Technology is changing our world at breakneck speed and innovative research is key to remaining globally competitive and secure. But Canada’s lack of a universal policy for governance of federally funded intellectual property (IP) makes tech transfer difficult and blocks good ideas from getting to market.
Legislation passed in the United States more than four decades ago under the Bayh-Dole Act dramatically changed how IP at universities and federal labs was handled, and helped kickstart an economy that was in a downward spiral. It allowed post-secondary schools and private research institutions, rather than the government, to own the patents arising from their research.
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It also required that they work with the domestic private sector. This framework has led to countless inventions arising from research and development (R&D), including drugs and vaccines, Google’s search algorithm and Honeycrisp apples.
But would a similar approach be successful in Canada in today’s context? Would it help us better capitalize on research funded with taxpayer dollars?
The Bayh-Dole Act
IP resulting from federally funded research in the U.S. was petrifying on the shelf in the years before the 1980s. The government held 28,000 patents, but only about five per cent were being used commercially.
The Bayh-Dole Act, passed in 1980, allowed universities to own title to their inventions and provided a financial incentive to work with industry. Combined with a private sector eager to adopt innovative technologies, it became a central element in a debate around the alleged failure of U.S. firms to “exploit academic research more effectively for commercial advantage.”
Two decades after the legislation passed, the Economist wrote that “[m]ore than anything, this single policy measure helped to reverse America’s precipitous slide into industrial irrelevance.”
Stopping the slide
The Bayh-Dole Act granted individual research institutions the option to own patents on their research and to charge companies to get access to it. But it also imposed conditions.
Universities were required to show good faith by attempting to make their research available commercially. They also had to ensure that any exclusive licence granted to a third party would result in products that were “manufactured substantially” in the U.S, ensuring that benefits accrued domestically.
Failure by research institutions to meet these responsibilities gave the government “march-in rights,” but it has never intervened in the 45 years of the legislation. So successful was Bayh-Dole at stimulating tech transfer that it has never been necessary, although U.S. president Donald Trump has recently indicated intentions to revisit this.
The years after the legislation was passed were marked by universities focused on bringing their inventions to market. Subsequent decades saw an explosion of technology transfer to established and new companies. The push was further sped up in 2010 with the introduction of express licences that made tech transfer between universities and companies quick and painless.
Canada’s false innovation paradox
The conditions that led to the passage of the Bayh-Dole Act should sound familiar to Canadians. While Canada excels at research, it remains unable to capitalize on the full potential of its economic value. The term “innovation paradox” is used to describe the problem. This is not only a false descriptor but a dangerous one. There is no paradox. We know exactly why we’re failing and we can’t let ourselves off the hook.
Canada has no federal framework for governing intellectual property arising from publicly funded research. Federal granting agencies leave management to individual institutions but, unlike Bayh-Dole, provide no guidance on what should happen next. A predictable result is that IP policies are fragmented and title to research ranges from fully owned by inventors to fully owned by institutions.
Most universities have tech transfer offices that are short on cash. There are no incentives for the parent university to invest in them and their spinouts. There’s also a lack of established private-sector licensees for their IP.
Another problem is that Ottawa’s policy of Crown ownership of IP generated by government (or federal) labs presents licensing challenges for commercial enterprises (particularly startups). This approach is in direct conflict with growing evidence that startups are more effective at commercializing disruptive innovation than large firms.
In short, while the parallel is not perfect, the challenges related to tech transfer in Canada are similar to those faced by the U.S. prior to 1980.
Not a silver bullet
Does this mean that adopting legislation like that in the U.S. could solve Canada’s innovation challenges? Evidence from previous attempts to replicate its success elsewhere suggests it is not quite that simple.
An examination of spinout activity (creating a new company from an institution’s research) by a handful of Canadian universities reveals an interesting difference. U.S. tech transfer is almost uniformly based on institutional ownership of IP, while some Canadian universities have policies that assign ownership to inventors and researchers. Rankings by market data platform Pitchbook suggest that these universities tend to outperform others that take ownership themselves. Institutional policy on IP ownership is clearly not the only determining factor in what research hits the marketplace.
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Attempts at adopting frameworks similar to Bayh-Dole in other countries have had mixed results. Switching from inventor-owned to institution-owned IP policies in Finland had the opposite effect. Rather than acting to stimulate university research patenting, there was a significant drop. New Zealand’s IP policy was recently reoriented toward inventor ownership. That decision should be carefully observed over the next few years to see how the results compare.
Context matters
Canada can learn from Bayh-Dole as we consider industrial policy initiatives aimed at addressing innovation challenges, but a “cut-and-paste” approach is unlikely to work.
We need to adjust for the differences between Canada and our southern neighbour. Unlike the U.S., we do not have many firms eager to commercialize IP belonging to universities. Without the domestic private sector as a source of financial returns for universities, the federal government must provide universities with money to support patenting and tech transfer — at least long enough to create conditions in which the private sector can take over.
Another difference is that there is risk-tolerant capital in the U.S. ready to invest in technological innovation. This means universities can demand aggressive terms in their licences. But there is relatively little such capital in Canada, so universities cannot expect demanding terms to be accepted by the market.
The cost of complacency and an opportunity
Canada should not only adopt harmonized federal IP policy for publicly funded research, but go a step further. We must provide resources for tech transfer as part of research grants and reward speed with express licences.
Recognition of the important role emerging technologies will play for sovereignty and security makes it clear that Canada cannot afford to continue down its current path. The Bayh-Dole Act was a generational bet on American technology that continues to pay dividends today. We must come up with our own policies that will do the same.
There is enormous value to be unlocked from Canada’s world-class research, if only we commit to bridging the gap between labs and markets. Our country’s future economic security requires bold action now more than ever.
