Special Report 104 - Waterford Institute of Technology - Development and Disposal of Intellectual Property in FeedHenry
Published on 13 November 2018
This report examines issues relating to the development and disposal by Waterford Institute of Technology of its interest in a company called FeedHenry Ltd.
Policy on commercialisation of research
National codes and guidelines encourage higher education institutions (HEIs) to seek, where possible, to commercialise the outcomes of their research. One of the options available to HEIs to exploit intellectual property (IP) with commercial potential arising from State-funded research is to vest the IP in a campus ‘spin-out’ company.
Staff of HEIs may be involved in the establishment of spin-out companies. This requires institutions to manage potential conflicts of interest around their relationships and interactions with spin-out companies. In order to ensure risks are appropriately managed, and to ensure the HEI’s and the State’s financial interests are protected, it is necessary for HEIs to have policies and procedures in place to manage commercialisation.
Evolution of FeedHenry
The Telecommunication Software and Systems Group (TSSG) was established in Waterford Institute of Technology in 1996 as an internal research body. The group undertakes both basic and applied research work.
From 2002 to 2004, TSSG led an EU-funded project focused on creating open platforms for mobile telecommunication systems. The experience gained from that project eventually led TSSG researchers to develop a technology with commercial potential that became known as FeedHenry.
Enterprise Ireland supported the development of the FeedHenry technology by providing funding to the Institute for a number of related ‘proof of concept’ and commercialisation projects. Enterprise Ireland funding to Waterford Institute of Technology for those projects totalled nearly €1 million.
In June 2008, a number of individuals, including staff of TSSG, registered a company called FeedHenry Ltd.1 In September 2008, Waterford Institute of Technology awarded the company a trial licence to use the FeedHenry technology. In December 2010, the Institute transferred full ownership of the IP to FeedHenry Ltd, in exchange for an equity stake in the company.
Enterprise Ireland subsequently invested a total of €800,000 in the company under its programme for assisting innovative start-up companies with high growth potential. In 2014, FeedHenry Ltd was sold to a multinational technology company for a gross consideration of approximately €63.5 million. According to Waterford Institute of Technology, at the time of its sale, the company employed approximately 65 people in the Waterford region.
IP policy at Waterford Institute of Technology
A national code of practice2 was introduced in 2004 recommending that research-performing organisations should adopt local policies to deal with commercialising IP and managing conflicts of interest. The Governing Body of Waterford Institute of Technology adopted its own commercialisation policy in February 2010. Significant agreements and decisions in relation to the assignment of the FeedHenry IP were made subsequent to the adoption of the Institute’s policy.
The February 2010 IP policy proposed the establishment of an internal Commercialisation Committee whose terms of reference were, inter alia, to “review and approve all licences, agreements or other contracts involved in the commercialisation of intellectual property, including those associated with spin-out companies, in which the Institute is involved”.
Minutes of the Commercialisation Committee’s first meeting on 6 December 2010 do not record any discussion of the impending assignment of IP to FeedHenry Ltd. Given its broad membership from across the Institute, the Committee could have provided additional oversight and transparency over the Institute’s interests and assisted in reviewing the details of the agreements made in relation to FeedHenry.
The IP policy also stated that, as a guideline, the Institute should consider a 15% equity stake in spin-outs to be appropriate in return for assignment of its IP. A licence agreement between the Institute and FeedHenry Ltd in July 2010 provided for the Institute to take a 15% share of the equity in the company, in exchange for full assignment of the IP, on condition that the company attracted €500,000 in investment funds. The Institute agreed in December 2010 to a reduced equity stake of 10.8%. The basis for the agreed reduction in equity was not documented.
Governance and management of conflicts of interest
The Governing Body is ultimately responsible for the Institute's governance and for the protection of its assets. Although it approved the commercialisation policy in February 2010, the Governing Body was not involved in any of the key decisions made during the commercialisation and assignment of the FeedHenry IP. Due to the potential value of the technology, the departure from policy on the share of equity and the fact that senior management had conflicts of interest through personal shareholdings, the Governing Body should have been actively overseeing the process.
The examination found that neither Institute nor national policies deal with situations where staff members have significant personal interests in companies acquiring IP from their employer organisation.
The negotiations for the rights to use the FeedHenry IP were led on the Institute’s behalf by the (then) Secretary/Financial Controller, who was not a shareholder in any TSSG spin-outs. The Institute’s (then) Vice President for Research was a shareholder in FeedHenry Ltd and was not formally involved in the negotiations with the company. Many of the details of the negotiations were managed by officials from the Research Office. These officials reported to the Secretary/Financial Controller in respect of those issues, but in all other respects reported to the Vice President for Research.
Costs and benefits to the State
When a campus spin-out company is established, there will often be a sharing of facilities and resources between the company and the HEI. In such cases, the HEI should ensure that there is an appropriately detailed service level agreement (SLA) in place and a well-defined system for capturing and allocating costs.
In the case of FeedHenry Ltd, there was no SLA or cost-sharing agreement with the Institute in place prior to November 2010, even though the company’s registered address had been on the Institute campus since 2008.
Following the sale of FeedHenry Ltd in 2014, Enterprise Ireland and Waterford Institute of Technology received €4.5 million and €1.6 million respectively in respect of their shareholdings.
Out of its receipts of €1.6 million, the Institute disbursed €639,000 to other beneficiaries under pre-existing arrangements. It paid €147,000 of its share to a financial institution under a 2005 agreement relating to funding for the establishment of the Institute’s ArcLabs Research and Innovation Centre. The Institute was unable to locate a signed copy of that agreement when requested by the examination.
In line with an incentive scheme under the Institute’s IP policy, €492,000 of its proceeds from the sale of FeedHenry Ltd was applied to pay bonuses to 80 TSSG staff (€5,575 per staff member, plus €575 each in employers’ PRSI). Some of the TSSG staff who received payment under the incentive scheme had also been shareholders of FeedHenry Ltd so had already benefitted financially from the sale of the company.
The Institute retained €951,000 from the proceeds of the sale of its interest in FeedHenry Ltd.
Footnotes:
1 To avoid confusion with terminology: throughout this report, FeedHenry refers to the technology/intellectual property developed by Waterford Institute of Technology while FeedHenry Ltd refers to the company.
2National Code of Practice for Managing Intellectual Property from Publicly Funded Research, Irish Council for Science, Technology and Innovation, January 2004.
