Customers invest and benefit: intellectual property rights for the Water Breakthrough Challenge 3

The Water Breakthrough Challenge 3 (Breakthrough 3) is an exciting opportunity for water companies and their partners to win funding for innovative initiatives that benefit customers, society and the environment. We’ve had a lot of interest in the competition and with it a number of questions. Some of those have been on the rules on intellectual property rights in the terms and conditions – and how they might work in reality.  

Why have terms and conditions on intellectual property rights?

Breakthrough 3 exists to accelerate innovation that will enable the water sector in England and Wales to better meet the needs of customers, society and the environment for generations to come, funded by household water customers. Across the Ofwat Innovation Fund, we could see £200 million invested in innovation by 2025.  

It’s important that customers in England and Wales receive the benefits of their collective investment into the Fund, without having to pay several times for these benefits.   

This is why, in Breakthrough 3, we have some requirements:   

• New intellectual property (IP) developed through entries funded by Breakthrough needs to be licenced royalty-free to all water companies and new entrant water companies (NAVs) in England and Wales in perpetuity (forever). If a customer who lives in Portsmouth funds a winning entry in Bangor – they should also get the benefit of this.   
• Existing intellectual property (IP) brought into entries by partners that is needed for water companies in England and Wales to benefit from or use the intellectual property developed through the entries can be licenced to them at a fair, reasonable and non-discriminatory rate.  
• There are different requirements on where royalties from intellectual property developed through entries need to be shared depending on who shares them and where they are earnt. For example, royalties earned outside the water sector in England and Wales may be kept by all participants.  

How can I benefit from my innovation in practice?  

Fictional organisations Water Innovations Inc’., a third-party innovator, and ‘The Saesneg Water Co. (SWC)’, a water company, receive funding through Breakthrough 3 to pilot a new approach to reservoir management, ReservoirX. The new approach could significantly improve biodiversity and reduce operational costs.  

SWC provides three test sites, an understanding of the site-specific challenges and strategic insight around regulatory requirements and implications. Water Innovations Inc. bring their understanding of different approaches to reservoir management and an innovative new approach to pilot. Both SWC and Water Innovations Inc. specify that this is the existing intellectual property they are bringing into the entry, which will be needed for water companies to benefit from ReservoirX in the future. They agree some principles about how they will calculate this fee which should be fair, reasonable and non-discriminatory and include this in their entry submission.   

There will be jointly created IP, funded through Breakthrough 3. Water Innovations Inc. execute the pilot with the support of the on-site teams from SWC.  

This partnership really accelerates the development of ReservoirX. By the end of the pilot, they have proof that ReservoirX both improves biodiversity and reduces operational costs in large water bodies. It’s ready for scaling.   

Using this example, below we shed some light on how the relationship between the partners may work. However, each partnership and project is different and so arrangements between partners may differ as appropriate.  

Ownership of IP  

Based on the terms and conditions for Breakthrough 3, where a project funded through the Challenge involves more than one participant, then any jointly created IP should be shared proportionately as agreed by the project participants.  

Water Innovations Inc. and SWC agree as part of their contractual arrangements, that considering what each of them are bringing to the partnership, the intellectual property they develop through the pilot will be 85% owned by Water Innovations Inc. and 15% owned by SWC 

Royalties earned and the relationship within the partnership   

The overall approach to what happens with royalties may differ, as set out in the example below.   

Based on the impressive results and case studies at the three SWC reservoir sites, Water Innovations Inc. now go out and sell ReservoirX to:  

• 7 other water companies in England and Wales,   
• a reservoir fishery in Wales, and   
• 1 water company in Scotland and 2 in France.  

 Here we take a look at what may happen in each case.   

The price Water Innovation Inc. provide to the water companies in England and Wales covers execution costs and a fair, reasonable and non-discriminatory fee for the IP they brought into the entry at the beginning, but all the new (‘foreground’) IP is provided royalty-free.  

Water Innovation Inc. sell ReservoirX for a fee to the reservoir fishery in Wales. Royalties are shared by the partners in line with their partnership terms and the Fund’s terms and conditions:  

• Water Innovation Inc. include a fee for all of the IP that is included in ReservoirX. They may keep the royalties earnt here with water company customers as they are not a water company.  
• Water Innovations Inc. pays a small royalty dividend to SWC for the 15% of the IP ownership that they agreed. SWC ensures that the dividend goes back to water customers (in proportion to the funds that customers have contributed to the project).  

Water Innovation Inc. sell ReservoirX for a fee to  water companies in Scotland and France. Royalties are shared by the partners in line with their partnership terms:   

• Water Innovation Inc. include a fee for all of the IP that is included in ReservoirX.   
• Water Innovations Inc. pays a small royalty dividend to SWC for the 15% of the IP ownership that they agreed.   
• Both Water Innovation Inc. and SWC may retain this dividend as it was earned outside of England and Wales.  

Can I propose different IP rights arrangements as part of my entry?  

We would expect partners to discuss in detail what happens to any intellectual property that may be created through their entry. Where relevant to the project, we would expect details of this to be included in the Breakthrough 3 entry form.   

Entrants into Breakthrough 3 may propose alternate IP rights arrangements as part of their entry. This will be considered on a case-by-case basis to ensure the arrangements benefit all customers of water companies in England and Wales, present value for money and do not result in additional costs.  

Breakthrough 3 provides a route to get initiatives out in the market or rolled out more broadly. There’s also the potential to sell the IP or IP rights outside the water and wastewater sector in England and Wales. The competition is an exciting opportunity to play a part in paving the way for a resilient and sustainable future – and get the chance to partner with organisations you may not ordinarily have the opportunity to partner with.  

We will be keeping our policies under review for future competitions. You can find out more about IP rights  in our terms and conditions.   

Please note that this blog sets out just one hypothetical example to facilitate a general understanding of some of the terms within our terms and conditions relating to intellectual property. It does not and is not intended to form part of any contractual arrangement.  

You can find out the background in Ofwat’s August 2020 decision document and updated September 2021 decision document.