This article appeared in the August 2021 issue of University-Industry Engagement Advisor. Click here to subscribe.

Corporate engagement staff and sponsored programs specialists are routinely familiar with sponsored research agreements (SRAs). Over recent decades, SRAs have moved forward in leaps and bounds as research-intensive universities became more comfortable accepting private corporate funding to further their missions. Industry funding of university R&D has at least doubled since the 1960s.¹ Nowadays, SRAs can provide a not insignificant portion of project funding at research-intensive universities. Less common, and less familiar than SRAs, are Research Services Agreements (RSAs).

In view of the growing importance of non-governmental sources of support for universities, RSAs can provide an important, even if minor, part of the funding landscape. The purpose of this article is to help corporate engagement professionals distinguish between RSAs and SRAs, and to outline important questions to be asked when non-profits formulate and enter into RSAs.

For the sake of convenience, the two parties being discussed below are a university and a private corporation. However, the questions raised are relevant to other party types engaging in an RSA with a non-profit. For example, a federal government agency or a charity devoted to finding a treatment for a specific disease might contract with a university to perform contract research services for a fee, and the same considerations apply.

RSA or SRA?

Determining whether a project falls within an SRA or an RSA is not as easy to answer as it might first appear. Different institutions have different procedures for identifying something as an RSA. Based on publicly available documents, many institutions adopt a flexible approach in determining whether an RSA or an SRA is appropriate. Some provide guideline checklists, and the final categorization may be made on a case-by-case basis.^2,3

A common factor in such checklists is the role of the PI in determining the study protocol and research scope. Is the outside corporation requesting a quote for a defined piece of work that they have specified, or is the outside corporation requesting a proposal from the PI? The former is common to RSAs, and the latter is indicative of an SRA.

Where an outside corporation has requested that the PI perform a particular service such as testing their candidate drug on an animal model which has been created by the PI, with clear study end points, that would suggest an RSA. In contrast, the same corporation funding a study in the PI’s lab with a goal of determining if a certain mechanistic pathway is involved in a disease etiology, where the PI has significant input as to the study route and experiments, that would suggest an SRA.

Another consideration is the relationship of the proposed study to the PI’s own research. If the proposed study uses PI skill and special lab techniques or models, but does not overlap with the PI’s own research, that is suggestive of an RSA. However, if the proposed study is part of what the PI is already researching, an SRA may be more appropriate. Furthermore, if an invention is likely to result from the proposed study, that would also argue the study should be covered by an SRA, whereas if no new intellectual property is expected that would tend to favor an RSA.

A fee-for-service type budget — for example with an initial payment, a milestone payment, and a final report payment when the ‘deliverables’ are received — is also appropriate for an RSA. In such circumstances the primary benefit, other than monetary, is to the corporation, although secondary benefits may flow both ways. In contrast, an SRA covers circumstances where multiple different benefits inure to both the institution and the corporation, especially where the institution is able to advance its research and accrue new knowledge. At a high level, SRAs are essentially more collaborative.

Less common dividing criteria between SRAs and RSAs include those using monetary limits — for example, a limit where anything under $25,000 would be considered an RSA and anything above $50,000 an SRA, unless other factors outweigh.⁴

Ultimately, some projects will hew close to the dividing line between an RSA and an SRA. In these circumstances, where there is no bright demarcation, more than one institutional department may be involved in coming to a final determination.

Key questions for RSAs

Once an RSA has been identified as the proper contract type, there are a few key questions that must be considered:

• Is the proposed RSA consistent with the institutional mission? Some institutions will require that the RSA somehow serve one or more aspects of teaching or research. Examples might be to hone a researcher’s analysis experience, provide additional teaching materials which result from the project (and where the corporation agrees to such), acquire more knowledge about use of instrumentation or sample types involved. Importantly, the RSA project must be tailored so as to not interfere with the research, teaching, and other university roles being performed by the PI and/or lab and/or department.
• Who owns the IP resulting from the project? In the traditional SRA, the university will usually end up owning and controlling IP that results from the research project. The sponsoring corporation in an SRA may have an IP benefit attached to the sponsored research outcome — for example, a non-exclusive license to use the IP, or a first right to negotiate an exclusive license on the IP, and so on, but the IP ownership usually rests in the institution.

IP ownership in the case of an RSA can be different. An RSA is usually much more limited and pre-defined in its scope than an SRA, and the RSA project will normally be employing extant techniques, methods and compositions or devices. As such, the findings of the RSA project are usually assignable to the sponsoring corporation.

For example, in an RSA where it has been agreed that a PI will test a proprietary drug on an in vitro skin model in their lab, and the outcome when strictly following the protocol shows that the drug can be used to treat the related disease, the IP result may be a patent filing on a method of treating the disease with the drug. The PI may or may not be an inventor, and that is determined by U.S. law on inventorship. But ownership of the IP that results from the project can be set by the RSA terms, regardless of inventorship.

In the case described, the RSA terms may require that the patent filing is assigned from the inventors to the sponsoring corporation. In other words, the IP ownership clause of an SRA and an RSA can effectively be mirror images of one another. Thus, in agreeing in an RSA to corporate ownership of IP which flows from performing the protocol determined by the corporation, universities must be careful to protect any PI-originated IP which is incidental to the project, along with any pre-existing lab IP. In other words, if during the course of the project described above the PI had to design an entirely new applicator for consistent application of drugs to her skin model, this could be IP which is wholly assignable to the university, and it should be protected accordingly.

• Does the final RSA inappropriately prohibit any publication by the PI? In many SRAs, the university has the right to publish its research in accordance with normal academic procedures, even if there is a short notice period to the sponsor required prior to publication. An RSA may set different limits of publication. For example, corporation confidential information as it relates to the study might be excluded from any publication, and in some RSAs publication of the study results may be prohibited. In this latter situation, the university mission and academic freedom must be carefully considered when drafting the RSA.
• Is the research appropriately segregated? In an RSA, spatial, temporal, and sometimes more abstract forms of research segregation may be necessary. For example, certain instrumentation purchased using federal funds may have restrictions on its use in an RSA-covered project. Performing research for a non-federal entity on instrumentation which cost in excess of $5,000 in a situation where the grant holder is not considered an “exempt grantee,” and when being done during the funding period, may be prohibited or at least encumbered with various requirements.⁵ Entities which are considered non-exempt are granted much less leeway in the use of such instrumentation. Other considerations are whether lab records are being separately made or they are being commingled. Does the physical space being used have any local restrictions on the activities that can occur there? Does the project use time that the researchers are already obliged to spend on other matters?
• Is the university being appropriately paid? It is entirely commonplace for the university to be paid both direct costs (e.g., lab personnel cost and supplies costs) as well as indirect costs (e.g., institutional facilities and administration costs). The departmental/university going rate for the indirect costs can be a suitable yardstick for what the indirect costs should be, with some universities adding a percentage to federally negotiated rates for projects paid for by industry/for-profit entities.⁶ Some universities will offer a reduced indirect costs percentage for small cost short-time delimited projects.⁷ When negotiating with business entities, especially those that are new to university norms, quotes for services should preferably include both the direct and indirect costs from the get-go, since a corporation may balk at later adding standard indirect costs to a figure which they had understood to be total costs.

Another financial consideration, in the case of a non-profit institution, is whether the activity gives rise to unrelated business income tax (UBIT). While non-profits may not be prohibited from receiving such income, the income may or may not incur UBIT.^8,9

• Has the indemnification or liability been appropriately delimited? This question can arise in the context of a corporation (used to dealing with other private corporation service providers) sending the university a template Research Services Agreement with a clause requiring the university to indemnify the corporation. Universities/non-profits will usually have a very different view on the limits of their liability, and the final RSA should reflect that. In cases where the corporation sets the protocol for the project, the university will want to be indemnified by the corporation for claims arising from performance of the agreement’s obligations and the corporation’s use of the study results.
• Is the service being provided also available from a commercial source? If the answer to this question is yes, some institutions will define the services as clearly an RSA. However, other institutions will sometimes prohibit providing services which are also be provided commercially, lest they be considered in competition with commercial service providers and will only permit unique services to be provided.¹⁰
• Does the proposed RSA project evoke other miscellaneous concerns? Each RSA project must be considered on a case-by-case basis for additional factors. For example, if the RSA project involves using a technique, reagent or model that is covered by university IP licensed to a third party, then the terms of that license must be examined carefully to determine if the RSA project use of the IP at the university would constitute a problem. Where the corporation is foreign-based, or the deliverables are provided abroad, does the RSA contemplate export control law? Is the contract with a foreign corporation and of sufficient size to incur the Disclosure of Foreign Gifts requirement? Is UBIT implicated (see above)?

More broadly, and very importantly, is the entity paying for the research services the kind of entity that the university is comfortable receiving funds from?

With key questions like these appropriately considered, RSAs can prove to be a valuable component of the corporate engagement toolbox.

Brian Amos and Charley Macedo are partners in Amster, Rothstein & Ebenstein LLP, an intellectual property law firm based in New York City. Contact: 212-336-8000.

References:

1. https://www.aaas.org/programs/r-d-budget-and-policy/rd-colleges-and-universities
2. https://tufts.app.box.com/s/p5l8heh09g37csupbcc74degd3ruezfv
3. https://www.washington.edu/research/osp/sponsored-program-or-service/
4. https://www.ou.edu/research-norman/grants/grant-policies/service-agreement-policy
5. https://grants.nih.gov/faqs?print=yes%E0%A5%91#/equipment.htm?anchor=question52066
6. https://behrend.psu.edu/files/pdf/45061/2019/09/26/faculty_research_handbook_2019.pdf
7. https://research.georgiasouthern.edu/faculty-support/budget-contracts/
8. https://www.councilofnonprofits.org/tools-resources/unrelated-business-income-taxation#:~:text=When%20tax%2Dexempt%20charitable%20nonprofits,IRS%20rules%20for%20%E2%80%9Cunrelated%20business
9. https://your.yale.edu/research-support/office-sponsored-projects/contracts/service-and-fee-service-agreements
10. https://www.ou.edu/research-norman/grants/grant-policies/service-agreement-policy