Friday, July 22, 2011

Universities and the Innovation Marketplace

By Keith McDowell

 “Where’s the beef?” The angry, irascible cry of actress Clara Peller in 1984 – 1985 commercials for Wendy’s burger chain became an iconic slogan of the 1980’s and even penetrated into the Democratic primaries as Vice President Walter Mondale challenged Senator Gary Hart with the same cry. In many ways it established the power of commercials to affect a competitive advantage, although most people fail to recall that Wendy’s burgers were the product. Americans have a love-hate relationship with commercials. Many watch the Super Bowl, not for the football, but to be entertained by the real contest: who will win the commercial shootout?

The commercial marketplace is a phenomenon that we all experience with commercials, obnoxious or not, used as a marketing tool to achieve sales and wealth creation through the buying and selling of products and services. Innovation drives a significant portion of the economy created by that marketplace and is often called the innovation economy. But innovations drive not only the commercial marketplace, but are bought and sold in a marketplace known as the innovation marketplace.

While in many ways an old and established enterprise, the innovation marketplace has undergone a significant transformation in the past decade as a result of many factors including the advent of the information technology age, global competition coupled with Friedman’s “flat earth” hypothesis, and the availability of investment dollars. It is not my intent herein to examine this transformation, but to accept its existence and to examine the role to be played by universities and to focus my analysis from that perspective.

What is the innovation marketplace? In very simplistic terms and as a starting definition, it’s the enterprise of buying and selling innovations packaged as intellectual property (IP) in order to provide a competitive advantage to the buyer and assurance of a return on investment for the seller. In other words, the buyer owns the rights to commercialize the IP, makes money from using those rights, and pays the seller through a number of vehicles including stock in the company, royalty payments, up-front buyouts or monetization, and many other mechanisms. Ultimately, of course, the commercial marketplace is the real source of the dollars that create value and increase wealth.

Who are the sellers? Who are the buyers? For the most part the sellers include universities, federal laboratories, FFRDCs, industry, non-profits, and independent garage inventors. Although industry expends 72.71% of the R&D dollars in the United States as of FY2008 and likely generates the bulk of the innovations, most such innovations are proprietary and not sold in the innovation marketplace. The buyers include angel investors, venture capitalists, entrepreneurs, management teams, industry – especially startup companies, and government. Sometimes faculty members acting as independent agents are buyers. Unfortunately, patent trolls who buy up and bundle patents or attempt to control specific sectors have also emerged as a significant issue.

The innovation marketplace is a vital and growing global enterprise enhanced by the Internet and fueled by experimentation with a number of new tools. For example, the past decade has seen the introduction of IP web hosts, both private and public sponsored. IP web hosts post available IP and serve as a clearinghouse. Some of the most prominent private ones with their web links are as follows:

·      Flintbox,
·      Foliodirect,
·      iBridge,
·      Inngot,
·      Innovaro,
·      Knowledge Express,
·      Pharma-Transfer,
·      Proir IP
·      Tech Transfer Online,
·      Technology Market (APCTT),
·      Tynax,

Government at all levels has also begun to set up such Internet IP clearinghouses. For example, the State of New Jersey has created the Patent Bank “to help new technologies find their way to commercial market.” At the Federal level, the U.S. Department of Commerce through NIST has created the USA National Innovation Marketplace. The U.S. Department of Energy sponsors the Energy Innovation Portal. Sadly, only one of these web clearinghouses, private or public, reported any statistics on their usage or success rates. The NIST site claims that “1 in 5 innovations on the USA National Innovation Marketplace get a serious meeting with a buyer or investor.”

Universities have also joined the fray by creating Internet catalogues to hawk their IP, available technologies, or expertise. Here are a few examples with URLs:

·      Available technologies, The University of Texas at Austin,
·      The Collaborative Partnership, The University of Texas at Arlington,
·      Available technologies, University of California Technology Transfer,
·      MIT Technology Licensing Office,
·      University of Maryland,
·      University of North Carolina,

Purdue University, Indiana University, Ball State University, and the University of Notre Dame have combined forces in a project called The Indiana Database of Research of University Expertise (INDURE) as an example of an expertise site.

Another venue for the innovation marketplace equivalent to trade shows is the technology showcase. Prominent examples include the annual Worlds Best Technologies Showcase and the annual Bio International Convention. Local events are too numerous to enumerate.

For universities, the central player in the innovation marketplace is the technology transfer office (TTO), often now called the office of technology commercialization (OTC) to encompass the expansion of its role over the past decade. It’s a simple fact that most of the transfer of university IP or technology, especially for the quality IP, occurs as a result of the TTO engaging in direct marketing of its IP or available technology, often to local entrepreneurs or startup companies. In that sense, it’s a relational-network driven marketplace.

Universities are also experimenting with outsourcing some, if not all, of their “sales” through companies such as Intellectual Ventures and Allied Minds. In the past, the Alfred Mann Foundation has created Alfred E. Mann Institutes on university campuses to foster, mentor, and carry out transfer of biotechnology innovations from the laboratory to the commercial marketplace.

Do universities engage in marketing and have a marketing strategy? The simple answer is yes. Even without an articulated strategy, universities transfer (sell) IP to other entities (buyers). I’ve addressed licensing strategies for TTOs elsewhere. Here I’m referring to a “market” strategy. For example, universities host booths at the Bio International Convention where both their intellectual property and their innovation capacity and capability are on display. Slogans adorn the booths with the intent of branding. Computers show glitzy video productions on demand.  Branded trinkets are handed out. It’s marketing, pure and simple. But do they have a strategy? Should they use one of the IP web host such as iBridge? Surprisingly, marketing is one of the most important functions of TTOs, but probably the function least developed at universities and often not well understood. Certainly marketing in the innovation marketplace is a fact of life and one to be addressed.

Do normal market rules apply in the innovation marketplace? Tough question! Others will have to decide, but I think we don’t yet understand the innovation marketplace sufficiently to fully answer the question. We need better data. We need more analysis. One thing is certain; the innovation marketplace is real and rapidly expanding. Any university or TTO that doesn’t engage marketing and develop a brand is going to miss out on a major happening. Most important, the innovation marketplace and its economy are essential for America to maintain its dominance in global competition, especially through the formation of regional innovation ecosystems. Our national policies must be cognizant of this important marketplace.

Does any of this new activity in the historical innovation marketplace actually work to accelerate discovery to deployment in the commercial marketplace? I think the jury is still out. For example, there are indications that posting intellectual property on the web, no matter the specific mechanism, doesn’t really work. It’s the Maytag repairman sitting and waiting for the phone to ring. Krisztina Holly surveyed the venture capital community and reported that “In our research, the opinion was unanimous among VCs that their preferred source of deals is a trusted person in the network – not showcases, over-the-transom business plans, or bulletins.” Zusha Elinson in a story of 17 June 2009 reports that “observers say the dot-com-esque rise and fall of the Ocean Tomo auction business – selling for less than its 2008 revenue – is a sign, in part, of a business model that may have run its course.”

The innovation marketplace and the economy it produces in the commercial marketplace have always been with us and are not going away.  But the transformation of and changes to the innovation marketplace of the past decade are still in the shakeout phase and some patience is required as it morphs into a globally competitive marketplace. That requires a complete unmasking of what is and what is not and a healthy dose of innovation in the marketplace itself. Such analysis and such experiments are underway. Let the fun continue!

Friday, July 15, 2011

Do You Know Where Your R&D Dollars Are?

By Keith McDowell

Parenting in the twenty-first century is a formidable challenge symbolized in many ways by the familiar phrase “Do you know where your children are?” Threats from Internet predators or the foolish use of smartphones for sexting have replaced the omnipresent drug culture of the previous century as the latest cause de jour. What’s a parent to do in the face of an ever expanding universe of possible teenage pitfalls and traps?

In a similar vein, but certainly far less dramatic or significant to a family, we ask a similar question of those who posture themselves as keepers or “parents” of the American innovation enterprise: do you know where your R&D dollars are? Surprisingly, many who expound on innovation, set innovation policy, manage innovation, or engage directly as innovators have little or no knowledge of either the source of research and development (R&D) funding or who performs the R&D. Of course, one could argue that R&D dollars don’t equate to innovation, but their source and distribution to performers is definitely an input metric for the innovation ecosystem and worthy of review at a macro-scale.

Fortunately, the National Science Foundation compiles the necessary data each year as part of its Science and Engineering Indicators. Sadly, the data are two years old since it takes time to collect the data and produce the tables and analysis. The most recent data are from Fiscal Year 2008.

Table I. Source of R&D Dollars – FY 2008.

$ millions
Per Cent
Federal Government
Other Nonprofits
Universities & Colleges
Nonfederal Government

Let’s begin with the source of R&D dollars as shown in Table I. The source categories are straightforward except, perhaps, for “other nonprofits” which includes a hodge-podge of foundations, private investors, and other such entities. The source category “universities & colleges” also represents a complex funding source since institutions of higher education pull their funding from many sources other than tuition and endowments. Given that the rules for colorizing such monies are often arcane, it’s best to accept “universities & colleges” as mostly a derivative source of funds, but nonetheless important as a filter and funnel for funding.

As expected, business or industry is the principal source at 67.36% with the federal government coming in at 26.08%. Given the constant publicity about federal spending and federal involvement in research, the roughly 3 to 1 ratio for business to federal government might seem unusual to some, but has been rather constant over time. In summary, American business or industry continues to be the overwhelming leader in R&D funding.

Although the remaining three sources provide only 6.56% of the funding, these dollars are often the most important to the innovation enterprise since they tend to fund the high risk R&D and are generally the most fungible and available for rapid redistribution toward a breakthrough. We need more such funding, especially as “proof of concept” dollars.

Table II. Expenditure of R&D Dollars – FY 2008.

$ millions
Per Cent
Universities & Colleges
Federal Internal
Other Nonprofits

Who performs R&D in the United States and at what level? Table II presents the data. Again, the categories require some explanation with the first two being straightforward. The category “federal internal” includes a large and varied mixture of federal agencies such as NASA and facilities – often military – such as Groom Lake, Naval Research Laboratory, Redstone Arsenal, and Eglin Air Force Base. The category “other nonprofits” also includes a rich and varied mixture of performers including Battelle, Beckman Institute, RAND Corporation, Santa Fe Institute, Scripps Research Institute, Southwest Research Institute, SRI International, and many more.

The final category of FFRDC includes the “federally funded research and development centers.” According to the hyperlinked reference, FFRDCs “are unique independent nonprofit entities sponsored and funded by the U.S. government to meet specific long-term technical needs that cannot be met by any other single organization.” The list includes Los Alamos National Laboratory, Lincoln Laboratory, and the Jet Propulsion Laboratory as examples. FFRDCs are managed in three ways: by federal agencies, by nonprofits, or by universities.

The bulk of American R&D is performed by business at 72.71%. Interestingly, business or industry spends $21.3 billion more on R&D than it funds. In second place are universities and colleges at 12.87% or $51.2 billion. Of that amount, $10.6 billion or 20.72% come from internal sources. This commitment of resources by institutions of higher education is the most striking feature of all the data and challenges one’s notions of how R&D is funded. One can debate whether cash-starved educational institutions should be so heavily engaged. Certainly that debate in the context of separating research from teaching is currently underway in Texas and has embroiled university systems, regents, and the Governor in a contentious battle – one that will likely spread to other states as the economic slowdown continues and tea party advocates push for “more from less.”

Innovation requires R&D funding! And that means all involved in the innovation ecosystem must understand and be aware at the macro-level of both the source of the R&D funding and those who perform the R&D. As never before, the answer to the question “do you know where your R&D dollars are?” is essential as America engages in the game of global competition. 

Monday, July 11, 2011

My Turn!

By Keith McDowell

Representative Barney Frank uttered the iconic phrase of the healthcare debate “Who would like to yell next?” in an effort to handle a raucous town hall meeting in August of 2009. The question punctuated the intensity of feelings and strength of conviction of those confronting the issue. But the healthcare debate isn’t the only concern facing our citizenry. We are also faced with global competition in the form of jobs lost and the perception by many that America is falling behind in the innovation race. While the innovation debate is not as heated as the healthcare debate, the intensity is equivalent and resolution of the issue is just as important for the future of our Nation. So in response to Franks’ question, the answer is me!

In particular, I want to take my turn and push back on industry, venture capitalists, angel investors, entrepreneurs, pundits, and others who find fault with how universities commercialize their research. A specific list of such faults or gripes collected by the author has been previously presented. My strategy herein is to present a list of issues or concerns that constantly pop up – both in deal making and as general problems – and impede the progress of technology transfer or technology commercialization from the perspective of those who manage the commercialization of university research. Some will appear trivial, but it is nonetheless amazing how often they occur and what a nuisance they are.

For example, consider the seemingly trivial case of state sovereignty, my first issue. Officials from one state are not going to sign a contract making them subject to the laws of another state. What is that lawyers don’t get about this point? Is this a failure of our law schools or just a test to see if technology transfer offices are paying attention to the details of a deal structure? Why do public universities have to waste so much time getting sovereignty clauses removed from contracts? I concede; it’s a trivial issue. But do we really want to keep wasting resources and slowing down the process on this issue?

With that frame of reference to provide context to the issues and concerns, here is my list. A more detailed presentation of each can be found in Go Forth and Innovate! The list is unranked and not prioritized.

State sovereignty. State institutions of higher education will not sign contracts making them subject to the laws of another state.
State indemnity. State institutions of higher education will not indemnify anything or sign a clause to that effect since it’s illegal for them to do so in most states.
Background IP. Universities are not going to sign away all background IP rights.
Business decisions vs. “lawyering.” Technology transfer is fundamentally a business process that should be driven by business decisions, not legal red ink.
Too many dollars and too few deals. Contrary to purported conventional wisdom, making technology transfer deals isn’t the problem. Finding quality innovations is.
Exit strategy. Trust relationships, especially during the formation of startup companies, are significantly enhanced when deal negotiators and participants on all sides fully communicate and understand the entire commercialization package and strategy for specific intellectual properties.
Overhyping of technology. Hyped innovation waves such as superconductivity, molecular drugs, genetic medicine, biotechnology, and nanotechnology produce serious problems with managing expectations and their failure to deliver has led to rather bizarre notions about innovation and how it works, especially as regards the innovation time line.
Patent Reform Legislation. I support the position of the American Association of Universities and their collaborative efforts with other university associations.
USPTO backlog on patents. Congress continues to get a failing grade on its report card for this aspect of American innovation.
Costs of patents and foreign filings. Universities have yet to find a satisfactory mechanism to deal with the costs of protecting all potential intellectual property.
Export Controls. The fuzziness and moving target that constitutes America’s current export control environment is a serious drag on innovation. It’s a nightmare compliance issue for universities.
Technology commercialization is an “unfunded mandate” for universities. Global competition and the demands for a supercharged innovation ecosystem require that universities, as the basic research feeder for the commercialization pipeline, have a robust technology commercialization apparatus. Sadly, they are under-resourced.
Lack of trained and experienced technology commercialization professionals. We need professionals who understand technology transfer, marketing, commercialization, investment, startup company formation, incubation of startups, and development of regional innovation ecosystems. These leaders must work with university faculty and administration, venture capital, angel investors, entrepreneurs, startup management, industry, and politicians. It’s a formidable job description.
Industry sectors. Activities and strategies for the commercialization of university research must recognize the differentiation in structure and needs across the spectrum of industry sectors with biotechnology and information technology being polar opposites.
Proof of concept (POC) funding. The United States has a serious lack of funding sources for research and development to show that a potential commercialization concept derived from discovery-based research is viable.
Innovation centers. Universities need to create R&D innovation centers where discoveries, technologies, or inventions generated from normal university research programs are further processed using research and development strategies to add commercial value.
Inclusion or integration of professional schools. A modern 21st century “technology commercialization” program at a university requires a full spectrum approach including integration of the professional schools and involving students.
Sponsored programs and technology commercialization are separate shops. Combining these functions is a bad idea. Instead, mechanisms must be created for these offices to work together to build networked relationships with sponsors to enhance the flow of information in the innovation ecosystem.
Language and communication skills. Few in academe are able to communicate outside their specialty with the general populace, or even the educated populace, and that skill is required to commercialize university research. Training in “making the pitch” and “closing the deal” is needed.
Intellectual property revenue is not a significant source of income. Failure to understand this basic fact leads to exaggerated expectations and inappropriate strategies for commercializing university research, both internal and external to universities.
Branding. The innovation marketplace is like any other market; it pays to have a quality brand. But what form should branding take?
University ownership and management of incubators. Yes, universities should own and operate them, but not under the illusion that they will be a profit center.
University startup venture funds. I don’t see a good reason for universities to get into the venture capital business, but I’m willing to reserve judgment. Instead, we should partner with the venture capital industry. Whatever venture funding activities universities undertake, care should be exercised to avoid conflict of interest through structures independent of technology transfer offices and university administration.

Each of these issues and concerns deserve a fair hearing and a discussion to find optimal strategies for dealing with them or, even better, a remedy. By presenting them in the format of a list, my intention is to bring them to the attention of those engaged in the innovation debate and to help frame that debate in the specific domain of the commercialization of university research.

Progress in improving the competitive advantage for America in the innovation game will come from many directions and will be both incremental and disruptive. But one thing is certain, without an appropriate identification of our issues and concerns from all participants, progress will not be a likely outcome.