Understanding Gap Indemnity Agreements
Today, The Wu Group continues its theme of integrating science and law with a discussion on what are often seemingly disparate areas. Jurow’s epiphany broke new ground in recognizing that due to certain loopholes in the law, scientists were duping universities into footing the bills for expensive and voluminous patent applications that were largely unnecessary and that in some cases, did more harm than good to university interests. Jurow proposed that universities use comprehensive gap indemnity agreements, as a relatively simple means of removing the financial incentives associated with such practices. Although gap indemnity agreements are now common, their origins and basic concepts are still underutilized by those outside of research institutions. This article is meant to provide an overview of why gap indemnity agreements are generally used and why they matter to the scientific community.
What is a gap indemnity agreement?
A gap indemnity agreement is a legal document where one party agrees to indemnify the other against certain liabilities. In the context of a university scientist, the scientist may be responsible for filing patent applications with the university paying the associated costs. Given the high number and variety of applications that scientists file, they often face the situation where a patent application is filed that does not provide sufficient value to the university for the university to warrant the costs traditionally associated with filing (“value threshold”). Due to the value thresholds associated with patent applications, many universities may pay for the filing of an application even if it provides no value, for example, in order to avoid upsetting a scientist who has invested considerable effort towards preparing the application. A gap indemnity agreement attempts to mitigate the situations where a university may foot the bill for an unnecessary application, by allowing the university to pass on the costs to the scientist for filing unnecessary applications. Typically, the university will issue some guidelines for various categories of inventions that it will agree to pay for, and the scientist would be obligated to pay for the applications outside of the guidelines.
Why are gap indemnity agreements important?
Indisputably, gap indemnity agreements are a common tool utilized by universities. Even so, it is one that continues to be frequently overlooked. In the last year alone, The Wu Group has drafted a gap indemnity agreement covering three million dollars in research money. Such agreements carry great importance and thankfully, have made strides in reducing the burden placed on university funds for superfluous inventions.
Why do universities utilize gap indemnity agreements?
Universities entered into gap indemnity agreements as a means of avoiding legal battles between scientists and universities. For example, there were cases where scientists became upset at their respective universities for not filing patent applications for inventions where the perceived value was too low. Accordingly, gap indemnity agreements provide a means of avoiding conflict and diverting some of the burden of patent applications by making the scientist responsible for the costs.
Further, gap indemnity agreements have become a means of avoiding legal conflicts by transferring responsibility to the scientists. For example, where a university feels obligated to file a patent application due to contract obligations, it may be tempted by the approach of filing a dilutive patent application that the scientist believes is necessary, versus filing no application at all. Through the use of a gap indemnity agreement, the university can transfer the associated costs to the scientist to avoid filing dilutive applications.
Finally, gap indemnity agreements provide a means of permitting scientists to make informed decisions with their own money.
How have gap indemnity agreements been applied within research institutes?
Universities and their scientists are not alone in utilizing gap indemnity agreements.
In addition to standard gap indemnity agreements, Asilomar Biomedial Institute, a research biolab, requires scientists to sign a waiver of claims which indemnifies the facility against any patent application related costs. In addition, waivers are also required to cover other matters such as claims related to intellectual property, and even to limit access to their facility.
Are gap indemnity agreements indispensable for research funding?
Consider this example. What happens when two scientists propose competing applications? When such situations arise, the competition between scientists becomes detrimental to the objectives of research funding. As competition increases, this may result in unnecessary applications.
On its face, a gap indemnity agreement could appear to be an easy solution for this problem. However, there may be underlying concerns that may require a closer examination. For example, what happens when a scientist is not able to afford the contribution to the patent application? What happens if the scientist does not agree with the assessment of the cost associated with filing a patent application?
Due to the various concerns over gap indemnity agreements, as also discussed by Prof. Jurow, there are some who feel that they should not be utilized. Although The Wu Group considers that gap indemnity agreements are a valuable tool for research funding, they are not without their limitations and there is great room for further discussion.