Commercialising Government IP: An Innovation Catalyst Seminar

Commercialising Government IP An Innovation Catalyst™ Seminar Prepared and Presented by Marcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust

Contact Details Marcus Tarrant Managing Director Mission HQ Pty. Ltd. ATF the Innovate Trust Marcus.tarrant@missionhq.com.au +61 3 9005 9710 www.missionhq.com.au © Mission HQ Pty. Ltd. All Rights Reserved 2

Copyright ©2010 Mission HQ. The content, format, structure and communication technique utilised in this document are the intellectual property of Mission HQ Pty. Ltd. This document is strictly classified as “Commercial in Confidence” and intended only for recipients expressly authorised by Mission HQ. Any modification or distribution under altered expression, by any means, in its entirety or in parts, to any person without written approval from Mission HQ is expressly prohibited. Natural Persons or bodies corporate may not copy, retransmit, distribute, publish or otherwise transfer any copyrighted material to third parties or contractors without the express permission of Mission HQ. This document is intended to reflect MISSION HQ’s high-level overview of Innovation Commercialisation. It does not constitute formal professional advice or a recommendation to potential licensors, tax advisors, inventors or other third parties as to a course of action in respect of the processes addressed, and should not be relied on as such. All care is taken in the preparation of this document but MISSION HQ bears no responsibility as to the contents of this document and disclaims any liability with respect to its use or misuse. Intellectual Property & Disclaimer

Some inspiration Innovation is ugly, awkward, clunky, difficult and unknown. It lurks in garages, labs, fields, offices , cafes, pubs, the back of envelopes and around kitchen tables. Innovation is not about answers, but about finding the right problem. An innovation journey will take you through many loops, dead ends, and stale mates. It will force decisions you would rather not make. Innovation is a journey that changes both the destination and the traveller. Where will your journey begin? By Marcus Tarrant © Mission HQ Pty. Ltd. All Rights Reserved 5

Mission HQ Overview The team have undertaken the following projects Federal and State Government Department of Defence (DSTO) – Technology Transfer Advisory Group Department of Industry and Resources (WA) – Investor Ready Programme Design and Opportunity Evaluation Framework Department of Land ‘Landgate’ (WA) – Innovation programme design, and commercial engagement programme (Business Associations), technology commercialisation programme CSIRO – IP management process NICTA – Audinate Capital Raising 4.2m CRC’s CRC-ACS, CRC for Polymers, Dairy CRC VC’s Innovation Capital, Starfish Ventures – Austhink, Audinate, Ceram Polymerik etc.

Queensland government rationale for commercialisation Under commercialisation there is considerable scope to reduce the overall cost, or increase productivity in the delivery of Government services, thereby freeing up funding for other purposes — for example, to provide improved social programs, to invest in economic projects, to reduce and/or limit increases in taxes, reduce debt and so on. © Mission HQ Pty. Ltd. All Rights Reserved 9

what are intangible assets? intellectual assets (IA) intellectual property (IP) intellectual capital (IC) patented technologies trade marks designs copyright databases trade secrets key skills know-how processes market data information un-recorded inventions data business relationships licenses branding reputation human resources Do I have something to commercialise?

Characteristics of Intellectual Property Assets IP assets are divisible through shared ownership, licensing and royalty arrangements. IP tends to be cumulative in nature. It is also difficult to have an exclusive ownership of IP – information and ideas, once exchanged, are difficult to take back Unlike physical assets, the value of IP is not necessarily diminished over time or through use. IP can emerge from a variety of sources. Within government agencies, employees, contractors and funded bodies commonly create IP. Different professions think about IP differently, for example, lawyers refer to IP as having a property right in law; accountants refer to it as identifiable intangible assets; and managers think of it as an investment which has no physical existence. © Mission HQ Pty. Ltd. All Rights Reserved 12

Why is IP Important? IP is a resource that can be used, managed and commercialised to provide economic, social and environmental benefits for government, the community and business. If managed correctly, some of the benefits that can spring from IP resources include: revenue or royalties from commercialisation expansion of business opportunities improved competitiveness economic growth and job creation in the jurisdiction, if IP is commercialised social and environmental benefits from the broader take-up of IP. © Mission HQ Pty. Ltd. All Rights Reserved 13

State of Patent activity in the State of Victoria Patents at PCT or later filed in the name “State of Victoria” (WO 2002/075618) DATA STORAGE SYSTEM 26.09.2002 G06Q 10/00 PCT/AU2002/000320 THE DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENT FOR AND ON BEHALF OF THE CROWN IN RIGHT OF THE STATE OF VICTORIA (WO 2002/075616) IDENTIFICATION AND AUTHENTICATION DEVICE 26.09.2002 G06F 21/00 PCT/AU2002/000317 THE DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENT FOR AND ON BEHALF OF THE CROWN IN RIGHT OF THE STATE OF VICTORIA (WO 2002/075615) ELECTRONIC FINANCIAL INSTRUMENT 26.09.2002 G06Q 40/00 PCT/AU2002/000316 THE DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENT FOR AND ON BEHALF OF THE CROWN IN RIGHT OF THE STATE OF VICTORIA (WO 2002/075575) SECURE DATA LOADING METHOD 26.09.2002 G06F 21/00 PCT/AU2002/000318 THE DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENT FOR AND ON BEHALF OF THE CROWN IN RIGHT OF THE STATE OF VICTORIA (WO 1988/000056) COMPOSITION AND METHOD FOR IMMUNOLOGICAL CASTRATION AND SPAYING 14.01.1988 A61K 39/00 PCT/AU1987/000199 THE STATE OF VICTORIA TILBROOK, Alan, John FAIRCLOUGH, Robert, John (WO 1987/006828) BIOCOMPATIBLE IMPLANTS 19.11.1987 A61K 9/00 PCT/AU1987/000139 THE STATE OF VICTORIA MONASH MEDICAL CENTRE VICTORIAN COLLEGE OF PHARMACY LIMITED (WO 1986/007236) SNARES 18.12.1986 A01M 23/34 PCT/AU1986/000157 THE STATE OF VICTORIA STEVENS, Peter, Lindsay ROBINSON, John, L. (WO 1986/006382) AVIAN ENCEPHALOMYELITIS ANTIBODY DETECTION 06.11.1986 G01N 33/569 PCT/AU1986/000114 THE STATE OF VICTORIA SMART, Ian, James (WO 1985/001657) TREATMENT OF ANIMAL DIARRHOEA 25.04.1985 A61K 33/14 PCT/AU1984/000188 THE STATE OF VICTORIA JERRETT, Ian, Vincent © Mission HQ Pty. Ltd. All Rights Reserved 14

Detailed Opportunity Assessment Framework A detailed framework has been developed to assist in the assessment of potential opportunities. Further details on the assessment framework have been removed from this presentation. Contact the Author for further details © Mission HQ Pty. Ltd. All Rights Reserved 16

-18- Tax What is the best structure for tax? What is the best way to minimize tax at exit? (all parties, ourselves) How to work with tax-exempt partners? How to minimise tax on IP transfer? What tax incentives are available to leverage? What structures do we need to put in place to ensure we are tax effective?

-19- Capital Rasing Do we have the money? What is our/their valuation? What VC funds have capital? Can we support a cash crisis? Can we support/maintain our equity moving forward? Can the opportunity support the time to injection? Where is the best place to get cash from?

-20- Experience Has any one harvested commercialisation activities before? Has anyone managed high growth before? Do we understand our IP and value in the deal? Are our cultures complimentary?

-21- Network Does our network have the pieces of the pie? Capital Management Start-up Experience Sales channels I.e: can we acquire resources via the network?

-22- Excludability What is the IP landscape, can we register patents? Can we create an industry standard? (individually, with market leaders) Will this have conflicts with the Trade Practices Act, National Competition Policy etc?

-23- Complimentary Assets Does the suitor have what we don’t? Cash? Sales Channel? Experience? IP? Culture? International access? History of success?

-24- Risk Do we have a large appetite for risk? Can we have a large appetite? What are the implications of a high risk deal going sour? Do we have the time and resources? What is the opportunity cost? How to we get cash out? Dividends/Liquidity event.

-25- Politics Personal agendas Emotional attachment to opportunities (When to pull the pin) Government policy agenda I don’t want to work here but I want to keep my benefits? Secondment, what are the impacts? Morale, entitlements?

-26- Market Forces - Porter’s 5 forces The threat of new entry The power of buyers The power of suppliers The threat of substitutes Competitive Rivalry Legislation/policy change

All commercial transactions are hard, time consuming and expensive There are many facets to any deal, this is further complicated by the checks and balances associated with government. Structure Ownership Valuation Due diligence Human resources Capital Politics market forces Competition Regulation etc Ministry approval Treasury approval Imposed restrictions Auditing Levels of control Extra due diligence Policy alignment -27-

-30- Alternate commercialisation modes

-31- How are commercialisation strategies actually chosen? Complementary asset environment Others Go where the easy money is Past Experience Internal constraints & politics Business network of the entrepreneur Internal Innovation (intrepreneurship model) Risk adversity Market forces etc

-32- Commercialisation Strategy

-33- Some questions to ask… Is the opportunity real??? How big is the gap? What is the best options for my IP? What are the benefits of licensing as opposed to assigning rights to my IP? How do I avoid getting into a situation were I am competing with the parties I have licensed to? Does this new IP complement my existing core business? Do I have the right business capabilities to commercialise my product to its best advantage? Do we wish to commercialise to a world market? (ask all the questions again) Can we secure ownership of the IP? What is our appetite for risk? How much money do we wish to make? How much control do we need/want?

Queensland Commercialisation Guidelines Major stand-alone activities will be established as business units and operated through separate Trust Funds. Arrangements will achieve at least a Budget neutral outcome. Policy and regulatory roles will be separated from commercial activities within the Portfolio Department. Accrual accounting will be adopted and management information systems will be enhanced to facilitate performance monitoring. Commercial disciplines will be applied (e.g., Government Service Obligations (GSOs); dividend policy; commercial pricing arrangements; performance monitoring; taxation; capital structure). Business units will utilise the enterprise bargaining framework to work towards best practice in industrial relations and human resource management. This may involve separate award or industrial agreement coverage. © Mission HQ Pty. Ltd. All Rights Reserved 35

Particular challenges for Government and Statutory Authority Innovation Competitive neutrality Enabling free choice of supplier by clients; Pricing at efficient market rates; Setting performance targets in terms of acceptable rates of return; The payment of dividends and tax equivalent payments. Giving management more autonomy and at the same time making them more accountable for performance. © Mission HQ Pty. Ltd. All Rights Reserved 36

Selecting what can be commercialised in the government context Consumers of the goods and services can be identified; Charging for the goods and services is technically feasible; Users are in a position to influence their consumption; and There are no public interest or equity reasons why charges should not be attached to the goods or services that are being produced. © Mission HQ Pty. Ltd. All Rights Reserved 37

Where to look for commercialisation opportunities Software development projects where the agency owns the intellectual property Where excess capacity may exist (for example server or back-up services) Tools or techniques that have been developed to enable improved performance of day to day functions Leverage of skills or capability. © Mission HQ Pty. Ltd. All Rights Reserved 38

How can we assist? Utilisation of our opportunity assessment framework. Structuring commercialisation compliance frameworks for government agencies and statutory authorities. Identification of potential intellectual property or intellectual assets for commercialisation. Training commercialisation teams. Executing on individual opportunities. © Mission HQ Pty. Ltd. All Rights Reserved 39

-40- Parting thought “ I was seldom able to see an opportunity until it had ceased to be one ”. Mark Twain

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