Innovation

France Wants the Profits From French Innovation


France Wants the Profits From French Innovation

Courtesy Armand van Dormael

In 1973, Frenchman François Gernelle built the world’s first microcomputer equipped with a microprocessor. In the decades after, France looked on as IBM (IBM) and Apple (AAPL) spawned a multitrillion-dollar industry around it.

French business history is strewn with similar examples of missed opportunities. From the Internet precursor Minitel to François Mizzi’s touchscreen patents in the 1980s, France has repeatedly failed to turn ideas and research into money-making global products, allowing others to ride away with the loot.

The European Union’s largest producer of math, science, and technology graduates needs to get out of “the Death Valley between what’s developed in a lab and its future as a successful product or company,” says Louis Gallois, former head of Airbus parent European Aeronautic Defence and Space (EAD:FP) and now France’s competitiveness czar.

Gallois, whose title is General Commissioner for Investment, has already persuaded President François Hollande to cut $20 billion from payroll taxes, a boon for French business. Now he wants to squeeze more out of the country’s innovations. The latest effort is a state-commissioned report, due in late June, dubbed “Brand France.” It will lay out ways to profit more from French research, patents, and other assets. “France has research labs with Nobel prize winners, strong brands, museums; what it needs is to figure out how to cash in by turning it all into jobs, growth, and startups,” says Christian Nguyen, managing partner of Marks & Clerk France, which advises companies and governments on intellectual property.

Gallois wants to avoid fiascoes like the one that knocked France out of the running in personal computers. Gernelle developed his microcomputer, dubbed Micral, while working for a small company called R2E. When Groupe Bull took over R2E, it relegated the Micral to niche markets such as toll booths. Later efforts to elbow into the PC mass market failed, making Bull, which chalked up losses for years, a bit player.

Over the last few years the French have made efforts to get industry and state-backed research entities to work together. Most public labs, universities, and engineering schools now have offices to manage patents, or incubators to help startups. Yet France’s private equity association, AFIC, last year said the lack of capital available to finance small and medium-sized companies had become an “emergency.” The amount of such capital in 2012 in France was $6.5 billion, less than half the $17.6 billion in the U.K. and a fraction of the $126.3 billion in the U.S.

Gallois is mixing free-market techniques such as tax cuts with the more traditional French approach of inserting the state into the process of promoting innovation. In April, Hollande pledged to lower the capital-gains tax for entrepreneurs to “compensate for investment and risk-taking.” Gallois’s competitiveness plan includes making state funds available to commercialize research. The government’s National Fund for a Digital Society has identified five priority technologies it wants to nurture—networked objects, IT security, intensive calculations, cloud computing, and big data.

France is strong in these areas because of its top-notch engineering schools and a history of educating world-class mathematicians. The National Fund for a Digital Society received €150 million ($200 million) from the government in April. It will finance projects in the five targeted areas and bring startups together to increase their chances of survival. For example, a project called Nu@ge (nuage is French for cloud) is being handled by an alliance of seven French startups with Université Pierre et Marie Curie, one of the world’s best math schools. The goal is to create a French-based secure cloud storage service.

Gallois’s office is encouraging French companies to track down corporations worldwide that are using patented French technology but not paying for it. Licensing patents to companies abroad is one way to increase exports, says Beatrix de Russe, an executive vice president for intellectual property at Technicolor (TCH:FP).

The company has 220 people in Paris dissecting gadgets from such technology giants as Apple, Samsung Electronics (005930:KS), and HTC (2498:TT) to spot potential infringements on Technicolor patents and attempt to strike new licensing deals. “Licensing is important in our company’s finances. It’s how we pay for more research and continue to innovate,” de Russe says. The company, which in 1939 invented the process for color movies used in The Wizard of Oz and now sells special-effects software to film studios, last year had €512 million in licensing revenue. A government fund run by a former manager at Technicolor now helps French companies license their patents to foreign companies.

It’s still not clear whether Gallois’s efforts will pay off. “We need entrepreneurs—people who can take an innovation and turn it into a marketable product,” said Yann Magnan, managing director in Paris at Duff & Phelps, which helps clients evaluate intangible assets. “Whatever the innovation, if there’s no one to make something out of it, it becomes the worst-case scenario: a total absence of value.”

The bottom line: France’s efforts to profit from its research and patents will not succeed unless more venture capital becomes available.

Mawad is a reporter for Bloomberg News in Paris.

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