Start ups in the Silicon Cape?

Its commonplace for South Africans who visit San Francisco to be told that it resembles Cape Town. Since I lived in San Francisco first and now live in Cape Town I can confirm that Cape Town resembles San Francisco. At least it resembles San Francisco in some respects; both have locations of incredible natural beauty, both are favoured tourist destinations with storied histories, and both are magnets for a wide variety of artists, techies and unusual and colourful characters. There are certainly just as many differences, Cape Town has embarrassingly poor bandwidth, breathtakingly poor road planning, a paucity of public transport and a surfeit of crime.

Despite these differences “the idea that the Cape in South Africa had the potential to become the Silicon Valley of Africa” has captured the imagination of a group of people who’ve formed the Silicon Cape initiative.

“The Silicon Cape vision is of an ecosystem in the Western Cape of South Africa, that serves to attract and bring together local and foreign investors, the brightest technical talent, and the most promising entrepreneurs, to foster the creation and growth of world-class IP start-up companies in an environment that competes with other similar hubs around the world against the backdrop of one of the most beautiful settings and pleasant places to live, work and play on the globe.”

While that may seem somewhat idealistic I must give the organiser’s credit for not claiming to own the idea, the website states:

“The concept of the Silicon Cape is not owned or controlled by any single entity. It is a living community and an organic, ever-developing concept in the hearts and minds of every participant…”

I’d classify myself as a critical friend of the Silicon Cape idea. However I am concerned that in addition to the differences which I’ve listed, there is one critical difference which could founder the Silicon Cape. The San Francisco Bay area includes quite a number of very good universities, not least the public school, Berkeley and the private school Stanford. The creation of Silicon Valley is credited to the proximity of these schools, and the interplay between the faculty and postgraduate students and the entrepreneurs who turn the knowledge from those institutions into wealth producing businesses.

The kind of interplay which I witnessed in San Francisco will be stifled by the provisions of the Intellectual Property Rights from Publicly Financed Research Act. The Act, which is not yet in force, has consequences for South African entrepreneurs interacting with universities and research councils.

The Act gives 100% ownership of any intellectual property which was developed with public research funds to the government. The Act does not set a threshold for how much public research assistance someone must get to fall under the Act, as a result if an entrepreneur gets 0,01% of her finance from government research funding then all the intellectual property belongs to the government. This assistance need not be money but could be office space or use of a laboratory or even travel money to attend a conference (if it comes from a research fund).

Entrepreneurs who are concerned about their intellectual property falling under the Act should be extremely careful when working with universities and research councils like Mintek or the CSIR because the proponents of the Act claim that it applies automatically to any person receiving funding. The most important thing to ascertain is whether there is research funding involved and whether the entrepreneur can be regarded as having received any assistance from it.

Proponents of the Act will tell you that the Act requires that universities (and the new agency created to hoard patents) must give licences to SME’s, and the Act does say that, but the SME’s can’t in the first instance get exclusive licences, so incumbent companies will have access to the same technology. In other words entrepreneurs will be able to use technology based on government funded research but that technology must not be an entrepreneurs unique value proposition because it will be available to everyone else. While an incumbent corporation won’t be able to do an exclusive deal with a research institution and lock up technology (which is good for start ups) an entrepreneur will not be able to rely on intellectual property from a research institution as its unique value proposition. Its not too great a concern to an entrepreneur whose unique value proposition is speed to market or low price but otherwise it should be a large red warning light.
The Act does permit institutions to exceptionally give exclusive licences but the granting of such a licence is in the gift of the university, it must also be justified to a government department and the exclusive licensee must manufacture or offer the services in South Africa. Can you imagine such exclusive licences being granted quickly?

More profoundly choosing to work with a university or research council means that the architect of the Act has chosen an entrepreneur’s business model for her. The Act makes it difficult at best to develop FLOSS, crowd sourced or other open licensed business if one has any public research funding. Whether it will be possible at all depends on regulations which have not yet been finalised. The Act also prevents an entrepreneur from owning the intellectual property her business is based on, and makes obtaining an exclusive licence difficult. In other words it eliminates both ends of the spectrum, open businesses and businesses based on a monopoly on a particular technology.

Another more diffuse effect of the Act on entrepreneurs will be to reduce the knowledge available to entrepreneurs. Journal articles have been becoming increasingly available online in open access journals as the result of a policy by the same Department (Science and Technology) which sponsored the Act. The Act though prohibits publication of new knowledge until a patent is obtained. Unlike open access journals the full text of South African patents are not available online, only a type of summary is available online and then only if one pays a subscription fee to the database. The database lacks state of the art search functionality. As a result entrepreneurs in technological fields will not be able to efficiently make use of taxpayer funded research.

A researcher is allowed to publish an article after the patent is granted but the researcher would have had to wait while the university decided to patent or not, and then if not continue waiting for a government office to make the same decision. If a patent is to be applied for then the researcher must wait for the application, by which time someone somewhere else in the world is likely to have published first and the research is no longer cutting edge.