A big part of my job that I greatly enjoy is working collaboratively with companies and seeing them commercialise our research. The topic of state aid often comes up and requires some explanation. I think my colleague Peter Olwell has provided a great primer on the topic and why it’s unfortunately relevant but manageable. I reproduce the article here with the author’s permission.
Universities, Industry and State Aid
By Peter Olwell
We work with a variety of companies in university technology transfer offices. Many want to commercialise the university’s research or to partially or wholly pay to co-design a research project to help compete against their competitors in the market. When companies engage with a university, they may often feel that intellectual property owned by the university should be provided to them at reduced, or less than market cost, or even for free. This belief is honestly held and based on the idea that universities are essentially charities, serving the public good by providing education and conducting research. This idea is reinforced by government policy which aims to maximise innovation and research in companies by promoting collaboration with and licensing from the university. However, what is often missing from this view is an understanding of what is permissible under competition law, and the legal constraints a part of competition law called ‘State Aid Rules’ place on universities and on companies. Here, I outline what these constraints are and how we are obliged to adhere to them. With a better understanding of the controls that are in place and why they are there, it should become clearer how these issues can be managed in a way that leads to successful collaborations.
What are these State Aid Rules and why do they matter?
EU Member States could distort competition if they were free to give unlimited aid to indigenous industries but withhold it at-will from their competitors elsewhere in the EU. For the purposes of this article such aid might include intellectual property owned by the university. In such a free-for-all scenario, if left unchecked, each Member State would find it necessary to maintain or increase subsidies to indigenous companies to help them compete in a market where every other company was receiving similar subsidies from their own governments. Such a scenario would disrupt free trade and unbalance the single market. The EU developed what are called ‘State Aid Rules’ to prevent this, by regulating how and when Member States might legitimately grant aid to industry without distorting competition. These rules are at the core to how the single market functions and were baked-in to its design from the beginning. Non-compliant companies are open to prosecution if they commercialise state-funded research without due regard to these rules. This last point is of crucial importance – it is the beneficiary of the State Aid, the company in the case of an Industry-University collaboration, that is liable for prosecution and fines.
How to comply with State Aid Rules
The EU Commission can exempt any subsidy from State Aid Rules, but does this sparingly using legal instruments such as the EU “Research Framework” which allows universities to licence state-funded IP without breaching State Aid Rules.
For example, Irish funding agencies such as Enterprise Ireland and SFI co-fund programmes where companies and universities work together without breaching
State Aid Rules through careful adherence to the Framework. To comply, these projects must be what are called ‘true collaborations’, where the project is jointly scoped and both parties share the risks and upsides of the collaboration. If it is a ‘true collaboration’ then no illegal State Aid is considered to be granted where one of the following criteria is true:
- the company funds the full economic cost of the project, or
- all results are published with no exclusive access for the company, or
- the resulting IP is divided between the company and the university according to their contribution to that piece of IP or finally
- the university receives the market price for the IP, (through royalty or an assignment fee) in return for providing the rights needed to commercialise it. In most cases company’s prefer this 4th option as they require exclusive access to any IP that is generated in return for co-funding a project.
How is the Market Price for IP established?
Rulings from the EU Commission demonstrate that robust arms-length negotiation between a university and company is sufficient to establish the fair market value of a particular piece of IP. To facilitate these negotiations each Irish University has a technology transfer office funded by Knowledge Transfer Ireland (KTI) to ensure that arm’s length negotiations with companies occur in compliance with competition law. By ensuring that IP is not “given away” these offices protect the university and company from potential prosecution and resulting fines. This requirement by the Universities to negotiate the market price for IP can cause confusion among companies who view Universities as non-market players, and only makes sense when viewed through the lens of Competition Law.
We in the technology transfer offices and our researchers are keen to engage with companies. In doing so, we get to work on real-world problems and make a difference by helping bring the new products and services to the market. In outlining the relevance of state aid to such collaborations, I hope to reduce the scope for misunderstanding about how we all can effectively engage and work together.
To learn more about this issue, I recommend you go to KTI website and read the short guide to the National IP Protocol.