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Economic Insight Is institutional ownership killing academic invention?

Globe and Mail reporter Barrie McKenna.

The Globe and Mail

Forcing academics to share the spoils of their inventions with universities has become the norm across the developed world.

In the United States, it's even the law. Under the 1980 Bayh-Dole Act, innovators only get to keep part of whatever they successfully commercialize. The rest, including the bulk of royalties and licensing rights, is typically retained by academic institutions to support broader commercialization efforts, including funding technology transfer offices.

What if the system is all wrong? What if shifting the proceeds of intellectual property to universities from inventors is actually killing innovation?

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That's the stark conclusion of a new research study published by the U.S. National Bureau of Economic Research. The study's authors examined Norway's move in 2003 to embrace the U.S. model and scrap its system of "professor's privilege," which gave inventors full ownership of their intellectual property (IP) and business ventures. The reforms were inspired by the belief that the United States had found the Holy Grail of commercialization – a model that's now commonplace in Canada and most European countries.

The changes in Norway had precisely the opposite effect. The rate of startups and patents fell by 50 per cent, and the quality of university-generated IP deteriorated, according to the authors, economists Hans Hvide from the University of Bergen in Norway and Benjamin Jones of Northwestern University in Illinois.

"The central finding is that the policy change in Norway effectively halved the measured rates of innovation," according to the study, University Innovation and the Professor's Privilege.

And it suggests universities around the world "are producing much less innovation than they could," the authors said.

The findings are particularly relevant in Canada, where universities generally don't do commercialization well compared with their peers in the rest of the world. The bulk of the country's basic research is done at Canada's universities, but the path to making those ideas commercially viable is often rocky and not well-trodden.

Unlike the United States and Norway, Canada does not have a national policy on how universities treat IP generated within their walls. Most universities keep a set percentage of revenue from patents, such as McGill University (30 per cent) or the University of Toronto (25 per cent), although professors can sometimes negotiate more favourable rates.

Unfortunately, these policies have produced a meagre stream of revenue for universities, and not much in the way of startup successes either.

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"So little revenue has been generated by Canadian universities over the past 30 years that it's hard to justify the claim that the current system works very well," said Kristjan Sigurdson, associate director of the Creative Destruction Lab at the University of Toronto's Rotman School of Management.

A clutch of Canadian schools allows professors to retain full ownership, including the University of Waterloo and Dalhousie University in Halifax.

"We believe that allowing researchers to decide how their IP is handled promotes creativity and innovation," explained Martha Crago, Dalhousie's vice-president of research.

The idea, she argued, is that inventors are in the best position to protect their IP and get it commercialized. Professors can also choose to put a portion of their revenue back into a university fund to help others patent their ideas.

It makes sense for universities to be flexible about how they treat IP, according to Mr. Sigurdson of the Rotman School. He pointed out that taking a fixed bite of an inventor's work is like a punishing tax, imposed at a very early and sensitive stage of the commercialization process.

"If you want to maximize the number of academics who are taking this really risky adventure … you've got to incentivize them as much as possible," he said. "And taxing them early on it hurts their ability to find investors."

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The bottom line is that the status quo isn't working – either at driving innovation or generating revenue for universities.

We want our universities to be hotbeds of good ideas. The economy also needs them to be successful propagators of ideas, startups and valuable intellectual property.

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