After Failing to Commercialize, Universities Learn to Set Ideas Free

anada continues to perform relatively well in terms of public spending for research and development (R&D), ranking eighth (Conference Board of Canada 2015) out of 16 peer countries¹ with more than CDN$12 billion being spent on research in various fields by Canadian universities and teaching hospitals. The scientific research that is produced by these institutions is well respected. For example, Canada ranked fifth (behind Switzerland, the United States, the Netherlands and the United Kingdom) for top-cited publications (Conference Board of Canada 2017) and, according to Canada’s 2014 "State of the Nation" report (Science, Technology and Innovation Council 2015), Canada had 96 researchers among the most cited in their research fields and ranked sixth after the United States, the United Kingdom, China, Germany and Japan. Canadian universities also hold significant patent portfolios and are responsible for many groundbreaking inventions.

Despite these achievements, however, Canadian universities fail to optimally leverage their research output to advance productization of innovation and hence economic outcomes. This is, in part, because in Canada, as in many other countries, there is an expectation that universities, the producers of the research, will advance innovation by starting up companies and by filing and licensing patents. There is evidence, however, that Canadian universities are not equipped to do this: “universities are lumbering beasts, ill adapted to the quick pivots and strategizing necessary to take an idea to market and scale it” (Gold 2016).

From an industry perspective, the outcome of the activities presently undertaken by universities is not effective. For example, a recent US study has shown that when companies took a patent license from a university as a result of a licensing request or a lawsuit, the license typically did not include technology transfer, transfer of personnel or consulting arrangements or joint ventures, and the license did not result in new inventions for the licensee (Feldman and Lemley 2015). 

In Canada, while universities make “licensing requests,” they are less likely to sue companies for failing to take a license. This is because they, like many other universities, worry about “the potential to alienate donors, upset politicians with ties to defendants, and potentially cause universities to be seen as undermining their public service values” (Rooksby 2013). The net effect of this approach is that if there is no fear of a lawsuit, then, unless there is some other related benefit in taking a license, a company is going to be unlikely to want to enter into an arrangement requiring it to pay royalties. In addition, because Canadian companies are typically unwilling to sue companies that are infringing on their intellectual property (IP), they do not benefit from significant payouts from lawsuits, as have American universities that have won damage awards in the hundreds of millions of dollars.²

Yet another impediment to effective university commercialization is the engagement process between universities and industry. Entrepreneurs who have engaged with universities for the use of their technologies or the licensing of their IP have expressed concerns about the universities’ onerous processes, which are protracted and costly. They further report that the universities’ financial and contractual expectations are unrealistic.

In an interview conducted by the author, one Canadian company that manufactures and distributes a popular line of wearable lifestyle products and that frequently collaborates with Canadian universities for R&D expressed frustration over the fact that there was no consistency of agreements between universities, that there are unrealistic expectations in terms of IP ownership and licensing rights, that there are delays in trying to finalize agreements and that all of these factors result in significant legal costs that seem unjustified, given the level of R&D expenditure. Another Canadian company (with the pseudonym “MobilePhoto Company”) licensed technology from two separate universities as the backbone for its commercial offering, and it too encountered challenges in its contractual arrangements with the universities. Some of the specific challenges it encountered were in terms of making sure that rights from all inventors were properly vested with the university, and that it received the necessary rights to be able to raise capital and commercialize its product as desired. MobilePhoto Company spent more than 10 percent of the venture capital it had raised on legal fees for transacting with the universities.

Another concern is the inability to locate and access academic research results having commercial potential. Specifically, the inability to uncover details about research projects makes it difficult to fully leverage the technology and IP for commercialization purposes. TandemLaunch is an organization that is in the business of commercializing university R&D and IP in the fields of consumer electronics and multimedia. In an interview conducted by the author, one of the specific concerns that its founder and staff raised was with respect to the challenges associated with accessing information that is relevant to the commercialization of university IP.

Finally, there is a concern that there should be more careful consideration about the stage of development at the time of licensing or spinoff. It is believed that when the technology/IP is spun out into a start-up, it is not sufficiently ready for commercialization and requires significant support from the founding researchers. Given their dedication to pure research, many of the researchers are often unwilling to engage with the commercial partner or are unwilling to do so on reasonable and fair terms. In an interview conducted by the author, one serial entrepreneur who has worked with university spinoffs commented on a challenge he experienced with one of the companies he worked with: “the technology was licensed to the company while it was still too underdeveloped and it was challenging to get the support of the researchers to develop the technology once it was seen to be outside of the university setting.”

Some Canadian universities now acknowledge the aforementioned impediments to the effective commercialization of their research and are seeking to address these by embracing other models of engaging with industry. For example, the University of Ottawa and École de Technologie Supérieure have joined an international collective of universities that is “committed to transferring as much IP into commercial use” as possible by making it available for free and based on simplified and balanced agreements.³ This approach has been adopted on the premise that these types of arrangements will facilitate more collaborative relationships with industry in order to lead to stronger partnerships. Often, the IP that is made available for free is in its early stages and hence would be difficult to commercialize without support from originating researchers. 

In a similar vein, McGill University has recently embarked on an open science initiative in its neurological institute. This initiative is premised on the open sharing of research data and materials so that they can move freely between researchers in all disciplines with the end goal of spurring innovation. This approach is considered to have great impact within and outside of academia. From an industry perspective, the research can be more easily accessed and can stimulate the creation of new products and solutions that can be commercialized. 

Also, based on a recognition that universities are not well equipped to engage in commercialization activities, independent entities outside of the university setting are beginning to engage in the commercialization of university-generated IP. Two Canadian examples of an independent approach to commercialization of university research and IP are TandemLaunch and TEC Edmonton.

TEC Edmonton is a partnership between the University of Alberta and the Edmonton Economic Development Corporation (which represents the City of Edmonton). In entering into this partnership, the University of Alberta is focused on regional economic development instead of on licensing revenues, given that such revenues tend to be “fickle” and insubstantial, in particular after taking into account the cost of running a university-based technology transfer office. TEC Edmonton has seen considerable success in terms of its commercialization activities, and it attributes this success to an approach that is balanced and takes into account the interests and concerns of industry. 

TandemLaunch is a truly independent commercial organization that is not tied to any particular university or region. Instead, it is an organization that works with universities in various geographic regions to transfer desirable technology to newly formed entities. The approach entails having a sophisticated commercial and technology-savvy team identifying market demand for a commercial product, identifying the universities that are involved in leading-edge research for such technologies, securing rights in respect of such university research and IP for commercialization purposes, putting together the right team to commercialize the product, and then spinning off a viable company with an appropriate management team and a reasonable amount of financing. TandemLaunch effectively creates “synthetic companies” around university-generated ideas and patents that have immediate relevance in the market place. TandemLaunch, in turn, takes an ownership interest in these new companies.

However, while these sorts of initiatives certainly facilitate the more effective use of university-generated IP to support innovation, they do not really support industry in terms of one of the most significant challenges that Canadian companies experience when they are seeking to scale up and compete globally: the challenges associated with their own weak IP portfolios. 

Many Canadian technology companies that have sought to expand into foreign markets are confronted by IP litigation once they reach a certain size and scale. When this occurs, they are generally ill equipped to defend themselves due to weak IP portfolios and strategies. Also, when Canadian companies introduce their products and services into foreign markets, their products and services are “copied” by others with little recourse. Canadian companies are often not poised to assert IP to counteract the copying because of their own weak IP portfolios and strategies. The activities engaged in by technology transfer offices at universities do not tend to support making IP accessible to Canadian companies, either for defensive or offensive purposes, to help them counteract issues surrounding assertion or copying activities that these companies encounter when they scale up and enter global markets. 

In Canada, universities should be encouraged to help Canadian companies overcome their IP challenges by facilitating the use of university IP to “augment” their own IP portfolios for both offensive and defensive purposes. Offensive purposes would include the university, or other entity, enforcing against certain foreign competitors for patent infringement at the request of a licensee, or allowing an exclusive licensee to enforce against a competitor for patent infringement for sales in foreign markets.⁴

Defensive purposes would include allowing licensees to assert university IP against a company once the other company asserts its IP. This sort of defensive strategy of counter-asserting patents is quite common in many industries, and serves as a deterrent to lawsuits between competitors. Because of a lack of sophistication, however, companies may not have a portfolio of patents that they can use for counter-assertion purposes, and, hence, they must acquire rights to third-party patents that they can use for this defensive strategy. Often these patents are acquired in the private sector from a “defensive patent aggregator.”

Universities or a third-party aggregator set up for this purpose could act like defensive patent aggregators (following the model that is used in the private sector⁵) by aggregating university patents and making them available to members for defensive purposes. For example, patents that are otherwise not being commercially exploited could be aggregated from various universities and made available to Canadian companies that become members of the university-based aggregator for countersuit, should they be sued by a foreign operating company. The model, once tested, might even expand to allowing member companies, under certain conditions, to be able to license patents for offensive purposes to assert them against foreign operators when the activities of such foreign operators are having a significant detrimental impact on the operations of the member company.

Under such a model, the university would be facilitating the interests of Canadian companies in a positive way by helping them to defend themselves in litigation. The program would also generate revenues for universities by virtue of annual membership fees and potential incremental fees when a company sought rights to a specific patent to be able to have it asserted against a foreign company. Specifically, the university patent aggregator could charge incremental fees if it were asked to assert IP against such a foreign party. Finally, this type of an initiative may provide the additional benefit of fostering dialogue between the universities and member organizations.

Another option available to Canadian policy makers is to follow the lead of countries that have developed sovereign patent funds (SPFs), whereby public funding has been used to acquire patents with the goal of supporting national economic objectives. Specifically, SPFs have been established in South Korea, France, Taiwan, Province of China and Japan. These SPFs are intended to support the growth of domestic firms and may use patents against foreign companies that have asserted their patents against a domestic company (Clarke and Hinton 2016). Also, the SPF’s patents can be used offensively to strike out against competitors that are having a detrimental impact on the business prospects of a domestic company. In Canada’s case, instead of or in addition to using public funds, it may be viable to encourage the transfer of university patents into an appropriately structured entity for the purposes of helping Canadian companies address their IP challenges. This approach was, in fact, used by the Korean SPF Intellectual Discovery, which acquired 269 patents from the Electronics and Telecommunications Research Institute, a Korean government-funded research institute (ibid.).

While an SPF-type model of creating an independent entity may not be as attractive from a revenue-generating perspective for universities, it may better serve the interests of industry. Such an independent body could be better suited to engaging in assertion and enforcement activities. If appropriately structured, such an independent entity could also facilitate access to independent strategic advice for Canadian companies facing assertion claims. In fact, one of the purported advantages of the French SPF, Brevets, is that it provides “high-level professional expertise to SMEs [small and medium enterprises] that would not otherwise be able to access such resources” (ibid.). Another benefit of having an independent entity being able to assert these patents is that this would help to alleviate concerns expressed by universities about negative public sentiment associated with suing companies for patent infringement.

In addition, if the entity were to assert patents against a foreign entity, it could generate a return for the public investment that had been made to generate the IP, and creative licensing strategies could ensure that this return would not be at the expense of Canadian taxpayers. If patents were to be asserted against a foreign company, that company could be excused from paying royalties for sales within Canada so that taxpayers that had funded the R&D would not have to “pay twice” for the technology. This approach has been adopted by at least one foreign university that has asserted its patents on a global basis. In that case, the foreign university exempted licensees from royalties for sales within its own country. Finally, an ancillary benefit of transferring patents to a third party entity is that such a practice may incentivize companies to transact and collaborate with universities for fear that, if they fail to engage with these universities, they may be on the receiving end of a lawsuit if and when the patent is transferred to the independent entity.

The approaches described above may be worth exploring if, at a policy level, the goal is to maximize the impact that universities have on the growth of Canadian industry and on the innovation economy, as these approaches may enable the results of research and IP to be more easily leveraged by industry, and they offer a number of benefits. These approaches take the commercialization process out of the hands of ill-equipped universities and put it into the hands of more independent expert bodies, or they make the results of research and IP available for free to Canadian companies. Most importantly, these approaches take into account the real challenges experienced by industry as companies seek to grow and scale up internationally, and they explore ways in which university-generated IP can be leveraged to address the challenges experienced by Canadian companies as a result of their own weak IP portfolios and strategies. 

Given the value of IP in today’s innovation economy, federal and provincial policy makers should explore the various avenues that facilitate the use of university-generated IP by industry, including those described above, and encourage universities to embrace them.