The University’s Policy on Patents, Inventions and Technology Transfer (“Policy”) provides for the sharing of income received from commercialization efforts with Inventors (Section V. C). After deduction of direct expenses incurred by and in connection with the patenting and commercialization of the invention, the Policy provides for distribution of the remaining income among the inventors’ laboratories and affiliated department and school and among the involved inventors (the “Inventors’ Share,” e.g., 50% of the first $500,000; Section V.C.2.a.). The relative percentage that each inventor will receive of the total Inventors’ Share will be set separately for each agreement.
In order to provide an equitable and transparent process for determining and documenting the relative inventor distribution percentages, the Office of Translation & Commercialization (“OTC”) has established the following procedure, for agreements with an effective date of January 1, 2017 or after. The procedure includes the creation of a Revenue Distribution Plan (“RDP”) to document these relative percentages that are intended to estimate each inventor’s contributions to the intellectual property being optioned or licensed to an outside company, ideally as recognized by the inventors themselves.
The Revenue Distribution Plan (RDP)
According to the following steps, OTC will endeavor to create a draft RDP shortly after an agreement is first executed unless this is not appropriate under the circumstances. The intent of the draft RDP is to provide an initial basis for discussion among the inventors. An inventor should contact both OTC and his/her co-inventors if the inventor does not receive a draft RDP but is aware that several weeks or months have passed after completion of an agreement.
OTC will ask one of the inventors, usually the primary contact as indicated in the IDF (but possibly an inventor who takes a leadership role in patenting and licensing), to act as a coordinator for seeking approval from each inventor for either (a) the draft RDP or (b) an altered RDP.
The inventors will often agree upon the draft RDP as the final approved RDP, but this need not be the case. The University expects inventors to diligently and professionally discuss any draft RDP, including by speaking by phone and/or in person if there are any difficulties in arriving at an agreement. Where the inventors discuss an altered RDP, they may take into account any factors or rating schemes that they wish, as long as they have some relevance to the research, technology, patents, or underlying agreement. Inventors’ approval of a proposed RDP will be documented with an affirming email or signed PDF copy from each inventor.
The primary contact will send the approved RDP and approval documentation from each inventor to OTC via e-mail. If approval from one or more inventors was not obtained, OTC will send an approval e-mail to the inventors who have not approved, if possible. If an inventor fails to respond within ten business days after the OTC reminder e-mail, the inventor will be assumed to be in agreement and the distribution will proceed.
Note: Once consensus has been reached, the laboratory, department and school shares will be distributed proportionally based on the RDP inventor percentages.
Alternative to Consensus
The University strongly prefers (and expects) that the inventors will arrive at a consensus for the “approved RDP,” pursuant to the prior paragraph.
However, if all the inventors are unable to agree on an approved RDP after a reasonable period of time (OTC may set a deadline), after notice to the inventors, OTC’s Executive Director will set the RDP. In such cases, the Executive Director will consider the ideas and intellectual contributions to the inventions and IP rights at issue in the agreement at hand. The Executive Director may use any reasonable interpretation of this standard (which is not a legal standard, but one created for this purpose), though typically neither (a) work that does not relate to making a person an “Inventor” under the Patent Policy (e.g., reduction to practice of patented inventions) nor (b) assistance in patent prosecution or licensing activities would be considered to be an intellectual contribution, unless all inventors agree otherwise. The Executive Director may ask for written comments from the inventors, and may rely upon the responses or lack thereof. If he or she deems it appropriate, the Executive Director may rely upon the initial draft RDP described above and/or the percentages supported by a majority of the involved inventors.
Except under situations described in the following paragraph, OTC will use the approved RDP for all revenue distributions, including revenue received from equity liquidation, relating to the agreement, regardless of patent coverage, product decisions by the licensee, or other information received from third parties or inventors. If the approved RDP is later revised, then the revised RDP shall only apply to revenues received after the date of the revised RDP.
The approved RDP will only be revised if one of the following circumstances arises:
- A new inventor not previously included in the licensed portfolio is added, for example when OTC adds new patent rights or copyrights to the agreement by formal amendment. (Sometimes it is necessary to correct inventorship of patents or applications; typically this will not trigger an RDP revision unless (i) a new inventor is added who was not previously named in the licensed portfolio or (ii) an inventor is removed from all patents in the licensed portfolio.)
- OTC adds new patent rights or copyrights to the agreement by formal amendment, and OTC determines there is clear evidence that those added rights were significant under the circumstances. The following are examples of facts that may be taken into consideration when determining whether rights added to a license were “significant”: (a) whether rights were added to the agreement along with new diligence milestone requirements; (b) whether the rights would be expected to result in end products in different fields of use compared to the rights already in the license; and/or (c) whether rights were added to the agreement along with substantially new or increased licensing fees. (Only rights added by amendment will trigger this section, e.g., newly filed continuations or divisionals based on an application already included in a license will not trigger this section.)
- A patent or patent application within an agreement is either abandoned or dropped from the agreement and OTC determines there is clear evidence that those rights were significant under the circumstances. Abandoning of most applications (particularly a continuation or divisional application) typically will not trigger this section; in the case of abandoned or dropped patents, in most cases, the rights will not be considered “significant” unless there was a corresponding reduction in licensing terms.
- A licensed product results in commercial sales and the licensee can specifically identify which patents affirmatively cover the commercial product.
- All the inventors agree of their own accord in writing to a revised RDP (where the percentages bear some relevance to the research, technology, patents, or underlying agreement).
Inventors should alert OTC if they believe any of the above circumstances has arisen that may require a RDP revision. Any changes will be for future revenue distributions and will not impact past revenue distributions.
Inventors may appeal final revenue distribution decisions to the OTC Board defined under Section IIC of the Policy.
Given the need to distribute revenues, it is typically essential that inventors make such appeals within 30 days after any decision is communicated via e-mail by OTC; OTC will rely upon the failure to request such an appeal within 30 days and may proceed to distribute revenues and such RDP shall be final.
Payment, Reporting, Taxes
Revenue distributions to Non-Duke Employee US Citizens, Permanent Residents, or Resident Aliens are paid via check mailed from the University Accounts Payable office to the inventor’s home address. Inventors who are no longer at Duke must keep OTC apprised of their contact information.
Individuals receiving payment through the University Accounts Payable office will be asked to complete form W9 or W8BEN to verify their citizenship, address, and Social Security Number. Federal regulations require the University to have this form on file.
Revenue distributions to Non-Resident Aliens paid through the University Accounts Payable office may be subject to taxes pending the country’s tax status/treaty and the appropriate income taxes will be withheld and reported on form 1042S at calendar year-end.
Active Duke employees will be paid via Employee Travel & Reimbursement (ET&R) and distributions cannot be combined with their paycheck. No income taxes are withheld.
Payments are reported on form 1099-MISC, Box 3 (“Other Income”) at calendar year-end.
Inventors seeking tax accounting advice should seek guidance from external tax professionals. OTC cannot and will not give tax advice.