Silicon Valley North #59 November, 2003

The Way I See It… by Michael C. Volker

Successful technology commercialization requires patent dollars

The Bayh-Dole Act in the U.S., now in effect for just over 20 years, is regarded by many as pushing Universities into the business of science. The Act required that federally funded research be commercialized by using the patent system as its delivery vehicle. It granted transferable ownership rights to the government and government funded institutions. This has resulted in the strong university-industry ties that exist today and gave birth to the technology transfer profession.

The economic benefits from licensing technology and patents have been increasing steadily. Transferring technology into startups in exchange for equity has become a standard practice throughout North America. In its most recent survey, the Association of University Technology Managers (AUTM) reports that since 1980, almost 4,000 new companies have been formed based on a technology license. Almost 500 were created in the most recent survey year (2001). The 27 Canadian institutions in the survey were responsible for 68 spin-off ventures. Interestingly, more than 2600 (65%) of these startups are still operational.

The financial payoff to universities may be several years out as we wait for these companies to mature. Yet, when compared to generating royalty income from licensing, it may well be worth the wait. In the AUTM survey, 198 American and Canadian institutions reported gross license income of only US$1.07 billion on sponsored research expenditures of US$31.7 billion. The 27 Canadian respondents report having received only $64.5 million compared to $2.7 billion in research expenditures. The Canadian figure is up 82% from the previous year and is largely due to the University of Sherbrooke chalking up $16 million in licensing fees on a research budget of only $37 million. McGill University, the University of British Columbia and the University of Alberta together account for another $26 million.

In the absence of Bayh-Dole style legislation in Canada, we’ve still been very prolific in our pursuit of technology entrepreneurship at our universities. While debates on policies regarding intellectual property ownership continue, it should be noted that although policies across the country vary greatly, they have little bearing on commercialization outcomes. The opportunity for profit may well be the motivating force.

Still, I believe we could do much better. In addition to the usual early stage funding challenges for young companies, resources are needed to protect the intellectual assets, i.e. for patenting, in the first instance. University technology transfer offices are getting better at doing this but playing the patent game requires cash. And, that’s a little too early even for some of the most venturesome angel investors.

Some government granting agencies such as the Natural Sciences and Engineering Research Council, a primary supplier of research and development funding to university researchers, are recognizing the importance of protecting taxpayers’ investment in intellectual property and have started to provide modest financial support to university technology managers. More is needed.

For several decades, before it was disbanded in the late 1980’s, the Canadian Patent and Development Limited, did a marginal job of commercializing the research performed at government labs. It also assisted universities with patenting matters, but with limited effectiveness.

Now that technology transfer offices are performing this function, and getting better at it, why not offer themselves as a resource, on a fee for service basis, to technology companies on a broader scale? Because of the complex legal issues and rules associated with patent prosecution and protection, such a service would dovetail nicely with that provided by patent attorneys and agents, keeping costs down for nascent startups. Even friendly advice on some do’s and don’ts would be helpful.

The way I see it, in order to advance Canada’s innovation agenda, we need to better nurture intellectual property commercialization at its earliest stages. This requires not only patient angel capital but also more patent dollars.

Michael Volker is a high technology entrepreneur and director of Simon Fraser University’s Industry Liaison Office. He oversees Vancouver’s Angel Technology Network and is past-Chair of the BC Advanced Systems Institute and the Vancouver Enterprise Forum. He may be reached at mike@volker.org.