Universities involved in commercial research must be wary of breaching state aid rules, says expert

Competition law expert Caroline Ramsay of Pinsent Masons, the law firm behind Out-Law.com, said that universities can involve themselves in commercial RDI projects in a way that avoids them having to repay grants as a result of breaching state aid conditions.

"Universities may be forgiven for thinking that EU rules on state aid do not apply to them," Ramsay said. "However given the increasing trend for the commercialisation of university research and the offering of goods or services on the market it is important to bear in mind the limitations imposed by the rules."

State aid is an advantage or incentive granted by a national government to a particular company, and can take a variety of forms including grants, tax reliefs, guarantees, government holdings of all or part of a company or the provision of goods and services on preferential terms. To ensure fair competition inside the EU, state aid is prohibited unless it can be justified for general economic development reasons.

Member states must apply to the Commission for clearance on a case by case basis before they can offer funding or incentives which amount to state aid, and member states can be required to recover illegal aid from companies which have received public support in breach of the state aid rules.

Ramsay said that tough economic conditions and competing demands for public funds have prompted universities to enter into joint venture partnerships with businesses to deliver RDI projects. She said, though, that the use of public funds within those arrangements in support of businesses may be subject to state aid restrictions.

Universities can, however, set up the joint ventures in such a way to avoid triggering the state aid rules, she said.

"Provided the venture is set up appropriately, it may be established that the university is investing on the same basis as any other ‘market economy investor’ would and therefore no state aid advantage is conferred," Ramsay said.

Even where commercial businesses involved in a joint venture structure with universities can be said to be benefiting from state aid, EU rules and guidelines allow the advantages to accrue without them being subject to European Commission scrutiny, providing certain circumstances are met, she said.

Some types of aid are automatically exempted from European Commission scrutiny under the General Block Exemption Regulation. Providing certain conditions are met, the Commission does not need to be notified of aid put towards a number of different RDI initiatives. These include where the aid helps with the conducting of technical feasibility studies, where it covers the costs associated with industrial property rights, or where it pays for the loan of highly qualified personnel, Ramsay said.

Guidance issued by the Commission further clarifies the arrangements that universities need to put in place with commercial partners when working together on RDI projects to avoid falling foul of the state aid framework, she said.

"The commercial undertaking must bear the full cost of the project, and the results must be widely disseminated and any intellectual property (IP) rights assigned to the university," Ramsay said. "In addition, the university must receive a market price for any IP rights which result from the project and are assigned to the commercial partner and there must also be a contract between the parties whereby IP rights are assigned in a manner which reflects their interests, work packages and financial contributions to the project."