Licence Arrangements

Option Two

Customer Agency owns the IPR, Supplier commercialises

If the Customer Agency is to own the IPR and licence the Supplier to commercialise the IP (Option Two), the agency will need to decide what type of licence to grant to the Supplier. The main options, all assuming terms allowing commercialisation, are:

• Non-exclusive Licence:

  Supplier can commercialise.

  Customer Agency can commercialise.

  The Customer Agency can grant licences to other State Services agencies and third parties.

• Sole Licence:

  Supplier can commercialise.

  Customer Agency can commercialise.

• Exclusive Licence:

  Only the Supplier can commercialise.

The value to the Supplier could be reduced if the licence is non-exclusive, due to the prospect of competition from other licensees, which in some cases may be sufficient to deter the Supplier from attempting to commercialise the product. The reduced value of the licence could result in a higher price being charged to the agency for the creation of the deliverables. However, the agency may consider there are more compelling reasons to make the licence non-exclusive, e.g. the opportunity to grant licences to other developers may be judged likely to produce a greater national economic benefit than would accrue if a sole organisation had commercialisation rights.

Option Three

Supplier owns the IPR

A key element in the decision process is consideration of the Customer Agency's licence arrangements should the IPR be vested in the Supplier. Agencies will need to have certainty that they will continue to receive and have access to the deliverables that they are contracting to receive. Agencies should consider the use of IP escrow or, where appropriate, require provision of a copy of the relevant intellectual property (for example, source code) with rights to modify and use.

Internationally, governments promoting the vesting of IPR ownership in suppliers are also recommending perpetual all-of-government licensing of the IP in the contracted deliverables. When issuing RFP/RFTs or developing contracts, agencies should, where feasible, require terms granting perpetual licences to all State Services agencies.

There may be exceptional circumstances where the usage rights should be negotiable, e.g. where an all-of-government usage licence may not be appropriate, and the scope of usage should be restricted, e.g. to the agency itself, or to a sector. Cost saving, however, is usually not a sufficient reason for accepting a restricted licence. Accepting cost savings as a valid reason could:

• reward vendors for deliberately tendering an unrealistic all-of-government licence price whilst offering a realistic single agency licence price
• incentivise agencies to take a purely self-interested approach, at the expense of the government as a whole.

If the agency has decided to forgo the ownership rights for the benefit of the supplier, then it is not unreasonable to require in return a licence allowing State Services-wide use.

Agencies may need to ensure that the licence terms allow the IP or parts of it to be used by third parties acting for or on behalf of the Customer Agency or other State Services agencies. A significant number of State Services agencies outsource ICT support and other services to a number of different suppliers. Those other suppliers may need to use the relevant IP to support the State Services agency. If use by third party suppliers is not expressly permitted by the relevant licence terms, then the supplier who originally developed the IP could try to prevent such use or charge royalties for such use.

The position regarding licence rights, and the extent to which they are negotiable, should be set out in project business case and tender documentation.

Pricing

Ownership and commercialisation decisions are likely to inform the pricing negotiations. It is anticipated that making these decisions prior to issuing a request for proposals or tenders will provide flexibility for those negotiations.

Agencies should ensure that expected benefits to the supplier resulting from the agency's proposed ownership and licensing arrangements are made explicit in the RFT/RFP document, so as to encourage lower priced tenders and ensure that all tenderers are bidding on an equal footing.

Model Clauses

Model ownership and licensing clauses for agencies to insert into their ICT contracts are set out in Appendix One. These will be included in the Ministry of Economic Development's Model ICT Contracts resource when it is released on the Public Sector Intranet.

Commercialisation of existing, government-owned IPR

If an agency has invented something novel and considers there is a reasonable prospect of its commercialisation, it may wish to consider applying for patent protection at an early stage and certainly before publication of its ideas.

When an agency owns IP which neither the supplier nor any third party is licensed to commercialise, the agency may subsequently decide commercialisation is worth considering. The decision as to who should be given the opportunity to commercialise needs to be made with an open, fair and transparent process to ensure adequate opportunity is given to the market to respond and add value.

To assist in deciding whether to commercialise existing government-owned IPR, or to allow commercialisation by others, agencies should consider the following factors:

• Except in limited circumstances, exploitation of IPR is not a core business activity of government organisations. Even when another party is commercialising, agencies can be put under pressure to divert resources to assist with the commercialisation, especially when the product is not yet mature or fully implemented.
• Encouragement of New Zealand economic and private sector growth.
• Potential fiscal/monetary return to the government.
• Increase in agency knowledge base.
• Improvement of government-owned IP.
• Risks, including:
• • threats to the integrity of government networks arising from access to the IP by other parties
  • potential liabilities arising from the provision of IP
  • potential costs of protecting IP.

To assist in deciding who should commercialise, agencies should consider the potential risk and benefits as follows:

The decision-making process can be represented as follows: