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The Fifth Framework Programme (FP5) covering research, technological development and demonstration activities provides funding from the European Commission for certain thematic and horizontal programmes. The research should involve at least two independent legal entities established in two different Member States or one Member State and another State, which is an Associated State for these purposes.
The Commission has now made several awards based on proposals which have been submitted under FP5. All Projects will be subject to the Model Contract to which the Commission and all other participants (Contractors) are parties. A copy of the Model Contract can be found at www.cordis.lu/fp5/mod-cont.htm. The Participants themselves however may wish to elaborate upon or vary the arrangements as between themselves. This is possible as long as the arrangements do not impact on the Contractors' commitments to the Commission. Any such matter should be set out in a Consortium Agreement -- ie separate from the Model Contract.
For the first time in relation to a Framework Programme, a Unified Consortium Agreement (UC-A) has been produced by groups involved in the Commission’s formal advisory group and the group of telecommunications network operators. The UC-A has therefore had input from the IT and telecoms industries, the European Research Institutes and European Universities. This should be borne in mind if it is used as a basis for any other business sector.
The process of negotiating a Consortium Agreement should be seen as an exercise to make sure that each of the Contractors has discussed up front and clarified as many of the issues as possible that will arise. It is always easier to do it before signing than after. You know you have negotiated well when, after signing, the contract can sit on the shelf and gather dust. There are several places within the UC-A where matters are left to be agreed. Depending upon the law governing the Consortium Agreement this may mean that the agreement to agree is unenforceable. Although it is not easy to crystal ball gaze and decide what might happen, it is worth trying to come to some agreement on these matters.
In many ways it is easier if the law and jurisdiction governing the Consortium Agreement are the same, but it is not essential. The UC-A suggests that the law and jurisdiction should be that of the Model Contract, which will be Luxembourg or Belgium. If the parties to the UC-A come from a variety of countries across Europe then this is not an unreasonable compromise. However if most of the parties come from one particular country then it may be more appropriate to use the law and jurisdiction of that country.
The definitions of Force Majeure in the Model Contract and the UC-A are different. Both definitions are quite short and should be read carefully to see if the UC-A definition should be modified in any way.
The definition in the Consortium Agreement limits Pre-existing know-how to what is necessary, ie essential, for the Project. It may be that some know-how would be useful although not essential. If so, amend the UC-A. Pre-existing know-how is not only know-how which existed before the Project started but also what is sometimes known as “sideground knowledge”. Try to have a clear view eg through audit, of what information you are bringing to the Project and also what might be developed in other areas of your organisation whilst the Project is being undertaken.
The Model Contract requires Contractors to decide upon the allocation of joint ownership (see section 10.1.1 UC-A). This allows any party to use and license jointly owned IP without any financial compensation to or the consent of the other parties. It may be appropriate for Contractors such as universities to elect to receive financial compensation from the other Contractors for their own licensing, as whilst they may be using IP for their own research they are less likely to be licensing.
Remember that the effect of joint ownership is different depending upon the type of IP and also varies between countries within the European Union. The Consortium Agreement should therefore expressly set out what the relevant rights are of the various parties.
Each Contractor indemnifies the others in relation to other Contractors’ acts or omissions (section 8.2 UC-A). The indemnity excludes damages for indirect or consequential loss (although under the Model Contract you might still be liable to the Commission for such loss). The exclusion of indirect or consequential loss only applies to the indemnity. Remember that separately from the indemnity any other party might make a claim for damages in the ordinary way. Such a claim could extend to indirect or consequential loss, unless an express exclusion of such liability is included.
Under the Model Contract you are required to provide "adequate and effective protection for knowledge". In addition to the use of patent protection and confidentiality agreements, consider who will be responsible for taking any court action to protect IP.
Under the Model Contract you have certain obligations to be free to grant access rights. Whilst in many cases the IP of employees of the Contractors would belong to the Contractors remember that:
in some jurisdictions eg Germany and Scandinavia, employees will own their own IP;
some university IP policies allow employees to own their own IP;
by custom and practice some university employees own certain types of IP eg copyright;
some individuals may have moral rights in some of the copyright works;
students involved in Projects are not employees and will own their own IP.
You need to make sure that you have appropriate contracts in place to cover these issues.
Under Article 12 (3) of the Annex to the Model Contract, access rights may be made conditional on the conclusion of specific agreements restricting use to intended purposes and appropriate confidentiality agreements. Any such conditionality must be included in the Consortium Agreement.
If you want access rights to include a right to grant sub-licences then this must be included in the Consortium Agreement.
The Model Contract and UC-A allow rights to be granted exclusively, rather than non-exclusively if you wish. There seems to be no reason why, rather than granting absolute exclusivity, you should not grant exclusivity in a particular technical field of application or product market.
The clause in the UC-A is much more comprehensive than that set out in the Model Contract. You may want to consider whether the 5 year limitation on non-use and non-disclosure is sufficient. There is no particular reason why the period should be limited.
It is suggested that the items in bold capitals (option 1) in Section 7.1 UC-A are included.
There are certain areas in which it may not be possible to come to an agreement up front on what will happen. In these cases it may be useful to include an obligation for the parties to negotiate in good faith to reach agreement. However if the parties cannot agree then it may be appropriate to have a back stop position that the matter is referred to an expert agreed upon by the parties or, if the parties cannot agree, appointed by some appropriate body relevant to the type of query involved.
The definition of "Defaulting Party" in the UC-A does not include a reference to a Contractor who may be in default but not as a result of breach of the contract but, say, because of insolvency. The definition should be amended to clarify this.
If the Project relates to software then it may be appropriate to have some escrow arrangements in place in relation to source code.
Consider whether it is really appropriate to go to arbitration in relation to disputes. Remember that in an arbitration you pay for the “judge”. Arbitration is not always quicker than going to court.
Whichever route you choose there should be some exclusion which will allow you to go to court for injunctive relief if that is required eg if another party is infringing IP.
It may be appropriate to include a clause making it clear that not taking action against another party immediately or giving further time for performance does not mean that you have waived your rights. In some jurisdictions lack of action may be deemed to be a waiver.
The UC-A is a welcome advance. It gives everyone a common starting point for negotiations. It should help to keep the cost of producing a Consortium Agreement down as most of the key issues will have been addressed. It should not be followed slavishly though. There will be key issues in relation to every Project which will need separate negotiation and inclusion in the Consortium Agreement.
This article first appeared in IPeye, the intellectual property newsletter published by Eversheds Solicitors. For more information about, or to receive copies of IPeye, please contact Janet Knowles on +44 (0) 161 837 6107 or +44 (0) 113 243 0391 or at janetknowles@eversheds.com.
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The opinions expressed in the articles published in this section do not necessarily reflect those of Pharmalicensing or UTEK Corporation. No actions including proposals to or agreements with other companies should be taken by any reader without obtaining specific business or legal advice. Neither the publisher nor the authors accept any liability for any actions or activities undertaken by any reader or other third party as a consequence of these articles or for any errors or omissions therein.
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