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The Twenty-First Century University Innovation & the Commercialization

of University ResearchKnowledge Economy Forum IV

Istanbul, TurkeyMarch 23, 2005

Charles W. Wessner, Ph.D.Director, Technology and Innovation

National Research Council

© Charles W. Wessner PhD

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Commercializing University Research is Important because

it…• Provides a Return to Public Investments in Research– Ensures that new & promising ideas are not

trapped in the University laboratory

• Justifies New Research Allocations– Creates tangible outputs from public investments

• Provides a source of New Firms– Needed for Economic renewal & competitiveness

• Provides Services to Firms within the Innovation Ecosystem– Fosters skill pools needed for innovation clusters

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US Universities & Regional Growth

Overcoming Common Policy MythsRealizing the Potential for Regional Growth

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• Reality: Innovation is a Complex Process– Major overlap between Basic and Applied

Research, as well as between Development and Commercialization

– Principal Investigators and/or Patents and Processes are Mobile, i.e., not firm-dependent

– Many Unexpected Outcomes– Technological breakthroughs may precede, as

well as stem from, basic research

The Myth of the Linear Model of Innovation

Basic ResearchApplied Research

Development Commercialization

•Global Myth: Innovation is a Linear Process

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Myth of the “Ivory Tower” University• Myth: Pure Research and

Education are the central University Roles

• Reality: – University Research

Related to Industry Helps Generate Training and Skills Necessary for Productive Lines

– Industry’s Needs and Questions can Drive University Research and be a Source of Relevant Publications

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Pasteur’s Quadrant: Research can be Applied, Practical, and Basic at the

Same Time• Use-inspired research – increases existing

understanding and creates improved technology.

– can take existing technology to new levels but it

• can also improve understanding of fundamental principles

Pure Basic Research (Bohr)

Use-Inspired Research (Pasteur)

Pure Applied Research (Edison)

No Yes

Que

st fo

r F

unda

men

tal

Und

erst

andi

ng ?

Yes

No

Quadrant Model of Scientific Research

Considerations of Use?

From Donald Stokes, Pasteur’s Quadrant,

1997

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Basic Research

AppliedResearch

Development

Commercial-ization

Quest for Basic Understanding•New Knowledge•Fundamental Ideas Potential Use

•Application of Knowledge to a Specific Subject•“Prototypicalization”

Development of Products•Goods and Services

Feedback: Market Signals/Technical Challenge• Desired Product Alterations or New Characteristics•Cost/design trade-off

Feedback:Applied Researchneeded to designnew product characteristics

Feedback:• Basic Research needed for discovery •Search for new ideas and solutions to solve longer-term issues

NewUnanticipatedApplications

Non-Linear Model of Innovation

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Changing the Policy Framework

What Works?What Does Not?

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Bottom-Up vs. Top-Down Policies• Policymakers in many countries have passed new

rules intended to facilitate the commercialization of scientific research output

• Two types of approaches create contrasting incentive structures– Bottom Up Structure: (The US Model)

• Creates economic incentives for universities to find commercial opportunities for their research output

• Allow universities to experiment to find the best means to do that— evolves from below

– Top Down Structure: (The Swedish Model)• Intellectual Property Rights awarded directly to the

Inventor• Government directly creates mechanisms intended

to facilitate commercialization— designed from above

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What Works? What Does Not?• Giving IP to the University positively changes the

Incentive Environment for the Inventor– University can reward commercialization activities

of its faculty, who otherwise have to “publish or perish”

– University has access to a portfolio of opportunities among various technologies, hedging risks of the individual research outcomes, and covering costs of marketing and patenting

• Giving IP rights to the Inventor does not appear to work– Puts her in a non-supportive, high risk environment– Yields few incentives for universities or academics

to pursue commercialization of ideas

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Is the Bottom-Up Approach is more Effective in

Facilitating Commercialization?

• Sweden is an academic powerhouse, but technology transfer performance is weak– Top-down approach fails to create incentives for

academic researchers to become involved in the commercialization of their ideas*

• What are the results of US incentives for university-industry collaboration?

*Goldfarb & Henrekson, Research Policy 32 (2003)

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Example from the US: Before the 1980s, Few Incentives for

Collaboration• Before 1980 the US System was like Europe– Industry, Universities, and Federal laboratories

researchers rarely collaborated– Patents from Federally funded research were

generally held by Government—and not used– Presumptions about Antitrust Laws Limited Joint

Research– Industry Research based on Corporate

Laboratories—e.g., Bell Labs– Companies attracted University Graduates but

did not fund much University Research

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Policy Innovations of the 1980s Create Positive Incentives for

Commercialization• Bayh-Dole Act of 1980:

– Allows universities to patent the results of research that the federal government has funded•Universities can earn royalties by licensing

research innovations to private companies – As a result, Research Universities have been

actively involved in commercializing their proprietary technology •Universities have opened and expanded

Technology Transfer Offices

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Policy Innovations of the 1980s Create Positive Incentives for

Commercialization• Effects of Bayh-Dole are Real

– Increase in Patents granted to Universities•375 in 19823450 in 2003 •Total new patents filed=7203

– Increase in University Royalties from Licensing•$130 millionin 1991$1.033 billion in 2003

– More Startup Companies formed with University Patents• 175 in 1994348 in 2003, and growing

• Reforms take time to have an Impact, but with the Right Incentives, Behavior and Outcomes will Change

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University Royalties from Licensing

Royalties to Universities/Hospitals in Millions of Dollars

Source: Bremer, 2001 speech (http://www.autm.net) - data from AUTM Licensing Survey

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University startups initiated by technology

transfer processes

. Source: Nature Biotechnology 22, 21 - 24 (2004)

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Benefits for University of Growth in University Research

Commercialization• Enhances local/regional economic

development– More rapid technological diffusion to the public

• Potential Source of University Revenue• Positive Effect on the Curriculum

– Curriculum tuned to real world developments– Students see value in coursework

• Marketing Tool to Attract Students, Faculty, Industrial Research Support

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New Institutions May be Required to Foster

Knowledge-Based Growth• Policies that change Incentives will Modify

Behavior, shifting focus to Innovation– E.g.: Motivation for gain from Intellectual Property

(stimulated by Bayh Dole) led to more commercialization of University Research

– Mere exhortations to change have limited impact

• Creating new Dynamic Organizations can help overcome Resistance to Change– E.g. Troyes Technological University produces 14

times more patents than the average French University

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The 21st Century University• For the Knowledge Economy, the University

needs to– Teach the next generation

• With up to date laboratories on real market questions• About the sciences needed to address current and

future questions (e.g., nuclear waste, stem cell research, genetically modified food)

– Conduct Research• “Curiosity-driven Research,” certainly but • the University also needs to bring Science to bear on

Social Problems and Industry Needs– Commercialize

• New Science-led solutions to societal problems• New Products, Processes, and Market-ready students

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Concerns about the 21st Century University

• New Concerns that University-Industry Partnerships can

• Negatively impact a culture of “Open Science”• Reduce the quantity and quality of basic research• Lead academics to spend less time on teaching and

service*• Still,

To suggest that, somehow, universities are not and should not be engines of economic growth is missing the central point of how our economy grows and how we create jobs.

Robert Birgeneau, Chancellor, UC BerkeleyQuoted on NPR Morning Edition, Date: 08-09-04

*See Richard Florida, Issues in S&T, Summer 1999

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University-Industry Cooperation is Key• Cooperative Research

– University research draws ideas from commercial trends more than ever before

– Feedback loops from industry to universities are important

– Major contribution to training for real jobs• Regional Growth

– Regional economies need their research universities more than ever before

• Firm Formation– University innovation + early government funding

have been key to the growth of many successful technology companies

• Supportive University Culture & Incentives are crucial

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The Small Business Innovation Research

Program (SBIR)A Program to Change IncentivesNow being Adopted in Europe

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The SBIR Program• Created in 1982, Renewed in 1992 & 2001• Participation by all federal agencies with an

annual extramural R&D budget of greater than $100 million is mandatory– Agencies must set aside 2.5% of their

extramural R&D budgets for small business awards

• Currently a $2 billion per year program– Largest U.S. Partnership Program

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SBIR Incentives

• SBIR provides Competitive Awards that – Change incentives for Academic

Researchers– Change incentives for Small Firms – Encourage Commercialization of

University Research Results

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SBIR’s Attraction to New Entrepreneurs • Attractive to University Professors and

Graduate Students seeking to Commercialize their Research– Having a company not required to apply for a

grant—lowers risk of trying– Companies and Researchers can apply to

different agencies at the same time– Agency outreach programs provide guidance

and encouragement– Entrepreneur can explore technical and

commercial feasibility under Phase I before taking the full plunge

– Provides Useful Training & Motivates Students

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SBIR Grants are Entrepreneur-Friendly

• Why do Entrepreneurs like it?– No dilution of ownership– No repayment required for grant– Grant recipients retain rights to

Intellectual Property developed using SBIR funds

– No royalties owed to government– Certification effect of award attracts

private capital

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SBIR Primes the Pump of University Technology Transfer

RESEARCH $$ INVESTMENT $$

SALES $$

UNIVERSITYCOMMERCIAL

COMPANYNEW PRODUCTS

& PROCESSESINNOVATION

LicenseAgreement or Equity

• Licensing to existing companies – brings royalty $

• New company formation – brings royalties and/or equity

• Other, less direct, contributions to regional economic activity – 5,000 Good New Jobs in Pittsburgh Area

ROYALTIES

or EQUITY PAYOUT

SBIR

Drawn from C. Gabriel, Carnegie Mellon University

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The Benefits of University-Industry Cooperation: SBIR

Role• SBIR Innovation Awards Directly Cause Researchers to create New Firms– Jobs and Regional Growth– Cooperation creates High-Tech Jobs

• Universities help diversify and grow the job base– Increasingly universities are the largest regional

employer for all types of employment• Cooperation validates Research Funding

– Returns to Society in Health, Wealth, & Taxes– SBIR is a proven mechanism in an uncertain game

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Concluding Points

The 21st Century UniversityEducation § Research § Commercialization

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Encouraging Universities to serve as a Nexus of Growth…

• …Requires Real Changes in– Culture and Values: This requires new

leadership and new incentives– Status of Professors: permissive environment

to encourage innovations, collaboration with industry, and pursuit of innovation awards and wealth

– Institutional Practices: Parallel research institutes with self-select mechanism

• Strong local Leadership & Local Autonomy are required

• National Programs like SBIR help shift the culture

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Understanding Innovation Ecosystems• National Innovation Systems are Different in

Scale and Flexibility– Flexibility is a differentiator– It is less how much is spent but how well

• All Systems Have Common Challenges– Need to justify R&D expenditures by creating new jobs

& new wealth– Need to reform institutions (or invent new ones)– Need to recognize that project failure does not equal

program failure

• Linkages strengthen Innovation Ecosystems– E.g., SBIR draws together small businesses,

universities, and government agencies

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Thank You

Charles W. Wessner, Ph.D.Board on Science, Technology, & Economic Policy

National Research Council500 Fifth Street NW

Washington, D.C. 20001cwessner@nas.eduTel: 202 334 3801

http://www.nationalacademies.org/step

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SBIR Model

CompanyProposal

forPHASE I

FeasibilityResearch

PHASE IIIProduct

Developmentfor Gov’t orCommercial

Market

Private Sector Investment

Tax Revenue

Federal Investment

CompanyProposal

forPHASE IIResearchtowards

Prototype

Solicitationsfor

Government Needs

$750K$100K

R&

D

Investm

en

t

Recoupement through Tax System