Invent something at a university? The size of any future fortune will depend on which one
Article and Photos from the Financial Post
By: Claire Brownell
July 28, 2016
Most academic theses gather dust in library filing cabinets. Anand Agarawala’s went viral.
The computer science graduate student at the University of Toronto in 2006 had developed a touch-screen computer desktop that simulated a physical one, allowing users to organize files into piles, attach photos to emails in one step and even decorate a virtual office wall.
He posted a video to YouTube demonstrating his thesis and it was a hit, with more than one million views to date. It was clear the idea had the potential to earn some serious money, in addition to helping Agarawala earn his degree, but it was less clear just how much he would get.
Each of Canada’s 98 universities has its own set of policies that determine what happens when staff and students create intellectual property with commercial potential in the course of their work or education.
Many claim a cut of future sales and/or equity in any resulting commercial endeavour and that has prominent voices in the tech community calling for universities to leave intellectual property in the hands of its creators, the people most invested in its success.
Daniel Debow, an entrepreneur and angel investor, said he’s witnessed the roadblocks that company founders face when universities demand a share of the business.
“I have definitely encountered frustration with the pace,” he said. “A six-month delay can mean the difference between a multi-million dollar company that’s first to market and an also-ran.”
Some institutions claim all the equity and most of the revenue of any resulting business. Others lay claim to none, or leave it up to founders to decide whether they want help commercializing their ideas in exchange for a piece of the business.
In Agarawala’s case, the University of Toronto claimed a cut of his future sales since he came up with the idea in the course of his studies. He said the school’s tech transfer office, the department involved in commercializing ideas that come out of the university, also offered some well-intentioned help, which was useful since he didn’t have any experience running a company.
“I needed advice,” he recalls of his 24-year-old self. “It was definitely fly-by-the-seat-of-my-pants. I felt like I was thrown to the wolves.”
Things turned out well for Agarawala, who negotiated a revenue-sharing deal with the University of Toronto that didn’t involve giving up any equity. He later sold his company BumpTop to Google Inc. in 2010, an achievement the university used to promote a fundraising campaign by erecting life-sized banners of him alongside other notable alumni on campus.
But Agarawala said navigating the university’s convoluted intellectual property policies added to the stress of a high-pressure situation.
“The rules could have been more clear,” he said. “It kind of felt like they were making things up as they went.”
The rules could have been more clear. It kind of felt like they were making things up as they went
Jennifer Fraser, director of innovations at the University of Toronto’s innovations and partnerships office, said she agrees the institution’s policy is confusing.
The university lets inventors decide whether to take ownership of their intellectual property (in which case, they still owe the institution 25 per cent of future revenue to recognize that it was created using university resources) or relinquish it to the institution (in which case, the inventor keeps 40 per cent of any revenue and gets access to legal help, patent advice and other assistance).
“We spend a lot of time trying to explain our policy,” she said.
But simplifying the policy is easier said than done, Fraser said. Intellectual property policies are often written into faculty association collective agreements, which means changing them requires negotiating with the union.
The other way to change them would be to pass a law similar to one in the U.S. that covers all intellectual property resulting from federally funded research at post-secondary institutions. The Bayh-Dole Act of 1980 stipulates that universities own the resulting intellectual property, grants any funding agency a licence to use it for free and shares any revenue with the inventors.
This system has the advantage of clarity, with companies interested in licensing or buying inventions knowing what to expect and who to negotiate with. But there’s evidence it might not be the best way to encourage innovation and entrepreneurship.
A study published in March by the U.S. National Bureau of Economic Research found Norway experienced a 50-per-cent decline in patents and startups after moving to a U.S.-style model where universities own the intellectual property, rather than the professors who created it.
Other academic studies evaluating the effects of the Bayh-Dole Act have concluded an inventor-owned model would be better for the economy. Institutions known for spinning off successful startups, such as California’s Stanford University and the University of Waterloo in Ontario, tend to grant all intellectual property rights to inventors.
Additionally, said investor Debow, universities with restrictive commercialization policies are putting themselves at a recruiting disadvantage. “What ends up happening over the decades is you don’t end up attracting entrepreneurial professors to these universities,” he said.
Moving to an inventor-owned model would mean giving up the licensing revenue universities get from companies that get their start there. But even at the institutions pulling in the most money, such revenue only accounts for a small percentage of their budgets.
The University of Toronto pulled in about $35 million in licensing revenue in 2014, according to data provided to the Association of University Technology Managers. That’s more than any other university in Canada, but it represented less than two per cent of its overall operating revenue that year.
Joshua Gans, chief economist at the University of Toronto’s Creative Destruction Lab, said universities would likely find that larger alumni gifts would make up for lost revenue if they gave inventors the option to commercialize on their own. It’s harder for startups to raise the capital they need to succeed if the university stakes a claim on a portion of future sales, he said.
“If they insist on 10 per cent and it turns out to be 10 per cent of nothing, that’s not a very good policy,” Gans said. “The evidence is pretty clear that institutions should get out of the way as much as possible.”
Ryerson University in Toronto, along with the University of Waterloo and Dalhousie University in Halifax, assigns full intellectual property rights to inventors. But Jennifer MacInnis, legal counsel and senior director of applied research and commercialization at Ryerson, said the university has found it is best to offer would-be entrepreneurs some optional help.
“We found a lot of faculty members, a lot of student inventors would say, ‘This is great that I own it, but now what am I supposed to do?'” she said. “So we created a number of different levels of support they can access.”
If inventors opt for the do-it-yourself approach, Ryerson takes a 10-per-cent cut of future revenue. But the institution also gives entrepreneurs the option to raise that fee to 20 per cent in exchange for more help sourcing licences and writing business plans, or 25 per cent if they want to enlist the help of the provincially funded non-profit MaRS Innovations.
Ryerson has had a 47-per-cent increase in invention disclosures over the last two fiscal years, including some from non-traditional faculties such as communications and midwifery.
MacInnis said she thinks the added support is driving it, but that support needs to keep the inventors in the driver’s seat for it to work.
“It’s their baby and they need to be involved,” she said. “It’s not a situation where you can pass it over to someone else.”