Glass half full?
While it is true that universities and inventors are under pressure, it’s not necessarily the case that innovation will dry up. Indeed, it could even be argued that reduced funding and fewer partnership opportunities will serve as a quality control, forcing universities, partners, and later down the track, investors, to be more discerning, ensuring that only the very best inventions make the grade.
How universities approach the business of developing and commercialising IP rights also has an important role to play, while companies looking to partner with university researchers may find themselves missing an opportunity if they shy away now.
The view from the universities
The last couple of years have been challenging for university research departments in state and private institutions alike. Laura Schoppe, of intellectual asset management firm Fuentek, explains: “The crash hit endowments for private universities. State funds got whacked. State universities had to give money back in some cases.”
Fuentek works with universities, government and corporations to facilitate technology transfer. For the universities, the company aims to identify opportunities to commercialise intellectual property assets, while for corporations and government, it aims to synchronise their technology needs with research undertaken across the globe. Schoppe says that although the economic crisis has made everyone realise they need to do more with less, it doesn’t have to mean that technology transfer suffers.
Indeed, as the economy slowly recovers, universities can benefit from the government’s continued support, while larger corporations are returning to tech transfer as a means of compensating for reductions in their own research budgets. “There’s been a culture shift,” Schoppe says.
Kathleen Denis is associate vice president in charge of technology transfer at New York’s Rockefeller University, a small, private institution that specialises in biomedical research. The university has needed to adapt to the challenging economic climate, and Denis has seen changes in how research programmes are funded over the past couple of years.
Before the crash, it was relatively common for SMEs to invest money in collaborating with the university’s research arm, both in terms of working directly with university researchers, and also through efforts to identify useful technologies that already exist in the university’s portfolio. But this changed during the recession.
“You have to be a lot more understanding, particularly with small and medium-sized companies. They don’t have the staff and the funding—it’s not as easy for them to continue cranking along. Projects are taking a little longer. You have to have some understanding that milestones may not be hit,” she says.
“One consequence is that you have to have a little more flexibility. We’re seeing deals taking longer, and some people want an option to technology rather than an outright licence—they want to test it in their laboratories, or maybe collaborate with our researchers for a year or so before they come up with the money for a licence agreement.”
But although SMEs may be more reluctant to commit resources to university partnerships and technology transfer, that same is not true for everyone. Denis says: “For my first five years or so at Rockefeller, we rarely saw anyone from large companies.
"They would come and talk to us, but we wouldn’t be doing deals with them at a terribly high rate—maybe one a year...But as of the last year or so, large companies that have lightened up their internal research efforts have now begun to realise that their new discoveries have to come from somewhere, because they’re not coming from inside at the rate they were before.”
Larger companies’ new-found enthusiasm for tech transfer takes several forms, from just keeping in touch with the university research centres to more formal partnerships and thorough analyses of the current university research. Sometimes this kind of analysis results in investment or sponsorship, though a straightforward licence for the eventual technology might be the outcome.
Big spender
Of course, it’s not just private companies that are interested in university technologies. Indeed, one of the biggest customers for technology transfer offices is the US government. And while individual states are certainly cutting back their support for universities, government institutions continue to play an important role in scouring the sector for useful innovations. US President Barack Obama is vocally and consistently supportive of American innovation, so federal government agencies are likely to remain key participants.
In a further boon to tech transfer offices, the White House has expressly and recently stated that one of its key objectives is to smooth the path for commercialising inventions and, with its ‘Startup America’ plan, to facilitate effective technology transfer.
Room for improvement
However, while the medium and long-term future for university technology transfer looks positive, this is no time for complacency. Indeed, those universities that manage their technology best will certainly be the most successful in the coming years.
Michael Greenbaum, partner at Blank Rome LLP in Washington, DC, says that the key to a well-functioning technology transfer programme is creating a climate of innovation within the university. “The tech transfer offices that are thinking ahead, or that have a little more global view, realise that they need to create an environment of innovation within the university,” he says.
“As the economy slowly recovers, universities can benefit from the government's continued support, while larger corporations are returning to tech transfer as a means of compensating for reductions in their own research budgets.”
“That's great for the university community. While universities are primarily interested in disseminating learning and knowledge, they have found that they can take discoveries made as the result of government funded research and turn them into new products and technologies that go out and make money. The institutions that can create an entrepreneurial environment will also reap the benefits of better disclosures that are more marketable from an economic standpoint.”
There are several benefits to creating such a climate. “Only a small percentage of disclosures are going to make any real money,” Greenbaum says, “but you want to be able to select from the best possible choices available.”
Schoppe echoes the sentiment, but goes further, suggesting that good processes for identifying the best technologies in a university’s portfolio are vital. She says: “Managing the portfolio proactively is important—many universities are reactive. They should be more proactive about determining which technologies are the most important. Most of them have too much clutter on their desks, but often people in universities find it hard to let go of things they’ve been working on, even if they’re going nowhere.”
Because there is so much research around, companies also suffer when trying to identify the technologies they need. “Deals take forever,” Schoppe says.
One of the ways a university (or a company for that matter) might look to streamline the process is by using outside expertise, whether that be a company like Fuentek to identify and matchmake deals, or a law firm like Blank Rome.
Greenbaum explains that universities can partner with their legal providers more effectively. “We try to make their life easier,” he says. “One of the things we do is, we’ll set up an extranet where they have access to all their documents that we’ve generated, so they don’t need to store paper any more.
"For tech transfer offices where we have long-term relationships, we’ll come and put on a programme on patent law or any other topic of interest that we can add value to for them. We’ll do those for free to help create that climate of innovation.”
There are already some positive signs that universities are moving in the right direction. “One of the universities I work with has started to count patents as publications,” Greenbaum says. “That’s a big issue in academia, and frankly, patents are a lot of work. Universities are trying to become more entrepreneurial, and that’s a good thing.”
He adds: “But the advice in this economic time is the same as in any market—focusing on getting high-quality disclosures and making as educated guesses as you can on which one to invest in, and having a good policy of cutting technologies that aren’t generating any interest.”
Up the chain
Once useful technologies are identified in a university, eventually they are likely to find their way into a company, whether that be a spin-off, an SME or, sometimes, a larger corporation. But in tough economic times, that may not be enough. Often, innovative technology will need substantial financial backing—spin-offs are unlikely to be able to generate enough funding on their own, and launching a product successfully may be impossible without external funds.
Bruce Berman, chief executive of consulting and communications firm Brody Berman Associates in New York, has a number of clients who invest in intellectual property-rich businesses. “Naturally, raising money is more difficult in a capitalconstrained, risk-averse environment, especially for innovative businesses,” he says.
“Funders of young companies would rather invest in management and human resources that in abstract IP rights which may or may not be relevant down the road. However, the last downturn showed that the value of many start-ups and SMEs is highly dependent on IP and that securing the appropriate rights even for young, cash-constrained businesses is often a prudent investment.”
Berman notes that venture capitalists are becoming increasingly IP-savvy, and that they and private equity investors need to be thinking about how to assess the value of IP assets when trying to identify a potential return on investment (ROI).
“I believe that IP, especially patents, will take on an increasingly larger role in PE investing,” he says. “In some cases, it may even become the sole reason for the investment—the proverbial ‘tail that wags the dog’. As the relationship between IP and ROI becomes clearer, so will the desire to control and leverage IP assets, and the businesses or entities that own them.”
Open source
One person one knows much about IP investment is Keith Bergelt, CEO of the Open Invention Network (OIN), which he describes as a “defensive patent management organisation designed to be the whitest of white hats”. A former hedge fund boss, he was the first to offer lending products supported solely by intellectual property. Indeed, he arguably created the idea of IP as a viable asset class.
OIN was founded by IBM, NEC, Novell, Red Hat, Philips and Sony to acquire patents and license them royalty-free to companies that agree not to assert their own patents against the ‘Linux ecosystem’. Bergelt identifies an increasingly “fractured” market, in which “innovation occurs at the edges”, whether that be within companies or geographically.
He sees open source as an opportunity: “If you look back five years from now, you’ll see that many companies in the US and Europe move away from large numbers of patents. Because innovation happens at such a rate, you patent your core technology and publish defensively. Defensive publications are crucial.”
And because open source makes more efficient use of available capital by, in theory, allowing the best technologies to naturally find the most important roles in the system, it’s an excellent model during an economic downturn.
The future
As useful as open source is, it’s unlikely to remove the need for funded research in companies and universities, nor the power of patents to generate interest and revenue for inventors and investors. Rather, it’s likely to become another tool, along with technology transfer, government research and corporate R&D, to encourage and support innovation.
Those that prosper will be the same as those who have always prospered: the people who best identify the right opportunities at the right time, and are best able to manage the development, transfer and application of their assets.
