Examination of Witnesses (Questions 120-139)|
OBE, PROFESSOR SIR
CBE, PROFESSOR JULIA
GOODFELLOW CBE, AND
MONDAY 11 MARCH 2002
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
(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.
124. There is an interesting paragraphparagraph
4.20 on page 38saying 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 Youngor maybe somebody elsehow
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.
(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
(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.
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
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
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
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
(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 Reportthe need
to allow scientists in our research establishments to have shares
in equity, the rewards to inventors schemes and so onshow
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?
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 vehicleseither
licensing or limited liability companiesthat 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
(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
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
5 5 Ev 24, Appendix 1. Back
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