Is US innovation in trouble?

The United States has long set the global standard as the model for innovation and entrepreneurship. But a new report by the venerable Kauffman Foundation, coupled with talk on Capitol Hill to funnel more effort and monies toward a “knowledge economy,” indicate there may be some cracks in the foundation of America’s innovation strategies. Now the United States is examining ways to get better at innovating.

The Kauffman Foundation report, presented on 12 April in Washington to the Innovation Policy and the Economy Summit sponsored by the National Bureau of Economic Research, concluded that the “home run” mentality by universities that emphasises quick and large financial rewards through licensing and patenting innovations actually is impeding the development of new technologies. About 79 per cent of university technology transfer offices listed “licensing for royalties” as their primary objectives, according to the report, with intellectual property protection and management second with 75 percent.

The report recommended universities expand their ways to transfer knowledge such as regional alliances and allowing faculty to act as “free agents” to choose a third party to negotiate license agreements rather than having to go through a technology licensing office.

It said that university leadership must refocus from a patent/licensing model that seeks to maximise income to a volume model that emphasises the number of university innovations and the speed at which they are commercialised. The Kauffman Foundation, based in Kansas City, Missouri, has $2 billion in assets and focuses on entrepreneurship and youth education.

Washington ponders the ‘knowledge economy’

The report comes at a time when developing a strong knowledge economy is weighing heavily on the minds of policymakers and politicians in Washington. In mid-March top US business leaders, academics and innovators talked to the US House Committee on Science and Technology about the critical importance of science and technology to the US economy. The focus was legislation now before the committee to act as a result of the 2005 report from the National Academies entitled “Rising Above the Gathering Storm”. That report focused on the need to improve US economic competitiveness through research, the innovation environment, and better youth and higher education in the sciences, engineering, technology and mathematics.

An earlier report in 2005 on the knowledge economy by the Task Force on the Future of American Innovation, an industry and higher education group lobbying to increasing government spending in maths, engineering and the physical sciences, also warned that “The United States still leads the world in research and discovery, but our advantage is rapidly eroding, and our global competitors may soon overtake us.”

Also in mid-March of this year, an elite group of close to 300 companies and universities submitted to Congress the American Innovation Proclamation, which calls on Congress “…to act quickly on an innovation agenda that will ensure continued US competitiveness, enabling Americans to succeed in the global economy.”

According to the Kauffman report, there are multiple pathways to commercialise university innovation that can provide broader access to innovation, allow a higher volume of deal flow, support standardization, decrease redundancy of innovation, and shorten the cycle time for commercialisation. These models include open source collaboration, copyright, non-exclusive licensing, and a focus on developing the social networks for graduate students and faculty to commercialise all types of innovations.

"We are now at a critical point in which the incentives of some universities may lead to the codification of a system that will inhibit rather than promote commercialisation of technological breakthroughs," said Robert Litan, vice president for Research and Policy at the Kauffman Foundation and a senior fellow in the Economic Studies and the Global Studies programs at the Brookings Institution.

Wake-up call to university heads

Universities are the major driver of innovation in the United States, so the report has generated a lot of discussion, including some initial sensitivity by technology licensing offices.

But Lesa Mitchell, vice president of Advancing Innovation at the Kauffman Foundation, said the report did not aim to criticise technology transfer offices for a focus on big-hit patents; rather, it was aimed at making university leadership aware of the issues and the options of transferring innovations. “We know the technology licensing offices are resource-constrained. We all have an interest in seeing that innovations are more efficiently brought to the marketplace,” she said.

She added, "Universities want to more swiftly commercialise discoveries from their labs. Business and industry want to capitalize on the products and services that result from breakthrough research. Venture capitalists want to pluck the most promising investment opportunities. And we at the Kauffman Foundation want to see that entrepreneurship is cultivated to the greatest extent possible."

According to the report, passage of the Bayh–Dole Act in 1980 was intended to speed up the process of moving technologies from the laboratory to the marketplace by clearing the way for universities to claim legal and, therefore, financial rights to federal government-funded innovations developed by their faculty. But new layers of administration developed that centralised the process, narrowed the view of innovation as only patents, and emphasised revenue generation rather than volume of innovations the university commercializes. The result was a type of monopoly on how to get innovation out the door.

Technologies that may offer longer-term potential or that may be highly useful for society as a whole tend to pile up in the queue, get short shrift, or be overlooked entirely, the report said. Centralised technology transfer offices, once envisioned as gateways to facilitate the flow of innovation, have instead become gatekeepers that in many cases constrain the flow of inventions and frustrate faculty, entrepreneurs, and industry.

Troubling signs

More than half of basic research is conducted in universities, and it is breakthroughs in basic science that have created new industries. While research output appears to be in good shape, the report pointed to several signs it said are disturbing:

• The United States has experienced stagnant to declining levels of R&D investments, decreasing industry-university authorships, and decreasing citations of US science and engineering articles by industry.

• There is some indication that foreign-sourced R&D is being driven by greater access to foreign universities. The type of research being performed in developing countries also is increasingly innovative.

• Industry investments in US university-based R&D have stagnated.

Additionally, the report said successful commercialisation of university research remains largely concentrated in just a handful of universities.

The report recommended four models for universities to consider to get more research out the door faster:

Free agency: Give faculty members the power to choose a third party or themselves to negotiate license agreements for entrepreneurial activities, provided they return some portion of their profits to the university.

Regional alliances: Multiple universities could form a consortium or consortia to develop mechanisms for commercialisation and use economies of scale to lower costs.

Internet-based approaches: Internet-based approaches could help in commercialization. One example is the iBridge Network, a programme funded by the Kauffman Foundation that works with a consortium of universities.

Faculty loyalty: Universities should consider giving up their intellectual property rights, anticipating instead that loyal faculty will donate a portion of their commercialisation proceeds to the university.

The report said that the federal government, as the funding source for university-based research, is in an ideal position to encourage these and other alternatives for commercialising university innovations.

Hopeful signs

Some universities already have been moving to bolster technology transfer. Ashley Stevens, director of the Office of Technology Transfer at Boston University and former vice president for annual meeting and surveys at the Association of University Technology Managers, said, “Universities are trying very hard to integrate their educational missions with technology transfer. I’d like to think the United States is still innovating in innovation.”

Stevens has been teaching a class for about four years at the university on technology commercialisation that alternates between focusing on healthcare and high technology. The class teams students in various disciplines including business, law, science and engineering to assess real technologies for their commercial potential in terms of licensing and/or for venture development.

Kauffman’s Mitchell agreed that Boston University and some other colleges are doing a good job, but she remains concerned that innovation is sitting on the shelf at many universities. “Only about 10 universities have [most of] the licensing income,” she said.

“But research funding is going to more than 800 institutions. The success in California and the Boston area has a lot to do with the infrastructure located outside the university,” Mitchell said, referring to venture capitalists, corporations, and other extensions of the research community that create innovation pods on the East and West coasts of the United States. She referred to a comment by Lita Nelson, director of the technology licensing office at the Massachusetts Institute of Technology, who said it takes a village to commercialise technology.

Kauffman’s message to universities, Mitchell said, is “We’re trying to make university leadership aware of the issues. They could fund alternative models.”