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The Chicago Handbook of University Technology Transfer and Academic Entrepreneurship
By Albert N. Link, Donald S. Siegel, Mike Wright The University of Chicago Press
Copyright © 2015 The University of Chicago
All rights reserved.
ISBN: 978-0-226-17848-6
CHAPTER 1
University Technology Transfer Offices, Licensing, and Start-Ups
Donald S. Siegel and Mike Wright
1. Introduction
In recent decades, almost all research universities in the U.S. and Europe have established technology transfer offices (henceforth, TTOs) to commercialize their intellectual property. In the U.S., the Association of University Technology Managers (AUTM 2013) reports that the annual number of patents granted to U.S. universities rose from less than 300 in 1980 to 5,145 in 2012, while licensing of new technologies has increased almost sixfold since 1991. Annual licensing revenue generated by U.S. universities rose from about $160 million in 1991 to $2.6 billion in 2012. University-based start-up companies numbering 705 were launched in 2005 alone; while 6,834 new firms based on university-owned intellectual property have been created since 1980.
The pattern observed in the U.S. is part of an international phenomenon, with substantial increases in licensing, patenting, and university-based start-up companies also evident across Europe, Australia, Canada, and elsewhere (Wright et al. 2007). Technologies that have been commercialized via a TTO include the famous Boyer-Cohen "genesplicing" technique that launched the biotechnology industry, diagnostic tests for breast cancer and osteoporosis, Internet search engines (e.g., Lycos), music synthesizers, computer-aided design (CAD), and environmentally friendly technologies.
TTOs serve as an "intermediary" between suppliers of innovations (university scientists) and those who can potentially (help to) commercialize these innovations (i.e., firms, entrepreneurs, and venture capitalists). TTOs facilitate commercial knowledge transfers of intellectual property resulting from university research through licensing to existing firms or start-up companies of inventions or other forms. The activities of TTOs have important economic and policy implications. On the positive side, licensing agreements and university-based start-ups (spin-offs) can result in additional revenue for the university, employment opportunities for university-based researchers and graduate students, and local economic and technological spillovers through the stimulation of additional R&D investment and job creation. On the negative side, the costs of TTOs may outweigh the revenues generated and there may be other deleterious effects, such as the potential diversion away from research activity with longer-term pay-offs.
There is increasing recognition that technology commercialization can occur through several modes. Traditionally, the emphasis has been on licensing and patenting. Thursby and Thursby (2007) examine the policy issues relating to university licensing. More recently, increased attention has been devoted to the creation of spin-off firms by academic scientists. Scholars have examined university technology commercialization and entrepreneurship, typically focusing on the "performance" of TTOs, while also analyzing agents engaged in commercialization, such as academic scientists. Several authors have assessed the determinants and outcomes of faculty involvement in technology commercialization, such as the propensity of academics to patent, disclose inventions, coauthor with industry scientists, and form university-based start-ups.
These developments give rise to a number of important policy-related questions:
1. What is the role of TTOs in commercializing university intellectual property?
2. How successful are TTOs in generating revenue from the various modes of university intellectual property?
3. What are the key challenges in enabling TTOs to generate revenues from university intellectual property
4. What policies need to be developed to meet these challenges?
In this chapter, we review this burgeoning literature and derive some lessons learned for practitioners and policy makers. The remainder of this chapter is organized as follows. In section 2, we describe the role of TTOs and review some key theoretical studies. Next, we discuss empirical studies on the efficiency of TTOs in commercializing university IP. Both the evidence on university licensing and patenting (section 3) and university-based startups (section 4) are examined. Section 5 presents lessons learned and policy recommendations.
2. Theoretical Analysis on the Role of the TTO
Consistent with Siegel, Waldman, and Link (2003), we conjecture that there are three agents involved in commercialization: university scientists, technology transfer or licensing officers and/or other university research administrators, and corporate (venture capital) managers and/or entrepreneurs who (help to) commercialize university-based technologies.
Differences in Culture and Objectives
In understanding the commercialization process, it is useful to reflect on the incentives and cultures of these three key agents.
Firms and entrepreneurs seek to commercialize university-based intellectual property for profit. When innovation is a key source of competitive advantage, it is critical to maintain proprietary control over these technologies. Therefore, firms typically wish to secure exclusive rights to university-based technologies. Speed is another major area of concern, since firms and entrepreneurs often seek to establish a "first-mover" advantage.
The TTO and other university administrators generally regard themselves as the guardians of the university's intellectual property portfolio, which can potentially generate revenue. Therefore, they are anxious to market university-based technologies to companies and entrepreneurs, although they will often "hedge," since they do not want to be accused of "giving away" lucrative taxpayer-funded technologies or because they want to safeguard the "researchers and the research environment" that generates innovations. This tends to slow down the commercialization process.
Academic scientists, especially those who are untenured, seek the rapid dissemination of their ideas and breakthroughs. This propagation of new knowledge is manifested along several dimensions, including publications in the most selective scholarly journals, presentations at leading conferences, and research grants. The end result of such activity is peer recognition, through citations and stronger connections to the key social networks in academia. Faculty members may also seek pecuniary rewards, which can be pocketed or ploughed back into their research to pay for laboratory equipment, graduate students, and postdocs. Lacetera (2009) discusses the decision by academic research teams to undertake commercially oriented activities and their subsequent performance, as compared to industrial teams, taking into account the differences in objectives and organizational structure they face. Aghion, Dewatripont, and Stein (2008) model the specific characteristics of agents belonging to the scientific community, as compared to industrial teams when discussing the commercialization decision. These models are helpful in explaining differential performance of academic versus nonacademic spin-offs and the decision when to license versus spinning off.
Problems in Commercialization of University Intellectual Property
University scientists are the suppliers of new innovations, in the sense that they discover new knowledge while conducting (funded) research projects. However, before a university-based innovation can be commercialized, several hurdles must be surmounted. Key issues are whether researchers have sufficient incentives to disclose their inventions, how to induce researchers' cooperation in further development in bringing IP to market, and whether it is possible to overcome asymmetric information problems relating to the value of university inventions.
DISCLOSURE OF INVENTIONS AND OWNERSHIP OF IP. Invention disclosures to the university constitute the critical "input" in the technology transfer process. In the U.S., the Bayh-Dole Act requires that academics who are being funded on a federal research grant disclose their inventions to the university/TTO. Across Europe, there are notable differences in the ownership of university IP, although it is possible to discern some convergence. In the U.K., universities have increasingly enforced their ownership rights to IP generated by academic scientists, with the royalties associated with it being distributed between the relevant parties on an institutionally organized basis. Germany and Belgium adopted Bayh-Dole type legislation in the late 1990s, while in France this type of regulation had existed for some time. In Italy, public researchers receive the right to ownership of their IP, but in most cases the university makes a formal contract on an individual basis to give the IP rights to the university. Discussions are in progress in Sweden and Finland to change to a Bayh-Dole type arrangement from a model of inventor ownership. Most European countries have changed their legislation to make it possible and/or more attractive to researchers and academics to assume equity in a start-up and/or receive royalties. In France, for example, it was illegal before 1999 for an academic to assume equity in a start-up company (for additional discussion of this issue, see Wright et al. 2007).
It is important to note that the process of university technology transfer should begin, in theory, with an invention disclosure. However, based on extensive interviews with academic scientists in the U.S., Siegel et al. (2004) reported that many faculty members are not disclosing their inventions to their universities. Survey research by Thursby, Jensen, and Thursby (2001) confirms this finding. Markman, Gianiodis, and Phan (2008) have documented that many technologies are indeed "going out the back door."
The failure of many academics to disclose inventions to the TTO highlights the problems for officers in eliciting disclosures. Although the Bayh-Dole Act stipulates that scientists must file an invention disclosure, this rule is rarely enforced. Instead, the university needs to have proper incentive schemes in place, specifying an adequate share for the inventors in royalties or equity. The importance of this share in securing researchers' cooperation in technology licensing has been analyzed by Macho-Stadler, Martinez-Giralt, and Pérez-Castrillo (1996); Lach and Schankerman (2004); Link and Siegel (2005); and Jensen and Thursby (2001). All of these models focus on licensing, rather than commercialization through start-ups. Nevertheless, empirical studies of start-up formation by universities have demonstrated the importance of royalty regimes of the university, even on academic spin-off creation rates (e.g., Di Gregorio and Shane 2003; and O'Shea, Allen, and Chevalier 2005).
BRINGING UNIVERSITY IP TO THE MARKET. If a faculty member files an invention disclosure, the TTO (which, in most countries, is the owner of the university IP) decides whether the invention should be patented, usually in consultation with a committee of faculty experts. In making this decision, the TTO typically attempts to assess the commercial potential of the invention. Sometimes, firms or entrepreneurs have already expressed sufficient interest in the new technology to warrant filing a patent. If industry expresses little interest in the technology, universities may be reluctant to file for a patent, given the high cost of filing and protecting patents. When a patent is filed and awarded, the university typically attempts to "market" the invention, by contacting firms that can potentially license the technology or entrepreneurs who are capable of launching a startup firm based on the technology.
Faculty members may also become directly involved in the licensing agreement as technical consultants or as entrepreneurs in a university spin-off. Jensen and Thursby (2001) show that faculty involvement in the commercialization of a licensed university-based technology increases the likelihood that such an effort will be successful. In order to provide incentives for faculty involvement, licensing agreements should entail either upfront royalties or royalties at a later date. For spin-offs, Macho-Stadler, Pérez-Castrillo, and Veugelers (2008) demonstrate how the optimal contract between the university TTO, the researcher, and the venture capitalist entails the allocation to the researcher of an equity stake to secure her involvement in the venture. It may also require the researcher to be financially involved in the project as a way to give her incentives to provide effort. The creation and development of a spinoff may generate higher financial returns to universities than licensing. However, as discussed in the next section of this chapter, TTOs may encounter numerous challenges in pursuing entrepreneurial activities.
ASYMMETRIC INFORMATION AND THE VALUATION OF INVENTIONS. Even when the disclosure and researcher involvement problem is mitigated by an appropriate incentive scheme, not all potentially viable inventions will be patented and licensed by the university. This relates to the problem of asymmetric information between industry and academia regarding the value of an invention. Firms typically cannot assess the quality of the invention ex ante, while researchers may find it difficult to assess the commercial profitability of their inventions. This problem is examined in Macho-Stadler, Pérez-Castrillo, and Veugelers (2007), who use a reputation argument for a TTO to alleviate the asymmetric information problem. The authors demonstrate that larger TTOs may have an incentive to shelve some projects, in order to build a reputation for delivering good projects, thus raising buyers' beliefs of expected quality. Their results support the importance of a critical size for TTOs to be successful. The authors also predict that establishing a TTO may result in fewer license agreements, but higher average license revenues. In contrast, Clarysse et al. (2007) demonstrate that the problem may be that TTOs are perceived as placing too high a value on the patent or innovation, in part because they are incentivized to maximize income generation, while buyers and investors are unwilling to meet this valuation because of the uncertainty of generating future income streams from it.
The Rationale for TTOs
Several theoretical papers have provided rationales for universities to establish TTOs. For Macho-Stadler, Pérez-Castrillo, and Veugelers (2007), the rationale for establishing a TTO is in the pooling of inventions for reputation building. In contrast, Jensen, Thursby, and Thursby (2003) model the process of faculty disclosure and university licensing in the U.S. through a TTO as a game, in which the principal is the university administration and the faculty and TTO are agents who maximize expected utility. This approach recognizes the greater complexity in the principal-agent relationships in universities as compared to firms and is in line with recent developments in multiple agency theory (Arthurs et al. 2008; Bruton et al. 2010). The authors treat the TTO as a dual agent—that is, as an agent of both the faculty and the university.
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Excerpted from The Chicago Handbook of University Technology Transfer and Academic Entrepreneurship by Albert N. Link, Donald S. Siegel, Mike Wright. Copyright © 2015 The University of Chicago. Excerpted by permission of The University of Chicago Press.
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