R&D roundtable calls for greater and more varied investment in Europe

March 9, 2006

Brussels, 08 Mar 2006

European academics, businessmen and politicians took part in a roundtable discussion organised by online media outlet Science|Business in Paris on 7 March 7, to try and form a manifesto to boost Europe's stagnant growth and low investment in research and development (R&D).

The recent Aho group report on innovation in Europe has been enthusiastically taken up by Science and Research Commissioner Janez Potocnik and Information Society and Media Commissioner Viviane Reding, but before moving to implementation, the roundtable discussion was a chance to find out what some captains of industry see as the best way forward.

The full manifesto will be published in the coming weeks, but CORDIS News was present at the discussions to gain an insight into its potential content. The roundtable was conducted under 'Chatham House' rules, meaning words could be recorded but not who said them, so that delegates could speak freely and without censure.

'Based partly on the discussion, and partly on our own research, we will produce a 'manifesto' summarising the main policy changes that we, as editors, believe would make a real, coherent difference,' said Science|Business head Richard Hudson.

'We looked at why the US has been growing so much more quickly,' the discussion began. 'They used public money for finance, and had laws to deregulate intellectual property in 1980. The same was done in Germany in 2003. How do we make better use of publicly funded money for research?' asked one delegate.

This moved the discussion towards higher education and how innovations in universities could be brought to market more efficiently and more effectively. Comparisons were inevitably made with the US, which has been very successful at bringing intellectual property from universities to market, and has a large pool of funding resources compared to the EU.

'In the US, start-ups begin very small, but grow to medium size and then a [significant] percentage become large. In Europe, even if many succeed, they stay at SME size or disappear altogether.' Delegates identified the bind of the patent system as a key obstacle to company growth. There is currently no EU-wide patent system, making innovation very expensive across Europe.

'75,000 euro in fees is needed to register patents, but it could cost a lot more to defend or prosecute an action. There is no point in taking out a patent if you can't afford to defend it. Legal fees could be waived in place of seed capital. Even the cost of insurance is prohibitively high. A further problem is the costs - how would a small company take a case if the legal team believed that the client could not afford the fees if it lost?' asked a legal expert.

Some delegates noted that companies take out patents with contrary objectives. Patenting laws are generally now used for protectionism, for large companies to sew uncertainty into a market. However, new entrants need certainty and low costs. Most delegates agreed that EU-wide patents are essential, but asked why proposals for an EU-wide patent have been on the table for 40 years, with real movement on the issue still nowhere in sight.

Regarding academic institutions and the way they use intellectual property, delegates believed that compared to the US, research institutions are perceived as behaving unprofessionally. If companies cannot rely on the agreements they sign with institutions, then they will go the US, where they feel they can. MIT was cited as an organisation that is regarded so highly by business that it regularly sets the terms of its deals. Too often European universities give their intellectual property away too cheaply.

This 'technology transfer' market from innovation to business is much too weak in Europe, and at best contributes five percent to a university's income, while at worst incomes are often negative. Companies want universities to be strong in high quality research, but a gap currently exists between mindsets in business and education. A further problem in university spin-off companies is that researchers may run the company, rather than people with experience of business.

The roundtable participants believe that there should be a new approach to exploiting technology transfer. 'Try to convince scientists that responsibility should not rest just with them. However, without the scientist, there is another problem. Where should be border be between the scientist and the institution?' asked one attendee.

Delegates want to see a more permeable border between academia and industry - as exists in the US. They also wanted less competition between universities, asking how can universities be expected to score five stars in every discipline. Universities have to try and excel in specific areas, they argue.

The question of non-public sources of funding was considered next. Both business angel funding and venture capital are considered to be far weaker in the EU than in the US. 'Venture capitalists are moving towards private equity deals and away from start-ups,' said a delegate. 'The key issue is that the US is united, but the EU fragmented. We need to fund good start-ups, so the best of the best can compete. Often, academics lack the skill-set to bring ideas to market. The EU is very risk-averse, especially France and Germany and this is a drawback. This is not a US model, and we need a more tailor-made environment.'

Business angel funds in the EU are especially weak compared to in the US, where they provide more financing on average than venture capitalists. In the US, business angels may offer funds up to 1 million USD per start-up, whereas in the EU, funds typically offer no more then 200,000 euro, and there are far fewer of them.

Tax exemptions were considered a problem for investors. 'There are currently none for angels,' stated a delegate. 'It should not be complicated to change the environment. There are not enough angel success stories to encourage US-levels of investment. We need to incentivise venture capitalists and eliminate red tape. We are scattering the money, we spray the money about.'

'There are angels around, but they are inhibited. There is a stigma attached to bankruptcy - why?' asked another delegate. Attendees agreed that bankruptcy still carries a stigma, but that this was not the case 150 years ago, and the culture now seems to be changing in the UK.

Participants were asked whether capital gains tax should be cut. One delegate stated simply: 'Politicians have little conviction or understanding of this topic,' which was met with general agreement. A French speaker said: 'In France, there currently exist more tax incentives to invest in Martinique and Guadeloupe than in France.'

The UK model was examined, which many delegates felt is ahead of the rest of the EU for funding opportunities. Government schemes had set aside a pot of money specifically for technology transfer to market, which accounts for the relatively large number of university spin-off companies in the UK compared to the rest of the EU. This plugs the gap where the banks should be, as 'banks are not interested in small, relatively risky loans,' said one delegate.

One speaker suggested that the EU needs a catalyst to bring companies from IP (intellectual property) to IPO (stock floatation). 'A critical mass of 15-20 years of IP funding is needed, to be repaid over 15 years. However, companies need two or three people with industry experience, for example a patent lawyer, in the technology transfer companies to manage them,' said the economist.

There is no scheme to start new funds yet in the EU. The delegates did consider the problems of IPO, and specifically the success of the Alternative Investment Market (AIM), a sub-market of the central London Stock Exchange, which has similarities to NASDAQ in the US, and is open for non-UK companies to float. The panel was divided as to whether AIM should be simply extended for the rest of the EU, or whether a EU-wide exchange should open.

'AIM is working and is more available to the rest of the EU,' explained one delegate. However, the London Stock Exchange could block AIM expansion. As another speaker pointed out, whether the UK model is the best way to go or not, principles can still be rejected on a country-by-country basis, and delegates agreed that this would almost certainly happen.

Looking at the business sector itself, experts agreed that short-termism is a problem. 'Lack of investment could be due to the company just not spending so much, spending somewhere else, or it could be that the company does not exist to spend. Biotechnology and tech spends in the US are high because they have a concentration of these industries. Policy measures must be there for market growth. In plant biotech, there was little market but plenty of innovation. With GSM, the EU-wide project dominated the world, so we have a working model,' concluded a delegate.

Further information on innovation in Europe

CORDIS RTD-NEWS/© European Communities, 2005
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