Crunching the numbers

Does Canada need a Bayh-Dole Act?

By Denys G. T. Cooper

2010 is the 30th anniversary of the creation of the Bayh-Dole Act which requires US university researchers who receive federal funding to assign resulting intellectual property (IP) to their university unless the institution specifically declines to take an interest. There has been a debate on and off for years over whether Canada should have similar legislation.

A recent article in RE$EARCH MONEY reported that at least two members of the Science, Technology and Innovation Council (STIC) are in favour of a more uniform IP policy to make it easier for firms to do business with universities (R$, October 31/10). Currently IP is owned by the researcher, university or in a few centres, shared. In some universities, the policy varies according to the technology, such as software.

Canada has one of the highest numbers of university spin off firms (USOs) — of between 1,242 (StatsCan, 2008) and 1,350 firms (my data) — compared with only about 6,000 formed since 1980 in the US. A USO is a firm created to commercialize university and or university researcher owned IP.

Using 22 measures of USO performance, there is no evidence that a Bayh-Dole Act for Canadian universities would significantly improve socio-economic benefits for Canadians. Indeed, there is evidence that it could harm the major contribution that USOs make, particularly fast-growing entrepreneurial firms known as gazelles.

My ongoing research covers 802 USOs formed from the 1950s to 1999 and work has begun on the next 550 USOs created primarily since 2000. So how good are USOs as jobs and sales generators? There is no significant difference of USO performance in the two main groups of university IP ownership in terms of closures, firms on a Canadian or US stock exchange (52) and firms taken over but still surviving in Canada (120). For all takeovers (232), researcher IP-owned firms had more takeovers but fewer were by foreign-based organizations (46%) versus university IP owned cases (55%), a quarter of which were then closed shortly thereafter.

High-growth firms are defined as gazelles if they double in size within five years to a minimum of 20 employees, and/or $10 million in sales. Nationally, they account for 2-6% of all industry (Statistics Canada/NRC-IRAP study). However, USOs had 198 (25%) gazelles, split evenly by type of IP ownership. With NRC-IRAP and venture capital (VC) funding, their levels rise to 71% overall (83% for university-owned IP and 63% for researcher-owned IP). Researcher-owned IP USOs generate higher jobs and sales. Overall gazelles have a high resilience, with very low closure rates of 10%, but in the last two years some gazelles (89) have dropped back from peak employment levels. The generation of gazelles is important to the economy as they produce the most jobs (88%) and sales (90%).

Analysis reviewed 23 inputs and output performances versus the IP policy of universities. First, the split in USOs is very similar for researcher-owned versus university-owned IP at 377 and 353 respectively.

Studies in the US, Canada, France, Holland and Sweden show USOs have much lower corporate failure rates than other tech-based start-ups. In Canada, my data show that over 60% have lasted more than 20 years. In contrast, 50% of start ups disappear within five years. Simon Fraser Univ researchers Bruce Clayman and Adam Holbrook also found high survival rates — 73% in 2003 for the 301 USOs created in nine Canadian universities between 1995-2003.

For the latest years of known data (after 2000), USOs currently have more than 49,900 employees (in 345 ongoing firms) and more than $8.5 billion in sales. There are differences in favour of researcher-owned IP firms for jobs (33,500) but not for sales ($5.2 billion) or net sales per employee ($223,000/person).

On the other hand, university-owned IP USOs raised nearly double the level of VC, and follow-on financing on stock exchanges, at $5.2 billion versus $2.65 billion. But they had similar investments from IPOs on stock exchanges ($1.25 billion raised by 65 firms). There were 223 takeovers, but the 47 valuations found obtained $5.3 billion.

Denys Cooper is a consultant. He was previously a director of Strategic Alliances and a director of international programs at NRC-IRAP. Denys.cooper@sympatico.ca.