The Patents Court recently had to decide whether a doctoral student was a consumer, and if the IP terms in his contract with Oxford University were fair.

Oxford University Innovation (OUI), the technology transfer arm of Oxford University, claimed royalties under a licence agreement between OUI and Oxford Nanoimaging (ONI). The licence relates to intellectual property rights in specialised microscope called the ‘Nanoimager’. The university received funding for a project to develop such a microscope. A Mr Jing signed contracts with the University covering an internship and then as a DPhil student, both of which included agreement to the University IP Statute and Regulations. These provided that the University would own all intellectual property of specified types (including inventions) created by students under certain circumstances. They also set out a structured approach to royalty-sharing between researchers and the University and for researchers to agree between themselves how this should be split.

A number of patents naming Mr Jing and his professor (and, for one patent, another researcher) as inventors were sought. The inventors agreed their respective royalty shares. Later, OUI, the professor and Mr Jing decided to set up a spin-out company to commercialise the Nanoimager. ONI was set up, with an original 50:50 split of equity between the researchers and the University, and ONI entered into the licence with OUI. Mr Jing eventually became ONI's CEO.

ONI stopped paying royalties.  It claimed that the licence was void for common mistake.  This was because the parties had entered into the licence agreement on the understanding that OUI owned the patents, rather than Mr Jing. As they argued Mr Jing owned the patents, there was a fundamental mistake and the licence was void.  Therefore there was no valid claim for royalties.

ONI contended that the contract for the DPhil came within the scope of the Unfair Terms in Consumer Contracts Regulations 1999 (which were the predecessor legislation to the Consumer Rights Act 2015) and that the term vesting the intellectual property arising from Mr Jing's research was unfair, and so unenforceable. The court had to rule on two issues:

  • If Mr Jing was, as against the University, a "consumer" under regulation 3 of the UTCCRs when he entered into the DPhil Contract.
  • Whether the terms regarding ownership of IP were "unfair" under regulation 5 of the UTCCRs.

The court reviewed the case law concerning the definition of a consumer.  The relationship between a doctoral student and university, especially in the field of the sciences, had some characteristics which were "consumer-like" and some which were more "employee-like". The judge held that a doctoral student was normally entitled to be treated as a consumer and it did not matter why the student was pursuing their qualification (ie for career, profession or professional advancement).

The court considered three issues when deciding if the IP terms were unfair:

  • The general approach required by the underlying Unfair Contract Terms Directive to decide if a term in a consumer contract is unfair.
  • How that approach should apply to IPR terms between universities and doctoral students.
  • Whether the IP terms were unfair to Mr Jing.

The judge decided that you could not just look at the IP transfer terms on their own, it was necessary to look at the wider picture to see what the student was getting in return. Mr Jing had become a significant shareholder and now CEO of a potentially successful multi-million pound turnover start-up who was also entitled to benefit from significant on-going royalties.

There was potential imbalance in that the terms claimed rights in DPhil student-generated IP made "in the course of or incidentally to their studies". The judge said this did not amount to a "significant" imbalance, having considered the case law.  No other terms created an imbalance.

The judge also concluded that the University had acted in good faith. Its claim was based on the fact that this was work Mr Jing was (largely) there to do. He was working on an existing project led by an Oxford professor. 

Therefore, the transfer of IP rights was not void. The University was properly entitled to claim (and OUI was now entitled to) all of patent rights licensed to UNI.

As the court had ruled that the transfer of IP rights was valid, the parties were not mistaken that the licence was valid and the royalties due (over £700,000) should be paid.