Analysis: Blank cheque or ticket to nowhere?

March 22, 2002

The government and many universities see patenting as a way to generate much-needed money. But Steve Farrar and Caroline Davis find the reality often falls short of the rhetoric.

In 1998, the Princess Royal opened a £14 million, state-of-the-art home for the Strathclyde Institute for Biomedical Sciences. It was a building whose financial foundations had been laid almost three decades earlier, when scientists in Strathclyde's pharmaceutical chemistry department found a powerful muscle-relaxing drug.

When the drugs giant Wellcome marketed atracurium for use on anaesthetised patients in 1982, it proved a huge success. That one licensing deal brought Strathclyde more than £25 million and helped fund the SIBS building.

Although the atracurium patent has lapsed, related intellectual property rights still generate up to half of the university's £2 million annual royalty income. David McBeth, Strathclyde's IPR manager, said: "We never rely on that royalty stream, but it is 'free money' that the university can use with no strings attached."

Part of that income goes to the inventors: "We have some wealthy professors in our departments - it's a great incentive."

And there are other benefits to the university. "The atracurium deal cemented the relationship between Glaxo Wellcome and the university and has brought in many research contracts over the years," Mr McBeth said.

Strathclyde is not alone in having made lucrative excursions into the market. More than £42 million in royalties has gone to Nottingham, Aberdeen and Oxford universities from joint intellectual property rights over magnetic resonance imaging techniques used to capture pictures of soft body tissues. The original patents may have expired, but revenues are expected to continue until 2010 from more recently patented developments.

In 2000, University College London received £6.8 million, mostly from the sale of a share of the spin-off firm PolyMASC. Most of that money went to build 3,000m sq of medical laboratories, said Cengiz Tarhan, director of commercial and medical school accounting at UCL. "My view is that intellectual property rights within universities are probably one of our largest assets," he said.

In fact, he argued, the university could be accused of negligence if it missed the chance to exploit some new technology simply because it had not been patented beforehand. Mr Tarhan's rationale has become a popular mantra in the sector - the best way to turn an innovative process or device into a commercial product is to protect the intellectual property rights with a patent, for only then will companies be prepared to invest the vast sums needed to develop it for market.

Invitations to join this exclusive club are printed on patent forms, and demand is becoming intense. According to a survey by the Centre for Urban and Regional Development Studies (Curds) at Newcastle University, there has been a marked rise in the number of patents filed by UK universities, from 1,259 in 1998-99 to 1,534 in 1999-2000. In that year alone, 199 spin-off firms were established involving some form of higher education institution ownership and 238 non-software licensing deals were sealed.

A government fired with the zeal of the convert has gratefully seized on this picture of seeming rude health. Science minister Lord Sainsbury champions a vision of universities effortlessly blending their research and teaching remits with commercial nous, producing new ideas for new products and hence new profits for UK plc.

Lurking in the background are the ghosts of the blockbusters that got away - penicillin and monoclonal antibodies - as reminders of what can happen if you do not seize opportunities.

Cash has been provided to match the rhetoric. Government schemes provide more than £200 million to help academics "transform good research into good business". Yet only a minority of universities has been able to claim any fruit from this effort so far.

In fact, many have lost money in pursuit of intellectual property rights. Although the Curds report showed that UK higher education institutions spent less on research per patent than their North American counterparts, it also found that "relatively few reported revenues from intellectual property that were higher than the costs".

According to the researchers, just three were making more than £1 million a year from their intellectual property, and of the 238 licences granted by higher education institutions to exploit their research in 1999-2000, more than one-third was from five institutions.

Protecting intellectual property rights is an expensive game. Gaining a full patent carries a bill for tens of thousands of pounds, while the possible legal costs associated with defending it against infringement are often far beyond the meagre means of a university.

Furthermore, the expertise needed to assess cutting-edge research for potential commercial value and then guide it through to the most appropriate method of exploitation does not come cheap.

The Curds survey identified 1,217 specialist staff dealing with commercialisation in UK higher education in 1999-2000. It said the true total was likely to be much higher and rising.

Richard Blackmore, special projects manager in health, medical and biotechnologies for BTG, the leading British technology commercialisation organisation, warned that it took time and skill to exploit intellectual property effectively. Even when the advice was good, there were risks that many universities simply did not foresee. "I think some players may have unrealistic expectations of what can be achieved," he said.

John Archer, principal and vice-chancellor of Heriot-Watt University and chairman of the steering committee that has produced a guide to intellectual property rights management (see box, right), admitted that there were some false hopes. With slices of the royalty cake gobbled up by the inventors, venture capitalists, consultants and the spin-off companies themselves, most institutions could not expect to get more than 1 per cent of their annual turnover from intellectual property - even the Massachusetts Institute of Technology barely made this much.

Nevertheless, Professor Archer said, there were important benefits beyond getting your hands on the readies. In particular, he argued, the process of pursuing intellectual property rights forged close relationships between universities and business that could ultimately lead to industrial sponsorship, as Strathclyde has found.

Yet David Mowery, professor of business at the Haas Business and Public Policy School at the University of California, Berkeley, and Bhaven Sampat, assistant professor of public policy at Georgia Tech, argued that there was little evidence that the massive surge in the number of patents filed by US universities in the wake of the 1980 Bayh-Dole act had been matched by other forms of research collaboration.

Furthermore, their recent study, with colleagues at Columbia and Pennsylvania universities, of intellectual property rights at some of the US's most entrepreneurial institutions - Stanford, Columbia and the University of California - shows that most of their royalty income came from a handful of patents, many of which had just expired or were about to.

For most US higher education institutions, the financial returns were modest or negative. Many analysts believe the Bayh-Dole act, which allowed universities and federal laboratories to exploit their intellectual property rights for profit, was the key to unlocking commercial potential in higher education. But professors Mowery and Sampat contend that the impact of other factors, such as huge state funding of basic biomedical research, was being ignored. They say that Bayh-Dole has succeeded mainly in focusing attention on patenting over less formal but nonetheless effective forms of industrial collaboration.

They also note that the act's downside, the way it turned collaborators into competitors, has been overlooked. Professor Mowery said: "Patenting is not going to make enough money to help the vast majority of US or UK universities, while it has great potential to do mischief."

He said that if the UK wanted to emulate the success of the US biotechnology industry, it needed to spend equivalent sums on basic research. That is a view that Keith Pavitt, professor of science and technology policy at the science and technology policy research unit (SPRU) at Sussex University, has a lot of sympathy for.

He insisted that the real problem with knowledge transfer in the UK was that industry - with a few notable exceptions - was simply uninterested. By ignoring this and focusing on patents, the government risked throttling what thriving informal communications existed between academe and industry, he said.

"The UK government should stop all these fancy initiatives and get back to funding high-quality basic research," Professor Pavitt said. "The good industrialist simply wants universities to explore exciting new fields, take more risks and look further ahead."

The economic returns of basic research may be much higher than is apparent from a simplistic "idea-patent-licence-royalty" model of industry-academia relations, according to a study by Alister Scott that was outlined in a recent report to the Office of Science and Technology.

Mr Scott, a doctoral researcher at SPRU, worries that the growing obsession with patenting may raise conflict-of-interest issues that could be reduced if a more selective approach is taken.

Peter Cotgreave, director of the pressure group Save British Science, warned: "The only way universities can ever contribute to the economy is by doing good research that industry will want. That - alongside teaching - has got to be their core business."

Recently, an extreme reaction has found a voice in the European Union, which is considering new legislation on the exploitation of public-sector information. A consultation document suggests that all public-sector organisations - perhaps even universities and laboratories - should make their research freely available to the commercial sector.

It is a move that Universities UK has described as regrettable and potentially damaging. Despite some scholars' concern that the patenting culture runs counter to the academic tradition of sharing information, most feel the EU proposals to be impractical and unlikely to come to anything.

Experts such as professors Mowery and Pavitt would like the fervour to dampen down, while Professor Archer said it was vital that vice-chancellors consider their options carefully before directing their university's policies towards intellectual property rights. "There is no 'one-size-fits-all' solution," he said.

Assessing the potential drawbacks in each case was important. Mr Scott said: "Don't be diverted from other ways in which research may generate value for the economy and university."

If one patent can turn out to be a bankable cheque, others can be expensive and even damaging documents. When Jeremy Dale, a microbiologist at Surrey University, applied for a patent on an innovative genetic probe for tuberculosis, he was not dreaming of instant riches. Despite his low expectations, he was a little disappointed with the result.

Although aware of its potential as an important research tool, Dr Dale delayed publishing his work in a scientific journal until the patent had been filed. In the meantime, a rival group at the Pasteur Institute in Paris beat him to press. He then became embroiled in a dispute over intellectual property rights priority with the French team.

The result was a hearing at which Dr Dale had to explain why his competitors' work was inferior. This was hard in a field of science typified by cooperative information sharing between friendly rivals. "Inevitably, where intellectual property rights get involved, it cuts across that sort of collaboration," Dr Dale observed.

Although a licence to exploit the technology was picked up by a US firm, it has not been turned into a commercial product, and Dr Dale is not holding his breath. He is not against filing patents in principle, but he argues that more thought must be given before taking the plunge. "Unless there is a realistic possibility of making money out of it, it's not worth doing," he said.

The US analyst Barry Bozeman observed recently: "In the study of technology transfer, the neophyte and the veteran researcher are easily distinguished. The neophyte is the one who is not confused." Dealing in intellectual property rights is never going to be an exact science.


Models for the future
  
The future shape of patent law is being considered in a consultation exercise launched recently by the United Kingdom's Patent Office.
The exercise follows European Union discussions on whether to change legislation - which regulates UK law - to allow a grace period during which an inventor can disclose his or her research before filing a patent.

The consultation suggests five models:

  • The current European model. In this, all disclosures, whether by the applicant or not, that allow another to re-create the invention invalidate the patent application. The exceptions are strictly certified disclosure and unlawful breaches of confidentiality
  • The US model. This allows disclosure, whether by the applicant or not, within a 12-month period. The patent always goes to the inventor
  • A 12-month disclosure period for the applicant (usually the inventor) only. The patent goes to the inventor or his or her employer if entitled to the rights
  • A model similar to Asian/Pacific ones. It is like the previous one, but with a six-month disclosure period
  • A model that allows limited disclosures - including scholarly publishing, academic conferences and field trials - but excludes general sale or marketing for six months before patent filing.

Historically, UK legislation allowed for a variety of non-prejudicial disclosures before filing the application, and Germany used to have a general grace period.

But these models were abolished when European patent law converged in 1973.

The European Commission last mooted grace periods in 1998. Big businesses were opposed, but small businesses and inventors pushed for up to 12 months. No decision was reached.

Now the World Intellectual Property Organisation and the EU are rethinking the issue.

The UK Patent Office hopes that its consultation will provide firm evidence of national opinion to add to the debate.

An open Patent Office meeting last week voted 12 to 20 against grace periods, with nine abstentions. The consultation will close on April 30.

For more about the consultation, visit http://www.patent.gov.uk/about/consultations/grace/index.htm

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