Recent cases have highlighted the importance of clear drafting and continued contract management for universities, spinouts and other companies involved in intellectual property commercialisation and R&D agreements.

The cases of Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corp [2024] EWHC 35 (TCC) and Deepmatter Limited v University Court of the University of Glasgow [2024] CSOH 67 offer cautionary tales for those aiming to navigate the intricacies of research collaborations and intellectual property (“IP”) commercialisation.

Both cases involved UK universities. They highlight the need for careful drafting of parties’ obligations and liability provisions as well as continued management of compliance under research and commercialisation agreements. In this insight piece, we explore the practical considerations arising from the cases and provide further background, emphasising key learnings.

Learnings for research collaborations and commercialisation arrangements

The most successful collaborations are those where those involved are clear at the outset regarding the goal of the project and how intellectual property rights are to be dealt with between the parties. The parties’ obligations and provisions relating to liability and risk should also be clearly set out in the relevant agreements.

Once an agreement is in place, this should be followed up by robust monitoring and contract management. Too often, agreements are carefully negotiated, only for obligations which are highly relevant to the ongoing relationship of the parties to be quickly forgotten about after signing.

In a successful collaboration, the initial project is only the beginning of a relationship which will change and evolve over time. The following practical considerations will be helpful for anyone involved in an R&D collaboration and/or IP commercialisation:

• Contract management: parties should seek to establish internal control mechanisms to manage ongoing compliance with the agreement, both when it comes to their own obligations and monitoring compliance by the other party. Effective measures include diligent record-keeping, regular audits, and proper management of internal processes to ensure continuity and compliance with relevant obligations, even when there are changes in key personnel involved in the project. Implementing knowledge transfer protocols and contingency plans should also be considered to manage transitions smoothly. Contract management processes should reflect the contractual obligations of the parties – so there is a need for research and tech transfer teams to understand these aspects of the agreement.
• Monitor scope: parties often initiate collaborations with a limited scope which is reflected in the corresponding agreement. As projects progress and yield positive results, the scope may be expanded based on these initial successes, without contractually documenting the change of scope. This can cause massive problems later. Incorporating checkpoints to review the project's scope at key stages can help to mitigate such problems.
• Publication and approval: where publication of project outcomes is envisaged as part of the collaboration, parties should include a requirement for notification and review of the proposed publication in advance. This should allow collaborators to object to any inclusion of their background confidential information and request a delay to publication where they wish to file a patent application for results. The process for such notification and review must be clearly reflected in the contract.
• Proactive communication: effective communication between the parties is often the first line of defence against disputes. Parties engaging in collaboration for the purposes of research or IP commercialisation should foster a culture of openness, ensuring that all stakeholders are kept informed about relevant developments and any potential issues are flagged and addressed appropriately. For example, the parties may wish to implement governance and steering groups, risk management, reporting and escalation mechanisms.
• Diligence: parties should carry out appropriate due diligence into potential partners for collaboration to ensure they have the necessary expertise and strong track records of delivering high quality work in a professional manner.

Read on to gain further insight into these cases...

Quality of services and liability provisions in research agreements: Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corp

Background

Innovate Pharmaceuticals Ltd, (“Innovate”) a pharmaceutical company, claimed damages from the University of Portsmouth (“UoP”), for breach of a research agreement. The research programme focused on a unique formula for liquid aspirin known as IP1867B, or Glioprin, which Innovate had patented and sought to test for the treatment of a specific type of brain tumour with the intention of commercially exploiting at a later stage.

The principal investigator (“PI”) employed by UoP carried out the in vitro research and subsequently published the findings in a respected academic journal known as the ‘Cancer Letters’. However, the paper was later retracted by the publisher following heavy criticism regarding the accuracy of the findings.

Innovate claimed that the research paper contained serious misrepresentations and that UoP was in breach of contract for failing to use all reasonable skill and care to ensure the accuracy of the work performed, and that the PI had either known those representations to be false or had been reckless.

On that basis, Innovate sued UoP for breach of contract for over £100 million, in respect of:

1. the costs of re-doing the research; and
2. the loss of patent value.

The decision

The research agreement included limitations and exclusions of liability which were central to this dispute. The key clauses are summarised below:

• Clause 11.1: UoP agreed that it would use all reasonable care and skill to ensure the accuracy of the work performed and it would not be liable for any inaccuracies or omissions unless such inaccuracies were the result of UoP's or its agents' negligence.
• Clause 11.4: UoP would not be liable to Innovate for losses arising under any representations unless those representations were fraudulent.
• Clause 11.5: each party’s liability to the other was capped at £1m (excluding for death, personal injury, or fraudulent misrepresentation).

The High Court found that UoP was in breach of contract for failing to use reasonable skill and care to ensure the accuracy of the work performed. The Court held that the PI's errors were due to carelessness, and therefore UoP had failed to use reasonable care and skill in terms of clause 11.1.  It also found that UoP's liability for the breach was capped at £1m according to clause 11.5. There was not enough evidence to establish fraud on the part of UoP, therefore Innovate’s claim for loss of profits for the diminution of patent value was excluded, but Innovate were awarded £1m for the cost of redoing the research.

The court made ancillary comments that if the carve out at clause 11.5 had referred to “death or personal injury or fraudulent misrepresentation or fraud” (as commonly drafted) and if the judge had determined that the PI acted dishonestly, UoP’s liability could have potentially been in excess of £100m. This demonstrates why liability provisions are normally at the centre of contractual negotiations and should be carefully negotiated.

Another noteworthy lesson is the importance of negotiating appropriate liability caps. Generally, the party providing services will want to see some correlation between the liability provisions and the sums payable under the agreement (i.e. the risk and the reward). In this case UoP agreed to carry out the research for £50k which is considerably lower than the £1m cap specified in the research agreement. When negotiating commercial agreements, such as agreements relating to R&D, the parties should take care to consider the liability provisions to ensure that the risks are acceptable considering the rewards.

Contractual obligations relating to assigned intellectual property rights: Deepmatter Limited v University Court of the University of Glasgow

Background

Deepmatter Limited (“Deepmatter”) was a spinout company from the University of Glasgow (“UoG”) and the parties entered into an option and royalty agreement as part of a series of contracts linked to a research project which included UoG assigning certain intellectual property rights (“IPRs”) to Deepmatter.

Deepmatter suspected that a professor from UoG was using the assigned IPRs in a commercial project with Deepmatter’s competitor, Chemify Ltd (“Chemify”). The suspicion was based on similarities between UoG’s patents arising from the work with Chemify and the rights assigned to Deepmatter. Deepmatter raised the proceedings to obtain materials from UoG to enable Deepmatter to verify its suspicions on whether its rights had been breached. The specific provision central to the case stated that UoG had to provide Deepmatter all information, documentation and assistance which Deepmatter reasonably required to enable it to take any action in relation to the defence and/or the enforcement of the assigned rights.

UoG argued it had met its contractual obligations to provide assistance to Deepmatter and asserted that it was not obligated to provide further materials, especially considering that Chemify was a competitor of Deepmatter.

The decision

The Court of Session (Outer House) considered the specific wording of UoG’s obligation. It interpreted “reasonably required” as “reasonably necessary” and found that the material Deepmatter had requested to further investigate its concerns was indeed reasonable and necessary for Deepmatter to assess potential litigation in enforcement of its rights.

Assistance clauses such as this are common in contracts dealing with intellectual property transfers. Parties involved in such arrangements should ensure that their obligations are as detailed and explicit as possible – leaving little room for varied interpretations.

Get in touch with our technology & commercial team

These cases highlight the importance of appropriate commercial risk allocation and effective management of relationships with collaborators under research and IP commercialisation agreements. Prevention is better than cure - it is essential that agreements are clearly drafted with appropriate liability clauses and effective management processes and that this is followed up with implementation and monitoring to ensure ongoing compliance.

If you require any help navigating R&D or commercialisation agreements, please get in touch with our technology & commercial team who would be delighted to help.

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