Written evidence submitted by Innovate UK (MIP0006)

Introduction

1. Innovate UK is the UK’s innovation agency, a non-departmental public body sponsored by BEIS.  It is the prime channel through which the Government incentivises innovation in business.  Innovate UK is business-led.  Our governing board and executive team is comprised of experienced business innovators and experts.  We work with people, companies and partner organisations to find and drive the science and technology innovations that will increase productivity and exports and grow the UK economy.

2. We are working to:

• turn scientific excellence into economic impact and deliver results through innovation, in collaboration with the research community and government;
• accelerate UK economic growth by nurturing high-growth potential SMEs in key market sectors, helping them to become high-growth mid-sized companies with strong productivity and export success;
• build on innovation excellence throughout the UK, investing locally in areas of strength;
• develop Catapult centres within a national innovation network to provide access to cutting-edge technologies, encourage inward investment and enable technical advances in existing businesses; and,
• evolve our funding models, ensuring businesses we work with get the right kind of funding at the right time and helping public money go further and work harder.

3. In line with our strategy[1] we operate across Government and advise on polices which relate to technology, innovation and knowledge transfer.  We also support Government departments to become more efficient by supporting them in developing innovative solutions through harnessing the creativity that businesses can offer.

4. Innovate UK was established in July 2007 (as the Technology Strategy Board). We have invested over £1.8 billion in innovation, and have helped more than 7,600 innovative companies in projects estimated to add up to £13.1 billion to the UK economy and created an average of 7 jobs per company we have worked with. Our investment over the last 9 years has meant that every £1 invested has returned up to £7.30 GVA to the economy and created 55,000 jobs. The private sector more than matches that investment, doubling the power of public sector money. We work with nearly every University in the UK to stimulate the commercialisation of leading-edge academic research and innovation.

5. Innovate UK’s role includes working with partner organisations to maximise the impact of the UK research base by stimulating and supporting UK business innovation and helping businesses better engage with the research base. We do this by funding a broad range of innovation projects and by providing expert advice, connections and support through the Enterprise Europe Network and Knowledge Transfer Network (KTN).

6. A significant proportion of Innovate UK funding goes into the UK research base[2] (20% representing an annual spend of over £100m), this provides support to over 140 individual research base organisations to enable their participation in business-led collaborations. 55% of all Innovate UK projects involve research base partners (both by project number and value) and 82% of our collaborative projects involve the research base. As a result of this engagement, Innovate UK is well placed to comment on the perceptions of the business communities in working with the research base on technology transfer (TT) and commercialisation.

7. Innovate UK welcomes the Committee’s inquiry into Managing Intellectual Property and TT. Our response comprises 2 sections, firstly we have provided some background information, this is followed by further information focussing on a number of key areas of relevance to Innovate UK and our communities, for the Committee’s consideration.

8. Innovate UK welcomes the work currently being undertaken by HEFCE; in particular the McMillan Review of good practice in university TT and the development of a Knowledge Exchange Performance Framework, and related work by PraxisUnico. While we have referenced this work throughout our response, we have not sought to quote them directly as these points will be included within the respective organisations’ own responses.

Background

9. It is important to clarify first what we mean by the terms Intellectual Property (IP) and TT. TT, in this context, is understood to be the processes of exploiting university owned research outputs through licensing of intellectual property rights (patents, copyright, trade mark and design rights) to existing companies and setting up new, spin-out companies.

10. Universities also deal with intellectual property through their Research Offices, which handle the negotiation with partner or customer organisations of terms relating to collaborative research, contract research etc. This includes rights to exploit the intellectual property arising from such work. Innovate UK welcomes that this area is the subject of the second stage of the McMillan Review being undertaken by HEFCE.

11. Most UK universities are charitable bodies and are therefore required to comply with charity law. Their charitable objectives are research, training, scholarship and the application of new knowledge arising from these activities. Everything that universities do must be in line with these objectives.

12. The Dowling Review[3] highlighted that there is perceived to be a tension between UK universities’ desire to earn short-term income from their IP and the need to deliver wider public benefit, and potentially greater long-term return on investment from this IP.

13. HEFCE are currently undertaking a number of exercises (as commissioned by government in the Science and Innovation Strategy 2014[4]) to understand the problem in more detail, clarify the issues, identify comparators and possible solutions.  This is partly through the development of the Knowledge Exchange Framework (KEF) which is comprised of two main strands; a repository of good practices in KE, and KE benchmarking tools.  In addition, HEFCE has commissioned a KEF Champion, Professor Trevor McMillan Vice-Chancellor of Keele University, to undertake a detailed review of TT looking at all aspects of university functioning in TT: the processes of exploiting intellectual property owned by universities through licensing to existing companies or spinning out new companies. Innovate UK welcomes the McMillan Review’s first report[5] and our response draws on a number of its conclusions.

Key Messages

1. Difficulties Facing Business

14. Innovate UK is in a unique position to hear the concerns of business, particularly SMEs, working with UK universities and it is well known that some find the interaction difficult.  We also recognise that expectations, levels of experience and expertise, and ultimate objectives can be variable both within business and academia.  However, commercialisation policy and the location of authority differs from one university to another. Some universities combine their Technology Transfer Office (TTO) activities with those of the Research Office (RO), others keep them separate. Also, some combine their TTO with their Knowledge Exchange Office (KEO) and some combine their KEO and RO whilst keeping the TTO separate (for example as a wholly-owned subsidiary with a different name). This can be very difficult for a business to navigate and can cause considerable frustration when dealing with a number of universities for different purposes.  We are, therefore, working with the Enterprise Europe Network, the KTN and the National Centre for Universities and Business (NCUB), to ensure that high quality and consistent information and support are available to businesses wherever they are located across the UK, and we would be happy to work with PraxisUnico to ensure consistency across the business/university interface.

15. Similarly, the skills and expertise required for IP exploitation often do not exist in SMEs and they may not have a full understanding of the legal requirements involved. More can be done to help educate and support SMEs and inventors on IP – the Enterprise Europe Network have a specific role here through a dedicated team[6], supported by the KTN, the IPO and Innovate UK, in providing business with a single main point of contact for information and signposting to professional advice.

16. The Royal Society has reported[7] that many TTOs find it very difficult to engage with the SME business community, instead relying on exploitation routes with large corporates which can become restrictive. In contrast, many KE offices work well with SMEs, bringing supply chains together. Therefore more could be done to bring TT functions together with the broader KE work in many HEIs. For SMEs, the time and costs associated with engaging with a university can be prohibitive and many lack the capacity to absorb the outputs of academic research. The main sources of funding for small and medium sized businesses have been the EU through Horizon 2020, and the SME Instrument, and Innovate UK funding (through Catalysts, KTP, Smart etc) but all are under pressure and insufficient to fully meet the needs.  More, targeted funding is required to support SMEs in building sustainable, strategic collaborations with academia and develop the absorptive capacity to take emerging and disruptive technologies through to commercialisation.

2. Protecting IP vs Wider Public Benefit

17. The HE Business and Community Interaction Survey (HEBCIS) data[8] indicates that during 2013/14 universities received 3% (£131M) of the overall income from business and community sources through intellectual property (licensing and spin-out activity) while nearly 60% (£2.3B) was received from collaborative and contract research with third parties.

Table 1 - Income earned by HEIs from business and community sources[9]

18. Universities should identify and support research that have the potential to deliver long-term economic value, as well as strengthening the collaborative and contract research that make up the majority of universities’ income from collaboration with business and will be of greater benefit to the wider economy.

19. While IP licensing contributes only a small fraction of university external income, the greater benefit for the economy is delivered through the companies to whom the IP is licensed; many of which will put this together with other IP of their own, or from other sources, and invest to develop new products and services and increase business growth, productivity and jobs.  If universities are over protective of their IP this can substantially limit the scope for commercialisation.  Rather, they should use the IP as one of the tools to support developing and building strong partnerships and collaboration with business which will, in turn, lead to proportionally greater income to the university through collaborative and contract research.  This should be the thrust of any new metrics developed to monitor and measure university performance, rather than the generation of income simply through licence deals.

20. Spin-outs, again, are small in terms of % income to universities, as their equity will generally be heavily diluted by the time any value can be realised, but are not un-important to the wider economy.  The challenge is to ensure that those with real potential are identified early and are helped to grow faster and more effectively. Innovate UK’s Innovation and Commercialisation of University Research[10] (ICURe) pilot programme, run by the SETsquared group of universities, has successfully provided such spin-out companies with early stage support (training, mentoring and intensive market validation) to increase the likelihood of long-term success. Subject to the availability of funding, there is significant scope to scale-up this programme to roll it out across the UK.

21. Through an international comparison, NESTA have reported[11] that an increase in formal IP rights for university research can hinder knowledge transfer between university and industry, and impacts negatively on industrial innovation that relies on university generated knowledge as an input to the innovation process.

3. ‘Eco-Systems’

22. NESTA have also reported11 that the perceived challenges in research commercialisation and TT are not unique to the UK and are reflected across Europe and beyond.  In addition, they report that the UK funding model for university TT is not dissimilar to many others across the world, in that they need to generate sufficient income to support their own activities as well as reward inventors and the institution.  However, the extent to which TTOs are able to do this depends upon a number of factors; including the strength of the underlying research base, its ability to generate high quality IP and the quality of the TTO itself.  They assert that, in the UK (and Europe more widely) most universities will not have the strength in the research base to sustain the required level (quality and quantity) of TTO activity.  Indeed, in most countries, only a very small number of institutions, license deals and spin-out companies account for most of the income generated.  For example, only 3 out of 10,000 inventions commercialised by Stanford University TTO in the US over the past 30 years produced two-thirds of their revenues.  In the UK, the top 10% of universities account for 61% of gross IPR recorded5.

23. It has been shown[12] that a ‘one-size fits all’ approach to IP will not work for universities, a structured approach is required to create a suite of IP policies and practices that reflects the individual institution’s strategies for knowledge creation, scholarship and learning. The definition of such an approach in terms of standards and expectations could be led by PraxisUnico in partnership with the Learned Societies. The eco-system within which the university operates is also crucial in determining the right approach and  includes the size and shape of the private sector with which they engage and the entrepreneurial environment.

24. HEFCE have also reported[13] that direct comparisons with other institutions (e.g. best in world) are problematic due to the effects of other differences; for example different sizes, differently/better funded, self-selected decision to pursue TT rather than formal drivers. e.g. Stanford has a total annual budget of £3.5 billion with only 7,000 undergraduate students (compared to Oxford University, with a £1.4 billion budget and 11,603 undergraduates). Stanford’s entrepreneurial success has been almost wholly achieved through alternative routes to public funding (e.g. alumni endowments) as the US funding regime is fundamentally different to the UK and the EU.

25. TT activity exists across all industrial sectors and these sectors, even individually, incorporate a wide range of research disciplines. As such, the way in which technology is transferred to businesses can be very different. Universities need to be aware of these differences in approaches e.g. the food and drink sector relies on know-how whereas the pharmaceutical sector relies on high value patents. The Enterprise Europe Network and the KTN can play a key role in providing business with the required advice and guidance on these sectoral differences.

4. Measures and Metrics

26. A wide range of shorter-term, quantitative criteria is currently used by institutions to assess performance, such as the HEBCIS income metrics9, spin-out numbers etc reflecting their importance in determining various funding mechanisms (e.g. HEIF). However, more meaningful drivers for the economy would be indicators designed to capture the breadth and depth of third party relationships and collaboration (e.g. business), and levels of academic and student engagement.

27. While external income to universities is a useful proxy measure of the value that industry and society place on accessible research, seeking to further increase this as a primary driver could continue to encourage maximisation of university income rather than enhancing wider collaboration and the associated benefits to the economy and society.

5. Training and Motivation

28. One point of valuable comparison with the US model is the extent to which academics receive training and development in commercialisation (including IP and KE).  In the UK there is considerable room for improvement in the extent and consistency of such training, as a recent IPO survey[14] suggests that current IP training and resources do not fully meet the needs of PhD students and early career academics.  We welcome the work by the IPO to help address this.  PhD students and early career academics should be required to undertake high quality training and development, not as an academic exercise but with hands-on opportunity to build a real understanding and experience of the commercialisation process, including time spent working in a business or similar commercial environment (including Catapult centres).

29. Indeed, Won et al writing in Nature Biotechnology[15], describe a significant information asymmetry between the TTO and the academic entrepreneur, which can contribute to time delays and general dissatisfaction with the process of research commercialisation.  They strongly recommended that, before embarking on the commercialisation process, the academic makes every effort to understand the deal-making environment and process with which they are engaging, learn to effectively engage and negotiate with their TTO, and other potential partners, and determine reasonable deal terms (such as royalty rates and equity) for the technology at hand.  Thus increasing the probability of a satisfactory outcome for all concerned.

30. Universities need to demonstrate better leadership commitment to TT, KE and commercialisation.  While improvements have certainly been made over recent years, moving towards recognising impact and the commercialisation of research within the academic mechanisms of progression and reward, these are often difficult to discern in implementation and more needs to be done for these to act as primary motivators for change.

31. The Royal Society has also stated7 that senior university management should take increased responsibility for decision making on reward and recognition of staff, implementing structures for effective TT, key appointments, resource allocation to TT etc. This, together with the effective communication and promotion of broadened incentives, will improve academic’s intrinsic motivation for collaboration and entrepreneurship.

32. Innovate UK welcomes the recent PraxisUnico report[16] on the training and development of academics in KE and Commercialisation (encompassing the areas of TT, KE and IP) which recognises that developing motivation should be a priority.

6. UK Tax Environment

33. The UK tax environment sets incentives for investment and exploitation of R&D (e.g. R&D tax credits, patent box) and businesses find these incentives valuable in creating an environment which supports R&D. However, tax credits do not encourage R&D specifically in collaboration with universities and there appears to be little scope for using either the existing SME RDTC scheme or introducing a new one that would provide more support for encouraging R&D collaboration with universities.  Steps could be taken to address this through the development of separate schemes focussing on business-university collaboration or investments in companies based on UK University IP.

34. There is also confusion over the interaction between R&D tax credits and State Aid rules.   However, new guidance was issued by the government in December 2015[17] and, although it is yet too early to tell whether this will alleviate the problems, it is welcome and could be helpful in assisting business university collaboration.

7.  Conclusion

35. In conclusion, Innovate UK recommends that:

1. the Enterprise Europe Network, the KTN, NCUB and PraxisUnico work together with Innovate UK to ensure that high quality and consistent information and support on universities’ commercialisation policies are available to businesses;
2. the Enterprise Europe Network, working with the KTN, the IPO and Innovate UK provide a clear single point of contact for businesses for IP exploitation assistance;
3. more targeted funding is made available to SMEs for sustainable, strategic collaborations with academia to take emerging and disruptive technologies through to commercialisation;
4. universities should avoid being over protective of their IP and should use IP as a way of developing and building strong partnerships and collaboration with business;
5. a broader range of indicators designed to capture the breadth and depth of third party relationships and collaboration (e.g. business) are used to assess university performance;
6. PhD students and early career academics should all be required to undertake high quality training and development in commercialisation including, where appropriate, time spent working in a business or similar commercial environment;
7. universities should demonstrate better leadership commitment to TT, KE and commercialisation through more explicit recognition of impact and commercialisation in progression and reward mechanisms; and,
8. consideration should be given as to what further fiscal incentives might be used to specifically encourage university-business collaboration.

September 2016