INTERNATIONAL SCIENTIFIC COOPERATION POLICY

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Sustainabilityof ISTC party funded projects

EUROPEAN COMMISSION

Directorate-General for ResearchUnit N.1 – International Scientific Cooperation Policy

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Directorate-General for ResearchInternational Scientific Cooperation Policy

EUROPEAN COMMISSION

2004

Sustainability of ISTC party funded projects

A report by an independent expert

Prof. Dr. Peter J. IDENBURGProfessor emiritus, Management of Technology

Delft University of Technology (NL)

“This report has been prepared under contract with the ISTC and paid from fundsprovided by the European Commission. It’s findings are solely those of its author(s)

and do not engage the Parties of the ISTC or the ISTC Secretariat.”

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Executive Summary of main recommendations .............................................................2 Introduction ......................................................................................................................4 Chapter 1 The project flow of Party and Partner funded projects Upstream and downstream changes desirable........................................8

Project flow .................................................................................................8 Evaluation criteria and transparency .........................................................11 Commercial and societal value..................................................................11 Downstream decision making and framework measures ..........................12 Recommendations .....................................................................................13

Chapter 2 Evaluation criteria ...................................................................................13 Recommendations......................................................................................16

Chapter 3 Weapons scientists involved ....................................................................16 Recommendation .......................................................................................17

Chapter 4 Co- funding of ISTC projects..................................................................17 Recommendation .......................................................................................18

Chapter 5 Intellectual property rights .....................................................................18 Introduction................................................................................................18 A cultural revolution ..................................................................................18 ISTC IPR policy.........................................................................................18 Recommendation .......................................................................................19

Chapter 6 The ISTC Secretariat...............................................................................20 Introduction................................................................................................20 Project management...................................................................................20 Controllers..................................................................................................20 Matchmakers..............................................................................................20 Recommendation .......................................................................................21 Sustainability activities ..............................................................................21 Recommendation .......................................................................................21 Support activities .......................................................................................22 Recommendation .......................................................................................22 Standard ISTC-research institute agreements............................................22 Recommendation .......................................................................................23

Chapter 7 ISTC project income................................................................................23 Recommendation .......................................................................................23

Chapter 8 Implementation ........................................................................................23 Notes Attachments 1. Standard questionnaire for submitted projects 2. Technology Fields 3. List of persons interviewed

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Executive Summary of main recommendations ISTC plays an important part in the Russian innovation system. Looking forward, it is strongly recommended that, in line with similar developments elsewhere in the world, ISTC makes new efforts to realise the potential societal and commercial innovation value of its party funded projects. The ISTC party funded projects, in the years to come, should gradually develop from Science & Technology in search of societal needs and commercial markets into societal and commercial needs in search of Science & Technology. There are more Edisons and fewer Einsteins required. After review and approval of the following 20 recommendations by the competent ISTC authorities, these steps can all be implemented without further delay. Taking those steps will contribute significantly to the sustainability of ISTC and of the Science & Technology institutes involved in these projects. Directly and indirectly this will contribute to the non-proliferation objectives pursued by the Founding Parties at the time ISTC was founded, ten years ago. 1. Reduce length of decision making to three months between project submission and GB

approval; 2. Proceed further with targeted technology initiatives (ISL/ programmatic approach); 3. Develop further targeted initiatives (special calls) and an assessment of Institute

innovation potential; 4. Assess commercial and societal innovation potential at time of project submission; 5. Make project flow more transparent for S & T sector, foreign collaborators and

(potential) funding Parties; 6. Ensure that commercial value of projects increases dramatically; 7. Competitive bidding and ranking of projects submitted by Technology Field; 8. The ranking to be made on scientific and innovation value. Distinguish between

commercial and societal innovation; 9. Each Technology Field is considered twice annually according to an annually

published schedule; 10. SAC meets four times annually and considers 4-5 Technology Fields per meeting; 11. Commitment of foreign company and scientific collaborators through earnest money. 12. Commitment of public authorities through clear undertakings; 13. Review applicable criteria for weapons scientists involved in ISTC projects; 14. Pursue greater flexibility in Co-funding of ISTC projects from different sources; 15. Significantly upgrade ISTC’s handling of IPR issues and review the equity and

effectiveness of current ISTC standards in the field of non- disclosure agreements and standard license agreements;

16. Ensure high quality SPMs who act both as Controllers and Matchmakers; 17. Strongly develop current sustainability activities and seek access to foreign high-

technology SMEs, inter alia through anchor points in the national capitals of Funding Parties (including EU Member States);

18. ISTC should continue to provide support to project stakeholders on an ad hoc basis in the field of Export control, Procurement of visa and Hedging currency risks;

19. Review the standard project agreements between ISTC and the S & T institutes;

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20. ISTC should study the issue of ISTC income from the commercialisation success of ISTC projects;

Introduction Ten years ISTC March 2004 marks the tenth anniversary of the International Science and Technology Center in Moscow (ISTC). This Center was set up as an international scientific enterprise in nonproliferation and world security and now encompasses 37 member countries. When the ISTC started, its challenges were not only technological, managerial, cultural and logistical but also political and diplomatic. After these years we may conclude that the ISTC effort has been highly successful and that the Center has arguably become a key player in the Russian innovation system. Altogether the Center has launched and arranged funding for some 2000 public and private research projects (a score of close to 50% of the 4200 proposals received) in the Russian Federation and other former Soviet Union states, in an amount in excess of US$ 600 mln. In this sense the Center has significantly contributed to the conversion of the activities of former weapons scientists and technological institutes into more peaceful pursuits and to their integration into the worldwide scientific community. During these years of operation the Center has gained stature as a strategically important factor in preventing nuclear, chemical and biological weapon capabilities from falling in the hands of rogue states and terrorists. There are many success stories to be told about Nanotechnology, Biotechnology, Information and Communication technology, Katalysis, Medical and Health applications, Energy and Fuel cells, Chemical sensors, Optical ceramics and the like with potential commercial application. In the public domain successes have been achieved in nuclear threat reduction, disposal of weapons grade plutonium, destruction of chemical weapons, nuclear material control accounting, post emergency measures after chemical accidents, homeland security, environmental monitoring, rehabilitation, noise abatement, cleaning and storage of nuclear waste, the cleaning of space, other forms of waste management, aircraft engine noise emission and many more. ISTC’s uniqueness is based on its excellent knowledge of and access to many of hundreds of research institutes, safety and security in the operations involved in projects of a sensitive and confidential nature, exemption of tax and customs duties, privileged import and export procedures and its access to top Russian authorities. In addition ISTC has a competent staff in Moscow of more than 200 from 19 nations and is strongly linked into global research networks. All these elements make ISTC a pearl in the Russian innovation system at the early years of the 21st century, considered by many spokesmen as the most

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effective instrument for foreign collaboration within the Russian Science and Technology sector. 3) Yet, the actual innovation which has resulted from these projects is not easy to measure. It is impossible to assess the productivity of all the new knowledge which has been generated through these 2000 odd projects, involving some 765 Russian and other Institutes, 58.000 researchers and probably at least 6000 foreign collaborators. These projects resulted in 240 ISTC recorded inventions, which led to the following number of patent applications and patents granted: Applications Patents granted Russia 81 31 PCT 67 - USA 5 - Armenia 9 - It is rare that these inventions are actually worked by commercial enterprises or for public purposes. Other data as regards the actual returns on these investments in research & development are difficult to trace. So, the actual contribution to innovation in Russia and abroad of al these efforts cannot easily be assessed. And yet, the pursuit of innovation through its projects is a prerequisite to achieving the ISTC objective of nonproliferation through science cooperation as described in Article II of its Statute. The changing ISTC context Now looking ahead one may wonder how sustainable the ISTC efforts will be. The Funding Parties and the global research community are likely to ask penetrating questions as to the productivity of the knowledge generated in ISTC projects and as to their actual contribution to commercial or societal innovation. Moreover, the landscape in which ISTC operates is likely to change rather rapidly and new roadmaps for its activity will be needed: 1) Contribution to innovation Ten years ahead, society will demand a better record of the contribution of ISTC

projects, the money spent and the efforts made to nonproliferation. Not only in terms of conversion effectiveness (how many researchers were employed or have benefited, changed their focus from military to civil applications), but also in terms of commercial or societal value creation. (These terms are explained in more detail in chapter 1 of this report)

2) Development of the Russian economy The Russian economy has recorded high growth figures during the last few years. The

Russian federation is now the second largest oil producing country in the world. Surely, Russia would be able to fund itself those S & T projects which it considers to be of priority to its national interest.

At the same time it is in the clear interest of the Funding Parties to integrate those

Russian researchers and research institutes which have unique capabilities into the global science community. On the other hand, the perception by some that ISTC and

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Technology Development

Demonstration Technology Development

Applied ResearchBasic Research Scientific

Shareholder Value

Patents Publications

Time

similar schemes are a thinly disguised attempt to get cheap access to Russian inventions are evidently incorrect. So far, the Russian economy has not produced a successful transition to a market based S & T system, nor generated successful partnerships between science, technology and industry, which can serve as a resource or support to a dynamic innovative economy. ISTC can clearly act as an important leverage factor in this regard.

3) Third generation R&D The development of third generation research and development practice, as has become

the general R & D standard in Europe, North America and Japan. This development is characterised by: demand driven Science & Technology, which has to produce satisfied customers, multidisciplinary research and development, the need for ever faster innovation cycles, with a continuously reduced time to market, the corresponding development of parallel, in stead of sequential, technology development and technology diffusion. (Ref. Figure 1)

Technology Development and Innovation

Development of performance of

technology in time

Theoretical maximum performance of Technology

Invention, i.e. first demonstration of

technology

(Figure 1)

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In this context it is necessary to consider technology diffusion, commercial or societal innovation benefits, at the time of evaluation and approval of basic research projects. Moreover, a balanced portfolio of projects in different stages should be pursued.

4) New realities in nonproliferation Recent developments in the world, in the opinion of many of my spokesmen, have

gradually reduced the risk of proliferation of weapons of mass destruction to nations (e.g. Irak, Libya) whilst on the other hand the threat of terrorism has increased. This may require a shift in ISTC focus.

5) Avoiding high institute dependence on ISTC funding After ten years of operation there is a danger of the development of entitlement funding

of institutes rather than on competitive assessment of the contribution of projects to innovation. As a result some institutes or sections thereof have become overly dependent on ISTC funding. At the same time ISTC should and can function as a leverage factor for the best institutes and researchers which have the capability to make the necessary shift to demand driven innovation.

This report focuses on ISTC Party funded projects but – to a large extent - these trends are equally applicable to Partner projects. The report focuses on the Russian Federation, but most of the observations and the comments made are of similar importance for the other former members of the Soviet Union which come under ISTC’s jurisdiction.

Innovation phase

Invention phase

Market adaptation phase

Market stabilization phase

t = 0 invention of technology time (in years)

Technology Diffusion

Commercial and/or Societal Innovation

Adoption (in units of demand)

Invention Market

Introduction 1 Market

Introduction x

Source: R. Ortt

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Chapter 1 The project flow of party and partner funded projects Upstream and downstream changes desirable

Project flow The project flow of ISTC Party and Partner funded projects is described in Figure 2, ISTC Project Flow. This chart distinguishes between Upstream decision making (the flow from submission of a project through its formal check by the ISTC Secretariat) and Downstream decision making (the flow from the ISTC Secretariat till a funding decision by the Governing Board). The chart is assumed to be self evident and no further explanation is given here.

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(Figure 2)

ISTC PROJECT FLOW

SAC

FUNDING PARTIES

PARTNERS

Government Concurrence (HGC)

- National Security - Scientist eligible

- Auditing requirements

Formal check - Complete - Appropriate

Evaluation - Proliferation - Political judgement

Ranking - Programmes - Proposals - Scientific merit - Conversion - Sustainability - Networking

Intent/Interest Funding (Program Joint Funding 20%)

INSTITUTE

MINATOM ! ACADEMY MINISTRY S + T

ISTC

COORDINATIONCOMMITTEE

GOVERNINGBOARD

ISTC SPM

INSTITUTE PROJECT

FUNDING PARTNERS

NATIONAL EXPERTS

MEMBERSTATES

Decision

Workplan

Targets Incentive

S+T

FUNDING PARTIES

D O

W N

S T

R E

A M

U

P S

T R

E A

M

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1.1 This project flow is rather complicated, lengthy and not always transparent to outsiders, including potential collaborators and funding Parties. The complicated decision making is a direct result of the sensitive mission of ISTC and its multinational political context. For the time being it should be considered a fact of ISTC’s life.

However, the length of the decision making process should be reduced. The time lapse

between submission of a project by an institute and approval by the Governing Board (subsequently a contract between ISTC and the Institute and foreign collaborators has to be negotiated) is now anywhere between 6 months and a year. In the current international S & T environment this is excessively long. As a result, many companies interested in working with the Russian S & T sector will be turned away and will opt to work with institutes in other countries. In order to remain competitive with worldwide trends the time lapse between submission of a project and its approval by the Governing Board should be a maximum of three months.

This implies that Host Government Concurrence( hereinafter HGC) should take no

longer than 30 days, both for Party funded and for Partner funded projects.

The time for negative concurrence by Funding parties, both for Party funded and for Partner funded projects should be no longer than 30 days. These targets are achievable if all stakeholders are convinced of their necessity in a market-based economy.

1.2 For ordinary Party funded projects ISTC acts as the Secretariat and administers the

project flow till a decision by the Governing Board. Before the reorganisation in 2003 the SPMs were more actively involved in drawing up the project proposals. This reorganisation has brought the responsibility for project proposals clearly where it belongs: at the level of the research institutes.

1.3 ISTC is engaged in a number of so-called targeted technology initiatives, which

provide incentives and targets in specific technology fields to the S & T institutes, notably the ISTC Program International Science Laboratories (ISL) and the ISTC Programmatic approach (hitherto restricted to Fuel cells).

These initiatives can be clearly endorsed. They are in line with S & T funding

programs around the world which provide thematic calls and instructions for upstream project flow. Purely bottom-up initiatives, as the current ISTC flow, have become very rare and do not provide sufficient guarantees for excellent projects. The links between ISTC goals, priorities and spending should be subject to regular review.

It is strongly recommended that during the next few years ISTC develops further

targeted initiatives in those areas where the Russian S & T sector has international competitive strength and to institutes which have proven to be capable of creating innovation value.

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Evaluation criteria and transparency 1.4 The evaluation criteria for Party funded projects are not clear to either S &T institutes

submitting projects or to their foreign collaborators. The recommendations of SAC are now published with the number of points by which a project has been rated. In the next chapter recommendations for new evaluation criteria are given.

It is further recommended that the decision making process and project flow through

the different stages will be documented in a much clearer fashion on the ISTC website. This will eventually have a beneficial effect on project quality as well as a qualitative effect on the S & T sector, their foreign collaborators and potential funding Partners.

Commercial and societal value 1.5 The appropriateness of ISTC projects is assessed through HGC (Is this a conversion

project?) and should be assessed from the outset with respect to its Innovation potential.

ISTC

APPROPRIATENESS PROJECTS

INNOVATION

YES

YES/ NO

INSTITUTE PROPOSAL

CONVERSION (a) Weapons scientists;(b) Institutes

SUSTAINABILITY

COMMERCIAL VALUE

SOCIETAL VALUE

(Figure 3)

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An ISTC project should either possess clear commercial value or clear societal value.

A project with commercial value has the potential of successful market introduction of products and/or services which comprise scientific or technological knowledge resulting directly from a project funded partly or wholly through ISTC. The ultimate customer of this project is an enterprise, which may or may not be a collaborator in the project.

A project with societal value has the potential of successful application of products

and/or services which comprise scientific or technological knowledge resulting directly from a project funded partly or wholly through ISTC. The ultimate customer of this project is a government, a governmental agency or other authority in the Russian Federation or in any or more of the funding Party countries.

A project may have both commercial and societal value. It is recommended that at the

time of initial project submission a few questions with respect to commercial and societal value will be answered. Refer to the attached Questionnaire (4). This should enable ISTC to record data with respect to commercial and societal value (number of projects submitted and approved, amounts committed etc.). It is eventually the responsibility of the funding Parties to allocate funds between these different categories and in which percentage.

However, it is strongly recommended that an effort be made to increase the number of

projects with commercial value. In the end, commercial income for S & T institutes and or researchers is the best guarantee of non proliferation and of sustainability and knowledge productivity.

Downstream decision making and framework measures 1.6 As a spin-off of this study a special report is made to the EU Commission as regards

those measures which can be taken in the downstream end of the project flow and decision making to ensure stronger foreign collaborator commitment and increased Partner funding.

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Recommendations (on the basis of the considerations above), summarized in the Executive Summary above) 1. Reduce length of decision making to three months between project submission and

GB approval; 2. Proceed further with targeted technology initiatives (ISL and programmatic

approach); 3. Develop further targeted initiatives (special calls) and an assessment of Institute

innovation potential; 4. Assess commercial and societal innovation potential at time of project submission; 5. Make project flow more transparent for S & T sector, foreign collaborators and

(potential) funding Parties; 6. Ensure that commercial value of projects increases dramatically; Chapter 2 Evaluation criteria In the current ISTC project flow, proposals are evaluated by the SAC on scientific grounds (Ref. Figure 4). Also the funding Parties seek scientific advice on projects from national experts. This is done on a continuing basis, with three SAC meetings per annum. Projects are handled on a first come basis, dependent on their time of submission/the time of HGC, without specific regard for the different Technology Fields. Subsequent to the advice of the SAC and the national experts, there is an opportunity for negative concurrence by funding Parties. Thereafter the funding Parties negotiate and decide on funding in a rather intransparant process. Some 40 % of projects which are recommended by the SAC are currently approved by the GB without funding. With recognition of the specific mission of ISTC, there will always remain political elements in the decision making process by the funding Parties.

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SAC

(Scientific Advisory Committee) INPUT - Proposals from Institutes (+/- 200 per session) - Available funding ⇓ OUTPUT - Ranking of proposals (on the basis of scientific and technological merit )* - Budget cut-off *)

• Highly recommended for funding • Recommended for funding • Not recommended • Range of opinions • Recommended for rejection

In the future there will be a need for a substantial increase in the realisation of commercial and/or societal value of party funded projects and in the transparency of decision making and the reporting on innovation value and knowledge productivity. This should be ensured at the time of project submission (ref. Introduction and figure 1). It is recommended that ISTC adopts the following practice, in line with current standard practice in many S & T funding schemes in the world:

• Open bidding of projects and ranking on a competitive basis; • Ranking of the projects on the basis of scientific and innovation value. This way of

ranking can only be achieved when projects are considered competitively within their respective technological fields;

• A distinction should always be made of projects with commercial and with societal value, with a clear need to increase the percentage of projects with commercial value;

• Ranking should be done as much as possible on a quantified basis, although this should not be a substitute for good judgment; 5)

• In the actual project flow, advise on ranking should be given by the SAC. At a later instance some form of peer review may be introduced;

• In current worldwide S & T practice the cut off rate of ranked projects should not be higher than approximately 50% in order to ensure good quality projects;

(Figure 4)

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A questionnaire has been developed which aims at obtaining a good insight on innovation value at the time of project submission. This questionnaire includes data about the quality and the number of the researchers involved, the availability of equipment to develop the technology, the development of the performance of the underlying technology hitherto, the organization of the research project, the quality of the project team with respect to the application of the technology, commercialisation and/or societal value and intellectual property (Attachment 1). In addition it is recommended that the commitment of foreign or national collaborators becomes more explicit. There should be no free ride. Excellent S & T projects potentially represent high value and this should be expressed by earnest money from commercial or scientific collaborators or by clear commitment from public authorities in case of societal innovation (ref. the questionnaire in Attachment 1). The author has observed a number of projects where this would not have been impossible. It is recommended that the following rates apply, payable to ISTC: Commercial innovation value projects:

• Companies: 3 % of project sum with a maximum of US$ 25.000,-- • Scientific institutes: US$ 3.500,--

Societal innovation value projects:

• Written undertakings by public authorities with respect to implementation and financial support in case of success

• Scientific institutes: US$ 3.500,-- Monetary compensation can be substituted by contributions in kind at market value rates (hardware, software). The proposed ranking system will substantially ease the administrative effort by funding Parties and the advise from national experts. It will also contribute to greater transparency of ISTC decision making. The target for three months handling from project submission to GB decision can be reached as follows:

• The SAC meets four times annually; • GB decision making electronically or in GB meetings within one month after SAC

meetings; • The number of Technology Fields for ranking purposes can be reduced from 14 to 9

(ref. Attachment 2) • The SAC deals with 4-5 Technology Fields at each meeting, which implies that

each Technology Field is ranked twice per annum; • Timely announcement of the annual ranking meetings to the S & T sector;

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Recommendations (on the basis of the considerations above)

7. Competitive bidding and ranking of projects submitted by Technology Field; 8. The ranking to be made on scientific and innovation value, distinguishing between

commercial and societal value; 9. Each Technology Field is considered twice annually according to an annually

published schedule; 10. SAC meets four times annually and considers 4-5 Technology Fields per meeting; 11. Commitment of foreign company and scientific collaborators through earnest

money; 12. Commitment of public authorities through clear undertakings; Chapter 3 Weapons scientists involved In the introductory chapter it was suggested that the threat of proliferation of weapons of mass destruction has gradually become less acute, whilst the need to reduce the threat of terrorism, also in the field of weapons science, has clearly increased. The ISTC mission and priorities should clearly remain weapons scientists and institutes, formerly or potentially involved in weapons S & T. Under these circumstances it would be counterproductive to stick to a formal rule of a minimum of 50% of project hours to be spent by former weapons scientists. This rule is rapidly becoming counter productive as the potential threats will be reduced by the sheer lapse of time. The ISTC mission can only be served if also younger scientists and the top S & T personnel are targeted. Therefore, it is recommended to review the weapons scientists criteria for ISTC projects by a formal GB decision as follows:

• a minimum of 30% of project hours should be spent by former or potential weapons scientists;

• in its targeted technology approach, ISTC should involve all S & T institutes which formerly have been or potentially will be involved in weapons science.

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Recommendation (on the basis of the considerations above)

13. Review applicable criteria for weapons scientists involved in ISTC projects; Chapter 4 Co- funding of ISTC projects Due to its origin and special mission, ISTC adheres to rather rigid funding rules with respect to funding either by (a) funding Parties which are members of the ISTC programme or (b) by funding Partners. It is suggested that ISTC and the innovation value of its projects will be served by greater flexibility in this regard, for the following reasons: Russian S & T institutes or researchers receive relatively low amounts of national entitlement funding and currently no competitive bidding for funding. Foreign funds are available through a variety of bilateral and multinational funding schemes. Besides ISTC there are European funds, such as TACIS, INTAS and the Framework Programme, CRDF and various other American Partner programmes, as well as multinational schemes such as the NATO science programme. Many European countries have bilateral S & T agreements or have opened up national funding schemes for foreign collaborators. In addition there will be increasing opportunities for funding by commercial Partner companies. Many ISTC projects would also qualify under some of these other schemes. Admittedly, there are problems of different administrative requirements and intellectual property rights involved in project funding from different sources. But these problems can be resolved by closer collaboration and on an ad hoc basis. Closer collaboration would avoid fund shopping by S & T institutes and potentially would have a mutually strengthening effect. A case in point is the US Civilian Research and Development Foundation (CRDF). With a grant from the US Department of State, the CRDF supports proposals from formers weapons scientists to ISTC ( and STCU) and facilitates those scientists efforts to establish research partnerships with civilian US parties. This will require collaboration between funding schemes and architecture of project design by skillful managers at ISTC, at the EU or in national capitals. A beginning has recently been made by collaboration in funding from Party funds and Partner funds through agreements to fund different phases in a total project design.

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Recommendation (on the basis of the considerations above)

14. Pursue greater flexibility in Co-funding of ISTC projects from different sources; Chapter 5 Intellectual property rights Introduction With the transition to the knowledge-based economy, the protection, management and transfer of Intellectual Property Rights (IPR = patents, utility models, trademarks, trade names, copyrights, secret information/know-how etc.) is an increasingly important and strategic issue for all those investing in research and innovation. This includes public research organizations, universities, industry and governments. IPR is more than a legal matter, it is a key element in knowledge productivity, i.e. the transformation of knowledge into economic value. The days when knowledge acquired in academic circles was handed down and available for all are well and truly over. In today’s knowledge networks generation and acquisition of knowledge goes hand in hand with protection and exploitation. Scientific and technological innovation is increasingly the result of networking between research institutes, academia, industry, high-tech small and medium sized enterprises and public authorities. IPR have become a key issue for these network members. A cultural revolution It is essential for ISTC to adapt to a new cultural landscape in which IPR are more than just a means of recording inventions. IPR should be used at every stage of a S & T project. They are not just tools to provide authorship of inventions or legal protection until a project is completed. They are multi-purpose instruments facilitating project preparation, making it possible to obtain information on the state of the art in fields where progress and the best partners are being sought, and increasing the prospects for the material exploitation of results. IPR are in a way the “currency” of the knowledge based society, in which knowledge is often the subject of complex transactions leading to the design of products and services which are equally complex. ISTC IPR policy The current ISTC standard IPR policy is a theoretical framework which is not generally adhered to because of a limited understanding, at ISTC and at the research institutes, of

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what it is and of its importance. Standard non- disclosure agreements with foreign collaborators are rarely executed. Standard license agreements have seldom been entered into and their terms have not or hardly been tested. There is a history of records-of-inventions filed with the Funding Parties being effectively ignored by those Parties. In the changed international IPR climate it is necessary for the success of ISTC to significantly upgrade its handling of IPR issues. In addition it is recommended that ISTC reviews the equity of its current IPR terms for all its stakeholders. The current rule that in Party- funded projects those Parties receive exclusive royalty free licenses in their respective jurisdictions for foreground IPR may provide a disincentive for S & T institutions to pursue societal and commercial innovation. Action should involve: 1. Thorough and continuous training of SPMs in IPR matters; 2. Effective management by SPMs of background intellectual property rights (BIPR), i.e.

IPR created either before or outside the performance of the project, and foreground intellectual property rights (FIPR), i.e. IPR created in the performance of the project;

3. Insisting on thorough knowledge and continuous training in IPR matters of project managers and others at S & T institutes;

4. Review the terms of the standard license agreements both in terms of their legal validity and their equity for all stakeholders; and

5. Identifying, promoting and disseminating best practices for the use of IPR in the research and innovation process, both for issues relating to specific sectors (e.g. biotechnology and -informatics) and generic issues (e.g. internet-based collaboration).

Recommendation (on the basis of the considerations above)

15. Significantly upgrade ISTC’s handling of IPR issues and review the equity and

effectiveness of current ISTC standards in the field of non- disclosure agreements and standard license agreements.

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Chapter 6 The ISTC Secretariat Introduction A recent report calls ISTC “The best foreign part in the Russian innovation system” (3). The ISTC Secretariat may rightfully claim a sizable part of this credit. Yet, a number of external and internal management and support measures require the attention of the ISTC management. In order to maintain this position and to increase the sustainability and innovation value of ISTC Party funded projects the ISTC Governing Board and the ISTC Secretariat must give these issues high priority. The items mentioned below relate to these sustainability and innovation issues and should not be read as the result of an audit or evaluation of the ISTC secretariat. Project management First class Science and Technology in Russia require first class project management at ISTC. ISTC is not a collection of material assets but the quality of the contact between the research institutes which receive funding and the ISTC Senior Project Managers (SPMs), the ISTC front line. The regular contacts between these SPMs and the research institutes are the “moments of truth” in the ISTC external and internal management. This means that ISTC must ensure that these SPMs are top quality employees, who are well trained and are employed at competitive employment conditions. SPMs are both Controllers and Matchmakers: Controllers SPMs should carry out strict project control of the research contracts between ISTC and the research institutes, monitor adherence to the contract terms and the ISTC procedures and standard practices and pursue solutions for problems that may arise. It should be seriously considered to introduce ISO - based project management control and seek ISO certification (or any other appropriate project management standard); Matchmakers SPMs are also key individuals in stimulating technology based entrepreneurship in funded research institutes. For this purpose they must be well versed in IPR issues (ref. Chapter 5) and monitor the realisation of the potential societal and commercial value, as assessed at the time of project funding. Of prime importance is their understanding of entrepreneurship and their attitude.

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Recommendation (on the basis of the considerations above)

16. Ensure high quality SPMs who act both as Controllers and Matchmakers; Sustainability activities Fundamental changes in the Russian system of commercializing research and development are required, discouraging compartmentalization and encouraging closer links between research and development institutes, laboratories, universities and industry. The recently created sustainability department is well on its way to stimulate developments in this direction for ISTC Party and Partner funded projects. This includes access to venture capital and incubators, improved services to ISTC Partners and support to funded research institutes. Just a few comments/recommendations can be made:

• the previously applicable TIPs (technology implementation plan) are of a rather academic nature and probably created an illusion of contributing to the realisation of innovation value. They should not be replaced by similar lengthy bureaucratic reports;

• radical innovation never originates with the market leader. It is rather leading high-tech SMEs that create innovation than giant multinational companies. The access to these high-tech SMEs should be realised through national anchorpoints/ technology brokers or similar institutes in the ISTC Party capitals (including the EU Member State capitals);

• the support function to research and development institutes, in IPR-, legal-, technology-, business planning- and marketing matters should be ensured in first instance through the SPMs (see above), with the sustainability department as a high quality ISTC resource in policy, exceptional and complex cases;

Recommendation (on the basis of the considerations above)

17. Strongly develop current sustainability activities and seek access to foreign high-

technology SMEs, inter alia through anchor points in the national capitals of Funding Parties (including EU Member States)

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Support activities Due to its privileged position within the Russian Federation ISTC is well placed to provide services to S & T institutes, Funding parties and partners as well as foreign collaborators with respect to issues of export control, procuring visa and hedging currency risks. In the current administrative climate in the Russian Federation, these services may sometimes be required and are conducive to stimulating the realization of innovation potential. They should only be provided on an ad-hoc and as needed basis: Export control: All successful ISTC project proposals have received advance approval on behalf of the host government and their deliverables are therefore assumed to be fully eligible for being exported. Nonetheless problems arise from time to time at the stage of project implementation, where export licenses must as yet be obtained under a dynamic export control regime. Funding Parties and Partners should have the advance assurance that ISTC will at all times ensure that misunderstandings at the operational level are avoided and problem solving support will be provided; Procuring visa: ISTC is well positioned to provide problem solving support on an ad hoc basis for foreign and RF entry and exit visa for researchers and managers who are of key importance for the realization of innovation potential; Hedging currency risks: In the past some serious funding problems at the level of institutes have arisen due to strong variations in the exchange rate between the US$ and the €. Similar problems in the future, between the US$, the Euro and the Ruble are not excluded. In international commerce, the risks involved can be hedged, admittedly at a price, and it is therefore recommended that this possibility be considered in the case of longer term (say beyond one year) funding commitments.

Recommendation (on the basis of the considerations above)

18. ISTC should continue to provide support services to project stakeholders on an ad

hoc basis in the field of Export control, Procurement of visa and Hedging currency risks;

Standard ISTC-research institute agreements In the light of the issues raised and recommendations made in this Chapter the text of the standard project agreements between ISTC and the S & T institutes should be amended

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Recommendation ( on the basis of the considerations in this report)

19. Review the standard project agreements between ISTC and the S & T institutes. Chapter 7 ISTC project income It may significantly contribute to ISTC’s support of the realization of the innovation potential of ISTC Party funded projects if ISTC were to be able to make a return on its investment in time and attention in these projects, in the form of earnest money paid by foreign collaborators, royalties or a (minimal) share in commercial enterprises, founded with the help of ISTC project technology. This would be in line with similar developments in respect of spin-offs from research institutes and universities in the USA and the European Union. It is realized that this would constitute an issue of principle for the Founding Parties. Therefore it is recommended that ISTC studies and considers this issue in depth before making a reasoned recommendation to the GB

Recommendation (on the basis of the considerations in this report, including the introduction)

20. ISTC should study the issue of ISTC income from the commercialization success of

ISTC projects; Chapter 8 Implementation The 20 recommendations of this report have all been checked with ISTC management and staff. After approval by the competent ISTC bodies, their implementation can be started without delay. It is recommended that ISTC provides feedback to the Institutes and Project managers who have been interviewed in the course of this project. This can be done through a brief summary report on the ISTC website.

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NOTES 1) Prof.Dr. P.J. Idenburg (1942,The Netherlands) is emeritus professor at Delft

University of Technology (“Technology Policy” and “Strategic Aspects of Technology, Policy and Management”) and Twente University (Strategic Management”). He was Dean of Delft Top-Tech, School of Executive Education and of the School of Technology, Policy and Management at Delft University of Technology.

Professor Idenburg served as deputy Director General of Industry in the Dutch government and has spent more than twenty years in international Industry, as a member of the Group Council of Van Leer , Packaging Worldwide. He is a supervisory director of several companies.

Professor Idenburg was a visiting professor at University of Michigan, Ann Arbor

and in Bandung (Indonesia), Shanghai and Singapore. He holds an MSc from Leiden University, a PhD from Utrecht University and an

MBA from INSEAD, Fontainebleau. He is now acting as a Professional and Personal coach. 2) The author recognizes the contribution made by Dr. Roland Ortt, associate professor,

School of Technology, Policy and Management, Delft University of Technology. The author wishes to express his gratitude for the assistance provided by and the

many challenging discussions with Dr. Uwe Meyer, DED of ISTC, Prof. Jean Pierre Contzen, member of the SAC and former DG at the European Commission, and Dr. Didier Gambier at the European Commission.

In addition many members of the ISTC staff have been very supportive. The most

rewarding aspect of this study has been the access to many excellent researchers and S & T institutes in the Russian Federation. It is the wish of the author that this report contributes to the expansion of their opportunities in Science & Technology.

3) Alfred Watkins, World Bank: From Knowledge to Wealth: Transforming Russian

Science and Technology for a Modern Knowledge Economy, 2002 4) See the proposed Standard Questionnaire for Submitted Projects, Attachment 1. 5) Special Report Business Innovation, “Don’t laugh at gilded butterflies”, The

Economist, April 24th, 2004

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Attachment 1

ISTC

Standard Questionnaire for submitted projects INNOVATION POTENTIAL OF THE PROJECT The replies to these questions will be used in the assessment of the project application. ISTC will ensure that these data are kept strictly confidential. 1. Indicators of scientific and technological merit. Quality of researchers involved, number of researchers involved

1.1 What is the number and quality of publications on the subject of the technology by the researchers involved? Distinguish Russian, international, refereed/non-refereed

1.2 What is the number of years devoted to the basic science or technology area underlying this project by the researchers involved?

1.3 What is the number and quality of researchers available for the project in comparison to potential similar projects in other parts of the world, in research institutes and in commercial companies?

1.4 Have any patents or other industrial property rights been issued to these researchers in the basic science and technology area?

Availability of equipment to develop technology

1.5 What is the availability of labs, equipment and instruments to develop the technology? In (a) the research institute or (b) accessible elsewhere (including from project collaborators)? Does the project proposal include the purchase of essential equipment?

Development of the performance of the technology so far

1.6 Is the basic technology demonstrated and working? 1.7 Has the performance of the basic technology improved over time? 1.8 How does this performance (and increase of performance) relate to

alternative technologies delivering similar results (in other words: Is the basic technology competitive or is it likely that it will be competitive)?

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How do the various technological pathways compare? If possible in table format.

1.9 In case of development on the basis of a proven technology: have other applications been developed previously?

1.10 Are there technical or other barriers for further development of the technology?

Organization of the research project

1.11 To what extent are alliances formed with related research or technology groups in adjacent areas and/or abroad?

1.12 Have previous ISTC funded projects been carried out? What were the results in terms of intellectual property and otherwise?

2. Indicators of innovative potential Quality of project team regarding potential application of the technology

2.1 Is a multi-disciplinary team involved, e.g. does the project team include participation of or access to economists, market researchers, designers?

2.2 Is the project, or at least some part, devoted to making marketable results of the technology?

2.3 Has otherwise an assessment been made of market potential? If so, provide summary key data. What is the expected time to market?

We distinguish between commercialisation value of projects and societal value of projects. Commercialisation value is the potential of market introduction of products or services which comprise scientific or technological knowledge from a project. Societal value is the potential of a project to serve the needs of society at large. Some projects have both commercialisation value and societal value. In that case please respond to both sets of questions.

Commercialization value

2.4 Are demos or prototypes available that demonstrate the application of technology in a real- world application?

2.5 Is there a list with future applications of the technology?

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2.6 Are these future applications evaluated and compared in market terms (e.g. in terms of market size, market growth, financial means in these markets)?

2.7 Are potential customers involved in the development of the project? 2.8 Are providers of complementary technologies, services, products

(needed to introduce the technology in the market) involved in the project?

Societal value

2.9 Is there a Ministry or other government agency which supports the project? If so, does this Ministry or agency support the project financially or otherwise? If so, please provide data.

2.10 Is there a commitment from a Ministry or other government agency to collaborate with the project activities?

2.11 If the project results are successful, will a Ministry or other government agency apply the results of the project in practise?

2.12 Is there any government policy paper or scientific literature which describes the needs of society addressed in the project? If so, please give data?

The following questions to be answered during annual reviews of the project 3. Indicators of scientific/technological merit and innovative potential

3.1 Are there patents or other intellectual property rights available that indicate that a future market can be protected (and that indicate that the researchers have unique assets in technological terms)?

4. Intellectual property issues

4.1 Have you applied or will you apply for patent, design or other intellectual property protection for the results of research and development carried out as part of this project? If yes, in which countries/areas? How do you expect to benefit from these intellectual property rights?

4.2 Have you (your Institute) granted or will you grant any licenses or have you assigned the intellectual property rights?

4.3 Please provide data about foreign collaborators involved in the project. Was a mutual non-disclosure agreement for exchange of information concluded with all foreign collaborators?

4.4 What has been the contribution of the foreign collaborators to the success of the project?

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Attachment 2

Technology Fields for SAC ranking

- Biotechnology and Life Sciences; - Environmental and Chemistry, - Physics and Other Basic Sciences; - Nuclear Sciences (Fission and Fusion); - Manufacturing Technology and Materials; - Information, Communication and Instrumentation; - Space, Aircraft and Surface Transportation - Non-nuclear Energy - Multidisciplinary and other

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Attachment 3

ISTC

LIST OF PERSONS INTERVIEWED

April 2004

ISTC Norbert Jousten, Executive Director ( from April 2004) Dr. Michael Kroening, ED( till October 2003) Dr. Didier Gambier, ED (ad interim October 2003- April 2004) Dr. Uwe Meyer, DED Dr. Serge Zykov, DED Dr. Lawrence Wright, DED Dr. Michiaki Ukobo, DED Mr. Tero T. Varjoranta, Division Manager Sustainability Programs Mr. David Rich, Commercialization Program Group Manager Ms. Anne Marie Dalgaard, Group Manager Partner Promotion Mr. Leon Horowitz, SPM Mr. Viktor K. Emelyanov, Chief Science Coordinator Dr. Dieter Ernst Netzold, SPM Ms. E.M. Pankratova, Programme manager Ms. Marina Shilkina, Programme manager Mr. Robert. M. Teets, Chief Legal Officer Mr. Vladimir M. Matyushechkin, Projects Group Leader Ms. Irene Tabach, Chief Financial Officer Mr. Vladimir M. Urezenko, Senior Program Manager Mr. Gennady G. Kulikov, SPM Mr. M. Valentine, SPM Mr. Oleg Lapidus, SPM Mr. Valery Novozhilov, SPM Mr. Dmitry Bugaev, SPM Mr. K. Alexandrov, SPM Brussels EU Commission Dr. Didier Gambier Prof. Jean-Pierre Contzen, member SAC, former chairman GB and former DG, EU Commission Dr. Jaak Sinnaeve, INTAS Executive Secretary( till April 2004) Mr. Alain Gérard, INTAS Executive Secretary ( from April 2004),former ED ISTC

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Netherlands Mr. Chris P. Buijink, Director General, Ministry of Economic Affairs Mr. Pim Fenger, Ministry of OCW (Education, Culture and Science) Drs. Nico Klaassen, OCW Drs. Eelco Denekamp, Head EU Liaison office, The Hague Mr. Erik Schenk, Deputy Head International Relations Department, NWO (Netherlands Organisation for Scientific Research) Mr. Geert Shoch, International Department, TNO ( Dutch Organisation for Applied Research) Mr. Andrew Nazarenko, Moscow representative of TNO and NWO Dr. Roland Ortt, Associate Professor, Technology, Strategy and Entrepreneurship, TUDelft Dr. J. Buisman, Chairman FIPC, Geelvinck Hinlopen huis , Amsterdam Germany Mr. Jürgen Arnold, Fedeal Ministry of Education and Research, Bonn Mr. Karsten Heinz, Federal Ministry of Education and Research, Bonn Mr. Wolfgang Büntgen, International Office of Ministry of Education and Research/DLR, Bonn Research Institutes in the Russian Federation Institute of Problems of Chemical Physics, RAS, Chernogolovka - Prof. Sergej M. Aldoshin - Dr. Marina Aldoshina - Dr. David Lempert - Prof. Vladimir N. Troitsky - Prof. Boris A. Rozenberg - Dr. Valery G. Schteinberg Polyus Institute, Moscow - Alexander A. Kazov, Director - Mr. Vyacheslav N. Svirin - Ms. Yumona Diyakova Babakin Science and Research Space Center - Sergey N. Alexashin Obukhov Institute of Atmospheric Physics, RAS

- Igor. C. Granberg, Director - Dr. Nikolaj F. Elansky - Oleg. V. Postylyakov

Scientific Research Institute of Rail Transport, Moscow Obninsk Technical University of Nuclear Power Engineering - Nikolaj L Salnikov

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Fiber Optics Research Center, Moscow - Alexander L. Tomashuk TRINITI, Troitsk - Anatoli V. Krashilnikov Kurchatov Research Center, Moscow - Boris I. Yatsalo Center for Applied Microbiology ( GosNIIPM), Obolensk - Igor G. Govorunov - Igor Shemyakin Karpov Institute of Physical Chemistry - Igor Ye. Kardash Institute of Radioengineering and Electronics, RAS - Prof. Sergey N. Ivanov - Prof. Alexei L. Musatov - Dr. V.P. Koshelets The Urals State University of Economics - Prof. Khiena Brainina - Olga Inzhevatova, Technical Director - Prof. Valentin M. Kamyshov, Rector - Prof. Victor P. Ivanitsky Ural Special Design Bureau of Metrology, Ekaterinburg Institute of Electrophysics, Ekaterinburg Zabakhin Russian Federal Nuclear Center, VNIITF, Chelyabinsk - Dr. Juri I Rybakov - Sergej V. Sokolkov - Evgeny T. Antoshin Vavilov Optical Research Institute, St. Petersburg - Vladimir A. Demidenko Lebedev Physical Institute, RAS - Vladislav B. Rozanov Khlopin Radium Institute, St. Petersburg - Prof. Dmitrii N. Suglobov - Mr. Alexander A. Lumpov

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Flight Research Institute, Zhukovsky - Dr. Vilgelm I Vid - Dr. Anatoliy P. Leut - Sergey Boris, Deputy Director - Prof. Dr. Victor T. Dedesh - Mr. Vladimir S. Pisarev

Institute of Robotics and Technical Cybernetics, St. Petersburg - Alexander S. Kondratev - Prof. Vitaly A. Lopota Russian Federal Nuclear Centre, VNIIEF, Saratov - Dr. Alexander A. Potanin Saratov Oblast - Vasgen R. Atojan Research Institute of Chemical Technology (VNIICHT) - Dr. Anatoli A. Iskra Higher School of Economics, Moscow - Prof. Leonid Gokhberg, Vice Rector - Dr. Alexander Sokolov, Deputy Director

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European Commission

Sustainability of ISTC party funded projects

OIB

2004 — 36 pp. — 21.0 x 29.7 cm

Through its ten years activity, ISTC has grown from focusing on offering opportunities of civil conversion toformer weapon scientists to becoming a key actor fostering innovation systems in Russia. As a result of thisstudy by Prof. Idenburg, it is recommended that, in line with similar developments elsewhere in the world,ISTC makes new efforts to realise the potential societal and commercial innovation value of its party fundedprojects. In that regard, the ISTC funded projects, in the years to come, should gradually develop from Science& Technology in search of societal needs and commercial markets into societal and commercial needs insearch of Science & Technology. To grasp this inversion in the conceptual approach the report underlines theneed in a transition Russia, for more Edisons and fewer Einsteins. In practice the report makes 20 recommen-dations that could be implemented without delays, ranging from “targeted technology initiatives” to consi-dering the issue of income from the commercialisation success of ISTC projects. Taking those steps it is argued,will contribute significantly to the sustainability of ISTC and of the Science & Technology institutes involved inthese projects. Directly and indirectly this will contribute to achieving the non-proliferation objectives pursued bythe Founding Parties when signing the ISTC Agreement.