University-Industry Collaboration and Technology Transfer

By Mr Ben Rapinoja and Ms Aura Soininen

Universities lie in the core of successful, leading economies in the world. They have traditionally been thought of as the places for higher education and basic research, but serve increasingly also other than purely public interests. Particularly U.S. universities are actively pushing the commercialisation of their inventions through spin-offs, and technology and patent licensing. The political agenda of stimulating collaboration between universities and the industry, technology transfer and commercialisation of university-born inventions can also be perceived in Europe. New legislation regarding the ability of universities to hold shares in companies has been issued in Finland, for example, and another legislative change is on its way. In December 2004, the Finnish government submitted a proposal for a new Act on university inventions. The Act aims at diminishing difficulties concerning the distribution of intellectual property rights in research projects undertaken by universities and other institutions of higher education. This article discusses trends in university-industry collaboration and technology transfer in general and points out some key aspects regarding the Finnish regulative reforms.

Universities are situated in the crossroads of research, education and innovation. Indeed, according to the Communication from the Commission "The Role of the Universities in the Europe of Knowledge" (COM(2003) 58 final) universities attract an increasing number of students, they employ 34% of the total number of researchers, and are responsible for 80% of the fundamental research pursued in Europe. However, compared to the U.S. knowledge is regarded as being transferred and disseminated efficiently enough in Europe. In Commission’s view cooperation between universities and the industry needs to be intensified and university-inventions geared more into innovations. One of the problems Commission has identified is that in Europe fundamental research is often separate from its potential business applications resulting in companies’ willingness to invest in applied rather than fundamental research. In general, the share of so-called contract-based research is increasing, and universities are moving from exploratory science towards commercially profitable R&D changing the scope of academic research. Meanwhile, the fundamental research takes already potential business applications into consideration in the U.S. Nevertheless, universities work with the industry without compromising their guiding principles of teaching, research, open dissemination of information and serving the public. Also companies realize the benefits of being tapped into the university research pool through industry corsortia membership, for instance, and sourcing new inventions as well as skilled workforce from them particularly in new areas such as biotechnology and biomedicine.

It is vital that knowledge flows from universities into business and society. Most technology transfer takes place through traditional ways; teaching, publications, and students, but there are two main ways through which expertise possessed and

developed by universities can flow directly to industry: licensing of intellectual property, and spin-off and start-up companies. The core for both paths lies in the creation and ownership of intellectual property. Indeed, when comparing the university-industry collaboration and technology transfer in the U.S. and European universities, one of the major differences resides in the ways intellectual property rights, such as patents and copyrights, are acquired, managed and exploited. The U.S. universities also provide a more entrepreunial environment than their European counterparts. Since 1980 there has been over 4300 university start-ups in the U.S. As to spin-offs for instance California universities and research institutes have spun-off over 600 companies.

Universities are entangled in many types of research activities, some of which are government funded and some which receive varying shares of financing from external, private parties. As regards to further development and commercialisation of university research the ownership of intellectual property (IP) is critical. It determines the ways in which research results can be utilized. The key players in this area, and thus the potential IP holders either by law or contract, are the following:

1. the university or other similar institution from which the research results have originated
2. the researcher who has created the work such as computer software or came up with the invention, and
3. the investor or other commercial partner seeking to further-develop and commercialise the invention.

All these parties have their own, often conflicting interests: universities tend to stress the free disclosure of research data and openness in sharing the results while investors act profit-potential in mind and typically require strict confidentiality and aim at making the results proprietary. Also, researchers may have their own views regarding the exploitation of the inventions. The situation is complicated even further by the fact that researchers often hold positions in universities, but are at the same time involved in various research projects funded by different parties, work for companies or even have their own firms. Thus, although the research agreements forged between universities and investors were very carefully constructed and the university had properly made sure that it holds the rights to the inventions made by its research staff, difficulties may arise in determining who exactly owns the rights in the first place. In the worst case the researcher, university and the company are able to claim ownership simultaneously.

The above-mentioned conflicts may have an effect on the commercialisation of university-inventions even if the university did its best in managing intellectual property rights (IPR). However, the problem is more severe in practise as many European universities have insufficient financial resources dedicated to IPR management, and their IPR policies and contract practices are often undeveloped. European universities are not typically as active as their U.S. counterparts in driving the protection or commercialisation of inventions. The ideology of "open science" is strong, and the benefits of patent protection regarded as limited. Indeed, although patent protection is often applied for if the research is contract-based, and thus companies have an agenda to finance it, it is not a standard procedure in European universities to patent inventions resulting from government-funded, so-called open research. Indeed, the initiative to file for patent protection comes typically from researchers themselves. Also, although many European universities offer different types of innovation services to researchers, they seldom have separate technology licensing units through which they would seek to generate revenues for both the university and the inventor. However, the situation appears to be changing: there has been an evident movement towards involvement of universities in ownership and licensing of intellectual property based upon publicly funded research. In fact, governments of many European countries are encouraging the formation of external technology licensing organizations.

The U.S. experiences can be identified as one of the main motivations behind the European policy shift towards encouraging university wealth creation by creating and exploiting intellectual property rights. For instance Stanford University, located in Palo Alto, California, began its licensing program over 30 years ago. During its first 30-years of operation (1970-2000) 1050 patents were issued to Stanford, and in fiscal year 1999- 2000 it generated total income of $35 million with an operating budget of $2.4 million. The two major royalty-earning inventions in Stanford have been the Cohen-Boyer Recombinant DNA invention, which has been licensed on a non-exclusive basis, and the frequency modulation sound synthesis invention licensed exclusively to Yamaha. Nevertheless, the university view is not revenue-highlighted, but takes into consideration responsibilities to the public. This is reflected in licensing terms and conditions. Small firms get often a better deal than big companies, for instance, and exclusive licenses are not typically granted to research tools. As regards to the dissemination of the revenue, the Stanford University policy is to divide one-third of the net revenues to the university, one-third to the department and one-third to the inventor.

Most universities in the U.S. have not been successful in establishing profitable technology licensing programs, and criticism of such a shift has been strong across the Atlantic. It is often argued that purely commercial technology transfer operations do not belong to the main functions of universities, and aiming at profit-generation through applying for and granting exclusive rights is against universities’ responsibilities to disseminate knowledge to the public.

The U.S. and European innovation policy aim at maximizing the public use of and benefit from university research. In order to achieve the policy goals, legislative changes have been needed, and the legal regime is also currently under construction in many countries. Bayh-Dole Act that simplified and codified the terms on which institutions conducting federally funded research could seek intellectual property protection was introduced in 1980 in the U.S., and in Europe many countries have modified their national legislations regarding particularly the ownership of intellectual property based upon university research. Approaches adopted vary: in Denmark the rights to university-inventions belong to researchers but universities have the right to take up such inventions in certain cases, in Norway and Germany the Employee inventions Act is nowadays applicable to university-inventions although some specific terms apply, and in Great-Britain universities own the inventions.

In Finland new legislation regarding the ability of universities to hold shares in companies has been issued, and a proposal for a new Act on university inventions has been submitted in December 2004. The former will come into effect this autumn and the latter on 1st of January 2006. The aim of these reforms is to ensure the competitiveness and efficiency of the Finnish innovation policy, and particularly, technology transfer.

The first-mentioned Finnish legislative reform relates to the possibility of universities to hold company shares, which has not been possible according to the prevailing legislation. Therefore, although researchers or other university employees have been able to set up companies in order to commercialise research results, the Finnish technology transfer practice has differed quite considerably from that employed in the U.S., for example.

Although the new legislation will make it possible for universities to become company shareholders, a separate resolution issued by the Ministry of Education would still be required in order to establish such a company. Furthermore, the university will have to plan its strategy in advance and assess its role in such a university-owned company. One of the key questions will, however, be the role of the university personnel in these firms: conflicts of interest and problems regarding the ownership of research results may easily surface when the university and the university-owned company have employed the same person. In such a case clear policy defining the work assignments in relation to both entities ought to be established.

Of course, the new rules provide universities with a number of possibilities to diversify their activities as well as strengthen their relationship with the commercial world. By establishing separate technology transfer units and spin-off companies that would be responsible for non-academic functions, universities could also focus on their core activities. It is yet to be seen whether universities adopt such an active role in this respect.

The other legislative reform concerns the ownership of university-inventions and the procedures that should be undertaken regarding such inventions. No such law has previously existed in Finland, and the rights to so-called university inventions have remained with the inventors. This is because just like in Sweden, Denmark, Norway and Germany the Finnish Employee Inventions Act has not been applicable to teachers and researchers of universities. Under this Act an employer has the right, when certain prerequisites have been met, to acquire rights to an invention created by an employee in the performance of his work duties and falling within the field of activity of the employer. Due to the exemption considerable administration and management of intellectual property rights from universities has been required, as they have had to agree separately on rights to inventions with both the inventors and the investors. In practice, such policies have not necessarily existed, and assignments of rights have not always been made at all.

Although the proposed Act will not change the need for proper contract construction, it clarifies the rights and obligations of the parties. The new Act would be applicable to inventions created not only by teachers and researchers who are currently exempted from the application of the Finnish Employee Inventions Act, but also to inventions made by all other persons employed by or in the service of all institutions of higher education, including so-called ‘polytechnics’.

As noted above the prevailing Employee Inventions Act does not apply to university researchers and therefore, the starting point currently is that they own all the rights to the inventions conceived during the research activities, unless, of course, these rights have been contractually transferred to the university or other instances. In the future, the basic assumption would be the same but institutions would always have to be notified of an invention, thus ensuring that new inventions are effectively monitored and administered, and they would be granted a right to take up such inventions in certain cases by virtue of law. Here distinction would be made between open and contract research depending on whether an outside party has participated in the research project.

According to the proposition research would always be characterised as contract-based if an agreement has been concluded, providing for the full or partial transfer of rights to any party outside the institution of higher education. In these cases, after receiving the invention notification from the inventor, the institution of higher education would have six months to decide whether to acquire the rights to it or not. Then again, if there were no outside participation, research would be typified as open. In these cases, the institution would have the right to acquire the rights only if the inventor has no plans to utilise the invention. Rights to inventions ensuing from other activities would remain with the inventor, but the institution of higher education would have the prerogative to negotiate a deal for the transfer of rights with the inventor. The new Act would also limit the right of the inventor and the institution to disclose information concerning the invention, if such a disclosure would endanger the utilisation of the invention in the future.

As explained above, the scope of the rights an institution of higher education can acquire from the inventor would depend on the nature of the research leading to the invention. Also the remuneration paid to the inventors should be determined accordingly. According to the proposal the employee or researcher would always be entitled to a reasonable compensation for the transfer of rights to the invention. "Reasonable compensation" would not correspond the value of the invention itself, however, but it should amount to an appropriate incentive for researchers. The basis for determining the remuneration would nevertheless be somewhat different from that used for determining the compensation under the Employee Inventions Act.

It has been argued that the new legislation would simplify difficulties regarding the transfer of rights between inventors, universities and companies as the adoption of the proposal would enable these parties to focus on other key questions, such as project management, determining the compensation level and license and non-disclosure provisions. In addition, the proposal emphasises the importance of agreeing upon various issues and details regarding research projects, and thus these proposed reforms should also have a profound positive impact on companies cooperating with universities.

Many forms of university-industry collaboration exist and it is becoming increasingly common that various external parties are involved in university research activities. There has also been pressure towards European universities driving the commercialisation of inventions originated from open research. Managing the shift without loosing sight of universities’ primary functions and public responsibilities is a challenging task.

From legal perspective the situation regarding the ownership of university-inventions has been complex resulting in many arguments, and ultimately difficulties in technology transfer. Although many quite significant legal changes have taken place around Europe establishing some common guidelines for the treatment of such inventions, for instance, the situation is not conflict-free. It must be stressed that all the parties involved in university-related cooperation and technology transfer should always ensure that intellectual property rights have been accurately assigned and other legal pitfalls in relation to the university, researchers, companies and investors have been excluded.

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