Intellectual Property To Internet

Regulating the activity for transferring knowledge and technology stemming from governmental research bodies to the private market, by creating an economic and legal infrastructure that

Service Inventions

in the Public Sector

Mr Arnon Ikan, Senior Deputy Accountant General

Ministry of Finance February 2006

Regulating the activity for transferring knowledge and technology stemming from governmental

research bodies to the private market, by creating

an economic and legal infrastructure that will

enable the transfer of intellectual property rights from the Government to the private market, while

The Goal

Under the Israeli Patents Law

Service invention - an invention by an employee who invented

it in consequence of his service or during his period of service with a given employer

Under the Israeli Civil Service Regulations

An express obligation applies to the employee to report a

service invention to the Director General of the Ministry and to

an Inventions Committee which is meant to discuss and

determine the inventor's rights, with the approval of the Patent Advisor

The Existing Statutory

Situation:

1 The State does not take advantage of the intellectual

property rights that were created in the framework of the

Government - protection and/or realization of its

commercial potential.

2 A lack of interest on the part of employees to inform their employer about their inventions coupled with an interst

in publishing the research.

3 The absence of a government infrastructure for handling intellectual property causes undesirable phenomena:

a loss of the commercialization potential of knowledge.

The knowledge is not protected and is not realized and, as a result, the public interest is harmed on two levels:

1 On the broad public level:

• Direct loss of revenues (from royalties) by the State and the

Governmental research body.

• Harm the potential of the devolpment of the invention.

• Harm to the potential to develop production or development

enterprises that are based on the knowledge and that will constitute a basis for growth, employment, attracting

foreign investments and increasing the State’s revenues

from taxes.

The Result

• A drain of information to the private market (by publishing

or by transferring information on a corporate basis) in a

manner that is neither institutional nor controlled

• Harm to the Government’s revenues potential

• A negative incentive that leads to a governmental brain

drain

• Harm to the ability to recruit high caliber manpower

2 On the Governmental Level:

• Growth in the scope of the investment in applied research at the expense of basic research

• An incentive to employees to perform research at the expense

of the primary objective that they are responsible for (for

example: public health)

On the other hand, there are a number of risks in

regulating activity for the commercialization of

• Use of State budgets for applied research, with the main

beneficiaries being the private bodies and the researchers

• Involvement of civil servants in business activity is liable to lead

to a built-in conflict of interests

• A fear of entering into business risks, with the unvolvment of the State

Therefore, in the framework of regulating the activity, the risks must be reduced to the bare minimum.

1 The advantages that were detailed above

2 Comparative sources from developed countries in the

west, led by the US

3 A reduction in the incentive to engage in improper

activity by means of commercializing the knowledge

in various channels.

Why work to change the status in light

of the concerns described above?

Comparative Sources

• Activity aimed at transferring knowledge and technology from the Government and public sectors to the private

sector is currently being performed in many countries,

in various frameworks

• This policy has yielded an increase in the revenues of the research institutions, based on the registration of patents and the opening of many startups that have made a major contribution to the local economy

• Passed in the 1980 as an amendment to the Patent

Law.

• Intended to create incentives for business activity

without State involvement by:

1 transferring ownership of the results of research

from the State to the research institutions

2 Imposing responsibility on the research

institution to do everything possible in order to

The Situation in the US – the Bayh-Dole Act

• It became evident that this decision was one of the most significant causes of the growth in the American GNP in the last decades

• Between 1993 and 2000, a total of 20,000 patents were

registered and over 3,000 new companies were founded The revenues from the bodies in2002 alone stood at

around $1.3 billion.

• The average annual growth in revenues from the issuing

of licenses to federal research laboratories is over 10% per annum

• In Germany the revenues of governmental research institutions totaled around €66 million in 2001 (747 patents were accepted, 555 licenses were issued and 37 startups were founded)

• In Australia the revenues from the commercialization of government and public-owned knowledge and technology was estimated at around €100 million in the year 2000 (498 patents were accepted, 417 licenses were issued and 47 startups were founded)

• In Canada the revenues of governmental research institutions totaled around $33 million in 2002 (172 patents were accepted, 362 licenses

Existing Activity for the

Commercialization of Public Knowledge in Israel

(Universities and Private Hospitals)

At universities and private hospitals in Israel, business

activity aimed at transferring knowledge and technology to the private market exists, by means of:

1 granting the proprietary right to commercialize the

knowledge to a business company that was set up for the purpose

2 determining rules for financing the company’s expenses.

3 formalizing agreements for the distribution of the

revenues that are created between the institution and the

The method of commercialization at universities and private hospitals in Israel:

Research Institution

Commercialization Company

Private Market

Researcher

The Agricultural System

The Agricultural Research Administration

(Vulcani Institute)

• Was set up in 1921 as an “experimental agricultural station”.

• The Institute performs around 70% of all agricultural research

in Israel.

• It conducts around 700 applied studies per annum.

Most of the research staff is also engaged in training.

• Net budget – around NIS 165 million NIS 140 million of which

consists of salary expenses and NIS 25 million for purchasing.

In addition, around NIS 60 million income-dependent expenses,

stemming from external sources of financing.

General Data

• In recent years the Agricultural Research Administration has worked to

commercialize the research knowledge that it has accumulated, in line

with its principal goal of promoting agriculture in Israel, by means of a

TTU division that is engaged in the commercialization of knowledge

vis-à-vis outside parties

• Over the past two years the Administration has operated an

experimental mechanism for the payment of royalties to researchers who are civil servants, under a special permit The model is based on the Sliding Scale principle, i.e a ranking of the scope of payments to researchers as a function of the magnitude of the royalties that are

The Royalties Model

Percentage of royalties

for the research team

Volume of Annual Revenues

• In any case, the royalties will not exceed two yearly pensionary

salaries for each researcher.

The Health System -

Government Hospitals

• Government research studies performed within the health system

are generally performed in the framework of health corporations

affiliated with hospitals.

• The studies are performed by researchers who are physicians,

a large percentage of whom are civil servants whose jobs consists primarily of providing health services to patients at the hospital.

• Extensive research with practical potential is carried out at

government hospitals.

• This research constitutes the principal need for regulating the activity

in terms of its inherent economic potential

Background

Commercialization of Knowledge at Hospitals:

1 Separating the management of research from the hospital’s regular activity

- will be managed by the health corporation

2 The State will give the research body or health corporation

authorization to conduct and sign on its behalf any activity that will promote the economic potential of the asset

3 The research activity will be financed by the commercial utilization

of the knowledge products, donations and research grants No use

will be made of a budget or revenues from current activity.

4 Each research project will operate as a closed financial economy,

and will maintain a separate accounting system on an accrued

basis.

5 A control and reporting procedure for the intellectual property will

6 Research at medical centers will be conducted in two separate

groups:

A Applied research – to which the intellectual property rules will

apply

B All other research, including clinical trials – to which the

intellectual property rules will not apply

It will be possible to redefine a given research project, during the period, as applied research, provided a “fine” is paid for doing so

7 The health corporation is permitted to make commercial use of the

products of the research and the intellectual property rights,

including by way of contractual arrangements with outside bodies (private or public) and on condition there is no conflict of interests between it and the outside body.

8 Activities aimed at the utilization of intellectual property rights

will be performed only through the issuing of licenses.

A committee headed by the Accountant General will approve the setting up of a joint startup in special cases

9 A mechanism will be determined that will make it possible to

grant the intellectual property rights to the researcher

10 Disputes between employees, the health corporation, the

hospital and the Ministry of Health in the domain of intellectual

property will be adjudicated by a committee to be set up for the purpose

What has been done to date

and future trends

The handling of the matter of regulation by the government:

• A steering committee was set up, headed by Mr Arnon Ikan, Senior Deputy

Accountant General and representatives from the Ministries of Finance, Justice and Science and a number of subcommittees for handling regulation of the

subject in the governmental sector – the steering committee submitted its

recommendations to the Accountant General recently.

• The steering committee is engaged in three main areas: The agriculture

system, the health system and the defense establishment

• An inter-ministerial committee was set up to regulate accounting reporting and

recording of intellectual property assets.

What has been done to date

• On August 9, 2005, in the framework of the Arrangements Law for the year

2006, the government approved a decision to regulate intellectual property

in the governmental health system This decision includes all the

principles that were agreed upon by the steering committee.

• Government decision AG/122 dated September 13, 2004 on the subject

of intellectual property stipulates that the products of knowledge,

including intellectual property, that are created by a person who is not

a civil servant and at an institution that is not a government institution

and is not a health corporation, will be owned by the institution where

the research was conducted The decision included rules

for the commercialization of the knowledge and the royalties that the

State will receive.

in the framework of BOT projects.

• The preparation of framework documents for handling all the issues

pertaining to intellectual property that constitute the basis for the

teams’ discussions.

• Holding joint meetings with representatives of the relevant systems

(agriculture, health and defense) in the framework of the work teams.

• A knowledge center at the government that spearheads the domain

and coordinates all the knowledge that is accumulated in this area.

• A model for the payment of royalties to the research teams in the

Formulating amendments to the regulations, laws and the Civil Service

Regulations – the end of 2006

4 Accounting reporting and recording of the intellectual property

assets at all government ministries - January 2007

Thank You