(Second Edition)

Kenneth L. Port,  Jay Dratler, Jr.,  Faye M. Hammersley, Esq.,  Terence P. McElwee,
Charles R. McManis, and Barbara A. Wrigley

On-Line Problem Supplement
Copyright © 2005   Carolina Academic Press.   For permission, see CMI.

Chapter 14

Problem 15:  Joint Research Agreements with Government-Sponsored Participants

Contair's Vice President for R&D comes to you for advice about a potential research collaboration involving Contair, the University of Illinois, the University of Wisconsin and BELCO, one of the largest oil companies in the world.  

Contair's Racing Division has been asked to test a new lubricant technology.  Researchers at the universities of Illinois and Wisconsin, working together under a Department of Energy grant, have developed bacteria that can break down motor oil contaminants into harmless byproducts, potentially allowing automobiles to go 20,000 miles or more between oil changes.  The universities have obtained assignments from their inventors, filed a U.S. patent application and licensed the bacteria exclusively to BELCO.

BELCO has conducted successful pilot studies and now desires to test the nascent technology in the Estrella Grand Prix car under harsh racing conditions.  At the same time, the two universities are working with BELCO to advance and improve the technology, testing new strains of bacteria to improve their longevity and efficiency.  Those projects are taking place at BELCO with scientists from both universities in residence.  BECLO also has filed its own patent applications for methods of adding bacteria to various motor oils and lubricants.  The universities continue to file new U.S. and foreign patent applications.  

Contair's engineers are excited about the testing opportunity but would like to go further and conduct a joint research program. They believe they can develop a new sensor that will measure the bacterial activity in the engine and thus detect when the longer-lasting oil will need to be changed.  Such a sensor could be sold to auto manufacturers to be installed in cars using the new bacteria-impregnated motor oils.  

However, Contair's Vice President is concerned that negotiating an R&D and intellectual property agreement with the three entities mightl present several problems for Contair:
    1. The Bayh-Dole Act may affect Contair's future inventions, since the U.S. government provided funding that supported development of the bacteria.  Some of the sensor work also will take place in university labs.  Will the government acquire license rights to any Contair sensor that works with the bacteria?
    2.  University and BELCO lawyers have disclosed that the bacteria were developed using a DNA test kit patented by the National Institutes of Health.   The universities had to take a non-exclusive license to the kit that included "reach-through royalties" for the US government if the kit were used to develop and market commercial products.  Will Contair have to pay royalties to the government on sales of its sensors?
    3.  How can patent and copyright ownership (the sensor includes software) arising out of a collaborative research agreement be structured so that Contair can maintain ownership and control of its own intellectual property?
Write a memo to the Vice President that discusses the issues to be addressed in a joint research agreement.  Discuss the potential affect of Bayh-Dole, case law, and reach-through royalties.  Propose a solution for inventorship and authorship issues.

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