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Archive for 8 diciembre 2013

The life of an AAL project, and for that matter of any R&D project, is very similar to the life of a human being. Let´s take a look at the process.

A human life starts even before inception, it is an act of love, the decisive moment when people start thinking about creating a new life. Similarly, a project is born from an idea; an idea created by business, end-user, and academia who think that what they have in mind will make a difference to themselves and to humanity. Isn´t that what we all think about our future offspring?

Then comes the inception, oh sorry the call! This is the moment in which the partners –business, end user, and academia; kind of a “ménage a trois”- decide to go ahead with the idea and make it a proposal. The proposal needs to be fed by all parties involved, taking care not to overdo it in any aspect,-neither technical, nor scholarly nor completely end user driven- but with just the right mix of all the ingredients. If we have been careful, the proposal will be accepted and a newborn project will come to life.

Now starts a difficult period. The partners have to come to terms with each other, adapt to each other’s idiosyncrasies, accept that things have to be decided in common while preserving everybody’s interests. Just like those first moments of having a toddler at home. Let´s assume that the kid is well bred, behaves at school and its teachers are happy with it.  It gets good marks at the interim reviews and obtains a good grade after obligatory schooling, meaning that the final evaluation is really good.

Would you send that kid into the world alone to earn its living? Do you think that because its grades at the end of obligatory schooling were excellent, your obligations towards the child are finished? Well, this is what many organizations involved in R&D are doing. And that’s why most projects don´t pass the stage of pilots; you could say that they don’t even reach puberty. The road to abandonment is, sometimes, a fight over the result. The path is similar to a divorce with unresolved issues about a child’s custody, or in our case disputes about joint ownership of the foreground. The result is, again, another pilot.

What is needed is a lifetime commitment, a commitment to be together “in sickness and in health”, to abide by the principles that, when the idea was born and the partners decided to work together to make it real, they would stick together till the child is not a child anymore  and can have a fruitful and independent life. That is, till the result of the R&D project has materialized into an industrialized product or service that can be launched into the market.

But reaching that stage means investing in the industrialization of the product or service; kind of putting the child through university or vocational training. And there is not a vast array of grants for that, at least, not at the level of the grants for R&D. So we have found our first culprit: The European Commission. The EC must provide financing for the industrialization stage! Is that so? Is it the case that European entrepreneurs have to rely heavily on public finance and support? Maybe so and maybe that’s why the USA is leading the way.

Yes, the problem is finding means for the industrialization and marketing of the R&D result. And the problem is also that the consortium is made up of organizations with very different financial structures; most probably it is a mix of public organizations and NGOs, SMEs and big companies. Their problems are very different. Public organizations and NGOs have very specific problems of their own, that I will not address since in every one of the 28 European countries the problem is different. As for SMEs, access to finance could be a problem and we know it is in short supply, more so if the SME is based in one of the southern European countries.  So here we have the next culprits: banks. They should be obliged to finance good projects like ours! Don’t they understand our business!

Maybe the big company is willing to take over the industrialization phase, but what about our part. What? With so many resources they are not willing to cover our part? Don’t they see that they will certainly recover their contribution once the product is in the market making millions? Well, apparently not and here we start the next phase of blaming each other, leading us back to square one: a pilot!

So even if all the members of the consortium decide to go forward with the industrialization and commercialization phase, there are problems ahead that have to be confronted. And the principal one is how to organize the industrialization and commercialization phase.

If the consortium had a legal status, with a clear coordinating, management and research structure, it would be a lot easier. I am not advocating the creation of a brand new company each time a R&D project pops out. A traditional legal company is burdensome and costly. But some kind of arrangement has to be found for the kid to get through university.

There is a system at hand since 1989: the European Economic Interest Grouping. The EEIG is an instrument for those wishing to internationalize their activities while giving them a European dimension.

An EEIG can be set up by at least two legal entities registered in two different European Economic Area countries, those of the European Union plus Iceland, Liechtenstein, and Norway. Legal entities refer to any kind of company, large, medium, and small; institutions such as universities, scientific research centres, local authorities, and chambers of commerce; and also individuals. The only condition for them all is to have an economic activity of some kind prior to entering the EEIG.

Its purpose is to facilitate the economic activities of its members by pooling resources, activities and/or skills, exactly as we have done during the development phase. It can carry on the job and keep the partners focused on the project results. Why is it not used more? I don’t know, you tell me.

I am not going to go into any profound explanation  on how to form an EEIG, that is for lawyers and, thank goodness I am not one. I have enough with being a member of another disgraced group: the Economist. In any case, just Google European Economic Interest Grouping and you will find more information than you care to know. Nevertheless I recommend that those who may have some interest in EEIG go to the link

http://ec.europa.eu/employment_social/equal/products/sup/pro-122-hb.pdf

and download the document. It is outdated in certain parts, but the main body is a very good introduction to EEIG. All you need to know before talking to your lawyer is there, and to some extent what follows comes from that document.

There are some good reasons for choosing an EEIG structure for continuing our endeavours:

First of all, it is governed under European business law, all members are on an equal footing, something that would not happen if another form of business structure is adopted, since in this latter case the governing law would be exclusively that of the country in which the company is registered.

The second reason is that, being able to draw from all quarters of economic life, from industry to academia, from public bodies to individuals, it is able to create an ideal playground for synergies to flourish.

Council Regulation nº 2137/85 of 25 July 1985 regulating EEIGs constitutes a very limited set of norms, allowing the members of the EEIG complete freedom for organizing its structure. Flexibility is then the third reason.

But at the same time, and this is the fourth reason, an EEIG is a stable organizational figure. It is an autonomous legal structure with powers for representation, negotiation, contracting and all the other features of an independent legal economic entity.

Fifth and finally, an EEIG is different from its members. The main difference is its ancillary nature, meaning that its purpose is to facilitate the activity of its members, but not to replace them.

I said before that the Council Regulation governing EEIGs leaves a lot of leeway to the members. Effectively, article 5 detailing what the Contract must have includes only:

1) the name of the grouping, including EEIG

2) the official address of the grouping,

3) the object of the grouping,

4) details of all the members of the grouping,

5) the duration of the grouping, in case this is limited.

And it is advisable to keep it like that, since any change to the information contained in the Contract has to be unanimously approved and registered in the national registry of the country in which the EEIG is resident.

To complement the Contract the members are recommended to draw up a document, this time as complete as possible, of the Internal Regulations governing the EEIG. This document has the advantage over the Contract of being able to be modified as the members so decide and it is not necessary to register it or its amendments. It could include, for instance:

1) the way in which the grouping is to be financed,

2) the way in which members are to share in the grouping’s profits and losses,

3) the conditions for admission, resignation, withdrawal, or expulsion of members,

4) the rules for the general meeting of members,

5) the appointment, dismissal, and powers of managers,

6) and the resolution of disputes among members.

Once this is agreed upon, the next step is to register the Contract in the registry of the country of residence and its publication in the corresponding national gazette and in the Official Journal of the European Communities.

An important factor to have in mind is the financial side of the EEIG. Since there is no requirement for capital, the members are free to regulate the way the EEIG will be financed. Contributions can be in kind, in cash, by provision of skills, etc. Financing can also be obtained through loans from financial institutions but not directly from the public. In real life the majority of EEIGs finance their activities on the basis of annual membership fees.

Another important factor to consider is that “… the members of a grouping shall have unlimited joint and several liability for its debts.  ….” In plain English what it means is that anybody having recourse against the EEIG, if not satisfied in a reasonable time, can go against any of its members to recoup its outstanding debt. It is up to that member to go against the other members in order to recoup the debt. Is this a problem? At first it looks like it is, but let’s look at it closer. The EEIG is stronger than its individual members, just because it is the sum of all of them. So the most likely outcome is that it will get better conditions than any of the individual parts.

Another factor to consider is that the access to European Commission R&D project financing will be easier. An EEIG is already a multinational entity, at least from two different EAA countries. It shows the evaluators a commitment to working together and one structure already in place. Consider that most support programmes include conditions about the transnational nature of the grouping, with independent operators and demonstrating a strong synergy among its members, all features ingrained characteristics of an EEIG.

Summing up, tract C is asking: Have SMEs which are partners in the consortia the financial power to establish an AAL solution on the market? If not, who will drive the solution? My answer is that the consortia -research institutions, end user groups and SMEs- should keep together, and that it is only up to them and is their sole responsibility to take the necessary steps to make it possible for the final R&D result to make it to the market. And the best available legal instrument to bind those organizations together is the European Economic Interest Grouping.

Paraphrasing a former USA President: “My fellow Europeans, ask not what the European Commission can do for you, ask what you can do for Europe.”

Given at:

AAL FORUM

Norrköping, 25th September 2013

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