Mario Cervantes, Economist, Science and Technology Policy Division, Directorate for Science, Technology and Industry, OECD1
Universities and other public research organizations are increasingly protecting their inventions – from genetic inventions to software – helping raise additional funding for research and spurring new start ups. The rise in university patenting has occurred against a broader policy framework aimed at fostering a greater interaction between public research and industry in order to increase the social and private returns from public support to R&D. The general strengthening of intellectual property protection world-wide as well as the passage of legislation aimed at improving technology transfer are additional factors that have facilitated the expansion of patenting in academia in OECD countries.
Indeed, in 1980, the United States passed what is widely considered landmark legislation, the Bayh-Dole Act, which granted recipients of federal R&D funds the right to patent inventions and license them to firms. The main motivation for this legislation was to facilitate the exploitation of government-funded research results by transferring ownership from the government to universities and other contractors who could then license the IP to firms. Although patenting in US universities did occur prior to the passage of Bayh-Dole Act, it was far from systematic.
At the end of the 1990s, emulating the US policy change, many other OECD countries reformed research funding regulations and/or employment laws to allow research institutions to file, own and license the IP generated with government research funds. In Austria, Denmark, Germany and Japan, the main effect of these changes has been the abolishment of the so-called “professor’s privilege” that granted academics the right to own patents. The right to ownership has now been transferred to the universities while academic inventors are given a share of royalty revenue in exchange. There has also been debate in Sweden on whether to follow a similar path and transfer ownership to institutions. For now at least, the status quo remains and policy efforts are focusing on developing the ability of universities to provide professors with support for patenting.
In Canada, where rules on IP ownership by universities vary across Provinces, efforts have nevertheless been made to harmonize policies at least with respect to R&D funded by federal government Crown Contracts. In Ireland and France, where institutions normally but not always retain title, the government has chosen an alternate path: issuing guidelines for IP management at institutions in order to foster more consistent practices. Such reforms are not only confined to the OECD countries. China has recently made legislative reforms to allow universities to protect and claim IP, but implementation of such reforms remains a challenge. One lesson from all this is that despite the importance of patent legislation in fostering technology transfer, different national systems may require different solutions.
Institutional ownership of IP is not sufficient
Encouraging universities to commercialize research results by granting them title to IP can be useful but it is not sufficient to get researchers to become inventors. The key is that institutions and individual researchers have incentives to disclose, protect and exploit their inventions. Incentives can be “sticks” such as legal or administrative requirements for researchers to disclose inventions. Such regulations are often lacking in many countries, even in those where institutions can claim patents. Government rules that prevent universities from keeping royalty income from licenses are another disincentive to institutions. Incentives can also be “carrots” such as royalty sharing agreements or equity participation in academic start-ups. Recognition of patent activity in the evaluation and recruitment of faculty can also provide incentives for young researchers. Tsinghua University in China offers its young researchers prizes for inventions that are commercialized.
Given the diversity of research institutions and traditions, it is important that incentives are set at the institution level, but national guidelines can help bring about coherence and the sharing of good practices. As important as incentives is the need for research institutions to clarify IP rules and disseminate them among faculty, staff as well as graduate students- who are increasingly involved in public research activities.
Building critical mass in IP management
To bridge the gap between invention and commercialization, universities have established "technology transfer offices" (TTOs), on campus or off-campus intermediaries that carry out a wide range of functions, from licensing patents to companies to managing research contracts. Results from an OECD report on patenting and licensing at public research organizations2 show that there is a large diversity in the structure and organization of TTOs within and across countries (e.g. on or off -campus offices, arm’s length intermediaries, industry sector-based TTOs, and regional TTOs) but the majority appear to be dedicated on-site institutions and integrated into the university or research institution. Many of the TTOs are in their infancy; most are less than 10 years old and have less than five full-time staff. Still, the number of new TTOs is growing, to the order of 1 per year per institution.
In terms of performance, the report also found enormous variations in terms of the size of patent portfolios as well as revenues obtained from licensing. In 2000 the United States had a huge lead over other OECD countries in academic patenting: universities and federal labs received over 8 000 patents (5% of total patenting, rising to 15% in biotechnology). Academic patenting in other countries, as measured by the number of patents granted to public research institutions, ranged from the low hundreds in Japan, the Netherlands and Switzerland, to close to 1 000 at German public labs and Korean research institutions in 2000-2001. While leading universities and public research organizations in countries such as the United States, Germany and Switzerland may earn millions of dollars or euros in licensing revenue, the gains are highly skewed – a few blockbuster inventions account for most revenue. Furthermore, income from licensing academic inventions remains quite small in comparison to overall research budgets. Academic patenting is thus more about boosting research and transferring technology to industry than about making a profit. In fact, evidence from the US show that the break even point for TTOs is between 5 to 7 years.
A main barrier to the development of TTOs is access to experienced technology transfer professionals. Not only are the skills sets of such professionals in short supply but sometimes government employment rules and pay-scales prevent public institutions from being able to provide competitive salaries to such professionals. Governments are nevertheless trying to help universities build IP management capacity. Denmark and Germany have both invested several millions of euro to spur the development of technology transfer offices clustered around certain regions or sectors such as biotechnology. The UK government has increased expenditures on the training of intellectual property management at universities. Even in the United States and Japan, universities pay reduced patent application fees. National patent offices are also involved in reaching out to universities to provide training in intellectual property.
Start-ups versus licensing to other firms
One of the questions facing technology transfer managers and inventors is whether to license a technology or to create a start-up firm to commercialize it. Governments and university managers, especially in some European countries, have tended to favour start-ups as opposed to licensing strategies. Part of this stems from the rise in government funded venture funds that aim to promote new firm creation. The key question, however, is: which is the best channel for transferring the technology to the marketplace? The answer in fact depends on the technology in question, the market for such a technology, the skills set of the staff and researchers involved the invention, access to venture capital, and finally the mission of the institution. Certain “platform” technologies with a wide range of applications may be commercialized via a start-up company for example while others may be licensed to larger firms with the business capacity to develop the invention further and integrate it into its R&D and business strategy.
Balancing IP protection with the need to maintain public access
Despite the relatively small amount of (formal) academic patenting activity that takes place, the increased focus on patenting academic inventions and licensing them to companies has raised a number of concerns common to countries throughout the OECD area and beyond. These concerns range from the impact of patenting on the traditional missions of universities, the effect on the direction of research, on the actual costs and benefits of patenting and licensing, to the effects on the diffusion of and access to publicly funded research results.
What has been the impact of IP and technology transfer activities on the direction of research? Quantitative studies tend to show that patenting has led universities to conduct more applied research. By making university research more responsive to the economy, is there a danger that basic research will suffer? On the one hand, several studies in the United States have found that universities and individual researchers that have seen the largest increases in patenting are also those which experienced the greatest gains in academic publications. On the other hand, the rate at which academic patents are cited in other patents fell (relative to the average) between the early 1980s and late 1990s in the United States and is now lower than the citation rate of patents granted to business. This could suggest a possible drop in the quality of public research – or at least of its patented component. Alternatively, it may reflect the inexperience of newly founded technology transfer offices.
Exclusive versus non-exclusive licensing
Should universities and other public research organizations grant exclusive licenses to firms for inventions that have benefited from public funds? Licensees often require exclusive licenses as they offer more protection for the necessary development to be conducted before a university-provided invention can become a marketed product. The issue is particularly crucial for start-ups which have few assets other than their IP. On the other hand, by definition, exclusive licenses limit the diffusion of technologies. The OECD report has found that the mix of exclusive and non-exclusive licenses granted by public research organizations is fairly balanced, and that exclusivity is often granted with restrictions on the licensee side. Research institutions often include clauses in license agreements to protect public interests and access to the IP for future research and discovery. Licensing agreements in many institutions include a commitment to exploit the invention on the part of the licensee, particularly if the license is exclusive, and to agree on milestones in order to assure that commercialization will take place. Such safeguards can be used to ensure that technology is transferred and that licensed patents are not used simply to block competitors.
As academic inventions arise in areas closer to basic research, scientists and policy makers are also concerned that patenting certain inventions could block downstream research. One example is that of research tools, in which granting a patent could inhibit diffusion by increasing the costs and difficulty of using such tools in applied research. In response, the National Institutes of Health in the United States (NIH) have espoused a policy that discourages unnecessary patenting and encourages non-exclusive licensing (see link). Such guidelines are now being emulated by funding agencies and research institutions in other countries.
Another area of debate concerns the use of the so-called “exemption for research use” that has been in use in universities in both the United States and in EU countries, either formally or informally. Traditionally, universities have been exempted from paying fees for patented inventions they use in their own research. The rationale is that universities fulfill a public mission. As more public research is carried out with business and generates monetary rewards, the divide between public mission and commercial aims becomes less stark. The extent and status of this exemption differs across countries and is often ill-defined. This research exemption – or rather its interpretation – has recently been the subject of policy debate and litigation: recent court decisions in the United States have restricted its meaning.
Making universities and other public research organizations more active in protecting and exploiting their IP means not only actively promoting faculty and student research, but also determining how best to pursue any relationship with business clients while protecting the public interest. Many of the concerns or issues related to balancing IP protection with public access will take time to resolve. The growing reliance of public research institutions on various sources of funding, including from industry and contract research, as well as demands by society for greater economic and social returns on investment in public R&D, have made academic patenting a reality that is more likely to increase than decrease. At the same time, it should be recalled that intellectual property is but one of several channels for transferring knowledge and technology from publicly funded research which include publication, the movement of graduates, conferences as well as informal channels. While research institutions and firms are working to find solutions to problems as they arise, governments and research funding agencies have a role to play in providing guidelines on academic patenting and licensing and in fostering debate.
1 The views expressed in this article are those of the author and do not necessarily represent those of the OECD.
2 See: Turning Science into Business: Patenting and Licensing at Public Research Organisations, OECD, 2003.