Managing Intellectual Property In Government

Managing IP in Government Exploring the Issues raised by the Auditor General of Victoria An Innovation Catalyst™ Seminar Prepared and Presented by Marcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust

Contact Details Marcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust Marcus.tarrant@missionhq.com.au +61 3 9005 9710 www.missionhq.com.au © Mission HQ Pty. Ltd. All Rights Reserved 2

Copyright ©2010 Mission HQ. The format, structure and communication technique utilised in this document are the intellectual property of Mission HQ Pty. Ltd. This document is strictly classified as “Commercial in Confidence” and intended only for recipients expressly authorised by Mission HQ. Any modification or distribution under altered expression, by any means, in its entirety or in parts, to any person without written approval from Mission HQ is expressly prohibited. Natural Persons or bodies corporate may not copy, retransmit, distribute, publish or otherwise transfer any copyrighted material to third parties or contractors without the express permission of Mission HQ. This document is intended to reflect MISSION HQ’s high-level overview of IP Management in Government. It does not constitute formal professional advice or a recommendation to potential licensors, tax advisors, inventors or other third parties as to a course of action in respect of the processes addressed, and should not be relied on as such. All care is taken in the preparation of this document but MISSION HQ bears no responsibility as to the contents of this document and disclaims any liability with respect to its use or misuse. Intellectual Property & Disclaimer

Quote intellectual property is important because it confers exclusive legal rights which can be very valuable. It converts knowledge into identifiable assets which can be transferred, licensed and sold. Invent Commercialisation Handbook © Mission HQ Pty. Ltd. All Rights Reserved 5

Mission HQ Overview The team have undertaken the following projects Federal and State Government Department of Defence (DSTO) – Technology Transfer Advisory Group Department of Industry and Resources (WA) – Investor Ready Programme Design and Opportunity Evaluation Framework Department of Land ‘Landgate’ (WA) – Innovation programme design, and commercial engagement programme (Business Associations) CSIRO – IP management process NICTA – Audinate Capital Raising 4.2m CRC’s CRC-ACS, CRC for Polymers, Dairy CRC VC’s Innovation Capital, Starfish Ventures – Austhink, Audinate, Ceram Polymerik etc. CRC IP Management Entities Advanced Polymerik Small ASX Listed IP intensive companies Renewable Energy Holdings– IP Valuation

How can we help? IP management training IP management process design Identification of IP IP valuation for tax or commercial transaction purposes Opportunity identification IP and Intellectual Asset Commercialisation IP management compliance © Mission HQ Pty. Ltd. All Rights Reserved 8

Background In 2005, The Auditor General of Victoria released a report titled “Managing intellectual property in government agencies” This report highlighted current issues with the management of intellectual property in Government Agencies and made a number of recommendations. Our experience in the Western Australian government sector has provided us with some unique insight on these issues. We thought that 5 years on, it was time to bring together some relevant stakeholders to discuss some of the issues and challenges. © Mission HQ Pty. Ltd. All Rights Reserved 9

Session Objectives To re-invigorate discussion on this important report from VAGO which to date has received little attention To create a dialogue on the issues raised To set the context on where Victoria sits relative to other state governments and the federal government Impart our experiences from dealings with the WA government Discuss any operational issues related to the management of IP © Mission HQ Pty. Ltd. All Rights Reserved 10

IP management can result in an improved return on public investment An IP success story An agency in NSW developed a business function thesaurus for the NSW public sector. The thesaurus can be built into other records management software packages used to store and retrieve information easily. The thesaurus has attracted international attention. Over sixty licences have been sold beyond the sector nationally and internationally, including whole-of-government licences to the Commonwealth and governments in the Northern Territory and Alberta, Canada. These sales have generated significant revenue. Under the terms of the licence agreement, licensees must provide the agency with any modifications they make to the thesaurus. © Mission HQ Pty. Ltd. All Rights Reserved 12

Poor IP management can result in substantial risk and cost. The dangers of not managing IP rights A Victorian government department entered into a software licence and development contract which involved the outsourcing of a critical operational system. A subsequent review found that the department was exposed to significant risks: it did not own the software which drove critical systems, resulting in costs to the department of more than $50million it had no right to profit from enhancements to the system made by the department it was prevented from reverse engineering and cloning the software for other applications, and it was restricted to one contractor for external support. © Mission HQ Pty. Ltd. All Rights Reserved 13

Foreword The development of ideas and the application of new knowledge can position an organisation ahead of its competitors. Intellectual property (IP) is often at the heart of these new innovative goods and services, and is an important and valuable asset that needs to be properly managed. For government agencies, proper management of IP is challenging. If agencies do not protect IP, the state may lose valuable knowledge and its application. Conversely, if the management of IP is too restrictive, the asset may be underutilised and the community benefit unrealised. Agencies are also major consumers of IP owned by others, so the use of this IP needs to be prudently negotiated and managed. This audit assessed the effectiveness of the management of IP assets in selected government agencies. This report makes some important observations about the public management of IP and recommends the need for more explicit recognition, management and application in the public sector. © Mission HQ Pty. Ltd. All Rights Reserved 15

About Intellectual Property “Intellectual property” (IP), refers to “the legal rights which result from intellectual activity in the industrial, scientific, literary and artistic fields”1. As a starting point, the creator of IP is the owner of the legal rights, but, like other property, IP can be owned, sold, rented or given away. In some cases, for example copyright, the protection of IP is automatic. In other cases, the ownership of IP can be protected through a variety of mechanisms, including patents, plant breeder’s rights, trademarks and circuit layout rights. © Mission HQ Pty. Ltd. All Rights Reserved 16

Why is IP Important? IP is a resource that can be used, managed and commercialised to provide economic, social and environmental benefits for government, the community and business. If managed correctly, some of the benefits that can spring from IP resources include: revenue or royalties from commercialisation expansion of business opportunities improved competitiveness economic growth and job creation in the jurisdiction, if IP is commercialised social and environmental benefits from the broader take-up of IP. © Mission HQ Pty. Ltd. All Rights Reserved 19

Characteristics of Intellectual Property Assets IP assets are divisible through shared ownership, licensing and royalty arrangements. IP tends to be cumulative in nature.. It is also difficult to have an exclusive ownership of IP – information and ideas, once exchanged, are difficult to take back Unlike physical assets, the value of IP is not necessarily diminished over time or through use. IP can emerge from a variety of sources. Within government agencies, employees, contractors and funded bodies commonly create IP. Different professions think about IP differently, for example, lawyers refer to IP as having a property right in law; accountants refer to it as identifiable intangible assets; and managers think of it as an investment which has no physical existence. © Mission HQ Pty. Ltd. All Rights Reserved 20

About the survey The objective of the audit was to assess whether selected Victorian public sector agencies manage their IP assets effectively. We examined 3 agencies: the Department of Education and Training, the Department of Human Services and VicRoads in detail (“the audited agencies”) and surveyed 26 other departments and agencies (“the surveyed agencies”). We considered: policy and direction day-to-day management of IP, including how agencies identify, protect and record IP management of IP in purchasing contracts management of IP in funding arrangements. © Mission HQ Pty. Ltd. All Rights Reserved 22

Policy and Direction Australian Legislative and policy framework Do Victorian whole-of-government intellectual property guidelines and policies provide clear direction? Are agency level intellectual property policies and guidelines clear? Are there clear directions on considerations in allocation of intellectual property rights? © Mission HQ Pty. Ltd. All Rights Reserved 24

2. Whole of government policies Victoria does not have a single policy governing the management of IP across government. The policy responsibility for public sector IP in Victoria is spread throughout various departments and agencies. © Mission HQ Pty. Ltd. All Rights Reserved 26

3. Agency IP guidelines Policy coverage: Are there clear and documented policies and procedures? Do documented policies cover all IP relevant to the agency? Is it clear to which functions and agencies the policies apply? Policy accountability: Are accountabilities for implementation and policy oversight clear? Are accountabilities for procurement, licensing and transfer of IP clear? Policy administration: Are policies revised as appropriate? How well are the policy requirements communicated to staff? © Mission HQ Pty. Ltd. All Rights Reserved 27

4. Allocation of IP Rights (Continued) Direction Does the agency have a clear position on allocation of IP rights? Does this position consider IP that is created within the agency, created under contract or created under funding arrangements? Decision-making Is there clear guidance for staff managing negotiations on when, how and why to consider negotiations away from the base position? Are key decision-making considerations documented/transparent? Are decisions timely? Access to expertise Do staff have access to appropriate expertise and advice as required? © Mission HQ Pty. Ltd. All Rights Reserved 29

4.a. Direction Most agencies surveyed too the view that any IP created as a result of government contracts should vest with the state. This position was reflected in template contract terms and conditions used by the agencies. The exception to this position was generally found in IT contracts, as these terms are rarely acceptable to the vendor “We pay, we own” © Mission HQ Pty. Ltd. All Rights Reserved 30

4.b. Decision making Considerations provided by DIIRD: agencies should seek economies in IP acquisition and management by obtaining and retaining only the IP rights that are necessary for operational activities. IP rights should be in the hands of the party whose corporate mission is to exploit and improve such IP, and is best able and willing to do so when engaging external parties to develop IP that may have a commercial potential, and where the external party is able and willing to commercialise the IP, government is encouraged to grant ownership or commercialisation rights to the external party joint ownership of IP should be discouraged. where joint ownership of IP is agreed to by a public authority, the contract should contain appropriate provisions relating to the use, management and administration of IP assets. © Mission HQ Pty. Ltd. All Rights Reserved 31

4.c. Access to Expertise Requires access to expert legal, financial and commercial advice. The 3 audited agencies had good access to legal expertise Access to other kinds of advice - for example on financial, commercial and social implications of decisions - and assistance with evaluation of options for broader issues than legal risks was limited. © Mission HQ Pty. Ltd. All Rights Reserved 32

4. IP Allocation Conclusions At a whole-of-government level, guidelines and directions on the management of IP in Victoria are piecemeal. The current policies and guidelines provide limited assistance in individual agencies’ management of IP. However, government has not clearly articulated how public IP assets should be managed. The lack of documented decision-making criteria has an impact on the transparency and defensibility of decisions. Decisions on allocation of IP rights can have significant economic consequences, and the current lack of a clear framework exposes staff to risks that their decisions are not seen as fair and impartial. © Mission HQ Pty. Ltd. All Rights Reserved 33

4. IP Allocation recommendations That the government nominate an agency to take responsibility for the development of a whole-of-government policy on all IP. This policy will need to be developed in conjunction with the Department of Treasury and Finance, the Department of Innovation, Industry and Regional Development, the Department of Justice, the Department of Premier and Cabinet, and line agencies. That the Department of Justice complete its planned revision of the copyright policy and guidelines for departments on copyright management as a priority. That government departments and agencies develop policies providing detailed guidance on managing IP in line with the whole-of-government direction and organisational objectives. © Mission HQ Pty. Ltd. All Rights Reserved 34

4. IP Allocation responses DIIRD The Department supports the development of a whole-of-government policy on all IP. This should be undertaken with a degree of urgency Department of Justice The Department of Justice welcomes the Auditor-General’s review and agrees with the conclusions and recommendations of the report. The Department will welcome the opportunity to be involved in the development of a whole-of-government policy on all intellectual property in conjunction with other Government agencies. Department of Education and Training The Department of Education and Training recognises the need to provide guidance to employees with respect to any whole-of-government direction and organisational objectives. Department of Human Services The department strongly supports the need for a whole of government approach to IP. A whole of government IP policy should clearly articulate the policies applicable to IP but should be sufficiently flexible to allow the policy to be tailored to the particular needs of departments and the stakeholders that they serve. © Mission HQ Pty. Ltd. All Rights Reserved 35

B. Day to Day Management of IP identify significant IP (existing or under development) adequately protect IP manage HR processes related to staff rights and responsibilities for IP manage record keeping manage the risks of infringement and liability. © Mission HQ Pty. Ltd. All Rights Reserved 37

B.1. Significant IP Are there guidance materials to assist staff to recognise IP and understand how to protect it? Are there mechanisms to identify IP that is created by staff, contractors and collaborative projects, like funded research? Is there a notification process for IP created by employees, contractors and funded bodies? Is the possible creation of IP considered in project planning phases? © Mission HQ Pty. Ltd. All Rights Reserved 38

B.2. Protecting Intellectual Property Where registration of IP rights is required in order to secure protection do agencies take appropriate steps to preserve the possibility of registration? Where rights are protected through registration, do agencies consider the costs and benefits against the risks of not registering? Do agencies take adequate steps to protect non-registrable IP (e.g. maintaining confidentiality, using copyright notices)? Do agencies periodically evaluate whether to maintain registered rights? © Mission HQ Pty. Ltd. All Rights Reserved 39

B.3. Managing HR Processes Employees create IP as part of their work and their rights and responsibilities for IP should be considered as a part of human resource management policies. Do employment agreements clarify ownership of IP between employer/employees? Do recruitment processes consider any IP employees may bring to their employment and are there processes in place to manage any issues arising? Does the exit process for employees leaving the agency include information on obligations in relation to IP and confidential information? Does the agency consider and manage the moral rights of its employees? © Mission HQ Pty. Ltd. All Rights Reserved 40

B.4. IP Record Keeping A central register of IP also makes it easier to assess commercial values, update registrations and develop strategies for the use of IP. Useful information on an IP register includes: Location ownership details where contractors are used, details on copyright clauses in contracts where material is licensed-out, details of licence, licensee, payment details and assignment details. © Mission HQ Pty. Ltd. All Rights Reserved 42

B.4. IP Record Keeping - Accounting All audited agencies consider that to accurately or meaningfully record a monetary value for their IP would be difficult. Still, both VicRoads and DET have developed models to value some of their IP. VicRoads uses models based on cost recovery and the price of a substitutable alternative. DET’s charges reflect a number of factors, including the potential market value of the materials and the desirability that publicly funded materials should be made widely available. © Mission HQ Pty. Ltd. All Rights Reserved 43

B.5. Risks of Infringement Our criteria to assess infringement and liability management covered 4 areas: Does the agency monitor potential infringement of its IP and take appropriate actions to protect it? Does the agency effectively manage the risk of infringing the IP of other parties? Where IP is transferred outside the agency through sale or licensing arrangements, are the risks associated with liability and indemnity considered and managed effectively? Is the management of IP-related risks integrated into broader agency risk management processes? © Mission HQ Pty. Ltd. All Rights Reserved 44

B. Recommendations on Day to Day Management Code of conduct provisions for public sector employees should address employer ownership of all types of IP, not just copyright. For example: the Victorian Public Sector Standards Commissioner should consider this when issuing new codes of conduct under the Public Administration Act 2004 (Vic.) government agencies that produce their own codes of conduct should address this as codes are reviewed and updated. Agencies should assess whether the provisions in the Copyright Act 1968 (Cwlth) regarding moral rights can be implemented in their agency and, if not, obtain consents as far as possible from their staff and contractors. Agencies subject to the Financial Management Act 1994 (Vic.) should conduct an IP audit or in other ways assess the value of their IP assets to comply with Accounting Standard AASB 138. © Mission HQ Pty. Ltd. All Rights Reserved 46

Purchasing contracts and Intellectual Property Effective contracts will clarify IP rights, minimise and manage risks, and support optimal outcomes for the agency and the state. Ineffective IP management of contracts can result in: a lack of clarity in IP ownership and rights additional costs to license the contractor’s pre-existing IP or other essential supporting materials exposure to third-party infringement limited access to relevant project IP lack of awareness by the agency of valuable IP developed under the contract. © Mission HQ Pty. Ltd. All Rights Reserved 48

C.1. Clarity in IP Ownership Guidance Does the agency have clear guidelines to assist staff in managing IP in purchasing? Contract control Do policies or procedures ensure that only staff with the relevant expertise can authorise a departure from standard contract provisions? © Mission HQ Pty. Ltd. All Rights Reserved 49

C.2. Do tender processes address IP issues? Planning Are IP issues considered before tenders/bids are called? Does the agency consider the IP rights necessary to meet the operational needs of the agency? Does the IP need to be purchased outright or could adequate access be obtained through other means (e.g. through licensing) for a lower price? Calling tenders Are the agency’s preferred IP provisions clearly defined, implemented and communicated to tenderers? IP in tender submissions Does the agency have procedures for managing the disclosure of agency IP to tenderers? Does the agency clarify rights to IP contained in tender submissions? © Mission HQ Pty. Ltd. All Rights Reserved 50

C.3. Are agreements effectively documented? Intellectual property definition and allocation of rights Does the contract define IP, and is the definition adequate to cover all types of IP likely to be developed under the contract? Is there clarity in the IP ownership and other rights (e.g. licences and royalties)? Pre-existing intellectual property Is there recognition that ownership of pre-existing IP will not be affected by the contract? Does the agency receive a licence to use the contractor’s pre-existing IP and/or other IP necessary for the full use of the contract deliverables (at no additional cost)? Risk clauses Does the contractor indemnify the agency against claims and liabilities? Does the contractor warrant that it has the legal ability to assign or transfer IP ownership over works produced under contract? Rights and obligations Does the contract address the question of moral rights? Does the contract include conditions requiring the contractor to notify the agency of any IP developed under the contract? © Mission HQ Pty. Ltd. All Rights Reserved 51

C. Conclusions Currently, with the exception of information technology purchases, many agencies view full ownership of IP as the default position. Thinking more flexibly about IP ownership when developing RFTs and purchasing arrangements may: create opportunities for purchasing agencies to acquire goods and services at a lower price attract a wider range of suppliers reduce time spent in contract negotiations. © Mission HQ Pty. Ltd. All Rights Reserved 52

C. Recommendations That the Department of Treasury and Finance develop improved guidance on IP considerations in purchasing. This should: take into account the whole-of-government policy direction, once established recognise that IP decisions need to be made before contractual solutions are found. That agencies clarify IP ownership of tender submissions, and make this clear in requests for tender. That the Department of Education and Training review: the adequacy of its controls over changes to contract templates the terms relating to IP in its contract templates. © Mission HQ Pty. Ltd. All Rights Reserved 53

D. IP Policies for funded bodies Clarity of direction and consistency Are guiding policies, principles and considerations on IP arrangements with funded bodies clear to agency staff and to funded bodies? Is the allocation of IP rights under funding agreements consistent with the agency’s stated direction? The agreements entered into for funding are variously called “grants agreements”, “funding and services agreements”, and “performance agreements” in different agencies. For the purposes of this report, we are using the term “funding agreement” to encompass all of these. Decision-making Is decision-making responsive to service delivery needs and concerns of funded bodies? Do decisions take into account the level of risk, government service delivery objectives and potential community benefits? © Mission HQ Pty. Ltd. All Rights Reserved 55

D. Documentation of agreements Documentation Does agreement documentation between the department and the funded bodies: make ownership of and rights of access to IP clear? adequately recognise rights regarding the pre-existing IP of each party? give adequate warranty against possible misuse of IP belonging to other parties? Does agency record keeping give clear indications of the IP rights of each party? Management Do funding agencies ensure that the funded body has adequate arrangements to safeguard the IP? Where rights to IP are vested in the funding agency, are there effective records so the funding agency knows what it “owns”? Does the agency have a strategy to manage external access and future exploitation of significant IP? © Mission HQ Pty. Ltd. All Rights Reserved 56

D. Conclusions a position that automatically vests ownership of all IP in the state, without addressing stewardship considerations, poses a substantial risk. These considerations include: Which party is best placed to capitalise on the IP to provide community benefit? Does the department maintain records of IP that it notionally “owns” under these arrangements? Does the department have a plan for managing access to, and capitalising on, these resources? © Mission HQ Pty. Ltd. All Rights Reserved 57

D. Recommendations Government should develop guidelines addressing the allocation of IP rights under funding agreements. That DHS develop a comprehensive departmental IP policy which clarifies arrangements for: copyright and non-copyright IP IP in funded agencies, including occasions when it is appropriate for the default position to prevail, and where exceptions can be considered. Departments with significant funding commitments to bodies where IP is likely to be created should specify minimum requirements for IP policies and practices in those bodies. For Example: DHS should develop guidelines on minimum IP management requirements for public health services and hospitals. © Mission HQ Pty. Ltd. All Rights Reserved 58

Federal Attorney General Recommendations and Findings Whole of Government Intellectual Property Principles – Attorney General’s Department - September 2005 “Agencies should identify means and circumstances where IP materials can be gainfully reused or shared between and across agencies or jurisdictions, and where they can facilitate public access to IP material, including, as appropriate, opportunities for commercialisation.”

Commonwealth reports Commonwealth IT IP Guidelines: Management and commercialisation of Commonwealth intellectual property in the field of information technology, Department of Communications, Information Technology and the Arts (2000) Compendium of National Competition Policy Agreements, National Competition Council (1998) Department of Finance and Administration Commonwealth Procurement Guidelines, (2005) Department of Finance and Administration, Department of Finance and Administration Government Information Technology and Communications Framework, Australian National Audit Office Intellectual Property Policies and Practices in Commonwealth Agencies, Audit Report No.25 2003-2004, (2004) Attorney-General's Department Guidelines for management of published copyright materials issued by the Commonwealth Copyright Administration © Mission HQ Pty. Ltd. All Rights Reserved 61

State Resources New South Wales: Intellectual Property Management Framework for the NSW Public Sector (2005) Queensland: Queensland Public Sector Intellectual Property Guidelines (2003) Queensland Public Sector, Intellectual Property Principles (2003) South Australia: Report of the Auditor-General for the year ended 30 June 1999, Supplementary Report, Intellectual Property Management. Tasmania: Information Technology-Related Intellectual Property Policy Principles Victoria: Managing and Commercialising Intellectual Property — A Guide for Victorian Universities and Research Institutes - Draft for Industry Comment (2002) Western Australia: Government Intellectual Property Policy and Best Practice Guidelines (2003) Intellectual Property Guidelines, Third Edition. (2002) © Mission HQ Pty. Ltd. All Rights Reserved 63

New South Wales Premiers Department The intellectual property (IP) of the NSW Public Sector is a significant asset. It needs to be managed responsibly, in the same way NSW Public Sector agencies manage the State’s tangible assets, such as its finances, buildings, infrastructure and the environment. The Intellectual Property Management Framework for the NSW Public Sector has been developed to assist agencies to manage their IP effectively. It is the product of an extensive consultation process with NSW Public Sector agencies, and draws on the expertise of specialist practitioners from across Australia. © Mission HQ Pty. Ltd. All Rights Reserved 65

New South Wales Continued The Audit Office of NSW suggests that agencies consider recording the following IP: computer programs developed for the agency where the development cost (or replacement cost) exceeds $10,000 publications or promotional materials sold or provided free of charge databases maintained by the agency television and radio advertising material developed by or for the agency artworks and photographs commissioned by the agency and used in promotional material computer programs licensed by the agency training materials developed by the agency where the development cost (or replacement cost) exceeds $10,000 trademarks or logos used by the agency whether or not they are registered as trademarks or business names patented inventions, registered designs, and registered plant varieties created by the agency integrated circuit boards designed by or for the agency, and patented inventions, registered designs, plant varieties, © Mission HQ Pty. Ltd. All Rights Reserved 68

Looking at tools can give us some insight IAM has become its own discipline. A look at some of the tools can give some insight into the issues others are having © Mission HQ Pty. Ltd. All Rights Reserved 73

Starting with an Intangibles audit

A management framework with commercial orientation.

How can we help? Facilitating departmental or interdepartmental workshops Project management of IP management programmes Conducting IP audits Provision of commercial advice on appropriate use of IP Structuring IP management processes and programmes Design & Implementation of IP management systems Outsourced maintenance of IP registers IP commercialisation © Mission HQ Pty. Ltd. All Rights Reserved 90

Managing Intellectual Property In Government

Managing Intellectual Property In Government

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