Dr. Tom Corr

Royalty free IP or university culture

By Tom Corr

Kudos to the University of Ottawa for their program to "see if there is a better way to get IP in the hands of people who can create wealth with it". However, I would suggest that although a temporary royalty-free period may be attractive to some, most companies will want to know what royalties they will be paying in advance of building a company around the IP, rather than waiting to negotiate the royalty rate at a future date.

The latter practice is quite common in technology transfer offices where there is an initial royalty-free period, with royalties kicking in after an agreed upon period of time or certain milestones being met, at a royalty rate that is set in advance. The obvious problem with not setting the royalty rate in advance is, what happens if the university and the company can't come to terms?

It is hard to conceive of any business person who would base their business on a product where the cost of the product is set at a later date. I suggest providing the royalty-free period which will help the company in its early stage of development, but agree in advance to a royalty rate acceptable to both parties. You can always re-negotiate the rate in the future if circumstances change and both parties agree.

University technology transfer offices in Canada have had a dismal record of commercialization and producing financial returns. One could argue that they get in the way of commercialization as much as they facilitate it. Horror stories abound of entrepreneurs who try to do business with universities, either directly or through their technology transfer organizations, and give up in frustration. Perhaps we need to re-think the role of the technology transfer office and where the incentives should be to drive the commercialization of IP.

The University of Waterloo's (UW) policy on IP ownership is that it is inventor owned and that the inventors are free to commercialize their IP without any financial obligation to the university. Is not collecting royalties a "give away" on behalf of the university? You bet it is and it works just fine. Waterloo has become a hub of entrepreneurial activity and reportedly has more active university spin-off companies than any other university in Canada. At UW, typically the researchers assign their IP to spin-off companies in consideration of equity. With over 250 companies whose roots can be traced to UW, the region is a living example of success ful IP commercialization without financial consideration (i.e. royalties) being paid to the university. Many companies also got their start with UW IP but are not located in the region. Although we would certainly prefer that the IP from UW directly benefit the region, is it not better that the IP be commercialized for societal good in the hands of the best company to commercialize it, regardless of the company's location?

UW's goal is to create a supportive commercialization environment, generate wealth and economic activity, and promote societal good that comes from getting IP into the marketplace. In addition, the Accelerator Centre at the Waterloo Research and Technology Park incubates spin-off firms from UW and the region, further supporting our entrepreneurial researchers and their commercialization efforts.

Many founders of our successful spin-offs are generous contributors to the university once they achieve economic success from the commercialization of IP originating from UW. I would suggest that the returns from donations to the university by our successful entrepreneurs and researchers that have commercialized UW IP results in much higher returns to UW than any Canadian university is receiving from royalties or equity.

The entrepreneurial culture of a university is key to the commercialization of its IP and the success of its technology transfer activities. In regions such as Waterloo where the universities and colleges have played a key role in economic development, one can often point to a champion — often a strong university president — who has the experience, vision and will to move their institutions into new roles while driving the commercialization agenda and resulting economic development. A culture of commercialization is both bottom-up and top-down, requiring both leadership from the top and entrepreneurial drive from the bottom.

Universities successful in transferring technologies often provide significant financial incentives for faculty who actively commercialize the IP. At UW, where researchers are free to do their own commercialization and keep 100% of the proceeds, there is a strong economic inventive for researchers to commercialize their IP. In the event that the researchers engage the university to do the commercialization of their IP for them, the researchers still retain 75% of the proceeds.

Many universities with a strong commercialization culture also offer entrepreneurial courses and activities for engineering and science students as well as business students. These include business plan competitions, practicum with start-ups and mentoring by entrepreneurs. Examples include the Masters of Business, Entrepreneurship and Technology program at UW and the Xerox Centre for Engineering Entrepreneurship and Innovation program at McMaster University.

The culture of universities is hard to change and typically decades may pass to accomplish major cultural change. The technology transfer and commercialization efforts at successful universities and the resulting entrepreneurial and economic development phenomena that have grown around those universities take decades to accomplish. The technology transfer business is still relatively new and evolving. Short term results are difficult to demonstrate and quantify. Academic, public and private decision-makers should be aware of these facts and build into programs the flexibility to experiment, as well as allow them the time to mature and evolve.

In regions like Waterloo, academic and community leaders recognized that by leveraging R&D and entrepreneurial resources they could create new opportunities for both academic excellence and economic growth. Public and private leaders need to work together to identify, strengthen and leverage their own resources that enhance innovation-based economic opportunities.

We wish the University of Ottawa every success with their experiment and suggest that other institutions consider the alternatives in meeting whatever their IP commercialization goals may be.

Dr. Tom Corr is associate VP, Commercialization at the University of Waterloo & CEO of the Waterloo Research and Technology Park Accelerator Centre.