General Legal Issues in Research Related Contracts

1. General Legal Issues in Research Related Contracts Michael Jung Associate University Counsel mrjung@uncg.edu Back to Basics Bootcamp – 8/8/2

2. What is a “Contract”? • Under university policy, a “university contract" is any agreement between the university (and any center, department or other subunit) and any other third party intended to have legal effect. • Includes oral agreements, and need not be called a “contract." Often called Memorandum of Understanding, MOU, letter agreement, letter of understanding, or simply an agreement or proposal. Back to Basics Bootcamp – 8/8/2

3. University Policy: • Person initiating contract is responsible for determining that: the contract accurately reflects the negotiations; the contract meets the program’s and university’s mission; the contract is in the best interests of the university; and that he or she can ensure compliance with the obligations it places on the university. • All university contracts must be reviewed and approved by Purchasing or University Counsel, except for “contracts or extensions or renewals thereof if the form or template has received prior written approval … and the current version contains no substantive changes.” • Why? In part, because the state attorney general has issued rules mandating that certain "prohibited clauses" not be included in any contracts into which a state agency like the university enters. Back to Basics Bootcamp – 8/8/2

4. Where to Go? • Before negotiating any type of research agreement with a potential sponsor or collaborator, contact the Office of Sponsored Programs, Office of Innovation Commercialization, or Office of University Counsel. • Note: Signature authority (or authority to commit funds) is not approval authority. Back to Basics Bootcamp – 8/8/2

5. Examples of Research Contracts: • Sponsored research agreements • Research collaboration agreements • Academic collaboration agreements • Memoranda of understandings • Material transfer agreements • Confidentiality agreements • Any other agreements relating to research Back to Basics Bootcamp – 8/8/2

6. Limitations on University’s Ability to Accept Contract Terms: • State law (and attorney general rules) • University or department’s mission • Federal law Back to Basics Bootcamp – 8/8/2

7. State Law –Umstead Act • Act specifically prohibits university from: • directly or indirectly selling goods in competition with state citizens; • rendering services to the public that are ordinarily provided by private businesses; • leasing space in a state owned or operated building for purposes of selling goods or rendering services in competition with private business; • contracting with anyone to sell goods or render services in competition with private business. Back to Basics Bootcamp – 8/8/2

8. State Law – Umstead Act • Exception allows university to sell several things and conduct certain activities: • utilities and other services operated prior to January 1, 2005; items incident to educational research or the operation of instructional departments; food, books, and minor merchandise to employees, students, and their families; food and merchandise at meetings or conventions; student health services; activities that serve students and employees and their immediate families or guests; • activities that further the mission of the university; • activities that provide university related services or market university related merchandise to alumni of the university and their immediate families; enable the community to utilize the university’s facilities, equipment or expertise. Back to Basics Bootcamp – 8/8/2

9. State Law – Umstead Act • Important Questions to ask: • Is the activity a direct or indirect sale of goods, wares or merchandise? • Does the activity offer a service that is normally performed by private businesses? • Is the activity directly related to the university's educational function? • Would the activity fall under any other exception? • **If the answer to 1 or 2 is "yes," then proceed to answer 3 and 4. If neither 3 or 4 is "yes," then the activity is likely prohibited by the Umstead Act. Back to Basics Bootcamp – 8/8/2

10. State Law – Indemnification: • A sponsor or collaborator will likely request that the university “indemnify” it from any liability. • What is an indemnification? Agreement that the university accept liability regardless of fault. • Shifts risk of damages from sponsor or collaborator to the university. • Requires the university to defend the sponsor or collaborator if a lawsuit arises. Back to Basics Bootcamp – 8/8/2

11. State Law – Indemnification: • Accepting an indemnification clause is a problem because: • State laws provides that contract provisions such as limitations on the other party’s liability, waivers of the limits of the University's liability, and hold harmless or indemnification clauses in favor of the other party are contrary to public policy and are therefore void. A state entity cannot waive the state's sovereign immunity and assume liability for actions not covered by the state Tort Claims Act, or accept liability in an amount greater than allowed under the Tort Claims Act. Agreeing to such terms in violation of the Tort Claims Act would render that agreement void. • Attorney general defends only state agencies (including university), and is not authorized to defend a non-state entity. • Any agreement to indemnify must be consistent with state law and attorney general rules. Back to Basics Bootcamp – 8/8/2

12. State Law – Jurisdiction: • Agreements proposed by sponsor or collaborator are likely to provide that the laws of the other party’s state (or country) shall govern the contract, and that such state (or country) shall have jurisdiction over any claims arising from the relationship. • Problem: State law prohibit state agencies from submitting to the jurisdiction of any entity (state or country) other than North Carolina. Clauses permitting lawsuits in another state implicate the state's sovereign immunity, and the attorney general's authority to represent the state agency. Back to Basics Bootcamp – 8/8/2

13. State Law - Insurance • Many third party agreements will require the university to maintain insurance coverage at a specific amount, and to provide the third party with proof of insurance. • Problem: As a state agency, the university is self insured up to the limits of the state Tort Claims Act (and therefore cannot add a third party as an “additional insured.”) University does have additional insurance coverage, but state agencies are prohibited from purchasing insurance except when approved by the state legislature. Back to Basics Bootcamp – 8/8/2

14. State Law – Insurance • The university can obtain the functional equivalent of an insurance certificate from the state. • Contact the Office of Enterprise Risk Management (Tammy Downs) for insurance-related information. Back to Basics Bootcamp – 8/8/2

15. State Law - Confidentiality • Sponsors and collaborators often want all information relating to a research project to be confidential, including the terms of the agreement and often even the very existence of the research project or the agreement. • Problem: Public Records Act mandates that, with limited exceptions, all records in possession of the university are subject to inspection and copying by the general public. Back to Basics Bootcamp – 8/8/2

16. State Law – Confidentiality • University can agree to protect information supplied by a third party only if (a) it is identified as confidential at the time of disclosure, and (b) it constitutes a trade secret under state law. • University can never agree to keep confidential: • the terms of an agreement, or • the existence of an agreement or a research (or any other type of) relationship. • Confidentiality obligations can prevent researchers from publishing research results. Back to Basics Bootcamp – 8/8/2

17. State Law – Conflict of Interest • Complicated topic beyond scope of this discussion, but important issue. • Companies associated with university faculty or staff often seek to sponsor research, or collaborate with university researchers. • Such activities may run afoul of university policies, federal regulations, and state criminal laws that govern self dealing. Back to Basics Bootcamp – 8/8/2

18. University Mission • University Mission Statement: To redefine the public research university for the 21st century as an inclusive, collaborative, and responsive institution making a difference in the lives of students and the communities it serves. • learner-centered, accessible, and inclusive community fostering intellectual inquiry to prepare students for meaningful lives and engaged citizenship; • research university where collaborative scholarship and creative activity enhance quality of life across the life span; • source of innovation and leadership meeting social, economic, and environmental challenges in the Piedmont Triad, North Carolina, and beyond; and • global university integrating intercultural and international experiences and perspectives into learning, discovery, and service. • Nutshell: create, integrate, transfer and apply knowledge. Back to Basics Bootcamp – 8/8/2

19. University Mission – Conflicts • Research contracts can clash with the university’s mission in a variety of ways, including: • Restricting ability to publish research results • Require conduct of confidential research • Assigning ownership of intellectual property and data Back to Basics Bootcamp – 8/8/2

20. University Mission - Publication • Sponsors and collaborators often seek the right to approve publications resulting from research. • Problem: conflicts with university policy stating faculty, staff and students carry out their scholarly work in an open and free atmosphere and publish research results without restraint. Back to Basics Bootcamp – 8/8/2

21. UNCG Mission – Publication • Giving a sponsor/collaborator approval over publications effectively gives that party the right to prohibit publication. • Can (and often does) result in faculty being unable to publish in academic journals. • Can (and often does) result in students being unable to fulfill dissertation requirements. • Impacts tenure, dissertations, and can lead to export control violations. Back to Basics Bootcamp – 8/8/2

22. UNCG Mission – Publication • University can grant sponsors/collaborators the right to review (not approve) publications to: • identify confidentiality information, • identify patentable material, and • and provide comments (but not require changes). • Review period must be limited to 30 days, and sponsor/collaborator can request additional delay of up to 60 days for patent purposes (UNC Policy allows one year). Back to Basics Bootcamp – 8/8/2

23. University Mission – Data Ownership • Sponsors/collaborators often request ownership of data arising from research. • Agreeing to such language raises several policy/legal issues: • Assigning ownership of data may prevent publication. • Data may be needed should publication be challenged or allegations of research misconduct arise. • University may have an obligation to provide other third parties (federal government) access to data. Back to Basics Bootcamp – 8/8/2

24. University Mission – Confidentiality • In addition to state law issues, confidentiality obligations can conflict with university policy by: • Preventing faculty and students from publishing research results • Preventing students from fulfilling thesis requirements • Impacting tenure (due to inability to publish) Back to Basics Bootcamp – 8/8/2

25. Federal Law – Bayh-Dole Act • Sponsors/collaborators often seek ownership of (or preferential rights to) inventions arising from university research. • Bayh-Dole Act allows university to elect title to patents arising from federally funded research. • Granting ownership or special rights to university intellectual property can create a conflict if there are multiple funding sources that contribute to the intellectual property. Back to Basics Bootcamp – 8/8/2

26. Federal Law – Bayh-Dole Act • A conflict can arise if a contract gives a sponsor or collaborator ownership of, or preferential rights to, an invention arising from research, where some part of the invention is conceived in the course of federally funded research. • Under Bayh-Dole Act, university can elect ownership of inventions created in federally funded research, but must grant license rights to federal government. Back to Basics Bootcamp – 8/8/2

27. Federal Law – Export Controls • Research contracts often specify that certain information used in the project is subject to US export control laws (which govern export of goods or information to foreign individuals or countries). • Presence of export-controlled information may prevent international students or faculty from participating – even if they are lawfully present in the United States. Back to Basics Bootcamp – 8/8/2

28. Federal Law – Export Controls • Acceptance of confidentiality obligations can lead to export control violations. • “Basic research” subject to Fundamental Research Exclusion: disclosure of some export controlled technology OK so long as there are no restrictions on publication of the research, or research or information is made public or is intended to be made public. • Restrictions on publication rights, or agreeing to confidentiality, can take research out of the FRE. Back to Basics Bootcamp – 8/8/2

29. Federal Law – Private Use • Many facilities on campus have been financed, at least in party, with tax exempt bonds. • Under federal law, excessive “private business use” of such facilities would cause the interest on tax-exempt bonds to be taxable. • Described as “catastrophic result” for state and/or university. Back to Basics Bootcamp – 8/8/2

30. Federal Law – Private Use • “Private use” of facilities may include leases, management or service contracts (bookstore, food service, etc.), naming rights or research agreements. • The intellectual property rights usually requested by sponsors/collaborators (ownership of or preferential license rights to IP) would cause research to be deemed “private use” of facilities. Back to Basics Bootcamp – 8/8/2

31. Federal Law – Private Use • Very generally, research agreements will not create private use if: • any rights to research results that the university grants to a sponsor or collaborator are identical to the rights the university would grant to any other unrelated, non-sponsoring party (sponsor must pay a competitive price), and • The price paid for use of research results is determined at the time the research results are available for use (i.e., university cannot negotiate royalties/price up front). Back to Basics Bootcamp – 8/8/2

32. Federal Law – Tax Issues (UBIT) • Tax exempt organizations subject to Unrelated Business Income Tax (UBIT) on income from any “trade or business” that is regularly carried on by the entity that is not “mission-related.” • There is a broad exception for research, but exception would not cover most “fee-for-service,” facility use, or routine testing agreements. • Activities that lead to UBMIT are not “evil,” just taxable – and need to be reported as such. Back to Basics Bootcamp – 8/8/2

33. Intellectual Property – General • As a general rule, should be treated the same for all agreements, following inventorship: • What university (faculty, staff & students) invents belongs to university. • What sponsor/collaborator invents belongs to sponsor/collaborator. • Jointly developed inventions are jointly owned. • Providing $$$ (sponsorship or otherwise) does not equal ownership. Back to Basics Bootcamp – 8/8/2

34. Questions/Comments? Feel free to contact: Mike Jung Associate University Counsel mrjung@uncg.edu 336.2556.2582 Back to Basics Bootcamp – 8/8/2