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Policy Clarification

Q

WITI, RAP, UCAR, the UCAR Foundation, and a major commercial weather
information provider engaged in the DiCast project to implement an
automated weather forecasting system for locations within the United States
and throughout the rest of the world. As a result of this project, RAP
received revenues from three sources:

(1) RAP fulfilled its contractual obligations to WITI on the DiCast project
in October 2000. The ~$900,000 project was completed under budget by more
than $150,000.

(2) The software system passed several one-month-long reliability and
quality tests on its first attempts. This entitled WITI and RAP to a
contractually stipulated bonus from their client. RAP's portion of this
bonus was about $110,000.

(3) In addition, through a licensing agreement between WITI and the UCAR
Foundation, RAP received a rumored ~$640,000. These were royalties received
for the license of UCAR technology.

Therefore, I estimate that RAP has netted more than $900,000 from the work
on this project.

My questions have to do with the royalties received for the license of UCAR
technology, referred to in (3) above.

It is my understanding that under UCAR's IP policy, for nonpatented
technology, it is left to the discretion of the division director to name
key contributors, if any, who are entitled to a share of any royalties.

Recently, the RAP division director has named key contributors for the
technology licensed to WITI in two separate actions. First, seven
individuals were nominated by the RAP division director for the prestigious
UCAR Technology Advancement Award for their work on the DiCast project.
Second, the division director selected eight individuals (the
aforementioned seven plus one additional key contributor) to receive small
incentive awards from the bonus money described in (2) above. These two
actions clearly indicate that the RAP director has identified the key
contributors to the technology and that their contributions were beyond
what is expected as normal work product.

My questions are:

(1) How much money did the UCAR Foundation receive from WITI as a result of
the licensing agreement? How much of this money received by the foundation
has been distributed to each of UCAR, NCAR, RAP, and any other entities?

(2) Now that the RAP division director has identified the key contributors,
when will distributions of the licensing royalties to employees occur?

Answered on February 13, 2001

A

The questioner notes that RAP retained revenues from three sources:
contract revenue, bonus revenue, and royalties received for the license of
UCAR technology. While the dollar amounts attributed to each of these
sources of revenue are generally correct, UCAR did not receive royalties
per se as a result of its agreement with WITI. It is true that UCAR and the
UCAR Foundation entered into an agreement with WITI in which WITI agreed to
pay royalties based on a percentage of WITI's revenue for the right to use
UCAR technology. However, the anticipated WITI revenues were never realized
because WITI was sold to LifeMinders before WITI could execute the business
plan that was to have produced the revenue. As a result, WITI never paid
any royalties to the UCAR Foundation. Instead, the foundation realized
capital gains from its equity position in WITI in the form of cash and
LifeMinders stock. The UCAR Foundation agreed to share a portion of its
cash proceeds with RAP in lieu of any royalties RAP might have received
under the WITI/UCAR Foundation license agreement.

So the answer to the questioner's first questions is that (1) while the
UCAR Foundation did not receive any money from WITI as a result of the
licensing agreement, it did receive almost $2 million in cash from the sale
of WITI; and (2) out of those cash proceeds, the UCAR Foundation will pay
$640,000 to RAP over a three-year period.

The questioner is correct in saying that under UCAR's IP policy it is left
to the discretion of the division director to name any key contributors who
are entitled to a share of any royalties. However, the questioner then
states that individuals who were nominated for a Technology Advancement
Award and given an incentive award have been named as key contributors.
This is not the case. Each of these actions stands on its own. UCAR Policy
1-1-8 states, "It is the responsibility of the individual Division/Program
Directors to identify individual inventors or key contributors . . . during
the intellectual property disclosure process. Only (i) individuals named on
an issued patent or (ii) key contributors identified in the disclosure
documents and approved by their respective Division or Program Directors
will be entitled to royalty sharing." In this case, the director of RAP did
not name any key contributors during the disclosure process or at any other
time in relation to UCAR's IP policy. Absent the division director's
specific designation of key individuals, there is no authorization to make
any distribution of revenue to individual employees.

I would like to point out that most division directors have not named key
contributors when nonpatented technology is being commercialized. This has
been true for NCAR Graphics, COMET modules, and GPS dropsondes, to name a
few. While I don't pretend to speak for the various division directors, I
believe they generally are of the opinion that these technologies are
evolutionary in their development and are typically the result of many
years of effort by a large number of people over a long period of time.
Selecting the small group of people who happened to be involved at the
moment the technology was transferred to the private sector would not
recognize the efforts of past or future contributors, or those of
supporting personnel who helped sustain the development.

In this particular case, it is my understanding that the director of RAP is
using the funds RAP received from the UCAR Foundation to continue the
DiCast development project because there are no other sponsorship funds
available for that effort. Without the funds from the foundation, the
DiCast project could have been abandoned and the team disbanded. I do not
know whether any layoffs would have been necessary. Most directors use
their royalty proceeds in this way, to fund or enhance efforts that are of
key importance to the mission of the division but that might not otherwise
receive the needed support.

-Jeff Reaves, Associate Vice-President, Business Services

(Rich Wagoner, Acting Director of RAP,
provided input for this answer)