From The Vault: The Importance of Those Pesky Liability Clauses

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[Occasionally, we like to revisit posts from days gone by that either (1) are always relevant, or (2) are the subject of recent questions received by our office.  In today’s From The Vault, we look at the liability provisions of a sponsored research project.]

Originally published April 26, 2012

One of the more confusing, and contested, clauses in research contracts is that which contemplates the liability that each party will have in the event that something goes wrong during the project.  Unlike other sections that may hinge on the interpretation of one term, liability provisions are generally consistent in their wording, and simply are dependent on who will ultimately be responsible for a given misdeed or oversight.  However, getting to that point often requires a significant amount of back and forth, and frequently also includes the involvement of higher-ups within a University’s legal food chain.  Two of the more problematic liability issues involve IP indemnification and product liability.

Indemnification for Use of Intellectual Property

A standard request in most sponsors’ agreement templates is that Universities should accept responsibility in the event that the University infringes a third-party’s intellectual property during the course of its research.  While it’s somewhat understandable that a sponsor would want to ensure that its funded efforts will not run afoul of any existing proprietary rights, the expectation that the University should take responsibility for such “transgressions” simply isn’t practical.

With so much research being funded and undertaken not just within the U.S. but throughout the world, it’s impossible for a PI, let alone a University, to be aware of all existing research and patents that could potentially have pre-dated his or her projects.  Further, the resources (both financial and otherwise) required to make at least a substantive effort to search patent databases, journals, etc., is considerable, and not something that is realistically within the University’s abilities.  Consequently, most Universities will strike any and all language that makes them liable for any infringement of existing IP.

Indemnification for Product Liability

The second hot-button issue arises when contemplating the use of the University’s research results.  Most sponsors want the University to be responsible if the University’s results are used subsequent to the project and grievous bodily harm arises.  Again, it’s understandable that a sponsor would be concerned about it utilizing information produced by a third party, and without any involvement by their personnel.  However, the structural setup of a sponsored research relationship makes assigning liability to a University untenable.

By all measures, a “sponsored research project” is experimental in nature.  An awardee is provided money by the sponsor to test a given hypothesis, and, at the conclusion of the project, produces a summary of the results.  While the results may occasionally be commercially viable in and of themselves, additional research, testing and investigation are generally required before they can actually be brought to market.  These decisions are solely within the purview of the sponsor, and, understandably, the sponsor will ultimately gain the financial benefits from anything that makes it to market.  It simply would not be equitable for the sponsor to reap the benefits in good times, but pawn off liability to the researcher anytime things go awry.  As a result, Universities generally remove language that assigns them responsibility for liability for any products that might result from the use of their results.