Faculty consulting agreements are personal agreements between the faculty member and a company. However, if not negotiated responsibly, the relationship can create risk for the faculty member as well as conflict with obligations of the faculty to the Regents of the University of California.
The information presented here is an informal guide to supplement University policy. This Guide should not be construed as legal advice and, when in doubt, the services of a qualified attorney should be sought. This Guide does not replace or supercede formal University policy, procedures and guidelines.
In determining whether an activity should be undertaken as outside consulting, faculty should be cognizant of the “Policy on Requirements to Submit Proposals and to Receive Awards for Grants and Contracts Through the University”. This policy states that employees who receive any part of their salary through the University, or whose activities use any University resources or facilities, must submit proposals for extramural support for research or other academic activities through the appropriate University contracts and grants office. This requirement applies to all research and other extramurally funded projects and ensures compliance with relevant University policies and guidelines. For industry-faculty consulting relationships, the information in this Guide may be useful to you as you negotiate agreements.
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Faculty outside professional activities, including consulting activities, are encouraged by the University as long as they do not interfere with teaching, research and other obligations to the University. Consulting activities provide opportunities for faculty to work with industry to create new research opportunities, to further the public good and to contribute expertise that can fuel commercialization of products and foster overall economic development.
From the University's perspective, a primary concern is to ensure that the faculty member does not inadvertently circumvent or compromise his/her own or the University's interests, such as intellectual property rights. Some proposed consulting agreements contain inappropriate provisions requiring, for example, the faculty consultant to relinquish all rights and/or interest in the work produced as a result of the consulting agreement. This type of restriction creates a problem by potentially being in direct conflict with a pre-existing interest the faculty member and/or the University may have in the copyrightable work and might undermine the faculty member’s right to information or academic freedom.
Generally, the provisions in a consulting agreement, which these terms are defined, is entitled "Intellectual Property Rights", "Ownership" and "Representations and Warranties". Consulting agreements should include a statement indicating that the parties acknowledge and agree that the consultant has existing employment obligations to The Regents of the University of California and pursuant to the consultant's employment with The Regents, to the Patent Agreement and UC Patent Policy.
Furthermore, problematic language can appear throughout the agreement regarding a number of other provisions, as addressed below. In general “all encompassing” language should be avoided, not only because it may compromise the faculty member’s existing obligations to the University, but also because it may compromise the faculty member’s ability to publish or may compromise the ability of other faculty members with whom he or she is collaborating at UCSF to disseminate their findings.
Outlined below are some common issues that arise with consulting agreements and some suggested approaches to addressing them.
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C. KEY ISSUES:
Faculty consulting agreements should include a clear statement that the consultant is an employee of the University of California with pre-existing obligations to The Regents. One of the most important obligations the company needs to know about is the Patent Agreement faculty members sign as a condition of employment with UC. In the University's standard Consultant Agreement, there is boilerplate language that sets forth the pre-existing obligations of the faculty member to The Regents. To ensure that these obligations are understood and disclosed, all faculty consulting agreements should include the following standard provision:
The Consultant is a full-time employee and faculty member and/or researcher at the University of California San Francisco (“UCSF”). Nothing in this Agreement shall be construed to conflict with Consultant’s obligations and duties as such, including Consultant’s duties to protect information that is confidential and/or the property of UCSF, to not disclose such protected information to Company or any third party, and to fully comply with his/her pre-existing employment obligations to The Regents of the University of California, the UC Patent Policy, the Compensation Plan and other applicable regulations.
Even when agreeing to use the company's consulting agreement, rather than the University’s standard consultant agreement, the above text should always be included in the agreement.
In addition, the following text is suggested for the patent rights clauses:
Company X acknowledges Consultant is an employee of the University of California with pre-existing obligations to disclose and to assign patent rights to The Regents consistent with the Patent Agreement provided as Exhibit B and made a part of this agreement.
Incorporating the Patent Acknowledgement as an exhibit will help avoid making conflicting obligations to two entities.
The UC Patent Acknowledgement is available at: http://atyourservice.ucop.edu/forms_pubs/forms_worksheets/upay585.pdf
In most cases, it is necessary for a company to disclose proprietary information to a consultant. In so doing, the company will want assurances in the contract that the consultant will keep the company’s proprietary information confidential.
If required to use the Company's consulting agreement, the agreement should be carefully reviewed to ensure that the definition of "Proprietary Information" and the general restrictions on use of proprietary information are consistent with the definition in the standard UC Consulting Agreement. This will ensure that these provisions are not so all encompassing (otherwise referred to as "overbroad") as to create a potential conflict with The Regents.
An example of an ACCEPTABLE intellectual/proprietary interests provision is:
"5. Consultant’s Inventions and Ideas
(a) Defined The term "Invention Ideas" means any and all ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, and all improvements, rights, and claims related to the foregoing that are conceived, developed, or reduced to practice by the Consultant under the scope of this agreement except to the extent that California Labor Code Section 2870 lawfully prohibits the assignment of rights in such ideas, processes, inventions, etc.
Section 2870 (a) provides:
Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer.
(2) Result from any work performed by the employee for the employer. Consultant and Company hereby acknowledge that they understand the foregoing limitations created by Section 2870.
(b) Company X acknowledges Consultant is an employee of the University of California with pre-existing obligations to disclose and to assign patent rights to The Regents consistent with the Patent Agreement provided as Exhibit B and made a part of this agreement.
Company is informed that Consultant has signed a Patent Agreement with The Regents of the University of California and under that agreement Consultant agreed to report any inventions conceived or made during the term of Consultant's University of California employment, and to assign such inventions to The Regents in accordance with the terms of its Patent Policy. Nothing in this Consulting Agreement shall be construed to interfere with these obligations to The Regents.
Company, by signing the Consultant Agreement, is agreeing that Consultant cannot assign rights to inventions that relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer and/or relate from any work performed by the employee (consultant) for the employer.
(c) Assignment Consultant agrees to assign to the Company, without further consideration, its entire right, title, and interest (throughout the United States and in all foreign countries), free and clear of all liens and encumbrances, in and to each Invention Idea, developed within the scope of this agreement, for Company, whether or not patentable. In the event any Invention Idea shall be deemed by the Company to be patentable or otherwise registrable, Consultant shall assist the Company (at Company's expense) in obtaining letters patent or other applicable registrations thereon and shall execute all documents and do all other things (including testifying at the Company's expense) necessary or proper to obtain letters patent or other applicable registrations thereon and to vest the Company, or any Affiliated Company specified by the Board, with full title thereto.
Consultant agrees to furnish and execute such additional documents as Company may require to establish Company's ownership of the copyright in the work including without limitation, such assignments of copyright therein throughout the world as Company may deem appropriate. Consultant shall be compensated at the then prevailing hourly rate, agreed to in advance by Company, for any services rendered in connection with this Paragraph 5 at the request of Company.
Should the Company be unable to secure Consultant's signature on any document necessary to apply for, prosecute, obtain, or enforce any patent, copyright, or other right or protection relating to any Invention Idea, Consultant hereby irrevocably designates and appoints Company and each of its duly authorized officers and agents as Consultant's agent and attorney in fact, to act for and in Consultant's behalf and stead and to execute and file any such document, and to do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of patents, copyrights, or other rights or protections with the same force and effect as if executed and delivered by Consultant.
Company acknowledges that there are ideas, processes, trademarks, service marks, technology, computer programs, original works of authorship, designs, formulas, inventions, discoveries, patents, copyrights, or improvements to the foregoing produced within the scope of Consultant's employer-employee relationship with UCSF. These items are the property of UCSF and are not subject to the terms of this agreement."
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An example of an UNACCEPTABLE intellectual property/proprietary interests provision is as follows:
"Consultant agrees that all Intellectual property that is generated conceived, made, reduced to practice or learned by Consultant, whether alone or jointly with others, in the course of any work performed for Company shall be the sole and exclusive property of Company, and Consultant agrees to promptly disclose all such Company IP to Company in writing. Consultant hereby irrevocably assigns to Company all right, title and interest worldwide in and to the Company IP and all applicable intellectual property rights related to the Company IP, including without limitation, copyrights, trademarks, trade secrets and patents.
Any deliverable referred to in Paragraph 1 or Exhibit A and any other reports, data, presentations, inventions, documents, computer models and ideas made or conceived by Consultant in connection with or during the performance of services for Company and any proprietary rights relating thereto (including patents and trademarks and applications therefore) shall be the property of Company. The copyright and all other rights in and to all copyrightable work created by Consultant under this Agreement shall belong completely and in all respects to Company and that Consultant shall retain no rights in or to same."
Consulting agreements should also be carefully scrutinized to clarify for the faculty member how a company defines the term "invention" or "invention ideas" to ensure that the definition is not overbroad and that the University's rights are not compromised or circumvented by any provision wherein the consultant assigns his/her rights to an invention that materialized as a result of the consulting agreement.
The UC standard Consulting Agreement has a provision entitled "Consultant's Invention and Ideas" which clearly delineates what can and cannot be assigned by the consultant to the company. This provision is a particularly critical one.
An ACCEPTABLE provision would be the one from the UC standard Consulting Agreement, which is:
"Company, by signing the Consultant Agreement, is agreeing that Consultant cannot assign rights to inventions that relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer and/or relate from any work performed by the employee (consultant) for the employer.
An assignment of patent rights may only be made after disclosing any new invention to the University. The Office of Technology Management will determine the degree to which the University will assert rights to any new invention based on the circumstances of the invention's derivation."
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In addition to propriety information, a company may want to identify other information as confidential and limit its disclosure. Typically there is a provision in the agreement addressing confidential information that is generally entitled "Confidentiality”, "Confidential Information" or, sometimes will be found under the section entitled "Proprietary Information”. Through this provision, a contractual obligation is placed upon the faculty member that prohibits him/her from divulging information the company deems confidential. While it is appropriate that the company protect its confidential information from disclosure, what is deemed confidential should not be overbroad or ambiguous. An overbroad and/or ambiguous confidentiality provision can render information the faculty member would define as non-confidential information to be confidential. Also, overbroad confidentiality provisions can place an undue burden on the faculty member that is not necessary and could potentially subject the faculty member to being in breach of the agreement. Such a provision may also unduly restrict a faculty member’s ability to publish. Further, it is critical to the protection of the University that all confidential information provisions be subject to the University's right to review any and all information necessary to make its determination as to whether it has intellectual property rights to any invention that may result from the faculty consulting agreement.
If the UC standard Consulting Agreement is not used and the company requires a confidentiality provision, an ACCEPTABLE confidentiality provision is:
"Confidential Information shall mean all information relating to the business of Company, all documents and information that Company discloses to Consultant pursuant to this Agreement, and all materials, documents and information gathered or developed pursuant to this Agreement, which Company makes available, or has previously made available, to Consultant pursuant to this Agreement. All information deemed by Company to be confidential will be provided in written form and designated as confidential. If confidential information is provided verbally, it is to be reduced to written form by Company and designated as confidential.
The foregoing provision shall not be construed to conflict with and/or supercede Consultant's existing obligations and/or duties pursuant to his/her employment with the Regents of the University of California, his/her contractual obligations pursuant to his/her Patent Agreement with the Regents of the University of California and/or University of California Patent Policy.
The foregoing obligation of non-use and non-disclosure shall not apply to any portion of the Confidential Information which:
Is or shall have been known to the consultant before his/her receipt thereof;
Is disclosed to the consultant by a third party; or
Is or shall have become known to the public through no fault of the consultant."
An example of an UNACCEPTABLE confidential provision is as follows:
"Confidential information means all information relating to the field disclosed by or on behalf of each party, and any new and novel combinations thereof, whether disclosed in writing, verbally or by any other means and regardless of the date it was disclosed."
Consulting Agreements sometimes contain provisions that limit publication rights. The purpose of this, of course, is to help maintain proprietary or exclusive position in the field. Most companies encourage publications after appropriate patent applications are filed. The University cannot permit restrictions on publication. However, the company can be given the opportunity to review manuscripts prior to submission for publication and provided a time frame to review the manuscript. This gives the company the opportunity to identify any proprietary information that may have been inadvertently included in the paper, or to identify patentable inventions that may be described in the paper. If company proprietary information is included in the manuscript, the company may request that it be stricken. If a new patentable invention is identified, the company may be granted a contractual right to delay publication for a specified period of time (up to 90 days) in order to request that Office of Technology Management prepare and file a patent application; however, the company must be willing to pay patent costs.
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D. FACULTY ISSUES
From the faculty member's perspective, there are a number of provisions that could present potential problems if not worded properly. The following are some of the more frequent problematic clauses for the faculty member with a brief explanation of the potential problem:
A clearly defined scope of service is necessary not only to clarify for the faculty member what he/she is contractually obligated to do for the company, but also to inform the University of any potential issues relating to intellectual property rights/proprietary interest, conflicts of interest, or appropriateness of classification as a faculty consulting agreement.
Faculty should try to limit their liability under the consulting agreement to responsibility for negligent acts on their part only and not general liability and certainly to avoid liability related to any products produced as a result of the consulting activities. Consultants normally provide advice that can be accepted or rejected by the company; usually the consultant has no control over how the results are used in practice.
Any liability clauses should be reciprocal. Faculty should have proper insurance for the liability exposure under this personal consulting agreement. The University will not be responsible for legal defense or payment of any claims should there be a dispute.
Companies generally seek to have the consultant indemnify and hold harmless the company for any breach of warranty set forth in a “warranties or conflicting engagement provision” of the consulting agreement. Generally, companies want the consultant to warrant that no conflicts of interests exist. It is advisable that the consultant should neither warrant that there is no conflict of interest nor indemnify the company in the event one exists or occurs after the agreement is signed. Consultants may not be aware that there is an existing conflict. Likewise, a consultant cannot, with any certainty, warrant that none shall occur in the future.
If a faculty member agrees to indemnity language, he/she is subjecting him/herself to substantial financial exposure if a conflict does arise by indemnifying the Company for all losses that arise as a result of the conflict. As a general rule, it is not advisable to indemnify or hold harmless a company unless the faculty member has sufficient insurance to cover the potential financial liability. There is no certainty that UC insurance will cover these activities.
It is generally best if there is no warranty provision included in the agreement. However, if a warranty provision is included, it can be neutralized somewhat by including the following ACCEPTABLE provision:
"Notwithstanding any pre-existing employment and/or contractual obligations Consultant has with his employer (including but not limited to the UC Patent Agreement and UC Patent Policy), Consultant represents and warrants that to the best of his present knowledge that (a) Consultant has the authority to enter into and perform this Agreement and (b) performance of Consultant’s services as contemplated by this Agreement will not result in the breach or violation of any contract, arrangement or understanding which Consultant may have with any third party (including without limitation current and former employers of Consultant and any other companies or persons for which Consultant has performed or is performing consulting services.)"
An area of concern to the faculty member is whether an interference with business/competitive activities provisions is unreasonably restrictive. This section, generally entitled " Interference with Business" provides that during the term of the agreement and for a specified period of time after termination of the agreement, the consultant will not divert from the company any business of any kind in which the company is engaged in, including the solicitation of or interference with any of the company's suppliers or customers, or employ, solicit for employment, or recommend for employment any person employed by the company. It is the specified period after the termination of the consultant agreement that can be unreasonably long, thereby preventing the faculty member from pursuing other contracts for the same scope of services with other companies or pursuing other activities with scientific merit. The standard UC Consulting Agreement has a one-year period after termination of the agreement. Any term greater than one year may be too restrictive, but clearly more than three years after the agreement would be deemed unduly long.
Companies often seek to have any disputes arising out of the consultant agreement resolved by the laws of the state where the company has its principal place of business. For contracts, the jurisdiction is usually in the state where the contract was performed. If the contract is performed in California, then it would be litigated in California, applying California law. There is a significant advantage to California jurisdiction. The faculty member does not have to incur the expenses associated with travel to another state or lose significant work time in defending in another state. In addition, the laws of California may be more favorable to the faculty member. Furthermore, the faculty member does not have the additional burden of attempting to secure representation in another state where he/she may not know the reputation of the attorney.
The terms of the agreement should be clearly defined and understood by the consultant before signing the agreement. If any terms are not clear or seem too vague to the faculty member or the verbal explanation of the terms is in conflict with what is written in the document, they should be clarified before finalizing the agreement. Provisions that are not clear in their meaning invite litigation. For example, an agreement that indicates that services will be provided in a "timely manner" is not specific as to a timeframe. What is deemed timely by the consultant may be deemed untimely by the company. The company could then allege that consultant has breached the contract and seek damages. This is but one example of ambiguity. Faculty consultants should strive to have language precisely and clearly drafted.
A conflict of interest can occur when a person has a financial interest in a private sponsor of his or her research. “Financial interest” can generally be defined as the holding any income, position of responsibility, stock ownership, or other personal consideration by a faculty member or his or her near relative in the sponsoring company. The key to managing conflicts is to show that there is sufficient separation between the circumstance that caused the conflict and the sponsored research project. In general, it is best to avoid acquiring a financial interest—especially board membership—in a private company that you hope will fund your research.
In California, conflict of interest is addressed by The Political Reform Act of 1974 and managed by the California Fair Political Practices Commission (FPPC). University policy is consistent with state law, and the University must report to the FPPC for its implementation. The NIH and other federal agencies have also established guidelines requiring full disclosure and review of potential conflicts.
Practically speaking, the policy is directed at two aspects of conflict of interest: (1) disclosure of the conflict to make sure the relationship is public and (2) substantive review of the conflict to determine if it is harmful to the University. Before the University may accept any gift, grant or contract from a private sponsor, the benefiting faculty member must file a disclosure statement indicating whether or not he or she has a financial interest in the sponsor and, if such interest exists, the type and amount of that interest. A separate disclosure statement is also required at the conclusion of the sponsored project. If the disclosure statement shows no financial interest, the award may be immediately accepted. If the disclosure statement reveals a financial interest, a supplemental questionnaire must be completed and reviewed. The University’s Conflict of Interest Committee (COIC) then makes a recommendation as to whether or not the conflict may be harmful to the University and if so, whether or not the conflict can be managed. The existence of a conflict does not automatically mean that support cannot be accepted from the sponsor. Provided the conflict is disclosed but not harmful to the University, the conflict may be allowed to continue.
The COIC may not recommend accepting research awards from sponsors in which the P.I. is on the board of directors or where the P.I. has a financial interest in the company. However, the committee must evaluate whether there is a conflict and, if one is identified will define under what the investigator may do to minimize it. Some factors that may help demonstrate the separation between the conflict and research include: student involvement in the research project, unabridged academic freedom, publications emanating from the project, and that intellectual property rights are managed according to University policy.
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E. SOURCES FOR MORE INFORMATION
As stated in the Preamble to this Guide, consulting agreements are personal agreements between the faculty member and the industry representative. The information presented in this informal guide is a supplement to University policy. This Guide should not be construed as legal advice and, when in doubt, the services of a qualified attorney should be sought.