Spinning along: CSIRO's knowledge business.

SUMMARY

This paper addresses the development of CSIRO's intellectual property commercialisation from its beginnings in 1949 to 2006. The paper focuses on spinoff companies in commercialisation and the particular drivers, both economic and policy-based, that have led to particular patterns of commercialisation and spinoff formation over the years. Trends are analysed in three main periods, which correspond with particular policy approaches to CSIRO by its owner, the Australian Government: 1949-1983 (science focused, ad hoc commercialisation, little or no overt government influence); 1984-1996 (organisational commercialisation policies emerge, government sets external earnings targets); and 1996-2006 (more sophisticated organisational management of commercial interactions, government involvement in broad research priority setting and extensive grant schemes). Case studies illustrate the themes discussed. Successful commercialisation by CSIRO will require continuation of the careful approach to commercialisation that has evolved in the last 5-6 years.

KEY WORDS

CSIRO; innovation; commercialization; spinoff companies; technology transfer; science policy

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This paper addresses the development of CSIRO's commercialisation strategy from its beginnings in 1949 to 2006. A particular focus of the paper is the role of spinoff companies in commercialisation and the particular drivers, both economic and policy-based, that have led to particular patterns of commercialisation and spinoff formation over the years.

'Spinoff' is a term that is used in a range of ways by different authors. CSIRO's own definition of spinoff companies is broad and includes all companies founded on CSIRO intellectual property, including those based on research know how rather than patents. These may or may not include those where CSIRO has an equity holding, and those where a CSIRO researcher has left the organisation to joint the new venture.

The term 'spinoff' is used in different ways by observers; some defining spinoffs only as companies where the source institution has taken an equity holding in exchange for assignment of intellectual property--meaning that return to the institution comes in the form of capital gains on sale of the shareholding (Hearn 2004)--while other writers have tended to prefer definitions that require continued involvement of the inventor in some form or another, usually as a founding director (eg Mustar 1995). Others, including the Association of University Technology Managers in the US, do not use the term at all, referring only to startup companies explicitly formed to license R&D institution intellectual property, including those where the new company is at arms length from the R&D institution, those where an inventor has left the organisation as a founder or is involved as an adviser; and those where the R&D institution has equity in the new entity (AUTM 2004). Definitions have also changed over the years, making comparisons of performance difficult over time.

CSIRO's own definition of spinoff companies is broad, including all companies that have been founded on CSIRO intellectual property, including those based on research know-how rather than patents, and so tends to increase the numbers of firms reported as spin offs, as can be seen in the figures in a later paper in this volume. These may or may not include firms where CSIRO has an equity holding and those where a CSIRO researcher has left to join the new venture.

This variability in definitions makes it very difficult to compare CSIRO's involvement in spinoffs with that of other R&D organisations so we have not attempted any international comparisons of CSIRO's spinoff performance.

CSIRO was founded in 1926 as the Council for Scientific and Industrial Research (CSIR), charged with supporting research into primary industries, specifically plant pests and diseases, animal pests and diseases, fuel, food and forestry (Collis 2002). CSIR held a strong belief both in working for the 'public good' and in undertaking work based on the twin principles of scientific excellence and with scientific freedom (Collis 2002). Under the current 1949 Act, CSIRO must carry out scientific research for the benefit of Australian industry and economy and to provide environmental and social benefit to all Australians (www.csiro.au/csiro/content/stan dard/ps1dz.htm.

The means by which CSIRO has addressed its national benefit objective have varied, with at least three relatively distinct phases of industry interaction. This paper discusses its commercialisation history, focusing on the influence of government policy as for these changes.

CSIRO AND COMMERCIALISATION

Phase 1: 1949-1983

In its early years, CSIRO's research led to a number of notable inventions but few were achieved through what would now be defined as a commercial process--licensing or assignment to a company for exploitation. The main focus of technology transfer (and external income) during this period was agricultural industries including development of wool processing technologies and management of the feral rabbit population through biocontrol by myxomatosis.

Other research led to significant 'firsts', including building one of the world's first computers (CSIRAC) and discoveries in radio astronomy. One of the most notable of these 'firsts' was atomic absorption spectroscopy (AAS). Invented by Alan Walsh, a patent was submitted in 1954 and was licensed to Hilger Watts in the UK for a 5% royalty per sale. However, the first instrument was not sold until 1958 and the licensee lost its technical expertise over time. CSIRO then licensed the technology in 1962 to Techtron Appliances Pty Ltd, a small Australian manufacturer, for 5 [pounds sterling] per instrument sold. Three years later Techtron was selling hundreds of instruments and was winning export awards (Willis 2003).

By 1966 Techtron had grown 20-fold and was producing 12% of the world's AASs, partly because of demand from Australia's developing minerals exploration industry and aided by government industry support policies. After a further two years the export earnings had again doubled, as had the staff. Expansion of Techtron was supported by a 200% R&D tax concession, a payroll tax rebate based on increased export sales, and exemption from some import duties. CSIRO helped the company through provision of staff time, as the Chief of the Division wanted to help develop a new Australian scientific instruments industry (Willis 2003). Techtron was sold to Varian Associates Inc. in 1967. Its subsidiary, Varian Australia, still sells AASs.

Even at this early stage of CSIRO's development, the case of the AAS shows awareness of the requirement to patent before publication, (1) the importance of good marketing and, the slow speed of uptake of a radical new product. However, during this same period other commercially valuable information was given away by CSIRO or was published before it could be protected. One of the most famous such cases is what is now known as Aerogard[R] personal insect repellant, the formula for which was given to the Mortein insecticide company following its demonstration by CSIRO during a royal visit to Australia in 1954 (Collis 2002).

Phase 1 spinoff companies

During this early period, there were few spinoff companies. The first spinoff company is believed to be Ceramic Oxide Fabricators Pty Ltd, founded in 1971 to manufacture ceramic oxide equipment. The next spinoff company, Interscan Pty Ltd (see below), was founded in 1979. Between one and three firms were spun out each year from 1980 to 1983 inclusive but the 'spinout' process was often driven by the inventing scientist acting independently of CSIRO itself. Most of these startups were focused on mining and energy (4) and manufacturing (3), all areas amenable to patenting, with two in business services and one in IT (author's database).

There were four main reasons for establishment of new companies in Phase 1 (Thorburn 1997). Each of these is discussed below.

Of the ten companies established in this period, four were founded after failure to identify a suitable licensee ('technological' impetus). Australian business has always been dominated by small employers--in 1997-98, for example, over 94% of all employing businesses were small (less than 20 employees) with only 3% classified as medium sized (20 to 200 employees) and the remainder large businesses.

Three of the firms were established by scientists who had decided to leave CSIRO after changes in research priorities or closure of their project or program ('institutional' impetus). Several of these were asked to leave the institution because their activities were 'too commercial' for CSIRO's prevailing culture, which focused on research and resulting research publications. Company founders from the period suggest that scientists developing commercial products were perceived as working against CSIRO's interests.

CSIRO established two of the firms to be able to keep profits from consulting. Establishment of a subsidiary both enabled these earnings to be returned to CSIRO as a dividend and provided a focus for marketing to industry customers. Both of these firms--SIROMATH and SIROMINES--sold contract research services, and used the prefix SIRO on their names as part of their branding.