By Francis Moran and Leo Valiquette

The Canadian university system costs about $25 billion a year. The total income for all Canadian universities from licensing their intellectual property is around $50 million. Subtract the cost of managing that IP and you’re left with a net income of only $15 million. Getting technology to market is clearly not a big income stream for the typical Canadian university.

Those numbers come from The Way Ahead, Meeting Canada’s Productivity Challenge, by Tom Brzustowski, a professor at the University of Ottawa’s Telfer School of Management. While the book is a few years old, the overall trend illustrated by those numbers hasn’t changed. However, Brzustowski also quotes Doyletech’s Denzil Doyle, who puts these numbers in their proper context. According to Doyle, the IP income to universities represents only 2.5 percent of the new sales generated by products based on it. Do that math and you arrive at $2 billion — $2 billion in annual sales for the Canadian economy. That isn’t an insignificant sum.

But this doesn’t mean that the emphasis must be on helping university researchers become better at commercialization to drive more economic activity from the campus. No. What they need is more help to become better researchers. As Brzustowski wrote:

“Commercialization requires expertise of a very different kind, and if we don’t have enough experts in the business of commercialization and managing innovation, than that’s the shortcoming on which to focus … commercialization is the preoccupation of every entrepreneur; it is the essential function of all industry; but it is only an afterthought for the relatively uncommon researcher who is concerned with it at all.”

A few weeks back we touched on some of the essential elements for successful technology transfer from the university lab to the marketplace. That post provoked some enthusiastic response from several readers hip deep in the process, so much so that we thought it worth another look to explore in more depth the issues and challenges we face in commercializing university research.

Granted, the title of today’s post doesn’t get us off on the most positive footing, but we’ll start with the bad and the ugly and finish next week with the good.

Bayh-what?

When it comes to who retains ownership of IP born on the university campus, Canada is a dog’s breakfast of disparate policies. A few weeks back we spoke with Tim Jackson of Waterloo’s Accelerator Centre about that region’s culture of collaboration. He attributed Waterloo’s growth as a tech hub in part due to the University of Waterloo’s progressive IP policies. Researchers retain ownership of their inventions, which has helped to attract world-class researchers to the area.

This, however, isn’t the norm in Canada. For Scott Valentine, director of marketing and communications at Solium Capital, a key barrier to greater university commercialization is Canada’s lack of an equivalent to the U.S. Bayh–Dole, or Patent and Trademark Law Amendments, Act. In essence, Bayh-Dole allows researchers to maintain control of intellectual property they have created through government-funded research. In a Canadian context, that would obviously include research done under the auspices of a university.

“There’s no national strategy, no will at the federal level,” Valentine said.

Since researchers often struggle to understand what rights they have and must negotiate the terms and conditions for licensing their inventions, “what happens 80 percent of the time is nothing happens.” Researchers, being researchers and not entrepreneurs, don’t know how to develop a business plan, seek market validation or get in front of investors and “peal money out of them.” More often than not, their IP ends up gathering dust.

Picking winners

Wesley Clover’s Andrew Fisher emphasized the need a while back for any government-supported program to back winners and ditch losers.

The challenge, of course, is levering the expertise of private sector individuals who have the requisite business chops. David Mayes, after having experienced firsthand how private industry and universities work to bring technology to market from the likes of Stanford, MIT and Santa Fe, sees crucial gaps in the commercialization chain for Canadian university IP.

“There just isn’t the experience here or the knowledge of how that networking works, to commercialize out of university,” he said.

Mayes is a founding partner of international business development firm Global Internet Group in the San Francisco Bay Area. He has also engaged with the B.C. tech community on several fronts, including founding solar energy company Sola Renewable Energy.

“We just don’t have the capital here to take on a world-scale global opportunity … the smart Canadian VC, if he has an idea, takes it to his larger partner in San Francisco and they invest together. But what unfortunately happens … is that they are obliged to move to California and the advantage to Canada is lost.”

Efforts are underway in B.C. to change that, with a coordinated effort between startup incubators, investors, universities and business schools, which we will talk about in more detail soon. However, such broad-based initiatives do create fresh challenges, which bring us back to the political complexities of actively choosing winners.

If a government agency mindset prevails, Mayes said, it will be counterproductive. There will be an obligation to help anybody who comes along. But if there is instead an emphasis on picking winners, “success will be breed success.”

“It’s about the efficient use of the capital,” he said.

Appetite for risk

We’ve talked before about appetite for risk being a defining characteristic of an entrepreneurial culture. For Mario Kasapi, an aversion to risk is all too common among seed investors when it comes to banking on the commercial potential of university IP.

Kasapi is director at UBC Research Enterprises and associate director of the University of British Columbia’s University-Industry Liaison Office. For him the challenges boil down to access to capital and building that pool of experienced, successful entrepreneurs who are willing to get involved and take university IP to market.

“That’s not to say there isn’t money we can access for young companies,” he said. “In my view there is lots of money, but the difficulty is in getting it.”

U.S. capital is easier for his office to access than Canadian capital because early stage investors on this side of the border are “ultra-conservative.” Many who claim to be seed investors will ask ill-thought questions about revenue when the IP in question is still an idea on paper in the lab.

Compounding this is the challenge of finding those entrepreneurs who can take the IP to market and build a viable business around it. In other words, champions. It’s not just because the U.S. market is 10 times larger, there is also a “greater thrust of activity on a per capita basis.”

“In Vancouver, we’re OK for that, but there’s a big gap in other parts of Canada,” he said.

In an upcoming post, we’ll take a look at what is being done, what should be done and who needs to do it to address the gaps in Canada’s commercialization ecosystem for university IP.

This is the 27th article in a continuing series that examines the state of the ecosystem necessary to successfully bring technology to market. Based on dozens of interviews with entrepreneurs, venture capitalists, angel investors, business leaders, academics, tech-transfer experts and policy makers, this series looks at what is working and what can be improved in the go-to-market ecosystem in the United States, Canada and Britain. We invite your feedback.

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  • David Naylor

    This article makes many interesting and useful points. I’m afraid, however, that its credibility is undercut significantly by the comments on IP ownership and the related misinterpretatoin of the Bayh-Dole Act.

    The Bayh-Dole Act was passed because the US Government had accumulated thousands of patents based on federally-funded research, and done little with them. It therefore allowed vesting of ownership of federally-funded research in the US with institutions and companies, not individual inventors.

    Today, most US academic institutions retain ownership or at least primary negotiating authority for IP generated by intramural researchers. They also align incentives by giving inventors — be they professors, students, or both — a substantial stake.

    Consider, accordingly, the case of Silicon Valley. That tech cluster, which still dwarfs almost all others world-wide in impact, grew in part out of two academic institutions – Stanford and Berkeley – that use the mixed IP model noted above. The same approach – institutional ownership with inventors sharing in revenues – has been adopted in Israel, a jurisdiction with a very strong record of university technology transfer and high-tech industrial development.

    How, then, can anyone tout an inventor-owns IP model as a panacea for academic tech transfer? Perhaps this made-in-Canada mythology helps domestic business blame universities (oh, those evil IP hogs!) for Canada’s low BERD levels and weak performance in business innovation. Other than that politically useful side-effect for some players in the innovation eco-system, the argument is unhelpful. It’s not just wrong. It’s a serious distraction from the real issues.

    Please let me explain.

    The evidence world-wide, interpreted uncritically, points to institutional ownership of IP as preferable for business development. That apparent conclusion, however, is hopelessly confounded by many other factors.

    An easy way to summarize those factors would be ‘the Five Cs': clarity, content, culture, collaboration and capital.

    Clarity is important to mitigate squabbles about ownership and revenues, and to make it clear to industry what the framework for negotiation will be. When universities change the rules on the fly, or can’t put clean IP in play, they make potential private partners crazy.

    Content is relevant because it affects both the commercialization pathway and, frankly, the strength of any institutional claim to a stake in academic inventions.

    A software app rapidly developed by students and/or professors on their own time is at one end of the spectrum. At the other end would be the complex multi-year development of an innovation or invention in physical or life sciences. The former lends itself to an inventor-owns IP model and very limited university involvement. The latter is probably best managed under institutional ownership or least significant co-ownership, if only because someone has to adjudicate the disputes about who contributed what during the long-term development of a particular technology.

    Culture is also really relevant. No, I’m not talking here about risk-taking — although your blog has nicely framed that issue. What I mean is the adoption of a culture that focuses on putting great ideas to work.

    Universities and hospitals, as well as inventors under a ‘pure’ inventor-ownership model, can all be afflicted with ‘fantasy revenue syndrome’. That phenomenon gets in the way of effective business partnerships and commercialization – particularly if institutions and inventors then squabble about who gets what slice of some imaginary pie! When so much university and hospital research in Canada is publicly funded, I believe there is a moral onus to get more ideas, innovations, and inventions into play – not primarily for institutional or inventor revenues, but to sustain prosperity and otherwise make life longer or better for our fellow citizens.

    Collaboration with industry is important to regional innovation clusters, and also helps catalyze IP development. In this regard, however, let’s acknowledge here that it is companies that do commercialization, not universities.

    That observation cuts two ways.

    First, it underscores the need for caution about installing a grad student or professor as the instant CEO of a start-up. To repeat: I think institutions and individual academic inventors should not have to apologize for focusing on getting IP into capable private sector hands, rather than spending their own scarce resources and bandwidth starting and running companies.

    On the other side of the coin, however, if we accept that it’s up to the private sector to commercialize, it’s also time for industry to stop shifting the blame to universities, and to take more responsibility for strengthening Canada’s innovation eco-system.

    The last ‘C’, but obviously not the least, is capital. Early stage companies in Canada are handicapped by the relative non-availability of risk capital. That’s not the fault of the private sector or academe. It’s simply a reality rooted in a complex set of circumstances. Many other jurisdictions with a better record of IP exploitation also have better access to risk capital.

    Hope these thoughts are at least vaguely useful.

    Thanks again for your interesting and continuing reflections.

    David Naylor

    • http://www.itbusiness.ca Nestor Arellano

      Thanks very much David for your wonderful explanation about how universities and hospitals play a vital role in IP development and getting inventions to market. I see your point in the informatnce of institutional ownership or co-ownership in the context of multi-year projects and dispute adjudication. Great point on public funding and moral responsibility as well.

  • http://www.MinutemanPress.ca Chloe

    David makes some really interesting points here, especially on the morals of public funding. I think that by leaving private partners to get new products or inventions into the mainstream is probably for the best – it allows universities to concentrate on the inventing side of things unencumbered by the associated financial pressures.

  • http://www.francis-moran.com/ Leo

    David:

    Thanks for your thoughts. I think the key issue here, and the point intended by the comments made in the article, is that Canada lacks any kind of national or federal policy to support, encourage and assist in the commercialization of university IP and help address those five “C” issues you raise.

    And as we have said several times through this blog series, it is all about passing the torch, so that university researchers can continue doing what they do best rather than try to become entrepreneurs and startup CEOs, and providing enterprising students with the help they need to take their ideas out of the university setting and develop them as commercially viable products with a path to market. Federal policy makers need to demonstrate leadership in this area by creating some sort of framework.

  • http://www.innovationcentre.ca Andrew Maxwell

    Some interesting and perhaps contradictory information.

    In the original article, the reference to licensing revenues misses the fact that most of the licenses are granted to companies outside Canada, creating wealth in those countries and not Canada. As most Universities have no mandate for regional economic development this is not unreasonable, but it means that the likelihood of an economic return for research based on IP transfer is unlikely. Calculating based on the ratchet effect of revenues is not appropriate.

    This is not an argument against research funding, but rather suggesting that we should measure impact on creating jobs for our research graduates, rather than on the IP created in the institution.

    The other issue in the article and the comments is the role of institutional policy. Of course Stanford and MIT have been the hotbed of new technology commercialization, although most US universities don’t even break even on this activity. However, Stanford and MIT were doing this before Bayh-Dole, not because of it. (See The Triple Helix for an explanation of why these universities are so successful at it).

    Bayh-Dole was developed to solve a specific issue, that of IP in US universities not being commercialized, the evidence on whether it has achieved this or not is not convincing. While I think there are some benefits in having institutions support their innovators, the culture of innovation and commercialization that exists for example at the University of Waterloo (Inventor owned policy) is so different from any other University, I would caution against making policy changes that affect this. Instead I suggest that we try and learn from their experience, and be conscious that government led initiatives are designed by governments and not by entrepreneurs. Inevitably they are as likely to make things better as worse.