Applying the Brakes

WAITING FOR LICENSING NEGOTIATIONS TO SOLVE CRUCIAL LIABILITY ISSUES IS A NECESSARY, BUT FRUSTRATING, PART OF RESEARCH.

For faculty inventors, the news that a company seeks to license one of their inventions offers all kinds of hope. Ideas honed in their labs finally might make it to the marketplace to help patients and perhaps even return some royalties. Frequently, licensing agreements also promise an infusion of research funding from companies counting on inventors to help advance and refine their concepts.

But a seemingly routine negotiation over licensing rights could stand in the way of such benefits. Faculty inventors can find their patience running thin as lawyers work on an agreement week after week, month after month. Such licenses usually take about six months to negotiate, but work can stretch to a year or more.

"It's understandable if the faculty member is asking, What's going on here? Why's it taking so darn long?" says Bill Tew, assistant dean and executive director of the Division of Licensing and Business Development (LBD). "And meanwhile, the company is often telling the inventor that the delay is all Hopkins' fault, that the University is being stubborn and unreasonable."

Surprisingly, money is not the usual sticking point. "We might argue about it and point fingers, but we can
always agree on the money," Tew says.

Instead, the most contentious issues involve liability for future lawsuits that could arise over products based on the invention. Hopkins insists that licensees accept responsibility for all legal fees, settlements and judgments arising from such suits. And Hopkins insists that licensees cover the University in insurance policies. More and more firms are contesting these provisions, but Hopkins' demands are a matter of policy developed at the University's highest levels.

Hopkins makes two central arguments in these negotiations, says Frederick Savage, the University's
deputy general counsel. First, because the University has no control over the development, testing and manufacturing of products that arise from a license, it shouldn't bear any liability. Second, the University's
share of profits is too small-four or five cents on the dollar, generally-to justify any liability risks.

A single historical case demonstrates the need for such provisions. In the 1960s, Hopkins faculty member
Hugh Davis developed an intrauterine contraceptive device called the Dalkon Shield that was licensed by
A.H. Robins Co. After users suffered infections that led to serious health complications, Robins was
successfully sued for more than $2 billion.

At the time, Hopkins did not claim ownership of faculty inventions. But if it had, and if it hadn't had
sufficient liability protection, the University's general revenues and even portions of its endowment and
real-estate holdings might have been at risk. "That's the worst-case scenario," Savage says, "and that's
why we absolutely must have satisfactory protection."

Other aspects of licensing agreements can prove critical as well. Many agreements outline the progress a
company must make on a product within certain time frames. Companies that fail to meet these
"milestones" sometimes sue when Hopkins attempts to terminate the license. And companies that falter
due to poor management or other reasons unrelated to a faculty invention sometimes shift the blame for
their woes onto Hopkins in an effort to save face with investors.

"It's extremely important that the faculty understand the implications of these agreements," Savage says.
"Most faculty see only the upside; it doesn't occur to them that there are potential downsides, which may
include things such as threats to sue the faculty personally for negligent advertising."

These same liability issues also make it essential for faculty to be diligent about the material transfer
agreements (MTAs) that govern biological materials they request from private companies. Increasingly,
companies are inserting language into MTAs that, for example, seek ownership of any inventions made
using the materials, but without including any liability protection for Hopkins.

"Sometimes, companies will say to a faculty member, 'Here's our standard MTA. Please sign it,'" Savage
says. "And even though faculty have no authority to sign it, the company will give them the materials
thinking they do." Such situations have resulted in threats of lawsuits against the University and the
faculty member. MTAs can only be approved by LBD's Office of Technology Licensing.

-Jim Duffy

CHANGE
June 5, 2002
Volume 6, Number 11