Risky Business

Student Entrepreneurial Activities on Campus

By Pamela J. Bernard    //    Volume 19,  Number 2   //    March/April 2011

Scenario: Three members of the Goforth University Student Entrepreneurs Club want to create a startup venture called “GoforthSmart.” The business will produce and sell online “smartpacs” for certain undergraduate courses. These academic course materials will include student-created outlines, class notes, previous test questions, papers, and pointers to boost your grade—all approved by the professors. The students are seeking seed money from the university’s fund, created to encourage student entrepreneurial activities, to add to their own capital. A faculty member from the chemistry department and a dean in student services serve as advisers to the program.

Many colleges and universities actively foster student entrepreneurial activities on campus. These students want to develop their own businesses in all sorts of areas—technology solutions, new environmental services, affordable loans for the poor, the list goes on. What legal issues should boards and presidents consider when thinking about such initiatives?

Evaluation and risk assessment. Evaluating the proposed businesses may cause the institution to have to make tough policy decisions. Does the institution want to support an idea to produce a rapid-alcohol-consumption device for student “pregaming” or “preloading” before social events? What about supporting a student business that competes with the institution itself, like an online used-textbook business? The institution needs to decide the criteria for supporting entrepreneurial activities as a first step.

Another consideration is recognizing that not all student entrepreneurial activities present similar risks. For example, a student business that sells training videos for free-form building climbing is more likely to generate liability than smartpacs. But even a GoforthSmart customer could try to hobble together a claim against the college or university based on the various links between the business and the institution.

For example, a GoforthSmart customer who failed the course may have believed the materials were officially connected to Goforth University because there were no disclaimers on them. The student entrepreneurs themselves may be unhappy if their business fails, blaming it on bad faculty or staff advice. Potential risk factors should be identified and mitigated, if possible, by requiring disclaimers on materials or having a process to ensure advisers have expertise.

Use of name and trademarks. Perhaps the most fundamental responsibility of a trustee or president is to protect the institution’s name and reputation. When that name is used in connection with activities that are not controlled by the institution, the quality of both may suffer. In our scenario, the institution has little right—and probably doesn’t want—to oversee the quality of the smartpacs. In such a case, should the institution agree to allow use of its name? Having an institutional process to manage use of the college or university’s name and trademarks in student activities is important to protect the value of this considerable asset.

Intellectual property. Most higher-education institutions already have mature intellectual property policies for their employees, including student employees. But these policies may not address other student-developed intellectual property using institutional resources and know-how. In addition, student co-inventors may not have adequate written understandings between one another about their respective ownership interests. Having written guidelines that outline the relevant ownership policies will help prevent costly misunderstandings and may reduce the number of disputes in which the institution becomes embroiled.

Insurance. A college or university should understand what insurance coverage is available if it or an employee who provided advice is sued. Will its insurer view the faculty member’s suggestions or guidance as within the scope of employment so as to be covered by insurance? Does the institution need to document internally that advising duties are part of the faculty or staff member’s assigned duties and responsibilities?

In sum, the growing demand for student experiences in the arena of entrepreneurship invites institutions to think through potential legal and policy issues in advance.

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