On August 28, the CICC in collaboration with the American Friends of Tel-Aviv University hosted a panel at Fish & Richardson that discussed how to bridge the gap between the way long-term research is conducted in academic institutions and needs of the business community that wants to commercialize those inventions.
Shlomo Nimrodi, CEO, Ramot at Tel Aviv University (Technology Transfer Company)
Steven Weiner , Chief Patent Officer & Deputy General Counsel for IP, SRI International
Benny Buller, Investor, Khosla Ventures
Nadav Gur, Founder & CEO, Desti
Alex Hayes, Director, International Tax, Deloitte Tax LLP
David Barkan, Principal, Fish & Richardson
Traditionally, universities are entrusted with exploring basic research while the business world is concerned with commercial products. However, academia and long-term research institutions can also provide a bedrock of new technology that results in commercial products. The diverse CICC panel of experts discussed different tools that can be used to bridge the needs of the research institution and the commercial venture devoted to generating commercial products. The panel recognized the risk of losing good science for commercialization, and agreed that a proper balance must be sought by each academic institute. For example, in Tel Aviv University, researchers are exposed to relevant business related conferences in academic settings through multiple conferences on a long term basis, increasing their awareness to business problems that may be also academically interesting. The panel delineated collaborative approaches between academia and industry and reviewed Intellectual property (IP) and tax related issues.
Science plays a major role in the idea and invention stage. But a great research concept is, however, only one part in the grand structure of an emerging company. As such, the entrepreneurial stage requires building the initial company structure and finding the right balance between development of good science and good business, said Mr. Gur.
Currently, the corporate landscape is under tremendous pressure to innovate, with diminishing venture capital (VC) investments. While there is ample funding for basic science, there are insufficient resources for advancing the invention from a proof of concept into a market ready product. Mr. Nimrodi recognized this gap as both the major challenge and great opportunity for a university technology transfer office. This gap arises in part from the different personalities that are required in academic and business settings, observed Mr. Gur.
Mr. Buller expanded this gap into a series of milestones which the product has to pass en route to commercialization, each with increased investment and difficulty. These include hurtles such as basic product performance, product stability and economic viability. Fortunately, the more thresholds the product passes, the greater its likelihood of becoming a successful market ready product.
The spirit of collaboration is central to facilitation of partnerships between the entrepreneur and the academic institution, and results in successful ventures. Mr. Buller described the ideal situation where inventions stemming from a research institute resulted in a business venture which retains strong connection to the academic institution. Thus, the academic research group continues to support and develop science that effectively nourishes the venture and produces a synergistic relationship between the two. In this regard, it is important to give incentives to those graduate students that did not join the venture, since they will continue to be engaged and contribute to the venture though their graduate studies.
The panel was in agreement that fostering interdisciplinary collaboration in academic institutes is the key for promising innovations. There is a small number of market-suitable inventions stemming from academia, and it can be difficult to identify the suitable ideas from those which will never have useful commercial application. Mr. Weiner introduced a successful strategy which centers on natural human competition and incentives. SRI evaluates ideas using the degree of their originator’s self motivation, coupled with peer and external support (such as VCs, business partners and other agencies).
The panel agreed that IP is a very valuable asset. For example, the Tel-Aviv technology transfer budget allocates fifty percent to IP protection. On bankruptcy, the company’s IP becomes a very important interest that can help preserve the value of an initial investment even if the commercial venture failed as a business. The bankruptcy trustee continues to invest in patent publishing even after the company dissolves. While litigation is typically rare (once in a decade), violation of IP licenses are much more frequent and may still result in monetization of the IP assets.
Universities are typically not involved with “naked” IP sales, though such sales of patents, without enabling technology and personnel now flourishes in the market. On the other hand, universities license their IP in conjunction with commercialization. When a licensee fails to commercialize the invention, the university can often retract the licenses and seek other commercialization options.
In licensing, the licensing party should be careful not to license the intellectual property to a party that is, or may be in conflict. The licensing party should also preserve its overall reputation. Mr. Weiner pointed out that licensing in exchange for equity, as opposed to royalties, forms stronger and long lasting relationship with the entrepreneur.
Collaboration between competing academic groups is generally rare, though may occur especially when groups offer complementary aspects of the same invention. Such collaboration must be initiated by the researchers in both groups. In that case, both groups’ IP may be bundled together. However, when one party takes the lead during such collaboration, the balance of equities changes accordingly. The more frequent scenario is the emergence of two competing companies with separate IP portfolios.
Tax issues should be taken into consideration as a company’s structure is established; however, these issues typically arise at a later stage when there are actual profits. Mr. Hayes cautioned foreign entrepreneurs that the US has one of the most complex corporate tax systems and one of the highest corporate tax rates in the world. Furthermore, becoming a US corporation is non-reversible except in very limited situations. A tax-efficient corporate structure often involves transferring economic ownership of a company’s IP assets to a holding company in a low tax jurisdiction. However, this structure carries additional administrative costs, and these costs should be carefully considered before putting a structure in place, especially for early-stage ventures.