Incentive effects as a stumbling block

Ensuring that starting R&D projects ahead of time does not put funding at risk

The development of innovative projects is the key factor ensuring that European business remains competitive in a global context alongside companies from the US, China, Japan and, increasingly, Brazil and South Korea. With this in mind, the German government invests billions each year in innovation research and these investments are increasing. Whilst the German government finances institutions such as non-university research institutions, a great deal of its funding also goes directly to companies – particularly as part of collaborative research involving several companies and scientific institutions. In addition, R&D funding programmes are run not just by the German states (Bundesländer), but also by the EU which between 2007 and 2013 alone invested € 53 billion in collaborative research. An even higher sum (€ 76 billion) has been earmarked for the new EU funding programme, Horizon 2020 (including nanotechnology, biomedicine and biotechnology).

With regard to medical technology, the Federal Ministry for Education and Research (BMBF) has, for example, launched funding programmes for "Industrie-in-Klinik-Platformen" which, by bringing industry into hospitals, aim to develop innovative medical products to meet the increasing demands of the healthcare system and the day-to-day provision of care.

In addition to the political decision of what activities should be funded in what areas, the legal framework conditions set out in EU state aid law must be observed both by the Member States and companies. In this connection, state aid must particularly have what is termed an incentive effect with regard to the funded project – if this incentive effect is absent, funding is not in line with EU state aid law.

The incentive effect aims to change the funded company’s behaviour by ensuring that the funding encourages the company to intensify its R&D activities and to undertake projects that would not otherwise not be performed or would be performed to a lesser extent or in a different way.

In order to actually benefit from funding, however, evidence must be submitted to demonstrate that the start of a project ahead of time – i.e. before state aid has been approved – is not “an oversight”.

We will gladly discuss with you in detail how this risk to funding can be addressed.