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Abstract

We propose and evaluate contractual- and Intellectual Property (IP) instruments in support of research collaboration partnerships between universities and the Small, Medium and Micro Enterprises (SMME)-industry, and more specifically in the South African context. Interviews were conducted with executives from 11 South African originated SMME’s in the high-technology industry. The findings of this study and potential solutions were then verified and validated with SMME’s, large multinational industry and universities (in South Africa and international) and can be considered as good practice principles to assist in industry-university collaboration (IUC). One aspect that was reported with high occurrence, is the matter of IP valuation, as it can often create further barriers in IUC. The question regarding how to value the IP and any rights relating thereto (IPR’s), is attended to in this study and shared experiences from industry and universities provide insights in the considerations and principles to be used when entering discussions regarding IP valuation.

Keywords

Industry university contracts intellectual property valuation

Introduction

Industry-university collaboration and academic engagement

Industry-university collaboration (IUC) is important and beneficial to both industry and universities, but accompanied with challenges (Ramos-Vielba and Fernández-Esquinas, 2012) (Scandura, 2016) (Wright et al., 2008). Academic engagement and commercialisation are of particular interest to this study. Academic engagement is considered by many companies to be significantly more valuable than commercialisation. Universities’ income derived from academic engagement is significantly higher than through commercialisation (Perkmann et al., 2013).

Academic engagement is defined as “knowledge related collaboration by academic researchers with non-academic organisations [and] include formal activities such as collaborative research, contract research, and consulting, [as well as] informal activities like providing ad hoc advice and networking…” (Perkmann et al., 2013), whereas commercialisation refers to “the patenting and licensing of inventions as well as academic entrepreneurship” (Perkmann et al., 2013) and focuses on the “generation of patents and the creation of spin-off firms stemming from research projects” (Ramos-Vielba and Fernández-Esquinas, 2012). It is further acknowledged that academic engagement can lead to commercialisation (Perkmann et al., 2013).

Contextualising the Small, Medium and Micro Enterprises-industry

This study places emphasis on experiences from the Small, Medium and Micro Enterprises (SMME’s) in the high-technology industry in South Africa (SA), in terms of IUC, however the outcome of this study is widely applicable, as verified and validated with universities internationally and multinational large industry.

Table 1 provides the definition of SMME’s in accordance with the National Small Business Act of South Africa (Bvuma and Marnewick, 2020).

Table 1.

Definition of SMME (Bvuma and Marnewick, 2020).

Enterprise size	Number of employees	Anual turnover in South African Rand	Gross assets, excluding fixed property
Medium	Fewer than 100 to 200, depending on industry	Less than R4 million to R50 m, depending on industry	Less than R2 m to R18 m, depending on industry
Small	Fewer than 50	Less than R2 m to R25 m, depending on industry	Less than R2 million to R4.5 m, depending on industry
Very small	Fewer than 10 to 20, depending on industry	Less than R200,000 to R500,000, depending on industry	Less than R150,000 to R500,000, depending on industry
Micro	Fewer than 5	Less than R150,000	Less than R100,000

In the SA context, SMME’s are an important contributor to the economy, as shown by its 15,7% year-on-year turnover increase in the third Quarter of 2021, in comparison with the reported large enterprises turnover increase of 11,4%. It is also reported that the number of SMME’s rose by 41 000 (1.7% increase) compared to the third Quarter of 2020. Unfortuntunately, the decline in employment of 3% in comparison with the previous year, accounted for 75% of the overall job losses experienced in 2021 (Bureau for Economic Research (BER), 2022).

From an IUC perspective, the engagement between universities and SMME’s can be regarded as essential to contribute to the SA economy. Current literature on IUC provides an overview on general principles, properties and areas that are regarded stumbling blocks to effective IUC (such as negotiations around IP and IPR’s) (Ramos-Vielba and Fernández-Esquinas, 2012) (Perkmann et al., 2013) (Awasthy et al., 2020). However, limited insights in how to overcome these stumbling blocks, and understanding the contextual limitations, needs and expectations of SMME’s in the SA context, is available.

Contextualising the intellectual property valuation and intellectual property rights

Contractual- and IP (and IPR’s) negotiations are often considered as hurdles in IUC and it is acknowledged that the processes enabling transfer of knowledge through academic engagement and commercialisation are poorly understood (Ramos-Vielba and Fernández-Esquinas, 2012). When considering these IP negotiations, one of the core questions is: What is the potential value of the expected foreground (project) IP arising from a research project and the related IPR’s (if any)?

As noted from literature, the matter of IP valuation is a complex one, especially with regards to what is considered to be “hard-to-value intangibles¹” (Schmidtke and Sidher, 2015) (Bishop, 2003) (Matsuura, 2004) (The Organisation for Economic Co-operation and Development, 2015), and although this study won’t be able to provide clear-cut answers for all scenarios, the intent is to provide general principles for consideration of the valuation of IP (and IPR’s) in the context of IUC, as confirmed and validated by both industry and universities.

Contextualising the South African intellectual property-legislative landscape

The most relevant legislation to consider in the SA IUC context is the South African Intellectual Property Rights from Publicly Financed Research and Development Act 51 of 2008 (IPR Act) which came into effect with its Regulations in August 2010, read with the South African Patents Act 57 of1978.² Under the IPR Act, the National Intellectual Property Management Office (NIPMO) is mandated to ensure that “intellectual property from publicly financed research and development is identified, protected, utilised and commercialised for the benefit of the people of the Republic, whether it be for social, economic, military or any other benefit” (Department of Science and Technology (DST), 2008).

The IPR Act considerations are briefly described. If an industry partner funds a research project at a university in full (at ‘full cost’ meaning all its associated direct and indirect costs), the IPR Act does not apply, and the parties are free to negotiate the terms of the IP (and IPR’s) transaction. However, if the project is not funded at full cost, the project will be subject to the IPR Act as it is deemed that the project (including the IP outcomes) is subsidised by public funding. The IPR Act define what is deemed as full cost, based on generally accepted accounting practices. Where a research project is funded below full cost, NIPMO approval will be required for certain IP transactions, such as the transfer of IP to the industry partner, exclusive licences, or licences on a royalty free basis (Department of Science and Technology (DST), 2008).

Where IP is transferred to an industry partner offshore, South African Reserve Bank (SARB) approval is required. For this approval, it is important to indicate that the fair market value of the IP was considered and paid for (Werksmans Attorneys, 2017).

It is noteworthy to mention that other countries, such as the United Kingdom (UK) have similar financial regulatory requirements regarding costing of research (University of Cambridge, 2022), and therefore the principles discussed in this study, is also relevant to, and can be applied in the international context.

Research methodology

Figure 1 describes the research methodology for this study.

Figure 1.

Research methodology.

Understanding the IUC framework and academic engagement context, with focus on SMME’s

A literature study was conducted on IUC, academic engagement and the importance of IUC for the SMME’s in the high-technology sector in South Africa. With reliance on the literature and the experience of the authors, a comprehensive questionnaire was developed to conduct semi-structured interviews with SMME’s to obtain further insights.

Collecting information on industry-university collaborative experiences

Interviews with executives from 11 SA based SMME’s (high technology) industry partners, with an international footprint and IUC experience with SA and international universities, were conducted during April-June 2021.

During the interviews specific points were raised that prohibit effective IUC, similarly to that as found during the literature review. To understand these hurdles within context, the following questions were asked and further unpacked:

• What is the intrinsic strategic value (for industry and universities respectively), linked to IUC and academic engagement, and how does this create tension in expectations?

• Do the parties consider the value of the IP (and IPR’s) in a comparable manner? How is the valuation of IP (and IPR’s) done, or what are the considerations for each party?

• How can the requirements with regards to contracting be more effective or supportive to IUC (i.e., standardised contracting instruments which create certainty upfront and support IP transfer- or access to IP)?

The available literature does not provide constructive solutions to overcome these hurdles. Therefore, the authors proposed solutions that would be in the best interests of both industry and universities. This led to a re-interviewing of a selection (four) of the SMME’s to obtain further understanding on their expectations and valuation methods and to validate the proposed contracting instruments.

After re-interviewing the SMME’s (coded as Companies 1–11), interviews were conducted with five SA universities (coded as Nat-Uni-01 – Nat-Uni-05) experienced in IUC, to obtain their insights in the feedback from the SMME’s, and to test and validate the proposed contracting instruments and IP valuation criteria.

A further literature review study was conducted with focus on the valuation of IP (and IPR’s).

Analysis and recommendations within specific context

After the collection phase, the information was analysed, potential solutions developed and tested against the selection of SMME’s (four SMME’s) and large industry (three large industry partners (with global footprint and IUC experience with SA and international universities), coded as Companies 12–14), as well as universities (five South African and ten internationals (coded as IntUni-01–10, from Ireland, England, and Scotland)). Recommendations are made to overcome the hurdles experienced by SMME’s. It further leads to a better understanding and confirms principles that could be applied to IUC in general, and not only limited to the SMME’s in the SA context.

Exploring the main concerns experienced by industry-university collaboration

The main findings of the themes forthcoming from the interviews which relate to aspects impacting the structuring and negotiation of research contracts, IP transactions, and IP valuation, are reported. For transactions where specific licenses to university background IP are critical to the success of the project IP creation, there might be other considerations that are not addressed within the scope of this study. This study focusses on the project IP (foreground IP) considered in general as at an early-stage (lower technology readiness levels (TRL1-4)).³ Within a university context, it shares certain characteristics with so-called “Hard-to-value intangibles”, and it is therefore helpful to consider the characteristics and nature of hard-to-value intangibles to address the specific challenges regarding the valuation of early-stage university technology created under IUC.

“Hard-to-value intangibles” are typically characterised by one or more of the following (Schmidtke and Sidher, 2015):

• Partially developed by the time of transfer

• Expected commercial exploitation would only take place several years after development or transfer

• It forms an integral part to the development of other “hard-to-value” intangibles

• Expected commercial exploitation would be in a novel manner, thus expected projections are materially uncertain

• Transfer typically takes place under a lump sum payment

• Is to be used/developed under a cost contribution arrangement

An example of the early-stage university technology would be that a company has a series of technologies in its technology value chain and engages with a university to assist with improvement of an existing technology or development of a potential new technology that will form part of a larger technology. The overall contribution that this improved new technology would make to the whole technology process is hard to value, as there are several other dynamic aspects which could impact the whole technology process. In a negotiation between the company and university, this would be considered a “hard-to-value” IP (early-stage university technology).

The interviews with the SMME’s confirmed that there is definite strategic value for SMME’s in engaging with universities, however some reported that they rather steer away from interaction with universities where contracting and IP-negotiations are needed due to the considered barriers. The themes identified through the interviews relating to the perceived barriers that impact the research contract negotiations, are reported.

Creating certainty

SMME’s shared frustrations regarding the timeframes in which universities negotiate research contracts and conduct the research. Due to the nature of the fast-moving industry, they typically need to find quick solutions to problems to keep their competitive edge. A mismatch in expectations is reported by some, where they sense that researchers tend to approach problems from an academic perspective, whereas SMME’s require a workable solution within a short timeframe. Additional complexity regarding long timeframes for contractual negotiations, deters SMME’s from engaging with universities.

Industry requires more upfront certainty on aspects such as:

• Options on ownership or exclusive use of IP

• Pricing implications

• IP valuation considerations

• Timeframe for concluding contractual arrangements

• Timeframe for conducting research and the project management capabilities to deliver on time

It should be noted that IUC in the SA context should be considered within the IPR Act, and considerations to the principles of pricing in terms of the requirements of the IPR Act can make a significant impact on the certainty regarding the IP ownership and time frame in which this negotiation can be finalised. Table 2 provide some evidence in this regard.

Table 2.

Evidential quotes – Create certainty.

Theme description	SMME	Evidence
Create certainty	Company 2	“Speed is one of our biggest commodities and is critical for our investors as well. Universities are unfortunately not always able to operate with the required speed.”
	Company 2	“For our investors it is important to see that where we collaborate with university, we will own the IP and that we are the champions of the projects and have control over the project.”
	Company 9	“We have a very specific need and two things that I require. The one is for the contract to be finalized because that is a governance issue which to a large extent remains dependent on outside funding and those the second is our funders want to see those contracts in place before the project can start so. So, I think those delays cause a lot of pressure to build up in terms of the relationship and the dynamic with the potential funder, and then I think also universities (and this is just a general thing, and it’s not uniform - I think it’s quite sporadic), but in our experience there are different groups or different people at different universities who don’t seem to have the kind of diligent attention to timelines and it’s like OK, sorry we couldn’t get the report done today. Well, you know, we can get it to you next week or we try our best, but the antibodies haven’t arrived yet. And so, this kind of what I call a discipline. The project management approach where, things do go awry, but it’s important to report that, listen, it’s not going to happen as planned, but not wait for the deadline to pass. And then report back that, sorry, we haven’t received an import permit yet or whatever the case might be.”
	Company 11	“We need to be able to control the costs as there is a risk attached to it.”

Establish a balanced contractual model/instrument with emphasis on IP

Emphasis was placed on a transparent process where fair principles are applied in the costing and pricing of the research, the contract negotiations, and the valuation of the resulting early-stage university technology. The participating SMME’s requested a contracting model/instrument with a suitable level of sophistication that balances the intended benefits of the transaction and the uncertainty on both the industry and university’s side. A hesitancy to assign IP to an industry partner is perceived to be linked to the difficulty in valuing of the IP by the universities.

A serious concern was raised by the SMME’s that universities tend to overvalue early-stage university technology and to over-estimate the TRL of such technology without cognisance of the further development costs and risks, when determining the value of the IP during a negotiation. This result in difficult negotiations which are at times perceived as unnecessarily complicated. It is due to this perception that some of these industry partners decided to limit IUC to other forms that do not involve any specific projects where IP-negotiations are required. Difficult negotiations regarding IP ownership and IP valuation are typically considered as a deal-breaker for SMME’s.

As determined in the characteristics and definition of an early-stage university technology, there are most likely not going to be a high level of certainty, irrespective of the sophistication or length of the negotiation process. Therefore, consideration should be given to how much effort should be put into a negotiation strategy and IP valuation in the context of early-stage university technology. Table 3 provide evidence in this regard.

Table 3.

Evidential quotes – Establish balanced contract model.

Theme description	SMME	Evidence
Establish a balanced contractual model/instrument with emphasis on IP	Company 8	“IP transfer fee is ideal, as it makes it easier to take IP ownership and we know immediately what the costs will be.”
	Company 11	“I will choose with whom to negotiate a contract. Need a researcher who will drive the contracting process in the university system faster. An SMME will only spend two or 3 days on a contract – we are looking for an approach which can move fast, there must be an agile contracting process otherwise we will walk away.”

Recommendations

Constructive recommendations are made to address the concerns raised. These recommendations were verified and validated with industry (SMME’s and large multinational industry) and universities (national and international) and can therefore be considered state of the art contracting instruments and IP valuation principles that are applicable beyond the SA context.

Research contracting instrument

From the findings, the industry desires a contract instrument where they can choose different options in terms of access to IP or ownership thereof, and certainty must be established early in the discussions regarding the timeframe and the costs.

Several options were considered and discussed, each with its own inherent risks and benefits, and the options that were decided to be most desirable, are referred to as the “Upfront IP assignment” and “Phased” -models. In both these models, reference is made to an “IP transfer fee” which will be elaborated on in the next section. It is acknowledged that there are several other contracting instruments not listed here, however for this study we focused specifically on the requirements raised by the SMME’s. A summary of the considered contracting instrument models is provided in Table 4.

Table 4.

Contracting instruments considered.

Contracting instruments model	Brief explanation of the instrument	Benefits	Limitations	Address requirements (verify)
Option	Research is funded by the industry partner (on a full cost or not full cost basis). The contract makes provision for the IP ownership to remain with the university and gives the industry partner an option to negotiate a separate licensing agreement (exclusive or non-exclusive) once the research is completed	Both parties will have more clarity on the IP developed during the research project and can make better decisions regarding the valuation of the IP than at the outset of the project	Although certainty is created regarding the costs funding the research project, the industry partner will face uncertainty later, as the IP is owned by the university and acceptable negotiation outcomes regarding fair IP value transactions might not be guaranteed	This model is not preferred by the industry, as the uncertainty regarding IP ownership, costs, and time frame, remain problematic
Option			If the research project was conducted on below full cost, then an additional requirement will be to obtain NIPMO approval for the IP transaction
Upfront IP assignment	Research is funded by the industry partner on a full cost basis.⁴ The contract makes provision for the IP ownership to be transferred to the industry partner after completion of the project for an IP transfer fee which is negotiated upfront	Upfront certainty for the industry partner regarding IP ownership, costs, and time. An industry partner can decide on a cost-based model whether the transaction is desirable within the certainty created balanced with the risk of no IP creation	The risk for industry is that no valuable IP is created from the project, however an IP transfer fee is payable irrespective the outcome	This model is preferred by the industry, as it creates certainty regarding IP ownership, costs, and time frame, irrespective of whether IP is created
Upfront IP assignment		The benefit for the university is that there is a secure income for the transfer of the IP upfront, irrespective of whether IP is created	The risk for the university is that there might be more value to the IP created, than priced for in the IP transfer fee
Phased	Research is funded by the industry partner (on a full cost basis⁴). The project is divided into two phases from the outset (Phase 1: Feasibility and Phase 2: Project). Both phases are costed at the outset. The contract makes provision for Phase 1 to be done on a full cost basis with the aim to determine whether the project will be feasible, with the option for the industry partner to continue with Phase 2 once satisfied. The IP ownership is transferred to the industry partner after completion of the project (Phases 1 and 2) for an IP transfer fee which is negotiated upfront	Upfront certainty for the industry partner regarding IP ownership, costs, and time. It creates the additional certainty for industry to be satisfied that Phase 2 will have a better chance to lead to IP creation, or the option not to continue after Phase 1 without any penalties. An industry partner can decide on a cost-based model whether the transaction is desirable within the certainty created balanced with the risk of no IP creation in Phase 2	The risk for industry is that no valuable IP is created from the project, however an IP transfer fee is payable irrespective	This model is preferred by industry, as it creates certainty regarding IP ownership, costs, and time frame, irrespective of whether IP is created. The additional step of deciding whether to continue with Phase 2 or not, creates further certainty to the industry partner
Phased		The benefit for the university is that there is a secure income for the transfer of the IP upfront when the industry partner wishes to continue with Phase 2, irrespective of whether IP is created	The risk for the university is that there might be more value to the IP created than priced for in the IP transfer fee	This model does create some concerns for universities

The two contracting instruments (“Upfront IP assignment” and “Phased”) as proposed models hold value for both industry and universities, as confirmed during the interviews. The proposed contracting instruments were validated by four SMME’s, three large multinational industry partners, five SA universities and ten international universities. Table 5 provides evidence in this regard. Although the proposed contract instruments are considered to address these requirements, the issue regarding the valuation of the IP still creates uncertainty.

Table 5.

Evidential quotes – Industry and universities’ view on contracting instruments.

Contract instruments	Organisation	Validate that the proposed contract instruments meet the requirements	Evidence
Upfront IP assignment	SMME	The four SMME’s interviewed for the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that is easy to negotiate in a short timeframe and creates the needed certainty upfront	Company 2: “This is a much better option to know that IP ownership will be assigned to us and there are no royalties later on, and we have certainty about the cost.”
	Large	The three large industries participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that is easy to negotiate in a short timeframe and creates the needed certainty upfront	Company 14: “…That’s a very good instrument.”
	University national	The five South African universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that is easy to negotiate in a short timeframe and creates the needed certainty upfront	Nat-Uni-01: “.I have to say I’m going to try to adopt this and make it a policy at our university.”
			Nat-Uni-03: “They may need to raise funding to back that IP, then they’re going to need to own it because investors are going to want them to own the IP.”
			Nat-Uni-05: “At the end of the day, I also feel that we need to grow our economy and by making it as easy as possible for our industry partners to access our expertise, and where needed own the IP, we should create mechanisms to do so.”
	University international	The ten international universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that is easy to negotiate in a short timeframe and create the needed certainty upfront	IntUni-04: “We are offering industry partners three standard models with different IP regimes and three different pricing ranges.” One model indicates it is based on “for 140% and gives them IP ownership”
	University international		IntUni-07: is not familiar with this approach but “is definitely interested in this model.”
Phased	SMME	The four SMME’s interviewed for the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that it is easy to negotiate in a short timeframe and creates the needed certainty upfront	Company 1: “I would prefer as little as possible interference by other dependencies such as NIPMO approval and would prefer to work on full cost and choose the Phased approach as it further limits our risks, and as second option the Upfront IP assignment approach”
	Large	The three large industries participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that is easy to negotiate in a short timeframe and creates the needed certainty upfront	Company 14: “… this is a clear indication for a success in the market, I would say because this is industry proven, you’ve got others that have the same issues. That’s always the same topics around IP, for example, who owns it, who can decide about what? And it’s not so much about the IP that we are so feared of losing our knowledge. It’s more about having control over the whole process.”
	University national	The five South African universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that it is easy to negotiate in a short timeframe and creates the needed certainty upfront	Nat-Uni-02: “Now you appointed a person. You have a contract of two or three years or whatever the case may be, but phase one is maybe 6 months. So, what happens with the personnel after the 6 months if the industry partner doesn’t want to continue?”
	University national	Some concerns are raised and should be taken in consideration when deciding to proceed with this model	Nat-Uni-05: “This model definitely holds value, but one should consider aspects such as personnel appointed for the specific project, or if a student is dependent on the project data towards their qualification over a period of 2-5 years and the project ends abruptly, then there should rather not be a student involved in this project.”
	University international	The ten international universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a contracting instrument, that it is easy to negotiate in a short timeframe and creates the needed certainty upfront	IntUni-03: “This is a sensible approach.”
	University international		IntUni-07: is not familiar with this approach but “is definitely interested in this model.”

Intellectual property valuation approach

Several common IP valuation models were considered, such as cost-based, market-based and income-based (Matsuura, 2004) (The Organisation for Economic Co-operation and Development, 2015), however within the context of IUC the closest model to what the industry and universities require, is an adaption of the cost-based model, with cognisance of its limitations. Again, the level of sophistication of the IP valuation approach, should be balanced with the effort of the research contracts negotiations and the overall strategic benefits of research collaboration for both parties.

The cost-based valuation model uses the cost incurred for the IP development or for replacing the IP, as an estimation of the value of the IP. This model however does not consider the potential future benefits that can be derived from using the IP and is typically used as a basis for valuation of specific IP, for comparative valuation methodologies or where the regulatory requirements involved require an IP valuation (Matsuura, 2004).

As this study focus on an IP valuation approach for early-stage university technology, where the cost of the project and hence the IP outcomes can be determined with reasonable certainty while the potential future benefits are typically difficult to quantify, and where there are regulatory requirements involved in terms of the IPR Act (and SARB for offshore transactions) as explained earlier, the cost-based valuation model is considered to be a sensible approach as a basis for making pragmatic recommendations for industry and universities during their research contract negotiations. Using the cost-based model as the foundation, we propose that the full cost basis is considered as the first level of the cost-based model, and a price linked to the IP transfer (“IP transfer fee”) is considered as the second level of the cost-based model. For the first level, the full cost is determined by the application of generally acceptable accounting practices, and in terms of the requirements of the IPR Act in the SA context. However, an effort to determine the second level (IP transfer fee) again leads to the dilemma regarding the difficulty in valuing early-stage university technology.

During the interviews with the industry and universities, principles were forthcoming to give due consideration to determine a reasonable IP transfer fee as a valuation approach for early-stage university technology.

From a university perspective

Three universities (one in South Africa (Nat-Uni-05), and two in England (IntUni-04 and IntUni-03)) use a similar contracting instrument as described in the “Upfront IP assignment” model (Table 4). For the IP transfer fee there are several considerations, but these can’t be translated to a monetary value, and therefore each university needs to view it as part of the negotiation process and to set a reasonable fee. However, between the three universities, an IP transfer fee range of 15–50% of the full cost of the project, is regarded as reasonable and accepted by industry. One approach could be to set a default position on a specific percentage and to charge it as a standard IP transfer fee on all these “Upfront IP assignment” contracts so as to create certainty for both industry and the universities, while another approach could be to prepare a list of principles for decision-making for the specific university and to decide whether the IP transfer fee should be to the lower or higher end of the range. IntUni-03 explained that they start the internal review of the IP valuation process at a 50% IP transfer fee, and as they apply their set of considerations, they would decrease the IP transfer fee. For instance, if the industry partner doesn’t allow the university to publish or involve students, doesn’t provide background IP but would use the university’s background IP, the IP transfer fee would be at the higher end of the 15–50% range. This university seldom charges the 50% range and rarely goes below 20%. IntUni-04 indicated that they have found that 40% is considered reasonable by their industry partners and it is seldom deviated from. Nat-Uni-05 experienced that industry finds the range of 15–25% reasonable and it is well accepted.

From the interviews with the universities, the considerations summarised in Table 6 should assist a university in determining a reasonable IP transfer fee. Due to the nature of universities, more emphasis is placed on the academic benefits as part of the strategic value unlocked through IUC, and again the effort in determining the value of IP should be balanced against the benefits.

Table 6.

Considerations for determining the IP transfer fee.

Considerations	Brief explanation of the consideration	Impact	Evidence of importance
Initiating the project	Is the university approaching the industry partner with a specific project proposal, or is the industry partner approaching the university with a specific request to a solution?	If it is the industry partner seeking a solution, then the higher range of the IP transfer fee can be considered	Nat-Uni-01: Where the university wants to conduct a project, the view is that: “... you could share the risk with us and then I won’t charge you an IP transfer fee.”
Initiating the project		If the idea comes from the university and it seeks funding for the project, then the lower range of the IP transfer fee can be considered
Confidentiality	Are there confidentiality terms required by the industry partner, and if yes, is the duration of the confidentiality reasonable or excessive?	With stricter confidentiality terms, and lesser chance of academic proceedings such as conferences etc., then the higher range of the IP transfer fee should be considered	Nat-Uni-05: “If there are excessive confidentiality period, we would consider a higher IP transfer fee”
In-kind support	Will the university gain access to expertise, equipment, data etc. not readily available? Will students have the opportunity to work close with the industry partner whether through internships, or on the project?	When the university will receive other in-kind support from the industry partner, the lower range of the IP transfer fee can be considered	Nat-Uni-05: “Some of our industry partners are involved in academic work by making their time available to co-supervise students, be guest lecturers, involve students in vacation projects to gain experience, fund prototypes without expecting anything in return etc. These are very valuable interactions between industry and our academics.”
Publication rights	Will the university be able to publish if it wishes to (with no/short terms embargo), or will the industry partner require an embargo for a longer period?	If the industry partner allows the university to publish (within a reasonable timeframe), the lower range of the IP transfer fee can be considered	Nat-Uni-02: “How much are they losing out by not publishing?”
Publication rights			Nat-Uni-02: “I think it’s like flipping a coin as to whether you negate great output or not. I think it’s very difficult for you to forecast, and I think that’s where you know, these other mechanisms where you say OK, is it a masters project, can we publish, should be considered."
Collaborative in nature	Is this a “work for hire” project where the industry partner appoints the university to deliver a specific outcome, or a collaborative nature where both the industry partner and university seek ways to find potential solutions to their research question?	If the project is of a collaborative nature and sharing of knowledge is part of the process, then the lower range of the IP transfer fee can be considered	Nat-Uni-05: “We have decades of collaborative partnerships with several industry partners (large and medium), and in some cases they have equipped our labs with expensive equipment, and seconded some of the researchers to work closely in our labs with our researchers and students, co-supervise students and publish with us. One of our partners has funded very expensive equipment and seconded a highly skilled scientist for a period of 3 years to our university to train our researchers and students on the equipment.”
Key background IP	Who provides key background IP towards the project?	If the industry partner provides key background IP to the project, then the lower range of the IP transfer fee can be considered	Nat-Uni-02: “One must distinguish between foreground and background IP. If they will use our background IP, obviously, then it’s more than the output. And then you need to consider either royalties or whatever the case might be, but this is not something that happens regularly.”
	Will a license to university background IP be required by the industry partner to use/commercialise the project IP?	If the university provides key background IP to the project, then the higher range of the IP transfer fee can be considered
		If university background IP is required to use/commercialise the project IP: yes, then the higher range of the IP transfer fee should be considered, or another mechanism to value the background IP’s contribution to the foreground IP.
Research and academic license	Will the university receive a royalty free license to use the IP for research and academic purposes?	If no, then a higher IP transfer fee can be considered	Nat-Uni-01:” If they are blocking the universities core mandates to do research, you know, we need to get something in return. Then a 15% won’t cut it”
Research and academic license		If no, then a higher IP transfer fee can be considered	Nat-Uni-02: “You know one must also look … if it’s IP specifically created for that entity, that’s fine, but if that IP is actually the core of the business of the university unit, and if there is assignment of that IP you know they may lose any possibility of further development, then it’s a problem. Then you should actually not go into that transaction.”
Application of new IP	Is the project with its associated foreground IP directed at a specific industry partner’s business, or can it be applied to other areas as well?	If specific to the industry partner, then a higher range of the IP transfer fee can be considered	IntUni-04: “.. if there are multiple routes to commercialisation that we would like to exploit independently of the commercial partner, we would price it at a lower level”
Application of new IP	Will the university have the right to exploit the research results outside of the industry partner’s field of interest?	If the university have the right to exploit the research results outside of the industry partner’s field of interest, then a lower IP transfer fee can be considered
Strategic importance	Is it of strategic importance to work with the industry partner? Is the potential there to obtain more research contracts from the industry partner?	If the industry partner indicates the intention to conduct more research projects with the university, then the lower range of the IP transfer fee can be considered	Nat-Uni-02 “ … hopefully, sort of repeat business, which is what we’ve seen.”
Strategic importance			Nat-Uni-05 “I want them to come back. We want to create a partnership basically and collaboration, so we don’t want to over complicate negotiations and the price must be reasonable for them as well. But on the other hand, we also need to report internally how did we consider this transaction and found it to be reasonable.”
University’s competitive edge	Is the university in a unique position to develop the IP for the industry partner, or is this expertise readily available at other universities or industry?	If the university is in a unique position, then a higher IP transfer fee can be considered	Nat-Uni-02 “…standing of the academic group”
Knowledge applied versus knowledge created	Is this project more consultative in nature where knowledge is applied rather than new knowledge created?	If consultation, then a lower IP transfer fee can be considered	Nat-Uni-05: “… we always try to determine whether a project would be more of a consultative nature than creation of IP. If more of a consultative nature, then we are more readily to assign the IP on a full cost basis, as the risk of IP creation are low.”

Nat-Uni-04 mentions that “I think there are a handful of technologies that one might take a different view on, …. the highest potential ones, but for most I believe one is better off getting them out the door”.

Nat-Uni-02 indicates that for the last three years the research contract income from industry (specifically SMME’s) made up less than 6%, and therefore once again the effort in negotiations should be balanced with the income and other benefits.

All the participating universities (national and international) agree that there would be no clear answer to the valuation of IP, but that the considerations provided and discussed below would give a university the peace of mind that the decision-makers applied their minds and that decisions are made in a systematic and pragmatic manner and are based on acceptable standards and approaches.

From an industry perspective

During the interviews with industry (SMME’s and large), some of these considerations for an IP transfer fee were presented to the industry to obtain their input and perspectives. These considerations were positively received, and industry indicated that it creates transparency which will assist them to motivate to their executive committees what the price considerations are based on. After explaining these considerations to Company 13, the response was: “I don’t think I’ve ever had it explained to me like what you now said about the additions and how you consider whether you can publish or not publish etc. …. not in any of my engagements with the researchers or the research contract managers….. It’s definitely helpful because I mean we are daily being pushed from a cost perspective so will be happy to motivate to our executives if it makes sense and if the value is there or if it’s reasonable. But it becomes very difficult to defend the number if you’re unsure of where it comes from.”

Asking the SMME’s how they would consider the IP transfer fee as a reasonable price, the value proposition remains the main consideration, which is cost base. Company 6 indicated that it will always be a “value proposition which will be different for different situations. If I can do it in my company, I have control over the costs, time, and IP. … I will work with a university when it is low TRL work and mostly on a consultative basis.” If an industry partner considers the total price (full cost plus IP transfer fee) to be too costly, it will seek other avenues either by appointing the skilled persons in-house or approach another university or company to assist. There is a difference in nuances between SMME’s and large industry, as large industry has other motivations for IUC such as skills development of students, etc. The SMME’s re-interviewed to determine their views on IP valuation, indicated that they are comfortable with a 15–50% range for an IP transfer fee above the full cost price. Although each project will still be evaluated by the industry on cost-benefit basis, they confirmed that this IP transfer fee with a range of 15–50% would streamline the negotiations.

Universities understand that the decision will be based on a cost-model, as per Nat-Uni-03’s comment: “I mean the other way to look at it, … it’s almost obvious. What can they get in the market. So, if they can get it more cheaply in the market where they have more control, of course they’re going to go that route. Now whether that is a consultant or another company that does the work, whatever it is they’re going to look for the best deal and that’s what a business should be doing, right. So, it’s really about how competitive universities are in the market.”

The above considerations for an IP transfer fee to value early-stage university technology, were validated by four SMME’s, three large industry partners, five SA universities and ten international universities. Table 7 provides evidence in this regard. Although the proposed contract instruments are considered to address these requirements, the issue regarding the valuation of the IP still creates uncertainty and this can be addressed by application of the IP transfer fee. Another benefit of applying an IP transfer fee, is to satisfy the requirements of the SARB in a situation where IP is assigned to an offshore organisation.

Table 7.

Evidential quotes – Industry and universities view on IP transfer fee approach.

Valuation of “hard-to-value” IP	Organisation	Validate that the proposed approach meets the requirements	Evidence
Approach to determine the IP transfer fee	SMME	The four SMME’s interviewed for the validation process, confirmed that this contracting instrument meets the requirement of a transparent and reasonable approach to value “hard-to-value” IP in terms of an IP transfer fee	Company 6: “From my experience I reckon that between 20-50% IP transfer fee will be reasonable and still a value proposition. The value-proposition will be dependent on two things: less expensive and better, otherwise you continue with your standard process.” “To use TRL-levels as a valuation method will be too difficult and time consuming.”
	Large	The three large industries participating in the validation process, confirmed that this contracting instrument meets the requirement of a transparent and reasonable approach to value “hard-to-value” IP in terms of an IP transfer fee	Company 13: “I don’t think I’ve ever had it explained to me like what you now said about the additions and how you consider whether you can publish or not publish etc. – not in any of my engagements with the researchers or the research contract managers….. It’s definitely helpful because I mean we are daily being pushed from a cost perspective so will be happy to motivate to our executives if it makes sense and if the value is there or if it’s reasonable. But it becomes very difficult to defend the number if you’re unsure of where it comes from.”
	University national	The five South African universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a transparent and reasonable approach to value “hard-to-value” IP in terms of an IP transfer fee	Nat-Uni-01: “. I love that we can state that the IP transfer fee is based on certain criteria, and I like the way how you can work out a certain percentage based on you know what’s? I have to say I’m going to try to adopt this and make it a policy at our university.”
	University national		Nat-Uni-02: “… I guess that’s something that’s really tricky in this case. You know you may land up with an absolute gem of a result that is worth multiples of the IP transfer fee”, yet “Don’t burn bridges. You want to have a long-term relationship, not the quick buck and off you go.”
	University international	The ten international universities participating in the validation process, confirmed that this contracting instrument meets the requirement of a transparent and reasonable approach to value “hard-to-value” IP in terms of an IP transfer fee	IntUni-04: “We are offering industry partners three standard models with different IP regimes and three different pricing ranges.” one model indicated is based on: “for 140% gives them IP ownership.”
	University international		IntUni-04: “We are now much more open to the fact that if we work with industry, if industry is funding our research and the impact through that collaboration is realised, , even if it is not a direct financial…. we used to spend many many hours on negotiating those contracts with industry but very very few of them leads to commercialisation back to the university… it is now something that we value …. we have an acceptance now that we will be giving rights away if industry is going to fund our research… but that is acceptable because the most important thing is the impact the research has …. one needs to balance the direct financial contribution you can get from a higher price charged in a contract vs a speculative higher income later down the line.”

Implications

The recommendations and principles proposed give guidance to any university and industry if applied as general principles and considered within their specific legislative context. The checklist in supplemental material can be used to guide the process to assist both universities and industry entering into negotiations regarding IP transfer and IP valuation. This checklist must be considered within the terminology, definitions and recommendations made in the article.

Conclusion

Early-stage university technology as described above in the context of IUC, has the potential to become a barrier in negotiations. The recommendations on contracting instruments and an approach to determine a value for the early-stage university technology forthcoming from a research contract, will create certainty for both parties, as the principles applied are reasonable, transparent, and defendable. Due to the difficulty of valuating IP, the level of sophistication of the valuation methodologies used must be balanced with the potential other benefits, and risks of the uncertainties.

As these approaches were discussed with both industry (with experience in IUC with SA and other international universities) and universities (SA and international) and the final proposals verified and validated with a selected group, it is proposed to be regarded as state of the art in research contract management in the IUC context.

Supplemental Material

Supplemental Material - Suitable contract instruments and intellectual property valuation methodologies for industry-university collaboration

Supplemental Material for Suitable contract instruments and intellectual property valuation methodologies for industry-university collaboration by Cornelia Malherbe, Cornelius SL Schutte, Gerardus Verhoef, Petrie Meyer, and Theodorus Doubell in Industry and Higher Education

Footnotes

Acknowledgements

Without the participation of the universities and industry, this study and publication would not be possible. We thank you for your time and willingness to share your knowledge and experience with us.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iDs

Cornelia Malherbe

Cornelius SL Schutte

Petrie Meyer

Supplemental Material

Supplemental material for this article is available online.

Notes

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Supplementary Material

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