A penny for your thoughts

Academics are at the very heart of the knowledge economy, but just how far should they and their institutions go in the commercial exploitation of their ideas? Hannah Fearn explores the potential costs and benefits

February 28, 2008

Thanks to the global, information-sharing society we live in, the works of artists and musicians are regularly traded online without anything being paid to their creators. Record labels, facing a huge loss of revenue, are threatening closure, and the value of intellectual property is hotly debated in the pages of newspapers.

For academics, however, the picture is rather different. While the music industry fears that an important source of income is slipping away from it, universities and academics are still wising up to the money-making potential of intellectual property.

Knowledge is the academy's greatest asset and, as commentators are so fond of telling us, we live in a knowledge economy.

As the Economic and Social Research Council says: "In today's global, information-driven society, economic success is increasingly based upon the effective utilisation of intangible assets such as knowledge, skills and innovative potential as the key resources for competitive advantage."

In short, the foundations of the knowledge economy rest on ideas. And nowhere are there greater concentrations of people employed specifically to think and generate ideas than in universities. All universities are at least knowledge-rich, even if some are cash-poor.

The question for universities is how they exploit that resource, and to what extent, without alienating those academics who feel that knowledge and intellectual endeavour ought to benefit society as a whole.

And, for those academics sold on the concept of capitalising on their intellectual property - money can be a strong motivator - the question is: "Is my cut big enough?"

What evidence there is suggests that academics are seeing little IP action. And in most cases this is because UK universities are, on the whole, poor at mining the potentially lucrative intellectual seams traversing their campuses.

It is difficult to quantify exactly how much income universities earn through the exploitation of intellectual property. Even though most institutions now have technology and knowledge-transfer offices, research and enterprise officers and established trading arms aimed at maximising income from intellectual property, figures from the Higher Education Statistics Agency show that the UK sector as a whole accounted for only £30.8 million in additional income through IP in 2005-06.

Although many universities may account for their IP income through a separate trading company (Higher Education Funding Council for England figures suggest this could add about £100 million to the total annually), a report investigating the commercial exploitation of intellectual capital in English and Welsh universities, published by the law firm Morgan Cole in July 2006, paints a similarly bleak picture.

Overall, the cash generated by exploitation of IP accounted for no more than 0.2 per cent of funding across a range of institutions (17 redbrick, 11 plate-glass and 22 new universities were surveyed), says Morgan Cole. Even the most successful generated only 2.5 per cent.

On average, each university secured income of £219,000 a year, according to Morgan Cole. Although the overwhelming majority of institutions do have a unit responsible for exploitation, 54 per cent had not carried out an IP audit. Of the 46 per cent that had, only half repeat the survey annually.

The disappointing statistics continue: 26 per cent had no formal policy on exploiting IP; of the 48 per cent that had set targets for commercialisation, most focused on the number of patents rather than net financial gain to the university; 90 per cent were more interested in publishing research in order to improve research assessment exercise ratings than in applying for patents.

"There is still a significant culture gap between academia and commerce," says Emyr Lewis, Morgan Cole commercial, IP and education partner. "In many respects that is a good thing. We value our universities for reasons other than their ability to generate commercial income, and their contribution to society cannot always be measured mechanically."

Nevertheless, it is clear that universities are missing out on a potentially significant source of additional income. The Government has already cottoned on to the economic power of universities. The new Department of Innovation, Universities and Skills represented more than a typical Whitehall rebranding job - it is taking the "innovation" side of its role seriously, funding knowledge-transfer projects and encouraging industry-academey partnerships.

On its website, the department proclaims that innovation is vital to increasing UK competitiveness. But it is clear from government thinking that much of this is tied to the skills agenda proposed for higher education.

"The higher education sector is already a major source of innovation through research and knowledge transfer, but its capacity to grow higher level skills, including those required for innovation in the workforce, is underdeveloped," a spokesperson says.

Karel Thomas, executive officer at the British Universities Finance Directors Group, admits that there is more that the higher education sector could do to improve its income and status through intellectual property.

"I'm sure that universities that are up there exploiting their IP are doing a really good job," she says. But are they working at capacity? "No. I don't think any university would claim that."

Michael Blakeney, professor of intellectual property law at Queen Mary, University of London, says the picture painted by the Morgan Cole report is correct. And while US universities are cashing in on their own expertise, in the UK the race to capitalise on IP has only just begun.

"Universities talk big numbers because they have had visitors coming from Stanford and Harvard, but the truth of the matter in the UK is that this form of exploitation is really in its infancy," he says.

Though universities have taken the practical steps of setting up technology-transfer offices and passing a policy on IP, the real stumbling block is a cultural one.

"Universities were not set up as businesses, and their activities are shedding light and spreading knowledge," Blakeney adds. "The culture of a university doesn't lend itself easily to exploiting the intellectual property that's being generated. How do you get university academics who are culturally anarchists to subscribe to this culture?"

In some cases, this process is happening by itself. Academics are self-regulating, after all: few scientists would want to work for a university in which they run the risk of having work stolen by corporate partners and used without credit. Funding rules are also driving the adoption of sound IP policies. "If you want to get European funding for research, you have to demonstrate that you have an intellectual property plan in place," Blakeney says.

Most importantly, the culture of UK universities is changing, following the lead set by the US along what Blakeney calls the "Bayh-Dole road", after the landmark piece of American legislation, passed in 1980, permitting universities to claim title to the discoveries of faculty, staff and students resulting from government-funded research.

The Arts and Humanities Research Council Research Centre for Studies in Intellectual Property and Technology Law, based at the University of Edinburgh, has noted changes in attitudes in universities prompted by the business community, which has itself become more clued up about the potential of IP.

"We have seen the development of research and invention officers in universities in the past ten to 15 years, and technology-transfer officers who have a particular remit," confirms Graeme Laurie, the centre's director. "I think we've also had an increased awareness globally of the importance of intellectual property for world trade."

"What we often see is the public sector following trends in the private sector. I think we have seen an increase in awareness in the private sector, and therefore the public sector should follow that," he says.

The centre offers an LLM in Innovation, Technology and the Law, and many of its students have worked in higher education and research. Identifying and exploiting future IP is the key to unlocking extra cash for universities, and Laurie also fears that setting up a knowledge-transfer department with dedicated posts is not enough to ensure that IP is exploited properly and fairly.

"I think those sorts of officers are certainly a part of it, but you need to make sure that you have the opportunity and the creativity culture within the university," he says. "By their very nature, universities are there to generate new knowledge. But IP can be used to fence off knowledge and say: 'It's mine.' It may be counterproductive to dissemination." He would urge universities to adopt a liberal approach to ownership of intellectual property.

Lionel Bentley, Herchel Smith professor of intellectual property at the University of Cambridge, agrees. He believes that careful management of intellectual property can prove a clever recruitment tool, attracting the strongest academics to work with the university.

"There are lots of considerations - fairness, avoiding disputes, making sure public funds are not abused - but it's also important to remember, with the top universities, that we are talking about a market for Nobel prizewinners and others at the frontiers of technological development," he says. "A heavy-handed university will be in danger of not recruiting or retaining the best staff. Even if universities let their top academic exploit their own inventions, this could easily be the best way to retain and attract such researchers."

Managing IP can be controversial. When Cambridge reformed its procedures in 2005 to give the institution more control over lucrative inventions, bringing it in line with most other universities, many academics were angered. They argued that because academics retained copyright in written work, the arts and humanities would inevitably be pitted against science and technology as academics fought to keep hold of income generated by their work.

Setting up independent commercial companies can be one way to boost academics' income from intellectual property. The IP Group, an international property commercialisation company, has spent six years establishing partnerships with UK universities, among them Leeds, Bath and Southampton, to develop 60 commercial companies aimed at exploiting the knowledge and expertise held by academics.

It has also made the academics it works with considerably richer than their departmental colleagues (see sidebar). Magnus Goodlad, the group's chief operating officer, says there is a government push to see that universities contribute more broadly to the economy.

"I think the Government is using a combination of carrot and stick to encourage universities to generate more value for the high levels of research funding provided," he says.

"If you look at what the UK is still capable of in terms of maintaining competitiveness against emerging economies, the two areas where the UK has historically performed very strongly are scientific research and financial services. What we have been trying to do is bring those two areas of world-leading expertise together. I think the Government sees that as an important competitive advantage."

Although it may still lag behind the US, the UK higher education sector leads the field in the exploitation of IP across Europe; universities are driving the economy and higher education is developing a commmercial profile in is own right.

But universities can exploit more than just technological research and inventions. This "softer" side of intellectual property, such as consultancy based on academic knowledge, is often considered unprofitable, but given the new understanding of the knowledge economy, it could be the sector's most lucrative opportunity.

Paul Docx, chief executive of Imperial College Consultants (ICC), has worked with leading academics including John Beddington, one of the country's highest-earning academics and now the Government's Chief Scientific Adviser. Docx helps to generate an income from their knowledge, rather than from patentable inventions. It is, in essence, a highly skilled form of consultancy.

"The majority of the output of academics is not easily protectable by patents," Docx explains. "There is an enormous amount of knowledge and expertise that is generated by carrying out government-funded work and research council projects. My view is that it's being underexploited. People have always tended to go for the big picture stuff, which doesn't necessarily generate the returns that everybody expects or hopes for."

Currently, universities understand how to make money from licensing and patents but have not yet embraced the potential of the rest of their work. "We often neglect the vast amount of information that is not protectable," Docx says. "That expertise is very useable in a different context. Academics can apply the results of research programmes that are not protectable but still exploitable."

Docx initially shies away from labelling this form of knowledge transfer as consultancy work, describing it instead as dealing with "concepts and expertise". "It's something we provide in a useable, flexible form," he says. But the company drafts in academics to help industry and governments worldwide with their expertise. If there is a natural disaster, for example, ICC can find someone to help work out why it happened.

Docx says that if it is inevitable that the best thinkers in the field will be working with industry, then it should be done in a way that is "measured and managed". This, of course, is shorthand for "makes money". And make money it does - ICC has a turnover of £15 million a year. "We're the kind of consulting company that no government would have in-house, and some people command very high rates," he says.

Docx paints a certain brave new world for academics, both in terms of recognition and financial reward for their hard work. It is a sentiment echoed on a national scale in Lord Sainsbury's 2007 review of science and innovation, which anticipated that "in the future it will no longer be necessary to start every report ... with the dreary statement that, while the UK has an excellent record in research, we have a poor record in turning discoveries into new products and ideas."

Internationally, meanwhile, universities are looking to the US, whose institutions are up to a decade ahead of Britain in making the most money out of their expertise. The Intellectual Property Office, a Government quango, is working in Europe to draw up a common IP code, creating a level playing field for the exploitation and management of intellectual property in European universities.

But not everyone is as hopeful for the future. "Commercialising IP is a relatively new area for universities and although the impacts on business and industry are enormous, there are still a small number of academics involved in spin-off companies, and universities and individuals reap modest financial gains," warns David Fletcher, registrar and secretary of the University of Sheffield. "It is doubtful that this will change significantly to involve large numbers of academics or vast amounts of money for universities."

And if this unlikely change were to happen, it could alter the profile of the UK higher education sector for the worse. If IP income levels soared, would it become the dominant activity of some universities in the future? Fletcher fears it could. "Although the knowledge economy is very important, it would need to be considered alongside the university's other core functions, such as teaching and learning and research," he says.

This raises important questions about the status of knowledge and expertise. If knowledge becomes a commodity, what does this mean for the academy, for its image and the respect it commands?

Paul Temple, senior lecturer in higher education management at the Institute of Education, says such questions are not new. Last year he published a paper that looked at the role of today's university in the knowledge economy in the Journal of Education Policy.

"I discovered that there were arguments about this at the start of the 20th century in the US, when the idea of the research university as we now know it was relatively new," he says. "There were hot debates about whether university academics should be making money from patents and licensing.

"One strongly held view in America at that time was that if you're a university professor you should be above that kind of thing; the development of knowledge for knowledge's sake was your reward. That didn't last very long," Temple says.

UK universities would appear to be on the brink of a potentially profitable age when the incentive to develop their intellectual property capacities, and the ease with which they can do so, is considerable.

How this exploitation will change academic and university culture is uncertain. Some academics profess to abhor base money-making while others embrace it. There are tensions already between the two.

By further exploiting IP, universities are contributing to the economy and making some money for themselves and some of their academics along the way. For others, such opportunities will amount to a debasement and a betrayal of their academic credo.


COINING IT:%u2008IP EARNINGS BY REGION
Direct income from intellectual property rights
England£24,325,000
Scotland£4,976,000
Wales£1,425,000
Northern Ireland£89,000
Total UK£30,815,000
Estimated sector turnover for all active companies part-owned by higher education institutions*£100,000,000
Sources: Higher Education Statistics Agency; *Higher Education Funding Council for England


CHANNELLING THE EXPERTISE INTO BUSINESS

Derek Fairhead works one day a week as an academic at the University of Leeds. For the remaining four days, the professor of applied geophysics spends his time heading a successful university spin-off company that boosts his income to levels that his colleagues in the School of Earth and Environment can only dream of.

Fairhead is the managing director of GETECH. The company, which specialises in the compilation and analysis of gravity and magnetic data-evaluating petroleum systems, tells the world's oil companies where to drill to hit black gold.

While spending a sabbatical in the 1980s teaching at the University of Texas at El Paso, Fairhead saw the way US universities worked with big business and approached the major oil companies offering his advice and expertise.

On his return, he set up GETECH, in the first instance to work in Africa, and later worldwide. His first project was so successful that 19 oil companies came in on the study. Demand swelled, and the company went to work in Russia, China and South Africa.

What started out as a university research group became a profitable commercial arm. In 2000, GETECH (supported by the IP Group) became a limited company and university shareholding dropped to just 20 per cent; in 2005, it floated on the FTSE AIM Index.

Fairhead admits that the company makes himself and his staff as individuals more money than they could make in academe, but he says that this is right and proper.

"It shouldn't just be the university that's benefiting because a lot of individuals are putting their reputations on the line in working with the oil companies. They have undertaken responsibilities and therefore should be rewarded," he says. "If I left the university (entirely) and went just to my job, I'd earn more money."

Fairhead believes the time is right for universities to begin building links with big business, which would make the best use of academic expertise in terms of economic growth.

"There is a healthy environment in universities for these linkages to succeed. It's the seedbed of innovative ideas and new products. Getting (businesses) closely involved with these universities is the way that a lot of these new ideas can be brought forward in industry rather than being developed overseas. It's helping the national interest, certainly," Fairhead adds.

"I'm totally supportive of the idea that universities should be, in part, providing what industry needs, because who else can provide it?"

The company is largely independent but it retains strong links with Leeds. Each year it takes undergraduate interns for year-in-industry posts, and most of its staff are graduates of Leeds.

There are, of course, drawbacks to selling expertise for profit. Fairhead warns that academics have to be sure that they are not compromising themselves for the sake of an additional income. But during his career he has seen a shift in attitudes towards exploitation of expertise, a change that he has been at the forefront of and one that he welcomes.

"What we're trying to do is maximise the commercial side of things, which when I first joined the university was a dirty word. It's a very healthy thing to be doing," Fairhead says.

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