UNIVERSITY OF CALIFORNIA

BERKELEY • DAVIS • IRVINE • LOS ANGELES • MERCED • RIVERSIDE • SAN DIEGO • SAN FRANCISCO

SANTA BARBARA • SANTA CRUZ

OFFICE OF THE PRESIDENT 1111 Franklin Street

Oakland, CA 94607-5200

Phone: (510) 987-9074

Fax: (510) 987-9086

http://www.ucop.edu

March 3, 2003

CHANCELLORS

LABORATORY DIRECTORS

VICE PRESIDENT GOMES

ACADEMIC COUNCIL CHAIR BINION

Dear Colleagues:

Over the last few decades, relationships with industry – including faculty consulting relationships – have become

increasingly important to research and education at the University. The University supports and encourages outside

consulting relationships as they often provide a public benefit and are valuable to the faculty in their research and

teaching activities.

Based on questions directed to campus and Office of the President administrators, it has become increasingly evident

that some faculty who engage in consulting arrangements are unclear about their obligations to the University

regarding intellectual property matters. For this reason, the Technology Transfer Advisory Committee (TTAC)

convened an Ad Hoc Subcommittee on Faculty Consulting to address these inquiries. During the past year, the

subcommittee reviewed State law and existing University policies and guidelines, and developed a single

comprehensive summary document on this matter.

The resulting document, Guidance for Faculty and Other Academic Employees on Issues Related to Intellectual

Property and Consulting, is not new policy, but a synopsis and explanation of longstanding University policies and

State law on this topic. We believe it presents a clear, non-technical summary, accessible to faculty, other

researchers, industry, administrators, students, and the public. Each campus and Laboratory is encouraged to share

this information in a way and form that is most appropriate to its local needs. It will also be available on the WWW

at: http://www.ucop.edu/ott/consult.html

Attachment

cc: President Atkinson

Members, President’s Cabinet

Senior Vice President Darling

Executive Director Bennett

Vice Chancellors for Research/Administration

Members, Technology Transfer Advisory Committee

Patent Coordinators

Contract and Grant Officers

Conflict of Interest Coordinators

Special Assistant Gardner

Principal Officers of The Regents

GUIDANCE FOR FACULTY AND OTHER ACADEMIC EMPLOYEES

ON ISSUES RELATED TO

INTELLECTUAL PROPERTY AND CONSULTING

Executive Summary

Purpose of this Guidance Document

This guidance document is intended to clarify University policy and State and Federal statutes

governing an employee’s obligations to the University regarding intellectual property and other

issues related to consulting. The subject matter discussed in this guidance document is complex

and faculty and other academic employees are encouraged to read beyond this summary to the

full text contained within this document or available at http://www.ucop.edu/ott/consult.html

Consulting agreements between faculty or other academic employees and outside entities are

personal agreements to which the University is not a party. Thus, it is the responsibility of a

University employee to ensure that its terms do not conflict with their University research and

teaching obligations and that they are consistent with University employment obligations

regarding disclosure and assignment of inventions to the University.

Outside professional activities are encouraged

The University of California encourages faculty to participate in outside professional activities

that contribute to their profession and to the broader community and contribute to the

University’s public service mission. Engagement with the outside community is also an

important component of the academic enterprise and one way in which faculty and other

researchers maintain contact with research directions and priorities that exist in the private

sector. This knowledge also guides faculty in preparing students for careers in the private sector.

Consulting activities are regulated

A series of University policies based upon State statutes and Academic Senate consultation have

been developed over the years to guide faculty in consulting and other outside professional

activities. These statutes and policies relate to faculty consulting and other outside professional

activities in three ways:

• First, they address the appropriateness of the consulting “activity” itself and provide the

legal and policy framework covering obligations to the University from an academic

employment perspective.

• Second, they address the University’s and the employee’s legal or contractual rights and

obligations with regard to the specific results of outside professional activities, such as an

invention made by a University employee in the performance of a consulting activity.

For example, while a consulting activity may be completely appropriate under University

March 3, 2003

Page 2

academic policy, other parties (the State and Federal governments, the University, third-

party sponsors or providers of research materials or resources, or others) may have legal

rights to inventions made by a University employee while he or she is engaged as a

consultant. Thus, an employee’s intellectual property obligations to the University are

based upon State labor laws and addressed under the various University intellectual

property policies, including the University Patent Policy.

• Third, they address both the potential conflict of commitment and conflict of interest that

may arise between an outside professional activity and the faculty/researcher’s University

employment.

Employees must disclose all inventions

The University must be able to meet its obligations assumed under legal contractual obligations

with regard to intellectual property rights. Such rights may be generated by faculty and other

researchers as a result of sponsored research agreements, material transfer agreements, and other

research support agreements entered into on behalf of those faculty and research staff.

Therefore, all inventions made by a University employee must be disclosed to the University,

including inventions made on weekends, on leave, at home “in the garage,” or during paid or

unpaid consulting work. Disclosure is a legal obligation of employment at the University.

Employees must assign inventions when certain conditions exist

The process of determining the University’s rights in any potentially patentable invention made

by a University employee is initiated with the disclosure of an invention, typically on a Record

of Invention form. The University may assert its right to an invention based on three primary

criteria: 1) the use of University funds or facilities in conceiving and/or developing the invention;

2) potential obligations to third parties; and 3) intellectual property rights and obligations that

arise from the faculty/researcher’s scope of University employment. The determination

regarding the use of University funds or facilities and third party obligations is typically

managed by the campus/Laboratory authorized licensing, contracts and grants, or comparable

administrative office. For University faculty and researchers, the question of an employee’s

scope of employment is initially an academic issue best addressed by the appropriate University

academic manager – most often the department chair or dean – with guidance from the Office of

General Counsel as necessary.

Under certain conditions the University does not claim rights in inventions

An invention may be determined to have been made under a “permissible consulting”

arrangement when it is conceived and/or developed by a University employee in the course of an

outside professional activity: 1) without utilization of University research facilities and/or gift,

grant, or contract funds administered through the University; 2) without incurring any University

obligations to other parties; and 3) outside an individual’s academic employment obligations

(“scope of employment”) to the University. Such inventions must still be disclosed to the

University for review and assessment against these criteria. While the University does not claim

rights to any invention made by an employee that falls within the above three criteria, the

March 3, 2003

Page 3

determination of what is or is not “permissible consulting,” and consequently what is the

University’s ownership interest in an employee invention, is a University-based decision

supported by the application of these criteria to the facts and equities of the situation.

Proprietary company information disclosed to the University can be protected

On occasion, it may be necessary to disclose company proprietary information to the University

in order for a faculty/researcher to disclose an invention made in the course of an outside

professional activity (e.g. consulting). In this case, the proprietary information may be protected

by executing a non-disclosure agreement between the company and the University. Company

proprietary information either existing prior to the consulting relationship or embodied in an

invention made under the consulting relationship may be included under the terms of such non-

disclosure agreement.

Personal consulting agreements should be carefully reviewed

Because provisions of a consulting agreement may affect the faculty/researcher in many ways

beyond concerns about intellectual property rights, careful examination of proposed consulting

agreements is advised. Ideally, the faculty/researcher should talk with their personal attorney

before executing an agreement with a commercial firm, to ensure that their personal interests are

protected and that the terms of the agreement do not conflict with their employment obligations

to the University. The faculty/researcher also should make the company aware of their

obligations to the University. University employees are strongly encouraged to include a

provision in their consulting agreements acknowledging that the University employee has pre-

existing obligations to disclose all inventions to the University and to assign to the University

any intellectual property resulting from activities that involve University research funds or

facilities, University commitments to others, or that fall within the employee’s scope of

employment.

While the University is not a party to personal consulting agreements between University

employees and outside parties, some campuses offer to faculty and other researchers the service

of reviewing proposed consulting agreements for consistency with University policy. Any

review of a prospective consulting agreement by University personnel is solely for the purpose of

commenting on consistency with obligations to the University. It does not constitute legal or

other advice on the final contractual terms between the faculty/researcher and the third party

engaging the consulting services.

University regulates allowable consulting time but not income

Full-time faculty members on a nine-month appointment may engage in compensated consulting

activities for 39 days during the academic year and full-time faculty members with fiscal-year

appointments may engage in compensated consulting for 48 days for the entire year (see

University Policy on Conflict of Commitment and Outside Activities of Faculty Members; APM

025). Faculty members may consult full-time during the summer months in which there is no

other salary compensation from the University (such as work on sponsored projects). Consulting

activities of employees working at the National Laboratories may be subject to U.S. Department

March 3, 2003

Page 4

of Energy policies and procedures. However, the University does not regulate the amount of

compensation from outside personal consulting arrangements, except as agreed upon under a

health sciences compensation plan.

Under the University Policy on Conflict of Commitment and Outside Activities of Faculty

Members (APM 025), faculty are required to submit annual reports on outside professional

activities (to include consulting) to department chairs or equivalent unit heads.

Do conflicts of interest arise in consulting relationships?

Faculty and other researchers must disclose on the Statement of Economic Interests (Form 700-

U) whether or not there has been any consulting activity with a company when accepting

research funding at the University from that company. In addition, the National Science

Foundation and the Public Health Service require that all investigators responsible for the design,

conduct, or reporting on projects supported by funds from these agencies disclose any financial

interests (including consulting income above $10,000 in the prior twelve months) in entities that

would reasonably appear to be affected by the work performed under the NSF or PHS project.

Thus, under both State law and NSF/PHS regulations, an existing or prior consulting

arrangement might require that a proposed University contract or grant be reviewed and

approved by a campus Independent Substantive Review Committee (ISRC) as to conflicts of

interest concerns.

March 3, 2003

Page 5

GUIDANCE FOR FACULTY AND OTHER ACADEMIC EMPLOYEES

ON ISSUES RELATED TO

INTELLECTUAL PROPERTY AND CONSULTING

Background

The University of California encourages faculty to participate in outside professional activities

that contribute to their profession and to the broader community. Such engagement with the

outside community is an important component of the academic enterprise and one way in which

faculty and other researchers contribute to the University’s public service mission. The

University defines outside professional activities as “…activities that are within a faculty

member’s area of professional, academic expertise and that advance or communicate that

expertise through interaction with industry, the community, or the public, and through consulting

or professional opportunities” (Academic Personnel Manual 025). Paid faculty consulting,

including summer and incidental employment, is one form of such outside professional activity

which the faculty member undertakes as an individual and not under the auspices of the

University.

Over time, the University has worked with the Academic Senate to develop a number of policies

that address and guide the outside professional activities of its faculty. Taken as a whole, these

policies provide faculty with a great deal of flexibility and autonomy in engaging in outside

professional activities that contribute to their profession and to the broader community. At the

same time, these policies are intended to:

• safeguard the interests of students;

• minimize faculty and University exposure to litigation, liability, and conflicts of interest;

• ensure that University resources, which are assets of the State of California, are used for the

public benefit rather than for private gain;

• ensure that outside professional activities are consistent with the performance of University

duties, including safeguarding faculty members’ ability to do future University research free

from inappropriate external restrictions or legal encumbrances; and

• provide the clarity that industry needs with regard to ownership of inventions made under a

consulting activity.

March 3, 2003

Page 6

Legal and Policy Framework for Consulting Activities

The statutes and University policies that guide faculty consulting and other outside professional

activities include:

Policies Addressing Academic Issues

• Regulation 4, Special Services by Members of the Faculty (APM 020):

Members of the faculty may render professional or scholarly services for

compensation, unless they are prohibited by the terms of their appointment

from accepting such compensation; but in no case may such employment be

solicited or interfere with regular University duties.

The Principles Underlying Regulation 4 go on to state:

…such service may be justified if it does not interfere with University

commitments and if 1) it gives the individual experience and knowledge of

value to his teaching or research; 2) it is suitable research through which the

individual may make worthy contributions to knowledge; or 3) it is

appropriate public service.

• General University Policy Regarding Academic Employees: Conflict of Commitment and

Outside Activities of Faculty Members (APM 025):

Outside professional activities may be a valuable contribution to the

University and to an individual’s professional growth so long as the activities

are undertaken in a manner consistent with the full performance of the faculty

member’s primary University obligations.

• Regents’ Standing Order 103.1(b)

No one in the service of the University shall devote to private purposes any

portion of time due to the University nor shall any outside employment

interfere with the performance of University duties. Arrangements for private

employment by Officers, faculty members, or other employees of the

University shall be subject to such regulations as the President may establish.

• The Faculty Code of Conduct (APM 015)

Professors [shall] give due regard to their paramount responsibilities within

their institution in determining the amount and character of the work done

outside it. (AAUP Statement, 1966, Revised, 1987.)

The Faculty Code of Conduct goes on to cite as “unacceptable conduct”:

March 3, 2003

Page 7

…unauthorized use of University resources or facilities on a significant scale

for personal, commercial, political, or religious purposes.

The above policies address fundamental issues relating to the appropriateness and

scope of faculty outside professional activities within the context of academic

employment. Issues that may arise in the course of such activities are generally

within the domain of the academic management structure of the University under the

jurisdiction of the Chancellor or the Chancellor’s designee. The department chair is

often the lead interpreter and decision-maker in this arena, occasionally in

consultation with University legal counsel or University administrative offices, as

appropriate.

Faculty and other researchers should be aware that in addition to the

academic employment issues involved in consulting relationships, outside

consulting contractual commitments may have important implications for

University and faculty research programs, for faculty research and

technology transfer relationships with outside entities, and for University

obligations to research sponsors. Resolution of any academic employment

concerns by the department chair may not necessarily resolve all research and

intellectual property issues. Therefore, the faculty/researcher should also

seek technical guidance from campus administrative staff as to: 1)

appropriate use of University funds or facilities; 2) potential obligations to

third parties; and 3) intellectual property rights and obligations relating to the

faculty/researcher’s scope of University employment (see discussion below).

Statutes and Policies Addressing Inventions and Patents

The University policies that guide outside professional activities as discussed above address

general consulting “activity” from an academic perspective. They do not speak directly to legal

or contractual rights and obligations to the specific results of the activity, such as an invention

made by a University employee in the performance of the consulting activity. Although

consulting activity may be completely appropriate under University policy, the University, the

State and Federal governments, and perhaps third-party sponsors or providers of research

materials or resources may have rights to inventions made by a University employee while

engaged as a consultant.

Rights and obligations of University employees with respect to inventions are addressed by State

law, the University Patent Acknowledgement, and the University Patent Policy.

• California Labor Code Section 2860

This law provides that:

March 3, 2003

Page 8

…everything which an employee acquires by virtue of his employment, except

compensation…belongs to the employer.

• California Labor Code Section 2870

This law provides an employer the right to require assignment of inventions by its

employees that either:

…relate at the time of conception or reduction to practice…to the employer’s

business, or actual or demonstrably anticipated research or development of

the employer… or

…result from any work performed by the employee for the employer.

To prevent any possible confusion, it is important to distinguish the terms disclosure

and assignment as they relate to inventions. Disclosure is the reporting of a

potential invention to the employer to determine its patentability and ownership;

assignment is the transfer of ownership from the inventor to the employer or to any

other third party.

• University Patent Acknowledgement (formerly Patent Agreement)

The University implements the State Labor Code with regard to inventions by

requiring all employees as a condition of employment to sign the University Patent

Acknowledgement (formerly Patent Agreement). By signing this form an employee

acknowledges the following:

I acknowledge my obligation to assign inventions and patents that I conceive

or develop while employed by University or during the course of my

utilization of any University research facilities or any connection with my use

of gift, grant, or contract research funds received through the University. I

further acknowledge my obligation to promptly report and fully disclose the

conception and/or reduction to practice of potentially patentable inventions to

the Office of Technology Transfer or authorized licensing office. Such

inventions shall be examined by University to determine rights and equities

therein in accordance with the Policy.

• The State of California’s Political Reform Act of 1974 (Act)

This State law provides that:

No public official at any level of state or local government shall make,

participate in making or in any way attempt to use his official position to

influence a governmental decision in which he knows or has reason to know

he has a financial interest.

March 3, 2003

Page 9

All University employees and officials, either directly or by application of the

University’s Conflict of Interest Code, are subject to the provision of the Act.

Therefore, due to an employee’s potential personal interest, as defined under the Act,

in any invention made by that employee resulting from an outside professional

activity, a determination of whether or not the University will retain title to the

invention must be made by the campus/Laboratory authorized licensing office – not

by the employee. Consequently, in order to allow the University to make such a

determination, an employee must disclose all inventions conceived or developed

during the term of his/her employment with the University, whether or not the

employee believes the invention is potentially patentable and whether or not the

employee expects to be able to retain ownership rights in the invention.

• The University Patent Policy

The “Policy” referenced in the University Patent Acknowledgment is the University

Patent Policy (http://www.ucop.edu/ott/patentpolicy/pat-pol.html), which states:

An agreement to assign inventions and patents to the University, except those

resulting from permissible consulting activities without use of University

facilities, shall be mandatory for all employees…

The term “permissible consulting” introduced in the University Patent Policy

occasionally causes some confusion as to which inventions must be reported and

which inventions must be assigned to the University.

Many years ago the University incorporated the term “permissible consulting” into

the University Patent Policy to describe the criteria it would apply to employee

inventions to ensure compliance with State labor laws and University policies

discussed above. In making its decision about what is or is not “permissible

consulting” and consequently what is the University’s ownership interest in an

employee invention, the University applies the criteria listed below to the facts and

equities of the situation.

An invention is considered to have been made under a “permissible consulting”

activity if that invention is made: 1) pursuant to an outside professional activity (as

discussed under APM 025); 2) without utilization of University research facilities

and/or gift, grant, or contract funds administered through the University (University

Patent Policy); 3) without incurring any University obligations to other parties

(University Patent Policy and Patent Acknowledgement); and 4) outside an

individual’s employment obligations (“scope of employment”) to the University as

provided under California Labor Codes, University Regulation 4, APM 025, Regents

Standing Order 103.1(b), and the Patent Acknowledgement.

The University does not claim rights to any invention made by an employee within

the above four criteria for “permissible consulting” activity. The employee is still

March 3, 2003

Page 10

obligated, however, to disclose such inventions to the University so that it can make

the necessary determinations as discussed above.

• The Federal Bayh-Dole Act

A number of invention-related obligations of the University are based on Federal law

as well as on California law. For all inventions that arise even partially from Federal

funding at the University, the Federal government has rights in the inventions and

depends on the University to require invention disclosure from its employees (PL 96-

517, the “Bayh-Dole Act,” and the “Patent and Trademark Act Amendments of

1980”). Federal law 35 USC 202(c)(1) provides that Federal rights attach to

University-developed, Federally funded inventions whether or not they are disclosed

to the University. Thus, universities must have blanket, effective invention

disclosure policies so that at a minimum, they can comply with the law and properly

administer the government's rights.

• Contractual Obligations of The Regents of the University of California

In addition to obligations assumed by the University under the Bayh-Dole Act

through its acceptance of Federal research funding agreements, the University

assumes legally binding contractual obligations with regard to intellectual property

rights generated by faculty and other researchers. This is achieved by entering into

sponsored research agreements, material transfer agreements, and other research

support agreements on behalf of those faculty and research staff. The University

must be able to meet such legal obligations, which often involve the disclosure,

management, and licensing or other transfer of intellectual property rights generated

by its employees.

The Requirement to Disclose

What must be disclosed? The answer is: all inventions made by a University employee must be

disclosed to the University, including inventions made during vacation, on weekends, while on

leave, in the evening, or at home (“in the garage”) when engaged in paid or unpaid consulting

work. As noted above, disclosure is a legal obligation of employment at the University. It is not

permissible to sign an agreement with an external party that precludes or limits disclosure of

inventions to the University.

How will the employee know what is disclosable? Or, in other words, how will the employee

know what qualifies as an “invention”? An invention is ordinarily defined as being a new and

useful machine, article of manufacture, composition of matter, process, or any new use of the

same. It is sometimes difficult to know whether something is really an “invention.” This can be

a complex legal determination. Whether something is an invention, and is therefore patentable,

involves a precise determination based on Federal law that requires the exercise of judgment

based upon technical experience and training.

March 3, 2003

Page 11

A faculty member can obtain guidance about what is patentable and what must be disclosed from

his or her campus or Laboratory technology licensing professional. Generally, it is prudent to

proceed with formal disclosure to the University. Certainly, if an invention has been disclosed to

a company or if the company is proposing to file a patent application on a consulting faculty

member’s research result, this invention must be disclosed to the University.

Disclosure of an invention to the University is typically accomplished by submitting a completed

Record of Invention (ROI) Form to the appropriate campus/Laboratory technology transfer

office as soon as possible after the conception of the invention. The ROI provides the

information necessary for the University to evaluate patentability issues, inventorship,

assignment obligations, and third-party patent obligations. The ROI and the information

contained therein are treated as University confidential information and should be kept

confidential by the disclosing faculty member.

If, in meeting his or her invention disclosure obligations to the University, it is necessary for a

faculty member to disclose any information that a company may consider to be its proprietary

information, a company’s concerns regarding the faculty member’s disclosure of such

information to the University can be addressed through the execution of a non-disclosure

agreement between the company and the University. Company proprietary information either

existing prior to the consulting relationship or embodied in an invention made under the

consulting relationship may be included under the terms of such non-disclosure agreement.

The requirement for total disclosure was elucidated by UC President Gardner in the May 17,

1989 University policy Guidelines on University-Industry Relations

(http://www.ucop.edu/ott/unindrel.html), which states:

…Provisions of outside consulting agreements must not limit a faculty

member's ability to carry out ongoing obligations under University policies

such as the Patent Policy. While all patentable inventions must be disclosed,

[emphasis added] inventions resulting from permissible consulting activities

without use of University funds or facilities need not be assigned to the

University.

The Guidelines on University-Industry Relations clarifies the obligation on the part of the

employee to disclose all potentially patentable inventions and the right of the University to make

a separate determination as to its rights in each invention.

The Requirement to Assign

The process of determining the University’s scope of rights in any invention made by a

University employee is managed by the campus or Laboratory authorized licensing office and is

initiated by the disclosure of an invention that is conceived and/or developed by an employee.

This determination involves several University decisions:

March 3, 2003

Page 12

1. Are there legally binding obligations of the University whereby invention rights are

committed to a third party through “any connection with … use of gift, grant, or contract

funds received through the University”? Such obligations include rights to inventions

resulting from the use of sponsored funding or tangible research materials provided by

others that are legally committed under agreements entered into by the University. The

employee’s obligation to assign such inventions to the University is specified in the

Patent Acknowledgement signed by all employees. Determinations as to whether any

third-party obligations exist are made by the appropriate University contracts and grants

office, technology transfer office, and/or the Office of General Counsel.

2. Was there “utilization of any University research facilities” by a University employee in

the creation and/or development of the invention? Again, the employee’s obligation to

assign such inventions to the University is specified in the Patent Acknowledgement

signed by all employees. Such utilization determinations are made by the appropriate

technology transfer office in consultation with the local contracts and grants office, the

employee’s school and/or department, and the Office of General Counsel, as appropriate.

3. Does the invention fall within the employee’s scope of employment with the University?

As a public trust, the University must exercise its responsibility to protect the public

interest in a State employee’s inventions made within their scope of employment

(California Labor Code Sec. 2860 and 2870). An employee’s obligation under law to

assign inventions to the University that are conceived and/or developed “while employed

by the University” is contained in the Patent Acknowledgement. This assignment

determination, based upon an employee’s scope of employment, can be difficult. This

determination must be distinguished from the irrelevant question of whether the invention

falls within the broad area of an employee’s professional expertise – which it normally

would.

In guidance provided on March 22, 1978, University General Counsel Reidhaar advised

that inventions resulting from a consulting activity fall within the employee’s scope of

employment when “the activity to be undertaken by the consultant is a direct extension of

his/her University research project or duties, or if the activity can be construed as one

that has a close and umbilical connection which cannot be severed with the University

work.” For University faculty and researchers, the question of an employee’s scope of

employment is initially an academic issue best addressed by the appropriate University

academic manager – most often the department chair or dean – with guidance from the

Office of General Counsel as necessary. Ultimately, scope of work may become a legal

issue.

Intellectual Property Issues in Consulting Agreements

While the University is not a party to personal consulting agreements entered into between a

University faculty member and an outside party, the terms of those agreements must be reviewed

carefully by the employee, ideally with the advice of his or her personal attorney, to ensure that

his or her personal interests are protected and that the terms of the agreement do not conflict with

March 3, 2003

Page 13

his or her employment obligations to the University. Outside consulting agreements often have

language that requires assignment of patentable discoveries and/or other intellectual property to a

company. The agreement may also prohibit publication of research results, may have

overreaching confidentiality demands, or may even reach into the rights of other University

colleagues or students in related research activities. Faculty should also be aware that consulting

contracts that inappropriately assign intellectual property to an outside entity may be

challengeable and/or unenforceable.

Consulting agreements with overreaching assignment requirements or publication restrictions

might stand in direct conflict with a faculty member’s employment obligations already made to

the University and possibly with the University’s obligations already made to sponsors or

supporters of University research activities. It is in the company’s interest to know that its

consulting agreements with faculty are on firm ground and that it has clear title to any

intellectual property to which it is legitimately due.

Thus, employees who engage in consulting

outside the University are advised to consider the terms of any proposed agreement with a

company or other third party carefully to ensure that no conflict is created with the employee’s

obligations to the University.

The faculty researcher should carefully study the content of proposed personal consulting

agreements with commercial firms. The company should be informed of the employee's

obligations to the University. Any agreement should include a statement that the

company acknowledges that the University employee who is party to the consulting

agreement has pre-existing obligations to disclose all inventions to the University, and to

assign to the University any intellectual property resulting from activities that involve

University research funds or facilities or University commitments to others, or that fall

within the University employee’s scope of employment. University employees are

strongly encouraged to include a provision in consulting agreements acknowledging such

obligations to the University. This is most typically accomplished by stating:

This agreement is subordinate to the terms of my employment with The

Regents of the University of California, including the Patent

Acknowledgement attached hereto.

An alternative statement would be that:

Company acknowledges that consultant is an employee of the University of

California and that disclosure and assignment of intellectual property arising

under this consulting agreement is subject to pre-existing obligations to the

University as contained in the Patent Acknowledgement attached to and made

a part of this agreement.

In view of the complexity of some of these issues, faculty (and other researchers) who are

contemplating new consulting agreements can avoid possible later problems if they engage in

some preliminary discussions with their dean or department chair to clarify scope of employment

As noted above, disclosure is a legal obligation of employment at the University. It is not permissible to sign an

agreement with an external party that precludes or limits disclosure of inventions to the University.

March 3, 2003

Page 14

issues. This is particularly important for those faculty members with multiple grants,

complicated research relationships, and the potential for creating inventions. It is also advisable

to seek guidance from the sponsored projects and/or technology transfer offices to assess

proposed or existing third-party obligations under sponsored research, material transfer, or other

extramural agreements. In particular, it is essential to differentiate clearly the scope of work to

be performed under a consulting agreement from the faculty member’s ongoing research at the

University so as to avoid potential conflicts regarding the ownership and disposition of

inventions that might arise from either of these activities. Since University researchers generally

are free to choose topics of research, their associated scope of work may expand due to a choice

of a new area of research.

Campuses and Laboratories have the discretion to offer faculty and other researchers the service

of reviewing proposed consulting agreements for compliance with University policy. There is no

requirement that faculty submit their agreements to the campus for such review. Any review of a

prospective consulting agreement by University personnel is solely for the purpose of

commenting on compliance with University obligations. It does not constitute legal or other

advice on the final contractual terms between the consultant and the third party engaging the

consulting services.

Other Common Issues in Consulting Agreements

Compromising Future Research Funding

Great care must be taken not to compromise future research funding. Although consulting

agreements are personal – between the faculty member and the company – if such agreements

are not properly formulated, they can jeopardize future University research programs and related

funding, and may affect other researchers at the University. Companies employing consultants

may desire commercial access to inventions made during the course of the consulting

arrangement and often will seek rights to future yet-to-be-developed inventions made at the

University which have a relation to the consulting activity. (Faculty, of course, cannot

legitimately grant such rights.) Any “agreement” to provide such rights to future research results

would preclude the University from providing comparable rights to other companies that sponsor

future University research. Most potential research sponsors would refuse to fund research if

they would be denied access to resulting inventions because of prior obligations made through a

consulting arrangement.

In addition, a faculty member’s consulting relationships may affect any new or follow-on Federal

grants from the Public Health Service or from the National Science Foundation (see conflict of

interest discussion below.)

Acceptance of Confidential Information

It is not uncommon for a company to disclose proprietary information to a consultant. In doing

so, the company will want assurances that this information will be kept confidential.

Maintaining confidentiality can be a tricky proposition for a researcher accustomed to open, free

March 3, 2003

Page 15

exchanges of information in a public university setting. Any disclosure of proprietary

information, either intentionally or unintentionally, may be actionable under both criminal and

civil law. Therefore, it is essential to limit the amount of confidential proprietary information

received when consulting, to agree in advance to receive it, and to have the company agree to

clearly identify such proprietary information by marking it as "confidential.” It is recommended

that consulting agreements include a statement about the transmission of proprietary information

and a "no-fault/no liability" statement regarding unintentional disclosure.

Liability

Consultants are normally asked to provide advice to the company, which may or may not be

accepted. Usually the consultant has no control over how the results are used in practice.

Therefore, agreements should limit the consultant’s responsibilities to negligent acts on his or her

part only. Under no circumstances should a consulting agreement include general liability or

liability for any product produced based on the consulting activity. It is recommended that a

consultant have personal insurance for the liability exposure faced as a consultant. The

University will not be responsible for providing legal help or for payment of any claim arising

from a dispute with the company.

California State Law Provision

Most consulting agreements will indicate that the laws of a particular state or country will be

used in a dispute, usually those of the state where the firm is located or where the consulting is

taking place. If it is other than California, the litigation of any dispute likely will physically take

place in that state or country. As this could be very costly and disruptive to the consultant, it is

important to try to include a statement in a consulting agreement that in the event of a dispute,

California laws will apply. If choice of venue cannot be negotiated in that way, then the

agreement may remain silent on that issue.

Allowable Consulting Days

As delineated in the University Policy on Conflict of Commitment and Outside Activities of

Faculty Members (APM 025), full-time faculty members on a nine-month appointment may

engage in compensated consulting activities for 39 days during the academic year. Full-time

faculty members with fiscal-year appointments may engage in compensated consulting for 48

days for the entire year. Faculty members may consult full-time during the summer months in

which there is no other salary compensation from the University (such as work on sponsored

projects). Consulting activities of employees working at the National Laboratories may be

subject to U.S. Department of Energy policies and procedures.

Amount of Compensation

The University does not set a cap on compensation from outside personal consulting

arrangements, except as agreed upon under a health sciences compensation plan.

March 3, 2003

Page 16

Conflicts of Interest

Faculty and other researchers should bear in mind that under the California Political Reform Act

of 1974, a Principal Investigator must disclose whether or not there has been any consulting

activity with a company when accepting research funding at the University from that company.

The format for disclosure is the Principal Investigator’s Statement of Economic Interests (Form

700-U).

As a separate matter, the National Science Foundation and the Public Health Service require that

all investigators responsible for the design, conduct, or reporting on projects supported by funds

from these agencies disclose any financial interests (including consulting income above $10,000

in the prior twelve months) in entities that would reasonably appear to be affected by the work

performed under the NSF or PHS project.

Thus, under both State law and NSF/PHS regulations, an existing or prior consulting

arrangement might require that a proposed University contract or grant be reviewed and

approved by a campus Independent Substantive Review Committee (ISRC) as to conflicts of

interest concerns.

Reporting Consulting Activities

Under the University Policy on Conflict of Commitment and Outside Activities of Faculty

Members (APM 025), faculty are required to submit annual reports on outside professional

activities (to include consulting) to department chairs or equivalent unit heads.

For More Information

You may obtain additional information or seek answers to questions about this document from

your campus or Laboratory sponsored projects or technology transfer office. Questions about

scope of employment, student involvement, and other academic concerns relating to a proposed

consulting activity should be directed to the appropriate dean or department chair.