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Lurking Legal Trap: How IP is described


It goes without saying that intellectual property must be accurately represented when it is described to a potential commercial partner. It is easy to recognise that as a principle, but its implementation is not always as easy. 

We do not go out intending to inaccurately describe our technology, nor to deceive or mislead our potential commercial partners. But, innocently and unknowingly, that happens sometimes. And we may not know that it has happened until something goes wrong, like a legal claim is made.



Here are just a few examples of occasions that involved inaccurately describing IP, legal claims being made, having to pay out damages, and damaged reputations.

Example 1: 

A TTO prepared a written technology description, intending to use it to help market the IP’s commercialisation opportunity. It described having successfully inserted a gene known for its yield increasing properties, into a crop. After a period, the genetically modified crop was removed from the city campus glasshouse to make space available for other experiments, so no further samples of the GM crop were available. The patent was licensed. For 3 years the licensee was unsuccessful in itself producing the crop with the yield gene successfully inserted. A legal claim was made, asserting that the TTO and the university had misrepresented the technology. Further experiments by the licensor also failed to produce a GM plant. It was discovered that the research team’s confirmation that the crop was transgenic 3 years earlier was not done with a PCR test, but with an older technology - a southern blot test, which had been less than robustly done. The university paid out to the licensee a negotiated settlement amount of $3 million.

Example 2: 

A TTO’s tech transfer manager made a presentation to a company describing the IP that the company was interested in licensing. It said that "the chemical separation method described in the patent is reliable.” The company did its own experiments and found the catalyst and method to work. It licensed the patent, for its own use, as well as to commercialise it by manufacturing and selling the catalyst to enable buyers to use the separation method themselves. When marketed, it did not always work. The market responded negatively, commercialisation failed, and the licensee lost its investment of $1 million. Subsequent analysis found that the separation method had an 11% error margin, which was an intolerable margin of error for industrial application. The licensee claimed that the TTO had mispresented the technology. The licensee was paid agreed damages of $900,000.


How can misrepresentations happen?

In the first example the misrepresentation occurred because the TTO repeated statements made by the research team. They honestly believed that the transgenic plant had been produced. This is what was represented to the licensee. But even an honestly held belief can amount to a misrepresentation if a statement communicating that belief is wrong. In the second example the misrepresentation was made by the TTO itself. Again, the statement made was the result of an honestly held belief, but again it shows that a mistaken but honest belief can still amount to a misrepresentation.

Misrepresentations can also occur of course when a statement is made that is known to be untrue.

A misrepresentation can also occur when a statement is made that is untrue, when it is made recklessly, without regard to whether it is true or not. But intentional untrue statements do not represent the biggest risk. Licensors, inventors and TTOs do not go out intending to misrepresent. The biggest risk of misrepresentation does not involve dishonesty, nor an intention to mislead or deceive. Rather, the biggest risk of misrepresentation occurs when statements are made that are honestly believed, but they are too generous, or are made with such passion and enthusiasm that they contain unwarranted extrapolations or sweeping statements.


What amounts to a misrepresentation ?

A misrepresentation is:

  1. a statement

  2. that is incorrect

  3. which is relied upon by a person that enters into a contract.


A statement can sometimes include an opinion. A statement can also be inferred, for example, from conduct, and even from silence, if the circumstance support the inference.

An intention to misrepresent is not relevant. What matters is whether or not the statement was incorrect.

If the three conditions are met – statement – incorrectness – reliance, and the other party to a contract recording a technology transfer transaction (license agreement, research agreement, collaboration agreement, consulting agreement, etc) suffers loss, a legal claim can arise.

A claimant used to have restrictions on what could be claimed. For some types of misrepresentation only termination of the contract could arise. For other types, a claimant had to choose between termination and damages. The general law in Singapore, Hong Kong, Malaysia, United Kingdom, the United States, and elsewhere still preserves these distinctions. However, modern statutes have swept away these distinctions, so that in all those countries a claimant can both terminate, as well as be awarded damages.


Misleading and Deceptive Conduct

In some countries the law in relation to misrepresentation has largely been superceded by legislation which makes misleading and deceptive conduct unlawful. For example, section 18 of the Australian Consumer Law (which despite its name applies to business to business transactions), states:

"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

This very broad provision applies to "conduct" broadly, which includes oral or written statements, conduct, and even silence, depending on the circumstances.


Avoiding the risk – strategies that do not work

It is usual for contracts recording the terms of tech transfer transactions to include provisions such as an acknowledgement by the parties that there have not been any representations made, and that the whole of their agreement is contained in the written contract.

These are not legally effective to exclude or restrict liability for misrepresentations or misleading or deceptive conduct. Modern statutes in Australia, Singapore, Hong Kong, Malaysia, United Kingdom, the United States, and elsewhere that provide that the provision of any contract that attempts to exclude or restrict a liability for a misrepresentation or misleading or deceptive conduct is ineffective.


Avoiding the risk – strategies that do work

There are strategies to avoid these risks. These are a few:

Strategy 1: 


Engage with the inventor and the research team, and ask them about the technology:

  1. Are their results repeatable? 

  2. To what extent have they been repeated? Have there been occasions when they could not be repeated? What were the reasons for that? 

  3. Is the technology scalable? 

  4. Are there impediments or unknowns in seeking to scale up? 

  5. Has the research team already communicated anything to any potential commercial partner? If so, what was it?


Strategy 2: 

Prepare a “Technology Script” that contains all the facts about the technology that you can confidently draw upon and repeat to potential commercial partners. Check with the inventor to make sure that you have included everything that you should and have not omitted anything, but most importantly, to check that nothing is included which is inaccurate or liable to misinterpretation. This script may be shared with potential commercial partners, but that is not always the case.


Strategy 3: 

Prepare a “Commercialisation Script” that contains all the facts about the commercialisation opportunity that you intend to draw upon and repeat to potential commercial partners. It may include information about the size of the market, competitors, market share, etc. Ensure that every fact is recorded accurately, without extrapolation. Evaluate each fact. If suspicious, corroborate the fact with another source. Footnote every fact to record the source(s) of that fact, such as a publication, report, web site etc, so that you can identify the source(s) of the fact if the need arises. This script would not normally be shared with potential commercial partners.

Strategy 4: 

Stick to the Technology Script and the Commercialisation Script. If a question is asked that is not covered by a Script, defer answering it until you have checked with the inventor, or otherwise checked sources. Don’t extrapolate, and don’t make forecasts or predictions.

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