Innovation and Risks for Researchers

I spoke this morning at the Irish Universities Association event on corporate governance.   The main theme of my presentation was the dangers inherent in poor stewardship of intellectual property and the processes therein.  This in turn is one major reason for the urgent need for a national intellectual property protocol.

Innovation is riskful.

Failure is an anathema.   We have had outrageous failures in our banks,  our health system,  the Roman Catholic Church,  in corporate governance,  in public procurement and in regulatory oversight.   Failure is devastating and unacceptable when a priori we have no reason to expect any deficiency.   Failure may however be acceptable,  if perhaps disappointing,  when we know in advance that a venture may fail.   For example,  we accept failure in sport is because we cannot reasonably expect perpetual success.

For professional engineers “failure is not an option”.    Scientific researchers expect occasional failures:  the 1887 experiment by Michelson and Morley is one of the most celebrated negative results which nevertheless provided insight into the nature of light.   Entrepreneurs take calculated business gambles,  knowing that failure may occur.  Ventures may fail due, for example, to changing market conditions and competitor strategies;  insufficient balance sheet strength;  poor execution by the team;  or weaknesses in the assembled technologies.   However business failures result in experience and insight,  strengthening the competence of those involved and making their subsequent ventures more likely to succeed.

Publicly funded research is a pillar of a smart economy.  There is an understandable expectation that such research will usually provide a direct return for the taxpayer by way of royalties.  Yet research may fail.

We may consider universities such as Stanford and MIT as amongst the top scientific universities in the world,  and which also produce commercially valuable intellectual property.   Yet in 2008 the Stanford Office of Technology Licensing shows that only 2% of their annual $3,800M operating budget of the University came from license royalties.  MIT’s Technology Licensing Office for the same year produced just 4% of the university’s operating budget.  Cumulatively,  since 1970,  Stanford has disposed of its equity holdings in spinout companies to the cumulative value of $364M – of which its stake in one company alone,  Google,  contributed by far the greatest share.   So 40 years of equity disposals by Stanford has yielded less than 9% of its operating budget for just a single year.

Dr. Burton Lee,  a colleague from Stanford on the Innovation Taskforce,  reported that from 1992 until 2001,  of the 10,530 start up companies which were backed by venture capital in the USA,  just 8% were spinouts from academia.  92% of venture capital was devoted to industry start-ups.

Curiosity driven research may provide insights for humanity but may not yield short term commercial opportunities.  The primary economic benefit of publicly funded research,   such as the majority of the science undertaken in our own academic sector,  is more likely thus to be the development of an insightful and inquisitive graduate pool than commercially valuable intellectual property.

Publicly funded research is thus clearly riskful if commercial exploitation is expected.   However,  the possibility of litigation due to poor stewardship adds yet further to the risks.

We recognise that a property subject to ground rent may be less valuable than a property which is freehold.   Worse still is a property in which the ownership of the land on which it is built is uncertain.   If a university proposes to license the results of certain research for commercial exploitation,  a company will naturally expect that this license is unencumbered.   Specifically,  the university should explicitly assert that the university has the right to license the results,  and that these results are not in any way influenced by the rights of third parties.  If it subsequently transpires that the results in fact transgress on third party patents,  then the university should make good the contagion:  either by re-working its results,  or by licensing at its own expense the third party patents.  Licensing academic results is thus riskful for the university.

One might argue for caveat emptor – perhaps the licensee company should satisfy itself that the academic results are free from third party contamination.  But if the university is unwilling to warrant that its results are pure,  then the value of its license is quite likely to be substantially reduced, so as to recognise the inherent risk which the university is itself unwilling to underwrite.

Commercially sponsored research is as riskful for a university.  A company paying a university for research is likely to expect that the university will guarantee that the results are free from third party liabilities – or,  if it later transpires that this is not the case,  will restore the work at its own expense.

Concurrent research for a university is clearly riskful.  Each item of work should be isolated – otherwise a commercial partner may find its intellectual property leaking to others.

Collaborative research,  involving several academic partners and several commercial partners,  is in principle highly attractive,  since all parties bring skills to the table.  Without the insights resulting from such collaboration, the research would be slower or even unsuccessful.   The collective nature of the research enables risk to be shared,  including the costs of repairing results which infringe third parties.  But collaborative research is riskful in a further way:  each collaborating party at the outset should declare any background results it owns or controls which could influence the proposed research work.  It would be unacceptable,  and potentially litigatious,  if after the parties had worked together,  then one of them abruptly declared that the collaborative results infringed a patent which it held.   It is therefore normal commercial practice for all collaborating parties to declare any background information which they may have,  before the work begins.

I sometimes wonder whether our technology transfer offices are considered a “downstream” mechanism,  to be engaged as exciting results emerge.  But I hope it is clear that there is a critical role “upstream”,  as collaborative work is planned and before actual work begins.  Collaborative research is riskful for a university unless it carefully catalogues all if its intellectual property,  is fully aware of all licenses it has issued,  and understands the possible impact of any of these on each new proposed workitem of collaborative research.   It would be embarrassing,  and potentially litigious, if the results of collaborative work were damaged by undeclared background information and,  even more so,  if that background information had already been licensed (perhaps exclusively and with derivative rights) to a third party.

Collaborative research carries yet a further risk.   If two publicly funded academic partners work together to produce valuable commercial results,  but then independently license to competing firms,  then the universities may expose themselves to the risk of market distortion:   favouring one commercial firm over another for access to the same results.

For these and other reasons,  the Innovation Taskforce included amongst its many deliberations,  the recommendation (nr 6.4) the establishment of a national “intellectual property protocol”.   This would ensure uniform treatment of commercially valuable academic results nationwide,  and reduce the inadvertent risks to which the academic sector may be exposing itself.   It would also streamline licensing by companies and entrepreneurs,  since an identical licensing philosophy would be adopted by all higher education institutes in the State.

Innovation is a riskful undertaking,  and perhaps in more ways than sometimes we may realise.  Innovation is nevertheless absolutely critical for the Irish economy,  and we thus must be professionally alert to risks inherent in the ventures we undertake – not least in publicly funded scientific research.


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10 Responses to Innovation and Risks for Researchers

  1. Liam McGarry says:

    Hi Chris

    You seem to be of the view that university research is boolean in nature, either for the public benefit or purely commercial (and largely unsuccessful in that), which raises a few issues:

    – Is it the commercial research or the commercial exploitation of the research which is failing? (ps who defines research as commercial?)

    – If success of commercial research is measured in licences/equity – how is success of non-commercial research measured? is it any more ‘successful’?

    – What about using creative commons licences or encouraging open source as a means of exploitation, potentially benefitting from service?

    – In terms of measuring small scale collaborative exploitation – can the innovationvouchers.ie experience provide guidance?

    Great read Chris. Slight tangent but the following may be of interest http://www.grant-thornton.co.uk/pdf/NIreland_focus.pdf (compares NI, UK and ROI – check out p11)

    Liam
    @McGarryConsult

  2. chrisjhorn says:

    Hi Liam,

    Actually I don’t think university research is an exclusive-or A and not B, or not A and B. But I wanted to set up the argument which I often hear expounded. I have a follow on piece in the next Innovation Supplement of the Irish Times (due out on firday or monday next I think..) which explores this a bit further.

    Re open source, I have personally used open source as business model successfully in IONA (both based on Apache and Eclipse technologies) and continue to do so now in Cloudsmith (with Eclipse Buckminster and now B3, and more good stuff to come).

    Innovation vouchers are a great market information mechanism for the academic sector…

    Surveys and polls are always interesting indicators, so thanks for the .pdf!

    best wishes
    Chris

  3. I was listening to the podcast of the Pat Kenny/Myles Dungan RTE radio program with yourself and M. Hennigan. A paper I stumbled across in a search for prof. Iansiti and Levien’s book, The Keystone Advantage is worth reading. It is from the ‘antitrust institute’ dot org site, by Albert A. Foer and demands the issues of monopoly power, and N-sided markets comparing them to communist regimes of old. Constantin Gurdgiev today on Newstalk lunchtime spoke about the Nordic model in the public service where a lot of outsourcing goes on. Foer’s paper from the antitrust institute touches on that aspect at the end, comparing ‘access’ to ‘ownership’ and references Jeremy Rifkin’s The Age of Access. Just some other food for thought I wanted to share with you. Link to Foer’s paper here:

    http://www.antitrustinstitute.org/archives/files/356.pdf

  4. Antoin O'hEoin says:

    In my limited experience of dealing with Irish universities (from within and without) the elephant in the room is the piffling level of IP income they actually have, despite all the huff and puff around IP. Tech transfer office admin costs alone consume most or all the patent-related income generated while there is little apparent understanding about how to market what little IP actually is generated.
    When dealing with certain universities, TCD for one, from the viewpoint of the potential collaborating or sponsoring company, assertive IP ownership policies and the amount of admin time spent negotiating a contract – long before there is any IP – is offputting.
    While more ethical and professional management of collaborative or sponsored R&D is important – realism is important too. The reality is that uni tech transfer mechanisms are substantially irrelevant to Irish SME’s, which are the orgs who do the lion’s share of tech innovation. Multinationals tend to prefer M&A approaches to tech innovation.
    Faced with the problem of how uni’s increase ‘industry’ research income as state grant RDI income declines, perhaps the ideal starting point is independent industry consultation – opinion research among SME’s in research-active industry sectors concerning attitudes and opinions about relevance of working with publicly funded R&D providers, and preceived obstacles to doing so.
    There is often a gulf between the entrepreneurs in Ireland who actually turn knowledge into cash, and the state-funded R&D policy that does the reverse. Until entrepreneurs and tech researchers see each other as relevant, and experience practical collaboration as a financially-rewarding thing, we will continue to deliver the appalling return on investment we have experienced in state R&D investments, with duplication of high overhead facilities and activities within SME and university research performers.
    It is perhaps important to point out that one might be forgiven for thinking (from the report of the Innovation Task Force) that the critical ingredient of successful innovation is tech-push, and that the only relevant research performers in Ireland are universities. I’m sure you will agree that in reality neither of these things are true.

    I’m quite sure that ways can be found to make genuine collaborative innovation (not just R&D) an attractive proposition to entrepreneurs. IP policies need reform, but so does so much about the Alice in Wonderland world of publicly-funded research. Like so many things in Ireland, my sense is that state-owned IP is over-administered and under-managed.

    • chrisjhorn says:

      Hi Antoin,

      Having personally negotiated an IP deal from the TCD tech transfer office way back in 1990, which led to the establishment of IONA, I have some sympathy for the processes involved 🙂

      I’m not sure that many of the Innovation Taskforce would agree that the “critical ingredient of successful innovation is tech-push and that the only relevant research performers in Ireland are universities” – is there a specific recommendation in the report which suggests this ?

      best wishes
      Chris

      • I need to look at your original blog entry above in a bit more detail, but by-the-by, one of the ways I can identify for research and development to manage its risk in this day and age, is through management of overheads, facilities and resources. Namely through a flexible system which would fit around their needs at any one time and their capital availability. I wrote a blog a while back and I am working a little bit more on a follow up post, which I will link here at some stage hopefully.

        http://designcomment.blogspot.com/2009/05/notes-on-smart-economy.html

  5. Antoin O'hEoin says:

    Chris,
    I agree with great deal of what you’ve written in your “A Guide to the Innovation Taskforce Report” piece. However, to my mind the overall thrust of the Recommendation as well as the constitution of the task force itself (the majority of whom were public servants) fails to recognize the critical role of microbusiness in sustainable employment.

    My comments on the key recommendations follow (long!):

    5.1. SSTI is focused on academic research and is substantially irrelevant to innovation, i.e, the cash-generating piece. There is a history of poor returns on academic R&D investments even in innovation hotspots. Just look at Figure 3 in the following report: http://www.iphandbook.org/handbook/ch17/p15/

    In the absence of Supporting Recommendation 13.2 (which I believe should have been a key recommendation) and given the lack of compelling informal evidence that SSTI has generated a reasonable return on investment (College licencing revenues, levels of patenting activity by Irish resident inventors in key areas of FDI, numbers of HPSU’s etc.) over > 10 years of operation, I see no justification for maintaining this policy without urgent reform, never mind boosting spending to 3%.
    6.4. I think this needs radical simplification. IP has a market value. TTO’s are not notably successful at selling IP because there is no single bazaar at which offerings can conveniently be surveyed by those who don’t deal with TTO’s. A state-launched IP Exchange a la IFSC would provide a prominent marketplace (recommendation 12.1??) The underlying problem however is that HEI IP pricing and inflexibility of approach is unattractive to bidders. It smacks of slicing up a cake that has not even been baked yet and for which there is an unproven recipe. Gordan Hyland has some interesting ideas about IP Exchanges.
    I also think that boosting the services offered by TTO’s to include patent analytics, white-space mapping, technology forecasting and offering training to interested researchers in methods of inventing-to-order and advanced innovation techniques would be a more useful innovation than further constraining their already conflicting mandates with metrics.
    Referring also to 13.1, It should also be noted that measuring levels of innovation in particular, is extremely problematic. Reviewing the reports of the reports of http://www.proinno-europe.eu/metrics on comparative national inno performance one quickly spots that non-R&D innovation activities such as patenting and product and service design are not included in the statistics (supposedly this is due to change). It is extremely difficult to trace innovation outputs (all forms of cash generation, not just business sales and VC cash recovery) back to innovation inputs (strategies, people, inventions, supports etc) which a credible metric would require. I’d be interested to see what happens to this recommendation!

    6.7. Fine. But what about the non-HEI IP generation that represents the majority of what Ireland generates? Again this idea points towards the value of not just a national but in fact an international IP exchange.

    8.1. IMHO the key thing about linking public procurement (30% of all procurement) to promoting innovation is indemnifying the procuring state agency and connected civil servants from the risks of awarding public tenders to micro-businesses (currently excluded from consideration) and rewarding consideration of innovative services and products in such tenders. This isn’t about flagship projects – it’s about reforming public procurement and protecting civil servants who risk the public purse from having their careers blighted.

    9.2. This is one of the few recommendations directly relevant to small SMEs and micro-businesses (in my mind) and is very welcome. It may come unstuck on the private sector ‘panel of experts’ idea given competitive rivalries in a small country. I’d also observe that most experienced investors understand that the technology field and indeed the specific innovation opportunity are far less important than the credibility and unity of the team seeking backing.

    11.3. I believe this recommendation needs to go much further than SSTI’s chosen technology fields of focus. SME’s by and large see state backed research providers (mainly HEI’s) as substantially irrelevant. HEI based research performers don’t tend to see collaboration with SMEs is particularly relevant to them either. Industry contribution to the funding of the research budget of one of Ireland’s leading universities currently runs at 4%. The best way to change this state of affairs is to make collaborative innovation projects easy to undertake and financially rewarding for both parties, enabling the interchange of commercial and technological knowledge, the sharing of networks and resources. A partially state-funded SME subscription to an Innovation Academy with associated research labs, library access, specialist software access, discounted patent analytics and market research databases is likely to be attractive to micro-businesses who currently have no rights of access to the knowledge assets paid for by their taxes.
    If SSTI envisages a prominent role for HEI’s as contract R&D providers, then policy needs to support the socialisation of small businessmen, academic researchers, subject matter experts, innovation consultants and others far more clearly than at present. And to make state-funded R&D (i.e., ‘ tech-push’) capable of being transformed into innovation with high yield, it needs to be enriched with SME knowledge of customer demand and markets, the development of regulation, and business realities.

    12.4. One of the minor irritations of Ireland I think is the amount of bandwidth consumed by people with limited innovation track record broadcasting content-free utterances about innovation and the innovation climate in Ireland. I happen to believe that genuine innovation actors immunise themselves against this type of flak and prefer to study opportunities, ongoing activities and outcomes.

    14.1 Bearing in mind that all future net employment in Ireland is very likely to originate from SMEs, an obvious first step would be to carry out qualitative attitude and opinion research among SMEs and in particular micro-businesses concerning the relevance of the Irish innovation system as is. Any High-Level Implementation Committee needs to better represent the target audience than membership of the innovation task force appear to have done.

    I hope this does not seem unduly negative! There is much that is sorely needed in the Report. The problem is that the small businessman needs to be the focus of national innovation policy. To my mind this is manifestly not the case at present.

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