When the Quebec Court of Appeal recently condemned one of Canada’s leading engineering schools to pay a researcher more than a half a million dollars for his share of revenues generated by an invention he co-invented, it marked the fourth case in less than a year that the courts mulled over the rights and obligations of a university over inventions made by its academic staff.
In an intellectual property case that will likely catch the attention of the Canadian IP and legal community, the Quebec appeal court held that Mohammed Ali Fardad was entitled to $715,000, plus interest, after it found that the intellectual property policy formulated by École Polytechnique de Montréal (EPM) applied not only to inventors who are its employees but also to inventors who use the school’s resources or services.
“It’s an important case for university researchers and scientists who don’t necessarily deal with contracts and negotiations as it tells them that they do have rights and that they are entitled to financial benefits from the product of their work,” noted Robert Kugler of Kugler Kandestin, L.L.P. in Montreal who successfully represented Fardad.
Following in the footsteps of three other court decisions by the Quebec Court of Appeal last March, the US Court of Appeals for the Federal Circuit on October 2009 and the Full Court of the Federal Court of Australia in September 2009, the latest ruling also gives further reason for universities to be vigilant in ensuring that the rights they hope to hold in inventions made by their academic staff are properly assigned, according to intellectual property expert George Locke.
“These cases highlight to universities that it’s not enough to have an intellectual property policy in place,” remarked Locke, partner with Ogilvy Renault LLP in Montreal. “Universities have to make sure that they follow and understand the implication of their IP policies.”
The Fardad case is notable because the invention stemmed from the collaborative efforts of staff from two universities (the other being McGill University), each of which had their own intellectual property policies. Fardad, who was enticed to come to Montreal from London, England, worked as a post doctoral fellow at McGill University in collaboration with McGill scientist Mark Andrews and Polytechnique researcher Iraj Najafi. Some of the work Fardad did that eventually led to the invention was performed at Polytechnique, using its facilities and equipment, under the supervision of Najafi.
When a breakthrough was made in 1996, a report of invention was submitted to McGill University under its IP policy, which identified the team of three collaborators as inventors. The three scientists then assigned their rights to McGill, which agreed to share revenues generated from the invention with Polytechnique. On December 1997, the engineering school subsequently assigned its rights to Polyvalor, a limited partnership established to fund the commercial development of inventions made at Polytechnique. Polytechnique has a 50 per cent stake in Polyvalor.
In 2001, Fardad learned by happenstance that a company had been established to commercialize the invention, with McGill and Polyvalor given shares in the NASDAQ-listed company as payment for the grant of license rights in the invention. During the high-tech bubble in early 2000s, McGill and Polyvalor made a sizeable amount of money after selling their shares, with Polyvalor alone making more than $8.6-million in profit, half of which was handed to Polytechnique.
In 2003, Fardad reached an agreement with McGill for a share of the revenues made from the commercialization of his invention, based on the university’s IP policy. When Fardad approached Polyvalor, it refused to settle.
“The issue in the case was whether Fardad had a right to a portion of the money that was generated by the selling of shares of a company whose business was based on Fardad’s invention,” said Kugler.
While the lower court held that Fardad’s share should be calculated based on the revenues received by Polyvalor, which would have granted Fardad $1.4-million, the appeal court reversed that part of the ruling. The appeal court instead determined that Fardad’s share should be based on the revenues received only by Polytechnique, pointing out that Polyvalor and Polytechnique are two distinct entities.
“The court of first instance decided that the fact that Polytechnique decided to form this partnership to commercialize inventions could not be set up to prejudice Fardad for his share of the proceeds generated by the invention but the Court of Appeal disagreed – and that was disappointing,” said Kugler.
Though it did not have a particular relevance in the outcome of the case at hand, Locke notes that the Quebec Court of Appeal likened Polytechnique’s IP policy with an offer to contract with indeterminate persons, as per s. 1388 and s.1390 of the Civil Code of Quebec. The acceptance of the offer, thus establishing a contract, occurred when Fardad contacted Polyvalor about his claim.
“It’s a bit of a fiction to characterize it as an offer followed by an acceptance because the way the court interprets the situation is probably not what the university had in mind when it put into place its IP policy,” observed Locke. “The idea that the inventor could elect whether it wants to be subjected to the policy or not by either accepting or not the offer – it doesn’t seem reasonable that that is what the university set out to do.”
Locke also wonders about the appeal court’s findings regarding the ownership of inventions made by employees. The Court held that in the absence of any specific provisions in the Civil Code or the Labour Code, common law must be applied. “According to common law, intellectual property in inventions resulting from the work of employees belongs to the employer,” said Quebec Court of Appeal Justice Pierre Dalphond in the 25-page ruling.
“The Court of Appeal is simply wrong there,” said Locke. “It’s true enough in the context of copyright or industrial design that an employer owns a design or copyright that is made by an employee in the context of his employment,” said Locke. “But that does not apply to patents.”
Regardless, Locke believes that the recent rulings underscore the universities to establish as early as possible the rights of all respective parties, “preferably before anyone becomes aware that the invention is worth millions of dollars because then it becomes much more difficult to agree.”
Originally published in The Lawyers Weekly.