January 17, 1978
To: Marvin Margoshes, Technicon Instruments Corp.; cc to Contract and Grant Officers
From: Josephine 0palka
Subject: Unacceptable Patent Policy; Secrecy Agreement Date: December 14, 1977
Refer: P. Klenz, 2-2593, E. Kerley, 2-2592
Index: Agency Policy, Patent Policy, Private Foundations
Office of the Board of Patents
485 University Hall
Mr. Marvin Margoshes
Technicon Instruments Corporation
511 Benedict Avenue
Tarrytown, New York 10591
Dear Mr. Margoshes:
In accordance with our telephone discussion on December 12, 1977, I enclose for your information a copy of The Regents' "Schedule of Support and Patent Privileges," which governs patent rights we may offer to industry in return for its support of research within the University of California. A copy of this policy was previously sent to Mr. Morris H. Shamos on October 25, 1974. I am also providing general information on the University's licensing policy and reasons why some of the conditions of your "Program of Grants for Research in Biomedical and Industrial Instrumentation" are not acceptable.
As an educational institution and public trust, we must guard against repressive practices in our licensing procedures. Accordingly University licenses include provisions for payment of a license issue fee (which may be waived if an option was entered. prior to licensing and an option fee paid); a percentage of sales as royalty; and a minimum annual royalty requirement, beginning within a reasonable time after the license has been entered. The license issue fee and minimum annual royalty requirements are due diligence measures to ensure that a company will promptly undertake commercial development of the licensed invention and continue to make such invention available for sale. Where minimum annual royalty payments are not met, and in the absence of mitigating circumstances, The Regents must retain the right to cancel the license so that it will be in a position to grant another company a period of exclusivity as an incentive to undertake commercial development of the invention.
Under the provisions of your offer Technicon would enjoy an option period of three years beyond completion of the grant, without payment of any fee. If the grant period ended three years from January 1, 1978, for example, the option would be open until 1984, by which time the technology under consideration could, conceivably, become obsolete.
By simply choosing not to exercise its option for exclusive rights, Technicon also would be guaranteed at least a nonexclusive license at a reduced royalty rate, the life of any patent that would result, which would have been obtained at the institution's expense, with no diligence requirements on the part of Technicon to bring the invention to a point of practical application, and, as a consequence, no hope for The Regents to recover its patent costs.
Thus, as the holder of a nonexclusive license for the life of the patent, Technicon could choose not to undertake development of the invention and effectively preclude Regents from licensing the invention to another concern--unless the invention were one that required little or no development cost and nonexclusive licensing were possible under such circumstances. In the example given above, The Regents would not have an opportunity to offer the invention for commercial development to other companies until 1984 if Technicon elected not to accept an exclusive license. Even given the opportunity to grant nonexclusive licenses, The Regents would not likely be able to convince any company to accept such license if any amount of time or money were needed to place the invention on the market.
The Regents' only purpose in retaining patent rights is to make them available for licensing and commercial development. We make every effort to negotiate the most reasonable terms and conditions possible for a particular technology within the constraints under which we must operate and have many mutually beneficial arrangements with private industry. It would be our hope to include your company among those who sponsor University research and enjoy the benefits of licensing arrangements.
As I indicated in our telephone discussion, most companies in situations such as the one involving Dr. Alexander would be willing to enter into a secrecy agreement to protect the individual's and the institution's proprietary rights for periods of three to five years. A copy of a secrecy agreement that we use is enclosed for your consideration. We recommend to our faculty that proposals to Technicon be submitted only upon execution of such agreement.
As you also know, it is not always feasible or desirable to prepare and file an application for patent for an invention prior to submission of research proposals. The conditions under which, faculty must submit research proposals to Technicon give it carte blanche to use such ideas commercially if an application for patent has not been filed within the year. While Technicon may be within its legal right to use the invention in commerce without remuneration to anyone, the individual and the institution would be at a decided disadvantage if the request for research funding were denied and the individual had to seek other prospects. Technicon will have had the benefit of advance knowledge of a possibly important concept and could, if it chose, undertake development of the invention during the period the individual is still seeking research support from other sources.
It is my hope that you understand the position of the University of California and realize that its policies and procedures in these matters are not arbitrary. Notwithstanding the constraints placed on the University as a public trust, it maintains relationships of mutual trust and benefit with industry as a whole. I should like to develop such a relationship with Technicon.
cc: Dr. Nicholas M. Alexander, w/encls.
Members, Board of Patents, w/encls.
Manager R. D. Wolfe, w/encls.
Contract and Grant Officers, w/encls.