Innovation: How do you start it? How do you stop it?

Innovation has been a hot topic for quite a while. Recently it seems to have gone mainstream. Companies want to

Innovation

Innovation (Photo credit: Seth1492)

innovate. Universities want to innovate. Governments want to innovate. Why? Because if you are not profitably creating new ways to solve problems, someone else is, another company, another country…. and the ownership of the knowledge of the how, of the underlying intellectual property, of the processes… these all add up to becoming economically superior and sustainable.

Over the last few years I have spent a good deal of time thinking about innovation and ways to deliver it. My take on innovation is that the critical ingredient is to encourage and motivate young graduates from university the tools of the trade of entrepreneurship, company formation, wealth creation, and more particularly how social systems work that provide wealth for investors.

This week two things happened that I found interesting and worthy of sharing. First, I went to a conference/forum focused on innovation: Innovating Innovation Australia. A small group of successful and battle hardened veterans of business – and academia – met to discuss how to generate more traction for innovation in Australia – i.e. for taking invention and ensuring that it has value to the market.

Some people at the conference suggested that we should be lobbying Tony Abbott, since clearly there is going to be a change of government in the not too distant future. One of the things that I feel passionate about in this regard is that there is utterly no point in trying to engage with any of the political leadership in Canberra at this point in time. I said publicly at this forum what I have said privately before to friends – many of whom are successful and wealthy business people: “We have a lack of leadership in this country on both sides of politics, and under those circumstances it is the responsibility of the people to act to deliver solutions and not to look for any kind of favour from Canberra”. That doesn’t mean that we should revolt in the streets or anything like that. But it means, in my view, that we should stop trying to involve government by lobbying them for assistance, and instead, we should get on with acting, and arrange our affairs in the optimum way for financial benefit. Then report to government what those actions mean to the nation. We live in a world driven by metrics. The only way that we should expect people to respond usefully, when they are in positions of power, is by showing them the numbers.

In the case of Australia, where for instance, tax laws are totally out of step with those in the US, for entrepreneurs, we should be showing government as accurately as we can, how businesses that produce incredible capital growth are leaving the country. One business that I have had a close association with during the planning stages, and which is going to be funded by US based venture capital is going to be created in Singapore, for exactly this reason, with a subsidiary in Australia. This will mean that the company will avail itself of grants from the government, but the majority of the IP will be housed in Singapore, and the capital value that is created will be off shore. Ludicrous, isn’t it? That an innovation from Australia will become valuable, not to Australia but to Singapore. But this is how capital functions. Government won’t do anything about this unless they see it happening. There is no point in warning government and trying to get them to act strategically. There aren’t any votes in it.

The matter of normalization of tax laws is made even more shocking if you look at the way that Australia works with the US in the matter of intellectual property protection. Australia signed off on ACTA, the trade agreement for the protection of copyrights. That agreement is so incredibly oppressive that most Eurozone countries have rejected it. Yet, in this country, we ratified ACTA and we didn’t amend our tax laws. We have tax laws that require people who participate in company formation, to pay tax on options as if the options were real cash – unlike in the US, where there is no capital gain on an option, because it is just worthless paper until the cash is realized!

The other thing that happened this week that has bearing on this, was that I was sent a contract by the university where I do part time work. I have had contracts with the university before and have just signed off without too much thought (not a smart thing to d0, I agree!). For some reason, this time I read the agreement more carefully. I noticed a clause in the agreement that said that by signing the agreement I would be bound by the university’s IP policies. Since I have a role in a number of businesses where I assist with ideas that sometimes lead to the creation of new IP I was a bit concerned about agreeing to something that I was not in a position to deliver on. I have this rather quaint concept in my head, drummed into me by my father, when I was a teenager, that integrity is the most important thing that anyone owns. There was no specific allusion to what the IP policies were in the agreement, which I thought was strange, so, after making some inquiries, I went looking for them.

I found them, after drilling down through the website. The policies are so utterly onerous with regard to the possible and hypothetical creation of ideas that I sent a copy to an IP lawyer in Sydney who is a good friend. I asked him for his comments. I noted one clause in particular, which dealt with the methodology for dealing with the creator in the event that the university was either unsuccessful in, or disinclined to commercialise.

His informal response, in part, was as follows: “The quote you cite is indeed preposterous in its second half. The bit “provided that the Creators have been cooperative” would result in long-winded back and forth legal trench warfare, which only those with money behind them (the university) could sustain.”

Most people who have been around industry or academia would know that universities as a whole in Australia have a very poor track record of commercialising IP. While there are some notable exceptions to the rule, they can largely be counted on one hand.
I was in the music business for many years, and that industry was, at one point in time, oppressive in the extreme, in its dealings with creators. But common sense prevailed and in most agreements in the music industry these days, there is provision from the total return of copyrights where no commercial action has taken place. To see a policy document that represents an implicit regulatory structure for employment where, in the case of non-performance by the corporate entity, there is only the promise to offer a structure for remuneration in the case of the creator being “co-operative”, to me looks like the sort of policy that you might have found in East Germany before the wall came down!
Going back to the earlier part of this article – the forum I attended: I was told a story there about a company that was spun out from one of the universities in Sydney that has a LED technology. This company, Bluglass, has received substantial numbers of millions of dollars from the public coffers to support its growth. I was told by a senior NSW bureaucrat several years ago, that this company was the model to follow to build financial support from the government. After that advice I visited their factory and talked to the CEO. It looks on the face of it like a truly innovative company.
However, its stock price has gone from 83 cents per share in 2007, after the IPO, to 8.3 cents currently, and it is flatlining. I was told at the forum that the universities, as the major shareholders, wont subscribe to the strategy for growing the business, because they don’t want to be diluted and they don’t want to lose control. This is, of course, purely hearsay, so it can hardly be treated as gospel. But, I must say, it rang true to me. Sounds exactly like the sort of thinking that I see – a lack of understanding that we live in a market economy where the financial sector rules. It doesn’t matter whether we think that is a good or a bad thing. It is just practical reality.
When you have a university dominated share register, you don’t get market forces functioning efficiently. When you have a university with a highly oppressive IP policy, you stifle entrepreneurial activity.   Instead, you get those who are not entrepreneurial accepting the policy without question. And those who are entrepreneurial figuring out how to get around it.

My belief is that if government is to play a part in assisting in the birth of innovation, is that they should regulate that universities may not ever take a controlling position in any piece of IP that is created; that the inventor should always have the majority of control. That way the entrepreneurial spirit becomes the driver. The universities will reap their rewards from the downstream economic activity.

 

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