Where next for university IP commercialisation in China?

China’s universities have been registering patents for years and most now have a technology transfer office. Yet despite this, many crucial opportunities for commercialisation and licensing are still being missed

Universities are a vital source of innovation. In addition to their role in education, they play a significant role in scientific research. This is crucial given that such research is often driven by a desire to advance science for the greater good or for the sake of science itself, rather than for a commercial purpose. Universities can advance research in areas that are beneficial to mankind, even where no clear and immediate commercial gain is apparent.

Nevertheless, many innovations which come from universities do in fact have commercial value and many are being commercialised. However, in order to enable this, three basic steps must be taken:

  • Identify suitable inventions – and at a sufficiently early stage, in view of the tendency of researchers to focus on publishing papers which make inventions known to the public.
  • Create IP assets associated with such inventions (eg, patents).
  • Establish mechanisms for commercialising them.

There are several advantages to such a course of action:

  • Revenues generated from commercialisation can help to finance academic activities and further scientific research, as well as to reduce universities’ dependency on donations and government funding.
  • Collaborating with industry can give universities access to resources, technology and proprietary knowledge and enable them to gain valuable experience and expertise.
  • Commercialising inventions means utilising otherwise unused intellectual assets, creating returns on investments.
  • Successful commercialisation activities contribute to a university’s reputation – this can be a significant motivator in China.

How do universities handle technology transfer?

Most research universities have a specialised department or affiliated entity to handle technology transfer – a technology transfer office (TTO), technology licensing office or similar. Examples of such units include Stanford University’s office of technology licensing or the technology licensing office at the Massachusetts Institute of Technology. Universities in Israel have established separate corporate entities, normally fully owned by the universities, which are responsible for technology commercialisation (eg, the Weizmann Institute’s Yeda Research and Development Company and the Hebrew University’s Yissum Research Development Company).

Many Chinese universities have units which, at first glance, appear similar to TTOs. These units may also be named accordingly, have similar stated goals and operate under similar mandates from universities. However, such units in China seldom operate in the same way as their western counterparts and their role in advancing actual technology transfer is still limited.

University technology transfer – western model

Under most technology transfer models, a researcher discloses inventions to the TTO – usually by filing an invention disclosure form. The TTO also takes steps to identify research projects that are likely to generate highly commercial IP assets. It will then evaluate the invention’s patentability and commercial value and decide whether to file patent applications and, if so, where and how (ie, via a national application or the Patent Cooperation Treaty). It will then organise the filing and prosecution of applications and the registration and maintenance of patents. The TTO will use its resources to identify potential interested parties for commercialisation and try to negotiate a deal – universities usually prefer to license their patents rather than sell them. The TTO will then collect royalties from the licensee on behalf of the university, and in many cases will also be responsible for distributing profits between relevant stakeholders (ie, the university, the specific department and the researchers involved).

There are numerous examples of how universities have managed to successfully commercialise inventions. For instance, Copaxone was developed by researchers at the Weizmann Institute and then patented by Yeda Research and Development Company, which commercialised and licensed it to Teva Pharmaceuticals; the drug generated $4.3 billion in sales in 2013. There are also examples of universities generating substantial returns from enforcing patents – Carnegie Mellon University reached a $750 million patent lawsuit settlement with Marvell Technology Group.

University technology transfer – Chinese reality

Many universities and colleges operate in China on the national, provincial and municipal levels – there are more than 70 universities in Beijing alone. Many of China’s top research universities have been gaining traction in both academic education and research activities and enjoy a growing reputation, with some now ranking among the world’s top universities. But how do Chinese universities fare when it comes to commercialising intellectual property and technology transfer?

At first glance, the situation looks promising. Take Tsinghua University, for example. Located in Beijing’s Haidian District, Tsinghua sits at the pinnacle of China’s higher-education institutions – together with Peking University, it is considered the country’s best university. Tsinghua files thousands of patent applications every year and has shifted its focus from managing patent applications to supporting high-quality patenting and technology transfer. Yet despite this apparently rosy picture, discussions with faculty members, students and researchers reveal a different story: one which suggests that actual commercialisation levels of IP assets are relatively low. One indication of this is the fact that Tsinghua’s English-language website – which provides information on technology transfer at Tsinghua – lists only a single international success story. Further, data from the past few years suggests that Tsinghua licenses far fewer patents than it transfers out – which suggests that there is less emphasis on reaping long-term rewards. The number of licences granted annually also lags significantly behind leading western universities.

While Chinese universities such as Tsinghua do have technology transfer departments, it appears that their role and actual function within the university system is quite different from that of TTOs in western universities. In many cases TTOs at Chinese universities focus more on helping academics to file patent applications for their inventions. In addition, they may be involved in securing IP rights in joint projects with industry or where an interested party wants to buy a specific patent owned by the university (usually when the researchers involved want to spin off and establish a start-up).

Despite what some would like to pretend, there is little planned strategic creation and management of IP assets in Chinese universities. Commercialisation efforts of the sort apparent in western universities – which include structured efforts to identify key IP assets and find suitable commercialisation opportunities – are rare in China. While there are spin-offs, these are usually start-ups initiated by academics or students seeking to build a business around inventions and patents which are owned by the university rather than a planned effort by the universities themselves.

There are industry-academia collaborations in China, with both domestic companies and multinationals joining forces with Chinese research universities, as well as joint projects with other universities. However, these raise their own IP creation and management issues and may require relatively inexperienced Chinese university TTOs to collaborate with organisations with an entirely different method of working.

Figure 1. How a university TTO interacts with its research

IP strategy relegated to academics

Conversations with researchers and other university employees suggest that TTOs in Chinese universities seldom actively scout for research projects and identify those that may lead to the creation of high-potential IP assets with commercial value. This appears to be down to lack of experience, resources and understanding – as well as a basic philosophy about the role of universities in society (ie, that they should focus on education and research rather than on commercial activities).

Crucially, it appears that decisions about whether, where and how to file patent applications for inventions are not always made by TTOs, but are left to the academics. For example, the question of whether a domestic patent application, a domestic utility model application or a PCT application should be filed in connection with a specific invention depends on the researcher – the TTO merely orchestrates the filing based on the researcher’s request. Thus, what should be a strategic decision made by professionals – whether to file a potentially geographically broad PCT application or a limited-in-scope domestic patent or utility model application – is not the result of the TTO applying strategic decision-making tools based on university-wide policies and commercialisation potential; instead it depends on how patent savvy the researcher is (and they tend not to be). In such instances the TTO provides support only in preparing and filing the patent applications. Sometimes this is limited to selecting and connecting with a patent agency, which then takes care of the actual drafting, filing and prosecution of the application.

This system effectively relegates IP strategy and management decisions to researchers, with universities being something of an absentee landlord. Needless to say, university academics are not usually the right people to decide on IP strategies, whether to patent, where and how, and probably have little relevant experience or concern for commercialisation.

My work in China provided opportunities to converse with many start-ups launched by university students or researchers. In many cases these people needed to obtain patents which were legally owned by the university. Many testified that patents can easily be acquired from universities for as little as Rmb10,000 (which more or less covers the application and registration costs). This is quite a contrast to negotiations with western TTOs, which usually prefer to license inventions rather than sell them. Further, the final decision of whether to sell or commercialise was not made by the TTO but rather by the academics who worked on the invention in question – again, a very different system from that in the West.

A senior researcher in the Chinese Academy of Sciences (CAS) told me that he never received any guidance or instructions with respect to technology transfer, and that any patenting and commercialisation efforts rested solely on the shoulders of the researchers themselves. While researchers are encouraged to file patent applications for their inventions (apparently this is one of the criteria under which they are evaluated), the decision of how and where to register patents is left entirely up to them. Further, while researchers are encouraged to file applications for their inventions, they receive funding only up to the registration stage. Maintaining registered patents is not a priority and any necessary maintenance fees come from the specific department’s research budget. This means that while researchers are encouraged to file patent applications and register patents (to push numbers and reputation up), no one seems to care what happens to these patents once they are registered and many are allowed to lapse. Additionally, no significant efforts are made to identify patents that might have commercial value and pursue this. According to the CAS researcher, the only successful case of IP commercialisation of which he was aware within the CAS was the result of a private initiative by one researcher, who actually created connections with commercial entities and negotiated the deal to license the patents to them.

This description is in line with what I have heard from people in other Chinese universities. They suggest that while university TTOs do have the mandate to seek commercialisation opportunities, the actual power to decide whether, when and how to do this rests with the researchers themselves – and most commonly with the academic who heads the specific laboratory or department.

Filing and registration – yes; commercial value creation – no

Table 1How TTOs operate – western model versus Chinese reality

 

Western countries

China

Examples

Stanford’s office of technology licensing; the Weizmann Institute’s Yeda Research and Development Co

Tsinghua University TTO

Preferred mode of commercialisation

Licence, spin-off

Sale of intellectual property, licence

Level of control over the creation of IP assets

High

Limited

Geographical focus

Global (key countries)

Mostly China-focused

Who has the power to make decisions?

The TTO makes all decisions based on university policy

Effectively professors have the final say over commercialisation efforts

Another factor to consider is that while many Chinese universities can demonstrate high levels of patenting activity, this does not signify high levels of IP value creation; nor does it lead to significant high-impact commercialisation activities. The high levels of patent filing in Chinese universities are, for the most part, the result of patent applications becoming part of the key performance indicators according to which academic institutions – and consequently academics and researchers within such institutions – are judged. As a result of China’s 2008 National IP Strategy, which called for increased numbers of domestically generated patents, policies were put in place (on national, provincial and specific institution levels) to encourage researchers and academic units to file patent applications. However, this was done not to capture the value that can be generated from patents, but rather to increase the number of patents attributed to Chinese universities, thus enhancing their perceived capacity for innovation. Newer policies promise academics an exceptionally high stake of any income generated from commercialisation. Such policies seem to push IP commercialisation even further towards the exclusive domain of academic initiatives rather than strategic IP planning by the universities themselves.

The conclusion is that increased patent filings at top Chinese universities do not necessarily reflect increased IP savviness or acknowledge the value of patents and their commercialisation in the university context; nor do they reflect any significant value generated from patents in China’s universities. Increased filings are merely yet another manifestation of the country’s numbers-driven approach to intellectual property, as reflected in the national IP strategy, recent 12-year plans and other policies.

It seems that IP commercialisation is still not a high priority for most Chinese universities and actual commercialisation efforts are quite limited. Instead, Chinese universities’ approach to commercialisation is largely passive, responding to patenting requests from academics and commercialising intellectual property only on someone else’s initiative. Active attempts to identify high-value inventions and create opportunities for their commercialisation are few and often misdirected. While there have been some recent changes in this respect – especially at high-profile universities such as Tsinghua and Peking – these are still marginal and many good inventions, potential revenues and opportunities for value-generating transactions are being lost. This limited understanding and lack of suitable systems is also resulting in the loss of potentially valuable strategic IP assets. It should be clarified that ‘lack of understanding’ refers not to a failure to acknowledge the importance of intellectual property and its commercialisation in the university context, but rather to a lack of experience and a clear understanding of how this can and should be done.

This situation has created a vacuum, which is now being partly filled by savvy entrepreneurs and investors (sometimes with direct links to the universities) who are establishing IP commercialisation companies with the intention of acquiring patents from universities and commercialising them. However, the scope of such activities is limited and can fill the void only to some extent: while such companies can help to generate some value from unused IP assets (and it is questionable whether and how much of this value actually finds its way back to the universities themselves), they cannot control and direct the creation of the IP assets themselves. Where the TTO is not fulfilling its key role in identifying high-value inventions which can also be successfully commercialised and building a portfolio around them, value is lost.

Changes on the horizon

Despite this imperfect state of affairs, there is light at the end of the tunnel. University TTOs in China are slowly becoming more active and more systematic in their efforts to identify opportunities for commercialising university-owned patents. They are also gaining valuable experience. Recent government policies designed to help Chinese universities improve IP management and utilisation are also providing a push in the right direction (in China, most systematic changes take place in a top-down fashion); although how these policies will manifest themselves and their impact on university IP commercialisation in China remains to be seen.

What does all this mean for companies in China? In theory, there are interesting opportunities for licensing deals with universities eager to show that they are actually commercialising inventions, possibly under relatively convenient terms. However, mining for high-quality IP assets may not be easy and dealing with a relatively inexperienced TTO can be challenging. Future changes may streamline the university IP commercialisation process in China, increase levels of university-industry cooperation and enable Chinese universities to generate more value from commercialisation and have a more significant impact on the economy.

So, can we expect the next billion-dollar invention to come from one of China’s universities? It is certainly possible, but still unlikely – at least in the foreseeable future. This is not due to lack of innovation capacity, but rather because the systems needed to identify such inventions, build a portfolio of IP assets around them and find the right opportunities to commercialise them simply do not yet exist, or at least are not fully developed. However, the good news is that the foundations – policies, organisations and units, and the desire to innovate – are already there. Now it is simply a matter of changing age-old ways of thinking and building a streamlined and active commercialisation operation. It may sound easier than it is, but things change faster than we imagine in China.

Action plan

As China’s innovation capacity increases, opportunities for tech transfer and IP commercialisation with regard to Chinese universities may become an interesting option for companies to explore. However, as the tech transfer infrastructure of even the leading Chinese universities is still relatively immature, dealing with tech transfer offices (TTOs) requires a slightly different way of thinking. Here is what companies seeking tech transfer opportunities with Chinese universities should consider:

  • Favourable terms may be negotiated as local universities are hungry for industry collaboration and may agree to go further than universities in the West would – for example, to sell IP assets rather than merely license them.
  • However, due to the relatively immature commercialisation and tech transfer infrastructure, mining for the right technology and IP assets will not be easy, and many inventions may lack proper IP protection (few will have significant coverage outside China – if any).
  • As long as Chinese universities’ TTOs do not fully embrace the common model for tech transfer management and seize control of the entire process, getting the academic who heads the relevant department/lab/team on board can be crucial to the success of the venture, as he or she (and not the TTO) may be the one actually making the decision as to whether, when and how to commercialise.
  • Investors and companies seeking to invest in start-ups which began life as university spin-offs should carefully examine whether that start-up actually has control over the relevant intellectual property and under what terms.

Ziv Rotenberg is the founder of Group8 Consultants Limited, Hong Kong

Get unlimited access to all IAM content