The Twenty-First Century University Innovation & the Commercialization of University Research

1. The Twenty-First Century University Innovation & the Commercialization of University Research  Knowledge Economy Forum IV Istanbul, Turkey March 23, 2005 Charles W. Wessner, Ph.D. Director, Technology and Innovation National Research Council © Charles W. Wessner PhD

2. 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

3. US Universities & Regional Growth Overcoming Common Policy Myths Realizing the Potential for Regional Growth

4. The Myth of the Linear Model of Innovation • Global Myth: Innovation is a Linear Process Basic Research Applied Research Development Commercialization • 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

5. 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

6. 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 Pasteur’s Quadrant: Research can be Applied, Practical, and Basic at the Same Time Quadrant Model of Scientific Research Considerations of Use? No Yes Yes Quest for Fundamental Understanding ? No From Donald Stokes, Pasteur’s Quadrant, 1997

7. Non-Linear Model of Innovation • Quest for Basic Understanding • New Knowledge • Fundamental Ideas Basic Research • Potential Use • Application of Knowledge to • a Specific Subject • “Prototypicalization” • New • Unanticipated • Applications • Feedback: • Basic Research • needed for discovery • Search for new • ideas and solutions to • solve longer-term • issues Applied Research • Feedback: • Applied Research • needed to design • new product • characteristics • Development of Products • Goods and Services Development • Feedback: Market Signals/ • Technical Challenge • Desired Product Alterations • or New Characteristics • Cost/design trade-off Commercial- ization

8. Changing the Policy Framework What Works? What Does Not?

9. 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 tofacilitate commercialization— designed from above

10. 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

11. 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)

12. 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

13. 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

14. Policy Innovations of the 1980s Create Positive Incentives for Commercialization • Effects of Bayh-Doleare Real • Increase in Patents granted to Universities • 375 in 19823450 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 1994348 in 2003, and growing • Reforms take time to have an Impact, but with the Right Incentives, Behavior and Outcomes will Change

15. 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

16. University startups initiated by technology transfer processes Source: Nature Biotechnology22, 21 - 24 (2004) .

17. 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

18. 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

19. 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

20. 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 Berkeley Quoted on NPR Morning Edition, Date: 08-09-04 *See Richard Florida, Issues in S&T, Summer 1999

21. 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

22. The Small Business Innovation Research Program (SBIR) A Program to Change Incentives Now being Adopted in Europe

23. 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

24. SBIR Incentives • SBIR provides Competitive Awards that • Change incentives for Academic Researchers • Change incentives for Small Firms • Encourage Commercialization of University Research Results

25. SBIR’s Attraction toNew 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

26. 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

27. SALES $$ COMMERCIAL COMPANY NEW PRODUCTS & PROCESSES UNIVERSITY INNOVATION License Agreement or Equity INVESTMENT $$ RESEARCH $$ SBIR Primes the Pump of University Technology Transfer ROYALTIES or EQUITY PAYOUT SBIR • 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 Drawn from C. Gabriel, Carnegie Mellon University

28. 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

29. Concluding Points The 21st Century University Education § Research § Commercialization

30. 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

31. Understanding Innovation Ecosystems • National Innovation Systems are Different in Scale and Flexibility • Flexibility is a differentiator • It is less how much is spent buthow 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

32. Thank You Charles W. Wessner, Ph.D. Board on Science, Technology, & Economic Policy National Research Council 500 Fifth Street NW Washington, D.C. 20001 cwessner@nas.edu Tel: 202 334 3801 http://www.nationalacademies.org/step

33. SBIR Model Solicitations for Government Needs Private Sector Investment PHASE III Product Development for Gov’t or Commercial Market Company Proposal for PHASE I Feasibility Research Company Proposal for PHASE II Research towards Prototype R&D Investment $100K $750K Tax Revenue Recoupement through Tax System Federal Investment