 |
|
 |
|
Successful Tech Transfer = Market Commercialization
Date: 09-25-2008
By Thomas E. Vass - New Technology Market News
 By Thomas E. Vass
New Technology Market News
Technology Transfer and Innovation Series Introduction: What Constitutes Successful “Technological Transfer?
“Transfer” implies that something is moved from one end to another end, where both ends are connected by some transportation mechanism. For example, “technology” in a university gets “transferred” from the university to some other organization via some transportation mechanism.
The pathway that the transfer follows from one end to the other end could easily be called an information infrastructure, similar to how a highway is an infrastructure that connects Dallas to Denver.
Much of the literature on university tech transfer describes the tech transfer in terms of how the license to use university patents is legally transferred from the university to some other entity. In other words, for university tech transfer, a legal intellectual property right is transferred to another organizational entity. The transfer involves the legal process of moving property rights along a legal pathway from the university to the other entity.
In this scenario, successful tech transfer for the university means counting up the number of patents the university generates, and measuring the success of the transfer in terms of revenue and income generated for the university.
This definition of technology transfer success has become widely adopted as the conventional wisdom.
Success for the tech transfer process in the conventional wisdom is measured without ever connecting technology innovation to the demand in the market for the products that the intellectual property ostensibly creates.
In a series of articles describing the university technology transfer process, Brett Frischmann explores how university science and technology research systems perform economically as infrastructural capital, and explains how these university tech transfer systems generate social and economic value when the technology is “commercialized.”
Frischmann’s goal is to reframe the definition of success of technology transfer in terms of the commercialization of innovation. In “Commercializing University Research Systems in Economic Perspectives: A View From the Demand Side,” (Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, 2007), he describes how the university technology is “connected” to industry in order to create value for “consumers.”
He places great emphasis on the concept of “infrastructure,” as the method for creating value, not the as the pathway of transportation. “Value is created downstream,” he writes, “ by end-users that rely on access to the infrastructure. Yet social demand for the infrastructure itself is extremely difficult to measure. As recognized by the National Research Council, “Infrastructure is a means to other ends, and the effectiveness, efficiency, and reliability of its contribution to these other ends must ultimately be the measure of infrastructure performance.” (National Research Council, 1995).”
While Frischmann’s efforts to recast the issue of success in terms of innovation commercialization provides a welcome respite from the conventional wisdom, he does not get the question exactly right. The value of technology transfer comes from a measurement of values created in the market associated with prices, profits and income when transactions and exchanges of value occur. As he notes, “With respect to infrastructure resources, I would like to better understand how value is created and realized by human beings, and thus, where demand for infrastructure comes from.”
Access to the infrastructure does not create value. The demand for infrastructure is a derived demand that arises from private exchanges in the market, primarily related to a logical sequence of events beginning with ideas for new products, then deal creation, then deal funding, then marketing and sales, and finally deal exits.
Successful innovation is measured by the value of transactions that subsequently occur in the market, including the last event in the process, which is the capital gain on the exit event. The market exchanges create the value, not the infrastructure.
The two ends that are connected in the market are consumers, who buy the innovation, and producers, who manufacture the innovation and deliver it to the consumers. They are connected by the infrastructure of the private capital markets, not government or university tech transfer offices.
Frischmann has identified the right set of actors but he has them performing on the wrong stage.
An Innovation Economic Question About Value Ends and Market Means
As Frischmann points out, universities have a choice how to commercialize innovations or if they should engage in tech transfer at all.
Who is it in the university tech transfer process that is responsible for interpreting the market demand for innovation? If economic value is created from the technology transfer process, then some entity in the university must somehow be a participant in the market exchange process and decide which research projects get funded.
Otherwise, the university substitutes its own internal collective socialist judgment about the value of innovation for market judgment about innovation.
Frischmann seems to be aware of this issue. He writes, “As a general matter, most universities do not allocate their infrastructural capital on the basis of commercial prospects in output markets. As Auerswald and Branscomb (2003) note, researchers tend to allocate their resources according to their “interest in the question posed” which “contrast[s] sharply with a decision rule based on commercial potential.”
The conventional wisdom about the definition of success in university tech transfer is widely accepted in both the world of academia and in the business trade press. For example, the chief economist of Business Week, Mike Mandell, recently provided his interpretation of technology transfer and innovation. (Business Week, September 11, 2008).
Mandell begins his article by asking “Can America Invent Its Way Back.” He notes that, “since 2000, the nation's public and private sectors have poured almost $5 trillion into research and development and higher education, the key contributors to innovation. Nevertheless, employment in most technologically advanced industries has stagnated or even fallen. The number of domestic jobs in the computer and electronics sector continues to plunge while pharmaceutical and biotech companies lay off as many workers as they hire.”
Mandell has confused “innovation,” which is a market transaction event, with “invention,” which is an intellectual activity. When he states that expenditures on research and development and higher eductation are the key contributors to innovation, he perpetuates the confustion generated by the inadequate convential wisdom, which easily can lead to more wasted spending on invention projects that are not directly connected to private sector initiatives on market commercialization.
Missing entirely from Mandell’s article is any mention about how private capital markets generate investment capital for commercializing new products. Or, how private firms transform a new product idea into a viable revenue-producing enterprise. Innovation is primarily about marketing new products, whether they are existing products undergoing sustaining innovation, or new products that are born as radical innovations.
Mandell notes, approvingly, that the Federal government is going to begin giving out prizes to universities for innovations. The new prizes do not address the process of how new products are introduced into the market, which is technology commercialization.
Government officials are not connected to the market any more than university tech transfer agents are connected to the market, so how can they decide who wins the prize?
While Mandell can see that the $5 trillion in expenditures has not added the anticipated economic value to the American economy, his support for government prizes for invention perpetuates the confusion because innovation is a market exchange event not a politicized government gift-giving event.
In order to faciltiate innovation economics, Mandell should be advocating the creation of a new financial and economic market commercization infrastructure that links innovation to consumers and producers. The value of innovation is realized in the market when consumers buy new goods.
The market is the means by which the value is created. But, most contemporary speculation about the importance of innovation as a cause of economic growth omits mention about the role of private enterprise or private capital markets in facilitating market commercialization.
Conflicting Goals of University Tech Transfer
“The Bayh-Dole Act,” notes Frischmann, “enables universities to participate in the commercialization process, but it does not obligate or constrain them to pursue any particular strategy with respect to federally funded research. Universities must decide carefully the extent to which they wish to participate in the commercialization process.”
The loosely-defined goals of technology research in the Bayh-Dole Act opens up a wide variety of institutional responses by universities. Some pursue their own internal financial welfare by obtaining the greatest income from licensing patents and some attempt to direct the research into broader economic development goals.
In their analysis of university tech transfer programs, “The Impact of Private Ownership, Incentives and Local Development Objectives on University Technology Transfer Performance,” Sharon Belenzon and Mark Schankerman (BS), provide a useful categorization of the objectives of university tech transfer. (CEP Discussion Paper No 779, September 2007).
They note the recent history of the university tech transfer activity since the passage of the Bayh-Dole Act in 1980. “Patenting and licensing by universities has grown sharply and has become an active public policy issue in the U.S. From 1991-2004, patent applications by U.S. universities rose from 1,584 to 10,517 and license income increased from $218 million to $1.4 billion, which is about six percent of federal R&D financing for universities. This rapid growth was partly associated with the Bayh-Dole Act of 1980, which gave universities ownership of inventions from federally-funded research.”
In other words, the Bayh-Dole Act authorized the universities to obtain legal ownership of the patents, and obtain income from licensing the patents, without providing guidance or oversight on the broader public policy goals to be accomplished by the tech transfer process. There is no accountability oversight structure built into the federal funding process to determine if the public policy objectives of increased jobs and incomes related to the university research are being met.
The self-interest of the universities is complemented by two elements of self-interest of the large corporations who license the technology.
First, it appears that much of the tech transfer process with larger corporations is related primarily for defensive purposes related to avoiding competition with new innovative products. Defensive patenting does not provide economic benefits, yet there is no mechanism in the Bayh-Dole Act to provide oversight or regulation on this issue of defensive patenting problem related to the university tech transfer process.
For the 10,000 patent applications in 2004, empirical evidence of the proportion that ended up in defensive patent licensing versus market commercialization licensing does not readily exist. What evidence does exist, in Belenzon and Schankerman’s research, is that universities have an internal financial incentive to sell the license rather than commercialize it in local economic development projects. The premium they describe is about 30% for simply selling the license to larger corporations.
“Universities with strong local development objectives generate about 30 percent less income per license,” they note, “but are more likely to license to local (in-state) startup companies.”
Second, in recent years, primarily since 2003, the evidence on outsourcing American innovation to China and India indicates that the tech transfer process may be perpetuating the loss of America’s innovative capacity. U. S. university research sold to global corporations, which is then commercialized in China and India, will not create jobs in America.
In fact, the conventional wisdom on the definition of success for tech transfer in terms of counting patents that are applied for and then licensed by the universities would mean that the outsourcing of American innovation is a great economic success.
However, when Mandell, the chief economist for Business Week notes that the $5 trillion spent by the Federal government on university research since 2000 is not generating the expected level of jobs and economic growth, the outsourcing of America’s innovation capacity should be the obvious reason.
Increasing the appropriations to universities, or giving out prizes for inventions is not likely to change this outcome.
Metro Technological Diversity Essential For Tech Transfer Success
Belenzon and Schankerman employ the same conventional wisdom about the success of tech transfer as Mike Mandell. They note, “Technology transfer involves two distinct activities: innovation by faculty scientists and commercialization by the TLO. Scientists produce both publications and inventions in response to monetary and other incentives (e.g., promotion and tenure rules and intrinsic motivation). Lach and Schankerman (2003) show that royalty sharing incentives for scientists strongly affect innovation and licensing outcomes.”
The two elements they confuse and conflate are invention and commercialization. Faculty and scientists in the university engage in the intellectual activity of invention not innovation, and the private market commercializes innovation, not the technology licensing office.
The TLO sells the university research to the highest bidder.
Belenzon and Schankerman show that universities that share the profits from the sale of the research with the faculty in the form of incentive pay have much higher revenues from their patent licensing activity. “Adopting incentive pay,” they note, “is associated with about 30-40 percent more income per license.
On the other hand, Belenzon and Schankerman provide evidence that universities that use university research to engage in state economic development initiatives are more likely to be engaged in new venture creation in order to market and distribute new products. “We provide some evidence that universities with strong local development objectives are more likely to establish start-up companies in the state rather than outside it,” they write.
They investigated the issue of how the university tech transfer for local economic development worked in order to find the causes of success for start-up companies. Part of their methodology incorporated the concept of technological diversity in the regional inter-industrial supply chain that provided inputs to the new ventures.
To refer back to the earlier work on successful technology transfer of Frischmann, the term regional economists use to describe the regional input supply chain is the intermediate demand infrastructure, aka, industrial value chains or industrial clusters. In Belenzon and Schankerman, the concept of regional industrial value chains is called “Tech Pole” and they use a measure of regional technological diversity called the “TechPole Index.” As they note, “Second, to pick up differences in the local demand for licenses we include a measure of the high-tech density of the city in which the university is located called the TechPole index.”
They found that tech transfer success for new ventures in regions with a high techpole index dramatically increased the value of the license for the university.
“To illustrate the quantitative implications,” they stated, “the point estimate implies that moving a university from Iowa City to Chicago would be associated with a 12.2 percent increase in income per license, moving it to Boston would further increase income per license by 8.4 percent. The fact that local high-tech density matters is interesting because it is suggests that information and/or transaction costs of licensing are related to geography.”
In other words, in terms of university tech transfer that is good for the metro regional economy, creating new high tech ventures in regional economies with a diverse technology infrastructure leads to better outcomes for both the university and the regional economy.
When the university tech transfer is commercialized in local industrial value chains, and not sold to larger multi national corporations, the regional economic development goals are more easily obtained.
The evidence on the importance of regional technological diversification is supported by research conducted by Miklós Koren and Silvana Tenreyro. In their article, “Technological Diversification” (June 15, 2008), they write, “Technological progress takes place as an expansion in the number of input varieties, increasing productivity. The new insight in the model is that the expansion in varieties can also lead to lower volatility of production.”
In other words, the diverse technological infrastructure not only contributes to the success of the new ventures, but cushions the shocks from outside economic disturbances. “In addition,” they write, “the expansion in the number of varieties in our model provides diversification benefits against variety-specific shocks and it can hence lower the volatility of output growth. Technological complexity evolves endogenously in response to profit incentives. The decline in volatility thus arises as a by-product of firms’ incentives to increase profits and is hence a likely outcome of the development process Technological progress takes the form of an increase in the number of varieties, raising average productivity."
The policy goal of successful tech transfer aimed at regional economic development is to promote a diverse technological infrastructure within the regional industrial value chains. There are theoretical reasons why the diversity in technology at the regional level are critical to the success of the new ventures, (Predicting Technology, 2007), but the commercial practical reasons are easy to understand.
Greater technological diversity in the regional industrial value chains tends to distribute incomes and profits to more participants in the regional economy. In other words, the rising tide of successful tech transfer floats a lot more boats than the sale of the technology to a MNC.
As Koren and Tenreyro, “our model concerns the diversification of inputs, not the diversification of outputs. Instead, technological diversification chiefly occurs as a by-product of strategies whose main aim is to increase average income.”
New Regional Capital Market Infrastructure
Frischmann’s work on tech transfer emphasized the importance of “infrastructure” as an ingredient for successful tech transfer. He identified the right set of actors but he has them performing on the wrong stage.
Access to the infrastructure does not create value. The demand for infrastructure is a derived demand that arises from private exchanges in the market, primarily related to a logical sequence of events beginning with ideas for new products, then deal creation, then deal funding, then marketing and sales, and finally deal exits.
Successful innovation and tech transfer requires a new regional capital market infrastructure that is a component of a diverse technological regional industrial value chain of inputs to technological innovation.
The two ends in the tech transfer process that are connected in the market are consumers, who buy the innovation, and producers, who manufacture the innovation and deliver it to the consumers. They are connected by the infrastructure of the private capital markets, not by government agents or university tech transfer offices.
About Our Guest Columnist:
Thomas Vass is an economist who writes about technology innovation and an investment advisor who advises small high tech companies on raising capital. Parts of his economic theory about technological evolution are combined with his investment advisory practice at an online investment newsletter, The Technology Stock Advisor. Thomas is also founder of the RTP Innovation Business Development Network held at the BNC in Cary, NC. For more background information and links to related websites, check out Thomas' Archives as well as all our other guest columns
CarolinaNewswire.com provides the thoughts and analysis of this columnist as a free benefit to our readers but without any representations or warranties as to the accuracy or efficacy of such thoughts or analysis. The opionions, analysis, and thoughts expressed here are those of the author only and should not be deemed as medical, legal, financial, tax or other advice from this publication. Readers with such questions should consult a professional.
|
| |
|
|
 |
|
|
|
