Historically the UK’s reputation for commercialisation of intellectual property began and ended with Frank Whittle and Alan Turing.
Both geniuses gave the UK a huge lead in new technologies – the jet engine and the modern computer respectively. But as whole new industries built up on these ideas this lead was frittered away by successive myopic governments and vested interests failing to comprehend the enormity of the opportunities within their grasp.
Whittle emigrated to the US for the last 20 years of his life, where he lived well but modestly, Turing died in relative poverty and a certain ostracism. Both were feted posthumously.
So much for history but have times moved on for the UK’s best and brightest who wish to capitalise on intellectual property (IP) for commercial success? Is the UK too stuck with outmoded processes to keep pace in a global market? Is the investment available and how can developers avail of it? The UK has one per cent of the world’s population yet delivers five per cent of the world’s scientific research. However, it does not derive five per cent of global value from new technologies. Clearly there is still a gap between IP and commerce.
The government claims to place a major emphasis on research as a driver of economic growth. By next year it will have more than doubled the science budget to £3.4 billion since 1997. Of this, approximately three per cent, £111 million for the period 2006–07, has been allocated to knowledge transfer.
The DTI’s Office of Science and Innovation funds basic research through Research Councils. Here however there is work to be done. When the House of Commons Science and Technology Committee review reported late last year, it said: “We believe that there is a need for coordination between all UK funders of knowledge transfer to be enhanced… in addition, there is a particular need for the Research Councils to enhance communication and engagement with the Regional Development Agencies and small and medium size enterprises.” So the UK government appears to have a £111m IP commercialisation budget that is not well coordinated.
In pure funding terms this puts the UK government on a par with the oil rich Emirate of Qatar. To attract technology start-ups, the Qatar Science and Technology Park recently launched a $30m new enterprise fund and $100m technology venture fund to invest in early-stage and mid-stage technology enterprises locating there. The Park is also building a business incubator to provide locations and training programmes to bolster management skills in start-up companies.
"What we see in Qatar is different. This is long-sighted and involves a very significant investment in education, science and applied research"
Edward Mott, chairman, Oxford Capital Partners
The funds dovetail with a proof of concept fund launched in September 2006 which offers grants to Qatar-based researchers to evaluate and develop their innovations. Edward Mott, chairman of Oxford Capital Partners, which is helping manage the funds, says: “What we see in Qatar is different. This is long-sighted and involves a very significant investment in education, science and applied research.” The funds are inviting applications and will make their first investments in the second half of 2007.
While this looks very attractive some people believe that off shoring has its own drawbacks and to properly commercialise your IP you must stay close to your customer base.
If, for example, you develop an application for the financial services industry you will face relocation costs to set up in London or New York.
Ideas into wealth
When the technology sector speaks about IP it is mainly talking about software development. Whether overseas or in the UK, this presents several challenges. The first is that software is practically valueless as a standalone proposition.
Sir John Chisholm, chairman of QinetiQ Group which is a private spin out of the defence research establishment and which labels itself a research technology organisation, recently addressed the UK Technology Growth and Innovation conference. He said key to success is understanding that the real value in IP is not the idea but in how you get it to market.
“It is likely that other people have had the same idea as you and even if your idea is totally original, it is likely that it could be arrived at through a different process by someone else,” says Chisholm. “So you need to accept that the only way to succeed is through a combination of continuous innovation and partnering to bring it to market. You are unlikely to end up with the same offering that you started with.”
Learning to be rich
In the UK beyond the well known research and development centres of Cambridge and the Silicon Fen, investment firms have started tying up with university technology transfer offices. Strathclyde University signed with venture capital (VC) Braveheart Investment Group creating a £12m fund to invest in IP-based spin-out companies. In Wales, Cardiff University launched a £27m scheme for commercialisation of research-generated IP with investment firm Biofusion. While universities make money from IP licensing this knowledge transfer is not universally hailed as the answer to IP commercialisation in the UK. Universities often wish to retain ownership of the IP and licenses it to any ventures that are set up.
This can make spin-outs less attractive to second round funding. It can cause disputes over ownership and has led to accusations that university technology transfer means companies that start small and stay that way.
Nevertheless the first step in commercialising IP is to find someone else’s money. The usual methods of finance are available. Business angels, venture capitalists, banks and government loan guarantees and grants.
The first challenge is to attract attention of a VC and this is not always easy for pre-revenue start-ups. Due diligence is more thorough than ever, the old days of meeting on a Monday and being financed by Friday are gone.
Matthew Cowen is a partner at law firm Clyde & Co and heads its IT and IP practice. He says that while there is plenty of investment around, too many people continue to make basic errors. “There are lots of people who have lots of ideas. If you know your industry very well, and have developed IP to exploit some aspect of it you may think you are on to a winner but something that is vertical market focused is very difficult to fund,” says Cowen.
"You need to accept that the only way to succeed is through a combination of continuous innovation and partnering to bring it to market"
Sir John Chisholm, chairman, QinetiQ Group
“Horizontal market solutions are far easier. Mobile applications are attracting a lot of interest and content for mobiles is definitely an area that is getting a lot of attention, and, of course, everyone wants to fund the next Skype. But you still get a lot of MySpace wannabes who have missed the boat.” He says there is a very good level of knowledge in the investment community and investors know they have to kiss a lot of frogs to find a prince. The upside is that if you land the right investor it will deliver far more than just money, but also commitment, experience and advice.
If you go after VC or angel funding you may fall through the equity gap. A business angel is generally good for anything up to £500,000 and a VC is seen as good for anything upwards of £2m. Many with IP they think is worth commercialising will fall between those figures. They are then forced to speak to their banks or seek small business loan guarantees from the DTI. The first is expensive and the second is time consuming.
Once you have investment, should you consider open innovation? Are there advantages in the free sharing of ideas from which everyone can gain an advantage? Or is there a more Darwinian reality which makes it a zero sum game?
Even with committed angel or VC backing it is more than likely that you will need to develop your offering in partnership. The first thing to remember about collaboration is that you must have something to bring to the table. If nothing exists in terms of proprietary IP then it actually makes collaboration less likely.
Allyson Reed, CEO of 3C Research, a research centre based at Bristol University, believes over caution restricts innovation in the UK. “It is possible to collaborate on IP with each person in the value chain gaining an advantage. Participating with a number of partners, means for example that you can sustain your IP in different markets. Long term business models are being built around IP, how the market dynamics are going to work – that is the key.”
Reed maintains that value may not be simply derived from selling or licensing products but might also be generated through value-added services. And there will be increasing opportunity for IP commercialisation through evolving business models meaning, for example, that software will have more pressure points which can be monetised.
Swimming with sharks
If you think partnering with other start-ups resembles a bear pit then opting to approach a large organisation is swimming with great white sharks. BT says that it knows that 99 per cent of telecoms innovation happens outside of its laboratories and so is always listening to smaller companies.
It gets hundreds of approaches each year from small players. BT says it used to directly invest in companies but has now changed its preferred approach.
Instead of simply investing, it has found it more advantageous to have BT trial products and then find a way to incubate companies and spin them off. It does this at least a couple of times a year.
However, small companies warn that there are many bitter tales of people who have partnered with big companies.
Small innovators often need quick decisions and speed to market. It is in the nature of large organisations to be risk averse and move slowly. So, often opportunities are missed because of the long lead times imposed by big firms.
Microsoft says it is looking at a way of putting mechanisms in place for small companies to approach it with their ideas with a view to becoming technology partners. Jim Lawn, Microsoft’s UK head of innovation, says firms must attract technology partners and embrace open innovation or perish.
But firms still complain of too many fruitless meetings with large companies. From starting as a technology partnership discussion they find themselves pushed over to the channel partner organisation to negotiate an invitation to adopt some form of reseller status.
Have a hit, get a writ
Whether dealing on a peer-t0-peer basis or if you are a sardine swimming with a shark, you must keep a constant eye on protecting what you have.
There is no doubt patents make potential investors feel more secure but that does not mean you should dedicate all your resources to securing one. The whole copyright and patent subject presents issues of its own. The UK operates a file first, not an invent first system.
There are many examples of people feeling aggrieved because they have not applied for a patent fast enough. Also if you tell too many people, such as potential investors, about your idea it becomes public knowledge and therefore cannot be patented or copyrighted.
It is also expensive and time consuming. But this may be about to change. The government is currently considering the 2005 Treasury commissioned study The Gowers Review of Intellectual Property which reported in late 2006. As well as recommending closer links between the Patent Office and the DTI’s Business Link, it says there needs to be a shake up of the patent application procedure to accelerate and make the process cheaper and more transparent and to make conflict resolution easier.
Speak early to an expert to establish what kind of protection you can get urges Cowen, though he is at pains to point out that he is not simply trying to drum up business for lawyers. “It is about not risking it all at the commercial stage for the lack of gaining the appropriate knowledge for a few hundred pounds at the beginning,” he says.
Certainly the patent process is seen as too long, secretive and expensive. That is not to say that the US approach does not have its critics. In the US IP patenting of software and even business processes is commonplace and there has been a patent explosion. This can have the effect of actually stifling innovation as it encourages patenting of ideas then sitting back and waiting for the chance to litigate against infringements.
From funding to location to patenting, each option has its advantages and drawbacks. The UK government could and may do better. If it does not, then places like Qatar will attract the brains and make the bucks.
If you are looking to commercialise IP from inside your organisation you must ditch a lot of preconceptions about process and culture. The problem the UK must overcome, says QinetiQ’s Chisholm is that unlike the US “in the UK a failed entrepreneur is seen as an unreliable chancer while a successful one is regarded as a dishonest trickster”.