The Promise of Academic Tech Transfer in Economic Development

November 2006

By Danny Klingler, Junior Project Manager

AngelouEconomics

The rapid growth of academic technology transfer in recent years signals the emergence of a new arena with great potential to promote economic development. Academic tech transfer – the formal transfer of university research, inventions, and intellectual property to private industry for purposes of commercialization – continues to see tremendous expansion, bringing with it the prospect of putting tech transfer to use as a powerful economic development tool.

Universities and other research institutes1 undertake advanced research and produce some of the world's most cutting-edge technologies and innovations. Yet without a formal mechanism for translating these academic discoveries into commercial products, much of the benefit from the research would be lost. Academic tech transfer promotes both public good and private economic growth by linking university discoveries to private industries with the capacity to develop those discoveries into real world products. Typically, the process begins with an invention disclosure on the part of a student or faculty member at a university; the university will then protect the invention through patents or copyrights, and seek to establish a license agreement with a private company that wishes to put the idea or invention to commercial use. The university and the inventor will subsequently receive license fees and royalties generated by the project, while the private partner will benefit from increased revenue if the project is successful. More important are the public benefits created by the transaction, which include the availability of life enhancing products, job creation, and increased economic output.

Academic tech transfer was spurred by the passage of the so called Bayh-Doyle Act in 1980. Passed in response to economic lags in productivity and innovation in the U.S., Bayh-Doyle made it possible for universities to protect and license inventions arising through federally funded R&D programs. Previously, the federal government maintained ownership and control over all such intellectual property, thus creating barriers to its commercialization. Hailed as "possibly the most inspired piece of legislation to be enacted in America over the past half-century," Bayh-Doyle created incentives for universities, government, and industry to work together to turn R&D inputs into commercial products, revenue streams, and jobs. In particular, the legislation spurred universities to create technology transfer offices to manage, grow, and facilitate technology transfer programs. Today, over 200 research institutions maintain offices dedicated specifically to tech transfer, an eight-fold increase since 1980.

As a result of these offices and their programs, technology transfer has exploded along almost every indicator over the past two decades. Since 1991, invention disclosures at universities have increased by more than 290%, patents received have increased nearly 275%, and licenses and options executed with private industry have grown over 500% to

around 5,000 annually. In addition, annual licensing income received by universities has grown to $1.39 billion, a nearly $1 billion increase since 1995.

This rise in tech transfer activity is bringing valuable products to the marketplace that are having a significant impact on human quality of life. Cancer-fighting microfluidic technologies (West Virginia University), and viral neutralizing factor vaccines for early treatment of avian diseases (University of Arkansas) are just two of the hundreds of products made available through tech transfer – which is dominated by licenses in the biotechnology and life sciences arenas.

But the growth of tech transfer is having other important public benefits as well in the form of economic development, and is increasingly being viewed as a tool to promote effective E.D. When institutions license their discoveries to private companies, they induce those companies to invest in product development and sales. This investment supports existing jobs, creates substantial numbers of new jobs, helps industries grow, and contributes to increased economic output. A 1999 study by the Association of University Technology Managers (AUTM) found that tech transfer had added $40 billion and 270,000 jobs to the U.S. economy – a substantial economic impact that promises to grow larger in the future.

Studies have shown that up to 50% of economic growth is the product of new technologies and innovations. In today's knowledge economy, intellectual capital is a critical component in the growth of industries and economic output. However, the private sector has traditionally under-invested in R&D, due primarily to the difficulties of evaluating risks involved with R&D, and the problem of capturing all of the returns. Universities are a natural choice to fill this gap, as they offer a ready source of research and innovation which can be leveraged by private industry. Because universities have strong ties to the communities in which they are located, they are a potentially powerful mechanism for promoting the expansion of local industries, and attracting outside firms as well.

Tech transfer is being used not only to support existing businesses, but to facilitate entrepreneurship as well. Known as entrepreneurial tech transfer, the use of university research and innovation to create startup companies is another area of strong recent growth and great economic development potential. University sponsored startups have increased 107% since 1995, and some of the largest research institutions have become prolific in the number of startup companies they generate. Startups induce high ratios of investment outside the university, and with approximately 75% of startups locating in the same community as the university where the discovery was made, the economic development impact usually occurs locally. Universities are thus built-in entrepreneurship generators with great potential to support economic development in their communities.

Studies have identified a number of characteristics of successful tech transfer operations, including strong R&D funding for the university, mature tech transfer offices, and strong personal relationships between the university and private industry. Other factors that can facilitate or hinder tech transfer include academic leadership, the presence of incubators and research parks, the availability of early stage capital, and conflicts inherent in transactions between the private and non-profit sectors. In recent years, universities and tech transfer professionals have worked on "flushing out the bureaucracy" in order to promote more effective commercialization, and many are hiring staff from industry in recognition of the fact that tech transfer is primarily a sales and marketing job. Universities are also adjusting their goals and expectations to better align them with the financial realities of the private sector.

Universities are one of the most precious resources that communities have in their fight to promote job growth and sustained economic development. While they have long been identified as factories of talent, churning out skilled workers to fill high value-added positions, the recent growth in tech transfer signals the emergence of universities as valuable sources of intellectual capital and innovation. As tech transfer continues to grow, creating opportunities for business expansion, recruitment, and entrepreneurship, those communities that are able to link their E.D. efforts to this trend and direct it locally will be those that will reap its economic fruits.

1 Academic tech transfer is broadly defined to include the work of hospitals and research institutes as well; for purposes of this article discussion is limited to universities.