Universities earned just $75 million from IP in 2017, but spent $5.7 billion on R&D: Report

University of Saskatchewan campus. University of Saskatchewan

Canada’s top universities and research institutes spent $5.7 billion on research and development (R&D), but generated less than $75 million from licensing their innovations in 2017. That’s an average return on investment of 1.3 per cent, according to the latest report from AUTM, which monitors commercialization from academic research in Canada. Institutions filed 687 patents, down from 790 in 2016 and the fewest since 2008.

The report, which tracks income from universities and research institutions, shows consistently low innovation licensing income over the past decade. The institutions’ combined annual income has never topped $100 million between 2008 and 2017. U.S. universities, by contrast, brought in US$3.1 billion in licensing income in 2017 and spent US$68.2 billion on R&D—a 4.6 per cent return on investment.

The numbers, broken down below, come one year after the federal government committed $85.3 million to get Canadians to generate more in patents and royalties off of intellectual property (IP). The report also precedes the Ontario government’s plans to form an expert panel chaired by Jim Balsillie, former Research in Motion (now BlackBerry) co-CEO, to find ways to generate more IP from the province’s post-secondary institutions.

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Talking Point

Canadian universities and research institutes generated $75 million in income from licensing intellectual property, and spent $5.7 billion on R&D in 2017—an average return on investment of 1.3 per cent, according to the latest AUTM report. The numbers follow the federal government’s national Intellectual Property Strategy, and precede Ontario’s plans to form an expert panel to improve commercialization from university research.

The University of Saskatchewan (USask) topped the list of 34 institutions surveyed, with nearly $18.5 million in licensing income in 2017. The University of Toronto (U of T) ranked second with $6.9 million, followed by McMaster University and its affiliated research hospitals with $6.8 million and the University of British Columbia (UBC) with $6.7 million.

The University of Waterloo (UW)—which produces nearly twice as many tech founders as any other Canadian school—generated $55,327, less than 0.3 per cent of the income USask made from licensing R&D in 2017. UW spent $205.7 million on R&D that year.

“In the modern economy, intellectual property rights are essential, and unfortunately Ontario is falling behind compared to its international competitors,” said Stephanie Rea, communications director for Ontario’s Ministry of Training, Colleges and Universities, in an email to The Logic, when shown the numbers in the report. “That is why we are creating an Expert Panel to strengthen the intellectual property position of Ontario’s post-secondary institutions and ensure that Ontario is open for jobs and open for business.”

Ontario universities and public research centres accounted for 16 of the 34 institutes on the list. They brought in $36.2 million in licensing income in 2017, almost half of the total revenue generated that year. They also spent almost half of the total R&D budget, at $2.8 billion.

The AUTM report is a voluntary survey that tracks R&D spending, IP filings and startup creation at Canada’s universities and public research institutes. The annual reports show a steady increase on several measures of commercialization activity since the early 1990s. For example, invention disclosures—when a university reports a new invention to its tech-transfer office—increased from 250 in 1991 to 1,882 in 2017. The number of new startups based on research from universities increased from 29 in 1994 to 111 in 2017, with institutes holding equity stakes in 73.8 per cent of those companies.

However, licensing income—royalties, milestone payments and licensing fees universities generate from their innovations—remains consistently low; it increased six per cent between 2016 and 2017 to $75 million, around the same level as 2003.

In 2002, universities and colleges agreed to triple their “commercialization efforts” by 2010 in exchange for more federal investments under a new Framework of Agreed Principles on Federally Funded University Research. However, revenues from commercialization increased just 28 per cent between 2001 and 2009, from $52.5 million to $67.4 million. During that same period, institutions’ expenses for commercializing research—such as spending on increased personnel and patent filings—nearly doubled from $28.5 million to $56.7 million.

Despite the increased emphasis on commercializing research, post-secondary institutions aren’t equipped for the task, said Charles Plant, senior research fellow at the University of Toronto Impact Centre.

The fundamental issue is that it isn’t the objective of the university to produce commercializable research upon which they make royalties,” said Plant. “Their objective is to do scientific research and to communicate those results.

Plant noted that industry typically doesn’t show interest in research until it has passed the proof-of-concept phase. But funding typically only covers research up to the peer-reviewed paper stage. “The company has to take it further to something that is actually demonstrable—maybe a prototype stage—in order for venture capitalists to be interested in it,” he said.

There has, however, been a handful of standout innovations from which post-secondary institutes have made small fortunes. Northwestern University in Illinois has brought in more than US$1.3 billion in revenue from Lyrica, an anti-epileptic drug developed at the school. New York University has earned US$1 billion from the arthritis drug Remicade. And, Carnegie Mellon University was awarded US$750 million in 2016 from lost royalties related to its technology that makes disk drives less noisy.

USask brought in close to triple the licensing income of any other Canadian university or research institution in 2017. That’s thanks in large part to a vaccine for a virus found in pigs, which researchers at the school discovered in the mid 1990s.

But those windfalls are the exception, said Gordon Harling, CEO of CMC Microsystems, a non-profit that helps companies design micro-nanotechnology for their innovations. “There’s the odd, wild success that creates a lottery ticket mentality among universities,” said Harling. “Those few-and-far-between successes taint the whole process.”

Harling said placing pressure on research institutes to generate licencing income can put them in an antagonistic position with industry. “They’re essentially patent trolls using government funds, and punishing companies for using the technology,” he said.

The AUTM report recommends Canada’s universities file more patents today in hopes they will pay off in the future. But patent filings from universities dropped to 687 in 2017, down 13 per cent from the year before, and the lowest it’s been in a decade.

In April 2018, the federal government announced $85.3 million over five years for a national Intellectual Property Strategy to address what it identified as a lack of patents and royalties generated from Canadian research (federal funding for university research hit a 10-year low in 2017). The plan involves amending IP laws to help Canadian companies compete with foreign tech giants.

Changes to the Patent Act designed to make litigation harder for trolls were passed in December 2018. In February, the government put out a call for applications for a patent collective to educate small- and medium-sized companies on IP and identify existing patents they may need to avoid or license. The winning bid will be announced in May or June, Innovation Minister Navdeep Bains told The Logic in an interview in April. A marketplace where businesses can shop for government and academic IP will be launched in May, Bains said.

“Canadian businesses and entrepreneurs will be better able to reach out to universities for licensing opportunities and position themselves to turn ideas into new businesses,” said Hans Parmar, a spokesperson for Innovation, Science & Economic Development Canada, in an email to The Logic. “This will also support universities to increase their licensing income.”

UW has taken a different approach to commercialization than most Canadian post-secondary institutions. It has a creator-owned IP policy that gives the individual inventor—not the university—claim to their invention. The system helps explain why the school generated little more than $55,000 in licensing income in 2017, said Nick Manning, associate vice-president of communications at UW.

Private firms have more opportunity to profit under UW’s IP policy, so they’re also more inclined to fund research and development at the institute, said Manning. About a third of UW’s R&D funding comes from industry. At U of T, by comparison, just nine per cent of research is funded by private firms.

USask, meanwhile, has introduced a fast-track licensing program for innovators and low licensing fees for industry—it takes just one per cent of royalties from licence holders, compared to the more standard two to 10 per cent.

This week, USask will launch a summer entrepreneurship program where students find commercial applications for research discoveries made at the university, potentially spinning out their own startups.

The university maintains rights to the IP, while the startups get exclusive rights to it. “We don’t want to persuade brilliant researchers to become mediocre entrepreneurs,” said Johannes Dyring, managing director of the university’s technology transfer office. “Rather, we want to help researchers become even better in their research so that they then can spin out new crazy ideas, or good ideas or high potential ideas.”

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Vivek Goel, vice-president of research and innovation at U of T, said licensing income doesn’t capture the full picture of an institute’s contribution to the market. “The biggest contribution is the talent we produce: post-doctoral fellows that get experience they carry out into the workplace,” said Goel.

He added that it can take years for the commercial impact of research to be realized: “[James] Till and [Ernest] McCulloch developed stem cells in the ‘60s and we’re only now seeing therapies come out of that,” Goel said, citing the researchers who first identified stem cells at the U of T-affiliated Ontario Institute for Cancer Research.

Goel points to startup creation at universities and their affiliated incubators as one encouraging metric of post-secondaries’ economic contribution. The AUTM report identifies 907 such startups in 2017, compared to 29  in 1994. UW produced the most startups (20), followed by UBC (17) and U of T (15).

Methodology: The findings from the 2017 AUTM survey are based on voluntary responses from universities and research institutes across Canada. AUTM invited 70 institutions to participate; 34 institutions responded to the survey.