State aid rules are slowing down knowledge valorisation, say universities

Universities are calling for EU state aid rules to be clarified and for exemptions to be introduced to make it simpler for them to collaborate with industry. 

The state aid rules were introduced to prevent EU governments from distorting competition by offering unfair subsidies to national companies. But the blanket application of these constraints across all sectors “is really detracting from our ability to move as quickly as the Americans and the Chinese in terms of bringing new innovations to the market,” said Ronan Cunningham, director of DCU Invent, the technology transfer office (TTO) at Dublin City University.

One of the key challenges comes when a university wants to enable a new spin-out or an established company to commercialise its research. For the transfer of intellectual property (IP) rights not to be considered state aid, the spin-out or the company must pay the market price.

This raises several issues. First, it can be complicated to determine a fair market value for IP. Second, this value is often evident only at the end of the project, and this uncertainty may put companies off collaborating. Finally, early-stage spin-outs often lack the funds to pay the market price.

The EU’s de minimis regulation allows companies to receive state aid without notifying the Commission, but only up to a limit of €300,000 over three years, and this includes most national R&D grants. 

PERFI Technologies, a 3D printing spin-out from DTU - Technical University of Denmark that was founded in March 2024, expects to reach this limit by the end of 2025.

“If you’re a serious tech venture, you will definitely reach that [limit] very quickly,” said co-founder and chief executive Kasper Ingeman Beck. “When you have American companies, and in particular Chinese companies, that receive almost unlimited state support and free grants, why do we have to put a structural barrier to our homegrown innovation in Europe?”

He also takes issue with the additional costs involved in commercialising an academic innovation. While PERFI has a licencing agreement with DTU for the IP rights held by the university, involving both an upfront payment and royalty fees, the business case demands wider protection. So, PERFI has to bear the costs of extending the patent protection in other jurisdictions, including legal and application fees. “That’s a huge cost for a small company like ours,” Ingeman Beck told Science|Business.

He suggests the rules should simply ensure the public R&D costs are covered in IP negotiations, so that companies do not benefit from taxpayer money, instead of incentivising universities to make a profit from tech transfer activities.

Deep tech

According to Cunningham, deep tech start-ups are at a particular disadvantage, because the perceived value of the IP underpinning the business will higher. Yet these technologies also need significant, sustained investments to reach the market.

Given the long time between public investment in a technology and any market effect, he argues that universities should benefit from an exemption for deep-tech or early-stage R&D.

Jan Axelsson, senior advisor to the vice-chancellor at Linköping University in Sweden, agrees an exemption for deep tech would be a good starting point. “That is where we experience most of the problems now,” he said. He knows of cases where a company has decided against entering into a collaboration with the university after judging compliance with state aid rules to be too complicated.

When complying with state aid rules, universities must think not only about the money they spend, but other assets such as use of infrastructure and researchers’ time. All of these considerations slow down agreements with industry. 

Some of the administrative burden is particularly hard to swallow. For example, Linköping University has been selected to host a new EuroHPC supercomputer and even though SME access will be free of charge in some cases, the university’s lawyers expect to have to calculate the value of that access to comply with state aid rules, Axelsson explained.

Marianne Thellersen, senior vice-president of innovation and entrepreneurship at DTU, says she would like to offer university start-ups access to office space, laboratories and other infrastructure at an affordable price, but she is unable to do so for fear of breaking state aid rules. “If your university is situated in an expensive area, the market price is high and they cannot pay that,” she said.

As a result, students who found start-ups end up moving away. “We want them to stay close by, and we want to collaborate and co-develop with them, and that's where we often are told that we're not allowed to do so,” she said.

Thellersen would like to see the rules clarified so that universities do not need to be so cautious, as existing exemptions are overly complex and therefore not used. She also suggests that an exemption for university start-ups up to a certain technology readiness level, or until they reach a certain sales level, could help bring research to the market.

Disagreement

Not all research organisations believe major changes to EU state aid rules are needed, however. Tomaž Lutman, technology manager at Slovenia’s Jožef Stefan Institute, says the rules “help us to have a better negotiating position” when dealing with industry.

Companies will often argue that public organisations should give IP rights away for free, but Lutman can refer them to the EU rules. “If we earn money on the market, we can invest it again into basic research, and this builds our institution as a whole,” he said.

There are also tools which allow research organisations to comply with state aid rules while also helping spin-outs, such as licence agreements that charge a percentage of sales revenue rather than a fixed amount, he said. Lutman coordinated the ExSACT project, which looked at collaborative research and state aid rules as part of the EU-backed ATTRACT initiative.

Others are sceptical of claims that state aid rules require expensive licencing agreements. The IP issue is “completely made up by the universities”, argues Bastian Burger, director of TUM Venture Lab Software/AI, a joint initiative from Technical University of Munich and its entrepreneurship centre, which aims to help researchers think about practical applications for their work.

“A fair value for a patent that's not in use is probably very low, and if you look at the market, almost every patent is not in use, so almost all patents are worth literally zero euros,” he said. He suggests technology transfer offices could set the fair value at €100 for example and give the rights to the founders.

The bigger issue with the rules, according to Burger, is the €300,000 cap. For start-ups, overheads including IP rights, office space and laboratory space usually make up around 10% of costs. The rest is people, he said. And that’s where the state aid ceiling is a barrier, as it makes it difficult to use grants to hire staff.

The de minimis rules also require precise bookkeeping, which is filled with complications. “If you start as a researcher and then decide at some point you want to do this as commercial project, what happens with grants that were given to you as a researcher? Do you have to pay them back?” Burger does not know of any cases where grants had to be returned, but he says researchers often have to argue their case.

Cunningham of DCU Invent and Axelsson of Linköping University both contributed to a European Consortium of Innovative Universities white paper on knowledge valorisation, including proposed changes to state aid rules, which will be presented at an event in Brussels on March 12.

Meanwhile, European Commission president Ursula von der Leyen has acknowledged that state aid rules need to be changed to achieve a level playing field, not only within the EU, but globally. “State aid has to be faster, it has to be more flexible, and it has to take into account the global dimension,” she said when presenting the Competitiveness Compass in January.

It’s currently unclear whether changes will be introduced across research and innovation as a whole, or only in certain strategic sectors, such as clean tech.