74296 Romania Functional Review RESEARCH, DEVELOPMENT, AND INNOVATION SECTOR Final Report [Type a quote from the document or the summary of an interesting point. You [ [ [ [ [ [ can position the text box anywhere in the document. Use the Text Box Tools tab T T T T T T May 31, 2011 to change the formatting of the pull quote text box.] y y y y y y p p p p p p e e e e e e a a a a a a q q q q q q u u u u u u o o o o o o t t t t t t e e e e e e f f f f f f r r r r r r o o o o o o mmm m m m t t t t t t The World Bank h h h h h h Europe and Central Asia Region e e e e e e d d d d d d o o o o o o c c c c c c u u u u u u ACRONYMS AMCSIT Management Agency for Scientific Research, Innovation and Technological Transfer BERD Business Expenditure on Research and Development CCCDI Consultative College for Research, Development and Innovation CNDI National Council for Development and Innovation CNECSDTI National Council for Ethics in Scientific Research, Technological Development and Innovation CNMP National Center for Program Management CNPST National Council for Science and Technology Policy CNCS National Council for Scientific Research CSD Council for Social Dialogue EC European Commission EO Emergency Ordinance EU European Union FP7 EU 7th Framework Program GERD Gross Expenditure on Research and Development GBAORD Government Appropriations or Outlays on R&D IPR Intellectual Property Rights MERYS Ministry of Education, Research, Youth, and Sports MNE Multi-National Enterprise NASR/ANCS National Authority for Scientific Research NPII National Plan for R&D and Innovation 2007-2013 NRDIS National Research, Development, and Innovation Strategy NSRF National Strategic Reference Framework RA Romanian Academy RD&I Research, Development, and Innovation RDIs Research and Development Institutes RON Romanian New Leu Currency ReNITT National Network of Technological and Innovation Transfer SF Structural Funds from EU SME Small and Medium Sized Enterprises SOP- IEC PA2 Sectoral Operational Program ―Increase of Economic Competitiveness‖ Second Priority Axis TTO Technology Transfer Office UEFISCDI Executive Agency for Higher Education and RDI Funding UEFISIS Executive Unit for Financing Higher Education 2 TABLE OF CONTENTS EXECUTIVE SUMMARY 7 Improving Governance of the RD&I system 10 Improving the Management of Public R&D 11 Accelerating the Transmission of R&D 12 Encouraging the demand for R&D 13 I. Background, Scope, and Conceptual Model of the Review 15 II. The Extent of Current Problems 18 III. The Institutional Framework 25 Main RD&I Actors 25 Legal Framework 26 Structure of Governance 27 RD&I Funding 35 Business Innovation and the Investment Climate 46 IV. Four Policy Reform Challenges 48 Improving Governance of the RD&I system 48 Improving the Management of Public R&D 52 Accelerating the Transmission of R&D 56 Fostering Private sector R&D 58 V. Recommendations for Short and Medium Term Action – Summary 61 ANNEXES 62 Annex I. List of persons interviewed 62 Annex II. Self assessment tool: Features of well performing national and regional research and innovation systems 64 Annex III. Examples of European R&D Systems (Based on Erawatch reports) 67 Czech Republic (2010) 67 Slovenia (2010) 68 Denmark (2009) 70 Finland (2009) 71 Annex IV. Romania National Plan for R&D (NPII) – Expenditures and Programs 72 3 Annex V. Financial requirements for applying for EU grants under national operational programs: Romania and Poland 74 Annex VI. Funding of RDIs affiliated to NASR, Line Ministries and Academy of Agriculture 76 Annex VII. R&D tax breaks in Romania 79 Annex VIII. Business R&D 2004-2008– Sectoral Breakdown ISIC - Million EUR 83 Annex IX. TTO Survey Results 84 Annex X. Assessment of the Romanian Intellectual Property Regulatory Framework 87 4 FUNCTIONAL REVIEW TEAM The World Bank review team is comprised of Donato De Rosa (Task Team Leader, ECSPF), Paulo Correa (co-Task Team Leader, ECSPF), Arabela Sena Aprahamian (Senior Operations Officer, ECSPF), Iwona Borowik (Science, Technology and Innovation Expert, ECSPF), Juan Julio Gutierrez (Science, Technology and Innovation Expert, ECSPF), Ronald Myers (Public Sector Management Expert, Consultant), Dragana Pajovic (Analyst, ECSPF) and Ana Maria Andronic (Consultant). General guidance to the team is provided by William Dorotinsky (Sector Manager, ECSPE), Lalit Raina (Sector Manager, ECSPF), Francois Rantrua (Country Manager, Romania) and Bernard Myers (Task Team Leader for the entire Functional Review Project, ECSPE). 5 ACKNOWLEDGMENTS This Functional Review is commissioned by the Government of Romania as part of a Functional Review Project financed by the EU and the Government. The report was prepared by the core team listed above, but it could not have produced it without the extensive and invaluable support of a long list of Romanian counterparts. As such the team would like to express its gratitude to officials of the Romanian Ministry of Education, Research, Youth, and Sports (MERYS) including Minister Daniel Funeriu, the heads of NASR/ANCS - Dragos Ciuparu and UEFISCDI - Adrian Curaj, the many managers and numerous staff, for their sharp observations and constructive collaboration. The team also would like to thank President Ionel Haidu of the Romanian Academy and his staff, as well as untold numbers of representatives of research institutes, private sector entrepreneurs, and officials from other government agencies. Anca Cucu (Public Manager, MERYS) provided invaluable operational support. Alexandru Cabuz (MERYS) freely gave of his time and insights for the report. A partial list of persons met during the mission is attached in Annex VI. The report was peer reviewed within the World Bank by Sorin Ionita (PRMPS), Kurt Larsen (WBIGC), and Jose Guilherme Reis (PRMTR). Written comments were also received from Carmen Marcus (European Commission, DG Research and Innovation). 6 EXECUTIVE SUMMARY A. A functional review by the World Bank of Romania‘s research, development and innovation (RD&I) sector has been commissioned by the Government of Romania and the European Commission as part of a broader assessment of the public administration contribution to the country‘s growth and continued convergence with the EU. Based on a Memorandum of Understanding signed in June 2009, the objective of the Review is to propose actions over the short to medium term to tangibly strengthen effectiveness and efficiency in the RD&I sector. B. This report is based on extensive literature research and data analysis, as well as three missions to Bucharest in January, March, and April 2011, during which the World Bank team met with representatives from a variety of public, private, and academic institutions and conducted a workshop with major stakeholders to review report findings. This final report -- prepared in collaboration with the World Bank Higher Education Review team and the EC‘s DG Research and Innovation -- presents observations and recommendations for consideration by the Government. C. The Review suggests that Romania’s RD&I sector is in a silent crisis, with seriously negative implications for the country’s longer term competitiveness and growth prospects. This crisis is related to three key factors. First, research, development, and innovation are not recognized as a linked system to promote private sector innovation and economic growth. Consequently it is not governed as a sector, but rather split among various ministries and stakeholders who together have lacked a unified vision or even minimal coordination. Second, the focus of spending has been on basic research and maintaining a legacy superstructure of institutes and universities at variance with the applied research required by the country‘s changed economic structure or the development of its areas of comparative advantage. The opportunity cost of years of marginally productive research spending cannot be recaptured, but must not continue. Third, the talents of Romanian entrepreneurs and researchers are not being properly mobilized, and too often are frittered away. The Romanian scientific Diaspora is one of the world‘s larges t, the level of domestic scientific output lags far behind the country‘s competitors, and the Romanian high tech private sector (that group which is sparking growth in neighboring countries as well as global leaders) is an abandoned orphan. Consequently Romania’s government and private sector are investing too little in RD&I, and, perhaps as importantly, often investing it poorly. Unfortunately a proud legacy of Romanian science and industry is too often trapped in an outmoded structure (and related attitudes) not reflecting the global market economy the country has (half) joined. Slovenia, the Czech Republic, not to mention Finland, Israel, Korea and others are advancing in innovation and technology—Romania must decide if it will remain largely a provider of agriculture and raw materials for richer markets or recapture its scientific and technology ranking. 7 The Vision D. World Bank estimates indicate that improving the quality and increasing the aggregate level of R&D to 3%1 of GDP in Romania (with 2% coming from the private sector) could raise GDP by 12% above its base line by 2025.2 The impact on exports would also be the second highest among EU countries with an estimated increase of about 13% by 2025. Microeconomic evidence points towards a likely positive effect of higher R&D on firm productivity: firms investing in R&D have a probability of exporting about 15% higher than those who do not invest; and the probability to introduce a new product is about 23% higher.3 Indeed there is a strong correlation between those countries which are scientifically competitive with those that are economically competitive. Reforming R&D and innovation policies would thus unleash Romania‘s innovation potential with demonstrable impact and synergies throughout the economy. This is not a challenge for Romania alone, as improving competitiveness through RD&I have spurred ―Smart Growth‖ as a flagship initiative in the EU2020 strategy (EU Commission 2010). E. No single successful model exists to be copied verbatim. RD&I in fact is not a sector as much as a system – an intricate collection of interconnected actors, interests, rules, incentives, and goals linked through a chain of processes – and the RD&I system in Romania has many weak links. Romania‘s RD&I reform thus should reflect Romanian circumstances. It, however, must be leveraged by greater national level support for the effort in word and deed to ensure that promoting innovation in the private sector - supported by public funded research better targeted on Romania‘s current and potential comparative advantage and active government nurturing of new products and services - becomes a critical watchword for all government policy deliberations and actions. Taxpayer funded research is neither an academic exercise in idle speculation nor an end in itself. In a nutshell, reforms should be driven by a view that the aim of RD&I, at least that funded by scarce public funds, is to ―put ideas into useful form and bringing them to market.‖ The Problems F. The following key weakness were identified during the Review:  R&D and innovation remain absent from the political discourse on how to achieve sustainable growth in the aftermath of the recent crisis, in contrast to the high priority given this topic worldwide and in nations competing with Romania.  Romania’s RD&I lacks high enough national level oversight and active participation by all key system stakeholders, suffers from contradictory or missing government policies, and reflects poor appreciation of the critical stake of the private sector in national RD&I spending and policies. 1 EU2020 target; Romania committed 2% of GDP for 2020 2 See World Bank study (2009) on the ‗Croatia EU Convergence Report‘ that compares the impact of five Lisbon Agenda targets on GDP and exports. 3 Romania and the New Drivers of Growth. Background Paper prepared for the 2010/11 Country Economic Memorandum (ongoing). 8  A large superstructure of often underperforming and poorly monitored public institutes reflects a lingering legacy of an autarkic industrial strategy which has been ill adapted to a market economy and with most research institutes no longer having obvious business clients.  Romania’s science base seems also at risk. International research journals cite Romanian publications at rates below European averages. The pace of successful Romanian patent application outside the country is falling further behind.  Romanian scientists and researchers emigrate en masse. Over 15,000 Romanian researchers work abroad, whereas only 40 were successfully enticed to return to Romania between 2007 and 2009, reflecting poor career prospects, limited compensation or prospects for entrepreneurial gain, and a less than cutting edge research milieu in many cases.  Public resources seem spread too thin and lack focus. Resources too often pursue diffuse and marginally useful programs and limited resources are allotted within a framework of unclear national priorities. Much of the increase in R&D investments in the years preceding the global financial crisis, for example, led to inordinate increases in basic research, far in excess of relative levels in other countries.  Commercialization of public research and collaboration between public research organizations and the enterprise sector are meager. Licensing and spinoffs tend to happen accidentally while joint and contract research are not frequent. Funding for innovative product development and launch is inadequate and almost non-existent; the intellectual property regime (for government funded research) still present loopholes; and technology transfer offices have unclear mandates and are poorly equipped for the commercialization task.  The private sector, which must be the driver of investment and job growth, appears largely unconnected to public research efforts. The recently approved tax-breaks for R&D are commensurate but their usefulness is to be seen. MNE investments in R&D are surprisingly low due in part to a hostile intellectual property regime. The Recommendations G. There are four primary areas of challenge and possible government actions to improve the performance of RD&I over the short and medium term. A preeminent task is to strengthen the governance of the RD&I system. This first and foremost requires broader understanding that it is a national system, which is comprised of a variety of stakeholders and distinct activities which together contribute to (or break) a value chain. High-level government oversight of the system is needed to promote its enhanced integration and functioning, ensure the participation of relevant stakeholders in policy making, determine more focused national priorities for the allocation of scarce R&D resources, and enforce transparent accountability for performance. A second challenge is to strengthen the performance of R&D activities within the public sector itself by better aligning incentives, funding, performance monitoring, and research priorities to the agreed national priorities. A third challenge is to accelerate the process of transmitting R&D 9 into innovation in the private sector. This requires more attention to commercialization of public funded research and appropriate intellectual property legislation. It also will require a coherent and targeted program of early stage technical and financial assistance to start up firms applying innovations stemming from Romanian R&D so that a greater proportion of such research outputs result in economic activity gains and value added within the country. A final challenge will be to increase the level of private sector R&D in a framework of well defined intellectual property rights and targeted tax and regulatory actions to improve the climate for private sector RD&I and attraction of R&D intensive FDI. Improving Governance of the RD&I system a) The lack of strong national oversight and mobilization for RD&I requires activation of the Prime Minister’s National Council for Science and Technology Policy and the inclusion of Innovation in its mandate and title The National Council for Science and Technology Policy should be resuscitated to become the active overseer of the RD&I system. Its mandate should be expanded to include ―innovation‖ so as to rebalance any focus from science and research academics toward the goal of moving research to the market. The National Council would establish the national strategy for RD&I, set and implement decisions for overall and sector spending allocations, set performance indicators, monitor annual progress, integrate business development and tax policies with RD&I, and mobilize societal support for a coordinated national program. It is critical that the National Council be supported by a full time secretariat, which could be located in MERYS (perhaps NASR). The secretariat would be empowered to implement the directives of the National Council, vet legislation, send representatives to meetings of the cabinet considering science, economic, tax, or other issues impacting its mandate, and in other ways authorized to pursue a reinvigorated RD&I program as a high national priority. b) Scattered national R&D priorities should be refocused on areas of comparative scientific and economic advantage Romania does not have unlimited resources, should not fund scientific research without clear potential benefits to the nation, and cannot postpone a rigorous commitment to sharpening the focus of public R&D spending. Consequently the pending preparation of the next National Plan 2014-2020 must be informed by carefully prepared foresight reports exploring current and potential sectoral strengths and weaknesses, an independent review of current National Plan results, transparent and publicly available reports on RDI certification results, and a broad and open discussion among stakeholders and the public. While ―bottom up‖ curiosity driven research has its place, more emphasis should be placed on well designed and debated ―top down‖ prioritization focused on applied research in the areas of current or clearly likely areas of national comparative advantage. Increased transparency in the allocation of resources to research institutes —through the certification process, use of clear performance indicators, and competition methods for project selection involving international evaluators—could also reduce concerns about undue discretion, ―clientelism‖, or conflicts of interest in determining spending amongst institutes. 10 c) In particular, emphasize the support to Business Investments in R&D International evidence suggests that business expenditures in research and development is more likely to be conducive to patenting and innovation, as compared to government expenditures. The Europe 2020 strategy recommends countries to aim having the business sector financing about 2/3 of national R&D expenditures. Yet business expenditures in R&D in Romania have declined by half in recent years (from almost 0.4 percent to less than 0.2 of GDP in the 1998-08 period), in a sharp contrast to its peer countries. d) Flawed horizontal and unclear vertical coordination for public R&D must be remedied by an empowered and coherent sub-structure of key public sector stakeholders chaired by MERYS Create a multilateral coordinating body under MERYS/NASR including representatives of the Romanian Academy, universities, and line ministries with research institutes charged with establishing and overseeing nationally coherent RDI standards and performance, as well as support for the preparation and adherence to the next National R&D Plan. Empower NASR with sufficient power under the guidance of the National Council to forge and enforce decisions of the coordinating body. Adopt a results-based framework for policy implementation, avoiding fragmentation and overlapping of programs as well as strengthening their coherence vis-à-vis the different stages of the innovation development. Strengthen the process of monitoring and evaluation of programs. Improving the Management of Public R&D e) As large numbers of RDIs in all technological fields can lead to diseconomies of scale and dispersion of priorities and resources, their number should be cut in line with national priorities Establishing sector priorities suggests closure or privatization of several institutes in fields where Romania does not have, or would not soon have, technological and/or scientific advantage. Downsizing the number of institutes should be transparently based on criteria stemming from the certification process, National Plan determination of priorities, and options for closure through privatization, consolidation, or integration into universities. If privatization is chosen, the process should be rapid (within one year). Experience with privatization of RDIs which started in the 1990s, and which is still ongoing two decades later, suggests that investors (all local) were interested more in the real estate where the RDI was located rather than in the research capabilities of the institute or its intellectual property. The opportunity costs of maintaining marginal research institutes should be factored into the closure effort. The specific appraisal mechanisms, including valuation of intellectual property, of both agencies in charge of privatizing RDIs – the Authority for State Assets Recovery (AVAS, which still has 22 RDIs to privatize under a commercial entity legal status) and the Ministry of Finance should be reviewed by the National Council to foster a faster and cleaner privatization option. f) Successfully certified RDIs should be funded through more predictable, though performance influenced, budgeting 11 Projects funded under the NPII had three year multiannual budget commitments; however, the 50% cut in overall public R&D spending in 2009 inevitably impacted the program level. Contracts had to be renegotiated and original research programs downsized, with considerable disruptions to international collaboration (current and potentially future) and contracts with the Romanian Diaspora. Institutes inevitably failed in many cases to meet deliverable targets, focused attention on meeting critical fixed costs, and sought to retain core staff. NASR‘s intention to establish more predictable (and credible) forms of institutional funding over the medium term linked to performance (following the accreditation effort) should reduce a source of system weakness. g) Let managers of certified RDIs manage by enhancing their ability to meet performance goals While government-wide efforts are underway to improve human resource management, RDI managers should be provided all legally possible scope to use monetary and non-monetary rewards to incentivize performance, central support for disciplinary actions, assistance as needed to reorder activities to include collaboration with the private sector and efforts to increase useful patenting and other commercialization of research outputs. h) Improve RDI and university career prospects and work environments to retain/repatriate human capital Policies with regard to pay, research opportunities, cross border investigations, career advancement, access to markets through strengthened Technology Transfer Offices, etc. should be instituted. To directly address repatriation of highly skilled Diaspora there are three non exclusive options: (i) general policies, (ii) policies focused on scientific Diaspora and (iii) polices for Technological / entrepreneurial Diaspora. Programs towards the scientific Diaspora could focus more on the ―repatriation‖ of knowledge rather than individuals. Programs enabling the cooperation of the scientific Diaspora with local researchers and industry have proven successful. In this context, a program to finance the joint application between local and expatriate researchers to European programs such as the FP7 would help to increase the internationalization of research in Romania. Accelerating the Transmission of R&D i) Technology transfer infrastructure must be strengthened and better funded to commercialize publicly financed R&D Romania‘s technology transfer infrastructure is characterized by low commercialization capacities and/or is starved for public funding, in turn requiring efforts to be fully financed from deal based fees and commissions. This in turn limits the capacity of Technology Transfer Offices (TTO) to promote training, better monitor research and market developments, and in general help lead the cultural change needed in universities and RDIs toward improved collaboration with the private sector. The current funding appears short sighted in the sense that it does not reflect the externalities produced by and the leading role they play, as confirmed in OECD studies, in serving as brokers, bringing researchers 12 together with entrepreneurs, supporting the commercialization of research results, and in general helping to bridge the gap between research and product development. Outreach to researchers by TTOs should be met by more encouragement to researchers to think in terms of commercialization possibilities. For researchers increased weight should be explicitly given to successful patent applications, licenses, royalties, etc. in career advancement and compensation decisions. Universities should adopt policies to ensure a fair sharing of any commercialization profits with the researcher/team. MERYS may also wish to consider if courses in R&D commercialization/IP should be included in core science curricula since several stakeholders noted a lack of understanding of, if not resistance to, commercialization issues within some faculties. Small grants aiming at early stage developments of technology – such as proof of concept grants -- have proven to be a valuable instrument in that respect and could be made available to TTO‘s through a national program. j) Intellectual Property Legislation and Protection must be updated in Line with General European Standards Regarding Transparency and Invention Ownership Romania has a number of regulations on IP with several contradictions on invention ownership, use and its transfer creating negative views among domestic as well potential foreign investors. As a matter of fact, the contradictions of the IP legal framework have resulted in judiciary battles where companies funding the research find difficult to claim the ownership of the results as well as in case by case IP provisions between RDIs and their researchers. These self-inflicted deterrents to investment need to be cleaned up. Encouraging the demand for R&D In addition to the former three challenge areas, Romania‘s policies should consider how to encourage the demand for R&D and innovation activity by the private sector. A vibrant and innovative private sector is ultimately the ―demand side‖ factor in this complex exercise of increasing the impact of R&D on competitiveness and economic growth. While economic specialization per se plays a role – biotech industries are more likely to invest in R&D than textiles – a number of other factors are also at interplay. Some of those could be directly influenced by public policy. The recently introduced tax-breaks for R&D is one of the most generous among OECD countries. In this review we highlight the following; k) Improve the investment climate for innovation. Analysis of firm level data for Romania shows that innovation has a positive impact on firm productivity and confirms that firms investing in R&D are (32 percent) more likely to innovate. It also highlights the effects of the investment climate – particularly access to new technologies and credit as well as the presence of foreign competition. Further efforts to reforms such ―innovative climate‖ would contribute to broaden the base of firms investing R&D in Romania. 13 l) IP based start-up companies should be fostered by nurturing and funding policies There are only few programs aimed at IP based start-up companies in Romania. The term 'innovative start- ups' is generally applied to all small and medium enterprises and generic support policies and programs for SMEs are spread under the Ministry of Economy, Ministry of Regional Development and Tourism, and the Ministry of Finance. Despite various programs the number of start-ups supported is very small. Financial adequacy of the existing programs as well as their administrative requirements should be reviewed to improve access by innovative startups. The government could consider the creation of a small agency specialized in nurturing and financing innovative startups and R&D projects in SMEs. . Specialized government agencies have been often created to ―nurture‖ R&D projects in small enterprises, including innovative startup companies. Nurturing is important in the case of financing business R&D projects in small companies and innovative startups to facilitate the transition of ideas to the market, a process in which a number of non-financial obstacles tend to emerge. Needless to say, such obstacles are not present at the level of purely scientific research; and researchers are fully trained and equipped to perform the ―purely‖ research task. ―Nurturing‖ services provides, normally through a network of consultants, business and technology related services that are not easily available throughout the lifecycle of the project. For instance, contact with potential clients is of critical importance because their feedback helps to make product development more cost-effective. The finish TEKES and Croatian BICRO are examples of such agencies m) Facilitate MNEs as an engine for knowledge based start ups and technology clusters The Review was surprised to discover that large MNEs studiously avoid research and development in Romania due to a hostile intellectual property environment and fear that Romanian employees could use the legal system to seek recompense through time consuming and publicly controversial suits. This results in missed opportunities for R&D investments, jobs for Romanian researchers, externalities for the country, deepening of the R&D network and the synergies leading to technology clusters, etc. Not surprisingly there is no evidence of spillovers in terms of development of local suppliers or spin-offs initiated by former MNE employees since they do little or no R&D work. Further investigation of barriers, and possible reforms, to attract R&D performing firms from abroad should be a top priority for the National Council. 14 I. Background, Scope, and Conceptual Model of the Review 1. In 2010 the European Commission (EC) and its members adopted the EU2020 strategy aiming to enhance Europe’s competitiveness, increase the capacity to create new jobs and replace those lost in the crisis, and improve living conditions. Research, Development and Innovation (RD&I) has been placed at the heart of the EU2020 strategy as the main driver of competitiveness of products, services, business and social processes. The Innovation Union plan, a ‗flagship initiative‘ within the strategy focuses on boosting investment in research. Member States are encouraged to continue investing in RD&I and implement reforms to ensure more value for money and to help tackle fragmentation of programs. Research and innovation systems need to be better linked and their performance improved. Cooperation between the worlds of science and business must be enhanced, obstacles removed, and incentives put in place. In addition, remaining barriers for entrepreneurs to bring ―ideas to market‖ should be addressed, including: better access to finance particularly for small and medium size enterprises (SMEs), affordable and clear Intellectual Property Rights (IPR), smarter and more ambitious regulation and targets, faster setting of interoperable standards, and strategic use of public procurement budgets. 2. In order to help the Member States design these reforms in a context of tight budgetary constraints, the EC has brought together available evidence and identified a set of policy features which are typically found in systems that perform strongly. Member States are invited to use the policy features identified to carry out a comprehensive ―self-assessment‖ of their research and innovation systems and subsequently define the key reforms in their Europe 2020 National Reform Programmes, which are due by April 2011 (see Annex II). 3. This Functional Review aims at analyzing the efforts of the Romanian Government to strengthen its RD&I sector, in line with the EU2020 strategy, by assessing the current operation of the Romanian system, exploring bottlenecks and recently initiated reform efforts, and making recommendations to address challenges. The Review was commissioned by the Government of Romania and the EC as part of a broader assessment of the country‘s public administration contribution to the country‘s growth and continued convergence within the European Union (EU). Based on a Memorandum of Understanding signed in June 2009, the specific objective of the Review is to propose actions over the short to medium term to tangibly strengthen effectiveness and efficiency in the RD&I sector. The review has been coordinated with a parallel functional review of the Higher Education sector, and has been informed by other Reviews carried out by the World Bank. 4. The Review conceives Romania’s RD&I sector as a system, defined simply as a group of interacting and interrelated elements forming a more complex whole. In this case it is comprised of many stakeholders within the public and private sectors (universities, research institutes, the Romanian Academy, ministries, and private entrepreneurs) spending on RD&I and interacting as parts of a value chain which should move ideas to market. The Review is focused on research, development, and innovation, leading to products and services which strengthen the country‘s business investment, technological sophistication, comparative advantage, and economic performance. As presented in the charts below, key system components include research, proof of concept/invention, early stage technology development, product development, and product launch—a conceptual model increasingly utilized globally by sector observers and participants. The first two phases often lie in the domain of the research institute/university and may be publicly funded. The technical experts or scientists who create the concept in phase 2 may have 15 little business experience, but they may have high commitment to their technical vision. The venture capital industry, which is looking for opportunities to invest where the returns may be high enough to justify the business risks, are unlikely to take the opportunity seriously until phase 5 is reached. Phase 3 ‗early stage technology development‘ (ESTD) is the most critical phase in the transition from invention to innovation. This is the point at which the technology is reduced (conformed) to industrial practice, a production process is defined from which costs can be estimated, and a market appropriate to the demonstrated performance specifications is identified and quantified. It is likely to be necessary to provide a wide range of alternative ways to address issues of technical risk, to identify markets that do not yet exist, and to match up people and money from disparate sources. On one hand, market ‗‗push‘‘ policies may encourage institutes to fund research closer to the reduction to practice required for a solid business case. On the other hand, in the world of business and finance—technology ‗‗pull‘‘ policies can enhance the incentives for risk taking4. In short, this is an iterative and multi-dimensional process to bridge concept to market and scientist to entrepreneur. 5. An increasing number of countries have grasped that RD&I should be seen as an integrated system, and have taken steps to improve its functioning, as well as increase the flow of funds entering the system at various stages, with demonstrably positive impact. The Review does recognize that Romania, like all countries, chooses to invest public and private resources in research in the arts and humanities, but believes these areas are outside the mandate of the assessment (although their financial costs may impact the level of resources available for more prosaic investments in science and business). 4 Branscomb, L; Auerswald, P (2003) Valleys of Death and Darwinian Seas: Financing the Invention to Innovation Transition in the United States, The Journal of Technology Transfer, Volume 28, Numbers 3-4, 227-239. 16 6. The Review also recognizes that Romania’s economic activity, including services 5 , is not concentrated in high technology sectors where the linear model of innovation applies most directly. In fact, industrial production is currently concentrated in low and medium technology sectors where the prevalence of small and medium enterprises (SMEs) is noticeable. As of 2007, food processing (a low technology sector) encompassed 16% of industrial production while petroleum and coal products represented 13% and metallurgy 12% respectively. These sectors, in general, do not create technologies and innovate through the absorption and adaptation of technologies created by upstream sectors (mostly high tech). The same characterizes sectors such as textiles, furniture, and leather which together represent 12% of industrial production and account for a high number of SMEs. The institutional framework that could promote the diffusion of technologies, their more rapid absorption, and SME upgrading which would all contribute to economic growth are beyond the scope and mandate of this Review. The Review rather responds to the government‘s wish to explore how it might expand the country‘s high tech industrial base which main inputs come through research, as an important source of future economic growth and development of globally competitive industries. 7. Improving RD&I is not a simple or quick task, and requires the active participation of all stakeholders. The multiplicity of players, difficulty in aligning incentives and establishing modern legal frameworks and government policies, and encouraging private sector actions can appear daunting. Overcoming ingrained or legacy cultural differences, if not distrust, between business and universities, reducing business fear of government dictates, revenue demands or red tape requirements, or stimulating the private sector to take a more proactive interest in R&D to gain global market share require concerted and well conceived initiatives. As a chain, the weakest link can determine overall success. While Romania, for example, has a relative strong capacity in basic research, the process of applying this research to business is significantly underdeveloped. Support to private companies also appears nascent. Increasing the inflow of resources for research institutes thus is a necessary but not sufficient condition—it does not guarantee the highest possible rate of return for such an investment in any country if the entire RD&I system is not functioning adequately. 8. It is important to understand that all governments seeking to improve RD&I confront the notorious ―Valley of Death‖—that period lasting potentially years between the successful proof of a product‘s technical concept to the successful launch of that product in the market (after which it becomes a bankable asset which would then attract normal collateralized bank financing). Many large OECD countries thus are paying careful policy attention and providing government financing during this period to nurture new ideas and businesses (in the absence of venture capitalists or ―angel‖ investors, which are in short supply). Not all public support to new firms or products are successful, and questions abound about the success of governments in picking winners or stifling new ideas and unforeseen breakthroughs by firms through excessively rigid top down determination of priorities. Nevertheless, the trend in OECD countries appears to be increased public financial support, on a matching basis, to nurturing innovation. 9. While most research does not lead to new companies or spinoff enterprises from universities or public research institutes, it can represent value to be mobilized. For example, careful monitoring and harvesting of research results can also lead to patents which reap licensing and royalty income to a public 5 Romania‘s economic structure has changed dramatically over the last 15 years as the weight of agriculture in its GDP diminished from 22% in 1993 to 9% in 2007, while services increased from 35% to 56%, and manufacturing diminished from 42% to 35% over the same period. 17 research institute or university, especially if individual research teams share equitably in the rewards. Many countries are actively promoting the creation of Technology Transfer Offices (TTOs) within universities and public research institutes with the specific mandate of commercializing research by promoting upstream collaboration between the agency researchers and private sector, encouraging more targeted applied research, assisting researchers to navigate the complexities of patenting, licensing, and royalty negotiations, while seeking to protect the agency (and taxpayer) from unwittingly funding valuable research which is too rapidly disseminated globally (perhaps in response to the incentive of ―publish or perish‖ within the strictures of traditional academic career advancement) before its profit potential has been assessed and protected as needed. Conversely, an overly statist approach to intellectual property protection in the private sector (by forcing companies to share profits from business funded RD&I advances with company researchers) can perversely limit such research, whose benefits should more appropriately be left to private firms to allocate internally as appropriate to spur innovation in their own organizations. II. The Extent of Current Problems 10. Romania's innovation performance is well below the EU-27 average as measured by several benchmarks, despite improved performance in recent years. For example, although one of the innovation growth leaders in the group of catching-up countries, according to the European Innovation Scoreboard (EIS) 6 2009, Romania ranks sixth to last among the EU-27 countries with a value of the Summary Innovation Index of 0.294 out of 1, compared to an average of 0.478 for EU27. While Romania‘s performance has moved towards the EU average over time (Figure 1), in 2009 very low values compared to the EU-27 average were recorded for 'intellectual properties' indicators (e.g. EPO patents, community trademarks and design, accounting only for about 1.5% of the EU27 average), public-private co-publications (11% of EU27 average), business R&D expenditures (15%), lifelong learning (16%), private credit (32%), innovative SMEs cooperating with others (30%), and employment in knowledge – intensive services (38%). 11. The improvement in innovation performance over 2004-2009 was primarily due to strong growth in broadband access by firms (46.7%), community designs (37.3%), community trademarks (34.5%), private credit (25.8%), and public R&D expenditures (18.0%). Nonetheless, in values from 2009 these indicators remained very low in comparison to EU27 average: broadband access by firms (44.0 vs. EU27 average of 77.0), community designs (2.0 vs. 121.2), community trademarks (12.4 vs. 124.5), private credit (0.39 vs. 1.22), and public R&D expenditures (0.41 vs. 0.64). 6 The EIS 2009 includes innovation indicators and trend analyses for the EU27 Member States as well as for Croatia, Serbia, Turkey, Iceland, Norway and Switzerland. 18 Figure 1 Convergence in Innovation Performance 7 Source: EIS2009. Color coding: green innovation leaders, yellow innovation followers, orange moderate innovators, and blue catching-up countries. The internal lines show EU27 performance and growth. 12. Romania lags in Gross Expenditure on Research and Development (GERD). Although it increased 18 percent between 1998 and 2008 (from 0.49 to 0.58 percent of GDP), Romania’s GERD is still below expected levels given its economic development (as measured for instance by per capita income). Countries where growth is primarily driven by innovation, such as Finland, Japan or Korea, have systematically spent more than 3 percent of GDP annually on RD&I. Moreover, the recorded increase in such spending in Romania is heavily tilted toward basic, as opposed to applied research. While basic research is required to maintain the scientific base and feeds applied research, the ratio of basic to applied research funding grew sharply between 2005 and 2007 to over 40%, a level two to three times the average of other countries. The increase took place during a period of rapid growth (nearly 30% per year) in Romania‘s public investment in research. This ratio of funding raises questions as to the allocation methods, priorities pursued, outputs gained, and ultimate relevance for economic growth if the remainder of the RD&I system was not organized to reap the benefits of these investments. 7 Innovation performance calculated using data over a five-year period based on absolute changes in the EIS indicators. 19 Figure 2 Basic Research Expenditure as a % of total R&D Expenditure 45 China 40 Czech Rep. 35 Denmark 30 Hungary Israel 25 % Japan 20 Korea 15 Poland 10 Romania 5 Russia 0 U.S. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 UK Source: OECD - STI 13. Romania’s GERD was (perhaps disproportionately) reduced to only 0.27% of GDP in 2009, reaching about EUR 430 million. Reductions in GERD expenditures were driven in the public sector by fiscal constraints stemming from reduced growth, revenues, and access to international capital markets. It should be noted that approximately two thirds of OECD countries, admittedly with better fiscal conditions, have adopted measures to boost R&D - particularly business R&D -to stimulate economic recovery. The share of government spending for R&D is also low relative to EU comparators (see Figure 5 below). It appears that private firms in Romania also had to allocate more of their internal funds to finance working capital, rather than R&D, in response to worsened credit conditions for the country as a whole. Estimates prepared for this report indicate that the decline in sales by innovative firms in Romania was more than twice as large as the average for a sample of neighboring countries (Bulgaria, Hungary, Latvia, Lithuania, and Turkey). 14. With the constraints on the state budget stemming from the financial crisis government appropriations to R&D (GBAORD)8 were reduced proportionally as a share of public expenditures. During the peak years of 2007 and 2008, public R&D expenditures represented more than 1% of the state budget, but the ratio fell to less than .8% in 2009 and 2010 (Figure 3), lower than the ratio achieved in pre crisis 2006. 8 GBAORD means all appropriations by central government allocated to R&D in central government budgets. Data on government R&D appropriations therefore refer to budget provisions, not to actual expenditure, i.e. GBAORD measures government support for R&D using data collected from budgets (Eurostat – Glossary) 20 Figure 3- Government budget appropriations or outlays on R&D (GBAORD) 2001-2010 as a Percent of Total Government Outlays 1.50 1.00 0.50 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Eurostat (2001-2009) Eurostat (2001-06); MoF (2007-10) Source: Eurostat (2001-06); Ministry of Finance (2007-10) 15. The share of business expenditures on R&D (BERD) is very low and has been declining over time. Only 40 percent of total R&D expenditure in 2009 was performed by the private sector in Romania (Figure 4). By contrast, in countries with high rates of R&D expenditure, such as Finland, the U.S. or Austria, the share of industry-related R&D spending is above 70 percent. Overall, Romania experienced significant falls in BERD intensity over the period as it not only deteriorated in absolute value but also as a share in total R&D expenditures (Figure 5). The absolute level may reflect in part a lack of reporting by private businesses (which would require further investigation) but the trend line is worrisome. 16. The number of R&D personnel and researchers has also been decreasing. Romania lags in R&D personnel and researchers indicators, having barely 2 researchers and 3 R&D personnel per thousand employees. This compares to EU27 averages of about 7 researchers and 11 R&D personnel per thousand employees. Furthermore, most OECD and Eastern European countries have seen ongoing growth in R&D personnel, particularly researchers.9 Romania, however, experienced the largest drop in these categories. Over 1998-2008, researcher numbers (full-time equivalent) dropped by 3.5 percent annually and research personnel as a whole by 5.3 percent (Figure 6). 17. The drop in research personnel has caused individuals to ―vote with their feet‖ and creating a large community of Romanian researchers in the Diaspora. Those researchers - whose number has been assessed at15,000 - do contribute to global scientific research even if not captured by Romania‘s statistics. Moreover, it is also noteworthy that Romanian scientists play relatively minor roles as parts of European research teams, at least as measured by project coordination. Between 2007 and 2008 the European Commission funded, through the 7th EU Framework Program for Research, 181 contracts in which Romanian entities participated. Only 18 or 10% of those contracts had a Romanian institution as project coordinator. From the total EUR 640 million funded by the EU, only 4.7%, or EUR 30 million, were granted to Romanian research organizations. 9 Researchers are (defined as professionals engaged in the conception and creation of new knowledge, products, processes, methods and systems). 21 Figure 4 R&D expenditure by Figure 5 BERD and GERD (% of Figure 6 Researchers and total sector (% of GDP), 2009 GDP), 2008 R&D personnel per thousand total employment, 2008 1.40 Finland 71% Romania 3.2 2.1 US 73% 1.20 Turkey (2007) 3.1 Austria 71% 2.4 EU27 62% Poland 4.7 Slovenia 65% 1.00 3.9 Czech… 60% 6.7 Hungary 4.5 Estonia 45% 0.80 Italy 51% Slovak Republic 7.0 5.6 Russia 63% 0.60 Czech Republic 9.6 Croatia 40% 5.6 Lithuania 24% Russian Fed. 12.3 Turkey 44% 0.40 6.4 Poland 31% 10.7 EU-27 6.6 Bulgaria 30% 0.20 Romania 40% Korea 12.5 10.0 Latvia 37% 0.00 0.0 5.0 10.0 15.0 0.00 2.00 4.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Total R&D personnel per thousand total Business enterprise sector employment EU27 BERD Romania GERD Government & HE sector Total researchers per thousand total employment Private non-profit sector Romania BERD Source: Eurostat, data for Turkey and Source: Eurostat Source: OECD STI 2010 the U.S. for 2008 18. Patenting activity, an indicator of Romania’s innovative performance, is below that of countries with similar levels of development. In 2008 Romania had 0.23 patents (counted in triadic patent families10) per million residents in comparison to 0.01 in 1998. But this compares to the EU average of 30 patents per million residents. Moreover, Romania is characterized by low levels of innovation efficiency given the value of GDP per capita and the number of triadic patents (Figure 7). 10 Patent for the same invention filed by the same applicant at the European Patent Office, the Japan Patent Office and at the US Patent and Trademark Office. 22 Figure 7 Triadic patent families compared to GDP per capita (1998-2008) and Industry finance GERD 5 OECD Japan U.S. 4 log Triadic patent families Germany Korea France UK 3 Sweden Netherlands Switzerland Italy Canada Israel Austria Belgium Finland Denmark Australia Spain Singapore Norway 2 Ireland Brazil Russia Hungary New Zealand South Africa Turkey Poland Czech Rep. Slovenia Luxembourg Mexico Greece 1 Argentina Portugal Bulgaria LatviaLithuania Estonia Chile Romania Slovakia Iceland Malta 0 Cyprus 3.8 4.0 4.2 4.4 4.6 4.8 5.0 log GDP per capita, PPP (constant 2005 international $) Triadic patent families 4.5 (log) Japan U.S. 4.0 Germany 3.5 France UK Korea 3.0 Netherlands Switzerland Sweden Italy Canada 2.5 Belgium Israel Finland Austria Australia Denmark China Spain 2.0 NorwaySingapore Chinese Taipei New Zealand Ireland Russia 1.5 Hungary South Africa Luxembourg Czech Poland MexicoRep. Slovenia Greece Turkey 1.0 Argentina Portugal Iceland 0.5 Slovakia Romania 0.0 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 Industry-financed GERD (log) Source: OECD STI & WDI 19. Low private sector R&D investments also conspire to a lower patent propensity in Romania. Moreover, Romania’s triadic patenting is below to what is expected for its low level of business R&D. Tough, empirical evidence shows the importance of R&D to create new products and to export11, negative incentives for business to perform R&D have been created, partly due to contradictory rules in the Intellectual Property Rights (IPR) framework and a tendency to favor researchers over the firms that employ them. 11 Econometric exercises performed by the World Bank show that Romanian firms that engage in R&D are 32% more likely to introduce new products to the market, and at the same time they are 15% more likely to export. 23 20. Collaboration between the public and private sectors and the commercialization of public research are weak. Results from the latest EU Community Innovation Survey show that only 3 percent of surveyed Romanian firms cooperated with the public sector (i.e. government or public research institutions) in the period 2006-2008 (Figure 7). Several efforts have been made recently to promote patenting and licensing, emergence of spinoff companies, and the expansion of joint or contract research. Nonetheless, the results of public research remain essentially in academic domains with little impact on economic development. Figure 8 Innovation cooperation between business and the public sector during 2006-2008, % of firms 23.1 25 16.9 20 14.7 13.4 13.1 12.8 11.0 15 % of firms 9.9 9.6 9.1 8.6 8.6 8.3 7.7 7.3 10 6.8 6.5 6.5 6.2 5.7 5.6 4.2 3.9 3.1 3.0 3.0 5 1.7 1.5 0 Source: Eurostat, Community Innovation Survey 2008 21. Romanian universities have incentives to recruit more students in order to secure more state funding under the current funding formula, and enrollment has increased. However, indirect evidence suggests that the quality of tertiary education might be low and the proportion of Science, Technology, Engineering and Mathematics (STEM) students is decreasing. Therefore, the quality and quantity of human capital inputs to supply the RD&I system may not be optimal. Based on the findings of the Functional Review of the Higher Education Sector, many universities suffer no consequences if their students do not acquire competencies, skills and knowledge or they do not find related jobs. University performance is not defined or measured against such indicators. Perhaps as a consequence no Romanian university is found among the top 500 universities in the world in any of the international ranking systems. More importantly, the new mass nature of tertiary education has embraced a student population lacking preparation for university education. As many as 40% of the students at age 15 are below the baseline level of reading proficiency.12 Secondly, a large part of the expansion of tertiary education has taken place in newly established (often private) institutions, and in part-time (or weekend) and long-distance learning programs. The format of these programs is new, and their quality, unknown. The sector‘s rapid growth has been led by programs in the social sciences, while engineering and science-related fields have seen shrinking demand from Romania‘s students in recent years. Since 2000, 63% of the new university places added in Romania have been in the fields of social science, business and law. Though similar trends have been 12 Level 2 can be considered a baseline level of proficiency, at which students begin to demonstrate the reading literacy competencies that will enable them to participate effectively and productively in life. According to the 2009 PISA results 23.6% of Romanian students at age 15 were at Level 1a, 12.7% were at Level 1b and 4.1% were below Level 1b) 24 observed in many European countries, Romania currently has the highest proportion of graduates in the social sciences anywhere in the EU. In 2008, 58% of Romania‘s graduates received degrees in the social sciences, while 72% graduated with degrees in all ―soft‖ disciplines. By contrast, only 24% received diplomas in the ―hard‖ sciences. III. The Institutional Framework Main RD&I Actors 22. The landscape of R&D organizations in Romania is vast and appears unmanaged from a systemic viewpoint. The RD&I system in 2009 consisted of: i) More than 1,300 organizations performing RD&I activities out of which 263 are public R&D organizations, including:13  197 R&D organizations within the core public administration, including: - 56 accredited public universities; - 44 national R&D institutes coordinated by nine ministries (for instance, MERYS-NASR coordinates 19, the Ministry of Economy and Finance -8, the Ministry of Transport -3, the Ministry of Communication and Information Technology -2, the Ministry of Labor, Family and Equal Opportunities -2, the Ministry of Public Health -2, the Ministry of Environment and Sustainable Development -1, the Ministry of Agriculture and Rural Development -6) - 96 institutes, research centers and research-development resorts organized as public institutions  66 organizations of the Romanian Academy (research centers and institutes) and the Academy for Agricultural and Forest Sciences  a number of institutes organized as commercial companies, with the state as an owner or majority stakeholder  Almost 1,000 business operators in the private sector14 ii) The network of institutions specialized in technology transfer and innovation (ReNITT), currently consisting of 50 specific organizations, out of which 39 are accredited (technology transfer centers, technology info centers, technology and business incubators), and four science and technology parks. iii) The Ministry of Economy is responsible for promoting private sector activities including support to new companies, small and medium size firms, and the overall business environment iv) Other actors include the Ministry of Finance (with responsibility for tax policy and revenue collection) which can impact business R&D efforts. 13 Source: ERAWATCH Country Report 2009 Romania - Analysis of policy mixes to foster R&D investment and to contribute to the ERA – Romania; and information gathered during the interviews with Romanian policy-makers and researchers. 14 According to NASR statistics regarding the number of companies involved in projects in the national RDI programmes, in 2008. 25 Legal Framework 23. There are three different legislative frameworks for the system including (i) the research institutes under the Romanian Academy, (ii) the research institutes under the NASR, the line ministries, and universities, and (iii) the research institutes under the Romanian Academy for Agricultural and Forestry Sciences. Legal changes affecting the first two were made in January 2011, or are in train. Government Ordinance no. 57/2002 was adjusted and Ordinance no. 6 / 2011 on scientific research and technological development was approved by the Minister of Education, calling for a three level funding system for R&D consisting of: (i) basic institutional financing that replaces the current Nucleus program for RDIs; (ii) performance based funding; and (iii) project-based competitive funding programs in the NPII, sectoral plans, EU funds, and other competitive mechanisms in the system. The certification mechanism based on performance indicators will play a key role in the new system. Institutional financing will be available only for RDIs which pass a new certification process. The process will be based on performance indicators assessing institute‘s scientific visibility and industrial performance. Evaluation and certification will involve at least a 50% proportion of foreign experts to guarantee neutrality and international quality. An institute may be classified at levels A +, A, A-, B, or C. To be certified the entity must reach level A- or better (with those with lower grades subjected to reorganization, consolidation, or closure). Certification or recertification is granted for a period not exceeding five years. The process is expected to be carried out by the Consultative College for Research, Development and Innovation (CCCDI), described in the next section. In 2012 the new funding system, based on the certification results, is expected to be in force for all funding schemes. Entities, e.g. universities, RDIs of RA or under other ministries, which want to apply for the performance funding need also go through the certification process. Competitive funding does not require certification and is available to all research entities. 24. The new education law introduces other important changes to Romania’s university research. Until now, public universities received budget funding based on the number of students. Under the new law each university has to perform an internal assessment and performance classification of all departments, including research every five years. Each university is obliged to present an annual report covering the university‘s financial situation, status of each study program, results of its resea rch activities, the quality of the performed activities, etc. Such an annual report will be a fundamental condition in order to access funding from the state budget. Moreover, the new law requires teaching and research staff to retire when reaching the legal retirement age of 65 years. Nonetheless, private and confessional universities may decide to continue the activity of a teaching and research staff member after the retirement age on the basis of a one- year employment contract that can be extended every year until the contractor turns 70. It is foreseen that about 40 percent of teaching /research staff will retire over the next five years. 25. IPR are regulated by a variety of laws and ordinances15, providing unclear and contradictory provisions. There are several contradictions related to invention ownership and its transfer. In general the legislative IP framework is a complex system of IP laws16 and intertwined applicable provisions.. An 16 Law no. 64/1991 on patents (the ―Law on Patents‖) as republished, Law no. 350/2007 on utility models (the ― Law on Utility Models‖) as amended, Law no. 16/1995 on the topographies of semiconductor products (the ― Law on Topographies of Semiconductor Products�) as amended, Law no. 255/1998 on plant varieties (the ―Law on Plant Varieties‖), Law no. 129/1992 on ornamental designs (the ―Law on Ornamental Designs‖), Law no. 8/1996 on 26 assessment performed by a Romanian attorney specialized in IPR shows that: a) Among the public sector, including RDIs management, there is an overall lack of substantive knowledge and awareness on the IP regulatory framework and its impact on the commercial exploitation of the R&D-I results17, b) Practices regarding the ownership of the R&D-I results are inconsistent among the stakeholders. Various public entities and institutions employ different practices when dealing with IP ownership arising out of R&D-I activity performed by their employees or researchers. Such practices inconsistent among various stakeholders and not compliant with the applicable legal provisions on point run the risk that the public entities and institutions fail to legally secure and exploit the R&D-I results, c) The central piece of legislation governing the R&D-I Sector, the Law on Scientific Research and Technological Development, does no more than simply state that in the absence of specific contractual provisions regulating the ownership of the R&D- I, the general provisions of the various IP laws apply, leaving the ownership of the R&D-I results to be settled by contract, it runs the risk of creating inconsistent practices in the field BOX- Romanian IP laws regulate differently the ownership and assignment of R&D-I results The Law on Patents and its Regulation, hinders an effective negotiation between the entity financing the R&D-I activity and the entity performing the R&D-I activity. Thus, there is an inherent risk that the entity financing the research loses valuable potential to exploit. The Law on Plant Varieties and the Law on Topographies of Semiconductor Products and their Regulations does not provide any criteria for establishing and/or calculating the remuneration owed by the employers or entities performing the R&D-I activity to the individual creators The Law on Ornamental Designs and its Regulation. Although the legal regime of the ownership over ornamental designs created pursuant to an employment contract or a contract with a ― creative mission‖ is similar to the one provided for patents, the Regulation does not clearly define, as in the case of patents, what exactly is a creative mission The Law on Copyright. Unlike the above mentioned laws, the Law on Copyright has no specific references or provisions regulating exclusively the R&D-I results. Moreover, the law takes a rather different view in dealing with the commercial exploitation of patrimonial rights in works of authorship. The law protects the author as the owner of patrimonial rights over his/her creation, even in the case of an employment agreement or a work for hire, unless the author expressly assigns his/her rights to the employer in exchange for a price which may not be a sham Structure of Governance 26. The National Council for Science and Technology Policy (CNPST) is officially the government's high-level policy coordination body for RD&I, under the Prime Minister oversight, tough it has apparently never met. Chaired by the Prime Minister (who in turn is accountable to copyright as republished (the ―Law on Copyright‖) and Law no. 84/1998 on trademarks and geographical indications (the ―Law on Trademarks‖). 17 For purposes of this Summary, by R&D-I results we mean all results described in Article 74 of Ordinance no. 57/2002 as amended (the ―Law on Scientific Research and Technological Development ‖). 27 Parliament), the National Council is charged with providing a framework for dialogue among government bodies and the scientific community on R&D policies and their subsequent implementation. Created in 2002, the CNPST has apparently never met, issued guidelines, or reported on RD&I. Nevertheless, in 2011 the Emergency Ordinance 6/11 attempts to revive the functioning of CNPST and requires the CNPST to present an annual report to the Cabinet. The situation up to now is in stark contrast to countries leading in innovation which have established structures at the highest political level to strengthen system oversight, direction, and support for stakeholder collaboration18. As a consequence, Romania‘s RD&I policy is by default shaped by the Ministry of Education, Research, Youth and Sports (MERYS), which has the legal empowerment to act as ―State Authority for R&D‖. Unfortunately it appears that the Ministry‘s ability is limited to convene other stakeholders (such as other line ministries with their own research institutes) or promote coherent implementation of national priorities in terms of: (i) research in agencies not reporting directly to the MERYS; (ii) oversight and correction of system performance; (iii) ensuring appropriate support for new business development by the Ministry of Economy, appropriate tax incentives for business research and development managed by the Ministry of Finance, etc. The MERYS - now implementing a series of fundamental reforms in its structure, in education and research policies, and support for RD&I funding - is inherently hampered by the lack of institutionalized support from the senior levels of government needed to promote implementation. (It should be noted that in response to a recent Memorandum of Understanding with the EC an Inter-ministerial Committee on R&D funding was formally established, although its actual impact is unclear.) 27. Since 2002, through different legal acts, sometimes with conflicting provisions, MERYS’ functions of ―State Authority‖ have been ―delegated‖ to organizations and councils in the subordination and/or accountable to the Minister of MERYS. The most recent reassignments 19 of responsibilities have been made through Ordinance 74/2010, Law 1/2011, Ordinance 6/2011 and GD 133/2011 and cover the responsibilities of the National Authority for Scientific Research (ANCS), the Executive Unit for Financing the Higher Education, Research, Development and Innovation (UEFISCDI), the Consultative College for Research, Development and Innovation (CCCDI), the National Council for Scientific Research (CNCS), the National Council for Development and Innovation (CNDI), the National Council for Ethics in Scientific Research, Technological Development and Innovation (CNECSDTI), the Council for Social Dialogue (CSD). The reassignments of responsibilities, some supported by ongoing institutional reorganizations, appear to be a positive step forward towards the separation of the different functions and the improvement of the overall efficiency of the governance system for R&D and Innovation. However, much more needs to be done to improve governance and accountability. All these organizations and councils report to the Minister of MERYS and there is no official relationship among them and the other Ministries or the CNPST. At the same time, since each organization and council listed above reports directly 18 In more developed EU economies, with high innovation performance such as Denmark and Finland, high level advisory bodies with close links to the Executive and Parliament lead and coordinate the strategic development of research and innovation policies (See Annex III). Among EU new member states, Slovenia and the Czech Republic, two high income economies, with relative high and growing innovation performance, according to the EIS (See Figure 1) high level councils, in different capacities, are important. In Slovenia, the National Science and Technology Council is an advisory body to the government, while in the Czech Republic Council for Research, Development and Innovation (CRDI) prepares a proposal for allocating public funds for R&D, including the division of funds among individual responsible bodies. 19 These may be subject of further changes as EO 6/2011 and EO 64/2010 are subject of Parliament approval 28 and is accountable to the Minister of MERYS, the relationships even among themselves and the demarcation of their functions are blurred. 28. The most important delegation of MERYS’ functions was enabled by GD 1449/2005 that established the National Authority for Research and Development (ANCS)20, organized as a public institution and subordinated to MERYS. The ministry, through NASR, has been charged to define, implement, monitor and evaluate RD&I policies and programs; stimulate regional and local development; foster private sector growth as well as international partnership. According to law, NASR may have up to 134 personnel, excluding the President and Vice President. A major responsibility has been conducting competitive processes to allocate national and EU funds for research projects. This funding can be sought by public research institutes and in some cases private sector firms or institutes. NASR has also been responsible of the provision of institutional funds to the National RDIs through the Nucleus program. In the absence of an operational CNPST, NASR was instrumental in organizing the first nation-wide consultation process for defining a national RDI strategy for 2007-1321. NASR has been responsible for providing, and accounting for, budget resources to 19 institutes under its mandate. It also monitors the budget performance of public institutes subordinated to line ministries. It produces annual reports on its operations. 29. During the period 2005-2007, in the absence of an operational CNPST, ANCS was very instrumental in organizing the first, nation-wide, systematic consultative process and analysis of the R&D-I system for defining the national strategy priorities for the period 2007-2013. However, this was possible due to the important institutional and expertise support provided by the European Commission in the context of the Romania accession to the European Union in 2007, doubled by an increased status of the President of ANCS, as member of Cabinet and a strong personality. At the same time the ANCS was the main funding agency for research, which inclined significantly the power forces towards ANCS. During this period the most important policy and programming documents were issued: the National strategy for R&D – I 2007-2013, the National Plan for R&D-I 2007-2013 (NPII) and the programmatic documents for accessing EU funding for R&D-I, as part of the Sectoral Operational Plan for Competitiveness 2007-2013 (SOP-IC). Also, ANCS was empowered22 to consolidate the institutional framework for consultations and to establish intermediary financing bodies for R&D-I. Three councils were planned to be set up under the subordination of ANCS: the Council for Research (CC), the Council for Technological Development (CDT) and Council for Innovation (CI), but only the later was actually established23. 30. The efficiency of the horizontal coordination, prioritization and policy planning functions is hampered by the missing official links between CNPST and ANCS on the vertical side, and ANCS and other line Ministries on the horizontal side, aggravated by a potential lack of ANCS legitimacy as a consequence of the fact that it officially resides under the MERYS. Despite an apparently clear regulatory framework, responsibilities and mandate in the view of its staff- based mostly on historic performances-, ANCS is insufficiently positioned and recognized as the key player in the R&D-I policy coordination and planning for the reasons mentioned above. The current legal framework does not provide the vertical link between CNPST and ANCS. Second, the ANCS is run by a President who reports solely to 20 NASR organization and functions are defined in Decision Nr. 1449/2005 and Order nr.3118/24.01.2006. 21 GD 217/2007 describes the consultative process of setting the national priorities led by ANCS and establishes the strategic and specific objectives for the period 2007-2013. 22 GD 217/2007 23 Dissolved through GD 133/2011 29 the Minister of MERYS and has no formal link to the main policy coordinating body - CNPST- and the Government. Third, the relationships with the CCCDI, its main consultative body, as well with the other two consultative bodies, CNCS and CNDI – supposed to provide feedback on the impact of the different programs managed through UEFISCDI, are blurred by the new role gained by the UEFISCDI in managing the budgets for the functioning of the councils and in ensuring their technical secretariat. Forth, both ANCS and UEFISCDI are directly subordinated the MERYS with no clear official link. 31. The structure of MERYS and oversight of RD&I is currently undergoing significant legal, regulatory, and personnel changes designed to strengthen the quality, sharpen the focus, increase the performance monitoring and accountability of publicly funded research, and improve the outreach to private business. A new organic Education Law, with implications for research, has recently obtained legislative approval. Regulations pursuant to the approved law are in preparation, but unfortunately for the purposes of this report the ultimate details are expected to fully emerge following the completion of the Functional Review. As described by senior officials and staff within the Ministry, however, the comprehensive reforms aim to tackle several challenges. These include (i) a restructuring to separate policy from implementation functions in order to cut red tape and foster efficiency, (ii) a program of accreditation with the participation of international evaluators for all public research institutes (including those under the autonomous Romanian Academy structure should they chose to join), (iii) the implementation of the three tier funding regime for institutes focusing more on the use of performance indicators and transparent budget costing mechanisms, and (iv) creation or restructuring of consultative bodies to achieve broader stakeholder representation (including the private sector) and sharper policy advice (part of a broader effort to strengthen the quality of advisory committees or so called ―buffering agencies‖ to complement institutional capacities within the Ministry). 32. The structures and attributes within the RD&I sub-system in MERYS are being redefined24. NASR will focus on RD&I policy and strategy, sourcing of funding, and system performance evaluation while a new Executive Agency for Higher Education and RDI Funding (UEFISCDI) will target implementation. Specifically, assuming parliamentary approval of ordinance no. 6 /2011, UEFISCDI will take on executive powers in: (i) designing allocation of financial resources from the state budget and other revenues to finance higher education and RD&I; (ii) implementing, monitoring and evaluating programs and projects with national or international funding; (iii) preparing and organizing competitions for grants; (iv) monitoring and assessing the progress of contracted projects; and (v) managing intellectual property rights. Thus, the Executive Unit for Financing the Higher Education, Research, Development and Innovation (UEFISCDI) has become the main public funding agency for R&D –I activities. UEFISCDI was established in 2010 by EO74/2010 through the merger of the former Executive Unit for Financing the Higher Education (UEFISIS), the National Center for Program Management (CNMP) and the Management Agency for Scientific Research, Innovation and Technological Transfer – Politehnica (AMCSIT-Politehnica). 33. The missions of the consultative councils have been revised along clear functional lines. The National Council for Scientific Research (CNCS)25 will focus on activities in the area of basic research and 24 The most recent reassignments of MERYS‘ responsibilities have been made through Ordinance 74/2010, Law 1/2011, Ordinance 6/2011 and GD 133/2011 25 The CNCS was established by Law 1/2011 through the reorganization of the National Council for Financing Higher Education (CNCSIS) The main functions of the CNCS are: (i) to establish standards, criteria and quality indicators for scientific research; (ii) to periodically conduct the audit of the research activities in universities or R&D units; (iii) to 30 will be comprised of 19 recognized scientists appointed by the Minister of Education. CNCS responsibilities will include the design of the guidelines for the Ideas, Human Resources, and Capacities programs within the NPII (the three programs have encompassed 83% of total funding by the NPII (EUR 514 million in the period 2007-2011); preparation of competition calls for R&D projects, and preparation of the methodology for the future university performance evaluation. In turn, the National Council for Development and Innovation (CNDI) 26 will focus on innovation activities, including applied research and industrial collaboration. The council will be comprised of key public and private sector representatives and will be in charge of designing the guidelines for Partnership and Innovation programs within the NPII (the two programs under CNCS have encompassed 27% of total funding by the NPII, EUR 188 million in the period 2007-2011). The two councils will coordinate their work with UEFISCDI. Additionally, an umbrella Consultative College for Research, Development, and Innovation (CCCDI) 27 and comprised of representatives of CNCS and CNDI, plus line ministries, and the business and scientific communities is to be created. Supporting NASR in its policy making role, among CCCDI‘s duties will be to advise on the design and evaluation of the National Plan for RD&I; conduct the future RDIs evaluation and certification process based on performance, as well as elaborate annual proposals and recommendations on priority directions of RD&I. 34. Two representations of Romania‘s research development and innovation system - reflecting the ongoing reforms explained above is presented below (Figure 9 and 10). The charts are organized by functions and the main agencies/ministries which are responsible of performing them according to the new legal changes. 28 manage research programs and to evaluate the projects that are proposed for competitive financing; (iii) to prepare and submit annually a report regarding the research in universities and to publish it. 26 CNCDI is being established by GD 133//2011 27 The Ordinance 6/2011 provides the roles for the CCCDI. In turn, Law 1/2011 introduces two important changes that affect the official relationships in the Governance system: (i) the budget for the CCCDI is financed by the MERYS budget and is administrated by UEFISCDI, on a contractual basis; (ii) a technical secretariat to support the functions of the CCCDI is to be set up by Order of the Minister of MERYS. 28 According to NASR, the policy-making roles of the councils (CNCS, CNDI and CCCDI) have been clarified in the new set-up. 31 Figure 9 – Functions and actors of the RD&I program management and implementation under the new legislative changes NPD II SOP_IEC P4. P6. Priority P1. Human P2. Capacities P3.Ideas Partnerships P5. Institutional Axe 2: R&D-I Resources in Complex Innovation Performance/ Programs projects Nucleu Program Management CNCSIS ANCS CNCSIS ANCS ANCS/CI ANCS MEC/ 2010 ---------- --------- --------- -------- -------- -------- Management -------- Authority current CNCS CNCS CNCS CNDI CNCDI CCCDI Program/ Project UEFISCU ANCS UEFISCU CNMP AMCSIT ANCS ANCS/ Administration -------- -------- -------- -------- -------- -------- Intermediate 2010 Body -------- UEFISCDI UEFISCDI UEFISCDI UEFISCDI UEFISCDI UEFISCDI current 32 Figure 10 – Functions and actors of the RD&I system under the new legislative changes FUNCTIONS • AGENCIES/ MINISTRIES •Parliament R&D-I Policy Decision •Government through the Prime Minister Making •National Council for Science and Technology Policy (CNPST) •CNPST will coordinate: •Ministry of Education, Research,Youth and Sports (MERYS) / NASR Policy Coordination •Romanian Academy /Branch Academies •Sector Line Ministries (see page XXX for list) •InterMinisterial Committee •MERYS/NARS, through: •Consultative Council for Research, Development and Innovation (CCCDI) Policy Planning and •National Council for Scientific Research (CNCS) Programme Design •National Council for Development and Innovation (CNCDI) •Sector Line Ministries including the Managing Authority of SOP Axis-2 under Ministry of Finance •Romanian Academy /Branch Academies •CCCDI for RDIs Certification •CNCS for Universtities •UEFISDI Programme •National Council for Scientific Research (CNCS) Management / •National Council for Development and Innovation (CNCDI) Implementation •Managing Authority (Ministry of Finance) Programme/Project Monitoring and •UEFISCDI Evaluation •RDIs • Institutes, centers under the Romanian Academy and Branch Academies •Universities Execution of R&D -I •State R&D Institutes organized as Commercial Companies •Units and Institutes organized as public institutions •Private companies 33 35. Despite RD&I governance progress, still vertical and horizontal coordination is not optimal between system members. The current legal framework does not provide the vertical link between CNPST and NASR. As a matter of fact, NASR is run by a President who reports solely to the Minister of MERYS and has no formal link to the main policy coordinating body - CNPST- and the Government. On the horizontal coordination, while reassignments of responsibilities appear to be a positive step forward towards the separation of the different functions among advisory councils, their relationship with UE FISCDI, is blurred by the new role gained by the UEFISCDI in managing their budgets though contracts. Also, while both NASR and UEFISCDI are directly subordinated the MERYS there is no clear official link among them. Finally, the role of UEFISCDI as both program implementator and evaluator may create conflicts of interest. 36. It is critical that the National Council be supported by a full time secretariat, which could be located in MERYS (perhaps NASR). In a revised governance structure NASR could become the ―intelligence unit‖ in charge with professional policy preparation and secretariat support for CNPST (Figure 11). The secretariat would be empowered to implement the directives of the National Council, vet legislation, send representatives to meetings of the cabinet considering science, economic, tax, or other issues impacting its mandate. But also it would lead the day to day coordination of RD&I policies with the Romanian Academy, universities, and line ministries with research institutes. This role could be played in practice by NASR if more centrally positioned against line Ministries than in the current institutional arrangement. Other important function for NASR would be in monitoring and evaluation, particularly the ex-post evaluation of the programs that support R&D-I. In Romania there is in-sufficient attention to monitoring and particularly to evaluation (and impact assessment), especially ex post evaluation. Figure 11 - Proposed RD&I Governance Framework Governance: Possible Design Cabinet Day to Day coordination, Program Design and ST&I Council (CNPST) Evaluation Priority Setting; Private and Public Sector Coordination, NASR Oversight of System Secretariat and M&E of programs and RDIs CNDI CNCS CCDI Romanian Academy Other Line Ministries Ministry of Agriculture MERYS Program UEFISCDI Implementation and Execution Agency Management Monitoring of RDIs Universities RDIs Firms 34 RD&I Funding 37. This section describes, in part A, the main channels of RD&I funding, their targets, programs, evolution, and performance, as well as the RDIs as performers of R&D. Under the management of NASR are the programs of the National Plan and the European Community Structural Funds, as well as the institutional funding from the Nucleus program. Under management of the European Commission are the research programs FP6 and FP7. Romanian line ministries fund RD&I through their own sectoral plans. Finally, the Romanian Academy and the Universities are both sources of funding and performers of R&D. A special box is devoted to explore Romanian involvement in regional research collaboration programs. Part B presents an exercise that links the sequential model of innovation to the R&D funding programs (presented in Section 1). It situates the programs under NASR (which represent around 70% of all R&D budget) according to the stage of the innovation process they finance. A. Channels of Funding and Main RD&I actors 38. There are two main sources of public financing of R&D in Romania —national funds and European Union funds. NASR manages on average about 70% of these resources while the remainder is overseen by the Romanian Academy (15%) and other ministries. NASR has been using three main channels to allocate R&D resources: i. The five thematic programs under the National Plan for RD&I II (NPII), which uses state budget funds. Between 2007 and 2011 the realized expenditures of the 5 programs amounted to EUR 703 million with the highest annual expenditures in 2008. (See Annex IV for details) ii. The three programs divided in 8 sub-programs under the SOP-IEC Research, Technological Development and Innovation for Competitiveness (SOP-2) which use mostly European Structural Funds but also state budget funds (See Table 2-B for breakdown). The European Structural funding, both committed and realized expenditures, amounted to EUR 535 million, concentrated mostly in 2009 and 201029. iii. The Nucleus program for institutional financing, which use state budget funds. According to NASR the program will be replaced in 2011. In the period 200?-2010, the Nucleus program remained a stable source of institutional finance for RDIS disbursing a total EUR 196 million, without major changes in the annual allocation which fluctuated between EUR 42 and EUR 54 million. 39. The National Plan for R&D and Innovation 2007-2013 (NPII) is the main implementation instrument of the strategy. It had a total budget for the seven years of EUR 4.2 billion. It is divided into five broad thematic groups: (i) Human Resources (PhD training); (ii) Ideas (exploratory-basic-research); (iii) Innovation (enterprise R&D); (iv) Partnerships (stimulating collaboration between RDI stakeholders in nine thematic areas of ICT, Energy, Environment, Health, Agriculture, Biotechnologies, Innovative Materials, Processes and Products, Space and Security; and Socio-economic and humanistic research); and (v) Capacities (R&D infrastructure and international collaboration). Actual expenditures of EUR 703 million in 29 The FR review team found anecdotic evidence of low disbursements of the SOP program, especially in the sub- programs Innovation and Spin-offs/start-ups which require a substantial proportion of co-financing from the beneficiary firm. However the data received from NASR does not allow quantification of any discrepancy between commitments and realized expenditures. 35 5 years (including planned expenditures in 2011) represent just 17% of the NPII planned over seven years. Severe cutbacks were forced due to the financial crisis starting in 2009 (See Figure 12). Relative underperformance is recorded in Human Resources (PhD training) and Innovation (support for private sector R&D). Executed NPII implementation ratios are presented below and in more detail in Annex 4. Due to budget restraints, the anticipated mid-term review of the National Plan (which could shed more light on program advances and challenges) is not expected to be undertaken until late 2011, just prior to the initiation of preparation of the 2014-2020 National Plan. Figure 12- Evolution of Five Programs implemented under the National Plan for R&D 2007-2011 Current Euros 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 - 2007 2008 2009 2010 2011 HUMAN RESOURCES IDEAS INNOVATION PARTNERSHIPS CAPACITIES Own calculations based on data provided by NASR. Note: Data for 2007-2010 is of realized expenditures, for 2011 is for projected expenses 40. Most of the resources under the NPII have gone to the Partnerships program, which has spent almost EUR 340 million. That sum represents almost half (48%) of the total amount spent in five years through the NPII. In 2008 there was a spike in spending totaling EUR 146 million. Up to 2011 the rate of implementation has been 20.6% 30 of the planned EUR 1,682 million (RON 5,400 million) under this category—the best implementation rate among the five categories. Components of the Partnerships Program Socio-economic and ICT humanistic research 10% 10% Energy Space and security 10% 8% Innovative materials, processes and products Environment 15% 14% Biotechnologies 7% Agriculture, food Health safety and security 14% 12% Source – National Plan for Research and Development (NPII) 30 Realized expenses 2007-2010 + planned expenditures for 2011 / Total planned expenditures 36 41. The second most important program in terms of funding is the IDEAS program which spent EUR 138 million and has concentrated on funding Exploratory Research Projects (PCE) which accounted for almost all of it (EUR 128 million). IDEAS is focused on fundamental research and it is a competitive mechanism which is implemented through a call for proposals to which applying research institutions propose topics (bottom up approach). The implementation rate of IDEAS in 5 years is 16.4% of the planned EUR841million (RON 2700 million) 42. The Capacities program has implemented three modules, which support the improvement of the R&D infrastructures (Modules I and II) and the participation of Romanian teams in international collaboration, including inter-governmental Research Institutions (Module III). Most of the expenses of the Capacities program have been in infrastructure investments with EUR 102.5 million, while the module for international collaboration has totaled EUR 17.3 million. This category recorded the second highest implementation rate at 19%. 43. The Innovation program directly targets R&D activities in enterprises and supports pre- competitive research projects. It projects total expenditures of EUR 68.8 million by end 2011 representing an implementation rate of 11%. Disbursements increased from EUR 7.5 million in 2007 to 25.7 million in 2009 before falling to 14 million in 2009. There are no planned expenditures on the Innovation programs for 2011. 44. The Human Resources program has only 5% (EUR 36.5 million) of total expenditures under NPII in eight sub-programs designed to support PhD training and mobility. It is the program with the lowest implementation rate, just 9% of the planned ~EUR 420 million (RON 1350 million). 37 Table 1 NP II 2007-2013: Planned and Actual Financing A. Planned Financing and Implementation rate (2007-2011) under NP II 2007-2013 Value Weight in Expenditures Actual weight in planned total 2007- Implementation Value up to 2011 total 2007-2011 EUR 2013 NPII rate Program planned (EUR m) NPII m. (planned) (lei m.) Human 1350 420 9% 36.5 9% 5% resources Capacities 2025 631 14% 120 19% 17% Ideas 2700 841 18% 138 16.4% 20% Partnerships 5400 1682 36% 340 20.60% 48% Innovation 2025 631 14% 68 11% 10% Sustaining the 1500 10% Not implemented but institutional funding provided by institutional Nucleus program performance Total of the National Plan 15 000 4205 100% 702.5 17% 100% II B Annual Financing Under NPII 2007-2013 (Million Euros) 2011- 2007 2008 2009 2010 planned Total Share HUMAN RESOURCES 2 5.8 3.2 11.6 13.9 36.5 5% IDEAS 9.5 28.8 30.6 36 33.2 138.1 20% INNOVATION 7.7 20.6 25.6 14.8 68.8 10% PARTNERSHIPS 41.2 146 66.6 42.6 43.1 340 48% CAPACITIES 5 51.2 17.2 15.5 30.9 119.8 17% TOTAL 65.3 252.4 143.3 120.6 121.1 702.7 100% % 9% 36% 20% 17% 17% 100% Nucleus Program 41.5 48.5 52.9 53.9 0 196.8 38 45. Further programs coordinated by NASR include31:  Core Programs (NUCLEUS program) with a budget of EUR 44 million in 2008 and EUR 54 million in 2010 (See table 1. B.). This program has been used by the R&D institutes (excluding those under the RA) on an annual basis to get institutional support and resources for sectoral development strategies, with funding of up to 60% of the institution's R&D expenditure in the previous year. Core Programs are validated by the ministries which coordinate the respective institutes, and are approved and financed by NASR. In 2009, NASR provided funding for 46 Core Programs initiated and developed by national R&D institutes;  Support for research infrastructure of national interest; and  Capital investment for R&D institutes belonging to NASR. 46. Since 2007 Romania has benefited from the European Cohesion Fund (CF) and Structural Funds (SF), which amount to about EUR 17.2 billion for all priorities for the period 2007- 2013. The National Strategic Reference Framework maps out Romania‘s plan for investing structural funds, which are disbursed through Sectoral Operational Programs (SOP). Under the Sectoral Operational Program 2 termed ―Increase of Economic Competitiveness‖ (SOP- IEC), its second of five priority axis (PA2) accounts for nearly a quarter of the resources in the SOP and specifically targets EUR 650 million for 2007-2013 (of which 110 million comes from Romania-own sources and 540 million from European SF) for RD&I activities as a means of promoting economic growth. The categories are broadly similar to those in the NPII. Commitments by NASR of structural funds are generally on track (there was no budget reduction), although funding and disbursements for private sector R&D are lagging. 47. Resources under NPII and SOP- Axis 2 are allocated competitively. The five thematic programs within NPII stem from the National Research, Development, and Innovation Strategy 2007-2013 prepared in 2004/2005 by the Education Ministry based on a consultative process with institutes and other stakeholders. The document was supported by ―foresight studies‖ designed to identify priority sectors based on capacity, scientific relevance, links to the national economy, etc. It covers a wide spectrum of research areas, reflecting a ―bottom up‖ methodology better fitting the priorities of individual institutes and internal stakeholders, and contrasting with the earlier highly centralized planning approach. 48. Romania’s participation in European research programs FP6 and FP7 is low as the application success rates and the amounts secured for local research institutions are among the lowest in the EU. Consequently FP6/FP7 funding as a proportion of RDIs research income is minimal. The number of Romanian applications for FP7 between 2007 and 2009 totaled 476, decreasing from 234 in 2007 to only 110 in 2009. The success rate, 13-15%, was lower than the EU average of 22%, which resulted in only EUR 63 million of research funding for Romanian institutes, the lowest among EU27. In comparison, during the same period, Denmark, which had the highest number of applications, secured EUR 352 million. Romania‘s participation in FP6 and FP6-Euratom during the period 2002-2006 comprised 541 projects proposed totaling EUR 57 million of funding. The success rate was 13%. According to the NASR survey of 47 National RDIs, the funding from FP6 and FP7 only accounted for 1 to 5% of their research income (See Annex VI). Moreover, given that EU financial allocation coming from structural funds for 2007-2013 is 31 The determination of NASR to encourage firms to perform and/or procure R&D is reflected in the sums made available by the NASR for enterprises, via continuous application calls. 39 EUR 459 million through SOP IEC Priority Axis, the funding of FP6 and FP7 can be seen as at best complementary resources for research especially in the scientific frontier but playing a minor role in overall RD&I funding. 49. The Romanian Academy (RA) is half funded through competitive grants. The RA is the highest forum for science and culture designed as an autonomous body financed directly from the state budget32. In aggregate, the 65 institutes under the RA received slightly more than half of their funding in 2010 from the state budget (54% or EUR 31 million), with competitive grants for national funds accounting for the equivalent to EUR 13.8 million (24%) while the EU –funded competitive research grants amounted to EUR 12.2 million (21%). 50. Programs coordinated by other ministries include Sectoral R&D Plans supporting sectoral technological development, and financed by the coordinating ministries of the respective areas, including NASR, Ministry of Economy, Ministry of Agriculture, Forests and Rural Development, and Ministry of Environment. NASR has been the most advanced in this process, having created the legal and operational framework for the implementation of its Sectoral R&D Program. According to the Ministry of Finance, sectoral ministries that coordinated RDIs received EUR 67 million from the state budget in 2010 and a planned EUR 35 million in 2011, which is more in line with pre-2010 allocations. 33 Most of the funding is directed to applied research. There is high heterogeneity in the RDIs capabilities to attract non – state funds. For example, RDIs from the Ministry of Economy have 30% of their R&D income from local private sector demand. RDIs have other sources of income not related to R&D, mostly selling non-proprietary products and services. If the amount of income from business activities is included, the private sector funds half of the total income of the RDIs from the Ministry of Economy. On the contrary, RDIs dependent on the Ministry of Agriculture receive nearly 100% of their income from the state for their R&D activities. However, more than half of their total income is provided by business activities not related to R&D. 51. Romania’s university research funding is being changed by the new education law (Law 1/2011). Until now, public universities received budget funding based on the number of students. Under the new law each university has to perform an internal assessment and performance classification of all departments, including research every five years. Each university is obliged to present an annual report covering the university‘s financial situation, status of each study program, results of its research activities, the quality of the performed activities, etc. Such an annual report will be a fundamental condition in order to access funding from the state budget. Additionally, the new education law foresees the classification of higher education institutions into three groups – research intensive, teaching only, and research and teaching- intensive universities. Funding will be adjusted to better meet the requirement of each type. 52. Competitive research grants have become an important source of income to public universities. According to the Functional Review of the Higher Education Sector, research grants allocated in a competitive basis represented in 2008, 18 percent of public universities‘ income, and 40 percent of ―complementary funding‖ ( Figure 13) 32 The Romanian Academy can also apply for funding/revenues from other sources. 33 Not including the state budget for security related research (i.e. Ministry of Defense, Intelligence Service), which amounted to EUR 8 million in 2010 and it is planned to be EUR 7 million in 2011. 40 Figure 13 Income of public universities 1.4% 1.2% Percent of GDP 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Core funding Complementary funding Own source revenue Total Source: National Council of Higher Education Funding (CNFIS) 53. The current institutional funding scheme is about to be modified to make the system more competitive. Government Ordinance no. 57/2002 has been adjusted and Ordinance no. 6 / 2011 on scientific research and technological development was approved by the Minister of Education, calling for a three level funding system for R&D consisting of: (i) basic institutional financing that replaces the current Nucleus program for RDIs; (ii) performance based funding; and (iii) project-based competitive funding programs in the NPII, sectoral plans, EU funds, and other competitive mechanisms in the system. The certification mechanism based on performance indicators will play a key role in the new system. Institutional financing will be available only for RDIs which pass a new certification process. BOX- Romania’s participation in Regional Research Programs Part of the resources of the NPII, SOP-Axis 2 and other EU-funded programs are devoted to regional cooperation. NPII through Module III of the Capacities program has allocated EUR 17.3 million to international collaboration between research institutions. SOP-Axis 2 has devoted EUR 5million to Investment projects in the centers of GRID and GEANT networks by which scientific researchers can interact via high-performance IP-based networking. Moreover, a number of Romania‘s R&D organizations participate in the EU Enterprise Europe Network – the largest knowledge exchange network in the world, bringing together more than 600 organizations across Europe and over 44 countries. The network provides expertise and services to companies and research institutes. Among others, Romania collaborates with Bulgaria and Serbia on knowledge transfer in order to create links between business environment and research centers. Since 1991 the country participates in EUREKA program, under which consortia of firms in partnerships with universities and research institutes initiate a collaborative scheme and prepare a proposal on any project involving near-market R&D in advanced technology. Twenty two European nations (EU countries and others) participate in scientific cooperation under this program. As of May 2011, there were 49 pending projects with the participation of the Romanian organizations. Detailed information 41 about Romania‘s projects can be found at the EUREKA‘s website. B. RD&I funding and the Sequential Model of Innovation 54. Classifying the expenditures of programs managed by NASR (irrespective of funding source) according to the stage targeted within the innovation value chain provides some startling data. Using the five stage model of the innovation process: (1) basic research, (2) proof of concept/invention, (3) early stage technology development, (4) product development, and (5) product launch, indicates that the resources managed by NASR, which are the bulk of Romania‘s government expenditures in R&D, have targeted primarily the funding of basic research. The later stages of the so-called ―valley of death‖ (stages 3 to 4) are barely funded, which is also the case for the final stage (5) production and marketing (See Table 2-A). 55. Several programs under the 2 main channels SOP Axis 2 and NPII target several stages of the innovation value chain at the same time (See Table 2-B). Out of a total of EUR 1.4 billion of realized and planned expenditures between 2007 and 201134, 69% were devoted to basic research- stage 1 (EUR 972 million) through the Human Resources, Capacities, Ideas (within NPII), and selected subprograms under SOP-2. Almost a third of the funding (29% or EUR 408 million) was directed to either stage 1 or stage 2 - proof of concept, through programs like Partnerships and Innovation under NPII. SOP-Partnerships targeted specifically stage 2 with EUR 11.4 million. In sum, SOP-Private infrastructure targets all stages of the ―valley of death‖ (stages 2-4) with merely EUR 19 million. Finally, all innovation stages are funded by merely 1.4% of the total (EUR 20.7 million) through the sub program SOP-Innovation, while stage 5- production and marketing receives less than 1%, amounting to only 5.8 million, through SOP Start ups-Spin offs. Table 2 Sequential Model of the Innovation Process A. Summary Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Early Stage Product EU EUR Proof of EUR Technology developme R Production/ EUR Basic Research m. Concept m. Development nt m. Marketing m. Subtotal Stage 1 972.1 Subtotal Stages 1 &2 408 Subtotal Stage 2 11.4 Subtotal Stages 2, 3, 4 19.1 Subtotal Stages 2, 3, 4, 5 20.7 Subtotal Stage 5 5.8 34 The Total is composed of EUR 880 million from NPII and EUR 540 million from SOP-2. 42 B. Breakdown by Program Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Early Stage EUR Proof of EUR Technology Product EUR Production/ Basic Research m. Concept m. Development development m. Marketing EUR m. Subtotal Stage 1 972.1 Nucleus Program 198 Human Resources-NPII 36.5 Capacities-NPII 120 Ideas-NPII 138 SOP-2 Foreign experts 2.1.2 47.2 SOP-2 Infrastructure 2.2.1 401.1 SOP-2 GRID-GEANTS 2.2.3 5 SOP-2 Administrative Capacity 2.2.4 26.3 Subtotal Stages 1 &2 408 Partnerships-NPII 340 Innovation-NPII 68 Subtotal Stage 2 11.4 SOP-Partnerships 2.1.1 11.4 Subtotal Stages 2,3,4 19.1 SOP-2 Private Infrastructure 2.3.2 19.1 Subtotal Stages 2, 3, 4, 5 20.7 SOP-Innovation 2.3.3 20.7 Subtotal Stage 5 5.8 SOP Start ups-Spin offs 5.8 World Bank calculations using data provided by NASR 56. Besides the described mechanisms of R&D direct funding, the government of Romania announced recently a R&D tax incentive mechanism as a way to provide public support to private R&D. In recent years, indirect support to private R&D in the form of tax-breaks has become more available throughout OECD countries. As of 2008, 21 OECD countries offered tax incentives for R&D, up from 12 in 1995. In addition, five non-OECD member countries – Brazil, China, India, Singapore and South Africa – have a competitive tax environment for investment in R&D. Romanian Order No. 2086 / 4504 –published on 12 August 2010 in the Official Gazette was issued to establish the methodological norms for the application of deductions for R&D expenses. The order addresses the changes introduced by Article 19.1 of the Fiscal Code, enacted by Law 343/ 2009. Article 19.1 reduces the taxable income of taxpayers through an additional deduction of 20% of the costs incurred by them in the fiscal year for R&D. The table below provides an overview of Romania‘s R&D tax break scheme vis-à-vis some OECD countries. 43 Table 3. Romania R&D tax incentives and country comparison Tax allowances Tax deferrals Tax credit Carry-forward or paid out as negative tax Romania Accelerated Supplementary depreciation for fixed deduction of 20% assets used in R&D activities. for profit tax purposes, applied to eligible expenses of R&D Canada (federal)35 100% for machinery 20%, 35 % for small Refundable and equipment (not firms (of the first $3 (negative tax) buildings) million) Norway36 18% up to NOK 5.5 Negative tax million (appr. $0.9 million). 20 % for SMEs. France37 30% up to €100 Unused tax million, 5% above credits are refunded after three years Australia38 125% Volume-based Carry-forward 175% incremental UK39 130% for large firms Carry-forward 175% for SMEs 57. The tax subsidy rate (TSR) shows that the tax incentive scheme would categorize Romania as a generous incentive provider (B-index<0.9) along with Spain and France40. Romanian companies could get between 29 and 22 cents as tax credit of each dollar spent in R&D, for a 5-year useful life of fixed assets and for a 10-year useful life of fixed assets, respectively. Though this instrument may have an important effect in incentivizing private sector investments in R&D, its use by firms seems to be very limited. Anecdotal evidence gathered for the Review suggest that while entrepreneurs see clear rules, they find it 35 http://www.cra-arc.gc.ca/txcrdt/sred-rsde/bts-eng.html 36 www.skattefunn.no 37 European Commission (2008) 38 http://www.ausindustry.gov.au/InnovationandRandD/RandDTaxConcession/Pages/RDTaxConcession.aspx 39 http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm 40 The TSR makes the different tax-break schemes comparable. The TSR is a metric based on the B-index - see annex VII for methodology and calculations. 44 difficult to categorize R&D expenditures (and fear tax authorities would as well) and therefore do not apply for the tax credit scheme, Figure 14. Tax subsidy rate for USD 1 of R&D, 2008, 2011 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 -0.05 United Kingdom Canada Denmark France Turkey Israel Spain India Korea Hungary Italy Ireland Greece Chile Portugal Germany China Singapore Belgium Finland Russia Norway Austria Netherlands Sweden Romania 10 years Japan Poland Romania 5 years United States Mexico Iceland Luxembourg Brazil Australia Switzerland New Zealand Czech Republic South Africa Slovak Republic Source: OECD (2009) and own calculations for Romania 58. Technology Transfer offices do not seem to fulfill their mandate to support research commercialization. A TTO survey undertaken by the Review during March 2011 with the existing 51 NASR accredited technology transfer institutions (with a 43% response rate) shows that: (i) for 60% of the TTOs technology transfer is not their main activity; (ii) there is a lack of businessmen and administrators in the TTO human capital composition. The over-reliance on professors as TTO personnel may hinder the capabilities for TTO business development; (iii) a minimal proportion of TTO income comes from licensing or equity revenues (less than 5%) with the majority coming from the parent institution (40%) and consulting services (25%) (Figure 15); and (iv) the performance of the TTOs shows very few outputs in terms of local patent applications (3.9 on average per TTO in 2010 versus 30.1 in the U.S.), utility patents (1.3 on average per TTO in 2010) and start up companies (0.5 on average per TTO). Though there is a positive growth in all three outputs, the initial base is close to zero (Figure 16). Almost nonexistent are patents to the European Patent office (0.3 on average) and to the USPTO (0.1 on average). The cumulative number of start ups generated in Romania in the past 3 years from publicly funded research through the TTOs (15) situates the county, when compared to the UK on a very early stage of research commercialization (Figure 17) 45 Figure 15 – Sources of TTO income Figure 16 TTO patenting and start Figure 17 Number of Spin offs 2010 ups 2008-2010 Comparison UK vis-à-vis Romania Parent 12 institution 2008 2009 Consulting 10 services 2010 Romania =25 8 companies 3.9 0.7 Rent of (2008-10) -- space about 15 6 1.0 years behind 11.2 Rent of ? 40.3 equipment 4 9.0 Broker for 2 25.4 contract research 0 Licenses royalties start ups patents filledpatents filled formed in RO (avg in EU (total) Equity in (total) TTO) new companies Source: TTO Survey- RD&I Source: TTO Survey- RD&I Source: TTO survey and Helen Functional Review 2011 Functional Review 2011 Lawton Smith - Birkbeck June 29 2010 Business Innovation and the Investment Climate 59. A World Bank study addressed the investment climate factors affecting the willingness of firms to innovate (introduce a new product) in Romania. The analysis shows that innovation has a positive impact on firm productivity and confirms that firms investing in R&D are (32 percent) more likely to innovate. Figure 17 summarizes the results for the broader investment climate in terms of the contribution of each variable to the propensity of firms to innovate (normalized to 100). It shows that productivity levels (TFP), technological update (quality certification and ―staff with computer‖) – are also important. We interpret these results as evidence that technological modernization and R&D are complementary inputs to the innovation process: firms that do not perform R&D are less likely to introduce a new product in the same way that technologically outdated firms are unlikely to do so. Again, the concept of R&D activity is implicitly interpreted as the broader one discussed before – while the notion of innovation is also broad enough to include incremental or marginal improvements to products and processes. 60. The presence of foreign competitors has also a positive contribution for firm’s probability to introduce a new product. The contribution of the factor ―competitive pressure from foreign firms‖ amounts to 6 percent. More interestingly, perhaps, is that it has a positive contribution even after controlling for a number of other variables. The relationship between competition and innovation has been a source of long debate with more recently with theories of industrial organization typically predicting that innovation should decline with competition while empirical work finds the opposite. Recent studies predict a U-shaped format – in which case more competition would foster innovation and growth, because it would reduce firms‘ pre - innovation rents by more than it reduces their post-innovation rents. With structural reforms still underway, 46 this rent differential may be relevant and promoting competition (i.e. reducing pre-innovation rents) may play an important role in Romania. 61. Two other factors contribute to explain the probability of firms introducing new products. The first factor refers to access to credit. In the previous session we argued that firm‘s natural response to crisis – increasing the use of internal funds to finance working capital – could compromise their capacity to invest in new business opportunities. The variables ―new assets financed by private banks‖ and the dummy for overdraft seem to be indicating (combined contribution of around 9 percent) seem to stress that argument by indicating that firms with access to credit are more likely to innovate as internal funding becomes more available to finance it. More broadly, Hall and Lerner (2009) survey the evidence on a structural ―funding gap‖ for innovation financing, focusing on financial market reasons for underinvestment. A second point refers to the importance of ―dummy for external auditor.‖ External auditing here is interpreted as a factor improving access and quality of firm‘s financial information contributing to mitigate information asymmetries that contribute to credit rationing. Figure 18: Contributions of measured variables to the propensity of developing new products, % TFP Innovation Competitio Infrastr. Finance Other control 20 variables 14.89 14.85 10.09 7.81 5.97 6.26 5.95 10 5.59 5.70 3.34 0 -10 % -20 -30 -31.96 -40 1 2.1 2.2 2.3 3 4 5.1 5.2 5.3 5.4 6 1. TFP 4 Dummy for own generator 2.1 Dummy for R&D 5.1 Dummy for external auditory 2.2 Dummy for quality certification 5.2 Purchases paid for after delivery 2.3 Staff with computer 5.3 Dummy for overdraft 5.4 New assets financed by private banks 3. Competitive pressure from foreign firms 6 Largest shareholder Note: Percentage contributions of the investment climate are based on the concept of the right hand side (RHS) variables‘ contribution to the probability of developing a new product, normalized to 100. The constant of the equation, as well as the region, industry and size variables are not shown in the graph, for presentation purposes. See Annex II for details on methodology. 47 IV. Four Policy Reform Challenges H. The following section outlines areas of challenge and possible government actions to improve the performance of RD&I over the short and medium term. A preeminent task is to strengthen the governance of the RD&I system. This first and foremost requires broader understanding that it is a national system, which is comprised of a variety of stakeholders and distinct activities which together contribute to (or break) a value chain. Senior government oversight of the system is needed to promote its enhanced integration and functioning, ensure the participation of relevant stakeholders in policy making, determine more focused national priorities for the allocation of scarce R&D resources, and enforce transparent accountability for performance. A second challenge is to strengthen the performance of R&D activities within the public sector itself by better aligning incentives, funding, performance monitoring, and research priorities to the agreed national priorities. A third challenge is to accelerate the process of transmitting R&D into innovation in the private sector. This requires more attention to commercialization of public funded research and appropriate intellectual property legislation. It also will require a coherent and targeted program of early stage technical and financial assistance to start up firms applying innovations stemming from Romanian R&D so that a greater proportion of such research outputs result in economic activity gains and value added within the country. A final challenge will be to increase the level of private sector R&D in a framework of well defined intellectual property rights and targeted tax and regulatory actions to improve the climate for private sector RD&I and attraction of R&D intensive FDI. Improving Governance of the RD&I system a) The lack of strong national oversight and mobilization for RD&I requires activation of the Prime Minister’s National Council for Science and Technology Policy and the inclusion of Innovation in its mandate and title 62. Romania‘s economic competitors within the EU and beyond are increasingly strengthening their RD&I sectors to promote better system performance, reduce the leakage of R&D results to others for their commercialization, target resources on areas of current or potential national comparative advantage, facilitate business/institute collaboration on R&D, and assist private sector uptake of innovations in their own investments. In contrast, in Romania the individual components of the RD&I system suffer from the same general debilities affecting the public administration already identified by other Functional Reviews--poor policy prioritization, limited implementation oversight, frequent changes in personnel, rigid budgeting processes and human resource management rules, and weak incentives for performance. The RD&I system is further complicated by a confused legal framework and a plethora of actors that may or may not coordinate, often compete for budget resources, have different institutional priorities, and do not necessarily bend easily to the vision of one ministry or another over a sustained period. Moreover, the innovation right side of the RD&I value chain—product development and product launch—seems largely ignored by the government. 63. The reform in R&D being led by the Ministry of Education is an important, timely, and comprehensive effort. MERYS has important management roles over the scientific education base and 48 research parts of the value chain. Nevertheless, the good intentions and forward looking adjustments in structures, incentives, and funding mechanisms may be insufficient to ensure proper implementation without the force of institutionalized national oversight. One off expressions of support for the program from senior government leaders will not suffice. The reach of a reformist Ministry of Education may exceed its grasp to effect needed improvements without more senior and institutionalized leverage. It therefore seems critical that the National Council for Science and Technology Policy be resuscitated to become the active overseer of RD&I system. Its mandate should be expanded to include ―innovation‖ so as to rebalance any focus from science and research academics toward the goal of moving research to the market. It is critical that the National Council be supported by a full time secretariat, which could be located in MERYS (perhaps NASR). The secretariat would be empowered to implement the directives of the National Council, vet legislation, send representatives to meetings of the cabinet considering science, economic, tax, or other issues impacting its mandate, and in other ways authorized to pursue a reinvigorated RD&I program as a high national priority. 64. The attributes of the National Council seem generally sufficient under the current ordinances. It should be able to review the national strategy for RD&I, set and implement decisions for overall and sector spending allocations, set performance indicators, monitor annual progress, integrate business development and tax policies with RD&I, and mobilize societal support for a coordinated national program. What is lacking is a spark of life since all key stakeholders interviewed during the Functional Review expressed strong support for a revived high level national RD&I effort. Romania may wish to intensively review the RD&I experiences and structures of other forward looking governments (see Annex III, although any structure must fit country context and there is no one model to copy). Nevertheless key principles would include (i) inclusion of all major stakeholders, (ii) transparency and accountability in the establishment and monitoring of national priorities, (iii) national consensus building to promote policy sustainability, and (iv) a rigorous commitment to performance. With such a structure and guiding principles Romania‘s RD&I sector can legitimately propose and defend its use of scarce national resources in the future. But a fix of the system must proceed in parallel with any increased funding. The country has a scientific and technological base which should be better used before it is hollowed out by emigration of the best and brightest of is young scientists and its business community must only rely on its own research and technology innovations from abroad. 65. Exhortations to improve national oversight in order to better leverage the country‘s comparative advantages, promote growth generating R&D and innovative firms, or at least to conform to common EU mandates may be lost in the cacophony of demands on senior national leadership. Therefore, if the commitments to revive the National Council are judged as unlikely to be sustained, a second best solution to improve sector coordination could entail practical steps to increase the role of MERYS in the oversight of the RD&I sector through such mechanisms as: (i) the transfer to MERYS/NASR of oversight of all institutes reporting to line ministries; (ii) empowering NASR to manage an inter-agency council designed to improve coordination by giving NASR (alone if necessary) the authority within the government to determine the relative allocation of non-competitive budget resources to institutes (within a budget envelop developed by the Ministry of Finance); and authorizing NASR through MERYS to design and vet legislation related to financial and policy incentives for RD&I including for the private sector. These powers would require a more limited level of operational oversight by the Prime Minister, but would still promote better government-wide proactivity if pursued vigorously. 49 b) Scattered national R&D priorities should be refocused on areas of comparative scientific and economic advantage 66. It appears that the current 2007-2013 National Plan as conceived and implemented does not represent strategic choices, but rather an umbrella permitting almost any type of project to be pursued—even if curiosity driven or designed as a lifeline for a struggling institute searching for a mission. As a consequence, the payoffs to these investments may be quite limited (as captured by earlier reported data on patents, publications, support for business innovation, retention of young scientists, etc.). In short, if everything is a priority, nothing is. Sharp relative increases in basic research considerably above international levels are unlikely to have the impact of increased applied research, although it may strengthen the science base for the ultimate benefit of foreign institutes or firms. Highly advanced (and expensive) research in niche industries without a related national industry may become at best an input to EU and global progress with very limited national returns. It is the view of the Functional Review that Romania does not have unlimited resources, should not fund scientific research without clear potential profit to the nation, and cannot postpone a rigorous commitment to sharpening the focus of public R&D spending. Consequently the pending preparation of the next National Plan must be informed by carefully prepared foresight reports exploring current and potential sectoral strengths and weaknesses, an independent review of current National Plan results, transparent and publicly available reports on RDI certification results, and a broad and open discussion among stakeholders and the public. While ―bottom up‖ curiosity driven research has its place, more emphasis should be placed on well designed and debated ―top down‖ prioritization. Increased transparency in the allocation of resources to research institutes—through the certification process, use of clear performance indicators, and competition methods involving international evaluators —could also reduce concerns about undue discretion, ―clientelism‖, or conflicts of interest in determining spending amongst institutes. 67. Without prejudging such a process it would seem that Romania should better concentrate its R&D resources. For example, the sectoral priority for the biggest of the NPII program (Partnerships) with an originally projected total of RON 5.4 billion (about EUR 1.68 billion) has the following distribution, which may not be in line with the nation‘s comparative advantages: 1. Information and Communication Technology 10% 2. Energy 10% 3. Environment 14% 4. Health 14% 5. Agriculture, food safety and security 12% 6. Biotechnologies 7% 7. Innovative materials, processes and products 15% 8. Space and security 8% 9. Socio-economic and humanistic research 10% 50 Table 4 Romania’s Revealed Scientific Advantage41 2005-2009 Revealed Scientific Documents by subject areas Romania World Advantage Agricultural and Biological Sciences 890 655,997 0.4 Arts and Humanities 383 165,792 0.7 Biochemistry, Genetics and Molecular Biology 1,400 984,356 0.4 Business, Management and Accounting 293 196,877 0.5 Chemical Engineering 2,582 354,335 2.3 Chemistry 4,103 613,044 2.1 Computer Science 1,708 481,774 1.1 Decision Sciences 151 45,952 1 Dentistry 21 40,200 0.2 Earth and Planetary Sciences 623 357,096 0.5 Economics, Econometrics and Finance 276 108,346 0.8 Energy 305 134,647 0.7 Engineering 4,348 1,118,597 1.2 Environmental Science 1,083 342,962 1 Health Professions 61 63,750 0.3 Immunology and Microbiology 263 270,022 0.3 Materials Science 5,292 554,506 3 Mathematics 3,300 405,032 2.5 Medicine 2,265 2,494,587 0.3 Multidisciplinary 138 87,280 0.5 Neuroscience 139 160,088 0.3 Nursing 119 118,446 0.3 Pharmacology, Toxicology and Pharmaceutics 376 234,834 0.5 Physics and Astronomy 5,446 705,190 2.4 Psychology 99 124,537 0.2 Social Sciences 554 407,933 0.4 Veterinary 23 76,565 0.1 Own Calculations, Source: SCImago data, accessed February 2011 68. Analysis based on publications of documents reveals strengths in Romania‘s scientific output especially in Materials Sciences, Mathematics, Physics and Astronomy, Chemical Engineering and Chemistry. However, Romania does not seem scientifically strong in fields supported by the largest NPII grants such as Information and Communication Technology, Health, Earth Sciences, or humanistic and social research (see Table above). 69. A key finding in the relationship between the scientific specialization (the strength of the pool of national scientific knowledge) and its economic impact in the productive sphere is that most industries draw from a wide number of scientific fields. In Romania the science system has grown independently of the production system. Nevertheless, previous research on OECD countries (Laursen and Slter, 2005) can 41 Revealed Scientific Advantage (RSA) is defined as the share of a country (i) in documents in a given subject area (d), divided by the country‘s share of all documents published. The sectors where Romania shows RSA are highlighted in yellow. 51 provide clues on how this relationship may be rectified in Romania. The research demonstrates that the link between science and economic activities appears to be quite strong in pharmaceuticals and biotechnology. The findings of research in the life sciences can often have direct economic implications. This is demonstrated by a high number of university spin-offs in these industries and by the high number of academic citations in industrial patents. Annex X provides a sectoral breakdown of business‘s R&D performance. Noticeable are the high concentration of R&D in manufacturing and within it in Chemicals, Pharmaceuticals and Instruments, sectors that benefit from scientific research and in which Romania has scientific advantages. c) Flawed horizontal and unclear vertical coordination for public R&D must be remedied by an empowered and coherent sub-structure of key public sector stakeholders chaired by MERYS 70. The new ordinance amending and completing Government Ordinance no. 57/2002 on scientific research and technological development enacted in January 2011 may not overcome the lack of horizontal coordination between bodies accrediting and certifying RDIs (i.e. Romanian Academies and the line ministries), making it impossible to have a single national system to assess the performance of the various research institutes. In practice each accrediting body will have its own accreditation system. There are three different legislative frameworks for the research institutes under MERYS-NASR, the line ministries, and the Romanian Academy. MERYS only directly oversees 19 RDIs and about 70% of annual R&D funding. This fragmentation can predispose the system to a level of confusion and dispersion of effort. Nevertheless it is not necessary that all institutes be subordinated to MERYS (as in several other countries, and assuming reinvigoration of the National Council)—an initiative which could lead to time consuming and debilitating controversy without guarantee of performance improvements. Rather the focus could be on mobilizing the positive energy that exists in many stakeholders, accompanied by the encouragement of a revived National Council, to take practical steps to promote more uniform operating standards, budgeting, performance accountability, etc. across the array of public institutes and university laboratories. This could involve creation of a multilateral coordinating body under MERYS including representatives of the RA, universities, and line ministries with research institutes charged with establishing and overseeing nationally coherent RDI standards and performance, as well as support the preparation and adherence to the next National R&D Plan. Improving the Management of Public R&D d) As a large numbers of RDIs in all technological fields can lead to diseconomies of scale and diffusion of priorities and resources, their number should be cut in line with national priorities 71. The fragmentation and large number of research and development institutes (there are about 264 public R&D organizations in Romania) devoted to a wide range of scientific fields may not be the most efficient way to allocate resources. For example, Finland has only 18 public research institutes. Limited resources for R&D are most probably thinly spread, prompting the institutes to spend considerable time and energy scrambling for resources to survive, undertaking projects not in line with their own priorities, and contributing to higher than optimal fixed (and transaction) costs for the system. Romania is likely to be on 52 the technological frontier in just a few sectors, many of them niches. Establishing sector priorities suggests closure or privatization of several institutes in fields where Romania does not have, or would soon have, technological and/or scientific advantage. Downsizing the number of institutes should be transparently based on criteria stemming from the certification process, National Plan determination of priorities, and options for closure through privatization, consolidation, or integration into universities. If privatization is chosen, the process should be rapid (within one year). Experience with privatization of RDIs which started in the 1990s, and which is still ongoing two decades later, suggests that investors (all local) were interested more in the real estate where the RDI was located rather than in the research capabilities of the institute or its intellectual property. A further distortion was added to privatization contracts in the form of commitments to retain the existing RDI personnel for a period of five years, further reducing the sales price. The opportunity costs of maintaining marginal research institutes should be factored into the closure effort. The specific appraisal mechanisms of both agencies in charge of privatizing RDIs – the Authority for State Assets Recovery (AVAS, which still has 22 RDIs to privatize under a commercial entity legal status) and the Ministry of Finance should be reviewed by the National Council to foster a faster and cleaner privatization option. Needless to say, any initiative on a new privatization round needs to be conducted through appropriate avenues as neither MERYS nor NASR have the mandates or ability to conduct such an effort alone. 72. Fortunately NASR is embarking on a certification program of all institutes subordinate to it as well as several institutes reporting to line ministries. This important effort will include internationally recognized foreign evaluators (a practice increasing prevalent across Europe) using predetermined metrics and methodologies. It is planned that the resulting ―grades‖ earned by institutes would determine those which should continue to receive government support, undergo a reorganization, or close/merge. This process seems carefully prepared, certainly warranted, and should move ahead promptly, possibly including R&D performed in universities, which is currently evaluated through a different mechanism. e) Successfully certified RDIs should be funded through more predictable, though performance influenced, budgeting 73. Projects funded under the NPII had three year multiannual budget commitments; however, the 50% cut in overall public R&D spending in 2009 inevitably impacted the program level. Contracts had to be renegotiated and original research programs downsized, with considerable disruptions to international collaboration (current and potentially future) and contracts with the Romanian Diaspora. Institutes inevitably failed in many cases to meet deliverable targets, focused attention on meeting critical fixed costs, and sought to retain core staff. NASR‘s intention to establish more predictable (and credible) forms of institutional funding over the medium term linked to performance (following the accreditation effort) should reduce a source of system weakness. Of course identifying and establishing transparent and widely recognized performance metrics valid across disciplines will be a challenge. It should be a consultative process involving the affected institutes and other relevant stakeholders. f) Let managers of certified RDIs manage by protecting the more predictable funding flow mechanism and enhancing managers’ ability to meet performance goals 74. Internal management of RDIs undoubtedly is a major challenge to Directors and potentially the sector. Budgeting is unpredictable (as indicated above) given the fiscal crisis and uneven patterns of 53 funding. A related issue is that while European funds allow the purchase of research equipment, the annual operating costs are not funded. As a consequence, several RDIs manifested that their labs have state of the art equipment which is not fully used or is deteriorating, because of lack of maintenance funding. Managers‘ ability to provide incentives for performance are severely constrained (as in the rest of the public administration) due to rigid pay, job classification, and promotion rules. It may be that many institutes have inverted staffing structures resulting from efforts to reward performance and/or unregulated salary grade creep. More disturbing, an unscientific polling of Directors suggested that between 20-40% of institute staff are underperforming, and that dismissing such staff is so complicated and time consuming as to deter managers from commencing the process. This is a problem government-wide, but clearly inhibits any efforts to create and sustain the professional excellence of institutes. While government-wide efforts are underway to improve human resource management, RDI managers should be provided all legally possible scope to use monetary and non-monetary rewards to incentivize performance, central support for disciplinary actions, assistance as needed to reorder activities to include collaboration with the private sector and efforts to increase useful patenting and other commercialization of outputs. g) Improve RDI and university career prospects and work environments to retain/repatriate human capital 75. Estimates are that the magnitude of the brain drain and more specifically of the emigration of scientists and engineers accounts for about 15,000 Romanian researchers with ISI publications working abroad. Among European Community countries, Romania has one of the highest intra-EU net losses. Despite being a priority of the NPII, between 2007 and 2009 only around 40 Romanian researchers working abroad were enticed to return. Other counts show the importance of the Diaspora: almost 9 out of 10 Romanian PhDs in Science and Engineering stay in the US five years after graduation. In part the obstacle is that salaries of experienced researchers amount to only EUR 1,000 per month, considerably below to salaries abroad. To generate an economic impact, the incentives have to go beyond promising research opportunities to generate transactions and possibilities to use the skill base at home in new ventures as demonstrated by Indian and Chinese returnees who establish start ups. Moreover, discussions with directors of institutes suggest that their primary concern is to prevent the emigration of scientists in the first place. Thus the costs and benefits of funding repatriation (other than in a few cases which would attract superior scientific or managerial talent) should be carefully analyzed by the government. Perhaps greater attention should be for maintaining a base of mid-level researchers who have established themselves through publications but are seeking the challenges and rewards of more market related work which will be more actively promoted in the future. Such a work environment may help retain talent as well as attract the repatriation of Romanian researchers, or at least engage them through cross border collaboration. 76. The space for retaining more young scientists and attracting those trained abroad may increase with the new education law (Law 1/2011) which requires teaching and research staff to retire when reaching the legal retirement age of 65 years. In universities it is foreseen that about 40 percent of teaching /research staff will retire over the next five years. Nonetheless, private and confessional universities may decide to continue the activity of a teaching and research staff member after the retirement age on the basis of a one- year employment contract that can be extended every year until the contractor turns 70. 77. To directly address repatriation of highly skilled Diaspora there are three non exclusive options: (i) general policies, (ii) polices focused on scientific Diaspora and (iii) polices for Technological / 54 entrepreneurial Diaspora. General policies include the detection where the high skilled Diaspora is located and encouragement of network formation by helping stay in touch with one another and the home country (e.g. GlobalScot, a network of 800 influential Scots all over the world is supported by Scottish Enterprise through conferences and events, both in Scotland and overseas, and the encouragement to members to participate, share their own network of contacts and build new relationships.). There is also the need to develop a specialization profile for the home country, making it more open to the opportunities represented by human resources with advanced education abroad. In fact, successful return policies are found in countries such as Singapore, South Korea, and Taiwan, where the S&T and industrial sectors are already quite advanced, where high skilled Diaspora workforce may effectively be employed. 78. Polices can also be focused in the scientific Diaspora providing incentives to perform research in Romania or in collaboration with Romanian scientists. If such policies are focused on fostering the return of scientists, reward structures that focus on merits are needed; as a pay scale based on age does not provide accountability for performance and undervalues skilled scientists from abroad. For researchers that studied and have a career abroad, the possibility to stay engaged in global research communities would benefit both Romania and themselves. Moreover, efforts should be designed to create a critical mass of returnees with similar background. For example, Chile allows the return of high skilled Diaspora to positions in academia and the public sector, an extra incentive for returnees. The critical mass of returnees was a key factor to develop and to implement an economic growth model, in which the returnee skills were used in public policy making. BOX - Croatia’s Unity through Knowledge Fund (UKF) UKF provides grants for joint scientific projects between Croatian scientists living in the country and those living abroad. . The International Labor Organization and the European Regional Economic Forum recognized the UKF as good practice for improving the mobility of highly qualified experts, and critical to promoting linkages between migration and development. UKF focuses in 1) supporting outstanding young scientists and professionals from Croatia to visit the excellent research and development centers abroad in order to establish cooperation (up to 10.000 EUR), 2) cooperation and knowledge with researchers and experts of Croatian origin in order to advance science and technology (grants up to 10.000 EUR), 3) engagement of young researchers and professionals with doctorate degree in Croatian enterprises. The objective of this sub-program is to prevent brain drain and help research-related professionals remain permanently in the country. The success of UKF in attracting Croatian researchers living abroad can mostly be attributed to the way the Program is administered and governed. Since the first call for proposals, the selection process has been driven by academic excellence, fairness and transparency. This, in turn, was achieved through a combination of simple rules, streamlined processes, expert evaluation, and a sounding board comprising local and international researchers as well as leading representatives from the business community. The novel idea of bringing in leading figures from multinational and local companies to supervise the program was aimed at strengthening the credibility of the program, ensuring that it was merit-based and impartial, and encouraging the best researchers, particularly those living abroad, to apply for the grants 55 79. Policies to foster the involvement of high skilled Diaspora into technological and entrepreneurial activities could include government support for the recruitment of high skilled Romanian by private sector firms. For example, the Israeli consulate in the US advertises employment offers made by Israel-based companies to Israeli US-based researchers through the Israeli professional networks. The network list members are kept and updated by the embassy. Moreover, the consulate holds recruitment days in which potential returnees can hold interviews with employers in its premises. This intervention eases the coordination process between potential employees and companies and provides the former with certainty of the contractual conditions for an eventual return to Israel. Policies that foster the development of networks may focus in building Diaspora‘s initial connections to home countries via former classmates, and policymakers. In several experiences, high skilled Diaspora had identified and tapped under-utilized resources and/or potential markets in their home countries. For example, the Israeli Diaspora was able to tap military technology and the accompanying skill base through the identification process of potential resources. Similarly the Taiwanese Diaspora found, and later developed, low-cost manufacturing talent at home. In turn, the Indian Diaspora tapped underemployed programming skills to staff their own entrepreneurial initiatives. Accelerating the Transmission of R&D h) Technology transfer infrastructure must be strengthened and better funded to commercialize publicly financed R&D 80. The innovation and technology transfer infrastructure, namely the organizations specialized in the dissemination, transfer and valorization of R&D results, has been developed to some extent in Romania. The National Network of Technological and Innovation Transfer (ReNITT) consists of 46 specific entities (technological transfer and information centers, technological and business incubators) as well as four scientific and technological parks located in different regions of the country. However, this technology transfer infrastructure is characterized by low commercialization capacities and/or is starved for public funding, in turn requiring efforts to be fully financed from deal based fees and commissions. This in turn limits the capacity of Technology Transfer Offices (TTO) to promote training, better monitor research and market developments, and in general help lead the cultural change needed in universities and RDIs toward improved collaboration with the private sector. The current funding appears short sighted, in the sense that it does not reflect the externalities produced by TTOs, as confirmed in OECD studies, in serving as brokers, bringing researchers together with entrepreneurs, supporting the commercialization of research results, and in general helping to bridge the gap between research and product development. The fact that OECD countries with strong market orientation foster the development of TTOs and recognize that their self financing takes years to develop is an indication of the value placed on their performance. 81. Outreach to researchers by TTOs should be met by more encouragement to researchers to think in terms of commercialization possibilities. A number of options are available. As proposed by the World Bank‘s Functional Review of Higher Education, Romania should contemplate splitting its universities into teaching only and those with additional research mandates in order to better concentrate human and financial resources for research while simultaneously giving greater weight to excellence in student education. For researchers increased weight should be explicitly given to successful patent applications, licenses, royalties, etc. in career advancement and compensation decisions. Denmark offers an example of efforts to encourage 56 such a focus (see Annex III). A culture of ―publish or perish‖ should be amended to include commercialization as a metric. Of course the universities should adopt policies to ensure a fair sharing of any commercialization profits with the researcher/team. MERYS may also wish to consider if courses in R&D commercialization/IP should be included in core science curricula since several stakeholders noted a lack of understanding of, if not resistance to, commercialization issues within some faculties. 82. Best practice in innovative OECD economies has seen universities and RDIs hire their own dedicated technology transfer staff with specialized skills that include but extend beyond IP management. TTOs are not only responsible for the legal duties related to patenting and licensing, but also for helping to define the host institution‘s commercialization strategy. These strategies can include not only the choice of particular fields of science and technology for emphasis, but also the mode of commercialization that the research institution will focus on (e.g., licensing, start-ups, sponsored research, or consulting, etc). With this increased sophistication of commercialization activities, a major issue for many research institutions is attracting and maintaining TTO personnel with the appropriate skills (extending beyond legal experience in protecting IP), who can help to identify the right opportunities and to implement the institution‘s commercialization strategy 83. In Denmark, the Danish Law on Inventions at Public Research Institutions provides the following provisions: a) the university has the right to assume ownership over publicly funded research, b) Employees of the University must disclose inventions to the University through the techology transfer office, c) the technology transfer office must decide within 2 months whether university wishes to assume ownership, d) the TTO must actively try to commercialise the invention, e) the employee must actively assist in the process when needed, f) Any net income is divided between researcher(s) (1/3), department (1/3) and University (1/3) 84. For Romania, to foster the commercialization potential of the TTO activity, a series of reforms are warranted including: (i) researchers using public R&D funding must disclose inventions (and research results to the TTO); (ii) TTOs must decide within a short timeframe (e.g. Denmark sets a deadline of two months) whether there is commercial potential or not (and if so which are the next steps), and (iii) the TTOs must actively try to commercialize the invention. Reinvigorating the TTO network should be a priority for the National Council. i) Intellectual Property Legislation and Protection must be updated in Line with General European Standards Regarding Transparency and Invention Ownership42 85. Romania has very low values for 'intellectual properties' indicators compared to the EU-27 average (virtually zero), according to the European Innovation Scoreboard 2008. As a matter of fact, patenting within the country is not a widespread activity and even less abroad. In 2007-2008 only one patent was granted under programs financed by NPII, out of 54 applications, and only 6 applications were made to the US Patent Office without any patent granted. Unsurprisingly private sector representatives and RDIs perceive national IP rules as unclear and complicated, and obtaining a patent very expensive. 86. Romania has a number of regulations on IP including laws no. 64/1991 on patents, 8/1996 on Copyright and Related Rights, ordinance no. 57/2002, Laws no. 350/2007, 129/1992, and 1134/2010 among 42 See Annex X. 57 others. There are several contradictions in these laws on invention ownership and its transfer creating negative views among business representatives based in Romania as well potential foreign investors. For instance, according to the Patent law (64/1991) that applies equally to public and private sector, in order to have ownership rights to an invention, a person is required to register an invention in the patent office (the law states ‗The right to the patent belongs to the inventor or his successor in title (…) Any person who has submitted, (…) a patent application with OSIM or successor in title, shall have a right of priority, starting from the filing date from any deposit, on the same invention, having a later date‘). On the contrary Ordinance 57 and 6/2011 aim to assign the ownership of the research results funded from public resources to the RDIs (the law states: ―research results obtained from execution of a contract research and development or innovation partly or wholly financed from public funds belonging to contractors directly performing activities under the grant agreement and / or employees, under funding contracts and legislation effect on industrial property and copyright‖). Moreover, there are contradictions in Law 8/1996 related to software, where some articles protect an author of the invention while others protect the employee‘s right. 87. Specifically, efforts should be directed to: a) strengthen the legal knowledge of the IP regulatory framework and its application within the legal departments of public entities and institutions. However, first it is important to harmonize the practices regarding the ownership of the R&D-I results among various stakeholders. A clear set of rules and a uniform application of these rules regarding the ownership of R&D-I results mitigate the risk faced by public entities and institutions to fail to secure R&D-I results, b) Settle the ownership of R&D-I results by law and amend the Law on Scientific Research and Technological Development. At a minimum, the law may need to carefully include all rights provided for in the IP system of laws among R&D-I results, and to clarify beyond any doubt how exactly participation to the resulting benefits is warranted to persons involved in R&D-I activities which are not subject to protection by the respective IP laws, c) Amend and harmonize the IP laws regulating R&D-I results. The Romanian IP regulatory framework may be improved especially with respect to the regulation of the amounts owed by employers or entities performing R&D-I activities to individual researchers as benefits arising from the commercial exploitation of various types of patents, d) assess the usefulness of the Employment Inventions Bill, which is intended to supplement insufficient regulation of the inventions made in connection with an employment or a research agreement and to harmonize and unify provisions on point included in various IP laws, however the Bill does no more than simply compiling and detailing into a single piece of legislation all provisions of the various IP laws, thus failing to actually make a step forward in regulating R&D-I results. Fostering Private sector R&D j) Improve the investment climate for innovation. Analysis of firm level data for Romania shows that innovation has a positive impact on firm productivity and confirms that firms investing in R&D are (32 percent) more likely to innovate. It also highlights the effects of the investment climate – particularly access to new technologies and credit as well as the presence of foreign competition. Further efforts to reforms such ―innovative climate‖ would contribute to broaden the base of firms investing R&D in Romania. k) IP based start-up companies should be fostered by government policies and funding 58 88. There are few programs aimed at IP based start-up companies in Romania. The term 'innovative start-ups' is generally applied to all small and medium enterprises and generic support policies and programs for SMEs fall under the responsibilities of the Ministry of Economy, Ministry of Regional Development and Tourism, and the Ministry of Finance. Specific programs related to R&D are coordinated by NASR and that agency and the Finance Ministry recently signed a Collaboration Protocol aimed to promote innovative SMEs, stimulate creativity and entrepreneurial culture in R&D, and develop an adequate infrastructure for RDI units and SMEs. In August 2010 Order No. 2086/4503 announced the norms for new tax credits for R&D expenses. The level of tax deferrals and credits is judged to be relatively generous compared to other OECD countries (See Annex VII for comparison and methodology) although it is too early to determine the impact of the incentive. Starting in 2008 under the SOP-IEC Program within the National Plan, a special scheme 'Support to start-ups and innovative spin-offs' was launched to support innovation activities of high- tech or high added value start-ups and spin-offs. With a multiannual budget of EUR 18.5 million a continuous competition was launched in 2008. Projects can be financed up to EUR 0.2 million requiring 10% co-financing from the applicant. Despite these programs the number of start-ups funded is very small. In 2008, five of seven submitted projects were accepted for funding, while the corresponding figures for 2009 were six of nine. This figure is very limited relative to other countries and the potential for Romania, and the nature and adequacy of the Romanian program warrants a high priority review by the National Council. 89. The government could consider the creation of a small agency specialized in nurturing and financing innovative startups and R&D projects in SMEs. Specialized government agencies have been often created to ―nurture‖ R&D projects in small enterprises, including innovative startup companies. Nurturing is important in the case of financing business R&D projects in small companies and innovative startups to facilitate the transition of ideas to the market, a process in which a number of non-financial obstacles tend to emerge. Needless to say, such obstacles are not present at the level of purely scientific research; and researchers are fully trained and equipped to perform the ―purely‖ research task. ―Nurturing‖ services provides, normally through a network of consultants, business and technological related services that are not easily available throughout the lifecycle of the project. For instance, contact with potential clients is of critical importance because their feedback helps to make product development more cost-effective. The finish TEKES and Croatian BICRO (See BOX) are examples of such agencies 59 BOX- Croatia’s Science and Technology Project (STP) Under Croatia‘s STP, Business Innovation Center of Croatia (BICRO) – a dedicated institution to promote R&D in SMEs, manages several programs targeting different stages of the innovation process, these are: TECHCRO Program. Program supports external expenditures on pre-commercialization proof of concept activities. Proof of Concept Grant Fund (PoC) was established to provide grants on a competitive basis of up to €50k representing up to 75% of total project costs. The Fund supports established and start -up businesses and universities spinning-out companies in Croatia in route of developing innovative products and processes. SPREAD Program. Program targets Early Stage Technology (Prototype), promoting collaboration between businesses and public research organizations. SPREAD consists of a matching-grants scheme to foster joint research between the private sector and public research organizations—the limit is 50% of the total project cost and a maximum of EURO 120,000 per project. Research projects by SMEs performed jointly with public research organizations are eligible. The application process is relatively simple and decisions are made within six weeks. The program stimulates maximum usage of infrastructure in scientific research centers; RAZUM Program. Program aims at Early Stage Technology (Prototype) and Product Development (Business Validation) stages of the innovation process. It encourages Private Sector R&D and develops a pipeline of SME‘s projects to be supported by the EU structural funds. RAZUM is a soft loan mechanism, designed to encourage the private sector to spend more on R&D and reduce the risk that firms often face in the innovation process. Provides loans covering up to 70% of product development costs, with repayments conditional on success; companies begin to repay loans when the projects start generating l) Facilitate MNEs as an engine for knowledge based start ups and technology clusters revenues from sales resulting from the innovations (repayment can be 3-5% of these sales). Support is limited to a maximum of EURO 1.5 million for a period of up to three years per project. 90. The Review was surprised to discover that large MNEs studiously avoid research and development in Romania due to a hostile intellectual property environment and fear that Romanian employees could use the legal system to seek recompense through time consuming and publicly controversial suits. Unlike the United States where all business funded research is owned by the business, or Western Europe which gives carefully circumscribed ―rights‖ to business funded researchers to share in profits, the current legal framework in Romania is unduly tilted toward business funded researchers, effectively shutting down such programs in many firms. This results in missed opportunities for R&D investments, jobs for Romanian researchers, externalities for the country, deepening of the R&D network and the synergies leading to technology clusters, etc. Not surprisingly there is no evidence of spillovers in terms of development of local suppliers or spin-offs initiated by former MNE employees since they do little or no R&D work. Further investigation of barriers, and possible reforms, to attract R&D performing firms from abroad should be a top priority for the National Council. 60 V. Recommendations for Short and Medium Term Action – Summary Action Responsible Agency Short Medium Term Term Activate the National Council for Science Prime Ministry X ,Technology, and Innovation Policy Focus R&D priorities on areas of comparative National Council for X scientific and economic advantage for National Plan Science, Technology, for Research and Development 2014-2020 (NPII-2) and Innovation Policy (CNPSTI) Interagency task force chaired by MERYS should be CNPSTI and MERYS, X empowered to oversee all funding and performance and NASR evaluation Right size number of RDIs in line with national CNPSTI, Privatization X priorities, NPII-2 and Certification Process Authorities, and NASR Fund RDIs through more predictable, performance National Authority for X influenced, budget mechanisms Scientific Research Strengthen RDI management autonomy in budget NASR and GoR X and personnel decision making Improve RDI career prospects and work National Authority for X environments to retain/repatriate human capital Scientific Research CNPSTI and NASR X Expand and strengthen the use of Technology Transfer Offices Revise Romania‘s Intellectual Property Rights(IPR) CPNSTI and NASR X Framework Review and modify as necessary policies/legal CNPSTI, NASR, X framework to promote MNE R&D investments Ministry of Economic Development, and Ministry of Finance Expanded and Integrated Program of Public Support CNPSTI, NASR, X for Start Up Innovation Firms Ministry of Economic Development, and Ministry of Finance 61 ANNEXES Annex I. List of persons interviewed (a) List of persons interviewed during missions to Romania Minister Ministry of Education, Research, Youth, and Sports Daniel Funeriu Anton Anton Vice Rector Research UTCB Cristina Gociu Director AVAS - Government of Romania Dan Dascalu CEO National Institute for R&D in Micro-technologies Acad Maya Director Institute of Biology and Cell Pathology Simionescu Borbely Karoly Secretary of State Ministry of Economy - Government of Romania Ioan Dumitrache President CNCSIS - Ministry of Education Valentin Silivestru President - Dir. General COMOTI Executive Agency for Higher Education, Research, Adrian Curaj Dir. General Development and Innovation Funding Dragos Ciuparu Secretary of State National Authority for Scientific Research (NASR) Anca Adriana Cucu Public Manager National Authority for Scientific Research (NASR) Ionel Andrei Dir. General National Authority for Scientific Research (NASR) National Authority for Scientific Research (NASR) R&D Rolanda Predescu Director Polices, Contracting and Monitoring of National Programs. Ionel Haiduc President Romanian Academy Decebal Lohan Secretary General National Authority for Scientific Research (NASR) Ion Stanciulescu Dir. General INSCC Wilhelm Kappel Dir. General ICPECA Lucian Pintilie Dir. General National Institute of Materials Physics Horia Hulubei National Institute of Physics and Nuclear Nicolae Victor Zamfir Dir. General Engineering Daniel Florea Vice President AVAS - Government of Romania 62 (b) List of information obtained 1. Data on SOP IEC A2 and NPII – budget allocation by program after 2009 including sectoral distribution, data on programs‘ results, managing body 2. List of bodies under control of NASR and the regulation that assigns their responsibilities (including UEFISCDI, IFA, ROSA, etc. ) 3. Information of NASR‘s RDIs:  Sources of income: % of income received from the state, in competitive calls, EU structural funds, private sector (local and foreign separately)  Share of basic/applied research in income  Size (total employment and the number of researchers separately),  Number of publications in Romania and international journals (separately),  Patents: National, EPO, USTPO, Japan). 4. Information of RDIs under the Romanian Academy:  Sources of income: % of income received from the state, in competitive calls, EU structural funds, private sector (local and foreign separately)  Share of basic/applied research in income  Size (total employment and by category),  Number of publications in Romania and international journals (separately),  Patents: National, EPO, USTPO, Japan). 5. Information from Universities:  Sources of income: % of income received from the state, by competitive program, EU structural funds, private sector (local and foreign separately) 6. Information research institutes under line ministries:  Sources of income: % of income received from the state, in competitive calls, EU structural funds, private sector (local and foreign separately)  Share of basic/applied research in income  Size (total employment and the number of researchers separately),  Number of publications in Romania and international journals (separately),  Patents: National, EPO, USTPO, Japan). 7. List of privatized research institutions (AVAS) with amount, buyer, etc 8. List of major MNEs with research facilities in Romania. 9. Legal Framework a. Ordinance 57 b. Law on spin-offs and IP c. Law on accreditation (rules) by type of RDIs d. On role/tasks of the NASR‘s consultative councils - including law 206/2004 e. Laws on RDIs research salaries by type of institutions (including regulation on director vs. researcher‘s duties) f. Law 551 of 2007 (HG) g. Law on Romanian Academy h. Law 206 63 Annex II. Self assessment tool: Features of well performing national and regional research and innovation systems Europe 2020 Flagship Initiative Innovation Union Report SEC(2010) 1161 1. Promoting research and innovation is considered as a key policy instrument to enhance competitiveness and job creation, address major societal challenges and improve quality of life and is communicated as such to the public Public action in all relevant policy areas including education and skills, the functioning of product and service markets, financial markets, labor markets, entrepreneurship and the business environment, industrial policy, cohesion/spatial planning, infrastructure/ICT as well as taxation and at all levels, is designed and implemented in a strategic, coherent and integrated framework geared towards fostering innovation and strengthening the knowledge base and fundamental research. Where policies and funding are focused on specific priorities, these are increasingly oriented towards addressing major societal challenges, such as resource efficiency, climate change, and health and ageing, and towards deriving competitive advantage from finding new solutions to tackle them. 2. Design and implementation of research and innovation policies is steered at the highest political level and based on a multi-annual strategy. Policies and instruments are targeted at exploiting current or emerging national/regional strengths within an EU context ("smart specialization") An effective and stable centre-of-government structure, typically steered by the top political level, defines broad policy orientations on a multi-annual basis and ensures sustained and properly coordinated implementation. This structure is backed up by networks involving all relevant stakeholders, such as industry, regional and local authorities, parliaments and citizens, thereby stimulating an innovation culture and building mutual trust between science and society. A multi-annual strategy defines a limited number of priorities, preceded by an international analysis of strengths and weaknesses at national and regional level and of emerging opportunities ('smart specialization') and market developments, and provides a predictable policy and budgetary framework. The strategy duly reflects EU priorities, avoiding unnecessary duplication and fragmentation of efforts, and actively seeks to exploit opportunities for joint programming, cross- border co-operation and exploiting the leverage effects of EU instruments. Bilateral co-operation with non-EU countries is based on a clear strategy and, where possible, is co-ordinated with the other EU Member States. An effective monitoring and review system is in place, which makes full use of output indicators, international benchmarking and ex-post evaluation tools. 3. Innovation policy is pursued in a broad sense going beyond technological research and its applications A broad concept of innovation - including innovation in services, improvements of processes and organizational change, business models, marketing, branding and design - is actively promoted, inter alia through more interdisciplinary work involving groups of users or consumers as important constituencies of open innovation. Supply and demand-side policies are developed in a consistent manner, building on and increasing the absorptive capacity of the Single Market. 4. There is adequate and predictable public investment in research and innovation focused in particular on stimulating private investment 64 It is recognized that public funding assumes an important role in providing a high quality knowledge infrastructure and as an incentive for maintaining excellence in education and research including access to world-class research infrastructures, building regional S&T capacity and supporting innovation activity especially during periods of economic recessions. As a consequence, public investments in education, research and innovation are prioritized and budgeted in the framework of multi-annual plans to ensure predictability and long term impact, and drawing on the Structural Funds where appropriate. Public funding aims at leveraging greater private sector investments. Innovative financing solutions (e.g. public-private partnerships) and the use of tax incentives are explored and adopted. Reforms are implemented to reflect changing conditions and ensure optimal returns on investments. 5. Excellence is a key criterion for research and education policy Research funding is increasingly allocated on a competitive basis and the balance between institutional and project-based funding of research has a clear rationale. Institutes are evaluated on the basis of internationally recognized criteria and projects are selected on the basis of the quality of proposals and expected results, subject to external peer review. Funding to researchers is portable across borders and institutes. Results of publicly funded research are protected and published in a way that encourages their exploitation. Higher education and research institutes enjoy the necessary autonomy to organize their activities in the areas of education, research, and innovation, apply open recruitment methods and to draw on alternative sources of funding such as philanthropy. The legal, financial and social frameworks for research careers, including doctoral studies, offer sufficiently attractive conditions to both men and women in comparison to international standards, especially those in the US. This includes favorable conditions for reconciling private and professional life and for professional development and training. There are incentives in place to attract leading international talent. 6. Education and training systems provide the right mix of skills Policies and incentives are in place to ensure a sufficient supply of (post)graduates in science, technology, engineering and mathematics and an appropriate mix of skills among the population (including through strong vocational and education and training systems) in the medium-to-longer term. Education and training curricula focus on equipping people with the capacity to learn and to develop transversal competences such as critical thinking, problem solving, creativity, teamwork, and intercultural and communication skills. Special attention is paid to address innovation skills gaps. Entrepreneurship education and training is widely available or included in curricula. Partnerships between formal education and other sectors are actively promoted to that end. 7. Partnerships between higher education institutes, research centers and businesses, at regional, national and international level, are actively promoted Where possible, research efforts are accompanied by instruments to support the commercialization of innovative ideas. Policies and instruments such as innovation/knowledge clusters, knowledge transfer platforms, and voucher systems, are in place to encourage co-operation and knowledge sharing and at creating a more favorable business environment for SMEs. Researchers and innovators are able to move easily between public and private institutes. There are clear rules on the ownership of intellectual property rights and sharing and support systems are in place to facilitate knowledge transfer and the creation of university spin-offs and to attract (venture) capital and business angels. 65 There are no obstacles to setting up and operating transnational partnerships and collaborations. 8. Framework conditions promote business investment in R&D, entrepreneurship and innovation Policies to promote innovation, entrepreneurship and enhance the quality of the business environment are closely interconnected. Favorable conditions are in place to foster a growing and robust venture capital market, especially for early stage investments. Consistent with the Small Business Act for Europe43, the rules for starting up and running a business are simple and designed from an SME perspective. The legal framework is transparent and up-to-date. Rules are properly enforced. Markets are dynamic and competitive. Willingness to take risks is promoted. Insolvency regulations support the financial reorganization of enterprises. There is no discrimination against entrepreneurs who may have failed the first time around. An efficient, affordable and effective system for the protection of intellectual property is in place, which fosters innovation and preserves investment incentives. The market for innovative products and services is kept constantly up to date by means of an efficient standard-setting system. 9. Public support to research and innovation in businesses is simple, easy to access, and high quality There is a limited number of well targeted, clearly differentiated, and easy to access support schemes consistent with support available at EU level and that address well identified market failures in the provision of private funding for innovation. Funding support is tailored to the needs of companies, particularly SMEs. The emphasis is placed on outputs rather than on inputs and controls. Bureaucracy is kept to a minimum, selection criteria are straightforward and time to contract and to payment are as short as possible. Funding schemes are regularly evaluated and benchmarked against comparable schemes in other countries. National funding is allocated through international evaluation procedures and encourages trans-national cooperation. Rules, procedures and time-tables are aligned in order to facilitate participation in EU programs and co-operation with other Member States. Specific support is often available to young innovative companies to help them commercialize ideas rapidly and promote internationalization. 10. The public sector itself is a driver of innovation The public sector provides incentives to stimulate innovation within its organizations and in the delivery of public services. Active use is made of public procurement of innovative solutions in order to improve public services, including through dedicated budgets. Tenders are based on output-based performance specifications and contracts are awarded on the basis of qualitative criteria which favor innovative solutions such as life-cycle analysis, rather than lowest price only. Opportunities for joint procurement are exploited. Where possible, government-owned data is made freely available as a resource for innovation. 43 ―Think small first.‖ A "Small Business Act" for Europe. COM (2008)374. 66 Annex III. Examples of European R&D Systems (Based on Erawatch reports) Czech Republic (2010) Political level Council for Research, Development and Innovation (CRDI) prepares a proposal for allocating public funds for R&D, including the division of funds among individual responsible bodies. This proposal is submitted to the government for approval and then incorporated by the Ministry of Finance into the proposal of the state budget. Operational level Once the proposal is approved by the government, the Ministry of Finance allocates the funds to the individual providers, with the Ministry of Education, Youth and Sports and the Academy of Sciences representing the largest providers of public R&D funds. The Ministry of Education, Youth and Sports has a special position among other ministries in relation to publicly supported R&D – is responsible for the international R&D cooperation, provides funds for research conducted at universities and also coordinates the National Research Program. CRDI is responsible for the preparation of national R&D policy/strategy documents as well as for realization of R&D priorities and innovation measures. A specific role is also assigned to the Ministry of Industry and Trade which is responsible for industrial R&D. In addition, several Czech sectoral ministries have significant R&D budgets and also act as important R&D funders (both in the form of competitive and institutional funding). Implementation The ministries act as the implementing bodies for the R&D programs. - The Academy of Sciences has an internal grant agency which acts as an implementing body for the national funds it receives. - The Czech Science Foundation - a dedicated agency for basic research - acts as an implementing body for the grants for basic research. - The Technology Agency of the CR shall implement most of the applied research programs through competitive support from 2011/2012. The Technology Agency was proposed to be based on the experience of the CzechInvest – an organization of the Ministry of Industry and Trade – whose main mission is to support competitiveness of Czech enterprises (initially, CzechInvest was involved mainly in attracting foreign investors through investment incentives, which proved to be a successful activity). The private sector as a whole represents the largest R&D performer in the Czech Republic while the Academy of Sciences represents the most important individual R&D performer, followed by individual universities and, with a substantial gap, sectoral research institutes. 67 Overview of R&D structure Slovenia (2010) R&D actors - The Ministry of Higher Education, Science and Technology is responsible for science and technology issues, including the preparation of the R&D policy documents for implementation of the National R&D development Program, the public R&D budget and international R&D cooperation. - The Ministry of Economy is in charge of entrepreneurship, including segments of innovation policy (support for technology parks, for example). - The Government Office for Growth is responsible for the implementation of the Slovenian Development Strategy as well as the National Reform Program for Achieving the Lisbon Strategy Goals. - Ministry of Defense has become an increasingly important player in the R&D field, in particular for industrial R&D. R&D advisory bodies - The National Assembly is the top legislative body. Its Committee on Higher Education, Science and Technological Development is in charge of the legal and policy documents related to R&D policy. - The National Science and Technology Council is an advisory body to the government. It is composed of members from the government, research and business community, and higher- education institutions. RD&I policy execution RD&I policy is executed by two public agencies: - Slovenian Research Agency responsible for the execution of public research financing, for the professional and independent selection/evaluation process of projects and programs and the monitoring of research implementation. - The Slovenian Technology Agency in charge of programs promoting technology development. 68 Public R&D and its financing Four universities (University of Ljubljana, University of Maribor, University of Nova Gorica and University of Primorska) and public research institutes constitute the main public research capability. Most of the financial resources for their work come from the government and are channeled through the Slovenian Research Agency. All research organizations and individual researchers must be registered with the Slovenian Research Agency if they wish to apply for public funding. The business sector is increasingly important both as a source of financing and as an R&D performer. R&D system overview ` 69 Denmark (2009) The Danish research governance system is characterized by good horizontal policy coordination between ministries and their agencies. The Ministry of Science, Technology and Innovation is responsible for policies on research and innovation, which allows a high level of coordination, in particular between national R&D and innovation policies An important element in the R&D governance system is the coordination of the Ministry of Science, Technology and Innovation, the Danish Agency for Science, Technology and Innovation, the research councils, the two research foundations and the R&D instruments of the sectoral ministries. The research governance system is divided into two subsystems: - The advisory part - the Danish Council for Research Policy. - The funding part - consists of two research councils. The Council for Independent Research is the umbrella organization for five research councils and supports research projects ideas based on researchers' initiatives and priorities. The other funding subsystem consists of the Council for Strategic Research which supports strategic and policy-oriented research. Other elements in the system include the Council for Technology and Innovation, and the Danish National Advanced Technology Foundation, oriented towards commercialization of research results. In addition there is also the Danish National Research Foundation, specialized in funding basic science. R&D system overview 70 Finland (2009) In Finland, highest-level governance of the RD&I policy takes place at the Parliament and at the national government. Additionally, there are several levels of governance: First level: The government is supported in by a high level advisory body, the Research and Innovation Council led by the Prime Minister. The council is responsible for the strategic development and coordination of Finnish research and innovation policies. The second level consists of the ministries. The key ministries concerned with research policy are the Ministry of Education (MoE) and the Ministry of Employment and the Economy (MEE). While there is a historically developed sectoral division of labor between the two ministries concerning science and technology policy, cross-sectoral cooperation has increased in issues related to science and innovation. This is partially due to their shared interests to promote research funding in the government budget, for which close participation in Science and Technology Policy Council has provided a good platform. As a general trend, there is a move from narrowly defined science and technology policy towards a broad-based innovation policy incorporating issues of research policy, technology policy, and elements from various other policies. The third level consists of the R&D funding agencies, the Academy of Finland and Tekes, the Finnish Funding Agency for Technology and Innovation. The Academy of Finland funds basic research and other research related activities through competitive grants. While the majority of Tekes funds are allocated to R&D projects carried out by companies, Tekes is also a large financier of research at the universities and public research institutes. In 2009, 46% of the total government research funding (including direct funding of universities) was channeled through these two organizations. The fourth level includes the organizations conducting research: universities, public research institutes, private research organizations and business enterprises. 71 Annex IV. Romania National Plan for R&D (NPII) – Expenditures and Programs Figure- Distribution National Plan for R&D 2007-2011 among 5 Programs - Current Euros 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 - 2007 2008 2009 2010 2011 HUMAN RESOURCES IDEAS INNOVATION PARTNERSHIPS CAPACITIES Own calculations based on data provided by NASR Note: Data for 2007-2010 is of realized expenditures, for 2011 is for projected expenses 72 Table 2 - National Plan for R&D – Detailed Expenditures by Program and Sub-Program 2007-2011 Operation 2007 2008 2009 2010 2011 HUMAN RESOURCES 1-REINTEGRATION-RC complex projects 578,113 405,304 326,634 2-Research projects for reintegration of researchers country (RP) 633,955 1,532,433 1,688,297 1,276,541 820,161 3-Mobility Projects PhD (MD) 46,537 48,835 - 4-Project researchers mobility (MC) 143,286 377,542 - 5-Doctoral Research Projects for Young People - Competitions 2007-2008 (TD) 1,167,079 3,814,890 858,510 4,062,032 6-Research Fellowship Stefan Odobleja - 25,293 91,258 94,117 55,358 7-Postdoctoral Research Projects (PD) - - - 3,060,438 6,541,827 8-Research projects to stimulate the formation of young independent research teams (TE) - - - 2,689,492 6,145,883 SUBTOTAL 1,990,858 5,798,993 3,216,178 11,587,924 13,889,863 IDEAS 1-Exploratory Research Projects (PCE) 9,514,190 28,772,013 30,597,625 33,195,904 26,046,652 2-Exploratory Research Complex Projects (PCCE) 2,838,995 7,117,218 SUBTOTAL 9,514,190 28,772,013 30,597,625 36,034,899 33,163,870 INNOVATION 7,658,182 20,637,593 25,664,036 14,813,161 PARTNERSHIPS 41,200,497 146,048,606 66,604,414 42,628,158 43,093,587 CAPACITIES 1-Module 1&2 4,958,776 49,839,922 11,207,089 10,293,454 26,182,240 2-Module 3 1,351,136 5,963,469 5,237,181 4,735,556 SUBTOTAL 4,958,776 51,191,058 17,170,558 15,530,634 30,917,796 TOTAL 65,322,504 252,448,263 143,252,811 120,594,777 121,065,116 73 Annex V. Financial requirements for applying for EU grants under national operational programs: Romania and Poland Romania – SOP IEC Priority Axis 2, activity 2.3.1. Support for high- Poland – most of activities under SOP tech start-ups and spin-offs Innovative Economy (SOP IE), including activity 3.1. Initiating innovative activities (start ups and spin –offs) Financing Projects may be financed up to 90% of the total eligible project costs. The Activity 3.1. – financing up to 85% of the remaining 10% of eligible project costs will be the beneficiary of the total eligible project costs contribution of private funds. Support is provided in the form of reimbursable grants in one or more tranches, under the provisions of your agreement. Financial assistance grant per project is max. 750 000 lei (187 500 euro). For beneficiaries engaged in road transport sector amount of financial assistance grants is a max. 380 000 lei 1 Reimbursement/Advances Reimbursement Advances or reimbursement. Possibility to receive advances i.e. receiving funding before Reimbursement is made in accordance with the grant agreement and the incurring expenditure. The most preferable schedule for reimbursement of expenses. form for firms. Reimbursement always The financing contract will contain the total amount of grant and the amount possible. of installments in which the grant is spread. Payments are made, through reimbursement, as part of project implementation, according to the terms and conditions set out in your agreement (up to 4 installments per year), depending on the amount and duration of the project. The beneficiary may request reimbursement of expenses and bills advance, provided they are accompanied by letters of credit from suppliers, covering letters given advance consideration. Reimbursement is received no later than 90 days from the date of the submission of necessary documentation Pre-financing In accordance with EC regulations may be given pre-financing (pre). According O.G. no. 64/2009 Article 2 paragraph 3 d, pre represent amounts transferred from the state or the structural instruments (ERDF) to a beneficiary - by direct payment or indirect payment, starting at the initial stage to support the running projects and / or during their implementation, as provided in the grant agreement entered into between the Managing Authority / Intermediate Body responsible / accountable, to ensure proper running of projects. Pre-financing as a percentage of max. 35% of the total grant funding awarded under the contract may be granted in full or in installments, according to the forecast flow of payments approved by the MA. Transfer the amounts of pre requested by beneficiaries is made provided that the following documents: a) written request from the recipient of the grant agreement; b) a contract for the supply of goods / service / execution of work between the customer and a trader; 74 c) a letter of credit for pre-financing amount requested. To qualify for advance payment recipients are required to open an account at the Treasury / commercial bank dedicated exclusively to receive pre- financing and carrying costs related to projects, including the provision of advances to contractors. Pre Recovery The amount paid to a beneficiary in the form of pre-financing is gradually recovered by applying a percentage of each claim for reimbursement made by the beneficiaries, set by each MA. • Pre-financing is gradually recovering from the interim applications for reimbursement, depending on their value, until full recovery. • Recovery is made from the first request for reimbursement, so the sum of pre-financing to recover fully before the final request for reimbursement. • Pre-financing shall be refunded if the beneficiary had not filed a refund request to justify the purchase of goods, services or works within six months from the date of receipt. • The bank guarantee shall be released after full recovery of pre- financing granted. 2 Form of Collateral of the proper implementation of the grant agreement According to the updated GUIDE FOR APPLICANTS FOR START- Collateral in a form of blank promissory note UP SITES SPIN-OFF from 2010: (blank bill of exchange) together with together After contracting the project it can get the funds needed to implement the with Promissory Note for: (1)advances which conditions laid down in Article 2 (1) of GD 606/2010: "To ensure the does not exceeds 10 million PLN, or (2) the funding necessary to implement the project costs financed by the structural beneficiary is the provider of public services or instruments, the beneficiary may be collateral for a credit institution in the services general economic interest; or (3) form of pledging or mortgage of fixed assets covered by the contract, in funding is provided in the form of a refund, compliance with the law and contract funding concerned‘. regardless of the value of the grant. On the ANCS’s website under activity Support for high-tech start-ups The need to establish additional safeguards and spin-offs states: all potential beneficiaries do not require warranty of (at least equivalent to the highest tranche of the execution / implementation and no evidence of financial ability to support advances resulting from the financing the project’44 agreement) in a form of e.g. cash, bank guarantees; insurance guarantees, promissory Before 2010 there was a requirement to provide Proof of financial support notes with the endorsements of promissory (financing) of the proposed project (bank statement, comfort letter, letter of note, bank or cooperative banks-Savings guarantee, letter of credit reports, bank deposits, government securities, credit; a lien in securities issued by the promise guarantee from a guarantee fund)45 Treasury or unit of local government; Mortgage, and others if (1) the value of the advance exceeds 10 million PLN ( 2.5 m Euro) , or (2) beneficiary is not a public service or service general economic interest. Cost of collaterals are eligible for the refund 44 http://www.mct.ro/index.php?action=view&idcat=378 45 GUIDE FOR APPLICANTS FOR OPERATION 2.3.1. "SUPPORT FOR START-UP AND SPIN-OFF SITES Innovative" O2.3.1 POSCCE-A2-2008 - 1 Annex 2 to Decision No 9055/2008 75 Annex VI. Funding of RDIs affiliated to NASR, Line Ministries and Academy of Agriculture The 47 RDIs surveyed in 2011 encompass, those coordinated by NASR (19), the Romania Academy of Agriculture (2), the Ministry of Economy (9), the Ministry of Agriculture (5), the Ministry of Environment (3), The Ministry of Regional Development (2), the Ministry of Communications (2), Ministry of Health (2), the Ministry of Tourism (1), and the Ministry of Labor (2) Main findings for the overall figures: - The RDIs‘ income from R&D activities is 4.5 times as large as the proportion of income from business activities. The latter is mostly represented by other non R&D sources of income (selling non-proprietary products and services). In 2010, RDIs R&D income amounted to EUR 147 m, while business income summed EUR 35m. - The decay of government funding started in 2009 and continued in 2010, however the resources to the RDIS from Nucleus program (institutional funding) has remained constant (around EUR 50m annually). - Within government funding, those resources from NPII and co-financing used by the RDIs decreased the most, to less than a half of 2008 figures. In the case of NPII there were no call for proposals in 2009 and 2010, and there was a scaling back on amounts already committed to the RDIs. The co-financing, specially supporting structural funds increased from 2008 to 2010, however it was not enough to make up for the decrease in NPII funding. - Sectoral programs were not important only represent 2-3% both funding from sectoral programs and contract work directly with Line Ministries, amounting to EUR 4.5 m in 2010. This proportion differs from the figures provided by the Ministry of Finance in which line ministries have a higher proportion (16%) of the overall R&D expenditures, especially in applied research (R&D in the economic field). Big part of this money is channeled through the Ministry of Agriculture and Ministry of Economy and Trade. - European Structural funds started kicking in 2009 and increased 5 fold in 2010 to EUR 15m or 11% of total R&D income. The amount committed by NASR, the implementing agency of SOP –Axis 2 is much higher. The discrepancy might be due to the difference between amounts committed and amounts disbursed, the latter being those resources actually received by the RDIs. - R&D contracts with private sector both foreign and local have remained stable even during the government R&D cuts. And due to the decrease in overall R&D income, they represent a bigger proportion, especially local demand for R&D (9% of total R&D income or EUR13M). 76 Main findings by Affiliation of RDI (NASR and Line Ministries): - RDIs from the Ministry of Economy have a significant proportion of their income from local demand for R&D around 5m EUR which represented 30% of the total R&D income in 2010. If the amount of income from business activities is included, the RDIS under the Ministry of Finance have half of their resources coming from the private sector (EUR11m out of a total of EUR 22.3m) - For the RDIs under NASR, the state budget has been the most important source of income. Even during the budget cuts in 2009 and 2010, the government budget represented 70% or above of total income. On the other hand, the private sector revenues represented less than 15% (EUR16m out of EUR120m total) - RDIs dependent on the Ministry of Agriculture are almost 100% dependent on state budget for their R&D activities. On the other hand, more than half of their total income (EUR7m out of EUR 12.5) is provided by business activities mostly selling both proprietary and non-proprietary products and services (EUR 2 and 4 m, respectively) 77 RDIs – Income by source 2008 2009 2010 TOTAL income 288,050,873 181,613,529 181,439,788 1- TOTAL R&D Income (A+B+C+D+E+F) 237,947,494 151,135,549 146,466,760 A- The state budget (total) 216,093,152 122,700,060 119,487,808 Program nucleus 48,529,221 52,904,221 53,299,070 NPII and CEEX (including co-financing for FP6 FP7, etc.) 130,189,655 50,348,406 46,039,578 Facilities of national interest (funding MERYS / NASR) 13,555,304 12,011,863 11,196,502 Sector Program Ministry of Education and Research (MERYs) / NASR 300,861 98,808 463,991 Program sectoral Line Ministries 2,973,445 1,563,034 1,669,243 Grants MERYS/NASR (scientific, research, books, magazines ST) 604,627 162,425 144,400 Grants MERYS/NASR 635,116 175,309 311,800 Grants from public sources (other than MERYS/NASR) 311,137 386,138 791,504 Contract work directly with Line Ministry 3,425,653 3,631,085 2,937,925 Other state revenues 2,137,734 981,181 2,094,583 - - - F-Structural Funds 147,861 3,902,595 15,697,462 B- FP6 FP7 (not including state budget financing) 3,246,664 7,522,438 6,346,662 C- Other public international sources (not including state budget financing) 1,820,842 3,264,100 3,943,368 D- Contracts CD with foreign private persons 1,101,600 2,454,324 2,259,575 E- Contracts Romanian CD with private persons 15,685,236 15,194,627 14,429,347 - 2- Business income TOTAL 50,103,380 30,477,981 34,973,029 Patent licenses - - - Patent Assignment - - - Dividends from firms to research institute 116,484 144,209 10,949 Sale to firms that benefit research institute - - - Marketing its proprietary products 2,701,839 1,828,249 1,979,784 Revenue from access to the equipment of the estate tax - - - Space or equipment rental income property 1,409,626 1,347,491 1,416,157 Other non R&D sources of income (selling non-proprietary products and services) 45,279,969 26,276,135 30,969,460 Own calculations based on survey to 47 RDIs carried out by NASR 2011 78 Annex VII. R&D tax breaks in Romania The Order No. 2086 / 4504 –published on 12 August 2010 in the Official Gazette was issued to establish the methodological norms to the application of deductions for R&D expenses. The Methodological Norms covers changes introduced by Art.19.1 of the Fiscal Code, enacted by Law 343/ 2009. Art.19.1 reduces the taxable income of taxpayers through an additional deduction of 20% of the costs incurred by them in the fiscal year for R&D. When establishing the eligible expenses, fixed assets used in R&D development activities can be placed under accelerated depreciation in accordance with the Fiscal Code provisions. It is also stated that in order to benefit from this supplementary deduction, R&D activities must lead to results which can be capitalized by the tax payer to its own benefit (e.g. as opposed to contract R&D for others). The Romania tax incentives for R&D take two forms, as a tax credit and a tax deferral (depreciation allowances and current deduction), as seen in a country comparison in Table 1. However the methodological norm makes no differentiation between SMEs and large firms, all institutions follow the same directions46. 46 Countries like Canada, UK and the Netherlands have provisions that favor SMEs while the majority of countries treat similarly SME and large firms (e.g. France, Spain, Germany, etc) . 79 The B-index The B-index 47is a measure that enables the comparison of the magnitude of R&D tax incentives across countries. It is defined as the minimum present value of before-tax income necessary to pay the cost of R&D and to pay the corporate income taxes, so that it becomes profitable for the firm to conduct R&D. Assumptions for the B-index calculation To ensure consistent cross-country comparisons, the B-index is measured under the following uniform assumptions about the composition of R&D expenditures48:  R&D expenditures consist of 90 % current expenditures and 10 % capital expenditures.  Wages and salaries (a part of current expenditures) represent 60 % of total R&D expenditures.  Capital expenditures are split into machinery and equipment (5 %) and buildings (5 %).  The discount rate is assumed to be 10 % and constant over time and countries. To calculate the B-index for Romania is key the time considered as useful life of the fixed assets. We have two scenarios 5 years for both machinery and equipment and buildings, as in Korea and a longer useful life of 10 years. Using the parameters established by Order No. 2086 / 4504 it iscalculated49 tha the B-index for Romania for 5 year useful life of fixed assets equal to 0.706 and B-index for Romania for 10 year useful life of fixed assets equal to 0.78 Figure 1 shows B-index calculations for OECD countries and Romania, Romania would be classified as a generous incentive provider (B-index<0.9) along with Spain and France. The Romanian tax incentives are more generous the shorter the useful life of the fixed assets is. In general it has been found that countries with a low level of BERD tend to have a low B-index. Since a low B-index indicates a large tax incentive, countries with a low level of BERD have a generous tax incentive. 47 The general formula for the B-index is: Where A is the net present discounted value of depreciation allowances, tax credits and other R&D tax incentives available, and is the corporate income tax rate. 48 See e.g. Warda (2001) 49 Calculations are available upon request 80 Figure. B-index, 2008, 2011 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Australia Mexico Hungary Portugal India Korea Germany China Singapore Belgium Norway Sweden Japan Poland Canada Denmark Iceland Luxembourg Brazil Israel France Spain Turkey Italy Ireland United Kingdom Chile Switzerland New Zealand Finland Austria Greece Romania 10 years South Africa Netherlands Russia United States Romania 5 years Slovak Republic Czech Republic Source: OECD (2009) and own calculations for Romania An alternative way to illustrate the size of the tax incentives is the tax subsidy rate (TSR), which is defined as 1 minus the B-index, so TSR=1-B. In the case of Romania, for a 5-year useful life of fixed assets, the tax credit is around 29 cents for each dollar spent on R&D. For 10 year useful life of fixed assets the tax credit is 22 cents for each dollar spent on R&D. 81 References  Price Waterhouse Cooper (2010) ―Tax & Legal Alert – ROMANIA‖. 20 September  Public Policy Directorate – Department of European Funded Projects (2011) ―Progress Report regarding the fulfillment of the structural reform conditionalities of the Memorandum of Understanding between the European Commission and Romania for the Fourth Loan Installment‖. February.  Ernst & Young (2008) ―Tax Data – Romania‖. December  Warda, Jacek (2002) ―Measuring the value of R&D tax treatment in OECD countries‖, in OECD ( 2002). STI Review no. 27. Special Issue on new science and technology indicators.  Warda, Jacek (1996) ―Measuring the value of R&D tax provisions‖ in OECD (1996), ―Fiscal Measures to Promote R&D and Innovation‖, OCDE/GD(96)165, OECD, Paris, , pp. 9-22.  World Bank (2010) Background paper ―Tax incentives for private R&D expenditures: an annotated summary‖. Draft.  OECD (2009), “OECD Science, Technology and Industry Scoreboard 2009� , OECD Publishing. 82 Annex VIII. Business R&D 2004-2008– Sectoral Breakdown ISIC - Million EUR Sectors – ISIC Rev 3.1. Total 2004-08 % TOTAL BERD 1034.5 AGRICULTURE, HUNTING AND FORESTRY 138.3 13% MINING AND QUARRYING 38.7 4% MANUFACTURING 540.8 52% Food, beverages and tobacco 10.2 1% Textiles, fur and leather 5.9 1% Wood, paper, printing, publishing 0.0 0% Refined petroleum products 5.1 0% Chemicals and chemical products (less pharmaceuticals) 35.8 3% Pharmaceuticals 38.2 4% Non-metallic mineral products 6.7 1% Basic metals 4.5 0% Fabricated metal products, except machinery and equipment 12.1 1% Machinery and equipment, n.e.c. 63.8 6% Engines and turbines, except aircraft, vehicle and cycle 0.0 0% Special purpose machinery 45.0 4% Machine tools 17.0 2% Weapons and ammunition 6.6 1% Office, accounting and computing machinery 15.5 1% Electrical machinery and apparatus n.e.c. 57.2 6% Medical, precision and optical instruments, watches and clocks (instruments) 25.5 2% Motor Vehicles, trailers and semi-trailers 113.2 11% Other Transport Equipment 40.2 4% Ships and boats 0.0 0% Railway and tramway locomotives and rolling stock 0.0 0% Aircraft and spacecraft 8.6 1% Furniture, other manufacturing n.e.c. 9.2 1% ELECTRICITY, GAS and WATER SUPPLY 75.1 7% CONSTRUCTION 26.6 3% Real estate, renting and business activities 195.0 19% Computer and related activities 42.8 4% Software consultancy and supply 26.8 3% Research and development 124.0 12% Other business activities 20.6 2% Architectural, engineering and other technical activities 9.6 1% Community, social and personal service activities, etc. 15.7 2% Own calculations using OECD-iLibrary 83 Annex IX. TTO Survey Results The survey questionnaire has been administered to a total of 51 NASR accredited institutions devoted to technology transfer 50 . The response rate has been 43%. And the analysis below delves into the characteristics of the 22 institutions that answered the survey. I- General characteristics TTOs are of recent creation the oldest ones started in 2004 and the average age is 4 years. The TTO personnel is mostly composed by professors out of an average size of 4 FTE per TTO, businessmen and administrators have a marginal presence Only 40% of the surveyed institutions had technology transfer as their main activity, the rest are dedicated mostly to provide Information Services, Consulting Services, and Coordination of R&D The large majority of personnel (77%) are paid using the university/research institution (RDI) pay-scale. Half receive pay incentives/bonus/success fees related to performance and more than a third have both payment sources. Is TTO personnel paid using the Are there pay incentives/bonus/success university/research institution fees related to performance for the TTO (RDI) pay-scale? personnel? No Yes Total No 2 3 5 % column 18.18 27.27 22.73 % row 40 60 100 Yes 9 8 17 % column 81.82 72.73 77.27 % row 52.94 47.06 100 Total 11 11 22 % column 50 50 100 % row 100 100 100 Contrary to the US, in Romania more than half of TTOs have been a top down creation from the Ministry of Education, nevertheless, the great majority is integrated to the university or research institute (i.e. are a unit of the institution). 50 The sample framework includes 47 technology transfer centers and four science parks. 84 TTO funded by The Is the TTO integrated to the university or Ministry of Education and research institute (i.e. a unit of the Research institution)? No Yes Total No 2 8 10 Yes 0 11 11 Total 2 19 21 Almost half of TTOs (45%) or the parent institutions that host them provide incubation services and 68% provide prototyping services, with 31% offering both services. Does the TTO or Does the TTO or parent parent institution (e.g. institution (e.g. university/RDI) offer university/RDI) offer incubation services? prototyping services? No Yes Total No 4 8 12 % column 33.33 66.67 100 % row 57.14 53.33 54.55 Yes 3 7 10 % column 30 70 100 % row 42.86 46.67 45.45 Total 7 15 22 % column 31.82 68.18 100 % row 100 100 100 TTO budget Most of the budget comes from the parent institution and consulting services. The proportion of TTO income received from commercialization either though licensing revenues or equity does not reach 5%. n % percentage of the TTO budget comes from parent institution in 2010 18 40.3 percentage of the TTO budget comes from licenses royalties in 2010 14 3.9 % of equity in new companies in TTO budget in 2010 15 0.7 percentage of the TTO budget that comes from broker role for university/research institution contract research in 2010 17 11.2 percentage of the TTO budget that comes from rent of space in 2010 21 9.0 percentage of the TTO budget that comes from rent of equipment in 2010 21 1.0 percentage of the TTO budget that comes from consulting services in 2010 21 25.4 85 Performance The filing of IP by TTOs is done mostly in Romania‘s OSIM and there is an upward trend. Patenting in Europe is not common and US filing is non-existing. The number of start ups is increasing over time but on average there is not even one company per TTO. total average 3.9 total patent applications were filed by the TTO in Romania in 2010 83 3.0 total patent applications were filed by the TTO in Romania in 2009 65 1.5 total patent applications were filed by the TTO in Romania in 2008 32 total patent applications were filed by the TTO in the European Patent Office in 0.2 2010 5 total patent applications were filed by the TTO in the European Patent Office in 0.3 2009 7 total patent applications were filed by the TTO in the European Patent Office in 0.0 2008 1 0.1 total patent applications were filed by the TTO in the US in 2010 0 0.1 total patent applications were filed by the TTO in the US in 2009 0 0.0 total patent applications were filed by the TTO in the US in 2008 0 1.3 How many utility patents were filed by the TTO, in 2010 27 1.2 How many utility patents were filed by the TTO, in 2009 25 0.8 How many utility patents were filed by the TTO, in 2008 17 How many start-up companies were formed that depended upon licensing of your 0.5 institutions‘ technology, in 2010 11 How many start-up companies were formed that depended upon licensing of your 0.4 institutions‘ technology, in 2009 8 How many start-up companies were formed that depended upon licensing of your 0.3 institutions‘ technology, in 2008 6 86 Annex X. Assessment of the Romanian Intellectual Property Regulatory Framework DEFINITIONS The following terms used in this Report have the following meanings: means the National Authority for Scientific Research; ANCS R&D-I Results means all results described in Article 74 of the Ordinance no. 57/2002 on the scientific research and technological development; Public entities and institutions means all entities described at Article 7 and 8 of the Law on Scientific Research and Technological Development; Law on Scientific Research means Ordinance no. 57/2002 on the scientific research and and Technological technological development as amended Development Law on Patents means Law no. 64/1991 on patents, as republished; Law on Utility Models means Law no. 350/2007 on utility models, as amended; Law on topographies of means Law no. 16/1995 on the topographies of semiconductor products; Semiconductor Products Law on Plant Varieties means Law no. 255/1998 on plant varieties, as republished; Law on Ornamental Designs means Law no. 129/1992 on ornamental designs, as republished; Law on Copyright means Law no. 8/1996 on copyright and neighboring rights, as republished; Law on Trademarks and means Law no. 84/1998 on trademarks and geographical indications, as Geographical Indications republished; RO PTO means the Romanian Patent and Trademark Office; Regulation on Patents means Government Decision no. 547/2008 which established the Regulation on the Law on Patents. Regulation on Plant Varieties means Government Decision no. 984/2007 which established the Regulation on Plant Varieties; Regulation on Topographies means Order no. 6/2007 which established the Regulation on of Semiconductor Products Topographies of Semiconductor Products. Regulation on Ornamental means Government Decision no. 211/2008 which established the Designs Regulation on Ornamental Designs. 87 EXECUTIVE SUMMARY AND RECOMMENDATIONS Our main findings are the following:  IP knowledge and awareness may be insufficient in the Targeted Sector. There is an overall lack of substantive knowledge and awareness on the IP regulatory framework and its impact on the commercial exploitation of the R&D-I Results51. Discussions revealed that subjects were unaware of52: o The fact that R&D-I Results are subject matter protected by a system of IP laws 53 and intertwined applicable provisions, sometimes ignoring entirely pieces of legislation with impact on the protection and commercial exploitation of the R&D-I Results54. o The means by which public entities and institutions may become legal owners of various IP rights in the R&D-I Results and the steps necessary to follow to secure full legal protection for all IP protected subject matter. o All means by which the public entities and institutions may exploit the R&D-I Results commercially, including but not limited to the benefits which the individual researchers are entitled to and may receive as a result of their R&D-I activities. Because of the lack of understanding of the fundamentals of IP protection, public entities and institutions are thus at risk of losing the ability to exploit valuable commercially-viable assets on various market sectors and at a significant scale.  Practices regarding the ownership of the R&D-I Results are inconsistent among the public stakeholders. Various public entities and institutions employ different practices when dealing with IP ownership arising out of R&D-I activity performed by their employees or researchers. While some of the subjects interviewed acknowledged that their employer applied to get a patent for a patentable subject matter which they invented, others mentioned that they applied directly, and obtained such a patent in their own name. None of the persons interviewed was aware or made any reference to any contractual provision regulating such ownership. Moreover, our review of the provided employment and research agreements revealed that: o there is confusion with regard to the types of contracts which qualify as having an ― inventive mission‖55 and the agreements called generically ―research agreements‖, and o some of the contract clauses are not compliant with the applicable IP provisions regarding ownership and assignment. Such practices inconsistent among various public stakeholders and not compliant with the applicable legal provisions on point run the risk that the public entities and institutions fail to legally secure and exploit the R&D-I Results. 52 The individual researcher interviewed mentioned that she would undoubtedly ask for private legal assistance and representation should she be challenged with a legal matter concerning her rights with respect to the R&D-I Results. 53 The Law on Patents, the Law on Utility Models, the Law on Topographies of Semiconductor Products, the Law on Plant Varieties, the Law on Ornamental Designs, the Law on copyright, the Law on Trademarks and the Law on Scientific Research and technological Development.. 54 Such as the Law on Copyright which may basically protect an entire class of R&D-I Results: documentation, studies, plans, drawings, diagrams, pictures, audio recordings, software, databases, etc. 55 According to Article 5 (1) (a) of the Law on Patents. 88  Legal ownership of the R&D-I Results is unsettled. The central piece of legislation governing the R&D-I Sector, the Law on Scientific Research and Technological Development, does no more than simply state that in the absence of specific contractual provisions regulating the ownership of the R&D-I Results, the general provisions of the various IP laws apply56. Thus, while undoubtedly a step forward compared to an older version which provided that the entity financing the R&D-I activity and the entity performing the R&D-I activities were co-owners of the R&D-I results, this law still lacks the ―teeth‖ necessary to effectively foster the creation and commercialization of the R&D-I results. Moreover, by leaving the ownership of the R&D-I Results to be settled by contract, it runs the risk of creating inconsistent practices in the field and thus to have a deterrent effect on private venture capital funds interested in financing R&D-I activities because they are used to predictability and consistency in the application of the laws in the field.  The Law on Scientific Research and Technological Development needs improvements. One of the notable omissions of this law is the fact that it fails to include among the R&D-I Results, the rights existing before a submission of a patent, or a utility model application57 with the RO PTO58 and the rights existing after the application is submitted with the RO PTO but before the patent or the utility model certificate is issued. In addition, the above referenced law warrants 59 , subject to contract, participation to the benefits arising from exploitation of the R&D-I Results to persons involved the R&D-I activity which is not subject to the system of IP laws. This provision is unclear with respect to how exactly participation to the benefits is warranted, given that a contract is essentially the result of mutual negotiations between the parties. Moreover, such a provision poses a significant burden to identify in each contract the subject matter which may not fall under the IP regulatory framework in order to make sure that specific warranty provisions are included in the contract with respect to that particular subject matter.  IP laws regulating the R&D-I Results need to be amended and harmonized. Various IP laws regulate the ownership and assignment of R&D-I Results differently. We provide below a selective and brief overview of the main issues which may arise in practice in this respect: o The Law on Patents and the Regulation on Patents. The minimum amount of the patrimonial rights of an inventor who invents (a) based on an " employment agreement having an inventive mission" or (b) based on a "research agreement" deriving from the commercial exploitation of the patent or from the economic value added of the invention is set by law which may run the risk of hindering an effective negotiation between the entity financing the R&D-I activity and the entity performing the R&D-I activity. This may become a serious obstacle in case of private financing where venture capital funds are used to the freedom to negotiate all contractual terms. Furthermore, the Law on Patents does not provide for any specific sanction applicable to an inventor who does not make an assignment offer to the entity for which he/she performs the research should he/she desire to assign the rights existing before a submission of a patent or of an utility model application 60 with the RO PTO 61 and the rights existing after the 56 Article 5 (2) and Article 75 (1) of the Law on Scientific Research and Technological Development. 57 Or other similar protectable subject matter. 58 Article 45 of the Law on Patents specifically provides for the right of the inventor to freely assign the right to obtain a patent before submitting an application with the RO PTO to get a patent. Same type of regulation applies to utility models (Article 20 of the Law on Utility Models) and to ornamental designs (Article 38 (2) of the Law on Ornamental Designs). 59 Article 5 (4) of the Law on Scientific Research and Technological Development. 60 Or other similar protectable subject matter. 61 Article 45 of the Law on Patents specifically provides for the right of the inventor to freely assign the right to get a patent before submitting an application to get a patent certificate. Same type of regulation applies to utility models 89 application is submitted with the RO PTO but before the patent or the utility model certificate is issued. This is of particular relevance especially in conjunction with the fact that these rights are not included as R&D-I Results provided for by the Law on Scientific Research and Technological Development as detailed above. Thus, there is an inherent risk that the entity financing the research loses valuable potential to exploit. o The Law on Plant Varieties and the regulation on Plant Varieties as well as the Law on Topographies of Semiconductor Products and the Regulation on the Topographies of Semiconductor Products do not provide any criteria for establishing and/or calculating the patrimonial rights owed by the employers or entities performing the R&D-I activity to the individual creators of plant varieties and the individual creators of topographies derived from the commercial exploitation of a plant variety or a topography of a semiconductor product. o The Law on Ornamental Designs and the Regulation on Ornamental Designs. Although the legal regime of the ownership over ornamental designs created pursuant to an employment contract or a contract with a ―creative mission‖ is similar to the one provided for patents, the Regulation does not clearly define, as in the case of patents, what exactly is a creative mission. Thus, in the absence of a clear indication provided by the law, issues may arise in practice with respect to what qualifies as a creative mission. o The Law on Copyright. Unlike the above mentioned laws, the Law on Copyright takes a rather different view in dealing with the commercial exploitation of patrimonial rights in works of authorship. The law protects the author as the owner of patrimonial rights over his/her creation, even in the case of an employment agreement or a work-for-hire type of contract, unless the author expressly assigns his/her rights to the employer62 in exchange for a price which may not be a sham63. We emphasize that the law provides the possibility for a court of law to decide that the amount of the assignment price was disproportionate compared to the benefits obtained by the assignee, and to order the assignee to increase the assignment price accordingly at a later stage 64 . We deem that in this case, the risk of instability of the contractual results may have a significant impact on the economic exploitation of works protected by copyright.  Employment Inventions Bill does not meet its intended purpose. Based on its reasoned detailing of principles, the Employment Inventions Bill (the ―Bill‖) is intended to supplement insufficient regulation of the inventions made in connection with an employment or a research agreement and to harmonize and unify provisions on point included in various IP laws. More broadly, the Bill is intended to incentivize research oriented entities such as research institutes, universities, private companies or non- governmental organizations (―NGOs‖) to file for patents, utility models and other similar patentable subject matter, to exploit them commercially on a large scale and thus to contribute to the technological progress of society as a whole. While its intended purpose may surely be regarded as a step forward in the right direction, the Bill does no more than simply compiling and detailing into a single piece of legislation all provisions of the various IP laws, thus failing to actually make a step forward in regulating the R&D-I Results. Moreover, it may prove to be an excess of regulation, running the inherent risk of either detailing too much or failing to include critical provisions. Thus, a new piece of legislation on point may not be the most effective means of harmonizing the existing provisions on point. Rather, if (Article 20 of the Law on Utility Models) and to ornamental designs (Article 38 (2) of the Law on Ornamental Designs). 62 Article 44 (2) of the Law on Copyright. 63 Article 74 of the Law on Copyright provides for an exception for software where the entity performing the R&D-I activity and NOT the individual researcher owns the patrimonial rights in the software. 64 Article 43 (3) of the Law on Copyright. 90 there is need to detail some of the already existing provisions, this may easily be done by amending the existing laws themselves and including a specific chapter dealing with R&D-I Results. In any event, should the stakeholders decide that a new law is indeed needed, the Bill65, must be significantly amended to achieve the intended goals. Based on the above findings our recommendations are as follows at this time:  Strengthen the legal knowledge of the IP regulatory framework and its application within the legal departments of public entities and institutions. This could be done via training sessions, presentations or workshops where the in-house lawyers of the public entities and institutions would acquire structured and substantive knowledge and applicability of the legislation on point. This may be done as a short term objective and could also have a continuous training component. This is important especially in view of the envisaged shift towards the large scale exploitation of R&D-I Results by public entities and institutions.  Harmonize the practices regarding the ownership of the R&D-I Results among various stakeholders. A uniform application of these rules regarding the ownership of R&D-I results mitigates the risk faced by public entities and institutions to fail to secure R&D-I results. Further, it ensures proper exploitation of the results on a large scale with a significant impact on the economy. Achieving uniformity regarding the ownership of R&D-I Results among the various stakeholders may be a medium term goal.  Settle the ownership of R&D-I results by law. If the legal ownership would be settled beyond any doubt and a correlation would be made among provisions regarding ownership of R&D-I Results included in various IP laws, that will become a solid foundation from which to foster the creation and the commercialization of R&D-I Results. Moreover, it will mitigate the risk of creating inconsistent practices in the field and thus to have a deterrent effect on private venture capital funds used to predictability and consistency in the application of the laws.  Amend the Law on Scientific Research and Technological Development. At a minimum, the law may need to carefully include all rights provided for in the IP system of laws among R&D-I Results, and to detail how exactly participation to the resulting benefits is warranted to persons involved in R&D-I activities which are not subject to protection by the respective IP laws.  Amend and harmonize the IP laws regulating R&D-I Results. The Romanian IP regulatory framework may be improved especially with respect to the regulation of the amounts owed by employers or entities performing R&D-I activities to individual researchers as benefits arising from the commercial exploitation of various types of patents. We deem that among others, this is one of the critical points which need to be settled so that employers/the entities performing the R&D-I activity have a crystal clear understanding and predictabilities of their economic operations. Moreover, the legislation on copyright must make a clear shift to protecting employers/the entities obtaining the RD-I results along with individual creators and to completely eliminate the possibility that the courts may challenge and possibly modify the assignment price.  Employment Inventions Bill must be carefully drafted to solve all issues raised in practice. Initially, a clear assessment should be made as to whether this new piece of legislation is indeed necessary or whether the same purpose may be obtained by simply amending and harmonizing the existing laws, for example by including a specific chapter dealing with R&D-I Results in each applicable law. That may save significant resources of time and money and eventually eliminate legislative confusion, contradictions and/or inconsistencies. Thereafter, should the stakeholders decide that a new piece of legislation is in fact needed, the law must be carefully drafted so as to meet its purpose and to leave no ambiguities with respect to ownership and the commercial exploitation of R&D-I Results. 65 As it is posted on the RO PTO‘s website on the date of issuance of this Report. 91 ASSESSMENT Current Facts a) Public entities and institutions Our review of the Documentation revealed that sometimes public entities and institutions are seriously confused with respect to the type of contracts which qualify as having an ―inventive mission‖66 and the agreements called generically ―research agreements‖67 under the Law on Patents. Moreover, some of the contract terms and clauses are grossly not compliant with relevant IP provisions regarding ownership, assignment, and commercial exploitation of the R&D-I Results, as follows: i. The Employment Agreement with an Inventive Mission Although entitled ―Employment Agreement with an Inventive Mission‖, the agreement which was provided to us cannot in fact qualify as an employment agreement because it lacks all typical employment related clauses and the parties are called ―beneficiary‖ and ―executant‖. This agreement may in fact fall under the category of ―research agreements‖. At the same time, the agreement uses contractual clauses like ‖the beneficiary employs the executant‖ which is legal non-sense, or uses the term ―salary‖ which is typical for an employment agreement, when in fact it refers to the amount of remuneration that the executant receives as compensation for performing the research activity. The confusion is substantial and we deem that no additional commentaries are necessary on this point. ii. The Research Agreement The agreement which was referred to as a ―research agreement� is in fact an addendum to an employment agreement, with typical employment agreement terms, clauses and annexes, whereby the employer assigns a particular research project to an employee to work on, in addition to his/her regular work duties, in exchange for compensation (additional to the salary) for the entire duration of the addendum. Such an addendum may actually qualify as an employment agreement with an inventive mission. Again, the confusion between the types of contracts applicable is obvious. According to the legal regime applicable to these types of contracts68, because the Law on Patents regulates two different categories of contracts, employment agreements and research agreements, it may be inferred that law makers intended to give the research agreement a different legal nature, maybe that of a work-for- hire type of agreement (services agreement) whereby a contractual relationship different than an employment relationship exists between the parties. As a consequence of the above, the employment agreement with an inventive mission provided to us may qualify in fact as a research agreement and the addendum to the employment agreement is in fact an employment agreement with an inventive mission. We stress however, that the confusion among the public entities and institutions probably stems from a contradictory provision of the Regulation on Patents which uses the terms ―employee‖ and ―employer‖ when regulating the 66 According to Article 5 (1) (a) of the Law on Patents. 67 According to Article 5 (2) of the Law on Patents. 68 Article 5(1) and 5(2) of the Law on Patents. 92 additional compensation (in Romanian: ―remunerație suplimentară‖) to which the researcher inventor is entitled to as a result of (implicitly) assigning by law to the beneficiary the right to file for a patent69. We note that other than the confusions described above, the agreement which may qualify as a research agreement has other critical flaws, as follows:  It does not specifically include among the results of the research activity, the rights existing before a submission of a patent, or a utility model application70 with the RO PTO71 and the rights existing after the application is submitted with the RO PTO but before the patent or the utility model certificate is issued.  It does not provide for the additional compensation to which the researcher inventor is entitled to as a result of (implicitly) assigning by law to the beneficiary the right to file for a patent;72  It does not provide for the amount of the so-called patrimonial rights (in Romanian: ―drepturi patrimoniale‖) to which the researcher inventor in entitled to based on the economical and/or social benefits inuring to the beneficiary from the commercial exploitation of the patent;73  It does not detail the notice procedure, mandatory according to the Law on Patents74, regarding (1) the information and details which must be exchanged between the beneficiary and the researcher inventor regarding the invention, (2) the mutual confidentiality obligations of the parties, and (3) the consequences in case the beneficiary does not file for a patent within 60 days from the date when it receives notice of the invention from the researcher inventor75;  It does not stipulate any amount of damages which should be paid by a party which breaches the mandatory notice procedure described above;  It does not provide for the assignment of any other type of IP protected subject matter, including but not limited to copyright, which the researcher may be entitled to based on a research agreement; Based on the analysis above, one can easily infer that, currently, public entities and institutions lack a significant amount of substantive knowledge and awareness on the means by which they may become legal owners of various IP rights in the R&D-I Results, the steps necessary to follow to secure full legal protection for all IP protected subject matter, and the means by which they may exploit the R&D-I Results 69 Article 91 (2) of the Regulation on Patents. 70 Or other similar protectable subject matter. 71 Article 45 of the Law on Patents specifically provides for the right of the inventor to freely assign the right to file for a patent before submitting an application to get a patent certificate. Same type of regulation applies to utility models (Article 20 of the Law on Utility Models) and to ornamental designs (Article 38 (2) of the Law on Ornamental Designs). 72 Article 5 (1) (b) of the Law on Patents and Article 91 (2) of the Regulation on Patents. 73 Article 36 of the Law on Patents and Article 91 (3) to (8) of the Regulation on Patents. 74 Article 5 (3) of the Law on Patents and Article 90 of the Regulation on Patents. 75 Article 5 (6) of the Law on Patents. 93 commercially, including but not limited to the benefits which the individual researchers are entitled to and may receive as a result of their R&D-I activities. Such public entities or institutions should either establish internally a legal department able to advise them on such critical legal and contractual issues concerning various intertwined provisions of IP laws governing the ownership, assignment and commercial exploitation of R&D-I results or to employ qualified counsel to assist with all aspects detailed above, to ensure that the R&D-I Results are protected and exploitable on a large scale. In addition to the above, the persons interviewed revealed that, in general, public entities and institutions do not really supervise or closely monitor the research activity carried out by an individual researcher or a group of researchers or the R&D-I Results obtained thereof. Thus, if a particular research activity generates for example a patentable subject matter, the individual researcher may easily apply directly to get that patent, with no contractual obligations whatsoever vis-à-vis the public entity or institution to which the researcher is employed. Moreover, based on the interviews we carried out, there are inconsistencies between the practices of various public entities and institutions regarding the IP ownership and assignment of R&D-I Results: while one subject acknowledged that usually her employer applied to get a patent for a patentable subject matter which she invented, she also mentioned that she could have applied directly and obtained such a patent in her own name. She did not make any reference to any contractual provision regulating such ownership and assignment. Last but not least, the individual researcher interviewed acknowledged a major lack of interest in deploying the effort to file for a patent or a certificate for other types of protectable subject matter, mainly because of (1) the high costs which such filing entails (including the costs of legal representation before the RO PTO) and (2) the lack of effective and meaningful commercial exploitation of the patent; to this end, they pointed to the virtual non-existence of relevant markets on which they would be able to exploit their patent rights by license as well as the lack of strategic investment funds and private investors interested in financing and exploiting the patents once they are obtained. b) Private companies Our discussions with the attorneys representing one of the major players on the research, development and innovation private market revealed a number of concerns regarding the ability of the private companies to own and exploit commercially the R&D-I results produced by their employees, as follows:  the legal regime of the so-called ―un-predictable inventions‖, which are inventions made by an employee while he is employed, but not based on an ―employment agreement with an inventive mission 76 , is ambiguous, especially with regard to how the contribution of the employer to the inventive process can and may be determined and measured, namely: o how can one assess clearly if the invention was made while the employee performed his duties/functions provided for in the employment agreement; 76 Currently, these inventions are regulated by Article 5 (b) of the Law on Patents 94 o which are the ―technical or other specific means‖77 or the ―data‖78 of the employer that the employee actually used to develop the invention or o which are the ―material means‖79 provided by the employer to the employee based on which the employee invented.  the legal regime of the patrimonial rights owed by the employer to the inventor employee as a result of the commercial exploitation of a patent is currently mixed, affected both by some minimal limits provided by law80 and by the negotiations between the employer and employee, which makes it difficult for employers to have freedom to negotiate with employees and furthermore to have stability and predictability of the outcome of the commercial exploitation of the R&D-I Results.  the regulation of the so-called ―technical accomplishments‖ (which are technical developments which do not pass the novelty bar to be patented, but nevertheless entail a degree of novelty within the internal activity of the employer), which provides that in the absence of contractual provisions regulating the monetary compensation owed by the employer to the employee for the use of a particular technical development, the damages are determined according to the economic benefits obtained by the employer as a result of the use of that particular technical accomplishment. Such a regulation poses a material risk on the employer because of the significant imbalance between damages which are too high compared to the level of novelty of the technical development.  the costs of filing for a patent certificate are still very high and thus having a deterrent effect even for private companies interested in applying to get patents on a larger scale. In addition, the interviewee mentioned that there have not been any difficulties in practice with respect to the employment agreement with an inventive mission, and that they were perfectly able to apply the relevant provisions in this respect and stressed that, if a proper regulation shall be made with respect to all employment related inventions, it may be possible that such a separate category of employment agreements may no longer be necessary, especially because it runs the risk of being re-interpreted as a different type of contract by the courts. With respect to the Employment Inventions Bill (the ―Bill‖), the interviewee opined that while it may not be a significant step forward in regulating more clearly all employment related inventions, nonetheless the Bill may ultimately prove useful for reasons of convenient reference by the various entities applying the law, having all applicable regulations which are now dispersed in various IP laws, included in one single instrument. Finally, the interviewee recommended that the employer – employee negotiations with regard to any monetary compensation for the development and exploitation of the invention, should be left to the laws of 77 Idem at 33. 78 Idem at 33. 79 Idem at 33. 80 Article 91 (4) – (8) of the Regulation on Patents. 95 the free market because it would be against the employers‘ own interests to chill the inventiv e efforts of employees by not paying them accordingly. Current Issues We provide below a legal assessment of the IP regulatory framework with a particular emphasis on the current issues and legal risks attached because of inconsistencies and contradictions contained in various applicable pieces of legislation. (a) The Law on Patents and the Regulation on Patents i. Inconsistency regarding the legal nature of the �research agreement� The Law on Patents regulates two separate categories of contracts, employment agreements and research agreements, based on which an employed individual researcher inventor may develop an invention. Because the law provides for two different types of contracts, it may reasonably be inferred that law makers intended to give research agreements a different legal nature, perhaps that of a work-for-hire type of agreement (services agreement) whereby a contractual relationship different than an employment relationship is formed between the parties. However, as mentioned under point 1 a) ii) above, the Regulation on Patents includes a contradictory provision81 which uses the terms ―employee‖ and ―employer‖ in the provisions addressing the additional compensation to which the researcher inventor is entitled for the implicit assignment by law of his/her right to file for a patent to the beneficiary82. Thus, according to the Regulation of Patent, a research agreement may not be a work-for-hire type of agreement, but solely an employment agreement which would not make any legal sense since employment agreements are regulated separately by the Law on Patents83. Thus, it is either a non-correlation of the provisions of the Law on Patents with the Regulation of Patents or a regrettable omission of the Law on Patents regarding the clarification of the legal nature of the ― research agreement‖. ii. Ambiguity regarding the employer’s contribution to the inventive process The Law on Patents provides that, in the absence of a clause to the contrary, the employee owns the right to file for a patent if the employee (1) invented while performing his duties/functions provided for in the employment agreement or (2) invented within the same field as the employer, by knowing or using ―technical or other specific means‖ or ―data‖ of the employer or (3) with the aid of ―material means‖ provided by the employer84. Based on this provision, it is ambiguous as to how one would be able to prove 81 Article 91 (2) of the Regulation on Patents. 82 Idem at 38. 83 Article 5 (1) (a) and (b) of the Law on Patents. 84 Article 5 (1) (b) of the Law on Patents. 96 that the invention was made under the circumstances stipulated in the provision and how exactly the contribution of the employer to the inventive process can and may be determined and measured concretely. iii. Mixed legal regime of the patrimonial rights owed to employees As a result of the commercial exploitation of a patent, the patrimonial rights to which the employee inventor is entitled are determined based on the ―economical and/or social benefits‖ arising out of the commercial exploitation of the patent or ―the additional economic value‖ and bear some minimal limits provided by the Regulation on Patents85 while being subject to negotiations between the employer and employee at the same time. Such a mixed legal regime makes it difficult for employers to have freedom to negotiate and to be able to predict and base their future commercial decision on the outcome of the negotiations. Moreover, because the regulation only provides for general language such as ―economical and/or social benefits‖ or ―the additional economic value‖ issues may arise when determining what exactly these economical benefits and/or additional economic value mean concretely, with the risk of being overbroad and burden the employer excessively. In addition, the minimal limits may hinder the effective and free negotiation between the parties and impact negatively the willingness of private venture capital funds to enter into such limited contractual terms. iv. Lack of sanctions for failing to assign the patent certificate to the employer According to the Law on Patents and the Regulation of Patents86 the employer has a preference right to the first assignment or license offer made by an employee who becomes the owner of a patent certificate. Should the employer not exercise its preference right within 3 (three) months as of the date of the emp loyee‘s offer, the employee may freely assign the patent rights to any third parties87. However, neither the Law on Patents nor the Regulation on Patents provide any sanction applicable to employees should he/she fail to make such an assignment or license offer to the employer before actually assigning or licensing the patent to a third party. v. Disproportions between the amount of damages which may be awarded in case of the so- called "technical accomplishments" According to the Law on Patents a "technical accomplishment" is a technical development which does not pass the novelty bar to be patented, but nevertheless entails a degree of novelty within the internal activity of the employer. The Law on Patents further provides that in the absence of contractual provisions regulating the monetary compensation owed by the employer to the employee for the use of a particular " technical accomplishment", the damages are determined according to the economic benefits obtained by the employer. Such a provision appears to be grossly overboard compared to the low novelty bar required for a "technical 85 Article 91 (4) – (8) of the Regulation on Patents. 86 Article 5(6) of the Law on Patents and Article 90 (11) of the Regulation of Patents. 87 Idem at 43. 97 accomplishment". While such a high level of damages may be subject to discussion in case of patents because they possess the highest standard of novelty and thus prove to add a significant value to the business of an employer, a "technical accomplishment", while surely an improvement which adds certain economic value to the business, it cannot be compared to the value added by a patent, thus a similar means of calculating the damages may prove to be unreasonable and overburden employers unnecessarily. vi. Abuse of the employee’s obligation to assist the employer The Law on Patents provides that an employee bears the obligation to assist his/her employer in the process of the reduction of the invention to practice, subject to contract88. We note that such a regulation essentially eliminates the employee‘s right to freely negotiate contractual terms, including compensation for the assistance rendered to an employer. By mandating an employee to assist an employer, the provision limits completely an employee‘s power to negotiate the price of the technical assistance rendered to an employer. Moreover, because an employee is mandated by law to assist an employer, an employer could easily abuse its rights and thus force an employee to provide assistance under less favorable contractual terms regarding the compensation with no legal recourse provided for in favor of an employee. (b) The Law on Utility Models and the Regulation on Utility Models As the utility models are in fact smaller inventions, the legal regime applicable to their ownership, assignment and commercial exploitation is identical to the legal regime of the patents. As a consequence, all issues raised at point (a) above in connection with various unclear and inconsistent provisions regarding patents are applicable to utility models as well. From a legislative effort point of view, this means that clarifying the legal regime of the patents will inure to the legal regime of the utility models automatically with no additional effort. (c) The Law on Ornamental Designs and the Regulation on Ornamental Designs i. Blatant contradiction regarding the ownership of Ornamental Designs The Law on Ornamental Designs provides that an employer or the entity requesting the author to create an ornamental design based on a contract with a ―creative mission‖ is the owner of that particular ornamental design. At the same time, the Regulation on Ornamental Designs provides that an employer or the entity requesting the author to create an ornamental design based on a contract with a ― creative mission‖ is the owner of that particular ornamental design, in the absence of a provision to the contrary. The two laws/legislation are thus in blatant contradiction one with the other regarding the ownership in this particular 88 Article 42 (2) of the Law on Patents. 98 case. In such a particular situation of a conflict between different laws/legislation, then the legal status of the ownership is settled by the Law on Ornamental Designs because it has a greater legal force than the Regulation on Ornamental Designs. This means that currently, only the employer or the entity requesting the author to create an ornamental design based on a contract with a ―creative mission‖ may be the owner of an ornamental design created based on a contract with a ―creative mission‖ or an employment agreement. We note though that probably this is not more than a regrettable error rather than an intentional omission, as the legal regime of ornamental designs is somewhat similar to the one provided for patents and utility models, that is a conventional ownership regime. We point out though that the Law on Ornamental Designs should clearly be amended very soon to mirror the similar provisions in the Regulation on Ornamental Designs. ii. What does ―creative mission‖ mean? Although the legal regime of the ownership over ornamental designs created pursuant to an employment agreement or a contract with a ―creative mission‖ is similar to the one provided for patents, the law does not clearly define, as in the case of ornamental designs, what exactly is a "creative mission". Thus, in the absence of at least an indication of what type of language a "creative mission" clause should include, parties may have difficulties in practice to draft such a clause which would serve its purpose. iii. Ownership of ornamental designs created pursuant to a non-explicit employment agreement is unclear The Regulation on Ornamental Designs provides that the employer is entitled to file for a registration certificate and to get a registration certificate (after filing) for a particular Ornamental Design which was created based on an employment agreement having an explicit clause referring to that particular ornamental design. The law is silent with respect to the situation where the employee creates an ornamental design while performing his duties/functions under an employment agreement and that employment agreement has no specific provisions regarding that particular design. In that case, based on the applicable rules 89 , the employee is entitled to file for and to get a registration certificate, without any legal recourse provided to the employer. We note that this provision should be amended in order to regulate uniformly a conventional ownership regime of the designs created based on employment agreements. iv. The Law on Ornamental Designs is silent on the employee's additional compensation The Law on Ornamental Designs makes no reference whatsoever to any additional compensation to which employees and other persons who create ornamental designs based on a contract with a "creative mission" would be entitled to with respect to (implicitly) assigning by law the right to file for a certificate of registration to the beneficiary. Nor does it make reference to any method of calculating the economic benefits derived by the employer from the commercial exploitation of an ornamental design registration certificate, simply stating that these amounts are subject to contract between the owner of the certificate of the registration and the persons/entities which exploit commercially the design. This legal regime is not only visibly disproportionate compared to the legal regime of the patents, but also leaves the employee powerless 89 Article 3 (1) of the Law on Ornamental Designs. 99 with respect to any negotiation regarding additional compensation or patrimonial rights he/she might be fairly entitled to for the creation and further exploitation of a particular ornamental design. (d) The Law on Plant Varieties and the Regulation on Plant Varieties i. Lack of regulation of a "creative mission" The Law on Plant Varieties does not regulate the situation where a new plant variety is created as a result of a contract having a "creative mission". Although the lawmaker probably intended to do so because of a single reference made among the definitions included in the introductory part of the law90, the law is further completely silent with respect to who the owner of the right to file for a patent is in this case, and if the owner is not the creator of the plant variety, then whether the author is entitled to any additional compensation to for the creation of the plant variety and to any patrimonial rights derived from the commercial exploitation of the patent, once it is issued. ii. Contradictory legal regime of the employment based ownership The Law on Plant Varieties includes a regrettable contradiction with respect to who is the owner of the right to file for a patent in case of an employment related plant variety creation. Thus, the relevant provision91 provides that the creator who created a plant variety while being employed is entitled, in the absence of a clause to the contrary, to the right to file for a patent and for an additional compensation. We note that this provision undoubtedly contains a contradiction because the creator cannot be entitled to both additional compensation and the right to file for a patent. The additional compensation is normally provided, as it is in the case of patents, for the (implicit) assignment of the right to file for a patent to the employer. Thus, as it reads now, this provision creates significant confusion and regrettable uncertainty with respect to a critical issue such as the right to file for a patent and the additional compensation an employee is entitled to. The contradiction goes even further in the Regulation on Plant Varieties92 which provides that if the creator of a plant variety is employed, the employer is the one who has the right to file for a patent. At the same time, the same Regulation on Patents provides that when applying to get a patent certificate, an applicant who is not the same as the creator of a particular plant variety to which protection is sought must submit an assignment agreement based on which the applicant is entitled to file for that patent. Thus, we see that there are numerous contradictions contained in these regulations which may stifle not only the creation process regarding plant varieties, but also their protection, and which may discourage entities/employers from financing and/or supporting the plant variety creation process. iii. Law on Plant Varieties is silent on the patrimonial rights of the employee derived from the commercial exploitation of a plant variety The Law on Plant Varieties makes no reference to any method of calculating the economic benefits derived from the commercial exploitation of a patent by the employer who is the owner of that patent and to any patrimonial rights to which the employee may be entitled to as a result of the commercial exploitation of that particular patent. This legal regime is, again, disproportionate compared to the legal regime of the patents issued for inventions, and leaves the employee powerless in negotiating such patrimonial rights he/she might be fairly entitled to for the commercial exploitation of a particular patent for a certain plant variety which he/she created. 90 Article 2 (d) (2) of the Law on Plant Varieties. 91 Article 10 (5) of the Law on Plant Varieties. 92 Article 15 (d) of the Regulation on Plant Varieties. 100 (e) Law on Topographies of Semiconductor Products and the Regulation on Topographies of Semiconductor Products i. Law on Topographies of Semiconductor Products is silent on the patrimonial rights of the employee derived from commercial exploitation of a topography of a semiconductor product Similar to the discussion at point (d) above, neither the Law on Topographies of Semiconductor Products, nor the Regulation on Topographies of Semiconductor Products, make any reference to (1) a method of calculating the economic benefits derived from the commercial exploitation of a registered topography by an employer or entity who is the owner of a particular registered topography and to (2) any patrimonial rights to which the employee or the creator (in the case of research agreements) may be entitled to as a result of the commercial exploitation of that particular registered topography by the owner. This legal regime is different from the legal regime of the patents issued for inventions, and leaves the employee powerless in negotiating such patrimonial rights he/she might be fairly entitled to for the commercial exploitation of a particular registered topography. (f) The Law on Trademarks and Geographical Indications and the Regulation on Trademarks and Geographical Indications i. The race to record The legal protection system for trademarks is a registration based system (as opposed to a " use system" which is applicable in some other countries), meaning that any person or entity who seeks protection of a trademark must apply to register that trademark with the RO PTO. Moreover, the first who files for registration becomes the owner of that particular trademark, regardless of whether or not the applicant is in fact the one who actually created the trademark. Further, the Law on Trademarks and Geographical Indications makes no distinction among the individual who actually created/designed the trademark or the entity which actually applies to register a particular trademark. Thus, the protection is designed as a race to record. At the same time, once the trademark is finally registered, the trademark owner may freely assign his rights in the trademark to any third parties93. We note though that unlike the situation of inventions, utility models, ornamental designs, plant varieties and topographies of semiconductor products, the applicable provisions do not provide for a distinctive right to file for a registration, and thus such a right cannot be assigned before the registration is completed and the trademark certificate is issued. (g) The Law on Copyright i. The Law on Copyright protects scientific works of authorship 93 Article 40 and 41 of Law on Trademarks and Geographical Indications. 101 While the Law on Copyright specifically provides that scientific works of authorship, including but not limited to, scientific projects and documentation, are protected by copyright94, we note that the enumeration provided by this provision is not correlated with the list of R&D-I Results included in the relevant provision of the Law on Scientific Research and Technological Development95. ii. The Law on Copyright protects the individual author/creator The Law on Copyright takes a rather different view in dealing with the commercial exploitation of patrimonial rights96 in a work of authorship. The spirit and the letter of the law regards the author, the creator of a work of authorship, as the person entitled to commercially exploit his/her creation, even in the case of an employment agreement or a work-for-hire type of contract, unless the author expressly assigns his/her rights to the employer97 in exchange for a price which may not be a sham98. The law provides for a single exception to this principle, which is applicable in the case of software creation by an entity assuming the responsibility and providing the technical means to create and develop software and employing the software developer, in which case that particular entity is entitled to exploit commercially the software (by assignment or by license). We emphasize however, that not even this provision of the law is 100% correlated with the general principle which protects the author as stated above, thus, even in the case of software development, an explicit copyright assignment clause assigning the copyright to the employer is recommended to make sure that the company may legally exploit the software at its own discretion. In addition, we emphasize that the Law on Copyright provides the possibility for the assignee to challenge the assignment price at a later stage in a court of law and if the court finds that the price was disproportionate compared to the benefits obtained by the assignee from the commercial exploitation of that particular work of authorship, it may order the assignee to increase the assignment price accordingly99. We deem that in this case, the assignee, which may be an investor, runs a significant risk of instability of its financial operations and of course of the economic exploitation of that particular work of authorship which he/she may want to exploit. iii. A Software may NOT be patented but protected solely by copyright We note that software cannot not be patented in Romania, thus, the only means by which software may be protected is by copyright. We emphasize that the respective software and the copyright must be specifically included among the R&D-I Results described in the Law on Scientific Research and Technological Development. 94 Article 7 (b) of the Law on Copyright. 95 Article 74 (1) of the Law on Scientific Research and Technological Development. 96 Article 13 of the Law on Copyright. 97 Article 44 (2) of the Law on Copyright. 98 Article 74 of the Law on Copyright provides for an exception for software where the entity performing the R&D-I activity and NOT the individual researcher owns the patrimonial rights in the software. 99 Article 43 (3) of the Law on Copyright. 102 (h) The Law on Scientific Research and Technological Development i. The participation to benefits of R&D-I Results is unclear The Law on Scientific Research and Technological Development warrants, subject to contract, participation to the benefits arising from the exploitation of the R&D-I results to persons involved the R&D-I activity which is not subject to the system of IP laws100. It is unclear how exactly participation to the benefits is warranted by law, given that a contract is the result of mutual negotiations between the parties. Moreover, such a provision makes it difficult to identify in each contract the subject matter which may not fall under the IP regulatory framework (such as for example know how or business methods) in order to make sure that specific warranty provisions are included in the contract with respect to that particular subject matter. ii. The ownership of the R&D-I Results is unsettled. The Law on Scientific Research and Technological Development leaves the ownership of the R&D-I results to be settled by contract, thus running the risk of creating inconsistent practices in the field and having a deterrent effect on private venture capital funds interested in financing R&D-I activities, because they are used to uniformity, predictability and consistency in the application of the laws in the field. iii. Significant R&D-I results are missing from the R&D-I Results list Pursuant to the law, the R&D-I Results do not include the right to file for a patent, utility model, ornamental design, plant variety or topography of a semiconductor product, the right to get a patent certificate, a utility model patent certificate, an ornamental design certificate, a plant variety patent certificate or a topography registration certificate (which arise after the application is submitted with the RO PTO but before the certificate is issued), and the copyright over various applicable R&D-I Results. (i) The Employment Inventions Bill The Bill is currently under debate and is intended to supplement insufficient regulation of R&D-I Results made in connection with an employment agreement or a research agreement and to supersede provisions on point included in various IP laws. While it may be way too early to look closely into its provisions because they are most likely to be changed significantly, we point out the following issues: 100 Article 5 (4) of the Law on Scientific Research and Technological Development. 103 i. The ownership of the R&D-I Results is not settled The Bill does no more than simply compiling and detailing into a single piece of legislation all applicable provisions on patents and utility models, thus failing to actually make a step forward in settling the ownership of this particular type of R&D-I Results in favor of one contractual party or the other. ii. Numerous unclear provisions exist in the Bill and the legal terminology used is sometimes atypical There are many provisions which are unclear and contradictory in the Bill101. Moreover, a substantial number of them use terminology which is not even typical for legislative drafting, which indicates that a legal drafting specialist as well as a practicing attorney knowledgeable of the entire IP regulatory framework should be included in the group of persons who actually draft the Bill. Otherwise, despite the noble intentions behind this initiative, the Bill runs a significant risk that the practicing attorneys and the courts called upon to apply the provisions of the Bill may not in fact be able to apply them and to get to the proper results. iii. The Bill does not achieve uniformity among all IP regulatory framework If we were to analyze the usefulness of the Bill for reasons of convenient reference -- for example that such a Bill would have all regulations applicable to the R&D-I Results, which are now already stipulated in various IP laws, included in one single instrument -- then the Bill fails to achieve that goal as well because the R&D- I Results protected by laws such as the Law on Copyright, the Law on Ornamental Designs, the Law on Plant Varieties or the Law on Topographies of Semiconductor Products are left outside the scope of the Bill. As a consequence, the Bill is in fact an exercise of excessive regulation as the same purpose may be obtained by carefully and diligently amending and harmonizing the existing IP laws, so that all current issues raised in practice are dealt with in the respective applicable laws. This would prove a better means to eliminate legislative confusion, contradictions and/or inconsistencies. Recommendations (j) Strengthen the legal knowledge of the IP regulatory framework and its application within the legal departments of public entities and institutions. As detailed under point (1) above, public entities and institutions seem to be confused with respect to the type of contracts which qualify as having an ―inventive mission‖ and the agreements called generically ―research agreements‖ under the Law on Patents. Moreover, some of the contract terms and clauses are grossly not compliant with relevant IP provisions regarding ownership, assignment, and commercial exploitation of the R&D-I Results which may indicate a significant lack of substantive knowledge of the 101 Article 6, 7, 9, 13, and 21 of the Employment Inventions Bill. 104 various IP applicable provisions as well as general principles of law. Such a process could be done via a program of training, presentations or workshops where the in-house lawyers of various public entities and institutions would acquire structured and substantive knowledge and applicability of the legislation on point. Such a goal may be achieved as a short term objective and it is critical especially in view of an envisaged shift towards the large scale exploitation of R&D-I Results by public entities and institutions. (k) Harmonize the practices regarding the ownership of the R&D-I Results among various public stakeholders. A clear set of rules and a uniform application of these rules regarding the ownership of R&D-I Results should be followed to mitigate the risk faced by public entities and institutions to fail to secure R&D-I Results and to ensure proper exploitation of the results on a large scale with a significant impact on the economy. As mentioned above, in general, public entities and institutions do not really supervise or closely monitor the research activity carried out by an individual researcher or a group of researchers or the R&D-I Results obtained thereof and consequently there are inconsistencies between the practices of various public entities and institutions regarding the IP ownership and assignment of R&D-I Results. Achieving uniformity regarding the rules applicable to the ownership of R&D-I Results by public entities and institutions may become a medium term goal worth pursuing to ensure solid and effective commercial exploitation of the R&D-I Results by the private sector. (l) Settle the ownership of R&D-I Results by law. As detailed in this Report, the various applicable legislation regulates differently the ownership of R&D-I Results, some provisions leaving the parties to decide contractually, while others stipulate ownership by law in favor of the employer or entity requesting the R&D-I Results. If a correlation would be made among provisions regarding ownership of R&D-I Results included in various IP, then it will become a solid foundation able to spur the creation and the commercialization of R&D-I Results. Moreover, it will mitigate the risk of creating inconsistent practices in the field and related jurisprudence, thus having a positive effect on private venture capital funds used to predictability and consistency in the application of the laws. (m) Amend the Law on Scientific Research and Technological Development. As provided above, the law lacks a significant category of R&D-I Results such as the right to file for a patent, utility model, ornamental design, plant variety or topography of a semiconductor product, the right to get a patent certificate, a utility model patent certificate, an ornamental design certificate, a plant variety patent certificate or a topography registration certificate (which arises after the application is submitted with the RO PTO but before the certificate is issued), and the copyright over various applicable R&D-I Results, including software. The law may need to carefully include among R&D-I Results all the above mentioned rights as well as other rights provided for in the IP system of laws, and to clarify in detail how exactly 105 participation to the resulting benefits is warranted to persons involved in R&D-I activities which are not subject to protection by the respective IP laws. (n) Amend and harmonize all IP laws regulating R&D-I Results. The Romanian IP regulatory framework may need to be improved especially with respect to the regulation of the additional compensation and of the patrimonial rights owed by employers or entities requesting R&D-I Results to individual researchers as benefits arising from the commercial exploitation of various types of patents. We deem that among all other issues detailed in this Report, this is one of the critical points which needs to be settled so that employers/the entities requesting the R&D-I Results have a crystal clear understanding and predictabilities of their economic operations and financial impact of the R&D-I Results. In addition, the evident contradiction regarding the ownership of the R&D-I Results in the ornamental designs should be addressed as soon practically possible, and the Law on Copyright must make a significant and clear shift towards protecting employers/the entities obtaining the R&D-I Results along with individual creators and to completely eliminate the possibility that the courts may possibly modify the price of an assignment. (o) Employment Inventions Bill must be carefully drafted to solve all issues raised in practice. Initially, a clear assessment should be made as to whether this new piece of legislation is indeed necessary or whether the same purpose may be obtained by simply amending and harmonizing the existing laws, for example by including a specific chapter dealing with R&D-I Results in each applicable law. That may save significant resources of time and money and eventually eliminate legislative confusion, contradictions and/or inconsistencies. Thereafter, should the stakeholders decide that additional legislation is in fact necessary, the law must settle beyond a reasonable doubt the ownership of R&D-I Results and achieve uniformity among all applicable IP laws. Otherwise it would only be yet an additional law/legislation resulting in nothing more than simply adding to the already existing applicable laws/legislation to the R&D-I Sector. Thus, the law must be carefully, precisely and professionally drafted so as to meet its purpose and to leave no ambiguities with respect to ownership and the commercial exploitation of R&D-I Results. (p) Include a legal drafting specialist and a practicing IP attorney in the group of persons who actually amend the IP laws and draft the Employment Inventions Bill Lastly, but equally important, as there are already many provisions which are unclear in the Employment Inventions Bill and in various IP laws, and since some of these provisions use at times terminology which is not standard language for legislative drafting purposes, which indicates that a legal drafting specialist or a practicing attorney has not been consulted or included in the group of persons who actually drafted those 106 provisions, a legal drafting specialist and a practicing attorney, knowledgeable of the entire IP regulatory framework (including copyright), should be requested to participate in the amending process because otherwise, despite the noble intentions behind such a legislative initiative, the amendments run a significant risk to be impossible to be applied by the practicing attorneys and/or by the courts. LIST OF PERSONS INTERVIEWED 1. Alexandru Căbuz, advisor to the president of the ANCS; 2. Gabriela Cârjă, professor and researcher at the Grigore Asachi University in Iaşi; 3. Anton Airinei, deputy director of the Petru Poni chemical research institute in Iaşi; 4. The head of the legal department of the RO PTO; 5. Mihai Acsinte, head of the legal department of the Renault Group of Companies. DOCUMENTATION 1. Employment Agreement with an Inventive Mission; 2. Research Agreement; 3. Addendum to the Employment Agreement; All documents above were provided by Anton Airinei, deputy director of the Petru Poni Chemical Research Institute in Iaşi. 107