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Selling our IP to the Chinese

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An Aussie swimming coach sells training secrets to the Chinese and it hits the front pages of the tabloids. Fair enough. But our precious intellectual property has been flowing the wrong way for generations. Rowan Gilmore contemplates a troubling epidemic.

The Olympics may be a distant memory, but we still keep our favourite recollections. One that caught my attention was the Sunday headline that screamed “Coach sells pool secrets … and Jess’ dream”. Australian swimming coach Ken Wood was reported to have sold his top-secret training methods to the Chinese coach who trained the gold and silver medallists in the 200m butterfly final, relegating his own protégé, Jessicah Schipper, to a bronze. Wood claimed that the poor pay for Australia’s top swim coaches left him little choice but to seek international customers for his private program, based on 40 years of swimming knowledge. A gold medal slipped through Australia’s grasp and the press and public were outraged.

Unreported is an invitation extended by China’s premier technology transfer institute (ITTC at Jiangsu) and the Chinese Embassy for me to attend an international conference to help facilitate the sale of some of Australia’s hottest intellectual property (IP) from its leading universities and research organisations to Chinese businesses. It is notoriously difficult to commercialise such IP in Australia. Billions of potential economic wealth might slip through our grasp and the Australian public doesn’t care at all.

Although the outrage at the swimming loss is understandable, it’s not the first time our secrets have gone offshore. I wrote last April about the Chinese entrepreneur, Shi Zheng-Rong. A PhD. student at the University of NSW in the late 1990s, he used the skills and research he acquired to start up Suntech Power, a company that produces solar panels and is today worth over $6 billion dollars. He couldn’t raise the capital in Australia, but went on, undeterred, to develop one of China’s top companies, in the same way that two Chinese medallists are now the world’s top butterfly swimmers.

Is selling our IP short-sighted? If our own IP won’t sell in Australia, should we sell it in China? “Yes!” say the free-market economists in Treasury. Many would even argue that all IP should be put into a creative commons, or given away, so it can be used as a building block by others for further development and research, increasing options for future generations. In fact, 95 percent of it already is. The multiplicity of options that might arise from public research explains why the Productivity Commission is quite happy to argue that governments should fund it.

The Productivity Commission also holds the converse to be true, which is that if Australian investors are unwilling to develop specific products from IP that results from research, governments should not lower that risk by subsidising their development activity. Our competitors in Singapore, Taiwan and the rest of Asia love that one.

Perhaps Chinese investors have a higher risk appetite to commercialise IP than do our own. How ironic! In Australia, there are two compelling data points that highlight the impact when government stops helping support the initial commercialisation of IP. The first occurred in 1996 when the Federal government slashed the R&D tax concession. Business R&D dropped precipitously, and only now has it recovered to the same levels. The second was in May 2008, when Commercial Ready was stopped without warning. Although it is too early to be sure, anecdotal evidence suggests numerous small firms are now fighting for survival and other start-ups have moved offshore. If governments don’t help offset the risks faced by first-mover companies, it seems few others, in Australia at least, will.

Could selling IP overseas ever become a sustainable business? Many engineering and finance companies for example have built large export service businesses on the back of their skills and IP, but they sell integrated services rather than raw knowledge. These companies make more money by providing services further down the value chain than does an entrepreneur simply licensing IP or a coach selling swimming secrets. As the old adage goes “sell the meal, not the recipe”. Australia can never achieve real wealth by simply being an IP factory. Creating IP is an essential first step to using it, but it should not stop there. Rather, Australia must take its IP further along the value chain in order to derive real value from it, whether economic, social or environmental. Companies reading Anthill know that although IP is a valuable asset, it’s in the delivery that its total value is realised.

The tabloids have got it right, and it’s taken a loss in the swimming to highlight that we need to be careful with our IP. Giving the swimming training manual away rather than using it to build barriers to entry and offering swimming services is as short-sighted as selling IP before knowing what it’s really worth.

In case it does ever make the news, I’ll be taking it slow at the conference.

Dr Rowan Gilmore is CEO of the Australian Institute for Commercialisation, which helps businesses, research organisations and governments increase the success rate of commercialising Australian innovation.

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