Introduction

In 1980, Congress passed the Bayh-Dole amendment allowing universities to assign patent rights for intellectual property that arise from federally supported research. A result of this has been that university faculty members have increasingly broadened their external activities to matters involving the commercial development of their work. This may result in faculty members becoming involved in businesses, either as officers or employees of those companies, or otherwise having a personal stake in their success. It can also lead to synergistic work of significant benefit to the university, its faculty and students, as well as to the company.
These supplementary materials give further explanation of the legislative basis for the policy, provide a simplified summary of the procedures of disclosure and approval for external activities, and offer guidelines to assist faculty in their entrepreneurial efforts while ensuring compliance with state law and the corresponding university policy. If there is any perceived discrepancy between the Policy 13010 and these supplementary materials then the policy document takes precedence.

The policy and supplementary materials refer to the external professional activities of faculty members(1) only. The corresponding policy for classified staff already exists as Policy 4070.

Legislative Basis

Sections 2.2-3100 through 2.2-3127 of the Code of Virginia contain the relevant state mandates dealing with conflict of interest to which all public employees are subject. The parts most relevant to university faculty and staff in the context of this document are Sections 2.2-3103 and 2.2-3106(2). Effectively, these prohibit any state employee from having a personal interest in a contract with that agency of state government of which he/she is an officer or employee. There are, however, a number of allowable exceptions. One of these involves contracts for research and development, or commercialization of intellectual property, between a state institution of higher education and a business in which the employee has a personal interest(3). The conditions under which the exception can apply are:

(i) "the employee's personal interest has been disclosed to and approved by the state institution of higher education prior to the time at which the contract is entered into;

(ii) the employee promptly files a disclosure statement pursuant to §2.2-3117 and thereafter files such statement annually on or before January 15;

(iii) the institution has established a formal policy regarding such contracts, approved by the State Council of Higher Education."

Virginia Tech Policy

The policy document, Policy and Procedures No. 13010, together with the corresponding guidelines are intended to serve as a reference for faculty members in structuring their relationships with industry and other outside ventures. It is recognized that the primary responsibilities of university faculty members are teaching, research, and service, and that these responsibilities may lead to activities external to the university. Thus, it is not the intent of the policy to eliminate all external activities, but rather to enable faculty members to recognize situations that may be subject to question and to ensure that such situations are properly reviewed, appropriate behaviors negotiated and, if necessary, supervised or monitored.

Conduct that contravenes state or federal law cannot be permitted. In addition certain potential conflicts, while not illegal, may be disallowed because of their perceived effect within or outside the university. The policy and guidelines are intended to maintain the professional autonomy of faculty members as appropriate to their respective disciplines and professional activities.

The policy will provide assurance to the faculty, staff, the university and most importantly the public, that potential conflicts of interest and commitment have been examined thoroughly and that review and monitoring procedures will be conducted in a manner consistent with institutional and public values.

Types of Conflict

Conflicts of Interest:

Conflicts of interest occur when a faculty member, any of his/her family, or associated entity, receive personal financial reward from an external company, agency, institution, individual or any other entity in a manner which may bias the individual's judgment, or compromise his/her ability to carry out the contractual obligation to the university for teaching, research, administrative and service responsibilities.

In certain cases where a faculty member may benefit personally from his/her activities, this benefit may be permitted following disclosure and approval.

Conflicts of Commitment:

Conflicts of commitment refer to the disproportionate devotion of time and energy to external activities. With the acceptance of a full-time appointment to the university, an individual makes a commitment to the university to devote his/her primary professional loyalty, time and energy to teaching, research, administrative and service responsibilities. Accordingly, they should arrange external activities and financial interests so as not to interfere with the primacy of this commitment.

Members of the faculty whose appointments are less than full-time are expected to devote professional loyalty, time and energy to their teaching, research and service activities in accordance with the time commitments to which they have agreed. For these faculty members, conflicts of commitment relate only to those external activities to be undertaken within 'university time’ or those which compromise the individual's ability to meet his/her university responsibilities.

Classification and Examples of Conflicts of Commitment and/or Interest

For the purposes of review within the university, conflicts of commitment or interest have been classified into three categories. This section provides examples of potential or actual conflicts in all three categories. It is emphasized that this list is not inclusive and serves only to illustrate the nature of situations which may give rise to conflicts of commitment and interest or the perception of such conflicts. These situations call for interpretation and review against the context of the faculty member’s professional area, and the extent, nature and consequences of involvement in specific external activities that are subject to all applicable state and federal law and to university policies.

Category I consists of relationships that, while potential conflicts in a technical sense, are allowable because they are accepted academic practices at Virginia Tech.

Examples:

(a) receiving royalties for published scholarly works and other writings,

(b) accepting honoraria for reviews, commissioned papers and occasional lectures,

(c) receiving royalties under institutional royalty-sharing policies from companies in which the employee has no financial interest,

(d) accepting prizes and awards for recognition of professional excellence,

(e) serving as an officer in a professional organization, an editor of a journal, or a peer reviewer of manuscripts or proposals, and where the time commitment is within the limits of the university consulting policy (Faculty Handbook, section 2.16).

Category II consists of activities that may be allowable after disclosure, review and approval of oversight procedures that are designed to ensure academic standards, intellectual values, and institutional integrity are maintained.

Examples:

(a) consulting for an external organization,

(b) receiving funded research support (whether in dollars or in kind) for projects sponsored by a for-profit business in which the faculty member, a member of his/her family, or an associated entity has a personal interest,

(c) assigning students, post-doctoral fellows or other university employees to projects sponsored by a for-profit business in which the faculty member, a member of his/her family, or an associated entity has a personal interest,

(d) serving on the Board of Directors or Scientific Advisory Board of a business from which that faculty member or a member of his/her family receives sponsored research support or with which the university has a contractual relationship,

(e) assuming an executive position in a not-for-profit business engaged in commercial or research activities,

(f) assuming ownership or partnership(4) in a for-profit business engaged in commercial or research activities, or is an officer, director, consultant or agent for such business,

(g) possessing a financial interest in a business which competes with the research or other services provided by the university,

(h) assuming certain public offices either by election or appointment,

(i) assuming any connection with an external educational institution or related foundation as a trustee, officer, or public representative,

(j) participating in research on a university technology that is assigned or contractually obligated(5) to a business in which the faculty member, a member of his/her family, or an associated entity has a consulting relationship, holds stock or similar ownership interest, or has any other financial interest, or

(k) receipt of sponsored research support from a company from which the faculty member is also receiving royalties.

Category III activities are those which contravene state or federal law or university policy and will not be permitted.

Examples:

(a) taking administrative action within the university that is beneficial to a business in which a faculty member has a financial interest and that has no contractual or ownership arrangement with the university,

(b) engaging in executive decisions on behalf of the university regarding new or existing contracts between the university and an external organization in which the faculty member has financial or ownership interests.

Summary of Procedures of Disclosure and Approval for Academic Faculty Members

The details of the procedures to be followed are given in Policy and Procedures No. 13010 and explained further in the additional guidelines. A simplified version of the procedure may be stated as follows:

1. When considering an outside activity, the faculty member should first make an initial judgment on whether that activity falls into Category I, II, or III. Department heads or senior colleagues should be consulted in making that judgment.

2. If there is no doubt that the activity falls into Category I then no application for approval is required. If there is any doubt then Category II should be assumed.

3. There are two forms associated with the disclosure and approval processes concerning external professional activities conducted by faculty members. For each Category II activity, the faculty member should fill out Form 13010A (Application for Permission to Engage in an External Activity and/or Disclosure of External Activities) and submit this to his/her department head, then college dean for approval. In many cases, this is all that will be required. Form 13010A replaces the long-standing consulting approval request form.

4. There will be some situations in which the potential for perceived conflict is sufficiently great to warrant a more detailed record of the circumstances. Some specific situations are listed in Part 2 of Form 13010A. If the answer to any of the questions in Part 2 is ‘YES’ then the second form 13010B (Disclosure of Relationships with External Organizations) must also be completed. However, the department head or dean may request that form 13010B be completed irrespective of the responses given on form 13010A.

5. In addition to the department head and dean, Form 13010B must be approved by the Provost.

6. There will occur cases in which it is a prudent safeguard to both the faculty member and the university to establish mechanisms of oversight of the proposed activities. In such cases, the faculty member will be requested to prepare a Memorandum of Understanding in which he/she will propose a method of oversight and monitoring. That request may come from the department head, the dean or the provost. It is to be expected that the Memorandum of Understanding will be amended through iterative processes as it proceeds through the line of approval.

7. The Provost may require that the Memorandum of Understanding be reviewed by the Committee on Conflicts of Interests and Commitment, which is appointed by the President. In those cases, the committee will make recommendations to the Provost on the approval, disapproval, or modifications to the Memorandum of Understanding.

8. In cases where a faculty-owned business has a contractual arrangement with the university, then state statute 2.2-3114 requires that a State Disclosure Form be filled out annually on or before January 15 while that contract remains in force.

The complete and formal procedures of disclosure and approval of external activities by all faculty are given in section 3 of Policy 13010. The process of appeal is described in Section 4 of the policy.

Students

The impact of a faculty member's conflict of interest or commitment on students (including that of post-doctoral fellows and other trainees) is of special concern to the university. In particular, the university is committed to maintaining the content and quality of the educational experience for students whose research is sponsored by a for-profit business and whose preceptors have a personal interest in that business.

It is essential that faculty members demonstrate at all times their commitment to the highest intellectual and ethical standards in all aspects of research, particularly where perceived opportunities for conflict may exist. As a corollary, the educational experiences of students are expected to incorporate the values of objectivity in research and the importance of public trust.

Senior Faculty

The rigorous application of the policy and guidelines is particularly important in the case of persons exercising significant authority. There are those among the faculty who have substantial influence over others by virtue of their major role in professional appointments, promotions, tenure decisions, allocation of space, and determination of salary. Typically these individuals hold positions such as president, senior vice president and provost, vice president, vice provost, college dean, department head, director of a research center, institute or laboratory, major professor or senior colleague. While the guidelines are applicable to all faculty members, these individuals with great influence over the careers of others and over resource allocations must take particular care not to become involved in relationships that would create the perception of a conflict of interest, lead to inappropriate personal financial gain, or that would adversely affect the professional or academic advancement of faculty colleagues, staff members or students.

GUIDELINES FOR THE PREPARATION AND REVIEW OF DISCLOSURE DOCUMENTS AND MEMORANDA OF UNDERSTANDING

These guidelines have been developed as a reference for those members of the university faculty and administration who are responsible for preparing and reviewing requests from faculty to engage in external activities. Those activities may arise from faculty ownership of a business, engagement as a consultant, or involvement in any other external work, with or without remuneration, within the faculty member’s realm of professional expertise. For the purposes of these guidelines, and in order to minimize repetition, all faculty members engaged in such activities are referred to simply as ‘faculty-owners’.

Each major area of academic endeavor represented by the colleges within Virginia Tech has its own history and traditional codes of accepted practices, freedoms and restrictions. As the university develops new procedures to promote, guide and control constructive entrepreneurism, the differences in those commonly accepted modes of behavior between colleges need to be acknowledged. Furthermore, it is impossible to foresee all of the diverse situations that will arise from the entrepreneurial activities of university faculty members. Hence, in this document the guidelines that are set forth are intended to serve as counsel to faculty members and reviewers rather than as rigid rules to be applied in all cases.

An integral part of the adaptation to the guidelines will be a process of interpretation and application by the Committee on Conflicts of Interest and Commitment. By this process, it is expected that an institutional experience in the application of these guidelines will evolve. The complexity of the subject matter is such that the current guidelines and their ensuing interpretations should be formally reviewed on a periodic basis. Such reviews will also be conducted by the committee. It is to be expected, therefore, that these guidelines will be amended and expanded as experience in their application is gained.

The Relationships between Internal and External Activities

In order to encourage constructive external work by faculty members and simultaneously promote institutional objectives, reviewers should be conscious of the advantages and disadvantages of faculty engagement in professional activities beyond the university. The advantages to the individual and the university include:

• broadening/extending one's professional experience with commensurate improved performance as a teacher and researcher,
• widening one's network of contacts and establishing relationships with external organizations,
• opening doors for summer/career jobs for students,
• enhancing the professional environment to attract high quality faculty and students,
• facilitating technology transfer,
• providing additional opportunities for sponsored research in the university,
• promoting job creation and other facets of economic development, and
• enhancing the reputation and competitiveness of the university.

The disadvantages may include:

• perceived inequities between faculty members in differing disciplines,

• the dangers of "releasing" intellectual property too readily,

• engaging in private work that should really come through the university,

• spending inappropriate amounts of time on external work at the expense of university activities, and

• an increased risk of unauthorized use of university facilities.

One of the expressions of the university’s role in economic development is the encouragement of constructive entrepreneurial activity. There are, however, potential pitfalls with respect to possible conflicts of interest and use of time. The revised Policy and Procedures No. 13010 (Faculty Conflicts of Interest and Commitment Policy) provides definitive processes through which faculty members can disclose and seek approval for professional work external to the university.

One of the tasks of reviewers is to balance the predicted pros and cons of any given request to engage in external activities, and to assess the possible public perceptions of those activities. In any event, and in all applications, the benefits to the university should be evident.

Motivations of Faculty-Owners

It will also be useful for reviewers to understand why actual faculty business owners may wish to place a contract for work to be carried out within the university. Why not simply conduct the work entirely within the company utilizing the same university personnel as consultants or part-time employees? Some of the reasons are no different from those of other external organizations or agencies which contract to the university:

• greater economy for the company to outsource the work,
• access to a talented pool of graduate students,
• strong motivation of university faculty members and students towards research,
• the academic career credit gained by the faculty-owner for research expenditures within the university,
• access to specialized university equipment and facilities (for appropriate reimbursement to the university),
• tax advantages to the company,
• support for graduate students, and
• business and entrepreneurial experience for graduate students.

However, faculty-owners very often have additional motivations that arise out of their love of teaching and research, their desire to publish, to utilize short-term consultancies from other companies as a conduit for larger research contracts to the university, to demonstrate to such companies the need for university facilities, and loyalty to the university. Reviewers need to be assured that the motivations of a faculty-owner seeking a contractual arrangement with the university are also to the net benefit of the institution.

Principal Investigators

A potential conflict situation arises when a faculty-owner wishes to act as a principal investigator (PI) on a university project that is funded wholly, or partially, by the external organization with which the faculty-owner is associated. In a case where the faculty-owner asks to be the sole PI, the potential for perceived conflict is very high and it is strongly recommended that this not be allowed.

It is often the case, however, that the faculty-owner has particular and relevant expertise that should not be denied to students or other university personnel engaged in the project. Hence, consideration may be given to the faculty-owner being a co-principal investigator. In such cases, particular attention should be paid in the memorandum of understanding to maintaining the integrity of the research. The other PI should not be in a subordinate position to the faculty-owner, nor associated with the faculty-owner’s company, or in any way susceptible to potentially inappropriate influence by the faculty-owner. The faculty-owner may not have financial responsibility for the contract. Again, the perception of potential conflict exists and oversight arrangements must be carefully crafted for those cases where the faculty-owner remains involved in the sponsored research.

Situations and opportunities can arise where there is insufficient time for the complete process of review and approvals required in Policy and Procedures 13010. There may also be cases of very short-lived activities where it would be impractical to invoke the full process of approval. In such exceptional circumstances, consideration might be given to a temporary and conditional exemption from the requirement to "seek approval in advance" (Policy 13010, section 3.1). In such an arrangement, the faculty-owner may become the sole PI for technical matters associated with the project, but the department head (or designated departmental administrator) deals with all other matters including financial management. This would require the approval of the department head and dean, and the letters of approval would be lodged in the Office of Sponsored Programs. If such an arrangement is put in place then it must have a specified end date beyond which the work will be terminated or the regular process of approval must have been completed. Such exceptions to the processes of full approval must be reported subsequently to the Board of Visitors.

Payments to Students

The participation of students in projects involving faculty-owners should be given particularly careful consideration. Work for external companies or agencies provides valuable experience for an undergraduate or graduate student. Nevertheless, care should be taken to avoid a perception that students are being used as cheap labor for the benefit of those companies or agencies.

There are two ways in which a student may be paid for involvement in faculty-owner activities:

1. Remuneration may be in the form of an assistantship and tuition, or wages funded by a sponsored project contracted to the university from the business or organization with which the faculty-owner is associated. The assistantship or wages are remuneration for work only within the agreed scope of that funded project and for no other tasks undertaken for the benefit of the external organization. This is no different from any other sponsored project that involves graduate research assistants or wage-earning students. In these circumstances, assistantships are constrained to payments within the scales published by the university.

2. Alternatively, the company or agency might engage the student directly as an employee and may also provide tuition expenses. This is the situation of most off-campus and part-time graduate students. However, it is envisaged that in the case of faculty-owned businesses, the student will spend time in university facilities when not engaged in direct work for the company. In such an arrangement, the remuneration by the company to the student is not limited to university scales.
It is considered inappropriate that any student should receive remuneration directly from the external funding organization while also being employed as a graduate assistant or wage-earner on a contract from that same organization. For full-time students, compliance with university rules must be observed concerning the maximum time allowed on external employment that is not related to his/her university research.

Supervision of Students

It is most important that students make acceptable progress towards their degree goals. Work on any externally funded project should not be allowed to inhibit that academic advancement. In the case of projects funded by businesses or other external organizations with which supervising faculty have an association, it would be imprudent for the faculty-owner to be the sole academic advisor for students working on such projects. For thesis or dissertation committees, the faculty-owner should not serve as the sole chairperson. However, it would normally be acceptable for the faculty-owner to serve on a student committee, or even to be co-chair of the committee provided the other co-chair was at least of equal academic rank, not associated with the faculty-owner’s company, and not susceptible to potentially inappropriate influence by the faculty-owner.

Use of University Facilities

This can be permitted provided that the full costs of renting and operating the equipment or using the facilities are reimbursed, and such rental does not interfere with activities related to programs of the university (See University Policy #5000: University Facilities Usage and Event Approval.)

Affiliate Companies

Some research centers within the university have ‘affiliate companies’ which provide financial and in-kind assistance to the work of those centers. Differing levels of affiliation can exist, dependent on the benefits provided to those companies. The question may arise whether faculty-owned businesses may also be affiliate companies to research centers operating within the university. While such requests should be reviewed on a case-by-case basis, it is recommended that where a faculty-owner is the director or a significant participant in a center where company affiliation is sought then such affiliation should be subject to the disclosure and approval procedures.

Time Spent on External Activities

Reviewers should be satisfied that time spent by faculty on external activities is within the limits imposed by the relevant policies and procedures that are current at the time of the review. At the present time, these are specified under the heading of Consulting and Conflict of Interests in Section 2.16 of the Faculty Handbook. It is recommended that faculty time spent on all external activities, consulting or otherwise, should be subject to the same time constraints.

Additional Definitions

a) An "associated entity" of a faculty member means any trust, organization or enterprise other than the university over which the faculty member, alone or together with his/her family, exercises a controlling interest.

b) "Contractual relationship" refers to an agreement or an option to an agreement under which there is an exchange of goods, services, or money between or among the parties to the agreement.

c) "Executive position" refers to any position that includes responsibilities for a material segment of the operation or management of a business.

d) "Sponsored research" means research, training and instructional projects involving funds, materials, or other compensation from outside sources under agreements which contain any of the following:

* The agreement binds the university to a line of scholarly or scientific inquiry specified to a substantial level of detail. Such specificity may be indicated by a plan, by a stipulation of requirements for orderly testing validation of particular approaches, or by the designation of performance targets.

* A line item budget is involved. A line item budget details expense activity, function, or project period. The designation of overhead (or indirect costs) qualifies a budget as "line item."

* Financial reports are required.

* Unexpended funds must be returned to the sponsor at the conclusion of the project (with the exception of fixed price contracts).

Additional Note on Compliance with Federal Requirements

Guidelines of the National Science Foundation and regulations of the National Institute of Health require institutions participating in funded projects to have a written policy on conflicts of interest. The investigator, co-principal investigator, or any other person at the institution who is responsible for the design, conduct or reporting of the sponsored project must disclose significant Financial Interest that would reasonably appear to be directly and significantly affected by the sponsored activities. Investigators must submit all required financial disclosure at the time of proposal submission and update this information as new interests are obtained during the life of the project. In accordance with this regulation, potential conflicts will be disclosed on the Proposal Transmittal Check Sheet, which will accompany each proposal. The Proposal Transmittal Check Sheet will be retained in accordance with Federal record retention requirements in the Office of Sponsored Programs project file.

The institution must certify compliance on each proposal. If a potential conflict of interest has been disclosed, then resolution strategies must be put in place before an award can be accepted. This requirement will be met by implementing the Memorandum of Understanding on oversight processes. The institution is also required to appoint an authority to sign each disclosure certification and be responsible for the policy. The Director of the Office of Sponsored Programs will act in this capacity since all information will be submitted with the proposals through OSP.

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Footnotes:

(1) The categories of faculty are given in section 2.1 of the Faculty Handbook.
(2) This statute can be found on the Internet at
http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+TOC02020000031000000000000
(3) A personal interest is defined as the employee, together with his/her immediate family, owning more than three percent of the equity in a company or having a commercial arrangement worth more than $10,000 annually. The latter figure is reduced to $5,000 in the Federal Conflict of Interest Guidelines.
(4) defined as the employee, together with his/her immediate family, owning more than three percent of the equity in a company or having a commercial arrangement worth more than $10,000 annually.
(5) by license or exercise of an option to license.