As noted above, a range of strategies may be employed by intellectual property owners to transfer their technology for downstream
198
This issue is discussed in more detail in Results Chapter 3.
199
See, for example, the latest international Ernst and Young report: Ernst & Young 2003, above n1.
exploitation. In this section we look at some of the specific issues for research institutions in transferring their technology. Some of the most important strategies employed in this sector include licensing- out and assignment to existing companies or creating spin off companies for the specific purpose of exploiting a particular form of technology. Where a spin off is created it is likely that the technology will either be exclusively licensed or assigned to it.
One big threshold problem that was highlighted by research institution respondents was the lack of any real mechanism for searching out commercial partners. However, a licensing consultant pointed out that mechanisms are being developed to provide assistance in this area. For example, there are Internet bulletin boards that advertise technologies available for licensing. For example, the Dupont family runs one and the big accounting firms also have them. Apparently, the Licensing Executives Society is also talking about putting up a worldwide bulletin board.
Technology transfer strategies
Respondents emphasised the importance of being flexible in technology transfer negotiations. One technology transfer officer said that her institution uses various strategies, including assigning to spin offs, licensing and collaborations. A number of research institution respondents said that the favoured mechanism for exploitation of intellectual property is to create a spin off company as a vehicle for ownership. The institution then assigns or exclusively licenses intellectual property to the company and takes an equity share in the company. A Report to the Prime Minister’s Science, Engineering and Innovation Council in 2001 strongly supported the strategy of forming spin offs.200 The Report noted at page 3 that:
If we can grow 200-250 more Australian research- based companies like five of those shown in this report over the next five years, the prize would be around AU$20 billion added to our annual export earnings. Australia would be well on the way to reducing the national debt and the cost of servicing it.
Unfortunately, these figures fail to reflect the high failure rate of biotechnology products, particularly drug-related products.
200
Companies that are reliant on the success of single products have a high risk of failure. Monotti and Ricketson note that although they have no data on the survival rate of spin offs they are prone to failure because of a range of problems, including economies of scale, entering into inappropriate alliances and developing high-risk embryonic technologies.201
One respondent said that he saw biotechnology as potentially heading down the same path as information technology, with a large number of overlapping start-ups and huge portfolios of licensing deals. He said that biotechnology is not there yet but heading that way. A number of company respondents reported that negotiations involving universities are slower than with other companies, because of “the bureaucratic wheel of the university”. It was generally accepted that things are getting better, although some comments were made that scientists and university administrators do not often appreciate the difficulties involved in dealing with a number of different parties. Delays are exacerbated when a number of parties are involved in negotiations. A technology transfer company respondent gave one example of:
a project funded by government. Intellectual property was licensed to one company. The company didn’t want the intellectual property at the end of the project. It had to be transferred to someone else and the university had to sign off on it. This has been going on for a year, with four parties involved.
One respondent mentioned that poor negotiating strategies in the past can have long term effect into the future. If too much intellectual property is given away and obligations with regard to background intellectual property and improvement intellectual property are tied too closely to the commercial partner, it may preclude further negotiations with other commercial entities well into the future. If, as in the case of this respondent, the commercial partner runs into financial difficulties the implications for the development of past intellectual property and for future research could be serious. This is one good reason for having a large pharmaceutical company as a partner; their financial position is generally much more secure than that of small Australian biotechnology companies.
201
Monotti and Ricketson, above n197 at paras 9.59-9.68. See also P. McGinness Intellectual Property Commercialisation: A Business Manager’s Companion (2003) Buttterworths, Sydney, Chapter 21 ‘Spin-Offs’ at 309-320.
Various respondents confirmed that one of the biggest problems in Australia is naivety in bargaining, particularly for research institutions. Even if they have good technology they are not good at the bargaining side, particularly because they lack deal precedents. However, a large pharmaceutical company respondent did acknowledge that institutions are becoming more patent aware. He did not see this as a bad thing because research needs to be protected by good intellectual property. However, the difficulty that arises from this is lack of consistency in intellectual property management strategies across institutions (with Melbourne University being particularly problematic – but not insurmountably so) and overvaluation. He saw this as being a particular problem in Australia because it is not as “savvy” as other places. Valuation tends to be based on an optimistic view of success.
Assignment and licensing
It appears that assignment was a favoured technology transfer strategy for research institutions early in the biotechnology revolution because it was seen to reduce risk. By handing over all rights to the invention for an upfronts fee this essentially removed all risks. However, the cost is that it also removes all control. One respondent noted that if the assignee fails then the intellectual property is lost. More recently, there has been a growing trend for research institutions either to retain ownership of their intellectual property and license-out to industry or to form a spin off company for the purpose of commercialising a particular product.
Two of the benefits of licences from the research institution perspective are that if ownership remains with the institution it can still be counted in the institution’s intellectual property portfolio, and that licences are not public documents whereas assignment must be publicly disclosed. On the other hand, from the company perspective, ownership of intellectual property is essential to ensure return on investment in the research project. One respondent from a device company expressed the view that the main headaches that arise in collaborations his company has are ownership and disclosure of information issues. This was echoed by a number of company respondents from all stages of the development continuum, and was a matter that most sought to resolve early in the collaborative relationship.
One company respondent noted that in 99 out of 100 cases, the research institution retains ownership, either independently or with the industry partner as a co-owner. This respondent noted further that if the company contributes funding to the research, then co-ownership is expected. Industry partners are understandably reluctant to advance funds for research without some assurance that they would realise a return on their investment. It appears that shared ownership is becoming increasingly common as research institutions assert their rights to technology developed as a result of collaborative ventures, although they may still face some opposition from private sector companies. This comment from a university technology transfer officer sums up the position of many research institution respondents:
We may have collaborations to do a piece of work in which case the technology is shared. We consider all options and focus on what is best for the project. We want to make sure that we get a good deal. I don’t get involved in these negotiations. They are pretty hard headed.
A number of respondents reported that where there is industry funding of a research and development program the company sponsor will at least require a right of first refusal to intellectual property and know how derived from the project. This may become problematic when an institution is funded to carry out research relating to improvements to existing intellectual property. One respondent commented on the particular difficulties that may be encountered in negotiating who has rights to the improvements on existing intellectual property owned by the company sponsoring the research, particularly when they are separately patentable. The problems associated with rights to improvement and rights to future intellectual property more generally are discussed in detail in Results Chapter 4. One of the crucial licensing decisions is whether to grant an exclusive or a non-exclusive licence. The nature of the licence would seem to depend very much on the technology. For example, it is likely that gene patents will be non-exclusively licensed, unless they are exclusively licensed to a spin off company which then non- exclusively sub-licences. Drug-based licences tend to be exclusive. In many cases there will be different licences for different aspects of the technology: some components may be non-exclusively licensed whereas other components are exclusively licensed. We discuss the
issues associated with exclusive and non-exclusive licensing more fully in Results Chapter 4.