University Challenge — Can Todai ‘make hay’ with Japan Inc?

Professor Shigeo Kagami

Dr. Shigeo Kagami, University of Tokyo

Universities in Japan generate more jointly-held patents through collaborative research with big business than do universities in all other nations. Surprisingly, few are ever commercialized. The issue is not simply academic.

The University of Tokyo (Todai) is under financial pressure to replace lost government operating grants. The grants — outright gifts from taxpayers — are declining 1% each year, since the government spun out national universities as independent organizations, under the National University Corporation Act in 2004. Then, government-owned public universities, which previously were managed by Japan’s Ministry of Education, Culture, Sports, Science and Technology (MEXT), became free to manage their own affairs.

MEXT grants account for 35% of Todai’s $2.5bn operating budget, down from 51% in 2002.

To make up for lost proceeds, the school competes against other Japanese universities for non-gift government research grants. It also collects donations from wealthy graduates and individuals. The $70m received in gifts are small when compared with other world-class institutions, like Stanford that received $1.63bn in gifts last year (representing 30% of their income).

Todai further set up a technology licensing office (TLO) to monetize inventions made at the school. Before 2004, researchers owned intellectual property, because national universities were not allowed to own patents. After 2004, inventions made at the school became, technically speaking, university assets.

Last year, about 1,600 collaborative research projects spawned 400 inventions, representing two-thirds of all inventions generated at the school. In total, $6m in royalties were collected. Dr. Shigeo Kagami, who sits at the hub of Todai’s startup ecosystem — now home to 276 startup ventures — thinks that royalties should be much larger. In addition to teaching students to entrepreneur, he is General Manager of the Office of Innovation and Entrepreneurship.

Kagami points to great inventions like those by Google’s Larry Page and Sergey Brin, made while studying at Stanford University. These earned Stanford $341m in royalties to date.

Another, an invention by Tokyo University’s Professor Hiroaki Suga, is being commercialized by PeptiDream, a Japanese biotech company now listed on the first section of the Tokyo Stock Exchange. Its market value is close to $3bn. In the future, Global pharmaceutical firms will pay PeptiDream a royalty on drugs developed by their screening process.

Kagami thinks PeptiDream’s standalone patents, and others like it, could produce huge income for the school. However, most jointly owned patents in Japan “go nowhere”. The reasons are varied, he says.

It can be difficult to imagine business applications for a new technology. The market for an application can be too small. It can have potential, but be non-core. Often however, big Japanese firms have a tradition of only marketing technology produced in their own labs.

In the run up to World War II, Japan’s government selected a few big manufactures to produce war armaments. Bureaucrats arranged labor, corporate governance and banking laws to support them. They grew dominant after the war, when manufacturers switched to making consumer products. These firms look only to the outside world for inputs, like labor and raw materials. As a result, Japan Inc collaborates with universities more often to gain entry into the lab so they can hire the best researchers — not to commercialize jointly produced technology.

“Universities in Japan work for big corporations,” believes Kagami. For the privilege, firms paid Todai $70m last year. Too many treat the cost of collaborations as the price of a “ticket” to access talented researchers, he suggests.

The professor, whose responsibilities have greatly expanded since arriving at Todai in 2002, aims to create large-scale, more productive collaborations with big business going forward. He asks Japan’s corporations to carve out people and technology as separate entities to champion spinout ventures. The university can shortly support these with investment from a new $400m venture capital fund. The fund is operated by the University of Tokyo Innovation Platform Corporation (UTIPC), a 100% subsidiary of the university.

Kagami is cautiously optimistic firms will cooperate. The basis of global competition has changed.  “Some smart, business leaders are fully aware that unless firms adopt open innovation as a strategic framework, they are not going to be able to compete anymore,” he says, noting, “Innovation is the name of the game today.” The Abe Administration is also making strides to make Japan more globally competitive, with adoption of the corporate governance code and other third-arrow reforms.

Changing the entrenched ways of big business will not be easy. Kagami thinks there is only a two to four year window of opportunity. “If that doesn’t work, we should refocus on startups by creating many new ventures that are based on the university’s standalone projects,” he recommends.

Dr. Shigeo Kagami is Professor and General Manager, Office of Innovation and Entrepreneurship, Division of University Corporate Relations at University of Tokyo. In addition to promoting entrepreneurship through education and startup incubation, he is responsible for developing partnerships with big business.

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