Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 120-139)



  120. What is the profit figure? I thought we were talking about the £17 million as the figure on which this five per cent was based. I thought you were saying earlier that £17 million was much less than five per cent of whatever the costs were. When you said it was well under five per cent, I am not clear what two figures you are comparing. You are obviously comparing something with £443 million.
  (Mr Young) My understanding of the Treasury rules is that it is the net figure surplus income over expenditure which we are allowed to offset up to five per cent.

  121. And what is that for the three councils?
  (Mr Young) That I have not got.

  122. You know it is much less than five per cent?
  (Mr Young) Yes.

  123. Perhaps we can have that in a note. It does not sound as if we can get much further on it today.
  (Mr Young) Of course.[5]

  124. There is an interesting paragraph—paragraph 4.20 on page 38—saying it is not always easy to find a sufficient array of possible partners to inveigle in for the bidding process to get the best deal. Mr Young—or maybe somebody else—how often is the commercialisation of technology done by selling to a foreign company? I can understand that you want to sell it internally because that is good for jobs and everything else, but it may be there is not a company in this country that can use it but you might nevertheless get some cash for it if you sell it abroad. Does that happen?
  (Mr Young) I do not know the answer to that question. John?
  (Professor Sir George Radda) It does happen in licensing. If it is a non-exclusive licence many of them will be taken up. Again it is important to remember that some of the companies that we have set up, equally, buy in from activities outside the UK. There is movement both ways. We have an example in the Cambridge Antibody Technology involved in work originally funded by NIH.

  125. I am not worried about this. On the whole it is a good thing if you cannot find anyone to buy it in this country.
  (Professor Sir George Radda) The answer is yes we have arrangements with companies who take licences out which is generating income in this country?

  126. Do you have any idea about what sort of percentage of the profit we have just been talking about would come in just by selling licences outside the country?
  (Professor Sir George Radda) I do not have that figure offhand but we can certainly supply that figure to you.[6]

  127. It would be interesting to see how much profit is gained by selling outside the country. There have been a number of cases recently where commercial enterprises have found some time later on in their life cycle that they have very big liabilities, particularly companies like asbestos companies and tobacco companies which many years later find they are suffering from big liabilities. When that happens and huge damages are awarded, very often we find companies in danger of going bankrupt and being unable to fulfil their liabilities. To what extent does the public have an assurance (with the money that is being earned by companies which are spin-off companies from research done in this country) if that were later to go badly wrong and those companies were to have huge liabilities, that they will be able to be recompensed in some way? Are these companies properly insured against those sorts of liabilities?
  (Mr Young) The position is that we collect annually contingent liability summaries from each of the research councils and report them to the Treasury in the usual way. Where commercialisation has taken place sometimes the liability is passed on, as I understand it, to the company with whom we are working. So in commercialised deals often we have shifted the liability to somebody else. Where it is not commercialised we keep the liability and we, the DTI, collect them from research councils and publish them to the Treasury annually.

  128. In that case the liability presumably remains with the public purse and therefore the public should have some assurance that they are covered. I am thinking more in terms of the spin-off companies or companies where you have sold or licensed research results outside. What guarantee can you give the public that such companies are properly covered by insurance for any liabilities at a later time?
  (Professor Sir George Radda) The position is no different for spin-off companies than to any other company in the private sector. They will carry the liabilities.

  129. What assurance do you have that they have properly covered any potential liabilities they might have in the future? Do you not bother with that? Do you just leave it up to them?
  (Mr Young) "Not bother" is harsh but we have shifted the liability to them and it is not our responsibility to ensure that they have sorted it. Where it is commercialised, spin-off or anything like that, the liability leaves us and goes to them and we close the case.
  (Dr Taylor) This is risk sharing with the private sector.

  130. If I were somebody who had suffered from something which was a result of government-funded research which then went off into a spin-off company set up, effectively, by the government in the private sector, and later I found that that company had not been properly insured and could not recompense me for any liability it had, I would feel fairly angry that the public sector had not looked after my interests properly. I would have thought the government had at least a moral duty to make sure that such companies, particularly spin-off companies funded originally by the government, had properly insured themselves.
  (Professor Lawton) It is a very interesting argument. Far more of the knowledge that we generate will be picked up by commercial activities or other government departments or elsewhere over which we have absolutely no control, and that is a huge uptake of our science. If somebody could show that the science was in some way deeply flawed and dishonest then there may be liability back on us, but that is extremely unlikely to happen and the particular example you are picking is such a small part of the way in which the science we do gets translated into goods, products and services. If it were an issue, I would be much more worried about the bulk of what we do than the rather small issue of spin-out companies where we transfer the liability and we know we have transferred the liability.

  131. I think, Dr Taylor, it was you who said earlier that a lot of technology transfer is on the hoof. You have been asked a bit about the brain drain and so on and the difficulty of people moving abroad and people not working in this country when they have been trained in this country. I was interested in the possibility that people might start working in this country, perhaps in one of these areas, and then transfer that knowledge abroad after a while. To what extent are we sure that we are not losing the value of our research as well as the people who are doing it in the brain drain? Can we control the intellectual property rights?
  (Dr Taylor) In all honesty, this is an area where there is not the practicability of control. This is where one is in competition for the best talent. One of the most important things that my Chief Executives do is excellent research. We measure them on world-class excellence in what they do. The on-going remedy for the situation you describe is we should maintain what we do here as being as excellent as anywhere in the world. That is a continuing battle and a continuing challenge. Sometimes we will lose; sometimes we will win.

  132. You are saying that if somebody does some research in this country, and gets to the point where it is nearly commercial and then moves abroad, you have no control over the fact you have then lost the value of that research?
  (Dr Taylor) In general it is very difficult to make somebody in an open research environment sign undertakings of the kind that you might have in the commercial environment binding themselves not to go and work for a competitor for X years. That is not something which is practicable for us to do in any of the research environments we have.

  133. I am not quite sure why not if you think it is practicable in a commercial environment.
  (Professor Lawton) One reason it is not practical is because about half the research my council funds is in the universities and the intellectual property is transferred to the university and always has been. One cannot have any control over what happens to people in those kinds of institutions. If you look at the broader picture, some of the things we were talking about earlier which are alluded to in the Report—the need to allow scientists in our research establishments to have shares in equity, the rewards to inventors schemes and so on—show that if one were excessively restrictive in the way that one dealt with those people that would be a sure-fire way of getting them to move somewhere else. I believe it is much better to provide people with a good environment, with the encouragement to do excellent science, to commercialise it where that is appropriate, and in the best kind of labs. That is a great incentive to get them to stay. I do not think rules would make people stay at all.
  (Professor Sir George Radda) Can I just say there is a bit of confusion here between what happens in universities and what happens in our own institutes and units. For example, the MRC holds the intellectual property on all research done in our institutes by our own staff. If the staff member decides to leave, the IPR of that research done under our support will remain with us. What we cannot of course prevent people doing is changing their job and taking some of their thoughts with them. There is no legislation against that.

  Chairman: Thank you, Mr Rendel. Barry Gardiner?

Mr Gardiner

  134. Chairman, I think Mr Young will agree with me we have seen a lot of presumptions from politicians over the years, but I think there could be little more presumptuous than examining this August body on their own theses. I just hope that I am a kindlier examiner than my own committee was many years ago! Can I start by referring to section 4.9 of the Report. In general the Comptroller and Auditor General complains that people who appear before this Committee embark on ventures rather reckless of risks, but in paragraph 4.9 it says: "Research establishments are generally limiting the initial risks to the public sector, however, by selecting commercialisation vehicles—either licensing or limited liability companies—that place the funding burden on the private sector and so reduce their potential exposure in the event of failure in exchange for accepting lower rewards." The criticism here appears to be the other way to the one that we are used to in that you are rather too risk averse. Dr Taylor, is that a criticism that on behalf of the institutes you would accept?
  (Dr Taylor) I do not think I would read the criticism in that way. I think what is being said here is a comment on the way in which we are trying to loosen up institutes to do the things that we are asking them to do and, remember, I think it says very clearly elsewhere in the Report, that what we are trying to achieve here is knowledge transfer to the wider economy and the actual pay-back to the institution itself that did the work in terms of income is not a priority for what is going on. Very clearly it says again in the Science and Innovation White Paper that the Government's policy in knowledge transfer from this publicly-funded research is to the wider economy. The concern is to get jobs created and business activity going and so on in the UK. We should put that as our number one priority and the specific returns to the funds of a particular institution should be very much a secondary consideration. In that sense one of the things that we are encouraged to do, and we are moving people to do, is to move things into the private sector where the private sector can accept the risks, invest and develop, to that get a wider benefit into the economy as quickly as we reasonably can rather than holding it back worrying too much about the particular returns to the particular establishments. For example, if you look at the Medical Research Council, the rate of job creation in the wider economy as a result of the kind of activities that they have been doing is really quite impressive.

  135. In paragraph 4.10 it says that currently decisions on the form of commercialisation are largely devolved to the individual judgment of the team leader and the commercialisation officer within each of the councils. Do you believe that there is a danger that because this is deemed to be the job of the commercialisation officer, the importance of commercialisation is not one that is generally accepted as part of the team's objectives but it is something that can be left to the commercialisation officer?
  (Dr Taylor) Again, I do not think that is the spirit of what we have or what goes on. I think it is very important, first and foremost, to go back to a comment made earlier that we want the very best scientists to be doing the very best science, and that is where we start from. Secondly, we do not want to put them into conflict of interest situations where they and only they are involved in determining commercialisation routes. This is bringing in somebody else who knows much more about that process, which is really important, and then using limited resources to get additional expert help, for example on IPR, for example on making partnerships, for example on looking at market opportunities, which are things which you would not expect to find resident in a particular research team just waiting to be asked to do something. You would expect to find those on a broader basis, either inside a much larger pool of people or available on contract when required. This is bringing in people with additional skills, talents, know-how at the right time to do it and that is the way in which we are certainly encouraging people to do it.

  136. In fact the Report criticises the fact that commercialisation officers are not often required formally to explain their judgments to the management body along the lines of an investment committee.
  (Professor Sir George Radda) If you look at the last two lines of that paragraph, it refers to the fact that in the Medical Research Council, strategic decisions are referred to the board of management of MRCT and also to the Medical Research Council itself so that in fact the day-to-day operations clearly are in the hands of the Chief Executive of Medical Research Technology. The major strategic decisions certainly go to the board of management of the company as well as the council itself and that officer is also part of the senior management group in the MRC, which meets twice a week under my Chairmanship and looks at all these issues as a matter of fact.

  137. I am glad it is not a criticism therefore that applies to the MRC. I take that as case of special pleading in the Report and we therefore must address the other two bodies. I see you shaking your head.
  (Dr Taylor) We are moving very, very rapidly in the right direction.
  (Professor Goodfellow) Of course we have things in place. Certainly if it were something like setting up a holding company or a new spin-out, the director of the institute and the senior management team would be on board. Our institutes are independent, they have their own governing boards and their own Audit Committees which will be looking at the whole of risk management and assessing it. We also have clearly stated rules about at what level they have to bring it up to myself and my business innovation officer and my director of innovation and director of finance for approval by the BBSRC. So I think there are checks and balances in there.
  (Professor Lawton) Things have moved on quite a long way, as BBSRC said, from what was said in the Report. We have just appointed four exploitation scouts whose job it is to take a strategic view across the whole of the NERC portfolio with different areas of expertise and to encourage generic technologies/platform technologies and the development of, for want of a better word, more joined-up thinking among different parts of the organisation. They are in place now. I believe they will make a very big difference to the long-term development of spin-outs and so on. Then we also have, as indeed all the other councils do now, business plan competitions. We do this together. Again, we bring in people with commercial venture capital expertise in helping us to develop those and so on.

  138. Sure. What I understand from the three responses, therefore, is that whilst this may have been the case in the past in certain of the institutes, it is no longer the case in any of them and, therefore, the question comes back to you, Mr Young, why was it the case?
  (Mr Young) It was early days. I have been trying to describe a complete change in climate over the last three years in this area pushed on by the Baker Report and the Government's response to it. Your questioning is rightly designed to tease out whether there is a minority of peculiar people that look at commercialisation opportunities or whether it is now wider in research council communities. We are doing our bit to ensure that it is the latter and not the former. So, for example, Partnerships UK has set up its own science and technology commercialisation unit and has issued guidance last September to all research councils. We ourselves have run a series of seminars, which the Report rightly praises, culminating just now, covering all aspects of commercialisation so what we are describing to you is a complete difference in climate suffusing the whole of the research council community and by no means restricted to just some experts.

  139. I am always delighted to know that a report has been taken on board and that agreed recommendations have been implemented, I hope that goes without saying, but of course you will appreciate that part of this Committee's role is to understand why things have gone wrong and what I am asking you is not how you have put them right but how it was that they were wrong in the first place?
  (Mr Young) I do not think the Report says anything went wrong. What the Report tracks is an emerging consensus around about the opportunities from commercialistion which were not there before.

5   5 Ev 24, Appendix 1. Back

6   6 Note by Witness: In 2000-01 out of a total income of £17,946 million derived from commercialisation of MRC intellectual property, 64 per cent came from UK companies and 36 per cent from elsewhere. Back

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