Why the U.S. Technology Transfer System is Clogged—and How We Hope to Help Open the Pipeline
By Lesa Mitchell
Vice President, Advancing Innovation
The Foundation’s interest in helping to propagate new ideas and entrepreneurship has led us into an area where one might think little help is needed. Early in 2003, we began studying technology transfer at universities, the process for moving discoveries and inventions from university labs into the private sector. To many, the process appears to be working splendidly—perhaps too splendidly.
University research has spun out new high-impact companies such as Genentech and Cisco Systems. In places like Silicon Valley, Boston, and Vancouver, it has fueled major growth industries. Corporate-sponsored research has increased at schools across the United States. Indeed, with the growing debate over the influence of commercialism in universities, many fear that our campuses are becoming research factories for private industry.
Yet closer study reveals a great irony. A great deal of promising research consistently fails to be developed and brought to market for practical use, as it could be. This includes basic research in the life sciences that could lead to vital new drugs and medical therapies. It includes research in computing and engineering that could lead to useful new products and job-creating new firms. In short, despite rampant commercialism, what we often have is a failure to commercialize.
The main problem is a technology transfer system that was created years ago to eliminate a major bottleneck, but has since produced a series of smaller bottlenecks of its own.
A bit of background: Most research funding at universities does not come from corporations. The biggest sponsor by far is the federal government, whose research has long been seen to have wide public benefit—if it goes on to be commercialized. For instance ENIAC, the first modern electronic computer, was designed at the University of Pennsylvania during World War II for defense purposes—but it also kick-started an industry, as the chief designers went on to start a computer company, and existing firms like IBM jumped into the business as well.
During the postwar era, federal research funding grew by leaps and bounds across the country. Commercialization did not keep pace, however. In those days, the government itself owned all patents derived from its far-flung research and tried to promote wide access to research results by granting only nonexclusive rights of use. The policy often backfired, as entrepreneurs and firms typically prefer to get exclusive rights to a new technology before running the risk of bringing it to market.
So in 1980, Congress passed the Bayh-Dole Act. The universities conducting the research were now given charge of the transfer process. They were to identify and patent promising innovations made with federal funds, and could grant exclusive licenses for these. In return for their efforts, universities would keep any licensing income (paying some to the faculty researchers involved). The intent was to move technologies into use by delegating the responsibility and creating broad-based incentives all around.
Bayh-Dole has had powerful effects. Innovation flow via patenting and licensing has increased dramatically, along with increases in federal research dollars. Some universities have enjoyed windfalls from single licensing deals: Stanford and the University of California, San Francisco earned millions from patents related to recombinant DNA; Carnegie Mellon built a new academic building with proceeds from the Lycos Internet-search patents. To manage this new “business,” more than 300 universities and nonprofit research institutions (such as medical centers) in the United States have started technology transfer offices since 1980.
But now the limitations of the system are becoming apparent. Results from tech transfer are spotty and uneven; there is evidence that many opportunities are being missed. For example:
- Only a small number of universities have received the great majority of licensing income.
- A recent survey of engineering and science professors at eleven major universities found that only a small percentage of research faculty— about 30 percent—account for the great bulk of patenting and licensing.
- What we are seeing cannot be explained merely by the eighty/twenty rule, whereby a few good players produce most results. One can find curious and troubling gaps in university “output” across the spectrum. There are elite universities that rank in the nation’s top ten for research funding, but far lower in patenting and licensing. There are many small-to medium-sized universities that have well-regarded research faculty but very little, or no, commercialization activity.
The Foundation is now helping to analyze recent data to learn more about what problems they may reflect. Meanwhile, in extensive talks with universities and private-sector parties, we have noted some issues that seem to be major factors.
First, technology transfer is a complex task for which many universities are ill-equipped. Ideas are not just plucked from labs and handed off to commercializers like relay batons. Good ideas must first be identified and evaluated—and a typical university has research in arcane disciplines ranging from biomedicine to metallurgy, done by faculty who, in some cases, may not even recognize that their work is potentially marketable. Also, most basic-research ideas need a lot of development. A new drug that has been “discovered” is far from market-ready; a jumble of lab equipment that works well in controlled experiments may or may not translate to a reliable, affordable product. Private firms and venture investors sometimes gamble on licensing raw innovations, but the more an innovation can be developed, the better the chances.
Rarely can any single university muster the resources to support all the work of identifying and pre-developing promising ideas effectively. Yet in the present system, that is what each of some 300 institutions is trying to do. Therefore much is missed, and innovations that make it into the transfer process are often caught in logjams or bureaucratic delays. One private firm told us of trying to license a new therapeutic drug from a major university—after thirteen months, terms had not yet begun to be discussed.
A second problem is that pressures to produce immediate economic results are often counterproductive. Many state and local governments are pressing their universities to serve as engines of economic recovery, hoping to get high-impact spinout companies quickly. Many universities, for their part, tend to measure tech-transfer results by only one metric—licensing income—and a growing number view the function as a profit center, expecting maximum annual returns. The pressures can restrict the flow of innovation in several ways:
- Those faculty members who worry that commercialism is interfering with basic research are now being given further cause for concern, and may be even less inclined to come forward with marketable ideas.
- Universities often adopt a home-run mentality, focusing their technology transfer resources on a few innovations that are deemed to promise high payback. A wider approach—canvassing for more innovations and moving more to market—would be more beneficial overall, more in the spirit of the Bayh-Dole Act, and more likely to turn up the unexpected gems that so often emerge from scientific research.
- In many cases, university profit-seeking can actually delay, or kill, a licensing deal. Some universities go into negotiations with unlikely demands (such as expecting large cash fees up front for untested technologies). New medical technologies have been kept from market because two or more universities, whose faculty had collaborated on the research, could not agree on licensing terms.
Worse, to avoid the various difficulties and delays, many private-sector parties are now narrowing the scope of their university licensing. One major venture-investing firm, for efficiency’s sake, will only license work by faculty who already have commercialized inventions and can help with the process. Representatives of Fortune 100 firms have told us that for similar reasons, their firms will only consider licensing from select universities. The result is a winner-take-all effect that favors experienced researchers at certain schools, and excludes others— exactly the opposite of the much wider net that needs to be cast.
The Foundation is seeking solutions on several fronts. We are working with universities and others to identify current best practices in technology transfer; there is little systematic knowledge in some key areas. We are also exploring how to improve technology transfer at universities with small- to medium-sized research budgets and very limited resources.
Finally, while the present system drives universities to maximize dollar flow per licensing deal, we will pilot new systems to maximize innovation flow and deal flow. This involves focusing “upstream” of the tech-transfer offices, on the work that most of them are least able to support: the identification and early development of promising research. We think some of this can be handled by new methods of linking university researchers directly to private-sector parties who may be interested in their work.
This nation has many bright people at many schools doing brilliant research. Congress in 1980 took a major step toward bringing more of their work to the public. Our goal must now be to tap the full potential of this resource, for the benefit of all.