A central plank in Canadian innovation policy is that universities drive innovation by patenting their research outputs and licensing those patents to willing firms. Rather than drive innovation, however, this policy hampers it, because universities are poor patent managers. To improve Canadian innovation, universities need to get out of the patent business.
Canadian universities contribute far too little to innovative Canadian firms. The heads of three leading Canadian universities unintentionally illustrated this point in an article when they provided three examples of successful innovation by Canadian universities — all of which are currently controlled by foreign firms. While there are examples of successful transition of university research to firms, none have resulted in a long-term, large Canadian technology firm. Recent Canadian innovation leaders either did not start at a university — for example, Research In Motion (now BlackBerry) — or have since succumbed to foreign control — as did both BioChem Pharma and QLT. The University of Sherbrooke has the most lucrative licensing deal among Canadian universities for its voice transmission computer chip, but it has not led to either a large Canadian technology firm or significant jobs in Canada. The University of Toronto’s arrangements with Google regarding artificial intelligence and data collection through Sidewalk Toronto — in which foreign firms control data and intellectual property (IP) rights — have been roundly critiqued. Rather than building up Canadian firms with strong international patent positions, universities have been giving away their best assets to foreign firms.
Rather than building up Canadian firms with strong international patent positions, universities have been giving away their best assets to foreign firms.
The emphasis on university patenting is an example of a policy that was developed for the right reasons but fails in practice. Unfortunately, rather than abandoning the policy, universities and governments are doubling down on it. The results aren’t surprising: Canadians are paying more to get less. It turns out that university patenting represents a cost that hinders Canada’s — already lagging — innovation performance. It lessens investments in innovation, lowers innovation outputs for Canadian firms and delays or kills promising innovation. It is past time to fix this policy, and open science collaborations are an emerging tool that may be right for the job.
The Cost of University Technology Transfer
The costs that the current policies on university technology transfer impose on innovation are threefold. First, because of these policies’ focus on gaining IP rights and revenues, it takes months, often a year or more, to even enter into an agreement with a university. Second, universities commercialize technology too early on, wasting time trying to identify a potential licensee rather than spending their energies on advancing the technology to the point where it is ready to move forward. Third, they share knowledge too narrowly, creating delays in getting that knowledge into the hands of those who can best deploy it. Collectively, these costs constitute a significant tax on the Canadian innovation system.
Significant delays: In 2017, Karima Bawa documented the first of these costs: significant delays in starting research due to protracted negotiations over patenting. In her interviews of Canadian firms, she found that “entrepreneurs who have engaged with universities for the use of their technologies or the licensing of their IP have expressed concerns about the universities’ onerous processes, which are protracted and costly.”
This finding is not limited to Canada. Other researchers have found that “university–industry relationships concerning intellectual property ownership and rights have reached a critical point. Negotiations have become very strained and much more difficult to resolve in recent years.” In their 2003 article Donald Siegel, David Waldman and Albert Link reaffirm that point: “[t]here is also a strong belief on the part of industry (80%) that universities are exercising their intellectual property rights too aggressively.”
These delays have serious consequences. Not only do they increase transaction costs before any research has even begun, but they impede firms with limited resources and time — smaller, more specialized firms that form the bulk of the Canadian innovation ecosystem — from even engaging with universities, or drive them to do so through the back door.
Premature patenting: Bawa also documented the industry’s concern over universities patenting too early, noting that universities spin out technology and IP start-ups before these new enterprises have enough financial support. This early action not only makes it difficult for a partner to develop the technology, but also drives up the price of doing so. As a result, there are fewer firms interested in obtaining a licence, and those that remain interested pay lower licence fees and face greater risk.
Siloed knowledge sharing: The third cost is the opportunity cost incurred by using early-stage knowledge in only limited contexts. Universities transfer not only IP but also tacit knowledge to their licensees, and only to their licensees. Licensees operate only in limited spheres and only deploy the knowledge in those spheres. For example, an oncology-focused firm will only use knowledge about a protein for cancer research, ignoring the use of that protein in relation to infectious diseases. As a result, the knowledge will not be fully used. And the Canadian public that funded the research — through taxes — will derive only some of the value of the researched paid for.
The Failed Promise of University Technology Transfer
Evidence from as far back as the 1980s indicates that universities — while they have many strengths — are poor patent managers. For example, they are weak at identifying market needs; recognizing ideas that meet those needs; obtaining the right form of IP rights on the right things; and finding partners to build up the Canadian innovation ecosystem.
It is not necessarily true that universities are any worse at IP management than most firms. The real issue is that universities suffer no adverse consequences for producing so little IP that stays in Canada. Firms face pressure to perform well in managing their IP. Those that do so badly usually go out of business, and those that are overly aggressive face regulations or adverse court decisions. Failed university technology transfer policies face no such fate.
The idea that universities should take more aggressive patent positions became institutionalized through the passage of the Bayh-Dole Act in the United States in 1980. The Canadian government and the Association of Universities and Colleges of Canada (now Universities Canada) enshrined this policy through their Framework of Agreed Principles on Federally Funded University Research in 2002. In return for greater federal investments in institutions of higher education, universities and colleges agreed to a “tripling of commercialization performance” by 2010. The focus was on patenting and licensing, as evidenced by the definition of commercialization performance as “the sum of income from intellectual property, cash dividends received by institutions and equity holdings, options and warrants cashed in by institutions, as measured by Statistics Canada.”
Despite the promise of tripling commercialization revenue, total commercialization revenues only rose from $52.5 million in 2001 to $67.4 million in 2009, or roughly 28 percent over the period. During the same period, however, expenditures almost doubled, from $28.5 million to $56.6 million. The increase in cost seems largely due to greater expenditures on personnel and the filing of more patent applications per protected invention. The result: net revenues actually fell during the period, from approximately $24 million to $10.7 million.
While there are certainly indirect benefits from university technology transfer offices (for example, through spin-offs), the overall picture is underwhelming. Rather than seeding the growth of a large Canadian technology firm that would bring in revenue and be controlled in Canada, the Canadian innovation ecosystem faces higher expenditures, a crowding of the patent space and slow translation of ideas into innovation. The over-application for patents is particularly worrisome: while the number of patents actually granted to universities remained steady during the period, the number of applications rose by 70 percent, meaning that much of the extra expenditure was wasted.
The current model of technology transfer — in which researchers disclose inventions to the technology transfer office, which patents the most promising inventions and then licenses them to firms or creates a spin-off — has not served Canada well. There are too many gaps and points of political pressure, as well as a lack of market insights, that prevent it from working. First, researchers often completely avoid technology transfer offices. A Swedish study found that two-thirds of all university research patent transfers to firms circumvented those offices. Second, technology transfer officers informally report that they patent not the best invention but the one with the squeakiest wheels: a professor threatens the officers that if those officers do not pursue a patent, the professor will complain to senior academic administrators. Thus, politics, rather than good management, leads to patenting decisions. Third, as already noted, universities seek patents too early, and as a result, firms are not willing to pay the university’s demands for revenue.
Reconceiving the Role of Universities in the Innovation System
Rather than perpetuate a failed model, it is time to reconceive the role of universities and colleges within Canada’s innovation ecosystem. It would be useful to begin by focusing on what universities and colleges do well: creating knowledge, passing on knowledge and bringing actors from different spheres together. Rather than create silos of knowledge through patents, universities and colleges can use their convening power and academic incentive systems to create knowledge that flows quickly to those who can best put it to use.
As Paul David argues in a 2003 article, universities and colleges ought to focus on developing, enlarging and circulating knowledge among a much larger group. Sharing knowledge increases quality, speeds validation and reduces duplication. It also reduces firm risk by identifying fertile ground that firms can till.
In contrast, university patenting leads to delays due to protracted and difficult negotiations: “The transfer of technology through the vehicle of licensing intellectual property is, in the case of process technologies, far more subject to tensions and deficiencies arising from the absence of complete alignment in the interest of the involved individuals and organizations,” David writes. Patenting comes in later, when a firm reduces an idea to a particular product or service, leaving room to other firms to do the same.
Despite fears of free-riding, the reality (as David notes) is that most knowledge is tacit, meaning that others can only realistically access it through collaboration. Collaboration is accomplished through not only joint research projects, but also the training and hiring of graduate students and post-doctoral fellows.
Refocusing universities and colleges on knowledge creation and developing collaborations through which to share (predominantly tacit) knowledge will position firms to not only understand ideas but also to quickly develop products and services around them.
Open Science Model of University Engagement
David coined the term “open science” to capture his preferred model of university engagement in science and innovation. He defined open science as an institutional “alternative to the intellectual property approach” of controlling access to scientific knowledge. This approach relies on the academic rewards system, rather than the market, to generate knowledge. The result is higher quality of the knowledge and fewer restrictions on the use of that knowledge. In other words, open science involves the free sharing of research outputs (open access) and of data (open data) without restrictions imposed by IP rights. Researchers push the limits of knowledge not because of patent incentives but because of academic ones, such as promotion and obtaining research grants.
Obtaining IP too early or too broadly risks impairing both science and innovation. As David observes: “Considered at the macro-level, open science and commercially oriented research and development (R&D) based on proprietary information constitute complementary sub-systems. The public policy problem, consequently, is to keep the two sub-systems in proper balance by public funding of open science research, and by checking excessive incursions of claims to private property rights over material that would otherwise remain in the public domain of scientific data and information.”
To reverse the last 40 years of failure, universities and colleges need to structure their relations with industry — and each other — around collaborations rather than IP. Removing IP from the equation not only reduces out-of-pocket expenses in personnel and patent applications, but also greatly improves the circulation of knowledge to firms and other researchers who can make best use of it. Because so much of the knowledge the universities produce is tacit, participating firms gain great advantage through their participation in these collaborations. Removing barriers related to IP also facilitates moving students and fellows between the university and the firm: students can freely publish their findings (and even their electronic notebooks) without restriction.
To reverse the last 40 years of failure, universities and colleges need to structure their relations with industry — and each other — around collaborations rather than intellectual property.
The development of a ground-breaking leukemia drug based on an open science collaboration illustrates how open science and commercialization are not only compatible but, in some cases, essential. In a period of just six years, the collaboration went from initial scientific investigation to the largest private investment in a Canadian biomedicine product. This is phenomenal on its own, but open science offers more. Because the collaboration was open, all the data, all the findings and all the analysis are open, free — from restrictions such as patents— for anyone else to use. Therefore, any firm is free to use the outcome of the collaboration to develop its own drug.
The Structural Genomics Consortium (SGC), headquartered in Toronto, is an open science collaboration between university researchers, firms and philanthropic organizations. It publishes its data immediately, takes no patents and regularly partners with pharmaceutical firms and public research organizations to advance science and develop new treatments.
In 2013, researchers at the SGC published an article that showed the structure of a previously uninvestigated protein, WD repeat-containing protein 5 (WDR5), and demonstrated that it would be a good target for a drug. Based on that research, the SGC entered into a partnership with the Ontario Institute for Cancer Research (OICR) to develop a probe that would allow scientists to investigate the properties of the WDR5 protein. They accomplished this in 2014. The SGC drew upon its international network of researchers to validate the probe. A flaw was identified quickly, allowing the OICR to rapidly improve the probe. Being an open science collaboration, the SGC and the OICR immediately made the probe freely available. As a result, researchers in Austria, the United States and Australia immediately used the probe to investigate and find a clear link between the protein and leukemia, breast cancer and neuroblastoma, respectively.
Armed with this knowledge and the tacit knowledge it obtained by working with the SGC and the other researchers, the OICR quickly developed a drug to interact with the WDR5 protein to treat leukemia. It filed a patent on this drug in 2016 and raised $3 million in 2017 to fund initial clinical trials. In 2019, the American biopharmaceutical company Celgene paid the OICR US$40 million upfront for rights to the drug and promised up to US$1 billion if the drug made it through to approval. These investments remain in Ontario, funding clinical and other research and building a base for Canadian innovation into the future.
The primary reason that the OICR was able to obtain this huge investment was the speed with which it was able to turn an idea into a drug. Beyond the skills and capability of the OICR, open science is responsible for this. Open science allowed the early validation (and improvement) of the probe. Open science made the probe quickly available to researchers around the world — who were competing for academic recognition — and to further research partnerships. Because of its access to tacit knowledge, the OICR was primed to use the resulting knowledge to quickly develop a drug. The result is a two-year lead — or more — on any competitor. It is this lead that accounts for the high price the OICR obtained from Celgene.
Open science collaborations can also lead to drug development completely outside of patenting. Two spin-outs from the SGC, M4K Pharma and M4ND Pharma, are working to develop drugs against, respectively, childhood diseases and neurodegenerative diseases. Instead of patenting drugs, both firms will use exclusive rights around the data packages submitted to regulators, such as the Food and Drug Administration and Health Canada, to give them a lead. Both will publish all their data and analysis openly, allowing others to build on their science.
The open science model reimagines the role of universities and colleges in the innovation ecosystem. Rather than asking these institutions to do something they are institutionally ill-equipped to perform, it positions them to draw on their strengths: research, teaching and brokering relationships. Open science brings more eyes to research questions, increases opportunities for training, and subjects results to greater scrutiny. Firms participating in these collaborations are well-positioned to quickly transfer the resulting knowledge into products and services, over which they can then obtain exclusive rights and sell those products and services around the world.
Conclusion
Open science models of collaboration reduce the tax imposed by university patenting to zero. Because the university holds and enforces no patents, the most difficult issues in negotiations — IP and revenue sharing — evaporate, rendering it feasible to develop standard-form contracts that firms and universities can sign in weeks rather than months or years. Beyond this, open science collaborations facilitate the sharing of tacit knowledge by making it easy for a diverse set of public and private actors to participate. Armed with this knowledge, partners can quickly develop products, services and public interventions years ahead of when they otherwise would have been able.
The collaboration between the SGC and the OICR — with the subsequent licensing deal with Celgene — illustrates how open science can greatly accelerate research in Canada while leaving promising research avenues for others to explore. There are variations on the specific deal, but the structure of joint creation in the absence of IP, along with rapid development of exclusive products and services, remains the same.
Removing the tax on innovation that university patenting represents is an important step in building a robust innovation ecosystem. Granting councils need to support open science by creating specific open science research competitions; governments need to create incentives for open collaborations by developing tailored exclusive rights that do not limit use, for example; and universities need to restructure, around openness rather than patenting.