparative flexibility and freedom that scientists and researcher employees of such companies tend to enjoy, as compared to those working in the research wing of a large multinational corporation that often gets burdened with corporate bureaucracy. This flexibility in approach is also evident from the structure of the technology transfer agreements that such small companies enter into – more often than not, such agreements are modified to suit the specific requirements of the parties, with relatively less regard paid to existing industry precedents (along with increasing tendency to follow viable cross-jurisdictional models, such as those found in the United States where such focused technology-based companies have been existing for a much longer period and have become proven success stories).[18] To a considerable extent, the priorities of such smaller companies will also depend on the individuals in charge of them and their personal preferences (for example, some of them may wish to project a scientific and research-rich image of the company, whereas others may be purely driven by profit-based motives).

Finally, one cannot finish a discussion on organizational priorities without taking into consideration the huge multinational corporate entities that have research divisions of their own in various sectors, ranging from pharmaceuticals to engineering and telecommunications, and regularly engage in collaborative efforts in technology and information sharing with other profit-making companies or non-profit organizations or even universities. Usually these companies have well-framed policies of their own when it comes technology transfer and assignment or licensing of intellectual property rights, depending on the nature of the research concerned. A less visible factor in such companies is whether there is any person wielding sufficient influence within the company who would like to procure such technology from outside sources, even if it means deviating from the company’s standard policies when it comes to negotiating the terms of the technology transfer agreement.[19] The entire process may get considerably expedited and facilitated in the presence of such a person within the company.

Parties from across the Border

Some issues in particular may emerge when it comes to a technology transfer agreement that is being entered into between institutes based on different countries, or has any other form of cross-border element, such as involving any intellectual property that is protected under the domestic regimes of several nations; in course of negotiating the terms and conditions of such agreements, the parties or their legal representatives need also keep in mind the differences in cultural and legal perspectives.[20] Now, while this may sound something that is common in case of all forms of international contracts, there are some specific points that may concern the kind of agreements being under discussion at present, viz. the difference in treatment that may be accorded to intellectual property having multiple owners and being registered under multiple domestic IP regimes, the extent to which know-how may be treated as susceptible to commercialization under different business cultures, different government regulations and associated degrees of government interference or intervention that comes along with, the varying nature of the consultancy agreements that different countries allow their inventors attached with public-funded institutions to enter into with private players and the treatment accorded to any intellectual property generated in course of such consultancy etc.[21] All these factors, posing their own individual challenges, need to be taken into consideration at the time the aforesaid cross-border technology transfer agreements are being negotiated and drafted.

Conclusion: The Role played by Lawyers

One cannot conclude this discussion without mentioning a category of professionals to whom all the parties involved in a technology transfer agreement – the lawyers. There are multiple ways for lawyers to contribute to a technology transfer agreement, such as advising the parties as how to best achieve their respective objectives, negotiating on their behalf to convince the other parties about the importance of such objectives and drafting the various clauses of the agreement. However, unlike commercial contracts, the amount of consideration changing hands upfront in the course of contractual performance may not provide an accurate indicator of when to seek the services of a lawyer when it comes to technology transfer agreements, which may have potential future value that cannot be ascertained in the beginning. Moreover, the people whom an institution entrusts with the responsibility of negotiating such agreements on its behalf often belong to the category having more experience in and aptitude towards research as compared to commercial matters –to them, involving lawyers occasionally may seem to be an overtly adversarial activity that presupposes an absence of cooperative spirit.[22] Few institutions would actually display the foresight of accommodating legal expenses involved as part of their regular budget, which again makes it difficult to avail the service of a competent lawyer in such matters. Availability of certain standard form contracts of the type of the Lambert Agreements in the UK context may also make the partied feel that their particular agreement can just be transplanted onto such a template instead of going through the elaborate process requiring lawyers’ involvement. Yet the author would suggest that in order to safeguard the interests of the parties involved and considering how the significance of a properly negotiated and well-drafted technology transfer agreement may enhance exponentially in the face of subsequent successful commercialization of the technology concerned, some standard legal involvement should exist in every such transaction, including the parties seeking legal counsel about the implications of the rights being transferred (including but not limited to intellectual property rights), assistance with the drafting of basic term-sheets or letters of intent, helping the parties understand the specific demands of the other parties and ramifications of conceding or opposing the same, reviewing the entire agreement (and not merely certain specific clauses) to ensure that the clients’ rights are not being compromised inadvertently, offering assistance with drafting (in case the client chooses to draft the agreement by itself, then the lawyer can perhaps suggest suitable templates in vogue in the industry) if not the actual drafting and so on.[23] It may be useful for the lawyer to have at least basic understanding of the science involved if not detailed technicalities, along with a sound background of legal experience in dealing with commercial transactions and intellectual property laws. With the legal involvement mostly focused on liability issues and rights being assigned, the actual negotiation process may still continue in a cooperative spirit. Stamp duties, patent related fees (including renewal fees, prosecution fees etc.) and other legal costs involved can be borne either by the parties themselves for their own part, or the agreement may specify certain costs be shared between the parties.[24]


This Article is written by Asst. Prof. Shouvik Kumar Guha working as an Assistant Professor at West Bengal National University of Juridical Sciences Kolkata.


References:

[1] Commission Regulation (EC) 772/2004 ([2004] OJ L123/11)

[2] See Rohan Kariyawasam, Technology Transfer, in The Interface between Intellectual Property Rights and Competition Policy 466 (Steven D. Anderman, 1st edition, 2007).

[3] Ibid.

[4] For example, in the context of European Union, whether the Merger Regulations will apply may depend upon the factor whether the concerned joint venture (evidenced through a horizontal agreement) is a fully functional one that has impact upon the Community Dimension (involving multiple countries within the Union) as a whole.

[5] See generally Ann Monotti & Sam Ricketson, Universities and Intellectual Property: Ownership and Exploitation (1st edition, 2003).

[6] See Technology Transfer 6 (Mark Anderson, 3rd edition, 2010).

[7] Ibid at 7.

[8] Ibid.

[9] Ibid at 9.

[10] See generally Christopher M. Arena and Eduardo M. Carreras, The Business of Intellectual Property (1st edition, 2008).

[11] In the United Kingdom, for example, many universities have been established under the Royal Charter and have charitable status that allows them to avail tax benefits. See Eastaway et al., Intellectual Property Law and Taxation (7th edition, 2008). In India, on the other hand, S. 10(23C) of the Income Tax Act, 1961 universities either financed by the Union or State Governments or approved by such governments can avail of exemption under said Act; similarly, such universities, so long as they are providing only education as a service, do not have to pay the Goods and Services Tax either under the GOI Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017.

[12] For example, HM Revenue and Customs and the Charity Commissioners in the United Kingdom allow for a delay in publication for up to six months to ensure that the institution or its commercial partners may file for patent protection – any further delay in publication may qualify as a commercial restriction and may lead to the loss of tax exemption that can otherwise be availed of by the institution.

[13] See generally Monotti & Ricketson, supra note 5.

[14] An example can be the Research Councils in the United Kingdom, which used to fund the research endeavours of a large number of universities and required commercialization of any technology resulting from such research only to be channeled through the National Research and Development Corporation. After 1985, however, this limitation was relaxed and other routes of commercialization were made available to such universities, provided they informed via regular reports the exact steps they were taking to such end. In India, public universities are usually established under a statute of their own and the regulations created by said statute often put restrictions on such commercialization or may only allow such subject to the terms and conditions approved by the governing councils of such universities, which usually include representatives of the government. In case such universities have sought financial assistance from bodies such as the University Grants Commission or other public funding agencies, then the use to which any research output produced there from are also subject to certain restrictions imposed by the funding agency itself. For further details, see Anderson, supra note 6, at 10.

[15] The controversies surrounding animal research facilities in renowned universities like Cambridge in the light of the adverse global perception of animal testing can be cited as an example of such occurrences. Even in India, as far back as 2009, a controversy had been sparked about the subject matter of doctoral research in Punjab University being focused on the certain films based on sexuality, sexual identity, homosexuality and extreme violence. See Alkesh Sharma, Panjab University Research Proposal Sparks Controversy (September 19, 2009) available at https://www.hindustantimes.com/education/panjab-university-research-proposal-sparks-controversy/story-IZWxspoVOuwWXO3YeurdlM.html, last visited on 15/10/2019.

[16] A simple illustration can be cited to drive home this point: If a senior professor and a student co-authors a research paper and subsequently, further research based on such paper yields the technological output that can be commercialized, then can both the authors claim a portion of the revenue or consideration that the university may receive out of an agreement commercializing such technology? While in the universities based in countries such as the USA or the UK usually have institutional intellectual property rights policies that address these issues at least partially, in India, not every university engaged in research has such established policies, apart from some of the premier research institutes like the IITs, IISC Bangalore etc. Even those institutional policies do not address specific concerns such as the rights of the students over any research generated by them in course of their issues, the right of the institute to commercialize the same and any share that the student may be entitled to of any profit resulting from that.

[17] See, Patents Act, 1977 (UK), Sections 39-43, which allow for provision of compensation to inventors by their employers under certain specific (if difficult to satisfy) circumstances.

[18] See Marco Iansiti and Gregory L. Richards, Creative Construction: Assimilation, Specialization and the Technology Life Cycle, in Competition Policy and Patent Law under Uncertainty: Regulating Innovation, 166 (Geoffrey A. Manne & Joshua D. Wright, 1st edition, 2011).

[19] See Susan W. Morris, Commerce and Academe: American Universities as Hosts of Entrepreneurial Science, 1880-1920, in Knowledge Management and Intellectual Property: Concepts, Actors and Practices from the Past to the Present, 183 (Stathis Arapostathis & Graham Dutfield, 1st edition, 2013).

[20] See generally Bellamy & Child, European Community Law of Competition (6th edition, 2010).

[21] Ibid.

[22] See Morris, supra note 19.

[23] See generally Anderson, supra note 6.

[24] See generally Richard Razgaitis, Valuation and Pricing of Technology-Based Intellectual Property (1st edition, 2003).

Share

Leave a Reply

Your email address will not be published. Required fields are marked *