Mr. Seamus McCarthy:

I thank the Chairman. As he mentioned, the report before the committee this afternoon examines issues relating to the development and disposal by Waterford Institute of Technology of its equity interest in a company called FeedHenry Limited.

The Telecommunication Systems and Software Group, TSSG, is an internal research unit within Waterford Institute of Technology. Arising from an EU-funded project on mobile telecommunications systems undertaken from 2002 to 2004, researchers in the unit developed a technology with commercial potential that became known as FeedHenry. The institute applied for and received support from Enterprise Ireland for the development and commercialisation of the technology. In all, Enterprise Ireland provided funding of nearly €1 million to the institute for FeedHenry-related projects.

In June 2008, a number of staff employed in the TSSG, together with other individuals, registered a company called FeedHenry Limited. Later in 2008, the institute awarded the company a trial licence to use the FeedHenry technology. In December 2010, the institute transferred full ownership of the intellectual property, or IP, to FeedHenry Limited, in exchange for an equity stake in the company. At the same time, investors, including one of the existing shareholders, put approximately €500,000 into the company. Subsequent investment rounds had the effect of diluting the institute’s percentage shareholding, and other shareholders in the company were affected proportionately.

In 2014, FeedHenry Limited was sold to a multinational company for a gross consideration of €63.5 million. The institute received €1.6 million from the net proceeds of the sale. A national code of practice on research commercialisation was published in 2004. This recommended that research-performing organisations should adopt formal policies to deal with commercialisation of IP, and the management of associated conflicts of interest. In the event, Waterford Institute of Technology’s governing body adopted a policy statement in February 2010.

Significant agreements and decisions in respect of the assignment of the FeedHenry IP were made subsequent to the adoption by the governing body of the IP policy, but in conflict with its provisions. For example, an internal commercialisation committee established under the February 2010 policy to review and approve all agreements on commercialisation of IP held its first meeting only on 6 December 2010. The minutes of the committee’s first meeting do not record any discussion of the assignment of IP to FeedHenry Limited, which occurred on 15 December 2010. Also, the institute’s IP policy indicates that a 15% equity stake in a spin-out company would usually be appropriate in exchange for transferring IP owned by the institute. In the case of FeedHenry Limited, the institute agreed in July 2010 that it would accept a 15% equity stake in the company on condition investors put €500,000 into the company. In December 2010, the institute accepted a stake of 10.8% when it assigned its IP to the company. The basis for agreeing to accept the reduced equity share was not documented by the institute. The reason for variation from the indicative 15% shareholding was not considered either by the governing body or by the commercialisation committee.

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. In the case of FeedHenry Limited, there was no service level agreement or cost-sharing arrangements with the institute in place prior to November 2010, even though the company’s registered address had been on the institute campus since 2008.

Enterprise Ireland’s development funding agreements with the institute from around 2005 included an arrangement whereby Enterprise Ireland would be entitled for a nominal sum to a 5% equity share in any campus spin-out company. However, Enterprise Ireland did not exercise this option. From 2007, Enterprise Ireland dropped this kind of provision from its commercialisation funding agreements.

After the institute transferred the FeedHenry IP to the company, Enterprise Ireland invested a further €800,000 in FeedHenry limited under its programme for supporting start-up companies with high growth potential. Following the sale of FeedHenry limited in 2014, Enterprise Ireland received €4.5 million for its interest in the company.

The institute received €1.6 million from the net proceeds of the sale of the company. Around €639,000, or 40% of the amount received by the institute, was distributed to other beneficiaries under pre-existing arrangements. The institute paid €147,000 to a financial institution under the terms of a 2005 profit-sharing agreement, but was unable to locate a signed copy of that agreement when requested to do so by the examination team. A further €492,000, including employers’ PRSI, was applied to pay bonuses to 80 TSSG staff as part of an incentive scheme under the February 2010 IP policy. Some of the TSSG staff who received payments under the incentive scheme had separately benefitted financially from the sale of shares they held in FeedHenry limited.

Following a previous committee meeting, the HEA and Knowledge Transfer Ireland commissioned a review of IP commercialisation policies and practices generally in the third level sector. The report of the review, which was issued in February 2018, found some common areas of weakness in the sector, including in relation to systems for managing conflicts of interest and the decision-making process for relative equity stakes in spin-out companies. The HEA will be able to brief the committee on subsequent developments in that regard and on the implementation of sector-related recommendations presented in the special report.