research contracting csiro experiences and … contracting csiro experiences and australian...

Research Contracting CSIRO Experiences and Australian Reflections

Brett Walker General Counsel CSIRO

Presentation Overview

•  Part 1 – Overview of CSIRO and its approach to research contracting

•  Part 2 - The bigger picture – research contracting approaches and challenges

•  Part 3 – Key legal and negotiating issues in collaborative research arrangements

NZ Contracting & IP Workshop


Part 1 – Overview of CSIRO and its approach to research contracting

• CSIRO is Australia’s national research agency with a staff of nearly 6,500

•  Established under the Science and Industry Research Act 1949

• Operating across a broad range of science disciplines (from mining to computer science to agriculture) and across all States and Territories from just 55 sites

•  Involved in a very large number of domestic and international research collaborations


Some Context

•  A Legal Team of 45 (37 lawyers) located across Australia

•  A Contract Administration and Records Management Team of 60 – 22 Contract Managers; 9 Contract Support Officers

•  6,300 new research contracts per annum; 50% through FastTrack; average value $55,000


Contract Types (Higher Value / Higher Risk)

•  Procurement Contracts (often specialised scientific equipment)

•  Joint Venture Agreements and Agreements establishing spin-off companies

• Collaborative Research Agreements •  Technology Licences (licensee and licensor)


Contract Types (Lower Value / Lower Risk)

• Confidentiality Agreements

• Material Transfer / Evaluation Agreements

•  Field Trial Agreements

• Consultancy / Contract Research Agreements

•  Testing and Services Agreements

•  Procurement contracts (more routine items)


Contract Research Lifecycle

Responsibility of

Researchers

Responsibility of Researchers

Shared responsibility of Researchers, Contract Admin, Legal, BD Managers & Commercialisation team

SAP Projects

Pipeline and EOP system

EOP; FastTrack; SAP SD; TRIM Records systems via Contracts Admin

•  Pipeline 2020 – Large early stage ideas •  EOP – Enterprise Opportunities Pipeline – contract negotiations •  FastTrack – Contract generation & approvals •  SAP – Project Management, Finance, Invoicing, HR, etc •  TRIM – Records management

Project Origination

& Approval Client leads & prospects

Proposal Development

Contract negotiation

& approval

Delivery to client &

variations

Close

Systems are integrated


What is FastTrack?

FastTrack is CSIRO’s in-house automated contract generation, risk assessment and approval system; FastTrack incorporates the following legal and business principles:

•  Risk management, rather than risk avoidance •  Increased empowerment of scientists to develop lower risk, lower value

agreements •  Reflects CSIRO commercial policy - separation of negotiation and

approval powers •  Minimal negotiation of Terms & Conditions

FastTrack is integrated with other CSIRO systems, to limit the amount of re-work required

•  FastTrack imports customer and contact data from SAP •  FastTrack exports completed contract data to SAP •  Contract records are stored electronically in CSIRO’s records

management system; original hard copy retained in secure storage Content is managed by the FastTrack Working Group


Contract Administration FastTrack system

Features include:- •  Easy to use •  Drop down lists •  Real time •  Integrated with SAP


Objectives of FastTrack

Outcome

Streamlined and consistent processes

Simplified agreement generation and approval

Improved and consistent “look and feel”

Standard and simple legal terms (no re-statement of common law principles)

•  Better client experience doing business with CSIRO

•  More efficient and effective use of CSIRO’s staff time


Risk management not risk avoidance •  All agreements involve some element of risk, however the types of

agreements selected for the FastTrack system are those that are generally lower in risk. FastTrack aims to find the appropriate balance between risk and benefit.

•  Researchers complete a basic risk assessment in FastTrack so potential risks are identified up front. Completing this risk assessment encourages staff to identify and build appropriate contingencies into agreements to cater to higher risk scenarios (e.g. payment up front if they feel there is a risk associated with non-payment).

•  The two courses of action are available for higher risk agreements are: •  The appropriate delegate agrees to the level of risk; OR •  A customised agreement is prepared to address the risks and different

delegations apply.


Standardised terms

•  The legal terms of FastTrack agreements have been specifically drafted to avoid the need for legal negotiation, typically a lengthy and expensive process for both parties.

•  The standard terms are expressed clearly in plain English to avoid misinterpretation and are written to be fair to both CSIRO and to our clients. We avoid re-statement of common law.

•  Standardising both the appearance and legal terms across the organisation allows for consistency and familiarity, thereby simplifying the process, improving our clients’ experience in doing business with CSIRO, and ensuring a more effective and efficient use of our own resources.

•  We take a non-negotiation stance with clients on these agreement types, which means the terms are final and the contract is sent to the client as a PDF or hard copy format to discourage potential changes.


•  Deliverables (replaces outputs/results)

•  Delivery Date (replaces anticipated date/target date/ expected date)

•  Materials (replaces data/samples/artefacts/contributions)

•  Application (replaces field of agreement/ permitted uses)

•  Payment Terms •  Additional Expenses

FastTrack relies on the use of standardised words to act as “definitions" – these appear on the cover page and are referred to in the terms. Examples include:

Standardised definitions


Agreements available in FastTrack

Services by CSIRO •  e.g. Consulting Services, Contract Research Services,

Testing Services (One-off and Period), Beta Testing, Hire of Equipment/ Facilities, Technology Evaluation, Training Services, Feasibility Study, Software Licence.

Non-financial agreements

•  e.g. Confidentiality and Non-Disclosure, Material Transfer.

Services to CSIRO

•  e.g. Hire of Research Contractor, Student & Visitor agreements.


Customising the standard Terms 1.  Project detail questions allow customisation of the cover

page of the contract, specifically the: •  services •  deliverables •  timing & payment arrangements

2.  Yes/no questions in the legal terms customisation screen allows the tailoring of: •  IP options for consulting services and research

agreements •  other clauses such as materials, services


An example of how clauses are customised

i.  CSIRO assigns the Project IP to you xxx yyy xxx yyy xxx yyy xxx yyy; and

ii.  CSIRO grants you a non-exclusive licence xxx yyy xxx yyy xxx yyy xxx yyy.

Will any of the Deliverables contain, or be likely to contain, any Background IP (i.e. pre-existing IP belonging to CSIRO)?

YES Will CSIRO be assigning the Project IP (i.e. new IP created by CSIRO while it is carrying out the Project) to the Client?

Does CSIRO wish to use the Project IP after it has assigned it to the Client?

Drop in clauses i.

and ii.

YES NO


Part 2 - Research Contracting in Context

•  A stable framework for collaboration which allows all parties to meet their objectives

•  Agreed allocation of responsibilities (eg milestones, deliverables)

•  Financial certainty (payments, payment terms)

•  Agreed allocation of risks and benefits


General Contracting Challenges in the Research Sector

•  Law v science – different approaches to risk

•  The desire for contractual certainty v the reality of uncertain outcomes

•  Equitable risk and benefit allocation

•  Dealing with intangibles and the inherent divisibility of IP rights

•  Negotiating multiparty contracts and subcontracts

•  Contracts for research inputs can encumber research outputs

•  The Golden Rule – “he who holds the funds makes the rules”!


Contracting Process Design – 5 Key Elements

1. Efficient and effective 2. Ensure risks are identified, assessed and managed (as far as they

can be in the contract)

3. Enables the research organisation to achieve its objectives and comply with its charter and the law

4. Reflect a principled approach to rights, risk and benefit allocation

5. Assist with the establishment and maintenance of external relationships

The trick is how to reconcile these sometimes conflicting objectives


Efficiency / Effectiveness

•  Standard agreements and processes

•  Identify the lower risk / lower value contracts that can be standardised and processed in a streamlined manner

•  Minimise lawyer involvement in lower value / lower risk contracts

•  Non negotiable positions

•  IT based contract generation and risk assessment tools


Risk Management

•  Organisational risk framework / decision filters

•  Who is responsible for identifying, assessing and managing risks?

•  Contractual risk allocation

•  Post-contract risk management

•  Technical risk, financial risk, reputational risk, political risk, IP risk

•  Risk assessment education


Achieving your Objectives

•  Articulating project objectives and outputs (impact pathways)

•  Freedom to operate / freedom to conduct further research

•  Platform technologies not encumbered

•  Intellectual property rights allocation

•  Publications and communications

•  Charter / Mandate compliance


A Principled Approach

•  IP ownership and rights allocation (needs v wants)

•  Risk allocation – the “management and control” principle (risk management v risk avoidance)

•  Mutuality – would I accept the positions I am putting to my collaborator?


Manage External Relationships

•  For larger contracts – don’t draft contracts too early

•  Key principles to be agreed before lawyers are formally instructed

•  An early and open discussion about “hot button” issues for each contracting party

•  Shared ownership of the contracting phase

•  Education – internal and external


Common Problems •  One-sided standard contracts

•  Wrong “standard” contract for the job

•  The “procurement mentality”

•  Negotiation strategies not underpinned by a principled approach (wants dominating needs)

•  Imbalance between risk and benefit allocation

•  Overcomplicating things

•  Lack of understanding of IP (notably the key features of specific IP regimes, IP component rights and IP divisibility)

•  No clear articulation of project inputs, outputs and preferred impact pathways

•  No internal ownership of the contracting phase


Suggestions for Improvement

•  Published organisational IP Principles as a frame of reference

•  Fair standard terms

•  Principled negotiations between research organisations and research funders on standard terms and more generally

•  Principled negotiations between research organisations to develop standard agreements (eg material transfer agreements, research licences and collaborative research agreements)

•  Education / shared understanding


Part 3 – Key Legal and negotiating Issues in Research Contracting What is a contract?

•  Legal definition •  A legally binding agreement •  Promise(s) for breach of which the law gives a remedy

•  Research manager definition •  A document setting out:

•  Who does what and when •  What happens if it isn’t done on time or at all •  If things go well - how the benefits are shared •  If things don’t go well - how the risks are shared


Principled negotiation

•  Principles, not positions •  There is always a range of negotiability on any issue •  No inflexible positions, just underlying interests that need to

be met •  Get all interests on the table and generate options •  Interests are rarely mutually exclusive – can have ‘win-win’s •  Haggling is inefficient, simplistic and rarely leads to good

options •  ‘Contracts at dawn’ is not usually a great starting point

•  Contract negotiation is not just for lawyers and contract managers

•  Research and business managers play a crucial role •  Discussing principles first can save a lot of time and angst


Principled negotiation

•  Collaborators may not be aware of your interests •  Laws and regulations •  Contractual/IP restrictions •  Reputation •  Political implications •  Insurance •  Internal policies •  Commercial/strategic objectives

•  Explain interests and consequences – assess options •  Encourage partners to discuss their interests rather than

positions


Principled negotiation •  Doesn’t mean you can’t have ‘standard’ agreements

•  Eg: CSIRO’s FastTrack system •  Low value, low risk, low complexity agreements •  Short, simple, positive, plain-English drafting •  Emphasis on project / relationship management vs onerous terms

•  What are the real risks? •  Avoid the unnecessary (eg re-statement of law)

•  Balanced approach - would we sign it if the parties were reversed? •  Desired outcome: partners more likely to accept and support

•  Consistent with principled negotiation •  ‘Pre-focused’ on key interests of both parties •  Legitimate to have a ‘walk away’ point based on principle


Anatomy of a collaboration

Agreement Parties

Carry out Project according to Project Plan

Contributions + Background IP

Premises

Management Committee + Leaders + Reporting

Project IP ownership

IP protection and enforcement regime

Commercial and research use

Royalties payment + accountability + transparency

Confidentiality + publication + use of name

Warranties, indemnities + liability limitations

Dispute resolution

Termination

Governing law

Project

You Partner Information

Inputs Inputs Project

Management

Partner’s premises

Your premises

Results Protection

Use Enforcement

Publication

Risk

Risk

Disputes

Termination

Royalties


Focus - some key legal issues

•  Project IP •  Intellectual property in the results of the collaboration

•  Background IP •  Intellectual property contributed to the collaboration

•  Risk management •  Planning ahead for life’s little hurdles


What is Intellectual property?

•  A bundle of legal rights over intellectual creations •  Patents Act •  Copyright Act •  Trade Marks Act •  Circuit Layout Act •  Designs Act •  Plant Breeders Rights Act •  Judge-made law (common law / equity) •  Contract

•  Different rights apply to different subject matter •  Eg: inventions, literary works, plant varieties, know-how •  Some parallels – eg rights of co-owners •  Variation between jurisdictions / countries


Project IP

•  No inherent meaning - a matter of definition in the contract

•  Ownership is not everything

•  Better viewed as a bundle of component rights •  Way of avoiding IP ownership stalemates •  Focuses parties on their respective interests, not positions •  Parties can hopefully tailor a solution to meet both their

interests

•  A matter of balance •  Providing enough rights to enable successful use of results •  Retaining enough rights to:

•  Manage partner’s performance •  Ensure appropriate freedom to operate


Project IP

•  Eg: IP component rights in patents •  Right to file •  Prosecution rights •  Rights to manage defensive proceedings •  Right to select and appoint patent attorneys •  Maintenance obligations / rights concerning

proposed abandonments •  Patent costs •  Exploitation and commercialisation rights •  Enforcement and settlement rights •  Benefit sharing


Project IP

•  Eg: IP component rights in copyright material •  Reproduction •  Publication •  Communication •  Adaptation •  Commercial renting (software) •  Moral rights


Project IP •  Some component rights affect others

•  May need to be bundled to a certain extent •  Ownership is just one type of bundle •  Licensing is another, more flexible bundling tool

•  Exploitation and commercialisation rights •  Often all a partner really wants when they initially seek

ownership •  A licence may be sufficient - carefully define fields

•  Benefit sharing •  Again – will often satisfy a partner initially seeking

ownership •  Better to address separately from ownership


Project IP

•  Co-ownership •  Can be a means to secure compliance with contractual

obligations •  Often seen as a ‘compromise’ between two ownership

positions •  Be aware of what this actually means for component rights

•  Exercise of rights requires consent •  Loss of flexibility and potential for stalemate between co-

owners •  Complex decision-making processes •  Further agreements (eg commercialisation) •  Cross-licensing •  Not attractive to commercial partners / VCs


Background IP

•  No inherent meaning - a matter of definition in the contract

•  Relevant to multiple issues •  What is contributed to the project •  What is not Project IP •  What might be necessary to use Project IP •  Can include IP owned by a third party

•  Clear definition/scope is very important •  Ideally set out in a detailed schedule •  Bear in mind multiple purposes that the definition might be

used for •  Consider separate definitions for separate issues •  Avoid broad definitions


Background IP •  Freedom to operate - project

•  What is required for the project? •  What are you free to contribute to the project? •  Are there restrictions on what can be done with it? •  Document any restrictions in the agreement

•  Freedom to operate – outside project •  Is this background IP necessary for other work outside the

project? •  Is it a platform technology? •  Background IP licence would ordinarily be non-exclusive •  Do you need to be able to grant exclusive rights to other

parties? •  Keep licence scope to the minimum necessary to enable the

project

•  A matter of balance – this project against other projects


Background IP

•  Commercialisation •  Commercial licence may be necessary to enable

exploitation of Project IP •  Should be considered separately from the project, as

part of commercialisation deal – possibly separate agreement

•  Scope may be quite different from the Background IP that was necessary to perform the project

•  Beware of broad licences in the project agreement


Background IP

•  Exclusion from Project IP – ‘improvements’ •  Improvements are a tricky issue – covers future IP •  What constitutes an improvement needs careful

attention •  Will be different for different technologies and

different types of IP •  Multiple definitions may be useful •  Should be considered as part of holistic approach to

project results •  Looking at component rights is more constructive

than ‘tug of war’


Risk management

•  Sources of legal risk

• Contractual risk management


Sources of legal risk

•  Breach of contractual obligations •  ‘At fault’: Eg - failure to pay licence fee •  ‘No fault’: Eg - technical failure due to staff resignation

•  Breach of common law obligations •  Eg – Negligence - poorly conducted experimental work •  Eg – Breach of common law IP rights / confidentiality

•  Breach of statutory obligations •  Eg - Trade Practices Act - misleading statement to

investor •  Eg – Statutory IP regimes – patent infringement


Managing (not avoiding) legal risks

•  Written contract •  Before work starts

•  Clear drafting •  Avoid misunderstandings

•  Risk allocation in the contract •  “Management and control” test •  Fault and no-fault events

•  Common law risk allocation •  Sometimes less contract is more


Contractual risk management

•  Warranties and Indemnities – why so controversial? •  Can significantly increase your legal exposure under a

contract •  Can take you outside your insurance cover •  A “hot button issue” for Governments, Audit Offices,

Auditors as they can represent a significant contingent liability

•  The key principles are not well understood in the business / research community – misconceptions and poorly drafted and thought out warranties and indemnities are everywhere!

•  Therefore worth particular attention in this session


Warranties

•  What is a warranty? •  Legally binding promise – part of every contract •  Statement that something is or will be true •  No magic in the word – a matter of substance

•  “warrants”, “represents”, “agrees” – can all be construed as a promise

•  Can be express or implied (eg by trade practices legislation)

•  Overlap with indemnities


Warranties

•  Basic rule: don’t make promises you can’t keep •  If compliance with a warranty is outside your control, it’s a

risk •  Classic problem is future states of affairs you can’t control

•  Eg: guaranteed research results •  Eg: non-infringement of IP rights

•  Your capacity to comply with contractual obligations is a key element of the risk assessment process and must be specifically addressed as part of your internal contract approval processes


Warranties

•  Examples for discussion •  “You have the expertise and capacity to undertake the

Project” •  “In undertaking the Project, you will not infringe 3rd party IP” •  “My use of Deliverables will not infringe 3rd party IP” •  “You have the right to make Background IP / Third Party IP

available for the Project” •  “The Project is properly authorised in accordance with your

approval processes” •  “The Deliverables will be fit for the purpose for which they

are provided” •  “The Product will be at least 25% more effective than

product A”


Warranties

•  Assessing warranties •  Step 1 – What are you agreeing to do under the contract? •  Step 2 – Are you being asked to give any warranties

which rely on circumstances beyond your control (eg IP infringement / guaranteed results)? •  If yes, seek qualification of warranties (eg no

infringement claims to our actual knowledge at the date of the contract) or amendment of contract (eg: undertake a series of research steps rather than guarantee a result).

•  Step 3 – Of the warranties you can control – confirm they are true. •  If not, either seek to amend the warranty or seek other

changes in contract (eg extension of milestone date)


Indemnities

•  What is an indemnity? •  A contractual mechanism for apportioning liability between

the contracting parties and also managing liability to third parties

•  An obligation of one party to make good the loss or damage the other party has incurred or suffered as a result of certain events

•  A promise by a party to act as another party’s insurer for particular losses


Indemnities

•  An indemnity usually covers 2 types of liability: •  Loss suffered by a party to the contract directly (eg loss of

profits) •  Any liability a party to the contract incurs to a third party

for loss suffered by the third party.

•  There are no such thing as “standard” indemnities! •  Contracting parties are free to allocate risk between

themselves in any way they choose – it often comes down to bargaining power

•  The Bank Guarantee scenario


Indemnities

•  It is useful to characterise indemnities as either: •  An indemnity which covers losses that a person would be

liable for under the common law anyway. For example, negligence, breach of contract and unlawful acts (Category A); or

•  An indemnity which covers losses that a person would otherwise not be liable for, that is, an indemnity which extends a person’s liability. In this way an indemnity can act to shift liability between the parties. (Category B)

•  Indemnities you provide should normally fall into Category A. •  Insurance policies usually exclude Category B losses •  Acceptance of a Category B indemnity is therefore usually

acceptance of an uninsurable risk


Indemnities

•  When should we provide indemnities? •  You should generally only give Category A indemnities •  It is generally only appropriate for you to give an indemnity

where you are responsible for something over which the other contracting party has no control and, therefore, should not be liable •  Eg: you will run a clinical trial and the other party only provides

funds

•  When should we seek indemnities? •  Similarly, it may be useful to seek an indemnity for losses or

liability that you cannot control. •  Eg: the other party has complete control over commercialisation of

project technology


Indemnities

•  Don’t forget the common law •  Centuries of sophisticated judge-made rules for liability

allocation •  Needs to be a compelling reason to fiddle with this •  CSIRO’s preferred approach is not to provide indemnities

and to rely instead on the common law position.

•  There are also other contractual risk management tools •  Eg: Exclusion clauses •  Eg: Liability caps •  Eg: Liquidated damages •  Eg: Disclaimers


Indemnities

•  Example 1 •  You agree to indemnify me from and against any and all

liability, losses, damages, and expenses howsoever incurred by me arising from any act or omission (whether there was fault or otherwise) of you or your officers, employees, agents, collaborators or subcontractors in connection with this agreement.

•  Problems (bold wording): •  Covers any and all loss no matter how incurred by the other

party •  The loss is not necessarily caused by your fault, and may

even be caused by the other party’s negligence!


Indemnities

•  Example 2 •  You indemnify me against all claims which may be brought or made

against me by any person in respect of any infringement or alleged infringement of Intellectual Property Rights by you or your employees, agents or subcontractors in connection with the performance of the Services or in relation to my use of the Contract Material.

•  Problems (bold wording): •  Covers allegations of infringement that may not be legally valid •  Covers patent infringement. You cannot guarantee that your actions

will not infringe 3rd party patent rights due to the lag time in the patents system

•  Covers IP infringement arising from the other party’s use of Contract Material. Such use is out of your control.


Indemnities •  Example 3

•  You agree to indemnify me in respect of any liability (whether direct or indirect including any loss, action, suit, claim, demand, damage, injury, cost, charge, penalty, expense or diminution in value, legal costs, loss of profit or consequential damage) that I may suffer or incur arising out of or in connection with your activities in carrying out the Contract including: •  (a) the use or commercialisation of the Project IP by any person; •  (b) any infringement of IP of any person; and •  (c) the use of the deliverables otherwise.

•  Problems (bold wording): •  Covers extended loss for which you may not otherwise be legally

liable •  Covers loss arising from activities beyond your control •  Not limited to the causes listed in (a) – (c) – could cover broad class

of other losses


Indemnities

•  Useful responses to requests for inappropriate indemnities •  Your organisation should only be liable for losses for which you

would be liable at law •  Risk / liability should lie with the party who is best placed to

control and minimise it

•  Remember – there is no standard indemnity! •  The type and scope of contractual risk management (if

any) that is appropriate will depend on the context of each transaction


Thank you

Brett Walker General Counsel CSIRO Tel: 612 6276 6275 Email: [email protected]

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