Introduction
In the recent decision of the UK Patents Court in Oxford University Innovation v Oxford Nanoimaging Limited [2022] EWHC 3200 (Pat), the Court was asked to consider whether UK legislation protecting consumers from unfair contract terms applied to a contract made between Oxford University and a DPhil (doctorate) student. The Court held that the legislation in question – The Unfair Terms in Consumer Contracts Regulations 1999/2083 (UTCCRs) – would apply in principle, but that the terms in question were ultimately not “unfair”. The detailed judgment included extensive analysis of the particular power dynamic between universities and their students, and the tension between the academic and commercial objectives pursued by each.
Origins of the case
The claimant, Oxford University Innovation Limited (OUIL), is the technology transfer arm of Oxford University (University). The defendant, Oxford Nanoimaging Limited (ONI), is a successful “spin-out” company of Oxford University, headed by Mr Bo Jing. ONI was set up to commercialise a compact, super-resolution imaging device (a “Nanoimager”), which Mr Jing had developed during stints at Oxford University both as an intern and then as a DPhil student.
The claim began when OUIL sued ONI for unpaid royalties due to it under a licence. ONI rejected the claim on the basis that Mr Jing, not OUIL, owned the relevant IP; the licence was therefore void. ONI said that Mr Jing made the key patentable inventions (which was largely accepted) and was therefore the rightful owner of the relevant IP. He denied that there had been any vesting or transfer of IP rights to the University, whether by operation of his employment or student contract.
Challenge to transfer of IP by virtue of his internship employment
Under s.39 of the Patents Act 1977, inventions made by an employee which “might reasonably be expected to result from the carrying out of his duties” will vest in their employer. ONI disputed that the inventions could be “reasonably expected” of Mr Jing, emphasising his low status in the hierarchy of the University, his youth and (relative) lack of experience, and his modest salary. It also contended that his inventions did not relate to the specific project on which he was hired to work, and that he was not assisted by his professor or anyone else.
The Court did not accept the relevance and/or veracity of these arguments, instead favouring OUIL’s position that Mr Jing had been employed specifically to improve the imaging device. Appearing to place store in the judgement of Jacob LJ from LIFFE v Pinkava[1] that “if the employee is employed to innovate then it will normally follow that [s.39] is satisfied[2]”, the Court concluded that the inventions fell squarely within the scope of that section. The IP from this period was therefore owned by the University.
The Court then turned to ONI’s contention that the standard IP provisions incorporated into the University’s DPhil contract were not binding under the UTCCRs.
Mr Jing as a “consumer”
In order to obtain the benefit of protection under the UTCCRs, ONI had to demonstrate firstly that Mr Jing was “acting for purposes which [were] outside his trade, business or profession”. Contrary to ONI’s contention that Mr Jing’s contract was for the purpose of his “personal and private education”, OUIL argued that the contract was targeted at Mr Jing’s profession, or future profession. Following a line of Court of Justice of the European Union cases interpreting the meaning of “consumer” within the context of the Brussels Convention, OUIL argued that the contract had a “dual purpose” and – given that the professional element (as opposed to the consumer element) was “not negligible” – the UTCCRs should not apply.
The Court was not convinced that a parallel could be drawn with the “dual purpose” contract cases highlighted by OUIL. Approaching the issue from first principles, it considered the position of an undergraduate – as opposed to postgraduate – student. In that case, the Court found compelling reasons why a student should be treated as a consumer; this was the case even where the courses were highly vocational – such as a medical degree – and might therefore be said to have a professional purpose. The Court concluded that the contracts had a “single purpose: [the student’s] education”. It did not see any good reason why the position should differ for a doctorate student in general, or for Mr Jing on the particular facts of the case.
Unfairness of the terms
As to whether the IP provisions were unfair, the Court needed to conclude that “contrary to the requirement of good faith, [they] cause[d] a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”.
The IP provisions in force at the time granted the University ownership of all IP “devised, made or created by student members in the course of or incidentally to their studies”. However, they also provided guidelines for a division of net revenue resulting from future exploitation. In this case, the IP provisions had led to the parties implementing a 50:50 equity split of ONI between the University on one side, and Mr Jing and his co-researcher, on the other.
ONI argued that the University’s approach to allocation of IP rights was a blanket one, applying broadly to work done in the course of, or “incidentally” to a student’s studies, and regardless of other circumstances. It sought to draw comparisons with other major research institutions, contending that the policy of assigning 50% to inventors and 50% to the University was not a fair distribution to those responsible for creating the patentable inventions.
Again favouring a comparative analysis, the Court considered the notional position of a DPhil student (i) in law (i.e. in the absence of the IP provisions under complaint) (ii) as an employee (i.e. a post-doctoral research worker) and (iii) under the terms of other institutions. The Court acknowledged that, in the absence of the IP provisions, a student would own their inventions outright as the inventor. However, while such a student may be “better off in terms of raw entitlement”, the Court considered that “a student could be worse off in several other respects”, lacking the assistance provided by the University in obtaining patent protection or the right to the royalty streams and/or spin-out equity. Such a student would need to find a commercial partner to help obtain, enforce and monetise the IP, and that assistance would only likely be forthcoming in exchange for some ceding of rights or equity.
On a comparison with the position of an employee, the Court considered – with exception of the inclusion of the “incidentally” wording (which it considered to overreach what the University could legitimately expect) – the position was broadly the same.
Finally, the Court was not convinced that the University’s IP provisions regarding equity split were in any material respect out of the norm, or “greedy” (as alleged). The Court acknowledged that there may be good policy reasons behind that approach, and only in extreme and obvious unfairness should a court not respect those policy choices.
Whilst the Court did find a potential “imbalance” limited to the “incidentally” wording in the sense that it went beyond the rights afforded under The Patents Act 1977, the Court did not consider it “significant”. In so concluding, the Court had regard for the fact that there was no evidence that the terms had ever in fact operated in this way in practice, or that the University regarded it as appropriate to make such claims. The fact remained that in the present case the IP had not been created “incidentally”. In view of the above, and where the Court could not find any absence of good faith on the University’s part, it could not conclude that the IP provisions were unfair.
Comment
The exhaustive analysis set out in this judgment – running to 174 pages – highlights the complexity which underlies deceptively simple terms like “consumer” and “unfair”. The range of factors taken into account – from the generic to the fact-specific – is perhaps a little daunting. At the same time, however, IP practitioners may be heartened by the sound, common sense principles applied by the Court in this case, together with its willingness to respect the policy decisions which informed the University’s policies. On the question of unfairness, it no doubt helped that the University was able to show careful and ongoing review of their contract terms, and that they had previously unilaterally taken steps to narrow their application where appropriate. Whilst this case was focused on a very specific area and set of facts, the need for all businesses to carefully consider how they treat consumer customers applies more widely.
[1] LIFFE v Pinkava [2007] EWCA Civ 217
[2] Jacob LJ in Pinkava (at [102])