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.