INTRODUCTION

  The Chemical Industries Association is the major body representing the UK chemicals sector, which is strongly dependent upon scientific and technological innovation for its competitiveness. This enquiry is, therefore, of great significance to our industry.

  The enquiry seeks information on how companies decide on developing new products and processes, and what factors influence those decisions. In general, such decisions are taken based on market, customer and competitor research. Companies also consider what benefits might be derived from existing or novel research and technology, in terms of product or process improvement, or to develop entirely new products and processes. Decisions are thus based upon three main factors: understanding of market / customer needs; knowledge of science and technology opportunities; and understanding of how to apply that knowledge to meet those needs.

  Before addressing the specific questions posed by the Committee, we would like to outline what we perceive as the respective roles of industry and government in the process of innovation.

Innovation: the Role of Industry. . .

  Successful innovation depends upon the whole range of business skills: high quality management; an understanding of customer needs; sophisticated market research; effective sales and marketing techniques etc. Many of the factors which influence an industry's innovative performance are, therefore, internal, and individual companies are in a position to do much to help themselves.

...the Role of Government

  Government support, whether at national or European level, is essential to foster innovation in industry. That support should be focused upon achieving two equally important goals. Firstly, government must ensure that there is a strong public sector research and education base, at all levels, which provides industry with access to leading-edge research expertise, and the highly trained manpower which is the life-blood of technology-based industry. Secondly, government must make every effort to ensure that the climate in which companies operate (legal, regulatory, fiscal and social) supports those which innovate, and encourages others to improve their innovative performance.

  Achieving common purpose between government and industry is the key to carrying out these roles effectively, and the specific headings under which the Committee seeks evidence are highly relevant in this regard. Before addressing these, however, we should stress that chemical companies need to be globally competitive to survive and they will naturally use the best research facilities available to them, wherever they may be. They will only invest in, and hence develop, the UK science base if its output (people and expertise) is of world class quality, and is accessible in a customer-friendly way.

(i)  The industrial application of government funded research

  The 1993 White Paper, Realising our Potential, and studies such as "The Routes" enquiry (referred to in section (viii), represented a welcome effort from government to improve industrial application of government funded research. We would not wish for this to be taken as a call to shift the emphasis of academic research towards the applied end of the research spectrum. Government funded research must be directed primarily towards basic, fundamental research. Industrial application from such research is usually a long term process. Government can help to improve the eventual application of fundamental research by ensuring that funds are deployed strategically in broad areas of science and technology which are most industrially significant. Here, the role of Foresight is all-important.

  Research in academe includes (rightly) strategic and applied activity, usually associated with industrial support. Funding is often split between government and the industrial sponsor or, in the case of purely applied contract research, wholly funded by industry. In an enquiry recently conducted by the EPSRC, it was noted that the chemical and pharmaceutical industries did not participate to the degree expected in collaborative research projects with universities. This study exposed some barriers to industrial involvement in collaborative research which are highly relevant here.

—  Approval for grants takes too long at peer review stage, especially if other government departments (DTI/OST) are involved.

—  Postdoctoral researchers can only be accessed with 100 per cent funding by industry. The cost of sponsoring a postdoctoral student is roughly equivalent to recruiting two new PhDs into the company.

—  Postdoctoral research support is cheaper and more flexible (in terms of engaging the person for fixed-term projects) elsewhere (the US, for example).

—  The management and ownership of intellectual property rights remain problematic in collaborative, jointly sponsored research projects.

  The CIA recognises the efforts made by the EPSRC to engage industry in research council programmes, and to include industry in establishing its research support strategy. We regard this latest consultation by EPSRC to be another useful initiative aimed at maximising the industrial application of public sector research, and we look forward to a continued, fruitful dialogue with the Council to address the various points made here.

  Finally, we would like to stress a point made in the introduction, that high quality research and technical recruits are the life-blood of the chemicals industry, and it is arguably this resource which we prize most highly. The benefit to industry from government funded research is not just the research itself, but the people associated with it.

(ii)  The respective roles of government laboratories and independent research and technology organisations

  Government laboratories and independent research organisations can be of some value to companies, by disseminating knowledge and fostering networks in particular areas of research. Because they usually address what might be termed "generic" research areas, as opposed to company-specific projects, they rarely add value directly, but they can be integral to the success of projects by complementing research performed within companies, or in collaboration with a university partner. Independent research organisations can also provide a degree of commercial awareness which is often lacking in universities.

(iii)  The operation of government schemes designed to promote collaboration in, and industrial application of, research

  Our comments in section (i) are relevant and, again, we would like to refer to our response to the EPSRC's enquiry as to why chemical and pharmaceutical companies do not participate as strongly as expected in government funded collaborative research.

  Companies differ in their relationships with universities, depending upon their size and their business: there is, for example, a marked difference in science base interaction between a small chemical company and a large, multinational pharmaceutical company. However, CASE awards are universally liked and well used within the chemicals sector, because it is a simple and cost-effective way to build relationships with universities and to gain insight into new areas of potentially useful research. We would like to take this opportunity to call for an increase in the number of industrial CASE awards, especially for small and medium sized companies.

  Although the LINK scheme is also well used, and has provided many of our member companies with real added value, it can be difficult to set up projects under the scheme, especially with regard to intellectual property ownership. This factor is perhaps the most significant stumbling block encountered by companies wishing to take advantage of the academic science base. We welcome the efforts made by the CBI to address this through the recent publication of Research Partnerships Between Industry and Universities—a Guide to Better Practice.

(iv)  Intellectual property rights and patenting

  We refer to our comments under (i) and (iii).

  The problems surrounding intellectual property rights from collaborative research are based, in many cases, upon a mutual lack of understanding, between industrial and academic partners, of each other's expectations regarding the outcome of the research project. If intellectual property is at all an issue, then the prime expected outcome for the industrial partner will be commercial success. Patent rights are commercial instruments and, in general, they are best managed and exploited by the industrial partner, to the benefit of both partners. Naturally, rewards should be commensurate with inputs. The crucial factor is to ensure that all matters regarding project expectations, time—scales, funding and intellectual property rights are fully agreed and understood by both parties before the research commences.

  There have been suggestions, at the level of EU patent law, that there should be grace periods for research performed in universities which would allow publication of results without compromising patent rights, at least for a defined period of time. Although the drive to publish in academe has caused patent-related problems for industry in exploiting academic research, we do not support the idea of grace periods, since there is little doubt that they would tend to increase litigation and third party interference action for the patent system in general. What we believe is needed, as we have stated above, is greater understanding of intellectual property rights and their management and use in the context of collaborative research.

(v)  The provision of finance to support enterprises involved in the application of research and innovation

  Many larger companies have enterprise units to provide venture capital and business support for start-up companies which can make use of science and technology owned by the company, but which has become redundant to its business focus. This can be a very effective way to improve the exploitation of research and derive added value.

  The issue of tax incentives for research and development, which exist in many countries, has been widely debated within the chemicals industry for some time. There are differing views as to the value of such provisions and we are unable to provide a definitive, industry-wide view on the matter. What is clear, however, is that the mechanisms by which any such fiscal incentives might be established must be very carefully examined, in full consultation with industry, so that they truly work to increase research activity and its commercial exploitation.

(vi)  The role of the Foresight Programme in fostering networks and identifying priorities

  This Association played a major role in the Foresight Programme when it was first established, primarily in identifying research and technology priorities. Since then, in partnership with government and the learned societies, we have been actively involved in disseminating the results of Foresight and fostering networks around priority areas. Our Specialised Organic Chemicals Sector Association (SOCSA) has also been heavily involved in such efforts on behalf of its members, many of which are SMEs.

  Foresight has had a significant and welcome impact on the strategic deployment of government funding for research. There remains a great deal of work to be done in exploiting the business benefits of Foresight, and widening the pool of people actively engaged in the process. To this end, we welcome the imminent new round of Foresight consultations and, if anything, we intend to be even more actively involved this time around.

  The Foresight Programme is key to achieving successful exploitation of the science and engineering base, which we in turn believe is key to the long term success of our industry. We hope that government will continue to help champion the Foresight process and, more specifically, we hope that the Chemicals Panel will continue to provide the focus for the industry's efforts under the initiative.

(vii)  The role of the Engineering and Physical Sciences Research Council in fostering technology transfer

  The EPSRC has responded extremely well to the recommendations laid out in the 1993 White Paper. The Council has been very proactive in seeking industry's advice on research funding priorities, and the mechanisms by which their funds are disbursed (the establishment of the industrial CASE scheme is a good example, as is the consultation on collaborative research, referred to above). We believe that the EPSRC provides a good model for other research councils, with regard not only to practice, but also structure. A commonality of approach between research councils would greatly improve their effectiveness; although this enquiry concerns engineering and physical sciences, our member companies are dependent upon the entire spectrum of engineering, physical and biological science disciplines.

(viii)  Progress made towards implementing those recommendations of the Science and Technology Committee in the previous parliament in their report on The Routes Through Which the Science Base is Translated into Innovative and Competitive Technology[8] relevant to the fields of engineering and physical sciences

  There is no doubt that there has been progress to improve the partnership between the science base and industry, not least because of the Foresight Programme. However, to some extent, partnership between universities and industry has developed as a result of lack of government funding for university research and infrastructure, forcing universities to seek industrial support. While the net result, at face value at least, might be welcome, the driving force is certainly not. A successful partnership (of any kind) must be genuinely symbiotic.

  The overarching recommendation of the "Routes Report" is that "if government policy is to encourage innovation then the process by which innovation takes place must be fully explored and widely understood. Policies introduced without understanding will at best be inefficient and at worst counter productive."

  We believe that there needs to be better understanding within government (national and European) of how policies and legislation, in areas not directly concerned with innovation, affect industry's ability to innovate. Two very serious examples of this are:

—  the Notification of New Substances; and

—  the Biocidal Products Directive.

  These regulations are necessary to ensure safety and responsible practice, and we fully support their aims and objectives. However, they have been implemented in such a way as to render them extremely burdensome to industry, and major barriers to innovation. In these cases, the processes by which innovation takes place were not explored and understood, and the chemical industry is suffering as a result.

  Even where legislation is directly concerned with innovation, as is the case for the current proposal for a Directive on the Legal Protection of Biotechnological Inventions, the links between the seemingly esoteric issue of intellectual property law, and innovation, employment, industrial competitiveness, wealth creation and the quality of life, do not seem to be fully understood. This Directive is crucial to developing and exploiting innovation in the life sciences, but it is threatened, again, because the processes by which innovation occurs have not been widely researched or understood.

  It is thus towards this aspect of the report's recommendations that we seek progress most urgently.

16 March 1998