Inquiry into pathways to technological innovation

This chapter examines:

• options for the management of knowledge and intellectual property (IP);
• knowledge transfer through engagement between publicly funded research institutions (PFRIs) and businesses; and
• knowledge transfer through business to business collaborations and linkages.

Three consensus issues have emerged from evidence relating to knowledge management and transfer.

Consensus Issue 1—Appropriate management of knowledge and IP (i.e. knowing when to share knowledge, and when to use appropriate informal or formal mechanisms for the protection of IP) is required to support innovation. Despite a robust IP legislative framework, evidence suggests that:

• PFRIs need to adopt a more strategic and consistent approach to IP management; and
• some public and private sector organisations experience difficulties with the process, cost and enforcement of formal IP protection.

Consensus Issue 2—Public sector engagement with industry is a key element to innovation, facilitating knowledge transfer through linkages and collaborations. Evidence suggests that public sector engagement with the private sector could be enhanced by:

• addressing structural and cultural incompatibilities between public and private sector organisations which act as impediments to establishing linkages; and
• the provision of designated or third stream funding to public sector organisations to support outreach activities.

Consensus Issue 3—Linkages and collaboration between businesses is important in supporting and facilitating innovation. Evidence suggests that proximity matters, and that business collaborations can be encouraged through appropriate support for the development of industry clusters.

Intellectual Property Management

The importance of appropriate and effective management of IP has been emphasised in evidence. Protecting and increasing the value of IP is complex and can be achieved either through informal non-legislative means (i.e. trade secrets or confidentiality agreements) or formal legislative means (i.e. patents, trade marks, designs and plant breeders’ rights).

The choice between formal or informal means of IP protection is influenced by a range of factors including sector specific factors, time to market, the availability of resources and the nature of the IP itself.¹

As noted by Mr Scott-Kemmis with regard to intellectual property and patents:

In most cases the capacity to capture the returns to innovation has more to do with a firm’s overall competitive capacity and perhaps their speed to market than with their control of IP. In some sectors, such as pharmaceuticals and instruments, patenting plays a key role in appropriation but this is not the general rule.²

Informal Intellectual Property Protection

A number of submissions highlighted a range of informal non-legislative strategies for protecting IP, including confidentiality agreements.⁴ AWS Clinical Waste advised that patents were not an effective form of protection for its technology due to the resources, time and money required and also because the ‘technology has developed too fast for the patent process to be relevant’.⁵ Instead, AWS found that:

Confidentiality is vitally important to AWS and protection of our intellectual property has been through copyright of documents, drawings, software, illustrations and other IP, more along the lines of corporations such as Microsoft and Coca Cola rather than through patents.⁶

While emphasising that IP is its greatest asset, Flavourtech explained its preference for an informal approach to IP protection. With regard to patents Flavourtech stated:

Their principal value seems to be as a deterrent. If it ever came to having to defend a patent in court the strategy will have, in a sense, already failed. The main function of patents is to reassure customers and to deter competitors. The size of our company relative to that of any adversary could be a significant disadvantage if wanting to pursue any patent infringements. The danger is that we could find ourselves spending all management time in court instead of running the business.⁷

Instead, Flavourtech explained that it employs confidentiality agreements with all customers, and advised that no substantive interaction occurs until a confidentiality agreement is in place.⁸

Evidence also noted that the strategies of continued research and development (R&D) were often commercially more relevant and successful than the legislative approach.⁹

Formal Intellectual Property Protection

Formal IP protection in Australia (including patents, trade marks, designs and plant breeders’ rights) is granted through IP Australia, an Australian Government agency in the Industry, Resources and Tourism portfolio. Describing the incentives to innovation provided by formal IP protection, the Department of Industry, Tourism and Resources (DITR) explained:

The main purpose of a patent system is to stimulate industrial invention and innovation by granting limited monopoly rights to inventors in return for full disclosure to the public of the invention, thereby increasing public availability of information on new technology.¹⁰

Applications for patents must be filed with the Patent Office, which forms part of IP Australia. Applications must fully describe the invention and state the scope of the desired patent rights. To be patentable, the claims must satisfy threshold tests relating to novelty and usefulness as prescribed under the Patents Act 1990.¹¹

Processing an application involves a number of stages including:

• receiving the application;
• processing formalities;
• examination;
• acceptance;
• opposition hearing if requested;
• patent grant; and
• fees for renewal. ¹²

In Australia, a standard patent lasts for up to 20 years, with a possible five year extension for pharmaceuticals. Annual fees are payable from the fifth year and increase from the fifth anniversary to the twentieth anniversary.¹³

IP rights are granted by each country independently and have effect only in that country.¹⁴ However, Australia is a signatory to a number of international treaty agreements which can reduce the complexity of the international application process. Two such treaties/agreements are the Patent Cooperation Treaty (PCT) and the Trade Related Aspects of Intellectual Property Agreement (TRIPS).

PCT provides a means of commencing patent applications in all 126 signatory countries. IP Australia acts as the receiving office, the international search authority and international preliminary examining authority under the PCT.¹⁵

The multilateral TRIPS agreement requires:

… minimum standards for IP protection for countries to become members of the World Trade Organisation and the World Intellectual Property Organisation (WIPO).¹⁶

In addition, IP Australia cooperates with a number of international bodies to ensure that the Australian IP system is closely aligned to international IP systems, thereby streamlining processes.

Issues Relating to the Australian Intellectual Property System

Submissions highlighted a range of issues relating to the current IP system in Australia. These issues include:

• a perceived lack of strategic and consistent IP management in Publicly Funded Research Institutions (PFRIs); and
• specific problems with patent application and registration processes including:
• timeframes associated with patent application and registration;
• cost burden of patent application, registration and maintenance;
• concerns with Australia’s IP schemes and the underlying legislative/regulatory framework, including:
• the cost and effectiveness of IP protection and enforcement;
• the effect of the current IP legislative framework on competition; and
• the lack of an adequate IP skills base.

Intellectual Property Management in Publicly Funded Research Institutions

Australia’s approach to protecting IP originating from its PFRIs allows ownership of IP emerging from Government funded research to be retained by the institution in receipt of the research funds.¹⁷

The NHMRC also noted the 2001 National Principles of Intellectual Property Management for Publicly Funded Research , explaining that:

The main focus of the National Principles is to assist researchers, research managers and their research institutions, in ensuring that they have access to best practices for the identification, protection and management of IP, and therefore, to maximise the national benefits and returns from public investment in research.¹⁸

However, beyond this framework, the specifics of IP management within individual PFRIs are determined on the basis of internal institutional/organisational policies.¹⁹

While it is recognised that PFRIs need the flexibility to ‘develop their own IP policy to reflect the agency’s IP and management processes’²⁰, it has been argued that overall management of IP could be improved with greater consistency of IP management policies across PFRIs.²¹

Specifically, it has been suggested that improvements in PFRI IP management can be achieved with regard to the following:

• assessment and maintenance of existing IP;
• the strategic screening and identification of IP commercial opportunities; and
• the clarity of IP ownership, especially when commercialisation of IP follows on from collaborative undertakings.²²

Evidence has suggested that PFRIs need to adopt a more strategic and analytical approach with identification of IP commercial opportunities. As one company specialising in the commercialisation of IP assets from research institutes observed:

After reviewing the patent portfolios of major research organisation[s] we found many patents that have little commercial potential continue to be advanced through the costly patenting process. Often patents are maintained for the wrong reasons, such as maintaining inventor vanity, boosting commercialisation statistics or purely through lack of commercial assessment.²³

Evidence has highlighted the dilemma facing researchers in PFRIs as a result of tension between the desire to publish research results in academic literature and the risk associated with premature disclosure of new IP that might compromise its commercial value.²⁴ The Department of Education, Science and Training (DEST) concluded that:

The critical issue, however, is that researchers, their institutions and their commercial partners need to take a strategic approach to patenting and licensing, to ensure that they do not close off the opportunity to patent through premature publication, nor impede the innovation process by creating excessive secrecy around an idea, discovery or invention.²⁵

The Australian and New Zealand Association for the Advancement of Science (ANZAAS), noted that promotion pathways in universities remain heavily influenced by publications, but acknowledged that commercial outcomes were increasingly recognised. ANZAAS suggested that incentives for academics to pursue IP commercialisation could be enhanced by a more consistent assessment regime for ‘non-published achievement’.²⁶

Recent amendments to Australia’s IP system have included the provision of a 12-month grace period to protect a patent application against invalidation by self-publication or prior public use of the invention.²⁷

With regard to ownership of IP a number of submissions stated that PFRIs need to give early consideration to appropriate co-ownership provisions. Some submissions emphasised the importance of rewarding individual researchers or research teams.²⁸ It was suggested that full or partial transfer of IP rights from the research institution to individual researchers or research teams might be a means to promote innovation.²⁹

Evidence also indicated that when IP has been developed in collaboration with private industry, IP co-ownership agreements need to be established at the outset.³⁰ Submissions from a number of PFRIs and research funding agencies indicated that they have already adopted this approach, emphasising the need to negotiate IP ownership rights on a case by case basis in advance of embarking on a collaborative project.³¹

To ensure that individual researchers and private industry partners’ interests are addressed, some submissions called for consistent IP guidelines for all PFRIs.³²

Evidence has suggested that an effective system of identifying IP assets held within PFRIs might enhance opportunities for the development of IP with commercial potential.³³

In this regard the Queensland Government noted that:

A whole-of-government IP register is currently in development to record significant IP assets within agencies. Industry will be able to access this register to assess opportunities and value-add to Queensland Government-developed IP.³⁴

Submissions from two companies suggested that the opportunities for commercialisation of IP generated from PFRIs could be enhanced if access to IP emerging from PFRAs was made more readily available to domestically based private enterprise.³⁵

Committee Comment

On the basis of evidence, the Committee considers that there is scope for PFRIs to adopt a more strategic approach to IP management based upon clear and consistent IP management guidelines.

As noted earlier, guidance on IP management best practice for PFRIs is provided by the National Principles of Intellectual Property Management for Publicly Funded Research. Specific arrangements for managing IP within individual PFRIs are determined by internal institutional policies.

The Committee recognises that IP management is complex. Difficulties can arise in determining the appropriate timing and means of IP disclosure, and also in determining equitable IP ownership arrangements and IP management and protection.

With regard to universities, the Committee notes that the issue of IP management was considered in the 2004 BCA and Australian Vice-Chancellors’ Committee (AVCC) commissioned report, Building Effective Systems of the Commercialisation of University Research. This advocates the need for a clear policy or framework on the ownership and management of IP policies.³⁶

While generally supportive of the calls for more consistent IP guidelines for PFRIs, the Committee recognises that flexibility across PFRIs is also important. Therefore, the Committee maintains that PFRIs must take the initiative in developing IP guidelines suited to their endeavours.

While appreciating the critical importance of IP protection, the Committee does not consider that Government intervention to establish guidelines is an appropriate response. Instead, the Committee strongly urges PFRIs to work together to develop internal policies and appropriate guidelines.

Patent Application Processes

A number of submissions advocated the use of formal IP protection through the patent process, identifying this as an important factor in successful commercialisation of technological innovation.³⁷

In addition to confirming the uniqueness of a new product, process or service and indicating to the market that an enterprise has a monopoly position, Memtec listed some of the benefits of patenting for businesses. These included:

• [providing a] basis for capital raising and other financial dealings;
• licensing (especially cross-licensing) to other companies or overseas associates;
• various commercial agreements including the establishment of joint ventures;
• employee incentives and rewards;
• publicity and marketing;
• product promotion; and
• applications for government grants and other funding. ³⁸

Some submissions, however, were critical of the patent application process administered by IP Australia, raising concerns with regard to the timeframes and costs associated with patent application, registration and maintenance.³⁹

Acknowledging the significant timeframes and costs sometimes associated with the IP application and registration process, DITR noted:

Processing an application for an IPR [intellectual property right] involves a significant number of stages over a significant period of time. Each of these processing stages involves a number of sub-stages many of which attract separate fees. The process until grant of a standard patent can take up to 5 years.⁴⁰

With regard to anticipated timeframes, IP Australia provides information on timeframes in its Customer Service Charter and provides regularly updated data on current response times.⁴¹

Other submissions have argued that the costs of registering and maintaining patents are too high, especially for PFRIs and organisations attempting to build an IP portfolio.⁴²

For example, Proteome Systems highlighted:

To establish value and be able to use [it] to springboard into profitable businesses, there needs to be a means for affordably building strong patent portfolios. Currently this does not exist in Australia .⁴³

The schedule of fees for lodging and maintaining a standard patent is shown in Table 5.1.

Table 5.1 Schedule of Standard Patent Fees

* IPER—International Preliminary Examination Report

Source IP Australia, accessed 3 May 2006 , <ipaustralia.gov.au>.

Based on these application and maintenance fees, IP Australia indicated that:

The estimated cost of an Australian standard patent including attorney fees is about $5 000 to $8 000. Maintenance fees over a 20 year term would be a further $8 000.⁴⁴

Several submissions suggested that PFRIs in particular lack the resources to pursue and maintain appropriate patent protection, especially given the high risk nature of the IP and potentially lengthy timeframes associated with commercialisation process and eventual returns on investment.⁴⁵

To alleviate this cost burden, Biomedical Consulting Services (BCS) suggested that Government assistance with patenting costs might be useful, stating:

Such programs would be extremely useful if implemented on a competitive basis here in Australia , where proposals could be submitted to an expert review panel who would assess the commercial potential of the invention and recommend funding of patenting costs in the nominated countries.⁴⁶

An alternative approach was advocated by ATP Innovations, which suggested that the Australian Government should consider:

... establishing an IP maintenance line of credit. This would allow universities to call on this line of credit to pay for IP maintenance and protection costs until such time as the IP is assigned to commercial partners. At this time once the commercial transaction has been completed the line of credit loans would be paid back.⁴⁷

With regard to the costs associated with the innovation process, DITR stated in its submission:

As in many other countries, Australia encourages easier entry into the IP system, particularly by SMEs, by minimising the official fees charged early on in the process when the commercial value of the innovation is uncertain and so funding may be difficult. Higher official fees are then charged later in the IPR's life if the innovation is sufficiently successful commercially. The patent maintenance fee structure set out in the Patents legislation is designed to encourage patent holders in all technologies to relinquish patents for which a commercial advantage is no longer gained.⁴⁸

In addition, DITR further noted that:

The patent attorney charges make up the major component of the costs associated with obtaining and maintaining a patent in Australia.⁴⁹

Innovation Patent

DITR also noted that the Australian Government has implemented a number of cost-reducing initiatives, including the introduction of the innovation patent particularly to assist SMEs to access the patent process.⁵⁰

The innovation patent is a second tier system, directed to lower level and incremental inventions which may not meet the higher inventive threshold requirements of the standard patent system. In addition, an innovation patent can be obtained more quickly and is less costly than a standard patent.⁵¹

The schedule of fees for lodging and maintaining an innovation patent is shown in Table 5.2.

Dr Ian Heath, Director General of IP Australia, informed the Committee of the progress of innovation patents:

We have done some small reviews of the innovation patent. It has not been around for very long. It was introduced in 2001. Our early assessment is that it has been relatively successful, given its purpose—that is, the users of it have largely been small enterprises and it has largely been used for incremental improvements.⁵²

Table 5.2 Schedule of Innovation Patent Fees

Source IP Australia, accessed 3 May 2006 , <ipaustralia.gov.au >.

IP Australia informed the Committee that although the innovation patent has been successful in assisting the target market (i.e. SMEs), the uptake of the innovation patent to date has not been encouraging. At this early stage, it has been difficult for IP Australia to identify the reason for the modest uptake of the innovation patent.⁵³

Committee Comment

The Committee notes that a number of submissions highlighted difficulties with regard to the timeframes and costs associated with obtaining IP protection through formal mechanisms.⁵⁴ The Committee also recognises recent positive steps taken by the Australian Government to assist in reducing the cost of IP protection, including minimising fees in the early stage of the process and the introduction of the innovation patent.

The relatively small volume of evidence which focused on innovation patents⁵⁵ suggests that perhaps the use of the innovation patent has not been considered by many businesses or PFRIs as a means of protecting IP.

The Committee recognises that it is incumbent on businesses and PFRIs (specifically TTOs or similar) to identify which IP needs to be protected and the most appropriate IP protection strategies. The Committee strongly urges universities and industry to consider the use of innovation patents to reduce the costs of IP protection.

The Committee recommends that IP Australia review the use of the innovation patent at the end of 2006 to determine the level of uptake, its effectiveness in reducing costs for SMEs and possible strategies to improve and/or promote the system.

Intellectual Property—Protection and Enforcement

A number of submissions highlighted difficulties relating to existing IP schemes and IP protection and enforcement. Specifically two issues have emerged:

• the high costs of protecting and enforcing IP against infringements, particularly in some overseas countries; and
• the potentially anti-competitive nature of Australia’s current IP legislative and regulatory framework.

The validity of a patent can be challenged in court anytime after it has been granted. In addition, an opposition to grant procedure can occur in the period between IP Australia accepting the application as appropriate, and when a patent is sealed or granted.⁵⁶

The opposition to grant procedure entails the Commissioner of Patents re-examining the patent on the grounds that the invention is not new or obvious. If either party disagrees with the decision, they can file an appeal with the Federal Court of the Administrative Appeals Tribunal depending on the nature of the decision.⁵⁷

A number of submissions noted the high costs involved when a third party opposes the granting of a patent. Costs result from lost commercial opportunities and revenue due to legal costs and uncertainty regarding validity and ownership.⁵⁸ For example, CHAMP Ventures noted:

IP and patents are important as a baffler to competitors—they are often a necessity unless companies have the largest marketing budgets and distribution channels, but they are not the be all and end all. A legal fight with a multi-national corporate would sink most small, entrepreneurial companies.⁵⁹

One submission claimed that under certain circumstances larger organisations with significant resources and established product lines will legally challenge the validity of a patent specifically with the intention of exhausting the more limited resources of smaller competitors, thereby preventing others from competing with an existing product line or lines.⁶⁰

Barokes Wines expressed its concern regarding the potential for ‘delaying tactics’ to be employed in opposition proceedings lodged through IP Australia’s patent office, stating:

The procedures set down in the legislation enable a third party to challenge or oppose the grant of the patent at any time during its eight year term. This means that a third party could oppose a patent and drag out the proceedings, making the proceedings more expensive and the ownership of the patent less valuable. If the Patent Office or the patentee tried to stop this delaying strategy, the third party could simply file a new challenge or opposition at the Patent Office. This would recommence the proceedings.⁶¹

To address this issue, Barokes Wines suggested:

… that there be a window of six months from the certification of the innovation patent for a party to oppose or challenge the patent at the Patent Office.⁶²

Other submissions identified another way in which IP can inhibit innovation. This tactic involves obtaining control over a new patent with no intention of developing it further, but specifically to prevent competition with existing and established product lines. ⁶³

When questioned by the Committee regarding the validity of these claims, IP Australia explained that it was aware that IP positions can be used defensively or offensively stating:

... companies work very hard on developing what they would term a patent position, and they use that both offensively and defensively, as I would describe it—offensively to push their own particular commercial venture and defensively to tie up space where they think competitors might move somewhere near them and they will take up patents to do it. The deeper your pockets, the more you can do that. I am describing it neither as a good thing nor as a bad thing, but I think it is true that if you have a lot of money you can do more things in society in this world than if you have little money. There is certainly a behaviour there.⁶⁴

Evidence also highlighted the significant costs and challenges associated with enforcing IP where there have been infringements, particularly overseas.⁶⁵ One company stated: ‘Lord help you if you actually have to defend any of these things. It is simply like throwing money into a shredder’.⁶⁶

In particular, problems with IP protection for Australian innovation in China were emphasised. Some submissions suggested that there is a need for Chinese authorities to more rigorously enforce IP legislation.⁶⁷

GRP Technology suggested that Austrade needs ‘to put on retainer the best Chinese legal firm who understands how to get results in the IP area’.⁶⁸

In its submission, GRP Technology also listed a range of alternative strategies to protect Australian IP overseas. These included:

• confidentiality agreements;
• licensing manufacturers to sell rebranded product in countries that are not marketed to;
• manufacturing parts of the product in different countries (e.g. producing the labour intensive part of a product in countries where labour is relatively inexpensive); and
• using complex and costly tooling to limit counterfeiting. ⁶⁹

Another issue that was raised with regard to Australia’s IP framework relates to the importance of achieving a balance between the anti-competitive nature of IP legislation and the assumed benefits derived through the promotion of economic benefits. Drs Charles Lawson and Catherine Pickering suggested that Australia’s IP schemes have not been subjected to ‘a rigorous assessment according to the requirements of the Competition Principles Agreement’. They further explained:

This requires those seeking to justify the restriction remain in place or be imposed [to] demonstrate that the benefits of restricting competition to the community as a whole outweigh the costs, and that the objectives of the statutory intellectual property privileges can only be achieved by restricting competition. ⁷⁰

Committee Comment

The Committee notes concerns expressed regarding the costs and other difficulties associated with defending IP and enforcing IP rights against infringement. Specifically, the Committee is concerned with reports suggesting that larger organisations can misuse the patent process. This has the effect of limiting the ability of smaller businesses to compete in the market and potentially impeding innovation.

Enforcement of IP is a complex issue set in a framework which includes IP legislation itself, the legal system and its processes, court procedures and international obligations such as TRIPS. While IP Australia indicated that addressing these issues is beyond the scope of its activities as the regulatory authority,⁷² the Committee believes that some action is required.

With regard to IP protection and the enforcement of IP rights in Australia , the Committee notes the consideration given to these issues by the Advisory Council on Intellectual Property (ACIP) in 1999.⁷³ This led ACIP to make a series of recommendations regarding the IP enforcement system in Australia which resulted in some new awareness raising initiatives and amendments to the Patents Act 1990.⁷⁴

Despite these changes, the Committee notes that concerns regarding the defence of IP and the enforcement of IP rights have persisted, particularly with regard to the potential abuse and misuse of the IP system by organisations with more resources. Therefore the Committee recommends that as a priority ACIP again review Australia ’s IP system as it relates to the protection and enforcement of IP in Australia . This review should determine whether additional amendments or actions can be implemented that will reduce the capacity for abuse and misuse of the IP system.

The Committee also notes the concern expressed in submissions that IP protection legislation is not enforced in many countries, notably China.⁷⁵ While IP legislation in China is compatible with that of other nations, enforcement is not rigorous. The Committee recognises that this issue needs to be addressed by the Chinese Government both at a national and local level.

The Committee recommends that the Australian Government, in its trade negotiations with China, pursue the issue of IP enforcement.

In addition, the Committee urges Australian businesses to use non-legislative strategies such as those suggested by GRP Technology⁷⁶ to overcome poor IP legislation enforcement in overseas jurisdictions.

With regard to consideration of the anti-competitive nature of Australia’s IP system, the Committee notes suggestions that IP legislation needs to be reviewed again according to the requirements of the Competition Principles Agreement.⁷⁷ This issue was also raised in a recent Productivity Commission report.⁷⁸ In response to this issue the Productivity Commission advocated:

In the Commission’s view, it is important that intellectual property laws continue to be scrutinised to ensure that they are not unduly restrictive. Retention of a legislation review mechanism, including provision for periodic re-review ... would give effect to this requirement.⁷⁹

The legislative review mechanism referred to by the Productivity Commission is a commitment given by the Australian Government and all state/territory governments under the National Competition Policy (NCP)⁸⁰ to review and change legislation that restricts competition.

Under the legislative review mechanism:

Governments agreed that legislation should not restrict competition unless it could be shown that:

• the benefits of the restriction to the community as a whole outweigh the costs; and
• the objectives of the legislation can be achieved only by restricting competition.⁸¹

The Committee supports the Productivity Commission findings and considers that the IP system and its justification in relation to the Competition Principles Agreement should be specifically considered under the legislative review mechanism.

Intellectual Property Management Skill Base

Numerous submissions noted a general lack of knowledge and understanding of the IP legislation, processes and systems. For example, the Council for Humanities, Arts and Social Sciences (CHASS) noted these views regarding universities:

Many focus group participants saw intellectual property (IP) as a minefield. Ownership, protection and student IP were reported as causing many commercial ventures to falter. Respondents said they did not know the best way to protect their ideas, whether by taking a patent, or being first to market, or applying it for public good.⁸²

This lack of knowledge is most evident during the patent application process where specific skills are required to prepare patent applications. To address this issue, DITR noted that many applicants choose to use the services of a patent attorney to pursue application.⁸³

In addition, Memtec advocated the appointment of a:

… qualified and knowledgeable person within the company whose sole responsibility is to manage the IP assets of the company, in particular, to interface with the company’s patent attorney and be able to provide precise instructions to the firm as required.⁸⁵

The Queensland Government outlined an initiative to increase general awareness about IP, particularly during the early stages. It is currently:

… developing an online IP training program that will be available to all Qld Govt employees and will include relevant case studies to highlight IP issues.⁸⁶

Some submissions also suggested that advice on IP management be provided by the Australian Government. BCS suggested:

It would be significantly more cost effective for the various PFRIs (and the government) to have access to a centralised resource, funded by the government, staffed with experience lawyers and people with the necessary legal/technology transfer skills to provide assistance in the preparation and review of such documents, at no cost to the PFRIs. The savings would be substantial.⁸⁷

A number of strategies have recently been implemented by IP Australia to improve awareness and skills. These include:

• establishing an internet IP portal to provide information and access to all areas of IP and coordinate IP inquiries falling under different portfolio responsibilities;
• boosting tertiary and research sector awareness programs, including seminars, a supporting web-site 'IP Professor' which provides a lecture data base, lecture materials and case studies;
• incorporating IP into education curricula through 'InnovatED', a program which includes a teachers web-site with lesson plans, a students web-site which allows users to 'meet' real people working with IP, an educational CD-ROM game;
• establishing an IP research centre at Melbourne University to provide independent multi-disciplinary input into IP policy formulation on matters such as IP management, enforcement, and valuation and protection costs; and
• introducing an IP Toolbox, a practical self-help workbook format manual (with accompanying CD ROM software) designed to provide business advisers and SMEs with a working understanding of IP issues and business related concepts. ⁸⁸

Many of the issues raised in the inquiry are being addressed by the awareness and skills initiatives being offered by IP Australia.

Knowledge Transfer—Linkages and Collaborations

A large number of submissions have recognised that knowledge transfer is a critical component of innovation, and that developing linkages and collaborations⁸⁹ between organisations and industry sectors is therefore crucial.⁹⁰

Describing the importance of linkages to innovation, the Australian Business Foundation (ABF) noted:

… world economic growth is being increasingly dominated by knowledge-intensive goods and services and a key element for competing in knowledge-based economies is the ‘interconnectedness’ or linkages between individual firms, research, education and financial institutions and government that serve to diffuse and capitalise on this distinctive knowledge.⁹¹

Several submissions outlined the benefits of establishing research and market linkages. These include:

• facilitating critical mass of expertise infrastructure and resources;
• transfer of knowledge between disciplines;
• enabling a variety of pathways to market;
• sharing objectives, costs and risks; and
• speed to capitalise on emerging opportunities. ⁹²

Linkages and collaborations range from informal interactions and partnerships between individuals, ‘often developed through consultancy or contract work’⁹³, to more formal strategic collaborations between organisations. These may be formed between private industry and research institutions, including PFRIs or between private enterprises.

Publicly Funded Research Agencies—Linkages and Collaborations

A majority of the evidence relating to publicly funded research agencies (PFRA) outreach activities noted that a key issue for collaboration is ensuring that small to medium enterprises (SMEs) can access PFRAs’ research and IP.

All of the PFRAs who provided evidence expressed a desire to collaborate with SMEs and outlined products and services that they have put in place to facilitate linkages.⁹⁴

Emphasising the importance of PFRA linkages with SMEs, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) noted:

SMEs are the growth engine of the Australian economy. They make a disproportionately large contribution to economic growth, exports and to industrial development in Australia. They have accounted for 70 per cent of jobs growth over the past decade and contribute approximately 30 per cent to Australia’s GDP. Not only are SMEs intrinsically important to Australia, but they are also a natural vehicle to translate R&D into market impact. SMEs are an important distribution channel, or pathway for Australian science to have impact.⁹⁵

CSIRO also suggested that technology transfer and innovation could be enhanced if PFRAs engaged with SMEs more deeply and strategically on larger scale projects.⁹⁶ CSIRO advocated that such projects should be:

… driven by the needs of SMEs—market pull as opposed to science push … PFRAs have valuable intellectual property and know-how that could help certain tech-based export-oriented SMEs become more successful. PFRAs and universities have a desire to work deeply with SMEs in this fashion … Many SMEs have expressed a desire for this level of interaction as well … Furthermore, CSIRO carries out longer term, higher risk industrial research, which Australian SMEs cannot perform because of their small size, offering a very complementary partner to the SMEs.⁹⁷

A number of businesses (including SMEs and larger companies) indicated that they had benefited from collaborations with PFRAs, with some indicating that IP for innovative technologies had originated in PFRAs.⁹⁸ Flavourtech provided a positive view of its collaborations with PFRAs and universities stating:

Collaboration with institutions such as CSIRO, University of Sydney and Charles Sturt University has been an important part of Flavourtech’s R&D effort. This aspect of our R&D culture has many benefits and is to be maintained.⁹⁹

In contrast, a small number of submissions expressed concerns regarding the shift into commercialisation as part of PFRAs’ activities.¹⁰⁰ The Environmental Research and Information Consortium (ERIC) argued that PFRAs are competing with private industry in providing R&D and commercial services, to the detriment of private industry.¹⁰¹

Barriers to Collaboration—Publicly Funded Research Agencies

From evidence provided to the inquiry the main barriers to PFRAs engaging with private industry are due to incompatibilities with organisational objectives, structures and operating environments.¹⁰²

With regard to incompatibilities in organisational objectives, Professor Cole argued that there is a mismatch between research in Australia and market relevance, stating:

Market relevance of the knowledge being produced in Australia is abysmally low—enhanced by other weaknesses in research focus relative to market opportunity.¹⁰³

Professor Cole also noted difficulties that SMEs have experienced when engaging with PFRAs, due to a lack of financial flexibility in PFRAs:

Of importance is the flexibility with which the commercialising companies can interact with the research sector and, especially, its publicly funded infrastructure. In the pre-competitive phase, the technical and commercial risks are still very high for companies. Encouraging effective innovation, especially within the SME-dominated industry of Australia, cannot take place if access is at full-cost recovery compared with the more generous academic access regimes that have existed in, for example, MNRF [Major National Research Facilities Program] and university-based facilities.¹⁰⁴

In its submission CSIRO identified three structural impediments to larger scale PFRA/SME collaborations. These were summarised in the following way:

Firstly, successful SMEs cannot afford to invest (or choose not to invest) in larger scale continuing R&D … Partnering with a PFRA or university may help enhance the SME’s innovation and commercialisation prospects, but the opportunity costs are often too high. Such large-scale collaborative projects are beyond the financial capacity of SMEs to fund out of their cash reserves, and are not the types of investment that private equity or venture capital firms typically make. Venture capital funds and the private sector have a risk/reward profile that prevents them from investing in collaborations between SMEs and PFRAs or universities.

Secondly, PFRAs and universities have a desire to work deeply with SMEs, but do not have the financial flexibility to subsidise the work … PFRAs and universities have high fixed costs and a business model that requires a certain level of external earnings in order to maintain operations … Tight financial budgets make it nearly impossible for PFRAs to forego contract research revenue and instead share in the risk/reward with SMEs.

Thirdly, existing mechanisms of funding collaboration do not go far enough … Because Commercial Ready requires an SME to fund 50 percent of a funded project, however, Commercial ready does not provide strong enough incentives for SMEs to collaborate with PFRAs/universities on new large scale collaborations that will meaningfully impact the growth of the SME.¹⁰⁵

The proposal advocates the introduction of a new Government funded program called Australian Growth Partnerships (AGP). CSIRO explained that the scheme would provide:

… funds directly to selected SMEs to engage in large scale collaborations with Australia’s leading providers of R&D services. In order for th[ese] type of co-development projects to occur, a fund would be created that selects and funds high potential proposals on a competitive basis.¹⁰⁷

CSIRO stressed that the AGP model is not a grant explaining that:

Financial models suggest that AGP could be a self-sufficient program in five to seven years. Similar to the HECS model [Higher Education Contribution Scheme], star SMEs that benefit from participating in the program would repay the funds back to the program. SMEs that do not benefit from the program are not required to contribute back to the program. … The likelihood of success and the potential recuperation of funds would be one of the factors used in selecting proposals for funding.

In addition to AGP’s recuperation through licence fees and royalties, governments would also achieve increased payroll taxes and income taxes from the successful SMEs.¹⁰⁸

Publicly Funded Research Agency Outreach Activities

Evidence to the inquiry from PFRAs have indicated a range of different approaches to promote linkages with private enterprise, including SMEs. While not an exhaustive list, approaches that have been adopted include:

• the implementation of programs and initiatives specifically designed to support PFRA and business partnerships (e.g. CSIRO’s National Flagships Initiative¹⁰⁹andthe Defence Science and Technology Organisation’s (DSTO’s) Industry Alliances¹¹⁰);
• the establishment of commercialisation offices and TTOs to promote IP commercialisation opportunities and facilitate engagement with businesses (e.g. DSTO’s Technology Transfer Advisory Group¹¹¹ and Access ANSTO¹¹²); and
• the simplification of contract systems to make it easier for SMEs to engage with PFRAs by reducing the complexity of routine, low risk contracts and streamlining approval processes (e.g. CSIRO’s FastTrack¹¹³).

Other than descriptive information provided by the PFRAs on their own outreach initiatives, the inquiry received little evidence from third parties regarding the operation and effectiveness of specific outreach initiatives.¹¹⁴

Intermediaries

The role of intermediaries (i.e. organisations or initiatives that act as an independent third party to broker partnerships and collaborations) are viewed as very effective means of connecting researchers with investors and industry partners. ¹¹⁵

In its submission, the Australian Institute for Commercialisation (AIC) outlined a number of products and services which it believes fill ‘gaps in the spectra of commercialisation support’.¹¹⁶ These included the AIC’s TechFast program which, with support from DITR, is currently undergoing a national pilot and gives assistance to companies by providing:

• linkages to appropriate expertise from research organisations;
• services and support downstream to commercialise these opportunities; and
• identification of potentially useful IP residing within PFRIs. ¹¹⁷

In its submission, the AIC provided examples of two SMEs (i.e. Vortex Insect Control Holdings and Merino Pty Ltd) that had benefited from its TechFast program.

Describing the role of KCA, Robert Taylor and Associates explained:

On the supply side members of Knowledge Commercialisation Australasia (KCA) are central to the achievement of effective knowledge commercialisation outcomes from the university and public research sector in Australia.

Members operate as deal makers and facilitators between the knowledge supply side and multiple groups of potential customers and service providers locally, nationally and internationally.¹¹⁸

InnovationXChange is ‘a not-for-profit, commercially neutral organisation that has been created to help potential business partners come together for mutual benefit’.¹¹⁹ DITR described InnovationXchange as providing:

... a secure, managed environment for the connection of insights and opportunities between firms, universities and governments...¹²⁰

Both CSIRO and ATSE have advocated that greater industry and government support to fund increased activities of intermediaries would be beneficial.¹²¹

Committee Comment

The Committee considers that the outreach activities undertaken by the CSIRO, DSTO and the Australian Nuclear Science and Technology Organisation (ANSTO) are positive and productive initiatives to facilitate innovation and commercial outcomes. While the Committee recognises that some of these outreach initiatives have only recently been established, it strongly urges PFRAs to undertake regular reviews and when necessary to refine theses activities to ensure that outcomes are maximised.

The Committee notes little evidence was received from SMEs and private industry on PFRA outreach activities. Anecdotal evidence from inspections and informal discussions suggests there may be a reluctance to speak publicly due to commercial in confidence issues or, for fear of jeopardising future relationships and business opportunities in a specialised market area.

Some evidence to the inquiry suggested that PFRAs should not pursue commercialisation outcomes as this potentially represents unfair competition to private industry.¹²² The Committee does not endorse this view. While commercialisation may not be the core function of PFRAs, there remains a role for research agencies to engage in commercialisation where appropriate.

In addition, the Committee considers that CSIRO’s implementation of the contract simplification system, FastTrack, may provide a practical means of strengthening opportunities for SMEs to engage with PFRAs by reducing the administrative burden and prohibitive financial barriers. Therefore the Committee strongly urges other PFRAs to adopt similar practices.

Intermediaries, such as the TechFast program and the InnovationXchange, also appear promising and the Committee looks forward to the results of the formal reviews at the completion of the pilot programs.

The proposal has been submitted to DITR for consideration and the Committee recommends it receives urgent attention given the importance of establishing dynamic linkages and partnerships as a pathway to commercialisation.

Universities—Linkages and Collaborations

Some of the issues identified in submissions relating to university linkages and collaborations are similar to those raised in relation to PFRAs. However, due to an increased emphasis on university outreach activities in recent times, there are also a number of specific issues which warrant further attention.

The Changing Role of Australian Universities

Universities are traditionally centres of both teaching and research. More recently, universities are playing an increasingly active ‘third stream’ role—transferring knowledge, skills and innovation for public and private benefit (also called ‘third arm’ activities).

The two main drivers for universities taking on this third role have been identified as:

• a shift in government policy placing emphasis on university income derived from private funding; and
• an increase in market opportunities as a result of the growth of the knowledge-based economy.¹²³

The majority of universities have embraced the role of technology transfer, with many of Australia’s larger universities establishing TTOs or similar structures to facilitate the transfer of knowledge via linkages with private industry or other research institutions and to provide a focus for the commercialisation of IP.¹²⁴

However, some evidence to the inquiry has identified challenges faced by universities in this new environment. Concern was expressed by a number of submissions regarding the limited ability (even in the best case scenario) for universities to derive a substantial proportion of income from the commercialisation of IP.¹²⁵

As noted by ATP Innovations, a technology commercialisation centre jointly owned by four of Australia’s leading universities¹²⁶:

The reality is that for most universities (even those with large research outputs), commercialisation of institutional IP provides relatively modest financial returns to the institutions in the short term and this is mainly derived through licensing opportunities. It is worth noting that international comparisons … also indicate that most universities only derive modest returns on these activities and this is not isolated to Australia.¹²⁷

Similarly, the Group of Eight also stated in its submission:

The high-risk nature of investing in commercial activities means that there is often conflict between the expectations governments have about the commercialisation of university R&D and the prudential environment in which universities operate. This conflict would be removed if governments matched their enthusiasm for improved commercial outcomes with funding targeted for this purpose.¹²⁸

Barriers to Collaboration—Universities

As with PFRAs, some evidence to the inquiry identified incompatibilities with university organisational objectives, structures and operating environments as the main barrier to engaging effectively with private industry.

For example, the company Memtec stated:

… the main reason for problems [between universities and commercial enterprises], is the completely different expectations, culture, agendae … of each party to the relationship. For example, researchers at universities aim to publish results of research during and after the project. A commercial enterprise aims for strict confidentiality and exclusive access to the results of research to enable a competitive advantage to be gained.¹²⁹

Other evidence has highlighted differing timeframes for commercialisation, IP ownership issues, and rigid legal and financial systems in universities as impediments to collaboration with private enterprise.¹³⁰

In order to simplify university engagement with private enterprise, the University of Melbourne suggested that:

Government agencies such as DEST or [DITR] could co-sponsor with the AVCC a review of research contracts between industry and universities with a view to developing nationally agreed templates …¹³¹

In addition, a significant volume of evidence noted that while governments have expected universities to take on third stream activities, additional ‘third stream’ funding to support these activities has not been offered.¹³²

KCA expressed concern in its submission regarding the consequence of not providing additional funds for commercialisation activities, stating:

DEST provides universities with considerable support whether directly or through related agencies in both research and teaching supported funding. However, the lack of specific funding for commercialisation means that for many institutions they must make the decision whether to engage in commercialisation and to divert funding from the core mission of research and teaching.¹³³

KCA concluded that government funding to support university commercialisation activities in the range of 3–5 per cent of university research expenditure would:

... help lift knowledge transfer performance across all areas including industry contract research through to licensing arrangements through to the formation of university spin-off companies and various permutations of these.¹³⁴

Third Stream Funding

With regard to improving the linkages and collaborations between businesses and universities, several submissions referred to the outcomes of the 2003 Lambert Review of Business—University Collaboration ( UK).¹³⁵ Specifically, evidence to the inquiry emphasised the strong support given for third stream funding to promote knowledge transfer from universities to the private sector by the Lambert Review.¹³⁶

In the United Kingdom (UK) third stream funding has been offered to universities through the Higher Education Reach Out for Business and Community (HEROBC) scheme.¹³⁷ The HEROBC scheme was introduced in the UK in 1999. Under HEROBC, higher education institutions in the UK were invited to apply for funds which ‘enable universities and colleges of higher education to develop links with business and the wider community’.¹³⁸

There have been two rounds of HEROBC funding to date (1999 and 2000), which have resulted in a funding commitment of over £400 million.¹³⁹

In England¹⁴⁰, third stream funding provided through HEROBC has been complemented by the introduction of Higher Education Innovation Fund (HEIF) which has awarded a total of £171 million over 2004–05 and 2005–06 to support:

... knowledge transfer, entrepreneurship training, corporate spin-outs, seed venture funding and transferring knowledge into business and the community.¹⁴¹

A 2006 evaluation of the HEIF concluded that:

... third stream activity has been much improved within higher education institutions and their business and community partners as a result of the funding.¹⁴²

Committee Comment

The Committee recognises that challenges remain in fostering collaboration between universities and the private sector. The Committee is also aware of the significant attention committed to developing strategies to address these challenges and enhance engagement between universities and the private sector.

In 2004, the BCA/AVCC report Building Effective Systems of the Commercialisation of University Research identified the need to build ‘effective partnerships in research commercialisation between the universities, business and finance provider.’¹⁴³

Evidence received does suggest that universities are facing real challenges in developing partnerships for research commercialisation. However, there are some positive initiatives including the establishment and evolving role of TTOs in many universities (although smaller universities may face greater hurdles in providing this type of assistance).

One university suggested the development of nationally agreed templates for research contracts between industry and universities.¹⁴⁴ While supportive of this concept, the Committee disputes that there is a role for the Australian Government to co-sponsor a project such as this, and refers to the success of FastTrack which was developed by CSIRO in response to an identified need.

Therefore, the Committee urges the universities to take a collaborative approach among themselves to recognise the financial benefits of agreed national contract templates, and undertake to develop such templates through the coordinating body of the AVCC.

The Committee also notes a number of recent initiatives introduced by the Australian Government, including the establishment of the Business-Industry-Higher Education Collaboration Council (BIHECC) and the Collaboration and Structural Reform (CASR) Fund,to support greater collaboration between universities and other organisations and industry.

BIHECCwas formally established in July 2004¹⁴⁵ to advise the Minister for Education, Science and Training on ways to improve communication between business/industry and higher education sectors. The Australian Government has allocated $200 000 in funding for the Council over 2005 and 2006.¹⁴⁶

The key priorities of BIHECC include:

• coordinating the selection of business/industry/university collaboration projects for funding from the Collaboration and Structural Reform (CASR) Fund;
• development of strategies to encourage greater industry/business involvement in the higher education sector; and
• facilitation of involvement of small and medium enterprises in collaborative arrangements.¹⁴⁷

The CASR Fund of $36.6 million was established by the Australian Government in early 2005. It provides competitive funds to:

… foster collaboration between universities and other universities, business, industry, professional associations, community groups or other relevant organisations, and to encourage innovation within the higher education sector.¹⁴⁸

The first round of successful CASR Fund projects (ten in total) was announced by the Minister for Education, Science and Training in August 2005.¹⁴⁹ Expressions of interest for a second round of CASR Fund proposals closed on 29 May 2006.¹⁵⁰

The Committee is encouraged by the establishment of the BIHECC and welcomes the establishment of the CASR Fund. The Fund will provide a valuable means of encouraging university linkages, including improved linkages with industry and businesses.

With regard to the call from universities for third stream funding, the Committee is cognisant of the pressures placed on universities as a result of changing roles and the greater emphasis on knowledge transfer and commercialisation activities. While third stream funding models such as the UK’s HEROBC and HEIF schemes provide a framework for consideration, the Committee realises that any overseas funding model will need to be adapted and refined to reflect Australia’s specific needs and higher education structure.

The Committee considers that if Australian universities believe third stream funding is required, then a more comprehensive cost-benefit based business case needs to be developed. The business case should consider returns on investment and the potential advantages and disadvantages of various third stream funding models for Australia. Detailed consideration needs to be given to the implementation of third stream funding models, particularly the means for determining funding awards.

Therefore, the Committee recommends that the Australian Government direct the BIHECC (as the national body which has been established to foster greater collaboration between the business and higher education sectors), or other appropriate entity, to examine and develop the business case for third stream funding to universities.

University Linkage and Collaboration Programs

Much of the collaborative research conducted in Australian universities is supported by the CRC Program or the ARC Linkage Projects Scheme.

Cooperative Research Centres (CR C) Program

In recognition of the need to develop stronger linkages between research institutions and market, DEST established the CRC program in 1990. Total Government funding provided for the CRC program from 2001 to 2011 amounts to approximately $1.8 billion.¹⁵¹

The program places a strong emphasis on the importance of collaborative arrangements to:

… forge closer links between Australian industry and researchers … from universities, the public sector (including CSIRO) and industry. The close interaction between researchers and end users of research at all stages is a key feature of CRCs.¹⁵²

Fifty-nine CRCs are currently in operation in the following broad areas:

• manufacturing technology;
• information and communication technology;
• mining and energy;
• agriculture and rural based manufacturing;
• environment; and
• medical science and technology.¹⁵³

In 2003, an Australian Government commissioned review concluded that a more ‘investment-focused’ CRC program with greater emphasis on ‘new business development’ would better meet the program's objectives.¹⁵⁴ This resulted in a shift of emphasis away from CRCs catering for both commercial and public-good outcomes, to CRCs with a focus on commercial outcomes and economic growth in more recent funding rounds.¹⁵⁵

Much of the evidence received in relation to the CRC program was supportive of the initiative, indicating that the program has facilitated the development of improved linkages between the higher education sector and private enterprise.¹⁵⁶

In particular, some submissions highlighted the importance of the strong participation of end-users in the adoption process¹⁵⁷, with the CRC for Cast Metals Manufacturing noting that it is ‘one of the great strengths of CRCs’.¹⁵⁸

A number of submissions were supportive of the recent changes to the CRC program, expressing the view that the increased focus on commercial outcomes was appropriate and that the requirement for all new CRCs to be incorporated entities was operationally more functional (i.e. requiring a board with an independent chair) and would lead to improved commercial outcomes.¹⁵⁹

Some evidence expressed concern regarding the sustainability of CRC activities following cessation of Australian Government funding through the program. In this regard, the CRC guidelines recommend that individual CRCs develop a wind-up strategy in consultation with all participants and with the governing board’s approval.¹⁶⁰

The Chair of the CRC Committee, Dr Geoffrey Vaughan, explained the importance of CRC activity continuing beyond funding provided under the program, stating:

The sustained activity comes from the hope that, after a funding cycle or even two or three funding cycles, there will be continuity in the outcomes from that centre.¹⁶¹

Dr Mark Sceats noted that the development of a ‘graduation mechanism’ for successful CRCs had been debated within the CRC community since 1991, stating:

… no mechanism has ever emerged. The only mechanism to graduate is either voluntarily, or by the loss of a bid [for the next CRC funding round]. It is not a system that allows for consultation and finesse.¹⁶²

DSTC (a company that has operated incorporated ICT CRCs since 1992 and has over a 13 year period participated in four ICT-based CRCs) explained that following an unsuccessful bid for CRC funding under the ninth round of the Program, the company is in a funding ‘no man’s land’ stating:

We do not qualify for funding from the Australian Research Council (ARC) which targets research in higher education institutes and we do not qualify for funding under the Department of Industry’s Commercial Ready program as we are a non-tax paying entity. DSTC and other CRCs have generated a wealth of commercially exploitable IP and commercialisation models, but our research programs have nowhere to go when CRC funding ceases and it’s possible that the benefit associated with each CRC will be lost to the nation.¹⁶³

Australian Research Council (ARC) Linkage Projects

The ARC Linkage projects represent another Australian Government program that specifically targets knowledge transfer through supporting the formation of linkages and collaborations. The ARC advised that Linkage projects encourage:

… the formation of long-term alliances between university researchers and industry, government and community organisations (otherwise known as partner organisations). These alliances facilitate the transfer of skills and ideas as a basis for securing commercial and other benefits from research’.¹⁶⁴

To be considered for funding under this scheme applications from Australian universities must include at least one collaborating organisation which may be a private sector organisation, a private non-profit organisation or a government agency.¹⁶⁵

Linkage Project funding are awarded for one to five years, with grants typically ranging from $20 000 to $500 000 per annum.¹⁶⁶ In the 2004 funding rounds, 532 projects received a total of $119.9 million of funding from the ARC.¹⁶⁷

The ARC outlined the role that the scheme plays in encouraging research and business linkages by highlighting the private partner contributions (in cash or in-kind) to Linkage Projects grants in 2004:

Approximately 59 per cent of the total partner contributions … was provided by private companies or industry partners. This is important given the relatively low level (compared to the OECD average) of Business Expenditure on Research and Development as indicated in figures provided by the Australian Bureau of Statistics.¹⁶⁸

Although relatively few submissions commented on the ARC Linkage Projects, those that did were generally supportive of the program.¹⁶⁹

Committee Comment

The Committee considers that both the CRC program and the ARC’s Linkage Projects offer effective means for universities to build linkages with other organisations including private enterprise.

However, as CRCs are sector or project specific, there are research areas (both in universities and in industry) which are outside the scope of current CRC activities and which are therefore not able to access the linkage benefits of this program. The Committee recognises this, and notes that the selection of CRCs appropriately target areas of national priority.

While it is the role of Government to provide a framework of opportunities, it is also incumbent on universities (and on industry) to pursue greater collaboration where there are market opportunities. In this regard, the Committee notes that there are other mechanisms beyond CRCs which also facilitate collaborative ventures, in particular the ARC Linkages Projects and the newly established CASR Fund.

Some evidence to the inquiry raised the issue of a graduation mechanism for post CRC funding.¹⁷⁰ Given the requirement for the CRCs themselves to develop appropriate wind-up strategies well in advance of the end of the funding period,¹⁷¹ the Committee is not persuaded by the call for a more prescriptive or staged graduation mechanism.

Similarly the Committee notes evidence relating to the ‘no man’s land’ position of some CRC spin-off companies in relation to funding. However, the Committee is not persuaded by calls for a designated government program to support the activities of CRCs or their spin-off companies if they have failed to secure continued funding through the CRC program. The Committee considers that the business strategy of a spin-off company must take into account life beyond the CRC funding.

Business to Business Collaborations

Research undertaken by industry accounts for approximately fifty per cent of R&D in Australia.¹⁷² Therefore, there are many instances where technologies are developed and commercialised solely within the private sector, making effective linkages between businesses crucial.¹⁷³

A key finding from the ABS business innovation survey for 2003 was that 27 per cent of innovating businesses were involved in some form of active collaboration. While 25 per cent of innovating businesses reported collaborations with other businesses, less than seven per cent reported collaborations with universities, governments and research institutions.¹⁷⁴

The ABS innovation survey of 2003 also found that collaborative arrangements were most likely to be formed between businesses from within a 100 kilometre distance rather than with businesses from elsewhere in Australia or from overseas.¹⁷⁵

Business to business collaborations range in size from alliances between two or more businesses, to industry-wide strategic collaborations such as those fostered under Australian Government initiated Industry Action Agendas.

Industry Action Agendas (Action Agendas), announced by the Australian Government in 1997, were described by DITR as:

... long term industry strategies to assist industries to identify their strengths, weaknesses, and to map new opportunities to achieve sustainable development and export growth. They are a partnership between government and industry sectors that provide a comprehensive insight faced by particular sectors. Action Agendas can identify commercialisation issues at a sectoral level.¹⁷⁶

During the development phase of an Action Agenda, key industry leaders are assisted by policy makers in the relevant Government departments to develop a vision for the industry and a pathway to enable them to achieve that vision. Often industry leaders may identify impediments, such as skill shortages, regulatory hurdles or industry fragmentation. Recommendations to overcome these difficulties are jointly developed by industry and Government. Some Government assistance is provided in the following one to two years of implementation.

Most of the evidence on Action Agendas received by the Committee focused on specific recommendations arising from the Action Agendas, rather than commenting on the value of the support mechanism in general.

DITR claimed in its submission that Action Agendas have led to an increase in the industry’s innovation capacity and resulted in a substantial increase in investment in R&D and commercialisation by industry noting ‘over $600 million has been committed by Action Agenda industries in support of CRCs’.¹⁷⁷

In addition to the Action Agendas, in 2004 the Australian Government announced the Industry Cooperative Innovation Program (ICIP). ICIP, administered by DITR though AusIndustry, provides $25 million of merit-based funding to:

… support cooperative innovation projects by firms to develop and use new technologies, with priority being given to projects meeting strategic industry needs including those identified through an Action Agenda … ICIP will assist in building collaboration activity to strengthen the innovation capacity of an industry sector.¹⁷⁸

The program is to be funded until 2011. Specific projects are to be conducted by a consortium of three of more entities (that is, they cannot be made up only of industry representative associations), on behalf of an industry.¹⁷⁹ In its submission to the inquiry, DITR informed the Committee that funding for the program is to be provided in two streams:

Stream A will provide funds for small scale projects that explore sectoral innovation opportunities and paths to enhance sectoral innovation capacity; and Stream B will provide funds for major cooperative strategic sectoral innovation projects.¹⁸⁰

As the ICIP scheme has only recently been launched, with the successful applications for the first round being announced in December 2005, there was very little evidence to the inquiry regarding the scheme. However, in its submission, the Australian Electrical and Electronic Manufacturers’ Association (AEEMA) stated that:

The response of our industry grouping to the recently announced Industry Cooperative Innovation Program … has been very favourable. ¹⁸¹

In addition to linkages between businesses within Australia, a number of submissions also emphasised that export is an essential goal for most Australian businesses due to the limited size of the domestic market.¹⁸²

Accessing the international market frequently requires the establishment of commercial collaboration with overseas companies or large multinationals.¹⁸³ The Queensland Department of State Development and Innovation explained:

In many cases, established firms that are capable of providing expertise and experience of [international] markets, regulatory environments and distribution channels are not available in Australia, making international alliance more attractive.¹⁸⁴

Similarly, Austrade, the Australian Government’s principal trade and international business facilitation agency, explained that ‘a local partner is an invaluable source of information on local conditions, the local culture and the local business climate.’¹⁸⁵ Austrade also emphasised that many of these linkages were initially developed through personal contact either at international conferences, seminars and trade shows, or visits overseas to specifically seek out partners.

Clusters

As noted previously, a key finding of the ABS business innovation survey was that geographical proximity is an important determinant for businesses seeking to establish collaborations. The AIC stated in its submission:

Proximity matters. Localisation promotes fluidity of ideas, the very food for a knowledge ecosystem. For that reason, policies which bring together industry and science should, for the most part, be locally or regionally based.¹⁸⁶

A large volume of evidence was received generally supporting the establishment of research and business linkages, and industry specific networks, primarily (though not exclusively) through the promotion of geographical collocation in knowledge precincts or technology parks.¹⁸⁷

The concept of clusters, geographical concentrations of interconnected public and/or private sector groups, has attracted worldwide attention from academics and policymakers since the introduction of the concept in 1990 by Professor Michael Porter of Harvard University.

Professor Porter’s concept is based on the premise that clusters form a critical mass of resources which promotes both competition and cooperation.¹⁸⁸

Mr Alan Newton, Executive Manager of the Rural Research and Development Corporation Chairs Committee (RDC), explained:

The whole idea of a cluster is that you develop not only an industry but you link in with technological capabilities, you link in with education and get an established platform in your domestic market and then you go global.¹⁸⁹

Clusters Asia Pacific further explained that clusters are ‘ a connectivity mechanism at a number of levels.’ These include:

• engaging otherwise unconnected researchers;
• engaging researchers with the ‘right’ type of companies i.e. those capable of taking research to the market; and
• linking Australian companies with overseas companies with a significant place in global markets.¹⁹⁰

Evidence to the inquiry identified a number of Australian industry clusters for example, South Australia’s water industry alliance, the wine industry cluster and the scientific instrument manufacturing industry cluster.¹⁹¹ A number of submissions also highlighted the important role for state and local governments in promoting the development of regional and local clusters.¹⁹²

In demonstrating the potential benefits of clustering, several submissions provided information on successful international cluster models.¹⁹³ Clusters Asia Pacific argued that:

… if the Australian Government is serious about research collaboration and commercialisation, it should develop a detailed cluster policy.¹⁹⁴

Committee Comment

The Committee recognises that collaboration between businesses is a crucial factor in supporting and enhancing innovation. Given the collective importance of collaboration to facilitate technology interchanges, skill development and commercialisation outcomes, the Committee considers that there is a definite role for government in ensuring appropriate frameworks and opportunities are in place to maximise a dynamic interconnected system of linkages between businesses.

The Committee is encouraged by the high levels of participation from a range of industries in developing and implementing Action Agendas.¹⁹⁵ In addition, the Committee welcomes the establishment of AusIndustry’s ICIP to encourage the development of collaboration between businesses.

The Committee also considers that clusters and similar networks are potentially effective mechanisms of establishing linkages and collaborations. However, the Committee notes that a review of the literature on clusters and on the development of Australian clusters concluded:

… clusters cannot easily be artificially ‘manufactured’ … Effective clusters are ‘natural’ clusters, their naturalness only becomes apparent in hindsight, and there are many factors which contribute to their success or failure.

However actions by governments, such as strategic investment in research organisations with the necessary critical mass, can help to make clusters sustainable.¹⁹⁶

The Committee also notes evidence to the inquiry that emphasises the role of state/territory and local governments and industry to the development of clusters. Therefore, the Committee considers that state/territory and local governments and industry (via Action Agendas or industry associations) should take the lead in bringing together major focal points of R&D activity and innovation to drive cluster development.

The Committee notes that the New Zealand Government has recently introduced a program to encourage the development of clusters. The Cluster Development Program is administered by New Zealand’s trade and economic development agency, New Zealand Trade and Enterprise, which advises:

This funding is for facilitating clusters with significant growth potential. A total grant of up to $50 000 (plus GST) is available to contract a cluster facilitator to significantly progress the cluster’s development. The funding represents less than 50per cent of the cost of a facilitator.¹⁹⁷

The Committee has identified the need for a funded cluster development program to encourage the development of clusters in Australia. The Committee recommends that DITR and DEST examine the structure and implementation of New Zealand’s initiative to determine whether it can be adapted to suit the Australian context.

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