The number one online magazine for innovation management practioners Feature Article # 003-2011

University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies
by

Melba Kurman

senior thought leader, analyst and expert on university intellectual property strategy and innovation management

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www.innovationmanagement.se ISBN: 978-91-86829-06-3

Knowledge in brief
Universities can be natural engines of open innovation since they do not develop their own in-house research into products, nor do they compete for revenue in the same marketplaces as companies. In the United States, innovation partnerships between research universities and companies offer companies a number of competitive advantages. University researchers conduct cutting edge research, much of which they share freely and publicly. U.S. universities own hundreds of patents that they license to companies. Universities have specialized facilities and lab equipment that is usually available to companies for a fee. Despite the potential benefits, partnerships between universities and businesses can be complicated by ownership issues of intellectual property rights, misaligned expectations, and differing culture and priorities. Companies should approach potential university collaboration with appropriate expectations and the awareness that theres no single correct way to structure a university partnership. This article offers practical guidance for innovation managers, product managers and executives who are considering making university technical resources part of their open innovation product development strategy. This article focuses on the innovation ecosystem in the United States but many of the dynamics described may be recognized by innovation managers worldwide.

Knowledge in practice
As companies today compete on their ability to create and sell innovative products and services, universities continue to be a source of new ideas, expertise and cutting-edge inventions. Theres no correct way to structure a university partnership. Consider the experience of three companies: a small biotech company, a mediumsized software company, and a large semiconductor company. Each approached the university for different reasons and with different needs. Three years later, the small biotech company licensed the rights to a universityowned patent to develop a promising skin cancer treatment. The medium software company owns two patents on an algorithm developed by a university professor while she was under a consulting agreement; the company did not license these patents from the university. The large semiconductor company sponsored $300,000 worth of new lab equipment in a professors lab in exchange for receiving regular updates of detailed testing data of new types of chip materials. These examples demonstrate the range and variety of ways that a company can tap into university know-how, resources, and technology. Many channels, both formal and informal, connect university research labs to the commercial marketplace. An innovation manager must carefully consider which channel works best for her goals, and recognize the universitys unique academic culture and differing priorities.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

about the author

Melba KurMan
Melba Kurman is an expert in university technology transfer strategy with over 15 years of experience in bringing innovative technologies to market. She has managed the commercialization of innovative technology in both industry and university settings. She was responsible for marketing Cornell Universitys intellectual property portfolio to industry partners and spent several years at Microsoft as a product manager. Melba writes the popular Tech Transfer 2.0 blog, and is the president of Triple Helix Innovation, a consulting firm dedicated to improving university and industry innovation partnerships.

The changing role of U.S. universities

In the U.S., the innovation landscape has changed dramatically over the past 30 years, particularly the innovation partnerships between company product development teams and university research labs. In the 1970s and 1980s, as they shifted their focus to shorter-term results, many Fortune 500 companies closed their in-house R&D labs. Today, with some notable exceptions such as Microsoft, IBM and Proctor & Gamble, most companies no longer maintain their own in-house, early-stage, exploratory scientific research organizations. Another powerful force that changed the innovation landscape was the passage of federal legislation called the Bayh-Dole Act, which in 1980, gave U.S. universities the legal right to own patents on the results of on-campus federally funded research, as long as the university was willing to pay to patent the invention, and make a reasonable effort to find a business partner to develop the patent into a commercial product. Finally, companies are increasingly more comfortable with the process of open innovation as a mode of product development. Many companies, both large and small, have become increasingly adept at feeding their product development pipelines by tapping into the expertise and resources available at other organizations. Open innovation is defined by Henry Chesbrough as a product development process in which companies commercialize internal ideas by combining in-house knowledge and resources with those created outside the company. In Chesbroughs terms, universities are innovation explorers, performing basic science and discovery research that they hand off to companies to develop into commercial products. Universities can be a vital source of product innovation since their primary focus is to discover new knowledge that sometimes results in cutting-edge technologies. Companies look to universities for new product ideas, data and game-changing research and technology. In contrast to the lingering stereotype of the academic ivory tower, todays U.S. universities are well-funded research hubs that create game-changing knowledge across a broad range of industries. Universities receive billions of dollars in research sponsorships and grants from the government and companies. According to data from the National Science Foundation, more than 60% of government funding for basic research flows to university labs. According to the Association of University Technology Managers, in 2009, companies paid for over $4 billion worth of

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

research, about 10% of a typical universitys annual research budget. By partnering with university research labs, companies gain the opportunity to experiment with new technologies and methods without committing to hiring permanently the expertise needed to develop these technologies. Universities have specialized facilities and staff skills that cannot readily be obtained elsewhere. Despite the depth and breadth of technological expertise and resources enjoyed by large research universities, university research, valuable as it may be, in most cases cannot be simply plugged directly into a companys product development pipeline. The most productive partnerships between companies and universities take shape when the players find the right balance between remaining true to their own core goals and competencies and stretching to make cultural and work-style adjustments.

u.S. reSearch univerSitieS aS innovation MerchantS

Its important for CEOs, senior executives, product managers and innovation managers to understand that U.S. research universities view their research labs and faculty expertise as marketable resources. Todays universities continue to conduct their traditional functions of teaching and research, but in the terminology of open innovation, are becoming increasing active innovation merchants. Until a few decades ago, universities did not own the intellectual property and ideas they generated, nor did they themselves sell or license patents resulting from their research. Before the Bayh-Dole Act of 1980 was passed, universities typically did not view the fruits of university research labs as a potential revenue source. As a result, research universities of yore were more likely to share their freely expertise and inventions with other organizations. Before the 1980s, with a few exceptions, most universities did not own patent portfolios, nor did they monitor their research labs to identify potentially commercially valuable patents.

Today, most U.S. research universities own sizeable patent portfolios that they seek to commercialize by licensing to companies and startups in exchange for fees and royalty payments. Since universities conduct the majority of federally-funded research in cutting-edge fields such as biotech, clean energy, and nanotechnology, and they have the option to patent what comes out of their research labs, universities have ended up owning nearly one-quarter of new U.S. patents on the fields of nanotechnology and biotechnology1. Many countries have followed the U.S. model and now permit their universities to own and broker patents, and to conduct industry sponsored research in university labs. In this new innovation ecosystem, universities own their own patent portfolios and play the commercialization game as innovation explorers and innovation merchants. Companies that attempt to collaborate with university researchers frequently discover that in addition to traditional challenges such as cultural differences and varying priorities, companies must also consider the intellectual property issues that will likely come up in a university/industry research partnership. Despite challenges, a number of different factors encourage companies to consider an innovation partnership with a university. B y partnering with university research labs, companies can explore new technologies and methods without investing in new employees or physical infrastructure. U niversity faculty represent a wide range of expertise in a number of different fields; most engineering faculty are actively engaged in addressing leading industry problems in their fields. A company can tap into a number of different university research areas, enabling greater agility in company product research efforts. I f a company hires students for a project, the company build sa pool of potential future employees who are already familiar with the

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

reported SourceS of innovation for u.S. coMpanieS

60% 50% 40% 30% 20% 10% 0% university research industry research private research firms governament labs governament r&d centers unknown

Figure 1. Data from article by Francis Narin, Kimberley Hamilton, and Dominic Olivastro. The increasing linkage between U.S. technology and public science. Research Policy 26 (1997): 317-330.

companys technology and readily available for hire in the short term S ince university researchers openly share their scientific work, the majority of their prior research projects are publicly available; a company seeking a subject specialist can more easily find and evaluate the offered expertise of the university researcher. U niversity research labs are unlikely to attempt to develop a directly competing product.

require faculty to regularly report on the details of off-campus collaborations, and sometimes, mandate that each company project be reviewed by a conflict of interest committee.

Many roadS lead to roMe

Theres no one-size-fits-all guidebook to help an innovation manager successfully navigate the academic labyrinth. In the United States, one thing almost all research universities have in common is a technology transfer office thats tasked with managing the patenting and licensing process for inventions funded by federal grants and dreamed up by university faculty and graduate students. Different universities have different attitudes towards the value of industry collaboration and the degree of flexibility that a university administration exhibits when it comes to managing their partnerships with the corporate world. Some universities actively foster strong relationships between their research faculty and industry, for example, encouraging their faculty members to seek industry consulting assignments. Other universities may permit consulting, but

A company may encounter varying attitudes even on the same university campus as innovation managers interact with different university employees who offer different interpretations of university policies. Its not unusual for companies to discover that when they approach different people at the same university and ask them to define the rules of engagement for a company/university partnership, they receive several different answers. In general, large research universities are decentralized and complicated organizations. Each university takes a different approach to its relationships with the business world and sometimes, even within the same university, different departments and faculty interpret university policy in their own unique ways.

the inforMal channelS

Given the complexity of navigating the world of the large research university, combined with the challenges inherent in any formal collaboration, a sensible beginning step for a business is to consider whether an informal partnership with a university researcher will meet their needs. Many companies dont realize

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

that the vast majority of productive industry/ university interactions are based on decentralized, informal channels such as casual knowledge-sharing with students and faculty, scientific publications, hiring faculty for consulting engagements, student internships, and mingling at conferences. Although university patent licensing practices receive the lions share of attention, fewer than 10% of business innovation managers surveyed said they found them to be an important channel to university research2. A formal contractual business relationship with a university may not be necessary. If no patents are at stake, no research sponsorship is taking place, and theres no use of university equipment or other resources, informal exchanges may suffice.

enforce or pursue patent rights that were a product of a faculty consulting engagement. To check on the flexibility of university consulting engagements and informal modes of technology exchange, a company should check the universitys intellectual property policy that lays out the universitys rules of engagement. Some industry-friendly universities permit faculty and students the right to generate intellectual property independently of the university as long as the research takes place off campus and does not make use of university facilities, time, or other resources.

the forMal channelS

An innovation manager may decide that her company is ready to form a formal innovation partnership with a university based on the success of an informal collaboration, when both company and university researchers want to move beyond simple information sharing or consulting. Or, in cases where patents are going to be involved in the collaboration, a company and the university researcher may feel it is time to change the relationship into one thats contractually based and approved by the university administration. U.S. research universities have two formal channels via which companies and universities work out contractual agreements. First, to manage the formal patenting licensing process, most universities have a dedicated in-house technology transfer office. The technology transfer office manages the universitys patent portfolio and takes care of associated tasks such as logging invention disclosures submitted by faculty and graduate students, seeking companies to license patents, managing the patenting process, and making sure licensees are paying their bills on time. A second and related office, the grants and contracts office, exists to manage the administrative and legal details surrounding government and industry sponsored research partnerships. The grants and contracts office screens company-sponsored research projects and ensures that the proposed partnership is in line with university regulations.

Since university faculty enjoy the luxury of defining their own research agenda, and universities exercise differing levels of control over their intellectual activities, most U.S. research universities are the site of a vigorous intellectual property (IP) grey market. Knowledge and technology exchange are fluid processes, and a university researcher may elect other modes of getting her invention, data, or knowhow to market that do not involve the formal channel provided by the university technology transfer office. Grey market intellectual property exchanges typically occur when companies hire faculty or students for consulting engagements and the resulting patents are signed over to the sponsoring company. In fact, research estimates that an estimated 30% of the federally funded basic research that takes place in university labs reaches industry without a formal patent license or the involvement of the universitys technology transfer office3.

The presence of an on-campus IP grey market is a good example of the degree of variance in the attitudes of university administrators towards their universitys management of its patent portfolio and their perceptions of how university faculty should work with companies. Many universities opt to not

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

Managerial implications
An innovation manager should approach a university partnership in the same way he would approach any new proposed project. First, what would success look like? Establishing a clear definition of a successful innovation partnership will help guide later decisions on more specific issues. For example, is the goal of the innovation partnership to get access to a researchers skill and expertise, to use a specific university technology or material in product development, or to test out new methods with an official project team made up of both university and company researchers? Other considerations include how a universitys know-how and resources would contribute to product development. Does the university have a skill that the company does not have internally? Is the university research lab the only source of this expertise, or are there other places that may be able to offer a more straightforward commercial lab for hire arrangement. Does the company need a specific component for its product, or is it after a long-term, open-ended exchange of knowledge? whether the companys intellectual property strategies are aligned with the universitys project budget

The following factors need to be weighed. 1. Some industries value patents more than others. The more a company relies on patents as a source of competitive advantage, the more likely it will be to gravitate towards a formal sponsored research agreement or patent license rather than just sharing knowledge or hiring students. Life sciences and medical device companies perceive patents to be a critical source of competitive advantage since their commercial products must pass FDA trials and as a result, require significant investment of time and money on the part of the company. In fact, overall, university technology transfer offices earn 87% of their licensing revenue from biotechnology and medical devices companies that rely on university innovation to create a new drug candidate or plant variety, an improvement on a surgical tool or drug delivery method, or a new genetically engineered mouse or bacterial line4. In contrast, semiconductor, hardware and software industries move faster and have short product cycles so patents quickly become obsolete. Companies in these industries rely on first-mover advantage, trade secrets and product tie-ins5. A company may gain these competitive advantages by hiring highly skilled graduating students, hiring faculty for consulting engagements, speaking with experts at scientific conferences and reading the latest in engineering and computer science journals. What kind of knowledge is the company trying to acquire? Universities generate knowledge and innovation in all forms, ranging from

In addition to foundational questions on project purpose and compatibility, other factors an innovation manager should consider are:

the industry her company is competing in the nature of the knowledge or resource the company hopes to obtain from the university the maturity of the product or service that the university will be able to add value to the length and potential flexibility of the product development timeline how much control the company wants over the research process whether the company prefers secrecy around the project, or is comfortable if the university researcher publishes the results

2.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

Figure 2. U.S. research universities conduct game-changing research in semiconductor technologies. Many attribute the birth of Silicon Valley to the regions vibrant research universities. Photo by Ioan Sameli on fotopedia.

faculty and student expertise, to research materials, to new data, new devices and new methods. Research materials and data from a university lab are typically not patented and if the university researcher is willing to share, can usually be exchanged at no cost freely or with a low-cost material transfer agreement. On the other hand, a university technology that has the potential to form a commercially valuable device or new method will likely require a visit to the universitys technology transfer office if either the company or the university researcher wants to pursue a patent. In addition, even patented university inventions are likely to be in a very early stage of development, and will probably need additional costly development before they can contribute to a profitable product.

3.

Platform, product or prototype. An innovation manager needs to be very clear on the status of his product development pipeline, and what he hopes the university will be able to contribute to it. Companies sell products, yet universities are more likely to create platforms and prototypes. Companies unfamiliar with university research labs are sometimes disappointed to learn that a promising university technology may still be years and billions of dollars away from being ready for the marketplace. Across several companies surveyed that licensed a university invention, only an estimated 7% of the patents licensed were immediately usable in a commercial product6. Companies that have licensed from a university reported that one third of university patents are in a proof of concept phase and the remaining two-thirds

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

were even earlier and nowhere near being ready for a clinical trial or commercial application7. An important upside, however, is that the research that created university inventions is typically government-funded. Unlike a contract research lab, universities are not under strong pressure to recoup the cost of developing the invention. 4. Corporate time vs. academic time. Timing is a major challenge when two different organizations with different cultures and priorities are working towards a single product development goal. If a company is racing towards a hard and fast product la unch deadline or is in an industry in which products must get to market very quickly, a university research lab may simply not be able to move fast enough to be useful. While most of us are intuitively familiar with the concept of academic time, survey research confirms that indeed university researchers take a longer term view of the product development process than do company staff. Students come and go on semester-based schedules. And academic timeframes tend to be longer. Almost 70% of companies, when they tried to integrate university innovation into their product development process, felt that university researchers had a lower sense of urgency than did the companys innovation managers8. A fast-paced, revenue-oriented company needs to consider whether it is comfortable managing its product development process with unscheduled, open-ended inputs from a universitys lab, or whether it requires clear deadlines and predictable, structured deliverables. Priorities and the demands of the product development process. Before approaching a university researcher, a company needs to understand that while the company requires and expects full-on dedication from their product development team members, a university researcher will not be able to put the companys project first. Realistic expectations

are key. University faculty advance their careers by publishing in scientific journals, obtaining grant money and teaching. Their relationships with companies while valued, do not directly advance their career, and therefore, will take second priority. In contrast, company product managers and innovation managers are goaled and rewarded on the success of bringing a product to market on time, and under budget. An innovation manager needs to come to a clear understanding with the university researcher on what sort of time the university researcher will be able to contribute. If the university researcher is slated to play a central role in the planned product development process, a contingency plan for project slippage is essential. In addition, the majority of university research is exploratory, meaning its likely years away from being ready for commercial use. The best situation is when a company has enough flexibility built into its timeline that it can survive a reasonable amount of time slippage, and both sides understand that the university researcher will play a supporting, not a central role, in the product development process. 6. Publication of research results: the value of privacy vs. the value of publication. An innovation manager needs to think through the issue of private vs public knowledge when collaborating with a university partner. University scientists are rewarded on sharing their discoveries as far and wide as quickly as possible. Companies are rewarded on being the first to market with something new or something better. A company wants to be assured that it can use the results of the research, and that these results will not be available to their competitors. In contrast, almost all universities will most universities insist that dissemination of research results is key to their identity and mission and will not agree to keep the project results secret. Some university researchers will agree to a limited amount of delay before publishing,

5.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

but companies are better served if they come in with the understanding that any research they sponsor will likely be shared publicly. If a company is tapping into a university via an informal channel, its likely that the researchers knowledge has already been published or publicly shared at a conference. Where privacy becomes more complicated is in cases where a company and the university researcher have conducted original research under some sort of contractual arrangement. Whether the university researcher is consulting at the company or conducting sponsored research in her lab, the company may not want the university researcher to publish the data for a few reasons. One, if the research uncovered unflattering truths about the companys product. Two, if the resulting data would compromise a companys competitive advantage if made public. And three, if the company wants to further develop the research findings to get a patent further downstream. Companies that are highly concerned with secrecy may not find universities to be the optimal innovation partner. Any reputable university will stand firm on their rule that companies may not suppress the publication of research results, even if they are unflattering to the companys planned product. For example if a company is developing a new material and funds research to establish the materials superior performance, if university researchers determine that the materials performance is actually sub-par, typically the university will not permit the company to suppress these negative results. 7. University policies must be considered. University researchers are bound by university policies and therefore, may not be as flexible as an innovation manager would like them to be. University faculty and students must adhere to university regulations around use of university resources, how they spend their time, and

whether or not they are permitted to opt to not publicly share research data. The chief university policies governing innovation partnerships with companies are the Conflict of Interest Policy, and the Intellectual Property Policy. Many universities require that their faculty undergo lengthy conflict of interest reviews from a committee of their peers before they can participate in a company product development project. In addition, university technologies may also be subject to the restrictions of federal funding agencies and issues associated with being a non-profit, tax exempt organization. Policies vary from university to university and from researcher to research on the appropriate balance between privacy vs. publication. Some companies mandate that as a condition of sponsoring on-campus research, the company have the right to review any planned scholarly publications before the university researcher publishes them. Some review of university publications is typically accepted, but full-on censorship is frowned upon in university environments and most university faculty careers rest on their colleagues trust in their academic integrity. 8. Budget: nothing in life is free. Although universities are technically non-profit organizations, most university researchers will not be able to do work for free. While faculty and students like to have industry connections, its important to recognize that if an informal relationship reaches a certain threshold in terms of time spent or resources committed, the company should consider adding some form of compensation to the relationship. For example, hire the student or faculty member for a consulting engagement, pay their travelling expenses to a conference, or invest in sponsoring their research.

challengeS
Building a productive university/industry innovation partnership requires successfully marrying two distinct

10

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

organizational cultures and agendas. Companies report the following challenges in working with university research labs.

line, can inadvertently give university service units more incentive to prevent, rather than to facilitate, an innovation partnership from taking place.

cultural
1. Universities are decentralized and have many, uncoordinated units that work with industry. Companies are sometimes shocked at how slowmoving and bureaucratic universities can be. Industry-relations functions tend to be scattered throughout unconnected, different departments. A company that attempts to find the university unit that can help set up an innovation partnership may find it challenging to get a single, clear answer to their questions. Instead, an innovation manager may be provided varying interpretation of a universitys policies and procedures offered by internal university units with their own unique missions and agendas. Separate university units manage different parts of the research agreement with the same company. Related to the issue above, the two primary university units that work with formal company research partnerships the technology transfer office and the grants office -- frequently have different managers and un-aligned goals. The universitys technology transfer office is goaled on how much patent revenue it can earn from licensing university owned patents. On the other hand, the grants and contracts office is not goaled on patent revenue, but on keeping the university away from scandal and making sure its honoring its tax-exempt status with careful enforcement of intellectual property clauses. In addition, no unit director, regardless of their function, will risk letting potentially lucrative university intellectual property out the door too freely or cheaply lest they be the unfortunate person that either triggered an integrity scandal or accidentally let the big lucrative invention get away for cheap. Fear of scandal or losing the big home run, misaligned goals, combined with the fact that no university unit is held to a profit/loss bottom

intellectual property iSSueS

3. Sticky university intellectual property clauses and policies. Companies cite IP problems as their biggest challenge in establishing connections to the university9. Sponsored research agreements between a company and a university contain intellectual property clauses that give the university ownership of any patents that result from the project, and may require the company to later negotiate for rights to the patents their research funded. While these IP clauses are viewed as a common deal-breaker in industry/university collaborations, its important to keep in mind that a university must avoid the appearance of being a lab for hire. U.S. universities, particularly publicly funded ones, must manage their sponsored research agreements carefully to honor their 501(c)(3) tax exempt status. When companies sponsor private research in a non-profit organization such as a university, according to U.S. tax law, the university is required to serve the public interest by ensuring that any resulting intellectual property is made public on a non-discriminatory basis. While theres a lot of debate about exactly how much leeway universities have in IP clauses while still remaining compliant with their tax-exempt status, its worth understanding that university research contracts are bound to stringent federal tax regulations. Many universities attempt to meet their tax exempt obligations by offering an industry sponsor an exclusive option to later license any resulting patents from a sponsored research project. A university may request that the sponsoring company license any resulting patents at a fair market rate. While many companies would prefer that a university offer a set, upfront price for a patent at the time the sponsorship

2.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

is arranged, most universities dont feel that doing so would be establishing a fair market value for the patent (another requirement as a tax-exempt organization). Some universities are exploring ways to make the sponsored research process easier by offering one-time upfront payments in exchange for patent rights, or by allowing the sponsoring company to have a no-cost, non-exclusive patent license. Any company considering sponsoring a research project at a university needs to ask detailed questions about the universitys policy on intellectual property issues. While the legal details of sponsoring research at a tax exempt organization are beyond the scope of this article, its important to emphasize that tax restrictions exist. An industry-savvy university will work with you to find a mutually agreeable solution that permits the university to preserve its tax exempt status, but still provides the sponsoring company with some reassurance that they will get a fair deal should they want to later license the patents that may come out of the research partnership. 4. Some university technology transfer offices may like to view themselves as tough negotiators. In cases where an innovation manager has chosen to pursue a license for a university-owned patent, she may discover that university technology licensing staff pride themselves on being tough negotiators. Although universities prefer to not publicly state that earning licensing revenue is a goal of their technology transfer efforts, many are goaled on revenue, especially as state support for universities continues to decline. In addition, a tech transfer unit is under pressure to recoup the costs of patenting unlicensed inventions and to pay for office overhead, so they may push for high license fees and milestone payments. Since negotiations over license terms and fees may become quite detailed, an innovation manager should not be surprised if the license does not become final for 6-9 months.

acadeMic integrity
5. Universities must not appear to be bought by companies. In the past decade, the pharmaceutical industry has been tarnished by high profile university research scandals where data on negative drug side effects was suppressed from publication. Given the health risks associated with unbiased drug safety trials and related research, theres public concern that if universities accept research money from drug companies, university researchers will be pressured to publish data that portrays a particular drug in a positive light. Similarly, theres rising public concern whether funding from tobacco companies results in university research that downplays the health risks associated with smoking. In response, university administrations are tightening up their campus conflict of interest and conflict of commitment policies for faculty. Given the high cost of a scandal around research ethics, universities must tread carefully to not compromise their academic integrity. At the individual level, university researchers must be similarly careful to protect their reputations. If a university researcher is sponsored by a company, the researcher may be perceived of as being bought and therefore lose standing in the academic community or put the university in a negative light. To safeguard the university from unpleasant public scandal, most universities now require faculty to report where their research money comes from, including speaking fees and consulting. If a university frowns on industry sponsorship of faculty research, some faculty may shy away from accepting a companys money, particularly if the faculty member is not yet tenured. In addition, if theres pressure against taking industry money, faculty may feel pressure to limit the number and duration of company-related engagements.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

Figure 3. The majority of commercially valuable university-owned patents have been in the biotechnology and medical device industries. University labs create life saving vaccines and breakthrough drugs such as Remicade (New York University), Hepatitis B vaccine (University of California) and the HIV drug Ziagen (invented at the University of Minnesota). Photo by Horia Varlan on fotopedia.

Lessons learned
The most fruitful partnerships are those in which an innovation manager leaves as little as possible to chance. University collaborations are challenging but if approached correctly, can connect a company to a valuable source of paradigm-changing research and expertise. 2. Depending on its industry, a company may not benefit from university-owned patents. If a company does not need patents or access to university lab facilities and is primarily interested in the expertise of a single faculty or graduate student, consulting engagements with faculty or students may offer a streamlined alternative to a sponsored research agreement or patent license.

1.

Most university connections take place via channels that do not involve formal contracts for the use of university resources of patents. Innovation managers should begin their university relationships informally and get the most value they can out of their personal relationships with university researchers and the wealth of publicly available scientific knowledge.

3.

An innovation manager must have a clear understanding of the maturity of the university technology shes interested in. Even though a university invention is potentially gamechanging and technologically fascinating, that doesnt mean that its commercially viable.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

Early-stage inventions may not develop quickly enough to accelerate a companys product development efforts. 8. 4. A university lab is not the same as a contract research lab. Universities, unlike contract research labs, will not make their innovation partnerships with companies their top priority. In addition, universities are highly skilled at early-stage exploratory research, but less oriented towards incremental, highly applied research. As tax exempt organizations, U.S. universities are beholden to tax regulations that complicate the ownership of intellectual property that arises from a sponsored research agreements.

any business negotiation; the university, like any business, is interested in earning revenue.

5.

Timing is key. Universities work slowly and students and faculty must put courses, scholarships, grants and publications first. Companies move at a different time speed. Unless special dispensations are made, a university research lab will not be able to keep up the pace at which an innovation company takes a product to market. Plan accordingly.

University partnerships may not be cheap. Business people should not pursue an open innovation partnership with a university to save money on the companys R&D budget. Subscriptions to scholarly journals run in the thousands per year. University faculty may charge hundreds of dollars an hour for consulting fees. Universities take 50-60% overhead cuts out of company research grants. Patent licenses involve thousands of dollars in administrative fees, regular milestone payments, and anywhere from 4-10% in royalties from future product sales. Companies are expected to pay the costs of the university patent as part of their license agreement; average patent costs range from $30,000 to $40,00010.

9.

6.

For a company, the goal of engaging in research is to gain a competitive edge. For the university, the goal of conducting research is to publish the results to as many people as possible. Topsecret research projects are difficult to justify in a university setting, particularly as the trend in universities is to refuse to suppress negative research results and to publicly state all sources of industry funding.

A universitys lack of urgency and unwillingness to flex on deal terms in negotiations can be difficult for revenue-oriented business people to understand. Business people can be mystified as to why a university would jettison a highvalue sponsored research agreement over disagreement on the future market value of patents that may never even exist. Especially since universities earn far more money on taking overhead out of company research money than on patent licensing revenue. These apparently illogical behaviors make more sense when you consider that at most universities one unit manages the patent licensing process and a separate, usually uncoordinated unit manages the money that comes in from company research projects.

7.

If an innovation manager decides to formally license a patent or to sponsor research, he should not be surprised if the university attempts to extract as much money as possible. He should approach the negotiation process as

10. If a university proves to be very difficult to work with, try another. Most barriers to successful innovation partnerships with a university are based on differences in long-standing cultural

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

values or university intellectual property policies that inadvertently make the university an unviable innovation partner. Some barriers are impossible to resolve in a short time. One way to gauge a universitys comfort in partnering with industry is to check what percent of its annual research budget comes from companies. Usually, the higher the percentage of the universitys

research budget thats sponsored by industry, the more industry-savvy the university will be; a good starting place is more than 8-9%. An innovation manager should learn to ask specific questions of university researchers as to their boundaries around industry collaborations, and how much freedom the researcher enjoys in his collaborations with companies.

Concluding remarks
Theres no single correct way for a company to partner with a university. One characteristic of open innovation is that organizations may exchange knowledge and resources via a number of many different channels. Companies should weigh a number of factors to determine what sort university relationship is best for them. Companies can approach a university via informal channels or by entering into contractual research agreements or by licensing a patent. In formal contractual arrangements, intellectual property issues represent a challenge for companies following an open innovation model of product development. As universities are becoming more commercially minded in the management of their on-campus intellectual property, innovation managers may need to navigate the formal channels of research and patent contracts.

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Lemley, Mark. Patenting Nanotechnology. Stanford Law Review 58 (2005): 601. Cohen, Wesley M., Nelson, Richard and Walsh, John. Links and Impacts: The Influence of Public Research on Industrial R&D. Management Science 48 (2002): 123. Markman G.D., Gianiodis, P.T. and Phan, Phillip. Full-time faculty or part-time entrepreneurs. IEEE Transactions on Engineering Management 55 (2008): 2938. Terry Young. Original paper, Why is it So Difficult to License Physical Science/Engineering Inventions? Available at http://www.beyondthefirstworld.com/?p=14502 Terry Young. Original paper, Why is it So Difficult to License Physical Science/Engineering Inventions? Available at http://www.beyondthefirstworld.com/?p=14502 Jensen, R., M. Thursby. 2001. Proofs and prototypes for sale: The tale of university licensing. American Economics Review 91(1) 240259. Jensen, R., M. Thursby. 2001. Proofs and prototypes for sale: The tale of university licensing. American Economics Review 91(1) 240259. Ammon Salter, Johan Bruneel, and Paolo DEste. Investigating the factors that diminish the barriers to university-industry collaboration. Persented paper the Summer Conference 2009, Copenhagen Business School. Shane, S. and D. Somaya. The effects of patent litigation on university licensing Efforts. Journal of Economic Behavior & Organization 63 (2007):739-755. Feller, I. University patent and technology-licensing strategies. Education Policy 4(1990): 327334.

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University Partnerships in the Era of University Innovation Merchants a Practical Guide for Companies

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The InnovationManagementForum.com provides a platform and channel of communication exclusively dedicated to innovation management. You are invited to discuss questions that you might have about how to implement the knowledge presented in this article in your organization. This is a valuable opportunity to exchange experiences with the like-minded and with colleagues from around the world. The author of this article will also take part in these discussions.

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Further reading
Apax Partners report. Understanding university technology transfer. 2005 Apax Partners Ltd/The Economist Intelligence Unit. Report available at http://www.apax.com/APAX_TECH_TRANSFER.pdf David C. Mowery et al. The Ivory Tower and Industrial Innovation: University/ industry technology transfer before and after the Bayh Dole Act in the United States. Stanford, California, USA: Stanford University Press, 2004. Weidemier B.J. Ownership of University Inventions: Practical Considerations. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices . MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. 2007. Available online at http://www.iphandbook.org/handbook/ch05/p04/

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