Managing The Intellectual Property Guide

MANAGING

IntellectualProperty The Guide

A Guide to Strategic Decision-Making in Universities

In Higher Education

14

Contents 1

Why is IP management important?

1.1

The benefits

19

1.2

The need for strategic management

21

1.3

Strategic checklist

29

2

Financial expectations and budget management

2.1

Risk and returns

35

2.2

Handling uncertainty over expected costs and returns

36

2.3

What are realistic expectations?

37

2.4

Setting Budgets

39

3

Ownership of IP and negotiations with sponsors

3.1

Ownership and control

45

3.2

Negotiating with research sponsors

49

4

Incentives

4.1

To whom should incentives apply?

61

4.2

How should incentives be applied?

65

4.3

Relationship to other university policies

69

5

IP management functions

70

5.1

The responsibilities of the IP management office

71

5.2

The IP office: location and structure

73

5.3

The relationship between the IP office and other departments and research groups

76

5.4

Should notification of inventions be compulsory?

76

5.5

Some complexities in IP management

77

6

Implementation: working with others

6.1

Collaboration between universities to manage IP

83

6.2

Working with other external organisations

89

7

Monitoring and Evaluation

7.1

The monitoring and evaluation framework

95

7.2

Interpreting performance indicators and the impact of uncertainty of time horizons

96

7.3

Using input measures and ratios

97

7.4

Measures of internal process performance in IP management

98

7.5

Selecting suitable performance indicators

99

Annex A: Provenance of the Guide Annex B: Glossary Annex C: AUTM performance measures

15

Intellectual Property

16

34

44

60

82

94

i iv v

1. Why is IP management important?

1

Why is IP management important?

16

1.1

The benefits

19

1.1.1

Effective knowledge transfer

19

1.1.2

Using others’ IP

19

1.1.3

Income

20

1.1.4

Staff recruitment and retention

20

1.1.5

Other benefits

21

1.2

The need for strategic management

21

1.2.1

IP issues are pervasive

21

1.2.2

IP management and other means of knowledge transfer

24

1.2.3

Key policy overlaps

24

1.2.4

Preservation of missions

25

1.2.5

Conflicts of interest

27

1.3

Strategic checklist

29

In Higher Education

16

1. Why is IP management important?

What is IP?

Intellectual Property, often known as IP, allows

The four main types of IP are:

people to own their creativity and innovation in the same way that they can own physical property.

• patents for inventions - new and improved

The owner of IP can control and be rewarded for

products and processes that are capable of

its use, and this encourages further innovation and

industrial application

creativity to the benefit of us all. • trade marks for brand identity - of goods and In some cases IP gives rise to protection for ideas but

services allowing distinctions to be made

in other areas there will have to be more elaboration of

between different traders

an idea before protection can arise. It will often not be possible to protect IP and gain IP rights (or IPRs)

• designs for product appearance - of the whole

unless they have been applied for and granted, but

or a part of a product resulting from the

some IP protection such as copyright arises

features of, the lines, contours, colours, shape,

automatically, without any registration, as soon as

texture and/or materials of the product itself

there is a record in some form of what has been

and/or its ornamentation

created. • copyright for material - literary and artistic material, music, films, sound recordings and broadcasts, including software and multimedia However, IP is much broader than this extending to confidentiality (or trade secrets), plant varieties, performers rights and so on.

17

Intellectual Property

Using others’ research papers, publications, etc

✓

✓

✓

Trade Marks

✓

Design rights

ACTIVITY

Copyright

Patents

Figure 1.1: IP and University activities

Confidential information

1. Why is IP management important?

Research information Preparing and collating research or experimental results Publishing or presenting research, academic or technical papers

✓

✓

✓

✓

Industrial design projects

✓

✓

✓

✓

Contract research

✓

✓

✓

✓

Consultancy projects

✓

✓

✓

✓

Starting discussions on a collaborative project or contract research

✓

✓

✓

✓

Receiving important confidential information ✓

Giving out confidential information

✓ ✓

✓

✓

✓

✓

✓

Revising or providing a manual or computer assisted drawings

✓

✓

Preparing notes for lectures

✓

✓

Responding to telephone queries of a technical nature

✓

Using computer software ✓

Developing computer software

✓

Reproduced from Theros IP guide (www.Theros.co.uk) IP management is of strategic importance for two sets of reasons:

• effective management requires IP policies and activities which need to relate to many other university policies.

• universities can derive significant benefits from an effectively managed IP portfolio

In Higher Education

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1. Why is IP management important?

1.1

The benefits

The issue is not simply one of protection in order to encourage commercial investment. University

The size, and nature, of benefits will depend on the

researchers require continuing access to the results of

size of the IP portfolio and the missions and strategies

their research for use in future projects and teaching.

of individual universities. All universities, however,

Effective IP management is required to ensure that this

employ (and train) substantial numbers of staff and

is the case. The university may also wish to draw on

students who generate IP in the course of their day-to-

the results for commercial purposes in the future.

day activities, and there are a number of potential

Negotiations and agreements therefore need to be

benefits which apply across the board.

structured so that future needs of the university can be accommodated.

1.1.1 Effective knowledge transfer Protecting research results and their publication are IP management is an essential part of

not, of course, mutually exclusive. It will be necessary

effective knowledge transfer

only to delay publication for a short period while patents are filed.

Universities are expected to engage in a diverse range of activities in return for the public funding they receive,

1.1.2 Using others’ IP

and one of these is the generation and transfer of knowledge. This is reflected in mission statements,

Universities have considerable latitude

which typically encompass the development and

to use others’ IP freely, but if their

transfer of knowledge for social, quality of life and

research is used for commercial

wealth generation purposes. In many cases, open

purposes they need to be on their

publication and making research results freely available

guard against the possibility of

will be the most effective form of knowledge transfer.

infringement

But most research outputs require substantial

19

investment before they can be brought to market and

Researchers are generally able to use IP owned by

find applications. Competitive advantage derives from

others without a licence, provided it is used privately

many factors, depending on the nature of the market

and for purposes that are not commercial, or it is used

and technology, but protection of the underlying

for experimental purposes relating to the subject

research results can be important.

matter of the invention. However, if research activity

Intellectual Property

1. Why is IP management important?

crosses over into commercial work and, for example, a

routes to commercial development, and secure and

university assigns to a company IP rights arising from

negotiate with appropriate partners. The issues

the research programme, there could be an

surrounding financial returns from the

infringement. Considerations of a similar nature arise in

commercialisation of IP are discussed in more detail in

relation to copyright and the use of published materials

Chapter 2.

for teaching purposes (particularly e-learning). Part of the IP management function is to ensure that there is

The strength of a university’s IP portfolio, and how well

clarity amongst researchers as to the legal position

it is managed, may also be a factor in attracting

and to guard against any such infringements.

research sponsorship. Sponsors may be interested in accessing the IP within the portfolio. In addition, if the

1.1.3 Income

university is seen to a be a competent IP manager, then this will give confidence to the sponsor that

There is undoubted potential for

effective partnerships can be established to take

universities to generate surpluses from

forward the commercialisation of results.

the IP management function, although there is a need for realism over the

1.1.4 Staff recruitment and retention

scale of returns. Effective IP management can also attract research

The quality of IP management will

sponsors

influence the financial benefits that staff receive for commercially related

Commercialisation of IP can generate income for the

work and can therefore strengthen

university. One way is directly through the sale or

recruitment and retention

licensing of IP. While there has, historically, been a tendency to over-estimate the revenue potential of IP

An effective IP strategy and policy can also help

generated within the HE sector, there can be little

universities to recruit and retain high quality staff. In

doubt that real potential does exist. This potential is

part, this relates to personal income incentives. There

unlikely to be realised if universities adopt a passive

are important differences between subject areas, but

stance towards exploitation. Instead, there is a need to

opportunities to supplement university salaries through

identify exploitable IP, decide how it can best be

commercialisation activities are an increasingly

protected, evaluate its commercial potential, identify

important consideration for many academics. The

In Higher Education

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1. Why is IP management important?

perceived effectiveness of IP management may inform their choices. However, income is not the only

1.2

The need for strategic management

consideration, and many academics will wish to see their research outputs commercialised, and as a result

For research-intensive universities the scale of the IP

given application because they consider this to be an

portfolio generated, and the potential returns, are

integral part of their academic responsibilities.

probably sufficient reasons for considering IP management strategically. However, there are also

1.1.5 Other benefits

other reasons that apply, in principle, to all universities.

Finally, there are a number of less tangible potential

1.2.1 IP issues are pervasive

benefits, which essentially arise because effective IP management can raise a university’s profile in the

IP issues arise, to a lesser or greater

business and wider community. These include:

extent, in relation to virtually all university activities, and policies and

• the publicity that can arise from successful

activities need to be consistent

knowledge transfer The discussion above has touched on some ways in • a perception that the university is a good place

which IP issues relate to various university activities. In

with which ‘to do business’, thereby facilitating

practice, the overlaps are pervasive. There is a general

wider interaction between the university and

need in relation to teaching, research and consultancy

the business sector

to ensure that IP with potential commercial value is properly protected, that the university can access this

• a demonstration that the university is

IP in the future and that the university is not exposed

contributing to economic development

to litigation because of infringement of others’ IP. As a

activities, at a local, regional or national level.

result, IP policy should be co-ordinated with policies toward research, teaching, consulting, students, employment terms and conditions and conflicts of interest. Figure 1.2 illustrates some of the operational issues that arise.

21

Intellectual Property

1. Why is IP management important?

Figure 1.2: The cross-cutting aspects of IP management University activity

Teaching

How other activities impact

How IP management impacts upon

upon IP management

other activities

Information provided during teaching

It is necessary to ensure that teaching

(particularly e-learning) may infringe

materials do not infringe IP and that

others’ copyright and other forms of IP

students are educated about IP

such as trade secrets and may expose

management

the university to litigation Research

IP generated needs to be identified,

It is necessary to ensure adequate

evaluated and protected

records are kept to comply with future requirements for securing IP, and that

Future access to IP by the university

notification of invention takes place

needs to be considered Increase awareness amongst university Research, if used for commercial

staff of commercial restrictions upon

purposes, may infringe others’ IP and

possible research activities. Although it is

may expose the university to litigation

not necessary to obtain a licence to work a patent for research purposes, provided that the work is not for commercial gain, problems can occur in practice

Publication

Publications may infringe others’ IP and

Electronic publication raises copyright

may expose the university to litigation.

issues about which staff will need to be

This is a particular issue with electronic

informed

publication

In Higher Education

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1. Why is IP management important?

Figure 1.2: The cross-cutting aspects of IP management (continued) University activity

Consulting

How other activities impact

How IP management impacts upon

upon IP management

other activities

Consulting activities may infringe others’

There is a need to ensure that there is

IP, particularly in the area of trade secrets

adequate indemnity cover against IP infringement by staff carrying out

Consulting activities represent a potential

consultancy work via the university

leakage of university IP Staff should also be aware of limitations to professional indemnity cover (such as the ‘small print’ over aerospace-related work and US-based activities) Personnel

Research services

If there are disputes over IP between

Employment contracts need to align with

staff, they need to be managed

IP policies

Research services will need to liaise with

Contracts will need to be vetted for IP

IP management to consider IP issues

clauses

when organising research projects Administration

Disputes over IP between staff and

There is a need to ensure that IP clauses

students and between different students

in student enrolment are legal and do not

may need to be drawn to the attention of

breach the ‘duty of care’

IP management, who will need to become involved

23

Intellectual Property

1. Why is IP management important?

1.2.2 IP management and other means of knowledge transfer All universities need to engage in IP

different forms of knowledge transfer can be helpful in this respect.

1.2.3 Key policy overlaps

management. The level of investment will, in part, be determined by the

Incentives for engaging in IP-related

costs and returns relative to other

activities need to be consistent with

forms of knowledge transfer

general policies towards internal income allocation between

Universities transfer knowledge in many ways besides

departments and also towards other

the licensing and sale of IP. These include consultancy,

means of knowledge transfer

contract and collaborative research and Continuing Professional Development (CPD). As the previous

Universities have no automatic claim to

section outlined, IP management has an important role

student generated IP, but are arguably

in relation to these activities, and complements, rather

best placed to manage it. Policies, and

than substitutes for, these other means of knowledge

procedures relating to students need

transfer. Complementarity arises principally at the

to explicitly address IP issues

stage of ensuring that any IP generated during the course of these activities is identified and, if promising,

There are two areas of university policy that are

protected. IP management also encompasses the

particularly closely related to IP management.

active marketing of IP, potentially the costly extension and renewal of patent protection and, if successful, the

The first concerns the general question of distributing

monitoring of agreements with commercial partners.

returns from the exploitation of IP within the university.

An important consideration is, therefore, the extent to

This also relates to the specific question of rewards to

which universities should invest in these aspects of IP

individual inventors. Incentives are discussed in more

management activities at the expense of marketing,

detail in Chapter 4 but there are a number of general

and delivering, other forms of knowledge transfer. This

issues to consider:

will obviously depend on the volume and quality of research undertaken within the university. A consideration of the relative costs, risks and returns for

In Higher Education

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1. Why is IP management important?

• there are substantial differences between

1.2.4 Preservation of missions

subject areas with respect to their IP potential. Net income generated through IP exploitation

Maximisation of revenue generated by

can be allocated to departments in

IP exploitation could lead to an over-

accordance with university strategy, but

emphasis on applied research

incentives for departments with high IP potential to exploit this potential need to be

An undue emphasis on revenue generation could risk

retained

distorting the missions of producing knowledgeable people and carrying out investigations aiming to

• in accordance with the discussion in section

produce new knowledge. The closer that research

1.2.2 above, incentives for engaging in IP-

moves to the market the lower the risk involved in

related activities need to be consistent with

commercialisation and the higher the likely returns to

general university strategy towards other

the IP generated. However, strategies which seek to

means of transferring knowledge.

maximise revenue from IP in this way could drive universities too far in the direction of applied research

The second concerns students. Student ownership of

at the expense of basic research and postgraduate

IP is discussed more comprehensively in Chapter 3.

training. British Technology Group plc (BTG) provided

The key issues that arise are:

the following observation in response to the consultation paper:

• universities have no automatic claim to IP generated by students

“There are risks associated with an unthinking and cost-driven shift in the research mission of universities.

• much university research is likely to involve staff and post-graduate students

Excessive focus on applications-oriented research could crowd out curiosity-driven research – yet it is the latter that, in BTG’s experience, leads to valuable

• fragmentation of ownership can be an impediment to effective exploitation.

25

Intellectual Property

inventions that create start-up and licensing opportunities.”

1. Why is IP management important?

Open dissemination of results can sometimes make

and use it. Balsa will continue to be developed and, if its

commercial sense as well as being entirely consistent

use becomes significant, it is always possible to sell later

with university missions (see Figure 1.3).

versions or extensions while giving away the core tool. This is quite a common commercial model - to have a free

Figure 1.3: Placing IP into the public domain free

basic version while charging for a later, higher featured, fully

of charge – The University of Manchester

supported version. You can consider the initial free release as a form of seed-corn.

The computer science department at the University of Manchester has recently placed two significant

In a university, the use of IP by others in the research

software systems into the public domain - the

community has considerable indirect value. The use of

Maverik VR framework, and the Balsa asynchronous

Balsa or Maverik by other groups enhances the reputation

circuit synthesis system. Both are available under

of our groups and their ability to publish in the best places

Gnu Public Licences (GPL).

and attract research funding.

Professor Steve Furber, head of the department,

Putting software into the public domain can greatly

commented:

increase its influence on the computing community - Linux is the most visible proof of this. In some cases, it may serve

“With this sort of IP there is an issue of establishing and

the university’s purposes better to maximise the influence

demonstrating the value of the software. If the IP is

of its research by putting IP into the public domain rather

protected and offered for sale under licence, will anyone

than by exploiting it for direct commercial gain. Influential

buy it? If it is available free, does this imply it has no value

work raises the reputation of the university, with indirect

and isn’t any good? Our judgement for Balsa was that if it

benefits in terms of RAE ratings and the ability to attract

was not free nobody would pay for it or use it because of

good students (at both undergraduate and postgraduate

the uncertainties of the tool and the technology it supports

levels) and research funding.”

(asynchronous design is still a minority interest among VLSI designers), so there would be no revenue lost by making it freely available. If available free, there are a number of research groups that might pick it up, find it actually works,

In Higher Education

26

1. Why is IP management important?

1.2.5 Conflicts of interest

Some UK universities are now developing or refining their policies towards conflicts of interest. For example,

Little concern has been expressed, so

the University of Glasgow implemented a new conflict

far, over actual conflicts of interest

of interest policy at the end of 2001 (see Figure 1.4).

arising from IP exploitation. Nevertheless, a watching brief should

Figure 1.4: An Example of a University Conflict of

be maintained

Interest Policy

The possibility that active management of universities’

The University of Glasgow’s new Conflict of Interest

IP portfolios might lead to conflicts of interest has, with

Policy (implemented in December 2001) provides a

some exceptions, not been as prominent a topic for

clear statement of the importance of managing

debate in the UK as in some other countries, notably

conflicts of interest in higher education. The policy

the USA. Indeed, as one workshop participant put it:

explicitly takes into account the reports of the Committee on Standards in Public Life (the ‘Nolan

“I wish the volume of activity was such that we needed

Committee’) – which defined the seven principles of

to worry about conflicts of interest.”

public life as: Selflessness; Integrity; Objectivity; Accountability; Openness; Honesty, and Leadership.

However, it is an issue which was raised by several universities, and the specific concerns, which need to

The policy starts by recognising that “increasing

be addressed at the strategic level, were that:

demands are placed upon universities to engage with for-profit organisations in order to discharge their

• commercial pressures might inhibit the free

responsibilities towards economic development and in

flow of information within the research

order to generate funds to support their research and

community

related activities. In this environment, University members are placed in situations where potential

• partnership with commercial organisations to exploit university generated IP could

and professional interests and the interests of the

compromise, or be seen to compromise, the

University at large.”

status of universities as providers of independent advice.

27

conflict of interest may arise between their personal

Intellectual Property

1. Why is IP management important?

The over-arching statement of policy is: “It is the policy

managed in order to be acceptable.

of the University that its officers, staff, and others

The full policy is available at:

acting on its behalf have the obligation to avoid ethical,

http://www.gla.ac.uk/R-E/pub/policies/index.html

legal, financial, or other conflicts of interest, and to ensure that their activities and interests do not conflict

Figure 1.5 illustrates the approach taken by the

with their obligations to the University or its welfare.

University of Lancaster.

This policy incorporates the Seven Principles of Public Life established by the Nolan Committee; the

Figure 1.5: Handling conflicts of interest: the

University’s officers, staff and others acting on its

University of Lancaster

behalf should abide by those principles” “Our approach is to build an explicit The policy contains the following key elements:

acknowledgement of university ownership of IP into employment contracts. However that has limitations

All members of staff in a position to make or influence

in terms of (1) the 1977 Patent Act, sections of which

decisions and all academic members of staff are

may overrule university ownership in rare cases,

required to complete an Annual Return to the

though we have had no such difficulty, and (2) what

appropriate authority. If they have nothing to declare

then happens about “grey” areas. Examples of grey

then staff must submit a ‘nil return’ for the record.

areas could include consultant contracts and what happens to IP arising from work done by staff

The University has established a Committee on

members during the time they are working as

Conflicts of Interest to advise on ambiguous and/or

consultants.

complex situations, staff are also encouraged to seek advice from heads of department and deans etc.

In practice, it seems unlikely any policy document could explicitly cover every conceivable situation in

Specific activities are defined that should lead to

which a conflict of interest might arise without

scrutiny. Guidelines are then provided on how to think

becoming completely unwieldy.

about the conflicts that can arise rather than to attempt to define rules that cover all possible situations. These

The best solution is probably one in which (a) there is

range from the acceptable to definitely not acceptable,

a simple definition of what the university’s potential

with other items that need to be declared and actively

commercial interest is; (b) a binding employment

In Higher Education

28

1. Why is IP management important?

contract between university and staff in which the

• defining the strategy to be adopted towards IP

obligations of the respective parties are clearly spelt

negotiations with research sponsors who seek

out, and (c) an explicit assurance to staff that people

to own this IP

originating Intellectual Property will share in the benefits. That keeps the documents relatively simple

• defining the responsibilities of the IP

and puts a good deal of weight on the application of

management function, including the conduct

plain common sense. It seems to cover most cases

of any cross-cutting role it plays in relation to

quite well.”

other university departments and groups

Roderick O’Brien, University of Lancaster

• deciding how the IP management function will be organised in relation to other relevant

1.3

Strategic checklist

functions, particularly research services, and whether or not company structures will be

Central management’s main responsibility in relation to

used for IP management

IP management is to set the overall long-term strategy that the university will pursue and to define how it will

• establishing realistic expectations and targets

be pursued. The principal elements of an IP

(in terms of level and timing) for potential

management strategy in a university include:

financial and non-financial returns to the university’s investment in IP management

• providing a statement on how IP management supports the overall mission of the university

• designing a system for monitoring and

and actively communicating the strategy to

evaluation that facilitates a virtuous circle in

university staff

improved effectiveness of IP exploitation and providing a process for the review and, if

• the co-ordination of the IP management strategy with other policies and strategies,

necessary, the re-design of the IP management strategy.

including policies towards the ownership of IP by different types of staff and students and

These topics are discussed further in the remainder of

defining appropriate incentive structures for

the Guide. At this stage, it may be useful to consider

staff

some examples of the overall approaches universities are taking towards IP management.

29

Intellectual Property

1. Why is IP management important?

One prominent feature is the integration of IP

Organisation

management within a university’s policy framework

The department of Research and Enterprise (R&E) -

and organisational structure (see Figure 1.6).

part of the university’s Central Administration - has been given responsibility to coordinate research and

Figure 1.6: Policy framework and organisational

enterprise activities and to direct commercial

structure at the University of Glasgow

operations. The Director of R&E reports directly to the Secretary of Court and works on a day-to-day basis

The University of Glasgow has sought to develop a

with the Vice-Principal for Research. R&E’s activities

framework for an integrated policy towards research

are overseen by a R&E Steering Group – which is in

grants and contracts, consultancy and commercial

turn accountable to both the University’s

activities that will evolve and change alongside trends

Management Group and to the Advisory Board for

in research and its commercialisation and any

Research and Enterprise. The latter reports regularly

changes in government policy.

to Court and to Senate. This arrangement is intended to provide the agility necessary for effective

Intentions

commercial operations whilst ensuring the

This policy framework explicitly recognises that

accountability that is appropriate for a university.

‘enterprise’ is now a third component in the university’s mission:

Tactics The University’s view is that commercialisation of IP

“...each of these elements is inter-linked and is

can achieve economic benefits in different ways.

interdependent: the results of leading-edge research are used to enhance the education and learning

1. Direct; The university seeks to maximise the

experience of students as well as to underpin the

commercial revenue ‘yield’ on its research

commercial exploitation and economic development

expenditure in order to invest in improving its

activities. These activities include the commercial

research capabilities – thus seeking to create a

exploitation of both research (contract income,

‘virtuous circle’ based upon closely coupled research

licenses and spin-out companies) and teaching and

and enterprise activities.

learning….as well as consultancy and other advisory services.”

2. Indirect: The university seeks to assist companies in the region to become more competitive through

In Higher Education

30

1. Why is IP management important?

technology transfer. In some cases, the University will

Operations

contribute IP to a company or group of companies if

R&E operates in a highly integrated manner such that

it is believed that they are best placed to develop or

seamless life cycle support for both research and

exploit it. In this case, the major beneficiaries are likely

enterprise is provided. This involves the use of

to be the company and the local economy, but the

integrated databases and formal business and

university believes that a strong company base and

decision-making process ‘road maps’. There is

local economy also lead to a more dynamic

considerable interest in other universities in emulating

environment in which to carry out research.

some of R&E’s operational approaches – such as the automatic generation every two weeks of emailed

IP management staff are given high levels of authority

progress reports from a database that logs all IP case

to act in facilitating research commercialisation and

activity. This helps to ensure that all interested parties

take a direct and very active role in commercialisation

are kept fully informed of the progress, or lack of

deal making.

progress, made.

IP managers act as advocates of a particular business case and each case is critiqued by

Several universities are conducting thorough reviews

colleagues at weekly prospect evaluation meetings.

of their approaches, with consequent revision of structures and systems (Figure 1.7).

31

Intellectual Property

1. Why is IP management important?

Figure 1.7: A recent strategic review of a

• University of Ulster Science Research Parks

university’s management of IP -

(UUSRP) has been established to develop and

the University of Ulster

manage the university’s science research parks established at the Coleraine and Magee

Within the University of Ulster, a new structure has

campuses. The parks are not exclusively for

been put in place to manage the process, involving

activities which have derived from the

the establishment of two limited companies within the

university research base, and also house

university infrastructure to stimulate and manage the

appropriate externally started high-tech

university’s technology transfer:

companies. The rationale for this is (i) to provide an environment for clustering of high

• UUTech Ltd has been set up to implement and

technology companies in close proximity to the

develop the university’s technology and

research strengths of the university, and (ii) to

knowledge transfer policy with the following remit:

provide an academic/industry innovation community which will help to drive the

☛ to work in partnership with the private sector to promote actively technology transfer activities

knowledge-based economy in Northern Ireland.

associated with the university ☛ as a central mechanism to exploit the innovative

The university is also planning to establish a university

research activity emanating from the university’s

investment fund, financed by a number of investors

research centres

contributing to a pool of funding, and set up as a

☛ to enhance the close relationship the university

limited partnership. The fund will provide preferential

has established with the local community and

access to spin-outs in the university, but investment

to contribute strategically to the diversification of

decisions will be on a commercial basis and

business/industrial sectors of the local economy

assessed by an experienced management panel.

☛ to act as an umbrella company with a remit to take venture stakes in start-up companies and

Two years on from the introduction of the strategy,

to manage university consultancy activities

technology and knowledge transfer now form part of

☛ to manage and negotiate all matters related to IP in order to maximise the benefit to the

the university’s core business activities alongside teaching & learning and research.

university, its staff, students and the region.

In Higher Education

32

33

Intellectual Property

2. Financial expectations and budget management

2 2.1 2.2 2.3 2.4 2.4.1 2.4.2

Financial expectations and budget management Risk and returns Handling uncertainty over expected costs and returns What are realistic expectations? Setting Budgets Using the commercial revenue yield on research expenditure as a ratio in budget setting Considering anticipated capacity constraints

34 35 36 37 39 39 42

In Higher Education

34

2. Financial expectations and budget management

2.1

Risk and returns

Figure 2.1: Relationships between cost, technical risk and business risk in the commercialisation

Linking the IP management budget to

process

annual revenue targets may lead to problems, because the costs and

The investment process associated with research

revenues associated with IP

commercialisation consists of increasingly high

management are subject to major

expenditures aimed at determining the technical and

external influences and can be volatile

commercial viability of the concept and then bringing it to market. This sequence of investments reduces

University research results are characteristically highly

the technical risk that the concept will not work as

uncertain as regards potential future applications. A

intended, but the cumulative expenditures made

particular innovation may eventually produce major

increase the risk that these funds will be lost.

revenues, but many inventions or smaller advances will

Business risk only decreases as the product or

not produce significant revenues and some may never

process nears market introduction and the probability

reach the market. This high level of investment risk

of commercial failure reduces. These basic

means that the return to the university will be low

relationships are illustrated in the following diagram:

relative to that captured by the organisations which make the post-research investments. This simply

£

reflects how investment risk is distributed.

Cost (£)

The range of financial returns that can be negotiated by a university will be constrained by the extent to Business Risk (£ at risk)

which it is willing and able to commit funds to risky investments in a similar way to the Venture Capital sector. University seed funds aimed at facilitating technology transfer can play a role in increasing the share of the financial rewards. This type of investment can reduce the perceived investment risk, by moving the technology through various proof of principle and proof of concept stages, producing a more favourable negotiating position for the university. Figure 2.1 illustrates these broad concepts.

35

Intellectual Property

Technical Risk (prob. of Technical Failure)

Initial concept

Market introduction

Distance to market

2. Financial expectations and budget management

All current and potential partners in research and

Figure 2.2 provides an example of a fund, established

technology transfer activities should ideally be in

in collaboration with Scottish Enterprise, which

broad agreement on the anticipated investment risks

enhances universities’ ability to capture the financial

faced and their implications for the partnership, in

benefits of their research.

particular on the ways in which risk capital differs from research funding. Although research funding

Figure 2.2: Regional Collaboration in the

generates the option to commercialise the research,

provision of pre-seed capital: the Scottish

it does not, in itself, allow this commercialisation

Enterprise Proof of Concept Fund

option to be taken up. Shares of the financial rewards should reflect the shares of the investment risks

The case for an in-house fund to help finance

taken. Failure to recognise this principle at the

research through the proof of concept stage is that

agreement negotiation stage can cause severe

further investment will increase its attractiveness for a

problems at later stages.

commercialisation partnership and thereby secure a greater share for the university. Yet staffing and

2.2

Handling uncertainty over expected costs and returns

operation of such a fund cannot be done on the cheap; there is a need to win the confidence of investors and hard decisions have to made in

The decision-making process for allocating resources

deciding which projects to support. To cover the

to IP management activities should recognise that the

overhead requires a high volume of research activity,

variance in expected returns on this investment can be

and a collaborative effort by a regional grouping of

high and will therefore be uncertain. This means that

universities is one obvious approach.

setting annual target revenue to cost relationships is not viable, particularly if performance against such

One innovative approach is the £30 million Proof of

targets is to be used to assess good or poor

Concept Fund, established in 1999 by Scottish

performance in IP management. A moving average of,

Enterprise, as a way of addressing this critical early

for example, three years is likely to give a clearer

stage-funding gap. “We see the Fund as part of a

picture, although longer moving average time-frames

pipeline, leading eventually on to other funding such

may be appropriate for smaller IP management offices

as SMART and SPUR awards and business angel

because the lower deal flow will be even more

and venture capital funding. The applicants usually

sensitive to year-on-year variations in returns.

In Higher Education

36

2. Financial expectations and budget management

have some background IP, but they’re not at the

different levels of financial return is also important when

stage where they can market it.”

it comes to considering the mix of technology transfer activities. This is discussed in the following Section.

The fund is available to applicants for a maximum of two years. The highest amount of funding available is £200,000, with payments made quarterly. To date,

2.3 What are realistic expectations?

there have been two rounds of funding, with projects for the third currently under evaluation. In round one,

There are some indications that UK

there were a total of 83 applications, of which eight

universities already actively engaged in

were successful; in round two, there were 120, with

technology transfer are as effective as

funding finally going to 36 of those. The third round

their US counterparts when revenue

has attracted 130 proposals.

from commercialisation is considered in relation to research expenditure

A management group is put together for each successful project, led by the appropriate institution

UK universities are often compared to their US

and supported by Scottish Enterprise. “The idea is to

counterparts. The main reason for looking at the USA,

try and ensure that everything is kept on track and

in relation to IP management, is that there is a longer

that the commercialisation happens.” The money is

history of active technology transfer, reasonable data

designed to be spent on proving the core

sets and, consequently, an indication of how things

technology. “It’s meant to cover the salary of one or

might be in the future for UK universities.

two people for a couple of years – most of it therefore goes on people’s time.”

Examination of the evidence does not support the view that there is a large untapped potential for

Quotations are from fund manager Eleanor Taylor

revenue generation for many UK universities. Figure 2.3 reports well-informed views.

Expected net returns must therefore be based upon a realistic appraisal of achieving these ‘lightning strikes’ – they are rare, and therefore the expected value of the overall portfolio of commercialisation revenue will not be high. This emphasis on the probability of achieving

37

Intellectual Property

2. Financial expectations and budget management

Figure 2.3: Views on the performance of UK

it is (in our experience) often better than that in US

universities

academia. The more pragmatic approach that is typically adopted by UK technology transfer offices is

1

“The AUTM data … allow accurate comparisons. MIT

also in many cases preferable to the narrow

has a research base which, at over $900 million, is

commercial focus that is adopted by some US

equivalent to several UK HEIs. Therefore there is a

technology transfer offices.

need to take into account the substantially lower volume of research income available to UK HEIs when

It is always dangerous to make sweeping

considering the …. expectations of IP exploitation. The

generalisations, but in BTG’s experience there is

value of $90 million of research to create one spin-out

certainly good and bad performance on both sides of

in the US gives a more realistic expectation of what

the Atlantic.”

could be achieved in the UK, especially taking account of the cultural and infrastructure benefits that the US

British Technology Group plc

enjoys.” Those UK universities that have been increasing IP University of Edinburgh

management activities do not appear to lag behind institutions in the US so far as commercial revenue,

“We... view with some scepticism the conventional

and spin-outs, in relation to research expenditure is

wisdom that US technology transfer offices are more

concerned. It may be the case, however, that US

effective than those in the UK. Our own analysis

universities generate more commercial revenue for

suggests that if revenues generated by BTG on

each $ devoted to IP management, owing to a mix of

behalf of UK academia are included, then UK

economies of scale and cumulative experience. It is

university licence income as a percentage of total

those UK universities that are now seeking to catch up

research income is not dissimilar from that in the

that are likely to have the greatest potential to improve

USA.

their revenue. However, these tend to be universities with relatively low research income and thus the scope

Similarly, we estimate that UK universities are creating

to add significantly to sector-wide returns may be low.

as many start-up companies per £ million of research income as those in the USA. While the quality of patent applications filed by UK academia is not ideal, 1 Association of University Technology Managers

In Higher Education

38

2. Financial expectations and budget management

2.4

Setting Budgets

Budgets can be set by considering the size and mix of the university’s

It is not feasible to set IP management budgets based

research activities, using comparisons

on a precisely defined relationship between expected

with other universities

returns and expected costs, and hence other approaches must be used. One alternative is to set

The ratio of revenue generated from research

the budget on the basis of the university’s research

commercialisation to research expenditure expresses

profile. This requires an understanding of the

the direct commercial yield. It is important to be clear

propensity of different subject areas to generate IP.

that this is the direct yield to the university, and does

The easiest means of doing this would be if subject-

not include the wider impact of higher education

specific data on IP activity levels and mixes were

research on the economy and society. The desirability

widely available. This would allow each university to

of using moving averages to even out volatility and of

make an informed judgement about the nature and

taking catch up phases into account should also be

extent of the expected deal flow. Unfortunately, such

borne in mind when using this ratio. The only readily

data are not currently available. The collection of

available (partial) data on this ratio relates to overall

standardised data of this type would, therefore, be

research income levels and their relationship to licence

useful in providing benchmarks for budget setting.

and royalty income. They therefore exclude revenue generated from any equity sales, which should, ideally,

2.4.1 Using the commercial revenue yield on research expenditure as a ratio in budget setting

be included. Recent work by the National Health Service provides some useful guidance in this area. Its handbook for

The ratio of IP management

R&D managers suggests that an average technology

expenditure to research income is

licensing yield for medical and health R&D would be

probably the most useful budget

around 2.5 percent of R&D expenditure – explicitly

indicator.

ignoring any ‘lightning strikes’ of unlikely yet very large licence returns.2 This would indicate a steady state ‘break-even’ IP management budget level of 2.5 percent of R&D expenditure.

2 This estimate is based upon evidence from leading UK research universities with medical schools and from an examination of the AUTM data. As an illustration, estimates of the ratio of sponsored research income to royalty income from seven Scottish Universities lie in the region of just over 3 percent.

39

Intellectual Property

2. Financial expectations and budget management

According to the NHS Guide the cost of running a

low return, and loss making, projects. Where large-

technology transfer unit employing two full time staff

scale R&D expenditures are involved then a 2.5

plus clerical support could amount to £150,000 per

percent yield is more plausible and economies of scale

annum including overheads, and an additional

start to become evident.

£100,000 in patenting costs (including patent attorneys’ fees). The implication of using these NHS

The University of Oxford’s budget for handling

estimates is that R&D expenditure of only £10 million

technology transfer includes an operating cost

would be required to justify even a small team (i.e.

contribution from the university of £1 million per annum

£250,000 is 2.5 percent of £10 million). This may be

(doubled from £500,000 in 2000).4 Isis Innovation Ltd,

regarded as a low estimate. In situations in which

the university’s wholly owned technology transfer

higher salaries are paid a unit of two full time

company, handled a deal flow of 415 projects last year

professional staff may require a budget of £350,000,

(see Figure 2.4). The university’s contribution facilitates

implying in turn a threshold R&D expenditure of £14

technology transfer arising from externally funded

3

million, still a relatively low level. These estimates

research grant and contracts worth over £142 million

relate to health and medical research but the life

in 2000/2001. A yield of 2.5 percent would generate

sciences do constitute a major area of technology

just over £3.5 million per annum, representing a

transfer activity in higher education and attract much

significant surplus over costs.

attention because of the rapid rate of scientific advance and the possibility of making major financial

It would be particularly useful for budget-setting

gains.

decisions if future analyses of the yield on R&D expenditure examined how the yield varies with the

In reality however, a team of two professionals may be

scale of R&D expenditure. This would assist those

too small to be effective. In addition, the estimated

universities with lower levels of R&D expenditure to

yield of 2.5 percent of R&D expenditure may be

decide upon how best to collaborate between

misleading for small portfolios since there is less

themselves and to use third parties to help them

chance of a few high return projects balancing many

manage their IP.

3 However, a recent survey of Scottish universities’ commercialisation activities indicated an average annual operating budget of over £500,000 per year and an average full time equivalent staff of slightly less than 12. This apparent discrepancy may be because this covers offices with a wider scope that IP management alone. Source: Scottish Executive, Economics Advice and Statistics Division (2001) ‘Intellectual Property Commercialisation in the Higher Education Sector’. 4 There is also another £4 million in seed funding from a mixture of university, Treasury and Wellcome & Gatsby Trust funding and an Isis College Fund of £10.7 million (£1 million from the university and £9.7 million from the colleges).

In Higher Education

40

2. Financial expectations and budget management

Figure 2.4: Budgets and Activity Levels at the University of Oxford Year ended March

1997

1998

1999

2000

2001

£000

£40

£300

£500

£1,000

£1,000

Staff

3

9

9

17

21

Projects

-

168

243

319

415

Patents filed p.a.

-

31

51

55

63

Licences/options p.a.

4

8

18

21

32

New companies p.a.

1

2

3

6

8

University investment

External research grants and contracts 2000/2001

£m

%

£48m

33.7%

Research Councils

£46.5m

32.6%

Industry

£22.4m

15.7%

UK Public Bodies

£10.2m

7.1%

European Commission

£5.4m

3.8%

Overseas Charities & Public Bodies

£10m

7%

£142.5m

100%

UK Charities

Total

Source: Oxford University Research Services Office and Isis Innovation Ltd

41

Intellectual Property

2. Financial expectations and budget management

The figures discussed in Fig 2.4 only allow for the

Two other factors which could influence budget levels

direct costs of IP management. Universities may also

are discussed in the following sections.

decide to contribute to seed funds. The aim is to increase returns by funding further investment in order to reduce the investment risk faced by potential

2.4.2 Considering anticipated capacity constraints

exploiters of the technology. The probability that a licence will be taken out and will prove to be profitable

Allowing for a degree of flexibility in IP

and/or that a spin-out company will be formed is

management budgets will help to

thereby improved. Obviously, the cost to the university

reduce the risk that the IP office hits

of any such funds needs to be factored into the

capacity constraints which affects the

estimates.

mutual understanding and confidence through which researchers and IP staff

Even taking into account the issue of the scale of R&D

work together to improve technology

expenditure and of the IP management office the

transfer

figure of 2.5 percent of research expenditure is only a very rough estimate of breakeven expenditure on IP

Some of the most successful IP management

management. Higher than average concentrations of

functions have achieved virtuous circles, through

subject areas with high income generating potential

which researchers become more likely to notify and

would justify higher expenditure. Conversely, if a

pursue IP exploitation opportunities, because they

university is prevented from controlling higher than

expect the process to be efficient (in terms of the use

average shares of the IP it generates, perhaps

of their time) and effective in terms of final outcomes.

because of sponsor requirements, then lower than

Capacity constraints will, at least, inhibit such

average expenditure might be appropriate. Optimum

behaviour. As the IP office workload approaches full

ratios of expenditure to research income are also likely

capacity, the time required to process paperwork and

to vary over time for individual universities. US

make decisions will tend to increase. Hitting capacity

experience indicates that the ratio follows a curve of

constraints may also disrupt relationships with external

diminishing returns and, following a period of relatively

business partners and potential new investors. An

rapid growth consequent on developing in-house

example is given in Figure 2.5.

expertise and staff enthusiasms, will flatten out.

In Higher Education

42

2. Financial expectations and budget management

For these reasons, budgets will need to reflect:

than would have been allowed under current IP management practices and guidelines. Not all of

• anticipated capacity constraints in handling an expected increase in the deal flow • economies of scale in IP management.

these could be abandoned, because some had in fact attracted commercial interest. Due to a misunderstanding between patent agents and their international affiliates, projected costs,

Providing for some flexibility in IP management

provided by the patent agents, were consistently

budgets, particularly in the area of the recruitment of

under-estimated. The consequence was over-spend

professional staff, can be important. This type of

on budget.

flexibility can be designed to prevent capacity constraints being reached and would be justified on

The travel budget was insufficient to allow the IP

the basis that it facilitated the operation of the virtuous

portfolio to be marketed effectively, which was an

circle, via which researchers and IP managers work

impediment to generating greater licence revenue to

together in facilitating technology transfer.

offset the increased IP management costs.

Figure 2.5: Example of a hard lesson well learnt

In view of these budget constraints, efforts were made to reduce the size of the portfolio. In 1998/99

A university found that its existing IP budget, which

10 patent cases were removed from the portfolio

had been frozen at £140,000 for four years, was

and in 1999/2000 14 cases were removed. The

starting to constrain technology transfer activity.

patent portfolio was reduced from 100 to 85.

Invention disclosures stood at 56 per annum, with significant increases expected. The strategic plan

The way in which this IP management budget

had set a target of 15 new patent applications per

problem arose led to the IP management office

annum, and the patent portfolio stood at around 100

requesting that, in future: greater clarity exist in

patents (this figure varied throughout the year).

demonstrating how IP management contributes to the university’s strategic objectives; the IP

Although general increases in technology transfer

management budget be set on the basis of these

activity were largely responsible for this budget being

long-term strategic objectives; and that other relevant

insufficient, there were some specific problems:

budgets, e.g. marketing and travel, be addressed as

a historical legacy of cases that had progressed

part of the same discussion.

further through the system (hence generating costs)

43

Intellectual Property

3. Ownership of IP and negotiations with sponsors

3 3.1 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7

Ownership of IP and negotiations with sponsors Ownership and control Negotiating with research sponsors Joint ownership of IP The nature of the research Relative contributions to research costs The demonstrated capacity of the IP management office to maintain an IP portfolio effectively Risks associated with the use of licence-back arrangements Companies’ overall need to minimise their investment risks Sharing returns from exploitation

44 45 49 50 51 53 55 56 57 58

In Higher Education

44

3. Ownership of IP and negotiations with sponsors

3.1

Ownership and control

issues need to be properly managed, in a manner that is advantageous and fair to the institution and the student.

The key consideration in IP agreements is the rights that universities will have to use and exploit

This asymmetry of ownership rights can present

IP. Ownership is not necessary to

problems for IP managers and for academic staff.

guarantee these rights, but may be the

However, policies that seek to address this asymmetry

most effective solution for universities

by assigning ownership of student IP to the university

in practice

may raise matters of legality and equity, which need to be carefully handled.

Almost all universities now claim ownership of IP generated by their staff. There are a few exceptions,

Much university research involves staff and students

but these typically reflect situations where, for historical

(most likely post-graduate students) working within

reasons, there are variations in the terms of

collaborative or supervisory relationships. The

employment and some staff have contracts entitling

fragmentation of ownership generated by the differing

them to retain IP they generate. Ownership and

(default) ownership rights between such staff and

negotiation issues are addressed comprehensively in

students potentially militates against collaboration, and

5

Partnerships for Research and Innovation.

against successful exploitation. In terms of

Universities have no automatic claim to IP generated

collaboration, it is possible that IP in the form of data,

6

by students, unlike that which arises in relation to IP

code, text, or patentable ideas generated, and owned,

created within an employee’s ‘normal duties’. This

by a student could be withheld from a supervisor, or

raises important strategic issues relating to IP

that the academic collaborator could be prohibited

management that are unique to universities. These

from using such IP in future research. Such conflicts

5 Partnerships For Research And Innovation (produced by CBI in association with AURIL, DTI, HEFCE, EPSRC and Universities UK) ISBN: 0 85201 553 6 6 S39 of the 1977 Patent Act, which broadly assigns ownership to employers, does not apply to students who have no employment relation with the University; nor will there be an employment contract that explicitly assigns ownership to the University. Some post-grad students may, however, also be appointed as research staff and this case the University is likely to own IP generated either by virtue of the employment contract or S39.

45

Intellectual Property

3. Ownership of IP and negotiations with sponsors

may be more easily mediated or resolved where the

increasingly to the fore. An important aspect of this

university has equivalent rights over both subsets of IP.

enterprise agenda is the integration of IP tuition and awareness seminars within the student curriculum.

Perhaps more important, the fragmentation of ownership rights is an impediment to effective

Some universities have sought to address these issues

exploitation. Student ownership of IP is particularly

in the registration process. Often this is done by

likely to be perceived as a problem when research

including a blanket assignment of all IP that will be

projects are sponsored by industry. For this reason it is

generated by students during their time at the

common for research and CASE studentships to be

university to the university. If this position, with its

subject to a three-way contract that assigns ownership

evident benefits of clarity and uniformity, is adopted it

to one party (the university or the sponsor).

is important that it is done in an open and transparent manner and that the legality of this contract is

“It could be argued that universities have a responsibility

professionally assessed. Alternatively, assignment

to assist students in exploiting the IP that they generate.

might be sought on a case-by-case basis, where

Viewed from a duty of care, or commercialisation

valuable IP arises, or a hybrid model, adopting different

perspective, students are generally not as well placed,

approaches to different faculties might also be

or resourced, as the university to effectively exploit IP.

considered.

Specifically, individual students rarely have weight equal to that of the university when it comes to commercial

With either approach, but particularly when seeking

negotiations. Consequently, assignment of the IP and its

blanket assignment, it is advisable that the process

management by the university is likely to be in student’s

and rationale are clearly explained. This might be

self interest.”

achieved by including prior notice in student prospectuses with a more detailed explanation in the

Brian McCaul, Research and Business Services,

relevant student registration pack. In addition, a

The University of Liverpool

distinct acknowledgement of the assignments might be considered. The additional overheads of

With growing expectations that universities should

procedures designed to secure broad assignment of

assist in economic development and, in particular, with

IP will, however, need to be fully considered.

the growth of the student enterprise agenda, driven by

Whichever procedure is adopted treating students akin

Science Enterprise Challenge and similar schemes, the

to members of staff in terms of the benefits of

issue of management of student IP is likely to come

supporting patent costs, and in terms of the

In Higher Education

46

3. Ownership of IP and negotiations with sponsors

distribution of royalty income or equity can be powerful

In principle, all these requirements can be

incentives for achieving full consent to assignment of

accommodated within agreements that assign IP to

student generated IP.

the sponsor. Access to results can be accommodated by (free) licensing arrangements. The university can

Another issue relates to IP arising from research

take a share of revenue generated by the IP owners,

sponsored by an external organisation. This does not

and doubts over the sponsor’s ability, or willingness, to

include research funded by the higher education

commercialise results can be addressed by

funding councils and most of the research council

introducing penalty clauses for failure to exploit,

programmes where ownership is generally retained by

including reassignment of IP to the university.

the university. It is not one of ownership per se, but the scope that parties have to use, and manage, the IP.

However, in practice it may be simpler, and more

The key requirements for universities are:

effective, for universities to guarantee these rights through the ownership of IP. Licence-back deals which

• the ability to use results in future research. In

seek to cover a range of possible situations can

cases where sponsors are also collaborators,

become complex. In addition, verifying whether

this may require access to IP which

owners are meeting their obligations to exploit can be

collaborators have brought to projects

costly and, in some cases, virtually impossible. As a result, there are good reasons for universities to seek

• the ability to benefit from the exploitation of the

ownership of IP.

IP, both directly and in combination with other research results

The issues are, however, similar from the sponsor’s perspective, including the relative merits of ownership

• to ensure that results are put to use, whether commercially or otherwise. This may be

considerations may be relatively more important to

important, since commercial behaviour can

business sponsors than to universities, but charities

often involve not exploiting IP or using patents

are major sponsors of university research and their aim

to block other firms’ technological activity and

will be to see research applied, and used in future

to force competitors to work around protected

research, as well as to generate income.

technological solutions.

47

versus access via licensing. Narrow commercial

Intellectual Property

3. Ownership of IP and negotiations with sponsors

IP agreements reflect the outcome of negotiations,

and industry, has recently changed its policies to

which in turn reflect the inputs of the parties and the

bring the treatment of the two groups into line. MOD

benefits they expect to derive from various outcomes.

will henceforth only seek ownership of IP resulting

Ownership of IP by the university is one outcome that

from the contract research in limited circumstances,

universities can seek to negotiate in certain

typically the following:

circumstances. In the next section, the factors that need to be taken into consideration during negotiations are discussed.

• where the results have a particular military sensitivity – e.g. in relation to nuclear, chemical or biological weapons

The position of government sponsors with respect to the ownership of IP is changing. Recent guidelines7

• where the results will be commercialised in the

produced by the Patent Office start from the position

aggregate with other IP owned by MOD, which

that IP generated in publicly funded research should in

may be MOD-generated IP or IP generated by

general be vested in the organisations that do the

other contractors

research. The rationale is that the research provider is better placed to identify some form of economic

• where the work provides direct assistance in the

exploitation than the government sponsor. One

formulation of government policy or in the

important caveat, however, is that those owning the IP

management of MOD’s business

must have access to the skills and management capability needed to handle the task effectively. These Guidelines are reflected in the Ministry of Defence’s

• where the research provider is unwilling or unable to protect and exploit the results satisfactorily.

position on ownership (Figure 3.1). In general, MOD will allow the research provider to Figure 3.1: The Ministry of Defence’s new

own the IP resulting from its work for MOD, subject

approach to IP ownership

to the grant of a free non-exclusive licence to MOD for MOD’s normal UK Government requirements. The

The Ministry of Defence (MOD), which funds a

research provider will be responsible for making

significant volume of contract research in universities

decisions about the protection of IP, for securing

7 Intellectual Property In Government Research Contracts, Guidelines for Public Sector Purchasers of Research and Research Providers – The Patent Office December 2001. Available from: http://www.patent.gov.uk/about/notices/index.htm

In Higher Education

48

3. Ownership of IP and negotiations with sponsors

such protection for itself, and for the cost of securing

• industry would prefer to see universities seeking to

and maintaining this protection. MOD will have rights

understand their needs and then discussing and

to oversee the progress of commercial exploitation by

offering research and other outcomes directed at

requiring the research provider to provide an

meeting these needs

exploitation plan and to engage in discussions with MOD on the matter, but MOD will not take a reversionary right.

• if the university makes the first approach, it should ensure that it packages its assets in the form of possible solutions to problems, which that

The MOD’s new policy suggests that a strictly non-

particular company needs to solve, or in terms of

negotiable attitude to ownership of IP or a narrow

deliverables, which are relevant to that company’s

approach to the granting of licence rights to the

business.

research customer could restrict the ability of a university to attract contract research work.

Correspondingly, industry should understand that:

3.2

• universities do not have identical mission

Negotiating with research sponsors

statements and they differentiate themselves by cultivating different strengths and through

It is necessary for research partners to recognize the

pursuing different priorities

divergence of views that can occur between universities and sponsors. The key issues that need to

• the focus of some university departments may be

be considered when identifying potential partners are

international, while the focus of others may be

highlighted in Fig 3.2.

national or regional

Figure 3.2: Identifying potential partners

• research has a cost and universities are not funded to provide research services for industry

Universities must recognise that: • industry often needs help in finding relevant services or solutions to their problems • in many cases companies may be unaware of their problems

49

Intellectual Property

from the public purse • a university’s most significant contribution may be in the medium to longer term.

3. Ownership of IP and negotiations with sponsors

The sub-sections below discuss key aspects to

• joint ownership involving organisations from

consider in IP negotiations. However, there is a more

the commercial and charitable sectors (which

general point. Most universities will seek to negotiate

includes universities) can give asymmetric

ownership, and other aspects of the IP agreements,

advantages to commercial organisations. Any

on a case-by-case basis, but the outcomes may

partner seeking to issue a licence must obtain

come to be interpreted by sponsors as university

formal permission from the other partners.

policy. This implies that the reasons why certain

However, the commercial partners could, in

positions have been taken need to be articulated, but

principle, exploit the technology themselves,

also that the university needs to monitor how it is

whereas the charitable organisations cannot

perceived by sponsors. Issues to consider when

trade on the same commercial basis.

negotiating over the ownership of IP are discussed

Contractual provisions that limit the asymmetry

below.

of advantages can be determined but at the expense of greater complexity

3.2.1 Joint ownership of IP • each country has different laws governing There can be problems associated with

what each joint owner of IP can do. In some

the joint-ownership of IP, and normally

countries, either owner can act without the

it is best avoided as a solution unless

other knowing, whereas in other countries,

carefully thought out protocols and

they can only act together. Joint owners could,

exploitation rights are defined

in principle, end up destroying the commercial value of the IP because of ill thought out

One potential solution to the question of who should

actions. As a result, joint ownership is

own the IP arising from externally funded research is

particularly problematic when international

for joint ownership to be agreed. However this solution

exploitation is anticipated.

8

is rarely advocated because : Joint ownership should not, however, be dismissed • potential licencees of a technology will prefer to

out of hand. Provided that carefully thought out

avoid dealing with more than one owner, as this

protocols and exploitation rights can be defined for

complicates the negotiation process and can

dealing with any asymmetry of advantages, this

embroil them in disputes between joint owners

approach may be feasible. The NHS is currently

8 Parts of the guidance that follows on joint ownership are based upon that provided in the handbook on IP management produced by the NHS Trusts.

In Higher Education

50

3. Ownership of IP and negotiations with sponsors

examining possible approaches to joint ownership

Figure 3.3: IP ownership and CASE studentships

arrangements as a means of dealing with the HE/NHS

– a view from a Research and Technology

interface.

Organisation (RTO)

3.2.2 The nature of the research

“Industry sometimes sponsors post-graduate students via CASE studentships and other such

Sponsors’ attitudes will depend, to

arrangements. Although additional funding comes

some extent, on whether their aim is to

from other, usually public, bodies such as the

integrate results into their core

Engineering and Physical Sciences Research

technologies

Council (EPSRC), it is left to the university and the industrial company to agree the terms and

The extent to which the advance in knowledge aimed

conditions of the sponsorship, including IP matters.

at is ‘stand-alone’ or depends, for its usefulness, on

In the past, it was usually agreed that all IP arising

strong synergies with other research projects (which

would be assigned to the company. Recently,

may be being carried out in different universities and/or

universities have been insisting that they retain IP. It

disciplines) will also shape the attitudes of sponsors. If,

is interesting to consider the effect of such changes

for example, the sponsoring company is seeking

from both parties’ viewpoints.

incremental advances that it will integrate with other knowledge and IP in order to deliver a useful

Industrially sponsored studentships are useful to the

technological package, the expected value of each

university for a number of reasons. The research

individual project to the sponsor may be comparatively

work involved will be more relevant to industry

low. Figure 3.3 provides and illustration taken from a

needs, contact with the company’s staff will improve

9

CASE studentship .

the university’s understanding of industrial trends and practices, additional money will be available for both the department and the student and, finally, the

9 Cooperative Awards in Science and Engineering, PhD studentships jointly funded by industry and the research councils.

51

Intellectual Property

3. Ownership of IP and negotiations with sponsors

student has an improved chance of employment in

obtain the best possible research inputs for its future

industry upon completion. Ownership of the IP

developments. The student will have least to lose,

arising will allow the university to continue working in

but will be slightly less valuable to the company than

the field, and may assist in teaching the subject.

if they had been able to work on more interesting topics.

The usefulness to industry comes from more focused research, access to expert academic staff

A possible route out of this impasse is for the

and an opportunity to see how the student performs

studentship agreement to recognise the needs of

before considering employment offers. To get the

each party; to allow for assignment of the IP when it

most benefit from the arrangement, industry will

is necessary for the core activities of the company,

choose research topics close to their needs.

and to guarantee the appropriate licences to the

However, within the normal duration of a

university so that the freedom to carry out future

postgraduate studentship, incremental advances in

research and teaching is protected.”

the current research activities of the company are probably the best that can be achieved. If the

Anonymous

university insists on ownership of arising IP, this gives the company great difficulty. For research to

Figure 3.4 illustrates how one company’s position

be valuable to the company, they must be able to

varies according to the nature of the research

use it for their needs. If ownership is fragmented,

sponsored, and also the direct costs of IP

the IP is reduced in value, and control of future

management.

activities is weakened. Figure 3.4: A transaction cost based approach to In such situations, industry will evaluate the

negotiations over IP ownership – Microsoft

advantages and disadvantages of any deal and may

Research Ltd

simply conclude that it is not worth the risk to support studentships in topics close to the core

Doctoral Research

activities and interests of the company. It will choose

Microsoft Research Ltd funds doctoral students to

peripheral topics and both parties will lose out. The

carry out work that is intended to enter the public

university will be kept at arm’s length from the real

domain at the earliest opportunity. The company

interests of the company and the company will not

does not seek to own any IP generated by this

In Higher Education

52

3. Ownership of IP and negotiations with sponsors

research because (a) valuable IP from a PhD project

Approach when a University seeks to secure

is unusual, and (b) the time and effort (i.e. transaction

rights over IP

costs) involved in project-by-project negotiations with different universities in several countries would make

A university is free to seek to obtain patents for IP

such funding un-economic.

arising from the research funded by the company – but only at their own trouble and expense. If a patent

Microsoft Research Ltd is happy to fund doctoral

is taken out, the company insists on having a non-

research, provided that it is able to draw upon the

exclusive, world-wide, and royalty free assignable

research results without making an additional

and sub-licensable licence.

payment to exploit the IP. Note: this approach to negotiating over the ownership of

Other Research

IP is specific to Microsoft Research Ltd based in

As regards other research, the company draws a

Cambridge (UK) – it does not necessarily apply to other

distinction between specific work that it wants done–

parts of Microsoft Research.

in which case it does seek to own the IP - and more general work, in which no commercial advantage is anticipated. In the latter case, the same approach is

3.2.3 Relative contributions to research costs

taken as in funding for doctoral research. Negotiation over ownership of IP will, in Weighing up transaction costs relative to

part, be influenced by the price that

expected benefits

sponsors pay and the extent to which

By offering a deal for smaller amounts of funding that

this may meet or exceed the full

is attractive, while being non-negotiable, the

research costs. Also the intellectual

company seeks to minimise its transaction costs in

assets brought to the project and also

funding research. This allows it to fund a wider

other benefits derived by the sponsor,

portfolio of relatively small projects than would be the

such as access to international

case if the transaction costs were higher. For larger

research networks may have an

projects, the expected benefits are sufficiently great

important bearing on ownership.

that the higher transaction costs associated with negotiations over IP are worth bearing.

53

Intellectual Property

3. Ownership of IP and negotiations with sponsors

The value of benefits in kind provided

facilitated by the Internet, is precisely why some high-

by both parties will need to be

technology companies seek to fund academic

considered in this context

research. It provides them with access to a wide body of expertise which can be particularly valuable when

Because there are risks involved for those contributing

responding to unforeseen events and in alerting them

to research, development and market introduction

to breakthrough discoveries and to competitors’

costs, the relative contributions and expected

research strategies

contributions to these costs are critical considerations. With respect to research, the main issue relates to

There is consequently a far wider, and often more

contributions to the full costs of research – both direct

valuable, intellectual asset base than is captured solely

and indirect. A basic principle is widely accepted,

by the background and foreground IP involved in

namely that the research sponsor’s capacity to

negotiations. It is unlikely that any cost recovery formula

negotiate over the ownership of IP is proportional to

will fully account for the value of this underlying

their share in the full cost of the research (including

intellectual asset base. Consequently, the payment of a

overheads). The more payments by the sponsor

‘full’ research costs is not in itself sufficient justification

exceed full costs the less likely that universities will be

for a sponsor owning all the IP (Figure 3.5).

able to retain ownership. Figure 3.5: An industry view on the influence that Care should be taken in applying this principle. First, it

the type of research has on the ownership of IP

is necessary to ensure that the full direct and indirect costs of research have been calculated accurately by 10

“In negotiating the ownership of IP arising from

the university. Second, university research groups

sponsored research it is essential to distinguish

have intellectual assets arising from previous investment

between ‘contract’ and ‘new knowledge generating’

and by virtue of membership of networks of wider

research. Contract research is, in this context, the

research relationships, often involving many different

situation in which an industrial party contracts an

sources of funding. Indeed, the role of researchers

academic to produce a set of results requiring no or

within international research networks, a role greatly

little new intellectual input, even though special

10 UK universities have recently done much work on introducing rigorous systems of costing for the Transparency Review (www.jcpsg.ac.gov.uk/transpor).

In Higher Education

54

3. Ownership of IP and negotiations with sponsors

expertise may indeed be needed, e.g. doing a survey

take into account the ownership and exploitation rights

or running some samples (provided by the sponsor)

in any wider IP portfolio that the particular IP generated

through a technical screen. In this case the results

depends upon for effective exploitation. As a result,

(data) should, in effect, be purchased (and owned) by

complex trade-offs may have to be made in the

the contractor (sponsor) by paying on a ‘costs plus’

negotiation.

basis, i.e. fully overheaded costs of doing the work plus a margin on top, negotiable depending on how uniquely placed (or not) the academic is to provide the work. For some academic institutions, conducting contract research may be outside their remit or

3.2.4 The demonstrated capacity of the IP management office to maintain an IP portfolio effectively

constitution. Universities will be in a stronger In contrast, ‘new knowledge generating’ research is

position if they can demonstrate the

where the academic will be using their special

capacity of the IP management office to

expertise and intellect to do true exploratory research

maintain an IP portfolio effectively

(whether basic or applied) to uncover new useful knowledge and provide solutions to problems (make

The primary reason cited in the business sector for

inventions) etc. In this situation merely covering the

seeking ownership of IP arising from industrially funded

costs of the research doesn’t buy the Intellectual

research is the risk that the university will not have the

Property assets created by it.”

capability to manage the IP effectively and, as a result, will damage the company’s competitiveness. One

Dr Jan Chojeck, Managing Director, Plant Bioscience

example of a failure to manage IP effectively is missing

Limited

the strict deadline for a patent renewal due to administrative inefficiency.

The value of benefits in kind brought to the research

55

both by the university or universities and the sponsoring

The strength of this argument is inversely proportional to

company or companies will also need to be considered

the demonstrated credibility of a university’s IP

in the negotiation. In addition, it may be necessary to

management office in managing IP effectively. As

Intellectual Property

3. Ownership of IP and negotiations with sponsors

cumulative experience increases from the successful handling of a growing deal flow, external confidence in

3.2.5 Risks associated with the use of licence-back arrangements

the capacity of the university also increases. The investment risk associated with not owning IP therefore

Special attention should be paid to risks

declines.

that future university research carried out under licence-back arrangements

In conducting negotiations over the ownership of IP, it

could be constrained

will therefore be helpful if universities can demonstrate

The potential loss to a university

that they do have a good track record in maintaining an

through assigning ownership of IP, given

IP portfolio, by highlighting the absence of problems and

the potential for ‘bundling’ IP arising

inefficiencies. The monitoring and evaluation framework

from several different research projects,

can play an important key role in these negotiations and

should also be considered

it should therefore be designed with this use in mind. When a sponsor seeks to own the IP arising from the If a university has traditionally assigned ownership of IP

research, the university should seek a licence-back

to research sponsors (where this is insisted upon), it will

arrangement in order to guarantee unconstrained future

be more difficult to demonstrate the required track

research. This can be a practicable approach as long as

record in maintaining an IP portfolio. This will tend to

any contractual problems that may emerge have been

reinforce the assignment of IP to business and

anticipated and addressed (an area requiring specialist

charitable sponsors, unless new arrangements to work

legal advice). One key consideration in such

with third parties and/or collaborate with more

negotiations is the implications for the university’s ability

experienced IP management offices are put in place.

to bundle together IP arising from several different

Such arrangements can provide tactical advantages in

research projects funded from different sources. It is

IP negotiations, by removing a major stumbling-block to

easiest to produce an IP bundle if the IP is owned by

the university maintaining ownership.

the university and the costs to be incurred will tend to be lower. Complications can emerge when seeking to create a comparable assembly of IP based on licences

In Higher Education

56

3. Ownership of IP and negotiations with sponsors

from different types of research funder. This is one main

complete a sub-licence may be longer than that

reason why leading US universities seek to maintain

required to assign/sell the IP. But, the company is still in

ownership of IP.

possession of tradable IP, albeit of a lower value than if it owned IP. (Figure 3.6)

3.2.6 Companies’ overall need to minimise their investment risks

Figure 3.6: An industry view on investment risk minimisation and the ownership of IP

Companies need to minimise their own investment risks. This can be

“It is understandable that start-ups (and their

accommodated even if the university

investors) like to own title (although in some cases

owns the IP

exclusive licences should be sufficient). However, this point only relates to IP that exists at foundation of the company. As regards IP generated by sponsored

One argument put forward in favour of companies

research, start-ups are in the same situation as other

owning IP is that they will usually have to commit

companies. Exploitation rights are more important

substantial risk capital in the commercialisation process.

than ownership. As a licensor (e.g. university)

Anticipated exit points in the investment process allow

providing technology to a start-up, you are taking a

external investors to calculate levels of commercial risk.

risk as well as others investing their personal time or

Possible investment exit points are very valuable in

their money under management. The risk is that the

reducing the investor’s perceptions of the investment

technology gets locked into a company that fails early

risks involved (thus increasing the probability of

on, maybe for reasons unrelated to the technology.

investment).

Licensing in the initial stages, with the possibility to assign later, at least gives some protection.”

Particularly in a start-up or spin-out company, possession of tradable IP enhances these exit points

Dr Jan Chojeck, Managing Director, Plant Bioscience

and can lower the risk and size of the losses faced. The

Limited

lower the tradability of the IP portfolio, the less attractive

57

the investment, and tradability is highest when IP is

It is sensible to be sensitive to this issue when

owned. However, the company can be granted a right

conducting negotiations over the ownership of IP.

to sub-licence. Transaction costs may be higher than if

However, even if the university retains ownership of the

IP is owned by the company, and the time required to

IP, ways can be found to provide appropriate sub-

Intellectual Property

3. Ownership of IP and negotiations with sponsors

licensing contingencies that will help to make the

Figure 3.7: Negotiating with research sponsors

company’s licences more liquid and consequently help

over revenue shares – experience at the

to reduce their investment risk.

University of Nottingham

3.2.7 Sharing returns from exploitation

Negotiating with research sponsors over shares of potential revenues can be difficult unless there is a shared understanding of the costs and risks

Agreement will normally need to be reached over the

associated with seeking to generate these returns –

share of revenue due to one partner from the

and who is taking these investment risks.

exploitation activities of another. Revenue shares should reflect the inputs of the parties to research (both

“We actively negotiate what the funders’ share of

intellectual and financial) and existing IP which they bring

revenue should be, taking into account (a) who takes

to the research (background). However, significant

the commercial risk on patent costs and (b) who

costs, and risks can be incurred during exploitation, and

takes the lead on commercialisation. Some charities

revenue shares need also to reflect how these are

who have asked for a 50 percent share of income

shared between partners. Figure 3.7 illustrates the

have accepted our arguments that this is inequitable

position, and experience, of one university in this

where we bear sole financial risk on patent costs and

respect.

undertake the commercialisation effort, and have reduced their share to 30-35 percent. Where others have refused to do so, we have made it clear that our reduced share of revenue will be a factor to be considered in our decision whether or not to commercialise, and that consequently we may choose not to commercialise a project that we would otherwise have taken forward.”

In Higher Education

58

59

Intellectual Property

4. Incentives

4 4.1 4.2 4.3

Incentives To whom should incentives apply? How should incentives be applied? Relationship to other university policies

60 61 65 69

In Higher Education

60

4. Incentives

Knowledge transfer is, increasingly, a mainstream activity for academic staff, but most universities

4.1

To whom should incentives apply?

consider it necessary to provide incentives for academic staff in order to encourage their involvement

Incentives can have an important role

in IP exploitation. This is for several reasons:

in encouraging staff to engage in exploiting IP

• many staff consider teaching, research and administration to be their core duties.

In principle all those directly involved

Commercialisation in general, and the exploitation

in generating IP should benefit, and

of IP in particular, make additional demands on

dealing with students at least as

them. This is obviously the case with spin-out

generously as staff can encourage

companies, but also applies to other means of

them to use university IP management

exploiting IP. Inventors need to have at least some

resources. There are also arguments

involvement in securing patent protection, and

for rewarding non-academic staff,

interaction with licencees will often be required

when their inputs are above and beyond their normal responsibilities

• there are various incentives for staff to engage in other kinds of knowledge transfer activities and in

Allocating a share of returns to the

the case of consultancies, these often include

department/unit compensates other

individual financial benefits. Unless a decision has

staff for the indirect contributions they

been taken to favour other forms of knowledge

make to generating IP

transfer over IP exploitation, incentives need to be balanced across different activities

Incentives clearly need to apply to those primarily responsible for generating IP, that is the inventors, but

• to ensure an equitable distribution from any returns arising from the commercialisation of IP

this raises two further issues. First, how are the inventors defined and identified? Disputes over inventorship or authorship can arise in universities and

61

The rest of this section discusses key aspects of

it is important to clarify the position as soon as

incentives policy: to whom should incentives apply?

possible. Disclosure record forms and databases are

how should they be applied? how should incentives

helpful in this respect. It is also critical that no mistake

relate to other university policies?

is made in terms of inventorship when filing for a US

Intellectual Property

4. Incentives

patent. Patent agents may assist in the resolution of

inventor status; otherwise further disputes could arise.

disputes and, as a last resort, the university may need

As discussed below, some universities achieve this by

to provide contingency funds in case claims are made

allocating a share of exploitation revenue to the

in the future.

department in question.

The second issue relates to student involvement. As

The issues are less clear-cut in relation to non-

was discussed in section 3.1 universities cannot

academic staff within a department. Technicians can

automatically claim ownership of student generated IP.

make a very real contribution to IP, both in terms of

However, because of the IP management resources

prototype development but also in the know-how and

available to universities, there are arguments for

ideas they can bring to commercially relevant research.

universities encouraging students to exploit their IP

However, their input may not be part of their normal

through the university. This suggests that students

duties and, as such, there is less of an argument for

should be treated at least as generously as academic

ownership of IP. Incentives to encourage them to allow

staff in so far as incentives are concerned in order to

the university to manage the IP they generate may be

encourage them to use the IP office

important. When technicians are also inventors, there

The purpose of inventor incentives is to promote

is an argument for reward structures similar to those

directly the generation and exploitation of IP, but there

that exist for academic staff. The incentive structure

are important issues relating to other staff in the

needs to recognise and distinguish between these two

department or unit. Other academic staff may make

kinds of contribution.

indirect contributions to IP generation. They may, for example, have assumed higher teaching or

The third group of staff involved in the exploitation of IP

management loads thereby freeing up the time of

are the IP managers, and there is an important

those directly involved in the invention and, more

decision as to whether incentives should be applied to

generally, they are part of the academic community

them, and if so what kinds. The principal argument for

from which the invention has arisen. These factors,

incentives is quite different from that which applies to

and also considerations of equity, suggest that other

academic and other staff. The skills and experience

academic staff should benefit from the exploitation of

required for effective management are in high demand

IP generated by colleagues. It needs to be clear,

in the private sector and universities can face

however, that if a reward is made to participants (who

difficulties with recruitment and retention. Incentives

are non-inventors) then this does not accord joint

can improve the attractiveness of the financial package

In Higher Education

62

4. Incentives

that universities are able to offer in return for successful

Some, but not all, of these potential drawbacks can be

performance. It should, however, be noted that while

avoided, if the incentive scheme relates to the IP

IP management skills are undoubtedly in short supply,

portfolio as a whole rather than individual cases.

universities do have considerable latitude in the

Nevertheless such an approach could cause tension

salaries they can pay senior managers.

with other university staff.

There may also be drawbacks in providing incentives

Some universities are considering whether incentives

to management staff based on individual deals:

might be appropriate for IP managers although, to date as far as we are aware, none have introduced

• high financial returns to IP management typically

such systems so far. As such, it is not possible to

arise from a few very successful cases within a

draw on actual experience for the purposes of the

large portfolio. If a university is not generating

Guide. However, institutions seeking to move to such

sufficient volume, it is unrealistic to expect high

a system will need to consider:

returns and therefore difficult to devise operational incentive schemes

• their willingness and ability to pay competitive salaries for IP managers

• there will always be an element of luck about which cases are assigned to a particular officer,

• whether the deal flow is likely to be such that any

and actual returns (on an individual manager basis)

scheme would provide real and attainable

could reflect case assignments rather than

incentives

performance • how the activities of IP managers can be • incentive structures may create a bias towards staff

monitored in order to ensure that the incentive

favouring deals that provide early, but lower,

structure is helping contribute to meeting strategic

financial returns

aims, rather than distorting management of the portfolio.

• IP managers may devote excessive effort to a few

63

cases which they judge to have the best financial

Finally, universities need to consider whether there are

potential, and to making deals, rather than

other mechanisms that may be deployed to offer the

encouraging staff to generate IP. Prioritisation is

generality of university staff greater opportunity to

important, but the IP office also needs to provide a

share in the gains arising from the inventiveness of the

service function to academic staff.

university research community as a whole, at least for

Intellectual Property

4. Incentives

universities where there is a substantial IP-based

thereby becoming involved at a much earlier stage

portfolio of investments. A current case in point is the

than would usually be possible for small individual

situation at Imperial College (Figure 4.1), where

investors.

thought is being given to the design of a preferential vehicle through which College employees can buy

This initial idea was developed further by Company

shares, at an early stage, in the portfolio of spin-out

Guides, which researched attitudes in some 44 HEIs

companies coming out of Imperial.

during the summer of 2001 to assess what interest individuals might have in putting money into such an

Figure 4.1: Incentives and Imperial College

investment vehicle. Potential interest was indicated by some 62% of academic staff, 47% of support

There is an emerging consensus across the range of

staff and 60% of alumni. The scale of interest they

universities as to how rewards should be

evinced was, respectively, £2,300, £2,000 and

apportioned between inventors, their departments

£9,200. Two thirds took the view that the possibility

and the university. By contrast the question of how

of some form of tax break, along the lines of those

to allow other university staff members to share in

available to other investors in start-up companies,

the profits created through spin-out companies has

would be important in determining whether to

proved a very complex issue. Imperial College (IC)

participate.

has been keen to find a way of widening access to the potential benefits from successful

The obvious vehicle, a Venture Capital Trust (VCT),

commercialisation across its staff members, but in a

could not be adopted unmodified as it has to be

way that avoids potential conflicts of interest.

quoted and therefore open to the public. Furthermore, most venture capital backed university

IC asked Company Guides, a company that

spin-outs are structured in ways that cut across a

supports commercialisation by universities, to look at

number of current VCT rules. Company Guides has

possible approaches to widening access to the

put a proposal for a revised VCT scheme to the

gains from spin-outs. Company Guides proposed a

Government. There may, however, be other options

collective investment scheme restricted to IC staff,

for achieving the goal.

students and alumni. This fund would make early stage investments in a range of IC spin-outs, participating alongside venture capital investors,

In Higher Education

64

4. Incentives

4.2

How should incentives be applied?

• explicit consideration of IP generation and

Incentive structures need not be

• providing time to engage in IP-related activities.

exploitation as criterion for promotion

restricted to financial benefits. Support

This assumes particular importance in relation to

for academic staff engaged in IP

spin-outs, where staff may be granted leave of

commercialisation, and consideration

absence, but there may also be scope to relieve

of IP-related activities as a criterion for

staff of other duties in order to enable them to

promotion, can also be important

concentrate on exploitation through patenting and licensing.

Formula-based schemes for sharing revenue between the university and

Financial incentives need, as a minimum, to meet a

inventors are well established and

number of requirements. They should:

effective • encompass the various groups mentioned in the Equity stakes may not be the best way

previous section

of compensating departments for the temporary loss of staff to spin-outs,

• be transparent and widely understood

and more direct and immediate financial compensation should also be

• be fair and treat all inventors in a similar fashion

considered • reflect the returns generated This section is primarily concerned with financial incentives, but it should be emphasised that other incentives are possible and, indeed, used with effect

• be large and immediate enough to influence behaviour.

by some universities. The majority of academics did

65

not choose their careers solely on the basis of financial

Most universities have adopted a formula-based

rewards, and thus financial incentives are unlikely to be

approach to the allocation of returns from licensing

the complete answer. There are two main

and sale of IP and some examples are given in Figure

supplements to financial incentives:

4.2. Most embody a number of common themes:

Intellectual Property

4. Incentives

• there is a three-way split between the university,

• the share allocated to the inventor falls, and that

the department and the individual inventor(s),

retained by the university increases, as net returns

enabling all the groups mentioned above to benefit

increase. Individuals can be rewarded with substantial sums relative to their normal salaries,

• rewards are almost always net of the costs of

but if very large sums are generated the university

patenting, enabling the university to recoup some

can retain the majority

of its outlay. In some cases, the cost of IP managers’ time is also deducted

• reward schemes do not specify how the inventor’s portion will be shared when there is more than one inventor. It will not be possible to specify this in the abstract, and in practice these shares are at the discretion of the inventors.

Figure 4.2: Examples of incentive schemes University of Bristol Net revenue

Inventor(s)

Departments(s)

University

£0 gross - £15,000

70%

15%

15%

£15,000 net – £75,000 net

50%

25%

25%

1/3

1/3

1/3

Greater than £75,000 net

Note: 100% of the first £4,000 gross of costs goes to the individual as an advance allocation of the first £15,000 net (above). The university then recovers all its outgoings to produce a net revenue that is distributed as above.

Aberdeen and Queen’s University of Belfast Net revenue

Inventor(s)

Departments(s)

University

331/3 %

331/3 %

331/3 %

Inventor(s)

Department(s)

University

Up to £50,000

90%

0%

10%

£50,000 - £500,000

45%

25%

30%

22.5%

37.5%

40%

No limit Oxford (if Isis Innovation Ltd is not used) Net Revenue

Over £500,000

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66

4. Incentives

Imperial College Net Revenue

Inventor(s)

Department

Centre

First £50,000

75%

12.5%

12.5%

Next £200,000

50%

25%

25%

Over £250,000

25%

37.5%

37.5%

Net revenue

Inventor(s)

Department

University

First £20,000

90%

5%

5%

Next £40,000

79%

15%

15%

Next £40,000

50%

25%

25%

33.3%

33.3%

33.3%

University of Cambridge

Above £100,000 Oxford (if Isis Innovation Ltd is used) Total net revenue

Inventor(s)

General Fund

Department

Isis

63%

7%

0%

30%

£72,000 to £720,000

31.5%

21%

17.5%

30%

Over £720,000

15.75%

28%

26.25%

30%

Up to £72,000

67

Formula-based approaches are, in general, an effective

One difficulty with these incentive schemes is that, given

way of providing incentives. Each university needs to

the time lags between invention and commercialisation,

decide what constitutes a fair return to the individual

rewards to inventors can accrue some time after the

and the institution, but it is probably true that variations

academic input and this may lessen the effectiveness of

in the share allocated to individuals will have

incentives. Universities could make projections of likely

comparatively little effect on perceived incentives and

returns and make payments in advance, but, given the

behaviour. Significant differences between universities,

high levels of uncertainty involved, this would be a high

however, may be problematic if researchers from

risk strategy and there is, in practice, little universities

different institutions are collaborating on a project that

can do to synchronise returns and inputs. However, it is

generates substantial commercial returns.

interesting to note that the Medical Research Council’s

Intellectual Property

4. Incentives

incentive formula is based on gross rather than net 11

also directors with legal responsibilities for the

returns . The rationale is that since patenting costs are

company’s commercial health. Arrangements for the

all incurred up-front any rewards based on net returns

use of university facilities by the company, and contracts

will inevitably take longer to realise. Universities may

with staff and research students, also need to be

wish to consider such a scheme. The share going to

monitored carefully.

individuals could be reduced, to reflect calculations based on gross rather than net returns. But the

Universities may also grant inventors leave of absence

university would be assuming a higher level of risk,

during the early stages of company development, and

which it might find unattractive.

this provides a further incentive to engage in spin-out related activities. However, it also raises further issues.

Spin-out companies typically require higher levels of

The department in which the inventors are based will

commitment from inventors, at least in the early stages.

bear the main costs of temporary staff losses. This

In addition, there are higher levels of uncertainty over

suggests that the department should also benefit from

returns, but also the prospect of higher returns than

any returns, otherwise there is little incentive for heads

might accrue to licensing, since the spin-out will take

to encourage staff to generate spin-off companies and

research outputs closer to market, thereby reducing the

provide the initial time and resources required. One

risk attached to its exploitation. For these reasons,

possibility is to allocate a share of the equity to the

giving inventors a share of the equity in a spin-out can

department, in an analogous fashion to departmental

be a more appropriate way of providing incentives than

shares of licensing income. However, this may not meet

a simple share of returns. Inventors have a direct, and

departmental needs adequately, since the timescales to

continuing, interest in the company’s success, and

realising cash returns can be very long, and high levels

financial risk to the university is minimised.

of uncertainty will be attached to expected returns. A more effective incentive, for departments, is likely to be

Greater care to avoid conflicts of interest may be

additional resources, which they can use to replace staff

necessary, however, when researchers hold equity in

time. This would mean, however, that the university is

spin-outs. Should the company encounter commercial

absorbing more risk than if the department took an

difficulties staff may be under more pressure to divert

equity stake.

from academic to company duties, especially if they are 11 As applied to researchers in Medical Research Council institutes. University grant holders are, of course, subject to university rules.

In Higher Education

68

4. Incentives

The discussion above has, with the exception of

scheme. Nevertheless, it is important that all staff are

patenting costs, been in terms of sharing returns to IP

aware of the efforts the university is devoting to IP

exploitation. Costs are also incurred, both for IP

management, and the associated costs, if only to

management staff and patenting activities etc, but also

promote realistic views on the financial costs and

because university resources may be used to develop

returns from IP exploitation.

ideas to the stage where commercialisation becomes feasible. This raises an important issue as to whether costs incurred should be reflected in incentive schemes.

4.3 Relationship to other university policies

The potential advantage of such an approach is that incentives would be more closely aligned with net

This section concludes with two brief comments which

returns to the university in order to offset the investment

reiterate points already made in the Guide. First,

risks it is taking. However, there would also be a

universities transfer knowledge in many different ways,

number of difficulties:

including contract research, consultancy and professional development. The incentives available to

• individual incentives would be reduced, especially if

promote the commercialisation of IP need be consistent

rewards were only paid after all university costs had

with the university’s strategy in relation to these other

been met. If the priority is to transfer knowledge to

knowledge transfer mechanisms.

users, rather than to maximise financial returns, then this becomes a serious consideration

The second point is more general. All disciplines have the potential to generate financial returns through the

• attributing costs to specific deals could discourage

exploitation of IP, but the opportunities are far greater in

academic staff from making full use of IP

some disciplines than in others. If opportunities are to

management resources

be fully exploited, then rewards need to reflect abilities to generate revenue, but if universities are more than a

• collecting cost data could itself add to exploitation costs.

collection of separate disciplines then those departments with lower potential also need to benefit from the revenue generating potential of others. As

69

For these reasons, it is doubtful whether incentive

such, the balance between the university’s share of

schemes explicitly reflected costs would be appropriate

returns and those of the inventor and department needs

or effective and, the consultation process did not reveal

to be considered in the context of more general policies

evidence of any university having adopted such a

of distributing income within the institution.

Intellectual Property

5. IP management functions

5 5.1 5.2 5.3 5.4 5.5 5.5.1 5.5.2 5.5.3 5.5.4

IP management functions The responsibilities of the IP management office The IP office: location and structure The relationship between the IP office and other departments and research groups Should notification of inventions be compulsory? Some complexities in IP management Practical considerations if IP ownership is sought Dealing with problems in valuing IP by selling options on licenses Exploiting the advantages of investment exit routes in IP management Business processes and databases

70 71 73 76 76 77 77 78 81 81

In Higher Education

70

5. IP management functions

This chapter is concerned with the actual performance

• notification of IP actually takes place, whether by

of IP management functions. At various points it

requirement or by self-determination, with the

touches on operational issues, but only in so far as

encouragement of the IP management office

they are issues which senior managers need to consider in designing strategy and policies.

• IP is evaluated effectively with regard to its commercial and public interest potential

5.1

The responsibilities of the IP management office

• the process of securing initial UK property rights over IP is initiated in a timely and efficient manner

The IP management office has a core set of responsibilities12 concerned with managing the

• IP is marketed effectively

identification and evaluation of IP and ensuring its effective exploitation, where this is seen to be worthwhile. These include ensuring that:

• the process of securing international property rights is carried out efficiently and effectively with due regard to a balanced assessment of the costs and

• research contracts are vetted for IP clauses, in order to ensure that they comply with the

benefits associated with securing IP in different countries

university’s strategic priorities and guidelines for IP management

• IP exploitation agreements are executed efficiently and effectively and in line with the university’s

• researchers and other staff are aware of the

strategy and policies

importance of effective IP management and of the basic principles involved

• the IP portfolio in maintained efficiently and effectively (patent renewals by due dates etc)

• day-to-day research activities involve the maintenance of records that are compliant with the requirements for securing IP

• the IP portfolio is defended against infringement, either by direct litigation or by ensuring that licence terms provide for the licensee to defend the IP.

12 In principle, a substantial amount of the work involved could be contracted out to external Patent Agents. This is discussed further in the next chapter.

71

Intellectual Property

5. IP management functions

Screening Stage 3

Screening Stage 2

Screening Stage 1

Figure 5.1 shows how these processes are linked together at the Robert Gordon University.

Enquiry Received Identify Target Market etc. review in 3 months

reject

Assess by Manager select Identify Business Model

reject

Assess by Manager select Develop Business Plan & Partners

Assess by Manager if within agreed funding limits

Appeals Process submit to panel review

Recommended Further Development

Assess by Panel

Recommended for Fast Track

reject

Approve Funding to agreed limit

Implementation

Assess by Board

Impement Business Plan

Support and Monitor Success

Apportion Rewards

© Robert Gordon University

In Higher Education

72

5. IP management functions

5.2

The IP office: location and structure

Effective management depends to a large extent on researchers coming forward with exploitable ideas, and they are more likely to do so if the IP management

A range of models exists for

function is perceived as an integral part of the

structuring IP offices and there are

university.

examples of all types working well. The key requirements are to ensure that IP

Effective IP management begins with the signing of

staff develop a constructive rapport

research contracts, if not sooner (see Figure 5.2), and

with researchers and that IP

the IP management function needs to have influence

management functions are closely

at this stage. It therefore needs to work closely with

integrated with other university

whatever parts of the university are responsible for

management activities. This may be

marketing commercial and research services and

facilitated by locating the office within

vetting and signing external contracts.

normal management structures, but there are successful examples of IP

Figure 5.2: The importance of early interaction. A

management being undertaken by

view from Oxford Brookes University

companies owned by universities “A university’s management of its IP has to begin: An important task of IP management is to increase

generally with training and advising academics on IP

awareness and enthusiasm for generating exploitable

implications and opportunities (so that they can

IP amongst researchers. This requires close and

target the most IP-advantageous ways of funding or

frequent interactions. Physical proximity to the

carrying out research) and specifically at the stage of

academic staff is important, but the task may well be

constructing a bid for funding a particular project:

easier if the IP office is perceived as an integral part of

after identifying the base IP input (background) the

the university, whatever its precise legal status.

university is bringing to the research (including the base position of any third party or non-employed

73

Given the diversity and volume of relevant activity in

collaborators), the conditions of funding should be

many universities, it is not feasible to resource the

examined in detail, so that the bid can include a

function at a level which would enable the commercial

negotiating position on any disadvantageous or

potential of all research to be assessed in detail.

conflicting IP terms (e.g. the funding conditions may

Intellectual Property

5. IP management functions

require disclosure although part of the background is

☛

because it is outside the university

already owned by, or to be kept confidential to, a

management structure it can sometimes act

third party). Usually a compromise position can be

more quickly than would otherwise be the

found and it is essential that problems are identified

case

at a pre-bid stage, so that the position of having a deadline to sign a funding contract which contains

☛

it is easier to pay higher salaries than the

IP terms with which the university is unhappy (and

normal university scale would permit, and

which may be contrary to the university’s IP policy) is

many IP offices have encountered difficulties

avoided.”

recruiting and retaining staff

In practice two main types of approach have evolved:

☛

it may be easier for the university to monitor and assess financial performance.

• IP management functions are undertaken by research support services, who are also

Figure 5.3 illustrates changing structures within a

responsible for securing research sponsorship,

university over time in response to emerging needs.

contract approvals, marketing services and so on. This may represent the closest integration with

Figure 5.3: An evolving approach to organising

other management functions. In many universities

IP management - the University of Warwick

staff assume IP as well as other responsibilities. However, it is becoming increasingly common for

“For many years the University of Warwick has had

staff dedicated to IP to be appointed, reflecting the

a Research and Development Services Office

specialist skills required, and also expanding IP

(RDSO) that has covered the whole spectrum of the

portfolios

university’s research activities. Some 15 years ago all staff carried a broad portfolio of responsibilities,

• establishment of a company (wholly owned by the

including the identification of research opportunities,

university) to commercialise IP. This represents the

the discussion of research grant applications and

clearest separation between IP management and

research contracts, and subsequently the

other functions, but also offers a number of

negotiation of patenting, licensing and dealings with

potential benefits:

the exploitation of research results. In particular, the Director of RDSO at that time had responsibilities for

In Higher Education

74

5. IP management functions

IP, but also wide ranging activities across the

companies and the attraction of seed-corn venture

spectrum of the RDSO remit. As time progressed it

capital funding to launch the spin-out activities.

became clear that RDSO must specialise in its

Although very much still part of the University of

various areas of operation such as dealing with

Warwick, and not a separate stand-alone company,

Research Councils, European funding, charitable

Warwick Ventures is housed in the Science Park on

funding and business and industry.

the university campus to aid the link between university and spin-out companies. The

As a result the Industrial Liaison Office was formed

Government’s HEROBC13 and HEIF14 initiatives,

and the Head of the Industrial Liaison Office, within

together with university funding, have enabled

RDSO, had responsibilities for negotiating industrial

Warwick Ventures to flourish, and we are now

contracts and the follow-up exploitation of the

seeing a rapid growth in the number of Business

research results that came out of those contracts.

Development Managers operating in Warwick

The specialised focus produced by this team proved

Ventures and also a significant increase in patenting

to be a significant improvement, so much so that it

and spin-out activity.

attracted interest and activity across the campus which threatened to overwhelm the staff involved in

In parallel it has now allowed the Research and

the activity. As a result the Industrial Liaison Office

Development Services Office to concentrate on

found itself pulled in various directions and in the

working with academic staff to win research grants

end gave priority to winning industrial and business

and research contracts and to manage those

research contracts and had limited time to dedicate

contracts through to successful completion. The

to the exploitation of the research results that

university takes great care that the whole area of

emanated from the projects.

research, innovation and enterprise operates in a co-ordinated manner. The Deputy Vice Chancellor

Some three years ago the University took the

with responsibility for Research co-ordinates a

decision to form Warwick Ventures which, in

Working Group that comprises the Directors of

partnership with the University of Warwick Science

RDSO, Warwick Ventures, the Science Park and the

Park, has responsibility for the exploitation side of

Science Enterprise Challenge Fund operation which

the university’s Research and Development activities

is known as the Mercia Institute of Enterprise. All of

including patenting, licensing the patents, spin-out

this is further supported by University Challenge

13 HEROBC: Higher Education Reach Out to Business and the Community Fund. 14 Higher Education Innovation Fund

75

Intellectual Property

5. IP management functions

Funding operated through the Mercia Fund which

compromise which has been found to work well is to

provides necessary seed-corn funding. Both the

identify individual staff within departments who are able

Mercia Institute of Enterprise and the Mercia Fund

and willing to act as the initial ‘IP contact point’ for

are collaborations with our colleagues at the

other staff. A period of secondment to the IP office can

University of Birmingham and with the universities in

increase their effectiveness.

15

the rest of the West Midlands region.”

5.4 5.3

The relationship between the IP office and other departments and research groups

Should notification of inventions be compulsory? Consideration should be given as to whether compulsory notification of inventions would hinder building an

Consideration should be given to

effective partnership between

identifying ‘IP’ contacts within each

researchers and IP management staff.

department/unit

If it is not judged to damage the process of building this partnership

Some universities place (or identify) people with IP

then compulsory notification may

management expertise within relevant academic

reduce the chance that

departments and schools of study in order to facilitate

commercialisation opportunities

information flows regarding IP issues. Whether or not

are missed

this is an appropriate strategy will largely depend upon the nature and extent of the information flow problems

The advantage of making notification of invention

that may exist between the IP management office and

compulsory is that it reduces the risk that the IP

the departments. The advantage of expertise within

management office will be unaware of IP generated

the department is that there is opportunity for informal

within the university. The disadvantage is that such an

discussion which can highlight potential areas of IP

approach can be counter-productive in an academic

that would not otherwise be identified. The

environment.

disadvantages relate mainly to the cost of pursuing this approach relative to the benefits obtained. A 15 Science Enterprise Challenge is a Government funding scheme to support a limited number of Centres and University Challenge is also a Government scheme providing a range of seedcorn funds to support university commercialisation.

In Higher Education

76

5. IP management functions

Many IP managers view the capacity of their office to

5.5

build informal partnerships with individual researchers

Some complexities in IP management

and research teams as a critical factor in the success of IP management. They take the view that

This Guide does not seek to provide advice on dealing

compulsory notification is not necessary when such

with the complex operational issues with which IP staff

partnerships exist. When these partnerships do not

are confronted. This section, however, presents a limited

exist, the chances of engaging in successful

discussion of selected topics, which have been identified

technology transfer activity with a researcher who is

as important during the preparation of the Guide. The

not particularly interested in doing so are relatively low.

aim is to give senior university managers some insight in

Compulsory notification is unlikely to help a great deal

to the complexities of IP management on a day-to-day

in this situation.

basis. The topics are presented in a series of figures.

On the other hand, there are advantages in

5.5.1 Practical considerations if IP ownership is sought

compulsory notification and also technology audits in ensuring that opportunities are not missed. Provided that these procedures are swift and straightforward,

Figure 5.4: Checklist of practical considerations

and consequently do not disrupt normal academic

if IP ownership is sought

activity, there is no reason why they should damage building an effective partnership between researchers

1. Ensuring clear title of IP

16

and IP management staff. If the performance and evaluation system needs to collect data on the

Established procedures need to be put in place that

number of invention notifications made each year, then

will allow the following questions to be answered:

compulsory notification procedures can assist in providing this information. Given that disputes over

•

who are the inventors?

•

who were they employed by when the invention

inventorship are not uncommon in universities, early and accurate recording via invention disclosure forms can be useful.

was made?

16 If the university’s intranet is used for invention disclosures, care should be taken to ensure that this information is secure.

77

Intellectual Property

5. IP management functions

•

what funding were they using to support the

4. Ability to maintain and defend IP

research leading to the invention?

In those situations in which the university seeks to retain ownership of IP the capacity to maintain the

•

did this funding have IP conditions attached?

IP portfolio and to defend it against infringement will be key issues examined by commercial and

•

what materials were used in making the

charitable partners.

invention? •

did these materials have IP conditions attached?

5.5.2 Dealing with problems in valuing IP by selling options on licenses

2. Ensuring that patents are drafted to cover commercially significant applications

The economic value of the IP generated from university research is characteristically highly uncertain. The

Unless care is taken in instructing patent agents and

discovery of a promising new approach or an invention

in assessing their work, patent applications may not

represents the start of a process of determining its

cover the commercially significant applications of the

technical feasibility and of estimating the likely return on

invention. This will limit the technology transfer

any investments made. Until risk-reducing/proof of

potential of the invention.

concept investments have been made it is often the case that the value of the IP cannot be estimated with

3. Ensuring that there is timely and effective

sufficient accuracy to allow reasonable negotiations to

communication between external investors and

commence, let alone a licensing agreement to be

researchers

reached. This process of determining the economic value can be costly and firms will require an incentive to

External investors may require some additional

undertake such an investment.

experiments to be carried out before making an investment based on a licensing arrangement. It is

One strategic approach to this IP valuation problem is to

essential that effective communication takes place

sell firms an exclusive option to obtain an exclusive or

between the investor and the relevant researchers

non-exclusive licence after a specified period. Selling an

and that IP management offices facilitate and do not

option delays the negotiation over the terms of the

hinder this interaction.

licence arrangement until a point at which sufficient information is available to allow its value to be estimated, whilst providing the incentive for businesses to commit

In Higher Education

78

5. IP management functions

the funding required to estimate the value. Some

The option was minimally costed (essentially covering

universities, such as Cambridge, are now placing a

only the University’s receipted patent costs), but the

priority on selling exclusive options of this type. It is not

University retained the right to market and licence the

unusual for an option agreement to be related to a

invention to any other companies for all uses outside

collaborative research project aimed at determining the

those very specific types of instrument. The benefits of

technical and economic feasibility of the technology.

this approach were:

Although selling options to licences can facilitate the

•

a focussed, specialist company was encouraged

commercialisation process by deferring IP valuations

to evaluate a new invention at a very early stage,

until better information becomes available, the strategy

as their financial risk had been minimised

can also simply delay difficult and costly negotiations. Companies may reasonably seek to have the terms of

•

the patent was “stabilised” as patent funding was

an eventual licence specified in the option agreement (in

secured for the duration of the option. This period

the form of a Heads of Agreement) and this will tend to

allowed the University to embark on a more

involve trying to estimate the value of the IP – thus

concerted and considered marketing campaign to

removing the advantage of selling the option in the first

other businesses and sectors

place. Consequently, selling options can play a tactical role if circumstances permit – but it is not a universal

•

the restricted field and term overcame the risk of

solution to problems caused by uncertainties in IP

the invention becoming “locked-up” by the option

valuation. Figures 5.5 and 5.6 contain real examples of

agreement.

recent option deals. b) A race-car manufacturer was granted an option to a Figure 5.5: Recent option deals at the University

patented invention, but only for the particular category

of Cambridge

of race-car that they produced. The agreement included an initially modest option fee,

79

a) A 12-month option was granted to a UK-based

and a larger “milestone” payment if the technology was

manufacturing company for the use of a patented

to be used in a motor race. As well as securing the

invention in carefully defined types of scientific

patent position, various other mutual benefits flowed

instruments.

from the option agreement:

Intellectual Property

5. IP management functions

•

the company employed the services of the

staff will sit on a consultancy basis:

inventor as a consultant (under a contract with the University) in order to expedite the development of

•

the invention

Company X will fund £100,000 of fully-funded research at the university in the first instance, with further projects being considered as and when

•

additional support from the company helped to

relevant

secure an EPSRC project aimed at further study and development of the invention

•

the university’s sunk patent costs will be reimbursed in the option, and on exercise of the

•

the company supplied high-value specialised

option an assignment fee of £20,000 will be

components, materials and expertise free-of-

payable

charge to assist in the on-going research • •

an introduction to a partner-company is envisaged,

further milestone payments will be attached to the granting of a patent

with the potential for licensing into the volume road-car market.

•

the initial market entry will be within the scope of the patent

The intention of these arrangements was to facilitate rapid development with a high-calibre commercial

•

a royalty of 4 percent on sales of the product up to

partner, whilst retaining for the University almost all of

£2 million gross, thereafter 3 percent, will be paid

the future commercial rights to the invention.

to the university.

Figure 5.6: Examples of option deals relating to

b) An option was granted by a university to Company

patents

Y for a licence to an existing patent, for £100,000 for a three year period, during which a fully-funded $2 million

a) An evaluation licence was granted to Company X

research contract would be placed with the university

with an option to take assignment of the university

(with non-exclusive access rights to foreground IP, to

patent. The agreement included:

be owned by the university). Upon exercise of the option at any time during the option period a further

•

Company X will form a dedicated business unit

payment of £200,000 will be received, and the parties

around the patent on which university research

will negotiate in good faith for a three month period

In Higher Education

80

5. IP management functions

thereafter the terms of royalty on sales and/or sub-

Senior management should therefore ensure that the

licensing.

university’s IP managers are making adequate provision for investment exit routes in their management of the

c) An option deal was agreed with a local company in

commercialisation deal flow. This can significantly

which the company pays for the initial filing costs on a

reduce the costs associated with generating the

patent application and pays £1,000 a month for an

university’s overall returns from IP management because

exclusive option to exploit the patent, during an eight

the cost of failure is lower than would otherwise be the

month option period, during which time it seeks seed

case.

funding to expand its business. If the company exercises the option a payment of £50,000 will be made to the university, plus royalty payments of 3

5.5.4 Business processes and databases

percent will be paid until the patent is granted, and 4 percent thereafter.

One of the most important issues is the IP office’s ability to monitor how its business processes are performing,

5.5.3 Exploiting the advantages of investment exit routes in IP management

and to identify potential problems before they manifest themselves. Some offices have found that formalising procedures around case-handling decision points, with progress tracked in a central database, can help to

This Guide has already noted (in Section 3.2.6) that

increase the efficiency of business processes.

companies will seek to identify investment exit routes as a means of reducing their overall level of investment risk.

For example, the University of Glasgow has developed

This involves identifying points in the commercialisation

an integrated database on its case load (covering

process at which investment losses can be partially

research proposals etc through to commercialisation)

recovered by selling IP or sub-licences and equipment

which automatically generates an e-mail every two

and materials used in the commercialisation process.

weeks to relevant university staff, informing them of the

The same principle also applies to the university’s IP

actions that have been taken over this period. This

exploitation activities. A strategy of identifying investment

reduces the time spent by IP staff responding to

exit routes (if things go wrong), and the effective tactical

questions on progress made from researchers and can

decision-making over when to actually use these exit

help to alert staff to problems and opportunities simply

routes, constitutes an important part of IP management.

by providing regular reports on a ‘push’ basis rather than waiting for information on a ‘pull’ basis.

81

Intellectual Property

6. Implementation: working with others

6 6.1 6.1.1 6.1.2 6.2 6.2.1 6.2.2 6.2.3

Implementation: working with others Collaboration between universities to manage IP Sharing of best practice and information Joint management of IP portfolios Working with other external organisations Public agencies IP management services The evolving partnership between medical research charities and universities

82 83 84 85 89 89 90 92

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82

6. Implementation: working with others

6.1

Collaboration between universities to manage IP

Figure 6.1: Managing IP in research partnerships

Staff mobility and collaboration

Joint interest in IP arises due to formal research

between researchers from different

collaboration, informal collaboration, or mobility of

universities mean that there is an

researchers and consequently arises frequently. The

increasing need to consider issues of

University of Nottingham has developed an

joint management

approach to dealing with IP in cases of ‘multi-sector’

– Experience at the University of Nottingham

research collaboration, which is entirely There may also be benefits from a

pragmatically driven and geared towards the

more proactive approach to joint

development of mutually acceptable and beneficial

management reflecting the potential of

IP management agreements:

pooling IP to create higher valued packages and economies of scale in

“Formal research collaborations (those deliberately

various IP management activities

entered into based on a collective bid) are in many ways the easiest to manage, as due to the

High levels of skills and resources are required for the

significant awareness-raising campaign which

successful exploitation of IP, implying that there may

Nottingham has in place with respect to IP issues,

be scope for collaboration in IP management, in order

researchers are aware that they should seek the

to share expertise and overheads. This section

Research Support Office’s help prior to

distinguishes between two forms of collaboration:

commencing the research. Either appropriate terms are included in the collaboration agreement, or a

• sharing of best practice and information

separate IP agreement is drawn up to set out how project IP will be managed, including:

• active joint management of portfolios. •

who will own what

•

who will decide on and pay for patent protection if appropriate

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Intellectual Property

6. Implementation: working with others

•

who will take the lead in commercial exploitation

In the case of informal collaboration (where

and in which field

collaboration arises as a consequence of researchers in different institutions exchanging

•

how revenue will be shared

information and material out of which IP is jointly created) the royalty share is determined by the

•

what access rights are needed to background IP

respective intellectual and resource contributions,

for execution of the project and for subsequent

the financial risk in terms of patent or development

exploitation, and on what terms such IP will be

costs, and who is making the commercialisation

made available.

effort. Informal collaboration may lead on to formal collaboration.

Each set of collaborators brings different intellectual and financial strengths and resources to a project,

Where mobility of staff is involved, and therefore

and the most appropriate ownership, access rights

the interest of former employers, the situation is

and exploitation route have to be established on a

complicated by the fact that the value of the IP may

case-by-case basis. The issues are always

be substantially increased during the researcher’s

addressed at the outset since they require those

time at Nottingham, in which case the former

involved to focus on the commercial exit route for

employer’s interest should decrease over time. If this

the technology on day one.

is likely, then a mutually agreed scale is adopted, whereby the former employer’s share of revenue will

At Nottingham, a heavy emphasis is placed on legal

decrease in accordance with the level of investment

due diligence with respect to IP, so any legal or

applied to develop the IP at Nottingham.”

beneficial interests will be uncovered at the disclosure stage. The university’s policy is not to deal externally in IP unless they have a joint

6.1.1 Sharing of best practice and information

development/commercialisation agreement in place in the case of an informal collaboration, or a revenue

The networks developed by organisations such as

sharing agreement where a researcher has moved

AURIL17 and UNICO18 are an excellent vehicle for IP

to Nottingham from the institution where they

managers to share information on a wide range of

started the research. 17 Association for University Research and Industry Links (www.auril.org.uk) 18 The UK University Companies Association

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6. Implementation: working with others

operational matters and AURIL also seeks to inform opinion more generally. While universities compete

6.1.2 Joint management of IP portfolios

fiercely with one another for grants and contracts they do not, in general, consider themselves to be in

Most universities will need to work with other

competition over the commercialisation of IP. As a

institutions on IP management at some stage, for two

result, the networks are accessible to fellow

main reasons. First, staff mobility means that IP

professionals and information flows freely. However,

generated by academics, which they may wish to

the information exchanged is largely concerned with

bring to new research and commercial ventures, may

operational issues, such as ‘how to’ advice and the

be owned by a university other than their current

range of returns which might be sensibly sought,

employer. Second, more than one institution will have

rather than the strategic issues which are the concern

an interest in IP generated as a result of collaboration

of this Guide.

between staff from different universities. In the majority of cases these factors do not give rise to significant

When universities are reviewing IP management

problems, but if commercialisation of IP, in which

strategies or, perhaps more importantly, when they are

others have some stake, is envisaged, then it is

articulating strategies for the first time, they need data

essential that clear agreements are reached with them

which enable them to benchmark their activities,

as soon as possible. In practice this will usually relate

resources and returns against those of comparable

to reaching agreement over the use of ‘background’ IP

institutions. At present, these data do not exist for the

in subsequent developments.

UK higher education sector. Although a number of surveys of university-business links have been

This kind of collaboration is a by-product of other

undertaken they were not designed to provide

activities or history, but there is scope for universities to

benchmarking data and do not give sufficient detail on

enter proactively into joint management activities and

IP exploitation in the narrow sense, or enable activities

this arises for three main reasons. First, a bundle of IP

and returns to be associated with specific

may have a greater aggregate value than the sum of

characteristics of a university.

its individual parts, because it is seldom the case that a single invention will generate increased competitiveness and economic advantage. A well

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Intellectual Property

6. Implementation: working with others

known illustration of the benefits of bundling is the

managers typically have other responsibilities. This

bringing together of several patents, which led to the

is not to suggest that all IP functions should be

first nuclear magnetic resonance machines. A single

performed in-house and even the largest

university can bring together IP from different

universities contract out some IP management

departments but the potential to create high value

processes

packages is greater if the scope of the research is wider. IP bundling is becoming increasingly important,

• of more practical significance, the larger the

both within and outside the HE sector, with several

university’s portfolio, then the more feasible it

institutions entering into transnational partnerships.

becomes to employ specialist (technology and sectoral) expertise

These, and other, kinds of partnership between universities obviously add to the complexity of IP

• portfolios can be jointly, and strategically, marketed.

management. They also mean that one institution is, to

This may involve bundling, as discussed above,

some degree, reliant on another having good

but more simply it may be cost-effective to market

management practices in place. In particular, relating

jointly at specific events such as conferences.

to the performance of due diligence activities properly and addressing other legal requirements. One

Collaboration in these ways can, and most often does,

implication is that the management practices of the

take place on an informal basis, in the sense that there

partners need to converge to some extent if

are no formal agreements or joint employment of staff.

successful partnerships are to be established.

IP managers stay in close contact with each other, sharing tasks and expertise on an ad hoc basis.

The second reason why collaboration may be

However, there are also examples of more formal

beneficial is because of the scope for economies of

collaborations arising. The Department of Trade and

scale. These may arise because:

Industry’s Biotechnology Exploitation Platform (BEP) initiative, for example, has led to the establishment of

• a single institution may not generate sufficient IP to

consortia of universities and other organisations,

employ even a single IP manager fully. However,

including many NHS Trusts. These are, of course,

while this might be the case in a small institution

subject specific and reflect the potential for pooling

newly beginning to exploit IP, it is unlikely to be of

specialist expertise (see Figures 6.2 and 6.3).

much practical significance. In such cases IP

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6. Implementation: working with others

Figure 6.2: An example of cooperation and joint

For example, one spin-off company was set up in

management in exploiting IP

York (where there is no medical school) with the medical school links provided by the University of

The White Rose Biotechnology Consortium was

Leeds. In another case, a spin-off company from the

formed in 1997 using a £250,000 grant from the

University of Sheffield is based in Leeds in order to

Department of Trade and Industry’s Biotechnology

exploit the local expertise – but is run from Sheffield.

Directorate’s Biotechnology Exploitation Platform Challenge. The consortium comprises the University

Consortia of this type provide a means of facilitating

of York, University of Sheffield and the University of

IP management based upon overcoming the

Leeds. These three universities have a collective

constraints faced by individual universities.

bioscience base of 500 researchers and over £40m of research funding. The universities also collaborate

For further details: www.whiterose-bio.com/

in other areas apart from biotechnology exploitation. A number of successful bids to the Government’s The Biotechnology Directorate’s funding has now

Higher Education Innovation Fund also involved

ceased and the White Rose Consortium continues to

consortia of universities, and many of these will

develop its cooperative approach to IP management.

encompass some aspects of IP management. These

Twenty-one bioscience companies have been

reflect the potential of regionally based collaborations.

formed and over 50 patents have been filed. Figure 6.3: Regional collaboration in harnessing Each university has its own biotechnology

IP an example from the NHS

exploitation manager who works closely with the researchers within their university whilst also

It is only relatively recently (1998) that the NHS

facilitating inter-university cooperation within the

initiated a fundamental review of its strategic policies

consortium. The consortium’s IP available for

towards IP. To begin with this focused on IP arising

exploitation is promoted in an integrated form via

from R&D, but it is now being extended to all

one web site.

aspects of patient care. This latter aspect may, in the event, prove of at least equal, if not greater,

87

The existence of the consortium makes it easier to

importance; bearing in mind that the three main

exploit the different capabilities within each university.

NHS objectives in identifying and exploiting IP are,

Intellectual Property

6. Implementation: working with others

in order or priority:

initiative’s success and there has been active dialogue with both Universities UK and AURIL to

•

benefits to the operations of the NHS in providing

develop appropriate frameworks to help this evolve.

enhanced patient care (which will always mitigate against grant of exclusive licences)

The decision was, therefore, taken to build up an IP support structure, clearly distinct from the primary

•

national economic benefit

health mission, that would deal with groups of NHS bodies and it was concluded that the logic pointed

•

generation of cash.

towards a set of regional IP ‘hubs’ aligned to the boundaries of government regional offices and, in

There are some 300 organisations, in the main NHS

consequence, the RDAs. It was this approach that

Trusts, that receive R&D funding, but none of them

formed the basis of bids to PRSE Fund in July

has a scale of activity that would support its own IP

2001. The outcome was largely successful except

office (the largest Trust has research income of

that the four separate bids from London were given

around £40 million). Some form of collaboration

a combined award and the bids from the, research

was, therefore, seen as essential and thought was

rich, East and South East regions, along with the

given to the possibility of contracting directly with

Bristol-centred South West region, were not funded

university IP offices for the service that the NHS needs. This approach was not pursued for three

By way of example, the Yorkshire and Humber IP

main reasons. First there could be conflicts of

hub will cover a number of trusts including the larger

interest as the NHS might wish, in support of its

ones in Barnsley, Bradford, Hull, Leeds, Sheffield

patient care mission, to invest in IP that offered little

and York and whilst the hub’s central office will be

prospect of generating income. Second, a set of

sited outside the health community (possible in an

agreements with universities would be unlikely to

RDA office, for instance) there will probably be a hub

provide full coverage across all NHS bodies. Third, a

staff member attached to the major centres. It is

related point, there is uneven expertise in university

envisaged that, three years hence, funding of

IP offices with respect to the areas of science and

£500,000 per year will be required, at a minimum,

technology that are likely to be important to the

for each hub and that this level may, in practice,

NHS. It is nonetheless recognised that positive

prove insufficient (although needs are likely to vary

collaboration with universities will be vital to the

between regions depending on the potential IP that

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6. Implementation: working with others

comes to light). The budget allocation is to cover

Even universities with large IP portfolios and well-

patent and legal costs as well as staff; though the

staffed IP management offices do not seek to have all

former will sometimes be met, in whole or in part, by

the required expertise in-house. They will use external

the trusts. In view of their public service objectives

legal specialists and patent agents when required. This

there can be no certainty of the hubs ever being

is because there is insufficient volume to keep such

self-funding. Moreover there is no logical reason for

specialists fully employed within the university, but also

thinking this should be major criteria on which to

because external specialists will be working in many

judge success.

different contexts and their expertise can be refreshed more regularly.

6.2

Working with other external organisations

6.2.1 Public agencies

Working with public agencies with local

With increased policy emphasis on devolution and

economic development remits can

regional issues, the number of public agencies with

enhance the effectiveness of

local economic development responsibilities, and their

universities’ IP management

capacities, have increased. In Scotland, Wales and Northern Ireland agencies with economic development

There may also be scope to contract

remits have worked with the HE sector for many years.

with private companies for the delivery

The key agencies today are: Scottish Enterprise and

of some IP management functions.

the Local Enterprise Companies; the Welsh

However, there is a need to maintain at

Development Agency; the Regional Development

least a minimum level of IP expertise

Agencies in England; and Invest in Northern Ireland.

in-house

Many local authorities also continue to play important roles in local economic development.

The previous section discussed collaboration with

These bodies, to varying degrees, can provide

other universities, but there are also networks and

valuable assistance and collaboration in

agencies outside the HE sector which can make

commercialising IP:

valuable contributions to IP management. Most obviously, these include IP specialists of various sorts.

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Intellectual Property

6. Implementation: working with others

• their regional innovation strategies, to which

their services without up-front cost to the university,

universities have often contributed, help to define

which, therefore, gains access to what may be

which sectors and technologies are the regional

substantial IP expertise on a no risk basis. Second,

priorities and will receive special support

some organisations are also able to bring investment funds and company management expertise. They can

• some of the agencies themselves have expertise in

therefore assist with further development of the

IP management and can be a source of advice

technology and the establishment of spin-out

and contacts

companies.

• their general business support functions can be

If and when actual deals are made, universities may

accessed by the universities, especially in relation

receive lower returns from the IP management

to spin-outs.

company than if they were to offer their IP on the open market. There is also a need to ensure that procedures

6.2.2 IP management services

are put in place to prevent direct negotiations between the IP management company and academic staff.

19

IP management providers offer different services, but

However, if the arrangement is working well then the

most are prepared to undertake some kind of

volume of deals should be larger than if the university

technology scouting service within the university in

was reliant on in-house resources and, as a result,

exchange for a first option on owning or exploiting the

overall returns to the university may well be higher. The

IP. The advantage to the company is early knowledge

higher volume of deals is especially important to

of the technology and, possibly, also the opportunity to

universities who see the priority for IP management as

build up longer term relationships with groups of

transferring knowledge as well as generating revenue.

workers.

An example is presented in Figure 6.4.

The potential benefits to the university are essentially two fold. First, many of these organisations will provide

19 For more information, contact the British Venture Capital Association (www.bvca.co.uk).

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6. Implementation: working with others

Figure 6.4: Using third parties – the experience

Universities should consider the costs and benefits of

of Heriot-Watt University

such arrangements carefully in the light of their objectives with respect to IP management. There may

Heriot-Watt has recently entered into an agreement

also be opportunities for consortia of universities to

with an IP management company. Under the

enter into agreements with IP management

agreement, the IP company has the right, which it

companies. However, it is important that some IP

has exercised, to establish an office on-campus. It

management expertise be retained within the university

has completely open access to all university

for the following reasons:

researchers, although they obviously cannot be compelled to enter into discussions with the company.

• even if it were feasible to contract out most of the IP management functions, a university will require in-house expertise in order to act as an intelligent

The company is only interested in spin-outs from the

buyer and to monitor performance

university, but the expectation is that in searching for candidates it will also identify IP suitable for

• institutions can expose themselves to significant

commercialisation by other routes and bring this to

commercial and legal risks if they do not ensure

the attention of the university. It will support spin-

that due diligence activities are properly performed

outs with finance and managerial expertise.

in relation to the use and sale of IP. Given that they bear the risks, it may be sensible to have in-house

The deal with the company is non-exclusive. The

control over these activities

company has a representative on the university’s disclosure committee and informs the committee

• there is an important awareness-raising

whether it is interested in specific IP. If so, the two

component to IP management and, more

parties will negotiate, if not the university can offer

generally, a need to promote activities and develop

the IP to any interested party. However, the

a rapport with researchers. This may be more

agreement does prevent the university from

effectively undertaken by IP managers who are

permitting any other company to establish a

perceived as being part of the university.

presence on campus. Web-based technology brokering services have also There are no up-front costs to the university.

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Intellectual Property

emerged in recent years, some of which are free to the

6. Implementation: working with others

universities. An example, developed by the Patent

universities, and examining the areas in which they can

Office and AURIL, is given in Figure 6.5.

work in partnership with universities to facilitate effective IP management.

Figure 6.5: Technology Transfer Brokering Some of the larger charities have significant Acindus is a free web-based service

development funds that they can use to facilitate the

(www.acindus.net) that permits university research

research commercialisation process – particularly

laboratories to promote their area of interest and

when it involves spin-out companies. They also

showcase their latest findings. This service was

possess business support and legal expertise that can

developed by the Patent Office, in association with

assist in the spin-out process.

AURIL, and acts as a matchmaker, pairing off the scientific community with the commercial interests

However, although there is great potential for building

they need. Its aim is to help to form profitable,

effective partnerships between universities and

home-grown partnerships across the widest

charities over IP management, both sides identify

possible range of disciplines.

significant impediments to partnership-building.

In the words of Dr Philip Graham, AURIL’s executive

From the universities’ perspective, some charities are

director “ACINDUS will promote entrepreneurism

adopting a very strong focus on maximising financial

amongst academics, and help close the gap

returns from the research that they fund, and tend to

between vision and reality”.

under-estimate the investment uncertainties and risks that the commercialisation process entails. This means

6.2.3 The evolving partnership between medical research charities and universities

that they can seek a higher financial return than their commitment of risk capital warrants. In contrast, some charities have raised concerns that

Medical research charities are seeking to play an active

universities insist on ownership of IP but pay

role in facilitating the commercialisation and

insufficient attention to ensuring that adequate

implementation of the research that they have funded

technology transfer takes place. There are also

in UK universities. This means that they are taking an

tensions over revenue sharing.

active interest in how effectively IP is managed by

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92

6. Implementation: working with others

The quotes in Figure 6.6 illustrate the divergent

Comment from a charity representative

perspectives. A strategic approach by both sides to overcoming these difficulties could generate significant

“Universities’ insistence on ownership and control of

benefits. A mutual understanding of each side’s

their IP may often inhibit exploitation in those cases

perception would be a useful first step in this direction

where the universities do not have sufficient exploitation resources or capacity or IP

Figure 6.6: Universities and medical charities

management experience… some charities have developed their own IP management and

Comment by a university IP manager

exploitation groups to help address this concern and complement the activities of the universities.”

“Negotiations with charities, or especially the

93

companies set up by the charities to deal with the

“The root cause of the tension between HEIs and

universities, show that in some cases, the charities

charities is much more often about revenue sharing

are more commercially driven than the universities.

though we acknowledge there have been some

Tensions can develop between the universities and

(very few) about control. There have also been

these commercialisation companies. The original

tensions where the university IP office may not

perception was that charities were more interested

understand the charity’s perspective (particularly the

in the public good, but this has changed. There

patient-based ones) or the charity may feel its own

needs to be a clearer distinction between ‘charity’

IP management expertise and focus in the area is

funding versus contract research funding.”

better.”

Intellectual Property

7. Monitoring and Evaluation

7 7.1 7.2 7.3 7.3.1 7.3.2 7.4 7.5 7.5.1

Monitoring and Evaluation The monitoring and evaluation framework Interpreting performance indicators and the impact of uncertainty of time horizons Using input measures and ratios Research expenditure Costs of IP management Measures of internal process performance in IP management Selecting suitable performance indicators Benchmarking

94 95 96 97 97 98 98 99 99

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7. Monitoring and Evaluation

This chapter considers issues which arise with

need to decide which indicators most closely reflect

performance measurement and evaluation. It is

their own objectives in IP management.

intended to assist in the design of internal measures and systems. However, external considerations are very relevant, for two different sorts of reasons. First,

7.1

The monitoring and evaluation framework

there may be real benefits in universities benchmarking their costs and performances against others, and this

A useful first step is to clarify why

obviously requires information to be collected and

monitoring and evaluation are

made available on a consistent basis. This is

necessary. In particular, universities

discussed later in this chapter.

need to consider the relative importance of demonstrating

Second, this Guide is concerned with the

effectiveness in IP management whilst

management of IP in a narrow sense. Universities

seeking to identify areas for

transfer knowledge in many different ways, such as

improvement

consultancy and training, which are outside the scope of this Guide. Although IP management needs to

The framework needs to encompass

interface with these activities, indicators designed to

‘hard’ indicators but also ‘softer’

assess the effectiveness of IP management will not be

assessments of whether general

appropriate for measuring the effectiveness of other

objectives and specific policies are

knowledge transfer activities. This point needs to be

being attained

emphasised. There is a possibility that indicators designed for internal monitoring purposes will be used,

Performance indicators can fulfil two main purposes.

externally, to assess and compare the performance of

First, they can be used to demonstrate to external

universities. This is especially topical at present, with

organisations that the university is capable of

consideration being given to future allocations of

managing IP effectively. This can be important in

knowledge transfer funding. It should be emphasised

assisting the university to implement key policies. One

that the indicators discussed in this section are only

of the reasons some sponsors give for seeking to

relevant to IP management, and would not be

retain ownership of IP is that they lack confidence in

appropriate for evaluations of knowledge transfer

the ability of universities to manage the IP. Hence, the

activities more generally. Further, individual universities

ability to demonstrate an effective track record can be important in negotiations.

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7. Monitoring and Evaluation

Second, performance indicators are obviously helpful

assign IP to sponsors and on what terms.

in assisting university managers to identify problems

However, case-by-case decisions will establish

and opportunities relating to IP management and to

precedents, which may become established as the

modify budgets and strategies accordingly. In addition,

policy norm in the minds of sponsors and

the monitoring and evaluation framework can play a

researchers. Monitoring needs to check that

useful role in facilitating the process of learning-by-

pragmatic decisions are in line with more general

doing in IP management. Cumulative experience

policies.

should ideally lead IP management to become more efficient in its internal business processes and more effective in delivering technology transfer outcomes. Internal indicators need to be closely aligned with

7.2

Interpreting performance indicators and the impact of uncertainty of time horizons

objectives and management processes. The long time lags between costs being The monitoring framework needs to reflect two further

incurred and revenues being received

considerations:

mean that evaluations of financial performance should be patient and

• as has been mentioned repeatedly in this Guide,

recognise that costs and revenues are

income generation is not the only reason why IP

decoupled, in the sense that changes in

needs to be managed effectively, and factors as

revenues may have little to do with

diverse as protecting the university’s research

changes in costs

capabilities and contributing to economic development are also important. It is for each

There is usually little direct control over

university to decide the relative weight to be given

the relationship between IP

to these factors, but if there are objectives then

management costs and revenues.

they must be reflected in the monitoring framework

Because costs and revenues are not strongly correlated, the measurement

• actual outcomes should be reviewed regularly, to

and evaluation of performance should

ensure that general principles are being adhered

also be de-coupled. Management

to. Universities need, for example, to have clear

decision-making has little influence on

principles governing when they are prepared to

the cost-revenue relationship, save for

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7. Monitoring and Evaluation

seeking to minimise costs and maximise

costs may arise in other areas. If the

the probability of achieving high returns

university seeks to compare the costs and returns from IP it should identify

The returns to the university’s investment in IP

all income sources attributable to

management in a given year will relate to IP

effective IP management

management activities, and hence costs, in previous years. Similarly, benefits from current investments will

7.3.1 Research expenditure

occur in future years. This long time-lag has important implications for assessing performance.

One commonly used input measure is research expenditure which is frequently related to different

Chapter 2 suggested that the fundamentally uncertain

output measures (patents, licensing, option revenue

nature of the commercial returns from IP management

and start-ups) as a ratio. Although easy to calculate,

is central to strategic management and, in particular,

care should be taken in interpreting such ratios,

setting realistic expectations for financial returns. The

particularly if they are to be used in making

argument is not that significant financial returns cannot

resource/funding allocation decisions. This is because

be achieved; it is that they cannot be forecast.

its behaviour is strongly influenced by a wide range of

Effective IP management is consequently concerned

factors, in particular:

with seeking to maximise the likelihood that unexpected high returns might happen, not with setting targets for financial returns and judging

• differences between subjects in the propensity to generate commercial outputs

performance against these targets. • differences in the proportion of externally funded

7.3

Using input measures and ratios

research that comes with restrictions over exploitation. For instance, contract research funding may tend to be associated with the

Ratios that relate research expenditure

sponsor owning and exploiting the IP, not the

to outputs such as patents and licence

university

revenue should be used with caution. Income generated for the university as a result of incurring IP management

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Intellectual Property

• differences in the proportion of full costs recovered in research contracts and in whether or not

7. Monitoring and Evaluation

principal investigators’ salaries and on-costs are covered by the research grant or payment

• the costs incurred in one year will generate a variable and uncertain stream of revenue in future years. When the university is building up its IP

• in cases where international comparisons are

management activity the costs incurred in a

made the situation is even more complex because

particular year will not relate to the revenues

research costs are affected by country-specific

received in that year

factors. • the revenues received by the university as a result

7.3.2 Costs of IP management

of its IP management activities will not be captured solely in income from commercialisation. For

The costs associated with operating the IP

instance, an option or licence deal with a company

management office can usually be identified. The

may result in a collaborative or contract research

accuracy of these estimates depends upon a number

arrangement. This will increase the university’s

of factors and different figures have been reported by

research income, a contribution that may not have

universities in different surveys.

taken place without effective IP management.

It is tempting to compare these costs with the revenue generated, giving an estimate of net revenue. Care

7.4

Measures of internal process performance in IP management

should, however, be taken when relating costs and revenues for the following reasons:

Internal performance measurement in IP management is not a well-developed area of performance

• the cost of managing the university’s IP includes

measurement in the UK. Indeed, the most recent

opportunity costs associated with academic time

business interaction survey20 suggested that nearly 38

spent on these activities, and also the opportunity

percent of institutions do not monitor the number of

costs of university facilities used in the

invention disclosures on an annual basis.

development of IP. Costs may therefore be underestimated

Aspects of internal performance in IP management to consider measuring include:

20 Higher education-business interaction survey. A report by the Centre for Urban and Regional Development Studies, University of Newcastle upon Tyne, December 2001.

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7. Monitoring and Evaluation

• deal flow in the IP management office(s), particularly with respect to the distribution of large

7.5 Selecting suitable performance indicators

and complex versus smaller and simpler cases There may be benefits in UK • case eliminations: whittling down the set of cases 21

universities collecting data on a

via procedures such as the Stage-Gate Process

consistent basis for benchmarking

can be important in controlling IP management

purposes, provided that performance

costs by ensuring that relatively unpromising cases

can be assessed on a subject-by-

are abandoned before they incur excessive costs.

subject basis rather than in aggregate

It can consequently be useful to collect data on the numbers of cases that pass and fail specified

While benchmarking can be a valuable

investment decision-points (e.g. clear ‘proceed’ ‘do

exercise, each university needs to

not proceed’ decision stages). Private sector

decide for itself which, if any,

companies’ return on R&D can be as heavily

indicators are a useful measure of

influenced by the number of projects that are killed

performance against objectives

off as by the revenues that stem from those projects that reach the market. The same principle

7.5.1 Benchmarking

applies to IP management in universities Each university should identify those indicators which • case load queue times: the incidence of delays in

are most appropriate to its aims and objectives.

starting or completing cases due to log-jams in

Nevertheless, there are benefits in establishing

handling other existing cases

common indicators since this would facilitate benchmarking and decision making in relation to IP

• contract drafting iterations: the number of iterations

activities22.

required to complete contracts and the time taken on these iterations. 21 The Stage Gate Process involves the sequential elimination of less promising investment alternatives in favour of the most promising, thus seeking to maximise the ratio of investment returns relative to costs. 22 Annex C presents a set of indicators introduced by AUTM.

99

Intellectual Property

Annex A: Provenance of the Guide

In Higher Education

i

Annex A: Provenance of the Guide

The importance of the effective management of

Reflecting the commitment in the White Paper,

Intellectual Property in HE was highlighted in

Universities UK and AURIL, with the support of the

Excellence and Opportunity, the 2000 Government

Department of Trade and Industry (DTI) and the Patent

White Paper on science and innovation policy. This

Office, commissioned SQW Limited (with technical

stated:

assistance from TWI Ltd) to prepare a Guide to the management of IP in HE23. The Guide focuses on the

“The Government believes that effective IP

strategic aspects of IP management, but some

management should be a fundamental goal of

discussion of policy and operational considerations is

universities and research bodies in the public sector

also included to illustrate how these flow from strategic

because: identifying and managing IP is essential for

decisions. It concentrates on IP arising from research

effective knowledge transfer out of the research base

and its exploitation through sale, licensing and the

to benefit the wider economy; and IP can itself be a

establishment of spin-out companies. Many of the

valuable asset deserving attention.”

issues are, however, generic to other forms of IP and exploitation routes.

“Research organisations need to follow some basic principles if we are to achieve this goal. First, the

There are two main target audiences for the Guide:

management and exploitation of IP needs to be recognised as important by the top management in

• Vice Chancellors and senior institutional managers.

research organisations – by vice chancellors and

The Guide aims to cover the key issues in the

principals of universities and by their top management

development of IP strategy and policy in higher

teams …. it is not enough to leave this task to the

education and to provide a framework to help

experts.”

institutions to produce an IP strategy appropriate to their mission and circumstances

“As universities develop a more active approach to the exploitation of their knowledge they also need support. Good guidance is available at the technical level ….

• Pro-Vice Chancellors (Research) and senior managers with responsibility for IP.

but more needs to be done to get the attention of top management and spread best practice.”

23 Universities UK is the representative body for universities in the UK: it works to advance the interests of universities and to spread good practice throughout the higher education sector. AURIL (The Association for University Research & Industry Links) represents industrial liaison, technology transfer and research administration specialists in the UK and Ireland. SQW is an independent consultancy whose specialist areas include higher education and science and innovation policy.

ii

Intellectual Property

Annex A: Provenance of the Guide

The Guide aims to cover the implementation of

The project was overseen by a Steering Committee,

policies and practices within universities to deliver the

chaired by Professor John Archer, Principal of Heriot-

effective management of IP. We hope, however, that

Watt University, and comprising staff from the

audiences both within and outside HE will find the

sponsoring bodies and a range of universities.

Guide useful. We are grateful to members of the project steering This document reflects extensive consultations both

committee for their assistance in this study. Besides its

within and outside the HE sector. At the start of the

other responsibilities, the committee reviewed papers

project, SQW undertook discussions within a small but

and draft reports during the project and members also

heterogeneous and representative group of

participated in a number of the workshops.

24

universities . Discussions were also held with other organisations, including research funding bodies, economic development agencies, businesses and financial institutions, all of which had direct interests in IP generated by universities. The purpose of these discussions was to identify the key issues relating to IP management strategy and how they might be successfully addressed. A consultation document was then prepared, discussing the main themes identified and raising a broad range of issues. This was widely circulated, made available on the internet, and comments invited. Five workshops were held, each covering a topic which feedback to the consultation document had suggested was of major interest25 Many people took part in this process and we are grateful for the time they gave and their willingness to share their experiences.

24 In this publication the term ‘universities’ is used to refer to all higher education institutions. 25 The five workshops were: (i) Incentives; (ii) Inter-university collaboration; (iii) Relationships with sponsors – the ownership and control of IP; (iv) Setting IP management strategies and budgets, and (v) Monitoring and evaluation.

In Higher Education

iii

Annex B: Glossary

AUTM BTG

American Association of University

MOD

Ministry of Defence

Technology Managers

NHS

National Health Service

British Technology Group plc

PSRE Fund

Public Sector Research Exploitation

CASE

Fund

Studentships Cooperative Awards in Science and

PVC

Pro-Vice Chancellor

Engineering: PhD studentships jointly

R&D

Research and Development

funded by industry and the research

RAE

Research Assessment Exercise

councils

RDA

Regional Development Agency

CBI

Confederation of British Industry

RTO

Research and Technology

CPD

Continuing Professional Development

DTI

Department of Trade and Industry

EPSRC

Engineering and Physical Sciences

& Technology

Research Council

Grants to help individuals and small and

HE

Higher Education

medium-sized businesses to make better

HEI

Higher Education Institution

use of technology and to develop

HEIF

Higher Education Innovation Fund

technologically innovative products and

HEROBC

Higher Education Reach Out to

processes

Business and the Community Fund IP

Organisation SMART

SPUR

Research Scheme:

• Background IP

An R&D support scheme whose aim is to

• Existing IP brought to a research

help medium-sized businesses improve their competitiveness by developing new

• Foreground IP

products and processes to the benefit of

• IP generated during a research

the national economy. (Now part of

project Oxford University IP exploitation company MIT

Massachusetts Institute of Technology

iv

Support for Products Under

Intellectual Property

project

Isis

Small Firms Merit Award for Research

Intellectual Property

Smart)

UNICO

The UK University Companies Association

Annex C: AUTM performance measures

In Higher Education

v

Annex C: AUTM performance measures

Some of the benefits from IP management are not

Licences & options executed: non-exclusive (n)

captured in the AUTM system. The most prominent

Total licences & options executed (n)

issue in this regard is when research sponsors are

Licences & options executed to start-ups (n)

attracted by the university’s IP portfolio. These benefits

Licences & options executed to small

to the university are not captured by licence income

companies (n)

alone.

Licences & options executed to large companies (n)

The performance measures used by AUTM

Total licences & options executed (n)

(n=number)

Number of start-up companies formed that were dependent upon the licensing of your institution’s

RESEARCH INPUTS Federal Government Research Expenditure ($)

Number of these that have their primary place of

Research Expenditure from Industrial Sources ($)

business operating in your home state (n)

Total Research Expenditures ($)

Number of start-up companies that were

RESEARCH OUTPUTS RELEVANT TO IP

dependent upon the licensing of your institution’s

MANAGEMENT

technology for initiation and were reported in the

Invention disclosures received (n) IP MANAGEMENT RESOURCES UTILISED

Survey this year or in earlier years that became non-operational in the fiscal year (n)

Licensing Full-Time-Equivalents in technology

Number of start-up companies that were

transfer offices (n)

dependent upon the licensing of your institution’s

Other Full-Time-Equivalents in technology transfer

technology for initiation and were reported in the

offices (n)

Survey this year or in earlier years that were

Total Full-Time-Equivalents (n)

operational as of the last day of the fiscal year (n)

IP MANAGEMENT OUTPUTS

Number of licensed technologies that became

Securing IP

available for consumer (public) or commercial use

Total US patent applications (n)

in the fiscal year (n)

New US patent applications (n)

FINANCIAL PERFORMANCE IN IP

US patents issued (n)

MANAGEMENT

EXPLOITING IP Licences & options executed: exclusive (n)

vi

technology for initiation (n)

Intellectual Property

Licence income received ($) Licence income paid to other institutions ($)

Annex C: AUTM performance measures

Amount spent in legal fees ($) Amount reimbursed by licences ($) Total number of licences/options yielding licence income (n) Licence income received: running royalties ($) Licence income received: cashed-in equity ($) Licence income received: all other types ($)26 PORTFOLIO PERFORMANCE Number of publicly-traded companies in the portfolio (n) Number of privately-held companies in the portfolio (n) Source: The Association of University Technology Managers Inc. Report entitled, AUTM Licensing Survey, Fiscal Year 1998. Note: the indicative classification of these metrics was carried out by SQW Limited.

26 This refers to licence fees and annual fees paid as part of licence agreements.

In Higher Education

vii

viii

Intellectual Property

We would like to express our thanks to UK Business Incubation, HSBC, and Murgitroyd’s for their sponsorship of this project.

The project was overseen by a Steering Committee, chaired by Professor John Archer,

UK Business Incubation is the national representative

Principal of Heriot-Watt University, and comprising staff from the sponsoring bodies and

body for the growing incubation sector. It provides

a range of universities. The composition of the Steering Committee was as follows:

leadership through sharing best practice and providing

The information contained in this publication is not

development opportunities for practitioners and

intended to be comprehensive. Accordingly it should

Disclaimer

Professor John Archer (Chair)

Heriot-Watt University

stakeholders as well as research into this key area of

not be regarded as being a complete and authoritative

David Armitt

DTI

enterprise and entrepreneurial growth and

source of information relating to Intellectual Property or

Andrew Bartlett

Patent Office

development.

Higher Education, and readers are advised to seek

Dr Philip Graham

AURIL and Queens University Belfast

Dr Robin Jackson

Universities UK

UK Business Incubation

anything contained herein. The contributors to this

Brian McCaul

AURIL and The University of Liverpool

Faraday Wharf

publication cannot take any responsibility for the

Dr Frank Moeschler

Patent Office

Aston Science Park

consequences of errors or omissions.

Andrew Morgan

HM Treasury

Holt Street

Professor Stuart Palmer

University of Warwick

Birmingham

The views and opinions expressed in this publication

Sheila Robson

Oxford Brookes University

B7 4BB

are not necessarily those of our sponsors HSBC, UKBI

David Secher

Cambridge University

Dr Jeff Southerton

Pfizer

independent professional advice before acting on

and Murgitroyd's. Tel: 0121 250 3538 email: [email protected] Website: www.ukbi.co.uk

Designed by:

black sheep concept_strategy_communications

Tel: +44 (0) 29 2049 0722

1

Intellectual Property

In Higher Education

ix

Auril/UUK/Patent Office

A Guide to MANAGING IntellectualProperty

A Guide to

MANAGING

Intellectual Property IntellectualProperty

Strategic Decision-Making in Universities

© Auril/Universities UK, 2002