University of Western Australia v Gray [2008] (No 20) FCA 498

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1 University of Western Australia v Gray [2008] (No 20) FCA 498 Summary and comments by Dr Alan Collier, 27 July Alan Collier is an electrical engineer and lawyer and holds a PhD in management, dealing with research commercialisation, from RMIT University. He is presently postdoctoral fellow at the University of Otago, Dunedin, New Zealand. 1. What the Dispute was about This dispute was a bitterly fought disagreement over intellectual property rights to a medical technology capable of delivering medication to a specific location in the human body through the use of micro-spheres. Micro-spheres are delivered into the bloodstream near the affected tissue and captured by capillaries at which time the treatment is delivered such as radio-isotopes in the treatment of liver cancer (the original idea). The idea has since expanded from radioactive microspheres to chemotherapeutic and localised hyperthermic treatments. Note that the report of this case refers to No. 20. This means that the parties had been before the Court nineteen times previously on a range of issues. The use of micro-spheres in the way contemplated was conceived by Dr Bruce Gray, originally while he was researching at Monash University in Melbourne. It appears that Monash University never claimed any rights in relation to the idea or the technology used. Dr Gray was recruited to the University of Western Australia (UWA) in 1985 as Professor of Surgery. His duties included teaching, and conducting and stimulating research, and he was permitted to undertake a degree of private practice. The principal teaching hospital for UWA was the Royal Perth Hospital (RPH). Dr Gray had an association with the RPH which paid 30% of his salary through UWA. Dr Gray continued as a full-time academic at UWA until March 1997 when he went to a 0.3 fractional appointment associated solely with clinical practice at RPH, and left that position in November The Court found that Dr Gray had been a full-time employee of UWA between 1985 and Dr Gray was the moving force in a company called Paragon Medical, later Sirtex Limited, which obtained the patents relating to the technology associated with microspheres. Dr Gray, in particular, and others, granted rights in the technology to Sirtex. Dr Gray was a director of Sirtex from April 1997 (and Paragon Medical since 1995). Sirtex was listed on the Australian Stock Exchange in UWA claimed proprietary rights in the invention of the micro-spheres and to the interest in Sirtex held by Dr Gray. UWA sought orders of the Court requiring Dr Gray and his associated companies to relinquish ownership of the relevant patents and account for profits made, and to transfer to UWA the interest in Sirtex held by Dr Gray. 1

2 The Claims Made by UWA UWA made two principal claims: a b that Dr Gray had breached his contract of employment with the university by failing to comply with the university s Intellectual Property rules; and that Dr Gray held a senior position with the university that made him a fiduciary and that he failed in his fiduciary duty to ensure that the interests of UWA in the relevant intellectual property were protected. The university also claimed a right to the intellectual property produced by Dr Gray on the basis of the employer-employee relationship under the general law. There were a number of claims by other parties, including Sirtex and a collaborator, Dr Yan Chen, which were heard and determined at the same time. UWA also had claims against other parties, especially Sirtex as the beneficiary of the patents. The Decision of the Court In relation to the principal matter involving Dr Gray and UWA the Court dismissed the claim by UWA against Dr Gray (see par concerning the alleged breaches of contract; par concerning the alleged breaches of fiduciary duty). While the Court undertook an extensive analysis of issues relating to employment, contract and fiduciary duty, the Court found, as an issue of fact, that Dr Gray had undertaken the relevant inventive steps in relation to each of the ideas patented before he began employment at UWA, or that it was invented by others, or at a period when no inventor was employed by UWA (for a statement that UWA had no rights, see especially, par Note that one invention, DOX-spheres was developed during the period when the inventors were employed at UWA but could not be claimed by UWA because the UWA researchers had minor input into the inventive concept, see pars ). This means that, even if Dr Gray owed UWA duties under contract or as a fiduciary, they were irrelevant in this case as nothing had been invented during the tenure at UWA of Dr Gray or otherwise could not be claimed by UWA. In his decision the Judge undertook a lengthy analysis (par. 1410ff) of the law in relation to when the relevant inventive step occurs in order to decide when the relevant inventions occurred. In the absence of any intellectual property that may be claimed by the university the whole case was answered against UWA. The decision of the judge as to what constitutes the relevant inventive step was made on the basis of his review of the law. When the relevant inventive step occurs is an important issue of law which could be made a ground of appeal in the event that the university seeks to appeal. As a result of this decision, UWA had no grounds to claim against Dr Gray as the patentable inventions in question were not made during his tenure at UWA (except for the development of DOX-spheres, which could not be claimed by UWA for other reasons), even though patents were sought and granted during and after his time at UWA. All other claims by all other parties in the matter were dismissed by the Court save the one by Sirtex that Dr Gray had failed in his duty as a director of Sirtex to advise 2

3 Sirtex of the likelihood of the claim by another party (UWA) in relation to the key patents prior to Sirtex being floated on the stock exchange. Other Reasons for Decision Notwithstanding that the Court found against the claims by UWA principally on facts relating to when the inventions were created, the Judge had other reasons for making his decision in favour of Dr Gray. The two principal reasons relate to the nature of the employment contract between universities and academic staff, and the adherence to proper process by the university if it seeks to claim the benefit of inventions by academic faculty members. The Court made several observations in relation to the employment contract between universities and academic staff. First, that academics appear not to be under a duty to invent, so that inventing is not part of their employment contract and that, consequently, ownership of anything they invent will be subject to the law relating to patents (pars ). Later in the judgement the Court said, at par. 1366, The circumstances of his employment lie against the implication necessary to establish UWA s property rights. They were: 1. The absence of any duty to invent anything. 2. The freedom to publish the results of his research and any invention developed during that research notwithstanding that such publication might destroy the patentability of the invention. 3. The extent to which Dr Gray, as a researcher and those working with him, were expected to and did solicit funds for their research, including the development of inventions, from sources outside UWA. The relevance of those considerations is not affected by the arrangements under which UWA would administer funding, eg in the case of CSIRO or NH & MRC grants. 4. The necessity, consistent with research of the kind he was doing, to enter into collaborative arrangements with external organisations such as CSIRO. The Court also declined to find that the employer-employee relationship between the university and academic gave rise to an automatic presumption that inventions by an academic faculty member were, as a matter of law, rights in the university, in particular a right to the property arising from a patent. The Court said that the relevant law, the Patent Act 1990 (and its 1952 predecessor Act) identifies the people entitled to seek a patent as, at sect. 15: (1) Subject to this Act, a patent for an invention may only be granted to a person who: a b c d is the inventor; or would, on the grant of a patent for the invention, be entitled to have the patent assigned to the person; or derives title to the invention from the inventor or a person mentioned in paragraph (b); or is the legal representative of a deceased person mentioned in paragraph (a), (b) or (c). (2) A patent may be granted to a person whether or not he or she is an Australian citizen. 3

4 While sect 15(1)(b) may appear to give a university a right to seek assignment of an invention of an employee, this is not an automatic right as the quote at par above discloses. The Court was also influenced by the particular nature of the employment relationship between the university and the academic. The Court quotes with approval (at par. 159) a conclusion by learned authors Monotti and Ricketson in their 2003 book on university intellectual property, that: in the absence of an express or implied duty to invent and to hold any information secret, the principles that operate in industrial settings seem to have no application to the creation of inventions in the performance of normal academic duties of teaching, research and administration. Of course, it remains an option between the academic and the university to vary this position by agreement which would normally be expressed in a contract of employment. And it is the contract of employment that raises the second point. UWA purported to import, among other things, the terms of two university regulations into Dr Gray s (and most likely every other academic s) employment contract. The first were the Patents Regulations made by the University Senate in 1971, and second the Intellectual Property Regulations 1996, which rescinded the earlier regulations and purported to instal a new intellectual property regime. Typical of universities, UWA had the power to make statutes (by the university Senate, with the approval of the Governor and after publication in the gazette, and which could be disallowed by Parliament), and regulations (by the university Senate). The university also had a suite of policies which govern the operation of routine matters. In accordance with the power to make statutes, regulations, policies, rules and the like, UWA did so in respect of intellectual property. As noted above, the Court found that, in the first instance, in the absence of a relevant enforceable term in an employment contract, an academic will have rights to an invention and the right to property arising from a patent granted on an invention. The law will not readily displace a person s rights in property and will only do so if the law or arrangement is lawful and effective. The Court found that the university s Patents Regulations of 1971 were ineffective because they had atrophied through disuse, and that the university had in any event used procedures different to those contemplated in the regulations and therefore could not enforce them against Dr Gray; and in the case of the 1996 regulations, that they had never been properly promulgated and did not come into effect until 30 November 1997, by which time Dr Gray had left the university. Even more importantly, the Court also found that UWA was not authorised to use regulations to alienate or interfere with the property rights of an inventor by purporting, through university legislation, to vary the effect of the terms of the Patent Act as it affected ownership. While the university could engage an academic (par. 90) subject to an express covenant to assign to UWA all or any subset of defined intellectual property rights which may arise out of the person s work as an employee, it had not done so effectively in this case because of the attempt to import defective Patents Regulations into the employment contract. Indeed, any attempt to import from timeto-time amended regulations which are beyond the power of the university to make is doomed to fail. Neither university statutes nor regulations (which are subordinate to statutes) can alter the effect of a law made by Parliament (that gave the patent rights to Dr Gray). Regulations may be machinery provisions, but they may not alter any 4

5 substantive law. University statutes may only be within a head of power granted to a university by virtue of its enabling law. The principal finding of the Court in this regard is from par. 164, where the Judge said: While each case involving a university and its academic staff must be assessed by reference to its particular circumstances and the terms and conditions of employment of its staff, I do not consider as a general proposition that there is a presumption at law that the university will be entitled to the rights to inventions developed by such staff in the course of their research. However, this conclusion does not appear to render employment contracts ineffective to alienate intellectual property between academic and university. The Court also found that Dr Gray was not a fiduciary of the university in this case because he was the owner of the relevant intellectual property rights and did not hold them for the university s benefit. Appeals The judgment of French J in this case was appealed to the Full Federal Court of Australia who found in favour of the respondent, Dr Gray. The High Court refused leave to hear an appeal from the Full Federal Court. Comments My quotable comments in relation to this case are as follows: The Full Federal Court of Australia upheld the views of the primary judge on the principal legal issues, and the High Court of Australia has refused leave to appeal. Therefore Australian law in this regard is that found by the learned trial judge until the High Court decides otherwise. This case is an excellent example of the complexity involved in university research which is commercialised, particularly in life sciences. Research conducted over two decades at several universities, numerous researchers involved, hospitals, charitable foundations, government funding agencies, public research institutions, and centres and institutes of all kinds. Most people and entities seek only to serve the public good and not press their individual rights. It may be time to re-examine the way life science research in universities is commercialised. On the same theme: Typically 50% of commercialised research from universities involves life sciences. The structure of the intellectual property appropriation and management regimes in almost every Australian university is similar to that found in UWA. The problems identified in this regime by the learned Judge in Dr Gray s case will now be faced throughout the tertiary sector. This case has potential application throughout the common law world in such jurisdictions as the UK, Canada and New Zealand. It seems that, in the absence of legislative intervention, the only effective way for a university to claim an interest in the intellectual property of academic employees is 5

6 through a combination of an effective term in a contract of employment which alienates all or selected intellectual property to the university, and machinery provisions to give effect to this in university statutes, regulations or policies. The U.S. has an Act of Congress, the Bayh-Dole Act that makes universities the owner of intellectual property developed through federal funding. If the decision of the Court in Gray is correct, there may be a case for Australia to consider the enactment of a law similar to Bayh-Dole if the government wants to have universities exploit intellectual property. Very few universities make a profit from the commercialisation of intellectual property. Even the best in the US, with very few exceptions, achieve a return of about 3% of their annual research budget. Comments of the learned Judge in relation to intellectual property ownership have potentially enormous implications for Australian universities. There are many instances where universities have entered into sponsored research contracts with companies on the understanding that the university owns or has all the rights to intellectual property. If this understanding is not correct, and universities have defective intellectual property title, this could disrupt research with significant financial consequences. Again, the comments of the learned Judge in relation to intellectual property ownership mean that there is a risk that a university s title to intellectual property may be uncertain, in which case financial backers and venture capitalists may need some convincing before becoming involved in commercialising ideas from universities. It is reasonably common in the U.S. for university researchers who attain wealth from their inventions to endow their alma mater generously. It does not seem to be the Australian way, but it is to be hoped that this may occur more often in the future, and that litigation and disputes can be minimised. Disclaimer: This summary and commentary has been prepared in good faith but does not constitute legal advice. No person may rely on the facts and opinions expressed here and should obtain their own legal advice on the matters covered Alan Collier 6