Strategic Guide

MANAGING
IntellectualProperty
The Guide
A Guide to Strategic Decision-Making

in Universities
In Higher Education
14
Contents
1
Why is IP management important?
1.1
The benefits
19
1.2
The need for strategic management
21
1.3
Strategic checklist
29
Financial expectations and budget management
2.1
Risk and returns
35
2.2
Handling uncertainty over expected costs and returns
36
2.3
What are realistic expectations?
37
2.4
Setting Budgets
39
Ownership of IP and negotiations with sponsors
3.1
Ownership and control
45
3.2
Negotiating with research sponsors
49
Incentives
4.1
To whom should incentives apply?
61
4.2
How should incentives be applied?
65
4.3
Relationship to other university policies
69
IP management functions
70
5.1
The responsibilities of the IP management office
71
5.2
The IP office: location and structure
73
5.3
The relationship between the IP office and other departments and research groups
76
5.4
Should notification of inventions be compulsory?
76
5.5
Some complexities in IP management
77
Implementation: working with others
6.1
Collaboration between universities to manage IP
83
6.2
Working with other external organisations
89
Monitoring and Evaluation
7.1
The monitoring and evaluation framework
95
7.2
Interpreting performance indicators and the impact of uncertainty of time horizons
96
7.3
Using input measures and ratios
97
7.4
Measures of internal process performance in IP management
98
7.5
Selecting suitable performance indicators
99
Annex A: Provenance of the Guide

Annex B: Glossary
Annex C: AUTM performance measures
15
Intellectual Property
16
34
44
60
82
94
i
iv
v
1. Why is IP
management important?
Why is IP management important?
16
1.1
The benefits
19
1.1.1
Effective knowledge transfer
19
1.1.2
Using others IP
19
1.1.3
Income
20
1.1.4
Staff recruitment and retention
20
1.1.5
Other benefits
21
1.2
The need for strategic management
21
1.2.1
IP issues are pervasive
21
1.2.2
IP management and other means of knowledge transfer
24
1.2.3
Key policy overlaps
24
1.2.4
Preservation of missions
25
1.2.5
Conflicts of interest
27
1.3
Strategic checklist
29
In Higher Education
16
1. Why is IP
What is IP?
Intellectual Property, often known as IP, allows
The four main types of IP are:
people to own their creativity and innovation in the

same way that they can own physical property.
patents for inventions - new and improved
The owner of IP can control and be rewarded for
products and processes that are capable of
its use, and this encourages further innovation and
industrial application
creativity to the benefit of us all.

trade marks for brand identity - of goods and
In some cases IP gives rise to protection for ideas but
services allowing distinctions to be made
in other areas there will have to be more elaboration of
between different traders
an idea before protection can arise. It will often not be

possible to protect IP and gain IP rights (or IPRs)
designs for product appearance - of the whole
unless they have been applied for and granted, but
or a part of a product resulting from the
some IP protection such as copyright arises
features of, the lines, contours, colours, shape,
automatically, without any registration, as soon as
texture and/or materials of the product itself
there is a record in some form of what has been
and/or its ornamentation
created.
copyright for material - literary and artistic
material, music, films, sound recordings and
broadcasts, including software and multimedia
However, IP is much broader than this extending to
confidentiality (or trade secrets), plant varieties,
performers rights and so on.
17
Using others research papers, publications, etc
Trade Marks
Design rights
ACTIVITY
Copyright
Patents
Figure 1.1: IP and University activities
Confidential
information
1. Why is IP
Research information
Preparing and collating research or experimental results
Publishing or presenting research, academic or technical papers
Industrial design projects
Contract research
Consultancy projects
Starting discussions on a collaborative project or contract research
Receiving important confidential information
Giving out confidential information
Revising or providing a manual or computer assisted drawings
Preparing notes for lectures
Responding to telephone queries of a technical nature
Using computer software
Developing computer software
Reproduced from Theros IP guide (www.Theros.co.uk)

IP management is of strategic importance for two
sets of reasons:
effective management requires IP policies and

activities which need to relate to many other
university policies.
universities can derive significant benefits from

an effectively managed IP portfolio
In Higher Education
18
1. Why is IP
1.1
The benefits
The issue is not simply one of protection in order to

encourage commercial investment. University
The size, and nature, of benefits will depend on the
researchers require continuing access to the results of
size of the IP portfolio and the missions and strategies
their research for use in future projects and teaching.
of individual universities. All universities, however,
Effective IP management is required to ensure that this
employ (and train) substantial numbers of staff and
is the case. The university may also wish to draw on
students who generate IP in the course of their day-to-
the results for commercial purposes in the future.
day activities, and there are a number of potential
Negotiations and agreements therefore need to be
benefits which apply across the board.
structured so that future needs of the university can be

accommodated.
1.1.1 Effective knowledge transfer

Protecting research results and their publication are
IP management is an essential part of
not, of course, mutually exclusive. It will be necessary
effective knowledge transfer
only to delay publication for a short period while

patents are filed.
Universities are expected to engage in a diverse range

of activities in return for the public funding they receive,
1.1.2 Using others IP
and one of these is the generation and transfer of

knowledge. This is reflected in mission statements,
Universities have considerable latitude
which typically encompass the development and
to use others IP freely, but if their
transfer of knowledge for social, quality of life and
research is used for commercial
wealth generation purposes. In many cases, open
purposes they need to be on their
publication and making research results freely available
guard against the possibility of
will be the most effective form of knowledge transfer.
infringement
But most research outputs require substantial
19
investment before they can be brought to market and
Researchers are generally able to use IP owned by
find applications. Competitive advantage derives from
others without a licence, provided it is used privately
many factors, depending on the nature of the market
and for purposes that are not commercial, or it is used
and technology, but protection of the underlying
for experimental purposes relating to the subject
research results can be important.
matter of the invention. However, if research activity
1. Why is IP
crosses over into commercial work and, for example, a
routes to commercial development, and secure and
university assigns to a company IP rights arising from
negotiate with appropriate partners. The issues
the research programme, there could be an
surrounding financial returns from the
infringement. Considerations of a similar nature arise in
commercialisation of IP are discussed in more detail in
relation to copyright and the use of published materials
Chapter 2.
for teaching purposes (particularly e-learning). Part of

the IP management function is to ensure that there is
The strength of a universitys IP portfolio, and how well
clarity amongst researchers as to the legal position
it is managed, may also be a factor in attracting
and to guard against any such infringements.
research sponsorship. Sponsors may be interested in

accessing the IP within the portfolio. In addition, if the
1.1.3 Income
university is seen to a be a competent IP manager,

then this will give confidence to the sponsor that
There is undoubted potential for
effective partnerships can be established to take
universities to generate surpluses from
forward the commercialisation of results.
the IP management function, although

there is a need for realism over the
1.1.4 Staff recruitment and retention
scale of returns. Effective IP

management can also attract research
The quality of IP management will
sponsors
influence the financial benefits that

staff receive for commercially related
Commercialisation of IP can generate income for the
work and can therefore strengthen
university. One way is directly through the sale or
recruitment and retention
licensing of IP. While there has, historically, been a

tendency to over-estimate the revenue potential of IP
An effective IP strategy and policy can also help
generated within the HE sector, there can be little
universities to recruit and retain high quality staff. In
doubt that real potential does exist. This potential is
part, this relates to personal income incentives. There
unlikely to be realised if universities adopt a passive
are important differences between subject areas, but
stance towards exploitation. Instead, there is a need to
opportunities to supplement university salaries through
identify exploitable IP, decide how it can best be
commercialisation activities are an increasingly
protected, evaluate its commercial potential, identify
important consideration for many academics. The
In Higher Education
20
1. Why is IP
perceived effectiveness of IP management may inform

their choices. However, income is not the only
1.2
The need for strategic

management
consideration, and many academics will wish to see

their research outputs commercialised, and as a result
For research-intensive universities the scale of the IP
given application because they consider this to be an
portfolio generated, and the potential returns, are
integral part of their academic responsibilities.
probably sufficient reasons for considering IP

management strategically. However, there are also
1.1.5 Other benefits
other reasons that apply, in principle, to all universities.
Finally, there are a number of less tangible potential
1.2.1 IP issues are pervasive
benefits, which essentially arise because effective IP

management can raise a universitys profile in the
IP issues arise, to a lesser or greater
business and wider community. These include:
extent, in relation to virtually all

university activities, and policies and
the publicity that can arise from successful
activities need to be consistent
knowledge transfer
The discussion above has touched on some ways in
a perception that the university is a good place
which IP issues relate to various university activities. In
with which to do business, thereby facilitating
practice, the overlaps are pervasive. There is a general
wider interaction between the university and
need in relation to teaching, research and consultancy
the business sector
to ensure that IP with potential commercial value is

properly protected, that the university can access this
a demonstration that the university is
IP in the future and that the university is not exposed
contributing to economic development
to litigation because of infringement of others IP. As a
activities, at a local, regional or national level.
result, IP policy should be co-ordinated with policies

toward research, teaching, consulting, students,
employment terms and conditions and conflicts of
interest. Figure 1.2 illustrates some of the operational
issues that arise.
21
1. Why is IP
Figure 1.2: The cross-cutting aspects of IP management

University activity
Teaching
How other activities impact
How IP management impacts upon
upon IP management
other activities
Information provided during teaching
It is necessary to ensure that teaching
(particularly e-learning) may infringe
materials do not infringe IP and that
others copyright and other forms of IP
students are educated about IP
such as trade secrets and may expose
management
the university to litigation

Research
IP generated needs to be identified,
It is necessary to ensure adequate
evaluated and protected
records are kept to comply with future

requirements for securing IP, and that
Future access to IP by the university
notification of invention takes place
needs to be considered
Increase awareness amongst university
Research, if used for commercial
staff of commercial restrictions upon
purposes, may infringe others IP and
possible research activities. Although it is
may expose the university to litigation
not necessary to obtain a licence to work

a patent for research purposes, provided
that the work is not for commercial gain,
problems can occur in practice
Publication
Publications may infringe others IP and
Electronic publication raises copyright
may expose the university to litigation.
issues about which staff will need to be
This is a particular issue with electronic
informed
publication
In Higher Education
22
1. Why is IP
Figure 1.2: The cross-cutting aspects of IP management (continued)

University activity
Consulting
How other activities impact
How IP management impacts upon
upon IP management
other activities
Consulting activities may infringe others
There is a need to ensure that there is
IP, particularly in the area of trade secrets
adequate indemnity cover against IP

infringement by staff carrying out
Consulting activities represent a potential
consultancy work via the university
leakage of university IP
Staff should also be aware of limitations
to professional indemnity cover (such as
the small print over aerospace-related
work and US-based activities)
Personnel
Research services
If there are disputes over IP between
Employment contracts need to align with
staff, they need to be managed
IP policies
Research services will need to liaise with
Contracts will need to be vetted for IP
IP management to consider IP issues
clauses
when organising research projects

Administration
Disputes over IP between staff and
There is a need to ensure that IP clauses
students and between different students
in student enrolment are legal and do not
may need to be drawn to the attention of
breach the duty of care
IP management, who will need to

become involved
23
1. Why is IP
1.2.2 IP management and other

means of knowledge transfer
All universities need to engage in IP
different forms of knowledge transfer can be helpful in

this respect.
1.2.3 Key policy overlaps
management. The level of investment

will, in part, be determined by the
Incentives for engaging in IP-related
costs and returns relative to other
activities need to be consistent with
forms of knowledge transfer
general policies towards internal

income allocation between
Universities transfer knowledge in many ways besides
departments and also towards other
the licensing and sale of IP. These include consultancy,
means of knowledge transfer
contract and collaborative research and Continuing

Professional Development (CPD). As the previous
Universities have no automatic claim to
section outlined, IP management has an important role
student generated IP, but are arguably
in relation to these activities, and complements, rather
best placed to manage it. Policies, and
than substitutes for, these other means of knowledge
procedures relating to students need
transfer. Complementarity arises principally at the
to explicitly address IP issues
stage of ensuring that any IP generated during the

course of these activities is identified and, if promising,
There are two areas of university policy that are
protected. IP management also encompasses the
particularly closely related to IP management.
active marketing of IP, potentially the costly extension

and renewal of patent protection and, if successful, the
The first concerns the general question of distributing
monitoring of agreements with commercial partners.
returns from the exploitation of IP within the university.
An important consideration is, therefore, the extent to
This also relates to the specific question of rewards to
which universities should invest in these aspects of IP
individual inventors. Incentives are discussed in more
management activities at the expense of marketing,
detail in Chapter 4 but there are a number of general
and delivering, other forms of knowledge transfer. This
issues to consider:
will obviously depend on the volume and quality of

research undertaken within the university. A
consideration of the relative costs, risks and returns for
In Higher Education
24
1. Why is IP
there are substantial differences between
1.2.4 Preservation of missions
subject areas with respect to their IP potential.

Net income generated through IP exploitation
Maximisation of revenue generated by
can be allocated to departments in
IP exploitation could lead to an over-
accordance with university strategy, but
emphasis on applied research
incentives for departments with high IP

potential to exploit this potential need to be
An undue emphasis on revenue generation could risk
retained
distorting the missions of producing knowledgeable

people and carrying out investigations aiming to
in accordance with the discussion in section
produce new knowledge. The closer that research
1.2.2 above, incentives for engaging in IP-
moves to the market the lower the risk involved in
related activities need to be consistent with
commercialisation and the higher the likely returns to
general university strategy towards other
the IP generated. However, strategies which seek to
means of transferring knowledge.
maximise revenue from IP in this way could drive

universities too far in the direction of applied research
The second concerns students. Student ownership of
at the expense of basic research and postgraduate
IP is discussed more comprehensively in Chapter 3.
training. British Technology Group plc (BTG) provided
The key issues that arise are:
the following observation in response to the

consultation paper:
universities have no automatic claim to IP

generated by students
There are risks associated with an unthinking and

cost-driven shift in the research mission of universities.
much university research is likely to involve

staff and post-graduate students
Excessive focus on applications-oriented research

could crowd out curiosity-driven research yet it is the
latter that, in BTGs experience, leads to valuable
fragmentation of ownership can be an

impediment to effective exploitation.
25
inventions that create start-up and licensing

opportunities.
1. Why is IP
Open dissemination of results can sometimes make
and use it. Balsa will continue to be developed and, if its
commercial sense as well as being entirely consistent
use becomes significant, it is always possible to sell later
with university missions (see Figure 1.3).
versions or extensions while giving away the core tool. This

is quite a common commercial model - to have a free
Figure 1.3: Placing IP into the public domain free
basic version while charging for a later, higher featured, fully
of charge The University of Manchester
supported version. You can consider the initial free release

as a form of seed-corn.
The computer science department at the University

of Manchester has recently placed two significant
In a university, the use of IP by others in the research
software systems into the public domain - the
community has considerable indirect value. The use of
Maverik VR framework, and the Balsa asynchronous
Balsa or Maverik by other groups enhances the reputation
circuit synthesis system. Both are available under
of our groups and their ability to publish in the best places
Gnu Public Licences (GPL).
and attract research funding.
Professor Steve Furber, head of the department,
Putting software into the public domain can greatly
commented:
increase its influence on the computing community - Linux

is the most visible proof of this. In some cases, it may serve
With this sort of IP there is an issue of establishing and
the universitys purposes better to maximise the influence
demonstrating the value of the software. If the IP is
of its research by putting IP into the public domain rather
protected and offered for sale under licence, will anyone
than by exploiting it for direct commercial gain. Influential
buy it? If it is available free, does this imply it has no value
work raises the reputation of the university, with indirect
and isnt any good? Our judgement for Balsa was that if it
benefits in terms of RAE ratings and the ability to attract
was not free nobody would pay for it or use it because of
good students (at both undergraduate and postgraduate
the uncertainties of the tool and the technology it supports
levels) and research funding.
(asynchronous design is still a minority interest among VLSI

designers), so there would be no revenue lost by making it
freely available. If available free, there are a number of
research groups that might pick it up, find it actually works,
In Higher Education
26
1. Why is IP
1.2.5 Conflicts of interest
Some UK universities are now developing or refining

their policies towards conflicts of interest. For example,
Little concern has been expressed, so
the University of Glasgow implemented a new conflict
far, over actual conflicts of interest
of interest policy at the end of 2001 (see Figure 1.4).
arising from IP exploitation.

Nevertheless, a watching brief should
Figure 1.4: An Example of a University Conflict of
be maintained
Interest Policy
The possibility that active management of universities
The University of Glasgows new Conflict of Interest
IP portfolios might lead to conflicts of interest has, with
Policy (implemented in December 2001) provides a
some exceptions, not been as prominent a topic for
clear statement of the importance of managing
debate in the UK as in some other countries, notably
conflicts of interest in higher education. The policy
the USA. Indeed, as one workshop participant put it:
explicitly takes into account the reports of the

Committee on Standards in Public Life (the Nolan
I wish the volume of activity was such that we needed
Committee) which defined the seven principles of
to worry about conflicts of interest.
public life as: Selflessness; Integrity; Objectivity;

Accountability; Openness; Honesty, and Leadership.
However, it is an issue which was raised by several

universities, and the specific concerns, which need to
The policy starts by recognising that increasing
be addressed at the strategic level, were that:
demands are placed upon universities to engage with

for-profit organisations in order to discharge their
commercial pressures might inhibit the free
responsibilities towards economic development and in
flow of information within the research
order to generate funds to support their research and
community
related activities. In this environment, University

members are placed in situations where potential
partnership with commercial organisations to

exploit university generated IP could
and professional interests and the interests of the
compromise, or be seen to compromise, the
University at large.
status of universities as providers of

independent advice.
27
conflict of interest may arise between their personal
1. Why is IP
The over-arching statement of policy is: It is the policy
managed in order to be acceptable.
of the University that its officers, staff, and others
The full policy is available at:
acting on its behalf have the obligation to avoid ethical,
http://www.gla.ac.uk/R-E/pub/policies/index.html
legal, financial, or other conflicts of interest, and to

ensure that their activities and interests do not conflict
Figure 1.5 illustrates the approach taken by the
with their obligations to the University or its welfare.
University of Lancaster.
This policy incorporates the Seven Principles of Public

Life established by the Nolan Committee; the
Figure 1.5: Handling conflicts of interest: the
Universitys officers, staff and others acting on its
University of Lancaster
behalf should abide by those principles

Our approach is to build an explicit
The policy contains the following key elements:
acknowledgement of university ownership of IP into

employment contracts. However that has limitations
All members of staff in a position to make or influence
in terms of (1) the 1977 Patent Act, sections of which
decisions and all academic members of staff are
may overrule university ownership in rare cases,
required to complete an Annual Return to the
though we have had no such difficulty, and (2) what
appropriate authority. If they have nothing to declare
then happens about grey areas. Examples of grey
then staff must submit a nil return for the record.
areas could include consultant contracts and what

happens to IP arising from work done by staff
The University has established a Committee on
members during the time they are working as
Conflicts of Interest to advise on ambiguous and/or
consultants.
complex situations, staff are also encouraged to seek

advice from heads of department and deans etc.
In practice, it seems unlikely any policy document

could explicitly cover every conceivable situation in
Specific activities are defined that should lead to
which a conflict of interest might arise without
scrutiny. Guidelines are then provided on how to think
becoming completely unwieldy.
about the conflicts that can arise rather than to attempt

to define rules that cover all possible situations. These
The best solution is probably one in which (a) there is
range from the acceptable to definitely not acceptable,
a simple definition of what the universitys potential
with other items that need to be declared and actively
commercial interest is; (b) a binding employment
In Higher Education
28
1. Why is IP
contract between university and staff in which the
defining the strategy to be adopted towards IP
obligations of the respective parties are clearly spelt
negotiations with research sponsors who seek
out, and (c) an explicit assurance to staff that people
to own this IP
originating Intellectual Property will share in the

benefits. That keeps the documents relatively simple
defining the responsibilities of the IP
and puts a good deal of weight on the application of
management function, including the conduct
plain common sense. It seems to cover most cases
of any cross-cutting role it plays in relation to
quite well.
other university departments and groups
Roderick OBrien, University of Lancaster
deciding how the IP management function will

be organised in relation to other relevant
1.3
Strategic checklist
functions, particularly research services, and

whether or not company structures will be
Central managements main responsibility in relation to
used for IP management
IP management is to set the overall long-term strategy

that the university will pursue and to define how it will
establishing realistic expectations and targets
be pursued. The principal elements of an IP
(in terms of level and timing) for potential
management strategy in a university include:
financial and non-financial returns to the

universitys investment in IP management
providing a statement on how IP management

supports the overall mission of the university
designing a system for monitoring and
and actively communicating the strategy to
evaluation that facilitates a virtuous circle in
university staff
improved effectiveness of IP exploitation and

providing a process for the review and, if
the co-ordination of the IP management

strategy with other policies and strategies,
necessary, the re-design of the IP

management strategy.
including policies towards the ownership of IP

by different types of staff and students and
These topics are discussed further in the remainder of
defining appropriate incentive structures for
the Guide. At this stage, it may be useful to consider
staff
some examples of the overall approaches universities

are taking towards IP management.
29
1. Why is IP
One prominent feature is the integration of IP
Organisation
management within a universitys policy framework
The department of Research and Enterprise (R&E) -
and organisational structure (see Figure 1.6).
part of the universitys Central Administration - has

been given responsibility to coordinate research and
Figure 1.6: Policy framework and organisational
enterprise activities and to direct commercial
structure at the University of Glasgow
operations. The Director of R&E reports directly to the

Secretary of Court and works on a day-to-day basis
The University of Glasgow has sought to develop a
with the Vice-Principal for Research. R&Es activities
framework for an integrated policy towards research
are overseen by a R&E Steering Group which is in
grants and contracts, consultancy and commercial
turn accountable to both the Universitys
activities that will evolve and change alongside trends
Management Group and to the Advisory Board for
in research and its commercialisation and any
Research and Enterprise. The latter reports regularly
changes in government policy.
to Court and to Senate. This arrangement is intended

to provide the agility necessary for effective
Intentions
commercial operations whilst ensuring the
This policy framework explicitly recognises that
accountability that is appropriate for a university.
enterprise is now a third component in the

universitys mission:
Tactics
The Universitys view is that commercialisation of IP
...each of these elements is inter-linked and is
can achieve economic benefits in different ways.
interdependent: the results of leading-edge research

are used to enhance the education and learning
1. Direct; The university seeks to maximise the
experience of students as well as to underpin the
commercial revenue yield on its research
commercial exploitation and economic development
expenditure in order to invest in improving its
activities. These activities include the commercial
research capabilities thus seeking to create a
exploitation of both research (contract income,
virtuous circle based upon closely coupled research
licenses and spin-out companies) and teaching and
and enterprise activities.
learning.as well as consultancy and other advisory

services.
2. Indirect: The university seeks to assist companies

in the region to become more competitive through
In Higher Education
30
1. Why is IP
technology transfer. In some cases, the University will
Operations
contribute IP to a company or group of companies if
R&E operates in a highly integrated manner such that
it is believed that they are best placed to develop or
seamless life cycle support for both research and
exploit it. In this case, the major beneficiaries are likely
enterprise is provided. This involves the use of
to be the company and the local economy, but the
integrated databases and formal business and
university believes that a strong company base and
decision-making process road maps. There is
local economy also lead to a more dynamic
considerable interest in other universities in emulating
environment in which to carry out research.
some of R&Es operational approaches such as the

automatic generation every two weeks of emailed
IP management staff are given high levels of authority
progress reports from a database that logs all IP case
to act in facilitating research commercialisation and
activity. This helps to ensure that all interested parties
take a direct and very active role in commercialisation
are kept fully informed of the progress, or lack of
deal making.
progress, made.
IP managers act as advocates of a particular

business case and each case is critiqued by
Several universities are conducting thorough reviews
colleagues at weekly prospect evaluation meetings.
of their approaches, with consequent revision of

structures and systems (Figure 1.7).
31
1. Why is IP
Figure 1.7: A recent strategic review of a
University of Ulster Science Research Parks
universitys management of IP -
(UUSRP) has been established to develop and
the University of Ulster
manage the universitys science research parks

established at the Coleraine and Magee
Within the University of Ulster, a new structure has
campuses. The parks are not exclusively for
been put in place to manage the process, involving
activities which have derived from the
the establishment of two limited companies within the
university research base, and also house
university infrastructure to stimulate and manage the
appropriate externally started high-tech
universitys technology transfer:
companies. The rationale for this is (i) to

provide an environment for clustering of high
UUTech Ltd has been set up to implement and
technology companies in close proximity to the
develop the universitys technology and
research strengths of the university, and (ii) to
knowledge transfer policy with the following remit:
provide an academic/industry innovation

community which will help to drive the
to work in partnership with the private sector to

promote actively technology transfer activities
knowledge-based economy in Northern

Ireland.
associated with the university

as a central mechanism to exploit the innovative
The university is also planning to establish a university
research activity emanating from the universitys
investment fund, financed by a number of investors
research centres
contributing to a pool of funding, and set up as a
to enhance the close relationship the university
limited partnership. The fund will provide preferential
has established with the local community and
access to spin-outs in the university, but investment
to contribute strategically to the diversification of
decisions will be on a commercial basis and
business/industrial sectors of the local economy
assessed by an experienced management panel.
to act as an umbrella company with a remit to

take venture stakes in start-up companies and
Two years on from the introduction of the strategy,
to manage university consultancy activities
technology and knowledge transfer now form part of
to manage and negotiate all matters related to

IP in order to maximise the benefit to the
the universitys core business activities alongside

teaching & learning and research.
university, its staff, students and the region.
In Higher Education
32
33
2. Financial expectations
and budget
management
2
2.1
2.2
2.3
2.4
2.4.1
2.4.2
Financial expectations and budget management

Risk and returns
Handling uncertainty over expected costs and returns
What are realistic expectations?
Setting Budgets
Using the commercial revenue yield on research expenditure as a
ratio in budget setting
Considering anticipated capacity constraints
34
35
36
37
39
39
42
In Higher Education
34
and budget
management
2.1
Risk and returns
Figure 2.1: Relationships between cost, technical

risk and business risk in the commercialisation
Linking the IP management budget to
process
annual revenue targets may lead to

problems, because the costs and
The investment process associated with research
revenues associated with IP
commercialisation consists of increasingly high
management are subject to major
expenditures aimed at determining the technical and
external influences and can be volatile
commercial viability of the concept and then bringing

it to market. This sequence of investments reduces
University research results are characteristically highly
the technical risk that the concept will not work as
uncertain as regards potential future applications. A
intended, but the cumulative expenditures made
particular innovation may eventually produce major
increase the risk that these funds will be lost.
revenues, but many inventions or smaller advances will
Business risk only decreases as the product or
not produce significant revenues and some may never
process nears market introduction and the probability
reach the market. This high level of investment risk
of commercial failure reduces. These basic
means that the return to the university will be low
relationships are illustrated in the following diagram:
relative to that captured by the organisations which

make the post-research investments. This simply
reflects how investment risk is distributed.
Cost ()
The range of financial returns that can be negotiated

by a university will be constrained by the extent to
Business
Risk ( at risk)
which it is willing and able to commit funds to risky

investments in a similar way to the Venture Capital
sector. University seed funds aimed at facilitating
technology transfer can play a role in increasing the
share of the financial rewards. This type of investment
can reduce the perceived investment risk, by moving
the technology through various proof of principle and
proof of concept stages, producing a more favourable
negotiating position for the university. Figure 2.1
illustrates these broad concepts.
35
Technical Risk
(prob. of
Technical Failure)
Initial concept
Market introduction
Distance to market
and budget
management
All current and potential partners in research and
Figure 2.2 provides an example of a fund, established
technology transfer activities should ideally be in
in collaboration with Scottish Enterprise, which
broad agreement on the anticipated investment risks
enhances universities ability to capture the financial
faced and their implications for the partnership, in
benefits of their research.
particular on the ways in which risk capital differs

from research funding. Although research funding
Figure 2.2: Regional Collaboration in the
generates the option to commercialise the research,
provision of pre-seed capital: the Scottish
it does not, in itself, allow this commercialisation
Enterprise Proof of Concept Fund
option to be taken up. Shares of the financial rewards

should reflect the shares of the investment risks
The case for an in-house fund to help finance
taken. Failure to recognise this principle at the
research through the proof of concept stage is that
agreement negotiation stage can cause severe
further investment will increase its attractiveness for a
problems at later stages.
commercialisation partnership and thereby secure a

greater share for the university. Yet staffing and
2.2
Handling uncertainty over

expected costs and returns
operation of such a fund cannot be done on the

cheap; there is a need to win the confidence of
investors and hard decisions have to made in
The decision-making process for allocating resources
deciding which projects to support. To cover the
to IP management activities should recognise that the
overhead requires a high volume of research activity,
variance in expected returns on this investment can be
and a collaborative effort by a regional grouping of
high and will therefore be uncertain. This means that
universities is one obvious approach.
setting annual target revenue to cost relationships is

not viable, particularly if performance against such
One innovative approach is the 30 million Proof of
targets is to be used to assess good or poor
Concept Fund, established in 1999 by Scottish
performance in IP management. A moving average of,
Enterprise, as a way of addressing this critical early
for example, three years is likely to give a clearer
stage-funding gap. We see the Fund as part of a
picture, although longer moving average time-frames
pipeline, leading eventually on to other funding such
may be appropriate for smaller IP management offices
as SMART and SPUR awards and business angel
because the lower deal flow will be even more
and venture capital funding. The applicants usually
sensitive to year-on-year variations in returns.
In Higher Education
36
and budget
management
have some background IP, but theyre not at the
different levels of financial return is also important when
stage where they can market it.
it comes to considering the mix of technology transfer

activities. This is discussed in the following Section.
The fund is available to applicants for a maximum of

two years. The highest amount of funding available is
200,000, with payments made quarterly. To date,
2.3 What are realistic

expectations?
there have been two rounds of funding, with projects

for the third currently under evaluation. In round one,
There are some indications that UK
there were a total of 83 applications, of which eight
universities already actively engaged in
were successful; in round two, there were 120, with
technology transfer are as effective as
funding finally going to 36 of those. The third round
their US counterparts when revenue
has attracted 130 proposals.
from commercialisation is considered

in relation to research expenditure
A management group is put together for each

successful project, led by the appropriate institution
UK universities are often compared to their US
and supported by Scottish Enterprise. The idea is to
counterparts. The main reason for looking at the USA,
try and ensure that everything is kept on track and
in relation to IP management, is that there is a longer
that the commercialisation happens. The money is
history of active technology transfer, reasonable data
designed to be spent on proving the core
sets and, consequently, an indication of how things
technology. Its meant to cover the salary of one or
might be in the future for UK universities.
two people for a couple of years most of it

therefore goes on peoples time.
Examination of the evidence does not support the

view that there is a large untapped potential for
Quotations are from fund manager Eleanor Taylor
revenue generation for many UK universities. Figure

2.3 reports well-informed views.
Expected net returns must therefore be based upon a

realistic appraisal of achieving these lightning strikes
they are rare, and therefore the expected value of the
overall portfolio of commercialisation revenue will not
be high. This emphasis on the probability of achieving
37
and budget
management
Figure 2.3: Views on the performance of UK
it is (in our experience) often better than that in US
universities
academia. The more pragmatic approach that is

typically adopted by UK technology transfer offices is
The AUTM data allow accurate comparisons. MIT
also in many cases preferable to the narrow
has a research base which, at over $900 million, is
commercial focus that is adopted by some US
equivalent to several UK HEIs. Therefore there is a
technology transfer offices.
need to take into account the substantially lower

volume of research income available to UK HEIs when
It is always dangerous to make sweeping
considering the . expectations of IP exploitation. The
generalisations, but in BTGs experience there is
value of $90 million of research to create one spin-out
certainly good and bad performance on both sides of
in the US gives a more realistic expectation of what
the Atlantic.
could be achieved in the UK, especially taking account

of the cultural and infrastructure benefits that the US
British Technology Group plc
enjoys.
Those UK universities that have been increasing IP
University of Edinburgh
management activities do not appear to lag behind

institutions in the US so far as commercial revenue,
We... view with some scepticism the conventional
and spin-outs, in relation to research expenditure is
wisdom that US technology transfer offices are more
concerned. It may be the case, however, that US
effective than those in the UK. Our own analysis
universities generate more commercial revenue for
suggests that if revenues generated by BTG on
each $ devoted to IP management, owing to a mix of
behalf of UK academia are included, then UK
economies of scale and cumulative experience. It is
university licence income as a percentage of total
those UK universities that are now seeking to catch up
research income is not dissimilar from that in the
that are likely to have the greatest potential to improve
USA.
their revenue. However, these tend to be universities

with relatively low research income and thus the scope
Similarly, we estimate that UK universities are creating
to add significantly to sector-wide returns may be low.
as many start-up companies per million of research

income as those in the USA. While the quality of
patent applications filed by UK academia is not ideal,
1 Association of University Technology Managers
In Higher Education
38
and budget
management
2.4
Setting Budgets
Budgets can be set by considering the

size and mix of the universitys
It is not feasible to set IP management budgets based
research activities, using comparisons
on a precisely defined relationship between expected
with other universities
returns and expected costs, and hence other

approaches must be used. One alternative is to set
The ratio of revenue generated from research
the budget on the basis of the universitys research
commercialisation to research expenditure expresses
profile. This requires an understanding of the
the direct commercial yield. It is important to be clear
propensity of different subject areas to generate IP.
that this is the direct yield to the university, and does
The easiest means of doing this would be if subject-
not include the wider impact of higher education
specific data on IP activity levels and mixes were
research on the economy and society. The desirability
widely available. This would allow each university to
of using moving averages to even out volatility and of
make an informed judgement about the nature and
taking catch up phases into account should also be
extent of the expected deal flow. Unfortunately, such
borne in mind when using this ratio. The only readily
data are not currently available. The collection of
available (partial) data on this ratio relates to overall
standardised data of this type would, therefore, be
research income levels and their relationship to licence
useful in providing benchmarks for budget setting.
and royalty income. They therefore exclude revenue

generated from any equity sales, which should, ideally,
2.4.1 Using the commercial revenue

yield on research expenditure
as a ratio in budget setting
be included.
Recent work by the National Health Service provides
some useful guidance in this area. Its handbook for
The ratio of IP management
R&D managers suggests that an average technology
expenditure to research income is
licensing yield for medical and health R&D would be
probably the most useful budget
around 2.5 percent of R&D expenditure explicitly
indicator.
ignoring any lightning strikes of unlikely yet very large

licence returns.2 This would indicate a steady state
break-even IP management budget level of 2.5
percent of R&D expenditure.
2 This estimate is based upon evidence from leading UK research universities with medical schools and from an examination of the AUTM data. As an illustration, estimates of the ratio of
sponsored research income to royalty income from seven Scottish Universities lie in the region of just over 3 percent.
39
and budget
management
According to the NHS Guide the cost of running a
low return, and loss making, projects. Where large-
technology transfer unit employing two full time staff
scale R&D expenditures are involved then a 2.5
plus clerical support could amount to 150,000 per
percent yield is more plausible and economies of scale
annum including overheads, and an additional
start to become evident.
100,000 in patenting costs (including patent

attorneys fees). The implication of using these NHS
The University of Oxfords budget for handling
estimates is that R&D expenditure of only 10 million
technology transfer includes an operating cost
would be required to justify even a small team (i.e.
contribution from the university of 1 million per annum
250,000 is 2.5 percent of 10 million). This may be
(doubled from 500,000 in 2000).4 Isis Innovation Ltd,
regarded as a low estimate. In situations in which
the universitys wholly owned technology transfer
higher salaries are paid a unit of two full time
company, handled a deal flow of 415 projects last year
professional staff may require a budget of 350,000,
(see Figure 2.4). The universitys contribution facilitates
implying in turn a threshold R&D expenditure of 14
technology transfer arising from externally funded
million, still a relatively low level. These estimates
research grant and contracts worth over 142 million
relate to health and medical research but the life
in 2000/2001. A yield of 2.5 percent would generate
sciences do constitute a major area of technology
just over 3.5 million per annum, representing a
transfer activity in higher education and attract much
significant surplus over costs.
attention because of the rapid rate of scientific

advance and the possibility of making major financial
It would be particularly useful for budget-setting
gains.
decisions if future analyses of the yield on R&D

expenditure examined how the yield varies with the
In reality however, a team of two professionals may be
scale of R&D expenditure. This would assist those
too small to be effective. In addition, the estimated
universities with lower levels of R&D expenditure to
yield of 2.5 percent of R&D expenditure may be
decide upon how best to collaborate between
misleading for small portfolios since there is less
themselves and to use third parties to help them
chance of a few high return projects balancing many
manage their IP.
3 However, a recent survey of Scottish universities commercialisation activities indicated an average annual operating budget of over 500,000 per year and an average full time equivalent
staff of slightly less than 12. This apparent discrepancy may be because this covers offices with a wider scope that IP management alone. Source: Scottish Executive, Economics Advice
and Statistics Division (2001) Intellectual Property Commercialisation in the Higher Education Sector.
4 There is also another 4 million in seed funding from a mixture of university, Treasury and Wellcome & Gatsby Trust funding and an Isis College Fund of 10.7 million (1 million from the
university and 9.7 million from the colleges).
In Higher Education
40
and budget
management
Figure 2.4: Budgets and Activity Levels at the University of Oxford

Year ended March
1997
1998
1999
2000
2001
000
40
300
500
1,000
1,000
Staff
17
21
Projects
168
243
319
415
Patents filed p.a.
31
51
55
63
Licences/options p.a.
18
21
32
New companies p.a.
University investment
External research grants and contracts 2000/2001
48m
33.7%
Research Councils
46.5m
32.6%
Industry
22.4m
15.7%
UK Public Bodies
10.2m
7.1%
European Commission
5.4m
3.8%
Overseas Charities & Public Bodies
10m
7%
142.5m
100%
UK Charities
Total
Source: Oxford University Research Services Office and Isis Innovation Ltd
41
and budget
management
The figures discussed in Fig 2.4 only allow for the
Two other factors which could influence budget levels
direct costs of IP management. Universities may also
are discussed in the following sections.
decide to contribute to seed funds. The aim is to

increase returns by funding further investment in order
to reduce the investment risk faced by potential
2.4.2 Considering anticipated

capacity constraints
exploiters of the technology. The probability that a

licence will be taken out and will prove to be profitable
Allowing for a degree of flexibility in IP
and/or that a spin-out company will be formed is
management budgets will help to
thereby improved. Obviously, the cost to the university
reduce the risk that the IP office hits
of any such funds needs to be factored into the
capacity constraints which affects the
estimates.
mutual understanding and confidence

through which researchers and IP staff
Even taking into account the issue of the scale of R&D
work together to improve technology
expenditure and of the IP management office the
transfer
figure of 2.5 percent of research expenditure is only a

very rough estimate of breakeven expenditure on IP
Some of the most successful IP management
management. Higher than average concentrations of
functions have achieved virtuous circles, through
subject areas with high income generating potential
which researchers become more likely to notify and
would justify higher expenditure. Conversely, if a
pursue IP exploitation opportunities, because they
university is prevented from controlling higher than
expect the process to be efficient (in terms of the use
average shares of the IP it generates, perhaps
of their time) and effective in terms of final outcomes.
because of sponsor requirements, then lower than
Capacity constraints will, at least, inhibit such
average expenditure might be appropriate. Optimum
behaviour. As the IP office workload approaches full
ratios of expenditure to research income are also likely
capacity, the time required to process paperwork and
to vary over time for individual universities. US
make decisions will tend to increase. Hitting capacity
experience indicates that the ratio follows a curve of
constraints may also disrupt relationships with external
diminishing returns and, following a period of relatively
business partners and potential new investors. An
rapid growth consequent on developing in-house
example is given in Figure 2.5.
expertise and staff enthusiasms, will flatten out.
In Higher Education
42
and budget
management
For these reasons, budgets will need to reflect:
than would have been allowed under current IP

management practices and guidelines. Not all of
anticipated capacity constraints in handling an

expected increase in the deal flow
economies of scale in IP management.
these could be abandoned, because some had in

fact attracted commercial interest.
Due to a misunderstanding between patent agents
and their international affiliates, projected costs,
Providing for some flexibility in IP management
provided by the patent agents, were consistently
budgets, particularly in the area of the recruitment of
under-estimated. The consequence was over-spend
professional staff, can be important. This type of
on budget.
flexibility can be designed to prevent capacity

constraints being reached and would be justified on
The travel budget was insufficient to allow the IP
the basis that it facilitated the operation of the virtuous
portfolio to be marketed effectively, which was an
circle, via which researchers and IP managers work
impediment to generating greater licence revenue to
together in facilitating technology transfer.
offset the increased IP management costs.
Figure 2.5: Example of a hard lesson well learnt
In view of these budget constraints, efforts were

made to reduce the size of the portfolio. In 1998/99
A university found that its existing IP budget, which
10 patent cases were removed from the portfolio
had been frozen at 140,000 for four years, was
and in 1999/2000 14 cases were removed. The
starting to constrain technology transfer activity.
patent portfolio was reduced from 100 to 85.
Invention disclosures stood at 56 per annum, with

significant increases expected. The strategic plan
The way in which this IP management budget
had set a target of 15 new patent applications per
problem arose led to the IP management office
annum, and the patent portfolio stood at around 100
requesting that, in future: greater clarity exist in
patents (this figure varied throughout the year).
demonstrating how IP management contributes to

the universitys strategic objectives; the IP
Although general increases in technology transfer
management budget be set on the basis of these
activity were largely responsible for this budget being
long-term strategic objectives; and that other relevant
insufficient, there were some specific problems:
budgets, e.g. marketing and travel, be addressed as
a historical legacy of cases that had progressed
part of the same discussion.
further through the system (hence generating costs)
43
3. Ownership of IP and
negotiations with
sponsors
3
3.1
3.2
3.2.1
3.2.2
3.2.3
3.2.4
3.2.5
3.2.6
3.2.7
Ownership of IP and negotiations with sponsors

Negotiating with research sponsors
Joint ownership of IP
The nature of the research
Relative contributions to research costs
The demonstrated capacity of the IP management office to maintain
an IP portfolio effectively
Risks associated with the use of licence-back arrangements
Companies overall need to minimise their investment risks
Sharing returns from exploitation
44
45
49
50
51
53
55
56
57
58
In Higher Education
44
negotiations with
sponsors
3.1
issues need to be properly managed, in a manner that

is advantageous and fair to the institution and the
student.
The key consideration in IP

agreements is the rights that
universities will have to use and exploit
This asymmetry of ownership rights can present
IP. Ownership is not necessary to
problems for IP managers and for academic staff.
guarantee these rights, but may be the
However, policies that seek to address this asymmetry
most effective solution for universities
by assigning ownership of student IP to the university
in practice
may raise matters of legality and equity, which need to

be carefully handled.
Almost all universities now claim ownership of IP

generated by their staff. There are a few exceptions,
Much university research involves staff and students
but these typically reflect situations where, for historical
(most likely post-graduate students) working within
reasons, there are variations in the terms of
collaborative or supervisory relationships. The
employment and some staff have contracts entitling
fragmentation of ownership generated by the differing
them to retain IP they generate. Ownership and
(default) ownership rights between such staff and
negotiation issues are addressed comprehensively in
students potentially militates against collaboration, and
Partnerships for Research and Innovation.
against successful exploitation. In terms of
Universities have no automatic claim to IP generated
collaboration, it is possible that IP in the form of data,
by students, unlike that which arises in relation to IP
code, text, or patentable ideas generated, and owned,
created within an employees normal duties. This
by a student could be withheld from a supervisor, or
raises important strategic issues relating to IP
that the academic collaborator could be prohibited
management that are unique to universities. These
from using such IP in future research. Such conflicts
5 Partnerships For Research And Innovation (produced by CBI in association with AURIL, DTI, HEFCE, EPSRC
and Universities UK) ISBN: 0 85201 553 6
6 S39 of the 1977 Patent Act, which broadly assigns ownership to employers, does not apply to students who have no employment relation with the University; nor will there be an
employment contract that explicitly assigns ownership to the University. Some post-grad students may, however, also be appointed as research staff and this case the University is likely to
own IP generated either by virtue of the employment contract or S39.
45
negotiations with
sponsors
may be more easily mediated or resolved where the
increasingly to the fore. An important aspect of this
university has equivalent rights over both subsets of IP.
enterprise agenda is the integration of IP tuition and

awareness seminars within the student curriculum.
Perhaps more important, the fragmentation of

ownership rights is an impediment to effective
Some universities have sought to address these issues
exploitation. Student ownership of IP is particularly
in the registration process. Often this is done by
likely to be perceived as a problem when research
including a blanket assignment of all IP that will be
projects are sponsored by industry. For this reason it is
generated by students during their time at the
common for research and CASE studentships to be
university to the university. If this position, with its
subject to a three-way contract that assigns ownership
evident benefits of clarity and uniformity, is adopted it
to one party (the university or the sponsor).
is important that it is done in an open and transparent

manner and that the legality of this contract is
It could be argued that universities have a responsibility
professionally assessed. Alternatively, assignment
to assist students in exploiting the IP that they generate.
might be sought on a case-by-case basis, where
Viewed from a duty of care, or commercialisation
valuable IP arises, or a hybrid model, adopting different
perspective, students are generally not as well placed,
approaches to different faculties might also be
or resourced, as the university to effectively exploit IP.
considered.
Specifically, individual students rarely have weight equal

to that of the university when it comes to commercial
With either approach, but particularly when seeking
negotiations. Consequently, assignment of the IP and its
blanket assignment, it is advisable that the process
management by the university is likely to be in students
and rationale are clearly explained. This might be
self interest.
achieved by including prior notice in student

prospectuses with a more detailed explanation in the
Brian McCaul, Research and Business Services,
relevant student registration pack. In addition, a
The University of Liverpool
distinct acknowledgement of the assignments might

be considered. The additional overheads of
With growing expectations that universities should
procedures designed to secure broad assignment of
assist in economic development and, in particular, with
IP will, however, need to be fully considered.
the growth of the student enterprise agenda, driven by
Whichever procedure is adopted treating students akin
Science Enterprise Challenge and similar schemes, the
to members of staff in terms of the benefits of
issue of management of student IP is likely to come
supporting patent costs, and in terms of the
In Higher Education
46
negotiations with
sponsors
distribution of royalty income or equity can be powerful
In principle, all these requirements can be
incentives for achieving full consent to assignment of
accommodated within agreements that assign IP to
student generated IP.
the sponsor. Access to results can be accommodated

by (free) licensing arrangements. The university can
Another issue relates to IP arising from research
take a share of revenue generated by the IP owners,
sponsored by an external organisation. This does not
and doubts over the sponsors ability, or willingness, to
include research funded by the higher education
commercialise results can be addressed by
funding councils and most of the research council
introducing penalty clauses for failure to exploit,
programmes where ownership is generally retained by
including reassignment of IP to the university.
the university. It is not one of ownership per se, but the

scope that parties have to use, and manage, the IP.
However, in practice it may be simpler, and more
The key requirements for universities are:
effective, for universities to guarantee these rights

through the ownership of IP. Licence-back deals which
the ability to use results in future research. In
seek to cover a range of possible situations can
cases where sponsors are also collaborators,
become complex. In addition, verifying whether
this may require access to IP which
owners are meeting their obligations to exploit can be
collaborators have brought to projects
costly and, in some cases, virtually impossible. As a

result, there are good reasons for universities to seek
the ability to benefit from the exploitation of the
ownership of IP.
IP, both directly and in combination with other

research results
The issues are, however, similar from the sponsors

perspective, including the relative merits of ownership
to ensure that results are put to use, whether

commercially or otherwise. This may be
considerations may be relatively more important to
important, since commercial behaviour can
business sponsors than to universities, but charities
often involve not exploiting IP or using patents
are major sponsors of university research and their aim
to block other firms technological activity and
will be to see research applied, and used in future
to force competitors to work around protected
research, as well as to generate income.
technological solutions.
47
versus access via licensing. Narrow commercial
negotiations with
sponsors
IP agreements reflect the outcome of negotiations,
and industry, has recently changed its policies to
which in turn reflect the inputs of the parties and the
bring the treatment of the two groups into line. MOD
benefits they expect to derive from various outcomes.
will henceforth only seek ownership of IP resulting
Ownership of IP by the university is one outcome that
from the contract research in limited circumstances,
universities can seek to negotiate in certain
typically the following:
circumstances. In the next section, the factors that

need to be taken into consideration during
negotiations are discussed.
where the results have a particular military

sensitivity e.g. in relation to nuclear, chemical or
biological weapons
The position of government sponsors with respect to

the ownership of IP is changing. Recent guidelines7
where the results will be commercialised in the
produced by the Patent Office start from the position
aggregate with other IP owned by MOD, which
that IP generated in publicly funded research should in
may be MOD-generated IP or IP generated by
general be vested in the organisations that do the
other contractors
research. The rationale is that the research provider is

better placed to identify some form of economic
where the work provides direct assistance in the
exploitation than the government sponsor. One
formulation of government policy or in the
important caveat, however, is that those owning the IP
management of MODs business
must have access to the skills and management

capability needed to handle the task effectively. These
Guidelines are reflected in the Ministry of Defences
where the research provider is unwilling or unable

to protect and exploit the results satisfactorily.
position on ownership (Figure 3.1).

In general, MOD will allow the research provider to
Figure 3.1: The Ministry of Defences new
own the IP resulting from its work for MOD, subject
approach to IP ownership
to the grant of a free non-exclusive licence to MOD

for MODs normal UK Government requirements. The
The Ministry of Defence (MOD), which funds a
research provider will be responsible for making
significant volume of contract research in universities
decisions about the protection of IP, for securing
7 Intellectual Property In Government Research Contracts, Guidelines for Public Sector Purchasers of Research and Research Providers The Patent Office December 2001. Available from:
http://www.patent.gov.uk/about/notices/index.htm
In Higher Education
48
negotiations with
sponsors
such protection for itself, and for the cost of securing
industry would prefer to see universities seeking to
and maintaining this protection. MOD will have rights
understand their needs and then discussing and
to oversee the progress of commercial exploitation by
offering research and other outcomes directed at
requiring the research provider to provide an
meeting these needs
exploitation plan and to engage in discussions with

MOD on the matter, but MOD will not take a
reversionary right.
if the university makes the first approach, it should

ensure that it packages its assets in the form of
possible solutions to problems, which that
The MODs new policy suggests that a strictly non-
particular company needs to solve, or in terms of
negotiable attitude to ownership of IP or a narrow
deliverables, which are relevant to that companys
approach to the granting of licence rights to the
business.
research customer could restrict the ability of a

university to attract contract research work.
Correspondingly, industry should understand that:
3.2
universities do not have identical mission
Negotiating with research

sponsors
statements and they differentiate themselves by

cultivating different strengths and through
It is necessary for research partners to recognize the
pursuing different priorities
divergence of views that can occur between

universities and sponsors. The key issues that need to
the focus of some university departments may be
be considered when identifying potential partners are
international, while the focus of others may be
highlighted in Fig 3.2.
national or regional
Figure 3.2: Identifying potential partners
research has a cost and universities are not

funded to provide research services for industry
Universities must recognise that:

industry often needs help in finding relevant
services or solutions to their problems
in many cases companies may be unaware of
their problems
49
from the public purse

a universitys most significant contribution may be
in the medium to longer term.
negotiations with
sponsors
The sub-sections below discuss key aspects to
joint ownership involving organisations from
consider in IP negotiations. However, there is a more
the commercial and charitable sectors (which
general point. Most universities will seek to negotiate
includes universities) can give asymmetric
ownership, and other aspects of the IP agreements,
advantages to commercial organisations. Any
on a case-by-case basis, but the outcomes may
partner seeking to issue a licence must obtain
come to be interpreted by sponsors as university
formal permission from the other partners.
policy. This implies that the reasons why certain
However, the commercial partners could, in
positions have been taken need to be articulated, but
principle, exploit the technology themselves,
also that the university needs to monitor how it is
whereas the charitable organisations cannot
perceived by sponsors. Issues to consider when
trade on the same commercial basis.
negotiating over the ownership of IP are discussed
Contractual provisions that limit the asymmetry
below.
of advantages can be determined but at the

expense of greater complexity
3.2.1 Joint ownership of IP

each country has different laws governing
There can be problems associated with
what each joint owner of IP can do. In some
the joint-ownership of IP, and normally
countries, either owner can act without the
it is best avoided as a solution unless
other knowing, whereas in other countries,
carefully thought out protocols and
they can only act together. Joint owners could,
exploitation rights are defined
in principle, end up destroying the commercial

value of the IP because of ill thought out
One potential solution to the question of who should
actions. As a result, joint ownership is
own the IP arising from externally funded research is
particularly problematic when international
for joint ownership to be agreed. However this solution
exploitation is anticipated.
is rarely advocated because :

Joint ownership should not, however, be dismissed
potential licencees of a technology will prefer to
out of hand. Provided that carefully thought out
avoid dealing with more than one owner, as this
protocols and exploitation rights can be defined for
complicates the negotiation process and can
dealing with any asymmetry of advantages, this
embroil them in disputes between joint owners
approach may be feasible. The NHS is currently
8 Parts of the guidance that follows on joint ownership are based upon that provided in the handbook on IP management produced by the NHS Trusts.
In Higher Education
50
negotiations with
sponsors
examining possible approaches to joint ownership
Figure 3.3: IP ownership and CASE studentships
arrangements as a means of dealing with the HE/NHS
a view from a Research and Technology
interface.
Organisation (RTO)
3.2.2 The nature of the research
Industry sometimes sponsors post-graduate

students via CASE studentships and other such
Sponsors attitudes will depend, to
arrangements. Although additional funding comes
some extent, on whether their aim is to
from other, usually public, bodies such as the
integrate results into their core
Engineering and Physical Sciences Research
technologies
Council (EPSRC), it is left to the university and the

industrial company to agree the terms and
The extent to which the advance in knowledge aimed
conditions of the sponsorship, including IP matters.
at is stand-alone or depends, for its usefulness, on
In the past, it was usually agreed that all IP arising
strong synergies with other research projects (which
would be assigned to the company. Recently,
may be being carried out in different universities and/or
universities have been insisting that they retain IP. It
disciplines) will also shape the attitudes of sponsors. If,
is interesting to consider the effect of such changes
for example, the sponsoring company is seeking
from both parties viewpoints.
incremental advances that it will integrate with other

knowledge and IP in order to deliver a useful
Industrially sponsored studentships are useful to the
technological package, the expected value of each
university for a number of reasons. The research
individual project to the sponsor may be comparatively
work involved will be more relevant to industry
low. Figure 3.3 provides and illustration taken from a
needs, contact with the companys staff will improve
CASE studentship .
the universitys understanding of industrial trends

and practices, additional money will be available for
both the department and the student and, finally, the
9 Cooperative Awards in Science and Engineering, PhD studentships jointly funded by industry and the research councils.
51
negotiations with
sponsors
student has an improved chance of employment in
obtain the best possible research inputs for its future
industry upon completion. Ownership of the IP
developments. The student will have least to lose,
arising will allow the university to continue working in
but will be slightly less valuable to the company than
the field, and may assist in teaching the subject.
if they had been able to work on more interesting

topics.
The usefulness to industry comes from more

focused research, access to expert academic staff
A possible route out of this impasse is for the
and an opportunity to see how the student performs
studentship agreement to recognise the needs of
before considering employment offers. To get the
each party; to allow for assignment of the IP when it
most benefit from the arrangement, industry will
is necessary for the core activities of the company,
choose research topics close to their needs.
and to guarantee the appropriate licences to the
However, within the normal duration of a
university so that the freedom to carry out future
postgraduate studentship, incremental advances in
research and teaching is protected.
the current research activities of the company are

probably the best that can be achieved. If the
Anonymous
university insists on ownership of arising IP, this

gives the company great difficulty. For research to
Figure 3.4 illustrates how one companys position
be valuable to the company, they must be able to
varies according to the nature of the research
use it for their needs. If ownership is fragmented,
sponsored, and also the direct costs of IP
the IP is reduced in value, and control of future
management.
activities is weakened.
Figure 3.4: A transaction cost based approach to
In such situations, industry will evaluate the
negotiations over IP ownership Microsoft
advantages and disadvantages of any deal and may
Research Ltd
simply conclude that it is not worth the risk to

support studentships in topics close to the core
Doctoral Research
activities and interests of the company. It will choose
Microsoft Research Ltd funds doctoral students to
peripheral topics and both parties will lose out. The
carry out work that is intended to enter the public
university will be kept at arms length from the real
domain at the earliest opportunity. The company
interests of the company and the company will not
does not seek to own any IP generated by this
In Higher Education
52
negotiations with
sponsors
research because (a) valuable IP from a PhD project
Approach when a University seeks to secure
is unusual, and (b) the time and effort (i.e. transaction
rights over IP
costs) involved in project-by-project negotiations with

different universities in several countries would make
A university is free to seek to obtain patents for IP
such funding un-economic.
arising from the research funded by the company

but only at their own trouble and expense. If a patent
Microsoft Research Ltd is happy to fund doctoral
is taken out, the company insists on having a non-
research, provided that it is able to draw upon the
exclusive, world-wide, and royalty free assignable
research results without making an additional
and sub-licensable licence.
payment to exploit the IP.

Note: this approach to negotiating over the ownership of
Other Research
IP is specific to Microsoft Research Ltd based in
As regards other research, the company draws a
Cambridge (UK) it does not necessarily apply to other
distinction between specific work that it wants done
parts of Microsoft Research.
in which case it does seek to own the IP - and more

general work, in which no commercial advantage is
anticipated. In the latter case, the same approach is
3.2.3 Relative contributions to

research costs
taken as in funding for doctoral research.

Negotiation over ownership of IP will, in
Weighing up transaction costs relative to
part, be influenced by the price that
expected benefits
sponsors pay and the extent to which
By offering a deal for smaller amounts of funding that
this may meet or exceed the full
is attractive, while being non-negotiable, the
research costs. Also the intellectual
company seeks to minimise its transaction costs in
assets brought to the project and also
funding research. This allows it to fund a wider
other benefits derived by the sponsor,
portfolio of relatively small projects than would be the
such as access to international
case if the transaction costs were higher. For larger
research networks may have an
projects, the expected benefits are sufficiently great
important bearing on ownership.
that the higher transaction costs associated with

negotiations over IP are worth bearing.
53
negotiations with
sponsors
The value of benefits in kind provided
facilitated by the Internet, is precisely why some high-
by both parties will need to be
technology companies seek to fund academic
considered in this context
research. It provides them with access to a wide body

of expertise which can be particularly valuable when
Because there are risks involved for those contributing
responding to unforeseen events and in alerting them
to research, development and market introduction
to breakthrough discoveries and to competitors
costs, the relative contributions and expected
research strategies
contributions to these costs are critical considerations.

With respect to research, the main issue relates to
There is consequently a far wider, and often more
contributions to the full costs of research both direct
valuable, intellectual asset base than is captured solely
and indirect. A basic principle is widely accepted,
by the background and foreground IP involved in
namely that the research sponsors capacity to
negotiations. It is unlikely that any cost recovery formula
negotiate over the ownership of IP is proportional to
will fully account for the value of this underlying
their share in the full cost of the research (including
intellectual asset base. Consequently, the payment of a
overheads). The more payments by the sponsor
full research costs is not in itself sufficient justification
exceed full costs the less likely that universities will be
for a sponsor owning all the IP (Figure 3.5).
able to retain ownership.

Figure 3.5: An industry view on the influence that
Care should be taken in applying this principle. First, it
the type of research has on the ownership of IP
is necessary to ensure that the full direct and indirect

costs of research have been calculated accurately by
10
In negotiating the ownership of IP arising from
the university. Second, university research groups
sponsored research it is essential to distinguish
have intellectual assets arising from previous investment
between contract and new knowledge generating
and by virtue of membership of networks of wider
research. Contract research is, in this context, the
research relationships, often involving many different
situation in which an industrial party contracts an
sources of funding. Indeed, the role of researchers
academic to produce a set of results requiring no or
within international research networks, a role greatly
little new intellectual input, even though special
10 UK universities have recently done much work on introducing rigorous systems of costing for the Transparency Review (www.jcpsg.ac.gov.uk/transpor).
In Higher Education
54
negotiations with
sponsors
expertise may indeed be needed, e.g. doing a survey
take into account the ownership and exploitation rights
or running some samples (provided by the sponsor)
in any wider IP portfolio that the particular IP generated
through a technical screen. In this case the results
depends upon for effective exploitation. As a result,
(data) should, in effect, be purchased (and owned) by
complex trade-offs may have to be made in the
the contractor (sponsor) by paying on a costs plus
negotiation.
basis, i.e. fully overheaded costs of doing the work

plus a margin on top, negotiable depending on how
uniquely placed (or not) the academic is to provide
the work. For some academic institutions, conducting
contract research may be outside their remit or
3.2.4 The demonstrated capacity of

the IP management office to
maintain an IP portfolio
effectively
constitution.
Universities will be in a stronger
In contrast, new knowledge generating research is
position if they can demonstrate the
where the academic will be using their special
capacity of the IP management office to
expertise and intellect to do true exploratory research
maintain an IP portfolio effectively
(whether basic or applied) to uncover new useful

knowledge and provide solutions to problems (make
The primary reason cited in the business sector for
inventions) etc. In this situation merely covering the
seeking ownership of IP arising from industrially funded
costs of the research doesnt buy the Intellectual
research is the risk that the university will not have the
Property assets created by it.
capability to manage the IP effectively and, as a result,

will damage the companys competitiveness. One
Dr Jan Chojeck, Managing Director, Plant Bioscience
example of a failure to manage IP effectively is missing
Limited
the strict deadline for a patent renewal due to

administrative inefficiency.
The value of benefits in kind brought to the research
55
both by the university or universities and the sponsoring
The strength of this argument is inversely proportional to
company or companies will also need to be considered
the demonstrated credibility of a universitys IP
in the negotiation. In addition, it may be necessary to
management office in managing IP effectively. As
negotiations with
sponsors
cumulative experience increases from the successful

handling of a growing deal flow, external confidence in
3.2.5 Risks associated with the use of

licence-back arrangements
the capacity of the university also increases. The

investment risk associated with not owning IP therefore
Special attention should be paid to risks
declines.
that future university research carried

out under licence-back arrangements
In conducting negotiations over the ownership of IP, it
could be constrained
will therefore be helpful if universities can demonstrate
The potential loss to a university
that they do have a good track record in maintaining an
through assigning ownership of IP, given
IP portfolio, by highlighting the absence of problems and
the potential for bundling IP arising
inefficiencies. The monitoring and evaluation framework
from several different research projects,
can play an important key role in these negotiations and
should also be considered
it should therefore be designed with this use in mind.

When a sponsor seeks to own the IP arising from the
If a university has traditionally assigned ownership of IP
research, the university should seek a licence-back
to research sponsors (where this is insisted upon), it will
arrangement in order to guarantee unconstrained future
be more difficult to demonstrate the required track
research. This can be a practicable approach as long as
record in maintaining an IP portfolio. This will tend to
any contractual problems that may emerge have been
reinforce the assignment of IP to business and
anticipated and addressed (an area requiring specialist
charitable sponsors, unless new arrangements to work
legal advice). One key consideration in such
with third parties and/or collaborate with more
negotiations is the implications for the universitys ability
experienced IP management offices are put in place.
to bundle together IP arising from several different
Such arrangements can provide tactical advantages in
research projects funded from different sources. It is
IP negotiations, by removing a major stumbling-block to
easiest to produce an IP bundle if the IP is owned by
the university maintaining ownership.
the university and the costs to be incurred will tend to

be lower. Complications can emerge when seeking to
create a comparable assembly of IP based on licences
In Higher Education
56
negotiations with
sponsors
from different types of research funder. This is one main
complete a sub-licence may be longer than that
reason why leading US universities seek to maintain
required to assign/sell the IP. But, the company is still in
ownership of IP.
possession of tradable IP, albeit of a lower value than if it

owned IP. (Figure 3.6)
3.2.6 Companies overall need to

minimise their investment risks
Figure 3.6: An industry view on investment risk

minimisation and the ownership of IP
Companies need to minimise their own

investment risks. This can be
It is understandable that start-ups (and their
accommodated even if the university
investors) like to own title (although in some cases
owns the IP
exclusive licences should be sufficient). However, this

point only relates to IP that exists at foundation of the
company. As regards IP generated by sponsored
One argument put forward in favour of companies
research, start-ups are in the same situation as other
owning IP is that they will usually have to commit
companies. Exploitation rights are more important
substantial risk capital in the commercialisation process.
than ownership. As a licensor (e.g. university)
Anticipated exit points in the investment process allow
providing technology to a start-up, you are taking a
external investors to calculate levels of commercial risk.
risk as well as others investing their personal time or
Possible investment exit points are very valuable in
their money under management. The risk is that the
reducing the investors perceptions of the investment
technology gets locked into a company that fails early
risks involved (thus increasing the probability of
on, maybe for reasons unrelated to the technology.
investment).
Licensing in the initial stages, with the possibility to

assign later, at least gives some protection.
Particularly in a start-up or spin-out company,

possession of tradable IP enhances these exit points
Dr Jan Chojeck, Managing Director, Plant Bioscience
and can lower the risk and size of the losses faced. The
Limited
lower the tradability of the IP portfolio, the less attractive
57
the investment, and tradability is highest when IP is
It is sensible to be sensitive to this issue when
owned. However, the company can be granted a right
conducting negotiations over the ownership of IP.
to sub-licence. Transaction costs may be higher than if
However, even if the university retains ownership of the
IP is owned by the company, and the time required to
IP, ways can be found to provide appropriate sub-
negotiations with
sponsors
licensing contingencies that will help to make the
Figure 3.7: Negotiating with research sponsors
companys licences more liquid and consequently help
over revenue shares experience at the
to reduce their investment risk.
University of Nottingham
3.2.7 Sharing returns from

exploitation
Negotiating with research sponsors over shares of

potential revenues can be difficult unless there is a
shared understanding of the costs and risks
Agreement will normally need to be reached over the
associated with seeking to generate these returns
share of revenue due to one partner from the
and who is taking these investment risks.
exploitation activities of another. Revenue shares should

reflect the inputs of the parties to research (both
We actively negotiate what the funders share of
intellectual and financial) and existing IP which they bring
revenue should be, taking into account (a) who takes
to the research (background). However, significant
the commercial risk on patent costs and (b) who
costs, and risks can be incurred during exploitation, and
takes the lead on commercialisation. Some charities
revenue shares need also to reflect how these are
who have asked for a 50 percent share of income
shared between partners. Figure 3.7 illustrates the
have accepted our arguments that this is inequitable
position, and experience, of one university in this
where we bear sole financial risk on patent costs and
respect.
undertake the commercialisation effort, and have

reduced their share to 30-35 percent. Where others
have refused to do so, we have made it clear that
our reduced share of revenue will be a factor to be
considered in our decision whether or not to
commercialise, and that consequently we may
choose not to commercialise a project that we would
otherwise have taken forward.
In Higher Education
58
59
4. Incentives
4
4.1
4.2
4.3
Incentives
To whom should incentives apply?
How should incentives be applied?
Relationship to other university policies
60
61
65
69
In Higher Education
60
4. Incentives
Knowledge transfer is, increasingly, a mainstream

activity for academic staff, but most universities
4.1
To whom should incentives

apply?
consider it necessary to provide incentives for

academic staff in order to encourage their involvement
Incentives can have an important role
in IP exploitation. This is for several reasons:
in encouraging staff to engage in

exploiting IP
many staff consider teaching, research and

administration to be their core duties.
In principle all those directly involved
Commercialisation in general, and the exploitation
in generating IP should benefit, and
of IP in particular, make additional demands on
dealing with students at least as
them. This is obviously the case with spin-out
generously as staff can encourage
companies, but also applies to other means of
them to use university IP management
exploiting IP. Inventors need to have at least some
resources. There are also arguments
involvement in securing patent protection, and
for rewarding non-academic staff,
interaction with licencees will often be required
when their inputs are above and

beyond their normal responsibilities
there are various incentives for staff to engage in

other kinds of knowledge transfer activities and in
Allocating a share of returns to the
the case of consultancies, these often include
department/unit compensates other
individual financial benefits. Unless a decision has
staff for the indirect contributions they
been taken to favour other forms of knowledge
make to generating IP
transfer over IP exploitation, incentives need to be

balanced across different activities
Incentives clearly need to apply to those primarily

responsible for generating IP, that is the inventors, but
to ensure an equitable distribution from any returns

arising from the commercialisation of IP
this raises two further issues. First, how are the

inventors defined and identified? Disputes over
inventorship or authorship can arise in universities and
61
The rest of this section discusses key aspects of
it is important to clarify the position as soon as
incentives policy: to whom should incentives apply?
possible. Disclosure record forms and databases are
how should they be applied? how should incentives
helpful in this respect. It is also critical that no mistake
relate to other university policies?
is made in terms of inventorship when filing for a US
4. Incentives
patent. Patent agents may assist in the resolution of
inventor status; otherwise further disputes could arise.
disputes and, as a last resort, the university may need
As discussed below, some universities achieve this by
to provide contingency funds in case claims are made
allocating a share of exploitation revenue to the
in the future.
department in question.
The second issue relates to student involvement. As
The issues are less clear-cut in relation to non-
was discussed in section 3.1 universities cannot
academic staff within a department. Technicians can
automatically claim ownership of student generated IP.
make a very real contribution to IP, both in terms of
However, because of the IP management resources
prototype development but also in the know-how and
available to universities, there are arguments for
ideas they can bring to commercially relevant research.
universities encouraging students to exploit their IP
However, their input may not be part of their normal
through the university. This suggests that students
duties and, as such, there is less of an argument for
should be treated at least as generously as academic
ownership of IP. Incentives to encourage them to allow
staff in so far as incentives are concerned in order to
the university to manage the IP they generate may be
encourage them to use the IP office
important. When technicians are also inventors, there
The purpose of inventor incentives is to promote
is an argument for reward structures similar to those
directly the generation and exploitation of IP, but there
that exist for academic staff. The incentive structure
are important issues relating to other staff in the
needs to recognise and distinguish between these two
department or unit. Other academic staff may make
kinds of contribution.
indirect contributions to IP generation. They may, for

example, have assumed higher teaching or
The third group of staff involved in the exploitation of IP
management loads thereby freeing up the time of
are the IP managers, and there is an important
those directly involved in the invention and, more
decision as to whether incentives should be applied to
generally, they are part of the academic community
them, and if so what kinds. The principal argument for
from which the invention has arisen. These factors,
incentives is quite different from that which applies to
and also considerations of equity, suggest that other
academic and other staff. The skills and experience
academic staff should benefit from the exploitation of
required for effective management are in high demand
IP generated by colleagues. It needs to be clear,
in the private sector and universities can face
however, that if a reward is made to participants (who
difficulties with recruitment and retention. Incentives
are non-inventors) then this does not accord joint
can improve the attractiveness of the financial package
In Higher Education
62
4. Incentives
that universities are able to offer in return for successful
Some, but not all, of these potential drawbacks can be
performance. It should, however, be noted that while
avoided, if the incentive scheme relates to the IP
IP management skills are undoubtedly in short supply,
portfolio as a whole rather than individual cases.
universities do have considerable latitude in the
Nevertheless such an approach could cause tension
salaries they can pay senior managers.
with other university staff.
There may also be drawbacks in providing incentives
Some universities are considering whether incentives
to management staff based on individual deals:
might be appropriate for IP managers although, to

date as far as we are aware, none have introduced
high financial returns to IP management typically
such systems so far. As such, it is not possible to
arise from a few very successful cases within a
draw on actual experience for the purposes of the
large portfolio. If a university is not generating
Guide. However, institutions seeking to move to such
sufficient volume, it is unrealistic to expect high
a system will need to consider:
returns and therefore difficult to devise operational

incentive schemes
their willingness and ability to pay competitive

salaries for IP managers
there will always be an element of luck about

which cases are assigned to a particular officer,
whether the deal flow is likely to be such that any
and actual returns (on an individual manager basis)
scheme would provide real and attainable
could reflect case assignments rather than
incentives
performance
how the activities of IP managers can be
incentive structures may create a bias towards staff
monitored in order to ensure that the incentive
favouring deals that provide early, but lower,
structure is helping contribute to meeting strategic
financial returns
aims, rather than distorting management of the

portfolio.
IP managers may devote excessive effort to a few
63
cases which they judge to have the best financial
Finally, universities need to consider whether there are
potential, and to making deals, rather than
other mechanisms that may be deployed to offer the
encouraging staff to generate IP. Prioritisation is
generality of university staff greater opportunity to
important, but the IP office also needs to provide a
share in the gains arising from the inventiveness of the
service function to academic staff.
university research community as a whole, at least for
4. Incentives
universities where there is a substantial IP-based
thereby becoming involved at a much earlier stage
portfolio of investments. A current case in point is the
than would usually be possible for small individual
situation at Imperial College (Figure 4.1), where
investors.
thought is being given to the design of a preferential

vehicle through which College employees can buy
This initial idea was developed further by Company
shares, at an early stage, in the portfolio of spin-out
Guides, which researched attitudes in some 44 HEIs
companies coming out of Imperial.
during the summer of 2001 to assess what interest

individuals might have in putting money into such an
Figure 4.1: Incentives and Imperial College
investment vehicle. Potential interest was indicated

by some 62% of academic staff, 47% of support
There is an emerging consensus across the range of
staff and 60% of alumni. The scale of interest they
universities as to how rewards should be
evinced was, respectively, 2,300, 2,000 and
apportioned between inventors, their departments
9,200. Two thirds took the view that the possibility
and the university. By contrast the question of how
of some form of tax break, along the lines of those
to allow other university staff members to share in
available to other investors in start-up companies,
the profits created through spin-out companies has
would be important in determining whether to
proved a very complex issue. Imperial College (IC)
participate.
has been keen to find a way of widening access to

the potential benefits from successful
The obvious vehicle, a Venture Capital Trust (VCT),
commercialisation across its staff members, but in a
could not be adopted unmodified as it has to be
way that avoids potential conflicts of interest.
quoted and therefore open to the public.

Furthermore, most venture capital backed university
IC asked Company Guides, a company that
spin-outs are structured in ways that cut across a
supports commercialisation by universities, to look at
number of current VCT rules. Company Guides has
possible approaches to widening access to the
put a proposal for a revised VCT scheme to the
gains from spin-outs. Company Guides proposed a
Government. There may, however, be other options
collective investment scheme restricted to IC staff,
for achieving the goal.
students and alumni. This fund would make early

stage investments in a range of IC spin-outs,
participating alongside venture capital investors,
In Higher Education
64
4. Incentives
4.2
How should incentives be

applied?
explicit consideration of IP generation and
Incentive structures need not be
providing time to engage in IP-related activities.
exploitation as criterion for promotion
restricted to financial benefits. Support
This assumes particular importance in relation to
for academic staff engaged in IP
spin-outs, where staff may be granted leave of
commercialisation, and consideration
absence, but there may also be scope to relieve
of IP-related activities as a criterion for
staff of other duties in order to enable them to
promotion, can also be important
concentrate on exploitation through patenting and

licensing.
Formula-based schemes for sharing

revenue between the university and
Financial incentives need, as a minimum, to meet a
inventors are well established and
number of requirements. They should:
effective
encompass the various groups mentioned in the
Equity stakes may not be the best way
previous section
of compensating departments for the

temporary loss of staff to spin-outs,
be transparent and widely understood
and more direct and immediate

financial compensation should also be
be fair and treat all inventors in a similar fashion
considered
reflect the returns generated
This section is primarily concerned with financial
incentives, but it should be emphasised that other
incentives are possible and, indeed, used with effect
be large and immediate enough to influence

behaviour.
by some universities. The majority of academics did
65
not choose their careers solely on the basis of financial
Most universities have adopted a formula-based
rewards, and thus financial incentives are unlikely to be
approach to the allocation of returns from licensing
the complete answer. There are two main
and sale of IP and some examples are given in Figure
supplements to financial incentives:
4.2. Most embody a number of common themes:
4. Incentives
there is a three-way split between the university,
the share allocated to the inventor falls, and that
the department and the individual inventor(s),
retained by the university increases, as net returns
enabling all the groups mentioned above to benefit
increase. Individuals can be rewarded with

substantial sums relative to their normal salaries,
rewards are almost always net of the costs of
but if very large sums are generated the university
patenting, enabling the university to recoup some
can retain the majority
of its outlay. In some cases, the cost of IP

managers time is also deducted
reward schemes do not specify how the inventors

portion will be shared when there is more than one
inventor. It will not be possible to specify this in the
abstract, and in practice these shares are at the
discretion of the inventors.
Figure 4.2: Examples of incentive schemes

University of Bristol
Net revenue
Inventor(s)
Departments(s)
University
0 gross - 15,000
70%
15%
15%
15,000 net 75,000 net
50%
25%
25%
1/3
1/3
1/3
Greater than 75,000 net
Note: 100% of the first 4,000 gross of costs goes to the individual as an advance allocation of the first 15,000 net (above). The university
then recovers all its outgoings to produce a net revenue that is distributed as above.
Aberdeen and Queens University of Belfast

Net revenue
Inventor(s)
Departments(s)
University
331/3 %
331/3 %
331/3 %
Inventor(s)
Department(s)
University
Up to 50,000
90%
0%
10%
50,000 - 500,000
45%
25%
30%
22.5%
37.5%
40%
No limit
Oxford (if Isis Innovation Ltd is not used)
Net Revenue
Over 500,000
In Higher Education
66
4. Incentives
Imperial College
Net Revenue
Inventor(s)
Department
Centre
First 50,000
75%
12.5%
12.5%
Next 200,000
50%
25%
25%
Over 250,000
25%
37.5%
37.5%
Net revenue
Inventor(s)
Department
University
First 20,000
90%
5%
5%
Next 40,000
79%
15%
15%
Next 40,000
50%
25%
25%
33.3%
33.3%
33.3%
University of Cambridge
Above 100,000
Oxford (if Isis Innovation Ltd is used)
Total net revenue
Inventor(s)
General Fund
Department
Isis
63%
7%
0%
30%
72,000 to 720,000
31.5%
21%
17.5%
30%
Over 720,000
15.75%
28%
26.25%
30%
Up to 72,000
67
Formula-based approaches are, in general, an effective
One difficulty with these incentive schemes is that, given
way of providing incentives. Each university needs to
the time lags between invention and commercialisation,
decide what constitutes a fair return to the individual
rewards to inventors can accrue some time after the
and the institution, but it is probably true that variations
academic input and this may lessen the effectiveness of
in the share allocated to individuals will have
incentives. Universities could make projections of likely
comparatively little effect on perceived incentives and
returns and make payments in advance, but, given the
behaviour. Significant differences between universities,
high levels of uncertainty involved, this would be a high
however, may be problematic if researchers from
risk strategy and there is, in practice, little universities
different institutions are collaborating on a project that
can do to synchronise returns and inputs. However, it is
generates substantial commercial returns.
interesting to note that the Medical Research Councils
4. Incentives
incentive formula is based on gross rather than net

11
also directors with legal responsibilities for the
returns . The rationale is that since patenting costs are
companys commercial health. Arrangements for the
all incurred up-front any rewards based on net returns
use of university facilities by the company, and contracts
will inevitably take longer to realise. Universities may
with staff and research students, also need to be
wish to consider such a scheme. The share going to
monitored carefully.
individuals could be reduced, to reflect calculations

based on gross rather than net returns. But the
Universities may also grant inventors leave of absence
university would be assuming a higher level of risk,
during the early stages of company development, and
which it might find unattractive.
this provides a further incentive to engage in spin-out

related activities. However, it also raises further issues.
Spin-out companies typically require higher levels of
The department in which the inventors are based will
commitment from inventors, at least in the early stages.
bear the main costs of temporary staff losses. This
In addition, there are higher levels of uncertainty over
suggests that the department should also benefit from
returns, but also the prospect of higher returns than
any returns, otherwise there is little incentive for heads
might accrue to licensing, since the spin-out will take
to encourage staff to generate spin-off companies and
research outputs closer to market, thereby reducing the
provide the initial time and resources required. One
risk attached to its exploitation. For these reasons,
possibility is to allocate a share of the equity to the
giving inventors a share of the equity in a spin-out can
department, in an analogous fashion to departmental
be a more appropriate way of providing incentives than
shares of licensing income. However, this may not meet
a simple share of returns. Inventors have a direct, and
departmental needs adequately, since the timescales to
continuing, interest in the companys success, and
realising cash returns can be very long, and high levels
financial risk to the university is minimised.
of uncertainty will be attached to expected returns. A

more effective incentive, for departments, is likely to be
Greater care to avoid conflicts of interest may be
additional resources, which they can use to replace staff
necessary, however, when researchers hold equity in
time. This would mean, however, that the university is
spin-outs. Should the company encounter commercial
absorbing more risk than if the department took an
difficulties staff may be under more pressure to divert
equity stake.
from academic to company duties, especially if they are

11 As applied to researchers in Medical Research Council institutes. University grant holders are, of course, subject to university rules.
In Higher Education
68
4. Incentives
The discussion above has, with the exception of
scheme. Nevertheless, it is important that all staff are
patenting costs, been in terms of sharing returns to IP
aware of the efforts the university is devoting to IP
exploitation. Costs are also incurred, both for IP
management, and the associated costs, if only to
management staff and patenting activities etc, but also
promote realistic views on the financial costs and
because university resources may be used to develop
returns from IP exploitation.
ideas to the stage where commercialisation becomes

feasible. This raises an important issue as to whether
costs incurred should be reflected in incentive schemes.
4.3 Relationship to other university

policies
The potential advantage of such an approach is that

incentives would be more closely aligned with net
This section concludes with two brief comments which
returns to the university in order to offset the investment
reiterate points already made in the Guide. First,
risks it is taking. However, there would also be a
universities transfer knowledge in many different ways,
number of difficulties:
including contract research, consultancy and

professional development. The incentives available to
individual incentives would be reduced, especially if
promote the commercialisation of IP need be consistent
rewards were only paid after all university costs had
with the universitys strategy in relation to these other
been met. If the priority is to transfer knowledge to
knowledge transfer mechanisms.
users, rather than to maximise financial returns, then

this becomes a serious consideration
The second point is more general. All disciplines have

the potential to generate financial returns through the
attributing costs to specific deals could discourage
exploitation of IP, but the opportunities are far greater in
academic staff from making full use of IP
some disciplines than in others. If opportunities are to
management resources
be fully exploited, then rewards need to reflect abilities to

generate revenue, but if universities are more than a
collecting cost data could itself add to exploitation

costs.
collection of separate disciplines then those

departments with lower potential also need to benefit
from the revenue generating potential of others. As
69
For these reasons, it is doubtful whether incentive
such, the balance between the universitys share of
schemes explicitly reflected costs would be appropriate
returns and those of the inventor and department needs
or effective and, the consultation process did not reveal
to be considered in the context of more general policies
evidence of any university having adopted such a
of distributing income within the institution.
5. IP management
functions
5
5.1
5.2
5.3
5.4
5.5
5.5.1
5.5.2
5.5.3
5.5.4
IP management functions
The responsibilities of the IP management office
The IP office: location and structure
The relationship between the IP office and other departments
and research groups
Should notification of inventions be compulsory?
Some complexities in IP management
Practical considerations if IP ownership is sought
Dealing with problems in valuing IP by selling options on licenses
Exploiting the advantages of investment exit routes in IP management
Business processes and databases
70
71
73
76
76
77
77
78
81
81
In Higher Education
70
5. IP management
functions
This chapter is concerned with the actual performance
notification of IP actually takes place, whether by
of IP management functions. At various points it
requirement or by self-determination, with the
touches on operational issues, but only in so far as
encouragement of the IP management office
they are issues which senior managers need to

consider in designing strategy and policies.
IP is evaluated effectively with regard to its

commercial and public interest potential
5.1
The responsibilities of the IP

management office
the process of securing initial UK property rights

over IP is initiated in a timely and efficient manner
The IP management office has a core set of

responsibilities12 concerned with managing the
IP is marketed effectively
identification and evaluation of IP and ensuring its

effective exploitation, where this is seen to be
worthwhile. These include ensuring that:
the process of securing international property rights

is carried out efficiently and effectively with due
regard to a balanced assessment of the costs and
research contracts are vetted for IP clauses, in

order to ensure that they comply with the
benefits associated with securing IP in different

countries
universitys strategic priorities and guidelines for IP

management
IP exploitation agreements are executed efficiently

and effectively and in line with the universitys
researchers and other staff are aware of the
strategy and policies
importance of effective IP management and of the

basic principles involved
the IP portfolio in maintained efficiently and

effectively (patent renewals by due dates etc)
day-to-day research activities involve the

maintenance of records that are compliant with the
requirements for securing IP
the IP portfolio is defended against infringement,

either by direct litigation or by ensuring that licence
terms provide for the licensee to defend the IP.
12 In principle, a substantial amount of the work involved could be contracted out to external Patent Agents. This is discussed further in the next chapter.
71
5. IP management
functions
Screening Stage 3
Screening Stage 2
Screening Stage 1
Figure 5.1 shows how these processes are linked together at the Robert Gordon University.
Enquiry
Received
Identify
Target Market etc.
review in
3 months
reject
Assess by
Manager
select
Identify
Business Model
reject
Assess by
Manager
select
Develop Business
Plan & Partners
Assess by
Manager
if within
agreed
funding
limits
Appeals
Process
submit to panel review
Recommended Further
Development
Assess by
Panel
Recommended for
Fast Track
reject
Approve Funding
to agreed limit
Implementation
Assess by
Board
Impement
Business Plan
Support and
Monitor Success
Apportion
Rewards
Robert Gordon University
In Higher Education
72
5. IP management
functions
5.2
The IP office: location and

structure
Effective management depends to a large extent on

researchers coming forward with exploitable ideas,
and they are more likely to do so if the IP management
A range of models exists for
function is perceived as an integral part of the
structuring IP offices and there are
university.
examples of all types working well. The

key requirements are to ensure that IP
Effective IP management begins with the signing of
staff develop a constructive rapport
research contracts, if not sooner (see Figure 5.2), and
with researchers and that IP
the IP management function needs to have influence
management functions are closely
at this stage. It therefore needs to work closely with
integrated with other university
whatever parts of the university are responsible for
management activities. This may be
marketing commercial and research services and
facilitated by locating the office within
vetting and signing external contracts.
normal management structures, but

there are successful examples of IP
Figure 5.2: The importance of early interaction. A
management being undertaken by
view from Oxford Brookes University
companies owned by universities

A universitys management of its IP has to begin:
An important task of IP management is to increase
generally with training and advising academics on IP
awareness and enthusiasm for generating exploitable
implications and opportunities (so that they can
IP amongst researchers. This requires close and
target the most IP-advantageous ways of funding or
frequent interactions. Physical proximity to the
carrying out research) and specifically at the stage of
academic staff is important, but the task may well be
constructing a bid for funding a particular project:
easier if the IP office is perceived as an integral part of
after identifying the base IP input (background) the
the university, whatever its precise legal status.
university is bringing to the research (including the

base position of any third party or non-employed
73
Given the diversity and volume of relevant activity in
collaborators), the conditions of funding should be
many universities, it is not feasible to resource the
examined in detail, so that the bid can include a
function at a level which would enable the commercial
negotiating position on any disadvantageous or
potential of all research to be assessed in detail.
conflicting IP terms (e.g. the funding conditions may
5. IP management
functions
require disclosure although part of the background is
because it is outside the university
already owned by, or to be kept confidential to, a
management structure it can sometimes act
third party). Usually a compromise position can be
more quickly than would otherwise be the
found and it is essential that problems are identified
case
at a pre-bid stage, so that the position of having a

deadline to sign a funding contract which contains
it is easier to pay higher salaries than the
IP terms with which the university is unhappy (and
normal university scale would permit, and
which may be contrary to the universitys IP policy) is
many IP offices have encountered difficulties
avoided.
recruiting and retaining staff
In practice two main types of approach have evolved:
it may be easier for the university to monitor

and assess financial performance.
IP management functions are undertaken by

research support services, who are also
Figure 5.3 illustrates changing structures within a
responsible for securing research sponsorship,
university over time in response to emerging needs.
contract approvals, marketing services and so on.

This may represent the closest integration with
Figure 5.3: An evolving approach to organising
other management functions. In many universities
IP management - the University of Warwick
staff assume IP as well as other responsibilities.

However, it is becoming increasingly common for
For many years the University of Warwick has had
staff dedicated to IP to be appointed, reflecting the
a Research and Development Services Office
specialist skills required, and also expanding IP
(RDSO) that has covered the whole spectrum of the
portfolios
universitys research activities. Some 15 years ago

all staff carried a broad portfolio of responsibilities,
establishment of a company (wholly owned by the
including the identification of research opportunities,
university) to commercialise IP. This represents the
the discussion of research grant applications and
clearest separation between IP management and
research contracts, and subsequently the
other functions, but also offers a number of
negotiation of patenting, licensing and dealings with
potential benefits:
the exploitation of research results. In particular, the

Director of RDSO at that time had responsibilities for
In Higher Education
74
5. IP management
functions
IP, but also wide ranging activities across the
companies and the attraction of seed-corn venture
spectrum of the RDSO remit. As time progressed it
capital funding to launch the spin-out activities.
became clear that RDSO must specialise in its
Although very much still part of the University of
various areas of operation such as dealing with
Warwick, and not a separate stand-alone company,
Research Councils, European funding, charitable
Warwick Ventures is housed in the Science Park on
funding and business and industry.
the university campus to aid the link between

university and spin-out companies. The
As a result the Industrial Liaison Office was formed
Governments HEROBC13 and HEIF14 initiatives,
and the Head of the Industrial Liaison Office, within
together with university funding, have enabled
RDSO, had responsibilities for negotiating industrial
Warwick Ventures to flourish, and we are now
contracts and the follow-up exploitation of the
seeing a rapid growth in the number of Business
research results that came out of those contracts.
Development Managers operating in Warwick
The specialised focus produced by this team proved
Ventures and also a significant increase in patenting
to be a significant improvement, so much so that it
and spin-out activity.
attracted interest and activity across the campus

which threatened to overwhelm the staff involved in
In parallel it has now allowed the Research and
the activity. As a result the Industrial Liaison Office
Development Services Office to concentrate on
found itself pulled in various directions and in the
working with academic staff to win research grants
end gave priority to winning industrial and business
and research contracts and to manage those
research contracts and had limited time to dedicate
contracts through to successful completion. The
to the exploitation of the research results that
university takes great care that the whole area of
emanated from the projects.
research, innovation and enterprise operates in a

co-ordinated manner. The Deputy Vice Chancellor
Some three years ago the University took the
with responsibility for Research co-ordinates a
decision to form Warwick Ventures which, in
Working Group that comprises the Directors of
partnership with the University of Warwick Science
RDSO, Warwick Ventures, the Science Park and the
Park, has responsibility for the exploitation side of
Science Enterprise Challenge Fund operation which
the universitys Research and Development activities
is known as the Mercia Institute of Enterprise. All of
including patenting, licensing the patents, spin-out
this is further supported by University Challenge
13 HEROBC: Higher Education Reach Out to Business and the Community Fund.
14 Higher Education Innovation Fund
75
5. IP management
functions
Funding operated through the Mercia Fund which
compromise which has been found to work well is to
provides necessary seed-corn funding. Both the
identify individual staff within departments who are able
Mercia Institute of Enterprise and the Mercia Fund
and willing to act as the initial IP contact point for
are collaborations with our colleagues at the
other staff. A period of secondment to the IP office can
University of Birmingham and with the universities in
increase their effectiveness.
15
the rest of the West Midlands region.
5.4
5.3
The relationship between the

IP office and other
departments and research
groups
Should notification of
inventions be compulsory?
Consideration should be given as to
whether compulsory notification of
inventions would hinder building an
Consideration should be given to
effective partnership between
identifying IP contacts within each
researchers and IP management staff.
department/unit
If it is not judged to damage the

process of building this partnership
Some universities place (or identify) people with IP
then compulsory notification may
management expertise within relevant academic
reduce the chance that
departments and schools of study in order to facilitate
commercialisation opportunities
information flows regarding IP issues. Whether or not
are missed
this is an appropriate strategy will largely depend upon

the nature and extent of the information flow problems
The advantage of making notification of invention
that may exist between the IP management office and
compulsory is that it reduces the risk that the IP
the departments. The advantage of expertise within
management office will be unaware of IP generated
the department is that there is opportunity for informal
within the university. The disadvantage is that such an
discussion which can highlight potential areas of IP
approach can be counter-productive in an academic
that would not otherwise be identified. The
environment.
disadvantages relate mainly to the cost of pursuing

this approach relative to the benefits obtained. A
15 Science Enterprise Challenge is a Government funding scheme to support a limited number of Centres and University Challenge is also a Government scheme providing a range of seedcorn funds to support university commercialisation.
In Higher Education
76
5. IP management
functions
Many IP managers view the capacity of their office to
5.5
build informal partnerships with individual researchers
Some complexities in IP
management
and research teams as a critical factor in the success

of IP management. They take the view that
This Guide does not seek to provide advice on dealing
compulsory notification is not necessary when such
with the complex operational issues with which IP staff
partnerships exist. When these partnerships do not
are confronted. This section, however, presents a limited
exist, the chances of engaging in successful
discussion of selected topics, which have been identified
technology transfer activity with a researcher who is
as important during the preparation of the Guide. The
not particularly interested in doing so are relatively low.
aim is to give senior university managers some insight in
Compulsory notification is unlikely to help a great deal
to the complexities of IP management on a day-to-day
in this situation.
basis. The topics are presented in a series of figures.
On the other hand, there are advantages in
5.5.1 Practical considerations if IP

ownership is sought
compulsory notification and also technology audits in

ensuring that opportunities are not missed. Provided
that these procedures are swift and straightforward,
Figure 5.4: Checklist of practical considerations
and consequently do not disrupt normal academic
if IP ownership is sought
activity, there is no reason why they should damage

building an effective partnership between researchers
1. Ensuring clear title of IP
16
and IP management staff. If the performance and

evaluation system needs to collect data on the
Established procedures need to be put in place that
number of invention notifications made each year, then
will allow the following questions to be answered:
compulsory notification procedures can assist in

providing this information. Given that disputes over
who are the inventors?
who were they employed by when the invention
inventorship are not uncommon in universities, early

and accurate recording via invention disclosure forms
can be useful.
was made?
16 If the universitys intranet is used for invention disclosures, care should be taken to ensure that this information is secure.
77
5. IP management
functions
what funding were they using to support the
4. Ability to maintain and defend IP
research leading to the invention?
In those situations in which the university seeks to

retain ownership of IP the capacity to maintain the
did this funding have IP conditions attached?
IP portfolio and to defend it against infringement will

be key issues examined by commercial and
what materials were used in making the
charitable partners.
invention?
did these materials have IP conditions attached?
5.5.2 Dealing with problems in

valuing IP by selling options on
licenses
2. Ensuring that patents are drafted to cover

commercially significant applications
The economic value of the IP generated from university

research is characteristically highly uncertain. The
Unless care is taken in instructing patent agents and
discovery of a promising new approach or an invention
in assessing their work, patent applications may not
represents the start of a process of determining its
cover the commercially significant applications of the
technical feasibility and of estimating the likely return on
invention. This will limit the technology transfer
any investments made. Until risk-reducing/proof of
potential of the invention.
concept investments have been made it is often the

case that the value of the IP cannot be estimated with
3. Ensuring that there is timely and effective
sufficient accuracy to allow reasonable negotiations to
communication between external investors and
commence, let alone a licensing agreement to be
researchers
reached. This process of determining the economic

value can be costly and firms will require an incentive to
External investors may require some additional
undertake such an investment.
experiments to be carried out before making an

investment based on a licensing arrangement. It is
One strategic approach to this IP valuation problem is to
essential that effective communication takes place
sell firms an exclusive option to obtain an exclusive or
between the investor and the relevant researchers
non-exclusive licence after a specified period. Selling an
and that IP management offices facilitate and do not
option delays the negotiation over the terms of the
hinder this interaction.
licence arrangement until a point at which sufficient

information is available to allow its value to be estimated,
whilst providing the incentive for businesses to commit
In Higher Education
78
5. IP management
functions
the funding required to estimate the value. Some
The option was minimally costed (essentially covering
universities, such as Cambridge, are now placing a
only the Universitys receipted patent costs), but the
priority on selling exclusive options of this type. It is not
University retained the right to market and licence the
unusual for an option agreement to be related to a
invention to any other companies for all uses outside
collaborative research project aimed at determining the
those very specific types of instrument. The benefits of
technical and economic feasibility of the technology.
this approach were:
Although selling options to licences can facilitate the
a focussed, specialist company was encouraged
commercialisation process by deferring IP valuations
to evaluate a new invention at a very early stage,
until better information becomes available, the strategy
as their financial risk had been minimised
can also simply delay difficult and costly negotiations.

Companies may reasonably seek to have the terms of
the patent was stabilised as patent funding was
an eventual licence specified in the option agreement (in
secured for the duration of the option. This period
the form of a Heads of Agreement) and this will tend to
allowed the University to embark on a more
involve trying to estimate the value of the IP thus
concerted and considered marketing campaign to
removing the advantage of selling the option in the first
other businesses and sectors
place. Consequently, selling options can play a tactical

role if circumstances permit but it is not a universal
the restricted field and term overcame the risk of
solution to problems caused by uncertainties in IP
the invention becoming locked-up by the option
valuation. Figures 5.5 and 5.6 contain real examples of
agreement.
recent option deals.

b) A race-car manufacturer was granted an option to a
Figure 5.5: Recent option deals at the University
patented invention, but only for the particular category
of Cambridge
of race-car that they produced.

The agreement included an initially modest option fee,
79
a) A 12-month option was granted to a UK-based
and a larger milestone payment if the technology was
manufacturing company for the use of a patented
to be used in a motor race. As well as securing the
invention in carefully defined types of scientific
patent position, various other mutual benefits flowed
instruments.
from the option agreement:
5. IP management
functions
the company employed the services of the
staff will sit on a consultancy basis:
inventor as a consultant (under a contract with the

University) in order to expedite the development of
the invention
Company X will fund 100,000 of fully-funded

research at the university in the first instance, with
further projects being considered as and when
additional support from the company helped to
relevant
secure an EPSRC project aimed at further study

and development of the invention
the universitys sunk patent costs will be

reimbursed in the option, and on exercise of the
the company supplied high-value specialised
option an assignment fee of 20,000 will be
components, materials and expertise free-of-
payable
charge to assist in the on-going research
an introduction to a partner-company is envisaged,
further milestone payments will be attached to the

granting of a patent
with the potential for licensing into the volume

road-car market.
the initial market entry will be within the scope of

the patent
The intention of these arrangements was to facilitate

rapid development with a high-calibre commercial
a royalty of 4 percent on sales of the product up to
partner, whilst retaining for the University almost all of
2 million gross, thereafter 3 percent, will be paid
the future commercial rights to the invention.
to the university.
Figure 5.6: Examples of option deals relating to
b) An option was granted by a university to Company
patents
Y for a licence to an existing patent, for 100,000 for a

three year period, during which a fully-funded $2 million
a) An evaluation licence was granted to Company X
research contract would be placed with the university
with an option to take assignment of the university
(with non-exclusive access rights to foreground IP, to
patent. The agreement included:
be owned by the university). Upon exercise of the

option at any time during the option period a further
Company X will form a dedicated business unit
payment of 200,000 will be received, and the parties
around the patent on which university research
will negotiate in good faith for a three month period
In Higher Education
80
5. IP management
functions
thereafter the terms of royalty on sales and/or sub-
Senior management should therefore ensure that the
licensing.
universitys IP managers are making adequate provision

for investment exit routes in their management of the
c) An option deal was agreed with a local company in
commercialisation deal flow. This can significantly
which the company pays for the initial filing costs on a
reduce the costs associated with generating the
patent application and pays 1,000 a month for an
universitys overall returns from IP management because
exclusive option to exploit the patent, during an eight
the cost of failure is lower than would otherwise be the
month option period, during which time it seeks seed
case.
funding to expand its business. If the company

exercises the option a payment of 50,000 will be
made to the university, plus royalty payments of 3
5.5.4 Business processes and

databases
percent will be paid until the patent is granted, and 4

percent thereafter.
One of the most important issues is the IP offices ability

to monitor how its business processes are performing,
5.5.3 Exploiting the advantages of

investment exit routes in IP
management
and to identify potential problems before they manifest

themselves. Some offices have found that formalising
procedures around case-handling decision points, with
progress tracked in a central database, can help to
This Guide has already noted (in Section 3.2.6) that
increase the efficiency of business processes.
companies will seek to identify investment exit routes as

a means of reducing their overall level of investment risk.
For example, the University of Glasgow has developed
This involves identifying points in the commercialisation
an integrated database on its case load (covering
process at which investment losses can be partially
research proposals etc through to commercialisation)
recovered by selling IP or sub-licences and equipment
which automatically generates an e-mail every two
and materials used in the commercialisation process.
weeks to relevant university staff, informing them of the
The same principle also applies to the universitys IP
actions that have been taken over this period. This
exploitation activities. A strategy of identifying investment
reduces the time spent by IP staff responding to
exit routes (if things go wrong), and the effective tactical
questions on progress made from researchers and can
decision-making over when to actually use these exit
help to alert staff to problems and opportunities simply
routes, constitutes an important part of IP management.
by providing regular reports on a push basis rather

than waiting for information on a pull basis.
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6. Implementation:
working with others
6
6.1
6.1.1
6.1.2
6.2
6.2.1
6.2.2
6.2.3
Implementation: working with others

Collaboration between universities to manage IP
Sharing of best practice and information
Joint management of IP portfolios
Working with other external organisations
Public agencies
IP management services
The evolving partnership between medical research charities
and universities
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6. Implementation:
working with others
6.1
Collaboration between
universities to manage IP
Figure 6.1: Managing IP in research partnerships
Staff mobility and collaboration
Joint interest in IP arises due to formal research
between researchers from different
collaboration, informal collaboration, or mobility of
universities mean that there is an
researchers and consequently arises frequently. The
increasing need to consider issues of
University of Nottingham has developed an
joint management
approach to dealing with IP in cases of multi-sector
Experience at the University of Nottingham
research collaboration, which is entirely

There may also be benefits from a
pragmatically driven and geared towards the
more proactive approach to joint
development of mutually acceptable and beneficial
management reflecting the potential of
IP management agreements:
pooling IP to create higher valued

packages and economies of scale in
Formal research collaborations (those deliberately
various IP management activities
entered into based on a collective bid) are in many

ways the easiest to manage, as due to the
High levels of skills and resources are required for the
significant awareness-raising campaign which
successful exploitation of IP, implying that there may
Nottingham has in place with respect to IP issues,
be scope for collaboration in IP management, in order
researchers are aware that they should seek the
to share expertise and overheads. This section
Research Support Offices help prior to
distinguishes between two forms of collaboration:
commencing the research. Either appropriate terms

are included in the collaboration agreement, or a
sharing of best practice and information
separate IP agreement is drawn up to set out how

project IP will be managed, including:
active joint management of portfolios.
who will own what
who will decide on and pay for patent protection

if appropriate
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6. Implementation:
working with others
who will take the lead in commercial exploitation
In the case of informal collaboration (where
and in which field
collaboration arises as a consequence of

researchers in different institutions exchanging
how revenue will be shared
information and material out of which IP is jointly

created) the royalty share is determined by the
what access rights are needed to background IP
respective intellectual and resource contributions,
for execution of the project and for subsequent
the financial risk in terms of patent or development
exploitation, and on what terms such IP will be
costs, and who is making the commercialisation
made available.
effort. Informal collaboration may lead on to formal

collaboration.
Each set of collaborators brings different intellectual

and financial strengths and resources to a project,
Where mobility of staff is involved, and therefore
and the most appropriate ownership, access rights
the interest of former employers, the situation is
and exploitation route have to be established on a
complicated by the fact that the value of the IP may
case-by-case basis. The issues are always
be substantially increased during the researchers
addressed at the outset since they require those
time at Nottingham, in which case the former
involved to focus on the commercial exit route for
employers interest should decrease over time. If this
the technology on day one.
is likely, then a mutually agreed scale is adopted,

whereby the former employers share of revenue will
At Nottingham, a heavy emphasis is placed on legal
decrease in accordance with the level of investment
due diligence with respect to IP, so any legal or
applied to develop the IP at Nottingham.
beneficial interests will be uncovered at the

disclosure stage. The universitys policy is not to
deal externally in IP unless they have a joint
6.1.1 Sharing of best practice and

information
development/commercialisation agreement in place

in the case of an informal collaboration, or a revenue
The networks developed by organisations such as
sharing agreement where a researcher has moved
AURIL17 and UNICO18 are an excellent vehicle for IP
to Nottingham from the institution where they
managers to share information on a wide range of
started the research.

17 Association for University Research and Industry Links (www.auril.org.uk)
18 The UK University Companies Association
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6. Implementation:
working with others
operational matters and AURIL also seeks to inform

opinion more generally. While universities compete
6.1.2 Joint management of IP

portfolios
fiercely with one another for grants and contracts they

do not, in general, consider themselves to be in
Most universities will need to work with other
competition over the commercialisation of IP. As a
institutions on IP management at some stage, for two
result, the networks are accessible to fellow
main reasons. First, staff mobility means that IP
professionals and information flows freely. However,
generated by academics, which they may wish to
the information exchanged is largely concerned with
bring to new research and commercial ventures, may
operational issues, such as how to advice and the
be owned by a university other than their current
range of returns which might be sensibly sought,
employer. Second, more than one institution will have
rather than the strategic issues which are the concern
an interest in IP generated as a result of collaboration
of this Guide.
between staff from different universities. In the majority

of cases these factors do not give rise to significant
When universities are reviewing IP management
problems, but if commercialisation of IP, in which
strategies or, perhaps more importantly, when they are
others have some stake, is envisaged, then it is
articulating strategies for the first time, they need data
essential that clear agreements are reached with them
which enable them to benchmark their activities,
as soon as possible. In practice this will usually relate
resources and returns against those of comparable
to reaching agreement over the use of background IP
institutions. At present, these data do not exist for the
in subsequent developments.
UK higher education sector. Although a number of

surveys of university-business links have been
This kind of collaboration is a by-product of other
undertaken they were not designed to provide
activities or history, but there is scope for universities to
benchmarking data and do not give sufficient detail on
enter proactively into joint management activities and
IP exploitation in the narrow sense, or enable activities
this arises for three main reasons. First, a bundle of IP
and returns to be associated with specific
may have a greater aggregate value than the sum of
characteristics of a university.
its individual parts, because it is seldom the case that

a single invention will generate increased
competitiveness and economic advantage. A well
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6. Implementation:
working with others
known illustration of the benefits of bundling is the
managers typically have other responsibilities. This
bringing together of several patents, which led to the
is not to suggest that all IP functions should be
first nuclear magnetic resonance machines. A single
performed in-house and even the largest
university can bring together IP from different
universities contract out some IP management
departments but the potential to create high value
processes
packages is greater if the scope of the research is

wider. IP bundling is becoming increasingly important,
of more practical significance, the larger the
both within and outside the HE sector, with several
universitys portfolio, then the more feasible it
institutions entering into transnational partnerships.
becomes to employ specialist (technology and

sectoral) expertise
These, and other, kinds of partnership between

universities obviously add to the complexity of IP
portfolios can be jointly, and strategically, marketed.
management. They also mean that one institution is, to
This may involve bundling, as discussed above,
some degree, reliant on another having good
but more simply it may be cost-effective to market
management practices in place. In particular, relating
jointly at specific events such as conferences.
to the performance of due diligence activities properly

and addressing other legal requirements. One
Collaboration in these ways can, and most often does,
implication is that the management practices of the
take place on an informal basis, in the sense that there
partners need to converge to some extent if
are no formal agreements or joint employment of staff.
successful partnerships are to be established.
IP managers stay in close contact with each other,

sharing tasks and expertise on an ad hoc basis.
The second reason why collaboration may be
However, there are also examples of more formal
beneficial is because of the scope for economies of
collaborations arising. The Department of Trade and
scale. These may arise because:
Industrys Biotechnology Exploitation Platform (BEP)

initiative, for example, has led to the establishment of
a single institution may not generate sufficient IP to
consortia of universities and other organisations,
employ even a single IP manager fully. However,
including many NHS Trusts. These are, of course,
while this might be the case in a small institution
subject specific and reflect the potential for pooling
newly beginning to exploit IP, it is unlikely to be of
specialist expertise (see Figures 6.2 and 6.3).
much practical significance. In such cases IP
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6. Implementation:
working with others
Figure 6.2: An example of cooperation and joint
For example, one spin-off company was set up in
management in exploiting IP
York (where there is no medical school) with the

medical school links provided by the University of
The White Rose Biotechnology Consortium was
Leeds. In another case, a spin-off company from the
formed in 1997 using a 250,000 grant from the
University of Sheffield is based in Leeds in order to
Department of Trade and Industrys Biotechnology
exploit the local expertise but is run from Sheffield.
Directorates Biotechnology Exploitation Platform

Challenge. The consortium comprises the University
Consortia of this type provide a means of facilitating
of York, University of Sheffield and the University of
IP management based upon overcoming the
Leeds. These three universities have a collective
constraints faced by individual universities.
bioscience base of 500 researchers and over 40m

of research funding. The universities also collaborate
For further details: www.whiterose-bio.com/
in other areas apart from biotechnology exploitation.

A number of successful bids to the Governments
The Biotechnology Directorates funding has now
Higher Education Innovation Fund also involved
ceased and the White Rose Consortium continues to
consortia of universities, and many of these will
develop its cooperative approach to IP management.
encompass some aspects of IP management. These
Twenty-one bioscience companies have been
reflect the potential of regionally based collaborations.
formed and over 50 patents have been filed.

Figure 6.3: Regional collaboration in harnessing
Each university has its own biotechnology
IP an example from the NHS
exploitation manager who works closely with the

researchers within their university whilst also
It is only relatively recently (1998) that the NHS
facilitating inter-university cooperation within the
initiated a fundamental review of its strategic policies
consortium. The consortiums IP available for
towards IP. To begin with this focused on IP arising
exploitation is promoted in an integrated form via
from R&D, but it is now being extended to all
one web site.
aspects of patient care. This latter aspect may, in

the event, prove of at least equal, if not greater,
87
The existence of the consortium makes it easier to
importance; bearing in mind that the three main
exploit the different capabilities within each university.
NHS objectives in identifying and exploiting IP are,
6. Implementation:
working with others
in order or priority:
initiatives success and there has been active

dialogue with both Universities UK and AURIL to
benefits to the operations of the NHS in providing
develop appropriate frameworks to help this evolve.
enhanced patient care (which will always mitigate

against grant of exclusive licences)
The decision was, therefore, taken to build up an IP

support structure, clearly distinct from the primary
national economic benefit
health mission, that would deal with groups of NHS

bodies and it was concluded that the logic pointed
generation of cash.
towards a set of regional IP hubs aligned to the

boundaries of government regional offices and, in
There are some 300 organisations, in the main NHS
consequence, the RDAs. It was this approach that
Trusts, that receive R&D funding, but none of them
formed the basis of bids to PRSE Fund in July
has a scale of activity that would support its own IP
2001. The outcome was largely successful except
office (the largest Trust has research income of
that the four separate bids from London were given
around 40 million). Some form of collaboration
a combined award and the bids from the, research
was, therefore, seen as essential and thought was
rich, East and South East regions, along with the
given to the possibility of contracting directly with
Bristol-centred South West region, were not funded
university IP offices for the service that the NHS

needs. This approach was not pursued for three
By way of example, the Yorkshire and Humber IP
main reasons. First there could be conflicts of
hub will cover a number of trusts including the larger
interest as the NHS might wish, in support of its
ones in Barnsley, Bradford, Hull, Leeds, Sheffield
patient care mission, to invest in IP that offered little
and York and whilst the hubs central office will be
prospect of generating income. Second, a set of
sited outside the health community (possible in an
agreements with universities would be unlikely to
RDA office, for instance) there will probably be a hub
provide full coverage across all NHS bodies. Third, a
staff member attached to the major centres. It is
related point, there is uneven expertise in university
envisaged that, three years hence, funding of
IP offices with respect to the areas of science and
500,000 per year will be required, at a minimum,
technology that are likely to be important to the
for each hub and that this level may, in practice,
NHS. It is nonetheless recognised that positive
prove insufficient (although needs are likely to vary
collaboration with universities will be vital to the
between regions depending on the potential IP that
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88
6. Implementation:
working with others
comes to light). The budget allocation is to cover
Even universities with large IP portfolios and well-
patent and legal costs as well as staff; though the
staffed IP management offices do not seek to have all
former will sometimes be met, in whole or in part, by
the required expertise in-house. They will use external
the trusts. In view of their public service objectives
legal specialists and patent agents when required. This
there can be no certainty of the hubs ever being
is because there is insufficient volume to keep such
self-funding. Moreover there is no logical reason for
specialists fully employed within the university, but also
thinking this should be major criteria on which to
because external specialists will be working in many
judge success.
different contexts and their expertise can be refreshed

more regularly.
6.2
Working with other external

organisations
6.2.1 Public agencies
Working with public agencies with local
With increased policy emphasis on devolution and
economic development remits can
regional issues, the number of public agencies with
enhance the effectiveness of
local economic development responsibilities, and their
universities IP management
capacities, have increased. In Scotland, Wales and

Northern Ireland agencies with economic development
There may also be scope to contract
remits have worked with the HE sector for many years.
with private companies for the delivery
The key agencies today are: Scottish Enterprise and
of some IP management functions.
the Local Enterprise Companies; the Welsh
However, there is a need to maintain at
Development Agency; the Regional Development
least a minimum level of IP expertise
Agencies in England; and Invest in Northern Ireland.
in-house
Many local authorities also continue to play important

roles in local economic development.
The previous section discussed collaboration with
These bodies, to varying degrees, can provide
other universities, but there are also networks and
valuable assistance and collaboration in
agencies outside the HE sector which can make
commercialising IP:
valuable contributions to IP management. Most

obviously, these include IP specialists of various sorts.
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6. Implementation:
working with others
their regional innovation strategies, to which
their services without up-front cost to the university,
universities have often contributed, help to define
which, therefore, gains access to what may be
which sectors and technologies are the regional
substantial IP expertise on a no risk basis. Second,
priorities and will receive special support
some organisations are also able to bring investment

funds and company management expertise. They can
some of the agencies themselves have expertise in
therefore assist with further development of the
IP management and can be a source of advice
technology and the establishment of spin-out
and contacts
companies.
their general business support functions can be
If and when actual deals are made, universities may
accessed by the universities, especially in relation
receive lower returns from the IP management
to spin-outs.
company than if they were to offer their IP on the open

market. There is also a need to ensure that procedures
6.2.2 IP management services
are put in place to prevent direct negotiations between

the IP management company and academic staff.
19
IP management providers offer different services, but
However, if the arrangement is working well then the
most are prepared to undertake some kind of
volume of deals should be larger than if the university
technology scouting service within the university in
was reliant on in-house resources and, as a result,
exchange for a first option on owning or exploiting the
overall returns to the university may well be higher. The
IP. The advantage to the company is early knowledge
higher volume of deals is especially important to
of the technology and, possibly, also the opportunity to
universities who see the priority for IP management as
build up longer term relationships with groups of
transferring knowledge as well as generating revenue.
workers.
An example is presented in Figure 6.4.
The potential benefits to the university are essentially

two fold. First, many of these organisations will provide
19 For more information, contact the British Venture Capital Association (www.bvca.co.uk).
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6. Implementation:
working with others
Figure 6.4: Using third parties the experience
Universities should consider the costs and benefits of
of Heriot-Watt University
such arrangements carefully in the light of their

objectives with respect to IP management. There may
Heriot-Watt has recently entered into an agreement
also be opportunities for consortia of universities to
with an IP management company. Under the
enter into agreements with IP management
agreement, the IP company has the right, which it
companies. However, it is important that some IP
has exercised, to establish an office on-campus. It
management expertise be retained within the university
has completely open access to all university
for the following reasons:
researchers, although they obviously cannot be

compelled to enter into discussions with the
company.
even if it were feasible to contract out most of the

IP management functions, a university will require
in-house expertise in order to act as an intelligent
The company is only interested in spin-outs from the
buyer and to monitor performance
university, but the expectation is that in searching for

candidates it will also identify IP suitable for
institutions can expose themselves to significant
commercialisation by other routes and bring this to
commercial and legal risks if they do not ensure
the attention of the university. It will support spin-
that due diligence activities are properly performed
outs with finance and managerial expertise.
in relation to the use and sale of IP. Given that they

bear the risks, it may be sensible to have in-house
The deal with the company is non-exclusive. The
control over these activities
company has a representative on the universitys

disclosure committee and informs the committee
there is an important awareness-raising
whether it is interested in specific IP. If so, the two
component to IP management and, more
parties will negotiate, if not the university can offer
generally, a need to promote activities and develop
the IP to any interested party. However, the
a rapport with researchers. This may be more
agreement does prevent the university from
effectively undertaken by IP managers who are
permitting any other company to establish a
perceived as being part of the university.
presence on campus.
Web-based technology brokering services have also
There are no up-front costs to the university.
91
emerged in recent years, some of which are free to the
6. Implementation:
working with others
universities. An example, developed by the Patent
universities, and examining the areas in which they can
Office and AURIL, is given in Figure 6.5.
work in partnership with universities to facilitate

effective IP management.
Figure 6.5: Technology Transfer Brokering

Some of the larger charities have significant
Acindus is a free web-based service
development funds that they can use to facilitate the
(www.acindus.net) that permits university research
research commercialisation process particularly
laboratories to promote their area of interest and
when it involves spin-out companies. They also
showcase their latest findings. This service was
possess business support and legal expertise that can
developed by the Patent Office, in association with
assist in the spin-out process.
AURIL, and acts as a matchmaker, pairing off the

scientific community with the commercial interests
However, although there is great potential for building
they need. Its aim is to help to form profitable,
effective partnerships between universities and
home-grown partnerships across the widest
charities over IP management, both sides identify
possible range of disciplines.
significant impediments to partnership-building.
In the words of Dr Philip Graham, AURILs executive
From the universities perspective, some charities are
director ACINDUS will promote entrepreneurism
adopting a very strong focus on maximising financial
amongst academics, and help close the gap
returns from the research that they fund, and tend to
between vision and reality.
under-estimate the investment uncertainties and risks

that the commercialisation process entails. This means
6.2.3 The evolving partnership

between medical research
charities and universities
that they can seek a higher financial return than their

commitment of risk capital warrants.
In contrast, some charities have raised concerns that
Medical research charities are seeking to play an active
universities insist on ownership of IP but pay
role in facilitating the commercialisation and
insufficient attention to ensuring that adequate
implementation of the research that they have funded
technology transfer takes place. There are also
in UK universities. This means that they are taking an
tensions over revenue sharing.
active interest in how effectively IP is managed by
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92
6. Implementation:
working with others
The quotes in Figure 6.6 illustrate the divergent
Comment from a charity representative
perspectives. A strategic approach by both sides to

overcoming these difficulties could generate significant
Universities insistence on ownership and control of
benefits. A mutual understanding of each sides
their IP may often inhibit exploitation in those cases
perception would be a useful first step in this direction
where the universities do not have sufficient

exploitation resources or capacity or IP
Figure 6.6: Universities and medical charities
management experience some charities have

developed their own IP management and
Comment by a university IP manager
exploitation groups to help address this concern

and complement the activities of the universities.
Negotiations with charities, or especially the
93
companies set up by the charities to deal with the
The root cause of the tension between HEIs and
universities, show that in some cases, the charities
charities is much more often about revenue sharing
are more commercially driven than the universities.
though we acknowledge there have been some
Tensions can develop between the universities and
(very few) about control. There have also been
these commercialisation companies. The original
tensions where the university IP office may not
perception was that charities were more interested
understand the charitys perspective (particularly the
in the public good, but this has changed. There
patient-based ones) or the charity may feel its own
needs to be a clearer distinction between charity
IP management expertise and focus in the area is
funding versus contract research funding.
better.
7. Monitoring and
Evaluation
7
7.1
7.2
7.3
7.3.1
7.3.2
7.4
7.5
7.5.1
Monitoring and Evaluation

The monitoring and evaluation framework
Interpreting performance indicators and the impact of uncertainty
of time horizons
Using input measures and ratios
Research expenditure
Costs of IP management
Measures of internal process performance in IP management
Selecting suitable performance indicators
Benchmarking
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7. Monitoring and
Evaluation
This chapter considers issues which arise with
need to decide which indicators most closely reflect
performance measurement and evaluation. It is
their own objectives in IP management.
intended to assist in the design of internal measures

and systems. However, external considerations are
very relevant, for two different sorts of reasons. First,
7.1
The monitoring and evaluation

framework
there may be real benefits in universities benchmarking

their costs and performances against others, and this
A useful first step is to clarify why
obviously requires information to be collected and
monitoring and evaluation are
made available on a consistent basis. This is
necessary. In particular, universities
discussed later in this chapter.
need to consider the relative

importance of demonstrating
Second, this Guide is concerned with the
effectiveness in IP management whilst
management of IP in a narrow sense. Universities
seeking to identify areas for
transfer knowledge in many different ways, such as
improvement
consultancy and training, which are outside the scope

of this Guide. Although IP management needs to
The framework needs to encompass
interface with these activities, indicators designed to
hard indicators but also softer
assess the effectiveness of IP management will not be
assessments of whether general
appropriate for measuring the effectiveness of other
objectives and specific policies are
knowledge transfer activities. This point needs to be
being attained
emphasised. There is a possibility that indicators

designed for internal monitoring purposes will be used,
Performance indicators can fulfil two main purposes.
externally, to assess and compare the performance of
First, they can be used to demonstrate to external
universities. This is especially topical at present, with
organisations that the university is capable of
consideration being given to future allocations of
managing IP effectively. This can be important in
knowledge transfer funding. It should be emphasised
assisting the university to implement key policies. One
that the indicators discussed in this section are only
of the reasons some sponsors give for seeking to
relevant to IP management, and would not be
retain ownership of IP is that they lack confidence in
appropriate for evaluations of knowledge transfer
the ability of universities to manage the IP. Hence, the
activities more generally. Further, individual universities
ability to demonstrate an effective track record can be

important in negotiations.
95
7. Monitoring and
Evaluation
Second, performance indicators are obviously helpful
assign IP to sponsors and on what terms.
in assisting university managers to identify problems
However, case-by-case decisions will establish
and opportunities relating to IP management and to
precedents, which may become established as the
modify budgets and strategies accordingly. In addition,
policy norm in the minds of sponsors and
the monitoring and evaluation framework can play a
researchers. Monitoring needs to check that
useful role in facilitating the process of learning-by-
pragmatic decisions are in line with more general
doing in IP management. Cumulative experience
policies.
should ideally lead IP management to become more

efficient in its internal business processes and more
effective in delivering technology transfer outcomes.
Internal indicators need to be closely aligned with
7.2
Interpreting performance
indicators and the impact of
uncertainty of time horizons
objectives and management processes.

The long time lags between costs being
The monitoring framework needs to reflect two further
incurred and revenues being received
considerations:
mean that evaluations of financial

performance should be patient and
as has been mentioned repeatedly in this Guide,
recognise that costs and revenues are
income generation is not the only reason why IP
decoupled, in the sense that changes in
needs to be managed effectively, and factors as
revenues may have little to do with
diverse as protecting the universitys research
changes in costs
capabilities and contributing to economic

development are also important. It is for each
There is usually little direct control over
university to decide the relative weight to be given
the relationship between IP
to these factors, but if there are objectives then
management costs and revenues.
they must be reflected in the monitoring framework
Because costs and revenues are not

strongly correlated, the measurement
actual outcomes should be reviewed regularly, to
and evaluation of performance should
ensure that general principles are being adhered
also be de-coupled. Management
to. Universities need, for example, to have clear
decision-making has little influence on
principles governing when they are prepared to
the cost-revenue relationship, save for
In Higher Education
96
7. Monitoring and
Evaluation
seeking to minimise costs and maximise
costs may arise in other areas. If the
the probability of achieving high returns
university seeks to compare the costs

and returns from IP it should identify
The returns to the universitys investment in IP
all income sources attributable to
management in a given year will relate to IP
effective IP management
management activities, and hence costs, in previous

years. Similarly, benefits from current investments will
7.3.1 Research expenditure
occur in future years. This long time-lag has important

implications for assessing performance.
One commonly used input measure is research

expenditure which is frequently related to different
Chapter 2 suggested that the fundamentally uncertain
output measures (patents, licensing, option revenue
nature of the commercial returns from IP management
and start-ups) as a ratio. Although easy to calculate,
is central to strategic management and, in particular,
care should be taken in interpreting such ratios,
setting realistic expectations for financial returns. The
particularly if they are to be used in making
argument is not that significant financial returns cannot
resource/funding allocation decisions. This is because
be achieved; it is that they cannot be forecast.
its behaviour is strongly influenced by a wide range of
Effective IP management is consequently concerned
factors, in particular:
with seeking to maximise the likelihood that

unexpected high returns might happen, not with
setting targets for financial returns and judging
differences between subjects in the propensity to

generate commercial outputs
performance against these targets.

differences in the proportion of externally funded
7.3
Using input measures and

ratios
research that comes with restrictions over

exploitation. For instance, contract research
funding may tend to be associated with the
Ratios that relate research expenditure
sponsor owning and exploiting the IP, not the
to outputs such as patents and licence
university
revenue should be used with caution.

Income generated for the university as
a result of incurring IP management
97
differences in the proportion of full costs recovered

in research contracts and in whether or not
7. Monitoring and
Evaluation
principal investigators salaries and on-costs are

covered by the research grant or payment
the costs incurred in one year will generate a

variable and uncertain stream of revenue in future
years. When the university is building up its IP
in cases where international comparisons are
management activity the costs incurred in a
made the situation is even more complex because
particular year will not relate to the revenues
research costs are affected by country-specific
received in that year
factors.
the revenues received by the university as a result
7.3.2 Costs of IP management
of its IP management activities will not be captured

solely in income from commercialisation. For
The costs associated with operating the IP
instance, an option or licence deal with a company
management office can usually be identified. The
may result in a collaborative or contract research
accuracy of these estimates depends upon a number
arrangement. This will increase the universitys
of factors and different figures have been reported by
research income, a contribution that may not have
universities in different surveys.
taken place without effective IP management.
It is tempting to compare these costs with the revenue

generated, giving an estimate of net revenue. Care
7.4
Measures of internal process

performance in IP management
should, however, be taken when relating costs and

revenues for the following reasons:
Internal performance measurement in IP management

is not a well-developed area of performance
the cost of managing the universitys IP includes
measurement in the UK. Indeed, the most recent
opportunity costs associated with academic time
business interaction survey20 suggested that nearly 38
spent on these activities, and also the opportunity
percent of institutions do not monitor the number of
costs of university facilities used in the
invention disclosures on an annual basis.
development of IP. Costs may therefore be underestimated
Aspects of internal performance in IP management to

consider measuring include:
20 Higher education-business interaction survey. A report by the Centre for Urban and Regional Development Studies, University of Newcastle upon Tyne, December 2001.
In Higher Education
98
7. Monitoring and
Evaluation
deal flow in the IP management office(s),

particularly with respect to the distribution of large
7.5 Selecting suitable performance

indicators
and complex versus smaller and simpler cases

There may be benefits in UK
case eliminations: whittling down the set of cases
21
universities collecting data on a
via procedures such as the Stage-Gate Process
consistent basis for benchmarking
can be important in controlling IP management
purposes, provided that performance
costs by ensuring that relatively unpromising cases
can be assessed on a subject-by-
are abandoned before they incur excessive costs.
subject basis rather than in aggregate
It can consequently be useful to collect data on the

numbers of cases that pass and fail specified
While benchmarking can be a valuable
investment decision-points (e.g. clear proceed do
exercise, each university needs to
not proceed decision stages). Private sector
decide for itself which, if any,
companies return on R&D can be as heavily
indicators are a useful measure of
influenced by the number of projects that are killed
performance against objectives
off as by the revenues that stem from those

projects that reach the market. The same principle
7.5.1 Benchmarking
applies to IP management in universities

Each university should identify those indicators which
case load queue times: the incidence of delays in
are most appropriate to its aims and objectives.
starting or completing cases due to log-jams in
Nevertheless, there are benefits in establishing
handling other existing cases
common indicators since this would facilitate

benchmarking and decision making in relation to IP
contract drafting iterations: the number of iterations
activities22.
required to complete contracts and the time taken

on these iterations.
21 The Stage Gate Process involves the sequential elimination of less promising investment alternatives in favour of the most promising, thus seeking to maximise the ratio of investment
returns relative to costs.
22 Annex C presents a set of indicators introduced by AUTM.
99
Annex A:
Provenance of the Guide
In Higher Education
Annex A:
The importance of the effective management of
Reflecting the commitment in the White Paper,
Intellectual Property in HE was highlighted in
Universities UK and AURIL, with the support of the
Excellence and Opportunity, the 2000 Government
Department of Trade and Industry (DTI) and the Patent
White Paper on science and innovation policy. This
Office, commissioned SQW Limited (with technical
stated:
assistance from TWI Ltd) to prepare a Guide to the

management of IP in HE23. The Guide focuses on the
The Government believes that effective IP
strategic aspects of IP management, but some
management should be a fundamental goal of
discussion of policy and operational considerations is
universities and research bodies in the public sector
also included to illustrate how these flow from strategic
because: identifying and managing IP is essential for
decisions. It concentrates on IP arising from research
effective knowledge transfer out of the research base
and its exploitation through sale, licensing and the
to benefit the wider economy; and IP can itself be a
establishment of spin-out companies. Many of the
valuable asset deserving attention.
issues are, however, generic to other forms of IP and

exploitation routes.
Research organisations need to follow some basic

principles if we are to achieve this goal. First, the
There are two main target audiences for the Guide:
management and exploitation of IP needs to be

recognised as important by the top management in
Vice Chancellors and senior institutional managers.
research organisations by vice chancellors and
The Guide aims to cover the key issues in the
principals of universities and by their top management
development of IP strategy and policy in higher
teams . it is not enough to leave this task to the
education and to provide a framework to help
experts.
institutions to produce an IP strategy appropriate

to their mission and circumstances
As universities develop a more active approach to the

exploitation of their knowledge they also need support.
Good guidance is available at the technical level .
Pro-Vice Chancellors (Research) and senior

managers with responsibility for IP.
but more needs to be done to get the attention of top

management and spread best practice.
23 Universities UK is the representative body for universities in the UK: it works to advance the interests of universities and to spread good practice throughout the higher education sector.
AURIL (The Association for University Research & Industry Links) represents industrial liaison, technology transfer and research administration specialists in the UK and Ireland. SQW is an
independent consultancy whose specialist areas include higher education and science and innovation policy.
ii
Annex A:
The Guide aims to cover the implementation of
The project was overseen by a Steering Committee,
policies and practices within universities to deliver the
chaired by Professor John Archer, Principal of Heriot-
effective management of IP. We hope, however, that
Watt University, and comprising staff from the
audiences both within and outside HE will find the
sponsoring bodies and a range of universities.
Guide useful.
We are grateful to members of the project steering
This document reflects extensive consultations both
committee for their assistance in this study. Besides its
within and outside the HE sector. At the start of the
other responsibilities, the committee reviewed papers
project, SQW undertook discussions within a small but
and draft reports during the project and members also
heterogeneous and representative group of
participated in a number of the workshops.
24
universities . Discussions were also held with other

organisations, including research funding bodies,
economic development agencies, businesses and
financial institutions, all of which had direct interests in
IP generated by universities. The purpose of these
discussions was to identify the key issues relating to IP
management strategy and how they might be
successfully addressed. A consultation document was
then prepared, discussing the main themes identified
and raising a broad range of issues. This was widely
circulated, made available on the internet, and
comments invited. Five workshops were held, each
covering a topic which feedback to the consultation
document had suggested was of major interest25
Many people took part in this process and we are
grateful for the time they gave and their willingness to
share their experiences.
24 In this publication the term universities is used to refer to all higher education institutions.
25 The five workshops were: (i) Incentives; (ii) Inter-university collaboration; (iii) Relationships with sponsors the ownership and control of IP; (iv) Setting IP management strategies and
budgets, and (v) Monitoring and evaluation.
In Higher Education
iii
Annex B: Glossary
AUTM
BTG
American Association of University
MOD
Ministry of Defence
Technology Managers
NHS
National Health Service
British Technology Group plc
PSRE Fund
Public Sector Research Exploitation
CASE
Fund
Studentships Cooperative Awards in Science and
PVC
Pro-Vice Chancellor
Engineering: PhD studentships jointly
R&D
Research and Development
funded by industry and the research
RAE
Research Assessment Exercise
councils
RDA
Regional Development Agency
CBI
Confederation of British Industry
RTO
Research and Technology
CPD
Continuing Professional Development
DTI
Department of Trade and Industry
EPSRC
Engineering and Physical Sciences
& Technology
Research Council
Grants to help individuals and small and
HE
Higher Education
medium-sized businesses to make better
HEI
Higher Education Institution
use of technology and to develop
HEIF
Higher Education Innovation Fund
technologically innovative products and
HEROBC
Higher Education Reach Out to
processes
Business and the Community Fund

IP
Organisation
SMART
SPUR
Research Scheme:
Background IP
An R&D support scheme whose aim is to
Existing IP brought to a research
help medium-sized businesses improve

their competitiveness by developing new
Foreground IP
products and processes to the benefit of
IP generated during a research
the national economy. (Now part of
project
Oxford University IP exploitation
company
MIT
Massachusetts Institute of
Technology
iv
Support for Products Under
project
Isis
Small Firms Merit Award for Research
Smart)
UNICO
The UK University Companies

Association
Annex C:
AUTM performance
measures
In Higher Education
Annex C:
AUTM performance measures
Some of the benefits from IP management are not
Licences & options executed: non-exclusive (n)
captured in the AUTM system. The most prominent
Total licences & options executed (n)
issue in this regard is when research sponsors are
Licences & options executed to start-ups (n)
attracted by the universitys IP portfolio. These benefits
Licences & options executed to small
to the university are not captured by licence income
companies (n)
alone.
Licences & options executed to large

companies (n)
The performance measures used by AUTM
Total licences & options executed (n)
(n=number)
Number of start-up companies formed that were

dependent upon the licensing of your institutions
RESEARCH INPUTS
Federal Government Research Expenditure ($)
Number of these that have their primary place of
Research Expenditure from Industrial Sources ($)
business operating in your home state (n)
Total Research Expenditures ($)
Number of start-up companies that were
RESEARCH OUTPUTS RELEVANT TO IP
MANAGEMENT
technology for initiation and were reported in the
Invention disclosures received (n)

IP MANAGEMENT RESOURCES UTILISED
Survey this year or in earlier years that became

non-operational in the fiscal year (n)
Licensing Full-Time-Equivalents in technology
Number of start-up companies that were
transfer offices (n)
Other Full-Time-Equivalents in technology transfer
technology for initiation and were reported in the
offices (n)
Survey this year or in earlier years that were
Total Full-Time-Equivalents (n)
operational as of the last day of the fiscal year (n)
IP MANAGEMENT OUTPUTS
Number of licensed technologies that became
Securing IP
available for consumer (public) or commercial use
Total US patent applications (n)
in the fiscal year (n)
New US patent applications (n)
FINANCIAL PERFORMANCE IN IP
US patents issued (n)
MANAGEMENT
EXPLOITING IP
Licences & options executed: exclusive (n)
vi
technology for initiation (n)
Licence income received ($)

Licence income paid to other institutions ($)
Annex C:
AUTM performance measures
Amount spent in legal fees ($)

Amount reimbursed by licences ($)
Total number of licences/options yielding licence
income (n)
Licence income received: running royalties ($)
Licence income received: cashed-in equity ($)
Licence income received: all other types ($)26
PORTFOLIO PERFORMANCE
Number of publicly-traded companies in the
portfolio (n)
Number of privately-held companies in the
portfolio (n)
Source: The Association of University Technology
Managers Inc. Report entitled, AUTM Licensing
Survey, Fiscal Year 1998. Note: the indicative
classification of these metrics was carried out by
SQW Limited.
26 This refers to licence fees and annual fees paid as part of licence agreements.
In Higher Education
vii
viii
We would like to express our thanks to UK Business Incubation, HSBC, and Murgitroyds
for their sponsorship of this project.
The project was overseen by a Steering Committee, chaired by Professor John Archer,
UK Business Incubation is the national representative
Principal of Heriot-Watt University, and comprising staff from the sponsoring bodies and
body for the growing incubation sector. It provides
a range of universities. The composition of the Steering Committee was as follows:
leadership through sharing best practice and providing
The information contained in this publication is not
development opportunities for practitioners and
intended to be comprehensive. Accordingly it should
Disclaimer
Professor John Archer (Chair)
Heriot-Watt University
stakeholders as well as research into this key area of
not be regarded as being a complete and authoritative
David Armitt
DTI
enterprise and entrepreneurial growth and
source of information relating to Intellectual Property or
Andrew Bartlett
Patent Office
development.
Higher Education, and readers are advised to seek
Dr Philip Graham
AURIL and Queens University Belfast
Dr Robin Jackson
Universities UK
UK Business Incubation
anything contained herein. The contributors to this
Brian McCaul
AURIL and The University of Liverpool
Faraday Wharf
publication cannot take any responsibility for the
Dr Frank Moeschler
Patent Office
Aston Science Park
consequences of errors or omissions.
Andrew Morgan
HM Treasury
Holt Street
Professor Stuart Palmer
University of Warwick
Birmingham
The views and opinions expressed in this publication
Sheila Robson
Oxford Brookes University
B7 4BB
are not necessarily those of our sponsors HSBC, UKBI
David Secher
Cambridge University
Dr Jeff Southerton
Pfizer
independent professional advice before acting on
and Murgitroyd's.
Tel: 0121 250 3538
email: info@ukbi.co.uk
Website: www.ukbi.co.uk
Designed by:
black sheep
concept_strategy_communications
Tel: +44 (0) 29 2049 0722
In Higher Education
ix
Auril/UUK/Patent Office
A Guide to MANAGING IntellectualProperty
A Guide to
MANAGING
Intellectual
Property
IntellectualProperty
Strategic Decision-Making
in Universities
Auril/Universities UK, 2002

Strategic Guide

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MANAGING

A Guide to Strategic Decision-Making

Why is IP management important?

The need for strategic management

Financial expectations and budget management

Risk and returns

Handling uncertainty over expected costs and returns

What are realistic expectations?

Ownership of IP and negotiations with sponsors

Ownership and control

Negotiating with research sponsors

To whom should incentives apply?

How should incentives be applied?

Relationship to other university policies

The responsibilities of the IP management office

The IP office: location and structure

Should notification of inventions be compulsory?

Some complexities in IP management

Implementation: working with others

Collaboration between universities to manage IP

Working with other external organisations

Monitoring and Evaluation

The monitoring and evaluation framework

Interpreting performance indicators and the impact of uncertainty of time horizons

Using input measures and ratios

Measures of internal process performance in IP management

Selecting suitable performance indicators

Annex A: Provenance of the Guide

Why is IP management important?

Effective knowledge transfer

Staff recruitment and retention

The need for strategic management

IP issues are pervasive

IP management and other means of knowledge transfer

Key policy overlaps

Intellectual Property, often known as IP, allows

The four main types of IP are:

people to own their creativity and innovation in the

patents for inventions - new and improved

The owner of IP can control and be rewarded for

products and processes that are capable of

its use, and this encourages further innovation and

creativity to the benefit of us all.

services allowing distinctions to be made

in other areas there will have to be more elaboration of

between different traders

an idea before protection can arise. It will often not be

designs for product appearance - of the whole

unless they have been applied for and granted, but

or a part of a product resulting from the

some IP protection such as copyright arises

features of, the lines, contours, colours, shape,

automatically, without any registration, as soon as

texture and/or materials of the product itself

there is a record in some form of what has been

and/or its ornamentation

Using others research papers, publications, etc

Figure 1.1: IP and University activities

Industrial design projects

Starting discussions on a collaborative project or contract research

Receiving important confidential information

Giving out confidential information

Revising or providing a manual or computer assisted drawings

Preparing notes for lectures